In a Nutshell by Ken Herman

Would extensive COVID-19 contact tracing be worthwhile?

A June 8th Wall Street Journal article titled “States Struggle to Staff Up to Trace Virus” discussed staffing challenges while also admitting limitations in stopping the spread of COVID-19.  While admitting that total contact tracing is not possible, this article states: “Contact Tracing doesn’t have to be perfect to work.  Identifying and testing 90% of contacts (while successfully isolating potentially infected people) could reduce overall transmission of coronavirus by more than 45% (according to a May 8th study).”  Would such an expensive, less than 50% effective contact tracing program even be cost justified?  And how many potentially exposed people would really self-isolate for 14 days?

 Significant government budget, as well as personal privacy reasons lead me to believe that anything close to full contact tracing makes no sense in the USA.  The Wall Street Journal article goes on the say that “30 contact tracers are needed per 100,000 people to adequately manage the risks”.  A former CDC director said such tracing may require as many as 300,000 added government tracers!  However, taxpayers in general already believe that the USA has too many government employees.

 Many American’s also believe that state and local government “shutdowns” of businesses, schools, churches etc. have been beyond excessive. Full contact tracing (and quarantining of identified contacts) also may not be well received.  Disgusted American’s are NOT ready for more requirements pushed by so called medical experts who have already caused significant harm to America’s economy (as well as to individual freedoms) due to their “over the top” caution!  Why were schools all closed when healthy children do not seem to be at risk?  Why were “critical businesses” required to stay open, yet places of worship and other businesses were not even given an opportunity to show that they could operate in identically safe ways (as essential businesses have proven has been possible)?

 Most American’s do not want to be monitored by our government!  Contact tracing (in the name of partial COVID-19 avoidance) seems to violate our freedom of association expectations. It might shock many readers to know how much tracking of Americans already occurs through location data gathered by apps on our cellphones.  According to recent Wall Street Journal articles on 6-15 (page A6) as well as 6-16 (page A1), location tracking firms (who previously have been selling data on Americans for political and commercial uses) may be “rebranded as Pandemic Foes”.  Shouldn’t we be concerned about government tracking of Americans (which has been done in China for many years)?

The WSJ says investors are sitting on a record pile of cash. In addition to spending, US households are hoarding cash, paying off debt and otherwise improving their financial positions. This recession is unique in two respects. The job losses and lost economic activity were the worst ever. It is not the worst recession ever, but it will almost certainly contain the biggest one-quarter GDP drop ever recorded in the US. And yet, households may be in better financial shape after the recession than when it began. There’s no precedent for this, but it bodes well for a stronger recovery.

Important and interesting takeaways came from recent Fed meetings (related to the business cycle). Not only does the Fed hope for the return to the employment environment of 2019, participants want to pursue better, more growth-friendly policies, possibly resulting in even tighter labor markets. However, between 20 and 30 million people are now at least temporarily unemployed in the US. It could take years of job gains near the May pace to get the unemployment rate back to where it was in February.

Optimistically, assuming recent lack of social distancing does not create a surge in COVID-19 cases, Wall Street expects coming monthly job growth will be even faster than May’s. The first 10-20 million job gains should come quickly if we are going to realize the 20% GDP bounce just about every economist expects during the 3rd quarter this year. After that, as Chair Powell repeatedly noted, there will be the remaining 5 to 10 million more permanent job losses to worry about. Some of those jobs might take years to replace (even assuming a Trump re-election).

Even with strong household cash liquidity, inflation should not become a concern any time soon. Employers are back firmly in control of wages (in a historically slack labor market), so wage inflation should not be a factor (even with the fastest money supply growth in three-quarters in a century). Significant inflation risk could be years away. In the meantime, much of that money piling up is not to finance a spending spree, but to ensure survival.