Archive for April, 2020

The pandemic has brought the most technologically capable generation in the history of civilization to its knees..

April 30, 2020

Joschka Fischer (Former German Foreign Minister) in this Proj Synd piece:

The COVID-19 pandemic has mercilessly exposed the weaknesses of institutions upon which the overwhelming majority of the world’s people rely. That includes both national governments and the international order. Neither is likely to survive in their current form – nor should they.

Long before clever commentators proclaimed the arrival of “the Anthropocene” – a geological epoch defined by humankind’s command over nature – it was a truism in advanced industrialized economies that the world was eminently under our control. Then along came a microscopic organism, and with it a global shock. Despite all our scientific knowledge and technological capabilities, COVID-19 has the upper hand, at least for the time being.1

Compounding the irony, the world’s most advanced and powerful countries were among the least prepared for the pandemic. Having spent hundreds of billions of dollars on research and development, they have the world’s most powerful technologies and the strongest militaries, but they did not take seriously the risk that the next big threat might come from nature. We now know that this was a mistake of historic proportions. The seemingly implausible has come to pass; the mother of all black swans has landed.


Looking ahead, the traditional nation-state – even one as powerful as the US or China – will not be able to manage an interconnected world of more than eight billion people. The nation-state’s horizon of interests is simply too narrowly defined. The Anthropocene inevitably will place a growing emphasis on humankind’s shared interests, not least the question of its continued survival. The COVID-19 pandemic, which ultimately will require international coordination, is demonstrating that national interests eventually will have to recede into the background. The looming crises wrought by climate change will be much larger, and their consequences irreversible.

While nation-states will remain indispensable in providing good governance and contributing to global efforts, the principle of nationalism will only exacerbate future systemic crises. The pandemic must be followed by a new age of international cooperation and a strengthening of multilateral institutions. This applies to Europe, in particular.

Now more than ever, we need to reclaim the spirit of 1945. We need the twenty-first century’s two superpowers, America and China, to set the example, by burying their rivalry and uniting all of humankind around a collective response to the current crisis, and to those that await us. As COVID-19 has taught us, the old international system can no longer guarantee humankind’s safety and security. We cannot afford to be taught that lesson twice.


The 1918 influenza did not kill the US economy

April 30, 2020

Efraim Benmelech and Carola Frydman in this voxeu piece:

How South Korea stopped COVID-19 early?

April 29, 2020

Myoung-hee Kim, Director of the Center for Health Equity Research at the People’s Health Institute in South Korea saw it all up and close.

In this Proj Synd piece, he narrates his experience:

Government testing and tracing alone did not halt the spread of the coronavirus in South Korea. The country’s civil-society organizations also played a critical role by monitoring the situation closely, helping to hold the authorities accountable, and reaching vulnerable social groups.

Reads similar to Kerala’s approach.

Climate Change in India: Macroeconomic Impact and Policy Options for Mitigating Risks

April 29, 2020

Amidst all the chaos, RBI researchers (Archana Dilip and Sujata Kundu) released this useful piece in RBI Apr-2020 bulletin.

Climatic conditions, comprising the two key indicators – precipitation and temperature, play a crucial role in the overall health of the Indian economy. Over the years, India has witnessed changes in climatic patterns in line with the rest of the world. With increase in population and economic activity, the cumulative level of GHG emissions has increased causing the average temperature to rise over time. Importantly, the rainfall pattern, particularly with respect to the SWM, which provides around 75 per cent of the annual rainfall, has undergone significant changes. Moreover, the occurrence of extreme weather events like floods/unseasonal rainfall, heat waves and cyclones has increased during the past two decades and data reveal that some of the key agricultural States in India have been the most affected by such events.

Two separate indices were constructed at the all-India level – the temperature index and the precipitation index – and their impact on food inflation and economic activity indicators was analysed. The results indicated weather conditions, especially rainfall, to have a strong influence on the food inflation trajectory and the impact was found to last for a couple of months. Within food, vegetables prices are the most vulnerable to rainfall shocks. The results also showed weather conditions to have a significant impact on some of the key indicators of economic activity like PMI, IIP, demand for electricity, trade, tourist arrivals, and tractor and automobile sales. This article also highlighted various policy tools that could help mitigate climate change risks.

Again, full of interesting table, graphs and maps…

John Maynard Keynes’s art portfolio

April 28, 2020

Interesting voxeu podcast:

Keynes amassed an extensive collection of fine art during his lifetime. David Chambers tells Tim Phillips what the financial returns on his investment have been, and the insight this gives us into how to value an art portfolio as an asset.

