Hempton: Do Sweden or Melbourne, just not America

Below is an excerpt from Bronte Capital’s John Hempton and his most recent client note:

Viruses in nature

Epidemiologists have modelled viruses in nature – say – to use an Australian example – myxomatosis amongst rabbits, or phages in bacteria. They have a curve – familiar in all the text-books – which is exponential growth on the way up until something interferes with viral growth (mostly herd immunity) and sharp decline on the way down. Observed reality closely matches these mathematical models, indicating the models are sound.

Incidentally these models work regardless of the severity of the disease. If the disease causes mild sickness it will spread through the population of animals roughly the same way as it would if the disease were mostly fatal. Speed at which the disease spreads is a more notable parameter in these models than severity of the disease.

The virus in humans

The early stages of this virus in the West matched these models quite closely. This was particularly true in February where the spread was below the threshold of public perception. What was spreading in February was a silent disease that would wind up killing
a large number of people.

Since the latter part of March, no country has had a virus infection/fatality curve that matched these mathematical models. And the new curves are being interpreted according to one’s preferred ideology. A libertarian interpretation is that the virus isn’t that bad and you should eliminate lockdown. Sweden is the favorite example for an anti-lockdown
stance. Alternatively, those with opposing points of view observe the lower death rates as indicative of the success of public policy and maintain a pro-lockdown stance. Sweden is characterized instead as a failure, with a higher death rate than its nearest neighbors (Norway, Finland).

We argue that the new curves do not indicate anything much about the virus. They are just what you would expect to happen (although to be fair we did not expect it at the time).

The idea is simple. For any individual there is a risk to social activity. Getting on a bus entails risk. Singing in a choir much more risk. Working from home and minimizing exposure entails very little risk.

And there is a benefit from taking risk. You might be able (or need to) go out to work to earn a living and feed your family. You might have a good time at a party (or choir practice). Any individual will make a decision (partly in knowledge, partly in ignorance) that equilibrates the perceived risk of doing something with the perceived benefit of doing something.

This is true across society.

As the virus becomes more common the real and perceived risk of going out becomes higher. People will choose to stay at home or take less risk. As the virus becomes less common the risk of going out and doing things is lower so risk taking will increase.

The end result is a rough equilibrium where the virus goes sideways. To use the jargon, R0 tends to one. This seems to happen everywhere. (The idea has been expounded elsewhere – see this article by Joshua Gans.)

Incidentally again R0 tends to one irrespective of the severity of the virus. It will tend to one with Ebola where you bleed from the eyes and there is a 60-90 percent mortality. It will tend to one with SARS (which had about ten percent mortality) and it will tend to one with COVID-19 which is far less nasty than either of those diseases. (Obviously this generalization does not work in extrema. If the virus is too mild to bother avoiding like the common cold R0 will not tend to zero. Likewise, if the virus were airborne and transmissible at a huge range then it might be too contagious for behavior to slow it, and R0 will not tend to zero.)

That the virus is going sideways is neither proof that the virus is much less dangerous than the public are led to believe (a belief common amongst our libertarian friends). Nor is it proof that the public health measures (such as lockdown) are working and the solution is stronger public health measures.

It took us a while to realize this. Almost all of Johns personal (and very smart and very opinionated) friends are wrong (regardless of political persuasion and policy recommendation) and for the most part we were wrong too.

Having accepted that R0 tends to one, the question is how long does it tend to one for. And the answer seems to us to be until it is interrupted, either by herd immunity or by artificially generated herd immunity (i.e. a vaccine) or by enforced lockdown. If there is no vaccine it will tend to one for several years and the bulk of the population will eventually get it.

If that were Ebola (60-90 percent mortality) that would be an unbelievably bad result. If this had a mortality of 10bps (a wild underestimate of the current virus) then it would be tragic but would not threaten civilization as we know it.

If this were Ebola we would really want to eliminate the virus. Eventual outcomes where half the population dies are not acceptable. Fortunately fear alone will drive Ebola to manageable case numbers, simply because people would be justifiably very scared of the virus. But fear alone will not eliminate the virus because once case numbers are low people will take more risks.

To solve the behavioral dilemma when people are no longer scared of the virus you need them to behave as if they are still scared of the virus. You might be able to do this by brainwashing (i.e. convince people risks are higher than they perceive) or by massive social pressure, but the easiest way is probably just to make them scared of the police. That is how China controlled the virus and is how Melbourne, Australia is currently controlling the virus.

In other words enforced lockdown works.

