Tag: corona virus

Five articles I found informative

AshishLeave a comment

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.

 

Notes from an excellent blogpost by V Ananta Nageswaran

Ashish1 Comment

I mean, the simplest thing to do would be to go read the post in its entirety. The notes that follow are my way of reinforcing the key messages for myself, but perhaps they will help you as well.

This piece has five messages. One is that the best way to attract businesses is not to repel them explicitly. Second, it makes the case for a bold but transparent fiscal support. Third, it offers suggestions on how that money could be spent and four, it reminds experts that doomsday scenarios for India are not pre-ordained. Finally, it is important that the government channels the Covid crisis to usher in a decade of better growth than the previous one.

With regard to the first point, about not repelling businesses:

  • The blog post emphasizes the need to facilitate clear instructions for businesses. The key message is that clear communication is always important, but it is literally a life-saver in these times. If you need to issue a clarification, you failed. It is that simple.
  • A related point in this regard comes from an excellent newsletter that is equally worth reading in its own right. Facilitating business also means not throwing out the baby with the bathwater:
    ..
    ..
    “Now let’s look at why this is a policyWTF. India’s economy is facing a severe demand + supply shock. Of particular concern is the unavailability of domestic capital for long-term projects such as infrastructure (one of the reasons for this is covered in the India Policy Watch section below). Without long-term investment, India cannot achieve sustained economic growth. And without sustained economic growth, India’s geopolitical options get majorly constrained. An economically strong India becomes an ideal counterweight to China for the US and also an ideal market for excess Chinese capital. In contrast, a weak economy will eventually be forced to throw its economy open to the highest bidder at any point of time (ask Pakistan). Given this key national interest, making it difficult for Chinese investments to find their way into India is extremely counterproductive.”
    ..
    ..
    To be clear, this is not the point Ananta Nageswaran was making, but the point that Pranay and A.N. make stems from the root principle that in these times, we need to facilitate business, not hamper it. It can be hampered by a variety of things: unclear communication, blanket bans, or something else.

Now, on to the second point:

However, for a country with a young demographic and a potential for economic growth to exceed the cost of capital in the medium to long-term, the cost of excessive caution and prudence would be higher than the cost of excess action now. This would be so in the medium to long-term even if the short–term costs of excessive fiscal activism appear higher. One such fear is the fear of credit-rating downgrade. That reputational risk must be accepted and ignored, if it materializes. Rakesh Mohan, the former Deputy Governor of the Reserve Bank of India, had the right attitude towards them. In an interview for CNBC TV-18, he is reported to have observed that the credit rating agencies should have been the first ones to be put on the lockdown globally. He is right.

There is a time to worry about rating agencies, rising rates of borrowing, crowding out and profligacy. This, however, is not that time. We can err on the side of doing too little, or too much. There will be errors, we just need to choose which. I agree with A.N. – more is infinitely more preferable.

Suggestions on how money can be spent, which is the third point:

  • Asset sales, by Andy Mukherjee (link gotten from within A.N.’s post)
  • Building out health infrastructure, by the same author (and the same source for the link as above too)
  • Shankkar Aiyyar has an article on BQ that finds mention in A.N’s post, and also has this excellent, excellent analogy:
    ..
    ..
    “Epidemiology tells us vulnerability to Covid-19 rises with pre-existing conditions. This is true for economies too. India’s economy, frail from co-morbidity, tripped from slowdown to lockdown.”
  • And Vikram Chandra on Twitter has some suggestions:
    ..
    ..


    ..
    ..
    Note that the list isn’t (and can’t be) exhaustive. But these are all extremely good suggestions!

Fourth, we need to keep reminding ourselves that it’s not all doom and gloom, health-wise and economy-wise, or as A.N. puts its, “experts are poor at predicting”. (Ahem)

And fifth, the bottomline from his blog-post, which I quote in its entirety:

“Finally, that persuades me to throw the ball to the government to play. In times of crises, society looks for guidance and leadership from the rulers. This is time-tested. Therefore, the onus is on the government to demonstrate clarity in thought and purpose in action. India began the last decade badly and ended it with more questions than answers. An encore will be a tragedy. India should do whatever it takes to avoid it.”

