30+ million out of a job

A one-size-fits-all policy, even at the state level, has been a mistake from the beginning.  Instead policy should be favoring decentralized mechanisms over direct control and ensuring that the chosen regulations deliver more net benefits than less stringent alternatives.  It is too bad that governments are causing so much harm at this critical moment by ignoring these longstanding principles of government regulation.

Expressed at an annual rate, the shutdown is already costing $7 trillion, or about $15,000 per household per quarter.  Employment had already fallen 28 million by April 1 and continues to fall as the shutdown continues.  Not only is the shutdown costly, but it is a cost-ineffective way of reducing the health harms from the virus.  My recommendation is to achieve close to, but somewhat less, of the mortality reduction at dramatically less cost to hundreds of millions of workers, consumers, and business owners.

Here's why I think at least 30 million are out of work as of today.  First, that's where I expected we would be headed based on the fact that workdays as we know them have been eliminated.  Second, as of the week of March 29-April 4 (hereafter "April 1"), the employment rate of persons aged 18-64 fell from 0.738 to 0.607.  Assuming conservatively that the same percentage decline (17.8%) also applied to persons 16, 17, or 65+ years old, the decline is 28 million people as of April 1.

There is no reason to believe that the decline (an average of 1.3 percent per day for two weeks) was finished by April 1.  The stay at home order for Texas and Maine was not until April 2.  FL, GA, MS: April 3.  AL: April 4.  MO: April 6.  SC: April 7.  Even if the decline were only 0.2 percent per day over the two weeks beginning April 5, that would put the cumulative employment decline past 30 million.

Shutdown reduces the flow of GDP by 28 percent

New data from Alexander Bick and Adam Blandin suggest that the flow of real GDP is 28 percent less than it would be under normal circumstances.  Using two entirely different methods, I previously forecasted 25 percent and 26 percent.  Below are the details of my calculations from Bick and Blandin.

Bick and Blandin (2020) find that working hours per working age adult circa April 1 declined 27 percent from February.  Moreover, among those working in February 2020, between 59 and 61 percent are now absent from their workplaces either due to not working or working at home.  If half of the capital in those workplaces is idle and not replaced by utilizing capital located in home offices, then capital utilization has fallen by 30 percent and GDP by 28 percent.

The GDP calculation assumes production-function exponents of 0.3 and 0.7, respectively.

This brings my estimate of the welfare cost of shutdown, relative to a normally functioning economy, of $7.1 trillion per year or $233 per household per workday.  For this purpose I use the average GDP estimate from the "input method" cited above and the output method I used earlier.

What's Wrong with this Reasoning?

1. FACT: the population density of NYC is 27K per square mile
2. FACT: the population density of Indianapolis is 2K per square mile
3. FACT: COVID-19 was able to be introduced and spread in a city with only 2K susceptible people per square mile (Indianapolis is such a city).

Conclusion: COVID-19 will continue to spread in NYC until either (i) the number of susceptible people falls to 2K per square mile or (ii) a vaccine.  i.e., until more than 90% of NYC has contracted and recovered from COVID-19.  [This conclusion says nothing about time frame; i.e., it could be years]

Does the conclusion follow from the three facts?

Where did the fevers go?

This website tracks real time fevers using thermometers connected to the internet.  A first glance at their map suggests to me that:

• fevers spiked two week ago.
• The timing of the spike is similar across the country,
• but magnitude greater in those regions with more COVID-19 deaths.
• The time difference in the peak across counties is at most a few days.

Does this mean that the rest of the country is not significantly lagging NYC?  Or that COVID-19 fevers are a small fraction of all fevers?

What's Happening with Drug Abuse?

I don't know where to find very recent counts of drug overdoses.  Below is alcohol sales, showing that the sales increase is greater for higher alcohol content (up to 75 percent for spirits).

If the increase in drug overdoses were also 75 percent, that would be an increase of about 1000 fatalities per week.

Is a Shutdown an Overreaction?

60,000 - 80,000 Americans died from the 2017-18 flu, without exceeding the capacity of ICU beds.  This flu was experienced around the world.  Not a single country found it worth shutting down their economies in that situation.

In 2020 the forecast is that about 90,000 Americans will die from COVID-19, including some deaths due to insufficient ICU capacity.  Shutting down "nonessential" businesses is now the norm.

This forecast comes from the Institute for Health Metrics and Evaluation IMHE at the University of Washington.  Unlike me, IMHE are not amateurs with contagious disease time series.  With "about 500 statisticians, computer scientists, and epidemiologists on staff, IHME is a data-crunching powerhouse. Every year it releases the Global Burden of Disease study...."

At what point is a reasonable person allowed to ask why the economic policies of 2017-18 and 2020 are so disproportionate?

Some people will say that the 90,000 would have been much higher without shutting down the economy.  At what point can a reasonable person follow up with "Why were ALL of the 2020 costs, which were in the $ trillions, taken on the economic (and civil liberty) side of the ledger, and essentially NONE on the mortality side?"

