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Coronavirus is our chance to completely rethink what the economy is for – The Guardian

There’s been a lot of argument about how best to handle the coronavirus pandemic, but if there are two things on which most people currently agree, it’s that governments should have been better prepared, and that everyone should get back to work as soon as it is safe to do so. After all, it seems more or less self-evident that you need to be ready for unexpected contingencies – and that it is better for the economy to function at full capacity. More PPE would have saved doctors’ and nurses’ lives; more work means less unemployment and more growth.

But there is a catch to this, and it has been at the heart of political debate since Machiavelli. It is impossible to achieve both goals at once. Contingency planning requires unused capacity, whereas exploiting every opportunity to the full means losing the flexibility needed to respond to sudden changes of fortune.

It wasn’t until the mid-20th century that economists started to realise that it might be better to leave a bit of slack in the economy to help cope with exogenous shocks. In the years after the Great Depression, governments saw the problem as “idle men, idle land, idle machines and idle money”. But there were also economists, such as the Englishman William Hutt, who went against the Keynesian consensus and pointed out that there were some things – fire extinguishers, for example – that were valuable precisely because they were never used. Having large stocks of PPE, underemployed nurses, or a lot of spare capacity in ICUs, falls into the same category. Idle resources are what you need in a crisis, so some degree of inefficiency isn’t necessarily a bad idea.

Trying to manage a pandemic in a world of just-in-time production lines and precarious labour brings these issues into sharper focus. On the one hand, there weren’t enough idle resources for most countries to cope adequately with the spread of the virus. On the other, the enforced idleness of the lockdown leads to calls to get the economy moving again.

For Donald Trump, the prospect of a prolonged shutdown is particularly alarming because it threatens to undermine the competitiveness of the US economy relative to other nations (notably China) that have dealt with the crisis more efficiently. That’s an argument Machiavelli would have understood very well. One of his constant refrains was that idleness could lead to what he called corruption (the diversion of resources from the public good, which Trump equates with the Dow Jones Industrial Average) – and that corruption leads inevitably to defeat at the hands of your rivals.

For Machiavelli, the contagion of corruption was spread above all by Christianity, a “religion of idleness”. And it is true that the Judeo-Christian tradition, with its sabbaths, jubilees, feast days, and religious specialists devoted to a life of prayer and contemplation rather than martial virtue, built a lot of slack into the system. Machiavelli thought it should be squeezed out through laws that would prevent surplus becoming the pretext for idleness, rather in the way that later economists looked to the pressure mechanism of competition to do the same.

But there’s a contradiction in Machiavelli’s thinking here, because he also acknowledged that one of the things every polity needed was periodic renewal and reform, and that corruption was what preceded it. So you’re in a double bind: either you can squeeze out the slack and never experience renewal, or you can court corruption and create an opportunity to start over and make things better.

With hindsight it looks like that’s one of the problems the religions of idleness tried to address, by incorporating idleness into the calendar. In ancient Hebrew tradition, there were weekly sabbaths, and every seventh year was meant to be a year of release in which the land was left to lie fallow, debts were forgiven and slaves emancipated. The idea was picked up by the Chartist William Benbow, who in 1832 used it as the model for what he called a Grand National Holiday, in effect a month-long general strike that would allow a National Congress to reform society “to obtain for all at the least expense to all, the largest sum of happiness for all”.

Benbow’s plan came to nothing, but it provides an alternative model for how the lockdown might be viewed. The Italian philosopher Giorgio Agamben has complained that the lockdown is a state of exception with an increase in executive powers and a partial abrogation of the rule of law; but the flipside is that it is the closest thing to a Grand National Holiday that most of us have ever experienced. Despite all the suffering the pandemic has caused, for many it has also meant no work, debt relief, empty roads and a rare opportunity to live on free money from the government.

Generally speaking, exogenous threats like wars or natural disasters act as pressure mechanisms forcing us to redouble our efforts to combat them together. The benefit of contagion is that the only way to combat it is to do less rather than more. That has some demonstrable advantages. There has been a dramatic global fall in carbon emissions. The only comparable reduction in greenhouse gases during the past 30 years came as the result of the decline of industrial production in eastern Europe after the fall of communism. That was managed exceptionally badly because neoliberal economists thought that what post-communist states needed was the pressure of free market competition. Shock therapy would galvanise the economy.

The pandemic has been a shock alright, but its effect has been the opposite of galvanising. People everywhere had to stop whatever they were doing or planning to do in the future. That provides an altogether different model of political change. The philosopher Walter Benjamin once noted that while Karl Marx claimed that revolutions were the locomotives of world history, things might actually turn out to be rather different: “Perhaps revolutions are the human race … travelling in this train, reaching for the emergency brake.”

Everyone keeps saying that we are living through strange times, but what is strange about it is that because everything has come to a stop, it is as though we are living out of time. The emergency brake has been pulled and time is standing still. It feels uncanny, and there’s more slack in the world economy than there ever has been before. And that means, as both Benjamin and Machiavelli would have recognised, that there is also a once-in-a-lifetime opportunity for change and renewal.

For some, this might mean a shorter working week, or less air travel. For others, it might suggest the opportunity for a more fundamental remaking of our political system. A space of possibility has unexpectedly opened up, so although the lockdown may be coming to an end, perhaps the standstill should continue.

