COVID’s K-Shaped Recovery

Famed economist John Maynard Keynes described the economy as a social organism, alluding to the vast interdependent network of industries that depend upon one another. Like all organisms, economies adjust, thriving in favorable environments, and evolving in unfavorable ones. Well ahead of his time, Keynes noted that to truly understand how economies adjust to changing circumstances over time, we must account for the social and psychological elements that influence the behavior of the public.

A lesson not lost upon economists today, as many are developing models to predict how economies will rebound post-pandemic by accounting for post-pandemic consumer behavior in their models. While most project an optimistic 2021, there are a few economists taking a more nuanced approach in projecting post-pandemic economic growth.

Leading economists within the International Monetary Fund and JP Morgan are predicting a K-shaped recovery, which derives its name from the diverging paths taken by different parts of the economy, resembling the two arms of the Roman letter “K” when charted over time.

According to a report by JP Morgan, K-shaped recoveries occur when different parts of the economy recover at different rates – which are in contrast with a more uniform recovery across different industries within the economy. A K-shaped recovery implies that there will be structural changes in the economy or within the broader society due to fundamental changes in the economy transpiring over the course of the K-shaped recovery.

Early in the pandemic we realized that economic recovery may be slow and may lag the initial, more optimistic projections by months. Late in the pandemic we found that while recovery may be slower than other non-pandemic recessions, recovery also appears to be disjointed, that certain parts of the economy are recovering faster than other parts.

Something not normally seen in most recessions, but commonly seen when the economy is undergoing fundamental, structural changes in the process of recovering from the recession. And when we examine the fundamental, structural changes currently taking place in our economy, the most immediate, apparent change is the change in patient behavior.

When observed in aggregate, changing patient behavior predicts changing consumer behavior, and changing consumer behavior changes spending behavior across various industries within the economy.

Simply put, people are now prioritizing – more than ever before – their basic health when making fundamental economic decisions.

A shift not yet appreciated among foremost economic leaders. The World Economic Forum seems to believe that the diverging patterns of economic recovery are demarcated along traditional lines of economic recovery, the commonly observed split between large corporate conglomerates and individual consumers. Through this belief, the forum argues that economic aid to individuals would help spur economic growth where it is most vulnerable.

Yet we have seen what most consumers do when offered economic aid in the form of stimulus packages during the pandemic – they save, they do not spend. This means they do not contribute to economic growth, since economic growth comes from spending, whether that is spending as consumers or spending as small businesses.

According to the National Bureau of Economic Research, 60% of the stimulus spending from the Coronavirus Aid, Relief, and Economic Security (CARES) Act went to pay off debt or was saved, with 20% using nearly all the stimulus payments to pay off debts. Of the roughly 40% that was spent on goods and services, consumers favored food and beauty products rather than large durables goods like cars or appliances – the latter of which would have maximized the positive impact on the economy.

The counterintuitive effects of the stimulus were surprising, though not entirely unexpected, as many economists have argued that a pandemic-driven recession is different than a traditional recession – which means the economic tools that can encourage recovery out of this pandemic must also be different.

To understand these tools, we must change how we perceive consumers, and incorporate a heightened emphasis on public health in consumer decision-making – merging the perceptions of patients and consumers into a new combined entity, called healthcare consumerism.

And consequently, view economic recovery in terms of healthcare consumerism, modeling consumer behavior in lieu of their behavior as patients.

An analysis conducted by the Boston Consulting Group seems to corroborate this notion. In a recent white paper, the firm compared how various industries have been affected by the current pandemic-led recession relative to the Great Recession just over a decade ago, and found the greatest disparity came from the healthcare sectors. While nearly all industries showed different degrees of losses in both recessions, the biopharma, medtech, and healthcare provider sectors demonstrated positive growth during this current recession, while showing losses similar to other sectors during the Great Recession.

While the reasons for the disparity may seem obvious – after all it was a viral pandemic that caused the current economic downturn – the disparity should have prompted new insights into post-pandemic consumer spending, which should have then prompted new solutions to promote consumer spending. Yet it did not. We still tried the same methods with considerably less effectiveness.

