Policy effectiveness and Covid-19 restrictions

These days the Covid-19 pandemic is still within the risk zone (Higher than expected number of COVID -19 new cases).The so called second wave of new cases in most of european countries, is growing at an alarming rate.In the Americas the daily cases, indicates that there still a long way before getting the pandemic under control.More so,the projections of Covid-19 related deaths for the coming months set this desease, as the priority target for public health authorities. This brief description, is the setting which policy makers have to deal with, when it comes to think about solutions.Given that this Pandemic meant a negative shock on both suply and demand, the first macroeconomic policy decisions, were aimed at providing to the economy with external life supporter, as it also went into the intensive care units with severe consequences in unemployment , consumption and investment.The sudden stop was in place and its impact was developing further on.The outcome so far,to get a recovery look better than anticipated(World Bank,IMF). In the meantime social distance,contact tracing,washing hands, wearing mask and early testing , were a useful complements to get the R0 (basic reproduction of infection cases) below 1.Any R0 vaue >1, meant the virus was spreading to someone else.Besides, some preliminary available data for R0 value, were in the range between 2,0 (Re=2),up to 5.0(Re=5).So,the initial infected individual (R0), was able to spread the virus within the range of at least two other people, and at the most to five more. The problem has been to avoid what at such a rate means a collapse of the health system. Just before the the summer season, Germany was able to get R0 <1, but as soon as the restrictions relaxed a bit ,R0 was again above 1(R effective Re=1,2)).Thus, it is obvious that to get R0<1 is a challenging task.(Pandit,J.Managing the R0 of Covid-19:Mathematics fight back.2020, https://doi.org/10.1111/anae.15151). The combinations of stimulus fiscal package, monetary easing, and social behavior recomendation,was the proper path to the expectations of getting things back to the new normal soon, while the vaccine was in process to become available. Given this new social- economic covid-19 setting, some macroeconomics models, projected a decrease rate of new covid-19 infections over time, although with important distributional effects(Volante,G. The great lockdown:Macroeconomics and distributional implications of covid 19.Priceton University. 2020). However,a constraint to be aware of, is the impact of the underground economy,and those who work under the book because they are undocumented inmigrant, and they do not have any chance of getting access to the solutions that the system provides, whether it is either economic or sanitary.Thus,these people are out of the system,and they becomes the missing variable in modelling analisys, which make harder to get the virus under control as far as the policy recomendation is concern.(Spain and the USA).In fact , while there are illegal inmigrants, the virus spreading will stay active no matter the lockdowns, which assume that all of those who should goes in, are the same who later goes out.But illegal inmigrants cannot go in, they stay out doing the best they can on transitory jobs, and if they indeed go in, it make the "indoor staying" an additional source of contagious and spreading the disease.In this case,Social distance and wearing mask,(basic measures), are also necessary for those who stay inside their homes to avoid "indoor staying implications" ,as an additional source of contagious.It follows that to get full control of this pandemic, it should be added up some domestic rules of behaviour applied to those who share their home with illegal inmigrants, along with an emergency policy of mandatory testing of those who are out of the system.In the meantime, the economy is on its track to a recovery and the vaccine is close to be in place.But it will take time to get it done to all at risk, with illegal inmigrants probably the last one on the list.

The Chilean economy at its hardest time (II)

