Early lessons learned from the U.S. Small Business Administration’s first round of lending from its Payroll Protection Program [feedly]

Early lessons learned from the U.S. Small Business Administration's first round of lending from its Payroll Protection Program
https://equitablegrowth.org/early-lessons-learned-from-the-u-s-small-business-administrations-first-round-of-lending-from-its-payroll-protection-program/

Underscoring the direness of the coronavirus recession, Congress just reached an agreement to provide another $380 billion in rescue funding for small businesses, just one month after the passage of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act. The small business loans authorized in the CARES Act and expanded this week are known as the Small Business Administration's Payroll Protection Program. These funds were among the first sources of rescue funding to be vacuumed up by desperate borrowers, whose businesses have been shuttered or severely hamstrung by the pandemic.

Despite hiccups in getting the program running, the $349 billion funding first deployed by the SBA on April 3 evaporated in just two weeks—a significant policy accomplishment but also a testament to the pent-up demand for help. What early lessons can we learn from the rollout of this first round of lending? There are several, but first, policymakers and economists alike need to understand the already existing skeins of economic inequality that, in large part, biased how these funds would be disbursed.

Previous research from the Washington Center for Equitable Growth documents how small business formation has declined over the past four decades in lockstep with an increase in economic inequality and discusses how these two phenomena may be interrelated. Equitable Growth also documented how policymakers in the CARES Act and via Federal Reserve lending facilities reinforced existing advantages for large businesses and how that might exacerbate inequality, including gaps in wealth by race, ethnicity, and gender.

The result: Large businesses, and the most advantaged small businesses, may come out the other side of the coronavirus recession intact—or even stronger than before—while others are forced to either close or significantly downsize.

The long-term implications for business dynamism and inequality in the United States as a result of the coronavirus recession and the resulting policy responses may not be known for years. But there are ways to glean early lessons from the first round of small business funding, specifically by looking at:

• Data on loan sizes and distribution in the Payroll Protection Program
• Data on sectoral distribution of the Payroll Protection Program funding
• Anecdotal stories about gaining access to the Payroll Protection Program

Let's examine each of these more closely.

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Early lessons learned from the U.S. Small Business Administration's first round of lending from its Payroll Protection Program

Data on loan sizes and distribution in the Payroll Protection Program

The data we have on the first round of funding show that 1.66 million loans were made under the Payroll Protection Program, compared to 30 million small businesses nationwide, 6 million of which are firms with employees (versus sole proprietorships). This means Congress reached just one half of 1 percent of eligible businesses, or around 28 percent of all firms with employees.

While the Small Business Administration touted that nearly three-quarters of the loans made under the Payroll Protection Program were for amounts of less than $150,000, the full picture is a bit more complicated. A breakdown of the data show that just 4 percent of the loans made accounted for nearly 45 percent of the total pot of money made available under the program. Just a few loans at the top accounted for a sizeable share of the funding, with 0.03 percent of the loans made having been for more than $5 million, representing a whopping 9 percent of all funding. This lopsided distribution means that certain larger qualifying small businesses managed to secure an outsized portion of the total funding.

Data on sectoral distribution of the Payroll Protection Program funding

Data released by the Small Business Administration also paints a curious picture in terms of which sectors benefitted from the loan program. The construction industry, for example, received more than 13 percent of total loan amounts despite representing only 4 percent of nonfarm payroll job losses in March 2020—the first month in which job losses amid the coronavirus pandemic became apparent. Meanwhile, retail and hospitality, mainly food and drinking establishments, represented 65 percent of job losses last month but only received only around 9 percent of available small business loan amounts.

While we do not have clear data on why this is the case, one hypothesis is that individual construction loans may be larger, on average, than individual retail and hospitality loans, given the capital-intensive nature of the construction business. But because these loans are for payroll protection and are capped at $10 million, this likely isn't the case. Indeed, the construction industry received both an outsized percentage of the total amount loaned out and the total number of individual loans—meaning that the industry dominated both in the rescue aid delivered and the number of firms assisted.

A more compelling hypothesis is that the construction industry is more likely to be deemed "essential" than other business sectors. One construction industry state-by-state tracker showed that the industry is permitted to stay open, with some public health guidelines in place, in all but a few states. In contrast, restaurants in every single state are subject to strict public health restrictions, including a prohibition on dine-in services. This suggests that small firms whose business models remain the least disrupted are the most likely to receive loans—a perverse outcome for a program designed to help the most vulnerable firms.

This deeply unequal distribution of the Payroll Protection Program funds is perhaps a reflection on some of the punitive and complex aspects of the program itself, including restrictions on use of funds and the requirement to quickly rehire employees. In other words, the businesses that were most confident in their survival, where COVID-19 (the disease caused by the new coronavirus) has imposed the least damage on revenue, were also the most able to access loans.

