Economic outcomes from the fight to exit lockdown

This is a follow-on post to the one I wrote on 23 March predicting there would be a rush to exit lockdowns because of the economic consequences of the full stop to our economy. I’ve re-read that post. And I stand by my view that the base case going forward is a global Depression.

Irrespective, I am still hopeful for best case outcomes. And so, I want to provide a mental model for thinking about what those outcomes could be.

Re-visiting my lockdown exit prediction

Here’s how I thought about the backside response three weeks ago:

Now that we have seen lockdowns everywhere, increasingly, I have come to believe the economic pain will be too much to bear. Policy stimulus won’t be enough. And in the US at least, political wrangling will ensure it comes late. That means not just a deep recession but a global depression, something we haven’t witnessed since the 1930s. So, I am now looking through to the backside of the crisis when the lockdown and quarantine phase is relaxed. China, of course, is the first to go there. But, the economic pain Western democracies are willing to bear is likely less than China bore before the lockdown comes unstuck.

From what I have seen in the last couple of weeks, the economic pain has become unbearable. And policy makers everywhere have begun to make noises about relaxing their lockdowns. The most forward-looking economies, the ones who locked down early, are even relaxing their approach already.

And so, the big question in the latter part of April and the beginning of May will be three-fold:

  1. Which countries exit lockdown?
  2. What will their exit strategy be?
  3. What will the economic consequences be?

This has become a big issue in the United States in particular because US President Trump has repeatedly said that he wants the lockdown to end. And he has pegged 1 May as the date. Will he go through with a relaxation policy on that date? Will the states comply if he does? And what will the consequences be?

I have thought and written a decent amount about this. But two recent articles have helped me better develop a framework for thinking about this issue. Let’s start with the one I just read

Herd immunity

The eventual goal in dealing with Covid-19 is likely herd immunity, where the overwhelming majority of the entire human population has antibodies  against Sars-CoV-2, the virus that is causing Covid-19. My understanding is that there are two ways one can get these antibodies. One is through exposure to Covid-19, with the risk being sickness and death. The other is through a vaccine, which, if developed through clinical trials, should be non life-threatening and have minimal side effects. Developing herd immunity via a vaccine is far preferable to developing it through wide-scale coronavirus infection because infection results in sickness, resource overload, fear, economic shutdown, and death. And here’s why. I have added underlining and bold to the most important bits.

There has not been a lot of good news lately. But with the discharge of Boris Johnson from hospital on Sunday, and statements that the “peak” strain on the National Health Service would be over the Easter period, you might be under the impression that the storm is passing, and the Covid-19 pandemic will soon be a memory.


Talk of the “peak” can be misleading, because it’s not clear whether you are talking about the Matterhorn or Table Mountain – both have a summit, but the peak is far more pronounced in one than the other…

Worse, there may be a mountain range. In other words, what is happening right now could be just one peak – not the peak. And the reason for this is that despite all those positive signs from antibody testing, the huge majority of the population is not immune.

An editorial in the British Medical Journal has reported data from China suggesting that as many as four in five cases of Sars-CoV-2 infection could be asymptomatic….

There have been more than 93,000 cases of Covid-19 identified in the UK. Let’s round that up and say it is 100,000. So if the reports from the BMJ editorial are accurate, the actual number would be that multiplied by five, in which case there would have already been half a million infections in the UK. If this really is the peak and we see as many cases on the way down as on the way up, that would total 1 million infections from the initial surge in the UK – hopefully all of those people would then be immune.

That would leave about 65 million people in the UK still without immunity.


…if we assume this is the peak and there is the same number on the way down that’s 20,000 total from the initial surge. And to get to population immunity you have to multiply that by at least 30: based on the current data, that’s about 600,000 deaths to get there, minimum.

These are excerpts from a piece in the UK Guardian today by William Hanage, a professor of the evolution and epidemiology of infectious disease at Harvard. What he’s telling you is that herd immunity via wide-scale infection is not viable politically or humanely. It’s a complete non-starter. So we have to try to control the virus in some measure until a vaccine is developed – or face tens of millions of deaths globally.

Tweaking the minimal economic disruption model

With that in mind, I want to go back to the post I wrote exactly a week ago on how we achieve minimal economic disruption from Covid-19. The conclusions were these:

  1. A pandemic utopia, where the economy functions close to normal, cannot exist without adequate testing.  That’s because, if you don’t have the tests, you can’t know who has the virus. And if you don’t know who has the virus, you can’t operate an effective containment strategy without inhibiting freedom of movement.
  2. In the non-Utopian testing environment in which we live and breathe, you must mandate movement restriction and do it as soon as possible. Otherwise, the R0 of the disease will be well above one and deaths will rise exponentially.

Overall, my thinking here was that you test heavily, randomly and repeatedly like the Icelanders, quarantine positive cases, and trace their contacts and isolate those clusters. Everyone else can continue as near to normal life as possible while practicing social distancing routines until a vaccine is developed. That is the best we can hope for.

Let me update this a bit though — based on something I read by Jonathan Tepper that I think is very good on post-lockdown protocols. Here’s his ten step protocol verbatim in full below

Countries should follow the Ten Commandments for beating this virus:

1. TEST the population extensively to isolate asymptomatic carriers. The countries that have the most success against Covid-19 (Germany and South Korea) are also the ones that have tested most extensively.

