Quoth Kassandra nevermore

This is my 6^th attempt at writing this blog. I am slow and the situation evolves rapidly. So I decided to go right to the main point I wanted to talk about – governments have a huge role to play in how bad the situation is and will get for all of us. In this blog I will explain how I believe a government should react to minimise the short, medium and long term impacts of the virus on us all.

This reason for the title of this blog is that I am, for once, more optimistic in my view than many of my friends. And I will explain why; get yourself an ice kacang and quoth Kassandra nevermore.

A little bit of economics

Let’s think very simply, the price of something, say an apple, is struck when how much a buyer is willing to pay equals how much a seller is willing to receive. This is the equilibrium price, or the deal price if you prefer.

Imagine eating a nice crunchy apple, you enjoy it quite a bit. Now you are given a second, chances are you will enjoy it slightly less. As you keep being given apples, you will enjoy the subsequent ones less and less. The more apples you have eaten, the less you will enjoy the next one. Therefore, your willingness to pay for the next apple falls the more you have already eaten.

This is the demand curve:

On the other hand, if you are selling apples, you will first pluck the easy ones to reach. But as you have to sell more, you may need a ladder, or a hire someone to climb, so your costs go up as you sell more, therefore you will charge more for the next apple the more you have already sold.

This is the supply curve:

Now all I have to do is to put everyone’s demand curves together to get the market demand for apples, and do the same for the market supply of apples, and I have this neat model (1) showing the market for apples.

Makes sense, right? Nice micro model for the apple market. We can even find the equilibrium price and quantity for the apple market (p* and q*)

To understand the Covid19 situation, we need to take 1 more step: to move from the market for apples (micro) to the demand for all goods and services in the economy (macro). Economists use the diagram below:

Looks familiar? It is the same diagram with a slightly different meaning. Now the demand curve represents the demand for all goods and services (from just apples) and the supply curve represnets the supply of all goods and services (even if you are running a t-shirt factory and you need to produce more, you need to hire more people, and probably pay them more to entice them to join you, pushing costs higher, thus prices higher).

Now that you have the basic tools (2), let’s see what is happening.

A crisis, in our little model, can be represented by either one, or both the curves moving. What do you think is happening due to Covid19?

How many of you know people who have lost their jobs? What do you think this impacts?

On one hand, you can argue that since there are fewer people at work, there will be less supply of stuff. Apples will be left on the trees, the cost of each apple goes up, supply falls.

On the other, as people lose their jobs, they buy less, or are willing to pay much less for the apple now that they have other priorities. Hence demand also falls.

It all makes sense. But what is really scary to me is the people are confused and may make uninformed decisions (or they are right and have bad government support)

Let me illustrate what I mean.

In the 1970s the OPEC first flexed its muscles and the price of oil went up. Now, all industries (especially in the 1970s) used oil whether as fuel, or plastic, a by-product of oil. What happened is that, all of a sudden, the price at which companies had to sell at, rose, the supply curve moved (if it costs me more to produce something, of course I will need a higher price).

However, this was totally new to mainstream economists at the time. And while the diagram below shows what happened, economists could only see increases in prices. And in the past, this meant that demand has increased, so they took measures to decrease demand, make it harder for people to borrow to spend (increase interest rates). This caused demand to fall.

Lo and behold, it made things worse and the world economy got into worse trouble, with more people out of jobs, prices increasing making things less affordable… Was not a good time.

Many people think Covid19 will cause worse economic problems. I believe how the governments react will determine if that is the case or not.

Back to our current situation.

To me, the current crisis is mainly a demand side crisis.

People are afraid of losing their jobs, therefore they spend less, and change their spending patterns. In Singapore for example, many people are buying stuff from supermarkets and cooking at home rather than eating at coffeeshops/hawker centres. And it is real, people are losing their jobs.

Here is where I sneak in a second important concept in economics that helps, the multiplier effect.

Basically, when I take $5 and I buy a plate of mixed vegetables rice, the seller receives it, reimburses the costs he/she incurred – for simplicity the cost of the rice and vegetables – and receives the rest as profit. Then he/she can spend that profit elsewhere, as will the vegetable seller.

Now the key is how much of the $5 is spent again?

In normal times, let’s say that 10% is saved. So out of the $5 I spent, 50c is saved, $4.50 spent at the next stage.  Again 10 pct is saved – 45c – and $4.05 is spent.

This goes on. Fans of math will recognise an infinite geometric progression and say that out of this $5, $50 is actually spent in total.

The $5 spent, has created $50 worth of business.

