International
How Externalities Affect Systems
How Externalities Affect Systems

It took about a billion years for life – single cell organisms — to develop on planet earth. Another 500 million years led to simple organisms that used photosynthesis; another 1 – 2 billion years before multi-cellular life appeared. The next billion years led to plants, dinosaurs, birds and mammals.
Evolution was the driving force of these changes. Suitability and adaptation was a key to competitive success. Life could adapt to changing conditions. But every now and again, fate intervened, in the form of five mass extinctions.
The most recent: About 66 million years ago, a 7.5-mile-wide asteroid traveling about 50,000 mph slammed into the earth in the ocean near Chicxulub, Mexico. The collision resulted in an explosion estimated at over 100 trillion tons of TNT. That’s about a billion times more energy than the Hiroshima atomic bomb. The impact gouged the Earth’s crust several miles deep and more than 115 miles long.1
It was not a good day to be a dinosaur.
Everything within 1,000 miles was killed by a giant fireball. That was followed by a 1,000-foot high tsunami, extinguishing the fires, and drowning anything that survived. Just in case a few creatures were still standing, a 600-mile an hour wind blast tore through the region. And that was just day one. Nuclear winter followed, chilling the planet by a global average of 14 to 18 degrees.2
Eventually, the critters that could adapt to these circumstances did. Thus, the dinosaurs demise was soon after followed by the rise fo the mammals. And by soon, I mean 10s of millions of years.
What does any of this have to do with markets, economics and investing?
You might be surprised. I am entranced by the idea of how externalities intervene in functioning systems. In markets, the usual variables affect longer secular cycles. The ebb and flow of the economy, inflation, consumer spending, employment, fiscal and monetary policy, interest rates, etc. all impact the longer cycle of price and value.
What happens when an externality hits the markets like an asteroid from space? What happens when a non-economic event crashes into stocks and bonds, and derails their prior path? Consider some of history’s externalities that have impacted markets:
• 1914 Assassination of Archduke Franz Ferdinand, sparking WW1;
• 1941 Attack on Pearl Harbor, bringing the US into WW2
• 1963 Assassination President JFK
• 2001 September 11 Terror Attacks on USA
• 2011 Tōhoku earthquake and tsunami, leading to a full system failure at the Fukushima Daiichi Nuclear plant;
• 2020 Covid-19 Pandemic, leading to a global lockdown.
There are surely many more you can think of, but these six are the ones that come to mind.
What happened in the past when these externalities hit? Markets would wobble, frightening everyone. Often, they would sell off fast and hard. But then, they would simply resume their prior trend.
That seems to be what is taking place currently: Covid 19 led to the fastest bear market in history, and the fastest snapback to prior highs. The move down was so deep that economically, none of the data could fit on the usual charts. I mentioned in April that we should not be too quick to assume the bull market was over, and so far, events seem to be confirming that view.
Which leads to an interesting question:
Will the economy and markets son mean revert? Will we go back to our prior structures in the economy, eventually returning to the way things were? Or has a sea change taken place? Will the economic dinosaurs soon find themselves replaced by smaller, more adaptable mammals?
I don’t pretend to know, but I do find the question fascinating.
Previously:
Off the Charts (July 31, 2020)
End of the Secular Bull? Not So Fast (April 3, 2020)
_______
1. All of these are approximations, and may be close to what actually happened or totally wrong.
2. Based on recent research and reasonable estimates.
3. Geological time spiral
The post How Externalities Affect Systems appeared first on The Big Picture.
Government
Biden Signs Bill To Declassify COVID Origins Intel
Biden Signs Bill To Declassify COVID Origins Intel
Having earlier issued his first veto since taking office, rejecting a bill that would have…

Having earlier issued his first veto since taking office, rejecting a bill that would have reversed a Labor Department rule on ESG investing, President Biden signed a bipartisan bill late on Monday that directs the federal government to declassify as much intelligence as possible about the origins of COVID-19.
His signature follows both the House and Senate unanimously approving of the measure, a rare moment of overwhelming bipartisan consensus.
The vote tallies meant that the measure would likely have survived a presidential veto had Biden opted to withhold his signature.
Biden, in a statement, said he was pleased to sign the legislation.
“My Administration will continue to review all classified information relating to COVID–19’s origins, including potential links to the Wuhan Institute of Virology,” he said.
"In implementing this legislation, my administration will declassify and share as much of that information as possible, consistent with my constitutional authority to protect against the disclosure of information that would harm national security."
Of particular interest to freedom-loving Americans who were tyrannized, censored, banned, and deplatformed for even daring to mention it, is the small matter of whether the virus leaked from the Level 4 Virus Lab at the Wuhan Institute of Virology (or instead, as The Atlantic proclaimed recently, a sick pangolin fucked a raccoon dog and coughed in someone's bat soup in a wet market.
The Department of Energy and other federal agents such as the FBI have increasingly backed a lab leak as the likely origin of the virus, while some lawmakers have even suggested Beijing may have deliberately allowed it to spread.
Spread & Containment
Asia’s trade at a turning point
Policymakers in Asia are rightly focused on the potential reconfiguration of global supply chains, given the implications these shifts may have for the…

