Viral Coefficients
People underestimate exponential growth. Taleb and Graham have touted this for a long time for risk taking and startup growth respectively. The data is there, but it is not in our nature to extrapolate nonlinear growth, so it’s hard to believe and we don’t want it to be true. But the truth is that COVID-19 is an incredibly infectious and lethal virus.
A related factor at play is the psychology of proximity; people discount the effects of non-localized events. Even once the exponential growth factor was established in December of 2019, the COVID-19 threat was downplayed since it occurred in China, very far from the U.S., then the epicenter moved to Italy where it was still far enough away, and so on. This continues to play out, country-by-country, state-by-state, no government acts, let alone acts effectively, until it hits home (at the time of writing it is irrational and irresponsible to not enact shelter-in-place for any U.S. municipality). Unfortunately, delayed response compounds COVID-19’s danger, where the saying “an ounce of prevention is worth a pound of cure” has never been more literal, days save thousands lives and months save hundreds of thousands of lives.
The media cycle amplifies anxiety. One thing the 2008 Financial Crisis and COVID-19 have in common - is the thirst for information. Suddenly news becomes 2-10x as addicting, there’s a lot of competing theories as to what’s happening, plenty of misinformation, alarmist personalities, and conspiracies. As the facts get worse, the hunger for answers grows, hoping to come across ‘the cure’ or at least some good news. For COVID-19, it’s even worse because it’s hard to distract yourself with the constant reminder that you’re stuck at home.
Capitalism rears its ugly head. Profit maximizing is a double edged sword that is great during boom times, and cuts deep during downturns. A long-term, rational outlook would note that as bad as COVID-19 is, all signs point to a transient pandemic - society will recover. However, the capitalist is a short-term, profit driven maniac.
“The markets will have a bigger effect on the economy than the economy will have on the markets” - Ray Dalio
The economy is a chain reaction engine, one strained sector exacerbates another. Short term profits go down, stocks take a hit, layoffs ensue, and the cycle repeats. Structurally sound businesses, through no fault of their own, are forced to make drastic changes to survive. Some form of price gouging takes shape, resulting in a competitive rush to secure essential items, causing shortages (even for non-essential items!). All the while, more people suffer by losing income, losing jobs, declining savings, and being unable to buy essentials; survival of the fittest becomes survival of the richest.
In short, a combination of exponential factors are working against us to create this pandemic: a really infectious disease, economic chain reactions of inequality, media amplification, and a slow, human response; a butterfly effect of viral proportions.
That’s the prognosis, here’s my recommended treatment.
