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Bad Bets and the Corona Virus Epidemic

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By Lambert Strether of Corrente.

The headline says “epidemic,” and not “pandemic” because the no authority (for example, WHO) has made the call. (The only pandemic we currently have going is AIDS. So, good news there.) The headline also says “bad bets” instead of risk, because risk is a topic that I should probably avoid entirely, not being a trader or a statistician, hating gambling, and being a humanities major (though I suppose I do have a little “skin in the game” because I depend on a readership, as opposed to being, oh, a college administrator).

I had thought to begin this post from first principles by citing to the master artisan of risk, Nassim Nicholas Taleb, but I was unable to find the exact tweet I wanted to use as a hook, which may have been a stroke of luck because I shouldn’t be juggling with sharp tools.

So what do I mean by “bad bet”? Totally bastardizing Taleb from memory, a “bad bet” — to me — is a bet that you cannot afford to lose. (Walk away from the table if a loss means you lose your house, if you have only one house.) Now, in retrospect, I’m not sure that #COVID-19 is all that “Black Swan”-ish — not at all “highly improbable.” But there certainly have been a number of “bad bets” made. I will point to three: By the individual, by the state, and by globalizing, neoliberal elites.

First, a “bad bet” by the individual (“bad” in the sense that the individual might lose their life[1]). Here is a flower seller in Shenszen, a week before lockdown:

Suppose the flower seller’s decision-making process was a matrix like this:

“Carry on”/”Shouldn’t” is clearly a bad bet — even in the absence of a police crackdown and quarantine — because it violates all the Nineteenth Century public health measures that would save her life: Little social distance, no way to wash her hands, and (just in case she gets sneezed upon) no mask. Of course, if a lot of people start making bad bets out of necessity — say, because they have to sell their labor power to survive — then that’s not only going to amp up the epidemic, but will cause social stability problems for the state, to which we now turn.

Second, a bad bet by the state. From the Washington Post, “Why Wuhan Is at the Center of the Viral Outbreak“:

Wuhan, which branded itself as a Chinese version of Phoenix, is now the epicenter of a SARS-like virus that has sickened hundreds. It’s worth asking why this disease came out of an inland technology hub that boasts a young — and presumably healthier — workforce, rather than the mega-cities of Beijing or Shanghai….

Wuhan has been carefully fostering a reputation as an alternative to Shenzhen. In its latest five-year plan, the city set a target of keeping 1 million college graduates by relaxing its hukou system, the equivalent of a green card that entitles holders to social services such as public-school education.

The high volume of labor migration isn’t to blame, however. A city may well expand in size, but basic public services must keep up, too. Take a look at Wuhan’s fiscal spending. While money has poured into hot areas such as technology research, expenditure on public health has been stagnant. As recently as last June, Wuhan residents complained about poor hygiene at the seafood market, but the municipality didn’t respond. While Beijing and Shanghai host lots of migrants, too, both cities spend more on this sector. Populations there have flattened amid restrictions on labor inflows.

Granted, money is tight for local governments as the economy slows, especially after last year’s $300 billion tax cut. As a result, bureaucrats have to make a tough decision between grants to chip designers and public health. The former serves President Xi Jinping’s Made in China 2025 drive, while the latter minimizes black swan scenarios.

As I said, I’m not sure enormous viral outbreaks are blacks swans; I think a little research would show plenty of Cassandras. That said, it certainly looks like skimping on public health was a very bad bet (besides the suffering and death, a recession in China, or even a global recession, permanent reconfiguration of the supply chain, loss of soft power by China, etc.).

Finally, our globalizing, neoliberal elites. This is a whole post, and probably a whole book. Simplifying absurdly, our neoliberal elites destroyed manufacturing in this country and moved it to China. (And yes, a great swath of the American working class in flyover was destroyed, but there were downsides, too!) Save for the profits they accrued, most of their working assumptions for this policy proved false. China, for example, did not become a liberal democracy; as it turns out, liberal democracy does not automagically happen because there are markets, or capitalism. Nor did China become a happy member of “the rules-based international order.” Rather — and who could blame them — they decided to write their own rules. Finally, a highly optimized supply chain system so complex as to be unmanageable developed to ship consumer goods from China to the world, and to ship raw materials from the world into China. As we have seen in the last few weeks, the supply chain is extremely fragile, and its failure may mean a loss of truly essential commodities to the United States, like pharmaceuticals (although the wealthy will be able to get what they need, so no problem there). And what bad bet did our globalizing, neoliberal elites make? The same as the bureaucrats running Wuhan: That public health doesn’t matter. (An absurdly bad bet, after H1N1, SARS, and swine fever in China, an animal epidemic running concurrently with the human.)