Now what happens if people lose their jobs? Chances are, they will spend less, so instead of feasting of $5 of vegetable rice, maybe I will spend $2.50. Instantly, instead of generating $50, this generates only $25.

Secondly, if we are concerned about the future, we will save more. So instead of 10%, may be everyone saves 25%. So even if I spend $5, next time $3.75 is spent, then $2.81… for a total of $20.

Now if both happen at the same time, I spend $2.5 and everyone saves 25% rather than 10%, the amount is $12.

Let that sink in, if people lose their jobs, are not confident in the future and save more, in my example, the economy instead of getting $50 gets $12. To make things worse, this has a negative impact and the spiral continues down.

But yes, there is a supply side.

Due to travel restrictions, apples will rot on the trees, manufacturing plants will stop production, but to me these are temporary. Once people can go back to work, to jobs they still have, they will want to.

So how can governments help?

I use the term government in the larger sense of the word, not only do I include head of state/ministers, but also central banks who control interest rates or exchange rates.

To me it is very simple:

• Put money in the pockets of everyone so the impact of lower nutrition weakening the body and increasing chances of catching and suffering from the Covid19 is lower (3).
• At the same time promise this transfer will go on for a while so the confidence of people does not fall.

This should ensure that demand does not fall by much.

At the same time, since people are still employed, neither should supply drop by much. Of course in countries with strict lock-downs the supply side effects will be larger (people still cannot physically go to the factory or the fields) but they still would have jobs to go to, so the supply disruption would be shorter in duration.

How about giving benefits to companies instead? Like what Mr Trump wanted to do?

In Sapiens (4), Yuval Noah Harari argues that companies are human constructs, and humanity decided to give them rights similar to humans. I agree, I would say that companies are a nice way to group people and work towards a goal. But what is important is that the aim of the people running the companies are not the same as the people who work in the companies. For example, the GM might decide that profits would increase if he/she closed an old plant in one country and reopened another with less people elsewhere. I am quite sure the workers at the closed plant would not agree. In this situation keeping people in jobs and their confidence up is crucial. It is best to go direct.

In sum, giving funds to companies with no strings attached need not reap the benefits you may be looking for.

The actual mechanics could involve giving money to organisations and mandating this goes to the employees. The organisations basically benefit from a subsidy per worker, lowering their costs and allowing them to remain in business. It can also take the form of a direct transfer to the employees, with employers decreasing their contribution accordingly (or temporarily renegotiating wages).

How about the interest rate side?

If you are thinking of reducing the weight of debt from companies and individuals, sure that would help. But many are locked into fixed interest products, and furthermore, banks, just like other companies, need not pass on the savings.

Again, I am a proponent of direct action. If we want banks to reduce loan-repayments or even defer payments, I think governments can give incentives to banks to defer loans for a few months. In Singapore especially, where banks have recently declared even higher profits than before (5), this should not be a problem. I am sure nobody wants the housing market to collapse with bad loans when a simple loan restructure could save the day.

In sum, yes, the central bank can cut interest rates and this would encourage borrowing, support businesses. But I think that if governments could work with banks to defer loan repayments for a few months it would be a more direct way of ensuring there is no collapse.

In countries like Singapore where rather than interest rate policy, exchange rate policy is used, a slight loosening would help. More explanations are beyond the scope of this blog (6), but the idea is the same, make it easier for people to borrow or buy stuff.

How does this look like?

Basically, paying people part of their wages and ensuring this will continue for a while pushes the demand curve back to some degree. This mitigates the loss of demand, and thus the total output falls by less than it would. Impact of crisis mitigated.

Conclusion

The government has a huge role to play in how we suffer and recover from the economic effects to Covid19. I suggest that governments take direct action to help people, put money in the pockets of people and guarantee that this flow will continue for a certain number of months(7). What this will do is:

1. give confidence to people to keep spending and create multiplier effects in the economy
2. make people save/hoard less, so there will be more to go for everyone
3. relieve employers from some of the wage burdens and therefore allow them to stay in business.

Additional measures that would help

• declare loan repayment holidays for a few months

There will be costs involved, countries will have to dip into reserves, and it will take time for the reserves to recover, but if reserves are not used in times like this, when will they be used.

In addition, global organisations could help, such as the World Bank or IMF to give no or very low interest loans to individual countries to finance these should their reserves prove insufficient. This would be a great way to show that we are all in this together.

I would also end with a plea: live as normal as possible, patronise your favourite stalls, give them the support they deserve!

The above are some of my favourites, and I have visited them recently.

P.S.