As its has been the case for all the world economies , chilean economy has been hardly hit since March 2020 because of Covid -19.But before that, there was also underway the effects of the worst social unrest in years which started out in october 2019.So within a six months period (October 2019 -March 2020), the chilean economcy had to cope with emergency policies twice.So, the requirement is also that much of a complex.In both cases, public expenditure has been on the rise,increasing external debt and risking the standing of its credit rating.GDP long run potential growth has decreased to 1,5%% (down from 2%), real unemployment (counting people under labor law protection),is at the level of 1982 crisis,and the risk of loosing ten years of poverty reduction gains, is right in front of policy makers.So, it is still unclear the lasting social impact of covid 19, in terms of higher demand for better public health policies,infrastructure needs, as well as reshaping social policies. What is is becoming increasingly clear is that the economy will evolve toward a different format, the one based on higher service technology whether it is consumption ( on line demand,delivery logistics,e-commerce), work (remote working),leisure (wider range of cell phone aplications),firms (both automation and automatization are on the rise),value added (digital networks).All of these transformations almost against the clock, will require flexibility, innovation flows, adaptation and cooperation from every one involved.Thus, the question is how the current status of the chilean economy, match this expected scenario?. It is useful to check what was the situation up to the beginning of 2019. Chilean economy GDP per cápita was USD 26.000 (IMF,2018) with expectations to get in 2022, closer up to 60% that one of Spain, and 80% that one of Greece , (measured a purchasing power parity). The institutional macroeconomic framework, has been a benchmark to sustain long run economic growth signals, (low inflation, financial sector lined up with Basel III agrements, and a reliable monetary policy), such that to keep expectations of getting back economic growth, as soon as the covid-19 worst effects are under control.However, the problem is that the only way to get fully of such control, is with a vaccine.In the mean time, the prospect for a recovery to be sucessfull will work on a step by step format.This means that the level of deterioration in productive fundamentals (investment, employment,) will have adjustment lags to get back to its full recovery status. Thus, given its macroeconomic fundamentals, Chilean economy model, is still plenty of potential. In fact with poverty rate still among the lowest in Latin America, it reinforce the middle class relevance, which is considered to be a stability factor, especially about the implications of the upcoming event of a referendum to be held next october 25Th, concerning the approval or not of working out an improvement in the constitutional framework set in 2005. The key problem for the chilean economy is in its microeconomic foundations. This was the main input which led to the civil unrest of october 2019.When these foundations are weak , it is like to drive a car with at least one of its tires almost flat. Sooner or later, the trip will stop either when the passenger or the driver, realizes that something goes wrong.In the Chilean case, the passengers realized faster than the driver, that the trip was not even close to where it was expected to be.

The Chilean economy at its hardest time (I)

The Chilean economic model implemented since the mid-seventies, is under the critical attention of those who have considered it a benchmark and; of those who have been its critics. It should be take into account that in those years (1975-1980), Chile and many Latin American economies were in the last phase of an import substitution model, which through tariffs and exchange controls nullified exports as the source of expansion and growth. Without an increase in exports, it was not possible to get the aim to reduce the foreign dependence. The outcome was the External Debt Crisis and the Lost Decade (1980-1990). For that decade, Chilean economic model had already corrected the key flaws of the import substitution approach, applying the new fundamentals: increasing the role of the private sector and markets as the tool for allocation of resources, coupled with the openness to the world and international trade. What were the nature of these new fundamentals?. The most important one, relates to the fact that it was the people and not the state, who based on the signals of the price system and free markets, can solve what it is better for their welfare increase expectations . Besides, the comparative advantage theory, suggested that a better use of resources was possible with higher trade flows with the rest of the world, instead of focusing only on its small domestic market. Each one of these fundaments have its particulars characteristics on its own. Thus, aside its primary task with the price system, and the efficient allocation of resources, free markets became the source for services like social security, health, education as well as the provision of natural resources like water and energy, opening up a space to develop further the private sector, on the premise that to reduce poverty , it requires as a necessary condition to increase wealth.The State get involves only in what is left out of the reach of the private sector. MACROECONOMIC POSITIVE OUTCOME In the 1990s, with the return of democracy; the participation of the private sector moved forward to granting of public infrastructure services (roads, ports, airports, reservoirs, telecommunications) co-finance of university loans, and in the 2000s, it was extended further to the construction of hospitals and state prisons. The impact was decisive to increase the potential output, and productivity in such a way that in the period 1986-1997, the average rate of economic growth was 6,7%(y/y). The golden decade of the Chilean economy, became the benchmark to follow for other countries of Latin America. The goal of development, was at sight within a few more years of pursuing the same policy mix and economic growth path .- Figure N°1

