Economy and Business Politics and Public Policy

The Biden Tax Plan and Unintended (Negative) Consequences

While I watched President Biden’s speech to both houses of congress last night I remained convinced that he is a good and decent man who truly wants to help the American people. I was also convinced that he is a product of Washington politics who has never done anything but be a politician. Therefore he does not understand the negative impact his policies will have on innovation and young start-up and private companies in general.

In addition to pursuing policies that will stifle innovation, he is using a lot of rhetoric to sell rather grandiose plans that he and his advisors may think are popular with some voters, but that in the long run will lead to more political division and strife within our fragile democracy. His administration does not seem to understand that what he proposes will not only harm innovation, but drive a great deal of cost into company operations that will stifle job growth. He clearly wants to help the “middle class” as he calls it, but he seems to have a 1950’s and 1960’s style outlook on how to provide that help.

Large scale government programs that will have to include private company involvement and much higher taxes may have worked in the 1960’s, but in a globally competitive world these ideas are no longer relevant. For example it is unclear how advocating union membership is going to help members of the middle class fit into a world of Artificial Intelligence, Machine Learning and Cryptography where advanced computer skills, not manufacturing assembly skills are the most important ones for citizens to obtain.

While helping people is a good goal, it seems like pushing such large plans through the legislative process in such a short time will lead to resistance that will drive the country farther apart. Given that a lot of the programs may not do much to aid the economy in its global modern form, pushing them through with a slim Democratic majority will also foster ill will. In describing the plans and what they are intended to address, the language used appears to vilify business and business leaders. The tone and rhetoric used to describe them, and the plans themselves seem quite harmful to not just the economy, but the state of political discourse overall.

In this post I want to explain how the tax plans President Biden proposes can stifle capital investment in start-ups, hurt small businesses of all kinds and lose jobs instead of “create millions of jobs” as he projected in last night’s speech.

Revenue Plans
Here are some of his plans that raise taxes to “pay for” some of the initiatives:

  • Raise the corporate income tax rate to 28%
  • Institute a “minimum corporate tax” of 15% on corporations over a certain size
  • Raise the top marginal tax rate to 39.6%
  • Raise the capital gains tax rate to be equal to the top earned income rate (plus the 3.8% Medicare surtax added due to the Affordable Care Act), placing the top rate for selling long term assets to 43.4%. Raising the capital gains rate to one higher than that paid on earned income

Problems with The Plans

-Raise the corporate income tax to 28%

The problem with raising the corporate tax rate is that under the Obama administration (when rates were 35%) we were seeing a number of corporate inversions where the headquarters of a company and a corresponding amount of investment was moving outside of the United States. After lowering the corporate tax rate to 21% in the 2017 tax reduction act this practice almost stopped. We have seen a boost in investment in the United States since the top corporate rates have been lowered and the talk of inversion is now non-existent.

We run the risk of losing investment in our own country by charging rates higher than they are now (21% nominal rate). Compared to countries in the EU that have educated workforces and a “business friendly” climate (like the Republic of Ireland) our top tax rate being higher would give corporations the incentive to move operations off shore again.

The argument Democrats make is that we “don’t want to precipitate a race to the bottom” (lowering corporate tax rates to levels of other countries like Ireland at 12.5%). However, CEO’s of public companies have to investigate the possibility of producing their technology and products in the most efficient manner possible. High tax countries will be less advantageous to certain companies than countries with lower tax rates where their products can be developed for those companies.

According to this source (tax the European OECD countries levy a 21.7% average corporate tax rate. Germany and France are at 29.9% and 28.4 percent respectively, with Portugal the highest in mainland Europe at 31.5%. So running our tax rate higher could precipitate a loss of investment to overseas locales. Far Peak Acquisition Corporation’s Tom Farley, past CEO of the NYSE, made the point that raising corporate rates is a very bad idea as capital is fungible. He mentions that it would be a breach of fiduciary duty to shareholders for a CEO of a public company to not pursue off-shore investment as an alternative to on-shore if the rates increase as proposed under the Biden plan.

-Institute a “minimum corporate tax” of 15% on corporations over a certain size.

This seems to be the “Amazon tax” because President Biden always uses Amazon Inc. as the “bad example” of the corporation “paying zero tax”. He states this in a way that implies they are cheating on their taxes (which they are not; they are following the law). The reason they don’t pay a lot of taxes is that they invest large amounts of their profits into capital equipment to grow their operations and make them more competitive. They build data centers, warehouses, distribution infrastructure, they buy trucks, planes and delivery vehicles. Amazon employs more and more people as a result of this investment. If the 15% of a huge ($54 billion) number is given to the government, then that is 15% not spent on expanding and hiring employees to work in Amazon facilities. I also am skeptical that the government will spend these funds as wisely as Amazon will.

Joe Lonsdale, co-founder of Palantier Inc. and founding partner of 8VC (venture capital firm) also has some interesting views on corporate tax hikes and their impact on start-ups and growing companies like Amazon who invest heavily to maintain growth and employment. Mr. Lonsdale states that rates are best left alone.

So my belief is that we should leave corporate income tax rates where they are and let the for-profit sector build as much infrastructure as they can to grow their businesses.

-Raise the top marginal tax rate to 39.6%

While I think that this is a generally bad idea, if this were the only thing done it may not be as damaging as the other parts of the plan. The next item where capital gains rates are raised beyond the rate of ordinary income is the problematic one.