How to Develop a COVID-19 Vaccine for All

April 28, 2020



RBI should not bypass its MPC

April 28, 2020

New piece by Urjit Patel. He says RBI should not bypass MPC as seems to be the case of late:

By objective measures, the MPC framework until recently worked rather well. It lent transparency and democratic accountability to the process of interest-rate setting; combined with efforts on managing food inflation, it has brought inflation closer to the target; it has contributed to tempering household inflation expectations; and, it has kept borrowing costs in the economy at reasonable levels in spite of the high level of government borrowing and several other distortions. Indeed, rating agencies and multilateral institutions repeatedly mention the MPC and the inflation targeting framework as a landmark structural reform towards sound macroeconomic management.

Yet, since last year, somewhat inexplicably, a series of monetary actions by the RBI have left the MPC’s decision on the policy rate partly redundant, diluted the accountable process of monetary decision-making, and put at stake the sanctity of the framework.

Let me elaborate.

With a stated intention to improve the transmission of monetary policy to households and corporations, the RBI has pumped unprecedented levels of money (close to Rs 7 trillion) into the banking system. It has done so mostly by purchasing government bonds but partly also by purchasing dollars. Given impaired financial sector balance-sheets, transmission to economic growth has been at best muted; liquidity is no silver bullet to durably address financial sector stress. The primary effect of excessive liquidity has, instead, been to monetise the government’s expenditures and keep its borrowing costs low. With its declared aim not being met satisfactorily, the RBI has doubled down on liquidity supply, with the same outcome.

An important casualty has been the MPC framework.

At times, even when the MPC has kept the policy rate unchanged, the RBI has injected yet more liquidity to move medium-term interest rates down; the two actions have been noted to be in direct contradiction of each other. If the objective is to move medium-term rates, why not build consensus within the MPC to cut the policy rate more aggressively and communicate the rationale?

Further, given the enormous liquidity glut, every night banks park liquidity with the RBI at a (reverse repo) rate lower than the policy rate and which is not set by the MPC; nevertheless, this rate used to be changed only as part of the MPC Resolution. Lately, the RBI has moved this rate progressively lower than the policy rate; recently, it has done so outside of the MPC meeting cycle and not as part of the MPC Resolution. There are straightforward tools in liquidity management to ensure that in surplus conditions also, the central bank transacts with banks at the policy rate — technically, by switching from “deficit” to “floor” system of liquidity management. Such a switch is routinely adopted by central banks when they provide excess liquidity; the RBI has chosen not to do so.

The net effect is that market interest rates are being increasingly controlled by the RBI rather than the MPC. Indeed, there is a proposal that the rate at which the RBI absorbs liquidity be still lower, likely divorced from the policy rate set by the MPC. The spirit of the MPC framework enshrined in the RBI Act is being violated. It is unclear how the MPC can be expected to satisfy its legal mandate if what it seeks to achieve via setting of the policy rate is in conflict with, or compromised by, the RBI’s liquidity management.

In my earlier piece, I made similar points..

Impact of AI and Machine Learning on Bank Supervision

April 27, 2020

Good to read something different from central bankers.

James Proudman of Bank of England in this speech discusses how AI and ML are changing bank supervision:

Technology is rapidly changing the world around us. As prudential regulators, we need to understand the impact of that technology. First and foremost, we need to understand its impact on the firms we supervise – and the financial system as a whole – if we are to understand properly risks to financial
stability, and safety and soundness – just as we have always done. There is nothing new in this.

But what is new is the need – and opportunity – to take advantage of the new technology in our own business processes to change the way supervision is done. Providing answers to the questions I have outlined in the preceding remarks will help us to know how far we might, in time, go in introducing technology into supervision, and provide a road map for the future of how prudential supervision could be done.

What is the opportunity for supervisors and supervised firms?

How might this transformation impact the ‘day job’ and skills of supervisors?

The aim is ‘human centred automation’: using technology to free up supervisors’ time to focus on where they can add the highest value – making supervisors’ jobs more productive, more insightful and more rewarding.

To do so is likely to require some change in skills – incorporating more quantitative and analytical skills – without altering the fundamental ability to apply judgement to assess key risks to firms’ safety and soundness and evaluate practical mitigants.

And how might changes like those I have described impact firms’ experience of being supervised? For the better, I believe. Smarter, quicker supervision should generate fewer costly ad hoc data requests from firms; and generate better-informed, more timely and more insightful supervision.


