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Economic Policy for the Pandemic II

I am going to attempt a briefer clearer version of this post

I am interested in critiquing (and mostly praising) the CARES Act and discussing what still needs to be done. I think my points (if any) are that an extraordinary unforseen crisis simplifies some issues and relaxes some constraints. I will now go by topic

1. Aid to the unemployed. There are sudddenly many more people without market income. They need help. Here I applaud the decision to give the unemployed an extra $600 a week rather than increase the replacement ratio of unemployment insurance. This was done, because it is simple and it is possible to get the money to households quickly, but I also think it is better targetting.

Consider two workers with different salaries who suddenly lose their jobs. Is it better to give the worker who had a higher salary more when both are unemployed ? Just giving the same amount to all unemployed people implies a more equal distribution of income among the unemployed which implies higher average utility. Normally, this isn’t the only consideration, because an excessively high replacement ratio distorts incentives. In particular 4 Republican Senators were convinced that the CARES act contained a drafting error as it implied some people would have higher income when unemployed than when employed. Normally this is a problem (even though workers who quit don’t get unemployment insurance) because such generous benefits discourage job search and cause workers to turn down job offers. This is not currently a problem. First job search is a possible cause of contagion. Incentives to just sit at home are often optimal right now. Second, there isn’t a long term reallocation of labor problem. Many unemployed workers can and should return to their old jobs when the pandemic ends. This very much simplifies their problem and implies that they don’t need to be given incentives to find entirely new jobs.

This also means that I think the benefit should go to households where no one was employed in 2019. Here again incentive problems are minor. They too should be sitting at home now. They too will not make plans for the future expecting all this to be repeated. This means I am advocating reversing the 1996 Welfare reform (as I always do).

I think in this case the crudest utilitarian calculus is best — to each as he has need — not to each such as he has need and is incentive compatible.

Another issue is whether to bail out firms and, if so, whether to loan at a penalty rate, at a normal rate, or just give them cash. Here the point is that firms face bankruptcy even if they are viable in normal times and therefore solvent and even if their managers didn’t make mistakes. There is no need to punish people for a disaster which no one foresaw. My point (if any) is that there is no need to reward them either.

Normally, I would like to take from wealthy proprietors of small firms. Again this is pure vulgar utilitarian egalitarianism. Normally, this is a bad idea, because one can’t credibly promise to do it just this once. Once off redistribution from rich entrepreneurs can add to utility, but the threat of future redistribution discourages business enterprise. Again, this is not a problem right now. There isn’t a legal or constitutional restriction on imposing tough conditions on a bailout — participation is voluntary. There is a low incentive cost of not rewarding effort and risk taking when there is an unforseen disaster. (the word unforseen is doing all the work there).

So again, I think this is time for simple vulgar egalitarianism. I would take from shareholders, because they are rich. I would take from individual proprietors because they are rich. So I would make the terms of the bailout harsh, because such policy is taking from those who have a lot.

In particular, I think the Treasury should get an equity stake and so a share of the upside risk. I support this here and now, because I support this everywhere and always. The only unusual thing is that, because firms need cash, I now propose buying newly issued shares not buying shares on the market. But here too the right price to pay is the market price, not the market price plus a gift to the rich. That means a low price if a firm desperately needs liquidity now.

So new shares sold at firesale prices. The reasons for the low price, that is harsh bargain, are the usual reasons — paying more than one has to pay distorts incentives, and giving to the rich is inefficient. The first consideration is relatively minor if the policy is a response to a genuine unexpected exogenous event, but it doesn’t switch sign.

So I say it’s time to drive a tough bargain, time to lend freely at a penalty rate or, even better, time for the state to demand an equity stake in firms (and ban share buybacks and limit managment compensation). I think this becase I think it is always time for the state to demand an equity stake in all firms, ban buybacks and limit compensation. But I can also argue that if these provisions are conditions on a voluntary bailout transaction that the usual case against them is very much weaker than usual.

