Stocks are crashing, productivity is falling, people are stopping their consumption of goods and transportation, and the economy is generally going to go to shit. This is a pretty big deal. But there are some very interesting things to look out for on the horizon, positive things, that may come of the coronavirus epidemic. Add them up and it could mean a trillion dollars worth of indirect economic stimulus over the following decade. Read on to find out how.
I apologize in advance for the brutal rationalist nature of this article, and don’t mean to make light of anyone’s death, or unemployment, or financial strain, but these are interesting things worth monitoring.
End of the Office
One huge response to this outbreak, that many companies are jumping on, is telecommuting. Telecommuting is an obvious increase in efficiency, but has been resisted by Baby Boomer upper management types for years because it doesn’t fit their mental model of how to do business. They like to manage by walking up and down the cube farm and making sure everyone looks busy, and don’t understand how they could manage that way if their company was most or all telecommuters. According to The Atlantic, approximately 34 million people telecommuted in 2011, but that half of all jobs could telecommute if their companies allowed it. They just don’t. Now they basically must allow it, if they can, provided they want any work to be done at all. Suck it Baby Boomer bosses.
According to Statista, there are 158 million people employed in the United States. According to multiple sources, employees (or employers) could save between $2,000 and $7,000 per year by working from home. Let’s use $4,000 as our number, because it’s commonly cited. If half the jobs in the United States can telecommute, and do so, that’s a net savings of 316 billion dollars annually. Even if only a tenth of businesses pivoted, that would be a net savings (a.k.a. stimulus) over a decade of 632 billion dollars. Certainly that will cause great pains to C.B. Richard Ellis’s office space management business, but you have to break a few eggs to make an omelet.
Good gracious, how on earth could a deadly epidemic decrease healthcare costs? The idea is asinine. Until, that is, it isn’t.
Dying is expensive. There have been lots of media pieces and academic studies on the cost of dying, and a recent study in July 2017 by Eric French and others pulled the numbers apart for us to use. In the United States, the last three years of someone’s life cost about $160,000 per capita, and by per capita, we mean per death.
These are averages across the entire sample set of dead people. My wife’s death of stage four colon cancer cost a bit more than this. A person who gets hit by a bus costs zero. If some horrible twisted space fairy were to descend from the Andromeda Galaxy, use her space magic to predict future death, and hit all people who are going to die in three years with a magic space bus, that would amount to a cost savings (a.k.a. financial stimulus) equal to over 2% of the United States’ entire GDP. It would double the usual economic growth rate.
Thankfully, no such Andromedian Magic Space Death Bus Fairy exists, as far as we’re aware, but the potential impacts of COVID-19 are curiously similar to a smaller population group.
COVID-19 is expected by most health statisticians to infect between 40% and 70% of the United States population by the time it’s done. It kills in a matter of weeks, when it does kill. How many dead people are we talking about here? It’s hard to say, but here’s a snapshot of what it looks like as of a few days ago.
There’s a lot of variation in the case fatality rate, and the variation probably has two origins. The United States high CFR probably owes itself to poor testing, currently. We probably have a lot more actual cases than are being used in this calculation, so if we divided the number of deaths by our actual cases, our (current) CFR probably goes down. Italy’s numbers are probably high because their hospitals are overloaded. China’s numbers are probably some blend of these two effects. South Korea’s numbers look a lot like China’s from February on, and China’s in provinces outside Wuhan, but those are also held down by some pretty extreme quarantining effects that we aren’t likely to be able to implement here in the United States, because we have too many single moms and two income parents to be able to hunker down as well.
In the end, our numbers are probably going to be around 2%. Higher earlier when our hospitals are strained or overloaded, lower later once a lot of folks have beaten their infection and are no longer spreading the disease. But because we aren’t going to be able to quarantine as well as an autocratic communist dictatorship or a monolithic small intelligent Asian country who already beat SARS, our infection rate is probably going to be at the high end. Let’s look at that case.
