Covid19 – potential exit strategy

Disclaimer:

Please note that things are changing very fast on Corona virus. Scientists are working hard to find a vaccine. Hence, the content of this blog could become out of date very soon. This blog is for information purpose only and does not constitute as medical advise. Always follow the advise from your doctor and relevant medical authority in your country.

How can lock down be lifted?

The key question for most part of the world is now how to end the lock down without a massive risk of life of citizens.

As of this writing, there is no known cure for Covid19.

If nothing is done, entire population will eventually catch the virus and around 1% of them will die.

If we could confirm who are immune to the virus then we can easily identify the vulnerable and ask everyone else to carry on with life as usual. However, the problem is, other than identifying aged people (e.g. those with 65 years and above) and those with existing health conditions (e.g. obesity, cardiac issues, diabetes etc.) there is no finer way to identify the risk group. Even them, some young and healthy people are randomly affected in a serious manner, even resulting to death!

Millions of people around the world have got infected with Covid19. Some have suffered no or mild symptoms only. However, due to very little testing carried out, majority of people who think they have got Covid19 and recovered, have no way to confirm that that is actually the case!

The crux of the problem here is how to identify people who got Covid19, then recovered and thus assumed immune to it. These people can then come out of lock down and start leading a pre-Covid19 life.

So how do you confirm this? This is where the difficulty lies.

Presence of the virus can be confirmed in 2 ways – swab test and antibody test.

The swab test shows if the virus is present at the point in time (when patient is tested).

The antibody test can detect patients who suffered and recovered but up to a certain period of time. The big unknowns are [1] how long antibody will remain in the body [2] whether the antibody is due to Covid19 only or for some other viruses.

Although there are cases for person being affected again after recovery, but in this writing we are assuming subsequent infection would not be fatal .

Now if we take a person A, who got infected by Covid19 but suffered only mild symptoms and recovered after 21 days, then the question remains how to prove it? He can be tested for antibody and if IgG antibody is found, a reasonable conclusion can be drawn that person A is immune from Covid19 going forward.

But this approach has a major hurdle. Firstly, antibody test is not yet available to everyone. Secondly, by the time antibody test is available to everyone, the concerned person may have lost the antibody from his blood stream. In this case, it is back to square one!

This person is now in same position like one who has never caught Covid19 before (say person B).

To the public, person A is having same risk of person B. But in reality person A is possibly immune and carry far less risk than person B. But there is no way to prove it.

For person B, there is a risk that he could suffer mild symptom or sever symptom and could even die.

If the immunity can be proved beyond doubt, then it is a valid exit strategy.

Without proper tests, we have to adopt any of following situations.

[1] Lives saved but economy damaged

Continue lock down indefinitely. If everyone remains isolated, no one will get infected, hence no one is contagious and no new person gets infected. But this will destroy the economy and livelihood of billions of people. This is not acceptable solution to public – even though this is actually best solution for saving maximum amount of lives. After sometime public may revolt and might just start their normal life anyway.

[2] Economy survives but high number of casualties

Allow people to carry on as usual and achieve so called herd immunity. This means allowing everyone to catch the virus and accept 1% death of overall population. Effectively a situation a very large number of random people will die. This scenario does not try to prevent infection, rather relies entirely on individual’s body immunity to tackle the virus.

What is the future then? Well, only time will tell.

Thanks to Dr Somnath Mukherjee and Dr Shyam Das for their inputs.

Advertisement

How life changes pre and post pandemic

How the world is changing post Corona virus pandemic?

The table below and the attached PDF presentation explains the life before and after the Covid19 pandemic.

