The awful arithmetic of herd immunity

John Quiggin17 Comments

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.

Crisis and the case for socialism

John Quiggin64 Comments

The coronavirus crisis is very different, at least in its origins, from the Global Financial Crisis. Both differ in crucial respects from other crises in living memory, notably including the Great Depression and World War II, as well a string of severe but not catastrophic crises that have affected the global economy and society. But thinking about them all together brings home the point that major economic crises are quite common events. The crisis of the past took each took between five and ten years to resolve. Even if the current crisis is shorter, we can draw the conclusion that crisis of one kind or another is not an aberration, but a regular occurrence in a complex modern society.

What they have in common is that the result in a need for urgent government action. The greater the capacity and willingness of governments to act to protect society from the economic damage associated with such crises the better, in general, the outcome has been.

The most immediate requirements for dealing with a crisis are a strong and comprehensive welfare state, and strong protections for workers. In the aftermath, we need a substantial economic role for government, including control over infrastructure and financial enterprises and public provision of services like health and education. In short, we need socialism.

(More to come soon!)

How to get to a UBI

John Quiggin8 Comments

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 ?

John Quiggin2 Comments

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