[ Spatial Economics] We need Transactions while Epidemic Prevention / Sheng Hong

It looks that many countries face the same dilemma, epidemic prevention or transactions, the latter is the main way to earn livehood. What I emphasize is that we should prevent the novel coronavirus while maintain the transactions through no-face-to-face transations or non-contact transations. 


We need Transactions while Epidemic Prevention

——Analysis and suggestion of simulating virus infection and transaction restriction based on spatial economics model

Sheng Hong

In fact, the debate about “closing the city” reflects the dilemma faced by human beings. The development of human civilization depends on what Smith called “division of labor”, and the premise of division of labor is “transaction”. Without transaction, division of labor cannot be realized and deepened. On the other hand, the reason why infectious diseases can spread rapidly among people also depends on the interaction between people. In a broad sense, both of the two kinds of actions are transaction, that is, the interaction between people. Human beings have ancient wisdom about unknown infectious diseases. This is isolation. In the Torah, the Jews let the sick “live outside the camp alone” and their clothes would be burned. Since the 3rd century BC, there has been an official “Illness house” in China. However, if there is a large-scale isolation, there will be no transactions. Especially today, the economy relies on a global system with a high degree of division of labor, and the transaction frequency is unprecedented. If we seal up a big city with a population of 11 million like Wuhan, what kind of great impact will it have on its economy, and whether it has achieved the goal of isolation? This is to make quantitative analysis based on empirical data, so as to judge the advantages and disadvantages of “closing up the city”, and put forward a proposal to solve the dilemma of epidemic prevention and trade at the same time.

The full name of the model I adopted is “ten dimensional perspective spatial economics and institutional economics planning model”, which is abbreviated as SIEM. This is a model that we have developed and applied to three planning. It is characterized by “transaction” as the basic unit. We refer to Krugman’s theory, but using transaction induced agglomeration to replace production induced agglomeration. Transaction will bring transaction bonus, people gather for transactions, which will produce “market network externality”, that is, the increase of transaction opportunities between people is faster than the increase of the number of people. This is the basic driving force of urban development. In institutional economics, the basic unit of analysis is just “transaction”. So these two theories are connected here. We know that the infection of infectious diseases is also related to agglomeration. Although we don’t fully know how the new coronavirus is transmitted, whether it is contagious by contact, by flying foam or by air, there is no doubt that it is all “close range”. Only when people gather together, can they get close to each other and be able to infect each other; the higher the degree of agglomeration, the more likely they are to infect each other. Therefore, we can use this model to simulate the infection of viruses.

Because of the limited time, we made a very simple model. We assume that Wuhan is a single central city with 11.13 million people, a monthly GDP of 123.7 billion yuan and an area of 8494 square kilometers. As a reference, we assume that the infection rate of new coronavirus is 1.3. We use the number of confirmed cases published publicly as the basis, and know that a large number of infected people are not included in the official statistics, so it is assumed that the number of infected people will be 10 times the number of confirmed cases as the calculation parameter. In our simulation, we assume that the probability of transaction if closing the city is reduced to 1% of the opening the city, and the average increase of transaction cost is equivalent to 36% of the average price. The effect of Wuhan City closure on epidemic prevention is shown in the figure below. As a result, on January 23, the closure of the city reduced the number of people infected by the disease by 58% compared with that of the city without closure. More importantly, the closure of the city prevented the rapid rise of the number of people infected. First of all, we ignore the mistakes made before. If we had taken measures earlier, we would not have closed the city. It seems that on this day, “closing the city” is a measure that has to be taken.

Figure 1 Simulation of the number of people infected before and after the closure of WuhanTransaction and provention

Then look at the influence of “closing the city” on Wuhan economy. According to last year’s figures, the average monthly GDP of Wuhan is about 123.7 billion yuan under normal circumstances, but only 800 million yuan under the circumstances of closure and basic suspension of transactions and exchanges in the city. According to the per capita consumption level of China’s cities and towns, Wuhan people need to consume 21.3 billion yuan per month. Obviously, during the period of the closure of the city, the people of Wuhan did not actually create wealth to meet their consumption quantity, but only consumed their own savings. If the enterprise stops production and continues to pay wages, the enterprise will lose money. If the closure lasts for two months, it will bring a loss of 245.8 billion yuan, about 99.4% of the normal GDP. Compare the reduction of the number of people infected by the closure with the loss of economic income, as shown in the following figure.

