While I don’t think the current swine flu outbreak is all that likely to turn into a pandemic, I’ve had some requests to re-post my article on flu pandemic economics.
Overview
When I was approached to write about the economics of a flu pandemic, my first reaction was “what’s there to write about?” Because in the normal terms that people consider personal economics, such as how to diversify your portfolio, and so on, there isn’t a lot to talk about. Most of the obvious losers (medical insurance companies, hospitals, airlines, freight companies) and so on will either be bailed out by the government afterwards or aren’t quite as obvious losers as they seem. There is, perhaps, an argument for investing in drug companies and medical supply companies, on the assumption of an increase in demand, not so much during the pandemic, but after it. However even that sort of play is dubious, because the reaction to how the system performs in any pandemic situation may not rebound to the benefit of private companies.
But economics isn’t really about the stock market, it’s about how rare assets are allocated. And as such there’s a fair bit we can talk about when it comes to a pandemic.
First let’s lay out the basic scenario. I am assuming a serious pandemic, with all non essential travel shut down for the duration (kiss your vacation goodbye), with both infected individuals and any individuals who have come into contact with them instructed to quarantine themselves, or being forcibly quarantined themselves.
I am also assuming a pandemic large enough to overwhelm the health systems in most countries which get hit. There are not enough beds, not enough ventilators and most likely not enough anti-virals to go around in most countries. There certainly won’t be enough trained medical personnel.
The situation will be much like that in wartime. Government will concentrate on keeping key infrastructure operating. Power, sewage, water, emergency services and food distribution. Distribution of most goods through the system will be discontinued, since people can be asymptomatic and still carriers, it will be decided to keep any cross-country travel to a minimum. Most retail outlets will close, either voluntarily or by government fiat. Food will be trucked either into distribution centers or into supermarkets which agree to stay open and will be rationed out exactly as in wartime. As such a black market will certainly appear.
Preparations
If you think that such a pandemic is likely to occur then the steps you should take are much the same you would take for any natural disaster. Because the banking system will likely be shut down during the crisis (and bank machines will likely not be restocked even if they do not go down due to loss of system personnel) you should have a stock of money at home to allow you to buy whatever you need which is available. If you can arrange to have independent power generation, you should do so. You should have a good supply of canned food and water. Make your estimate of how much you need and double or triple it. Others will not have planned and you do not want to find yourself not being able to help friends, family and neighbors. In addition you will want to have tradeables available for the black market. Money will be a poor second to having goods people want. In this regard stocking up on some medical items such as surgical masks and OTC medicines will be especially wise. I’m not encouraging profiteering, but you will need something you can trade which people want. Badly.
In terms of personal finances, other than investing your money in survival goods like food, water, candles, kerosene lamps and stoves and so on (in case of a power out), and taking some money out for use in buying what goods are available, there’s little to do. Make sure you have an up to date written statement of your assets every month, so that if records are lost you can successfully argue with your bank/broker about what situation you were in.
Most stock markets will shut down for the duration of the crisis, either voluntarily or by government fiat. However some may stay open. The action on those exchanges will be wild, and probably very depressing. Ignore it for the duration. Don’t sell, don’t buy unless you are a trader who knows exactly what you’re doing. Many companies will get bailed out after the pandemic is over, and what the stock price a year from the pandemic will be is impossible to tell.
The most important thing you can do before the actual pandemic starts is make sure your personal relationships with whomever you live with are in good shape, that you have a circle of friends and family you can trust and that you have a relationship with your neighbors and any important people in your neighborhood. Leaving aside personal health factors one of the most import predictors for survival will be the strength of your social ties to others. You may need help. Almost certainly someone in your family or social circle will need help. Make sure it’s there, by making sure ahead of time that people like you and want to help you and can’t bear the idea of you suffering or dying alone.
During…
The primary economic effect of a pandemic will be the slowing of almost all non-related economic activity to a crawl or even a halt. The primary tool of public health in any pandemic situation will be quarantine and the primary goal will be slowing or halting the spread of the disease, not just within a given community, but from community to community. As such both international and domestic trade, including trucking, train and air freight, will take a phenomenal dive. Nothing that is not a necessity will travel. For all intents and purposes the official economy will be driven down to little more that essential services and the shipping of essential goods like food, medicine and goods necessary to maintain essential services.
