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Whack-a-mole: the long run virus

Summary:
This virus will be with us a long time. Even if the massive national shutdown stops the spread of the virus in the US by summer, there will remain hotspots. Then someone travels, reinfects a city, and here we go again.The virus is spreading around the world. Even if the US stops the virus throughout ...

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This virus will be with us a long time. Even if the massive national shutdown stops the spread of the virus in the US by summer, there will remain hotspots. Then someone travels, reinfects a city, and here we go again.

The virus is spreading around the world. Even if the US stops the virus throughout our country over the summer, it will spread in, say Argentina. Someone with it will get on a plane back to the US in the fall, a planeload of people with the virus will disembark, and here we go again.

Viruses  come in waves. The plague came in waves, cholera came in waves, smallpox and polio came in waves. If you beat it back in one place, it hides somewhere else and then sneaks in and starts again.

What could stop this curse? One, if a large fraction get it, and if immunity lasts a while, then it will peter out. This is the "herd immunity" case. But for herd immunity to work, the fraction who are immune has to be large. For example, if the coronavirus reproduction rate is 3 in a new population, more than 2/3 of the people must be immune to cut that reproduction rate down below 1 where the virus peters out. A person who has it infects 3 others, but two of those are immune. As an over-60 person who doesn't like feeling like I can't breathe, I'm not enthusiastic about that option.

Two, if a safe and effective vaccine is developed, and everyone gets that, we have herd immunity without a wave of deaths in the process.

Until it mutates, and starts up again. That's how the flu and common cold work. The coronavirus is already mutating. Good vaccines are an invitation to a virus to mutate faster around the vaccine.

The coronavirus is nicely evolved. It spreads by air and surfaces, avoiding for example the water pathway that viruses used in the past, but that good water and sanitation have stopped. It is, apparently, very highly contagious. The thing people are cheering -- that apparently so many people have gotten it without symptoms -- tells you that the transmission rate is much higher than it seems. That's also "smart" for a virus. If people get sick right away, you can isolate without needing tests.  It's nicely evolved to exploit our globalized world. If we invent a vaccine, that's an invitation to the virus to learn to mutate faster. The good news, is that  being lethal is not good for the virus. It wants to mutate just enough so that we don't bother shutting down the economy to stop it. Viruses tend to become less lethal over time until we learn to live with them. This can take many waves and centuries.

The optimistic scenario then is that the US stops the virus' exponential spread mid-summer, at a catastrophic cost to our economy and public finances. Then we start playing whack-a-mole with newly energized and battle-hardened bureaucracy so the economy can operate without spreading the virus too much. Perhaps everyone getting on a plane will have to be tested. Areas that are seeing a breakout will get lockdowns and travel restrictions. This will take a competent and coordinated worldwide public health system.

And then the next virus will break out. Evolution hasn't stopped, and the opportunities our globalized world offers to new viruses have not stopped.

The short version of these thoughts: many economic changes we are seeing now will be permanent. Social distancing, a move from restaurants to home, a dramatic reduction in travel, a move away from anything that brings lots of people together, may last a very long time.

Ask yourself, if you are lucky enough as I am to work from home and still have a paycheck, just when and under what conditions are you ready to go back to the office, to have people breathing the air in the seat next to you in the seminar room, to go touch the salad bar tongs, to go give a talk, shake a lot of hands and meet a lot of people, to get on a plane, to stand in a line? The virus may be contained, with aggressive testing and public health playing whack-a-mole, but authorities relenting and allowing business to open, in a highly regulated way. But will you just go back to normal? Likely not.

Yes, people forget, as our government forgot centuries of pandemics and paid no attention to its own many reports. But forgetting takes years. And if corona comes back slightly mutated every year, or every time one person gets on a plane from a part of the world where it's raging, if it remains considerably more frightening than the flu, we will be living like this for a long time.

So, from an economic point of view, the future may not be a V shaped recovery, all clear, go back to exactly what you were doing before.  It may not be a U shaped recovery, needing just "stimulus" and the "aggregate demand" of a big infrastructure project to get going.  (And furloughed flight attendants aren't very good at operating bulldozers anyway.)

A big shift in demand is under way, from the carefree economy to the  permanently social distanced economy. Battling viruses may become a way of life. And reallocating people and businesses to such a big shift in demand will take a lot of time. We will measure a depressed economy, though building new businesses, searching for new opportunities, moving to new places (out of crowded cities) is important economic activity too.

We will need less waiters, but more grocery store workers, and Amazon order fillers. We will need many more people employed in the routine parts of public health -- pointing temperature gauges at people, security guards enforcing social distancing, and lots and lots of cleaning and disinfecting crews. If you were worried about AI taking away all the low skilled jobs, your worries are over. This will in the end be a boon to low skill employment. But just in different places than now. There are lots of opportunities in the virus-protected economy too. Sit down (close to other customers) restaurants will decline. Topnotch takeout will rise.

As important as the government's efforts to keep people and existing businesses afloat are, they also reduce the incentives to get going with this new economy.

And that is really the optimistic scenario. A long war, culminating decades from now in a global economy attuned and adjusted to its invitation to microbial evolution.

There will be a race between biology and memory loss. If the corona virus does not come back in waves, if another virus does not follow it within a few years, memory loss will win,  and the economy goes back to its previous state. Then the next, much more lethal virus, really destroys our economy and society. This is war, but let it not be WWI.



John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

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