Malcolm Bull teaches at Oxford. His latest book is On Mercy

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Economy News

Five charts that track the U.S. economy as states reopen – CNBC

People congregate outside a restaurant in the upper east side during the coronavirus pandemic on May 2, 2020 in New York City.

Noam Galai | Getty Images

As states gradually reopen, the U.S. economy is showing signs of life after one of the most significant downturns in history. 

Though many restrictions remain in place across the country, Americans are gaining a greater sense of normalcy as they venture out to restaurants, increase travel and buy new homes. 

These charts track five key indicators that signal a growing revival of the economy as consumers resume familiar routines and move forward from lockdown measures and business closures. 

Americans are starting to drive and walk again, though transit use is lagging

Apple Maps is often a go-to navigation app for many travelers. However, with stay-at-home orders implemented throughout the majority of the U.S. in March and April, many Americans could only venture out for essential reasons, such as a trip to the grocery store. Data from Apple shows a sharp decline in requests for directions on Apple Maps during the early stages of pandemic as lockdown measures were put in place. 

As states began to ease travel restrictions, data shows an increase in requests for walking and driving directions. With retailers, beaches, parks and other places reopening, travelers have had more places to visit these past few weeks.

However, requests for transit directions still remain at less than half of their previous levels. As employees continue to work from home and travelers remain fearful of catching the virus in crowded subway cars, buses and trains, public transportation may not be an ideal option yet for many commuters.

Diners are returning to restaurants

The restaurant industry was hit hard by the coronavirus as most states restricted their business to takeout, delivery and curbside pickup. Data from the OpenTable network shows that restaurant bookings plummeted as these regulations were put in place, and were down 100% in the last weeks of March and most of April when compared to last year. 

However, several states have allowed restaurants to reopen dining and there was a recent uptick in bookings in May, indicating that the worst of the pandemic could be over for the food service industry. These restaurants are often required to operate under new health guidelines such as capacity limitations and having to space tables six feet apart. 

Hotel occupancy rates are coming back

The pandemic dealt a serious blow to the hotel industry and the broader travel sector, as restrictions were put in place both within the U.S. and abroad. During the initial stages of the outbreak, global hospitality research company STR reported that the occupancy rate for U.S. hotels was at just over 20% in April, a steep drop from their more than 60% occupancy in February. The pandemic also prompted major hotel chains and resorts to temporarily close properties as travelers put their plans on hold. 

However, occupancy rates began to increase in April and May as people resumed travel for business and leisure, and more hotels reopened. To help keep guests safe, major hotels have enhanced their cleaning procedures and put new health protocol in place, such as requiring employees to wear masks and putting plexiglass barriers at the front desk.

Air travel is picking up, but still down significantly

With airlines clamoring for government bailouts to stay afloat, the air travel industry has been one of the most visible parts of the economy impacted by the coronavirus. The daily number of travelers passing through Transportation Security Administration checkpoints fell almost 100% year-over-year in March and April and has picked up only slightly in May, according to data from TSA screenings.

However, as travel has increased, airlines have had to adjust booking policies in order to ease customers’ fears of contracting the coronavirus. Companies like American Airlines and United Airlines are alerting passengers when planes are full and are making it easier for them to switch flights. 

Home purchases are up vs. last year

As coronavirus-related restrictions ease, potential homebuyers have been able to tour open houses and resume their search for a new home. Though the singly-family home mortgage purchase index saw a more than 30% drop in April when compared to last year, it has since reversed its course, according to data from the Mortgage Bankers Association. The index is now up almost 10% compared to the same period last year, indicating that the home purchase market could be on its way to a quick recovery. 

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Economy News

With an ailing domestic economy, can China still pursue its global plans? – The Guardian

What next in Beijing’s master plan for China’s global advancement? Anyone looking for details would have struggled to find them last week at the press conference held by Li Keqiang, with the Chinese premier much more focused on the ruling party’s perils on the home front. 

The “wolf warrior” diplomacy, the world of blustering threats that Beijing has been using to bend countries to its bidding, was absent. Instead Li’s focus in the 90-minute event was much more that of a nerdy economic policymaker. In the kind of minute detail redolent of the boss of a small provincial city, the premier listed an array of support measures for the economy: tax cuts for small business, reforms to medical and unemployment insurance, and support for the gig economy.

The reason for Li’s focus was obvious. China might have been the first major country out of (as it was the first into) the Covid-19 crisis, but its economy suffered a brutal contraction along the way, leaving a jobless rate of about 20%. 

Li Keqiang gives a video press conference

Li Keqiang gives a video press conference after the closing of the third session of the 13th National People’s Congress on 28 May 2020. Photograph: China News Service/Getty Images

The premier’s annual press conference, held at the end of the annual session of the National People’s Congress, China’s legislature – delayed by nearly three months because of the virus – is a keenly watched event, at home and abroad. There were no questions on Uighurs or re-education camps in Xinjiang, China’s recent border clashes with India, its trade war with Australia or the detention of a Huawei executive in Canada, issues the government didn’t want to air. Likewise, the queries on the economy, the origins of Covid-19 in Wuhan, deteriorating relations with Washington, and the new Hong Kong security law were all softballs for Li, who is effectively Xi Jinping’s deputy. 