-Raise the capital gains tax rate to be equal to the top earned income rate (plus the 3.8% Medicare surtax added due to the Affordable Care Act), placing the top rate for selling long term assets at 43.4%. This is a corporate tax rate higher than that charged on earned income

Unintended Consequences

Removes Incentives for Risk Taking

Having the capital gains rate to be higher than earned income undermines the entire venture investing model. It is common for founding members of venture backed start-ups to work literally for years for no or very little salary so that they can build their businesses into something valuable enough to invest in let alone sell for a capital gain. Then it can be years before they earn even a competitive salary that they would have had working at a job with Google, MicroSoft, etc.

My previous start-up was self-funded and I put all the money into the company from past investments I had made without ever taking any salary. For nearly three years I worked essentially “for free”, supporting five other families. My “payoff” occurred when I sold the business. The incentive was to make a good return on my investment. If I had to pay more (in taxes) than I would have had to pay if earning regular (W-2) income I would have been much worse off when I sold the business than I was at the end of the three years when I sold the business to Bloomberg LP. The capital gains rate being lower than the earned income rate enhances the incentive to take risk and innovate on behalf of the economy.

Mr. Lonsdale was again recently on CNBC squawk box explaining that he believes raising the capital gains rate removes incentive for people to leave jobs with large established Silicon Valley firms (Google, Facebook etc.) and take a chance on a start-up. Without a promise of a payoff beyond what one would get earning regular income, most would not choose to take the risk of a start-up and do something innovative. He recently moved his firm to Austin Texas because as he stated: “Silicon Valley is becoming filled with risk-averse individuals”.

He mentioned an example where a person making $3 million per year at Google would have little incentive to join a start-up and to help build something innovative if there were no favorable capital gains treatment. They would have more incentive to stay and earn regular income in such a case than to take a chance and help build a new company.

It takes a lot of courage, commitment and hard work to build a successful start-up and there is risk involved. Therefore, favorable tax treatment is a justifiable incentive to include in the tax code for companies seeking to innovate and build new products. Without this incentive, many jobs will never be created in new industries and the entire economy will suffer.

Makes Established Tech “Giants” even Larger and More Powerful

With less incentive to start companies, the large technology companies will get larger and more powerful. Now, even with a capital gains rate advantage, start-ups cannot compete with the salaries that Google, Apple, Facebook and others are able to offer employees. If this capital gains tax rate is hiked as President Biden proposes, then the technology companies will only get more powerful. Someone on Mr. Biden’s staff should go find Amy Klobuchar (Senator from Minnesota) and break the news to her that they are going to make her job even harder (she wants to break up Facebook, etc.). If Senator Klobuchar thinks Facebook is too big now, then she will be really surprised how powerful it gets when it does not have to compete with smaller, nimble start-ups.

Not Just Start-ups, but All Small Businesses are Affected

It also kills non-technical small businesses that have relied on “sweat equity” to build value into their businesses for years. When a small business owner decides to sell his or her entity they have often sacrificed salary and time with loved ones for years to make the business valuable. To have the sale of the assets taxed at a rate above the earned income rate, it makes the tax burden of completing the sale onerous. Contractors, plumbers, electricians, dry cleaners, restaurant owners will all be affected. This is not a “Wall Street only” issue. It is a “Main Street” issue as well.

Impact on Racial Inequality

Robert Johnson, founder of Black Entertainment Television and a very successful businessman, explained recently how raising corporate taxes and capital gains tax rates will harm black owned businesses. Mr. Johnson was a guest on CNBC Squawk box explaining a plan he proposes for providing tax breaks for investments in black-owned businesses.

Raising Corporate Taxes Harms Black Entrepreneurs

Mr. Johnson pointed out that raising corporate tax rates just reduces the amount of capital available for black businesses. He was interviewed in relation to a plan he proposes where black-owned business should get tax advantaged treatment. Raising their taxes runs counter to that goal and of course stifles economic prosperity for people of color.

Raising Capital Gains Rates Harms Black Owned Private Equity Firms

Mr. Johnson further explained that the Biden plan proposing higher taxes on capital gains is a major blow to Black-owned private equity firms. Mr. Johnson explained that a number of Black-owned private equity firms are “just getting started” (in his words) so such a change in tax policy could damage or totally obliterate their business models.

Since such firms have raised or are raising capital on the basis of a reasonable capital gains rate below the earned income rate (not above it as explained previously) a capital gains rate increase as proposed by the Biden administration essentially puts these new firms out of business.

There are so many unintended negative consequences from the plans put forth by the Biden administration that it is clear they need to be revised. Hopefully they will be changed as they travel through the legislative process.

In my next post I will propose some ideas for how to help the middle class, and also help with racial inequality. There are market-oriented approaches some of which would not require a dollar of tax increases. These would be preferable to many of the things that have been proposed in this tax plan. These are “new thinking” as opposed to “old thinking” (the New Deal was fine in 1932 but it is now 2021).

Economy and Business Politics and Public Policy

Democratic Economic Plans and their Long-term Implications

Caveat: I am not a Republican or a Democrat. I am writing this and other blog posts about the level of spending being proposed by the Biden administration and the associated tax and societal costs these programs present. I am producing these viewpoints to illustrate the impact the proposed spending may have on the economy and business as a whole.

The Democratic Party, led by President Biden have enacted legislation to deal with the Covid-19 crisis, proposed a multi-trillion dollar “infrastructure” bill that includes spending on things well beyond the traditional definition of infrastructure such as roads, bridges and airports. This bill introduces the concept of spending on things such as in-home elder care, museums, and affordable housing as infrastructure. They plan another large “Family Act” that is also reported to be a multi-trillion dollar proposal.

