[Edited on 2020-03-22 based on some feedback]
I wrote an earlier piece on COVID-19, arguing that the costs of intervention might outweigh the benefits.
Over the past few weeks we’ve begun to see the ramifications of both COVID-19 and the measures taken to deter it. Overall I think the case has become significantly stronger that interventions do more harm than good, so much so that the harm done by attempting to stop the spread of COVID-19 might rank among the most destructive decisions made by society in decades.
Let’s start by estimating the cost of our reaction. In particular, I’m focusing on:
- Social Distancing
- Shutting down businesses
- Closing borders
- Inciting fear
- Overwhelming hospitals
Although the majority of the focus will be on the impact of shutting down businesses.
There are a lot of threats here and many different ways to estimate each; my goal is just to get a very rough approximation.
Stock markets are down, a lot. The S&P 500 is down about 27% from before COVID-19. Other markets are down even more; non-US markets are down about 33%. Let’s use 30% as the approximation.
Listed company market cap is around $100T, so this is a $30T loss from them. But public companies are less than half of all profit–so we’re actually looking at something in the $50T-$100T range.
What does it mean exactly for a stock price to decrease? Stock prices are the value of the company–not annual revenue. They’re meant to represent the risk-adjusted net-present-value of the company, i.e. what the total future value of it is. So loss in market cap is meant to roughly correspond 1:1 to loss in value.
Another way to approach this would be to assume that stock price declines represent a decrease in NPV of future GDP. GDP is roughly $100T. Using a standard interest rate of ~5% per year (to approximate inflation, interest rates, real estate mortgage calculations, etc.), that means an NPV of roughly $2,000T. A 30% decrease in that would correspond to about $600T.
Why is this so much larger than the first estimate? I think the answer is that profit is less than GDP: in addition to making things companies have costs. So companies are roughly leveraged GDP: super long GDP against short costs. That means that the anticipated % decrease in GDP should be less than the % decrease in stocks.
Generally recessions seem to imply a roughly 5% hit to GDP (split between a few quarters). That would instead give us an estimate of $40T-$100T–back in the same range as our first one.
Costs of Quarantine
Social Distancing has lots of negative effects other than just reduced economic output.
One strong predictor of lifespan is social network; social distancing certainly can’t help there. I’d guess we’d see a significant uptick in depression and anxiety.
There’s also likely to be exercise, which should have a similar impact.
Furthermore, shutting down the world for a few months turns that stretch of people’s lives into a non-productive, socially isolating, stressful period–which is itself a ~2 month cost.
COVID-19 has probably been bad for international relations. There’s animosity between countries, closed borders, and general tension and stress; this likely increases the odds of international conflict and x-risk. I’m not really sure how to estimate that. I think a 0.5% increase in x-risk seems in the right ballpark.
Summary Of Costs
Putting this all together, the costs of shutting down the world because of COVID-19 seem to be on the order of $75T + 2 months + 0.5% increase in x-risk.
What do we buy ourselves by reacting to COVID-19?
COVID-19 Left Alone
To get a baseline: what would happen if the world treated COVID-19 the same as the seasonal flu?
Numbers here are all over the place, ranging orders of magnitude. In general, though, the following seem to be true:
- The average age of death is just over 80 years old
- The mortality rate for healthy young people is something like 0.03%
- The overall mortality rate, if there are no control measures and hospitals get overwhelmed, is likely to be in the range of 1%.
Death Rate Among Young Healthy People
The central challenge here is estimating how many people have actually gotten COVID-19. We can then divide the deaths by that. However, many people have gotten COVID-19 but not reported it, either because they’re asymptomatic or because it’s mild enough that they don’t need to go to a hospital.
This study claims that for people under 30:
- 1.2% of symptomatic cases require hospitalization
- 5% of hospitalizations are severe
- 0.03% of the infected die
If we assume that about 30% of cases are symptomatic the first two bullet points would imply 30%*1.2%*5% = 0.02% of infections are fatal, lining up with the last bullet point.