But even if the questions from foreign and local reporters are cleared by the government beforehand, it is still the only moment in each calendar year in which a top leader appears at length in public and has to state the government’s case. The focus on the economy, then, was telling. For a ruling party that has built legitimacy on near continuous high-speed growth since the late 1970s, the current downturn is a bracing moment. Tens and perhaps hundreds of millions have lost jobs. Those still in employment have had incomes sharply reduced, cutting into consumption. With the US, Europe and Japan in deep recessions, exports cannot take up the slack.

To be sure, Beijing has not let its regional and global ambitions lie fallow during Covid-19 and its aftermath, with navy patrols in the South China Sea and the airforce sorties around Taiwan both continuing. And in Hong Kong, the most volatile issue on China’s plate, the city’s democrats have been placed firmly in the party’s sights.

With the passage of a new national security law by the NPC last week, China is making a big bet that it can stamp out its political opponents in the former British colony without killing off its vital role as a financial centre. The bill’s vaguely worded offences, outlawing subversion, secessionist sentiment and foreign interference, will be interpreted widely, as they are in China itself, to round up any critics Beijing wants to target.

A demonstrator holds up a British national (overseas) passport in front of a Hong Kong colonial flag in shopping mall

A protester holds up a British national (overseas) passport in front of a Hong Kong colonial flag in a shopping mall. Photograph: Kin Cheung/AP

The UK’s suggestion that it would offer a path to citizenship for Hong Kong holders of British national (overseas) passports wanting to leave the territory prompted a sardonic thumbs-up in Beijing. “The potential UK move has won overwhelming support from Chinese internet users,” said the Global Times, the party’s tabloid attack dog. “[They] said all traitors should be sent to the UK as they are unwanted on Chinese territory.”

But no one in Hong Kong thinks the fight will be over quickly, especially as Beijing’s plan for its takeover of the territory’s political system, and opposition to it, is so comprehensive.

“They will send down cadres from the Chinese Communist party to supervise the government, the executive, the legislature, and more importantly, the judiciary. This is only the beginning, I tell you,” Martin Lee, the barrister and veteran democrat leader said on Friday.

In his press conference, Li offered only platitudes on the US relationship but said enough to confirm that bilateral ties between the two superpowers, one rising, the other in relative decline, will not get better soon. There is no off ramp for the US and China for the moment, as it is clear that neither country is looking for one. Washington feels it is playing catch up in muscling up to Beijing, a debate that will only be sharpened in a presidential election year. And China under Xi is programmed not to take a backward step.

It is possible that the weakness in both countries’ economies could temper their hardline positions this year, because neither wants to hurt growth any more than it has been already by Covid-19. Equally, Donald Trump might slap new sanctions on China at any time in a heated election campaign, to reinforce his narrative that he has been uniquely tough on China and that Joe Biden, his expected Democratic challenger, by comparison, will be weak. Beijing has made sure to retaliate against any economic sanctions imposed by Trump so far. It is an open question as to whether their calculation will change in an election year.

One standout from Li’s appearance before the media was his focus on the importance of the private sector to China’s economic recovery. Xi’s support for the state sector, and his lip service to the private economy, which drives Chinese growth and employment, has alienated many of the country’s entrepreneurs. A number of wealthy business leaders who crossed Xi have been jailed. But Li, who has been overshadowed in office by Xi, took a different line, though whether support for the private sector can be sustained in a grim political climate, however, remains to be seen. Xi will not tolerate any rivals, especially in the form of rich entrepreneurs.

Richard McGregor is a senior fellow at the Lowy Institute in Sydney and is the author of numerous books on Chinese politics and foreign policy

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Pandemic opens door to ideas new and old for a better economy – Economic Times

By Alexander Weber

Modern economies will change forever after the coronavirus pandemic passes if some radical thinkers get their way.

Governments have already cast aside dogmas at least temporarily — such as Germany’s “black zero” balanced budgets — to protect companies and jobs in the deepest peacetime recession in almost a century.

Yet moves such as governments mailing checks to citizens and the U.K. administration borrowing direct from the Bank of England also offer a glimpse of different ways of running things in the longer-term.

“Every crisis is an opportunity to rethink priorities,” said Maria Demertzis, deputy director of the Bruegel think tank in Brussels. “The scale and the type of the crisis mean that, by definition, the tools we’re operating under aren’t sufficient.”

Bloomberg

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Change won’t be easy. The global financial meltdown a decade ago led to similar cries, mostly to no avail besides stricter rules on banks that were later watered down. Here are some of the ideas — often old ones revived — that their proponents want to see go mainstream this time.

Money for Nothing
Government cash handouts have been a striking part of the fight against the slump. The U.S. has sent $1,200 checks to low- and middle-income households, and Hong Kong is giving residents HK$10,000 ($1,300). Some administrations are temporarily paying the wages of private-sector workers so they can be furloughed rather than sacked.

It has happened before — the U.S. and Australia both issued checks during the global financial crisis, and Hong Kong has been using it as an occasional tool for a while. What’s different this time is that there has been barely any opposition from fiscal conservatives.

That has given new impetus to calls for a universal basic income — payments to citizens from the state regardless of whether they’re working. Rationales include improving economic flexibility, eradicating poverty and reducing the exploitation of labor.

Pilot projects have failed to gain much traction though. Most recently, a Finnish experiment ended in 2018 with mixed results. It didn’t deliver the boost to the jobs market some hoped it would, though it did make people happier.

Spain approved a “minimum living wage” this week, a lesser step than the junior partner in the coalition government had pushed for.

