Ten interesting things we read this week

When there are no masks available, the best is to make your own mask! Sewers and preppers have lately been flooding social media with designs for DIY masks made out of household materials — some T-shirt fabric, elastic ribbon and a little bit of stitching. Homemade masks for all could make a huge difference. At least two peer-reviewed studies show that while DIY masks are not nearly as effective as commercial masks made for health care workers, they are far better than nothing.
“It’s not as good as a surgical mask, but in a pinch, you could use it,” said Anna Davies, a research facilitator at the University of Cambridge who co-wrote one of the studies on homemade masks. What sort of pinch? As the numbers grow, just about everything in daily life. Say you need to run to the supermarket in an area where there are lots of infections, or you share an apartment with some yahoos who just came back from spring break. “If I were in an area with very high density, like New York, I can see the benefit,” Davies said.

3) Capitalism’s triple crisis [Source: Project Syndicate] 

Covid-19 has rapidly ignited an economic crisis with yet unknown consequences for financial stability, and all of this is playing out against the backdrop of a climate crisis that cannot be addressed by “business as usual.” All these problems need to be solved at the same time that we address the immediate health emergency. Otherwise, we will simply be solving problems in one place while creating new ones elsewhere like a repeat of 2008 financial crisis. The Covid-19 crisis is exposing still more flaws in our economic structures, not least the increasing precarity of work, owing to the rise of the gig economy and a decades-long deterioration of workers’ bargaining power. It is the self-employed who will find it more difficult to survive in such times.

In the United States, total household debt just before the current crisis was $14.15 trillion, which is $1.5 trillion higher than it was in 2008 (in nominal terms). And lest we forget, it was high private debt that caused the global financial crisis. We can use the current state of emergency to start building a more inclusive and sustainable economy. The point is not to delay or block government support, but to structure it properly. We must avoid the mistakes of the post-2008 era, when bailouts allowed corporations to reap even higher profits once the crisis was over, but failed to lay the foundation for a robust and inclusive recovery.

You need to come out with measures that will help even after the crisis is over. When it comes to households, governments should look beyond loans to the possibility of debt relief, especially given current high levels of private debt. It is also time to rethink public-private partnerships. Too often, these arrangements are less symbiotic than parasitic. The effort to develop a Covid-19 vaccine could become yet another one-way relationship in which corporations reap massive profits by selling back to the public a product that was born of taxpayer-funded research. We desperately need entrepreneurial states that will invest more in innovation. But as this crisis reminds us, we also need states that know how to negotiate, so that the benefits of public investment return to the public.

4) Four ways that coronavirus has changed capital markets [Source: Financial Times]

Covid-19 hasn’t spared anyone. Capital markets are the first to react to such disruptions. Here are 4 ways how the capital markets have been affected by the ongoing crisis. A world more reliant on fiscal rather than monetary policy: Should mean higher bond yields, steeper bond curves and higher market risk premia, all else being equal. All three trends were on display in the past month. The aim of monetary policy in the past decade was to lower bond yields, ease financial conditions and move investors up the risk curve. Fiscal policy targets the real economy more directly and is funded through large borrowing.

Policy co-ordination along the lines of modern monetary theory: Debt mountains or giant budget deficits do not matter for sovereigns borrowing in their own currencies. Huge fiscal deficits will be funded at least in part by central bank purchases. Relative deterioration in government balances in western Europe and the US: It is early days, but a current feature of the Covid-19 crisis is that it has affected western Europe and the US much more. Emerging market assets have been largely untouchable in recent weeks, but this balance sheet trend should eventually matter, and will be a net positive for emerging markets.

Policymakers’ explicit attempts to limit the impact of new policies on banks: Banks need to be a central part of the solution, but will be hit hard by the crisis. Knowing this, European policymakers — and the European Central Bank especially — have shown strong reluctance to reduce the policy rate further. Other bank-friendly measures include regulatory capital relief, funding for lending schemes at attractive levels and cancellation of bank stress tests. Every little thing helps. In this new landscape, monetary policy will play a supporting role: helping to fund the inevitable surge in fiscal deficit-driven government bond supply in the months ahead.

5) Technology startups are headed for a fall [Source: The Economist]

There was a time when tech start-ups, no matter how small, used to have sky-high valuations. But now, things have changed. Lime, a scooter-rental firm valued at $2.4bn, has halted its services in Europe and America, where most citizens have been told to stay off the streets. DoorDash, a $13bn food-delivery company, has suddenly found itself useful to a self-isolating society as a whole, not just couch potatoes; deliveries have surged. On the surface, DoorDash stands to benefit from the pandemic, and Lime to suffer. For the past decade huge sums from sovereign-wealth funds, mutual funds and hedge funds poured, directly or via VC firms, into startups that were unicorns or, their backers believed, might be one soon.