70% of the country infected at a 2% death rate, means 1.4% of the country gets hit by the Magic Space Fairy Death Bus. How many of those deaths will be older people who have already aged out of useful economic contribution? Probably around 60% if we believe this graph:
Back of the envelope math says this will amount to around 0.84% of the population, or 2.7 million people, or 440 billion dollars saved in end-of-life healthcare outlays.
That’s a pretty gruesome and disgusting and not-at-all-nice form of indirect economic stimulus, that again would be realized over a time scale of about a decade post-outbreak.
Student Loan Debt
To understand the positive student loan benefits of the potential upcoming epidemic, we need to look closely at the problem itself. The millennials are going to remain screwed, and they should be angry. Here’s a top-level view at how they were screwed by the systems of taxation, education, and politics, how those systems are going to become unraveled in the next few years, and how the virus will likely amplify the market effects which will rescue the post-millennials from the fate of their older siblings, while cratering the modern American university system.
The idea of federally backed student loans originates in 1965, but the current beast wasn’t really developed until the 1990s. Instead of being limited in scope and tied to treasury bonds, as it was for prior decades, the 1990s saw a shift to the federal government backing private lenders, vastly expanding the scope of these loans, and basically giving them out to anybody.
Prior to the 1990s, when you went to college, you either had a scholarship or your parents sent you to college with their own money, possibly taking out a loan to send you, but the loan was backed by their own personal collateral. There were some poor people who could have graduated from college, but couldn’t attend, because their parents didn’t have this avenue. College was at least in part a privilege of wealth, which became self-reinforcing generationally. This was not only a problem of entrenched classism, it was a net drag on the economy itself. You want to get those poor smart people online, contributing at their maximum potential to the overall economy.
The economic justification was simple. College educated jobs earn more than high school jobs, therefore anyone who takes out a loan to go to college will be able to pay the loan back. It was a simple idea, which seemed right, and everyone voted for it. It was very obviously wrong in retrospect. The expansion of federally backed student loans did nothing to change the job profile in the United States. We still need the same number of baristas and plumbers and garbage men that we always did. It’s just that now, those baristas and plumbers and garbage men have college degrees. And debt.
The reason college jobs paid more in the 1980s wasn’t because college was necessary to perform them. It was because the college degree was used as a hiring signal to differentiate between people who were smart and worked hard, and people who weren’t and didn’t. It wasn’t a great signal, because it left out the poor who could perform, but people without college degrees in the 1980s still had an alternate path to generate that signal — just go to work and prove you were smart and could work hard. Nobody paid any attention to your degree after the first few years on the job anyway.
To be sure, certain degrees do train for a profession. Doctors, lawyers, engineers, accountants. But these do not make up the bulk of college degrees today, nor did they then. The rest of the degrees were simply a piece of paper that provided employers evidence of your general competency.
I have a lot of close personal Generation X friends who make comfortable six figure salaries with only a high school degree, simply because they’re smart and know how to use Excel or similar. They were the last generation to have this option, because of the federally backed student loan program. It shut the door on getting a good job without a degree, because as the degrees flooded the market, employers defaulted to prior hiring practices and still trusted that hiring signal.
The federally backed student loan program did achieve its goal. It did provide a route for the poor people capable of becoming doctors, lawyers, accountants, or engineers to get those good, college educated jobs. But the cost was that everyone got a degree, and debt. Those poor who made it professionally through federally backed student loans did so on the backs of the other indebted poor.
The millennials are justifiably angry. They need to be angry at their guidance counsellors. They were told “go get a degree, it doesn’t matter what it’s in, it will pay for itself,” and they were too young to realize this was bad advice. The guidance counselors gave that bad advice because of our systems of taxation and public schooling. School rankings are based, largely, on the ratio of their high school graduates who go on to attend college. The higher this ratio gets, the higher the school ranking. But in our voucher-less, choiceless system, the home values within a district are tied to how highly the school is ranked. Further, the resources available to a school are based on the property taxes collected within the school district. This is a self-reinforcing system. A higher college attendance ratio means a higher school rank which means higher property values which means more money for the school. The system, and therefore the guidance counsellors themselves, are effectively paid to inflate college entrance rates by any means necessary. From this system emerges “go get a degree, doesn’t matter what it’s in, it will pay for itself.” And the degrees in (fillintheblank) “Studies” of no useful commercial value skyrocket, and along with those degrees, the student loan debt.
