Dalton, Mass. — You know it. You probably hate it (most seem to). It’s the Great Barrington Declaration.
This column is not a platform for me to opine on things I know nothing about, like how to best address a pandemic. Economists and investors should stay in their lane when it comes to things like that. However, given that the GBD was signed by more than 10,000 scientists, 27,000 medical professionals, and 500,000 citizens, it makes sense to explore how this strategy could affect our money.
The Great Barrington Declaration is the product of the American Institute for Economic Research, a think tank located in Great Barrington. AIER is pushing for a nonvaccine solution — herd immunity — to combat COVID-19. (Herd immunity is a resistance to the spread of an infectious disease due to a high percentage of the population having already contracted it.) AIER advocates for allowing low-risk portions of the population to contract the virus while protecting the health of the most vulnerable.
That would mean lifting current lockdown policies before a safe and effective vaccine has been distributed. Sports and cultural activities would resume. Restaurants and other businesses would open. And we’d no longer work remotely. AIER argues that keeping the economy locked down “until a vaccine is available will cause irreparable damage, with the underprivileged disproportionately harmed.”
I won’t pretend to know more about how to handle the pandemic than AIER. However, others take issue with the GBD. The 80 scientists who signed an open letter in the Lancet said that the GBD’s assertions that this strategy will protect the vulnerable are “a dangerous fallacy unsupported by scientific evidence.” The 12,000 members of the Infectious Disease Society of America, 17 public health organizations led by the Trust for America’s Health, and Dr. Anthony Fauci of the National Institute of Health have also denounced AIER’s strategy.
If the debate started and ended with medial arguments, as I said, I’d stay in my lane. But the GBD is coming from an economic think tank; hence there is an implicit suggestion that there was an economic consideration and that the outcome would be positive. From a financial perspective, readers of “Capital Ideas” won’t be surprised that I disagree with AIER’s strategy.
I have been annoyingly vocal about how badly we need a new coronavirus stimulus package to support the people, businesses, hospitals, municipalities and states affected by COVID-19. I’ve been encouraging helping the economy and its people not by reopening too soon, but rather through a capital flood.
A few days after the Great Barrington Declaration (although I had not read it yet), I noted that due to a rising trend of COVID-19 cases since Sept. 8, “it is reasonable to expect that business lockdowns could continue for longer.”
In that same column, I further reminded readers how irritated I have been with politicians playing games with a much-needed economic boost. I stated that “If [a] significant [stimulus package] is not passed and soon,” the economy would “weaken to the point that it’s nearly impossible to re-emerge …” Reopening the economy is not enough to keep growth sustained.
But before I go too far down the road in terms of the AIER strategy’s economic ramifications, we should consider its poor timing. AIER made its declaration Oct. 4. Two weeks prior, I detailed how close the U.S. is to producing and distributing a safe, effective vaccine.
By the summer of 2021, cures and therapeutics for the virus could change the treatment conversation. It seems uninformed to declare that we should be OK killing off millions of Americans when we are seemingly so close to dramatically improving the COVID-19 landscape.
AIER’s strategy would kill people while doing little for the economy. According to the Institute for Health Metrics and Evaluation at the University of Washington, easing restrictions would cause an additional 100,000 deaths over the next three months. However, it would take longer than three months to achieve herd immunity. Suppose herd immunity is achieved when 70 percent of the U.S.’s 330 million citizens contract COVID-19. In that case, 230 million Americans would have to contract it. Calculating a 3 percent mortality rate, the Great Barrington Declaration would lead to nearly 7 million deaths from the virus. Additionally, hospitals would be overwhelmed and result in what the Centers for Disease Control and Prevention refer to as “excess deaths,” which are death rates above what would typically be expected.
A mass-murder policy is inherently bad for economic output. Without a vaccine, achieving herd immunity would cripple the economy. What we need is an economic relief package.
AIER is wrong in its overtone that its strategy would get the economy back into gear. According to the Atlanta Fed GDPNow tool, U.S. gross domestic product was up an astounding 35 percent last quarter, just before the GBD was made. That is a snapback from the equally massive 33 percent drop in the previous quarter. After that snapback, fully reopening the economy will not help businesses regain their pre-pandemic level any time soon.
Following recessions, economies take a long time to get back to the “normal” we were accustomed to. Even if everyone were to receive a vaccination today, that wouldn’t solve the economic problem. A look at past recoveries suggests that it would be an aggressive prediction to say that the U.S. economy would reach full employment by this time in 2023. There is no reason to think that AIER’s strategy would help us accelerate growth in a manner that would be much different than coming out of previous recessions.
I acknowledge that closing the economy continues to result in significant economic damage. However, there is also a relationship between our ability to contain the pandemic and the economy’s performance. Moody’s Analytics describes the magnitude of the correlation in a report that provided a “what if?” back-of-the-envelope calculation. The math shows that if daily U.S. COVID-19 cases were to grow steadily to 100,000 then ebb back to 50,000 by the end of March 2021, over eight percentage points would be added to the unemployment rate. The GBD strategy would, therefore, keep the U.S. economy in depression territory.
Lockdowns are awful. And I hate my mask. But the economy can only get back on track if the virus is contained. But that’s not enough. The economy needs fiscal support.
I’m not a scientist, but I have common sense. And it makes sense to me that the U.S. government should pump a ton of money into pocketbooks. That doesn’t mean we stay entirely locked down. The closest we got to a complete lockdown was back in the spring when we tried to “flatten the curve” to allow hospitals to rebuild and maintain capacity.
Looking at it entirely from a financial standpoint and what it means for my portfolio, if the national policy begins to look like that of the Great Barrington Declaration, I’ll buy stocks in funeral parlors and sympathy cards. Suppose we can roughly maintain current restrictions and continue our pace of developing a vaccine. In that case I’ll stay roughly where I am: mostly invested in equity with some hedged positions. If we maintain stability and get a meaningful enough stimulus package, I’ll reduce my hedges and get longer the market.
But I think I’m done trying to predict the status of another round of stimulus. A couple of weeks ago, the White House called off negotiations. Then I woke up to the news of a 2 a.m. Tweet that it was back on. Then the White House went from pitching a small package to wanting a “go big or go home” deal. Then Speaker of the House Nancy Pelosi turned it down. And Senate Majority Leader Mitch McConnell expressed displeasure at the package’s size, leaving us to wonder if it could get passed even if Pelosi and the White House came to terms. But then McConnell said he’d get in line but showed no interest in trying to help bring others to vote that way. I give up.
I think my energy is better spent creating some likely scenarios, knowing that I’m probably not going to be close, and then trying to react accordingly and quickly if need be.
This article originally appeared in The Berkshire Edge on October 26, 2020.