Other estimates from Bloomberg showed that small business funding as a proportion of eligible payroll fared much better in the middle of the country versus the coasts. While there's not enough information yet to suggest why this was the case, Bloomberg hypothesized that businesses in regions hit hard by the virus, such as those in and around New York City, Seattle, and San Francisco, may have had less bandwidth to submit loan applications than those elsewhere in the country.

In addition to circumstances that would make it hard to apply for funding, program rules requiring relatively quick rehiring of employees as a condition of loan forgiveness may have been too limiting for businesses in areas with protracted lockdowns, whose chance of repayment is less likely. Finally, businesses in the middle of the country may have had more access to community-based lenders, who may have been able to process applications requiring idiosyncratic underwriting faster than large banks.

All of these trends could end up having a significant impact on the shape of the recovery as, say, construction businesses in North Dakota receive help while a small restaurant in the service-industry-heavy Nevada misses out.

Anecdotal stories about gaining access to the Payroll Protection Program

Beyond the limited data, journalists have uncovered a number of stories related to which firms both loaned out and borrowed the money. Reporting indicates that small lending institutions did a better job of deploying funding quickly, perhaps because of closer relationships with community businesses, less internal bureaucracy, or a willingness to act more quickly and on less information. Some small businesses are going so far as to sue large banking institutions, alleging that those banks prioritized high-value loans first rather than taking them on a first-come, first-served basis.

Other reporting has documented how seemingly unlikely firms received small business loans. One Bloomberg report, for example, documented how hedge funds—or big pools of money whose purpose is to speculate in financial markets—qualified for the Payroll Protection Program.

Other stories uncovered how the publicly traded fast-casual chain Shake Shack Inc. received a $10 million loan and then pledged to return it after a public backlash—but not before the company found other sources of funding, including drawing down on a $50 million line of credit from Wells Fargo & Co. and raising $150 million in equity markets.

A Securities and Exchange Act filing by Shake Shack offers a window into how large chain restaurants may fare during and after the coronavirus recession. The company said that the pandemic and ensuing economic downturn may actually be positive for the firm, noting that it "believes additional and improved development opportunities may be available over time due to the impact of COVID-19 on the overall retail and real estate environment." This could be for a number of reasons, but presumably, the company thinks that the economic environment going forward may allow it to increase its market share over the long term or even benefit from cheaper commercial real estate prices as the economy heads into a prolonged recession.

Journalists have highlighted other instances of publicly traded restaurant groups receiving small business funding. In those cases, the businesses have not undertaken efforts to return the money. This includes Ruth's Hospitality Group, Inc, the owner of the Ruth's Chris steakhouse chain, which had $86 million of cash in reserves, paid its chief executive officer $6.1 million last year, and bought back more than 1.1 million shares of its own stock at an aggregate cost of $25.8 million in 2019.

But a large chain restaurant's positive news is another business's extinction event. Indeed, the National Restaurant Association predicts that 75 percent of independent restaurants may permanently shutterbecause of the coronavirus.

While neither policymakers nor economists have enough data yet to reach firm conclusions, these anecdotes suggest that the small business lending program may not be meeting all of policymakers' original goals. In fact, one New York Post story said that Wall Street executives were actually scared that bailout funds skewed too heavily toward the top, and that imbalance may inspire a political backlash.

Conclusion

Luckily, the disproportionate harm caused to small businesses by the coronavirus recession is not inevitable. Policymakers have wide latitude to shape how our economy looks coming out of the economic downturn and into the recovery. This second round of funding by the Small Business Administration through the Payroll Protection Program is an important next step, and hopefully businesses in the hardest-hit sectors, in previously neglected states, and among those smallest of small businesses seeking small-value loans will be assisted.

Banking industry insiders are predicting that the next round of small business funding could evaporate in just two days. Congress should consider massively scaling these investments, ideally making the funds guaranteed for all eligible small businesses. If this program is to reach all those that need it, it seems that at least $1 trillion in funding is required. As reports come in about certain sophisticated firms benefitting from the first round of small business funding, it would represent a big missed opportunity if Congress stopped its work after the $380 billion is allocated beginning this week.

Beyond the too-small funding amount, the biggest disappointment of the small business loan program so far is the lack of data collection on applications received and loans funded. Without a view into this, policymakers, law enforcement, advocates, and researchers will find it hard to determine patterns of who did and who did not receive rescue money.