Figure 2  Simulation of the impact of Wuhan closure on the number of people infected and GDPTransaction and provention2

Note: Assuming the index of the number of people infected on January 23, 2020 is 100, and that of the normal GDP / month is 100. The left axis is the coordinate axis of the index of the number of infected people, and the right axis is the coordinate axis of the GDP (monthly) index. Closing the city day is an important milestone. After that, the rise of the index of people infected slowed down significantly, while the GDP index dropped sharply.

It can be seen that the closure of the city will reduce the number of infected people by 58%, at the cost of reducing the GDP by 99.4%. The reality the digital based is that a large number of people have no income and livelihood, while enterprises cannot produce and operate but spend the money in vain. The first ones that can’t bear are those who rely on the income flow of the market and the vulnerable groups who depend on their wages. For enterprises, this is equivalent to a major market depression and financial crisis. As a result, many enterprises will close down, which will have a chain reaction. The more economic pressure people have, the more they feel the adverse consequences of the closure. A lot of microcosmic pressure will produce macroscopical consequence finally. Therefore, the cost of this kind of forced closure is huge, and with the passage of time, the cost is more and more big, and it may be unbearable at last.

This model can also tell us the distribution characteristics of virus infection. Since the mode of virus infection is close range infection, that is, clustering is easy to infect, the degree of clustering is related to the possibility of infection. In spatial economics, the parameter reflecting the degree of agglomeration is “population density”. We usually use “people / km2” to express the density of people, such as 20000 people / km2, which can also be regarded as the average distance between people. 20000 people / km2 means 50 square meters per capita, and the average distance between people is about 7 meters. It can be imagined that the higher the population density, the smaller the average distance between people, the more likely it is to be infected. Generally speaking, the infection rate is an average concept. In different population density places, the infection rate is different. The closer to the city center, the higher the infection rate. The reason is very simple. Because the new coronavirus is a close infection, the closer people are to each other, the more people around an individual, the more likely they are to be infected.

Figure 3 the number or probability of infection increases with population density既要防疫又要交易3

However, the traditional “population density” generally refers to “static density”, that is, the number of residents, employment and foreign consumers in a city or community. What is related to the actual transaction and virus infection is the “dynamic density”, that is, the high density of population gathering in a period of time. For example, watching movies or dramas, waiting or queuing at railway stations or airports, shopping in business centers, attending classes in classrooms, meetings of governments or enterprises, business promotion activities, factory work, attending banquets, etc. These agglomerations are not only necessary for productive exchanges, but also make population density increase dynamically, or promote temporary proximity between people. For example, Baibuting community in Wuhan held a “ten thousand family banquet” on January 19, which was to gather about 130000 people into a smaller area than the normal area in a certain period of time. Assuming that the static population density of Baibuting community is 70000 people / km2, 130000 people will be concentrated in a space of about 30 hectares during the “ten thousand family banquet”. The dynamic population density is about 450000 people / km2, and the average distance between people is about 1.5m. Our model estimates that a person’s probability of being infected is 2-4 times that of not holding “ten thousand family banquet”. This has been confirmed by the facts. According to the report of economic observer, there are 91 buildings in two communities of Baibuting, and 50 buildings have the symptoms of residents’ fever (“Baibuting has more than people’s fever after a banquet”, February 7, 2020).

Figure 4  Number or possibility of virus infection during banquets in Baibuting


Note: The place in the picture is obviously higher than the surrounding part, that is, the number or possibility of infection when Baibuting banquets.

More broadly, the face-to-face contact of any two people is equivalent to a high density of 1 million people / km2, which seems quite dangerous. However, if the possibility of that they each carry the virus is 1%, and they meet by chance, the probability of their mutual infection is 1 / 10000. However, if someone deals with other people on a full-time basis, they will have “continuous close contact” and their probability of infection will increase dramatically. Such as supermarket cashiers, community gatekeepers, commercial or administrative window receptionists, checkpoint inspectors, police, and so on. According to the above assumption, the probability of carrying the virus of them with the citizens they meet is still 1%, and these full-time personnel are 100% likely to be infected in 100 times of dealing with others. What’s more, when they get infected, they have a higher probability of infecting all the people they deal with. This kind of “continuous close contact” is 100 times more likely to infect than the aforementioned “accidental encounter”. From this point of view, we can also make a judgment on the way of government and market. The market approach is similar to “accidental encounter”, while the government approach is similar to “continuous close contact”. The latter is 100 times more likely to infect than the former.

