#21: The consequences of inaction
The economic, human, and social costs of failing to take unreasonable countermeasures against coronavirus.
|Vaughn Tan||Mar 25|| 6|
I’m an author, organizational sociologist, strategy professor, unsuccessful furniture maker, and Xoogler—this is yet another of my attempts to make sense of the state of not-knowing.
Coronavirus is a threat of enormous uncertainty, yet many people, businesses, and governments continue to approach it with the risk mindset—they avoid taking seemingly unreasonable countermeasures that are inconvenient, politically unpopular, and economically damaging.
The consequences of not taking those unreasonable countermeasures are impossible to calculate accurately in advance—but they are likely to be staggeringly enormous and not merely economic but also human and social. They are likely to far exceed the cost of taking unreasonable countermeasures.
Mounting evidence suggests that any countermeasures that look like overreaction are not only sensible, they may even be inadequate. Taking unreasonable measures early—despite their huge economic cost—is the only sane thing to do, because we have so much to lose.
The coronavirus captures the essence of true uncertainty: Unexpected in onset, with a never-before-seen combination of epidemiological characteristics, attacking a global population with no previous exposure and immunity, with no pre-validated therapy, and without an existing infrastructure for developing, producing, distributing, and administering a functioning vaccine.
The result, in country after country: Sudden explosions in coronavirus infections, suddenly overloaded healthcare systems, triage, rapidly mounting death tolls.
This was the situation in Wuhan, it is currently the situation in Lombardy and Washington state, it will soon be the situation in New York, Massachusetts, and London—and in too many other cities in Europe and the rest of the world.
So far, always too late, extreme, desperate measures are put in place: A near total shutdown of commerce and human movement or even, as in Wuhan, stringent quarantine and co-isolation of infected persons.
The world has responded to epidemics and pandemics before, but it has never had to respond to one exactly like this. No government has an already-written, already-tested playbook to deal with a coronavirus threat. So in the three months since December 1, we’ve observed a wide range of government responses.
Some governments, recognizing both the situation’s uncertainty and the potentially enormous consequences of failing to act, decided not to try and optimize, not to try and do precise cost-benefit analyses to identify the actions that resulted in the greatest benefit for the least cost. These governments took what looked like disproportionate, overly extreme measures, far too early, when the situation seemed trivial.
For instance, Taiwan may have seemed to be overreacting when it began conducting on-plane biosecurity inspections for flights originating in Wuhan at the end of December last year—well before coronavirus became even a regional pandemic. However, without exception, governments that seemed to have overreacted have not regretted doing so.
By taking measures that seemed far too extreme at the time (but later turned out to be prescient), countries like Taiwan avoided the fate that has now befallen Washington and Lombardy. This fate—healthcare systems collapsing under the weight of peak loads of a type and magnitude they were not designed to withstand—moves ineluctably and with growing speed toward New York, London, California, Spain, and France. The governments of these places have reached this point because the risk mindset they have used in understanding and reacting to the threat of coronavirus is wrong—fatally wrong.
True uncertainty makes clinging to the risk mindset fatal
The risk mindset is an approach to the world that asks: “How can I calculate my actions so that I achieve the best possible outcome?”
Using the risk mindset to see and interpret the world is only appropriate when you have full information about your actions and the outcomes those actions result in.
Let’s say the only actions available to you are either eating an apple or eating a pear. You’ve eaten both before and know that you loathe the taste of apples but pears, pears for you are a delight beyond compare. The risk mindset is ideal for making this decision. The choice is clear, because you have pretty complete information: You eat the pear.
For the risk mindset to produce clear and correct decisions about how to act requires accurate information about the situation. The risk mindset is only appropriate when you know all the possible outcomes, you know what actions you can take, and you know exactly how your actions affect your outcomes. Without knowing all these things, making decisions based on the risk mindset leads you to make the wrong decisions.
We don’t know these things in relation to the coronavirus outbreak.
But the risk mindset is so ingrained in how we think that it has infected how we think about nearly everything—even highly uncertain situations like coronavirus, where we don’t know enough for the risk mindset to be appropriate. In uncertain situations, the risk mindset promotes the illusion that inherently imprecise or unknown things can somehow be precisely calculated so that the optimal course of action can be determined. It promotes the illusion of fine-grained control over a situation where such control simply doesn’t exist.
The governments that have not overreacted in time have been approaching coronavirus outbreaks with the risk mindset. The question throughout, which leaders have agonized over, is: When does it become economically “worth it” to take incredibly expensive, politically and socially unpopular measures to respond to a coronavirus outbreak?
