The Good news is that Covid-19 is over, for now at least, rates are falling everywhere and excess death measurements reveal that in most countries 2020 has been ‘nothing unusual’ We know that while there have undoubtedly been many failings, lessons have definitely been learned such that even if there is a second wave we are much better prepared. We know it is not an influenza virus for example, that ventilators don’t help but anti inflammatory, anti coagulant and corticosteroids treatments do. We know that children are less affected and don’t seem to spread it much either and we know that the virus has spread almost identically in populations regardless of government policy towards lockdown. The Bad news is that while medical lessons will be learned, political lessons are currently not being and the damage to the global economy is being prolonged by politicians seeking to avoid blame for previous poor decisions. The Ugly truth is that for two decades or more the Precautionary Principle, the idea that we can eliminate risk rather than manage it, has come to dominate official thinking. We have seen it in financial markets and now we see it writ large in the behaviour of governments in repose to this virus.
The short term uncertainty around Covid-19 is improving. This is Good.
The Good news is that Covid-19 is essentially over for now at least. The virus has followed the pattern predicted by the simple Logistic function of exponential growth and exponential saturation and while the media may try and wring more headlines and generate more clickbait out of the daily death-toll, it is clear that the trend is steadily down. There has been much discussion about the different ways of measuring deaths from Covid-19, in particular whether we should include all deaths where Covid-19 was present, even if there were other, often multiple, comorbidities as is done in the UK, or only where it was deemed to be the actual cause of death, as in Germany. In many ways it depends on what is driving the narrative – a need to be seen to have ‘succeeded’ in keeping deaths low or a need to justify continued lockdown – as well as the justification for locking down in the first place. One way around this is to look at ‘excess deaths’, i.e take the total deaths compared to a seasonal average. For ease of comparison we can then convert this to a Z Score, ie rebase the number against that average to allow better time series and cross sectional analysis. This link https://hectordrummond.com/2020/05/04/euromomo-graphs-show-that-covid-is-finished-in-europe-and-that-the-lockdown-didnt-help-the-uk/ shows the stats for all of Europe, while the final chart shows the UK and Sweden
There is a lot of data here, but the broad, good, news is that Covid-19 is not only falling everywhere, but that in fact in many countries, including Austria which was one of the original hotspots, 2020 hasn’t even registered as an unusual year. Of course the thing that stands out to us the most from the charts is that the UK, England in particular, is far worse than Sweden, supporting the view that lockdown policy actually has little impact. The virus does what it does.
There is a clear case to be made that it was other decisions, especially the decision to transfer the sickest of the elderly from hospitals back into care homes, that had led to the higher death rates. New York for example, which followed the same procedure as Public Health England, has death rates far higher than the rest of the US, most of which did not follow this process. In the sense that any subsequent virus would not be treated like this, we would propose that this stays in the good news category. In a similar way, the evolution of the treatment for the virus is a reason to be positive about our ability to handle a second wave – should it appear. As the fascinating and extremely important EMVS critical care Covid-19 management protocol explains https://www.evms.edu/media/evms_public/departments/internal_medicine/EVMS_Critical_Care_COVID-19_Protocol.pdf we now know that this is an inflammatory disease (Cytokine Storm) accompanied by increased blood clotting and low blood oxygen levels. None of these pathologies are novel although the combination is often deadly. The paradigm shift among medics is that they now believe that the majority of the fatalities have arisen from a failure to employ remedies to these three areas – the reluctance to provide anti-inflammatory, anti coagulant and corticosteroid treatments at an early stage of hospitalisation. Moreover, the medics now believe that it was the recommendations by the WHO and CDC – and others – to avoid corticosteroids that led to the multiple organ failures that overwhelmed critical care systems. To make matters worse, we now see that the ‘supportive care’ approach of ventilators actually made things worse, far from calming the Cytokine storm – remember it is the hyperactive immune system ‘storm’ not the virus that is killing the patient – it makes it worse and in fact causes the very ARDS that it thought it was preventing.
It is important not to get caught up in the blame game here. The good news is that unlike most other government failures, lessons have actually been learned. If (and it remains a big if) there is a second wave, then our understanding of what to do – and what not to do, will be a major factor in limiting its deadly effects.
The medium term risks associated with the political response to the virus continue to be Bad.
While the evidence from the good news section suggest that lockdown appears to have had no impact on the virus, it has clearly had a serious impact on western economies. Moreover, the political aspects of this saga remain the biggest concern. Having swiftly taken away basic human rights from the majority of the world’s population, governments are alarmingly (if not always surprisingly) reluctant to restore them. In part this reflects the thrill of power that the bureaucrat enjoys, but also the paralysis of most western governments (see the ugly) in the face of media and social media pressure. The fear of being blamed – albeit unfairly – for any Covid-19 death was what led to the lockdown in the first place and this is being replaced with a fear of being blamed for the economic consequences of the lockdown.