How did WHO become a Chinese Health Organisation?

April 27, 2020

Brahma Chellaney in this Proj Synd piece:

China did not always enjoy deferential treatment from the WHO. When the first twenty-first-century pandemic – severe acute respiratory syndrome (SARS) – emerged from China in 2002, the agency publicly rebuked the Chinese authorities for concealing vital information in what proved to be a costly cover-up.

Why has the WHO changed its tune? The answer is not money: China remains a relatively small contributor to the WHO’s $6 billion budget. The issue is the WHO’s leadership.

Tedros, who became the agency’s first non-physician chief in 2017 with China’s support, was accused of covering up three cholera outbreaks while serving as Ethiopia’s health minister. Nonetheless, few would have imagined that, as WHO chief, the microbiologist and malaria researcher would be complicit in China’s deadly deception.

The WHO’s faltering response to the 2014 Ebola outbreak underscored the imperative for reforms before Tedros was at the helm of the agency. But, rather than overseeing the needed changes, Tedros has allowed political considerations to trump public health.

As the costs of the mismanagement continue to mount, a reckoning is becoming all but inevitable. An online petition calling for Tedros to resign has garnered almost a million signatures. More consequential, President Donald Trump’s administration has suspended the WHO’s US funding, which accounts for 9.2% of its budget.

The world needs the WHO. But if the agency is to spearhead international health policy and respond to disease outbreaks effectively, it must pursue deep reforms aimed at broadening its jurisdiction and authority. That won’t happen unless and until the WHO rebuilds its credibility beginning with new leadership.

Surprised to see WHO DG continue to be in the job…Even more surprised how one individual has undermined years of efforts..

Webinar on COVID-19 Pandemic and Fiscal Federalism in India

April 27, 2020

Gulati Institute of FInance and Taxation is Live streaming a webinar on the topic.  It has few State Finance Ministers participating in the discussion..

Cash rich firms in the time of corona

April 27, 2020

Centre’s WMA update: Highest weekly WMA since 2004!

April 24, 2020

On 20 Apr-2020, RBI revised the Centre’s WMA from 1.2 lakh crore to Rs 2 lakh crore.

Meanwhile till 17-Apr-2020, WMA has been rising every week. On 17-Apr-2020, Centre availed WMA worth Rs 135451 crore, which is highest in WSS since 2004.

This is how WMA looks since Jan-2020:

WMA Limit Actual WMA availed
03-Jan-20 35000 130171
10-Jan-20 35000 60605
17-Jan-20 35000 87735
24-Jan-20 35000 24184
31-Jan-20 35000 73545
07-Feb-20 35000 23324
14-Feb-20 35000 6817
21-Feb-20 35000 0
28-Feb-20 35000 5081
06-Mar-20 35000 32976
13-Mar-20 35000 20553
20-Mar-20 35000 0
27-Mar-20 35000 50477
03-Apr-20 120000 40008
10-Apr-20 120000 110942
17-Apr-20 120000 135451
20-Apr-20 200000

Macroeconomic effects of Covid-19: an early review and comparing to previous pandemics

April 24, 2020

Nice short piece by BIS economists Frederic Boissay and Phurichai Rungcharoenkitkul:

The cost-benefit analysis in health policies certainly goes beyond accounting for economic gains and losses. But even from a narrow economic perspective, the adequate course of action is far from settled. On the one hand, the high output losses from global efforts to contain the Covid-19 pandemic are
unprecedented. On the other hand, it is unclear if the counterfactual scenario would be less costly – an uncontrolled pandemic such as the 1918 Great Influenza resulted in substantial and persistent damages. A better understanding of the transmission channels of the Covid-19 shock to the economy, the interaction between economic decisions and the epidemic, and the policy trade-offs is therefore needed.


Mapping the Appointments and Tenures of Supreme Court Judges

April 24, 2020

Alok Prasanna Kumar of Vidhi Centre for Legal Policy has written a nice paper in EPW:

The debate about the tenure of judges of the Supreme Court of India is fixated somewhat unnecessarily on the retirement age than the actual time spent in the Court. Examining the length of the tenure gives some hints as to the unwritten criteria of appointment and may potentially offer a deeper understanding of the systemic problems faced by the courts.


