Economists are busy describing what the post-pandemic recovery will look like. While the ‘V-shaped’ recovery indicates a rapid return to growth, a recent article entitled ‘Investopedia Economy’ noted that the Covid recovery in the US has been fractured and uneven – K-shaped as different areas of the economy recover rapidly. uneven.
Millions of Americans are still unemployed, while the rich are getting richer. This may be the case in many other parts of the world as well.
As the letter “K” indicates, some sectors have lagged or fallen, such as travel, entertainment, hospitality, and food services, while the opposite is true for technology, retail, and software services.
In an IMF working paper (WP/21/127), David Forceri, Prakash Longani, Jonathan de Ostry, and Pietro Pizzuto used historical data from 177 countries to examine the impact of major epidemics from the past two decades on income distribution and whether COVID-19 will have long-term effects. on inequality.
Although SARS in 2003, H1N1 in 2009, MERS in 2012, Ebola in 2014, and Zika in 2016 were much smaller than the ongoing pandemic, they led to increases in Gini coefficient, raising the share of Income for high-income deciles, and the employment-to-population ratio for those with a basic education compared to those with a tertiary education decreased by more than 5 percent over the medium term.
The distributional consequences of Covid-19 may be greater. They show that epidemics will lead to a sustained increase in inequality with a peak effect of about 0.4, five years after a pandemic. This is in contrast to a Gini increase of about 0.05 after a typical recession.
A zero Gini index indicates a completely equal distribution and a higher value indicates more variance. In general, the corollary of a pandemic is widening inequality and a K-shaped recovery. Education, for example, is inherently K-shaped in many places, and this has been made more skewed by Covid-19. High-income groups with smartphone and broadband coverage have better access to remote learning during this pandemic, almost everywhere in the world.
The effects of K-shaped recovery remain uncertain. Certainly, the K-shaped recovery shows wealth inequality, the increase of corporate monopolies, the persistence of the racial wealth gap, the long-term unemployment of low-income workers, and the acceleration of technology adoption. This may be inevitable and largely out of control in the backdrop of an unprecedented epidemic that is pushing the world into the ‘unknown unknowns’.
The 2021 Economic Survey predicted a V-shaped recovery. If one looks at year-over-year growth, the recovery in FY22 is already V-shaped after the first quarter due to the 20 percent expansion — a sharp rise after a rapid decline. However, a closer look at the economy may reveal a K-shape, as experts such as former RBI Governor Duvvuri Subbarao have made clear – rising inequality is expected to affect consumption and growth prospects.
Well, what is the most appropriate character then? There is no need for a conflict between the different symbols – both the letters “V” and “K” may be correct depictions that reach the level of depiction they provide. In fact, a K-shaped recovery occurs when some sectors experience a V-shaped recovery while others experience an L-shaped recovery.
The K-shaped recovery certainly aims to portray a more analytical picture of the economy as each growth pattern resembles the divergent slopes of the letter “K” but fails to indicate the slanting arm that dominates GDP numbers. Again, not all bearish sectors have the same angle of decline or intensity.
The same is true for the rising sectors as well as for different groups of the population. Thus, to be more specific, it might be a symbol similar to ‘K’ but with a few ascending arms and a few descending diagonal arms at different angles a more appropriate representation of the economy, and the mean direction must also be indicated in it.
Thus, the true picture of any post-pandemic economic recovery cannot be depicted in any English alphabet. The impact of the pandemic is unprecedented. A study by researchers at Azim Premji University showed that business closures and job losses pushed more than 230 million Indians into poverty last year, and “the employment structure has changed dramatically”.
Some experts have even said a W-shaped recovery may be most appropriate, especially when growth is viewed in the context of a quarterly seasonal adjustment.
So, what English letter should be used to explain economics? Well, in 2010, then-Finance Minister Pranab Mukherjee said at the US-India CEOs Forum: “I am beginning to feel that for every (letter) in the English dictionary, there is a theory of economic recovery. What many competing theories of recovery mean is that we do not We really know the answer.” Moreover, the same situation can be interpreted in different letters too!
It seems that the English alphabets are not enough for this! Could some letters from other texts be used instead to refer to the puzzling nature of the unknown dynamics of global economic recovery amid the Covid pandemic, and of course in general?
The writer is Professor of Statistics, Indian Statistical Institute, Kolkata