The spending enacted or proposed by Democrats is supposed to transcend $6 trillion. This is an amazing amount of stimulus to add to the economy and may spawn wide-spread inflation in the future. The associated tax plans being proposed (a subject for another blog post) to accompany this spending can have deleterious effects on capital formation in general with a large negative impact on entrepreneurial activity of all kinds (startups in technology markets as well as contractors, plumbers, electricians).

Not All Spending is Bad

The first bill signed into law included a great deal of immediate help for people who have been thrown out of work by the pandemic. This (Covid-19 relief) seems a compassionate and wise use of public funds, and does a lot of good for those affected. Workers from the hospitality and travel industries were displaced economically through no fault of their own. I fully support helping them and wish that politicians had not waited until the Biden administration came into office to help them.

The magnitude of the $1.9 trillion bill was debatable but in the end it was probably wise to make sure help was given to those in need despite the size of the bill. The bill had $350 billion for state and local aid (that many thought mainly benefited highly Democratic areas), but again with the pandemic crisis hitting tax revenues in so many places, it is probably best to err on the larger side of caution and to get help to beleaguered communities.

Some Spending is Debatable but Could be Infrastructure

The infrastructure bill is another matter. The bill contains a lot of good and justifiable projects (Amtrak, roads, bridges, electrical power grid). It also contains many things that are well beyond the definition of infrastructure. It is hard to understand how hundreds of millions of dollars for museums (even though I love museums), Native American language preservation, and underground transit in Silicon Vally (a known earthquake zone) are valid infrastructure projects.

The infrastructure plan also includes items that are aimed at environmental causes and social problems. I think it is fine to expand the definition of infrastructure to broadband network expansion, electrical grid improvements and even projects involving highway infrastructure for electric vehicle charging.

Encouraging the use of electric vehicles may best fit into a transportation bill rather than an infrastructure bill, but I can see it related to electric power grid and vehicle charging projects (which can be seen as infrastructure along with bridges, roads and airports). Including these electric vehicle projects in a transportation bill instead of an infrastructure bill could allow them to be funded out of fossil fuel taxes instead of general tax increases. This may better fit the climate change agenda by trading fossil fuel disincentives for electric vehicle incentives. It may also ease the burden on income-tax payers overall while encouraging more ecologically responsible behavior.

Some Spending is Debatable and Not Really Infrastructure Anyway

Plans that are purely social programs (elder care for $400 billion and affordable housing, the aforementioned Native American language preservation, etc.) are totally suspect and seem disingenuous (when included as infrastructure). The cost of these and the fact that they are included with infrastructure when they are clearly social programs makes we analyze the intent of including them in an infrastructure bill.

Calling elder care “infrastructure” and now coining the term “human infrastructure” to describe them seems intellectually dishonest. Arthur Brooks of Harvard University and previously of the American Enterprise Institute made that statement on CNBC on April 19th of this year.

Mr. Brooks’ point was that something like elder care should be in “other bills” and that we should fairly and honestly debate them on their own merits. Including them in an infrastructure plan and then pushing this through with budget reconciliation and Vice President Kamala Harris casting the deciding vote (should all Democrats support the plans) seems to fly in the face of true bipartisan leadership. It looks more like a calculated political strategy to push through a far-left agenda.

Including them with an infrastructure bill seems excessive and purely political. In the end the bill may get negotiated to something more traditional and less expensive.There may be some bipartisan support if the social programs are removed and the infrastructure bill is amended to include more traditional projects. But it does seem likely that Democrats will push this through which can sow the seeds of discontent that may cause political problems in the future.

We have to wait and see on the other proposal for American Families. Many of the things that have been advertised to be in the proposal for “American Families” are noble and worthy of consideration but as our country is still dealing with the economic problems of a pandemic induced recession the timing and size of these plans concern me. Many of the things in the infrastructure plan and the American Family plan seem like good things to do, I just worry about their cost and the inflationary impact that they may have in the future.

Aggressive Agenda May be “Pyrrhic Victory”

Pushing these large spending programs through with budget reconciliation “because they can” will probably come back to haunt the Democrats at a later date. The political pushback of appearing to push an agenda that seems excessive and liberal may not be worth the good they think that they are doing. Not everyone in the country buys the “invest in America” message being espoused by the Democrats. Not everyone believes that bigger government works equitably and efficiently. We have seen over time that many of these liberal ideas can be reversed in a subsequent election. So rather than getting something with a more traditional set of legislation, this “swing for the fences” and spend trillions of dollars approach can inevitably backfire on Democrats.

Overall Impact on Economy – Inflation

The impact of this kind of spending will inevitably be inflationary. Inflation hits the poor disproportionately hard as it raises costs faster than wages can raise to meet them. It seems like a wiser approach would be to propose more rationally sized bills that can garner some bipartisan support. Having more of us agree on a path even if it leads to a less grandiose outcome than envisioned by Democrats is a good idea.

Economy and Business Politics and Public Policy

Time to Rethink Trillions

Mitch Albom is a thoughtful author and columnist. Recently he wrote this piece for the Detroit Free Press: “Mitch Albom: A trillion dollars is not a billion; why you can’t just print money”. In the article he lays out how spending at the rate we are on large social programs will have a cost, a very large cost.

In the article he explains how politicians are as Rahm Emanual said (para-phrased): “not letting a good crisis go to waste”. I don’t think that Mitch Albom is a partisan individual and don’t think he is favoring one party over another in his analysis of what is historically massive spending on huge government spending plans. The CARES act last year amounted to $2 trillion and was sorely needed but adding on the nearly $2 trillion “American Rescue Plan” last month, followed by a proposal for a $2.3 trillion infrastructure bill described as “The American Jobs Plan” with an advertised $2 trillion “American Family Plan” (soon to be proposed) seems to be incredibly excessive. 

