The impulse to trust experts and to give them authority over us is a venerable one, perhaps indeed having evolutionary roots in our development as a small-group species whose survival in evolutionary times might well have depended on our willingness to submit to and follow a single leader…. A dispassionate look at the actual historical results of obedience to such all-too-human leaders, however, should temper our enthusiasm. History is replete with atrocities committed by people following such leaders….James R. Otteson, Seven Deadly Economic Sins
In this issue
The Grand Lockdown Flip-Flop; Something to Agree With: The Lockdown Will Be a Disaster for the Country!
I. The Grand Lockdown Flip-Flop; Justifying Repressive Interventions Thru Statistics
II. Lockdown Financing: Financial Repression/Inflation Tax, Borrowing and Higher Taxes
III. The Effectiveness of Testing and Treatment versus Lockdowns
IV. Despite Record Covid-19 Cases, Covid-19 Death Statistics Have Declined!
V. More Vaccine Side-effects Emerge!
VI. Something to Agree With: The Lockdown Will Be a Disaster for the Country!
The Grand Lockdown Flip-Flop; Something to Agree With: The Lockdown Will Be a Disaster for the Country!
I. The Grand Lockdown Flip-Flop; Justifying Repressive Interventions Thru Statistics
From the CNN Philippines (March 23) — The economy will remain open despite a fresh surge in COVID-19 cases, because imposing a total lockdown would spell "disaster" for the country, President Rodrigo Duterte said Monday. In his televised address to the nation, Duterte said the government has no choice but to simply "balance" the situation as it cannot afford to revert back to stricter quarantine rules. "Kung sarahan mo naman 'yan lahat medyo tagilid na ang ekonomiya, and that's a problem. It will be a disaster for the country, so balance balance na lang tayo," the President said. [Translation: If you will close all of these businesses, the economy is already out of shape, and that's a problem. It will be a disaster for the country so we have to have a balance.]
After COVID-19 caseloads hit nearly 10,000, the amazing policy backflip.
From Philstar (March 27): The Philippines is up for a throwback to the early days of the pandemic, with the government set to place Metro Manila, Cavite, Laguna, Bulacan and Rizal under enhanced community quarantine beginning Monday. President Rodrigo Duterte has approved the recommendation of the government's pandemic task force to place these areas, called by the administration as "NCR Plus," under ECQ from March 29 to April 4, Malacañang announced…The lockdowns will give the healthcare system a respite, while having limited economic impact because of a long holiday from Holy Thursday to Easter Sunday.
From the Inquirer (March 28): President Rodrigo Duterte approved the recommendation of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases to place these areas under ECQ, which was based on the data on cases and health-care utilization, Roque said. “We want to take drastic measures because the rise in cases is drastic due to the new variants. Drastic threat warrants a drastic response,” Roque said at a televised press briefing. It was the first time that significant parts of the country were placed under ECQ a year after the President imposed the strictest lockdown in the country in response to the pandemic. This means a significant portion of the economy would be shut down in these areas, and only essential businesses would be permitted. Roque said the government expects the one-week ECQ to help bring down the number of infections by more than 25 percent. “I think the expectation is higher than 25 percent [reduction],” he said. Roque earlier said the two-week strict general community quarantine that was supposed to end April 4 was intended to bring down cases by 25 percent.
Understanding the raison d'être behind this stunning flip-flop is crucial.
First, economic managers think that the economy is about statistics.
From the Manila Times (March 22): THE Rizal Commercial Banking Corp. (RCBC) was the lone local bank among the six institutions that accurately forecasted the Philippines’ 2020 gross domestic product (GDP), the Department of Finance (DoF) announced on Thursday. The Philippine Statistics Authority reported that the country’s GDP shrank 9.5 percent, its worst decline in Philippine history and the first economic contraction since the Asian financial crisis. In November last year, RCBC chief economist Mike Ricafort said the Philippine economy might plummet by 9.5 to 10 percent for the full of 2020, coming from the narrower GDP contraction of -8 and -9 percent in the fourth quarter. Among the 30 institutions polled by DoF last year, six institutions correctly predicted the GDP contraction of 9.5 percent that include S&P Global Ratings, DBS Bank, Capital Economics, Global Source Partners, Institute of International Finance (IIF) and RCBC.