I would just like to add that they way Singapore is dealing with this is great; they are already doing much of this, so many countries could learn from this approach. Size or population concentration may impact how to deal with the virus itself, but dealing with the socio-economic impact has nothing to do with size.

1. I use model because this diagram is a representation of reality
2. There is one more concept that would help, but I will leave it for later, so it does not disrupt the story.
3. Sorry to have sneaked that in, but I believe and extra benefit of this scheme, on top of direct economic impact is to slow the progression of Covid19 by strenghening people's immune systems or making people less vulnerable to the virus
4. https://singapore.kinokuniya.com/bw/9780099590088
5. https://asia.nikkei.com/Business/Markets/Nikkei-Markets/DBS-posts-record-profit-offers-relief-amid-coronavirus-outbreak , https://www.straitstimes.com/business/banking/ocbc-q4-profit-jumps-34-to-124b-beating-estimates , https://www.businesstimes.com.sg/companies-markets/uob-q4-profit-up-10-to-s101b
6. Anyone really interested in exchange rate policy can comment and I’ll try to explain.
7. In fact rather than a transfer this can take the form of a loan from the government to be repaid over a few years, which would ensure that the reserves self-heal after a while.

Stats may help you understand more about Covid19

There has been a lot of fear around the Covid19, and a lot of it has to do with not understanding what is going on. A lot of what is going on should be easily understood by anyone with basic statistics background and some common sense when it comes to medical issues. Since I am one of the millions who satisfy these criteria, and I have heard some stuff that surprised me – I was so relieved when my colleague on the same floor tested negative! - I decided to write this blog, showing how basic statistical knowledge would help understand what is happening in the Covid19 situation. It will not prevent anyone from catching the virus, but I hope it can lessen anxiety regarding various reports that have been floating around.

A Why you need to understand sampling

How would you know if someone has Covid19 or not? Covid19 is caused by a virus, and there are mainly 4 ways in which one can test for a virus (1). But let me just explain what a virus does, and you will see that the testing methods are easy to understand.

A virus is a small infectious agent that replicates inside living cells (2). So in order to thrive, a virus has to get into a living cell and there it can try to replicate. So find a healthy cell, infect it, and try to replicate. The infection damages the healthy cell, which can then damage the immune system, while doing that the virus actually changes the genetic material of the cells (the cells don’t do what they were supposed to do anymore, or not as well), and can cause inflammation that may damage organs.

So how can you detect a virus?

1 Viral Culture

This is the way most people would imagine a test to be like, especially since we have all see the picture of a corona virus by now. Basically you take tissue from the individual, and create optimal conditions for the virus to proliferate, then checkout if the virus is present after a suitable time so that it can proliferate.

For example, when one of my “monsters”  had an ear infection, the vet used ear buds to swipe inside the ear, sent the swabs to the lab, where the labs grew whatever was inside and identified it (in this case it was bacteria) and recommended appropriate treatment (Thank you Dr Au!)

2 Antibody test

Your body is designed to fight any intruders, viruses included. When the immune system detects an invader, it will pick a weapon from its stockpiles, and increase production of that weapon in order to fight the invader. While there are generic weapons, more specialized weapons are antibodies to specific threats. This is one way vaccines can be developed but I won’t go there here. The antibodies are to be found in the blood stream, so they can travel all over the body and deal with the specific invaders.

For example, this is what people test for also to see if you need a tetanus shot. People like me often get into trouble with animals and inanimate objects, so cuts and wounds are par for the course. It is therefore important that I am protected against tetanus. The test for whether I am protected is to detect the level of antibodies I have, whether I have enough to fight off an infection.

3 Viral antigen detection test

If a cell is infected with a virus, the cell itself changes. The idea of an antigen is that the surface of an infected cell gets coated with a specific antigen. The trick to knowing whether someone has been infected is to detect whether there are cells that are coated with the specific antigen. One way of doing this is to inject a special chemical that will attach itself to that antigen and be visible using some equipment. So if the antigen is present, the chemical will attach itself to the infected cells, and be visible.

4 Viral DNA/RNA detection test

In this test, some body fluid (blood, spinal fluid…) of the person is taken, and searched for DNA/RNA of the virus. Since this test looks for the DNA/RNA, it can exactly pin-point what virus is infecting the person.

So what has sampling got to do with this?

Let me put it simply, if you are looking for something in someone’s blood, it is impractical to look at all the blood. You have to take some of the blood, a sample. Samples are important in statistics, specifically the size of a sample.