By Sebastian Eckardt, Jun Ge, Hassan Zaman
Policymakers in Asia are rightly focused on the potential reconfiguration of global supply chains, given the implications these shifts may have for the development of their export-oriented and highly open economies. While the focus on potential shifts on the supply side of the global and regional trading system is well-justified, equally dramatic shifts on the demand side deserve as much attention. This blog provides evidence of the growing role of final demand originating from within emerging Asia and draws policy implications for the further evolution of trade integration in the region.
Trade has been a major driver of development in East Asia with Korea and Japan reaching high-income status through export-driven development strategies. Emerging economies in East Asia, today account for 17 percent of global trade in goods and services. With an average trade-to-GDP ratio of 105 percent, these emerging economies in East Asia trade a higher share of the goods and services they produce across borders than emerging economies in Latin America (73.2 percent), South Asia (61.4 percent), and Africa (73.0 percent). Only EU member states (138.0 percent), which are known to be the most deeply integrated regional trade bloc in the world, trade more. Alongside emerging East Asia’s rise in global trade, intra-regional trade—trade among economies in emerging East Asia—has expanded dramatically over the past two decades. In fact, the rise of intra-regional trade accounted for a bit more than half of total export growth in emerging East Asia in the last decade, while exports to the EU, Japan, and the United States accounted for about 30 percent, a pattern that was briefly disrupted by the COVID-19 crisis. In 2021, intra-regional trade made up about 40 percent of the region’s total trade, the highest share since 1990.
Drivers of intra-regional trade in East Asia are shifting
Initially, much of East Asia’s intra-regional trade integration was driven by rapidly growing intra-industry trade, which in turn reflected the spread of cross-border global value chains with greater vertical specialization and geographical dispersion of production processes across the region. This led to a sharp rise in trade in intermediate goods among economies among emerging economies in Asia, while the EU, Japan, and the United States remained the main export markets for final goods. Think semiconductors and other computer parts being traded from high-wage economies, like Japan, Korea, and Taiwan, China for final assembly to lower-wage economies, initially Malaysia and China and more recently Vietnam, with final products like TV sets, computers, and cell phones being shipped to consumers in the U.S., Europe, and Japan.
The sources of global demand have been shifting. Intra-regional trade no longer primarily reflects shifts in production patterns but is increasingly underpinned by changes in the sources of demand for exports of final goods. With rapid income and population growth, domestic demand growth in emerging East Asia has been strong in recent years, expanding by an average of 6.4 percent, annually over the past ten years, exceeding both the average GDP and trade growth during that period. China is now not only the largest trading partner of most countries in the region but also the largest source of final demand for the region, recently surpassing the U.S. and the EU. Export value-added absorbed by final demand in China climbed up from 1.6 percent of the region’s GDP in 2000 to 5.4 of GDP in 2021. At the same time, final demand from the other emerging economies in East Asia has also been on the rise, expanding from around 3 percent of GDP in 2000 to above 3.5 percent of GDP in 2021. While only about 12 cents of every $1 of export value generated by emerging economies in Asia in 2000 ultimately met consumer or investment demand within the region, today more than 30 cents meet final demand originating within emerging East Asia.
Figure 1. Destined for Asia
Source: OECD Inter-Country Input-Output (ICIO) Tables, staff estimates. Note: East Asia: EM (excl. China) refers to Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, and Vietnam.
These shifting trade patterns reflect dramatic shifts in the geography and makeup of the global consumer market. Emerging East Asia’s middle class has been rising fast from 834.2 million people in 2016 to roughly 1.1 billion in 2022. Today more than half of the population—54.5 percent to be precise—has joined the ranks of the global consumer class, with daily consumer spending of $12 per day or more. According to this definition, East Asia accounted for 29.0 percent of the global consumer-class population by 2022, and by 2030 one in three members of the world’s middle class is expected to be East Asian. Meanwhile, the share of the U.S. and the EU in the global consumer class is expected to decline from 19.2 percent to 15.8 percent. If we look at consumer-class spending, emerging East Asia is expected to become home to the largest consumer market sometime in this decade, according to projections, made by Homi Kharas of the Brookings Institution and others, shown in the figure below.
Figure 2. Reshaping the geography of the global consumer market
Source: World Bank staff estimates using World Data Pro!, based on various household surveys. Note: Middle-class is defined as spending more than $12 (PPP adjusted) per day. Emerging East Asia countries included in the calculation refer to Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, Vietnam, and China.
Intraregional economic integration could act as a buffer against global uncertainties
Emerging economies in Asia are known to be the factories of the world. They play an equally important role as rapidly expanding consumer markets which are already starting to shape the next wave of intra-regional and global trade flows. Policymakers in the region should heed this trend. Domestically, policies to support jobs and household income could help bolster the role of private consumption in the steady state in some countries, mainly China, and during shocks in all countries. Externally, policies to lower barriers to regional trade could foster deeper regional integration. While average tariffs have declined and are low for most goods, various non-tariff barriers remain significant and cross-border trade in services, including in digital services remains particularly cumbersome. Multilateral trade agreements, such as ASEAN, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP) offer opportunities to address these remaining constraints. Stronger intraregional trade and economic integration can help diversify not just supply chains but also sources of demand, acting as a buffer against uncertainties in global trade and growth.
spread covid-19 tariffs gdp global trade consumer spending africa japan europe eu chinaInternational
Air pollution can increase the risk of COVID infection and severe disease – a roundup of what we know
Air pollution can increase COVID risk by weakening our immune defences and exacerbating underlying health conditions.

