China is the only good example to understand how the markets value a massive outbreak, because it’s the only country that has had a huge one and that has (apparently) been able to control it.

When Hubei shut down, the markets panicked. But as soon as they were down, they started going back up again. By the beginning of March, they had gone back to nearly normal, their level before the lockdown, and a similar level as the year before. What that means is that investors believed a full shutdown of an area of 60 million people barely registered in the grand scheme of things.

Only when the coronavirus became a pandemic did investors start worrying again. But what matters here is how they valued the cost of the lockdown. The answer appears to be: Not much.

Incidentally, the day President Trump announced the National Emergency, markets went up.

This is not much information, but we need to realize that we’re making decisions that might cost millions of lives with very little data. Any information we have needs to be part of our analysis. And so far, all the evidence we have suggests a suppression strategy would not be more expensive than mitigation, but rather the opposite.

Ok, let’s take a step back. Now we have some evidence that:

21st century pandemics have tended to have a short-term effect on the economy

Quicker and longer social distancing measures probably benefit the economy

A lockdown that can control an outbreak was enough to increase the confidence of investors to bring the Chinese stock market back to the levels before the lockdown.

Based on the little we know today, it looks like Suppression is economically better than Mitigation once you have an outbreak.

The Price of a Life

One of the core challenges lawmakers have when comparing Suppression and Mitigation is that tradeoffs between life and money are hard. The major benefit of Suppression, the lives saved, can’t be translated into money.

But it can.

The cost in deaths to the US would range between $750 billion and $15 trillion.

We do that all the time. In insurance, pharmacology or healthcare, for example, society has to decide how much a life is worth.

This is a painful reality in healthcare: We don’t have infinite resources. We can’t, unfortunately, treat everybody for everything. Otherwise, we would go bankrupt. As a society, we are forced to make decisions: How should we spend the limited resources we have? What measures are worth paying for, and which ones are too expensive?

The way we calculate this is by asking ourselves: How much are we willing to pay to extend our life? In healthcare in the US, that number turns out to be between $50,000 and $150,000 per year.

If we assume the average age of death for coronavirus is 78, these people have on average 10 more years to live, which means the average coronavirus patient would pay up to $1.5 million to avoid death (10 years * $150,000 per year).

We don’t live to make money. We make money to live.

In my previous post, I explained how direct deaths from a mitigation strategy in the US could range between 500,000 and over 10 million. As a quick back-of-the-envelope reminder, it’s the result of assuming the share of the US population that gets infected ranges between 40% and 75%, and the fatality rate ranges between 1% (currently 1.5% in South Korea, the country with some of the best testing and healthcare system) and 4% (Hubei region. Note the current fatality rate in Italy is ~10%, but they are probably undercounting cases). That does not account for collateral damage (other people who die because they don’t have access to urgent healthcare), which could greatly increase the death rate.

If we account for how much we value life, the cost of the coronavirus in deaths for the US would be between $750 billion and $15 trillion. For context, that’s between 4% and 75% of GDP. The cost in lives would be staggering.

Let’s summarize all this information

Notes: some people have asked me how it is possible that the value of some people’s lives is comparable to the size of GDP. GDP is broadly the value created in a year, not the total wealth we have. The total wealth we have in the US is approximately $1 million per person on average, which means the US’s wealth is ~$320 trillion. That does not account for the wealth in terms of life, but puts the cost of $15 trillion in lives into perspective. Also I haven’t talked about the costs to the economy of the Dance phase of the Suppression strategy, once heavy social distancing measures subside. That’s because, if done well, countries can “dance” with only a small subset of measures that don’t cost much: testing, contact tracing, quarantines, isolation, hygiene education, and travel bans. Note finally that a suppression strategy would cost all of society but would benefit older people more, as they are the ones most likely to be saved by these measures. As such, they are a transfer of wealth from all of society towards our seniors, who in the US tend to vote Republican.

Some societies are adopting a “survival of the fittest” approach, exposing their populations to the virus and letting the weak die. But it looks like that approach might weaken these societies more, making them, in turn, not be the fittest they could be in the face of this epidemic.

All these numbers, with the surprising conclusion that a Suppression strategy would likely be less costly than a Mitigation strategy. But these numbers obscure a larger truth:

We don’t live to make money. We make money to live.

And the best way to illustrate that is through war.

4. Out of Many, One

This is War

President Trump put it very clearly on March 18th: This is war.

He compared the sacrifices we will need to make to those of World War II. This is exactly how we should be looking at the problem.

Imagine we had foreign agents. They have infiltrated the US. They are invisible. They are spreading across the country: slowly, silently. And then, they strike: rapidly, randomly. People start falling left and right. Over a matter of days, the death toll of 9/11 is passed, and then dwarfed. At some point, it becomes clear that the death toll will be worse than Iraq. Worse than Vietnam. Worse than World War II. Worse than all of America’s wars combined.

If this was happening, the US would stop everything it’s doing and single-mindedly focus all of its attention and money to beat this enemy.