Finally, even as Congress works remotely, oversight will be essential. Legislators, the Inspector General for the CARES Act, and the special congressional panel assembled to oversee bailout funds should conduct rigorous oversight of the Payroll Protection Program. In the case of the special congressional oversight panel authorized under Title IV of the CARES Act, Congress may need to expand the statute to provide more oversight authority, as currently the panel can only evaluate how the Federal Reserve will purchase packages of these loans from lenders. Key questions should be raised, among them whether and how lenders prioritized potential borrowers, and whether the lenders privileged applications from small businesses that owe the lender other debts.

Many challenges remain to ensuring the survival of U.S. small businesses. Congress must be diligent and see this aid through. The survival of many small firms depends on it.

The post Early lessons learned from the U.S. Small Business Administration's first round of lending from its Payroll Protection Program appeared first on Equitable Growth.

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Saving Journalism Will Require Some New Thinking [feedly]

Can't say Dean Baker is not a creative thinker! The problem he discusses is a non-trivial issue, especially when you think of the state of media today.

Saving Journalism Will Require Some New Thinking
https://cepr.net/saving-journalism-will-require-some-new-thinking/

There has been a new wave of despair among journalists in the last couple of weeks as several major news outlets, including the Los Angeles Times and McClatchy News Service, announced layoffs and/or pay cuts. The immediate cause is the coronavirus. Pandemics sharply reduce advertising opportunities, but the underlying model is clearly not viable for most news outlets.

There is a limited amount of money that businesses are willing to pay for web ads, which is now by far the largest form of distribution. This is especially the case when Facebook and Google can offer much better targeted advertising. Subscriptions can raise some money, but apart from the New York Times and a few other elite publications, this source of revenue will not go far in supporting the people who produce and edit content.  

While the immediate problem of the coronavirus forced shutdown will eventually abate, the longer-term trends in the industry are not going away. Fewer and fewer journalists will be supported through the current model, leaving us ever more poorly served. We clearly need a new model.

A New Approach

Most of the thinking on a new model involves some sort of government subsidy to existing news outlets. This is likely a political non-starter, since it is almost inconceivable that Republicans would support papers like the New York Times or the Washington Post, much less more progressive outlets. Of course, few non-Republicans would be able to stomach tax dollars going to Fox News or some of the other looney outlets on the right.

It is also hard to justify from a moral standpoint. Why should the government entrench the current structure of the media? Maybe at some point in the past people thought that certain news outlets provided valuable content, and that made them profitable (or they just had good marketing), but what is the rationale for locking in this outcome with government dollars?

There is a way around this roadblock. Instead of having the government directly give money to news outlets, we can have the government give individual tax credits to people, who could then support the news outlet(s) of their choice. The model for this already exists: the charitable contribution tax deduction.  (I discuss this in somewhat more detail in chapter 5 of Rigged [it's free].)

With the charitable tax deduction, the government is effectively picking up the tab for 37 cents of each dollar of a rich person's contribution to whatever charity they choose. If a rich person decides to give a million dollars to the local symphony, we give them $370,000 back on their taxes. The same is true if they give the money to a museum, or the Church of Scientology. 

I picked the last one to make the obvious point that this subsidy is not necessarily going to an organization that many of us would think of as serving the common good. Perhaps we should be bothered by that, but in any case, we have been living for decades with a tax code that provides large subsidies to organizations that many of us would not approve of, without it become a major political issue.

An individual tax credit would work along the same lines as the charitable contribution deduction on income taxes, with some important differences. First, it would be a credit, let's say $100 per person, that would be fully refundable. This means that every adult in the country would have the right to give $100, regardless of whether they owed taxes or not. This is far more progressive than the charitable contribution deduction, which overwhelming benefits high income people. This is in part because the value is larger for people in higher income tax brackets (it's worth 37 cents on the dollar for people in the top bracket, versus 12 cents on the dollar for the bulk of the population in the 12 percent tax bracket). Also, only people who itemize can benefit from the deduction, and the vast majority of moderate and middle-income taxpayers do not itemize their deductions.

The second difference would be that it would be used for supporting journalism and other creative work and workers. This could mean writers of both fiction and non-fiction, musicians, movie makers, and other people doing creative work. The reason for drawing the line broadly is that we don't want the I.R.S. to be in the business of deciding who is doing journalism and who isn't. If we draw the lines at creative work, we don't have to get into arguments about whether a reporter with a political slant is still doing journalism. Also, all creative work has suffered in the Internet age, as it is very difficult to raise revenue from recorded music, videos, and other material when it can be transmitted at near zero cost over the web.

There will still be boundary questions, where it can be debated whether work can qualify as "creative," but this is not likely to be a major problem. After all, someone could try to qualify as a tax-exempt religious institution by creating the "Church for Ripping Off the I.R.S." Scams do happen, but they are not frequent enough to be a major problem.