Since the National Government’s (NG) Philippine Statistics Authority (PSA) reported the 3Q quarter GDP on November 10, fundamentally, the consensus has three-quarters of GDP numbers to play around with from which to arrive at the annual GDP.
Nonetheless, for a better perspective on the so-called forecasting accuracy, here is a track record of some of the top performers.
During the initial outbreak of COVID-19 in Wuhan China, a bullish outlook from the PNA (January 15, 2020): An economist forecasts further acceleration of the Philippine economy’s growth to as high as 7 percent in the first quarter of 2020 due to the early approval of this year’s national budget that will help boost infrastructure spending…This year’s national budget was signed into law last Jan. 6, and Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said this timely approval will further lift state spending, which accounts for about 11 to 12 percent of GDP.
1Q 2020 GDP was –7%.
From the UTCC ASEAN economic center community (April 30): THE Rizal Commercial Banking Corp. (RCBC) further trimmed its growth estimate for the Philippine economy this year to between -1.5 and 0.5 percent after taking into account the impact of the Luzon-wide enhanced community quarantine (ECQ) on the country’s economic activities.
Again, the mainstream remained in steep denial about the untoward effects of an economic shutdown.
The shifting goalposts of projected annual 2020 GDP estimates, based on RCBC investor relation reports: (-2% to -4%) 1Q published June 18, 2020; (-5% to -7%) 2Q published August 27 and (-9% to -10%) 3Q published November 27, 2020.
Forecasting accuracy or lucky guess?
In the meantime, S&P Global’s incredible radical downshifts of their 2020 GDP forecasts.
When the pandemic started to show…
From the Businessworld (February 20 2020) In a note sent to reporters on Wednesday, S&P said it lowered its gross domestic product (GDP) growth outlook for the Philippines to 6.1% in 2020, from the already downgraded 6.2%. The global ratings agency maintained its Philippine growth forecast at 6.4% for 2022.
For the S&P, immobilization induces minor adverse effects on the GDP!
Incredible!
From the CNN Philippines (March 23 2020): The Philippine economy is poised to see its slowest growth in nearly a decade as the novel coronavirus pandemic ruins productivity and renders more people jobless, S&P Global Ratings said Monday. The credit rater projects the Philippine economy would expand by just 4.2 percent this year, a marked slowdown from the 5.9 percent logged in 2019. This is also a big dip from its previous 5.8 percent estimate, and would sorely miss the government's 6.5-7.5 percent growth target.
What a stunning ivory tower perspective!
Then the realization…
From the Manila Times (April 21 2020): S&P Global Ratings adjusted further its growth estimate for the Philippine economy this year. In a report, the credit ratings agency said Philippine gross domestic product (GSP) was likely to dip by 0.2 percent this year, a downward revision from its previous forecast of 4.2 percent.
Deny, deny and deny!
Knocked on the head by a string of failures, the S&P Global readjusted substantially their GDP forecast to -9.5% on October 27, 2020, which serendipitously aligned with the PSA’s report.
In essence, the reason for citations by the Department of Finance may not have been about forecasting accuracy, but about inducing the consensus to see things their way.
Economics in the perspective of econometrics/statistics justifying repressive political interventions.
II. Lockdown Financing: Financial Repression/Inflation Tax, Borrowing and Higher Taxes
Figure 1
In this context, for them, all that matters is cash flows.
Despite the 9.5% GDP contraction, because NG collection was down by only 8.97% which translated to a lower than expected 7.63% deficit-to-GDP (figure 1, top window), authorities appear to be bankrolling on the notion that the present ECQ would barely dent on revenue intake from this year’s anticipated 6.5% to 7.5% GDP recovery (DBCC, December 20, 2020).
