It Pays to be Positive?

Hong Kong will give $645 dollars to all those who accept to be tested for Covid19 and are positive. The number of cases, and deaths, are on the rise in Hong Kong but everything seems under control, given the fact Hong Kong’s population is 7.4 million. Lombardy, where I live, is the home of 10 million people and since the start of the pandemic we have had more than 180.000 cases and some 20.000 deaths.

Yet this is understandably an outcome the Hong Kong authorities want to avoid, and so they are putting in place a system that incentivizes testing in this way. We will see how it goes. Income per capita in Hong Kong is around $ 50,000. I suspect that, everywhere, higher-income people, as they tend to be more exposed to the media, are eager to test no matter what. If there is a certain reluctance in lower-income people to test, perhaps because they fear the consequences of quarantine in terms of their work and their social life, perhaps subsidies such as Hong Kong’s might well counteract this wariness (I suppose it was designed with that goal in mind).

One wonders why Western democracies didn’t try to do the same. After all, they have all distributed a staggering amount of money in the last few months. Linking some of it to testing would not have hurt – though of course if the subsidy was too high you could imagine some opportunistic behavior (including attempts to playing with the test’s results to score positive, to the extent that’s possible). I fear that’s because the testing capacity wasn’t there. Now it seems a similar approach might be enacted in Italy, too. Perhaps in the hope of saving the upcoming skiing season, the province of Bozen, in South Tyrol (a German-speaking region of Italy), has tested 70% of its population (over 350.000 people) in just a few days, with antigenic tests. People there are notoriously very law-abiding, but that’s not the same everywhere. Why should we rule out the idea that a monetary incentive could help?


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Time is Ripe for Innovation in the World of Sovereign Debt Restructuring

By Peter Breuer and Charles Cohen When corporations have too much debt and need to restructure it, creditors often end up exchanging bonds or loans for stocks. They trade the guaranteed payout of a fixed-income investment for an equity position whose return depends on the company’s future results. In other words, investors accept to share […]

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Conspiracy theories can cost lives

In a recent post, I discussed the appeal of conspiracy theories. Some of these theories are probably harmless, as with the belief that the government is hiding evidence of alien contact from outer space. In other cases, however, the theories are quite costly.

I’d encourage people to read this twitter thread from a nurse in Texas. He’s a brief excerpt:


And a recent Yahoo article mentions a similar example from South Dakota:

I don’t know how many people share this view, and indeed it is unlikely that people fall neatly into one of two camps.  Thus one poll suggested widespread skepticism about Covid was increasing:

In February, a little more than a quarter of U.S. adults believed the coronavirus was being blown out of proportion. Now, that number has risen to nearly 40% of respondents.

However “blown out of proportion” can include both those who see a hoax, and those who correctly understand that the risk is fairly low for younger people.  There are degrees of skepticism.

Nonetheless, I’ve see quite a few press reports of people are open to some pretty extreme conspiracy theories about Covid:

The survey conducted earlier this month also asked voters how likely they are to believe that “vaccines for COVID-19 will be used to implant tracking chips in Americans,” another baseless theory that has spread on social media this year.

More than a quarter of voters in the poll, 27 percent, said they thought the statement might be true, while 73 percent said it was likely false.

(Yes, I’m just as frustrated by the vague wording as you are.  “Might be”?  “Likely”?)

I don’t have any solution to this problem, but I do believe that when issues become politicized the problem often gets worse.  On average, people will probably make better choices when we don’t protect them from the consequences of their actions.  Treat them like adults, and they are more likely to act like adults.

At the same time I understand that there are “externality” issues with a pandemic, so it’s unlikely that the issue will remain completely apolitical.

HT:  Razib Khan


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Chart of the WeekIMF Lending Lifeline: Addressing Urgent Financing Needs Brought on by the Pandemic

IMF Blog The human toll and global economic disruption from the COVID-19 pandemic triggered unprecedented demand for financing. More than 1/3 of the IMF’s membership have received relief from the Fund. Since the onset of the pandemic, the IMF has responded rapidly and decisively to meet urgent and exceptional demand for financial assistance from its […]

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Non-linearities in Covid outcomes

Recent trends in Covid-19 fatalities in Western countries are quite unusual, with a wide range of outcomes. We know that these highly divergent results can be explained with a model where long run outcomes are highly sensitive to whether the replication rate “R0” is above or below 1.0 (after social distancing.) I will argue that a country’s complexity plays an important role in determining that replication rate. Obviously the term ‘complexity’ will require some unpacking, but first let’s look at the number of Covid deaths thus far in November:

EU: 34,276 deaths (76.56 per million)

USA: 14,637 deaths (44.12 per million)

Canada: 658 deaths (17.38 per million)

Australia: Zero deaths (0 per million)

New Zealand: Zero deaths (0 per million)

I will argue that in the list above, countries with higher recent death rates are places with higher levels of complexity. And I’ll also argue that a slight difference in complexity can make a huge different in long run outcomes. And finally, I’ll argue that these results can be affected to some degree by policy choices, but mostly for countries near the “tipping point” (i.e. places like Canada and Australia.)