We also will need an explicit system of registration, comparable to registering for 501(c) status as a tax- exempt organization. This would mean reporting to the I.R.S. an individual or organization's status as a creative worker or an organization that supports creative work. It would require reporting what creative work a person claims to do or an organization supports. The I.R.S. would make no evaluation of the quality of the work, just as it does not attempt to evaluate the merits of a religion filing for tax exempt status. The only issue would be one of fraud, where the I.R.S. could investigate whether a person or organization is actually engaged in doing or supporting the creative work they identified.

The other aspect to filing to be eligible to receive money through the tax credit system would be that the person and/or organization would be denied getting copyright protection for a substantial period of time, say 3-5 years. The logic here is that copyright monopolies are one way the government supports creative work. The tax credit is an alternative mechanism. People are entitled to getting support through whichever mechanism they choose, but not both.

The reason for having a waiting period between getting money through the tax credit system and getting it from copyright protection is to avoid people using the former system to establish a reputation and then cashing in from copyright protection. We do not want the tax credit system to be a farm system for writers, musicians, and other creative workers to work their way through before making it bigtime in the copyright protected system. If people want to start out in the tax credit system, they should likely expect to stay in the system.

The nice aspect to this provision is that it is entirely self-enforcing. Suppose that we have a 5-year ban on copyright protection, that a popular singer tries to get around by securing a copyright for songs recorded three years after their last payments through the tax credit system. Since it would be public record that they had been in the tax credit system three years earlier, anyone could freely copy and transfer the new songs in spite of the singer's copyright. He would have no recourse, since the copyright was not legally issued. This requires no action from the government; it is simply not enforcing an improperly awarded copyright.[1]

 

Supporting Journalism and Creative Work in the Tax Credit System

Suppose we went the tax credit system route and chose the $100 level. With roughly 250 million people over age 18, this would imply $25 billion a year to support journalists and other creative workers. At an average annual pay of $100,000 a year, this would support 250,000 journalists and other creative workers. At an average pay of $50,0000, it would support 500,000 creative workers.

I once used this $50,000 figure in a talk and got many creative workers very angry at me, since they felt I was under-valuing their work with this number. There are two important points to remember here. First, many creative workers, such as musicians or writers, do this work part-time. In other words, they have day jobs. For these people, getting $50,000 a year for work they very much value, would sound quite good.

The other point is that being in this system does not prevent creative workers from making money through other channels. Musicians could still get paid for live performances or teaching music. Writers could get paid for workshops. In fact, nothing prevents someone from even printing out books (or newspapers) and selling them at a profit. However, without copyright protection, they probably could not hope to make too much money going this route, since a large markup would lead others to enter the market and undercut their price.

From the standpoint of the individual taxpayer this system could be made very simple. Individuals could have the option to make their $100 contribution and then file for their refund on their tax form. They would only have to identify the recipient in the event of an audit. Alternatively, the I.R.S. could provide a number corresponding to every eligible recipient of the tax credit. The person would then indicate which individual(s) and/or organization(s) they wanted to receive their $100. This could be divided among as many recipients as the individual chose.

To benefit from the tax credit system, creative workers and organizations would have to promote themselves as being worthy of people's contributions. For newspapers and television news outlets, they would have to make a case that they provide especially useful and important news or that they give a political slant that people should find appealing. Writers, musicians, and other creative workers would have to tout the merits of their work. Alternatively, organizations that support particular types of writing or music or other creative work would tout the great work they are currently supporting.

As with the current system, there is no guarantee that everyone who wants to do creative work would be able to find enough backers to support themselves. If not many people value a particular writer's work or a musician's music, then they may not be able to make a living under the tax credit system, just as is the case now.

And, there is no guarantee that the Los Angeles Times or any other news outlet would be able to maintain a full staff of reporters and editors under this system. That would depend on them convincing enough people of the merits of their work. That may trouble some people who want to ensure that such news outlets survive, but it is hard to see what case can be made, if these outlets can't convince enough people of the merits of their work.

 

Obstacles to the Tax Credit System: Politics and Simplicity

I have no illusions about the obstacles to implementing a tax credit system along these lines. A large segment of the political establishment (pretty much the whole Republican party) would be very happy if any sources of information other than Fox News disappeared. They would have zero problem if every newspaper in the country went under. Most of them don't really care about the fate of other creative workers either. That is an enormous obstacle to any effort to having a new program intended to shore up reporting and boost creative work.

But there is also the obstacle that many people who do support independent reporting can't get themselves to think beyond the current system. Many continue to believe that what we just need is direct government subsidies to the existing outlets, as though this would be politically feasible or even desirable. Looking to a whole new system is a step too far.