An example of 7(a) perversion

Let's say that you have 700 employees in the prior year, earning an average of $50K.

If you continue that between now and the end of Q2, Title I of the 2020 CARES Act will give you nothing.

BUT if you fire at last 201 of those employees, and THEN apply for a $10 million 7(a) loan, the entire $10 million will be forgiven at the end of Q2 as long as you keep enough of the 499 employees that remain.  Moreover, you pay no business tax on the forgiven amount.

You are eligible for the $10 million loan because your prior year payroll was over $10 million.  You are eligible for $10 million forgiveness because your payroll still exceeds $10 million.

In effect, the Federal government has paid you $50K per employee, tax free, to fire people pursuant to a provision called "KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT."

The SBA could fix this problem when it issues guidance around the CARES Act by setting a time frame sufficiently far in the past that it cannot be manipulated.

Has Lombardy Reached the Flat Part of the Daily Death Curve?

From various sources.  I don't have exact numbers before March 15, but the first half of March averaged closed to 100 per day and February's daily average was less than one.

[updated through Apr 3]

Notes on 2020 CARES Act, in reading order

Note that this law is just one of multiple new COVID-19 relief laws.  These are my notes on the labor market provisions in the law, which are all of Titles I and II, and parts of Title III.

Title I KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT

• A.k.a., 7(a) loans
• "Loans" to small businesses that maintain their payrolls
• Payroll does not include any payments to employees making $100K+ annually
• The loan amount is capped by the prorated amount of payroll for the prior year
• The loans can be forgiven in whole or part
• The forgiveness is capped by the minimum of
• $10 million;
• the sum of ongoing payroll, rent, utilities, interest;
• the loan amount (itself capped at 2.5 times average monthly in the prior year).
• The forgiveness is free from business tax.
• For this act, a small business is less than 500 employees.
• The date of this determination is crucial.  If the SBA Administrator is not careful with its guidance, it could be interpreted as the date of the loan.
• For businesses with more than 500 employees, this act would be a MASSIVE SUBSIDY TO FIRING enough people to be at 499 or less before making the loan application.
• Firing employees making more than 100K is most advantageous under this title.
• The SBA Administrator's definition will also affect expectations about how extensions of this Title will be implemented.
• Another part of this law will pay the fired employees, perhaps more than they were making as workers.
• Nonprofits are eligible too.
• Ends June 30, 2020
• Businesses with significantly less than 500 employees have a zero marginal cost of adding employees.  However, June 30 is too soon to make much profit from hiring.