Further, authorities are hoping that the enactment of the CREATE bill would spur an investment boom that would induce public debt to melt-away. Again, there is no melting away but only juggling of debt (figure 1, lowest right pane)
Again, tax cuts by themselves are laudable. But when government engages in RECORD deficit spending backed by a RECORD amount of debt acquisition, tax cuts signify smoke and mirrors because this will eventually morph into tax increases. Who is going to pay for the surge in debts? How will these affect financial conditions and the economy?
Most importantly, for as long as access to cheap credit remains a viable option, putting more than half of the nation on house arrest to exorcise Covid-19 may seem like a lesser form of disaster for the administration, especially with national elections in 2022.
Financial repression, using the BSP to force down interest rates to accommodate mounting debt (figure 1, middle pane), would be a better option than using the tax channel, is it not?
From the GMA-News (March 24): It is still too early for the Bangko Sentral ng Pilipinas (BSP) to start its COVID-19 exit strategy as the timing will largely depend on economic data, a top official said Wednesday. In a virtual briefing, BSP Governor Benjamin Diokno reiterated that this year will be a recovery year for the country, and that the economy won't be back to its pre-pandemic levels until the second half of 2022, subject to upward and downward risks. "The short answer is no. It is too early to talk about an exit strategy at this time," he said when asked if it is time for the central bank to consider starting one.
When has the NG-BSP pulled back from their emergency measures? (figure 1, lowest right pane)
Indeed, it may be a disaster for a majority of people, but serfdom under the premise of flattening the curve and saving lives represent a political camouflage for absolutist control, and subsequently, an expansion and extension of power.
III. The Effectiveness of Testing and Treatment versus Lockdowns
The second crucial factor is the political bias for social control.
Last week I noted that mobility was hardly a culprit for the surge in COVID-19.
The official explanation has shifted.
From the Inquirer (March 22): The country’s recent COVID-19 surge is partly caused by people not complying with minimum health protocols like the proper wearing of masks and face shields, Health Secretary Francisco Duque III said on Monday.
From the Inquirer (March 22): For Trade Secretary Ramon Lopez, “secret parties,” and not the reopening of the economy, are to blame for the surge in new COVID-19 cases. Lopez noted that many people who meet their friends due to “lockdown fatigue” normally lower down their guards against COVID-19 during their private engagements.
From the Inquirer (March 23): The Department of Health (DOH) on Monday said two highly contagious variants of the coronavirus had been detected in all cities in Metro Manila and these may be driving the rapid increase in COVID-19 cases in the metropolis in the past few weeks.
If mobility hasn’t been the source of the surge, then why the ECQ?
Has the ECQ been effective in containing and mitigating the pandemic?
First a backstory.
Figure 2
In response to the initial jump in COVID-19 cases, the Enhanced Community Quarantine (ECQ) was declared on the Metropolis and Luzon from March 16 to April 14, 2020. The ECQ was extended until April 30. In May, authorities introduced classifications of MECQ and GCQ. In June, the NCR was placed under GCQ.
The ECQ to MECQ period (April to May 2020) had average daily cases of 213 and 310, respectively. (figure 2, top window)
When GCQ was declared in June, average cases more than doubled to 649 in June. It nearly tripled June’s number to 1,849 in July. Then, in August, the average cases more than doubled July’s figures to 4,202.
The political leadership granted the request of the health industry practitioners for a 2-week MECQ in August. Because traffic hardly went down, one could say that the August lockdown represented a soft-MECQ.
The so-called reopening barely improved traffic or mobility but caseloads declined. (figure 2, middle pane) That is until February and March 2021.
In any case, mobility improved from the ECQ to MECQ, mostly during June and July. It peaked in January 2021. But January’s increases had been minor compared to the 4Q 2020 level, based on Apple’s mobility index.
It is easy to generalize that the GCQ fueled a boost in June and July 2020. In reality, limited testing subdued the mounting number of caseloads under ECQ/MECQ. (figure 2 lowest pane)
When testing increased during the reopening of June to August, caseloads also surged and climaxed.