 

 

Keep an eye on China stories #1

Ashish1 Comment
  1. This one isn’t about China per se, it is about how the corona virus is caused by 5G – but the story does begin with Wuhan:
    ..
    ..
    ” Sploshing about this sludge are six main coronavirus conspiracy theories: that 5G is, somehow, dangerous; that 5G worsens the effects of coronavirus by weakening your immune system; that 5G outright causes coronavirus-like symptoms; that the coronavirus lockdown is being used as cover to install 5G networks; that Bill Gates had something to do with it; and, finally, that this is all an Illuminati mass-murder plot. None of these conspiracy theories have a shred of truth in them, while some are outright dangerous.”
    ..
    ..
  2. Imagine that you are a Chinese strategist. What course of action would you recommend when you see the level off hatred and venom the world has towards China?
    ..
    ..
    “I think that’s exactly right. For years, people who think seriously about China’s political trajectory have said that the biggest risk in the US-China relationship is that there will come a time when China, because of something like an economic depression, would need to rally people around the flag in a particularly acute, brittle, aggressive way. This tool has been built into Chinese politics: When needed, you can direct your animus, your political energy, against a foreign opponent.”
    ..
    ..
  3. Ananta Nageswaran on much more than just China bashing:
    ..
    ..
    “For two nations to collaborate, both sides have to trust each other and share information. In the case of Covid-19, the People’s Republic of China did not do so. Just to recap, there were three major failures and at least one of them continues to this day:(1) Suppression of the flu outbreak for five to six weeks

    (2) Banning travel from Wuhan only to other parts of China

    (3) Not reporting the true number of infections.

    One does not even have to go into the spin on controlling the infection more efficiently than others; ridiculing other nations and even daring to suggest that the virus originated elsewhere.”
    ..
    ..

  4. “All Chinese businesses, large and small, have struggled since COVID-19 emerged at the beginning of this year, forcing stores, restaurants, and factories to cut down on hours or completely shutter. While the full economic impact of the outbreak on China’s economy is still uncertain, popular business writer Wú Xiǎobō 吴晓波 detailed in a recent report that about 247,000 Chinese companies declared bankruptcy in the first two months of 2020.”
    ..
    ..
    Here we go…(This link is from Mahesh Avasare)
    ..
    ..
  5. China, or the USA? The world?

Links about these changing times

AshishLeave a comment
  1. Agnes Callard on wanting to feel pain:
    ..
    ..
    “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.”
    ..
    ..
  2. Via MR, social distancing and examinations in South Korea. (I’m not a fan)
    ..
    ..
  3. Scott Adams has been calling it correctly for a while. Read more Dilbert!
    ..
    ..
  4. Again via MR, a lovely list.
    ..
    ..
  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.
    ..
    ..
    “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.””

Financing the stimulus #1

AshishLeave a comment

Devesh Kapur and Arvind Subramanian, writing in the Business Standard:

In principle, there are five ways of financing additional expenditures over the next 12 months or so:

  • Reduction in other expenditures (Rs 1-1.5 trillion)
  • Foreign borrowing, from official sources and non-resident Indians (NRIs; Rs 1-1.5 trillion)
  • Public financing by issuing g-secs (including to banks and LIC) (Rs 5 trillion)
  • Monetary financing or “printing money” (Rs 1-1.5 trillion)
  • Mobilizing additional resources via raising taxes and cutting subsidies (Rs 1-1.5 trillion)

The rest of the article explains their rationale behind each point above. Essential reading!

So what does stimulus actually mean?

Ashish2 Comments

A reader sends in this question:

“What do governments actually mean when they say that we’re going to announce a 1 trillion dollar economic stimulus package? Does it mean that they’re going to spend that much money? Or they’re just going to give it to the industries? (if so what does that entail?)”

Keep the following in mind:

  • I’m going to assume that the person who asked the question hasn’t learnt macroeconomics in a formal setting just yet, and will therefore answer the question accordingly
  • I will describe a macroeconomic model using words, and keep it fairly simple
  • I will use examples from earlier crises
  • Let’s get started!

 

  • Think of the Indian economy as a patient, and think of monetary and fiscal policies as medicines that are going to be administered by doctors. The RBI governor is a doctor to this patient, as is the Finance Minister.
  • Any move pertaining to regulation of banks (allowing banks to ask for EMI’s later, reduction of interest rates, forbearance of loans) is medicine administered by the RBI.
  • Any move pertaining to reduction of taxes, introduction of subsidies, amnesty schemes for taxes due in the past, spending on specific projects (construction of roads bridges etc), changes to government employees salaries/pensions, payouts to firms or individuals (literally giving them money) is medicine administered by the finance minister.
  • Under normal circumstances, one doctor is plenty enough. In fact, macroeconomists often end up saying that if fiscal policy is going to provide the medicine, monetary policy should stand ready to counteract any excesses.