A minimum of 1,000 days’ tenure (approximately three years) and a maximum of 3,000 days’ tenure (approximately nine years) seem to be the unwritten criteria for selection of judges to the Supreme Court (Chandrachud 2014: 148–63). Given the current pattern, the record of P N Bhagwati as the longest serving judge of India is safe, as is the record of Y V Chandrachud as the longest serving CJI.

Does the reduction in the median expected tenure of judges and CJIs have any implications for the institution? Chandrachud’s book delves into this global debate: Asian nations such as South Korea and Japan have shorter tenures for Supreme Court judges, while European and American courts tend to have much longer tenures (2014: 151–61). However, given the specifics of the Indian Supreme Court, three areas of potential concern present themselves.

One, the massive attrition means that more time and energy is spent by senior judges and the government in filling up posts, failing which the number of vacancies increases, adding to the pressure on the remaining judges. In the absence of long tenures, appointments to the SC are a never-ending process, as in any given year a significant number of Supreme Court judges keep retiring. Some years, nearly a third of the Court retires; in 2013, 10 judges retired and the same number is expected to retire in 2022.

Two, shorter tenures also mean shorter tenures as CJI, meaning that any attempt at long-term institutional change will be hard to oversee to completion and any changes may very well be undone by successors. Given the short tenure, and the fact that the Supreme Court as an institution may have its own peculiarities, judges may take some time to even get acquainted with the Court, but, by the time they do, it is almost time for them to go (Chandrachud 2014: 269).

Three, a short tenure may not create a sense of ownership in other judges to think of the institution and its needs. Having spent the bulk of their careers in their parent high courts, a four- to five-year year term in a different court at the end of their tenures may not be conducive in getting them to invest time and energy in adding to the institution, leaving them to function like cogs in a wheel.

Addressing these concerns may require both an increase in the retirement age of judges (as has been suggested in many fora) (Paul 2018; ANI 2018), but also in coming up with definite criteria for appointment to ensure that judges serve at least a decade in the Supreme Court. This might ensure stability in the functioning of the Court and allow judges to shape the way it works, rather than simply letting inertia do it for them.


Robust money markets: Lessons from the first globalisation

April 24, 2020

Olivier Accominotti, Delio Lucena-Piquero and Stefano Ugolini in this voxeu piece review importance of money markets.

Informational problems on the money market can lead to credit booms and financial panics. This column shows that, during the first globalisation of 1880-1914, uncollateralised international corporate debts were transformed into highly liquid and safe money market instruments through a refined process of information production involving various intermediaries. This suggests that the design of money market instruments is an essential determinant of the liquidity and resilience of money markets.


Patents vs. the Pandemic (Profits vs Humanity?)

April 23, 2020

Nice piece by Joseph Stiglitz. Arjun Jayadev and Achal Prabala.

In responding to the pandemic, the global scientific community has shown a remarkable willingness to share knowledge of potential treatments, coordinate clinical trials, develop new models transparently, and publish findings immediately. In this new climate of cooperation, it is easy to forget that commercial pharmaceutical companies have for decades been privatizing and locking up the knowledge commons by extending control over life-saving drugs through unwarranted, frivolous, or secondary patents, and by lobbying against the approval and production of generics.

With the arrival of COVID-19, it is now painfully obvious that such monopolization comes at the cost of human lives. Monopoly control over the technology used in testing for the virus has hampered the rapid rollout of more testing kits, just as 3M’s 441 patents mentioning “respirator” or “N95” have made it more difficult for new producers to manufacture medical-grade face masks at scale. Worse, multiple patents are in force in most of the world for three of the most promising treatments for COVID-19 – remdesivir, favipiravir, and lopinavir/ritonavir. Already, these patents are preventing competition and threatening both the affordability and the supply of new drugs.

We now have a choice between two futures. In the first scenario, we continue as usual, relying on the big pharmaceutical companies, hoping that some potential treatment for COVID-19 will make it through clinical trials, and that other technologies for detection, testing, and protection will emerge. In this future, patents will give monopoly suppliers control over most of these innovations. The suppliers will set the price high, forcing downstream rationing of care. In the absence of strong public intervention, lives will be lost, particularly in developing countries.

In the second possible future, we would acknowledge that the current system – in which private monopolies profit from knowledge that is largely produced by public institutions – is not fit for purpose. As public-health advocates and scholars have long argued, monopolies kill, by denying access to life-saving medicines that otherwise would have been available under an alternative system – like the one facilitating the yearly production of the flu vaccine.
Time to think of an alternative approach:
For too long, we have bought into the myth that today’s IP regime is necessary. The proven success of GISRS and other applications of “open science” shows that it is not. With the COVID-19 death toll rising, we should question the wisdom and morality of a system that silently condemns millions of human beings to suffering and death every year.
It’s time for a new approach. Academics and policymakers have already come forward with many promising proposals for generating socially useful – rather than merely profitable – pharmaceutical innovation. There has never been a better time to start putting these ideas into practice.