The unicorn reality check was under way before America declared a national state of emergency over Covid-19 on March 13th. Venture capitalists reckoned that a third of American unicorns would thrive, a third would disappoint and a third would be taken over or die. The euphoria began to ebb last year. First, in May, Uber’s blockbuster IPO priced at a 30% discount to what the company’s investment bankers had promised. Today its market capitalisation is $43bn, more than a third below what it was on its first day of trading. Other debacles followed. Brandless, an online retailer that sold unbranded products for a fixed $3, folded in February. Zume, a firm selling robot-made pizzas, shut its main business in January.

The coronavirus shock comes at a time when most tech unicorns were already exhibiting underlying health problems. As a painful recession looms, preserving jobs—including not just those of well-paid coders but of the much larger army of gig-economy workers—may override antitrust concerns. Even if some unicorns are spared—through mergers, acquisitions or just good fortune—the coronavirus is certain to ravage the herd. It will probably put the term itself, which has come to denote excess and broken promises, out to pasture. A new word may be needed, says Mr. Dara Khosrowshahi, boss of Uber, to describe what is left.

6) Coronavirus case counts are meaningless [Source: fivethirthyeight.com]   

Is the number of Covid-19 positive cases that we see on news channels correct? Or is there more? In many parts of the world today, health authorities are still trying to triage the situation with a limited number of tests available. Their goal in testing is often to allocate scarce medical care to the patients who most need it — rather than to create a comprehensive dataset for epidemiologists and statisticians to study. But if you’re not accounting for testing patterns, it can throw your conclusions entirely out of whack. You don’t just run the risk of being a little bit wrong: Your analysis could be off by an order of magnitude.

The author of this piece works through four examples of how various testing strategies can skew case counts, in the hopes of giving you a more hands-on sense for how the mechanics behind the numbers work. The four scenarios were: 1) Robust testing; 2) Sudden, one-time increase in testing; 3) High test floor, low test ceiling; and 4) A testing decrease. The goal was to illustrate, given relatively simple assumptions, how reported case counts for a disease can differ from the actual number of infections.

He concluded that the number of reported Covid-19 cases is not a very useful indicator of anything unless you also know something about how tests are being conducted. In fact, in some cases, places with lower nominal case counts may actually be worse off. In general, a high number of tests is associated with a more robust medical infrastructure and a more adept government response to the coronavirus. The countries that are doing a lot of testing also tend to have low fatality rates — not just low case fatality rates (how many people die as a fraction of known cases) but also lower rates of death as a share of the overall population.

7) How to live in the face of fear: Lessons from a Cancer survivor [Source: The New York Times]

Covid-19 has made everyone scared and all are worried about their future. Everyone is thinking will I be the next, because the virus can enter our body without us even knowing it. Everyone is having terrifying thoughts about the future, about loss and about mortality. And that’s a familiar terrain for Kate Bowler, a historian at Duke Divinity School. In 2015, when she was 35 and a new mother, Dr. Bowler learned she had incurable cancer, and uncertainty became a way of life. She explores what it is to be human in dark times in her best-selling memoir, “Everything Happens for a Reason: And Other Lies I’ve Loved”.

In this interview, Dr. Bowler talks about why forcing yourself to stay positive is not always best, the human longing to love and be loved and why living in constant fear makes it important to have two different routines: one for the day and one for the night. When asked how she feels about the ongoing crisis, she says, “It feels so familiar. That feeling of waking up in the morning and for a moment you don’t believe it’s real — I remember that feeling of not remembering I had cancer, and then remembering all over again, every day. I think so many people are waking up each day and forgetting that they are scared that they can’t hold their mom’s hand in the residential care facility they’re at.”

She feels the idea that we’re all supposed to be positive all the time has become an American obsession. It gives us momentum and purpose to feel like the best is yet to come. But the problem is when it becomes a kind of poison, in which it expects that people who are suffering are somehow always supposed to find the silver lining or not speak realistically about their circumstances. She further throws light on other survival tips for living in fear, how it is ok to be limited and finding meaning amid all the terrible.

8) How the gig economy hurts the small guy [Source: Livemint]

People ditched traditional jobs in order to work for companies like Uber, Ola, Airbnb and Oyo. People opted for these as they supposedly had greater control of their time, money and lives. Asset-light platforms would provide technological, marketing and, sometimes, logistical support, while workers and suppliers would become freelancers on these platforms, providing on-demand services to customers. But, with the current crisis, things have become grim. With India in the midst of a 21-day lockdown, demand has collapsed at transportation and hospitality marketplaces. And questions are beginning to be asked about the differential treatment that is being meted out to the full-time employees at these internet startups and their service providers.

