Tuesday 17 March, 2020

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Quote of the Day

“Hope is itself a species of happiness, and, perhaps, the chief happiness which this world affords”.

  • Dr. Johnson

The Luck of the Irish

Since this is St Patrick’s Day and my fellow countrymen and women are in semi-lockdown because of the virus, I thought it’d be nice to cheer them up with a reading of one one of the funniest essays I’ve ever encountered. It was written by the late Bernard Levin, who was a theatre critic, a newspaper columnist, an author and a broadcaster and, when he was on song, one of the funniest writers alive. He was a Wagner fanatic and an opera-goer extraordinaire. One of his favourite festivals was the one held every year in the small Irish town of Wexford; Levin was a devoted attendee every year — and much loved by the town’s residents on that account. This is his account of the memorable closing night of Spontini’s opera, La Vestale.

I hope you enjoy it. When reading it I had great difficulty keeping a straight face.

The virus doesn’t care whether you’re rich or poor, but epidemics have always revealed the fissures in the societies they’ve infected

As the Chinese are already finding out (and we will soon).

Boris Johnson’s Dunkirk moment

Boris Johnson has always suffered from a Churchillian complex (even writing a ludicrous biography of the great man). Well, now he holds the same office and he’s just had his Dunkirk moment, as the epidemic modelling team at Imperial College showed that the ‘herd immunity’ strategy that lay at the heart of the government’s approach to COVID-19 was a one-way ticket to disaster. The good news is that unlike some politicians one could mention, he was able to change course.

One puzzling thing, though. When the herd-immunity policy was being advocated, it struck me as a strange way of combatting a pandemic for which there is no vaccine because it relied on at least 60% of a population of 68m getting the disease and acquiring immunity as a result. It’s only when you started looking at the numbers that the scale of this gamble became clear. It’s based on about 40.8 million people getting infected, 99% of whom would hopefully recover and become immune. But assuming a mortality rate of 1%, that would still mean over 400,000 deaths, which is not far from the 451,000 UK deaths in WW2. So when people describe the struggle against COVID-19 as the moral equivalent of war, they may be closer to the truth than they realise.

Then comes the Imperial College bombshell which suggests that the herd-immunity strategy could cause 250,000 deaths and would overwhelm the NHS. And a shocked government turns on a sixpence and changes tack.

So here’s my question: did it not occur to anyone that the 400,000 deaths that would be the likely consequence of acquiring herd immunity would have even more comprehensively overwhelmed the NHS?

Also: isn’t herd immunity about vaccination, not infection?

Which companies should not be bailed out in this crisis?

Tim Wu proposes a useful rule: any company that has been highly profitable before the COVID crisis but has used its profits to engage in share buybacks rather than building up cash reserves or doing R&D should be left go to the wall. The case study he uses is American Airlines:

In 2015, it posted a $7.6 billion profit — compared, for example, to profits of about $500 million in 2007 and less than $250 million in 2006. It would continue to earn billions in profit annually for the rest of the decade. “I don’t think we’re ever going to lose money again,” the company’s chief executive, Doug Parker, said in 2017.

There are plenty of things American could have done with all that money. It could have stored up its cash reserves for a future crisis, knowing that airlines regularly cycle through booms and busts. It might have tried to decisively settle its continuing contract disputes with pilots, flight attendants and mechanics. It might have invested heavily in better service quality to try to repair its longstanding reputation as the worst of the major carriers.

Instead, American blew most of its cash on a stock buyback spree. From 2014 to 2020, in an attempt to increase its earnings per share, American spent more than $15 billion buying back its own stock. It managed, despite the risk of the proverbial rainy day, to shrink its cash reserves. At the same time it was blowing cash on buybacks, American also began to borrow heavily to finance the purchase of new planes and the retrofitting of old planes to pack in more seats. As early as 2017 analysts warned of a risk of default should the economy deteriorate, but American kept borrowing. It has now accumulated a debt of nearly $30 billion, nearly five times the company’s current market value.

And now, suddenly, the company is in crisis because of the virus. It hasn’t yet asked for a bailout but after a recent meeting with airline leaders the director of the National Economic Council said that “certain sectors of the economy, airlines coming to mind” might require assistance. US Treasury Secretary Steven Mnuchin said on Wednesday last that the airlines, including American, would be “on the top of the list” for federal loan relief.

Isn’t it funny how corporations are firmly capitalist while things are good, but firm believers in socialism when disaster looms? Profits are always privatised but losses are socialised.