That’s why the US has the mightiest military in the world. That’s why it spent $2.4 trillion on the wars against Iraq and Afghanistan. That’s why, during World War II, two-thirds of the American economy had been integrated into the war effort: to beat the enemies that threaten America.

This is what should be happening now. The fact that our enemies are invisible viruses and not invisible agents doesn’t change much. If anything, it only makes it easier, because we’re smarter than them and we can beat them.

But only one entity can declare war and harness the resources we would need: the federal government.

Survival of the Fittest

China had a centralized response to the coronavirus. South Korea had a centralized response. Taiwan. Italy. Spain. France. UK. Poland. India. All centralized responses. Meanwhile, so far in the US, we have let states take the lead.

There are many situations where that approach is reasonable. But waging war against an exponentially growing threat that all countries face at the same time is not one of those situations.

We have a $2 trillion package to fight the coronavirus. It’s a war-like budget, but without war-like measures. The government has invoked the Defense Production Act, for example, but hasn’t actually used it yet. As a result, states and companies are struggling to face the challenge, but in some places, they’re drowning.

Trade War over Supplies

One of the best examples is the purchase of personal protective equipment (PPE), such as masks, goggles, gowns or gloves.

Traditional medical distributors such as Cardinal Health or McKesson are doing what they can to get PPEs from the manufacturing center of the world, China. Except that China has been closed for business for nearly a month. Just as the supply plummeted, demand exploded around the world, with orders of magnitude more requests from all countries in the world for more of everything. Even if China wanted, it couldn’t supply everything. That’s assuming that China wants to. In the middle of a trade war with the US, and with a grey market that is much more profitable than the official one, the traditional channels don’t work. Suppliers are selling to the highest bidder.

When there’s will, we can overcome these challenges, such as the recent airlifting of medical supplies spearheaded by the White House. But this is piecemeal right now, not a systematic approach.

Homegrown Mess for Protective Equipment

The country is mobilized. Everybody wants to help, from tech to education. In healthcare, hundreds of initiatives have sprung up to produce the PPEs our healthcare workers need. Manufacturing plants across the country are trying to change their production towards masks, face screens or any other PPE. But they don’t have the money, designs or logistics to start, and they don’t know where to sell. Dozens of organizations have sprung up to help, such as the PPE Coalition. But we need one master effort to immediately coordinate all manufacturers, financiers, designers, lawyers, logistics experts, and customers in one place.

If we had months, the private sector could figure it out. But we have days. When you need speed, you need a single actor coordinating everything, and the obvious one is the federal government.

But the response so far has been for states to figure it out by themselves. The federal government has told state governors to find ventilators by themselves. That is tragic.

Fratricide for Ventilators

First, states are not experts on this. They don’t have their own CDCs. They don’t deal with ventilator markets. They don’t know where the supply is. Every day counts, but instead of mandating what needs to happen, thousands of state employees are trying to become overnight experts in ventilator and PPE procurement.

But even if they were experts, they couldn’t do it. Because now every state is fighting for itself. Every state needs ventilators, either because they need them today, or because they will need them tomorrow. This is a matter of life and death, so they’re bidding against each other. Ventilator and PPE providers are looking at this and selling to the highest bidder. Survival of the fittest.

States are bidding against each other for ventilators and protective equipment. Survival of the fittest.

A coordinated federal response would eliminate all these problems: it would harness the experience of the best experts, it would determine the prices and quantities to be manufactured, and it would distribute assets based on needs, not on whoever is fast and rich enough to buy them first.

Unaffordable Testing Kits

Arguably, the single most important measure against the coronavirus is to test as many people as possible to identify all the infected, isolate them, trace their contacts, and quarantine them. This is the bread and butter of how all East Asia countries have controlled the virus. It’s how we’ll know how when, in a Suppression strategy, it’s time to switch from the Hammer (total lockdown) to the Dance (relaxed social distancing measures).

But in the US, not only do we have a very hard time testing. It’s unaffordable. If testing for the virus was as simple as getting a test covered by your insurance, that would be easy. But that’s not how it works.

People who are symptomatic and seek care may be billed for a visit with a doctor, an influenza test, a chest x-ray, and bacterial, viral, or blood culture tests. These costs can add up very quickly, particularly for people with no insurance or who have high-deductible health plans. — Castlight Report

With all these, a simple coronavirus test can end up costing people over $4,000. That does not include the treatment. There is no way you can test everybody with that price tag.

Contact Tracing and Quarantine Enforcement

China had 1,800 teams of five people each figuring out every single person that a coronavirus patient might have infected while out and about. These techniques were extremely advanced, looking at mobile phone location or credit card data, cross-referencing with mass transport tickets, and using other tools to identify every single potential contagion.

Meanwhile, in the US, we’re leaving all of that to the states.

Quarantine enforcement is equally technologically-advanced and time-consuming. Some countries use apps, while others track the movement of your phone to know if you’re still at home and call you if they suspect you left your phone home.

