Weekend reading links

1. More corona updates.

Some nifty graphics on the value of early quarantine, infection and mortality rates in US modelled for corona compared to other diseases, modelling in WaPo of the spread of corona under various conditions of quarantine or social distancing, another model in NYT of the spread of the virus under different conditions of response. This models Covid 19 based on the classical infectious disease model.

This and this by Thomas Pueyo are very informative reads.

This Q&A with Bill Gates clarifies on several ongoing studies, including this now famous one by the Imperial College which made the UK Government reverse on herd immunity. Nicholas Kristof has this best case and worse case assessments. This is a good article about India's relatively successful efforts till date. This raises questions on the seasonality or temperature based arguments on Covid 19 - it feels the effects would be modest.

On the disease itself, President Trump's characterisation of it as a Chinese virus has drawn a lot of flak among the liberals. But as this article in the Nikkei Asian Review informs, the Chinese were certainly culpable of not only originating the virus but also spreading it outside, 

The Chinese government locked down Wuhan on Jan. 23, halting all public transportation going in and out of the city. The following day an order was issued suspending group travel within China. But in a blunder that would have far reaching consequences, China did not issue an order suspending group travel to foreign countries until three days later, on Jan. 27. In retrospect, it was a painful mistake.

This is what happened in those critical three days: The weeklong Lunar New Year string of holidays began on Jan. 24, with the outbound traffic peak lasting through Jan. 27. The Chinese government let the massive exodus of group travelers continue despite the public health crisis. No explanation has been given. Furthermore, while suspending group travel, China did nothing to limit individuals traveling overseas.

Groups account for less than half of all Chinese tourists heading abroad. Chinese travelers journeyed to Japan, South Korea, Italy, Spain, France, the U.K., Australia, North America and South America, one planeload after another. This was happening while many restaurants in China were unable to open for business due to the outbreak. It is said that once abroad, many Chinese prolonged their vacations as much as possible to avoid having to return home... 

After the first wave hit China, the outbreak went on a second wave across the world, especially in Europe. The number of deaths from the coronavirus in Italy, home to many Chinese residents, has topped 2,100. The delay in the Chinese government's ban on group travel to foreign countries may have helped to double or possibly triple the number of people infected. In the days before Wuhan was locked down on Jan. 23, as many as 5 million of its 11 million citizens had already left the city, as the mayor and others have testified.

See also this on the Chinese role.

In terms of fiscal policy, Germany seems to have gone the most far,

Mr Olaf Scholz (Finance Minister) said the government would provide unlimited liquidity assistance to German companies hit by the pandemic, which has played havoc with supply chains and led to a spate of production stoppages across the country. The package unveiled on Friday envisages a massive expansion of loans provided by KfW, the state development bank. Companies will also be allowed to defer billions of euros in tax payments. “This is the bazooka, and we will use it to do whatever it takes,” Mr Scholz told reporters in Berlin. He said there was “no upper limit on the amount of loans KfW can issue”. Peter Altmaier, economy minister, said the measures were “unprecedented in Germany’s postwar history”, calling them the “most comprehensive and effective assistance and guarantees there have ever been in a crisis”... The terms of KfW loans would be changed so that the federal government assumes more risk, he said, while loan application procedures would be simplified and speeded up. Access to credit guarantees would also be expanded. “We are making an unlimited pledge, to the smallest businesses, from taxi-drivers, to the creative industries, to really big firms with tens of thousands of workers,” said Mr Altmaier... On Friday the Bundestag also rushed through a law expanding the Kurzarbeit or short-time work scheme, under which companies that put their workers on reduced hours can receive state support.

Neil Irwin puts the coronavirus induced economic damage in the US in perspective,

The Bureau of Economic Analysis tables of personal consumption expenditures include three categories likely to see very sharp declines in the weeks ahead. Americans spent $478 billion on transportation services in 2019 (which includes things like airfare and train fare but not the purchase of personal automobiles). They spent $586 billion on recreation services (think tickets to sports events or gambling losses in a casino). And they spent $1.02 trillion on food services and accommodation (restaurant meals and hotel stays, but not grocery store food brought home). That adds up to $2.1 trillion a year, 14 percent of total consumption spending — which appears likely to dry up for at least a few weeks and maybe longer. We don’t know how much those consumption numbers will drop, and for how long, just that it will be by a lot...

The five sectors experiencing the most direct and immediate collapse in demand or facing government-mandated shutdowns because of coronavirus are air transportation; performing arts and sports; gambling and recreation; hotels and other lodging; and restaurants and bars. Together, they accounted for $574 billion in total employee compensation in 2018, about 10 percent of the total. It was spread among 13.8 million full-time equivalent employees. Those numbers represent the share of the economy at most direct risk. These are the industries and workers where revenue is likely to plummet; they will simply not have enough revenue to fulfill their usual obligations. In danger is the $11 billion a week they normally pay their employees, not to mention all those payments for rent, debt service and property taxes.

