Note: This was originally written for my weekly newsletter. You can sign up for it here.

Welcome to a special coronavirus edition of MFM, the only weekly newsletter that refuses to cancel its flights and believes eating fruits and vegetables is more useful than wearing a face mask. Each week, this newsletter breaks down three ideas that usually revolve around social psychology, cognitive biases, and some light philosophy.

This week, I’d like to use coronavirus as a case study to talk about the difference between systemic risk and individual risk, why some people are way more worried about this than others, and what sorts of cognitive biases are influencing us all.

So get your hand sanitizer ready. This is going to be a long one.

(Note: If you enjoy these newsletters, even when they aren’t about coronavirus, please consider forwarding this email to a friend and suggesting they sign up here. It’s free. And almost as useful as a hospital bed… almost.)

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1. The Real Reason to Stay Home

A few weeks ago, when I wrote about coronavirus, I made two predictions given the data. First, this thing is going to spread across the planet and it’s probably inevitable that most of us get it at some point. Second, that it’s probably way less deadly than the numbers coming out of China originally made it appear.

Both of these ideas seem more and more likely to be true with each passing week. China was underprepared when the outbreak occurred and has since taken drastic measures to curb infections. Also, in the vast majority of cases (80%+) people have only mild symptoms, those akin to a regular cold or flu. In fact, the symptoms for many are so mild that it’s now suspected that large numbers of people who have the virus aren’t aware of it.

What we’re seeing now is an increase in quarantining—people staying home, working from home, conferences and events (e.g., SXSW) canceled, flights canceled, towns and neighborhoods put on lockdown. All of these things seem drastic in the face of what amounts to most people as just a really strong flu going around. As such, it seems the majority of people are blowing this off as yet another case of the media overreacting to nothing.

Amazingly, I disagree. And I say this as someone who has recently written a 30-page article criticizing the media for overreacting to everything. So, it’s not every day I admit that a media panic is, well, probably not just a made-up thing.

Now look, I know that the flu kills like a ton of people each year and I get that this thing is really only dangerous to people over the age of 70 and I understand that the stock market has plunged more than a broken toilet the past few weeks.

But what’s important to understand is that the point of the quarantines isn’t to prevent us all from getting sick. The point of the quarantines is to slow the spread of the virus enough to prevent overloading the healthcare system.

Roughly 10-15% of people infected need to go to the hospital. Right now, epidemiologists are saying we can expect anywhere from 40-70% of the world population to be infected in the next year. Let’s say that’s an exaggeration and go with a more conservative 30%. In the US, that means roughly 110 million people getting sick. And of those 110 million, over 10-15 million or more need a hospital bed.

Yet, the US only has 924,000 hospital beds… and about two-thirds of those are filled at any given time with, you know, people with cancer and shit.

So, while staying home, from an individual risk perspective, seems unnecessary and an overreaction, from a systemic risk perspective, it’s the only prudent thing to do. The more people who go out and about, the faster this thing spreads, and the faster this thing spreads, the more the hospitals get flooded, and the more the hospitals get flooded, the more people die unnecessarily.

It’s that simple.

So no, you and I aren’t going to die. Hell, we might not even get sick. But we might get others sick and that might cause others to die. So… Yay.

2. Pick Your Poison: Health Crisis or Economic Crisis?

If you quarantine large swaths of the population, now you’ve created another predicament for yourself: commerce grinds to a halt.

It’s estimated that 30% of small businesses in China are closed right now. Japan closed all of their schools for March, sending nearly a million teachers home without work. Millions of workers are telecommuting rather than going into the office, likely causing productivity to drop. Thousands of flights, cruises, conferences, and events are being canceled around the world.

If you do the prudent thing for the population’s health, you introduce a new systemic risk: economic downturn. But if you avoid an economic downturn by encouraging people to go about their lives as normal, you exacerbate the risk of a public health crisis.

It’s interesting to see different cultures taking different approaches to this conundrum. Some countries are clearly more willing to give up economic stability for the sake of public health. Other countries are willing to risk a health crisis for the sake of short-term economic stability.

The policy in the US so far has been mostly, “Nothing to see here, move along.” Trump has publically compared the virus to the flu and told people that he thinks it will mysteriously go away. The population remains woefully under-tested and hospitals under-equipped. Everything seems designed to minimize panic and stock market fallout rather than maximize safety. In the US, as always, “it’s the economy, stupid.”

Compare that to the responses in China, Italy, and South Korea, where entire towns and neighborhoods have been quarantined and governments are administering thousands of tests per day to pretty much anyone who gets sick with anything. As a result, Italy and Korea’s infection numbers are sky-high compared to other developed countries, thus making them appear to be ground zero for this thing. But my guess is that in the long run, they will come out of this much better than most.

And then, as always, there’s the North Korean solution, where the first person to test positive for coronavirus was taken outside and shot. Well, I guess that’s one way to respond to it.

