Time for a new plan

Steve Merrell |

As a financial planner, I spend a lot of time thinking about the well-being of people—and not just fancy people. I’m talking about real, live human beings with kids to feed and bills to pay and dreams they aspire to achieve. These good people face a world of uncertainty as they go about the day-to-day business of life, including staying healthy and keeping their jobs.

The coronavirus pandemic has made life a lot more difficult for these folks. The California Employment Development Department reports that state-wide initial unemployment claims increased ten-fold between February and March from 165,669 to 1,654,138. That number could easily double in April.

Monterey County is not immune. As of April 11, more than 26,000 people in our county had filed for unemployment benefits since the shelter-in-place order went into effect six weeks ago. This compares to only 2,298 initial unemployment claims for the month of February. Other costs are mounting, also. With the cancellation of numerous events and conferences on the Monterey Peninsula, tourists are in short supply. Local businesses and municipalities are finding big holes in their budgets where those tourist dollars used to be.

The costs of COVID-19 appear even more formidable when we look at the national level. Congress has already pledged $2.6 trillion in aid to help those hurt by the pandemic. In addition, we face the cost of lost economic output which we can conservatively estimate to be around $2.0 trillion in the U.S., based on a recent IMF analysis. All together, the coronavirus will cost us $4.6 trillion, or about $14,375 for every man, woman and child in the United States.

Some political leaders have said that cost is not an issue when it comes to fighting this virus, but many of the newly unemployed would disagree. We owe it to all the members of our community to carefully weigh the effectiveness of our COVID-19 strategy versus its many costs. In particular, does a general lock down truly serve the public good? Some recent studies provide helpful insights.

On April 11, researchers at Stanford University’s School of Medicine published a study that looked at the prevalence of COVID-19 antibodies in Santa Clara County’s population. They found evidence that the actual rate of infection was 50 to 85 times higher than the number of confirmed cases. Using this information, the researchers estimate that the number of infected people who eventually die from the disease is between 0.12 and 0.2 percent—a far lower rate than headlines would suggest.

Using these numbers, if all 320 million people in the United States became infected, we would expect to see 640,000 deaths. If our mitigation efforts saved every one of those lives, the $4.6 trillion cost mentioned earlier would equate to $7.1 million per life saved. That is rather ghoulish calculus, but it raises an important, albeit uncomfortable, public policy issue.

On April 26, the Wall Street Journal published an opinion piece by T.J. Rodgers with the compelling title: “Do Lockdowns Save Many Lives? In Most Places, the Data Say No.” Rodgers is not a public health expert, but with a PhD in electrical engineering from Stanford and as the founder of Cypress Semiconductor he is no analytical slouch.

Rodgers looked at the relationship between states’ COVID-19 death rates and how quickly each state issued a shelter-in-place order. Surprisingly, he found no evidence that faster lock downs correlated with lower death rates. However, he did find a modest positive correlation between higher population density and higher death rates.  Rodgers concluded, “[The result] suggests New York City might have benefited from its shutdown—but blindly copying New York’s policies in places with low COVID-19 death rates…doesn’t make sense.”

These studies are not definitive. In many cases they raise more questions than they answer. However, they give us a sense that our response going forward should be more nuanced than it has been in the past. We simply have to find a way to reduce the economic cost of this crisis and that means allowing businesses to open and helping people get back to work. It is time for a new plan.

Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to:stevemerrell@montereypw.com