Five articles I found informative

Andy Mukherjee on debt funds, Franklin Templeton and the regulatory mess that is about to get a whole lot worse:

Back then, Franklin Templeton’s unit holders probably had no idea their fund manager was sitting on practically the entire stock of zero-coupon debentures issued by Yes Capital Ltd., one of Kapoor family’s private investment vehicles. That was long before Yes, a major deposit-taking institution, became a basket case that was eventually rescued by a consortium led by government-controlled State Bank of India. The five funds that were involved in lending to Kapoor are among the six that have been suspended, suggesting that nothing really changed between then and now

Kurzarbeit. My word for the day. (I really should learn German)

He said Germany’s “Kurzarbeit,” or “short-time work,” program during the current pandemic has similarly set an example as to how deal with this economic crisis.

Under Germany’s system workers are sent home or see their hours slashed but are paid around two-thirds of their salary by the state.

China, India: follow the money!

Since 2014, an influx of Chinese capital in India has transformed the structure of India’s trade and investment relations with China. Until that year, the net Chinese investment in India was US$1.6 billion, according to official figures. Most of the investment was in the infrastructure space, involving major Chinese players in this sector, predominantly state-owned enterprises (SOEs). In the next three years, total investment increased five-fold to at least US$8 billion, according to data from the Ministry of Commerce (MOFCOM) in Beijing, with a noticeable shift from state-driven to market-driven investment from the Chinese private sector.

Bill Gates simplifies the development of the vaccine for all of us:

Safety and efficacy are the two most important goals for every vaccine. Safety is exactly what it sounds like: is the vaccine safe to give to people? Some minor side effects (like a mild fever or injection site pain) can be acceptable, but you don’t want to inoculate people with something that makes them sick.

Efficacy measures how well the vaccine protects you from getting sick. Although you’d ideally want a vaccine to have 100 percent efficacy, many don’t. For example, this year’s flu vaccine is around 45 percent effective.

TLTRO’s explained (this is a great read!)

A capital starved NBFC world will see churn, but sometimes the lack of capital itself will cause a company to fold, even if it has good credit. The RBI action for TLTRO may be good to create some liquidity for some NBFCs, but the system itself is weak and it may eventually need the RBI itself to step up and take some of the risk. A simple rule can be: We’ll fund you Rs. 100 as debt if you can raise Rs. 50 as additional equity capital from the market. But for now, we have TLTROs.

 

Links about these changing times

  1. Agnes Callard on wanting to feel pain:
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    “We don’t consciously choose to feel pangs of guilt or waves of regret, in the way that we consciously choose what novel to read. Still, we can assimilate the two sorts of cases if we introduce a hypothetical: Imagine you are offered a pill that would make you immune to regretful or guilty thoughts. Would you choose take it? If your worry is that those thoughts are important for steering you away from future wrongdoing, let me assure you I’ve built that functionality into the pill: You won’t behave any worse for having taken it. You’ll just stop having negative feelings.”
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  2. Via MR, social distancing and examinations in South Korea. (I’m not a fan)
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  3. Scott Adams has been calling it correctly for a while. Read more Dilbert!
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  4. Again via MR, a lovely list.
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  5. What will change, culturally speaking? Telecommuting will be the default, and in the years to come, maybe you’ll have to ask the manager for permission to go to office.
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    “But the pandemic is forcing these investments in industries where telework is possible, with more people learning how to use remote technology. As a result, we may see a more permanent shift toward telecommuting. As the economist Susan Athey recently told the Washington Post, “People will change their habits, and some of these habits will stick. There’s a lot of things where people are just slowly shifting, and this will accelerate that.””

Econ101: Policy Responses to a Pandemic

If you haven’t played it already, go ahead and give this game a try: The Fed Chairman Game. I have a lot of fun playing this game in class, especially with students who have been taught monetary policy. It usually turns out to be the case that they haven’t understood it quite as well as they think the have! (To be clear, that’s the fault of our educational system, not the students.)

But the reason I started with that is because the game always throws up a scenario that mimics a crisis, and asks you what you would do if you were the Chair of the Fed.

In this case, policymakers the world over are now staring at a very real crisis, and they need to be asking themselves: what should we do?


 

There are two broad answers, of course: monetary policy, and fiscal policy.