Checks for Free
A lot of economic thinking is focused on how governments should pay for such plans, and meet all the other bills they’re accumulating. One radical strand says they should simply get their central banks to create cash out of thin air, debt-free.

Known as helicopter money, it’s supported by advocacy groups such as Positive Money, as well as some economists. European Central Bank officials repeatedly say they haven’t discussed it.

Closely related is Modern Monetary Theory, which argues that governments can run budget deficits in pursuit of policies such as full employment without raising taxes or even selling bonds to finance the outlays. They should stop only if inflation rises too high.

Stony Brook University Professor Stephanie Kelton, a prominent MMT adherent, says the U.S. should spend a lot more than it taxes for the duration of the crisis. Economists at Pictet Wealth Management already see some traces of MMT in the U.S. response to the slump.

Another idea is “perpetual bonds” that never have to be repaid, which politicians in Italy and Spain have floated. Far-left politicians in Europe are calling for unlimited bond purchases by the ECB and subsequent debt cancellations.

Such monetization would be illegal in the European Union and elsewhere — legislation drafted because of fears of hyperinflation — but milder forms of the argument are gaining traction. Some economists say the ECB could buy up private loans to companies and stretch out maturities over several decades. Japan is arguably already doing so.

Let’s Work
If public money is seen as a policy tool, then jobs are a popular goal. Long-term unemployment can lead to what’s called “hysteresis” — a loss of skills that undercuts the economy’s potential.

Work guarantees are popular among some U.S. Democrats amid bleak prospects for young people, with the government as an employer of last resort.

The pandemic also exposed how certain jobs critical for coping with this crisis — such as cleaning, nursing and restocking supermarket shelves — are among the worst-paid. While health workers have received daily applause from citizens in many cities, that doesn’t seem to be translating into higher wages.

At the other end of the pay scale, anthropologist David Graeber says the crisis supports his theory that many of today’s best-remunerated gigs don’t serve any real function.

Eat the Rich
For those hoping to paying off the dizzying costs of the recession while redressing social imbalances, the answer is to tap the wealthy. Peru is planning a levy that would lead to greater “solidarity” between citizens, and German Finance Minister Olaf Scholz has floated taxing the well-off after the crisis.

Thomas Piketty, a French economist who made his name arguing that modern capitalism inherently favors the rich, has noted that Germany and Japan imposed massive wealth taxes after World War II.

The crisis has also intensified the spotlight on internet companies such as Facebook Inc. and Amazon.com Inc., which were already in the crosshairs of governments for their low tax payments. Now they’re also seen as beneficiaries of the confinement measures.

The European Commission’s new 750 billion-euro ($833 billion) recovery fund includes a plan to tax the digital giants if a global solution can’t be found.

Other companies aren’t immune — supermarkets and producers of long-lasting foods are also perceived to have been crisis winners. A YouGov poll shows a majority in the U.K. supports a tax on “excess profits.”

Bring It Home
International trade could fall by more than 30% this year because of the coronavirus, according to the World Trade Organization. For some, shortages of medical equipment and the apparent fragility of supply chains are evidence that decades of globalization went too far and now is the time for greater self-sufficiency.

Donald Trump has spent his U.S. presidency attacking global commerce, and the U.K. has opted to leave the EU, the world’s largest single market. Those trends look set to continue.

The EU itself is urging vigilance about foreign investments to ensure critical infrastructure isn’t sold off amid depressed asset prices, and the coronavirus recovery plan aims for “tech sovereignty where it matters.”

Germany’s leadership has revived a once-rejected plan to revolutionize the nation, installing a form of state capitalism that owes an intellectual debt to countries such as China.

Slow Down
While all of the above ideas rely on getting the economy back on its feet, one movement insists that it may then be time to take a breath.

The current crisis is effectively a real-life experiment in what’s known as “degrowth” — a philosophy of reduced consumption that environmentalists have touted as the only way to save the planet from climate change.

While the pandemic lockdowns suggest that’s no fun, proponents say the chaotic freezing of the economy shouldn’t be seen as an example of degrowth, but rather as a sign of why it’s needed — namely because the virus crisis shows the “unsustainability and fragility” of our current way of life.

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Protecting people now, helping the economy rebound later | VOX, CEPR Policy Portal – voxeu.org

The public health measures to ‘flatten the Covid-19 curve’ will necessarily and appropriately impose large economic costs. This column, taken from a VoxEU eBook, identifies the constraints that policy faces during a pandemic – uncertainty, time, and capacity – and the implications of these constraints.

The coronavirus is a shock to the economy the likes of which none of us has ever seen. A hurricane hitting every place in the United States, Europe, and much of the rest of the world simultaneously. And hitting every day for weeks, months, or perhaps even a year. It is partly a supply shock as workers can no longer work and supply chains get severed. It is also partly a demand shock as people will cut back their demand, not just for restaurants and travel but likely much else throughout the economy given the extreme nervousness about their economic situation. The public health measures to flatten the curve, delaying and spreading out the extent of the virus, will necessarily and appropriately impose large economic costs. The job of economic policy is, to the greatest extent possible, to protect people from those costs now and help ensure the economy is in a position to rebound quickly when the health threat is contained. Doing this will require a multifaceted and ambitious policy response.


This column is taken from the VoxEU eBook Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes. Download the eBook here.