Mr. Albom points out the inevitable devaluation of the US dollar that will result with such an infusion of capital into the economy, and inevitable inflation that will ensue and reminds that this hurts all of us in the long run. Besides higher taxes that always end up hitting the middle class, these programs don’t promote economic growth as they are purported to, and eventually become economic anchors as everyday Americans end up paying more and more of their income to the government which redistributes it unevenly in a way that does not benefit everyone. 

The important points that Mr. Albom makes include that the American Rescue Plan (in Joe Biden’s words) is aimed at “the very health of our nation” with the sales pitch being that it addresses the Covid-19 pandemic. The truth is that (again as Mr. Albom points out) the bill includes more money ($350 billion) for state and local government assistance than it does for direct aid related to Covid-19 vaccinations. Spending on state and local governments that have badly mismanaged pension systems is not directly related to health initiatives. It seems more targeted at helping governments with mostly leaders from the democratic party. This may help ensure democratic electoral success in future elections. This does not seem like wise spending to address “the very health of our nation”.

With the American Jobs Plan (infrastructure) items include $1.5 billion for Amtrak, and hundreds of millions for museums, Native American language preservation, and underground transit in Silicon Valley (a known earthquake zone by the way). The Amtrak expenditure is infrastructure related, but museums, language preservation initiatives, etc. may be lofty goals, but don’t seem to belong in an infrastructure bill. Spending on these types of programs may be aspirational for a minority of the American people, but it does not seem like wise spending in the context of a bill intended to address infrastructure issues.

The infrastructure plan includes more spending on programs to encourage the use of electric vehicles ($174 billion) than on actual construction of roads and bridges. Personally, I am a proponent of electric cars, but this is really an item for combatting climate change rather than something that belongs in an infrastructure bill. Going beyond this, another layer of audacity seems to be the inclusion of $400 billion in spending on senior and disabled person care, affordable housing ($300 billion) and another $35 billion for researching climate change. These are all worthy notions but packaging them into an “infrastructure bill” and selling them on that basis is dishonest. It will eventually lead to more political division as the debt burden will mount on ordinary citizens due to the cost of the programs (which may have no clear tangible benefit).

President Biden is probably a well-meaning and decent man. He has only lived in his adult life as a lawmaker in Washington and does not understand what life is like in the country as a whole. He has no idea how to run a business, meet a payroll, or build an economic entity (a business). He is a politician who believes in big government and wants to preserve power for his party, the Democratic Party. As we have seen over time, the party in power (democrats in this case) always overreach and push too liberal an agenda. In general, all politicians do this by pushing too liberal or too conservative an agenda (depending on who is in power). In this case, Biden is falling into the trap of assuming a mandate that does not really exist. It will lead to more political division within the country.

The Biden administration and the Democratic legislature is pushing a very liberal agenda and acts as if it has a huge mandate. The last election for the house and senate was not a sweeping mandate. The election results not related to our past President were not totally liberal (many voted against President Trump because they wanted a more reasoned and polished approach to government than his administration had provided). Many voting against Trump were not particularly liberal in their views at all. The election as a result did not produce a “Blue Wave” as many in the press and Washington seem to believe. The house of representatives lost seats to the republicans and if our past President had not been so hyperbolic and erratic toward the senatorial runoff elections in Georgia and had not pushed his “stolen election” narrative, the Senate may still be in Republican hands.

 In actual fact the country as a whole is not as liberal as the major east and west coast cities. The large spending and dishonesty over what the infrastructure bills contain will cause a backlash against the Democratic party. Our prior President was such a polarizing figure that it is easy to feel more comfortable with a President who is acting more “presidential” than the prior one. President Biden is much more gentlemanly and behaves in a more “presidential” way than Trump ever did. The mistake that President Biden is making is not just assuming that he has more of a mandate than he does, but also under-estimating the backlash that he is forming within the electorate. If Trump stays off the stage in 2022 then the Republicans are very likely to regain the house and the senate if this liberal agenda continues.

When the tax hikes that President Biden articulated in his campaign rhetoric are proposed, the illusion of a mandate will quickly evaporate. The citizens now are happy to receive checks, get extended unemployment assistance, and other promised government benefits. When the tax bill comes due on ordinary Americans (as it always does and no matter what Biden says it will fall on the middle class) then the electorate will no longer support the wild spending in Washington. The democratic party leadership will have overstepped its bounds and the political tables will likely turn. Biden would be wise to control members of his party who have such an aggressive agenda. Coming out of the “pandemic economy” the country and electorate need time to heal. President Biden is nearly inviting a backlash election that opens the electorate back up to “Trumpian” politics.

So it would seem prudent for President Biden to be mindful that pushing his policies of “trillions and trillions” of spending on an electorate that really does not overwhelmingly support that kind of spending is likely to be a losing proposition in the long run. It will also sadly push an enormous debt burden onto the American people for generations to come. This will inevitably reduce the quality of life here in the long run and sow the seeds of political strife in the short run.

Health and Public Policy

Plans for Covid-19 Vaccine Distribution

In my home state of Massachusetts, the Governor announced a phased plan for distribution of the Covid-19 vaccine to residents today. Other states are likely doing the same thing as they had to submit plans for vaccine distribution to the federal government.