Healthcare consumer behavior is distinct from traditional consumer behavior. The fear of public health risks upon individual decision-making – whether it is deciding what job to take or where to vacation with friends – is far more pronounced in healthcare consumer behavior.

Something manifestly apparent as we look across our society, we see certain groups thriving while others are still struggling even in the latter days of the pandemic. Employees able to work from home have maintained jobs and income, accumulating more savings while others have lost their jobs and income, or closed businesses and have struggled to household expenses.

This disparity is the real divide creating the diverging patterns in the K-shaped curve – which we can analyze by studying the changing consumption patterns among healthcare consumers.

Through our own internal surveys and by referencing data derived from the McKinsey Global Institute, we were able to decipher certain patterns of behavior that are likely to persist, and certain patterns of behavior that are likely to fade once the pandemic passes into the annals of history. And by studying the patterns of behavior, we can predict the parts of the economy that are likely to grow.

Behaviors that will become increasingly prevalent – online grocery shopping, virtual healthcare experiences, home goods and services

Behaviors that will become less common – live entertainment, virtual education, restaurant dining

The distinguishing factor to determine whether a particular behavior will become more or less prevalent is to compare the health risk relative to the value gleaned per behavior. Those behaviors that put individuals at a greater health risk without a commensurate increase in value to the consumer will become less common.

But other behaviors, such as virtual health, which provides healthcare engagements at the convenience of home, or without the normally abhorrent wait times, provides minimal health risk while maximizing the value of convenience to the consumer.

Post-pandemic healthcare consumerism is a relatively new trend which will define public consumption patterns for years to come. While we are still learning how these trends will play out, we can safety surmise that studying healthcare consumerism as a ratio – health risk to value gleaned – will predict the likely trend for that behavior.

Revealing how the social organism will adjust to the post-pandemic economy.

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Vaccine Passports: what we need to know

The COVID-19 pandemic has killed more than half a million people in the US and has seriously impacted our daily lives. The granting of Emergency Use Authorizations for COVID-19 vaccines has been a game changer in helping to reverse the pandemic onslaught. Demand for the vaccines currently far exceeds supply nationwide. They have become the golden ticket that can transport us back to a time when routine activities, such as attending school or taking vacations, didn’t seem fraught with danger. What’s the best way to go about re-establishing these activities? One idea that’s getting discussed seriously is giving those who have been immunized a vaccination passport (VP).

What is a vaccination passport?

Let’s start by clarifying some terminology. VPs are documents that show that someone has been given a vaccine(s) and is therefore presumed to be immune from getting and sharing that disease. These are distinct from diagnostic tests to determine if a person is or is not infected with a particular virus (PCR and viral antigen tests) or has been exposed to a virus (antibody tests). VPs are the modern day equivalents of the “letters of transit” that played a key role in the film Casablanca. They’ll enable you to travel freely.

Why give vaccine passports?

Vaccinated people are unlikely to transmit the virus that causes COVID-19 with others, though this has yet to be definitely proven. So, what’s the primary rationale for giving vaccination passports? It seems the goal is to incentivize people to get vaccinated. Folks might be more likely to seek out the vaccine if it bestows upon them certain privileges, such as being able to travel freely. While the idea might sound appealing at one level, the road to vaccine passports is pockmarked with political potholes and littered with logistical land mines.

Administrative issues

There are a lot of important questions that need to be answered before VPs can become widespread; it’s unlikely there will be a “one size fits all” solution. What might VPs look like? Pieces of paper (that could easily be lost or counterfeited), or a digital key or document you store on your smartphone (that many older folks still don’t have)? If you lost one, how would you get it replaced? Would your vaccination records be tied to your other medical records, and if so, what kind of privacy and security protections would be needed to safeguard your data? How would the passport administrator verify that you got vaccinated in the first place? Who is responsible for correcting any errors that crop up? Given how much we’ve struggled as a nation to simply solve the scheduling of vaccinations, VPs might be significantly more difficult to manage.