That said, MECQ had little to do with containing the spread. Improved testing and treatments appear to have done the job.
Peak testing occurred in September, as caseloads started to cascade even as traffic had been less restricted. So how did the soft reopening cause the virus spike?
Could this have been due to incipient signs of herd immunity?
Why not liberalize treatment instead of centralizing/politicizing it?
IV. Despite Record Covid-19 Cases, Covid-19 Death Statistics Have Declined!
Figure 3
Death statistics from Covid-19 and Covid-19 related illness function as lagging indicators.
Nevertheless, while the focus of the public’s attention is on the record surge of caseloads, the trend of death statistics (weekly), and the Case Facility Rate (CFR), the most important data, have been on a decline. (figure 3, top and middle windows) It is death that people fear most from a pandemic, right?
In short order, despite heavy politicization of the various facets of dealing with Covid-19, such as testing, treatments, and vaccines, slowing death statistics indicate the flattening of the LEARNING curve, or that denizens seem to be coping with how to live with COVID-19, even without vaccines.
So, even as streaks of new records have been carved by COVID-19 this March, the DoH data (as of March 26) showed that there is much hospital capacity available. (figure 3, lowest pane)
It is health establishments that cater mainly to the upper income/wealth echelons that appear to be exhibiting signs of pressure. Perhaps, such grains of truth may have served as a basis for the allegation “secret parties” are the cause of the second-wave.
Or perhaps, with little resources, economically disadvantaged individuals don’t show up for testing and treatment. If so, death statistics, which lag cases by about a month, should swell in April or May.
However, if testing and treatment improved to diminish the CFR, record cases shouldn’t be the primary concern.
As said last week,
In reality, because mobility serves as a politically convenient pretext for the spread of COVID-19, resonant of 2020, the political solution is to panic.
Instead of focusing on testing and treatment, imposing a medical gulag regardless of its effectiveness or its longer-term consequences represents the political solution.
So, the unintended consequences of policy errors should surface over time.
On this note, I also wrote,
Therefore, the opportunity costs of the obsession/fixation over COVID-19 translate to the needless increases of other diseases, and their subsequent ramifications (reduced lifespan).
See Have Record High COVID-19 Cases Been Due to Economic Reopening? March 21, 2021
New Zealand’s latest “Hospital crisis” provides a good example.
Despite less than 2,500 COVID-19 cases (as of March 27) from the start of the outbreak, authorities imposed about four alert level-3 lockdowns since March 23, 2020. The fear of COVID-19 led to a surge in hospitalization from non-Covid cases!
From RNZ (March 25, 2021): People are being treated in corridors, increasing numbers of staff are reporting burnout and wait times are becoming longer. In the past 48 hours, Dunedin Hospital and Whangārei Hospital have reached capacity, asking people to keep ED for emergencies only. Now, medical practitioners around the country say it is a nationwide problem that, without support, is only going to get worse. Australasian College for Emergency Medicine president Dr John Bonning said the emergency department was where the stress was most visible, but the whole system was under increasing pressure…."So we've got a chronic problem exacerbated by an acute problem relating to getting enough doctors ... and then we've got people delaying being seen because of Covid and associated issues around access," Dr Baddock said. "You've ended up with this tsunami of patients needing to be seen."
See Have Record High COVID-19 Cases Been Due to Economic Reopening? March 21, 2021
So instead of flattening the curve, in New Zealand’s case, undue strains on hospital capacity represent one of the unintended consequences of a lockdown!
V. More Vaccine Side-effects Emerge!
As for vaccines…
From the Inquirer (March 27): A 52-year-old midwife died on Thursday (Mar. 25), 13 days after she was inoculated with her first dose of the CoronaVac COVID-19 vaccine.
Of course, the DoH denies this adverse event as vaccine-related.
From ABS-CBN news (March 27): Some 15 health frontliners from Pasay City General Hospital (PCGH) have tested positive for COVID-19 after being inoculated with Sinovac's coronavirus vaccines, the hospital's officer-in-charge said.
