The awful arithmetic of herd immunity

The ABC has an article quoting University of Melbourne epidemiologist Tony Blakely as saying (approvingly) that the object of the current “flattening the curve strategy is to smooth the path to herd immunity. Key quotes

You don’t go in too hard because you actually want the infection rate to pick up a bit and then hold,” he said.

“What they’re not saying is [that] ‘flatten the curve’ likely means [that] by the time this is over, 60 per cent of us will have been infected, to develop herd immunity,” he said.

The arithmetic here is pretty horrifying. 60 per cent of the population is 15 million so with a 1 per cent fatality rate, that would be 150 000 deaths. The number surviving but with long-term lung damage could easily be over 1 million.

It gets even worse. If herd immunity is supposed to be achieved over 12 months (by which time we are hoping for a vaccine) that would imply 40 000 new cases every single day. If even 10 per cent required hospitalization for several weeks, they would fill every bed in the country.

As for intensive care, we have a total of just over 2000 beds. Even with a hospitalization rate of 1 per cent, they’d be full in five days. And given that 1 per cent is the estimated fatality rate with treatment, that implies triage on a massive scale, which in turn would greatly increase the death rate.

This is simple arithmetic. If Blakely’s explanation of the government’s strategy is correct, it should be spelt out.

How to get to a UBI

Last year I published a book chapter arguing that the first step way to get to a Universal Basic Income was to expand the existing benefit system, increasing payments and removing conditionality (relevant extract over the fold).

This is often called a Guaranteed Minimum Income (GMI). I counterposed the GMI approach to the alternative of making a small payment to everyone in the community, and then trying to increase it over time. I suggested three initial steps

Assuming a ‘basic first’ approach is preferred, how might it be implemented? Three initial measures might be considered:

(i) increase unemployment benefits, at least to the poverty line;

(ii) replace the job search test for unemployment benefits with a ‘participation’ test;

(iii) fully integrate the tax and welfare systems

We are already on the way to taking these steps. Having floated the idea of a separate benefit for people who lose their jobs due to the virus crisis, the government has quickly abandoned it in favour of an increase in existing benefits. This is supposed to be temporary, and, in theory, at least, there has been no change in compliance efforts like work testing. But ‘temporary’ will turn out to be a long time, and compliance efforts are going to be impossible until things return to normal.

In a subsequent post, I”ll look at the alternative of a universal payment which might be increased from the levels in the stimulus package to an amount sufficient to live on.

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Will the virus crisis cause another derivatives crisis ?

I had an inquiry about this and am posting my response

Some relatively good news on this. The volume of over-the-counter derivatives, including Credit Default Swaps, has generally been declining since the Global Financial Crisis. It’s still large and a potential source of danger.  The place to go for detailed information is the Bank of International Settlements. Here’s a press release from late 2017 with a graph for the declinehttps://www.bis.org/publ/otc_hy1711.htmI’ve attached detailed statistical data.


I suspect, though, that the real problem this time will be in more standard forms of corporate debt. The long period of low rates has allowed corporations to load up on debt. This story from Forbes is useful
https://www.forbes.com/sites/mayrarodriguezvalladares/2019/07/25/u-s-corporate-debt-continues-to-rise-as-do-problem-leveraged-loans/#4c55672a3596
And you can get statistical data for the US from the St Louis Fed
https://fred.stlouisfed.org/tags/series?t=corporate%3Bdebt

How to stop the toilet paper panic

Thanks to Big Data, it would be easier to stop the toilet paper panic in its tracks.

Step 1: Announce that anyone holding more than, say, 50 rolls (per person in a household) must hand in the excess to a charity, and notify the government that they have done so.

Step 2: A week later, order supermarkets to hand over the data they collect on purchases, and raid people with large stocks that have not been surrendered. Confiscate the lot, and leave them with an ample supply of newspaper.

Is this a serious option, in view of the associated invasion of privacy? Given the kinds of restrictions on anti-social behavior that are going to be needed, I think it would be the right kind of signal to send. And, if we are scared about the potential misuse of this kind of data, this would prompt some proper restrictions once the emergency is over.

Option value

Like most of us, I’m not expert on epidemiology. But I have spent most of my life studying risk management. In the current crisis, one of the most relevant issue,s and the one that policymakers seem to be ignoring is that of option value. To see what’s involved, consider a policy choice like shutting down bars and cinemas, as opposed to waiting two weeks to see what happens. If, in two weeks time, it turns out the virus has been contained, the ban can be reversed and the loss is that of the two week shutdown,. On the other hand, if the virus spreads through contact in these venues, there is no way of limiting the damage to two weeks.

Nearly all the time, this reasoning favors aggressive early action. The exceptions are actions like cancelling events scheduled some months in the future. Deferring the decision would increase losses in the event of a cancellation, but keep open the option of going ahead if the situation improved.

Sadly, there seems to be no sign that those in charge of the policy response understand this. Rather, the reasoning seems to be to wait until they are sure a risk-reduction measure is necessary before implementing it. That is a recipe for avoidable disaster.

Videopresentation invitation

I didn’t get a lot of responses to this invitation back in 2008, but I’m hoping for more now. I can offer video presentations on a wide range of topics (climate change, water, infrastructure, digital economy & culture, employment and macro policy in general, among others).

As regards technology, it seems that Zoom is state of the art now. I’m hoping to have that set up so I can do it from home, which will allow more flexibility about time.

Repost from 2008

With the release of the Garnaut report, it’s time for me to look again at ways to reduce my carbon footprint. I’ve been trying to reduce air travel, turning down invitations and offering to do videoconferences instead. That’s had some success, but mostly people aren’t set up to handle video, and, by the time invitations are made, there are often arrangements in place that make it difficult.

So, I’m going to take the initiative, and announce that I’m available to offer video presentations on a wide range of topics (climate change, water, infrastructure, digital economy & culture, employment and macro policy in general, among others). It’s easiest for me in business hours (9-5 pm, Mon-Fri, AEST) as that’s when I can use the UQ facilities, but I’m willing to look at alternatives at other times, if there’s someone who can handle the setup.

Obviously, I can only do a finite number of presentations, either in person or by video, so get in with your request.

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