Human suffering in the immediate future

The human toll will be enormous. Most profound and consequential will be the toll on health – the illnesses and deaths from COVID-19 and also the collateral damage to others from an overloaded hospital system. Less profound, but even more widespread, will be the economic toll on workers who lose their jobs or see dramatic reductions in their incomes, either directly because they work in an industry that is shut down as a result of the pandemic or indirectly because they work in anything in the economy which is seeing less demand as a result of all of the income loss and dramatically worsened outlook for the future.

Prolonged reductions in economic activity

The economic problems could persist well after the pandemic is contained. It would be foolish just to think of what is happening as intertemporal substitution – people not going to restaurants today but then making up for it by going to even more restaurants next year. There are four interrelated reasons why the economic problems could be very persistent:

  • Labour market matching means that unemployment rates can rise sharply but not fall sharply. In the US financial crisis, for example, the unemployment rate took less than two and a half years to rise from 4.4% to 10% but, seven years to recover. The pattern is similar in previous recoveries and in other countries, and is the result of the labour market matching process in which it is hard to connect people with jobs.
  • Companies will go bankrupt throughout the economy, although the extent and magnitude will depend on the policy response. In some cases, these could be disorderly bankruptcies that separate firm-specific management capital, worker capital, and a nested set of arrangements and sever all of them simultaneously. Putting that back together will not be easy.
  • Financial institutions could come under tremendous strain and, absent an ambitious policy response, the economic crisis could turn into a financial crisis. Banks had substantial amounts of capital going into the crisis, including both the required levels and additional countercyclical capital buffers in many countries, but not the United States. Business credit lines have already been drawn, loans will be extended or not repaid, and funding could be increasingly difficult – all threatening to freeze up the financial system.
  • The global aftershocks could also be large. Some countries may succeed in containing the virus more quickly than others. Some countries may succeed in containing the economic and financial damage associated with the economy more quickly than others. A rolling set of epidemics in individual countries and economic crises in individual countries would create global limits on travel and continue to strain global supply chains.

Crafting a policy response during a pandemic

Policy faces three constraints during a pandemic. 

The first is uncertainty. Macroeconomic policy is operating under substantial uncertainty at the best of times, given the impossibility of definitive evidence from randomised control trials and the fact that the key structural parameters of the economy are likely fluctuating over time. Now it is operating under massive uncertainty given that we do not know the duration of the pandemic, the duration of the steps that are being taken to flatten the curve, the effect all of these will have on the economy, and how economic policies work in this situation.

The second is time. The change in economic activity has been larger and more abrupt than anything anyone has ever experienced on a global basis. The US housing bubble peaked in 2006, European financial institutions started to have problems in the summer of 2007, economic activity slowed over the course of 2007 in the United States, Bear Stearns needed to be rescued in March 2008, and Lehman Brothers collapsed in September 2008. At times events went quickly, but for the most part the economic situation unfolded slowly. In contrast, each day brings more news about the pandemic and more news about economic closures. Policies that are operational as quickly as possible are necessary.

The third constraint is capacity. During the financial crisis, government employees showed up at their jobs; now many are teleworking and likely all will be soon. Many are scared and distracted by the spread of the virus. Some will get sick and die, or if they do not will care for and grieve for others who do. All of this applies to the people developing policies in places like legislatures, finance ministries and central banks. It also applies to the people implementing the policies. At the best of times it is hard to implement administratively complex new policies. And these are not the best of times.

These constraints have six implications:

  • Better to do too much rather than too little. The current situation is one of radical uncertainty. And given this radical uncertainty, policy has to be based on a risk analysis of the cost of doing too little and the cost of doing too much. In this case the risk analysis is increasingly clear: the cost of doing too much is the time value of money, which right now is negative given the negative real interest rates. The cost of doing too little could potentially be enormous both in terms of immediate human suffering and a prolonged economic crisis that exceeds the one in the wake of the global financial crisis.
  • Use existing mechanisms as much as possible. Franklin D. Roosevelt engaged in “bold and persistent experimentation” in combatting the Great Depression. This process unfolded over a decade. We do not want to be combatting the economic fallout of the pandemic over the course of a decade. Increase funds under existing channels of assistance rather than creating new ones; repeat policies that have been tried and worked (at least administratively) in the past.
  • Invent new programmes where necessary. It will not be possible to use existing mechanisms for everything. The United States, for example, does not have paid leave or mandatory sick days so needs to invent and implement them in the middle of the pandemic. No country has sufficient mechanisms to deal with abrupt revenue stops in a large number of sectors across the economy.
  • Diversify and do not fear duplication or unintended ‘winners’ in the response. Given the uncertainty about the economic situation, the impact of policies, and the new policies that are being invented, it is worth diversifying the response. Many policies will have to be tried. Some will work; others will not. Many will be wasteful, giving money to people or businesses that do not need it – or even giving it to the same ones twice. The risk of duplication is much smaller than the risk of over-targeting that leaves many out.
  • Enlist the private sector as much as possible. The private sector will be operating under many of the same operational constraints as the government. But it has an existing infrastructure, can be nimble, and can form a diversification of the response. Direct government lending is hard, but loan guarantees can enlist the private sector to make the loans. The private sector will make the additional food and hospital equipment but will need financial incentives. Some will end up making a profit out of all of this, now is not the time to be squeamish.
  • Ensure the response is dynamic and persistent. The damage is uncertain. It may vary across places. It may last a long time. Policy needs to be ready to stay in place and even grow in the places and times it is needed. The more that policies can have triggers to automatically continue and expand in places and times they are needed, the better.