Social implications of Covid -19

In its recent report (may 2020) the ECLAC organization focus its atention on the social impact of covid 19.So far, the priority has been the sanitary side of the pandemic as the key primary risk of the Covid 19 to deal with properly.But this is the short run impact of Covid -19, which may be positively solved as long as the pandemic is getting under control and some time into the near future a vaccine is ready to be implemented Howeever, the long run social consequences are still to have its full impact .- The ECLAC report provide alternatives scenarios all of them leading to higher poverty and extreme poverty , inequality and unemployment levels. Thus, with the expected fall in global economic growth, and the projected reduction in 2020 regional GDP, at about 5,3%, and a fiscal policy on its limits to financing all these expenditures, the social situation does not look promising at all. The areas most affected by the pandemic are labour income, employment,mental and physical health,nutrition ,access to basic services, education, intrafamily and woman abuse. Some data are important to support the argument .Latin America as a whole will increase average poverty rate from 30,3% (2019) to 34,7% (2020,Middle range scenario,ECLAC Reporst). Besides average Inequality index measured by Gini Coefficient will increase in the range of 0,5% to 6,0%. Unemployment will also rise with more than 11 million additional workers out of jobs.Labor market in Latin America are below standadrs with high level of informality(53,1% (2016)), especially among women (54,3%),(International labour Organization,2018),which lead to dual labor markets which means a mix of opposing realities given that in informal labor markets there is neither legal protection , nor contribution to the pension system.So, it reinforces the poverty trend and in times of pandemic make harder to focus the public help because those people are not legally registered as workers whose need are regularly complemented by government policies such as minimun wages, subsidies and other social services.- Accordindg the ECLAC report, the social assistance has included cash tranfers USD 38,83 billions(0,7% of regional GDP in 2020),food provision, supply of basic services,social protection to both formal and informal workers ,tax reliefs and morgage payment adjustments,covering a wide spectrum from low to middle income levels. Furthermore it also make a call about the risk of loosing another decade ,this time due to the unexpected sanitary shock and its consequences. Taking into account a time span perspective , the report shows that the external debt problem in the eighties required 25 year (1980-2005) to get poverty back to its previous level,14 years to recover regional GDP ,and the latest financial crisis(2008) had a setback in poverty level equivalent to 13 years. The whole social- economic- political equilibrium and its stability prospect for democracy to be up to the expectations is a stake. Therefore, it seems that a comprehensive action is needed in a join effort arising from the private sector, government and international organizations to work together with a long run prespective .- It would be a tragic outcome if society is able to get out from the sanitary pandemic, to fall into another social one.

