12 minutes reading time (2488 words)

Strategic Global Intelligence Brief for May 22, 2020

By Chris Kuehl, Ph.D., NACM Economist

Short Items of Interest—US Economy

Business Faces New Cost Crisis
In many respects, the challenge for the business community is worse now than at the height of the COVID-19 crisis. When all the business community was locked down, the only good news was that companies were not having to spend money during a time when they were not making any. They had laid off employees, they were no longer buying supplies and they were not paying for all the services they would normally have contracted for. Now they are back to business, but hardly as usual. They have employees again and they are paying for services again. They are buying inventory again and now they have additional expenses related to keeping their environment clean. At the same time, they have been limited in terms of how they serve the customer. They are not even sure they will get that customer back. These will be the factors that will drive more business failures now than during the most intense period of the lockdown.

Testing and COVID-19
Iceland has a very high number of reported cases, but Iceland has one of the highest levels of testing. While the U.S. has tested at a rate of around 41,000 per million, there have been 170,000 tests per million in Iceland. They have a more accurate assessment of their infection rate than does almost any other country.

And Now for Something Completely Different
Have you grown weary of worrying about the viral plague? Do you want something else to worry about? There is always the size of the debt and deficit the U.S. has been running for the last few decades, but if one wants to remain in the plague category, there is the fact that parts of Africa have been fighting the largest infestation of locusts seen in 70 years. This massive attack by these ravenous insects will literally block out the sun as they swarm. The locusts can utterly devour every shred of vegetation in an affected area. The countries that are most at risk are Ethiopia, Eritrea, Kenya, Uganda, Djibouti and Somalia. The World Bank has just devoted another $500 billion to the fight against this swarm, but it has already been judged too little and too late. The region has utterly lost an entire growing season and what follows is predictable—famine. These threats have been dealt with in the past, but this has required immense amounts of food aid and money to help the population recover. With the mounting costs of dealing with COVID-19, it is unlikely the resources will be available to contend with this infestation.

Analysis: Not that we need more trials and tribulations to worry about and this latest assault on the economies of Africa is nothing to make light of. The point is that the usual litany of challenges and problems continue to affect the world even as the majority of the attention has been focused on the virus. The wars and conflicts that were raging before the outbreak are still underway and have intensified in many cases. Terrorist attacks are still taking place and there are still many economic disputes between nations.

The collapse of the global economy has accelerated the pace of these disputes as there has been much less attention focused on many of them and there is much less in the way of resources available to contend with them. The intelligence community has been assessing the immediate future based on the impact of the virus. They have elevated the threat level dramatically. The level of desperation will increase as the economy slumps into recession and even profound depression. The bottom line is that it is the developed world demand for the output from the developing world that sustains these economies. Without the consumption from the U.S., Europe, Japan and other states, the rest of the world faces real deprivation. That promotes conflict over scarce resources and it prompts mass migration. The locust plague has ruined the agricultural communities in East Africa and has already triggered a massive migration of desperate people seeking some means of survival. That spreads the impact of the plague as far as Europe and everywhere in Africa and the Middle East.

These challenges have long existed in the world and this year is no different than any other. What is missing is the ability of the developed world to ameliorate the damage. There is no money available to contribute as these economies are in decline. To make matters worse, there is very little desire to help. The U.S. has essentially withdrawn from nearly every agency or organization that tries to address the needs elsewhere in the world. There has been similar withdrawal by the U.K. and some of the other states in Europe as they contemplate issues closer to home. China had been getting involved with these nations through large injections of money and aid, but that has all but stopped as they confront their virus crisis.

Link Between Populism and Virus Response?
There has been a great deal of analysis aimed at the response to COVID-19. Some of this is designed to better inform the public and political leadership so as to be better prepared for a repeat of this crisis in the future. There is near universal agreement that the world was unprepared for the outbreak and there is a desire to be better equipped for the future. Some of the assessment has been motivated by a desire to find someone or something to blame.

Analysis: There is no direct link between strong-man governments and the viral outbreak. The damage has been severe in autocratic states such as China, Russia, Iran, Brazil and others. But it has been severe in democracies such as France, Japan, Italy, U.S. and U.K. as well. The link to populism is a little more complex. The populist approach is characterized by a distrust of expertise. Scientists are judged to be biased. There is little trust in facts or even acceptance that objective fact exists. The assertion is an expert is either an elitist snob or somebody reacting to their own vested interests. There is little understanding of or appreciation for the process of scientific inquiry. The populist approach in many circumstances is to demand an easy answer, one that never changes. Issues are seen in black and white and not in the shades of grey. When it comes to the virus, the populist approach demonstrates a left- and right-wing perspective. The right demands an end to containment in all its forms and the left demands a near permanent shutdown of the economy.

What Is an Appropriate Response?
Since the start of the coronavirus crisis, there have been a whole series of inaccurate assumptions and inappropriate reactions. Some of this has to be expected given the nature of this "Black Swan" event. This is an expected but unexpected crisis. The world has been facing pandemics and epidemics for generations, but each threat has been different and has posed different challenges. Just in the last decade, we have faced MERS, SARS, Avian flu, Swine flu, Zika, Ebola and many strains of flu. In 1968, the Hong Kong flu killed four million people worldwide and 100,000 in the U.S. alone. When COVID-19 appeared, there was no immediate ability to cope. There was insufficient testing capability, inadequate testing and the nature of the disease made it very hard to maintain any sort of realistic quarantine. Sixty percent of those who contract the disease remain unaware they have it and become unwitting carriers. It takes up to two weeks before the virus manifests, which makes control even harder. The only option that seemed left was containment on a massive scale. This has not been particularly successful and has come at a massive cost in terms of economic crisis—a crisis that is taking lives as well.

