No Quiet Monument: EconVue Spotlight July 2020

Last weekend I drove through the Skokie Lagoons, just north of Chicago. They are both beautiful and manmade, created literally from the sweat of the Great Depression. Four million cubic tons of soil were removed to form a series of lagoons from the existing marshlands. It was one of the largest public works projects of FDR's Civilian Conservation Corps, employing thousands of men, including three African-American construction companies. Started in 1933, the project took until the beginning of the US entry into World War II in 1941 to complete.

That was almost eighty years ago, and the Lagoons are now a permanent monument to a period of economic struggle. As I was driving I wondered, will there be any lasting monuments to our current trying times, or will our hardships be invisible to future generations?  We are spending huge amounts of money to keep people and companies solvent, but we are not building anything. In fact, monuments are literally being torn down. We are living in upside down times.

In China, a major monument to China's modernization is at risk this summer. The failure of the Three Gorges Dam could be the next catastrophe of this disastrous year. The dam itself is not as huge as most people imagine. The lake formed by the dam holds about 1% of the water in Lake Michigan. Hurricane Harvey dumped 125 cubic kilometers of rain on the US, which is four times as much water as the 3GD would release if it failed. However, the issue is topography rather than volume; the water doesn't have much place to spread out and where it can is densely populated.  If the 3GD either breaks or is simply opened up, here is a frightening simulation of what would happen (in Chinese but the aerial graphics are the message). 

Monuments matter to history and politics of course, but infrastructure matters for continued economic growth. Investing in the future is not just the purview of government; now more private investors are weighing sustainable investment.  Earlier this month EconVue hosted a webinar on ESG led by David Maywald in Sydney, which can be accessed either as a video or a podcast. EconVue experts Marsha Vande BergRobert MadsenNikolai Tagarov, and Karim Pakravan participated in the Q&A. Some key points; 

  • The huge advantage of a Sustainable Recovery is that it delivers multiple benefits from a single stimulus: economic rebound; local jobs; social and environmental advantages; lower costs for consumers and businesses; and the delivery of long-lived assets that are valuable.

  • We can’t wait for a perfect/rational/unified outcome such as a global carbon price (perfection is a red-herring and is counter-productive). This is why companies, consumers, entrepreneurs, investors, civil society and others are progressing sustainability faster than governments.

Webinar link: A Green Recovery for Investors?
Podcast link:  A Green Recovery for Investors?

Research from EconVue Experts 

My Remarks at EconVue Webinar on Sustainability
Marsha Vande Berg 

Asset owners are at the apex of the global investment community and many are focused on and in the vanguard of sustainability investing movement. They are an important part of a reallocation of capital to long-term investments in those companies with a credible vision for mitigating risks associated with the really big megatrends and their potential for undercutting long-term competitiveness and value creation.

A Forced Restart on International Trade
Lyric Hughes Hale 6/19/2020 the Global Governance Project

Written for the G7 Research Group this spring. The 46th Group of 7 meeting +Australia, India, and Brazil has been postponed at least until September, but these comments still stand.

Khabarovsk and Sofia Parallels
Nikolai Tagarov 

As the COVID-19 pandemic rages on around the world, authoritarian regimes such as China, or cultures where the individual's rights are seen as subservient to the public interest such as Japan and Korea have seen relatively little unrest triggered by the public health crisis. However, in the West - broadly defined not just as the US and Western Europe but also encompassing Eastern Europe and even Russia - have seen relatively high levels of citizen protests and even violence.

COVID-19, Emerging Markets and the IMF  
Karim Pakravan

Both the economic impact of the pandemic and the policy response have been unprecedented.  The downturn was abrupt and global, with output dropping by 25-40% in a single quarter starting in mid-March across the globe. Governments responded on an unprecedented and massive scale, with an aggregate $10 trillion in fiscal stimulus and $6 trillion in monetary measures to prevent an even deeper economic contraction. 

Global

The BIS Annual Economic Report 2020
Bank for International Settlements 6/2020. On the summer reading list for all economists.

COVID-19 Opinion Tracker
Kekst CNC July 10-14

This international opinion study is astounding: In Sweden and the UK the public think 6-7% of people have died from coronavirus – around one hundred times the actual death rate based on official figures. And across countries, people think 5-12% of people currently have coronavirus ( a wild overestimation)  Perception is reality when it comes to coronavirus, and such views will be impacting consumer behaviour and wider attitudes. 

Perhaps the reason the markets seem relatively optimistic is that they are better at estimating risks. 

Sustainable supply chains and regulatory policy
Nicole Darnall, Eric Welch and Seongkyung Cho, Arizona State University 3/4/19 
Handbook on the Sustainable Supply Chain, Publisher: Edward Elgar, pp.513-525

Companies do not operate supply chains in a vacuum. While there is still much to explore related to regulations and sustainable supply chains, what is clear is that regulations of all sorts influence supply chain sustainability. This relationship is likely to become stronger as concerns about global climate change grow, and international climate agreements become more stringent over time.