Unfortunately, rather than this fear translating into a rapid reversal of the lockdown it is manifesting itself as the opposite, an ultra cautious approach justified on the basis that it is still really, really dangerous out there. – even though it isn’t. Otherwise people may ask if the lockdown was even necessary. The burden of proof has somehow shifted to those wanting to come out of lockdown having to justify unlocking, rather than to governments having to justify keeping it.
Cowardice asks the question, ‘Is it safe?’ Expediency asks the question “Is it Politic?” vanity asks the question “Is it popular?” But, conscience asks the question, ‘Is it right?” And there comes a time when one must take a position that is neither safe, nor popular, but one must take it because one’s conscience tells one that it is right
Martin Luther King Jr.
In the US, it is also translating into a game of ’Look! Squirrel!” with the Republicans trying to distract from the failures to deal with Covid (a problem for incumbents everywhere) by blaming China. The fact that the Democrats have switched from their previous campaign of “Orange Man Bad” to China Man Bad” is creating a very unhealthy geo-political narrative for the rest of this benighted year.
Longer term, the Ugly truth is that the Precautionary Principal is eliminating return in an attempt to eliminate risk
The longer term problem is the Ugly truth that Western societies as well as Western economies have been systematically undermined for the last two decades or more by the Precautionary Principle, the idea that we can eliminate risk rather than manage it. To say that this has been particularly true in the EU is not to revive the Brexit argument – although it does actually go to the heart of the difference between the Anglo Saxon and the continental approach to things. The anglo-saxon, ‘common law’ approach says, “Whatever is not forbidden, is allowed”, while the continental ‘Napoleonic law’ approach says that “Whatever is not allowed, is forbidden”. In effect under the latter approach you have to ask permission to do anything different, which will quite obviously lead to less risk taking as the risk to the person granting permission rarely generates a reward (to them). In the UK, this version of One Country (Europe) Two Systems led to more and more things being forbidden under the precautionary principle. This is not EU led however, as similar behaviours appeared in the US, rather it reflects the growth in ‘managerialism’ and crony capitalism generally. Companies will always be looking to use regulations to preserve their super-normal profits. The fact that the instinct of the UK bureaucrat was to ‘gold plate’ EU regulations (while many Europeans actually ignored them) undoubtedly fed a lot of resentment of ‘Europe’ that would been better to have been directed closer to home. This tendency was very much in evidence recently with the UK official insistence on a two metre social distancing rule when the little science that there actually is says only one metre is required. The mathematical consequence of this – that each person requires 4 sqm of space in Europe but 16sqm in the UK – seems not to have occurred to the eager British Bureaucrat.
The notion that you can achieve certainty in an uncertain world is very dangerous – as Mervyn King and John Kay highlight in their recent book, Radical Uncertainty – since it leads to very bad policy. Instead of managing risk, we ban things with no reference to cost benefit analysis. We deny people the reward from taking risk. This not only leads to banning people from leaving their homes, but also an irrational belief in the false certainty of computer models – be they on Climate Change or Covid-19 deaths that highlight risk and call for action claiming the need for and the ability to eliminate that risk. It thus makes for bad policy as it leads to decisions such as the one to close all nuclear plants in Germany after Fukishima with all the unintended consequences and costs that that entailed.
In markets, the Precautionary Principle has led to most pension funds and insurance companies being forbidden to take equity risk, instead crowding out investment capital into ever lower yielding government bonds, fuelling government deficits that are largely driven by spending/investment in non productive assets. The fact that local government debt in China has been accumulated funding toll roads, airports, housing and office real estate while in the US it is largely funding pensions for public sector workers is a case in point. Meanwhile, the fact that the majority of companies that still have defined benefit pension funds are diverting cash flow that could otherwise have gone into investment into ‘topping up’ pensions that are underfunded because annuity rates are so low – in turn a function of the fact that those pension funds are only allowed to buy government debt because of ‘risk’ shows Alice in Wonderland levels of absurdity.
Almost all the activists and campaign groups in the West are pursuing the Precautionary Principle, looking to ban things, be it flying, driving, eating meat, using plastic, using pesticides or using vaccines, It is to be hoped that some of the lessons learned from the Covid-19 crisis will help stop and hopefully reverse the direction of ever greater Precaution. In the meantime, investors should focus on the fact that wherever it lands, returns will be destroyed.
