Map of life expectancy at birth from Global Education Project.

Sunday, February 23, 2020

Doctor Doom prognosticates again

Nouriel Rubini is the economist nicknamed "Dr. Doom" because he correctly predicted the 2007-2008 financial crisis and the resulting Great Recession. Now he's at it again. This time, however, it's not just one thing. He's seeing geopolitical stresses, notably the quadruple confrontations of the U.S. with China, Russia, Iran and North Korea. He's seeing the coronavirus. He's seeing natural disasters associated with climate change. I don't know what he's on about with the abnormal seismic activity and undersea volcanoes, but he's got enough to legitimately worry about.

The situation regarding coronavirus is becoming increasingly clear. It seems to be pretty readily transmissible and it's already loose in several places. If anybody were to ask me I would say that a global pandemic is pretty much inevitable. But . . .

The efforts to contain the virus are likely to be far more damaging the virus itself. It's looking like the calculated case fatality rate in China is much too high, because they're only ascertaining fairly seriously sick people. And most people who die are already sick and would be susceptible to any respiratory illness. There are, sadly, exceptions, but that is true with influenza as well. If this does sweep the world it's going to make a lot of people immune without getting sick; give a lot of people a cold for a week or ten days; and lead to a small number of deaths in the overall context.

People who are not public health scholars and professionals have a hard time with this, but you have to understand that it's a big planet. Thousands of deaths is actually not a big deal. In a line graph of annual deaths WWII is barely perceptible, although the 1918 flu pandemic makes a very noticeable spike. This seems very unlikely to be like the latter however. Because we know that 100% of people will die eventually, what matter when assessing the burden of disease is not deaths, but rather years of life lost. Respiratory infections that finish off people who are already dying are not a crisis.

If I am right and it's too late to stop widespread transmission, then the cost of travel restrictions, isolation and quarantine, shutting down businesses and schools, is going to vastly exceed the direct cost of the virus. These drastic measures actually contribute to deaths because they stop people from getting medical care, they reduce resources available for other medical and public health measures, and people whose saving are seriously eroded by a financial crash will have their lives shortened by any number of means. Overreaction is likely to make this much worse than it has to be.


Alexander Dumbass said...

Most real opportunities are no secret. Anyone could have picked up rental properties at bargain basement prices after the passage of the Tax Reform Act of 1987 or the real estate mortgage crisis of 2007-2008 and sold them 5 years later. Anyone could have picked up stocks when the DOW dropped to 7,000 or so in 2009.

None of these were secrets.

This corona virus threat may turn out to be one of those events that creates change. If it does create big change, it will be no secret.

Cervantes said...

Well yes but Rubini is talking about the future, not the past, and his point was that lots of people seem to be in denial. The market tanked the day after he published the essay. Hmm.

Alexander Dumbass said...

The market did not tank on Rubini's essay. The market tanked because is was overbought and all it took was an 'incident'... a good reason be be bearish. The possible pandemic of the corona virus epidemic and the resulting chaos that would bring to the world economy, especially centered in China, was a good enough reason.

Today the market followed through with another 879 point slide bringing the value loss in the last two days to almost 7%.

Does any of this matter to anti-capitalist socialists?

Cervantes said...

Dumbass is right. I didn't say that Roubini caused the market crash, I said he predicted it. That the market was overbought and only needed a trigger to be bearish is exactly what he said. That's the whole point. And I guess I was pretty smart to link to him at that moment too.

I don't know any anti-capitalist socialists so I can't answer your question. But to critics of actually existing capitalism, of course this matters.

Alexander Dumbass said...

Well, that was pretty easy. Roubini's no Svengali. Everyone knew the market was overbought.

Even I knew it, but like everyone else, I didn't have the cajones to bet the fundamentals when sheer market exuberance can put you in the poor house (guess how I learned that!).

It takes a spark to start a fire. The corona virus and the threat it posed was that spark.

If this gets really bad in this country, DOW could retreat another couple of thousand points, easy...maybe more.