When there are barely any cases in-country, how could it be worthwhile to spend millions of dollars on biosurveillance and widespread testing? When there are only a couple of hundred cases in-country, how could it be worthwhile to shut down mass gatherings or force businesses to allow all but absolutely essential staff to work from home? When there are only a couple thousand cases in-country, how could it be worthwhile to essentially shut down whole cities or countries?
Consequences of insufficient action
There is now enough evidence from China, Singapore, Taiwan, Spain, Italy, France, and the UK to take for granted that any city or country that doesn’t take countermeasures that seem unreasonable at that time will be unable to control its coronavirus outbreak.
By “control,” I mean lowering the rate of spread enough that the healthcare system can treat all infected people who need treatment (those with moderate to severe symptoms) in time and with the appropriate resources (doctors, nurses, hospital beds, drugs, ventilators, etc)—“under control” does not mean eradicating the virus.
Any city or country with a severe and uncontrolled coronavirus outbreak will be affected to an extraordinary degree. What follows is a thought experiment about what’s likely to happen to the economy, to society, and to people in a severe and uncontrolled outbreak.
The rate at which people die from coronavirus infection will increase dramatically. Coronavirus-related deaths will increase dramatically as hospitals overflow with coronavirus patients with severe symptoms, vastly exceeding the healthcare system’s capacity for treatment. In the absence of sufficient treatment resources, many more of these coronavirus patients will die than if the outbreak is controlled. These will be otherwise avoidable deaths.
The rate at which people die from non-coronavirus-related health problems will increase dramatically. Those who need non-coronavirus medical care—even urgently—will be much less likely to get it. Non-coronavirus-related deaths will rise. When the existing healthcare system is filled up with only coronavirus patients, the usual load of non-coronavirus patients cannot be served. Think about it: hospitals are usually busy places even at the best of times. If you have a non-coronavirus health emergency, you will likely have to deal with it on your own instead of with the support of a functioning healthcare system. This includes anything from emergency surgery for someone hit by a car while on a bicycle to an infection that went wrong and required hospitalization and intensive care. Many of the patients who require non-coronavirus emergency or intensive care will die because they cannot get timely access to appropriate care—these will also be otherwise avoidable deaths.
A significant fraction of the workforce will get sick and be unable to work. The effects on the workforce from allowing a coronavirus outbreak to run uncontrolled by unreasonable measures will initially seem minor. Many infected workers will not even realize they are infected (research suggests that 15-20% of infected people don’t show symptoms)—but those who show symptoms will temporarily fall out of the workforce. If the spread of the disease is uncontrolled, a potentially large fraction of the population will be infected at the same time (in the US, this has been estimated to be between 10-20% of the population). The more people are infected, the more workers suddenly stop working for 2 weeks or more. Based on data from China, almost 20% of symptomatic coronavirus infections are severe or critical. Quite soon, a significant fraction of the workforce will suddenly evaporate for a few weeks at a time over the course of many months.
Demand for products and services will begin to drop. Widespread illness means disposable incomes begin to fall—this causes the first wave in declining demand for products and services. This will affect the whole economy, but especially small businesses in the hospitality, travel, and personal services industries which provide luxuries and other discretionary products and services.
Small businesses and independent traders will go temporarily or permanently out of business. Small businesses often have less excess capacity to cover disruptions; they can probably cover absent workers for a while, but not at this level. Depending on the severity of their symptoms and the type of business they run, independent traders may not be able to continue trading at all. In any case, most small businesses and independent traders don’t have the cash buffers to survive weeks or months on significantly reduced revenue from diminished demand for what they sell.
Income will drop and unemployment will rise for non-salaried workers (hourly workers or the self-employed). Those who are infected and show symptoms will be unable or less able to work. Additionally, as small businesses go out of business (whether temporarily or permanently), the workers they employ lose their jobs. Incomes dry up, rent or mortgages will still have to be paid, loan payments come due, food must be bought to feed the family. First to go is optional spending on luxuries, then even essential spending must be curtailed. The result is bad for the individuals and families affected, but in many countries, this part of the workforce is remarkably large—so what affects them affects the rest of the economy.
Demand for goods and services will drop even more. Salaried workers’ incomes will also drop and unemployment will rise. A little later, bigger businesses and their employees begin to hurt. Sales are down but most costs remain. Labor is one such cost that can be reduced quickly. Soon, salaried workers begin to see either paycuts or layoffs—they too first begin to restrict spending on luxuries, then on essentials. This compounds the demand problem and makes it more likely to turn into a vicious cycle.
Supply chains will become more fragile and will begin to break. Much of what we consume—from food to banking services to consumer electronics—is made and transported using long, complex chains of interactions that are often opaque to the end-consumer.