What a policy response should look like

The exact policy response will vary from country to country but here are some ways to operationalise the principles above:

  • Spare no expense on health. Testing, hospital systems, antiviral and vaccine research and anything else that is needed should be funded.
  • Targeted assistance using existing programmes. In the United States this means expanding eligibility for unemployment insurance (although that is hard because eligibility rules vary across the 50 states and the District of Columbia), increasing the amount of benefits ($50 per week added), and expanding other programmes for the most vulnerable, like the Supplemental Nutrition Assistance Program (SNAP). In addition, increasing federal funding for states is critical and one of the best mechanisms for this. The United States is increasing the share of Medicaid paid by the federal government.
  • Cash payments to households. Many people will be affected in many ways, with lost jobs, furloughs, lost savings, lost gig work, greatly reduced employment, and the like. Many will fall outside the targeted programmes that already exist or will be set up. Italy and France are delaying bill payments, but those bills will eventually have to be paid. Cash payments to households are a very efficient way to make sure broad-based help is available. This can help cushion the blow in the short run and put people in a better position to spend, driving economic recovery, after the virus passes. In the United States this should be at least $1,000 per adult and $500 per child – and importantly should continue as long as the unemployment rate is over 5.5%.
  • Assistance to businesses. This will require the most creativity. Large-scale lending programmes will be an important part of the response, including partial or full government guarantees of loans made by banks to businesses in order to keep them able to employ people and out of bankruptcy so as to be in a position to resume activity after the pandemic ends – something Germany, among others, has launched. New procedures are needed to enable large-scale workouts and avoid costly bankruptcies and liquidations without relying heavily on government administration. Whether the government should directly cover a large fraction of payroll, as in Denmark, is worth seriously considering. Finally, ensuring banks can extend and pretend on loans while extending new loans will require not just temporary regulatory changes but also backstops for the financial system.

Conclusion

Too often in January, February and the first half of March, policymakers were days or even weeks behind where they needed to be. For public health the consequence of this delay has been enormous; when dealing with what is initially an exponential process, a delay of a few days in implementing social distancing can have a large impact on the trajectory of the virus.

Policymakers are increasingly grasping the gravity of the situation and are implementing ambitious measures to flatten the curve of the virus, help protect people now, and help the economy rebound in the future. Much, much, much more will be needed – and I fully expect that much, much, much more will indeed be done.

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Economy News

Roundup: US equities post weekly gains as economy reopening in focus – Xinhua | English.news.cn – Xinhua

NEW YORK, May 30 (Xinhua) — U.S. equities posted solid gains during the holiday-shortened week, as investors weighed the possibility of normalizing economic activities.

For the week ending Friday, the Dow advanced 3.8 percent, the S&P 500 gained 3 percent, and the Nasdaq was up 1.8 percent. U.S. markets were closed Monday in observance of Memorial Day.

The S&P U.S. Listed China 50 index, which is designed to track the performance of the 50 largest Chinese companies listed on U.S. exchanges by total market cap, logged a weekly gain of 5.2 percent.

For the month of May, the Dow notched a 4.3 percent rise, the S&P 500 climbed 4.5 percent, and the tech-heavy Nasdaq marked a 6.8 percent return.

“The bottom line is that the worst of the economic crisis may be over – which may help explain the ongoing stock market rally – but no one can know for sure at what pace the economy is likely to recover from here,” analysts at Zacks Investment Management said in a note on Saturday.

All 50 U.S. states have eased COVID-19 restrictions to varying degrees, despite fears of a re-acceleration in virus cases.

Signs of life are starting to appear again across the United States, however, the return of economic activity is happening at a much slower pace so far, and plenty of weakness remains – retail sales data for April showed steep declines, and Americans are still losing jobs, albeit at an increasingly slower pace, noted analysts at Zacks Investment Management.

Multiple data released lately showed the pandemic has severely crippled the U.S. economy.

U.S. personal consumption expenditures (PCE) nosedived 13.6 percent in April month on month amid widespread shutdowns triggered by the COVID-19 outbreak, the U.S. Commerce Department reported on Friday.

The plunge, following a revised 6.9 percent drop in March, has been the sharpest drop in government records since six decades ago, according to the report released by the department’s Bureau of Economic Analysis.

The PCE data came one day after the Commerce Department revised down gross domestic product in the first quarter to a 5.0 percent annualized contraction in a second estimate, 0.2 percentage point lower than the advance estimate in April.

Meanwhile, U.S. initial jobless claims registered 2.123 million in the week ending May 23, the Department of Labor reported Thursday. Over the past 10 weeks, more than 40 million Americans have filed for unemployment insurance.

Wall Street also paid close attention to the latest comments from U.S. Federal Reserve Chairman Jerome Powell.

At a virtual event held by Princeton University on Friday, Powell said he is concerned about a potential second wave of outbreak. “I think a second wave could be what would really undermine public confidence and might make for a significantly longer recovery, weaker recovery.”

