Glutted Economy – 3 (India)

A grave mistake in the imposition of a universal and global lockdown is the impact on the economy. Let us be open, the lockdown was boisterous, more with nationalistic fervor and less on science and an understanding of the principles of disease transmission. Sometimes back, I wrote about the concept of degree of separation and retrospectively, that explains the unsolved and enigmatic transmission in Europe and non-transmission of the virus in Shanghai despite Wuhan being badly impacted.

Learning from the ‘Kelly Criterion’

First unraveled in 1956, The Kelly Criterion helps with applying the IT principles to gambling and investment. In a simple sense, it is about risk management and seize and sizing the opportunities despite the challenging situation. Though the principle cannot be used as is, the underlying fundamentals remain the same.

A grave mistake in the imposition of a universal and global lockdown is the impact on the economy. Let us be open, the lockdown was boisterous, more with nationalistic fervor and less on science and an understanding of the principles of disease transmission. Sometimes back, I wrote about the concept of degree of separation and retrospectively, that explains the unsolved and enigmatic transmission in Europe and non-transmission of the virus in Shanghai despite Wuhan being badly impacted.

Credits: Brookings Institute

It is unwise to blame policymakers or the executioners; understanding the crus of the new problem through a different set of eyes is thus critical. As, Einstein famously said, “We cannot solve our problems with the same thinking we used when we created them.” SARS CoV2 posed a similar challenge. We used the old yardstick to measure the new problem. Relying too much on R nout, to define such a critical national and global policy was such a deficit in our thinking. We have seen, despite lockdowns, we haven’t seen a complete break in the transmission of the cycle. Something is definitely amiss. Not that the virus has learned some tricks better than the natural laws, but the fact that we haven’t understood the complete spectrum, of dodging the virus. The economy is the lifeblood. How can we survive without an ongoing economy?

Cognitive dissonance: Dichotomy or Anomalous Behavior

We see the severe and widening chasm between several key parameters, typically called dichotomous or anomalous behavior. I was talking with my uncle back in India. He stays in our ancestral village where we own agricultural land. I asked him how is Covid-19 in our native village? Is it disrupting the agricultural activities of the Rabi crop cycle? He said, there is no COVID-19 in the village or the surrounding villages, despite our village is just 9 miles from a moderately big city of 1.5 million. On further questioning, he said, those working in the town, keep themselves isolated if not quarantined. If this is a fair data point that I can trust, and if I can extrapolate, then it is a seminal observation that will provide deep insight from such lockdown of the villages? Does that mean, we have to let the village interact with the Town? What would be the right model to break the transmission cycle and keep the economy moving in the countryside? Understand, though integrated, the metropolitan and countryside economy are two different arms that offer support to the national economy. More so, the countryside economy is still at the center stage of the national economy and provides a foundation for the national economy and not vice versa. At least if one arm continues, we are still in good shape. This is a key observation for any agriculturally leaning economy.

Let us visit another example. Many amongst you might have seen the stock market index. I call it sentiment, not a true reflection or an indicator of the business activities. Look at the divergence between the stock market index and the ground realities. This is not just afflicting the US, most economies are in this state. India is no exception. China can be, because everything is well masked and we truly don’t know the true nature of the devastation, despite receiving contradictory cues about the health of the Chinese economy. The business has been almost stalled, businesses across have been hurt because of the tortuous and tumultuous perversion of the virus as it is wading its way through the different strata of society. Is there a connection between the indicators and the health of the economy?

Such divergences create cognitive dissonance on the collective consciousness of the common man and result in defiance, that ultimately takes a toll, on the health as well as the economy of the nation and the global economy. Especially, this comes after the world had just recovered from the massive recession of 2008-09. Since 2000, post dotcom bubble burst, the economy has pretty much been dragged, by demand and has truly not been sprouting spontaneously.

Below excerpts from New York Times, “India’s economy shrank 7.5 percent in the three months that ended in September compared with a year earlier, government figures showed on Friday. The data reflects the deepening of India’s severest recession since at least 1996 when the country first began publishing its gross domestic product numbers. The new figures firmly ensconced India’s position among the world’s worst-performing major economies, despite expansive government spending designed to rescue the thousands of small businesses severely battered by its long, hastily imposed lockdown”.

https://www.financialexpress.com/economy/covid-19-pandemic-may-be-good-news-for-indias-economy-or-may-be-bad-for-china/1954207/

https://economictimes.indiatimes.com/news/international/business/global-economy-could-shrink-by-almost-1-in-2020-due-to-covid-19-pandemic-united-nations/articleshow/74943235.cms

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