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Remdesivir V

This is interesting. In addition to the two huge multi center phase III trials of Remdesivir for Covid 19 with estimated completion some time in May 2020, there is a smaller but very large trial in Beijing with estimated completion May 1 2020. The East is Remd ! May Day May Day May Day
“Estimated Study Completion Date : May 1, 2020”

Finally there is a very large trial in Hubei province with estimation completion date April 27 2020
“Estimated Study Completion Date : April 27, 2020”

Also there is expanded access already. This is instead of individual requests or compassionate use. Note that one exclusion criterion is eligibility for a controlled trial — people will have to risk getting placebo, because they are eligible for a trial.

I think this is ethical. You read it here.

On the other hand, they only have enough Remdesivir for 30,000 patients

we have proactively and rapidly scaled our supply chain. As of late March, using the active ingredient we already had in our inventory, we have increased our supply to more than 30,000 patient courses of remdesivir on hand, assuming a 10-day course of treatment for patients.

The synthesis takes time and requires reagents which are in short supply, so they can’t scale up immediately

Our goal is to produce a total of:

More than 140,000 treatment courses by the end of May 2020
More than 500,000 treatment courses by October 2020
More than 1 million treatment courses by December 2020
Several million treatment courses in 2021, if required

Capacity Expansion through External Manufacturing

We have supplemented our internal manufacturing with significant additional capacity from multiple manufacturing partners in North America, Europe and Asia. Through these efforts, we believe we have created a manufacturing network capable of producing large volumes of remdesivir at the fastest pace feasible.

I think this is a case for some Defence Production Act_ion.

Update: it seems the 1.5 million doses for over 140,000 patients are available already. Gilead seems to have under promised and over delivered.

Update2: more evidence that Remdesivir works . This is a leak of preliminary data from one of the phase III trials.

“Remdesivir was a miracle” — Slawomir Michalak Covid 19 Survivor

I told you “possibly so”. Actually checking I see that I did not predict teh expanded access program. I guessed individual requests for compassionate use. So I was wrong about what would be done. I should applaud the FDA for being more flexible than I guessed they would be

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I am back complaining about the FDA as I have in The Ethics of Clinical Trials and 10 years earlier Clinical Trial Ethics (an aside — I had forgotten the old post and Google reminded me that I have been banging this drum for a decade).

Now I have a lot of company, because of the pandemic. Many people (including the ex FDA director Gottlieb retweeted by a Senator Brian Schatz) argue that the extreme circumstances imply that delays that are normally acceptable aren’t acceptable in this case. I really should read these 5 pages written by the former Director of the FDA and the Former Director of the Center for Medicare and Medicaid Services . I’m going to give an (erasable) hostage to fortune, guessing that my comment will be “I told you so during January 2019” . Actually I just advocated expanded access, which is just one of their proposals.

I agree that policy which works in normal times is not appropriate during a pandemic. Small c conservatism implies accepting the status quo until one is sure a reform is an improvement. It is irrelevant when the status quo is not an option, because a virus is spreading. Crazy small c conservatism implies sticking to business as usual as if it implies staying in a steady state, as if the virus (and global warming) are willing to wait for us to make up our minds. This is important. However, I have also asserted that current policy was bad policy during normal times. I stand by that view.

Before going on, I should note that the FDA is doing amazing things within the limits of current law. A vaccine trial started (with vaccine in someone’s deltoid) less than two months after the Sars Cov2 sequence was published. This included the FDA approving the trial with record speed. Similarly, the time from the emergence of Covid 19 to phase III trials of many drugs (including Remdesivir and hydroxychloroquine) must have broken records. The staff and director of the FDA are dedicated, committed and moving bureaucratic mountains.

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Remdesivir IV

This post is not up to the standards of the New England Journal of Medicine

Compassionate Use of Remdesivir for Patients with Severe Covid-19

is an important article written and published with amazing speed. The (many) authors (including professional writers) assess the experience of 53 “patients who received remdesivir during the period from January 25, 2020, through March 7, 2020, and have clinical data for at least 1 subsequent day.”