View this document on Scribd

Post Pandemic World

Parameter	Pre pandemic	Post pandemic
Way of working	Work from office	Work from home
Learning, teaching	From school, university etc.	Online learning
Meetings	Face to face	Online
Seeing medics	Doctor examines patient physically	Doctor examines patient over video conference for basic diagnosis and prescription
Shopping	Physically in store (especially for grocery)	Online grocery shopping
Commuting	Car, public transport – more fuel use	Not necessary due to home working – less fuel use
Social visits	More	Less
Events – concert, sports, movies	Mostly physical visits	Less physical visits or watch online only
Perception of prestigious professions	Celebrities, politicians, high paid jobs	Key workers e.g. medics, delivery drivers, supermarket workers etc.
Healthcare	Less focus on national healthcare	More focus on national healthcare
Healthcare – personal	Gym	Gym at home, walking, running, cycling
Political beliefs	Predominantly capitalistic	Shifting towards socialism
Personal freedom	More	Less – movements could be legally tracked

This blog was written during lock down period and reflected what happened during the lock down period, but some of the trends mentioned below likely to continue once lock down is lifted.

 

Post pandemic economic recovery

1. The Problem – micro view

1.1. Theory

Let us explain very basic economic theory first. Below is Cost Volume Profit graph.

Figure 1

Every business has cost, with 2 main components – fixed cost and variable cost. Fixed cost includes things like cost of machinery, premises, staff salary etc. Crucially, it also includes interest payment on loan – assuming all businesses have some debt which is loan taken from bank and/or investors to raise the capital. The variable cost is often proportional to revenue or sales.

Here we shall use the term sales and revenue interchangeably, to denote earning of the business.

If a business procures more number of product units, higher quantity raw material needs to be purchased – so this is how it linked with revenue. So this is the variable part of the cost.

The earning is shown by blue line. The expense is shown by red line the above graph.

We know the simple formula, Profit = Revenue – Cost

If profit is negative, then it becomes loss. This is same as saying, Savings = Income – Expense.

A business needs to pay tax on profit – so tax is also a cost. But for simplicity, we leave tax out of our discussion.

The point, where revenue becomes more than cost, is known as breakeven point. Until the business reaches this point, it is loss making. Once business is way past breakeven point on the right, it is profitable. In fact, all business tries to move as much right as possible for sustained growth and profit.

A business can borrow more (cost goes up as interest payment) to increase revenue (more sales), resulting in more profit. Now, how much a business needs to borrow in order to increase profit is a complex calculation which depends on type of industry, business strategy, market condition and many other factors.

At normal time, all businesses operate in an equilibrium. Business pays interest to bank, buys the raw materials from suppliers, manufacturers product in factory, pays salary to employees and sells products to customers who pay the price and so on. For a service based business, the theory is still the same. Here, instead of producing items in factory, the company sells intellectual expertise of their employees.

1.2. Recession

Let us see what happens in a recession. The pandemic has led to people being fearful and cities have been locked down to encourage social distancing. As a consequence, all sales have gone down (except very few like supermarket shopping where people are stockpiling for the Armageddon).

Due to very low (or nothing at all) sales, the revenue curve will flat out. However, the fixed cost component will remain mostly the same. This means, for a long time, the business will not make any profit.

Figure 2

This is shown in above figure. Note that we are now showing time on horizontal axis.

While cost of the business also falls due to less sales, the revenue falls rapidly as people are scared away from purchasing. This will drive down the businesses into further loss.

How quickly a business comes to grinding halt, again depends on industry, geography, mitigation factors etc. For example, airline industry, which has a high fixed cost (as the cost of flying a plane with one passenger vs 300 passengers almost the same) are already near bankruptcy.

For a person, disaster does not strike as soon as he or she loses job (i.e. salary stops coming). This is because the person can still sail thru troubled times using own savings. Here savings is the money in bank saved during good time.

However, a person becomes bankrupt when his/her savings become zero and cannot pay for anything anymore.

Similarly, a business does not go bust just because it is making loss. A lot of businesses, especially those like start-ups, make losses during initial years. However, they carry on as long as investors pump out money to them. This is cash flow.

A business goes bust only when it runs out of cash.

In normal time, a business can increase their cash reserve by adding the profit to their cash reserve.  Every business has a finite amount of cash reserve. The amount again depends on industry, strategy, demand etc.