For what it’s worth, this is in line with the fact that in Italy and Korea, there have been zero deaths under 30, among roughly 10,000 reported cases in each; that puts an upper bound on the rate of roughly 0.10%.
Other studies attempting to estimate death rate among young healthy people have been seriously confounded by the underreporting of non-life-threatening cases.
There are pretty large error bars on the death rate–probably a factor of 4 or so. But one thing worth noting: the overall death rate for people in their 20’s is about 0.1% per year. If one reported all deaths from someone with COVID-19 as COVID dealths, and could detect COVID-19 in peoples’ bodies for about 30 days, then that would result in about 0.01% of infected people in their 20’s showing up as dying from COVID-19. Again, pretty wide error bars–but in the median case this explains half of all COVID-19 related deaths for young people–deaths from other things reported as COVID-19 deaths.
Death Rate Overall
Right now the overall deaths / reported cases is around 4%. This is likely to be a significant overestimate, though, because many cases go unreported–mostly non-fatal ones.
In general, almost all of the country-by-country estimates are going to be higher than the true deaths / infections, but by looking at the lower bound of countries we should get a sense, at least, of deaths / symptomatic cases.
The fatality rates among countries with more than 1,000 cases range from a high of 8% in Italy to a low of 0.27% in Austria. Among high-profile countries with robust testing where COVID-19 has been around a while, the low end seems to be around 1% in South Korea, USA, and Canada. China, which had significant hospital overcrowding, reported around 4%.
(data from https://www.worldometers.info/coronavirus/)
However this corresponds to a total number of world cases around 250,000. That’s less than 1 in every 10,000 people. This is likely a gross underestimate. It seems like, for instance, 5% of NBA players may have COVID-19, and significant numbers of athletes in general. These people are selected, among other things, for all getting tested. It’s pretty hard to know the true infection rate, but I’m guessing it’s around 5-10 times the reported ones. That means that the true death rates are probably around 0.03% – 1% depending on the country and its response.
I’m guessing that 1% is roughly the correct number for deaths / total cases (not just reported or symptomatic ones) if there is basically no healthcare. But again, this will skew heavily in age.
What’s the DALY impact if COVID-19 were to spread uninhibited?
I’m guessing we’d look at an overall fatality rate of roughly 1%, with an average age of roughly 80 and a young/healthy fatality rate around 0.03%. Assuming the average person lives to 90, this would be an average life expectancy hit of 1%*10, or about 0.1 years per person. Given the selection effects on health, it’s likely to be a marginally smaller DALY hit–maybe something like 0.05 years–about 0.05% of a life, or a few weeks.
Again, these numbers aren’t exact, but they’re the right ballpark.
Lost Time to COVID-19
Even if COVID-19 isn’t deadly, it still costs people a week of their life.
I think that this is mostly rolled into the life cost and that also counting for the lost working time would be double-counting. Given the demographics involved I also think the economic cost is going to be more in the “time lost to COVID-19” section than any others; so feel free to add another week of cost per person who gets it if you think it won’t double count.
So the difference between completing curing COVID-19, and completely letting it run its course, is about 0.05% of lifespan plus 1 week–up to 0.07% or so
In practice, we won’t hit either extreme. For one thing even if we do go all-out in trying to prevent the spread of COVID-19, we might fail; enough people might disregard the controls that eventually it keeps growing. We also likely won’t hit 100% of people infected no matter what.
I think a reasonable estimate here is that, if we compare a more consistently applied version of the current world’s response to just not responding at all, we’re likely looking at a swing of roughly 25% of the population. So taking the DALY hit and dividing by 4 we get roughly 0.02% that we’re buying ourselves with the reaction.
So how does the tradeoff look?
On the one hand, it’s $75T + 2 months of life + 0.5% x-risk. On the other hand, it’s 0.02% of DALYs–roughly two weeks.
Well, that’s not very close.
We have to have some way to convert all of these into each other. If we just scale x-risk to current population levels then that’s another 6 months or so per person.