Clearly, a less fragile, more robust system of global public health is needed; one that can take precautionary measures, instead of just reacting to outbreaks as they occur. How to get to that point, however, is little beyond me. We might start from the premise that human life is the most important thing. That may be difficult for our elites to accept. But they might be making a bad bet if they don’t.

NOTES

[1] Of course, there might be reasons to make bad bets: Altruism, self-sacrifice, personal integrity, and so forth. But bad bets they are.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

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42 comments

  1. ambrit

    Thinking back to when my seventh past life was young, I tried to imagine how an elite of that age differs from the elites of today. The main thing that I, with my limited cognition abilities, could come up with was: The sources of wealth for the elites.
    Today, wealth itself has been financialized. Olde guarde elites could retreat to their rustic abodes, hence the English colloquialism for being sent home from college, rustication. There, said elites could weather the storm in relative safety. Distance itself from centres of population, and hence, centres of contagion, was a buffer.
    Today, the wealthy are constantly mingling with the hoi-polloi, out of sheer random contacts related to the heightened mobility of all classes. As the spread of the latest contagions shows, air travel has effectively eliminated the buffering function of geographical distance. The new elites do not rely on manses and demesnes for power or sustenance. They are basically reliant on the exact same supply chains that the “rest of us” are. Paradoxically, “free trade” is a “great leveler.”
    We live in interesting times.

  2. notabanktoadie

    — say, because they have to sell their labor power to survive — Lambert

    And isn’t that amazing since the production problem was solved even by the time of Keynes?

    1. Amfortas the hippie

      thats what worries me the most whenever some new disease emerges from some chinese backwater…on a good day, parents send their kids to school with fever or puke or whatever.
      because we don’t have an affordable method of childcare…and the parents must work or not get paid(and they routinely go to work sick…even at the school)
      with ebola, it’s at least scary and exotic enough to make people change behaviours.
      coronavirus—or flu—sounds ordinary enough.

  3. dearieme

    How many things have to go right if a pandemic is to be avoided? How few things need go badly to land us in the mire?

    In some ways what has dismayed me most is the terrible blunders of the Japanese authorities over the cruise ship.

    I wonder whether San Francisco has given any thought to how to quarantine the people who poo in the streets. Have the politicians worked out what to do if there’s a serious epidemic in Mexico? Will Nancy Pelosi call for a wall on the border to keep infected people out?

    Look on the bright side though: this may be the salvation of defined benefit pensions.

  4. Amy Fargochar

    A year from now, maybe sooner, this will be out of the news and something equally as existentially juicy will replace it in the Breaking News cycle. Meanwhile, it’s business as usual where the rich keep getting richer and the poor keep getting poorer and increasingly there’s no in between.

    2. The Rev Kev

      Maybe so and maybe not which means that it depends. I suspect that because of irresponsible acts like with those two cruise liners, that this will spread throughout Asia at a minimum. Let’s run some numbers here. Coronavirus is killing people at a rate of about 2% of all those that get it. So you are talking about 20,000 dead people for every million people infected. So that is bad enough so now I will crank in a few other factors.

      The Tokyo Olympics will be cancelled which will shove Japan into a bad recession for a start. The world’s supply lines – which depend on the concept of just in time – will fall apart and suddenly you will have all sorts of unexpected shortages on the shelves. What would happen if western countries like America could no longer get a supply of tranquilizers? Do you really want to find out? How about voting? If this is wide spread by this November, you think that millions of people will line up with a bunch of coughing strangers to vote? Will getting people to man the voting stations be a problem?