The proposal outlined here probably also suffers from its simplicity. I recall once having an extended exchange with a professor at a major university. I explained several times how the system worked and how it would be determined who would get how much money. He was still insistent that I needed a measure of clicks or some other unit of viewership to determine the money that outlets or individuals received. For some reason, he simply could not understand that people's contributions were the sole determinant: end of story.

Anyhow, I have never heard a remotely compelling argument as to why a system along the lines I have outlined would not work. I get the political obstacles, but if someone says we don't have a way of supporting journalism in the Internet Age, they just haven't done much thinking on the issue.

[1] We also would need some rules to prevent simple types of fraud. For example, to prevent two people from trading their credits with each other, we could set a minimum level (say $3000) for someone to be able to get money through the system. People could still scam the system, but it would require a lot of effort for not much payoff.

The post Saving Journalism Will Require Some New Thinking appeared first on Center for Economic and Policy Research.

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The Washington Post: Top Stories | Millions of Americans are still waiting for their first unemployment check

https://www.washingtonpost.com/business/2020/04/23/unemployment-benefits-backlog-coronavirus/ 

Weekly Initial Unemployment Claims decrease to 4,427,000 [feedly]

Weekly Initial Unemployment Claims decrease to 4,427,000
http://www.calculatedriskblog.com/2020/04/weekly-initial-unemployment-claims_23.html

The DOL reported:

In the week ending April 18, the advance figure for seasonally adjusted initial claims was 4,427,000, a decrease of 810,000 from the previous week's revised level. The previous week's level was revised down by 8,000 from 5,245,000 to 5,237,000. The 4-week moving average was 5,786,500, an increase of 280,000 from the previous week's revised average. The previous week's average was revised down by 2,000 from 5,508,500 to 5,506,500. 
emphasis added

The previous week was revised down.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 5,786,500.

This was higher than the consensus forecast.

The second graph shows seasonally adjust continued claims since 1967 (lags initial by one week while increasing sharply).

At the worst of the Great Recession, continued claims peaked at 6.635 million, but then steadily declined.

Continued claims have already increased to a new record high of 15.976 million (SA) and will increase further over the next few weeks - and likely stay at that high level until the crisis abates.  

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Trump’s corporate first agenda has weakened worker protections needed to combat the coronavirus [feedly]

Trump's corporate first agenda has weakened worker protections needed to combat the coronavirus
https://www.epi.org/blog/trumps-corporate-first-agenda-has-weakened-worker-protections-needed-to-combat-the-coronavirus/

Using the COVID-19 pandemic as cover, the Trump administration is reportedly preparing to take executive action to repeal and suspend federal regulations. This should not be a surprise—one of Trump's first actions after taking office was to issue an executive order requiring federal agencies to identify at least two existing regulations to "repeal" when proposing a new regulation. Now seizing on the public health crisis and its economic impact as an excuse, the Trump administration is framing this renewed push to deregulate as a necessary policy response to promote economic growth, focusing on repealing and suspending regulations that impact businesses.

Deregulation has long been a central component of the corporate-interest agenda and the Trump administration has certainly obliged. While the coronavirus was not under anyone's control, President Trump's failure to establish strong worker protections during his first term, through laws and regulations, has helped create the crisis millions of essential workers now confront every day on the job. The following are examples of how the Trump administration's corporate-driven agenda has weakened worker protections needed to combat the coronavirus.

President Trump blocked the Workplace Injury and Illness record-keeping rule, which would have clarified an employer's obligation under the Occupational Safety and Health Act to maintain accurate records of workplace injuries and illnesses. As a result, OSHA does not require employers to keep accurate records that could be used to identify unsafe, potentially life-threatening working conditions.

President Trump blocked the Fair Pay and Safe Workplaces rule, which would have helped ensure that taxpayer dollars were not awarded to contractors who violate basic labor and employment laws. Without this regulatory safeguard, more than 300,000 workers have been the victims of wage-related labor violations while working under federal contracts in the last decade.

President Trump blocked a rule limiting the circumstances under which individuals filing for unemployment benefits may be subjected to drug testing. As a result, unemployed workers continue to face barriers when seeking unemployment insurance (UI) benefits, including the more than 20 million workers who have filed for UI benefits during this crisis.

Deregulation is often pursued under the guise that regulations are economically burdensome. However, even under the Trump administration, the Office of Management and Budget (OMB) reportedthat the benefits of regulations outweigh the costs. Furthermore, failing to regulate or delaying worker protection rules risks workers' health and safety. For example, the Trump administration delayed the implementation of an OSHA rule that limited workers' exposure to silica dust, which has been linked to lung cancer. By delaying the rule, the Trump administration increased the likelihood of more workers being exposed to silica dust and developing silicosis. Impacted workers and their families are left to bear the costs associated with illness.