Before going further, let me address the concern that these results only show recent rends, and thus for instance the US has been hit harder than Europe if you look at the entire pandemic, not just November. Or that Australia and New Zealand had some deaths before November. That’s all true, but I’m interested in current trends because I feel they better illustrate the direction to which countries tend to migrate in the long run.

There are many possible reasons why Australia and New Zealand might have done better than other Western nations. For instance, Australia does not have particularly cold weather. But you could say the same about Texas, which had over 200 deaths yesterday. Or perhaps Australia was just lucky; the virus missed this remote continent.

But the Melbourne area was hit by a huge surge in cases a few months ago, with hundreds of new cases every single day during July and August. Perhaps they avoided “superspreaders”, but how likely does that seem when total cases are in the tens of thousands? There’s the “law of large numbers” to consider. How was Australia able to get things under complete control in a short period of time, and why weren’t other Western nations able to replicate that success?

Consider a model where Covid is easiest to control in an isolated village of 100 people, where everyone knows each other. As societies become more “complex”, Covid becomes progressively more difficult to control. But what exactly does the term  ‘complexity’ mean in this context?

I’m open to suggestions, but I’d start with density. Next I’d add the total population of a country. Then I’d add the ease of movement between population centers. Highly populated and dense countries with lots of movement between regions are highly complex.

Then I’d add cultural heterogeneity. That factor may be negatively correlated with civic cohesion, or willingness to cooperate for the public good. You might want to add administrative complexity; are the governmental lines of authority clearly demarcated?

Here’s another way to make the distinction. Travel in New Zealand is both much more convenient and much less interesting than travel in Italy. Italy is complex, while New Zealand is “simple” (no pejorative intended.) I’ve lived in both the UK and Australia, and Britain seemed like a much more complicated and confusing country. Less “legible” if that term has any meaning when applied to countries. I suspect that the UK’s greater density plays a big part in that difference. And notice that while hard hit Belgium is a small country, it’s also quite densely populated and culturally diverse, with a confusing governmental structure.

Although Australia has a population roughly comparable to Texas, and also has some metro areas that are only a bit smaller than Dallas and Houston, it differs in one important respect. The Australian population centers are more isolated than in Texas. In a sense, Australia is sort of like five New Zealands cobbled together—with population centers that are pretty isolated from one another by vast distances. People don’t typically just get in the car and drive from Adelaide to Perth. So when commenters tell me what Australia did differently, such as interstate travel bans, I want you to also reflect on the extent to which these policy differences are partly endogenous, reflecting geography and culture.

You might argue that Canada is kind of similar to Australia, both being continental size English-speaking countries with modest populations. But Canada is more diverse, with a French area that was hit far harder than the rest of Canada, including more than 60% of Canada’s Covid deaths. Right now, the four Maritime Provinces have a grand total of 43 active Covid cases, while Quebec has 13,463. Canada may also have more links to the US, despite recent travel bans.

In this model, even a slight difference in complexity can have big long run consequences if it puts two countries on the opposite side of R0 = 1.0. Canada had the misfortune of having a bit too much complexity to control Covid (or perhaps a bit less effective government policies). Over time, the two countries diverged more and more, with Australia going to zero deaths and Canada to a position somewhere between Australia and the much more complex US/EU regions.

The big policy question going forward is whether in a future global pandemic there is a set of policies that if pursued early and aggressively could get us to the Australian equilibrium. I don’t believe that any one policy could do that for the US or the EU, but I wouldn’t rule out a set of policies in combination. These would include a much earlier travel ban from the country where the virus originates. And a much more aggressive test-trace-isolate regime for the few cases that sneak though the travel ban.

It’s much easier to control an epidemic if you don’t first allow it to get out of control, but (and this is important) Melbourne showed that it’s possible to eliminate a pandemic even after it’s out of control. That’s very good news.

My suggestions might lead to an overreaction to less serious threats, such as the earlier SARS virus from 2003. But in a sense what I think doesn’t really matter. The reality is that future SARS-type outbreaks will be accompanied by some pretty draconian travel bans, at least until scientists can figure out the exact risk associated with the new virus. That’s the new world we live in, for better or worse. And for the few cases that do sneak through, expect countries to try very hard to replicate what Melbourne did.

PS.  I hope it goes without saying that I am not recommending that countries become less complex.  Complexity also confers huge advantages.  It helps explain why industries like Hollywood and Silicon Valley locate in the US rather than New Zealand.

PPS.  When examining the following graph, pay attention to the log scale:



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Is Rand Paul actually wrong?

