Publications: Notes at the Margin

COVID-19 Impact: Known Knowns (February 17, 2020)


The reports on COVID-19[1] move financial markets up and down daily. One day participants in equities, commodities, and debt instruments take a sanguine view. On the next, they run for their caves. The S&P 500 fell during the last week of January 2020. It then recovered during the first week of February. The story was about the same for oil.


An economist watching the market swings is left speechless. Worse, the ups and downs make it impossible to write sensibly regarding the disaster. Hence the title of this report, taken from the following comment made by former Defense Secretary Donald Rumsfeld:


"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones."[2]


Rumsfeld borrowed the expression “known unknowns” from the engineering and national security field. Wikipedia quotes this explanation from a consulting engineering firm:


"Known unknowns result from recognized but poorly understood phenomena. On the other hand, unknown unknowns are phenomena which cannot be expected because there has been no prior experience or theoretical basis for expecting the phenomena."[3]


During the week, one commentator on business television, probably Bloomberg, stated that listeners should immediately disregard all predictions by economists who claimed they could model the COVID-19 impact. This advice may have been the most "spot-on" statement from anyone on the business networks in a very long time. Thus, rather than engaging in the impossible task of predicting the effect of the spreading plague, we have tried to identify and assess as many "known knowns" regarding the impact of COVID-19 as possible.

[1] The official name assigned to the Chinese coronavirus by the World Health Organization.

[2] News Transcript, DoD News Briefing – Secretary Rumsfeld and Gen. Myers, February 12, 2002 [].

[3] Statement of Evidence of E. D'Appolonia, D'Appolonia Consulting Engineers, Pittsburgh, Pennsylvania. Phase V: Waste Disposal. Proceedings of the British Columbia Royal Commission of Inquiry into Uranium Mining. ISBN 978-0-7718-8198-5. 0005037606.


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