      And supposing that there is a sever infection in, say, California. You think that people would rebel if Trump said that that State should be quarantined like Wuhan province? Of course if this virus happens to mutate to a more lethal variant, then all bets are off.

      1. ambrit

        It indeed is looking like your worst case scenario will come to pass. Evidence is piling up that this virus can be caught a second time, and that it will be much more lethal the second time. The 1918 flu pandemic went around the world in at least two waves. The second wave was the one with the high mortality rate.
        China is already in the midst of a major production slump due to lack of workers in the factories. It says a lot that the Chinese leadership has decided to take the economic hit rather than risk a full out epidemic in their country.
        As mentioned elsewhere, the “just in time” supply chains are already falling apart in some industries. There is a lag time for these effects to make their full damages known. The process has already begun.
        Watch the R0 (R-nought) of this virus. The R0 is how infective a pathogen is. To stop an epidemic, the R0 must be brought down to below the value 1. It is early days here, but R0 figures of from 2.4 up to 6.7 are being bandied around. No one seems to be citing R0 values of below one, so, it will continue spreading.
        See, the spirit of the times: https://www.youtube.com/watch?v=3vEEh0GF_C8

        1. The Rev Kev

          ‘Evidence is piling up that this virus can be caught a second time’

          When I read that my first thought was “Oh, S***!” I had thought that perhaps that after those infected had recovered, that perhaps they could return to their workplaces with a level of immunity to help save those sagging economies. But if what you say is true then forget it.

          For what it is worth, pandemics tend to come in three waves. The first is not so bad but bad enough. The second is the one that does all the killing because it has mutated to a more lethal variant. Then there is a third that is not so lethal as the virus burns itself out.

          That is why Australia escaped with only 15,000 dead from the 1919 flu pandemic. The variant flu that came back with returning soldiers was of the less lethal third wave by then. Having said that, I never forget that opposite the news-agency in the town near where I live, that there was a tent hospital for flu victims back in 1919.

          Brilliant video that by the way ambrit.

        2. polecat

          I read a comment on TAE … with I can confirm after pulling up loczl Eugene news sources … whereby a Eugene, Oregon confracted cruisehip comedian left a hotel where tourists had been quarantined after disembarking from his ship, hightailed it out of the back entrance of said ‘accommodations’… made it to the Phenom Pen airport, then proceeded to buy 1st class airline tickets for an ‘unsuspecting’ flight back to the states. Said he wasn’t contagious ! Got off at Seatac, and rented a car for the last leg home …

          …. and this is only 1 that came to light. How many others did similar exoduses, avoiding the authorities in doing so ?? So someone dropped the ball, and I’ll bet the authorities are wigging out about now… I know I would !

          Yes, this thing is gonna spread – Everywhere !

          1. polecat

            Sorry for the typos .. these grimmy, smeared, overly sensitive
            touchscreens … crawling with Gaia knows what !! .. are a real pain in the, um .. lung !

        3. fajensen

          In September 2019 we were quoted 6-8 weeks lead time even on cable lugs and screws. And it is not because we only buy a few, we buy pallets worth!

          One can easy put down 6 months of procurement for “off the shelf” items!

          This is new.

        5. margaret beresford

          I just can’t help remembering a no-name economist that declared openly that ‘if just 90 million people simply disappeared’, then the worst affects of climate change would/could be managed.

          Naturally I am paraphrasing, but this arrogant type of comment would never have been tolerated a few decades ago, prior to the global financial sector terror actions that caused the 2008 fraud-based recession. This event coupled with the 8 phony regime changes in the Middle East have become our ‘black swans’, as there have been no functioning investigations or any efforts to stop these profit-for-some based invasions on ordinary global taxpayers…..and so too with those really affected by bilateral global trade deals….

          Please comment because even our insurance protecting our deposits are being up-ended as those black/wrong is white/right?

      2. John k

        Trump has older voters, Bernie younger ones. Younger people are more risk takers than the old, they will be more willing who to stand in line to get m4a than seniors, who already have it.
        Probably most will vote by mail, which might favor trump. Not clear who opens the envelopes.