That doesn’t mean that enforced lockdown is the right policy. It would be with Ebola (huge mortality). It almost certainly was the right policy with SARS (it worked, and mortality was high). But it is not the right policy with say a seasonal influenza. We will leave open where this virus sits (although we have our personal views).

You can however control this virus if you are prepared to trample civil liberties enough. China did. Suffice to note authoritarianism is good for the virus and the virus is good for authoritarians. The virus has cemented Xi’s power in China for instance.

Again, note that all of this is true for a wide range of virus severity.

The behavioral model explains some cross-country comparisons

The behavioral model is extremely useful for cross-country comparisons of the virus. Sweden famously never enforced any lockdown. It had an explosion in virus cases which rapidly ameliorated, and case numbers went sideways at fairly low levels. America did have a wide range of variable lockdown policies (but relative to say Melbourne weak policies with weak enforcement). It also had an explosion of cases, but the virus is now going roughly sideways at levels much higher than Sweden.

Early in the outbreak we thought that Sweden’s policy would be a spectacular disaster. We were wrong. Libertarians however have argued that the relative success of the Swedish policy (versus say the American policy) means that if you had adopted the Swedish policy in America you would have got better results in America. They are likely wrong too.

The reason is obvious. Sweden is one of the strongest welfare states in the world. America is the weakest welfare state amongst rich countries. The cost of not going out (i.e. not taking risk) in Sweden is largely that you collect (generous) welfare. The cost of not going out (and hence avoiding risk) for a low-income American is that they and their family starve.

Americans – especially poor Americans – will take more risk because the lack of welfare dictates that they take more risk. The net effect is that the virus will stabilize at a higher level in America than Sweden at any level of non-effective lockdown policy.

Incidentally this is true for a wide range of virus severity.

Also, you should note that the cost of not going out and taking risks in America differs quite a deal depending on profession and wealth. If you have a nice home to stay in and you do not starve by staying home then you are much more likely to stay home. If you are poor and do not have savings and will starve if you do not go out then you will go out.

Again, this is true for a wide range of virus severity.

It should be no surprise the virus skews very poor in the US. There may be little difference in mortality by say wealth status (we do not know). But there is likely to be far higher mortality amongst people with lower financial security.

The behavioral model is also predictive

The behavioral model is predictive too and in quite useful ways. We think (for good scientific reasons) that the virus is much harder to contain when the weather is 4 degrees centigrade than when it is 30 degrees centigrade. (This is for instance consistent with the only serious Australian outbreak, in Melbourne in winter. It is also consistent with data showing meat processing facilities, which are really large cold-rooms, have been major clusters.)

If that is the case, the risk of socializing in the northern hemisphere increases in Winter.

Much of the US goes to 4 degrees centigrade as Australia enters Summer.

This means that virus numbers will just rise and rise as we are going into an American election. But they will not rise indefinitely because behavior adjusts to the new riskier reality and R0 will still tend to one, albeit at a higher underlying level of virus cases and deaths. If we are right about this there will be fear as the virus numbers go up. But that fear will

Note again all of this is independent of how severe the virus actually is. You do not need to estimate case fatality rates for this model to be explanatory.

What would happen if you removed American lockdowns?

We are writing this up as American because most of the friends we have debated this with are American. But this could apply to lockdown measures in other countries as well. America has a partial (and variable) policy which does not appear to be very effective. In some instances public schools are closed but private schools are open. There are high risk behaviors but there are also old people who have barely been outside since February because of fear.

We have friends who think that sharply reducing American lockdowns would result in unconstrained spread like Milan or New York in their epidemic stages. They think the outcomes would be instantly terrible. We also have friends who point to Sweden and think that you would get better outcomes and less economic damage.

It is likely both positions are wrong. If you reduce restrictions on some people it is likely that virus spread will go up. But that will make everyone’s activity riskier. Other people will thus constrain their behavior more. Mortality will rise, but not very much.

Incidentally if it makes it riskier for people (say middle aged people) who have high economic value it is entirely possible that you reduce lockdowns and the high-value people constrain their behavior and GDP goes down.

A quick policy comment

All of the above analysis works for a wide range of virus severity. R0 tends to one whether this is Ebola or COVID-19.

But we can say something about rational policy.

As we have explained, partial lockdown does much less than you would think. It doesn’t change mortality very much. And it doesn’t even have predictable effects on economic activity (that could go either way). But it is expensive.

Full lockdown (with police pressure and/or massive social pressure) however is effective. It has been effective in China and will almost certainly be effective in Melbourne.