As of Saturday afternoon, more than 1.76 million confirmed COVID-19 cases have been reported in the United States, with over 103,000 deaths, according to the Center for Systems Science and Engineering at Johns Hopkins University. Enditem

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Economy News

To Rebuild the Economy, India Needs to Be Atmanirbhar in Ideas – The Wire

The people of India have by now come to expect the announcement of a new programme from the government at periodic intervals. Thus in the past six years, we have had Make in India, Swachch Bharat and Less Cash. Now there is something larger, a goal. In his address to the nation on May 11, Prime Minister Narendra Modi called for an Atmanirbhar Bharat. Actually, self-reliance was the stated goal of economic policy in India in the early years after 1947. The architect of this plan was Jawaharlal Nehru, whose record as prime minister – especially economic – intellectuals associated with this government have trashed relentlessly. Now, over half a century after his death, the fulcrum of his vision for India has been ceremoniously brought back with nary an acknowledgement.

Both the facts of economic development across the world and advances in the methodology of empirical research would help us make sense of the economic policies of early independent India. History suggests that India did not pursue a strategy entirely out of line with what was adopted elsewhere. More importantly, we have evidence that growth here first accelerated in the early 1960s. This could only have been a consequence of the policies adopted in the earlier decade, notably the ‘Nehru-Mahalanobis Strategy‘ of investing in capital goods production via newly formed public enterprises. This evidence cannot be jettisoned easily. It is based on a statistical procedure that is free from the predilections of the practitioner. It conclusively disposes of the stance that nothing really changed in India after 1947, a view once held at both ends of the political spectrum but now the preserve of the right-wing. The same procedure also reveals that growth did not accelerate after the Modi government has come to power.

Jawaharlal Nehru. Photo: Wikimedia Commons

However, while we know that the 1950s were literally path-breaking, we also know that the performance of India’s economy has for far too long left much to be desired. This is apparent when we look to our east, where all countries have surged ahead of us, raising national income and spreading it widely. We also know exactly how this has been achieved. Even as they had accumulated physical capital, our East Asian counterparts developed their human resources. The question staring at us is why a society with a highly educated elite in power failed to observe this as development played out over decades.

Swaraj in ideas

The answer may be found in the work of an Indian philosopher who showed us exactly where the problem lay. In an address to the students of Hooghly College close to a century ago, Kalidas Chandra Bhattacharya spoke of “swaraj in ideas”. By this, he had meant the importance for a people to aim for self-determination in thought. Implicit in this was the idea that political freedom, at that time seen as the liberation of India from colonial rule, was insufficient; Indians must free themselves from the yoke of Europe’s premises. He was not advocating cultural chauvinism but an intellectual autonomy when choosing what is best for India.

Also Read: Will India’s Economic Recovery Be Quick? Modi Says So, But This Can’t Happen in a Vacuum

In a striking demonstration of what can go wrong if we do not keep our own counsel, today India finds herself saddled with an economic model of unbounded growth that destroys natural capital and a political model based on the vision of a majoritarian nation-state that promises endless social turmoil. It is not clear that a course correction will emerge from India’s political parties competing for power. Only a collective effort can achieve it. However, India is severely challenged in doing so, and this stems from the absence of self-determination in the realm of ideas. It has meant that we are unable to see the intrinsic strengths that have served us so well for so long.

From a narrow economic point of view, it is easy to see that the failure to spread education has led India to the cul-de-sac where she finds herself. But the answer does not lie in expanding a flawed model unsuited to India. In his book Constructive Programme, Gandhi had already pointed this out when he said:

“Foreign rule has unconsciously, though none the less surely, begun with the children in the field of education. Primary education is a farce designed without regard to the wants of the India of the villages and for that matter even of the cities. Basic education links the children, whether of the cities or the villages, to all that is best and lasting in India. It develops both the body and the mind, and keeps the child rooted to the soil with a glorious vision of the future in the realization of which he or she begins to take his or her share from the very commencement of his or her career in school.”

Gandhi was able to identify the immediate consequence of adopting imported ideas without assessing their intrinsic worth, leave alone their suitability to India. An area in which India has had to pay a high price for following this practice is the economy.

The Washington Consensus

At the implosion of the Soviet Union and the end of its East European empire, the view that the world has arrived at the end of history triumphed. While Francis Fukuyama, the author of this view, had had in mind the installation of liberal democracy as the sole model of governance, he could not have imagined the sea change that was to come in the sphere of the economic architecture of societies. There occurred at that stage a wholesale shift to a set of economic ideas termed the Washington Consensus, eponymous with the centre of global power.

Public policy now came to be interpreted almost exclusively as macroeconomic policy, and among its tenets were the avoidance of budget deficits, flexible exchange rates and the pursuit of low inflation. The absence of microeconomic goals was not an accident, it merely followed from the view that there should be no interference with market forces represented by the actions of individuals. From the Washington Consensus emerged the idea of inflation targeting underpinned by central bank autonomy, which meant that there would be explicit inflation targets but none for employment. This implies that monetary policy must remain tight out of fear of stoking inflation even if a more accommodative stance can increase employment. It is not easily seen that this in effect privileges the owners of financial wealth, set to lose from inflation, over the aspiration of workers, who would gain from an expansion in output.

For fiscal policy, the Washington Consensus recommended low budget deficits, though the idea of fiscal deficit caps appears to have come from the architecture of the European Union. By the mid-90s, these ideas had reached India’s shores but it is the government of Narendra Modi that has adhered to them most closely by championing fiscal consolidation, the reduction of deficit, and institutionalising inflation targeting through an act of parliament.

