Pandemic Shutdown:Interest is bad again,stop calculating

The ongoing pandemic caused by coronavirus(COVID-19) is going to cause a recession worldwide. As the world comes to halt in true blue “Atlas Shrugged” style the real question then is what will be the nature of this recession.

A classic recession is defined by a slowdown in growth. Business shrink, incomes reduce and aggregates like Gross Dometic Product (GDP) are used to count it. The term used to depict this phenomenon is called deflation. In a classic textbook sense, it is the opposite of inflation (ie rise in prices). But that is a classroom case.

With everything is left to people’s natural behavior, the principles of supply-demand-value will cause result in inflation or deflation. The world is no longer in classroom conditions. Definitely not since Nixon removed the gold peg on currency notes. To cut the story short as we enter the world on central bank printing notes at will, the financial market working on second or third-order derivates these effects needs to be taken into account. That why the economics literature coined terms like disinflation, stagflation, negative inflation and so on(which we don’t detail for sake of brevity).

Forced revisit to fundamentals

But the current shutdown caused by a pandemic is going to make us revisit all of these variants and reduce them to basics. This is because of one fundamental characteristic of this crisis: shutdown.

When economic activity goes to halt the world is reduced to barter level. Because this shutdown has just started we have not entered that situation. If the shutdown doesn’t extend very long (say a year), we might just skirt with this level and come back.No matter to what degree we approach this ideal barter level of the economy it will pose a great question on our banking/lending practices. The fundamental assumption of lending is that the other party has a productive use of the money given. That is why it is called capital . And that is why interest becomes a legitimate demand. If there is a way you can earn more money by taking it from mine, give me some share of your profits.

Definition of Capital under question?

As the shutdown becomes more and more normal (I pray it doesn’t ) the very notion of capital and interest comes under scrutiny. So no matter how much money central banks and governments give people if people don’t go back to active production (the economic activity of value)the very notion of the value of money will come under question. But that is an extreme and rare possibility. What this discussion helps with is a meaningful remedy to the economy without causing another round of easing (like post-2008 era).

Since economic activity is frozen, the government world over can put a freeze on interest calculations of all types. This retains the sanctity of capital-deposts-loans and relives the economy of the broad-based collapse of businesses (of all shapes, more small ones ).

At the present government of India has announced that all term loan payments can be skipped for the next 3 months. It relies on the assumption that when the shutdown is over the business will somehow pay it back. A tall assumption for 2 reasons.

It is shut down and not a slowdown. It a process of a reboot. All businesses will open the counter as if it is the day of their life. Being back to the usual collection numbers will be a gradual process.
Yes, the interest accrues, as if nothing happened.

Is it fair and realistic

Is it fair to depositors? It is. Faced with the risk of total capital loss and interest loss any option that preserves the original sum is a fair and realistic option.

The second question is it realistic? Especially countries where interest rates are near zero. This is the classic no yield scenario none likes. But that is precisely the benefit. In shutdown time preservation of capital itself is the benefit. To GDP or deficit calculations of different governments, it more or better of what is going on :). It will pose a very grave threat to financial markets(stocks, bonds, etc). It is such a dreaded scenario that it will be laughed at.We skip the detailing so that we stick to our topic(but it is a matter of interesting question as to how stocks are valued when the economy is at halt !).

Can we skip rent?

It is not a theoretical but a moral question. Since the crisis has just begun there can be arguments of various kinds on what happens to rent. If we approach a longer shutdown were practically none is going to work and will tend to earn nothing the notion of rent comes under question. Whether it is housing or commercial rent has the same underlying assumption as a loan. Which is of productive use.If that doesn’t happen people either default on payment or keep the property . As much we can put economics, it is also a legal question. But it is more of a moral question that everyone needs to understand.

Salary Alternative to Layoffs in recession and Leadership Burden

The Upcoming Recession

With CoronoaVirus Pendamic, in 2020, the news of Layoffs and cost-cutting are happening again. For my generation this will be third such global recession ie 2000 DotCom bust, 2007-8 Global Finacial Crisis and Now CoronaVirus lockdown recession. In the times when the business stops, revenue dries are mass-scale layoffs the only option? This post argues that it is not and goes on to propose an alternative and new leadership paradigms to avert it in the future .

Current Salary and layoff Model

In my LinkedIn reply to Dan Price of Gravity Payments(2020), I suggested the concept of alternative recessionary salary ARS. If you see the current salary structure it has the basic/guaranteed part including the statutory/legal. Then there are commissions, bonuses, Stocks and some performance/result based salary. The later are the optimistic components based on growth. At times these growth components are applied to people who don’t really have any realistic control over growth. But as part of the norm it remains.In Indian IT setup, variable pay for even junior level is in practice and some CFOs even touted them as levers available for quarterly results!