Don’t expect to be getting a paycheck during this period unless you work in an essential service. Most companies will either shut down voluntarily, be shut down by government fiat, or will operate with a skeleton staff. And don’t expect to be able to cash your check or get money out of the bank – odds are they’ll shut down and even if the ATMs stay up, they likely won’t be restocked with money.
What there will be is a black market. In situations like this there is always a black market. There’ll be people selling food and water and medicines (a lot of the medicine will be fake) and medical supplies like masks. If you want or need any of these things, you’ll either pay though the nose or have to have something to barter. In general I discourage people from getting involved in black markets. But you may not have a choice and if you don’t, then make sure you have something to barter with.
Because public transit will likely be either shut down or operating on a much reduced schedule, consider how you’re going to travel if you need to. For urban types, a bicycle is good, for suburban types, make sure you have gas, because there will be, almost guaranteed, gas rationing and long lines ups for gasoline. Rural types are advised to store gasoline or diesel fuel.
After
The long term effects of a pandemic are hard to judge. It really depends on a few things: how many people die; what the demographic profile of those who die is; and how the public reacts to the disaster.
In a situation with relatively light casualties, say 1% of the population, the world will go on. Everyone will know someone who lost someone, or will have lost someone themselves, but the bottom line, sad as it is, that it won’t make a huge difference. Demand will drop and thus it won’t have a huge effect of employment one way or the other; it’ll reduce GDP noticeably, but not disastrously and otherwise it’ll business as usual with sadness.
However if we have heavy casualties, with the worst casualties inflicted on healthy people between the ages of 20 to 40 the effect will be quite noticeable. It will put a lot of pressure on increasing retirement ages, decreasing retirement benefits (since programs like SS are paid for by current workers) and will mean that countries will have to consider encouraging more immigration. There will be a significant demand shock and GDP will take a big enough hit to be noticeable. Because some things can’t be downsized proportional to the loss of population, the employment situation will probably be better than before (assuming it doesn’t throw us into a depression, which it might).
In either the low or high end casualty estimates the government will either bail out or take over a lot of companies, including health insurers, airlines and freight companies. The worse things are, the less companies will be bailed out. Government revenue will take a significant hit in these scenarios, but especially the heavy casualty scenario, and they will not be able to bail out everyone.
But the real question on long term effect is how the public reacts. If the public health system and the private health system crack under the strain and many people die who could have been saved, then the outcry is likely to be something fierce. Everything will be up for grabs – and it’s hard to say if it’ll lead to more public health care, the scalping of politicians or the weakening of drug patent laws. It could lead to an end of health insurance companies and drug companies as we know them today – or they could turn the tables and claim it was the public system that failed.
But it’s safe to say that there’ll be less travel, less trade and more care taken to ensure diseases don’t spread in the future. Get used to being checked every time you cross a border and it wouldn’t be unsurprising if you saw a lot less foreign goods on store shelves.
The real economic fallout will be determined by politics, not economics per se. The political decisions made will determine the fate of entire industries, of trade and travel for some time to come.
Politics almost always trumps economics.
Nope, I’m not kidding. Frankly the younger they are, the more they should have access, since the younger they are the more likely it is that they shouldn’t have kids. Women don’t have a lot of time to get Plan B, having to run to parents make its very unlikely you’ll get it in time, making either teenage pregnancy or an abortion far more likely.
The IMF put losses at 4.1 trillion today. As a friend noted, that needs a couple of big caveats:
- Losses to this point. Not losses that are yet to occur.
- Losses that people are willing to admit to.
But losses should slow down now that firms no longer have to mark assets to market. Mark to fantasy is very forgiving. As we’ve seen in the last bit, with bank after bank declaring profits, mark to fantasy can turn almost any firm around.
Since I made the comparison between America and Germany today, I have been told that my argument is absurd. Here is my response.
