The Unassuming Economist

From an article by Pierre-Olivier Gourinchas (UC Berkeley):

“We are facing a joint health and economic crisis of unprecedented proportions in recent
history.

I want to start by acknowledging that containment of the pandemic is the utmost priority.
Figure 1 summarizes how public health experts approach the problem.

In the short run, the capacity of any country’s health system is finite (capacity of Intensive Care Units, number of hospital beds, number of skilled health professionals, ventilators….). This puts an upper bound on the number of patients that can be properly treated, at any given point in time and is represented by the flat line in the Figure.

Unchecked, and given what we know of the transmission rate of the coronavirus, the pandemic would quickly overwhelm any health system, leaving many infected patients with deteriorating pulmonary conditions without any treatment. The fatality rate would surge. The threat is almost beyond comprehension. With a 2% case fatality rate baseline for overwhelmed health systems, and 50% of the world population infected, 1% of the world population -76 million people- would die. This scenario corresponds to the red curve in Figure 1. The part of the curve above the capacity of the health care system faces a sharply higher mortality risk (shaded red area).

Instead, public health policy, at least in all semi-decently run countries, aims to “flatten the
curve” by imposing drastic social distancing measures and promoting health practices to reduce the transmission rate. This ‘flattening of the curve’ would spread the pandemic over time, enabling more people to receive proper health treatment – ultimately lowering the fatality rate. This is the blue curve in Figure 1.”

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From an article by Chye-Ching Huang and Chad Stone (both at Center on Budget and Policy Priorities):

“The COVID-19 pandemic demands an aggressive direct public health response to contain and treat the virus and strengthen health system capacity. Once policymakers enact legislation that House leaders are now negotiating with the Administration, Congress should move quickly to take further bold steps to achieve the dual and related aims of lessening the threat of a major recession and cushioning the financial blow for millions of Americans, including measures to shore up consumer purchasing power by addressing the loss of income that millions of workers likely will face in the period ahead.

With events involving large numbers of people being canceled and people increasingly avoiding travel, hotels, restaurants, and much more — and with the stock market’s rapid descent — recession looks extremely likely. Indeed, some economists have said that we likely are entering into recession now, and that substantial layoffs and business closures lie ahead. This makes it essential that policymakers act rapidly to take strong fiscal measures to lessen the damage, both to millions of Americans and to the overall economy.

The fiscal policy response should be both aggressive and quick-acting. Since even the fastestacting fiscal stimulus can still take some time to work its way into the economy, policymakers should act very swiftly. There is far more danger in doing too little, too late than too much, too soon.

Among the key sets of measures to institute are measures that can get resources into the hands of tens of millions of low and middle-income households, many of whom will be hit financially by the economic fallout of the pandemic. Doing that is one of the most effective and efficient ways to bolster the economy, as these households spend virtually all income they receive. But it’s only one of a number of steps that should be taken.”

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A new IMF working paper by Alexei Kireyev and Andrei Leonidov;

“Inclusive growth, narrowly defined in this paper as growth that helps reduce inequality, is achieved if consumption of the poor increases faster than consumption of the rich. The paper presents a simple accounting framework for a per-percentile consumption diagnostics that could inform redistribution policies. The proposed framework is illustrated in application to Iraq and Tunisia.”

From a paper by Danny Quah:

“Appropriate public policy on inequality hinges critically on understanding inequality’s eects on the living conditions of the poor, on social mobility, and on nationalist populism. This paper describes two empirical regularities. First, an increase in inequality typically does not coincide with immiserisation of the poor and lower middle class. Over 80% of economies where inequality has risen since 2000 have also increased the average incomes of their populations’ bottom 50%. Second, for political upheaval, individual well-being and expectations on its trajectory matter more than inequality. When these causal factors diverge, the role of inequality is, thus, diminished. Public policy needs to counter misinterpretation and misinformation on inequality with rigorous analysis and empirical evidence.”

From Conversable Economist:

“It’s easy enough to explain why China’s economic development has gotten more attention than that of India. China’s growth rate has been faster. China’s effect on international trade has created more a shock for the rest of the global economy. In geopolitical terms, China looks more like a rival. Also, China’s basic story-line of trying to liberalize a centrally-planned economy while keeping a communist government is fairly easy to tell.

But whatever the plausible reasons why China’s economy has gotten more attention than India, it seems clear to me that India’s economic developments have gotten far too little attention. A symposium in the Winter 2020 issue of the Journal of Economic Perspectives offers some insights:

• “Dynamism with Incommensurate Development: The Distinctive Indian Model,” by Rohit Lamba and Arvind Subramanian
• “Why Does the Indian State Both Fail and Succeed?” by Devesh Kapur
• “The Great Indian Demonetization,” by Amartya Lahiri

I’ll also mention an article on “Caste and the Indian Economy,” by Kaivan Munshi, which appears in the December 2019 issue of the Journal of Economic Literature, a sibling journal of the JEP (that, is both are published by the American Economic Association).

Lamba and Subramanian point out that over the 38 years from 1980 (when India started making some pro-business reforms), India is one of only nine countries in world to have averaged an annual growth rate of 4.5%, with no decadal average falling below 2.9% annual growth. (The nine, listed in order of annual growth rates during this time with highest first, are Botswana, Singapore, Korea, Taiwan, Malta, Hong Kong, Thailand, India, and Malaysia.) Of course, one can tweak these cutoffs in various ways, but no matter how you slice it, India’s growth rate over the last four decades has been remarkable. Moreover, India’s population is likely to exceed China’s in the near future.

But India’s path to rapid growth has been notably different than many other countries. India is ethnically fractionalized, especially when the caste system is taken into account.In addition, India path to development has been “precocious,” as Lamba and Subramanian put it, in two ways.’

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