The Federal Reserve has cut interest rates to zero, and while it has other tools to stimulate the economy, a crisis like this requires fiscal as well as monetary responses. The legislation passed thus far has been important, but another round of fiscal policy will be required immediately to fully address this crisis.

A robust fiscal response can provide income support to households, ensure broad and continuous access to safety net programs, provide incentives for employers to avoid layoffs, provide loans to small businesses, give liquidity cushions to households and firms, and otherwise stimulate the economy.

That’s a write-up from Brookings. The specifics follow in that article, but the article makes the point that more of the lifting will need to  be done by fiscal, rather than monetary policy. And that is true for a variety of reasons,  which the article does not get into, but long story short – fiscal, more than monetary.

But, ok, fiscal policy of what kind? Should we give money to firms or to workers? Here’s Paul Krugman with his take…

And here’s Alex Tabarrok with his response:

So what’s the correct answer? Well, as we’ve learnt before, and will learn again, macro is hard! In an ideal world, all of the above, but as is manifestly clear, we are not in an ideal world. If we must choose between giving money to firms or to people, to whom should we give it? My opinion? People first, businesses second. This is, of course, a US centric discussion, what’s up with India?


 

Here’s, to begin with, a round-up from around the world – you can search within it for India’s response thus far.

Calls are getting louder for governments to support people and businesses until the new coronavirus is contained. The only questions are how much money to shovel into the economy, how to go about doing it, and whether it will be enough.

Already, officials from Paris to Washington DC are pulling out the playbook used in Asia for slowing the spread of Covid-19: they’re restricting travel and cracking down on public gatherings. While those measures have the potential to reduce deaths and infections, they will also damage business prospects for many companies and cause a synchronized worldwide disruption.

Here’s the FT from two weeks ago about the impending slow down:

Venu Srinivasan, whose company TVS is one of India’s largest makers of motorcycles and scooters, said the business had lost about 10 per cent of production in February owing to a lack of Chinese-made parts for the vehicles’ fuel injection system. He added that TVS has now managed to find a new supplier.

But Mr Srinivasan said he was bracing for India’s recovery to take longer than anticipated. “One would have expected a V-shaped recovery, but instead you have an L shaped recovery,” he said. “It’s been the long haul.”

R Jagannathan in the LiveMint suggests this:

This is how it could be designed. Any unemployed urban youth in the 20-30 age group could be promised 100 days of employment and/or skilling options paid for by the government at a fixed daily rate of ₹300 (or thereabouts, depending on city). At an outlay of ₹30,000 per person annually, the unemployed can be put to work in municipal conservancy services, healthcare support, traffic management, and other duties, with the money also being made available for any skill-acquiring activity chosen by the beneficiary (driver training for Ola-Uber, logistics operations, etc). All companies could be given an opportunity to use the provisions of the Apprentices Act to take on more trainees, with the apprenticeship period subsidized to the limit of ₹30,000 per person in 2020-21. If the pilot works, it could be rolled out as a regular annual scheme for jobs and skills. Skilling works best in an actual jobs environment.

 

He also mentions making the GST simpler, which the Business Standard agrees with:

Certainly, the rationalisation of GST will also affect government revenues. However, a simpler and more transparent system would allow greater collection and reduce evasion. The government will receive a windfall this year from lower crude oil prices. The moment to move on the structural reform agenda is now. The GST Council has done well to address the inverted duty structure in mobile phones. Further rationalisation will give confidence to the market that the government is serious about reforms. It was promised that GST would remain a work in progress, and that the GST Council would act often to improve it. So far, however, the changes have been marginal and haphazard. A more structured and rational approach, which outlines a quick path to a single rate, would pay dividends for the economy in the longer run. It would also be an effective way to manage the immediate effects of a supply shock such as is being caused by the pandemic.

Also from the Business Standard, a report on the government now considering (not happened yet) relaxing bad loan classification rules for sectors hit by the corona virus. That’s pretty soon going to be every sector!


 

Assorted Links about the topic – there’s more to read than usual, please note.

Here is Tyler Cowen on mitigating the economic impacts from the coronavirus crisis.

Here’s Bill Dupor, via MR, about the topic:

First, incentivize behavior to align with recognized public health objectives during the outbreak.

Second, avoid concentrating the individual financial burden of the outbreak or the policy response to the outbreak.

Third, implement these fiscal policies as quickly as possible, subject to some efficiency considerations.

Again, via MR, New Zealand’s macro response.