While one category of workers were quickly moved to a work-from-home arrangement and were reassured about salaries in the months ahead, the driver partners, the delivery executives and the hotel-room suppliers stare at crippling losses. In the internet business, among the worst affected by the coronavirus outbreak and the ensuing lockdown that began on 25 March are hotel operators, Airbnb hosts, cab drivers of Ola and Uber, and the thousands of sellers and delivery workers who work with online retailers. Cab drivers are especially vulnerable because most of them have taken loans to buy vehicles.

Even after the lockdown ends, demand is unlikely to return to pre-coronavirus levels any time soon. There are companies like Airbnb, Zomato, and Ola who have taken measures to provide some relief to the workers on their platforms. But for their delivery workers, service partners and drivers, these steps come across as grossly inadequate in light of the size of the crisis facing them. As far as drivers and blue-collar workers are concerned, the crisis makes it clear that it’s much safer and more lucrative to seek employment in traditional forms rather than the you’re-on-your-own version enforced on them by the gig economy companies.  

9) The U.S. economy is uniquely vulnerable to the Coronavirus [Source: Foreign Affairs]

Everybody thinks that the US is well-equipped to take on the on-going crisis. But, what is the best way to respond to the Coronavirus? Currently, there are two competing epidemiological models.

1) From Imperial College London: It predicted that if left unchecked, Covid-19, the disease caused by the virus, could kill over half a million people in the United Kingdom and 2.2 million in the United States.

2) From Oxford University: The virus had already infected as much as 40% of the British population but that most had shown mild or no symptoms. According to this model, Covid-19 would still cause many deaths, and it would still severely stress health-care systems. But because it predicted fewer critical cases to come, the Oxford model suggested that an indefinite lockdown might not be necessary.

For the United States, the question of how best to shield the economy from the effects of the pandemic is more complicated. In growth model terms, the United States is a massive exporter of primary products, aircraft, weapons, oil, services, software, e-commerce, and finance—simply because its economy represents a quarter of global GDP. But most of what drives the U.S. economy is still domestic consumption, and while that isn’t as credit-driven or debt dependent as some analysts have claimed—the United States lies in the middle of the pack of Organization for Economic Cooperation and Development countries in terms of the ratio of household debt to household income—the role that private-sector debt plays in the U.S. economy makes it difficult to respond to a crisis like this one. This reality is thrown into sharp relief when contrasting the U.S. growth model with those of other countries.

The U.S. growth model is built in such a way that it simply cannot shut down without inflicting catastrophic damage on itself. Because the model is designed to adjust through reduced wages and employment rather than increased welfare outlays, political leaders can contemplate temporary unemployment benefits for a banking-induced shock, but not semipermanent cash transfers—which is what the British are doing—and a near-total collapse in asset values. The United States, with its 330 million people, 270 million handguns, 80 million hourly workers with no statutory sick pay, and 28 million medically uninsured, faces challenges quite unlike those in other countries.

10) Five ‘Ps’ that will help determine if the stock market has bottomed out [Source: Livemint]

Investors have fled emerging markets in record numbers since the outbreak of the coronavirus, even though central banks and governments have piled on stimulus to counter the impact of the deadly pathogen. In order to know whether the markets have bottomed, the following five ‘Ps’ are crucial.

1) Pandemic: Markets have shown some signs of recovery now the rate of change in the global caseload has begun to ease. Seven-day growth slowed to about 107% as of March 31, from 123% on March 27, according to data from Johns Hopkins University. One caveat is that these numbers depend on the availability of testing kits and how infections are defined, while a number of epidemiologists have also suggested that once lockdowns are relaxed, the world will be at risk of rates of infection rising again.

2) Production: Markets appear to believe that global production has hit its nadir. During the global financial crisis, the MSCI World Index rebounded from its low even though the world economy was still contracting rapidly. The markets troughed when the JPMorgan Global PMI reading was around 36.8 on March 9, 2009. The key cause for optimism was that the rate of deterioration had abated. In the current situation, it does appear as if Chinese production is recovering more rapidly than economists forecast.

3) Policies: Policy makers in Group-of-10 nations have already reacted on a greater scale and more rapidly than they did during the global financial crisis. But for emerging markets especially, further policy convergence from the People’s Bank of China may be needed to stabilize the situation.

4) Positioning: The surge in foreign outflows from emerging Asian markets last month was unprecedented. The combined net foreign withdrawal from the stock markets of India, Indonesia, Malaysia, the Philippines, South Korea and Thailand climbed to a record. At the same time, the sales only amount to around 44% of the cumulative total reached during the period from August 2007 through February 2009, according to data compiled by Bloomberg. 5) Prices: Stocks haven’t suffered the scale of declines they have seen in past recessions. The S&P 500 Index will fall to 2,000 but then rally to end the year around 3,000, according to David Kostin, Goldman Sachs Group Inc.’s chief U.S. equity strategist in New York. A more simplistic benchmarking of the decline in the index against the drawdowns that took place after 2000 and 2008 makes it appear that further downside is still possible.