The Post Globalization: unknown path

The Corona virus has made in four months what it last 30 years and two recessions (1997,2008) to build up as a global framework for trade, investment,production, supply chain, and jobs mobility. Besides,quite extraordinary is the fact that nobody expected the new rules of global links interaction to be written with the global economy in a sudden stop situation. Rather the issue was for how long the global economy GDP would be able to sustain the stress of the two largest world economies reviewing the trade,investment and production links, as well as the spillover effects in the others developed and under developed economies.- The current situation has changed all the parameters to design economy policy other than the conventional approach to deal with usual crisis. However, this one it is not an usual crisis.It will take some time before the fundamentals are back again on track to speed up a fast recovery. "Fast recovery" meaning to get back everything the way it was before March 1st 2020 .Instead it may turn out to be a step by step recovery based upon some guidelines to follow for firms, domestic economies and governments ,for the sake of public health requirements .In other words there is no choice and so the recovery will probably has a priority setting framework . How come?. a.- Firms top priorities begin with its employees and their health, then its consumers target, next its suppliers and finally the communnity.None of this steps will show results quickly. Besides the way firms solve eacch one of this relationships, it will influence its long term pattern among key economic stakeholders. A Fundamental questions will arise. Will firms hire again their former labor force? what about technological solutions aimed to replace and relocated jobs?.What will be the situation of supply chain settings?.What about consumers and its net incomes disposal for spending?. Not to mention the financial situation of firms after months with no regular cash flow. Some firms will make it while others will not. b.- Domestic economy will become more relevant. Its top priority will be to recover employment level supporting labor intensive firms.This means to support domestic production, with global trade links on hold while the new sanitary conditions are set in place post corona virus.It means the global pandemic is over.- c.- Governments will also need to set priorities. Domestic jobs will be on top of the list after assuring the necessary sanitary condcitons in every public place possible . Thus fiscal policy will be an active support for infrastructure, and public investment,and labor intensive technologies(services) , very well complemented with monetary policies in charge of keeping the stability on the financial system and the payments chain.- The international trade as a driver of global growth will probably be replace at leasts in the short run by domestic production, and proteccionism to make sure domestic production increases solve the unemployment quickly. Thus where do all of these variables leads to?.It will take some time before the globalization will be back again the way it was known. Maybe that globalization will stay in history books. Whether it is so, the post globalization will require new rules. Morepver, it could arise new dimensions of globalism such as glocalization which will become more relevant as cities,local economies and firms with good prospect for business expansion will need new opportunities to recover faster after the corona virus shock is over leading to higher demands for decentralization to explore on its own different chances of doing business abroad.-

What to expect next?

The COVID - 19 has made through the core of business activity and daily life of million of people . So, Uncertainty is the new status for the economy and for everything else in months ahead.On the other hand, prominent thinkers, philosophers, economists gives their thought about what it is happening and its implications, but without knowing for sure any chance of getting the Virus expansion trend in a downward path.That means all of them are driven by hope that all of this episode will melt away sooner. Hope is the one and only feeling who may keep alive people expectations about any improvement soon . However, according with available data coming from consumer sentiments, business leader,economists,analists,journalist and International Orgnization like the IMF, all of them anticipate a tough scenario for the global economy in month ahead. Even with fiscal aid packages assuming the economy will restart again soon ,it does not seems to be clear that the health care system is strong enough in each country to overcome the situation and let that expected economic outcome happen, before it collapse.In such a case the restart would be later stressing the economy system to its limits. So will it be necessary another aid fiscal package?.In emerging economies there is not such a possibility given that most of these economies are with limited fiscal policy options,given its limitations to expand debt levels further. So, The current situation goes on within extremes: The risk of a massive collapse of the health care system,no matter the effort to tuckle the threat to avoid so, coupled with the high risk of a massive collapse of the fundamentals of the economy, no matter the poliicy responde so far. .The outcome may be worse than a greater depression.There is an ethical dilemma which must be solve by political leaders However, the question What to expect next, goes beyond the crisis. It is hard to believe that the expected new normal situation will be the way it used to be before COVID 19.The effects of this pandemic will last for years to come reaching out the economic system and its fundaments(for instance more sate in the economy ), as well as how people do their daily life obligations( better sanitary condtions at works, home , public places,and transportation).Besides, the tracking system on any individual to get control of any future cases,will change and modify the boundaries of privacy and freedom. It look like it is not just the econoomy which will have severe consequences,increasing the risk of proteccionism further , but also how democracy works in the future and how it improves its proximity with their citizens needs.