Arnold Kling is running a series on the macro response to the crisis.

Claudia Sahm proposes direct payment to individuals:

This chapter proposes a direct payment to individuals that would
automatically be paid out early in a recession and then continue annually
when the recession is severe. Research shows that stimulus payments that
were broadly disbursed on an ad hoc (or discretionary) basis in the 2001 and
2008–9 recessions raised consumer spending and helped counteract weak
demand. Making the payments automatic by tying their disbursement to
recent changes in the unemployment rate would ensure that the stimulus
reaches the economy as quickly as possible. A rapid, vigorous response to
the next recession in the form of direct payments to individuals would help
limit employment losses and the economic damage from the recession.

Here are the concrete proposals, the entire paper is worth a read:

Automatic lump-sum stimulus payments would be made to individuals
when the three-month average national unemployment rate rises by
at least 0.50 percentage points relative to its low in the previous 12
months.
• The total amount of stimulus payments in the first year is set to
0.7 percent of GDP.
• After the first year, any second (or subsequent) year payments would
depend on the path of the unemployment rate.

 

Macroeconomics IS HARD!

Economics in the times of COVID-19, there is already a book. I learnt about it from Tim Taylor’s blogpost. I have not read the book, but will soon.

The NYT, two weeks ago, on the scale of the problem facing policymakers.

 

India: Links for 17th June, 2019

  1. “A changing global order, energy transitions and climate change and rapid technological advancement – India’s next government has the difficult task of steering the country through an interesting and crucial time. India 2024: Policy Priorities for the New Government, is a compendium of policy briefs from scholars at Brookings India, which identifies and addresses some of the most pressing challenges that India is likely to face in the next five years. Each policy brief is based on longer, in-depth and academically rigorous publications from the scholars.”
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    An excellent set of links to bookmark and keep handy to get a useful set of information about a) where India is today, and b) what she might need to do in terms of policy reform.
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  2. “While some of these issues can be resolved only in the next base-change exercise, greater transparency on the methodology and better data dissemination standards can help improve the credibility of the official GDP numbers. The CSO, which has now been merged with NSSO, can learn from the latter’s dissemination policies and start releasing unit-level data for all databases used in national accounts estimation (including MCA-21) in a machine readable format so that independent researchers can assess the quality of the data being fed into national accounts.”
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    Here’s a useful thumb rule to keep in mind when it comes to thinking about GDP. If the exercise doesn’t give you a headache, you haven’t thought hard enough about it. I am joking, of course – but only just. In this article, you get a sense of the myriad problems with the measurement of GDP in India. As the author of the piece above has mentioned on Twitter, what we need is a more reasoned discussion about how to measure economic data in this country, rather than fall into partisan debates of a political nature.
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  3. “Here is our contention: How far and how fast we can go below current 3.4 per cent as far as the centre’s fiscal deficit is concerned against the current demand slowdown? Do we stay put at 3.4 per cent (assuming it is met) for the first two years of the current government and then move down aggressively, as growth comes back to the system? We propose a radical shift in thinking as far as fiscal is concerned. The alternative to targeting fiscal deficit is that like most advanced economies and several emerging market economies India should target a structural deficit, which serves as an automatic counter-cyclical stabiliser.”
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    Lots to take away from this review of an article penned by two authors worth following in their own right, but rather more useful as a way to realize that this is how articles ought to be read: critical reading is exactly this.
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  4. “The government has completed laying optical fibre cables across more than 100,000 gram panchayats in the first phase and had aimed to complete connecting the remaining 150,000 councils by March 2019. The second phase has seen “zero progress”, according to government officials close to the matter. Pained by poor utilization of digital infrastructure, the Telecom Regulatory Authority of India (Trai) suggested auctioning BharatNet infrastructure on an “as is where is” basis after a meeting held in December at the prime minister’s office to take stock of the mission.”
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    Livemint on what needs to be done to revolutionize access to the internet even more in India. The role of gender in this case was not something I had thought about before, read the article to find out more. The bottom line is that we have come a long, long way – but also that there is a long, long way to go.
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  5. “There could be no compromise over values. And to understand those values, he rediscovered the wisdom from India’s ancient stories to bring clarity to our ambiguous present. And thus Karnad told us the meaning of what it means to be human.”
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    Livemint again, and this time it is Salil Tripathi mourning the passing away of Girish Karnad. RIP.