Learning and Recovery: A Case for Optimism

As we progress further through this crisis, the issues have shifted from the day-to-day headlines of case counts, lockdown impositions, and stimulus actions. The two most interesting categories of items from the news feed are (1) a blizzard of preliminary learning/results from medical world, including the 1,300+ clinical trials that have started since March 1; and (2) policy balance between the perceived safety provided by lockdowns and the necessity to revive economic activity, as expressed through decisions about when and how completely to loosen lockdown restrictions. While the deluge of daily headlines wash over us, the work to sort through the issues on the medical and policy front is a much more subtle and complicated exercise than it was in mid-March.

As I look back over my reading from the past ~week or so, policy news is dominated by debate over the timing of loosening the current lockdowns and the danger of precipitating another spike in infection and death rates. Widespread agreement is lacking on the timing of lifting restrictions, and no plan that will allow any significant economic activity can guarantee that we won’t see a resurgence of the infections, given that most countries and US states probably have only 5% rates of antibody prevalence overall. And while infection and death rates have fallen across Europe and the US, much of those gains have come at the expense of sudden and enormous economic devastation. The economic news is truly terrible. US GDP shrank by 5% in first quarter and may shrink at an annualized rate of 40% in the second. Over 30MM US jobs have been lost in the past seven weeks, unemployment in April was nearly 15%, and that statistic does not account for over 6MM people who left the labor force altogether.  Ten years of job growth has been wiped out in less than two months, and some financial professionals think it will take ten years to recover pre-crisis levels of employment. 

And yet financial markets seem to be looking past the immediate wreckage. US equities closed Friday up over 30% from their March 23 lows, with indices having recovered about half the point value lost since the their February peaks. Volatility is also down, with many fewer massive swings, and the VIX having dropped from a crisis-high of about 85 a bit less than 30. Why? There are a number of obvious financial explanations, including massive fiscal and monetary stimulus. The US Fed in particular has pushed rates so low that the ratio of dividend yields to long-term bond yields has never been higher. The rally is also narrow. The tech-driven behemoths (Amazon, Apple, Microsoft, Alphabet/Google, and Facebook) represent 20% of the total S&P 500 market-cap, and all are up on the year; the unweighted average of S&P stocks is performing much worse than the tech-dominated weighted average. It’s also possible that institutional investors are overweighting the likelihood of a strong near-term “V-shaped” recovery and the attendant bounce back of corporate profits. The Wall Street Journal ran a very useful piece over the weekend recapping these explanations. 

It’s possible that investors are too Pollyannaish. But if I had to argue the underlying case for optimism it would come down to our capacity to learn and adapt. Consider how far we have already come. Six months ago, this virus did not exist as a threat. It was not until January 20 that Chinese authorities acknowledged that human-to-human transmission of the virus was possible, and ten days later (January 30) that the CDC confirmed a case of person-to-person spread in the US. The US travel ban from Europe was not announced until two months ago, on March 11. New York State did not lock down until March 20, and infections and deaths peaked about April 10 or so. I rehearse this timeline to make the point that the enormity of the crisis was only apparent to the broad population in the West for less than three or (Anthony Fauci, January 26: “It’s a very, very low risk to the United States”), and society has only been fully mobilized to fight the virus for perhaps two months. 

Since ~mid-March, we have made really quite astonishing progress in terms of our medical knowledge and practices. After an initial scare that the world would run out of ventilators, we now know that there are multiple phenotypes of lung disease caused by COVID, that the majority of patients are best served by avoiding mechanical ventilation, and that outcomes can be improved for most patients with simple proning and noninvasive oxygenation. This learning alone confers at least three benefits: we are unlikely to run out of ventilators for those patients who need them; the majority of patients who do not need the ventilation enjoy improved outcomes; and the much lower intensity of treatment increases capacity of the medical system and lessens demands on caregivers. 

There has been no discovery of a “silver bullet” cure or therapeutic, but early studies involving remdesivir have shown enough benefit that the FDA has granted emergency use authorization, and the UK NIH stopped a clinical trial so patients in the placebo group could receive the actual medicine. Anticoagulants are helping the sickest patients. Both nicotine and Vitamin D show promise in decreasing the severity of the illness, avoiding worst-case outcomes while allowing the patient to recover with antibodies. While initial studies on treating the sickest patients with hydroxychloroquine were negative, use with earlier-stage patients seems more promising. Similarly, steroids are becoming a standard part of patient care. As these learnings pile up, clinicians are developing elaborate and comprehensive treatment protocols. 

No, we don’t have a vaccine, and the best guess is that one won’t come for 12 to 18 months. Then again, both Pfizer and Oxford University’s Jenner Institute have promising vaccines in human trials, and both are predicting that they might have a viable vaccine for September of this year.  The Milken Institute is aggregating publicly available information on vaccines and therapeutics from validated sources. They are currently tracking 200 treatments and 123 vaccines. The amount of research and the speed of learning is, simply, staggering. 

And remember: almost all of this progress has been made in the last 60 days. We are just in the early stages of our fight against this virus. The learning curve will only get steeper from here. 

Our capacity for learning is not limited to the medical realm – we can and will adapt our broader activity to defeat the virus while rebuilding our economy. This is the ultimate reason why I am convinced that we need to unwind our state-mandated lockdowns immediately and let the learning process accelerate. We started learning before the lockdowns were imposed in the first place – evidence shows that the peak in infections and deaths can largely be attributed to voluntary changes in behavior that began before lockdown orders were given. And we’ve learned some tough lessons about protecting the most vulnerable, especially the elderly in nursing homes, who represent at least 25% and perhaps up to 50% of deaths in the crisis to date. This has been a terrible failure in the first battle with the virus. But once we secure our nursing homes, then the go-forward death rate will be much lower. Private actors are already planning for reopening, from the society-wide strategic level to the operational nuts and bolts. But there will be no substitute for the actual experience, bruises and all, from which we will learn how to manage in the time from when we emerge from lockdowns to the time when we achieve herd immunity, either through a vaccine or through infection. Barring a medical miracle, there will never be a no-risk or even low-risk time to reopen. The critical imperative is to start the learning process in earnest as soon as possible.

Lifting the lockdowns does not by any means imply that the role for the public sector would end. Only the government can provide the fiscal and monetary stimulus that will be needed as we transition to a post-lockdown economy. There will be need as well for continued prudent relaxation of regulation and for liability protections for businesses when they do reopen. Perhaps most importantly, we will need our political leaders to urge us all to transition from fear to prudent and deliberate action. They need to acknowledge and explain the risks that remain, to set reasonable expectations as to government’s ability to mitigate (not eliminate) those risks, and to challenge us to dare to overcome them. We will, because we must. 

And, perhaps, we might even succeed in time to vindicate the confidence of the markets.

About this article

Like everyone, I am trying to make sense of the current situation. Since this started, I've been writing daily reflections to help myself and my colleagues make sense of an enormous amount of information and think beyond the day’s headlines. I now offer these thoughts to you in a series of articles aimed to provide perspective and help you navigate the rapidly evolving COVID-19 situation. I hope you find them useful and welcome your thoughts and comments. 

About me

Current President of Marsh Client Advisory Services. Former Oliver Wyman Partner. Avid writer and reader. Husband and father of three.