I think I’m just going to fair use most of the abstract


… Patients were those
with confirmed SARS-CoV-2 infection who had an oxygen saturation of 94% or less while they were breathing ambient air or who were receiving oxygen support.Patients received a 10-day course of remdesivir, consisting of 200 mg administered intravenously on day 1, followed by 100 mg daily for the remaining 9 days of treatment. This report is based on data from patients who received remdesivir during the period from January 25, 2020, through March 7, 2020, and have clinical data for at least 1 subsequent day.


Of the 61 patients who received at least one dose of remdesivir, data from 8 could not be analyzed (including 7 patients with no post-treatment data and 1 with a dosing error). Of the 53 patients whose data were analyzed, 22 were in the United States, 22 in Europe or Canada, and 9 in Japan. At baseline, 30 patients (57%) were receiving mechanical ventilation and 4 (8%) were receiving extracorporeal membrane oxygenation. During a median follow-up of 18 days, 36 patients (68%) had an improvement in oxygen-support class, including 17 of 30 patients (57%) receiving mechanical ventilation who were extubated. A total of 25 patients (47%) were discharged, and 7 patients (13%) died; mortality was 18% (6 of 34) among patients receiving invasive ventilation and 5% (1 of 19) among those not receiving invasive ventilation.

I find the results *very* encouraging. As I have written from time to time, I don’t agree with current interpretation of the pure Food and Drug Act. I think Remdesivir should be approved with possible revocation of the approval if the results of the controlled trials are disappointing (that is, as always, I reject the current FDA approach). I know that won’t happen. I am going to try to add something interesting (while noting why the NEJM would not and should not publish it).

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Economic Policy for the age of Coronavirus

A broad topic (at least it is close to the field in which I am most nearly expert).

I am going to write about policy to deal with the economic effects of the Covid 19 epidemic.
There has already been an amazingly quick and huge policy response, which generally seems fairly well designed (with different reasonable approaches in different countries). Also there is, of course, an active discussion of what remains to be done and what could have been done better.

I see two huge topics. One is the simplest possible — preventing a huge increase in poverty due to the huge increase in unemployment. Another is the coming debt crisis (see also). Bankruptcy is very costly with huge amounts of money going to lawyers and accountants (whose hard work to earn the money is a social cost) and with disruption of normally profitable socially beneficial activities because it isn’t clear if people will get paid 100 cents on the agreed dollar.

As usual, I am much influenced by Paul Krugman and Brad DeLong. Krugman in his newsletter (no link) DeLong google jubilee. Also I had a twitter debate with @Frances_Coppola whose position was similar to Krugman’s.

1. Fighting poverty.
Here the problem is extraordinarily simple. Without a huge intervention, there will be huge suffering because the decline in total income is concentrated among the unemployed. The reason the problem is extraordinarily simple is that the unemployment is efficient, at least a lot of it is. Many people who interacted with the public *should* stop working and can best contribute to social well being by staying home. The clearest examples are waiters,bartenders and bariste. It’s time for some home production of food, coffee, and hell cocktails it’s not like we are driving anywhere soon.

This actually simplifies the problem, because normally we want to help people with low income but we don’t want the safety net to be used as a hammock. Right now, in many many cases, we do want the safety net to be used as a hammock.

I don’t have a proposal, I do have praise for the 2.2 trillion relief bill called the CARE act. It includes an extra $600 per week per unemployed person. 4 Republican Senators held up the bill for a few hours saying this must be a drafting error as many people will have higher income when unemployed than they did when working. Lindsey Graham said that this will cause people to quit demonstrating that he doesn’t know that unemployment insurance is not paid to people who quit (unless they quit because of harassment which is how the word first appeared in the legal discussion).

I applaud the US Congress. I understand they first considered a simple 100% replacement ratio and switched to the even simpler $600 per week on top of state benefits because the Department of Labor said they couldn’t handle anything more complicated immediately and time was of the essence. But I also think that $ 600 per week is better policy. My argument is simple, the income of unemployed people is distributed more equally this way. The point is that, normally, the 4 Republicans would have a point. Replacement ratios over 100% discourage job seeking. Normally that’s bad. Right now that’s good. Unemployed people should NOT search for jobs for two reasons. In the USA the unmeployment rate is suddenly 13% not 3.5% so a whole lot of searching per job found would be needed. Also job search is a way to spread Covid 19. At some point it includes some kind of job interview which is the sort of thing which we should NOT encourage.