Who’s going to run the program?

A coalition of health tech leaders (including Epic, the Mayo Clinic, Microsoft and Salesforce) has started the Vaccination Credential Initiative to create an internationally accepted digital health card. Its vision – as stated on its website – is “to empower individuals to obtain an encrypted digital copy of their immunization credentials to store in a digital wallet of their choice. Those without smartphones could receive paper printed with QR codes containing World Wide Web Consortium (W3C) verifiable credentials.” Some European countries (e.g. Denmark) are working on developing their own immunization passports, and the President of the European Union Commission has voiced support for them.

We already have a hodgepodge system designed to keep folks with COVID-19 from traveling. Many airlines are requiring proof of non-infectivity to board a plane – these are distinct from VPs. The methods adopted vary from airline to airline: United uses Travel Ready Center, American uses VeriFly while others use Common Pass. Saga cruises are the first in the UK to demand proof of vaccination, but not everyone is on board with the concept. The World Travel and Tourism Council stated its opposition to allowing travel only by those who have been vaccinated, on the grounds that it is discriminatory.

Discrimination concerns

The concept of gaining advantage from one’s immunological status is not a new one. In New Orleans in the mid 19th century, great economic value was attached to those who survived the onslaught of epidemic waves of yellow fever. A mix of structural racism and a system valuing “immunocapital” ranked men and women highly if they were yellow fever survivors. Those that had not had the disease yet found it difficult to obtain work or obtain credit and women could not marry. Slaves were similarly revalued, with larger assessments attached to survivors. This legacy of viral discrimination casts a long shadow over current discussions surrounding vaccination passports.

Also problematic is the fact that not everyone will be eligible for VPs. Some people can’t be vaccinated for medical reasons but would still like to participate in whatever activities the passports enable (such as travel opportunities). These individuals will likely file complaints if they are denied VPs, arguing that they’re discriminatory in nature. Vaccine opponents will no doubt also file lawsuits seeking to block the use of VPs, claiming they represent an attack on their freedoms and personal choice.

Others may be shut out of VP programs because they don’t have the computer skills to register online, a problem that’s turned out to be widespread with the vaccinations. Don’t have any ID? In some places this prevents the most vulnerable from getting the COVID-19 vaccine, and therefore VPs as well. Many Black and marginalized communities are already deeply suspicious of the medical establishment, and wary of receiving a COVID-19 vaccine. Restrictions that prevent these groups from participating in various societal activities because they don’t have VPs will echo the Jim Crow days of poll taxes and literacy tests that were required to vote.

Enforcement issues

VPs bring up a similar issue as mask mandates: who is going to enforce them? It is one thing for a cruise line to do so, since reservations are required and extensive paperwork needs to be filled out in advance. Who is going to keep non-vaccinated people out of restaurants or concerts that require proof of vaccination? We’ve already seen anti-maskers storm department stores, ignore requirements to wear masks on planes and even kill a security guard who confronted them.

Black market for vaccine passports

Many airlines are now requiring proof of a negative COVID-19 test before they will let their customers fly. This has led to a black market for fake negative COVID-19 test results for those who are looking to game the system. Similarly, bogus cards claiming that the cardholder was exempt– for medical reasons – from having to wear a mask, have been manufactured and distributed. It’s not hard to imagine that a similar market will emerge for VPs.

Overcoming vaccine hesitancy

Given the multitude of issues and concerns listed above, moving forward with issuing vaccination passports seems highly problematic. If the primary purpose of having VPs is to drive up immunization rates, that can be better accomplished by running public service announcements and ads illustrating how liberating it is to start doing normal activities once vaccinated. A nationwide campaign to do just that is already in the works. I personally can think of a better use for the time and money that will be spent on establishing VPs: use them to focus efforts on overcoming vaccine hesitancy in concert with combatting the high tide of online vaccine misinformation and disinformation.

Source: Technology Networks

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