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For today’s #ReadInstead Lit Fest session, we had Nobel laureates Abhijit Banerjee and Esther Duflo have a super intriguing conversation about the potential effects of Covid-19 on the world economy. Click here to watch their session.

Their book Good Economics for Hard Times is one of the most relevant books to pick up in this rather hard time. You can now read it for free on our app!

Here are some key takeaways from their discussion:

  • The biggest problem, right now, is the loss of lives. And for the near term, the biggest problem will be getting back to a normal economy, making sure people are able to work, making sure that whatever effort we are making now to save lives doesn’t snowball into such a big economic crisis that we lose other lives or further livelihoods as a consequence of the current crisis.
  • All of us, even doctors, know very little about this virus. We don’t even know the mortality rate of the virus. Anybody who says that they have a cure or a vaccine, at this current moment, are only lying.
  • Although the self-isolation lifestyle that most people are leading currently is unsustainable for, say, 6 months, it is the absolute need of the hour. 
  • As much as Doctors are navigating without much possibility, policy makers are navigating with even less possibility because on top of the uncertainty that has to do with the virus itself there’s also uncertainty that has to do with what people can actually sustainably practice over a period of time.
  • A possible, rather frightening but perhaps more realistic, alternative to the current shutdown period in the US could be to pick a shorter window focussed around the peak, so before and after the peak, and try to make sure that the peak itself isn’t as bad as it has to be. 
  • The mortality rate is also uncertain. We don’t know the exact number of deaths or the exact number of infected people so that of course makes it very difficult to estimate the ratio of the two which is the mortality rate. We don’t know the number of deaths because we don’t count them very systematically.
    For example, in France, anybody who dies in a retirement home is not counted as a covid death because you only count as a covid death if you happen to die in a hospital but there a lot of people dying in the retirement home and never make it to the hospital, so the number of deaths are not properly counted.
    In India, if somebody an elderly person dies in a village without ever being diagnosed, they are classified as deaths because of old age.
  • The mortality rate, as calculated, seems to vary widely from country to country. Countries like Denmark, Sweden etc.  have a mortality rate of point 5%, and meanwhile Italy has a mortality rate of 10% percent. So, everything hinges on what is the reason for the difference between the two.
  • One reason is that the Northern countries and their aggressive testing has helped them with a figure that is rather realistic with regards to their population. The other reason is the poor care in Italy, and there is surely some truth to that. For years, Italy had basically disinvested in the public hospitals so they were absolutely not equipped in the northern region to handle the onslaught of cases they got and are continuously getting.
  • If we don’t know about what’s happening in Europe and the US, we know even less about what might be happening in India, or for that matter, in the other countries.
  • We also don’t have any knowledge of how it reacts to different weather conditions. Some people hoped that warmer weather would decrease the impact of the virus. However, these are just correlations that people have made by comparing markedly different places. People are living in different ways, the density is different, and every other condition is different.
  • There are some preexisting conditions like diabetes, COPD, hypertension, asthma etc, that are extremely prevalent in India, which makes the situation even worse.
  • One must also wonder how it interacts with inhabitants of cities with higher exposures of years of pollution in India. People’s lungs are hurt by this, and even by smoking makes it worse. Many people who live in Delhi basically have got lungs that are very similar to people having smoked a pack of cigarettes a day for most of their lives.
  • In India, most people get most of their care from providers who are not qualified. A lot of them are well meaning and just trying to do their best, but unless they are given a procedure that they must follow in different cases i mean they have absolutely no capacity to handle what’s happening. They do not have ventilators either. There is no database either for most of these providers, so in effect they ‘don’t exist’ and hence it is difficult to engage them in the process.
  • They are capable of being trained and we must use our digital platforms to train them quickly. The most important thing that they can do is report so that we can identify the clusters where it’s going to explode and send ventilators there in advance.
  • We need to create SWAT teams of doctors, nurses with maybe some equipment and move them to potential hotspots and make sure to requisition the nearest private or public hospital. Make sure they are waiting there for any cases. We need them to bring the cases out without debating on whether it is actually viral or pneumonia. The hotspot needs to be treated as such, the SWAT team should get everyone exhibiting symptoms out and put everyone else into quarantine, and do all of this at the hotspot level. That might actually be a management strategy that has some chance of working. We need to get as many reporting channels to open up.
  • The key bottleneck is testing. And India is actually at a huge advantage here because it is a good place to manufacture tonnes of testing sets since it has this huge industry. The property rights issues should be resolved fast. Somebody should just buy it such that anybody can produce them and then we can move on to testing the tests so that we don’t end up with any fake tests. This is the ideal scenario for someone to buy out these property rights, maybe even temporarily. At this point, if there is a company that says that they won’t sell it unless there is enough money involved, it would be so abhorrent that they probably won’t be able to sustain themselves.
  • Economists are used to doing trade-offs and now is a very uncomfortable time to be an economist because the trade off is between lives and livelihoods, in a way that we are just not used to counting. 
  • We need to recognise that no one will be willing to take this forever, for example, people who are starving. In India, even if the government does effectively implement PDS so that people can eat, eating is just not going to be enough for people who have had a better life.
  • Sustainability is a key concern. People will not be willing to stay at home and eat the food given to them through PDS, the system will not be sustainable. 
  • With the mindset that we are fighting a battle over 5-6 months, then the economy might not be too damaged. But the world economy is in free fall, because the rich countries are going to impose a lockdown, they won’t buy anything, and once they stop, the whole world economy will start to shrink. That is a given fact. We are going to have a massive recession.
  • However, this recession, because it is not fundamentally driven by, for example, rich/middle-class people losing their homes and a lot of their income, they might start spending when this is all over and begin to revive the economy. That is less and less likely because essentially incomes are shrinking even for the middle classes, the stock market has collapsed completely. It is unlikely that there will be a consumption boom at the end of this, and therefore, we need policies that keep going for a while, and try to imagine how to feed the demand back into the systems. Will there be a consumption boom? One can’t say if it will be like the end of WW II when people started buying things, or if it will be like the middle of the 2009 crisis when people were still frightened by it and were not buying things. 
  • In India, the government is being too conservative. Right now, they should not be worrying about inflation at all. All of the West has adopted quantitative easing, and India needs to quantitatively ease as well. 
  • Although, the practicality of getting the money to people without them getting infected is a challenge. This is the time to go wild on the Keynesian side and try out everything. There is no reason to be conservative right now.

Stay safe, stay in, and #ReadInstead!

 

 

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