    There is a dilemma as to whether these two policies are complementary, or act as substitutes to each other for achieving macroeconomic goals. Policy makers are viewed as interacting as strategic substitutes when one policy maker’s expansionary (contractionary) policies are countered by another policy maker’s contractionary (expansionary) policies. For example: if the fiscal authority raises taxes or cuts spending, then the monetary authority reacts to it by lowering the policy rates and vice versa. If they behave as strategic complements, then an expansionary (contractionary) policy of one authority is met by expansionary (contractionary) policies of the other.

  • But when the patient is as ill as is the case now (and is going to get sicker in the days to come!), well then monetary and fiscal policy are not substitutes: both need to be at play at the same time.
  • For example, in the 2008 recession, American policymakers resorted to both monetary and fiscal policy measures (all countries did, to be clear. I’m just using the American example because its data is easier to find and present)
  • The monetary policymakers announced, among other things, TARP. By the way, astute readers might want to point out that this seems to have been run by the Treasury Department, not the Federal Reserve. True, not arguing with that. It’s complicated! Also, watch this movie.
  • And, among other things, the American government also announced ARRA. The original website is no longer up, but you can see this, or read this.

 

Now, all that being said, we’re going to take a look at fiscal policy alone from here on in. It is not that monetary policy isn’t important (oh dear lord, it is!) but the question is more focused on fiscal policies.

To understand the answer to this question, let’s go back to an earlier post of mine, and quote from it:

Let’s break this tweet by Paul Krugman down.

  • The government has decided that it will give away money. Ergo, fiscal policy.
  • To whom should it give the money? It can give the money to firms, or to households.
  • If it gives the money to households (in India for example, this would have been through Direct Benefits Transfer), might that help people more?
  • Or should it give the money to firms instead?
  • Payroll taxes, which is what is being spoken about in the tweet, is tax paid on behalf of employees to the government, by firms. Here’s Wikipedia:

    Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff.[1] Payroll taxes generally fall into two categories: deductions from an employee’s wages, and taxes paid by the employer based on the employee’s wages. The first kind are taxes that employers are required to withhold from employees’ wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG) and often covering advance payment of income tax, social security contributions, and various insurances (e.g., unemployment and disability). The second kind is a tax that is paid from the employer’s own funds and that is directly related to employing a worker. These can consist of fixed charges or be proportionally linked to an employee’s pay. The charges paid by the employer usually cover the employer’s funding of the social security system, Medicare, and other insurance programs. It is sometimes claimed that the economic burden of the payroll tax falls almost entirely on the worker, regardless of whether the tax is remitted by the employer or the employee, as the employers’ share of payroll taxes is passed on to employees in the form of lower wages that would otherwise be paid.

  • So when there is a payroll tax holiday, firms no longer have to pay these taxes. So who is benefiting here? Firms or the employees of firms? To the extent that the firm no longer has to pay these taxes, it has more money with itself. It can either keep this money and use it for other things, or it can pass on this money to the employees. What will actually happen is tricky to predict, and trickier still to measure!
  • For example, imagine the Indian government says to the Gokhale Institute of Politics and Economics (GIPE) that the Tax Deducted at Source (TDS) from the professors salaries need no longer be given over to the government. (To people who know their macro, I know it is not the same thing. Treat this as an illustrative example)
    • If GIPE was due to pay me a 100 rupees every month, it would deduct 10 (that’s the TDS) and pass it on to the government. That need be done no longer.
    • But the government doesn’t say that this money should be given to the professors instead – GIPE can do with it whatever it wishes.
    • Will (should) GIPE pass on this money to the professors? Or use this to pay other people employed by GIPE? Or just keep it with GIPE (who knows when the college will reopen, hoarding cash may be a good idea). Or… anything else you can think of, really!
  • So “giving” to industries really can mean a variety of things. And it really depends on what industry chooses to do with this money. You could apply conditionalities and say you will only get the money if:
    • It’s passed on to employees
    • You qualify because your firm falls in an important sector (employs a lot of people, is important from a social viewpoint, is critical to combat the virus etc)
    • Anything else you can think of
  • Or the government could spend the money itself! Build roads, bridges, dams, employ thousands more teachers, temporary employees – but all of this is assuming we can control the spread of the virus, of course. Without that, all of this is difficult, if not impossible to achieve.