Also as the demand falls during recession, the supplies must also go down as more competitors now try to get a slice of same shrinking market. This further drives many businesses into downward spiral of lower sales thus more losses.

As businesses go into losses, they start laying off employees, which collectively reduces further demand on the market, leading to panic and mayhem.

2. The cause – macro view

2.1. Pre-pandemic

Here we shall take a step back and discuss how the world economy (mostly capitalism or market driven economic model) works.

Our economy is underpinned by the banks and the government. The depositors (i.e. common people) deposit money in the bank. Let us say a bank collected £1000 from depositors. The bank will pay a tiny interest to the savers. Bank will earn money by lending money to borrowers (for starting business, buying house etc.) at a higher interest. The different between interest earned and interest paid (from bank’s point of view) is the profit for the bank.

But the twist is fractional reserve. This is adopted almost universally worldwide. Under this model, if a bank has only £1000 deposit it can create more money out of thin air, while lending. So basically the banks are allowed to lend more than the actual money they have. In our example, a bank can lend £10000 to borrowers! This means, the bank has created 9 times more money (1000 + 9000) than the real deposit amount. This fictitious money is then lent to people and businesses. This fictitious money is the debt.

Our economy is debt driven economy.

In olden days, when gold was used as currency, fictitious money was not possible. Once the banks introduced fiat currency, by abandoning gold standard, banks got the freedom of create fictional money and debt.

The fiat currency is what our bank notes are. These have no intrinsic value (unlike gold etc.) but people use it as if it has purchasing power purely driven by trust as guaranteed by the government.

Creating this fictional money is not necessarily evil per se. Had the bank not created fictional money, it could have lent only £1000 (in our example) to people who wanted to buy houses or start businesses. However, by creating fictional money of £9000 more, bank is able to lend to more people, enabling more people to buy their dream houses or fund their own businesses. In theory, it actually elevates more people into better life. When we say better life, this is by more consumption of goods and services. With more transactions, nation’s GDP goes up.

As long as continuous growth is happening, everyone is happy in this model. This is why all politicians and big businesses love growth. It makes everyone feel good.

Thus, in a debt driven economy, more money is analogous to having better life.

2.2. Post pandemic

Things become dramatically different during and after pandemic!

As everyone borrows more and more, the debt burden increases. Remember, all debts are to be paid off someday! In normal time, people do not think much for paying of debt. The house price mostly goes up. So even if house owners default on mortgage, the bank can repossess the house and can sell at a higher value than outstanding mortgage amount. So even if individual business or people are bankrupt, the country level economy (known as macro economy) pulls thru as usual.

During pandemic time, the revenue of most businesses fall so low, that most business cannot make profit at all. The business will also default on their loan payments and soon become bankrupt. With millions of people becoming jobless it will be a national calamity.

The government, as in any recession, usually intervenes. This is done by financial stimulus like printing money (known as Quantitative Easing) and reduces interest rate to encourage business to borrow money and sail thru the cash flow issue.

The important part is, government will give further loans to businesses. These loans are meant to be paid back when situation improves.

This will lead to a situation depicted in the next graph.

Figure 3

The key message here is that with even more debt (on top of existing debt) most businesses will not be able to see profit for a very long time. So they are going to see cash flow problem again after some time, requiring another bail out. This will lead to even more debt – which will increase the fixed cost even more as interest payment will also go up and this cycle will continue for foreseeable future.

No business can run in loss forever (only exception is some nationalized public services). Unless the shareholders/investors see some return on their investment, they will not be interested in paying money to the business.

This is a deflationary economy, dreaded by all. Whereas deflation did happen in the past, this time, clubbed with the pandemic (i.e. loss of lives) the blow will be huge.

The philosophy of the capitalism is survival of the fittest. In capitalism, people with more money are considered better off. People with more money can have a better life. But a pandemic, affects rich and poor equally. Hence, if money does not improve people’s lives, people may not be willing to increase their earning more. Thus the fabrics of run after money philosophy fails!

