Former chief of the World Bank: How did the new crown economics rise?

category:Finance
 Former chief of the World Bank: How did the new crown economics rise?


Koshke Basu

Under the limitation of human cognition, we always make some artificial boundaries between disciplines to facilitate its analysis. But as the economist Albert Hirschman once pointed out, there are moments when we have a responsibility to cross these boundaries. At present, the novel coronavirus and its economic impact are at such a moment.

The epidemic has cast a shadow over the global economy. So far, the two worst performing economies in the second quarter of 2020 (April June) were Peru and India, whose GDP fell by 30.2% and 23.9% respectively year-on-year. And these record falls are the result of both the epidemic and our response.

Its associated with the death rate of 93 million people in Peru.

Some of the most severe recessions have also been reported in some European countries with high crude mortality rates, such as Spain (647) and the United Kingdom (613). But Indias crude mortality rate is only 60, and although it is among the highest in Asia and Africa, it is still hard to understand how sharp its contraction in the second quarter (more severe than almost all countries in the world) - especially considering that Indias economic growth rate was still among the top three or four in the world five years ago.

How do we understand this anomaly? To understand these problems, we need to recognize the interaction between medicine and human behavior.

Since novel coronavirus is generally considered to be more likely to spread in enclosed space than in open areas, it is safer to deal with people in parks than in restaurants.

We hypothesize novel coronavirus pneumonia is highly infectious, and that the aerosol carrying grandpas virus is likely to blow away in outdoor parks and avoid entering the respiratory tract. But this is not necessarily the case because aerosols are relatively heavy and tend to fall rapidly in still air. On the contrary, a breeze in an open space causes the aerosol to stay in the air longer, thus creating a risk that does not exist indoors.

Having said that, it may be true that confined spaces are more dangerous - not out of our knowledge of coronavirus and aerosol aerodynamics, but because of human behavior.

Novel coronavirus is a possibility that a person can be infected by a nearby infected person in a restaurant or park. The probability is 50%. Suppose that half of the people have been infected, so if you meet anyone in the park or restaurant, the probability of infection with the new coronavirus is 25%.

But if a widely trusted authority declares that the risk of contracting the new coronavirus in restaurants is higher than in parks. If people believe this, it can become a self fulfilling prophecy. Restaurants will be less attractive to risk averses, such as those who refuse to go to places where the risk of infection is higher than 25%. So only those who are more risk tolerant will go to dinner.

Therefore, it is reasonable to assume that restaurant customers are more likely to be infected because they would have taken greater risks. It is assumed that the infection rates of risk tolerant and risk averse individuals are 75% and 25%, respectively, while the probability of transmission of the virus by infected persons is still 50%. If people believe that restaurants are at a higher risk (and only risk allows ninjas to enter restaurants), the probability of infection in restaurants is 37.5%, while that in parks is less than 25%.

Understanding such linkages can create space for policy interventions to contain the virus without damaging the economy. Indias mistake was to impose a veritable blockade because it forced tens of millions of migrant workers, whose livelihoods were banned overnight, from urban centers to migrate across the country, often on foot.

Once we identify the link between medicine and economics, some fascinating policy ideas emerge, as Joshua Weitz of Georgia Tech reported at a recent Stockholm School of economics webinar.

Countries such as India or Peru must design rules of conduct so that the economy can operate at least partially with virus containment measures. There is an idea novel coronavirus pneumonia: with the increase of detection, we can better understand who has been infected with new crown pneumonia and have new crown virus antibody. We can pay these people very high wages to engage in high-risk work, including face to face interaction in hospitals and business areas. By using them as a vehicle between vulnerable populations, we can disrupt the virus transmission chain while maintaining the integrity of the supply chain.

Under normal circumstances, the market will do this on its own: the demand for jobs for people with antibodies will increase and their wages will rise. However, during an epidemic in which many external factors work at the same time, the market often fails to operate smoothly, so the government needs to intervene with wise and well-designed policies so that we can control the virus without suffering from an economic shutdown.

This article is jointly produced by Netease Economic Research Bureau and project syndicate.

Produced by Netease Research Bureau (wechat official number: wyyjj163)

Netease Research Bureau is a financial and professional think tank created by Netease News. It integrates the original multimedia matrix of NetEase Finance and economics, relies on the wisdom of hundreds of top economists at home and abroad, conducts rational and objective analysis and interpretation on hot topics of economics, and creates a leading financial think tank with attitude. Welcome to contribute (contribution email: [email protected] uff09u3002

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