The global economy sudden stop

The world is still under stress by the coronavirus outbrake, and so it is the global economy and its remainings.Hard choices for global leaders, but also for the economy policy makers.They both face a completely unexpected situation which for economist is out of any economics text books.In fact , economics as a science rose to become a core on new knowledge concerning society behavior(right or wrong), based upon productive uses of scarce resources and its alternatives allocations.That is what economics policy issues are all about.However, now there is a huge challenge under way which does not have a proper match with the economic text books and policy response, other than to be prepare for the worst and hope for the best.- In a usual situation , most of the policy decision deals with the economy working at a certain level of productive capacity, even in a recession with low levels of activity, there is always a minimun capacity ready to be used. But now, that capacity shrink to almost zero when most of the productive force on the one hand, and consumer on the other hands must stay at home in both developed and less developed economies.The economy get the status of a global sudden stop. - Given its consequences (Severe recession,coupled with high social cost), the sudden stop scenario has been a key subject of macroeconomic research,Calvo (1998), Agosin,Maureira & Karnani (2017),such as it has been posible to set a signal to prevent it: Look at the correlation between inflow and outflows of capital.Wheher it is high , there are fewer chances of a financial account sudden stop.Agosin, et al (2017).- But now the situation is different , part of global economy has become like a global Hospital,and it may stay that way before a fully recovery take place because of lagged response to both fiscal and monetary policy action. So, what are the tools the economy has available to deal with this situaion in the short run?. At its best just a few, at its worst None. Fiscal policy lag is shorter than that one of monetary policy.However, the issue it is matter of sanitary policy which is far beyond the reach of macroeconomic policy framework which assumes both healthy and rational labor force, consumers and economic agent.- The COVID -19 pandemic so far, has hit the global services sector (50 million jobs) ,and the manufactures process as well, through he supply chain disruption(global production chains) . Air lines,(10% drop in past months schedule flights ) tourism, hotels, food industry all face a very difficult situation ,and the expectation arising from the vacation season to get it over,are probably gone. In the south Hemisphere the prospect of a winter more severe than previously expected will increase the burden upon sanitary facilities.So there is a simultaneous collapse of both suplly and demand which may lead to a deflationary recession ,and while the key productive forces are in quarantine either on the hospitals or at home , the policy makers are unable to do anything with real inmediate impact on the path of keeping the economy stable.So it looks like we will live for a while in the Zombie economy which has fear as its key driver.- The Zombie economy will work through the network connecting consumer at home and business capable of dealing with delivery process through drone .Those doing their job using telework or net working, will keep the economy on wait and survive mode.Internet will replace the physical usual transaction chanels as never before,so there will be a huge transformation the way economic agents used to do business. The probably outcome following the Zombie economcy may be a stronger Virtual economy with an higher share of real economy transactions than before reinforcing the pattern of shifting places away from public shopping malls .A lot of traditional business will be replaced by virtual (internet) alternatives.Firms will have to redefine the way to apply sanitary policies and how to care about its talented people , so it will in the tourism industry as a whole.- As a bounded optimism approach it is important to take into account that nothing is worst than do nothing.The scientifc community is working hard to overcome the crisis with a Vaccine, the necessary condition to make the economic policy tools to work fully again. The sooner the better.-