As to public policy responses in the US, Greg Mankiw writes,

Fiscal policymakers should focus not on aggregate demand but on social insurance. Financial planners tell people to have six months of living expenses in an emergency fund. Sadly, many people do not. Considering the difficulty of identifying the truly needy and the problems inherent in trying to do so, sending every American a $1000 check asap would be a good start. A payroll tax cut makes little sense in this circumstance, because it does nothing for those who can't work. There are times to worry about the growing government debt. This is not one of them. Externalities abound. Helping people over their current economic difficulties may keep more people at home, reducing the spread of the virus. In other words, there are efficiency as well as equity arguments for social insurance. Monetary policy should focus on maintaining liquidity. The Fed's role in setting interest rates is less important than its role as the lender of last resort. If the Fed thinks that its hands are excessively tied in this regard by Dodd-Frank rules, Congress should untie them quickly.

The Economist has a good article on the social and economic costs of schools closures, now being implemented in over hundred countries, and the challenges with administering online classes. 

This is a very good article by three doctors (HT: Ananth) striking a cautionary note on going overboard with social distancing. Ananth makes an excellent summary,

With elites in India and talking heads making social distancing, isolation, etc., as priorities – borrowed from the West – one is reminded of the upper deck and lower deck in the Titanic. Here, the only difference is that some of the upper deck folks might not be escaping a sinking Titanic but their wanting to escape might sink the Titanic (read ‘the economy’) for the rest to sink with it as they try to escape. This Titanic might, otherwise, be floating.

Good article in FT chronicling how different Asian countries have responded to the virus outbreak.

2. As economic distress mounts, one of the market segments which may be looking forward with anticipation may be distressed asset buyout funds. They are sitting on a record level of dry powder.

However, these PE firms also face the reality of struggling assets.

The most welcome development for the PE firms would be the drops in valuations due to the recession as well as the distress buyout opportunities. However, as this report points out, it may also benefit only the larger and reputed PE firms, thereby widening the divide at the top of the PE charts.

3. Barrons has a good interview of the financial market economist David Rosenberg who warns of recession and deflation. This about the stock market is very apt,

What has made this cycle unique is that the correlation between GDP growth and the direction of the S&P 500 index has been only 7%. Historically it has been 30% to 70%. The stock market is telling you nothing about the economy anymore. Economic fundamentals have never mattered as little for the stock market as has been the case during this 11-year bull market. The stock market is behaving more like a commodity than anything else, in that it's trading on simple supply and demand... With the correlation between the economy and the stock market so low, you're probably better off talking about the stock market with your plumber, your electrician, or a taxi driver. An economist is not going to help you, because the stock market has not been operating on fundamentals...

We've had $4 trillion of quantitative easing perfectly matched with $4 trillion of corporate share buybacks, to the point where the share count of the S&P 500 is down to its lowest point in two decades... We've never before seen such a stock market performance in the face of what has been in the last 11 years the weakest economic expansion of all time. We haven't even had one year of 3% or better real GDP growth in the US since 2005.

4. Fascinating review of Augustine Sedgwick's new book of how coffee has come to dominate the world as the preferred drink drug. The account of how coffee came to dominate the agriculture landscape of El Salvador is fascinating,  

Because growing coffee requires a tremendous amount of labor—for planting, pruning, picking, and processing—a planter’s success depends on finding enough people in the countryside willing to work... Rural Salvadorans, most of whom were Indians called “mozos,” weren’t hungry. Many of them farmed small plots of communally owned land on the volcano, some of the most fertile in the country. This would have to change if El Salvador was to have an export crop. So at the behest of the coffee planters and in the name of “development,” the government launched a program of land privatization, forcing the Indians to either move to more marginal lands or find work on the new coffee plantations... Even the lands newly planted with coffee still offered plenty of free food for the picking. “Veins of nourishment”—in the form of cashews, guavas, papayas, jocotes, figs, dragon fruits, avocados, mangoes, plantains, tomatoes, and beans—“ran through the coffee monoculture, and wherever there was food, however scant, there was freedom, however fleeting, from work,” Sedgewick writes. The planters’ solution to this “problem”—the problem of nature’s bounty—was to eliminate from the landscape any plant that was not coffee, creating an ever more totalitarian monoculture in which nothing else was permitted to grow. When a chance avocado tree did manage to survive in some overlooked corner, the campesino caught tasting its fruit would be accused of theft and beaten if he was lucky, or shot if he was not. Thus was the concept of private property impressed upon the Indians.

5. As the governments fight the epidemic, with limited fiscal space, businesses in countries like India are losing no opportunity to bargain out self-serving and economically harmful concessions in the guise of economic bailout,

Mohandas Pai, former CEO and board member at Infosys, made a pitch for removing the tax on share buybacks. “Investors have lost Rs 35 trillion but bad tax policies are penalising open market buybacks of shares by companies," he said in a tweet... Companies such as Sun Pharma, Emami, Supreme Petrochem, Thomas Cook, and SP Apparels have announced or proposed buybacks recently. This is in the backdrop of a significant correction in stock prices over the past few days. The 20 per cent tax on buybacks introduced in the last year's Budget could dissuade more companies from announcing similar initiatives... The clamour for removing long-term capital gains (LTCG) tax arising on sale of listed equity shares is also back on the agenda of market players.

Ananth has a summary of the demands from western bankers.