Nuremburg chief prosecutor Ferencz said pre-emptive war against Iraq was a war crime, the same as that committed by the Germans in WWII.
If someone wants to make the case that America is better in kind, not just scale, make it. (I guess one can say “we still haven’t tried to kill an entire racial group even if we did engage in pre-emptive war.” Feel free to do so.)
- Pre-emptive war: Check
- Systematic Torture: Check
- Genocide: Nope
- Number of dead: Much less but still plenty, especially if you’re an Iraqi
But just trying to dismiss the comparison out of hand only tells me that some people aren’t looking hard enough in the mirror. It is understandable, of course. No one likes having the standards they apply to others applied to them.
However, I would find it intellectually honest if Americans were to apologize to those Germans they hung for pre-emptive war and other non-Holocaust crimes and say that those crimes, in retrospect, aren’t that big a deal, and that in any case, America after WWII should have been looking ahead, and not behind. You can also apologize to the Japanese who were tried for waterboarding.
Go ahead and be the first.
I’m having the argument about whether it’s worth prosecuting war criminals in the US for torture. A friend pointed out that we all know that investigations will lead inexorably to Cheney, and probably to George Bush, and suggested that such prosecutions would rip the country apart.
My response is:
If you’re not willing to fight that fight, what separates you from Germans after WWII?
Note that Germans who were in no way involved with the concentration camps were hung for the crime of pre-emptive war.
Bush is a war criminal even if he didn’t know anything about torture.
The US is a rogue state, and until America faces that fact, a lot of people outside the US isn’t going to trust it.
Does that matter?
Maybe. Maybe not.
But America is still a nation that’s harboring war criminals and refusing to deal with it. Whether or not war crime prosecutions will rip America apart, the dead and the tortured cry out for justice.
Are the US a nation of men or of laws?
We all know the answer. America has made its decision. Not just in the case of the war crimes, but in the steadfast refusal to investigate and prosecute the widespread fraud that lead to the currently economic crisis.
America is a nation of men.
And the American experiment is dead. It was a grand one, and there was much to love about it. But it’s done.
Bush put a bullet in it, Obama decided to bury it, and the fact that most Americans don’t care is what signs the death certificate.
Obama refuses to even investigate torture, let alone charge anyone.
Lucas O’Connor cuts to the core problem with Obama ignoring torture:
In the coverage of last week’s tea parties and in attending briefly my local event, I was struck especially by one intellectual inconsistency. The apparently happy coexistence of “Give me liberty or give me death” and “The Constitution is not a suicide pact.” You can get into a strained semantic debate to justify those two notions living side by side, but at a core level their sentiments are opposed. Either there are things that this country fundamentally and necessarily stands for or there aren’t.
I don’t think America stands for anything particularly noble at this point. I’d be happy to be convinced otherwise, so if commenters have ideas, I’d like to hear them.
I should add that on the original question I’m willing to bet that within a couple years we’ll find out that whatever Obama may have said about stopping torture, torture has continued and will continue under the Obama administration. Less of it, doubtless, but still torture.
The other point that needs to be made is that a lot of Americans really don’t see anything wrong with torture, as Ta-Nehisi Coates points out:
All of that said, what really disturbs me about all of this, is that most Americans still don’t think torture is a big deal. I think in the case of Bush, particularly after 2004, we–the American people–got the government we deserved. I think Bush said a lot about who we were post-9/11. I’d like to see some exploration into how to make this torture argument directly to the people. Maybe we can’t. Maybe people really don’t care that much. But if we’re wondering why Obama isn’t willing to press forward, I think it’s fair to also wonder why the people aren’t pressing him to press forward.
Enough Americans voted for Bush, twice, for him to get into office. In 2004 they voted for him knowing that widespread torture was occurring. It wasn’t a problem for them.
America, fundamentally, is not a nation of laws. It is a nation of men. If you’re important enough, you will not be held responsible for whatever you do—whether that’s lose trillions and destroy the economy, start an illegal war based on lies, or torture. That’s just the way it is. Obama and Bush, between them, have made this point crystal clear.