New threats for global economy

The current situation arising from the coronavirus risk of spreading out to the rest of world and its implications for global economic growth, is a signal of the kind of new threats which global economy must be prepare for. Most of economist and analists think that such a virus may affect growth on the one side through trade channels and tourism ,and on the other throughout restricting the supply chain value because of preventive actions leading to stop productive process, as a practical alternative to reduce the chance of furhter cases of corona virus , keeping workers away from their job places especially in China.- This virus is 80% similar to the SARS which arose in 2003. At that time there was also concern about its impact on global economy, but it was not such as to get an high alert status as it seems to be the case this time. The question now is How fragile is the global economy to deal with this threats? and others such as Cuyber attacks, natural disasters and the likes (effects of climate changes)? For a long time it was a paradigm for economics that nature was outside its boundaries.Nature did not matter for economic growth.Instead all what it was a matter of concern dealt with macroeconomic policies and its proper design.Thus either fiscal expansionary policy or Monetary expansionary policy, were the main focus of threats to keep economic growth within a stable path.That does not seems to be the case anymore. Low inflation is a characteristic of global economy, as it may be so for low unemployment as well due to better opportunities arising from deregulation and its implications of higher mobility of jobs opportunities. Actually, Macroeconomic setting look more stable than before to be considered a source of risk for global economic growth.The risks are on the microeconomic side which deals with the way people and economic agents shape its expectations . There is no method to make sure that expectations will always be positive.People behavior is more complex than economic modelling may expect, because some key features of human behavior are unexpected, such as fear,distrust,anger.So, expectations do not follows a clear well anticipated path, which leads to make that uncertainty arises not necessarily because of wrong policy design, but because of people limitations to deal with all information available to shape expectations faster and properly as economic fundamentals demand. So, the Corona virus and other similar cases in the future, are not usually included into the economic growth policy models, which lacks the abilty to design the proper reaction , hurting the expectations about the final outcome, before getting back the traction of economic growth. Thus, error terms in any modeling make them less accurate .So, it become more relevant to take into account a wider variety of situations and variables which may be key for shaping expectations properly along with economic growth perspectives. Any economic growth forecast should have a probability scenario dealing with expected risk arising from human behavior considering either wrong policy design or, wrong policy reaction.In this case, any unexpected event is previuosly considered into the process of shaping economic agent expectations.Therefore, this would provide a better control of risks and uncertainties along the growth path.

2010-2019: The decade of failed expectations

Latin America economices are well endowed to become a magnificient world player. It has a market of 640 million people (2016), and a combined GDP(PPP) of USD 7,5 trillion(2014).Its GDP per capita is USD 8335,00 a 54% below world average(2012) which measure the potential for further increases.So it started the past decade with positive expdectations,GDP growth was 5,9% in 2010,but since 2013 the latin american economies has reached a stagnation stage with GDP average growth of just 0,8% meaning lower real income and harder effort to reduce poverty(still within the range of 30%) and inequality . However, since 2011 commodity prices index decreased and according to some estimations it is expected only in 2020 to get a more stable condition (www.indexmundi.com).Both Lower commodity prices and unstable markets, is a negative mix for pursuing social goals within a path of steady progress.What it is gained in some stage it is loosed in the folowing one.Social goals target like poverty and inequality reduction becomes cyclical.This means that public policies fail to get a steady advance; so it arises the question about the best approach to get faster progress to eliminate those social bads.- It follow that the decade 2010-2019 in Latin America , did not get too much of the initial expectations. However, there also have been sign of progress both in political and social issues: Let check them out a.- There have been an upward movement from poverty to middle class segments in many Latin America countries. Although it may still look like a fragile achievement, the fact is that the incoming decade mean an opportunity to consolidate a stronger middle class segment.- b.- Service sector is becoming increasingly more relevant, so it may be in course of replacing raw materials as the main sources of economic growth.- c.- The key role of good macroeconomic policies is well assumed by policy makers,With few excwptions inflation is non loneger a social constraint for policy design,external debt is within the range of control,and integration into the world markets is also within the target of key Regional economies with free trade up dated agreement including both commercial and financial sectors(Chile, Peru Colombia).- d.- No less important is the fact that most of these latin american economies have stronger democracies than before.It may not be perfect ones but it has the positive side of trying every 4-6 years some alternative approach to move forward, instead of a unique one to get backward. However, there also still some negatives heritages from the past: corruption is on top of the list.For the first time it had a wide scale to become a threath in such a way that it tried if not really captured the State of at least four countries . e.- Following from above (d), the decade 2010-2019 wittnessed in Latin Amwerican economies a better than expected judiciary system, which protected the States in such way that saved the institutions role to be a guarantee for development.The rule of law in Latin American economies become quite clear even in cases of nationalization projects. Thus the decade just gone give a better chance to look forward the next one with new challenges withih a positive framework .Some of them are a.- Demography gap.Younger workers do not match up the demands from older ones on retirement.Social secutiry issues is more than a challenge. b.- The risk of populism is always alive,So the state must assume the need to endure reforms.