Yet even the political leadership appears to be evincing signs of skepticism.
From the Philstar (March 24): Vaccine manufacturers cannot be totally immune from liability if something goes wrong with the COVID-19 shots administered to the people, President Duterte said. “I think we cannot do that even if we wanted to...Tell them it is not possible. If it goes wrong, there is mishandling, or for whatever reason, it is not effective as advertised, then they will go after whom? We are not allowed to sign any agreement to that effect... I do not think that it will be legal. Tell them, it’s illegal for us to do that. Only Congress can do that, no one else,” Duterte added.
Stunning eh?
With more signs of side-effects from the fast-tracked mRNA (gene editing)/inactivated vaccine technology vaccines, it is no wonder why a substantial majority of survey respondents remain disinclined to get vaccinated despite the massive propaganda for it.
VI. Something to Agree With: The Lockdown Will Be a Disaster for the Country!
From the opening quote by the political leadership, “If you will close all of these businesses, the economy is already out of shape, and that's a problem. It will be a disaster for the country so we have to have a balance.”
The following are truly astounding excerpts partly in support of this claim.
From the Inquirer (March 25): “ADBI said people in the Philippines, Cambodia and Indonesia “lacked a well-developed social safety net to support them when there is a shock.” Households whose income come mainly from salaries are less likely to experience income declines during a crisis, it said. ADBI said that in the Philippines, “being located in a lockdown area increases the likelihood of having an income decline” of a more significant amount compared to its Asean peers. Across the region, it was in the Philippines where the biggest share of households, or 85 percent of respondents, said they had experienced financial difficulties amid the pandemic. Also, 84 percent of Filipinos surveyed said their incomes dropped last year. In terms of sufficiency of resources to cover daily necessities in case households lose all of their income sources, ADBI said “the situation is also serious in the Philippines, with less than 30 percent having enough resources to cover necessary expenditures for more than a month.” Referring to the Philippines and Indonesia, where 86.6 percent of households said they could survive for only two weeks without income, ADBI said “if the COVID-19 pandemic is prolonged, many households in these countries may suffer from hunger and increased poverty.” As cases surged in recent weeks, the Philippines remained under the longest COVID-19 quarantine in the region. The government imposed stricter measures for the next two weeks. Data from the Manila-based Asian Development Bank showed the Philippines’ war chest to fight COVID-19 had hit $38.13 billion or 10.36 percent of gross domestic product as of March 8.
In short, this ADB survey says that not only are most people losing income, but survival buffers are being exhausted fast!
Will a social crisis emerge from this?
From an Inquirer Editorial (March 22) [a big hat tip to reader Shak]: Even as the government grapples with the surging number of COVID-19 cases, a major crisis looms in the corporate sector that threatens to put millions out of work and their fate dependent on how the Duterte administration will help their employers. At a Senate hearing last week, legislators were told that more than 1,200 big companies are troubled financially and need up to P625 billion in government funding support to stay afloat and keep some 6.3 million workers from joining the ranks of the unemployed. The problem, as admitted by economic officials, is that the government does not have that money to help all big firms facing solvency issues.
Some important perspectives:
-This Senate hearing seems to have limited coverage in the broader media.
-The hearing highlights the interconnectedness of an economy. While the brunt of the economic shutdown has been borne by the SMEs, the economic and financial strains have percolated to big companies (including publicly listed ones).
-Discoordination of the commercial process manifests supply-side disruptions that have diffused into demand through losses in rents, earnings, income, wages, and jobs.
-Such maladjustments will continue to be vented on prices, supply, and or production. Even the government and media have gotten a whiff of this.
From the Inquirer (March 25): Lopez said more stringent restrictions will lead to more problems beyond the COVID-19 pandemic like further lack of livelihood, food security, and even peace and order.
-Big companies get the attention of the Senate and media because they are more organized and are represented as political lobby groups. Unfortunately, SMEs have significantly less representation because they are dispersed and fragmented.