Alternative Recessionary Salary ARS

The ARS that I suggest is an alternative salary structure offered to people in recession time. It has 3 components. One is the salary cut that everyone takes because the revenue is down, say 1/3 part. The second one is the mandatory pay that everyone gets say 1/3. The last one is the salary credit, say another 1/3. The salary credit is accumulated (accrued) in persons’ account for future payment . Say a year later or sometime in the future when a certain percentage of revenue is back one can vest it . But it is legal entitlement so long the business remains alive. Even better will be to allow employees to decide their percentage of cuts and credit as opposed to 1/3 I suggested above .

Now the boundaries. First, it should not be seen as a loyalty program. Many times loyalty programs allow the deadwood to stay in companies. It remains undetected as its such a non-CEO thing to talk about skill obsolescence and retain good PR on loyalty. The model above is then a sacrifice, an investment made by employees in the companies they wish to continue working for. The finance guys don’t like to accumulate future claims on their books. So this model can kick-in for a year only after which the layoff can happen. But the main question is what to do with these employees when the workload is less. The answer is, efficiency. At 1/3 pay, it is reasonable to put them to all the improvements and innovation tasks you always wanted. If you are an IT shop, putting them to work on open source will be a great investment. If nothing else works putting them to work on community/environmental issues is always possible. If this model becomes the norm some governments might include them into their tax incentive systems!

Threats of misuse of ARS

The threat that this ARS becomes the main salary structure and doesn’t remain an alternative is real. But your HR people have lots of wisdom to offer here :).Recessions don’t last, once it’s over and the ARS is used as exploitatory practice the talent will simply move on or change its productivity. There are even more possibilities in which the workforce will retaliate. The aspects of the social bargain are well known and it would be a detour for this post to repeat it.

Why doesn’t ARS happened

I can’t say for sure that ARS or like model hasn’t happened . But it’s not mainstream. (In an opinionated way, read the following).

Modern leadership is leading by finance! Quarterly results weight much more important than:social good, nurturing employee or even national priorities! Even terms like innovation are not valuable unless it results in profit or cost optimization[one example,In India FlipKart started using air-inflated bags for packaging as opposed to thermocol , huge innovation on the environmental front, will it count on wall street ?]. The current corona crisis is a test of the resilience of our social structures. This includes organizations too. Nations are made to think about the sufficiency and efficiency of their health system, aid programs. Some have even started to question their supply lines and independence in fundamental tech. Even the matter of trust and cooperation between larger structures such as the EU or G20 are happening. This will result in a sort of reboot and redesign at many levels of society and companies(which might make recovery very fast).

It is the test of structural resilience. But it is not as mainstream as the matter of solvency, optimization and profit are. In that effect, modern business leadership is dictated by personal ambition of bonus payout of some aggressive hedgefund guy than thinking about social structure. That has become such a norm that buck-backs during the recession are not even questioned by anyone.Whereas it’s the social structure, of diff kind, the supports/incentivizes/benefits/suffers the organization. This is the basis of capitalism which has given way to stockmarketilism . The invisible hand of capitalism is cuffed. High time the CEOs are freed from the burden of quarterly increases and newer metrics of growth-benefit- wisdom emerge. In today’s business landscape, where profit and personal ambition often take precedence over social structure, tools like an instant checkstub generator can provide a tangible solution.

Notes for further reading :

Harari on the world after https://www.ft.com/content/19d90308-6858-11ea-a3c9-1fe6fedcca75
Ben Thompson on Compaq moment: https://stratechery.com/2020/compaq-and-coronavirus/
Adam Smits Invisible Hand: https://en.wikipedia.org/wiki/Invisible_hand
HBR article on compensation alternative: https://hbr.org/2018/07/7-compensation-strategies-for-cash-strapped-startups
Amar Bhide on capitalism mishaps :https://hbr.org/1994/11/efficient-markets-deficient-governance
Tim Urban on why things are the way they are https://waitbutwhy.com/2019/12/political-disney-world.html
World After ,Survey of experts https://foreignpolicy.com/2020/03/20/world-order-after-coroanvirus-pandemic/

Pune coronavirus(covid-19),lockdown ,daily routine for you

Pune has now become epicenter for Corona virus called covid 19. This is deja vu of swine flu era of august 2009 (which I covered in my old post, Masked Pune and Swine Flu Scare ). With deeper media penetration the stats and information on precaution to take during covid-19 needs not one more post. In fact people are better prepared now .But with almost a total lockdown in Pune and in many cities of India ,keeping a good mental state and happy mood has become a task . So here is my routine during lockdown and few suggestions on activities you can do to keep yourself meaningfully busy .

My routine in corona virus lockdown.
1. Start day like usual and do the chores.
2 Exercise with family (everyone is missing their friends so joint tasks helps.)
3 Go to terrace or balcony ,as suitable ,take sunlight.
4. Start work at regular hours ,if work from home is your thing(same with kids , one parent/grand parents can become teacher or classmate for them)
5. Call all the people from your daily routine and chat like its normal(this includes all the big and small people .It might sound trivial but its assuring).
6. Call all type of friends and other people I/we know and talk about their life.
7. Find lots of small activities that need deep focus (see below for my list)
8. Talk to neighbors, from a distance,help them as needed.
9. Travel,if must ,with hemlet or car or mask.
10. Do not spend time watching tv for hours,it will affect mental freshness.
11. Sleep at regular hours.

