Lockdown is easing and much of the burden of continued containment of the pandemic is being placed on rather vague test and trace procedures (in the UK). If you are in contact with an infected person you must self-isolate for 14 days from the last contact. The definition of ‘contact’ is interesting. Any contact within one metre for at least a minute qualifies. So walking by people is not contact. Being within 2 metres of someone for at least 15 minutes qualifies also. Travelling in any vehicle ‘near’ (?) someone that has tested positive qualifies as contact. There is no mention of mitigation if they or you were wearing a mask. The process for identifying contact is key and as yet unclear. One can see how an app would work if a working app is available. The message however seems to be don’t travel and don’t stand so close to me for any period of time. Social distancing remains. The implications for economic activity remain severe.
Optimistic stories about a vaccine periodically flare up in the press. However careful reading of the press suggests the vaccine outlook is not promising. A recent Guardian article https://bit.ly/2zDsZ8V was very depressing. I was particularly interested in the comment about the much hyped Oxford University vaccine which has been promoted as possibly being available in September. Apparently it does not stop monkeys catching Covid-19 but does protect them against pneumonia, a major, and often fatal, side effect of Covid-19. Useful but not quite a panacea even if it can be safely produced. Covid-19 kills in many weird ways.
A more recent article, again in the Guardian, https://bit.ly/36IuxdM is even more depressing. Many carriers of Covid-19 are asymptomatic. More important asymptomatic carriers appear not to develop many anti-bodies. This would render a vaccine useless on these people as it works by generating anti-bodies. This might still be ok if there is a safe and effective vaccine for people that could develop symptoms. The problem is that, based on recovering patients, anti-bodies may not be effective for very long and as yet no one is quite sure how effective anti-bodies will be. The magic bullet vaccine is some way off. I am not optimistic for one specific reason. Covid-19 is a corona virus and we have no vaccine for any other corona virus as far as I am aware.
In the absence of a vaccine test and trace is key to containment. Covid-19 is highly contagious and fatal to some people so identifying carriers and isolating potential carriers is the only effective way to contain whilst returning the economy to some level activity. However, being abruptly required to self-isolate for 14 days, especially if you live in a multi-generation household is very disruptive to the household and employers. There is only so much ‘normality’ that can return. Moreover, in order to avoid this disruption social distancing is advised which is more disruptive to the economy. The business models of all hospitality industries, transport industries, physical retail industries, sports industries etc all involve proximity. Capacity is reduced through social distancing and the business ceases to be viable.
It seems there are two things that can be done, in addition to the research on vaccines and treatments, to mitigate the problem. First massively expand the sustainable capacity of the health service. If prompt treatment is available then the fear of the disease is reduced, though never eliminated. The second is provide everyone with masks and insist everyone wears a mask in public spaces (though not necessarily in the open). A mask provides some protection from being infected by the wearer. If everyone wears one then it logically follows everyone has enhanced protection. The mask is not a panacea of course so social distancing is still required until incidence of infection is sufficiently low to justify relaxing the social distancing rule. Masks will help hasten and sustain this point.
The economic shock is unwinding much as expected. Unemployment levels are rising and will rise further as employment subsidies are withdrawn. Debt levels are rising and will weigh on businesses in the future. Government debt levels are rising and will weigh on future tax payers. Uncertainty abounds and cash accumulation is the preferred action of those that can accumulate. Cash needs to be stored somewhere safe and this is driving interest rates on safe assets into negative territory. There is arguably a shortage of quality assets and this may explain the mismatch between economy and some asset prices. Certain assets (technology, clean energy) are seen as benefiting the economic changes and are attracting investment. This does not mean the assets are not presently overvalued but it can explain the impressive performance of US stock indices that are relatively heavily weighted with such assets. Technology and clean energy stocks are quality assets but not simply at any price.
The concern is there will be a second wave of infections and fatalities in autumn and winter. The fear is this will require another lock down and another economic shock. It is unlikely the economic system could cope with another lock down. It has not yet coped with the present lock down. The US equity markets seem to be pricing the best case scenario, even allowing for the high technology and clean energy stock weight. It ain’t over…