You either thus go the “drive to elimination” route (Melbourne) or the “welfare plus no lockdown” route (Sweden). Which you choose depends on the mortality of the virus and how you weight that mortality versus the considerable costs of harsh lockdown.

The middle ground here looks pretty stupid actually. Strangely we agree with both our libertarian friends here (who hate all lockdowns) and our public health orientated friends here (that think the lockdown is not harsh enough). Both are rational positions. It is hard for an instinctive centrist (like John) to say this – but in this case the middle ground is plain
stupid. America alas is in that middle ground and the current American policies are plain stupid.

Give us the very strong lockdown policies of the Premier in Melbourne. He is colloquially known as “Dictator Dan”. That is harsh enough to defeat the behavioral trap. Or give us Sweden. Just do not give us the middle.

Houses and Holes
Latest posts by Houses and Holes (see all)


  1. Hempton was educated at Sydney Boys High School and received a Bachelor in Economics from Adelaide University in 1991.

    And we should listen to this guy on the subject of medical epidemiology why?

    • This was a reasoned and fair argument (I still disagree with the lockdown model but I’ll hold my tongue for now).
      And yet you go straight to character assassination.
      Play the ball, not the man. If you have something constructive to add to this guys arguments then chime in.

    • before he writes something like the above he first spoke to number of qualified people – I am certain of that. And he is smart.

        • he is very serious person despite having childish behavior on tweeter. He manages over $1bn fund mate he is not your off the shelf shuttin like us.

          • That doesn’t make his comments valid. An epidemiologist may look at his comments and say his conclusions are wrong for whatever reason.

        • there are number of epidemiologists that have different ideas on how to approach this issue. Who is right? Serious question.

          • Right, so why pay any attention to a fund manager? Listen to those who have at least some knowledge, but how to deal with the differences I’m not sure. My guess is that they’re not all equal and I guess you need see the difference between those who have real world experience as well as the study, compared to those just holding the piece of paper.

    • Exactly, we live in the age of disinformation where everyone is now an expert. I’ve already got a post-grad qualification in health economics and am completing a masters of public health and have years of experience in health-related discipline and I would consider myself unqualified to write an opinion piece of credibility. Why listen to experts when you can listen to fund managers…..

      • Yes, valid and reasonable you say, but that is based on your knowledge which is……

        Read Jobby just above you.

    • chuckmuscleMEMBER

      Yep. Nothing funnier than hearing a fundie opine on a virus as if they know anything. The guy is so far lost up himself it’s hilarious. Next please…

    • How about go and pick on Michael Burry then after looking at his background and his stance on the virus? I personally do not know which side is correct but I do know there are very smart people on both sides of the argument. That stance kind of fits well with this articles conclusion to pick one side or the other but don’t ‘middle’ it.

  2. Taleb reckons the R0 is irrelevant because of the tail risk from superspreaders. idk if superspreaders is a real thing tho?

    • darklydrawlMEMBER

      They seem to be, although I suspect it is more to do with location and circumstances than the individual in question. Some environments seem to lend themselves to be greater transmission risks than others. That woman from Korea in the church for example.

  3. The whole point of “doing Melbourne” is that tens of thousands will supposedly die if we don’t. If “doing Sweden” is an option then why would you do Melbourne?

    I think Melbourne will be worse than any part of the USA barring New York which is similarly lockdown-obsessed.

    • Goldstandard1MEMBER

      You might be right, but that is all attributed to our economy being based on ponzi and immigration. The virus destroys those economies. Hopefully it burns the old system and we can rise from the ashes.

        • If Melbourne manages to get better contact tracing and eliminates the virus, the economic advantages will be huge. As is businesses are being destroyed on a daily basis. Hard lockdown has worked in NZ and other states, why not Melbourne?

        • Arthur Schopenhauer

          The Swedes have a balanced economy that doesn’t rely on non-resident ‘guest’ workers. Melbourne has a Precariat that will starve if they don’t work or worse (from their perspective), have to return home. It’s within this cohort where the most transmissions are happening.

          Lockdown is solution for a poorly structured economy, reliant on underpaid non-citizen workers to keep it running. Get rid of the latter, and the need for the former is greatly diminished.

          • 55% of the workers in Stockholm’s aged care homes are migrant workers, which is why they had such a problem in controlling the virus in aged care and so many deaths.

          • I don’t think it’s that well balanced. Sweden, like many European countries, is trying mass migration with mainly refugees from war-torn countries and the result is not pretty.