-Financially troubled big companies exhibit the lack of cash reserves and possible outsized exposure on debt.
-Balance sheets of financially trouble big companies also reflect imbalances from the race-to-build supply or bubble industries.
Figure 4
-There is little appreciation of the concentration risk from several sectors engaged in the race-to-build (bubble) industries. These sectors constitute the largest share of the GDP, as well as the biggest share of banking loans. Dependent on loose mobility and credit growth, the same sectors have been under siege from mobility controls and tightening credit conditions.
-The ECQ has condemned the consumers and the retail industry.
From the Businessworld(March 24): SEGMENTS of the retail sector may see revenues plunge by as much as 70% over the next two weeks as restrictions are tightened in the capital region to curb the surge in coronavirus disease 2019 (COVID-19) infections. Until April 4, some businesses will be banned from operating at full capacity or at all, while indoor dine-in at restaurants will not be allowed in the capital and its neighboring provinces, or the so-called “NCR Plus” bubble.
-A critical force shaping the bailout culture is the media.
-Bailing out big companies doesn’t come for free. Small businesses, taxpayers, and currency holders unjustly bear the onus of their mistakes.
-A bailout of 6.3 million laborers at the expense of the 33.7 million+ workers is justifiable?
-The BSP bailed out banks, the financial, and the stock market industry through its Php 2 trillion liquidity injections and other relief and monetary measures in 2020. The bailouts can be expected to persist in 2021.
As Dr. John P Hussman wrote:
Before these bankruptcies and defaults emerge, understand this: bankruptcies are mainly packaged restructurings, and bank failures are mainly purchase-and-assumption transactions. What amplified the Depression was not bankruptcy and bank failure itself, but disorganized and piecemeal bankruptcy and bank failure. The public shouldn’t support bailouts. We should instead support quick restructurings that preserve corporate assets, jobs, and business activity, but also appropriately wipe out the equity and debt of companies that have been managed irresponsibly. That’s how risk-taking works. Why use public money to absorb losses that private investors willingly agreed to take the moment they bought corporate securities?
Dr. John P Hussman, Incubation Phase: Gradually and then Suddenly June 2020, Hussmanfunds.com
The point being, allow the markets to clear.
In contrast to the forecast of ivory tower experts, plagued by the principal-agent problems, financially troubled big companies are not signs of earnings and economic recovery. These are, instead, hallmarks of a “major crisis”.
The writing is on the wall.
From the Philstar (March 23): Dennis Uy-led Phoenix Petroleum Philippines Inc. is on a hunt for companies willing to buy some or rent some of its assets to raise funds for debt falling due. … While the pandemic has hurt businesses, the impact appears to have been more felt by Dennis Uy and his fast-growing business empire under President Rodrigo Duterte's administration. In early days of last year, Dito Telecommunity suffered a setback on its rollout plan, before catching up later on to its commercial rollout this month. Last week, Uy sold his 31.73% stake in the 2GO group to Sy-led SM Investments Corp. for P6.6 billion. The logistics company has been in the red since 2017, failing to capitalize on the booming delivery sector amid the pandemic.
Interestingly, a political favorite, who relied heavily on debt for his aggressive expansion, has not been spared from the economic fallout induced by policies embraced by his patron.
The surfacing of fraud/swindles (Kindleberger) and liquidations are likewise signs of the coming distress.
Finally, this ECQ has been rationalized as a Holy Week affair, meaning it is touted to have little impact on the economy. As if, the world stops during Holy Week. And neither is it clear that this ECQ would only be for a week. With errors from central planning compounding upon error, such opportunity galvanizes the expansion of the police state.
“You never let a serious crisis go to waste”, wrote former White House Chief of Staff Rahm Emmanuel during Great Recession of 2008, and “what I mean by that it's an opportunity to do things you think you could not do before”.
We can agree that this opportunity to do extraordinary things in a serious crisis “will be a disaster for the country”; surely a top-down executed economic cataclysm under the guise of saving the nation from a pandemic.