The Boston Globe published the plan here:

The plan was announced as being based on quantities of vaccine that are likely to be approved for Emergency Use Authorization by the FDA soon and that include vaccines from both Pfizer and Moderna. The plan for Massachusetts was announced as having three phases of distribution.

Phase One: December 2020 – January 2021

The first phase, beginning in December of 2020 prioritizes health care workers, long-term care patients, homeless shelter residents, police , fire and other first responders, etc. Groups in this first phase include:

  • Clinical and non-clinical health care workers doing direct and COVID-19-facing care
  • Long-term care facilities, rest homes, and assisted living facilities
  • Police, fire, and emergency medical services
  • Congregate care settings, including homeless shelters, corrections facilities and the staff who work there
  • Home-based health care workers
  • Health care workers doing non-COVID-19-facing care

Phase Two: February 2021 – April 2021

The second phase is forecast to begin in February 2021 and extend to April 2021 for the following groups:

  • Individuals with 2+ comorbidities (high risk for COVID-19 complications)
  • Early education, K-12, transit, grocery, utility, food and agriculture, sanitation, public works, and public health workers
  • People age 65 and older
  • People with one comorbidity

Phase Three: April 2021

The third and final phase begins sometime in April 2021 for “the general public”.

The potentially hopeful thing about this is that Johnson & Johnson Inc. (J&J) and AstraZeneca Inc. could announce data related to the US trials of their vaccines in January 2021. This would add supply to the available quantities that could accelerate the numbers of individuals who could get vaccinated in the coming months.

So the news of these two more (large) manufacturers of vaccine getting supply to market in the first and second quarters of 2021 could be very good news for those wishing to be vaccinated. This development of potentially having more vaccine than is currently planned is speculative but a positive one. Having larger quantities of the vaccine than is forecast to be available from just Pfizer and Moderna alone could enable the vaccination of larger numbers of individuals sooner than currently planned.

So hopefully science is progressing faster than we anticipated and more supply of the vaccine can help us get more people vaccinated than we can plan for today. As many astute observers point out, the vaccine needs to get into a large percentage of the population to be effective at reducing the spread of the virus. Vaccinating a large proportion of the population will take time and the vaccine will take time to build immunity in those inoculated. But getting more people vaccinated sooner rather than later is encouraging.

Science Technology & Economy

CNBC: Vaccine “Glut” May Lead to Normalcy

Jim Cramer on CNBC this morning stated that the production of vaccines that fight Covid-19 may be available in sufficient quantity to have (in his words): “this thing being over in the second quarter of 2021”. The clip of Mr. Cramer making these comments and excerpts of Cramer’s comments can be found here:

Cramer read from a report during the clip that forecast that there may be more vaccine available in the coming months than previously thought. This would indeed be good news for the economy in the new year (2021).

Health and Public Policy

Great Step for Mankind

Today in the United Kingdom the first individuals are getting the vaccine against Covid-19. This is a fantastic accomplishment for Pfizer/BionTech (the companies collaborating to produce the vaccine), a huge attribution of the power of science over disease and a wonderful step forward for mankind.

The FDA in the United States needs to get this same vaccine and the one from Moderna approved for use as soon as possible. These mRNA vaccines are true scientific breakthroughs that will pave the way for rapid deployment of treatments for yet unseen viruses and for various forms of cancer. Vaccines for mutations of this virus are reportedly possible within weeks instead of months now that this general mRNA platform has been proven to be effective against Covid-19.

Media and Journalism

It Must be Tough Being Dr. Fauci

Dr. Anthony Fauci testified before the Senate Committee on Health, Education, Labor and Pensions yesterday. During the testimony he expressed concern about opening the country too soon (which is probably a wise stance to take as a public health official testifying under oath and before the world scientific community).

For his trouble, Dr. Fauci (who has served the country for 36 years), was at least implicitly accused of holding himself out to be the ultimate decision maker on when the country should open again. Senator Rand Paul made a reasonably good point about why it is wise to re-open schools as soon as we can but then ended his statement with how Dr. Fauci is not the “end-all and be all” and then went on to imply that Dr. Fauci has positioned himself to be “the one person that gets to make the decision” (apparently about when to re-open schools or the economy). I did not hear Dr. Fauci hold himself out as sole decision maker on when schools would be re-opening and he did not seem to indicate that he was the “end-all and be all” of anything either.

Dr. Fauci politely stated (for the record) that he does not consider himself an “end all and be all” or a decision maker in these matters. He then stated that he is a scientist and gives advice to help inform others who are making decisions related to public health.

It is just hard to be a scientist in today’s sound-byte “digitally delivered” news content world. Poor Dr. Fauci was just trying to provide his opinion as a public health professional. It is too bad he had to suffer these comments.

This is why I don’t watch the news content much during the day. I just go into my office and try to invent the technology of tomorrow today. So during my lunch break I heard this testimony and then retreated to the world of bits and bytes.

As a consequence, it did not surprise me that by 4:30 P.M. the stock market was down 400+ points and the (CNN, CNBC) headlines were screaming: “Dr. Fauci paints dire picture of re-opening” and “Fauci says that schools opening in the Fall is a ‘bridge too far’” (he did not say that at all). I also saw the same headlines repeated on the Boston media when I awoke and turned on the television at 5 AM this morning.

During his testimony, Dr. Fauci was asked the direct question about vaccines being available when universities open in the Fall and other schools re-open in the same time period (presumably public and private high schools as well as Colleges and Universities). He said (and I saw this myself on video replay): “having or presuming a vaccine by the Fall is a ‘bridge too far'”. This is a lot different than him saying that schools/colleges/universities cannot open in the Fall with appropriate social distancing, hygiene measures, etc.