If we look at the US as an example, it’s likely about $15T hit to the US, which would be around $50k per person–roughly the corresponding to 1 year of VSL. (It’s not clear exactly what the correct VSL to use here is; given the demographic in question I’m guessing $5m is the right ballpark.) Other countries are likely to see similar hits measured in GDP % decrease * GDP per capita / VSL.
So I’m guessing that the total here is roughly 1-2 years per person, or about $150T.
On the other side, we have two weeks per person, or about $3T.
Summary of Tradeoffs
So I think the two sides here are off by roughly a factor of 50. The cost to the world’s current approach, compared to just ignoring COVID-19, seems to be two orders of magnitude higher than the benefits.
In the end, I think the decision isn’t close. The world is making a mistake by reacting as strongly as it is to COVID-19.
One could argue that the best approach would instead have been to do what Hong Kong, Singapore, and Taiwan did: to stop the spread early and aggressively, and then relax a bit.
But I think that’s missing the forest for the trees. If the cost of intervention is 100 times the cost of the disease, then the advantages of early action are just a distraction from what really matters, which is not overreacting.
These numbers are all really rough, and I don’t fully believe them. But I do think they’re close enough to convey the correct message.
The health impact of COVID-19 will be relatively small. The collateral damage done by the world’s overreaction to it looks like it will be about as bad as the 2008 financial crisis, and much worse than nearly any other thing to happen to the world since World War 2.
I think this has some pretty damning implications. I think that generally promoting social distancing is extremely damaging to the world, and that governments are creating a recession by their response to COVID-19, and that the most detested responses are, while unempathetic, probably correct.
What Are People Thinking?
This is starkly different from the prevailing narrative. I think the prevailing narrative is mostly just wrong. I think there’s been a huge positive feedback loop: once it became clear that the politically correct response was to mandate extreme anti-COVID measures saying otherwise became taboo.
I think one of the most compelling cases here is “flattening the curve”. As far as I can tell, the idea is really bad. Essentially it involves accepting that most people will get COVID-19, and then closing down the entire country for months anyway, and letting the nightmare extent potentially for years, all for relatively modest wins. It seems like an extreme case of people being backed into a corner, trying to salvage the “we should quarantine” narrative in spite of the evidence that at this point anything short of a full lockdown will be both very expensive and not very effective.
Deceptive headlines abound. Alarms are raised because more men die than women (alternatively fewer women die), The US has a higher mortality rate than some other country (alternately that country’s rate is lower), and that young people aren’t invincible (actually they basically are according to data from South Korea, Italy, etc.). Companies are lambasted for mandating unpaid leave even as countries are praised for mandating those companies to close their businesses. Airlines are ridiculed for asking for bailouts from governments that made their business temporarily illegal. We praise doctors who advocate lockdowns and blackball those advocating normalcy, and then remark that most public calls are for lockdowns. (Off the record many epidemiologists will call the world’s response a massive overreaction, but few are stupid enough to say so publicly.)
We are constantly calling public opinion an echo chamber. Why is the current consensus exempt?
I think there’s one more piece to this. The “chattering class”–the people whose opinions fill the center-left space on Facebook and Twitter–tend to be upper middle class, and sit in a sweet spot where COVID-19 affects them less than just about anyone else. It’s largely people with enough personal runway and a strong enough CV that there isn’t any real fear of serious consequences from losing a job or missing a few paychecks; simultaneously it’s people who don’t tend to have huge stakes in businesses that are tanking.
What Should We Do?
Well, my first answer is: nothing is 90% of the way to the right response, so I’d settle for that.
But in terms of effective interventions:
- A $1T prize for the first company to create a COVID-19 vaccine that works for at least 1 year and costs no more than $100 per person.
- If flattening the curve really is the way to go, a $250b package towards building more ventilators and hospital beds and training people to use them.
- Massive funding for hand sanitizer, masks, COVID-19 home test kits, etc.
And I do think those would probably be good! But more important is not shutting down the world.