Image by Vernhart
More panopticon news raises the specter of not having any privacy left. First America, following in Britain’s footsteps, will keep the DNA on file of people who are arrested but not convicted.
Next, Britain
The mobile calls, emails and website visits of every person in Britain will be stored for a year under sweeping new powers which came into force this month. The new powers will for the first time place a legal duty on internet providers to store private data.
What really troubles [Brighton-based investigative journalist Duncan Campbell] is the automatic numberplate recognition (ANPR) system implemented by the police across the country to track vehicle tax evaders and criminals, but also potentially to record where you’ve been. Currently it can only be accessed by the police and intelligence services, and you can’t yet do it in real time – when that moment comes, it will be truly dangerous, says Campbell. The system does pose a threat to sources’ anonymity, agrees [David Leigh, the Guardian’s investigations editor]: if you assume that CCTV is watching any public journey, the only way left to meet is through a private journey in your car
So. Closed circuit TV (CCTV) watches everything in public transit and most public spaces in Britain, and license plate scanners track where you’re driving your private vehicle. Anyone with access to those two databases can, in theory, track anywhere you go.
Leigh is right about real time monitoring being a threat; the other half of the threat is recognition software which is able to reliably identify individuals and scan records, whether in real time or not. Once this occurs (and it will), combined with the ubiquitous CCTV that it is virtually everywhere in Britain and spreading in the US, from the second you step out of the door to the moment you return there will be a record of everything you’ve done in public spaces. Since most privately owned stores, malls, offices and so on tend to have CCTV, you will basically be under surveillance everywhere you go outside your house. Even inside your house is not completely off bounds, since shades don’t protect against infra-red and so.
Add this to the tracking everyone you phone, everyone you email, everyone you chat with and every website you visit, and there really isn’t very much that you do which governments, and any major corporation which can get access to the databases, won’t know. If they want to track you in real time, they can do so, and there will be very little you can do to stop it.
Privacy is very swiftly becoming a thing of the past. For whatever reason, Britain has led the way (something else the wonderful Tony “middle way” Blair has to take responsibility for starting), but the new government hasn’t stopped it, and other nations are following suit, albeit at a slower pace.
Universal surveillance is the first step towards a Big Brother state. Folks may scoff at the possibility, but as America’s founders understood, only people who don’t care about their liberties put this much power into the hands of government. Power such as this will be used, and eventually someone will succumb to the temptation to use it to its full potential.
In the meantime, after seeing the last eight years, those who are tempted to say “but if you’ve done nothing wrong, you have nothing to fear”, might want to think again.
As for myself, my business is my business, and no business of some government bureaucrat, whether George Bush or Barack Obama is President.
I want to talk a bit about management measurement. I recently spent a number of years in a good sized multinational, and I watched management trying to gain control through measurement. And mostly I watched as they gained the wrong sort of control; as they crystallized behaviour in ways that lose more from employees than they gained.
When you’re dealing with small numbers of people, simple measurements are all you need, and indeed the time spent measuring can be a simple waste of time. For larger groups, and as management becomes disassociated from the actual work of the organization, measuring is necessary so that management knows what is happening and can modify it. The old saying (which I’m sick of) is that “you can’t manage what you can’t measure.” It’s a statement with a lot of truth to it, but so is this – “you measure what you manage, so you’d better be sure you’re measuring what you want to manage.”
Here’s an example. A friend of mine used to do customer support for laptops. He was measured on how long he was on the phone and how quickly he picked up. If he spent too long on the phone on average, then he was taken aside and reprimanded. These measurements encouraged tech support employees to get people off the phone as quickly as possible, whether their problem was solved or not. Assuming management actually wanted happy customers (ie, that they saw tech support as a way to sell the next laptop, rather than something they had to do as cheaply as possible) then the way to measure this would be to have an automatic survey at the end of the phone call, asking how satisfied the client is. Since there will always be jerks who are never happy with phone support, you set the threshold at a certain percentage of “unhappy” customers and then if someone goes over that you investigate. To keep productivity up you measure phone time and compare to satisfaction ratios and (horrors) investigate individual reps who spend more time than normal on the phone, then coach them individually on how to solve problems with less chit-chat while still keeping the customer happy.