Dr. Fauci had to clarify this when it was clear that his words were mis-construed, but by then the “genie was out of the bottle” and the “journalists” in our midst were pronouncing that Dr. Fauci does not support educational institutions re-opening in the Fall of 2020.

I understand that it is important that media outlets “get eyeballs” on their content (and grab our attention). On the other hand, it seems like some editorial oversight would be useful to make the message match the context of Dr. Fauci’s comments. In this case it was rather irresponsible reporting to state a headline that was not backed up by the expert’s actual statements.

It must be tough being Dr. Fauci, because he is just trying to give his advice from a scientific perspective and not get us too hopeful or too pessimistic. As a person who has to communicate technical topics to audiences I am sympathetic to how eager the media are to boil things down to sound bytes. Sometimes it is not their fault when they state something incorrectly. In this case though it was pretty clear what Dr. Fauci was saying and for all of our sakes the media should be a lot more careful.

Back to the technology of tomorrow today for me…….

Health and Public Policy

Rays of Hope, Looking Forward

The growth rate calculations that I published in my last post showed that the infection and death rates due to Covid-19 are both declining. Again, these are the growth rates and not the absolute numbers of cases. The decline in rate of growth is encouraging however. The last few days I performed the calculations on the last seven days of data (rolling seven-day window) and the growth rate has gone down 1-2% per day so this trend seems to be continuing.

The data I use are United States aggregate (all regions) data and as I also pointed out in the last post, different regions will peak at different times.

As for the predictions of when certain regions will peak this article explains that some of our current “hot-spots” may be seeing their peak now (New York/New Jersey either today or tomorrow). Boston may reach the peak soon (Boston April 18th). So there appears to be hope (which we all need) as to when this thing will begin to decline so that we can start planning on going back to work. A combination of testing and appropriate workplace and social behavior can give us confidence over time that we can be with others we know are safe.

This will require staying socially distant in the near term and not going back to socializing in packed bars and restaurants immediately but with some testing and reconfiguration of social norms we can at least start seeing people in person in certain circumstances again. Restaurant tables farther away than they used to be and testing to ensure that we are safe to be with others will probably be some of the “new normal”.

Going back to work will require a plan of testing and verification of health status but if we can see the case numbers peak and then if we have four to six weeks to plan on how to go back to work it would let us all help revive the economy again. If New York could start re-opening its economy by mid-May to late May with Boston and other Northeast cities a week or two after that, then the economy has a chance to be starting to operate again by late June or July.

Having tests available to identify those who may have been exposed and developed immunities (anti-bodies in their system) to Covid-19 will be a key component to help us plan a way forward. When testing is in place and we can identify those who may be safe to work in a certain environment then we can move on to the second phase of economic re-entry: therapeutic treatment of the population.

Having therapeutic drugs to help give people who are infected some kind of treatment (instead of a ventilator) and those who are not infected some limited scope immunity would allow us to function as a society again. I think that it will be some time before we are all packing bars and restaurants again, but at least having some ability to be in public and not feel that we are going to get deathly ill and be confined to an ICU bed would be progress.

Many companies are in clinical trials with therapeutic drugs to help give individuals some limited scope immunity or to allow the infected to get better sooner. The therapeutics should allow those who get sick to avoid severe lung disease and the need for ventilators and ICU care. For others, therapeutics can allow them to fight the disease off without getting sick or becoming severely ill.

Next year a vaccine would allow us to know that we are generally safe from this disease but in the interim it would be nice to be able to feel relatively comfortable having dinner with friends (in our homes or at an appropriately reconfigured restaurant where staff have been tested, etc.). If we had therapeutics that would allow us to even have passive temporary immunities to the virus until a vaccine is available we could get to the next step in this fight.

Better times are coming.

Health and Public Policy

Covid-19: Data-Inspired Observations of Hope

The news media make such hyperbolic statements about the spread of Covid-19 that it is hard to know when things may get back to normal. One “expert” after another appears on CNBC, CNN, ABC, NBC, CBS and MSNBC and makes many valid points about social distancing and prevention (which is good) but they leave the impression that all is lost. These experts mean well in many cases but generally scare people and give no basis of hope that this will end. In the meantime, the economy is stalled and people are frightened. The stock market is punished because the economy is shut down.

To gain some perspective on this, it is important to look at the data and see how fast the cases are spreading and how rapidly the number of deaths is increasing (two different growth rates). This analysis will give an overall picture of the rate of spread of the infection and the death rate. When the rate of spread begins to decrease (this is when the number of overall cases may be growing from one time period to the next but at a slower rate than in a previous period), then we can draw hope that the spread of the disease is slowing and will become manageable.

To look at this I gathered the data from this source and tracked it from March 22, 2020 until today (April 4, 2020). These data show the number of cases and the number of deaths that resulted over that timeframe. The data is as follows:

US Data

As shown above, the number of cases on March 22, 2020 was 35,746 and that number has expanded to 300,625 in the thirteen “compounding periods” since. This exhibits continuous exponential growth so I used an exponential growth formula to determine the rate of growth during that timeframe. Then I computed some interim growth factor numbers to see if they (the rates of growth) were increasing or decreasing within this time interval (3/22/2020 – 4/4/2020).