If we discuss the issue of closing Wuhan in this way, we will understand that our problem is not to close or not to close the city, but to take what measures to reduce the virus infection, and at the same time to maintain the transaction between people as much as possible. Therefore, at this time, the word “Closing the city” cannot be simply used. In theory, “Closing the city” is to cut off the connection between a city and other cities, but there are many different ways under the concept of closing the city. Such as, no closing within the city, sealing communities or villages, or even sealing buildings or houses. Different practices will have different effects on virus infection and economic transactions, so different “closure” will have different results.

Take Wuhan as an example again. After closure of the city, a large number of novel coronavirus pneumonia suspects in Wuhan are flocking to hospitals. However, due to the limited diagnosis and treatment capacity of the hospital and the limited beds, patients and their families line up in a long line. Some people even queue up in multiple hospitals but still cannot get treatment. Each queue lasted for several hours. It’s amazing. Many hospitals have already used WeChat or APP as the registering way in the era of mobile Internet. Under the condition of new contagious pneumonia, the queuing function online should be quickly activated, so that patients and their families can register in the hospital without leaving home, and the queuing information can be scrolled online in real time. Hospitals can arrange according to queuing information. If the non-governmental organizations or public organizations can organize teams to pick up patients according to the computer, and it can also avoid the hard work of patients and their families, and reduce the increased infection or aggravation of illness caused by fatigue. What’s more, this practice will bring obvious effect of reducing infection. Because queuing is a kind of dynamic gathering of people, the distance between people is almost zero. If calculated by one meter, it is equivalent to a population density of 1 million people / square kilometer, which is obviously “super close”, and the probability of virus carried by the queuing population is higher than that of other people, the probability of human to human transmission will increase significantly.

The second advantage of online registration queuing is that it can quickly collect information about suspected patients. Those who suspect novel coronavirus pneumonia are more likely to be infected than those who are not suspected, so they will voluntarily register in the hospital, and in fact provide most information about the infected population. If hospitals or public health organizations make use of this, they can collect more detailed information of patients, such as age, gender, address, etc., which can not only let doctors know the condition in advance, but also let public health institutions know the approximate number and distribution of suspected patients, which in turn can reduce the suspicion of other people to be infected. When people don’t know which individual is infected, they suspect the whole population. For example, if we assume that 5% of the people in Wuhan are infected, but we don’t know which specific individuals are infected, we can only regard each Wuhanese as a person with a “5% probability of carrying the virus”. If we know which 5% of the people are, we can effectively isolate these people, and at the same time, we can eliminate the infection suspicion of other 95% of people, so that they can resume normal trading.

What is related to obtaining information is to completely stop the suppression on  the release of epidemic information by citizens, so as to obtain more sufficient epidemic information. A typical example we saw is that Mr. Fang, a citizen of Wuhan, recorded videos of several dead bodies in a hospital in Wuhan and put them on the Internet. This was a normal thing, and also provided information for Wuhan public health institutions. Unexpectedly, Wuhan government made a mistake again. It called Mr. Fang to the police station to inquire and threatened him in the following days. This approach not only continues to suppress the spread of decentralized individual information, but also fails to solve the problem. The problem is that in this period of high mortality, the government should take the responsibility of removing hospital corpses. Instead of sending people to suppress Mr. Fang who reflects the problem, it is better to send these people to move the bodies. We also note that a large number of WeChat accounts and groups have recently blocked. In this dangerous time, it is equivalent to blocking the information outlet of residents and depriving them of the means to ask for help in an emergency. In fact, the more timely and sufficient the public reflects the epidemic, the more effective treatment information can be provided for the society; the more problems the public spontaneously reflects, the more relevant government departments can deal with the problems. To continue to suppress the free release and dissemination of information is to keep the overall face of Wuhan unclear, which will continue to provide reasons for the overall closure of the city.

Let’s take another look at the practice of closing villages, communities and even houses. Take Wenzhou for example. The most extreme form is to restrict every household to send one person to buy foods every two days. This practice has obviously greatly hindered the normal urban trade of the people, especially in Wenzhou, a market-oriented society, which is even worse for the economy. As mentioned before, this practice just encourages the spread of the virus. Because to block the community, we need to set up checkpoints, and need gatekeepers to guard them, and the gatekeepers will have “continuous close contact” with many residents; in order to implement this blocking system, all regions, communities and villages have printed their own “passes”, so governments at all levels have to gather together to distribute “passes”, which means a possible virus transmission. Obviously, this kind of blockade is the worst way, which not only worsens the economy further, but also increases the risk of infection. Needless to say, the practice of keeping residents indoors for a long time will seriously damage their physical and mental health. Many cases have shown that patients’ psychological state plays an important role in overcoming the virus. The more in the epidemic prevention period, the more attention should be paid to exercise, go for a walk or exercise outdoors. Now I hear that Wuhan is going to block the residential area again. It seems that this wrong “experience” is spreading.