Regulations implement policy initiatives. Simply repealing or suspending regulations without considering the policy implications is irresponsible. Using a global pandemic as an excuse to deliver on longstanding corporate priorities to repeal, suspend, and delay the rules that protect workers is shameful. At a time when workers are routinely risking their lives to perform essential services for our nation, they deserve stronger workplace protections, not a loosening of existing standards.

It is true that crises present unique opportunity for the advancement of a policy agenda. This moment could be used to implement policies that help ensure workers' health and safety, or to instead satisfy longstanding corporate interests. Given its track record, it is unsurprising that the Trump administration is responding to the current public health crisis by looking for ways to deregulate worker protection rules and promote corporate interests, even implementing a liability waiver for employers that would shield them from legal responsibility when workers contract the coronavirus on the job.

This moment does mark an opportunity to reshape a system that has long served corporate interests at the expense of working people. Unfortunately, the Trump administration is choosing once again to pursue a corporate first agenda.

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Do we Really Know that Chinese COVID-19 Statistics are being Manipulated? [feedly]

Do we Really Know that Chinese COVID-19 Statistics are being Manipulated?
https://www.globalpolicyjournal.com/blog/18/04/2020/do-we-really-know-chinese-covid-19-statistics-are-being-manipulated

In all likelihood Chinese statistics on the pandemic's spread are no worse – and no better -- than figures from Western democracies, suggest Roberto Aragão and Lukas Linsi.

For several weeks now global sports have been in lockdown. Stepping into the breach, a new pastime seems to have taken hold of news-hungry home-confined citizens: the following of coronavirus statistics. Facilitated by the attractive and user-friendly visualization of country-by-country infection and death rates in portals such as Johns Hopkins' "Covid-19 map", it has given rise to a novel, rather macabre, sort of international competition. Questions like "in which country did most people get infected today?", or "are we still ahead of our neighbouring countries in terms of deaths?" have become hot topics at virtual cocktail parties and 'Skypéros'. But this new sport is not only problematic on moral grounds. It also constitutes a largely meaningless exercise for mundane statistical reasons. The truth is that, for the most part, Covid-19 statistics are not informative indicators. And in particular they are not suited for cross-country comparisons.

The key figure of interest among followers of Covid-19 statistics is a country's "case fatality rate": the number of deaths in a country (the numerator) divided by the number of infections (the denominator). The resulting 'league table' ranks countries from the lowest rates – the places where governments and health authorities, so the story goes, have responded best to the crisis – to the highest. The problem is that both the numerator and denominator are biased in different directions in different countries. As a result, fatality rates are likely to be highly misleading when taken at face value.

Why is that so? Let's start with the numerator. Counting the number of deaths due to Covid-19 infections is more complicated than it may sound. Establishing the cause of someone's death can be hard, especially for patients suffering from several health problems simultaneously as well as for people who die outside of hospitals with little or no medical supervision. Because of such issues, authorities in different countries can count deaths differently. For instance, Covid-19 mortality statistics from some countries only include patients who passed away at a hospital, while others also include patients who deceased at home. Some countries only register a death as being caused by Covid-19 if the patient actually tested positive for the virus, whereas others do so if a patient showed Covid-19-like symptoms without having been tested for the disease. Likewise, in cases of multiple simultaneous medical conditions, some places indicate Covid-19 as the cause of death even if it may be due to a combination of factors; others don't.

Moving from the nominator to the denominator, measurement problems become even more pronounced. This has to do with persisting uncertainties about the epidemiological character of the disease as well as well-known deficiencies in testing capabilities that most countries face. As of today, the number of asymptomatic cases (i.e. patients carrying the disease without showing symptoms) remains one of the great mysteries that epidemiologists trying to understand the rapid spread of the virus are trying to untangle. According to some studies the figure may be around 5 percent of total cases; according to others it may be as high as 80 percent. This means, in essence, that at present total actual infection rates (including symptomatic and asymptomatic) cannot be known with any certainty.

But we are not only uncertain about the extent of asymptomatic cases. Detection rates for symptomatic cases also vary dramatically across countries. This is primarily due to vast differences in countries' testing strategies and capacities. A few small countries that test a lot (like Iceland) may be able to identify a good share of cases for which patients show symptoms. But in most countries detection rates are believed to be much lower. Even in a country with extensive testing like Germany the rate may lie well below 50 percent, while in developed countries with little testing, such as the Netherlands, the rate may be as low as 5 percent. So how many symptomatic infections may there be if say 10,000 cases have been detected in a country? The true figure may lie somewhere between 10,000-20,000 in a country carrying out extensive testing such as Germany, but anywhere between 10,000 and 200,000 in a country with little testing such as the Netherlands. In developing countries with less well-resourced health systems the true figure may be much higher still. If we take such issues into account, it seems clear that standardizing death rates by the number of detected cases and comparing them across countries makes little sense.