Colleges began to adapt to this system in the 1990s. For decades the dorms were bunk beds, the classrooms were brick, the labs were dingy, the library dusty, and the life of a college student was generally poor. But when suddenly everyone has all the money they need to go to wherever they’d like to go (“we promise it will pay for itself”) the colleges begin competing for attendance with huge capital outlays. Dorms like upscale condos. Athletic facilities like health clubs. They also ballooned their enrollments, and instituted new academic policies based not on weeding out the bad students, but keeping them enrolled as long as possible so they can extract more money (debt) from them. The academic standards themselves changed. I saw this first-hand, when I taught as an adjunct and was prohibited from failing students I caught cheating.
And everyone spends a quarter million dollars’ worth of debt for a piece of paper they’ll be paying off until they’re forty.
But remember the college is fundamentally just a hiring signal for your first job. That’s it. Whenever a comparable hiring signal appears in the marketplace that employers will accept, which is obtainable on the cheap, the next generation is going to bail on the university system completely and those behemoth colleges are going to become bankrupt ghost towns.
The first inkling of this, in my mind, was Georgia Tech’s online Masters of Information Systems. When it was piloted, there were other top tier universities who would allow you to attend classes online, but not for a degree. When GT decided “fuck it, let’s sell the degrees too” it was the first top shelf university I’m aware of to make the pivot. Now they have a dozen such programs, and other universities are following suit. The unfortunate truth about college education is that in-person lectures are only about 10% to 20% more effective at educating your students than lectures on YouTube. They’re definitely more effective, but the cost isn’t worth the difference.
But weren’t we talking about coronavirus? This is an article about coronavirus, right?
The process of online-ify-ing college was inevitable, and probably going to take a long time to complete, turning the behemoth universities into ghost towns over a decade or more. COVID-19 is forcing them all to innovate immediately. Classes which weren’t online have become instantly online, and everyone from the top down is going to see first-hand how outmoded the current educational business model is. The time clock for the death of college is no longer decades, it’s years. At UC Berkeley Physics, it’s now. Ham Radio Engage:
The millennials will still be stuck with their debt. The post-millennials, however, are going to end up with the option to avoid it almost entirely. Going forward, this is going to be a tremendous boon to the economy. Student loan borrowers between the ages of 25 and 34 hold almost half a trillion dollars of debt, which is basically economically useless. Not accruing this debt is an economic boon very similar to a half a trillion-dollar stimulus over a decade that Generation Z is going to realize and capitalize on. Thanks, COVID-19.
Add It Up
Some of these sorts of trends I’m outlying in this article were probably destined to happen regardless, albeit on longer time scales. COVID-19 is forcing everyone’s hand at once, forcing change to react to environmental stimuli that didn’t exist before. If we add these up, we get $632B + $440B + $500B = 1.5 trillion dollars of stimulus effect over the decade following the coronavirus epidemic, should it play out like we think it may. This is almost ten times the size of the Economic Stimulus Act of 2008, following the mortgage backed securities crash. It would be like getting a new version of that law hit the economy once per year, every year for a decade. And many of these benefits will play out even if the epidemic doesn’t turn out to be that bad. For the “death of brick and mortar universities” benefit and the “telecommuting” benefit, we only really needed the fear of epidemic to drive them. Further, some of these effects would be much more effective, overall, at stimulating the economy because they are directly related to making the economy more efficient, instead of simply throwing money at the current system.
Am I over-stating this? Quite possibly. This is just some back of the envelope math on a Friday morning while I juggle my schedule to deal with school closures. But even if you go back and correct it with the most conservative assumptions possible, the conclusions are similar. It’s undeniable that the economy is going to take a huge hit from lack of productivity while we hunker down during this thing, but the efficiencies and benefits coming out the back end of it are likely going to be palatable, if difficult to measure directly.