Band Patrick Watson
According to some analysts, inflation is coming soon. Americans will spend like crazy and push prices up as the pandemic recedes.
This is the theory. It might be fair for a while, but we have other issues as well. On the one hand, the pandemic is not over; it simply became optional.
Most American adults can now “opt out” by getting the vaccine. The clichés, even if they are not perfect, are very effective. Sadly, many choose to remain vulnerable. We also cannot yet vaccinate children under 12.
This could soon become an economically important problem. But even if the virus goes away, we will spend years repairing the economic damage already done… and more could come.
Confirmed COVID-19 deaths in the United States now exceed 600,000. These are people with positive tests. Some wonder if they all died “because of” the virus or just “with” it. But whatever the cause, they are dead.
Under normal conditions, mortality at the population level is highly predictable. This is why the life insurance industry works. “An excessive number of deaths” above the expected number means that something unusual has happened.
This chart from the CDC shows deaths in the United States from all causes by week since 2017. When the blue bars pass above the orange line, it means more people than expected have died that week. This has happened a few times during the unusually bad 2017-18 flu season.
But from March 2020, COVID-19 generated excess deaths every week for almost a whole year. (Note: The last few weeks may be incomplete, as the registration of deaths takes some time.)
Of these excessive deaths, some died directly from COVID-19 and others indirectly because, for example, they could not get the necessary health care. Add up the excessive deaths and the United States appears to have lost over a million more people, not the 600,000 we can pin on the virus.
Human lives are an economic resource. All are producers and / or consumers. Researchers estimate that the average victim died about nine years before they “should” be otherwise. This represents many years of lost life (YLL). David Kotok of Cumberland Advisors explained why this matters.
By the end of this calendar year, we are projecting a COVID shock of approximately YLL 10 million in the United States. This is a huge reduction in projected aggregate demand, as the consumption of those millions of people above their projected 9-year lost average disappears. This is an addition to the benchmark mortality table projection.
And I haven’t even touched on the issue of lost skills. The 100-year-old who died of COVID in a nursing home counts as one COVID death but contributes only a small amount to this economic estimate. The 30-year-old nurse who died of COVID while treating COVID patients in a hospital, on the other hand, makes a great contribution to YLL and will be sorely missed, as will the 50-year-old engineer or computer scientist. The same goes for the truck driver or the teacher. COVID has killed many highly skilled people, and it has killed many who did not yet have years to contribute to the workforce.
To be frank, the deceased cease to be active participants in the economy. It is no accident that war-torn countries often face depressions afterwards. Pandemics have a similar effect. The numbers in this one are big enough to matter, and even more so in certain industries that depend on the groups most affected.
But that’s not the only problem.
Most people who contract COVID-19 survive, but sometimes with lingering health consequences. Scientists are still trying to understand this “long COVID” condition. It can be serious.
Estimates suggest COVID disabled will far exceed the number of COVID deaths. Eventually we might have some treatments to help them, but for now that seems like a big deal. Here is David Kotok again.
The evidence grows daily that there is something like six to eight long-haul routes for every COVID death. This loss of health and capacity is also a demand shock. It also affects the working capacity of the workforce, as it leads to increased medical leave and disability. It also increases the demands of the healthcare sector. Millions of longer-haul COVIDs will need treatment and work accommodations if they are to be able to continue contributing to the workforce.
Much more data needs to be collected to allow us to quantify both the medical needs of long-haul COVIDs and a figure capturing weeks, months or years of work lost to long-COVID; but we have enough information to know that the numbers will be significant.
A civilized society takes care of its disabled members, but it comes at a cost.
Inflation needs fuel
All of these effects are locked based only on what has already happened. If the virus reappears, it may get worse.
Nor is it just an American problem. Excessive deaths and lengthy COVIDs are occurring around the world. Countries without our advantages can be harmed even more and take longer to recover.
So if your investment thesis assumes a sustained global boom as the virus subsides, you might want to think again. Inflation needs fuel… and we have already burned a lot of it.
Long-haul COVIDs will feel the effects for years to come. The economy will be too.
Originally posted by Mauldin Economics, 25/05/21
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