When it comes to Covid-19, I worry about the problem of “phantom risk.” Right now the risks of Covid-19 are very real, but at some point we still will feel those risks when they are no longer present, much as some amputees may feel a “phantom limb.”
How this might play out?
On the bright side, biomedical progress against Covid-19 continues to impress. Vaccines are progressing well ahead of schedule, faster and cheaper methods of testing are being discovered, and researchers are starting to crack open the riddle of how Covid-19 interacts with the immune system. The treatment of hospitalized patients is also improving.
The upshot is that the odds of a person dying from Covid-19 are falling and are likely to continue to fall. Many parts of America, including my own populous Fairfax County in Virginia, have increasingly experienced days with no deaths at all. Nor are the hospitals overwhelmed, and thus other medical procedures can resume.
The most likely outcome, therefore, is that nine, six or perhaps even three months from now the death toll from Covid-19 will be much lower.
That is good news for the markets, too — but here is why I am not yet an unreconstructed economic optimist. Covid-19 cases have acquired a stigma, and that stigma is likely to persist above and beyond the dangers associated with the virus itself.
If, say, 20 Covid-19 cases were identified within a high school today, there is a very real risk that those infected students would carry the virus home and infect older and more vulnerable people. There is also a small risk that the students would sustain damage themselves. Not surprisingly, most schools won’t reopen because they cannot deal with the burden — institutionally, legally or otherwise — of being connected to significant numbers of Covid-19 cases.
The question is how this stigma ends. If rates of death and possible long-term damage fell to half of their current levels? One-third? Less? I strongly suspect these same schools still would be unwilling to reopen, due in part to phantom risk.
If rates of death and damage fell to one-fifth of their current level, perhaps, there would be more reopenings — but there would still be a lot of reluctance to restore previous levels of attendance. How about one-tenth the level of mortality? It is hard to say when people will feel comfortable once again.
Along these lines, as long as clusters of reported cases are possible — regardless of mortality rates — many high-rise office buildings will not let workers and visitors simply pile into their elevators.
Many sites likely to experience identifiable, traceable clusters of cases will keep their doors shut, or open them on only a very limited basis. Further declines in the mortality rate won’t help much, because “37 Covid-19 Cases Identified at UC-Berkeley” is enough of a headline to create reputational risk and an institutional response. Even if everyone makes a speedy recovery, that won’t get the same kind of media coverage.
In fact, the University of North Carolina at Chapel Hill just ended face-to-face instruction because 177 students out of 30,000 tested positive. You can debate whether that is a lot of coronavirus or not, but ultimately the public perceptions matter more than the precise number of cases.
This kind of risk aversion will harm schools most of all, because it is relatively easy to figure out that a cluster of cases among the young came from their school interactions. The same is true for many service-sector workplaces with relatively cramped quarters. Movie theaters and entertainment venues may have a somewhat easier time of it, because if some number of people show up at the local clinic to be tested, it won’t be obvious that they might have all seen the same movie together.
Recent research shows that professional sports events (pre-Covid) increased the mortality risk from influenza in a city by between 4% to 24%, a non-negligible amount. Yet few people worry about this problem because it is not psychologically vivid and receives little publicity. Covid-19 risk will not so easily settle into a comparable category, given the trauma it has inflicted on both people and society itself.
This reluctance cannot continue forever, of course, because at some point schools, office buildings and other institutions will run out of money and political support. Nonetheless, progress on the biomedical and medical fronts will outrace the economic recovery in the sectors vulnerable to identifiable, reported clusters of covid-19 cases.
The end result of all this is that society will move from seriously underrating pandemic risk to badly overrating it. If you want to know when the US economy will start to see a significant recovery, focus on this issue of phantom risk. It will remain a binding constraint even after most of the real dangers are past.
Bloomberg