 

So the correct answer to the question that the reader asks is: all of the above. At this point in time, a good fiscal policy move will be to spend, and give tax benefits to firms and households. This is roll out the big guns territory, no half measures will do.

Homework:

A useful exercise to do: go through the fiscal stimulus announced by our government, and try and pinpoint which parts are directly in the hands of the people, which in the hands of the firms, and which is spending by government on building out infrastructure etc. Here’s one article to help you along.

Homework Part Deux:

Are we Rawlsian?

Homework Part Trois:

Are we Rawlsian enough?

 

Two articles from Bill Gates about Covid19 that are worth reading

AshishLeave a comment

The first is an AMA:

A therapeutic could be available well before a vaccine. Ideally this would reduce the number of people who need intensive care including respirators. The Foundation has organized a Therapeutics Accelerator to look at all the most promising ideas and bring all the capabilities of industry into play. So I am hopeful something will come out of this. It could be an anti-viral or antibodies or something else.

One idea that is being explored is using the blood (plasma) from people who are recovered. This may have antibodies to protect people. If it works it would be the fastest way to protect health care workers and patients who have severe disease.

And speaking of convalescent blood therapy, this is also worth reading:

A simple and medically feasible strategy is available now for treating COVID-19 patients, transfuse blood plasma from recovered patients. The idea is that the antibodies from the recovered patients will help the infected patients. The idea is an old one and has been used before with some success.

And this is the second article by Bill Gates, worth reading in full, and so I will not provide an excerpt. Consistently applied restrictions on movement across the entire country, a clear strategy on how to prioritize testing, and a clear plan on developing a treatment and a vaccine are the key takeaways. Applicable mostly to America, or written with America in mind, but really works across the entire planet. India has applied the first of these as well as she could have.

 

On the Constitutional Validity of the Lockdown

Ashish1 Comment

A reader had written in asking about the constitutional validity of the lockdown, which I attempted to answer in this blog post.

Bharat Vasani and Samiksha Pednekar, writing in the Bloomberg Quint, help us understand just how the lockdown was enforced:

Constitutionally, the state government is empowered to deal with matters related to public order and public health, listed in the state list Entry 1 and 6, respectively. However, Entry 29 of the Concurrent List empowers the central and state governments to legislate on matters pertaining to the prevention of an infectious or contagious disease spreading from one state to another.

There is much more at the link, all worth reading if you are interested in the legal aspects of the lockdown.

Also, and this is important:

Here is the link, and if you ask me, this is worth a bookmark.

Authoritarianism in times of the corona virus

AshishLeave a comment

An anonymous reader muses upon the following question, and asks that I do so as well:

“This pandemic also brings out a clear cut difference between an authoritarian state and democratic state. For Authoritarian states, it is much easier to control the pandemic for they have surveillance over every movement of their citizens, which can’t be in a democratic state
So, this might also lead to states assuming more power and control after the pandemic gets over”

First things first, let me tease out two separate aspects of this question:

  1. Is there a case to be made for a state to be authoritarian while tackling the crisis?
  2. If the answer to the first question is in the affirmative, might it be likely that said authority will want to remain in power after the crisis is over?

Let’s consider the evidence at hand in terms of authoritarian governments being better at tackling the crisis:

Danielle Pletka, writing in The Dispatch, begins and continues her essay arguing against the idea that authoritarian regimes will  do a better job in these times:

Dictatorships make you sick. Not spiritually, not morally (though both may apply), but actually sick. Consider the responses to coronavirus by China and Iran, two authoritarian regimes whose rank mismanagement and compulsion to cover-up have driven the world to a full-blown pandemic.

She also shows this figure:

and quotes from The Economist:

Using data from the International Disaster Database, maintained by researchers at the Catholic University of Louvain in Belgium, we analysed all recorded epidemics since 1960, from an outbreak of smallpox in Nepal in 1963 to more recent threats such as Zika and Ebola. The results were highly dispersed but a distinct trend was apparent: for any given level of income, democracies appear to experience lower mortality rates for epidemic diseases than their non-democratic counterparts (see chart). In authoritarian countries with China’s level of income, for example, we found that past epidemics have killed about six people per 1m population. In democracies with similar incomes, they have killed just four per 1m.

The key takeaway is this:

Authoritarian regimes are much more likely to be concerned with their image, and with keeping bad news down, because that is important to the perpetuation of said regimes. A media clampdown, in fact, is all but guaranteed if you are in an authoritarian regime. And I hope I don’t speak for myself when I say that is the last thing one could want.