This actually has an implication for a proposed improvement. I think the $600 a week should not be paid only to the newly unemployed. I think it should also go to families which have no labor income even if they have long had no labor income. In other words, I advocate welfare, not just a return from TANF back to AFDC but much broader and more generous than that.

The logic is exactly the same as the logic of the current US policy. Normally we don’t want welfare to be too generous, because excessive generosity discouraging job seeking. But now that’s a good thing. Not just for the newly unemployed but also for the long unemployed, not in the labor force and especially (as always) the unemployable. The problem is unusually simple. We can do what we always wanted to do without worrying. Of course we, who always wanted to give lots of money to the poor, will learn that they, who argued about bad incentive effects, were always lying. They don’t want to give those people money and don’t care that the argument they made against welfare no longer applies. It was always BS. But it’s time to fight it.

Before going on, the increase in unemployment is *partly* efficient. However, there is a spillover effect as low income causes low demand for goods (mostly) and services (not so many) the production of which is still socially desirable. This means that income support pls the 1200 for each adult and 500 for each child are good policy too. There will be low aggregate demand and the usual case for fiscal stimulus remains valid, even if low aggregate demand isn’t the main problem and aggregate demand stimulus is only part of the correct policy response.

The second topic after the jump

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Hydroxychloroquine and Covid 19 Update

Given Donald Trump’s enthusiastic participation, the debate on hydroxychloroquine and Covid 19 has become very heated. As I wrote

here I agree with Trump. This is unusual (not unique he and I both advocating cutting interests rates long ago before the Fed Open Market Committee cut them to 0-0.25 again). My view (and as far as I can make sense of anything he says his) is that it is wise to prescribe hydroxychloroquine for patients with Covid 19 even though there is not decisive evidence that it helps.

I think this because it inhibits coronovirus reproduction in vitro, and sometimes in vitro results lead to clinically useful therapies (I tend to guess more often they don’t not that I really know (I think it is known but I don’t know)). Currently it is being used in many hospitals. I also don’t know what fraction of Covid 19 patients are taking 400 mg of hydroxychloroquine a day, but it is clearly large. It is officially recommended in China.

What if it turns out in the end that it just doesn’t work ? I will not consider myself to have been wrong. My view is that the weight of, currently very limited, evidence makes it reasonable to infer that the expected benefit (taking expected values over a reasonable posterior probability distribution) is greater than the expected cost. The costs are real and important — hydroxychloroquine slows the heart beat and can be dangerous especially for people who already have irregular heart beats (remaining a non physician, I would recommend an EKG before prescribing). Prolonged use can also damage the retina, so people who take it regularly have to have their eyesight checked.

The debate should be resolved soon as there are ongoing large scale (phase III) clinical trials.

This update really has three parts (after the jump)
1) what about that study in Marseilles (TL DR it’s crap)
2) what about other studies ? (TL DR mixed evidence including proof that it is not a miracle drug)
3) what about the debate (TL DR even if Trump says something, that isn’t proof it is false — no one is perfect not even Trump)
4) Name 2 non physicians who are pontificating about this in spite of having (identical) irrelevant formal qualifations (TL DR Peter Navarro and Robert Waldmann (who is about to scream after typing that)).

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Remdesivir III

I told you so on March 2 2020

The first Covid 19 case diagnosed in New Jersey

Around 3 a.m. on March 10, Balani arrived at the hospital. The medicine had come in, and she did not want to wait until the morning to administer it. With Balani in the room, a nurse woke Cai up so that he could sign the legal papers. Soon after, he was hooked up, intravenously, to the drug.

The next day Cai’s fever, which he’d had for at least nine days, finally broke. Even before he received the remdesivir, his oxygen levels started to stabilize. Now they indicated he was on the mend. He was still so weak in the following days that he could barely speak without exhaustion; every time he tried, he was racked by coughs. But the progress was steady

Chloroquine also ran, It was used for a day while the Remdesivir was in the mail,

Cai’s boss, Dr. George Hall, also made a call, not long after Huang spoke to the infectious-disease doctor on call. He spoke with another doctor on Cai’s caregiving team, a hospitalist named Danit Arad.