            I could have agreed with you in 2012 when visiting Stockholm, but not in 2019 when visiting Gothenburg.

        • Sure Swedish economy will do better than Melbourne but lots more deaths. Notice the deaths per capita were not given, nor comparative charts of infections and deaths. That would be have been HONEST instead we get financialisation, that which occurs at end of empire. We being an outlying vassal.

      • I disagree, first you need to separate died ‘From’ and died ‘With’, then you need to add the hundreds more suicides in Melbourne (I cannot begin to imagine how many people are on the edge too, it’s so bad Tobin Brother did a special Youtube series, they were getting 8 to 9 people per 48hrs per funeral parlor in August alone. ) and Hundreds more who have died from cancer, both this year and over the coming years, the mental health effects of whats happening down in Melbourne is catastrophic.

        As for Sweden, everyone says the have way more deaths per the population, if they have no more deaths that may stay the same for years, but average the deaths out over days past and it starts to show a different story.

        Now there is talk that herd immunity is the way to go, that there will be no vaccine.

        Sweden. Because we need to learn live with it.

      • Does Sweden give you more deaths in a year, or does it simply concentrate deaths in a small period of time after which mortality goes back to normal (or in Sweden’s case, lower than normal). I believe that the mortality rate should be judged over the period of the entire pandemic, and should exclude people who would have died from other illnesses anyway (like 100 year old people with dementia in aged care units). At the end of the day, if the same number of people died in a year, but the cause of their death was covid and not the flu, cancer, pneumonia or whatever other terminal illness they were suffering, is it sensible to destroy the livelihoods of healthy people to give elderly people a few extra weeks or months of life? The French have analysed their covid deaths and concluded that the average life expectancy was only shortened by 1/10th of a year or 5 weeks. Which means that all those “saved lives” are now dead anyway.

  4. We just need to follow the advice of Mr. Miyagi from the Karate Kid: Walk on the left side or right side of the road, not in the middle.
    Sweden certainly looks successful if the numbers are correct – but, could it be that more are dying without a test? The daily death rate in Argentina looked similar to Sweden but then spiked up again – is this because of increased testing post-mortem?
    Also the lockdowns in Melbourne have to be considered in the context of the whole country; it would not be viable to let it rip in Melbourne but keep it contained in the other states.

    • How is Sweden successful when compared against its neighbours? Much, much higher death rate and economic performance no better.

      • I don’t get the “economic performance in Sweden is no better” trope.

        If the whole world goes into a massive recession, trade collapses, neighbouring countries lockdown and go into recession, tourism dries up, then do you honestly think Sweden is going to register positive growth? The global economy is that interconnected these days.

        I stand happily to be corrected on this.

        • From what I’ve read Sweden has much less reliance on tourism, in addition its exports are not generally consumer related.

        • Sweden has a vastly more complex and resilient economy than Australia. It _should_ be dealing with any problems substantially better.

  5. That was very good to see a bit more of a balanced view. The bit about partial lockdowns might make sense of NZ’s experience.. when there’s a breakout, go quickly and sharply at full lockdown, but open up quickly once contained. So start at Stage 4 first and you’d be in a much better spot to open up quicker. Instead of this Helbourne, slow way in and slow way out making people wanna slit their wrists..
    Plus look where it got them, there’s absolutely no appetite for another lockdown without civil war:

  6. RIght or Wrong, NZ did the Hard Lockdown, and we have an open gate Bledisloe being played before tens of thousands of fans this weekend, as we did last. As for the future? Who knows! All we can all do is ‘what we think is right at the time’ Hindsight is a wonderful thing.

    • NZ also got lucky on the basis of being an island that can only be reached by plane, and thus being able to shut the borders. Unlike the EU or the US States where anyone can simply drive across a border. It also benefited by not being a major tourist hub, with a hundred million international passenger movements a year like London and New York, so not many people with the virus arrived at the border. It also did not have any major international tourist events that sucked millions of travellers into a single city for one event like Italy with its Venice Carnivale. Hard or soft lockdown – both would have achieved the same outcome as the rest of Australia (bar Victoria) proved.

  7. Just stay home trembling under the duvet until your betters give you permission to leave.
    There you go, problem solved. No need for individual responsibility or analytical thought.
    Problem solved and it saves hours of parsing all the blather.

    • The alternative is many more people trembling under hospital covers.

      I largely agree with the analysis above. Go Sweden or Go Melbourne. Half-ass measures get half asses results. Sweden has had a plan and stuck to it. They are reaping the results both good and bad. Same with Australia. The bad most of Australia is suffering is the lack of ability to travel overseas.