Cross-national differences in measurement practices are not unique to Covid-19 statistics. They are an intrinsic problem of most social indicators. In earlier research we have examined these same issues for highly established macroeconomic statistics with a proud history. Even there, we found that -- despite efforts by international organizations to harmonize statistics stretching back more than seven decades – significant cross-country discrepancies persist. In other words: even if Covid-19 statistics become somewhat better in the months and years to come as testing capacities improve, these problems will not disappear. Comparing them across countries is not meaningful today, and will remain fraught with difficulties in the future as well.

At a deeper level, the case of Covid-19 statistics is useful to illustrate an important general point about the politics of numbers: statistics are not mere reflectors of objective truths. They are socially and politically constructed concepts that are inherently ambiguous. As we have emphasized in our earlier research, recognizing the "softness" of numbers is crucial to better understand the politics of statistics. Not least, it pushes us to engage more critically with claims about "right" and "wrong" numbers – and, of particular importance in light of contemporary debates, claims about the manipulation of certain figures.

Debates about the manipulation of Chinese statistics

While everyone picks their own favourite when tracking Covid-19 statistics, most people in the Western world – ranging from the US President and the CIA to academics and the liberal press -- seem to be able to agree on at least one point: Chinese statistics on the spread of the virus are subject to political manipulation and hence particularly unreliable. As soon as the news that China added 1,290 deaths to the Wuhan death count hit the news this morning, commentators were quick to vindicate the statistical revision as proof of deliberate under-reporting as part of a general "cover-up" operation by the Chinese government.

Although we have no first-hand insights into the compilation of Covid-19 statistics in China, we have studied attempts by governments to manipulate economic statistics for several years. Based on our research findings, we have doubts about such assertions. As is the case for Covid-19 figures, macroeconomic statistics from China are also frequently singled out as being subject to political manipulation. As we found out, evidence supporting these claims is however not that strong for national-level economic data. While there is some evidence that subnational data from provincial authorities tend to overstate economic performance, the central governmental apparatus is highly aware of these dynamics and the Central Statistical Office uses a variety of methods to check and correct data submitted by subnational authorities, netting out most of these biases. While some studies still do indicate some remaining biases in national-level economic data, these are small in substantive terms, not unlike similar biases uncovered for a wide range of economic statistics observed in macroeconomic statistics from Western democracies. At least one study suggests that national-level economic data from China may even understate actual Chinese economic performance.

While Covid-19 statistics are different from macroeconomic data in some aspects, there are important parallels. Similar to economic statistics, both the theoretical and empirical case for large-scale manipulation is weak. Let's unpack them one by one.

Theoretically, it remains unclear what a rational government in the situation that the Communist Party currently finds itself in would have to gain from obscuring the facts. Deliberately understating the seriousness of the situation would almost certainly foment the outbreak of a second wave of infections and a sharp increase in deaths. Attempts to hide a second outbreak would almost certainly prove futile as bodies pile up -- and very seriously undermine the legitimacy of the government. It seems altogether implausible that a rational government would take such risks simply to boast about its superior crisis management skills for a short while.

Empirically, it is almost certainly true that Chinese data is faulty. But that in itself is no proof of deliberate manipulation. China too grapples with the same serious measurement problems that Western democracies face. But when the Chinese government revises the death count upwards (as it did for Wuhan this morning) analysts are quick to shout "cover up" – irrespective of the fact that health authorities in Western democracies from New York, Italy, the UK among many others have done exactly the same thing over the past days and weeks without attracting such scrutiny.

To evaluate these intuitions somewhat more systematically, we conducted a 'back-of-the-envelope' calculation of the size of potential under-reporting in China using the open-access infection spread model developed by Nate Silver. For what they're worth, the projections indicate that official Chinese case counts may under-estimate actual infection rates by about 75 percent. Now that is a substantial underestimation. However, it is relatively good in comparison to similar (and more rigorous) calculations made for some European countries by Neil Ferguson's team at Imperial College. Their estimates suggest that – depending on the extent of asymptomatic infections – case counts from European countries may very well be under-reporting actual infection rates by more than 95 percent (and even 99 percent in the UK). So yes, Chinese case counts are likely to be far off, but they are no worse than those from liberal democracies.