I’m going to discuss five issues related to measurement. The first is the problem of measuring what you can easily measure. Simply put, it may be more difficult to measure some things than others. Management tends to measure those things that are easy to measure. In a call center there are plenty of systems which will allow you to track a wild variety of phone stats, but you can’t measure one CSR helping another with a call. In sales you can measure how many sales a salesman makes and how much they’re worth, but it’s more difficult to measure whether he’s made verbal promises your company will have trouble living up to. You can measure the number of code lines a programmer put out, but it’s harder to measure how easy they will be to maintain down the line.
This is often a systems issue. Whatever the system assists your employees to do, is easy to measure. So if you have a system that presents work items, and which employees close those work items, it’s easy to measure how fast they’re doing them. But what if some work items are harder than others? And what happens to those employees who are taking calls or e-mails you can’t track and are helping customers or other employees with those problems – is that behaviour you don’t want to encourage? Because if you’re measuring only processing times then those who do other things will be measured as less productive. So they stop helping customers, and soon you have a reputation as having unresponsive employees who never want to take time to help people.
And this leads to the second issue, which is what I call Putting your Fingers Down. Another way of putting it, is “you get the behaviour you measure.” If a job involves 10 activities, and you publicly measure only 5 of them, your employees will gravitate towards those activities. It often seems obvious what an employee does. Let’s say you have repair techs in a retail store and you decide to measure their productivity by measuring how many appliances they repair. Sounds good eh? Productivity increases and you’re happy.
Until you start getting complaints that the repair techs don’t want to talk to customers, and that when they do all they seem to want to do is get away from them. You also hear that some techs are taking easy repairs and leaving the hard repairs for others, who put them off, because that boosts their stats. So easy repairs are getting done fast, the hard ones are getting done slower, and customers aren’t getting individual personal attention any more, so they aren’t happy. That worked well!
Which leads to what I call the The Limits of Coercion. Public measurement is a form of coercion. The idea is to measure people and then push them to do better and get rid of the ones who don’t measure up. You put your fingers down and say, “do this!” And you can absolutely do it. Whatever behaviour you are able and willing to take the time to measure, you can and will get. But what you can’t get is positive cooperation. You can’t make people do the extra things. And people resent the wrong type of measurement. The problem is that you as management think you understand the job. Problem is, unless you still do it yourself, you probably don’t. Outside of the sort of jobs that are truly subject to Taylorization, most jobs require a myriad of little tasks and if people don’t do them, the overall job suffers. If you start measuring the wrong specific things then people’s attitude when you pull them in for a talk is “I’m doing fine on the stats you said you want, I don’t have time for the other stuff.”
The other problem is that people subvert the measurements. There are almost always ways to make the numbers come out better than they should, and people will take the time to find them and do them. Which leads to the fourth issue, the question of “Public metrics and private metrics.” Simply put, when you’re setting up metrics you should first find out which metrics track each other; figure out why they track each other; and measure both sets. But one set you keep private and the other is the public set. If the private set starts diverging from the public set then you should investigate if people are fiddling with the public set. Odds are they are.
But the real, final point is that you should be looking for your “Bottom Line Metrics”. In a call center it might be the percentage of happy callers divided by the average time per call. In a processing center I once worked in the VP (a very wise man) used to publicly (I’m sure privately he had a number of measurements which had to remain satisficed) measure only one thing – the average time from a piece of work entering the center to the time it left. He didn’t measure any specific processing times – only how well the center was working overall. If that number went up he’d want to know why, and when he wanted it to go down he let people tell him how they were going to get it down, not the other way around. The center ran very well. When he left his successor started putting his fingers down and both customer satisfaction and employee happiness declined.
In the end you should ask yourself “what are we trying to accomplish?” Then you publicly measure that, and only that. It may seem that you want to do multiple things, but in most cases you can boil it down to one thing – as with the customer service center where happiness was divided by call times. You want people to go away happy after their call with the least time necessary to make them happy. If you can’t break it down then you either don’t understand what the job actually entails (or what your division or company does) or you may need to break the work into different functional groups.