Another is that the government establishes unnecessary control matters. We have already said that in the case of “close transmission”, unnecessary contact between any person and human increases the possibility of transmission, let alone “sustained”. For example, the entrance of the car in my community is automatically recognized. The license plate number and the owner’s information are stored in the computer, and are automatically recorded every time they enter or leave. However, since the epidemic prevention, artificial check-up has been arranged at the gate, which increases the direct contact between people and the “continuous close contact” of the check-up personnel, but increases the risk of infection. It’s a similar problem that we don’t allow express delivery into the community. Originally, there were Cainiao or Fengchao express cabinets in the community that could pick up items automatically. Now, the courier can only contact and hand over with the receiver outside the community. In addition, I find there are some places where people who don’t wear masks are intervened by force. In one video, a subway passenger was pushed off the subway because he didn’t wear a mask; in another video, a woman was physically attacked by an inspector because she didn’t wear a mask. This is obviously beyond the scope of epidemic prevention and directly violates the personal freedom of citizens. Even from the perspective of epidemic prevention effect, this kind of direct antagonistic contact is more likely to increase infection than “continuous close contact”.

Moreover, the restrictions on private cars in Wuhan are also wrong. In fact, private cars are the best dynamic isolation facilities. This is not only much safer than subway and public transportation, but also better than taxi, online car hailing and 120. I think infectious disease experts will agree that a car with its doors and windows closed is far less likely to infect nearby cars or individuals than when people meet. The restrictions on private cars not only bring inconvenience to doctors and all kinds of necessary occupations, but also create a risk of contact between suspected patients and others. On the other hand, if private cars are not restricted and dynamic isolation is relatively safe, it can meet the needs of citizens in the epidemic prevention period, and it will also make the trade in Wuhan more active, which is conducive to alleviate the negative results of the closure.

In short, with the closure of the city, a better way can also effectively isolate the infected population, and at the same time prevent the transaction from completely stopping. However, improper government control methods, such as suppressing the release of epidemic information, not using online registration, forcing patients to queue up in the hospital, the public sector not only can’t grasp the epidemic in time, but also suppress the release of epidemic information, restrict the use of private cars, even seal off areas and buildings, and issue “passes”, significantly increase the risk of infection, and pay economic At the same time, there are more infected people in the closed city than in the absence of these measures.

Therefore, how to resolve the dilemma of closing or unsealing, epidemic prevention or transaction? As mentioned above, we should not only avoid virus infection, but also keep trading. Can this be done? At least it should have the potential to do it in part. Specifically, there are the following five suggestions.

First, take advantage of “non face to face transactions”, that is, online transactions. In fact, the e-commerce developed in recent years is a typical non face-to-face transaction. Modern technology has enabled us to trade without contagion. Wuhan is a city with a very developed service industry, accounting for 58% of GDP, of which more than 60% are production-oriented services, such as education, finance, information technology, law, scientific research, consulting, etc. The characteristics of these services are mainly relying on information exchange rather than goods exchange, and the current technology has been able to make information exchange online quickly without face-to-face. For example, online long-distance transaction, bank online transfer, video and audio teaching through the Internet, online meeting, business negotiation, legal consultation and academic discussion can be carried out for financial products. If all these production-oriented service industries can be restored to operation through the network, according to last year’s level, 43.5 billion yuan of added value can be created in one month. What’s more, this kind of online transaction can also be used for medical treatment. Doctors from other places do not have to go to Wuhan in person. They can make up for the shortage of medical resources in Wuhan through remote facilities for medical consultation and auxiliary diagnosis. Through the Internet, Wuhan can also mobilize the resources of other provinces and even foreign producer services, such as scientific research exchange and think tank consultation.