None of this exists in the US. As we know, the NSA already has a lot of this data. The government is already using it, they’re just not using it for this yet, and 50 states can’t be expected to all figure it out on their own.

The government doesn’t need to do all of this, but it needs to coordinate it. We will go much faster if we develop a single app for all states and we tell everybody to use that same app. We will also need software for contact tracing workers to do their job. States can employ these workers, but with the time we have available, the fastest way to get this done is through a the federal government, even if it’s through a public-private partnership between with tech companies.

All of that can be done while maintaining privacy, like in Singapore. And if people don’t want to use the app, they can opt out like in Poland and just expect random visits from state enforcement workers.

The Weakest Link

All of this puts US states in a very tough situation. The richest ones might be able to organize all of this and develop the technology required. But many will not. These states will suffer outbreaks they can’t see or control. That will create difficult dynamics between them.

Imagine Alaska applies a costly Hammer and locks down the state for weeks. It manages to control the epidemic, and sets up great testing and contact tracing processes. Meanwhile, maybe Texas doesn’t want to do the same, and there’s an uncontrolled epidemic.

What will Alaska do? Will it let Texans come, at risk of seeding new outbreaks? No, it will want to ban them from traveling to Alaska. Clever Texans will just travel to another state and go from there to Alaska. So Alaska will be forced to seal its borders. And every state that takes the coronavirus seriously will have to seal its borders too. This is already happening.

If you think that’s impossible, legal experts disagree: states can close their borders to other states.

When the federal government treats every state like an independent country, the states require the same tools as those of independent countries. Even though Spain is part of the European Union, as an independent country, it sealed its borders.

Individual states are only as strong as the weakest link. Either the US mandates measures at the federal level, or states will be forced to behave like countries and eventually seal their borders.

What Should the States and the Federal Government Do?

The takeaway is that both states and the federal government have their own roles to fulfill. So far, states are taking the lead, and many are doing what’s needed. But some haven’t. And even the best ones still need coordination in some areas.

Based on all of this, here are some key measures the federal government should contemplate:

Healthcare Supplies: Centralize the purchase of critical supplies (ventilators, PPEs, test kits…) and allocate them to states, allowing them to distribute within the state. Provide supplier guarantees so that they don’t underproduce in fear of ending up with too much unsold inventory.

Homegrown Production: Support the homegrown production of critical supplies, including financing and supplier guarantees. Determine a clearinghouse so that supply, demand, and philanthropic help know where to meet. Either build one through a public-private partnership, or anoint one of the existing platforms to speed up market making (eg, Google for ventilators, PPE Coalition for PPEs).

Centralize Contact Tracing: Build with a public/private partnership the technology needed to trace contacts easily. Create a law that requires companies to hand over the data needed to make it work and allows its use by federal and state employees. Provides the tools for states to actually carry out the contact tracing. Create the tools in a way that privacy is optimized, and add an automatic expiration date to the law.

Either mandate country-wide social distancing measures, or provide very specific guidelines for states and clarify their ability to seal borders with each other. The application of social distancing measures should adapt to the reality on the ground: What works in infected cities with lots of work-from-home ability might not fit rural areas with low density, no coronavirus cases, and predominant farming activity. If a federal mandate is unworkable, use access to other resources and funding for compliance.

Speed up decision-making or get out of the way when states need agility. For example, testing kits could arguably be better off without the heavy oversight of the FDA, given all the international best practices and the speed of local laboratories. Use the FDA recommendations as guidance and best practices, rather than as a gate.

Lead an initiative to guarantee free coronavirus testing to citizens, all costs included.

Actively update travel bans: Right now, they are mostly from China, Iran and Europe, but that doesn’t reflect the reality on the ground anymore. There are as of today 23 countries outside of these places with more than 1,000 cases, and many more quickly growing.

Support states with advice and money to educate the population on the importance and best practices of social distancing and hygiene.

Conclusion: Join, or Die

The United States is the strongest country in the world. It has the most vibrant economy, the mightiest military. It has inspired democracies through history, and shines the values of freedom around the world.

All of this originated two and a half centuries ago, when a group of ragtag colonies, subservient to a remote king, decided to band together to overturn a tyranny.

That triumph emerged from the union of the original thirteen states. Independent, they couldn’t beat the mighty United Kingdom. Together, they did.

This is why the US is called the United States. It was the union that brought the force. It’s why the seal of the United States of America declares: E Pluribus Unum.

Out of many, one.

We are facing the biggest battle of our generation, and it all comes down to today. We have two options on our hands: Either we unite as a country, or we will crumble as individual states.

The margin of error is so small. A few days off, and thousands more die. Our healthcare workers are already dying on the lines. They’re willing to give their lives for all of us. Because that’s what living is about. We, too, need to fight for every life of our compatriots. Because we know, when we add up these lives, this will make the difference between winning and losing. Between living, or letting our loved ones die.

I want to be on the winning team. Do you?