Analysis: As the response was developing in March of this year, there were two key assumptions made. The first was that containment was both possible and effective. The second was that the success of the containment strategy would allow the resumption of business by May at the latest. Neither of these assumptions have been proved to be accurate. The number of infections has slowed only slightly in Asia, Europe and the U.S. and the numbers in other parts of the world grow exponentially. The number of cases in the world now exceeds five million and there have been over 335,000 deaths. The assumption that has been even less accurate is the one related to the resumption of business as usual.

The crushing of the global economy through the imposition of a lockdown has been amply documented by this point. The litany of bad economic news has been unrelenting. To address an economic recovery will require an effort with as much determination as has been devoted to the virus, but that has not generally been the case. The process of reopening has been halting and fraught with new rules and protocols that will complicate the attempt. The consumer is a fickle creature at the best of times; it has always been challenging to capture their spend. Business works overtime to be attractive to potential customer, but now the emphasis is on anything but being attractive. Restaurants, stores, service providers and a host of other businesses are required to adopt protocols that significantly compromise the experience of shopping, eating out, watching sports, enjoying entertainment, visiting a hair salon and so on. There will be those who put up with the new systems and will understand these restrictions are supposed to make things safer, but many others will elect to skip these experiences as the hassle will not be worth it. This frustration will increase if the steps taken do not seem to make much difference in the spread of the disease.

It is hard to see what a reasonable alternative might be. It is the trade-off conversation again, never an easy one to have. To address the virus would require even stricter protocols—a real quarantine. That has never been attempted in the U.S. or in many other nations. There have been exceptions right from the start—as if the virus would not spread in grocery stores, drug stores or hardware stores. To open the economy back to what it once was would mean abandoning all attempts to manage the spread. It would nearly guarantee a wave of new infections that would certainly stress the medical system to the breaking point and push the rate of fatalities to new records. Is there a compromise position that deals with this virus and allows an economic recovery? Right now, it is not clear what that compromise position would be.

Some of the Latest Observations
The data stream regarding COVID-19 has been unrelenting and often confusing. The challenge is a familiar one to anybody who works with data. The old adage holds true—"you can have data that is current and fast, or you can have data that is accurate, but you can't have both." This has been a moving target and new discoveries and developments appear every day. What was known about the virus last week is different than what is known this week. Next week will be different as well.

Analysis: The estimate is that there are roughly 2,785 million active cases in the world today. Of those, 2,740 are considered mild versions (98%). A mild case is defined as one that does not require hospitalization. That leaves 45,598 serious cases. There have been 2,431 million concluded cases with 2,096 million recoveries and 335,000 deaths. This translates into 86% surviving and 14% dying from the disease or complications triggered by the disease. This works out to a death rate of 43 per million, but there are many questions regarding what constitutes a death from the virus. Add to this the challenge of collecting accurate data around the world. The U.S. has a hard-enough time and the barriers to data collection in places like India and Brazil are infinitely more complicated.

The data for the U.S. has generally been accurate, although there are gaps due to limited testing ability and differences of opinion regarding a cause of death. There are 1,142 million active cases and 17,907 are considered serious. There have been 382,000 recoveries with 96,433 deaths reported thus far. That is a death rate of 291 per million. That compares with the U.K. at 531, Italy at 537 and Spain at 598. The death rate in Germany is 99. To give an idea of the data challenge, the Russians list their death rate at 22 despite a release this week that states they have 8,894 new cases.

Escapism is my friend. I have always maintained that a good fantasy is far better than reality on most days. This usually governs my choice of entertainment. I have a keen interest in certain kinds of TV—British mysteries rank near the top. I enjoy a good procedural as well. Action movies where good triumphs over evil can be cathartic. My favorite genre remains the competition show in a realm where one would not expect competition—cooking, baking and gardening. I lately discovered a new show called, "The Big Flower Fight." This is the only gardening competition I am aware of. It features teams of people building elaborate flower and plant sculptures. This is just the thing I crave to escape the reality we face right now—marveling at the giant flower sculpture of a dragonfly or an orangutan or the throne of Merlin.

It gets me thinking about other possibilities. Perhaps a show featuring amateur attempts to build some of the devices that Leonardo DaVinci came up with. I would love to see a remake of "Junkyard Wars"—remember that one? These things are compelling to me as they showcase talent and creativity for its own sake. As readers know, my wife is an incredible cook and loves it. I have long marveled at this process. She can easily spend the better part of a day preparing a meal that the two of us will consume in ten minutes. She spent a solid week making a wedding cake for our grandson and watched it torn to pieces in five minutes. This is not creativity for posterity, it is for immediate pleasure and satisfaction. The ephemeral nature of the effort makes it all the more treasured and fascinating to me.

Locust Infestation
The extent of the locust infestation has been largely ignored by the global press as the preoccupation has been with the coronavirus plague, but the implications of this catastrophe are serious. The EU is now bracing for its most serious wave of desperate migrants yet. Millions of people have been displaced and will be forced to find survival elsewhere. That place will be Europe.

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Monday, 25 May 2020