How big does your sample need to be? Well it obviously depends on a few factors, the main ones being:

• How homogeneous is the population you are studying? For example, if you are trying to find the average height of a group of people, you would need a smaller sample size if you are looking at a class/age/grade, rather than looking at the whole school. The class would have less variability as compared to the school which has many age groups.
• How much do you want to risk getting things wrong? If the reason you were trying to find the average height was to select taller people to try out for the newly formed basket-ball team then getting it wrong is not as important (people of all heights can play basket ball well) as compared to the case when you are looking at really tall people who may have some condition you would like to treat.

Before we go further, any idea what type of test is being used at the moment?

It may be surprising to some people, but there is no universally used test. Let me just give a list of a few tests used:

RT-PCR (3)

The US CDC (Centre for disease control) came up and started shipping tests for Covid19 in early February (4). They used the RT-PCR which basically hunts for DNA/RNA of the virus (4). What do they test? Samples taken from lower and upper respiratory systems. Basically since the virus affects the lungs, then you should be able to find evidence of it in the respiratory tract. The CDC even specifies the equipment and software versions that should be used in the test. Note though that the CDC developed their own test.

Since the process of DNA/RNA testing is not a quick one, and as mentioned by the CDC only a limited number of labs qualify, this poses some issues regarding how universally usable this test is.

For those who are interested in the process, the Ontario Public Health has a very informative page (5) that even explains how to collect the samples

• Naso-laryngeal swab (nose, throat, larynx), throat swab for upper respiratory tract
• Bronchial wash, pleural fluid, lung tissue sample for lower respiratory tract (which all involve some tubes down the throat – bronchial is from the lungs, pleural is around the lungs, lung tissue is self-evident)

So sample collection is not a walk in the park for the person being tested.

To summarise, the RT-PCR test is a bit tough on people undergoing them, the labs need to be properly equipped, hence doing the tests on large scale is not straightforward, plus it takes time.

To make things worse, the CDC admitted that the test kits they shipped were defective (6)(7) being too inconclusive, and limiting the testing as explained above (China can test 1.6m people a week, South Korea has tested 35,000 people in a few weeks, the USA 429 (8)- although as of Feb 29 the number of people tested in the USA has risen to 472 (9))

Clinical Test/CT Scan

Recently China has a huge rise in the number of people suspected of having been infected; this is because they changed the way they tested (10).

There has been some support in the scientific community regarding the use of CT scans (11), but unfortunately, it is expected that CT scans would only show cases where there is quite a bit of ‘damage’ to the lungs, and therefore would only be useful to detect cases where the person has a relatively advances stage of infection.

Antibody test

A third avenue that is being explored is the antibodies test. Duke-NUS has come up with a test a few days age (12) (13). But again, note that this works to know more about the virus after someone has been infected and is trying to fight off the virus.

The best summary I have found on the various tests if at the WHO website (14).

So what is the best test? How can tests get things wrong?

You may have heard of a dog catching the virus from a human (15), cases of people not testing positive, but also testing positive on a prior sample using a different kit, or people who test positive after being given the all clear (16) and debates around this (17)

This brings us to the second piece of statistics that is useful, test error.

B Why you need to understand that tests have errors and there are Type I and Type II errors

Since the vast majority of tests involve sampling, it is possible to make mistakes in determining whether someone say has been infected or not. So what kind of errors is possible?

A simple table will illustrate this:

In an ideal world, tests would be perfect and you would obtain only True Positives (correctly identify infected people) and True Negatives (correctly identify people who are not infected).

However, in real life, there will be cases where a test wrongly clears someone from being infected (false negative) and there are cases when a test wrongly classifies someone as infected when that person is not (false positive).

The question is: what is worse, or which error do you want to minimize? Given a few tests, which one would you prefer, the one that catches the most infected people even if you also put some non-infected people in quarantine (low false negative) or the one where you ensure that few non-infected people are identified as being infected (low false positive)?

My wild guess is that quarantining non-infected people is preferable than letting infected  and potentially contagious people to roam free.

Now, let’s switch the question to people who engage in petty theft. Would you rather let a guilty person free (high false negative) or put an innocent person in prison (high false positive)?

I think, given the scare around Covid19, most people would prefer to have false negatives as close to zero as possible, that is try to catch all cases of infected people, even though it means we may be declaring some people who are not infected as likely infected and quarantine them. So I would prefer a test that minimizes false negatives.

To reiterate, tests are not perfect. There usually is a trade-off between how well a test performs and the cost of the test (whether in terms of time, technology, size/type of sample used for testing…).

Let me go a level deeper; let us look at the hypothesis.

C Hypothesis testing

In the table above, I have implicitly assumed the hypothesis we are testing is “the person being tested is infected”; that is what I am trying to find out. The baseline case is “the person is not infected” and I am running tests to find out whether I can say, with enough certainty, that “No, that person is actually likely to be infected”.