Although, even during pandemic, the rich and powerful in somewhat privileged as they are able to get tested for COVID19 whereas normal people cannot unless they are serious ill and rich people can still buy essentials at an inflated price from black marketeers.

3. The solution

I admit that I do not know what the solution is. If I were that intelligent, I would have received Nobel prize by now. But still, we can make some attempt to find a solution that may work.

One option could be writing all the debt off for everyone. This means everyone can start with a clean slate. This will help majority of the people. But this will not go very well with the banks and the government. Why?

Because in debt driven economy, the control of economy in the hands of privileged few, namely the banks and the government. If debts are written off, their own flow of income will stop. They will also not be able to control the population saying work hard else you will die starving.

From historical times, society has mostly been unequal rather than equal. Even in Ancient Egypt, there were rich and almighty pharaohs and slaves who served the riches. As the folktales say, when Moses tried to free the slaves, the pharaoh refused. Among many other tricks, the God of slaves unleashed a plague which affected pharaohs’ family only and spared the slaves’ families.

The analogy here is illustrating that rich and powerful always controlled the masses – in olden days with fear of death and in modern days’ fear of (lack of) money!

Usually in recession the government often bails out (i.e. provide cash to big businesses as loan) but this seldom goes to employees. Big corporations claim these saves the jobs, but alternatively, government can help everyone by giving them money directly in the form of Universal Basic Income (also known as Unconditional Basic Income i.e. not means tested). The unconditional basic income is claimed to be easier to manage than means tested benefit system. If this scheme is adopted, the big corporations can simply fail if they cannot run their business efficiently.

The other path could be gift economy. It mode of exchange where valuables are not traded or sold, but rather given without an explicit agreement for immediate or future rewards. This is like catching fish to eat but not catching too much to make a big profit. This model already works in Open Source Software where people write software for others for free and users can donate if they wish. Couch Surfing as another such example where people stay in others’ homes during holidays without paying anything.

Designing an alternate economy model is extremely complex and beyond the scope of this article. My aim here is to drive the thought process of everyone so that collectively we may invent something more egalitarian than greed driven economy.

 

Why Barclays bank was fined £290 million?

In June 2012, British bank Barclays was fined £290 million for trying to manipulate LIBOR  rates.

What does that mean?

Just like normal people borrow money from banks; banks themselves borrow money from other banks. They do this for various reasons but often due to cover cash flow in short duration. LIBOR is an indicator or how much one bank has to pay to another bank for borrowing money. In other words, it is a rate at which one bank pays interest to other banks. Just like a customer with good credit score gets a lower interest (as he is considered lower risk), a bank with good reputation gets lower LIBOR rate. How the banks’ credit scores are determined? It is calculated from bank’s financial numbers like how much it is actually costing them to borrow etc.

Barclays actually lied how much it is costing them to borrow. This, in turn, makes them appear lower risk to other banks compared to what might have happened if they quoted their true financial numbers. Thus, they lied to get a lower interest rate from other banks. So, if they had disclosed their true financial data, other banks could have charged more interest to lend them money. Thus investors who lent money to Barclays lost money in interest.

Just like a country’s share index is measured upon how some big businesses are doing, a country’s LIBOR rate is also a measure of how healthy its overall banking sector is. If one bank reports wrong financial figures for its own health, this will affect the overall LIBOR rate. Many financial (both business and retail) interest rates are directly dependent on LIBOR rates. So, wrong manipulation of LIBOR rate is considered a fraud.

Barclays’s traders also bribed and coaxed employees of other banks to make them submit their figures so that it looks better in Barclays favor.

The common British public demanded a full enquiry on this unfair practice as they suspect other banks might be doing this as well. However, so far current British government did not show any move to initiate such enquiry. People believe that this is because wealthy bankers pay hefty donation to political parties and thus neither Conservative nor Labour party are willing to upset their billionaire donors.