We cannot fully test the counterfactual and know whether conversely regime support would have further eroded under restrictive media policy. However, our matching (quasi)-experiment strongly suggests that the authorities failed to reap obvious benefits from this strategy. Indeed, later restrictions on access to and reporting from the epicenter and the arrest of several activists seem to confirm our finding that the benefits of openness and transparency are tenuous at best. For better of worse, media control is key ingredient of authoritarian resilience.

The Atlantic argues that public trust, transparency and collaboration are key at such times:

Yet good public-health practice doesn’t just require control. It also requires transparency, public trust, and collaboration—habits of mind that allow free societies to better respond to pandemics. Democracies’ ability to cope with COVID-19 will soon be tested; after a proliferation of cases in South Korea, Japan, and Italy in recent days, officials are weighing how to respond. But citizens of democratic nations can reasonably expect a higher level of candor and accountability from their governments.

For these reasons, I find myself arguing against the idea that an authoritarian government will necessarily be better.

In addition, it is worth noting that Taiwan and South Korea – to the best of my knowledge the countries that have dealt with the crisis the best – are anything but authoritarian regimes today.

A better way to think about this issue is to ask if a country has the state capacity. Read this article by Gulzar Natarajan, and this review of In the Service of the Republic by me (preferably the entire book) to get a better idea about state capacity.

Now, the second question:

If the answer to the first question is in the affirmative, might it be likely that said authority will want to remain in power after the crisis is over?

Hungary has already succumbed:

On Monday, Hungary’s parliament passed a controversial bill that gave Orban sweeping emergency powers for an indefinite period of time. Parliament is closed, future elections were called off, existing laws can be suspended and the prime minister is now entitled to rule by decree. Opposition lawmakers had tried to set a time limit on the legislation but failed. Orban’s commanding two-thirds parliamentary majority made his new powers a fait accompli.

And this Twitter thread makes for depressing reading:

 

 

Might some leaders, and some citizens (from countries the world over) wish for a more authoritarian regime in the hope that the corona virus is better tackled than at present?

Perhaps.

But it will almost certainly make a bad situation worse, and the regime will almost certainly outlive the crisis.

And so, to me, it is an unreservedly bad idea.

To be clear, I know for a fact that the anonymous reader does not want such a regime: they simply wanted to air the question – and so, dear anonymous reader, thank you for helping make my thinking about this clearer than it was before!

 

Corona Links, 20th March, 2020

AshishLeave a comment

Christopher Balding runs the numbers, and says that the virus is spreading faster than we think, but is not as deadly as we feared.

..

..

Scott Alexander analyzes (and I mean analyzes!) masks.

..

..

Via MR, an obituary for Maurice Hilleman from the Economist in 2005:

..
..

Mr Hilleman’s greatest contribution to a healthy world may have been his work on the safe mass production of vaccines that can be stored ready for use against the pandemics that since antiquity have regularly swept across continents, such as the 1918 flu outbreak that killed more than 20m people. In 1957, when flu swept through Hong Kong, Mr Hilleman identified the virus as a new form to which people had no natural immunity and passed on his findings to vaccine-makers. When the virus reached the United States a few months later 40m doses of vaccine were ready to limit its damage. Mr Hilleman established that the flu virus is constantly mutating, making it difficult to provide a reliable vaccine. Developing a vaccine can be complex. His fellow-workers saw him as an artist as much as a scientist, bringing to his discipline an instinctive feeling of what would work. Following his guidelines, many nations are making large quantities of what they believe will be useful vaccines in the hope of defeating a possible pandemic of bird flu, should the virus spread from Asia.

..

..

An Ask Me Anything (AMA) with Bill Gates about Covid19

A therapeutic could be available well before a vaccine. Ideally this would reduce the number of people who need intensive care including respirators. The Foundation has organized a Therapeutics Accelerator to look at all the most promising ideas and bring all the capabilities of industry into play. So I am hopeful something will come out of this. It could be an anti-viral or antibodies or something else.

One idea that is being explored is using the blood (plasma) from people who are recovered. This may have antibodies to protect people. If it works it would be the fastest way to protect health care workers and patients who have severe disease.

Speaking of blood and plasma, Alex Tabbarok in MR a while ago:

“A simple and medically feasible strategy is available now for treating COVID-19 patients, transfuse blood plasma from recovered patients.” New York, with other states following closely behind, is now trying the idea.

Read the link within the link above for Alex Tabarrok’s original post as well.