Continuous Exponential Growth or Decay
A = ending value (amount after growth or decay)
A0 = 
initial value (amount before measuring growth or decay)
= exponential e = 2.71828183…
= continuous growth rate (also called constant of proportionality)
(k > 0, the amount is increasing (growing); k < 0, the amount is decreasing (decaying)) 
t = time that has passed


The number of cases on 3/22/2020 was:

35,746 cases

The number grew to a very large number in the 13 intervening days:

300,625 cases

The rate of growth in cases between 3/22/2020 and 4/4/2020 (the overall growth rate) would be:

k(cases overall) = ~.16 or a substantial overall rate of 16%

The time period from 3/22/2020 – 3/29/2020 (7 compounding periods) showed a growth rate higher than this overall rate of:

k(cases 3/22/2020 – 3/29/2020) = .186 (18.6%) or a substantially higher growth rate than the overall rate

The last six days (3/29/2020 – 4/4/2020) has shown another rate of:

k(cases 3/29/2020 – 4/4/2020) = .137 (13.7%) or quite a bit lower than the overall rate of .16 and a lot lower than the previous seven days (18.6%).

So the overall growth rate has been slower in the last six days than in the previous seven days. This is encouraging and shows that the rate of infection may be slowing down and slowing down substantially. This may be due to social distancing or some other factor, but it is happening.


The number of deaths on 3/22/2020 was:

392 deaths

The number of deaths on 4/4/2020 was:

8,157 deaths

When we look just at these numbers over a 13 day period we can become frightened. It is a large increase in deaths. This is why we need to look at the rate of increase and see if it is getting higher or going lower.

If we look at the rate of deaths that are occurring in the same time periods we can see a similar phenomenon to the rate of change in the growth of infections:

The rate of growth in deaths between 3/22/2020 and 4/4/2020 (the overall growth rate) would be:

k(deaths overall) = ~.246 or a substantial overall rate of 24.6%

The time period from 3/22/2020 – 3/29/2020 (7 compounding periods) showed a growth rate higher than this overall rate of:

k(deaths 3/22/2020 – 3/29/2020) = .255 (25.5%) or a substantially higher growth rate than the overall rate in the first seven days of the data we are analyzing

The last six days (3/29/2020 – 4/4/2020) has shown another rate of:

k(deaths 3/29/2020 – 4/4/2020) = .208 (20.8%) or quite a bit lower than the overall rate of .246 (24.6%).

More encouragingly this reduction relative to the last seven days is almost 5% (a reduction in rate of twenty percent of the rate of the last seven days. 20.8% is about 20% lower than 25.5%).

So the overall growth rate in deaths has also been slower in the last six days than in the previous seven days. This is encouraging and shows that the rate of deaths due to infection may be slowing down and slowing down substantially. Perhaps people are getting treated more effectively or they are not as sick when they get the disease. It is hard to tell but maybe younger people who are less likely to die from the disease have been infected in the last month.

These data are aggregate data and do not take into account that different regions of the United States suffered infection at different times. Different regions of the country will likely go through a time when there are many people infected and some will survive and recover. A recovery window will not happen over the same timeframe in every municipality.

The encouraging thing is that the growth rates of infections and deaths seems to be slowing down overall. This is good news.

Hopefully the infected (sick) rate and the death rate will peak and start declining soon. On CNBC recently Dr. Scott Gottlieb, former commissioner of the FDA stated that he thought the NYC area could “peak” in the next week to ten days (NYC/greater New York and New Jersey, not the country).

The facts from New York are particularly bleak. Anyone who has ever been on the NYC subway will not be surprised at the high numbers of cases present in NYC. The entire NYC/NJ area probably has the highest per-capita usage of mass transit in the United States. The proximity of people on mass-transit trains and buses and the presence of a virus like this promotes transmission. So NYC as a hot spot is well fortified and probably 6 to 7 weeks into its hot-spot cycle. With about half the known cases in the country, perhaps these declining growth rates and Dr. Gottlieb’s prediction will be good news for the greater NYC/NJ area and portend good things for other regions.

From watching China, South Korea and other countries go through their experience with Covid-19 it is clear that there is about a 8 to 10 week duration of the worst transmission. After this time there is a period where cases diminish at a “decaying” rate. So our experience is likely to be similar across a number of well-known and predictable “hot spots”.

In the United States, these are Seattle/California, New York State and particularly NYC/NJ, New Orleans LA and points south, Florida and the Upper Midwest/Northeast (college towns particularly) areas. In our case the infections may have started at different times and could have predictable “rolling windows” of 8-10 weeks where the virus will rise and then fall in rate of transmission.

Seattle and California seem to have peaked or are close to peaking. Washington state seems to have had the rate of new deaths fall to low levels in the last week. California seems to be behind Washington state but for its size (40 million people) it is not exhibiting huge growth in case load. California has four times the population of Michigan and has fewer cases than Michigan so the aggressive social distancing instituted by the Governor in California a few weeks ago may be working.

Even though the regional rates may vary it does seem like the data are showing that there is a slowing of the rate of infection and death from infection over the last six days. This is some good news in a very dark period for the country.

Health and Public Policy

Coronavirus Observations

Coronavirus Statistics and Observations

This dread virus causes one to really stop and think about what is happening to our world and society. To make sense of this I wanted to look at the numbers as much as I can from my socially distant location. I am truly fortunate to be out of the way of a lot of human contact as there are not that many people around my location this time of year.

For those who are not as fortunate and who have to live in a major city, I thought it might help to think about this from a mathematical perspective to give people hope that social distancing is necessary and helpful at this time. Being trained as an engineer it helps me make sense of how things are unfolding in the spread of the disease by looking at the reported cases and the death and recovery rates of the United States as a whole and some of the more hard-hit regions of the country like New York, New Jersey and Washington state.