Why some religions forbid eating certain animals?

It is well known fact that Hindus don’t eat beef and Muslims don’t eat pork. But what is the rationale behind these beliefs?

Hinduism originated 5000 years ago. At that time people were heavily dependent on cows. The cows’ milk provided nutrition to clans, bulls were used to plow the fields and pull carts. So Hindus started considering cows as mothers. From this aspect, the custom of not killing cows originated.
Even today cows are considered sacred in India.

On the other hand, theres is no clear explanation found for Muslims not eating pork. It is said that prophet Mohammad forbid eating pork. This may be due to the fact that in ancient times lots of people died after eating uncooked pork. Pork was also considered a filthy animal by nature and thus was avoided.

Why Social Mobility is important?

Social Mobility is a measure of to what extents someone’s parents’ income/education/status will dictate how much someone can achieve  (income/education/status)  in their adulthood.

Social Mobility = Parent’s income / Their Child’s adult income

For example, when you were young, your dad earned $20,000 per year in his 40 years of age, which is in today’s terms, say $40,000.

You are an adult today and in same country you are earning $80,000 at same age.

So, your social mobility score is = 40000/80000 = 0.5

If the score approaches towards 0, it indicates higher social mobility. On the opposite scale, if it becomes 1 or more than that, it indicates lower social mobility.

All countries should aim for higher social mobility because it signifies that even if you were born in a poor/disadvantaged family, one should still be able to rise at the top. So, technically speaking, if you live in a country with higher social mobility scores, you are more likely to become CEO of a big company even if your parents pushed trolleys in supermarkets in their whole life.

When a child is born to a rich parents, s/he is more likely to get better care, better education etc. This often leads to successful life at adult stage. Social Mobility measures the extent of cumulative advantage.

So, to sum up,

poor parents, rich kids = higher social mobility
poor parents, poor kids = lower social mobility
rich parents, rich kids = lower social mobility
rich parents, poor kids = bad social mobility (shows that situation worsened over time)

Although how much one can rise in life often depends on individual’s capability, government rules can also influence the outcome. For example, if studying in law school requires expensive upfront fee payment, then only rich people’s kids can afford that – which will lead to lower social mobility score. However, if government can ensure fees are less so that any meritorious student can get admission, then  kids from poor family can study and earn good money, which indicates higher social mobility score.

Some example scores:

Denmark    0.15
Austria    0.165
Norway    0.17
Finland    0.182
Canada    0.191
Sweden    0.274
Germany    0.32
Spain    0.32
France    0.41
USA    0.47
Italy    0.48
UK    0.5

This indicates Denmark has a much higher social mobility than United Kingdom.

 

Why single currency is not good thing?

Recently there is daily news on Euro collapse. Here we are not speculating whether Euro will collapse or not but we shall examine whether single currency is a good idea or not.

Before the currency system was invented people used bartering system to conduct trade. For example, you give me fish and I shall give you few eggs. Obviously it caused problem when buyer and seller did not have any common product for exchange. The introduction of currency (i.e. paper notes and coins) solved this problem.

If several countries use same currency (like Euro), there are benefits and pitfalls. If a country has its own currency, it can devalue that to make their export appear cheaper to outside world. That means they can offer cheaper goods to other countries. While their own citizens can’t buy those goods so cheap, they can still earn a good living within their home country. Of course this assumes that they produce goods which are in demand in other countries. China is a good example for this. They produce so many good for the whole world but their own citizens can’t afford all those luxury items. However, the wage they get by selling these products, they can afford basic necessities in life like food, shelter etc.

Another example is controlling of economic policies. A country can reduce its national interest rate to encourage businesses to borrow money (which will then roll into economy). If there is inflation, then government can tackle it by raising interest rate.

So, simply speaking, own currency gives the government to regulate their own economy in easier way.