  8. Why argue about it?
    It’s not as though we have any choice or say in it.
    We now live at the pleasure of our betters who decide and dictate every aspect of your life.
    We live under curfew
    Mandatory masks
    Closed borders
    Massive fines and police brutality
    A two tier society where the connected seem to move without restrictions
    So my point is why waste time with all this inconsequential blather you’ve given up all your freedom for the illusion of a little safety.

    • “you’ve given up all your freedom for the illusion of a little safety

      Cute, but all the population of any country has, or has ever had, is the illusion of freedom, governments can and do revoke this at their leisure.

      • There’s actually nothing cute about living in a police state.
        The fact that people have so easily given all of their civil rights away in order to be ‘saved’ from a virus with a .03 IFR is a terrible indictment of how pathetic we are.

        • Mate, I hear you and you’re not alone but few in number. Many people can’t grasp it over their fear-induced self-preservation mechanism overriding their critical thinking faculties.

    • If you we talking about the security state our LNP gov is turning us into, I’d agree. Secrecy laws, unreported Court hearings with people jailed, pursuing lawyers and whistleblowers for shining light on our gov bugging foreign gov (East Timor) etc, yes. Talking up bs terrorist threats while corrupting our gov processes, yes.

      This pandemic, no.

      • Seems all those points you raise… the current response to the pandemic is just a natural culmination of decades of increased government control, security and policy. And probably from both sides of the political spectrum.

        • How I see this, is this increase in the state security is predominately LNP gov related after 911 and particularly so from Abbott onwards. 18 mths ago polls stated 60% of people were concerned for their security from terrorism related events. People are easily scared and I can only shake my head at that sort of thinking.

          I have no fear of cv19, but still believe the state responses are appropriate so far. Stuffs made and abuse of police power, yes, but this talk of a police state is pure rubbish. Further more on abuse of police power, normal everyday people are now seeing how, imo, a reasonable % of police behave when you get on the wrong side of them.

          • Yeah, but honestly, don’t you think if Labor were in power in those years immediately following 9-11, don’t you think they would have done exactly the same, security wise? I can’t really comment on Abbott; I recall there was some fearmongering but don’t really remember. Like a lot of commenters here, I’m on the opinion that there’s not much separating the two parties.

          • Yeah, but honestly, don’t you think if Labor were in power in those years immediately following 9-11, don’t you think they would have done exactly the same, security wise?


            I can’t really comment on Abbott; I recall there was some fearmongering but don’t really remember. Like a lot of commenters here, I’m on the opinion that there’s not much separating the two parties.

            There’s certainly a lot less difference than there was twenty years ago, but there is a difference. Core attitudes towards social security (“they deserve it” vs “they need help”), for example. Labor are hopelessly captured by neoliberal economics, but they think they can temper its excesses, whereas the Liberals embrace its destruction because it helps the rich and powerful become more so.

        • Re your 1st sentence: No, I don’t. Labor have followed the LNP because they’ve been smashed on security / refugees every time, but unfortunately the public are easily frightened.

          I agree in a lot of respect there isn’t much that separates them, but like drsmithy has pointed out when it comes to welfare issues the difference is still large.

  9. But what does Dr Demography have to say? That’s what is important.

    Covid mortality relates to obesity and she did a PhD in obesity, plus she is a womyn!

  10. Dan Andrews knows he can’t protect the vulnerable at the source (aged care and hospitals) and knows he can’t conduct contact tracing – just look at the hotel quarantine fiasco. Hence, the only thing he can do is a hard lockdown and get the federal government to pick up the tab (via JobSeeker, JobKeeper and other fiscal stimulus).

  11. What is missing is the equilibrium point at which R0 = 1. In the US it’s currently just above 50k, and in NSW it’s about 10.

  12. Interesting thoughts on top of Joshua Gans piece, especially on distributional, equity and policy implications. The issue especially in the US but also in Australia is that of course homo economicus is fictional. So while perhaps 80% of the population do act to reduce the reproduction rate per Gans’ model, even if only a small proportion of the other 20% carry on as normal, you will see big spikes from super-spreader events. These impose costs on everyone including the 80% or so who conform to Gans’ model. So it is a classic market failure where the actions of a few impose immense costs on the rest of society. The rationale for the lockdowns therefore isn’t the 80%, it’s the covideniers. This is why covidenial is itself such a problem because it increases the proportion of people who are still in circulation without counter-measures and who therefore do not conform to Gans’ model.