3. Our Cognitive Biases in Action

I’ve written quite a bit in the past about how our minds are inaccurate and we form erroneous beliefs based on irrational feelings.

Coronavirus is interesting because people seem to default to either panic mode or denial. It’s either, “The world is ending!” or “What’s the big deal?”

The truth is, as usual, somewhere in the middle. Individually, most of us are not at much risk. Systemically, we are at great risk. It’s exactly these scenarios—where there’s a large mismatch between individual and systemic risks—that shit usually gets fucked up.

That’s because our minds default to view things through how they affect us, not how they affect the country, the community, or the world. We have cognitive weaknesses when it comes to stuff like that—and no, I don’t just mean being bad at math. For example:

We all tend to think linearly, not exponentially – Paul Graham had an excellent tweet about this where he said, “People aren’t surprised when I tell them there are 13,000 Covid-19 cases outside China, or when I tell them this number doubles every 3 days. But when I tell them that if growth continues at this rate, we’ll have 1.7 million cases in 3 weeks, they’re astonished.”The economist Tyler Cowen pointed out that the people most alarmed about coronavirus seem to be people accustomed to thinking exponentially—people in tech, finance, and science. People who seem to think this is a bunch of crybabies crying about crybaby things are used to thinking about problems linearly.

We tend to focus on first-order effects, not second- or third-order effects – If I wreck my car, I’m most likely to be upset about my wrecked car (first-order effect), not how I’m going to pick up my kids from school each day or how higher insurance premiums will affect my monthly budget (second-order effects), even though the second- and third-order effects will have a bigger impact on my life than the damaged car.Much of the analysis I’ve seen on coronavirus stops at the first-order effects. “Stay healthy, wash your hands, you’re going to be fine.” Hell, that was basically my analysis a few weeks ago. But the second and third-order effects of this could potentially be quite large.Just one example: the US healthcare system is utterly broken. Roughly 60% of Americans can’t afford to pay for an unexpected emergency and 10% of Americans don’t have health insurance at all. Medicare (which insures old people) is already on shaky financial ground. 20 million extra people hitting the hospitals over the next year could cause a different type of epidemic: bankruptcies.Another potential second-order effect: de-globalization. Quarantines and broken supply chains will force countries to adapt by reinvesting resources within their own borders, cutting off trade ties, making them more skeptical of travelers and business relationships and causing all sorts of shifts in the political zeitgeist.Another one: coronavirus is most dangerous to the elderly. And the elderly vote more than anybody else and tend to be the most politically conservative demographic. The United States, South Korea, Greece, and Poland are just some of the countries with major elections this year. With 10-20% of the elderly population unable to vote, that could shift electoral results in many places. Another one! Western countries and Japan are generally older populations. They have more old people than young. The Middle East and Africa are incredibly young regions. Some countries will come out of this far more unscathed than others simply due to their age demographics. That means lower health care costs, smaller losses in productivity, less fear and panic in markets, etc. I’m not saying these things will happen. I’m just saying these are some of the things that aren’t immediately obvious that we could be thinking about.

We tend to focus on one-off solutions, rather refining daily habits – And finally, as I’ve written before, we are biased towards single, big changes in behavior to accomplish something rather than accumulating many small, regular changes that create bigger benefits. For example, wearing a mask is almost useless. Whereas eating a healthy diet of fruits and vegetables and taking vitamins C and D regularly will boost your immune system immensely. Honestly, the single best thing you can do right now to protect yourself from coronavirus is all the same shit you should have been doing anyway: eat well, drink less, smoke not at all. And yes, wash your goddamn hands.

I’m sorry if this feels all doom and gloom. Here are a few useful things to remember:

First, things like this are the norm throughout human history, not the exception. We’ve been spoiled lately in the disease department. We’ll make it through it. We always do.

Second, I know we call them economic “crises” but really, economic contractions are normal and healthy things for an economy. It’s where we cull the dead weight and sort out which businesses are actually creating value for society and which ones are just leeching off the rest of us. Or as Warren Buffett puts it, “Only when the tide goes out do you discover who’s been swimming naked.”

And finally, we don’t know what we don’t know. There could be a miraculous vaccine discovery next month. Warm weather might eradicate much of this thing by summer. It might randomly mutate and become less lethal. The stress of this might force our healthcare systems to become more robust and cost-effective. The quarantines might change work-life culture across the world. Emissions might drop. Cybersex might make a roaring comeback. Who the fuck knows?

But if you look throughout history, the biggest and most necessary changes typically come in the wake of crises, much like our most important personal changes often come in the wake of our traumas. There’s always growth in pain. And there’s always opportunity for creation in destruction.

So stay safe. Stay clean. Stay home as much as you can. And… stay away from grandma for a while.

Until next week,

Mark