Hall explained …that the Chinese National Health Commission had just published the seventh edition of guidelines on how to treat coronavirus. It was true that they were based more on clinical experience than on published studies, but he urged Arad to follow some of its protocols, which included prescribing two drugs that were commonly given to patients in China soon after they showed symptoms like shortness of breath: chloroquine, an antiviral drug once used to treat malaria, and Kaletra, another antiviral that had once been used to treat H.I.V.


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Coronavirus Thoughts

I’m not even going to try to organize this post.

I am in self quarantine 6 days after having either the mildest cold I can remember or a mild case of Covid 19 (this means alone in an Air BnB away from my family too). The pattern is the same I have read about countless times on the web. A brief mild fever and 5 coughs. Then nothing for about a week. Now I can expect nothing or maybe my lungs seize up.

I am sure my experience is very common. When this rotten pandemic is over, I will get the antibody test to find out if I have had Covid 19 or not.

Last week I taught twice my normal load (I will Not say how little that is) all by web. I have read again and again that, when working from home, one should get out of bed and put pants on as a matter of … for some reason. I have ignored this advice (I show pdfs to the class as my disembodied voice explains them — they don’t see me).

I am now all alone and bored (just normal teaching next week starting 17.5 hours from now). I will bore you after the jump.

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A Dog that Didn’t Bark

The USA is about to experience the largest fiscal policy shift since World War II. The House is debating whether to add $ 2,200,000,000,000 to the Federal Budget Deficit (counting loans as if they were expenses because that’s what they do). There appears to be a near consensus as all are speaking in favor. It is just possible to guess which are Republicans

I’m sure there is a similar near consensus that Rep Thomas Masie of Kentucky, who made them fly to DC by threatening to call a quorum, is a jerk (the Rep. is short for reprehensible). I don’t really wonder if someone is going to get knifed in the members only men’s room.

The Supply of Treasury securities is about to experience the largest shock in history. So what is happening to the price in anticipation of the huge supply shock ?

Quick find the shift from arguing about $ 2.5 billion vs 8.5 billion to arguing about $ 100 billion more to discussing $ 1800 billion more to approving $ 2200 billion more on the graph.

The rate is not quite at the all time record low, but it is close. One might argue that a huge Federal Debt will crowd out investment, beause it will create an illusion of wealth which makes people consumer more so the Fed will have to achieve high real interest rates in order to keep the economy from overheating. One can argue that the huge debt will cause high inflation (perhaps because the Federal Government is the world’s main dollar debtor and can make the dollar worth as little as they want) which will imply high nominal interest rates.

But one will not be able to convince investors of this. the invisible bond vigilantes clearly have got their hands on Harry Potter’s invisibility cloak.

This isn’t even a matter of much debate (except for Massie). It is clear that stimulus will help the USA and also, in particular, the GOP. When the interests of the USA and the GOP allign there is (almost) no debate, because Democrats care about the country and not just about hurting the other party. In 2009 Republicans demonstrated that they were partisans not patriots. Today, Democrats are demonstrating they are patriots more than they are partisans.

Many economists (some winners of the Nobel memorial prize) should admit that they were totally wrong. But of course they won’t.

Some economists whose response to the horrible Trump tax cut was more debt no problem can say “I told you so”

I told you so.

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Rome Update

For 3 days from an abundance of caution, 4 hours a day of online teaching responsibilities and extreme laziness, I have stayed in an apartment usuaally in a bed. Rome is a bit different than was I went into hibernation. There are people walking around without dogs on a leash. Some cars.

There was a guard outside the supermarket absolutely waiting for someone to come out bfore letting someone in. No crowds: no line at cashier. The Deli lady (who I thanked for risking her life to give me 100 g of spek + 100 g of bresaola said it’s a lot more pleasant this way.

Shelves a tiny bit less stocked than usual. The only thing I couldn’t get was garbanzo beans

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