2. TRACE contacts and maintain quarantine for those who have tested positive. Countries such as Singapore, Hong Kong and South Korea have done what the United States used to do, which is trace contacts and isolate all infected people. This policy should have been used from the outset, but it is better late than never.

3. ISOLATE patients who test positive. Today we are isolating entire countries, rather than testing and quarantining specific people who test positive.

4. IDENTIFY high risk groups. We have already identified the high-risk groups, but we must protect them in care homes and prevent infected people from coming into contact with them.

5. Establish hospitals and field clinics dedicated entirely to for testing and triage. Hospitals should avoid mixing infected patients with others at all costs. The experience of Lombardy vs Veneto shows clearly that you can achieve lower rates of nosocomial infections and lower mortality by isolating people.

6. Offer home care, telecare and mobile clinics to maintain isolation. Germany has the best outcomes in Europe. It developed “corona” taxis where doctors could visit patients rather than bring them to hospitals and it has relied extensively on telemedicine.

7. Maintain strict hygienic procedures in the hospital environment to avoid nosocomial spread. The success of Hong Kong and many Italian hospitals offer proof that proper procedures to stop the virus can work when doctors are given the right tools.

8. Test medical workers often act swiftly in case of exposures of medical personnel. If doctors do not know they are infected, they will infect patients as they work.

9. Provide cutting edge protective gear to doctors. Doctors should not be forced to work without proper protection.

10. Everyone is a potential vector for the disease but the young will barely be affected. Children should not be locked up when they are essentially protected from almost any symptoms of the disease. The sooner they get the virus, the sooner they can develop immunity.

None of these involve closing down the entire economy, and all are low cost compared to the alternative of a wave personal and business bankruptcies.

Doing the math(s)

For me, this is the gold standard now. It’s not just about testing, quarantining positive cases, and isolating clusters. It’s more all-encompassing in terms of hygiene, helping high risk citizens, and maintaining normal life. I think countries like Iceland or New Zealand can get this done. There will be new infections, especially when international travel resumes. But, if these protocols are followed, I am hopeful countries can keep the virus in check until a vaccine is developed.

But, going through this exercise points out how deadly an early lockdown exit for an ill-prepared country like the United States would be. Let’s use the Hanage numbers on the US.

  • At last count, there were 639,644 confirmed Covid-19 cases in the US.
  • Rather than using the 1 in 5 metric for symptomatic to asympomatic coronavirus carriers Hanage uses, let’s use the 1 in 10 metric Swedish epidemiologist Anders Tegnell quoted last week because that’s best case regarding deaths per infection.
  • The 1 in 10 ratio gets us to 6,396,440 infections. I think this number is fine as a baseline even considering the poor testing in the US because it’s an order of magnitude larger than the confirmed cases.
  • With 30,985 confirmed deaths, that’s a relatively low death rate of 0.48%.
  • For the US population of 330 million as a whole, that’s 1.60 million deaths from Covid-19 in a herd immunity outcome.

That death count is so high, I had to re-check the numbers to be sure. The reason it’s high is that, if we assume that 6.4 million Americans are infected, to achieve herd immunity for 330 million people, you need to multiply by a factor of 51.6. Multiplying over 30,000 deaths get’s you to 1.60 million deaths.

Wow. That’s an absolute disaster in so many ways. It’s a human tragedy that would result in worse outcomes for the economy as the American healthcare system shut down and fear and panic took hold everywhere.

Post-lockdown outcomes

So, lifting the all-encompassing lockdown pre-maturely, as Trump wants to do, would be a disaster, both on the economics and in terms of human life. Unfortunately, I think that’s where we’re headed.

What I think will happen is that some countries like the US, which are ill-prepared for resuming a more normal economic life, will see large second waves of infection and death. And they will go into partial shutdown again to avoid the healthcare overload and the panic and fear. And this will mean a series of ramp ups and down in economic activity, all amounting to a an L-shaped outcome, essentially a Depression.

Other countries that are better prepared and that adjust their Covid-19 protocols appropriately will do much better. There is hope of that in countries like Iceland, New Zealand, Denmark, the Netherlands or Germany. Here’s a list of the countries considered to have the best set-ups.

Covid-19 safety rankings

I don’t believe Iceland was ranked. But their testing regime makes them worth mentioning. On the other hand, the US is second behind Italy in terms of risks. The UK, Spain, France and Sweden follow. If these countries relax lockdowns early, expect a large second wave.

Covid-19 risk ranking

My View

We’re not out of this by a long shot. We are just hitting peak in several important countries in the global economy like the US and the UK. That means we have several more weeks of disruption associated with the first wave of coronavirus infections. More importantly, to the degree policy makers see the peak as an excuse to end lockdowns before their safety protocols against risking a second wave are in place, we’ll see a nasty second wave and further economic decline.

None of this says anything about the virus mutating and becoming more deadly. But that’s always in the back of my head given how the Great Influenza of 1918-19 played out.

Given this setup, and given the lingering consumption effects and changed behavior of this pandemic, I think we will need policy support for a long time to come. And likely that support will often come late or be inadequate. This is a good reason, with the US uppermost in mind given its global importance, that we have to see Depression as a baseline. But, a deep recession with a U-shaped recovery is what I am hoping for.


Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More