But own currency has drawbacks as well – mainly for outsiders who invest in that country using that currency. Since government can devalue the currency (say Greek Drachma), an outsider (who invested in dollars) will see their asset reduced. For example, they invested $ 100 at the beginning when $1 = 10 Drachma. But later government made it $1 = 20 Drachma. So their asset is now worth just $50.

When many countries use single currency, that sort of devaluation is less likely. So an investor is more likely to see his asset not losing value – like $1 = €1 can stay for a long time. This will encourage investors to roll more money into common currency market. Thus common currency is better for economic growth.

It will also prevent losing of money during currency fluctuation, commission during exchange etc. – which is considerable if we take into account the daily amount of inter-currency trades.

Single currency works well when all participants have common economic interest. That “common” bit is quite important.

But all the advantages of own currency we discussed before will appear as disadvantage to common market. For example, Greece can’t devalue Euro to attract more tourists. It can’t control its interest rate. If they do so, it will upset other Euro countries like Germany, France etc. So only way to make Greece become competitive is to cut cost of production – by paying less wage to people, for example (which is the austerity measure and naturally its citizens don’t like that).

As we have already stressed a common economic goal is necessary, it becomes problematic when one group of people (i.e. one country) want to eat a bigger share of the cake. If Greek people want a better standard of living by working less hours (i.e. being less productive) it does not attract praise from German people. This becomes a way funding one friend’s lavish lifestyle by another friend. When Greece spent too much, they ran out of money (i.e. cash flow problem). Then other countries had to give them more money (i.e. bail out) to keep their economy going.

Will you prefer funding a friend’s luxury lifestyle when you are struggling yourself? I guess not. That is why other Euro nations are shouting. The way out is to dump the odd friend (Greece in this case).

So what will happen if Greece leaves the Euro zone? In spite of all the scaremongering nothing serious should happen (although there is a probability of short term economic turmoil). Greece will revert to its Drachma. Many banks (or investors) who lent to Greek economy will see their loans wiped off or assets significantly reduced. This may cause for those banks trying to compensate for that loss from other markets – by means of making their products more expensive to others.

In future this can happen to another country. Then they will leave Euro as well. People will then start wondering when the next country will leave. This will hurt consumers (and investors) confidence. People will start to believe that Euro is no longer stable and thus they will try to offload Euro investments. This will cause impact on economy.

If this cycle goes for long, ultimately single currency will lose relevance.

Why you can’t smile in passport photos?

Usually authorities in most countries specify that one should have neutral face in passport photos. So what is wring in smiling in passport photos?

A clear reason was never stated by any authority although official version sometime states that it will be difficult for some facial recognition software to work if people smile in passport photos.

Also during immigration check, people are expected to resemble their passport photos. If they have a smiling face then immigration officers would be expected to smile back. This may cause strain to those officials who work for several hours checking hundreds of people.

Usually same restriction applies for all other identification photos like driving license etc.

How left and right wings of politics differ?

The left and right wing of politics traditionally originated from French Revolution (~1789 AD) based on how the attendants sat in their national assembly. Usually the supporters of socialist state sit in left and pro capitalists sit in right.

So, you can visualize that from left to right as transition from extreme socialism to full capitalism.

Why militaries have their own judicial system?

In most countries, cases against members of armed forces (i.e. military) are dealt in their own court (often known as court martial). Why military personals are not dealt with normal civil/criminal courts?

This originates from that fact that many actions which are deemed right for military are considered wrong for normal people – notably killing of other people. During war, military persons are expected to kill members of enemy forces. It is part of their jobs. However, if military unlawfully kills people, then they are subject to court martial. If military issues are dealt in civilian courts, many cases will be exposed to general public and people will invariably start comparing outcomes of military cases with those of pure civilian cases. For example, a civilian murders might claim that he has been given life sentence for murdering just one person where as a military person went scot-free even after killing innocent civilians in another country. These sort of cross allegations can cause havoc with national politics and with the psychology of members of armed forces. For this reason, military court is separate from civilian courts. It is to be noted that if a military person commits crime while not serving in military, that case may be dealt in civilian court.