Four months after the Chinese-origin coronavirus impinged in a big way on our lives, it is finally becoming clear that it is not going away, and that the world will have to take account of it and its future cousins for many years to come. Accordingly, the world economy and life in general will suffer some major changes. The future will be very different from what we had imagined, obviously for the worse but in just a few respects for the better. The quicker we adapt, the better.
We have learned a considerable amount about Covid-19, which makes it easier than when it burst on the scene four months ago to analyze its implications. It is extremely infectious, and not very seasonal; thus, it is not going away in summer, but conversely should not become hugely worse next winter. It has a relatively low mortality rate, about 0.4-0.5%, but that mortality is heavily concentrated among those over 70, especially if they have diabetes or are overweight. It is beginning to appear possible that the immunity that we had hoped for against repeat infections may not be very powerful, perhaps lasting only a few months in many cases.
It is also clear that, although we may have a vaccine against Covid-19 by the end of the year, or shortly thereafter, that vaccine may not be very effective, perhaps only reducing the risk of infection by 50% or so, especially for the vulnerable old/fat/diabetic group. If that were the case, the vaccine would be essentially useless for that group, although it could sharply reduce the number of infections among the young and healthy, and thereby limit the disease’s spread.
Finally, as a geopolitical matter, China has persistently lied about the virus and its effects. First it denied its existence, then it claimed it rarely moved between humans, then it claimed an entirely spurious success in quelling it in mid-February, thus deceiving the health authorities worldwide into thinking the virus could be contained in the West. Even now, China is claiming 90 million tests for Covid-19 and only 83,000 cases, an infection rate of 0.09% of those tested, less than 5% of any Western jurisdiction, and less than 10% of the infection rate in Japan and South Korea, otherwise the lowest locations worldwide where statistics are extensive and reliable. That is well beyond the bounds of the statistically plausible; hence the Chinese authorities are lying.
The World Health Organization has acted as the accessory to China’s lies and possibly crimes; it should be closed down as should most other international organizations, for reasons I have discussed previously.
Finally, as well as repeated outbreaks of Covid-19, we may very well be subjected to various outbreaks of coronavirus “cousins” of that disease. We can hope those cousins will have only moderate mortality rates (it is difficult for a disease with high mortality rates to spread worldwide in modern conditions – thus our success against the Ebola virus in 2014.) However, we have clearly been very lucky in past decades in not suffering repeated such epidemics. We should not expect to be so lucky going forward, even if we can tentatively hope that modern advances in genetic engineering are not being used by state or private bad actors to create new such diseases. One way or another, we seem likely to live in a disease-ridden world; this has important economic implications.
To begin with a cheerful implication: the U.S. Social Security Trust Fund may not go bankrupt, and occupational pension schemes may be better funded than we believe. As far as fatalities are concerned, Covid-19 affects primarily those over 70, not those of working age. Hence if the disease and its cousins are around long-term, the actuarial assumptions under which Social Security is calculated are too unfavorable. While almost all working-age people will continue to exist, paying contributions into the system, the number of beneficiaries will be sharply reduced. Essentially the increase in life expectancies, that has caused the social security system to be unstable in the long-term, will go into reverse.
The effect may not be enough to avert a bankruptcy that is projected for the mid-2030s, but it should at least postpone it, and make the corrective actions (cutting benefits and raising contributions) needed when that bankruptcy arrives less severe. Currently, the present value of Social Security’s future revenues at the beginning of 2020 was $69 trillion, that of its future liabilities $84 trillion, for an actuarial deficit of $15 trillion. Covid-19 can at its present mortality be expected to remove about 5% from the liabilities and nothing from the assets, reducing the actuarial deficit to $11 trillion and pushing the default date out to 2040. That is not everything, but it is at least something!
That benefit does however depend on the authorities not being so foolish as to shut the economy down again (which reduces revenues) and not paying out any more large random amounts to those currently affected economically. Unfortunately, both of those assumptions may be too optimistic.
The shorter and more uncertain lifespans produced by Covid-19 and its cousins will also have major social effects. Since retirement can no longer be projected as a guaranteed 25-30 year vacation, fewer people will retire. Instead they will carry on working for as long as they are fit, thus removing the need to scrimp and save in their 50s and 60s. There will also be political effects. Since the young will no longer assume they are going to live to 120 or even 150, the salience of global warming will undergo a sharp decline (also the human brain is incapable of dealing with two life-threatening crises simultaneously and for most people, Covid-19 will be more life-threatening and immediate).
Since Social Security bankruptcy will no longer appear inevitable, there will be a greater willingness to make the sacrifices necessary to save it – raising interest rates and eliminating crazy budget deficits. Those higher interest rates, in turn will both improve the solvency of Social Security and restore productivity growth to its historic level, as the economic distortions of ultra-low interest rates will disappear. Naturally, higher interest rates and lower life expectancies will cause a mighty stock market crash and asset liquidation, but in the long run this will do only good. The next few years, with massive bankruptcies of obsolete services, urban real estate and asset prices in general will however be truly painful.
A further social change caused by Covid-19 will be to remove anti-natalism in the West. With lifespans shorter and more uncertain, productivity growth improved and the long-term “threat” of global warming less salient, people will once again want more children. This will not affect long-term global population trends much – getting fertility down in the world’s poor countries is necessary for that, and Covid-19 will affect those countries least, since they have relatively few old folk. It will however greatly improve the social health of Western societies and eliminate the desire by politicians in “demographic decline” countries like Japan and Italy to import more Third World immigrants for spurious demographic reasons.
Covid-19 and its cousins will also affect the world’s consumption habits. Cruises, crowded and filled with older people, will almost disappear. “Fine dining” restaurants, which also appeal to the older crowd, will also suffer, except those in spacious acreage outside the big cities, who can provide their diners with a Covid-free alfresco experience. Opera and serious theater will be badly affected, though probably not fatally. Cities in general will lose population, as I have already written, but growth will come in distant suburbs, with people adapting to working say 2 days per week at the office and 3 at home.
Dwellers in the outer suburbs will not take public transportation to commute on their working days, but will use Uber/Lyft, or more likely those services’ much cheaper self-driving replacements. Indeed, Covid-19 is likely to be very good for the embryonic self-driving automobile business; with the world spacing out, distances driven will increase, and there will be a strong desire to work, read or socialize while travelling, rather than concentrating on the road for hours. Self-driving cars will be cheaper on a day-to-day basis than Uber while allowing their owners both privacy and freedom from road rage.
On the other hand, crowded facilities that appeal to the young will suffer less. People who are prepared to riot and thereby risk Covid-19 will also go to bars and clubs. The number of urban singles will however decline since most people, however, not being anti-natalist, will marry early and have families. They will then patronize chain restaurants and fast food, ideally those with alfresco facilities. They will also home school to a much greater extent than at present, since schools and colleges will be correctly seen as vectors of disease both physical and mental, with their leftist indoctrination.
Overall, the pleasant changes that Covid-19 may bring in the long term, while substantial and gratifying, may seem less certain than the unpleasant ones. Humanity has however shown time and again an infinite ability to adapt, provided that politicians don’t get in the way.
(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)