The early part of the COVID pandemic led to a significant reduction in air pollution in many parts of the world. With lockdowns, travel restrictions and decreased economic activity, there was a noticeable drop in the emission of air pollutants, such as nitrogen dioxide (NO₂) and particulate matter (PM) that is fine enough to be inhaled.
Changes in air pollution varied depending on the location and the type of pollutant, but reductions were particularly noticeable in cities and industrial areas, where emissions from transport and industrial activities are typically high. In many areas though, air pollution levels quickly increased again as restrictions eased and activity resumed.
Along with having harmful effects on the environment, it’s well established that air pollution can have negative effects on human health, including increasing the risk of respiratory and heart problems and cancers. Emerging research suggests air pollution may also affect the brain and be linked to certain developmental issues in babies. The severity of these health effects can depend on the type and concentration of pollutants, as well as individual factors that affect a person’s susceptibility.
While there has been much focus on the way the pandemic affected air quality, it has also become apparent that air quality affects COVID risk – both in terms of the likelihood of contracting COVID and how sick people get with the infection.
How does air quality increase COVID risk?
Research has shown that long-term exposure to air pollution, particularly fine particulate matter under 2.5 micrometres (PM2.5) and NO₂, may increase the risk of COVID infection, hospitalisation, and death.
A study in England, for example, showed long-term exposure to PM2.5 and NO₂ is associated with 12% and 5% increases in COVID cases, respectively, for every additional microgram of PM2.5 or NO₂ per cubic metre of air.
One of the primary ways that air pollution may increase the risk of COVID is by weakening the respiratory system’s defences against viral infections. We know long-term exposure to fine particulate matter that is inhaled can reduce the lungs’ immune responses and cause damage to them, which can make people more vulnerable to respiratory infections like COVID.
Read more: Long COVID linked to air pollution exposure in young adults – new study
Air pollution can also impact the immune system’s ability to fight off viral infections. Exposure to particulate matter, such as PM2.5, has been linked to increased levels of cytokines and inflammation in the body.
Cytokines are signalling molecules that help the immune system fight infections. But high levels can cause a “cytokine storm”, where the immune system overreacts and attacks healthy cells in addition to the virus. Cytokine storms have been associated with severe COVID and a higher likelihood of dying from the disease.
And notably, COVID binds to ACE2 receptors to enter a cell. In studies of animals, PM2.5 exposure has been linked to a significant increase in ACE2 receptors. PM2.5 may therefore increase the probability of COVID entering cells in humans.

Further, air pollution may increase the severity of COVID symptoms by exacerbating underlying health conditions. Exposure to air pollution has been linked to increased rates of conditions such as diabetes and heart disease, which have been identified as risk factors for severe COVID.
Air pollution may also increase COVID transmission rates by acting as a carrier for the virus. Researchers continue to debate the potential of respiratory droplets from infected people attaching to particulate matter in the air and travelling long distances, potentially increasing the virus’s spread.
How can I reduce exposure to air pollutants?
With all this in mind, reducing air pollution levels may be an important strategy for mitigating the impact of COVID and protecting public health.
This requires a combination of individual actions and collective efforts to address the sources of pollution. There are several ways you can decrease your and others’ exposure to air pollution, including:
Limit outdoor activity during high-pollution days. Check air quality forecasts and limit outdoor activities on “high” days. Try to go outside at times of the day when pollution levels are lower, such as early morning or late evening.
Think about your mode of transport. Using public transport, walking or riding a bike instead of driving can help to reduce pollution levels. If you do drive, try to carpool or use an electric or hybrid vehicle.
Read more: Wuhan's lockdown cut air pollution by up to 63% – new research
Use indoor air filters. Having air filters in your home can help reduce indoor pollution levels. Hepa filters can remove many pollutants, including fine particulate matter. Further, the use of Hepa air systems can successfully filter COVID virus particles from the air.
Samuel J. White advises on air quality and receives funding from Fédération Equestre Internationale.
Philippe B. Wilson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
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