Second, promote “non-contact transactions”. Other service industries, especially commodity retail and catering industries, must also go to physical stores for transactions. However, in recent years, the emergence of unmanned stores, drone express and so on now seems to be able to come into use. In fact, many supermarkets have already realized the self-checkout of customers with app, which is close to the realization of “unmanned store”. Even many small shops, grocery stores, convenience stores, etc., all use WeChat or Alipay checkout. With a little improvement, they can quickly turn into a self-help small supermarket. In many restaurants, it is also a person who orders food with a tablet computer without direct service. Even better, you can use robots to deliver meals. Therefore, as long as we improve the existing service mode and form norms and habits, most of the service industry stores can basically do not touch the service. In fact, e-commerce has expanded to the field of food and daily necessities. Online ordering has become popular. What needs to be improved is the non-contact form of express delivery and meal delivery. The logistics industry is similar. Although physical goods need to be transported and distributed, non-contact transactions can be adopted in the aspect of handover. If this kind of service industry can partially restore services, even if only 50%, with reference to last year’s level, it can achieve a monthly added value of about 14.5 billion yuan. Together with the former producer services industry, Wuhan’s economy can be restored to 47% of the normal state.

Third, the closure of roads and districts in the city will be cancelled, private cars will be resumed to drive and only major commercial and cultural centers will be closed. As mentioned above, the closure of communities, buildings or roads does not play a role in reducing infection, but will increase it. Regarding the private car as the best dynamic isolation facility, restoring the driving of the private car will quickly reduce the infection caused by renting the car and give people more space for activities. As long as we continue to close large-scale places where people gather, such as large comprehensive business centers, cinemas, theaters, museums, libraries, etc., there will be no high-density gathering. At the same time, people can drive to the supermarket which is far away and low density to buy goods. It also means evacuating people from densely populated areas. Some restrictions can be established if possible infectious situations such as supermarkets and convenience stores are taken into account. Such as limiting the dynamic number of people in the supermarket, automatic temperature measurement, and the establishment of non-contact self-service checkout mechanism. In this way, it can activate intra city transactions and create conditions for the gradual lifting the closure. The model shows that if the transaction probability returns to 5% of the normal situation, the GDP can be increased by 3.1 billion yuan.

Fourth, gradually resume low-density transactions. The so-called “low density” refers to areas with low population density, where the probability of virus infection is lower than that of high density areas, and most of them are suburban areas. There are small-scale and scattered businesses and services, and many industrial enterprises are also located here. After the number of infected people has been basically mastered and the number of confirmed cases has declined, if we want to resume production in the manufacturing industry, we can also give priority to return to work in this low-density area. We can gradually promote the recovery of transactions from low-density areas to high-density areas. Although it may lead to some increase in the number of infections. Low density trading also means that a city should open its suburban areas so that its residents can relax in the low-density areas in the suburbs. At the same time, it will reduce the pressure of parks in the city. Beijing has kept the city’s parks basically open, but closed almost all of its suburban parks. It’s weird logic. In fact, the country park has fresh air, wide area and low population density. It is a safe area for outdoor activities, and it can also reduce the population density pressure of the park in the urban area.

Fifth, “dynamic isolation” should be implemented. To trade, it is inevitable to take outdoor actions; keeping isolation, it is necessary to ensure the isolation effect of outdoor actions. If we know that the new coronavirus is a close range infection, if infectious disease experts can provide a safe distance for our reference to avoid infection, we can keep a certain safe distance with other people in the outdoor or on the street, without being infected. In addition to private cars, dynamic isolation can be achieved as long as people consciously keep a safe distance from each other. Furthermore, if infectious disease experts can give more detailed behavioral norms to avoid infection, people can avoid infection if they follow them, so that there will be a large space for activities to gradually resume trading while in a safe state of epidemic prevention.

In a word, if we want to trade while prevent epidemic, we need to do noninfectious transactions, or at least low infectious transactions. This can only be done when the characteristics of infection and transaction are known and all the truth is known. How to “know”? Confucius said, “Knowledge, benevolence and courage are the three virtues of the world.” This is particularly important during the viral epidemic. Here, “benevolence” is not condescending pity, but respectful love, that is, respect for human life, freedom, rights and personality, and love for all people by all people. Confucius said, “The benevolent must be brave.” With respect for all people’s love, be prepared to pay even the highest price for this love, just like Li Wenliang, will not fear and panic. “Knowledge” is the product of calm mind, without fear and panic, there can be “knowledge”. “Knowledge” includes information and wisdom. Information comes from expression, free expression needs to be protected by the constitution; wisdom does not refer to the wisdom of one person, but the wisdom of millions of people. In this time of social panic and national crisis, it is also a time of inspiriting their wisdom. As long as they will not be suppressed, as long as the clumsy government control will not impose on them, as long as we don’t assume that some person is wiser than them, they will use their wisdom to save themselves and save the Chinese civilization.

February 11, 2020 in Fivewoods Studio

First published in FT Chinese on Feb. 12, 2020


Author: flourishflood

Economist, Confucianist

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