      3. xkeyscored

        irresponsible acts like with those two cruise liners
        It’s easy to say this with the benefit of hindsight. Cambodia was praised for letting the Westerdam dock in Sihanoukville. And how would the USA, with its fiercely individualistic, gun-toting anti-vaxxer agnotologists, have reacted? Or, maybe, how will they react if/when it starts spreading there?
        It’s a novel virus, meaning among other things we don’t know much about it, with some characteristics, such as a potentially long incubation period and being infectious with mild or maybe no symptoms, that make it good at spreading.

  5. notabanktoadie

    [1] Of course, there might be reasons to make bad bets: Altruism, self-sacrifice, personal integrity, and so forth. But bad bets they are. Lambert

    Assuming that this life on Earth is all there is, a bad bet in itself, i.e. Proverbs 21:21

  6. MLTPB

    I dont suppose it’s possible to mandate vegetarianism for everyone, even for Beijing.

    ‘No meat. And no wild animal meat.’

    That could be public health policy order number 1. And part of Xi’s New Green Deal.

  7. Some Guy in Beijing

    I’m not sure how this fits in with your bet matrix, but I think the government here is definitely trying to hedge.

    It’s obvious that TPB are desperate to keep the economy moving apace. No business has been actually shut down, just discouraged from opening. People are still allowed to go out and go shopping, but not allowed to bring in visitors at most apartment buildings. Most businesses have voluntarily closed, but some bars, restaurants and hotels have remained open (provided they follow some theatrical guidelines like “only four people to a table, take all customers’ temperatures upon entry, keep restaurant patrons minimum one meter away from each “other).

    The lowest caste takes on all the risks of keeping the wheels turning. Most traffic in Beijing for the past three weeks has been delivery mopeds and rideshare drivers, as people are too scared to take the subways or buses (although both remain fully operational). Meanwhile, factories are re-opening across the country. Let the white-collar professional population continue logging in from home.

    Meanwhile, state media organs are harping on about how the economy won’t be harmed, it will be a V-shaped graph, and everything is on track or China to eliminate poverty in 2020, right on target (don’t get me started on that last one)

    Meanwhile, my friend — who is a dedicated party member — has lamented to me that many small businesses will be ruined by this situation.

    Not sure how many of you read and reply to my comments here, as I don’t get alerts for replies.Fortunately, NC is not behind the Great Firewall — though many of the daily links are. Speaking of, VPN access has been severely restricted since last week, after a period where restrictions were eased with the apparent goal of keeping the population entertained. My guess is that the change is to keep remote workers focused on their tasks.

    1. ambrit

      Oh, rest assured, we read your comments closely. Reasonably unbiased reports from “the street” are hard to come by and worth their weight in bitcoin.
      Stay safe. Take no unnecessary chances.

      1. Some Guy in Beijing

        Greatly appreciated. I wish I had more to share but due to my NDA and my visa status, I can’t say much else these days, except that soon I will be Some Guy in Shanghai, and that has a nice rhyme to it

    2. Late Introvert

      Thanks Some Guy. That is very interesting that NC is not behind the GF. Only now critics will use that against us. Can I say that, us? I think I can.

    4. Tony Wright

      Thankyou, Some Guy in Beijing. What you have described sounds like something of a half-assed ,bureaucratic response to Covid19 by authorities. The ” being seen to be doing something” reaction which so often happens in Government agencies, rather than actually being efective. Trust me, I am former health bureacrat who retired early, and one of the several reasons I did so was because of this precise syndrome.
      This approach is also consistent with the observations of a good friend of mine who observed that the official Covid19 infection rate data coming out of China was a perfect fit for an algorithm derived decay pattern – bit like Chinese GDP data. He suggested that , regardless of what actually transpires, this will allow the Chinese Govt. to declare victory and decree business as usual, so as to curtail the economic damage discussed by others on this thread.
      Another rather erudite friend comented that the Chinese Govt. only (and belatedly it seems) put in place the well publicised shutdown measures because of pressure from WHO. Again, this is cosistent with the “being seen to do stuff” syndrome mentioned above.

  8. vlade

    I don’t like your definition of a bad bet (which might be Taleb’s and I’d not be suprised), because by that definition just about anything is a bad bet – crossing a road, for example.