The need for a scapegoat

Having studied data manipulation scandals in a variety of settings in depth over the past years, these dynamics are similar to what we have observed in many other instances as well. Most of the time, data manipulation scandals do not arise due to a sudden flagrant intervention with the production of statistics. They typically occur when it is in the interest of the accuser to see a data manipulation scandal dominating the news cycle. Contrary to their pretense to accuracy and objectivity, statistics have non-negligible error margins attached to them and they have various kinds of biases baked into them. But these biases typically only come to the fore in public debates when it is in someone's interest to construct a data manipulation scandal. As we have argued, there are several indications that this time is no different.

We do not wish to whitewash Chinese statistics or the actions of the Chinese government. Chinese Covid-19 statistics are as imperfect as those of any other nation. There are serious questions that need to be asked about the role of the Chinese Communist Party in this crisis. But faulty numbers are far from being the most relevant one. Increasingly prominent claims in Western capitals that Chinese Covid-19 data is manipulated are not well founded. They are aimed at scapegoating more than anything else. Anyone claiming that Chinese numbers are the problem is trying to distract from what really matters: facing and finding ways out of an unprecedented global crisis.

 

 

Lukas Linsi is assistant professor of international political economy at the University of Groningen, Netherlands. Roberto Aragão is a PhD candidate at the University of Amsterdam, Netherlands. Both are affiliated to the Fickle Formulas research group.

Image: Markus Spiske via Pexels

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Health Care Headed for One-Fifth of US Economy [feedly]

Health Care Headed for One-Fifth of US Economy
https://conversableeconomist.blogspot.com/2020/04/health-care-headed-for-one-fifth-of-us.html

I view myself as a fairly jaded consumer of statistics on rising health care costs, but the most recent 10-year projections from the US Centers for Medicare and Medicaid Services widened my eyes. They appear in "National Health Expenditure Projections, 2019–28: Expected Rebound In Prices Drives Rising Spending Growth," by Sean P. Keehan, Gigi A. Cuckler, John A. Poisal, Andrea M. Sisko, Sheila D. Smith, Andrew J. Madison, Kathryn E. Rennie, Jacqueline A. Fiore, and James C. Hardesty, appearing in Health Affairs (April 2020, pp. 704-714, not freely available online).The team writes:

National health spending is projected to increase 5.4 percent per year, on average, for 2019– 28, compared to a growth rate of 4.5 percent over the past three years (2016–18). The acceleration is largely due to expected faster growth in prices for medical goods and services (2.4 percent for 2019–28, compared to 1.3 percent for 2016–18). Growth in gross domestic product (GDP) during the projection period is expected to average 4.3 percent. Because national health spending growth is expected to increase 1.1 percentage points faster, on average, than growth in GDP over the projection period, the health share of GDP is expected to rise from 17.7 percent in 2018 to 19.7 percent in 2028 ...

A few thoughts here:

1) Total US health care spending was 5.0% of GDP in 1960, 8.9% of GDP in 1980, 13.4% of GDP in 2000, 17.7% of GDP in 2018, and now headed for 19.7% of GDP.

2)  I'm not in the business of predicting long-run effects of COVID-19, but it seems unlikely to me that the result will be a smaller rise in health care spending.

3) At this point, it's fairly clear  that the Patient Protection and Accessible Care Act of 2010 didn't have much lasting effect on holding down health care costs.

4) Just for perspective, remember that the US already leads the world in health care spending by a wide margin. This figure shows OECD data on health care spending for 2018 as a share of GDP compared with a selection of countries, with the bar for the US at the far left. The red bar is the average for the 36 OECD countries.

This figure shows per capita health care spending across a selection of countries, with the bar for the US again at the far left. Again, the red bar is the average for the 36 OECD countries.

5) It's not rocket science to figure out some ways to at least hold down the rise in US health care spending. Some of the policies would focus on non-medical interventions, like exercise and diet. Some would focus on helping patients to manage chronic conditions, so that they are less likely to turn into hyper-expensive episodes of hospitalization. There are mainstream estimates that perhaps 25% of health care spending is wasted.

6) There is some evidence that Americans are beginning to put the costs of health care as the top issue of concern for them in US health care policy. The reasons have all been said before, but they bear repeating. When companies compensate employees, the more they spend on employee health insurance, the less they have to spend on take-home pay. A substantial part of government support for the poor is in the form of health insurance (over $8,000 per Medicaid enrollee), not money they can spend on other needs. Health care expenses are a main driver of tight and inflexible government budgets at the state level, and of long-term rising budget deficits at the federal level. Americans are paying a lot more for health care than other countries, but not obtaining better health outcomes than other countries.

None of this is new. But as we head for a US economy that is one-fifth health care, the path we are on is perhaps worth renewed consideration  

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