Finally, don’t fall into the MBA trap. As a manager you probably don’t really know what your employees are doing. You probably don’t really understand what is required to do the job well. However unless you’ve beaten them down too hard, or you’ve got a crew of reprobates, most people want to do a good job. Most people want to be able to say “damn, we’re good!” Don’t treat them like untrustworthy children, and you may find that they’re on your side and that measuring only the bottom line, on the minimum, is sufficient. When you go to war with your employees and try and measure every specific behaviour, generally both sides lose.
(Originally published in 2004 at BopNews.)
Good policy is pretty easy to create, and it’s also easy to recognize, but very few people know how to do either, because we so rarely see good policy in the real world. Almost every policy which comes out of Washington, and most other capitals, is sold as doing one thing, but is actually written and designed to serve the interests of those players which have bought various politicians. So, as a result you wind up with “stimulus” bills which don’t include food stamps and unemployment benefits or you wind up with tax “reform” which makes the tax code more complicated and gives most of the tax cuts to the rich. In fact, it’s very rare that any major bill either does what it’s supposed to (No Child Left Behind, for example, has almost certainly done more harm to American education than good) or if it does, that it does it in a way that is efficient and effective. Medicare drug benefits, which were designed to make drug and insurance companies money, not to deliver cheap drugs to Americans, are an excellent example.
Each post in this series will discuss one rule for judging or creating policy. We’ll start with the simplest rule of all:
Don’t Reinvent the Wheel
Sometimes another country, or a state or city, has already solved the problem, or has solved a large chunk of it. The prototypical example of this is health care. Every other modern (and some 3rd world) country in the world has universal, usually single payor, healthcare. Most of those systems produce as good or better results than the US on almost all metrics.
And these countries pay, total, about two-thirds of what Americans pay per person, for health care that covers everyone. A side effect is that GM and Ford price in $1,500 of insurance costs into every car, while Toyota avoids that expense, and continues to eat Detroit’s lunch. Meanwhile, 50% of all bankruptcies in America are caused by health care costs. There is virtually no downside to universal healthcare, even for the very rich (the very rich will always have private clinics. They did even in the USSR.) Every health expert who isn’t paid not to know this, knows that universal care is cheaper, and better.
We know it works, because it has worked in every 1st world nation which has tried it. The reason the US does not have universal healthcare, ironically, is the huge amount of money that could be saved—5.3% of the US’s total GDP. That’s a heck of a lot of money, and a lot of people are getting very rich off of it. And those who make a killing use the money to buy lobbyists and politicians and make sure that 50 million Americans don’t have insurance, another 20 million or so are underinsured, that 50% of all bankruptcies are caused by health expenses, and that US healthcare metrics continue to lag other first world countries. They stop real reform because the pain and suffering and financial devastation of all those millions of Americans is earning them a lot of money. Making a “killing” isn’t exactly a metaphor when it comes to US healthcare.
So we know one big, simple way to fix US healthcare and it doesn’t require reinventing the wheel, but simply learning from what others have done.
But healthcare isn’t the only place where this works—one could, for example, look to how other countries handle, say, drug use, and learn some lessons. Or look to their prisons. Or figure out how much smaller countries than the US are able to have effective militaries without spending 50% of the world’s military budget.
This is simple stuff, the basic rule is familiar to anyone who’s ever wanted to learn how to do something and gone to find out how other people do it, looking in particular at the people who are best, then copying what they do and making minor adaptations to your own situation. When I want to learn how to cook something I’ve never cooked, I look it up. When I want to buy a new car, I look up reviews. When I want to build something, I find out how others who have built something similar did it.
So the first rule of making, and recognizing, good policy is just common sense. Learn from others.
Don’t reinvent the wheel.
(Originally published June 17, 2008, at FDL. Never did write the others in the series, may take it up.)
I’m travelling to Victoria, with a brief digression in Vancouver on the way back. A couple of posts are queued for the time I’m gone, but as my laptop is on the fritz, I probably won’t be checking in much. To all a good week, and I’ll see you all on the other end. I doubt much will have changed economically.