    Also, for “elites” (and I hate this, because it’s putting a vaguely defined faceless enemy somewhere – and a vague faceless enemy may turn out to be [for example] broadly defined “intellectual” when the time comes..) – we don’t know whether it’s a bet where they can lose much yet. After/during black death, the then elites suffered less than the rest of the population (because they could isolate better, and, well, there was just fewer of them). In the aftermath they sort of suffered becasue the work of the peasants became scarcer and more expensive, but it wasn’t really that bad. Unless you were a Jew.

  9. PlutoniumKun

    Thanks for this thoughtful post, it gets to the nub of the issues very precisely.

    Some random thoughts:

    When it comes to disease control, social distance is important. Elites do care about public health when its on their doorstep. The great sewerage system for London was built when MP’s in the House of Parliament could no longer stand the smell from the Thames. I think it matters on a finer scale too. For example, in 18th Century Dublin, the rich elites spent their summers on their country estates, and the winters in their fine houses in Dublin. The rich spent quite a lot of money on health for the poor in Dublin – I daily pass the Rotunda, the first maternity hospital in the world, and a hugely impressive building it is – it was built by subscription from the rich, as were many other fine hospitals and institutions of the time, the city is littered with them. And yet, these were the same elite that casually allowed a million of their tenants to die of starvation in the famine. Is it that they could avoid the poor in their country estates, but could not avoid seeing the suffering of the people as they walked from their townhouses to fashionable balls? It could be – just speculating – that the rise of the financier rich has meant a greater social distance and this is creating a system where they don’t even feel the need to help the poor out of their own self interest, because they simply can’t see the connection. Its entirely possible that the same process has ensured that Chinese elites no longer see what is happening on their own streets (and markets).

    Globilisation – I’m less convinced that this is a key issue. Infectious diseases have travelled from the Orient to the most remotest corners of Europe and Africa long before we had long supply chains. It just took a little longer. The old Annals of Medieval Ireland recorded many plagues, most of which probably originated in Asia – they seem to have struck places like Ireland harder because the low population density and isolation made populations less resistant. However, there is the modern issue of long, extended supply chains. This creates a system which is the very definition of non-resilient.

    One anecdote. A few years ago I was talking to a family member who is an IT/management consultant. He was talking about a hospital where the consultants were brought in to improve the ordering/supply system. He mentioned how the warehouse manager had on his own initiative forced a just in time system on suppliers, meaning that the warehouse was pretty much empty – this was considered worthy of the highest praise (and no doubt it did save the hospital a lot of money). This hospital is the main infectious disease centre for the city – I wonder now if they think having an empty supply warehouse and a dependance on just in time delivery is really such a great idea.

    As for the wider issue of the epidemic. I think we should try to avoid confirmation bias here and blame it all on NC’s favourite bugbears. No doubt neoliberalism and the nature of Chinese totalitarianism is a major cause of this disease, and most particularly the very slow response by the authorities. It seems pretty clear that if Wuhan was properly prepared, this could have been cut off at source. But it may simply have been good old fashioned bureaucratic buck passing – we don’t really know. But there is an age old human problem of prioritising todays and tomorrows meal over a theoretical downside. To go back to the Irish famine, it hit some coastal communities so hard because when the crop first failed, people pawned their fishing gear to get them over the initial loss of food, thinking next years crop would save them. When the next years crop failed, they had no fishing gear to fall back on for protein. So thousands died within touching distance of seas and rivers hopping with fish.

    1. vlade

      I especially agree with your last para. This is why I dislike Taleb – he pretends to be ‘realist’, but in fact he’s full of his own biases and prejudices, often as bad as those he rails against. I’ve mentioned above that I don’t like the definition of a bad bet, and if I was to take it further based on your post, I’d say that it’s because “bad” exists only in a context, and you can never now all the context. As your fishing example shows, we can often optimise only post-hoc, which is not really optimisation, but learning from the past. And even that will never work 100%.