But the main point is, lockdown causes more stress due to loneliness caused by the cut off from human beings. May be its obvious ,or not ,we need lots of people around to feel good and safe (even if we don’t talk or talk deep things with them, we need the tribe ) .So ,its ok to reveal that you need human connect and talk to as many people as your mind find satisfying .It’s difficult in core city of Pune where you get judged at the first sign of being common man who has average life 🙁 . But in difficult times I suggest you take this risk of being vulnerable and connect .

Next thing is, even when we work from home and do group activities with family the feeling of forced life can be unsettling .We need some personal work which needs deep focus so we can endure hard times .One can find lots of articles on internet on activities to do or new hobbies to cultivate. Sites like wikihow has great articles on this . However one need to find such lists really meaningful so that they get your deep attention and give you the much needed focused distraction .

For indian audience here is my list of meaningful activities that can keep you happily and meaningfully busy.

Find a list of aarti, mantra -stotra , prayers you always wanted to know by heart and then include them into your daily worship routine .
Think of your life as a timeline and tell the people you stay with, about all the small missing details .This will also give you a list of people/places that you haven’t seen in long time (so you can call them now) . In case you don’t want to open up this much ,one can do this mentally and find this list .Or instead of life, it can be a theme based talking like, great foods u have eaten since childhood ,funny people you met in life.
Do the personal housework – While doing daily chores keep you busy ,but if it is not something you do regularly, it can become boring .The feeling of forced task can make u more sad. So the idea is to do all the tidying and repairing work around your self .Wash all your cloths by hand, iron them ,arrange them ,repair them if needed . Wash all your foot ware, polish them .Do your own SPA ,head to toe (even if your are man, do it ).
Do your own stand up ! Each one has a list of jokes he makes or poems. Or you might have a list of songs you like . Recite them, act out .Being center of attention is very assuring .
Documentation : grown ups have lots of documents .It could be your certificates, legal documents , research papers , bills/receipts .Or even your books shelf .This is goodtime to arrange them ,clean up etc.
Secondary kitchen works : We all know that cooking and cleaning can be very soothing .If you do this already good .Try it now. Additionally there are many secondary works that can be done in kitchen that can be engaging, even for men. Re arranging kitchen, taking a look at old wares /repairing them .This is also good time to make the pickles, chutneys, papads at home .You can find list of such small food items from your culture.These items need small but focused effort and bring joy to you .
Make toys for your kids ! This can be origami ,sewing ,knitting , adhesive works . When you are making gift for someone ,its very fulfilling .If you enjoy, make more for others .
Write the long post you always wanted to . We all have grown past the era of reaction based social media posts. But there are always posts about the topics close to your heart, but which needed some reading, research ,reflection. Do that and publish .Don’t bother about the audience ,your topics can be cooking, dog care, garden ,hobby, economy, or kids or housekeeping tips. Making your point in good manner to others is satisfying . Post need not be text ,it could be photo ,song or video or paper notes .Do it .
I am against binge watching TV in such times .If at all you have to ,do it based on theme .Some era,actor,director,topic . That common theme gives meaning and keeps you clam .
Listen to local radio .In such times listening to same favorites can highlight the lockdown problems more .Local radio offers good randomization as well as personal touch via RJs.
Talk to neighbors .Obvious one but in city like Pune many people are still waiting to be properly introduced to their neighbors. The fact that you are in the same physical space ,in such times especially , warrant that you shed the inhibition, take risk and talk (safe distance tough ).
Read and make lecture notes .In such times forced reading can feel depressing .So if you are reading , take notes .As if your need to explain it to students or your grandma or kids. This adds meaning to reading .Now if you don’t want to talk to people near your about what you read(for some practical reason ).Put your summary on social media, blog or update Wikipedia or create slides or video and upload .The focus is on contribution over impression .
Complain ! We all had those small issues we always wanted to take up. Roads in your area , pollution , repairs needed in kids park and so on till some policy issue . This is the time to write those emails or raise those complaint tickets . Central ,state local govt has emails ,mobile apps and portals for this . Speak about what you feel is safe enough and matters to you .However small ,do it . The same can be done with service providers instead of government agencies . So you can also write to railways ,airlines, uber or banks about what you wanted to always tell them. But don’t do it to people 🙂 .
Watch family photo albums. If you are digital person then this is good time to check all photos on mobile and hard disks and order physical prints.

I am not including the usual list like gardening, pet care, calling family members, learn new language for 2 reasons .First such time filling activity list is know and available . Second is in lockdown times we need deep engagement as well as variety ! I will update this list over time ,Do suggest your own, in comments .

Last and never the least ,call everyone -talk to them small -big ,important-trivial .Hug them if it matters .How much ever we evolve our needs for connect and touch remains the same. They make or break us.