- The coronavirus pandemic has quickly curtailed global economic activity and caused an international recession. While the virus is perhaps abating in Asia, Europe has become the epicenter of the outbreak with more new cases now being reported there than in China. It is only a matter of time before there is a significant outbreak in the U.S. and Canada.
In an attempt to contain the illness, U.S. local governments are limiting the size of public and private gatherings, and schools and corporations are requiring study and work from home wherever possible. And in a significant escalation of the government’s response to the threat, the Centers for Disease Control and Prevention on Sunday recommended that gatherings of at least 50 people not be held for eight weeks.
In short, social distancing is becoming official public health policy.
The federal government at some point will have to consider a modern version of the bank holiday.
A simple analysis shows that these formal steps should be taken as quickly as possible by individuals to preserve their health and by corporations to avoid liability issues. What is equally clear is that the government sector is slowly but surely causing the economy to slow through social distancing in such a way that it slows the spread of the disease to shorten the economic disruption. Companies such as Apple and Nike have closed their stores for two weeks and are fully compensating employees for the time off.
With new measures being put in place by the hour, the federal government at some point will have to consider a modern version of the bank holiday imposed by the Roosevelt administration back in 1933. That four-day holiday was put into place to restore confidence in the banking and financial system. Perhaps the governing authority should consider a 10-business day holiday until Congress can act in order to restore confidence among the public that something will be done to mitigate the public health crisis.
Let’s start by basing the analysis on data from Wuhan, which has a population of 11 million and 68,000 reported cases of the Covid-19 virus. That implies an infection rate of about 0.6% for the population at large.
Based that 0.6% ratio, healthy people would have only a 99.4% chance of not being exposed to the disease if they were to come in contact with only one other person. But as the figure below shows, the risk of coming into contact with an infected person increases exponentially as the number of contacts increases.
If the healthy person were to come in contact with 100 people, the probability of avoiding contact with an infected person decreases to 54%. Being in proximity to 250 people reduces the odds to 21% of avoiding an infected person. At 500 people, the odds of avoiding an infected person drops to 4%.
The extent of Covid-19 infections in Wuhan is thought to be under-reported, with 100,000 cases perhaps a more realistic number. That implies an infection ratio of 0.9%, which as the figure below results in a much steeper profile, reaching a 40% odds of avoiding contact with an infected person if total contacts include 100 people; only a 10% chance with contacts of 250 people, and only a 1% chance of avoidance when contacts are with 500 people.
The risks of contact with an infected person are likely to increase if personal decisions are not restricted by the government. According to an Associated Press report, Italian officials said the number of cases jumped 20%, to 21,000, in one day, with 3,500 cases in one 24-hour period, blaming the increase on poor behavior of Italian citizens.
If residents are unwilling to self-quarantine or to wash their hands or to avoid large crowds, we could expect an exponential increase in the number of Covid-19 cases.
As the figure below suggests, the current profile of cumulative Italian coronavirus cases appears to increase exponentially by a weekly rate of 5 raised to the power of the number of weeks. That implies a rapid increase in the reported cases in the coming weeks without further government intervention.
Given that the U.S. has likely entered a period of exponential expansion, the economics of social distancing are pointing in the direction of purposefully reducing social interaction and economic activity in an attempt to mitigate the spread of the disease and shortening the time in which the domestic economy will be disrupted.