      The problem I see with Wuhan is slightly different. Wuhan is not a black swan. It’s not even a grey swan – it was entirely predictable, and predicted that India/south east Asia is extremely likely to become a source of a viral pandemic (viral more likely than bacterial for a number of reasons). The problem is that a response to such a threat is extremely complicated, because:
      – it requires a coordinated response
      – any efficient response requires a lot of transparency, which comes hard
      – if the virus gets out of hand, any sensible response will have massive economic cost (as we see with China), born mostly by the country affected. This can have again massive social and political implications. Quarantining Hubei is acceptable in China, because it protects the other areas in China. Quarantining whole China would be likely way less acceptable to Chinese (or anyone, really).

      In a way, such a threat is somewhat easier than global warning, in the sense that the danger is imminent and well defined, with reasonable responses in existence. But the multinational coordination and cooperation is still what brings it down. Doesn’t spell well for climate, does it?

      1. PlutoniumKun

        Yes, I never know quite what to make of Taleb. I find many of his insights fascinating and I love his takedowns – in particular of those ‘academics’ stupid enough to compare the Covid-19 virus to the annual flu. His point about the difference between fat and thin tail risks is one that should be repeated over and over, especially to supposed experts (one of my pet theories is that people who are good at statistics are responsible for more stupidity than people who don’t understand statistics at all – because being ‘good at’ as opposed to ‘really understanding’ probability leads to a lot of false confidence in bad data and outputs). His point about thin and fat tailed probabilities is excellent and one I constantly find myself repeating to people.

        But he is so arrogant he does, as you say, ignore his own blind spots and can lead him up blind alleys.

        1. vlade

          Taleb is really good at PR, especially his own. Yes, tail risks are important – and the bit about the climate tail risk is a point I was making for the last 10 years (i.e. the effect is so catastrophic, that spending some small part of our resources _even if it may not help_ is money well spent). But he ignores his own tail risks. For example, take the “skin in the game”, which he says would make beaurocrats/judges etc. more effective. I say nope, it would make it _worse_. Because with sitg, making any decisions would be a fat-tail event to them – because they _have_ to make decisions repeatedly, so the cumulative probability of hitting a bad decision during their career would be catastrophically high even if overall they were making good decisions most of the time. Just to do some maths, assume someone makes a good decision 99% of the time, making one decision a day. Year has about 220 working days, so the probability of them making a bad decision is close to 90% a year. So, they should expect to lose their skin once a year, and that’s with extremely good decision making. If someone is average (50% chance of a good decision), they will almost certainly make a bad decision every week. And so you have a status-quo incentive, because counterfactual history doesn’t exist.

          Skin-in-the-game makes sense if you’re making large one-off decisions, or the cost/benefit (to the person making the decision) are comparable. Otherwise it’s (to use his own metaphor), _forcing_ people to collect pennies in front of a steamroller.

        2. David

          I’ve decided finally that Taleb, like most interesting people, is good when he’s talking about things he understands and knows about. That includes finance, statistics, mathematics, probability etc. but also a surprising (and frankly refreshing) level of expertise on languages, literature and general culture. But he’s much less interesting on politics, economics and government, where he simply doesn’t have the experience and knows only what he’s read, although he’s some times too arrogant to realise the difference. It may be a sign of advancing age, or simply the result of having spent my entire working life in environments where you have to know stuff to be credible, but I have less and less patience with people pontificating outside their own areas of (at least relative) expertise. These days I first look to see who somebody is and what they’ve done, before deciding whether it’s worth reading what they’ve written. Like a lot of his ideas, Skin in the Game is basically a sensible point, but it’s over-generalised, and, if taken to extremes would encourage risk aversion.

    2. Ignacio

      This prompts me to reframe what would be a good/bad bet at the state/government in China and lessons to other places that might see an epidemic rising if things go out of control. This is not the first time China confronts an epidemic (SARS1) but for several reasons the challenge now looks more difficult and I wonder if the previous experience is doing good or harm. The fact that China could control SARS1 may make the leadership confident that they can repeat with SARS2. That has been so far their bet: impose strict measures to the population that in turn result harmful for the economy of many. And as Some Guy in Beijing writes above the harm must being felt most in small business while we (abroad) logically worry more about global supplies. The bets are:

      -Keep measures that ensure spread is controlled (if that is possible) for as long as the disease is confined an virtually eliminated and causing a prolonged an irreversible damage to many small and large business + social unrest.
      -Keep measures that may limit virus spread, though not to the extent of eliminating it, focusing exclusively on identified clusters but trying always to favour the resuming of normal activity. This would cause less damage but the menace of re-epidemics would be there unaltered.
      -Focus on treatment of the disease but not on spread control. Would result in a large epidemic with many deaths but, at least local businesses would follow as usual.

