“Trump faces a ‘Chernobyl moment’ after slashing pandemic defences.”
Headline on Ambrose Evans-Pritchard editorial, Telegraph business 27/2/2020
Why has coronavirus caused the stockmarket to fall so heavily over the past week? Is it really because of air travel and disrupted supply lines? Or is it the spectre of total business close-down as a result of a single positive diagnosis in a workplace?
This question is worth answering, since the heaviest share price falls came hard on the heels of reports of schools, Italian towns and some businesses entering total lock-down.
In the United Kingdom, we are advised by ACAS that Public Health England will get in contact with the employer in the event of a positive diagnosis, and that the ‘workplace does not necessarily have to close’. In the United States, they’re much more robust - they don’t even pay employees for days off sick.
So, if this virus becomes full-blown - which now seems increasingly likely - is the United Kingdom or the United States looking down the economic gun-barrel? We consider potential consequences, which could be substantial either way.
Much analysis is being done by the World Health Organisation Centre for Infectious Diseases Modelling at Imperial College to forecast the potential ‘Case Fatality Ratio’ (CFR) - the likely mortality rate - of the new virus. Their ‘Report 4’ provides some idea of the complexities in this kind of work - you may need a degree in Pure Mathematics to digest it - and it’s of course true that projections change day by day as more data pours in.
But one thing is already crystal-clear: that the real risk of death rises steeply with age, so much so that the impact for under-50s is no worse than common ‘flu, whereas those aged 80+ have a nearly one in six chance of dying.
Let’s return to that ACAS advice to businesses, and their foreboding line ‘the workplace does not necessarily have to close’. Then, a few lines down, they say ‘unless it says in the contract, or is agreed otherwise, they still need to pay their employees for the time.’
So, if the virus really does take hold, it will be hard for businesses to resist employee pressure for their whole organisation to go into self-isolation by closing down. For some businesses, this will be nigh-on impossible due to the contingent liabilities of denying service to their customers.
Now, contrast this with the United States, where there is no statutory sick pay or any tradition of paying for employee absence (except for holidays): as this 2016 report from Llewellyn Consulting makes clear. American employees will be very resistant to stop working due to self-isolation close-down, as they won’t be paid; and they may take the view that the young are not at serious risk from the coronavirus in any case.
The infection could therefore go rampant in the United States much faster than it goes rampant in the United Kingdom: it may well be that a vaccine will be developed in time to escape the worst of the death rate for older people in the UK, but not in the United States.
So, many more old folk may die in the USA: might they include some of those octogenarian politicians? Who’s to know - there is no cure.
If this does occur, it’s likely to reduce significantly old-age care costs across America, potentially changing their demographic profile so that it starts to look more like India. Wealth would cascade down the generations as inheritances moved on, potentially releasing new finance for businesses run by younger people.
Productivity could therefore rise as a new, young generation takes the reins, with the American Government’s burden of old-age care falling dramatically.
So – could Ambrose Evans-Pritchard have drawn the wrong conclusion from Trump ‘slashing pandemic defences’, and could there be a harsh potential upside for the United States economy from coronavirus? If that were the case, far from triggering a chronic stock market collapse it might lead to a leaner fitter humanity for the future.
Time will tell whether it’s this virus, or whether there will be some other catastrophe, which eases the burden that humanity is imposing on the world - but it would be much better if we didn’t have to learn the hard way.
Gavin Oldham OBE