These data (below) seem to indicate that one contracting Coronavirus here (U.S.) so far has a 1.1% chance of death versus the world at large (4.25% – 4.3%). We should not look at this percentage difference and assume that we are 4 times “better off” in terms of being safe from death in terms of encountering this infectious disease.

One theory of a lower death rate here is that fewer people in the United States smoke tobacco products than they do in other parts of the world. Despite that fact, we should not assume that we are safer than anyone else in the world in relation to death from coronavirus. It is too early on in our measurement of the spread of the disease to draw such conclusions.

Most importantly, we should not get comfortable with this premature set of statistics and ignore government health procedure warnings. Some people may look at the small number of deaths and feel that they can ignore government health warnings (like students have been doing on spring break). This group of people (those not heeding health guidelines) need to understand that we might not have seen an advanced stage of the disease and therefore have not seen the worst of its effects. 

To accentuate the point, these data could mean that we just have not seen enough cases or detected as many serious cases and that hospitalization may spike in the next two weeks causing us to “catch up” with the rest of the world in terms of mortality rate. This would be truly a disaster, so I believe that we all need to take this seriously and “shelter in place” avoid public contact and social gatherings (even in private homes).

Staying distant from one another is very difficult for human beings to do but we have to do it to avoid the chance that we accelerate our rate of infection and the percentage “death rate” to that of the rest of the world. 

Ray of Hope

As a “ray of hope” however, we may be fortunate enough to have learned from the experience of those in other parts of the world despite our slow response to the virus in general. An example may be our initiative to seriously consider treatments that have worked on patients elsewhere. For example, we may have a “head start” on the use of therapeutics that can ease suffering in the United States.

These therapeutic approaches could ease the suffering of individuals and relieve the pressure on hospitals by allowing fewer people to require ventilators. Despite this hopeful approach we should not count on that to keep the “death rate” down. Our scientists and the FDA are also racing (literally) to approve new treatments and possible vaccines but these are a few months (new therapeutics) and at least a year (vaccines) away from general adoption.

Being well aware that the United States is slow to implement testing of its citizens we cannot know the current true infection rate. It is encouraging to see on the local news that drive-through testing facilities are being established in Massachusetts. These facilities require a person to have a doctor’s note verifying that they have coronavirus symptoms to be tested (otherwise they are turned away according to local news reporters) but at least we have a means to test those who are likely to be infected and to start getting some good data on actual versus false infection rates.

According to this website: (selected because it seems to stay updated regularly; and it is in agreement with the Johns Hopkins University data that is quoted on CNN and other news outlets), the death rate percentage across the world and the United States (percentage of deaths in relation to all infected persons) is relatively constant (percentages below).

The number of World-wide Coronavirus cases is 324,064 with 13,782 deaths, 96,006 cases showing recovered, 214,276 active cases with 109,788 closed cases (recovered plus deaths).

World-wide Cases (as of March 22, 2020  1:15 P.M. EDT United States)

  • 324,064 total confirmed cases
  • 13,782 deaths
  • 96,006 recovered cases
  • 214,276 Currently infected patients (as we know and estimate due to lack of U.S. testing)
    • 204,121 – Mild cases (95%) 
    • 10,155 – Serious or critical cases (5%)
  • 109,788 closed cases (96,006 recovered plus 13,782 deaths)

This leads to the following percentage calculations based on a given outcome:

  • Percentage (World-wide) of deaths per infected person – 4.25% 
    • (13,782/324064 = .0425)
  • Percentage recovered – 29.6% 
    • (96,006/324,064 = .296)

United States case data (as of 1:15 P.M. EDT United States)

  • 35,746 coronavius cases (it increased while I was writing this) by about three thousand known cases)
  • 392 deaths
  • 178 Recovered cases
  • 35,176 currently known infected cases
    • 35,176 Mild cases (98%)
    • 708 Serious or critical cases (2%) 
  • 570 Closed cases
    • 178 Recovered/discharged (31%)
    • 392 Deaths (69%)
  • Percentage (U.S.) of deaths/infected person – 1.09%
    • 392/35,746 = .0109
  • Percentage recovered/discharged – .5% (one half of one percent)
    • 178/35,746 = .00498

These percentages do not reflect any inference about a person’s age when they contracted the coronavirus or their general health condition. It is just raw data to see how this virus is impacting the US versus the world NOW. These percentages could change drastically as the virus spreads in the population and has more longevity in the general population. As more cases are confirmed through expanded testing and as the disease manifests over time, the picture of how many people die from this dread virus and recover from it could change radically.

Again, at risk of repeating myself, these data seem to indicate that one contracting Coronavirus here (U.S.) so far has a 1.1% chance of death versus the world at large (4.25% – 4.3%). This could mean that we just have not seen enough cases or detected as many serious cases and that hospitalization may spike in the next two weeks causing us to “catch up” with the rest of the world in terms of mortality rate. Hopefully that will not happen, and our use of therapeutics can reduce the suffering (and death rate) that is being experienced by many people across the world.

Catching up with the death rate elsewhere would truly be a disaster, so I believe that we all need to take this seriously and “shelter in place” avoid public contact and social gatherings (even in private homes). Staying distant from one another is very difficult for human beings to do but we have to do it to avoid the chance that we accelerate our rate of infection and the percentage “death rate” to that of the rest of the world.

We should have faith in the scientists to find a therapeutic course of treatment that gives hope this year, and a vaccine that keeps this dread disease from re-appearing next year. In the meantime we should all be prudent and remain away from others and exhibit responsible social behavior, despite our fundamental urges to be with other people.