      First bet is what bears most risks because nobody knows if the disease could readily be eliminated even with the most stringent measures and the social risks are as high as an existential risk for the regime. It is quite uncertain that the disease can be completely erased.

      Second bet also bears risk since for as long as new cases arise, foreign commerce could be kept closed for long except some supply chains consider unbearable to live without China. Again, the epidemics could rise again anytime.

      The third bet is the less uncertain. You would pay a toll in the form of many deaths for the first two epidemic years and then it would be reduced to less important than flu epidemics as immune resistance spreads.

      There are only bad bets available. I just wouldn’t go for the first.

      1. PlutoniumKun

        That’s a very good summary of the options. For now, the government is going for option 1, but I understand from following Michael Pettis that there seems a substantial proportion of the senior Party members that favours option 3.

        One note of caution about reports from Beijing – what ‘Some Guy’ says is consistent with things I’ve heard from Beijing too – but I’d be cautious about extrapolating from tier 1 cities to the rest of China. The CCP will do their best to ‘normalise Beijing and Shanghai (i.e. where the richest and most important people live), while doing what they think is necessary elsewhere. Data on pollution and energy use seems to indicate a massive crackdown in the Tier 2 and 3 cities, with all non-essential industry in lockdown. Its not certain whether this is because of orders, or that they just can’t get their workers from the provinces to turn up, or a mix of the two.

      2. vlade

        TBH, I believe we’re past the ability to contain the virus in the world (if Iran has two deaths, it’s very likely it has hundreds of infections. If Africa has 1 detected, again, chances are it has hundreds of infections). We may be able to contain the virus more locally, but even that’s tricky, as most of the borders are fairly permeable really.

        IMO, the real effort should go into treatment, of either the virus or at least the serious symptoms. 80% of cases are mild (ignoring any long-term problems, as that’s really up in the air now), but it has a very large (5%) of cases that require intensive care (multple organ failure, septic shock etc. are pretty much deadly w/o an immediate IC access). US has about 100k IC beds (probably more, as if you deploy military hospitals you’d likely add a few more thousands of IC-equivalent beds). So it could cope with 2m total infections, or about 1% of its population. Flu infects about 60m/year in the US. 5% of 60m is 3m, majority of who could not get IC access. So if the virus is as infectious as flu, unless you can treat it somehow, we’re talking millions of deats in the US alone.

        UK is even worse. It has about 5k (*gasp*) of IC beds, it has one of the lowest EU numbers (and probably even worse now), one fifth of what Germany has for example (on per-capita basis). So if the UK is hit, it will be beyond catastrophe.

        So, again, things should go into stuff like confirmin that the chloroquine (as per yesterday’s links) is efficient – because if it is, it’d be a gamebreaker (it’s cheap, it’s tested, it can be mass-produced quickly as a generic).

        BTW, a good definition of a bad bet to me is that there’s only bad outcome, no matter how you bet (and can’t leave the table).

        1. PlutoniumKun

          The Iranian cases look the most ominous to me. Its been reported that the dead people had no contact with China or Chinese, but may have had connections with Pakistani pilgrims. IIs cold and damp now in Tehran – looks perfect conditions for spreading. If its spreading in Central Asia/Middle East among travellers and pilgrims the results could be pretty catastrophic, there is no way those countries can cope.

          1. Ignacio

            It reflects much of what we don’t know. Iran, Pakistan, Central Asiastan countries, much of India, Laos, Bangladesh, Myanmar, Africa in general, South America in general. There are in place incentives to hide the truth in many countries/provinces/cities.

            As long as pandemic is not declared by the WHO

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