Prime Minister Narendra Modi speaks in the Lok Sabha. Photo: PTI/LSTV

While the US has shown itself to be willing to re-look at the tenets of the Washington Consensus when it faced a financial crisis in 2008 and now in the face of the COVID-19 pandemic, India is locked into them. The principal indicator of this is the unwillingness to budge from a previously announced fiscal deficit target. It is, of course, difficult to conclude from this whether the government is motivated by the desire to adhere to the pre-announced fiscal deficit target on economic grounds or if it uses this arrangement as a convenient alibi for adhering to a non-interventionist stance that is its ideological lodestar. In any case, the so-called stimulus announced by the PM and detailed by finance minister Nirmala Sitharaman reflects the ideas contained in the Washington Consensus.

Also Read: For India to Become Atmanirbhar in 10 Years, Do Indians Have to be Atmanirbhar Now?

India has paid highly for having abandoned the self-reliance in ideas that was the hallmark of its economic policy in the 50s. That experiment had drawn the best economists of the world to the country so that they could observe first-hand what was being attempted here. Right now, we are nowhere near regaining that situation as economic policy here is merely derivative of what was considered kosher in the US 25 years ago. It is striking that education did not figure among the five pillars that the PM identified as the foundation of an atmanirbhar Bharat: economy, infrastructure, system, democracy and demand. This could well turn out to be a momentous omission. Without overhauling our educational system, the prospect for self-reliance is limited.

Pulapre Balakrishnan is professor of Ashoka University, Sonipat and senior fellow of IIM Kozhikode.

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Economy News

Small signs of life return to US economy – Financial Times

An increase in traffic and a fall in panic purchases at the supermarket are among the signs that Americans are taking their first cautious steps back to normality after coronavirus flatlined the economy.

There is still a long way to go after months of lockdown. But the low for the “two-month recession” probably occurred in April, says Douglas Porter, chief economist at BMO Financial Group. 

Nearly every state has begun to reopen, even though the number of cases continues to rise in some.

And while a second wave is possible, consumers are feeling more confident than they were in mid-March if panic buying is any guide. 

Purchases of toilet paper and disinfectants have declined 63 and 83 per cent, respectively, according to data from Nielsen.

Line chart showing panic-purchase have come down from peak levels

Sales of pantry items such as soup, pasta and frozen pizza have also started to return to pre-peak levels. One exception to the trend is hand sanitiser purchases, which remain elevated. 

Retailers were among the hardest hit by the pandemic as stores shut across the country and online delivery systems struggled to keep up with demand. But visits to retailers have begun to increase as stores reopen.

The fastest recoveries have been to clothing and accessories stores which recovered 607 per cent since their April 12 low. Entertainment and hobby retailers were a close second, according to data from Unacast

Southern states such as Alabama and Mississippi, as well as those in the Midwest such as South Dakota, saw the biggest increases in visits to retailers in May.

The Gulf region’s beach visits over Memorial day weekend were 71 per cent higher than a year ago, boosting states like Alabama and Louisiana.

Line chart of Visits to retailers, thousands showing Americans begin return to retailers

Jobs that involve the least contact with others are also early indicators of activity.

An index of contact-intensity from the St Louis Fed ranked industries such as logging, securities trading and subsections of manufacturing as the least contact-intensive.

Indeed, the New York Stock Exchange in Manhattan reopened its doors to traders after an extended shutdown, and business activity in the Texas Manufacturing Outlook Survey increased 34 per cent from April to May, though it remained negative. 

Americans are hitting the road again, too. Truck traffic was down only 5 per cent from this time last year, compared with being down 13 per cent at the end of April, according to data from MS2.

Car sales were up 24 per cent on average from the second week in May to the third, according to foureyes. The seven-day average for total flights picked up more than 50 per cent from its low in mid-April, according to Flightradar24

Column chart of New auto sales (7-day rolling average, thousands) showing US car sales started picking up across the nation

Whether or not the economy has turned a corner, it seems to have stemmed the bleeding. New weekly unemployment claims fell 46 per cent from their peak in early April.

The weekly economic index, an indicator that was produced by Fed and Harvard economists at the beginning of the crisis to monitor real-time economic activity, slowed its decline and to a relative plateau. 

Nonetheless, the recovery will take time. More than 43m Americans were unemployed or underemployed as of April. The official unemployment rate, 14.7 per cent, is the worst since the Great Depression.

Consumer spending, by far the largest factor in the US recovery, decreased by 3.6 per cent from March to April — the largest monthly drop on record — and sentiment surveys do not yet indicate an upswing in confidence.

Line chart of Initial jobless claims, millions showing New jobless claims stop the bleeding

For many services, the income lost during the lockdowns cannot be made up after the fact, even if initial pent-up demand provides a boost. 

Restaurants and stores must comply with social-distancing rules which limit their capacity. Large gatherings such as concerts and live events are still prohibited in most areas.

Travel and leisure still suffer from bans on movement. Industries such as arts and entertainment, accommodation and food services will be the slowest to catch up, Mr Porter says.

And just because restrictions are lifted does not necessarily mean people will feel safe returning to normal life. Mobility data show that many began to self-quarantine well before official government lockdowns, and the trend is likely to continue after they are lifted.

“Will we get back to 100 per cent this year or even next year? Probably not,” Mr Porter says.

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Economy News

Revisiting Common Economy Questions And Reconnecting With Past Callers – NPR

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Revisiting Common Economy Questions And Reconnecting With Past Callers, Continued – NPR

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