The bag of flour you buy in the supermarket was grown by a person, picked by a person operating a combine harvester, put on a truck and driven by a person to the mill, processed at the mill by a person operating a grain cleaner, a winnower, and a milling machine, packed by a person into retail paper sacks, shipped by a person on a series of trucks driven by more people, accepted into a warehouse by another person, loaded onto a delivery truck by yet another person, and then put on the shelf in the supermarket by another person. And that’s just an over-simplified supply chain for a bag of flour from wheat grown, processed, packed, and sold in the same country—many supply chains span multiple countries.
Supply chains consist of both objects (manufacturing equipment, packaging material, transport vehicles) and humans. If one key person in a supply chain falls ill (say, the mill’s sole truck driver) and there is no one to replace him/her, the chain breaks. If some object in the supply chain breaks or is temporarily or permanently unavailable (say, the mill runs out of the paper sacks in which flour is packaged), the chain breaks.
Each object in any supply chain also has its own supply chain—the paper used for the sacks may be produced by a Swedish paper mill, which uses equipment from Japan and Korea to process logs themselves trucked in from forests across Scandinavia and the Baltics. These supply chains are complex and fragile in themselves. But they also interact with and depend on each other. This makes the system of supply even more complex and fragile as a whole because anything that affects one supply chain is likely to affect others. If the pulp processing machine in the Swedish paper plant breaks down, and the only technician who can fix it is severely ill with coronavirus, the paper sacks don’t get made, the flour doesn’t get packed, and that sack of flour doesn’t get to the supermarket shelf on time.
Supply chains have some buffer built into them (in the form of backup staff, spare equipment, extra inventory) so they can handle a few people being ill at any time or some shortages of components. But these buffers are inherently inefficient—and supply chains are designed to be as efficient as possible. Few have so much inefficiency and buffer built into them that they can handle large swathes of the population being ill at once.
When supply chains begin to collapse, the collapses may spread through the supply system because supply chains are now so interconnected—a different, but equally devastating contagion.
I leave you to consider the implications for the economy, for people in the workforce—and for civil order—of not taking seemingly unreasonable countermeasures against a coronavirus outbreak in any city or country:
A dramatic increase in otherwise avoidable coronavirus- and non-coronavirus-related deaths;
A significant fraction of the workforce gets sick and cannot work temporarily;
Small businesses and independent traders go out of business in alarming numbers;
Incomes drop and unemployment rises for both non-salaried and salaried workers;
Demand for products and services drops, probably triggering a vicious deflationary cycle;
Fragile supply chains become prone to collapse, with each collapse more likely to infect the rest of the supply system.
A fatal self-delusion
It’s impossible to know exactly and in advance what the exact costs of not acting unreasonably will be. So it is impossible to interpret these unreasonable measures through the risk mindset by doing an accurate cost-benefit analysis of whether or not they are “worthwhile.” The risk mindset is an inappropriate way to see the world at this time—the world is now undeniably uncertain, not risky.
Unfortunately, the risk mindset persists at every level.
Over the last two weeks, individuals, businesses, and governments have tried to preserve normalcy in the face of undeniable evidence that normalcy is no longer appropriate. Governments refused to forcibly suspend movement and commerce. Businesses persisted in having employees come into work. Individuals went out with each other as usual. (Some leaders also want things to return to normal far earlier than is wise.)
The risk mindset seems to lead decisionmakers (whether the regular person in the street, the leader of a business, or a policymaker in government) to
Assume that the unknown costs of not taking unreasonable measures are smaller than the known economic costs of taking those unreasonable measures;
Believe that the situation is better understood and more controllable than it actually is.
This is how the risk mindset prevents us from responding appropriately to coronavirus threat.
A different mindset is needed now, one that acknowledges the uncertainty of the situation instead of denying it.
The uncertainty mindset is ultimately realist and pragmatic, but also imaginative. It can imagine what a future might be like given the reality of the present. What should be clear from the analysis above is that not doing everything possible to control a coronavirus outbreak is very likely to carry enormous, staggering costs that are not simply economic but social and human as well—while they cannot be calculated precisely in advance, they almost certainly will exceed the huge economic costs of even unreasonable measures taken today.
With every passing day, mounting evidence from countries that were or are deep in the trenches fighting coronavirus suggests that even measures that look like absurd overreaction are sensible and minimally precautionary. And these unreasonable measures are unavoidable: Any delay now is paid for later
Looking at the situation through the lens of the uncertainty mindset, it becomes clear that taking unreasonable measures despite their huge economic cost is the only sane thing to do—because we have so much to lose.
If you found this useful or thought-provoking, you should definitely share it indiscriminately with masses of people. You can find previous issues of The Uncertainty Mindset here. I’m on the web at www.vaughntan.org, on Twitter @vaughn_tan, Instagram @vaughn.tan, or by email at <email@example.com>.