Title II

• Section 2102.  PANDEMIC UNEMPLOYMENT ASSISTANCE
• A new program making payments to unemployed not covered by traditional unemployment assistance, such as someone who
• quit their job, or
• has no work experience.
• This program expands the UI-eligible pool by a factor of at least six.
• Normal pool is a subset of persons laid off from work, which should be less than 20 million.
• With Section 2102, the pool is any adult not on a full time payroll, which is at least 128 million (259 million adults minus Feb 2020 full-time employment of 131 million). 
• See Section 2104 below ("$1000 a week") and then calculate what the Treasury would spend on that section if, say, 80 million people were collecting $1000 per week.
• Program lasts through Dec 31.
• Weekly benefits last 39 weeks plus the duration of any extension of traditional UI.
• If a state were to deny UI benefits to a person failing a drug test, this program would pay them full benefits at Federal expense!
• Section 2103.  EMERGENCY UNEMPLOYMENT RELIEF FOR GOVERNMENTAL ENTITIES AND NONPROFIT ORGANIZATIONS.
• The Federal government takes over the UI "contributions" of government and nonprofit employers through Dec 31.
• Background: Normally, all employers make contributions that partially reflects their history of layoffs.  In effect, part of a UI benefit is paid by the employer who fired the person.  This is a normally a tax on making layoffs.
• By eliminating such contributions, the new program is a SUBSIDY FOR LAYOFFS by government and nonprofit employers
• Section 2104.  $1000 a week!
• Not to be outdone by the 2009 "stimulus" law, which paid a $25 weekly bonus to UI recipients, the 2020 EUC program pays a $600 weekly bonus!
• This bonus goes on top of the normal UI benefit, which averaged $378 per week at the end of 2019.  i.e., get paid $1000 per week for NOT WORKING!!
• It lasts through the end of July.
• $1000 per week is more than most full-time workers get paid for working.
• This disincentive to work and subsidy for layoffs is massive and not even close to any historical precedent.
• Section 2105.  Federal financing of the first week of unemployment.
• As with Section 2103, this is a subsidy for layoffs but for all employers.
• In contrast to Section 2103, this section only pays for one week.
• Section 2106.  Clean up of the previous coronavirus law.
• Section 2107.  Pandemic EUC
• Like the 2009 EUC program, this EUC programs provides Federal money to continuing paying UI benefits after state benefits have been exhausted.  It is limited to 13 weeks, putting the total duration of UI benefits at 52 weeks.
• Beneficiaries have to be actively seeking work.
• This will means some VERY long lines to apply for jobs, because standing in such line is both (i) proof of actively seeking and (ii) pretty safe protection against a job offer that would end UI.
• It lasts through the end of the year.
• Sections 2108-2110.  Part-time UI (a.k.a., "work share")
• Pays Federal benefits to part-time workers whose hours were reduced from full time.
• It lasts through the end of the year.
• Take a worker earning $800 per week full time.  With the CARES Act, the employer has two more options
• Lay her off so she can get $1000 per week from UI.
• Change her to half time so she can get $400 per week from the company plus another $500 week from UI, for a total of $900 per week.
• Section 2301.  Employee retention tax credit.
• Businesses with 0-100 full-time employees
• Section 2301 is a 50 percent tax credit for wages paid to any employee.
• Businesses with 101+ full-time employees
• Section 2301 is a 50 percent tax credit for wages paid to employees on the payroll but not at work due to COVID-19.
• For these employers, Section 2301 is a tax on work because employer has full payroll tax only when the employee works (as opposed to being on the payroll).
• Regardless of size, the employer must have gross receipts that are sufficiently low compared to the previous year.
• The credit applies to wages paid through the end of the calendar year, and cannot exceed $5000 per employee.
• These credits are fully refundable and administered through the payroll tax.  Nonprofits can get them too.
• Regardless of business size, Section 2301 is a step-function sales tax.  i.e., as soon as sales exceed a threshold, the payroll tax jumps discretely.
• Sections 2303-4.  Symmetric treatment of business gains and losses.
• Background: As an business' net income changes sign from year to year, so does her after-tax cost of payroll because the deduction of payroll from business income has tax value only in years with positive net income (subject to some complicated carry forward and backward provisions).  This normally gives employers an extra incentive to stop paying workers during a loss year.
• These sections by themselves, increase the incentive to have payroll during a year with negative net income, which 2020 will be for many businesses.  I don't think the sections have much effect on the incentive to have the employees actually work (as opposed to be paid without working).
• These sections also open the door to Treasury losses due to clever tax accounting, which is why gains and losses are historically treated asymmetrically.

Title III forthcoming

Notes on Families First Coronavirus Response Act, in reading order

Note that this law is just one of multiple new COVID-19 relief laws.

Division A

• Section 1101.  Schools are incentivized to remain closed more days.
• Titles II-IV, VI.  Small amounts given to agencies to be spent at the Cabinet member's discretion.
• Title V.  $1 billion for HHS to pay COVID-19 expenses for the uninsured.

Division B

• Titles I and II.  School lunch money is now available when school is closed "due to COVID-19."
• This incentivizes to schools remain closed more days, especially those getting the most school lunch money.
• Will add the learning gap between poor and affluent schools.
• Title III.  Raise limits on the duration of time that a household can participate in SNAP/Food Stamps.

Division C

• Section 3102.  "Emergency Family and Medical Leave Expansion Act."  Employees at small businesses are entitled to be out of work with pay if they have a child at a school or day care closed due to COVID-19.  
• Here, a small business is less than 500 employees, but with certain exceptions for businesses less than 25 employees.
• The duration of leave is capped at 12 weeks.
• The pay must be at least 2/3 of normal salary, capped at $200 per day and $10,000 in the aggregate (see also here), which does not bind unless the annual salary exceeds $60K or so.
• Even an employee who has been on the payroll only 30 calendar days (as few as 20 working days) can get the full pay for 12 weeks.
• Employers get payroll tax credits for these payments (Division G).
• The provision
• sharply reduces the financial reward to work for such employees,
• and further incentivizes schools (that are responsive to parental demands) to remain closed.
• See also Division E, which covers the first 10 days of the leave and is not tied to children in school.

Division D

• Section 4102.  $1 billion for state unemployment programs.
• Section 4105.  Full Federal funding of extended benefits.  This means that employers do not have to help pay for extended benefits, and therefore amounts to an enhanced subsidy for layoffs.

Division E

• Emergency Paid Sick Leave Act
• Covers the first 10 days of the leave provided in Division C.
• The child/dependent care pathway has the same pay minimums and caps.
• Other pathways, such being in quarantine, are full salary with $511 per day cap (that is $128K annual salary).
• Children in school closed school or daycare is not the only pathway to eligibility.
• Also regulates employers:
• They cannot ask sick employees to help find a replacement during their absence
• They cannot discharge or discipline employees for either taking leave or instituting any proceeding under the Act

Division F

• Health insurance must cover COVID-19 tests.  (Short-term plans are not considered insurance for this purpose).

Division G

• Employers may claim payroll tax credits for moneys paid to employees under Divisions C and E.