It may sound pedantic, but this has huge implications.

The baseline case is called the null hypothesis. (H0). Usually the null hypothesis represents the normal case that we are trying to prove does not hold.

The hypothesis we are testing, the alternative hypothesis (H1) is the hypothesis we want to verify.

The key is that if we are not sufficiently sure that H1 is correct, then we will fail to reject H0.

What this means is simple: if a test is designed to detect whether someone has been infected with a virus, then the test can only say “yes, chances are this person is infected, I have enough evidence to support this” or “no, there is not enough evidence to state that the person is infected”.

Therefore, it is not right to say that the person has tested negative; all that has happened is that the person has not tested positive.

In the table above, the person has tested negative. If the person is truly not infected, then it is a true negative, but if the person is indeed infected (may be the % of the markers is too low, or the infection has not yet developed enough to produce antibodies, or the RNA is not spread yet), then we have a case of false negative.

So to me, saying someone tested negative is fake news. 

D Contact Tracing

Ok this is not basic statistics, but I just wanted to make a little note.

I am happily in Singapore at the moment, and will I did get caught in the orange-alert-day mess at a supermarket (to me this was due to a lack of communication/underestimation of public reaction), I think the management of the issues here has been quite good. The PM’s message was great, and the provision of masks to households, to me, had the desired effect of calming people. Add to this reinforcement in newspapers and local media about how to use masks, basic hygiene, all is going well.

What I don’t get is why contact tracing is such a difficult topic, and we have to rely on the words of people. It has been proven that people do not have as self-sacrificing/civic mind as we would have hoped. For example, one lady in South Korea is known to have infected many people because she refused to believe she could have been infected (18) and being very religious continued attending church multiple times, spreading the virus. In another case, in Singapore, an individual repeatedly violated the quarantine order, a couple provided false information (19), or more interesting hiding the onset of symptoms (20) – like this lady: quarantine order on Feb 26, reporting no recent illness, later admitted having symptoms since Feb 20 and even visited a doctor on Feb 25.

What I really don't get is why we have to rely on the say-so of people to trace their movements in this day and age. It is very easy to trace people especially in Singapore, and find potential clusters by using “big data”. I really don’t understand why this is not taking place. Or maybe it is and the people are not told so as to keep the illusion of privacy; tin foil hat on.

1 www.oufmhealth.org/health-library/hw235580

2 www.en.wikipedia.org/wiki/Virus

3 https://en.wikipedia.org/wiki/Reverse_transcription_polymerase_chain_reaction

4 https://www.cdc.gov/coronavirus/2019-ncov/about/testing.html

5 https://www.publichealthontario.ca/en/laboratory-services/test-information-index/wuhan-novel-coronavirus

6 https://globalbiodefense.com/2020/02/13/cdc-update-bumpy-roll-out-of-diagnostic-kits-due-to-faulty-reagent-sample-prioritization-mishap-delayed-covid-19-diagnosis/

7 https://www.nytimes.com/2020/02/12/health/coronavirus-test-kits-cdc.html

8  https://www.sciencemag.org/news/2020/02/united-states-badly-bungled-coronavirus-testing-things-may-soon-improve

9 https://www.cdc.gov/coronavirus/2019-ncov/cases-in-us.html

10 https://www.channelnewsasia.com/news/asia/how-china-tests-for-covid-19-coronavirus-12438008

11 https://www.rsna.org/en/news/2020/February/COVID-19-CT-Diagnosis-Study

12 https://globalbiodefense.com/headlines/singapore-first-to-test-out-covid-19-serological-assay-in-outbreak-contact-tracing/

13 https://www.channelnewsasia.com/news/singapore/covid19-coronavirus-duke-nus-antibody-tests-12469184

14 https://apps.who.int/iris/rest/bitstreams/1266309/retrieve

15 https://www.cnbc.com/2020/02/28/a-dog-in-hong-kong-tests-positive-for-the-coronavirus-who-confirms.html

16 https://www.nst.com.my/world/world/2020/02/570081/concerns-covid-19-reappears-discharged-patients-worldwide

17 https://www.channelnewsasia.com/news/singapore/covid19-coronavirus-singapore-discharged-patients-moh-12477696

18 https://www.livescience.com/coronavirus-superspreader-south-korea-church.html

19 https://www.straitstimes.com/singapore/health/3-chinese-nationals-who-broke-rules-face-action

20 https://www.channelnewsasia.com/news/singapore/coronavirus-singapore-covid-19-cases-update-moh-12487992