This Yahoo headline caught my eye:

Rand Paul’s Shockingly Bad Advice To Recovered COVID-19 Patients Fires Up Twitter

The story contained these competing claims:

The senator urged all those who have recovered from the coronavirus to throw out their masks and go out and enjoy public spaces because they are now “immune” to it. This is not true; there have been confirmed cases of reinfection both in the U.S. and abroad.

“We have 11 million people in our country who have already had COVID. We should tell them to celebrate. We should tell them to throw away their masks, go to restaurants, and live again, because these people are now immune,” he told Fox News host Martha MacCallum.

The Centers for Disease Control and Prevention has said that reinfection is possible and that all people should wear masks in public spaces, regardless of whether they have had COVID-19 or not.

It is certainly true that reinfection is possible, but that has almost no bearing on whether Rand Paul is correct when he tells those who have had the disease to throw away their masks.  The question is whether the risk of re-infection is high enough to make mask wearing appropriate, not whether it’s zero.  I don’t know the answer to that question, but this article suggests the risk of reinfection (before there is a vaccine) is very low:

Following the news this week of what appears to have been the first confirmed case of a Covid-19 reinfection, other researchers have been coming forward with their own reports. One in Belgium, another in the Netherlands. And now, one in Nevada.

That doesn’t sound like very many for a world with many tens of millions of recovered Covid victims.

You might think that I’m just quibbling over a minor point, but I have in mind something more serious.  There’s a danger that people use measures appropriate for a very serious crisis even after the threat becomes far lower.

Consider this analogy.  The 9/11 terrorist attack was a severe shock to the US, with nearly 3000 killed.  After this event, we quickly took measures to prevent a repeat.  But then we went much further, taking extremely costly steps to prevent far smaller terrorist attacks, where the costs almost certainly outweighed the benefits.  My fear is that we’ll come out of this with mask wearing becoming somehow normalized, even for medical threats an order of magnitude lower than Covid-19.  For “just the flu”.

People who early on claimed that this is “just the flu” were rightly criticized.  But what is the actual risk for those who have already had the virus once?  I don’t know, but I’m not able to find evidence that the risk is significant enough to require mask wearing.

There are other arguments for having everyone wear masks in crowded stores until we have a vaccine.  It provides “social solidarity”, as customers might feel more comfortable if other shoppers have masks.  They would not be aware that the person not wearing a mask had already recovered.  But if that’s your actual objection to Rand Paul’s statement, then say so!

I’m a big fan of mask wearing and have no ax to grind on this issue.  So if I’m wrong about reinfections, if those who have recovered are still highly likely to get the disease again, then let me know that I’m wrong about the facts and I’ll change my view.


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Is the Absolute Number of Deaths the Only Thing That Matters?


Answer: It depends on the question we’re trying to answer.

In a post about Covid-19 deaths, Tyler Cowen writes:

By the way, deaths as a percentage of population isn’t the right metric here.  Losing 320,000 lives (including excess deaths) has about the same moral import, whether or not there are a billion Morlocks living under the earth’s surface, though that fact would change the loss greatly as measured in percentage terms and of course make it look much smaller.

Let’s start with a question that absolute deaths is the relevant metric for.

A murderer in Andorra kills 10 people. A murderer in China kills 10 people. In each case the victims are innocent.

Question: Is the murderer in Andorra, who has killed a much higher percent of Andorra’s population, more evil than the murderer in China who has killed a much lower percent of China’s population?

Answer: No.

So here’s where Tyler Cowen’s point is correct. And of course, to his credit, he makes clear that he’s talking about the moral point.

But let’s ask a different question: Which country do you want to live in if you know that there’s a murderer at large who plans to murder 10 people in that country? (Assume everything else about these countries is the same so that we can isolate the effect of the 10 murders.)  Would you want to live in Andorra or in China?




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Together Again: Physical Distancing on the Decline

Era Dabla-Norris, Frederico Lima, and Hibah Khan Earlier this year, stringent lockdowns and uncertainty about the severity and transmission of COVID-19 led to the widespread adoption of physical distancing measures across the world. However, as COVID-19 outbreaks began to ebb and lockdowns eased over the summer, measures tracking mobility, such as Google Community Mobility Reports, […]

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Chart of the WeekData Disruption: The Impact of COVID-19 on Inflation Measurement

By Marshall Reinsdorf Lockdowns, working from home, and physical distancing caused people to spend larger shares of their household budgets on food and housing, while fewer people bought nonessentials, like airline tickets and clothing. And with incomes down as millions have lost their jobs, spending on nonessential items will likely remain depressed. The consumer price […]

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Bridging the Digital Divide to Scale Up the COVID-19 Recovery

By Patrick Njoroge and Ceyla Pazarbasioglu عربي, 日本語, Русский  Digitalization has in the past few years enabled developing countries in particular to leapfrog on financial inclusion. Countries like Kenya, Ghana, Rwanda and Tanzania have made great advances in connecting their citizens to financial systems by leveraging on mobile phone technology. Digitalization must be driven by the […]

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