The GDP lies!: I really enjoyed this piece by Justin Wolfers on how our perspective on the economic crisis would change if we could include the value of social distancing into our GDP calculations. He argues that if there were a pill that could treat Covid-19, we’d spend on it and that spending would increase the GDP. But social distancing does not. So the size of the economic crisis we see, as measured by falling GDP, is not an accurate measure of the economic crisis. Now, while an interesting thought experiment, I am not suggesting this as a solution to economy v/s health debate (nor does the article), but I do urge you to read it – to understand more about what the GDP is, what impacts it and why it is a limited measure telling an incomplete story. The article is paywalled so you can also read a Twitter thread summary here.
The Undercover Economist: Read here Tim Harford on why we fail to prepare for disasters. It answers a question many of us may have been asking since the crisis unfolded: why, even with all our advances in science and medicine and policy-making, the world was just not ready for Covid-19? This is a long piece but well worth your time. Lots to chew on about our cognitive biases.
Make up your mind please!: If you are wondering why India’s lockdown and the PM’s 8 pm speeches have been putting you on the edge, here is a an interesting blog on the behavioural economics behind it.
“Where lockdowns are implemented, rather than moving the goalposts little and often, policymakers may benefit from a longer-term view: beginning with more stringent restrictions that ease incrementally over time, adjusting to balancing the health and economic outcomes. In this way, although the ultimate time under lockdown is no different, citizens do not search for lost time but are rather gifted with its gain.”
You can’t spend too much: Read this piece here on how a group of economists have argued that the urgency of a Covid-19 vaccine is so great that it’s almost impossible to overspend its research, development, and manufacturing. Vaccine development and manufacturing is a great example of market failure (private firms won’t solve this crisis on their own) and there is an urgent need for public intervention (government spending) and international cooperation. Follow up with this piece here that highlights the need to look beyond grants, and towards innovative tools to finance vaccine development, and another one here that’s a good primer on the issue.
Should You Trust the IMF? (or the World Bank): Justin Sandefur (Centre for Global Development) and Arvind Subramanian recently put out a working paper on how the IMF and World Bank are being very optimistic. They argue that the estimates of both the IMF and the Bank of Covid-19 related GDP decline in developing countries are “substantially muted” when compared to their assessments of developed countries. Sandefur and Subramanian show that neither domestic nor external economic shocks justify this.
They argue that the reasons behind the optimism bias could be (1) “political”: the lower the forecast, the higher will be the ask of the two institutions - and they are either unwilling, or unable to galvanise resources to meet this; OR (2) “bureaucratic”: growth forecasts are made by departments that deal directly with client country governments and have a greater incentive to internalize the latter’s’ desires and preferences.
The cure may be worse than the disease: Watch this good (albeit long) discussion between Esther Duflo, Joseph Stiglitz and others about the urgent need to stop the pandemic becoming a catastrophe for developing countries. You’ve probably heard this over and over again, but developing countries do need to be at least as afraid of the lockdown as of the pandemic (if not more) so this is important enough to reiterate. Watch it also for a Nobel prize winning economist speaking very accessibly!
Finally, in what may signal the end of my social life, research tells us that loud and talkative people are more likely to transmit the Covid-19 virus than the quiet ones.