COVID-19 in Italy: An analysis of death registry data

April 23, 2020

Gabriele Ciminelli and Sílvia Garcia-Mandicó in this voxeu piece:

There are still many unknowns about COVID-19. We don’t know its true mortality rate, nor the speed through which it spreads across communities. This lack of evidence complicates the design of appropriate response policies. The case of the UK is illustrative. The government first opted for the bare minimum in terms of mitigation. It then drastically reversed course after micro-simulations by the Imperial College COVID-19 Response Team showed that that strategy could have resulted in hundreds of thousands of deaths (Ferguson et al. 2020).

In a new paper (Ciminelli and Garcia-Mandicó 2020), we source daily death registry data for a sample of 1,161 Italian municipalities in the seven regions most severely hit by COVID-19 (Emilia-Romagna, Liguria, Lombardia, Marche, Piemonte, Toscana, and Veneto) and match them to census data to analyse COVID-19-induced mortality. Overall, the dataset covers a population of almost 15 million inhabitants, roughly 25% of Italy’s total.

The findings suggest that the virus may have killed 0.1% of the local population in just over a month and that its mortality is vastly underreported in official statistics, plausibly by a factor of two. But there is also good news for policymakers – in the Veneto region, which has embraced mass testing, contact tracing, and at-home care provision, COVID-19-induced mortality is significantly lower than in neighbouring Emilia-Romagna and Lombardia.


RBI’s functioning and appointments requires more clarity

April 23, 2020

My new piece in Moneycontrol.

When RBI needs more hands, we have 3 Deputy Governors and one position remains empty. Moreover, one has seen RBI shuffle DG portfolios twice in three months amidst all the chaos. Even the way the appointment/reappointments have been handled does not inspire much confidence. However, as I argue this is not a RBI problem alone. Worldwide central bank appointments and reappointments are mired in absolute secrecy.

Much more in the piece.

Coronavirus from the perspective of 17th century London plague

April 21, 2020

Neil Cummins, Morgan Kelly, Cormac Ó Gráda in this voxeu piece:

Disunited States of America!

April 21, 2020

The virus is upsetting all situations which were once seen as impossible. Only to tell you that Impossible actually  can be broken as I (a)m Possible.

Ana Palacio, former Minister of Foreign Affairs of Spain, this Proj Synd piece says US is headed the European way:

There is no United States of Europe, but rather united blocs of states within Europe. We often hear about the “frugals,” the Visegrád Group, the Nordics, and the Southerners, for example. A similar dynamic was evident during and after the 2008 financial crisis, in the EU’s weak response to Russian aggression in Ukraine, and, devastatingly, during the 2015 migration crisis. And Europe lacks the leadership needed to align these blocs and push everyone in the same direction.

Worse, the US under President Donald Trump is taking a similarly troubling turn. In the absence of strong and effective national leadership, US states – and, more tellingly, groups of states – are going it alone.

On April 13, California, Washington State, and Oregon announced the formation of a “Western States Pact” to coordinate their coronavirus response, while seven northeastern states have established a similar grouping. With the federal government failing to coordinate procurement of medical supplies to combat COVID-19, state and local governments have reportedly been competing to purchase scarce personal protective equipment and ventilators, thus driving up prices. California Governor Gavin Newsom has even taken to referring to his jurisdiction as a “nation-state.”

My intention is not to opine about US federalism or the extent of Trump’s authority (although his recent claim that he wields “total” authority under the US Constitution was so roundly rejected by all sides that he backed down the following day). My point is to express real concern.

After all, it is precisely the dynamism resulting from America’s unique marriage of diversity and cohesiveness that has made the country a model for many Europeans. US Supreme Court Justice Louis Brandeis once famously remarked that any state could serve as a “laboratory” for innovative policy experiments which could later be adopted nationally. And the US has been far more successful than Europe in achieving the delicate balance between empowering individual states and maintaining a sense of national unity.

Today, however, America, too, is falling victim to balkanization, internal competition, out-of-touch and short-sighted leadership, and narrow turf battles. Such warning signs suggest that the US is becoming more like Europe, rather than vice versa.

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