A tale of two wage subsidies: The American and Australian fiscal responses to COVID-19*
Steven Hamilton George Washington University 7/6/2020

Both countries instituted widespread lock-downs and similarly generous fiscal support, yet Australia has experienced a far milder recession, highlighting the critical role of public health measures in protecting the economy.

School openings across globe suggest ways to keep coronavirus at bay, despite outbreaks
Jennifer Couzin-Frankel, Gretchen Vogel, Meagan Weiland 7/7/2020 Science Magazine

The experiment will continue. Yet scientists lament that as before, it may not generate the details they crave about infection patterns and paths of transmission.

Should Economics Remain Detached from Culture?
Robert Skidelsky 7/20/20 Project Syndicate

Some economists may prefer to concentrate on the current economic situation while standing apart from cultural questions, or to say that the current kerfuffle over "cancel culture" will recede when the economy improves. But this is to abdicate responsibility, and to choose the easy road under cover of their discipline's neutrality.

Interview with Eliana La Ferrara
Times Higher Education 6/30/2020

Economists underestimate the role of culture in individual financial decisions. Thought-provoking interview.

Central Banking

The Fed Is Setting the Stage for a Major Policy Change
Tim Duy 7/17/2020 Bloomberg

The Fed is getting out of the forecasting business and will now wait for inflation to actually rise before tightening, regardless of employment numbers. Which means they will be behind the curve and we’ll see overshoot first. New policy: lower for longer..

US dollar at risk of sudden collapse? Ex-IMF official warns ‘blow-up event’ could sink currency as debt mounts
Karen Yeung 7/24/2020 South China Morning Post

With the US expected to double down on its fiscal stimulus measures to mitigate the economic fallout from the coronavirus pandemic, and the US Federal Reserve continuing its aggressive monetary policy easing, there is a rising risk of a sudden loss of confidence in the US dollar, according to Min Zhu, a former senior executive with the IMF.

What happens when asset prices are in the grip of central banks?
John Plender 6/29/2020 Financial Times

Markets contemplate financial repression of the kind operated by the Fed around WW2.

Petrou Marketplace Interview re Shelton Nomination (Radio)
Karen Petrou NPR Marketplace 7/21/2020

Petrou reminds listeners that monetary policy is made by a twelve-member committee, not the Federal Reserve Board on its own, limiting Judy Shelton’s ability to influence it at this time- should she be confirmed on the Senate floor.

United States

Initial impacts of the pandemic on consumer behavior
Natalie Cox, Peter Ganong, Pascal Noel, Joseph Vavra, Arlene Wong, Diana Farrell, and Fiona Greig 6/25/2020 Brookings

Recovery, especially among low-income households, has been significant, but won't be sustainable absent either economic recovery or government assistance.

Fear, Lockdown, and Diversion: Comparing Drivers of Pandemic Economic Decline 2020
Austan Goolsbee, Chad Syverson 6/2020 the National Bureau of Economic Research

It’s all about fear and avoidance behavior, not regulations.

A 28-Year-Old With No Degree Becomes a Must-Read on the Economy
Peter Coy 7/3/2020 Bloomberg

Economics can exist outside academia. Nathan Tankus has taken full advantage of the lack of gatekeepers on the web, where a sharp and quickly delivered argument on the topic du jour—whatever that may be—can have more impact than a peer-reviewed article.

The Rabbit Outbreak
Susan Orlean 6/29/2020 The New Yorker

It ain't over. A highly contagious, often lethal animal virus arrives in the United States. 

China

Testing the “China Shock”: Was Normalizing Trade with China a Mistake?
Scott Lincicome 7/6/2020 CATO Institute

Labor market and cultural disruptions in the United States are real and important, as is China’s current and unfortunate turn toward illiberalism and imperialism. But pretending today that there was a better trade policy choice in 2000 than PNTR and engagement more broadly is misguided.

China’s Economy Needs Institutional Reform Rather Than Additional Capital Deepening
Michael Pettis, Carnegie Endowment for International Peace 7/24/2020

Claiming that some countries have a low savings rate problem and others have a high savings rate problem ignores systemic biases and constraints that are beyond the ability of individual consumers to control. It is a mistake to assume that there is a global capital and technology frontier toward which every country must strive to acquire development. Economic development requires, above all, the right set of formal and informal institutions.

US investors still piling FDI money into China despite rising political tensions
Orange Wang 7/17/2020 South China Morning Post

How much is increased US FDI in China due to reinvestment encouraged or necessitated by capital controls? Most of it. 

Not in China but Chennai. Apple starts manufacturing of iPhone 11 in India
Ravi Prakash Kumar 7/24/2020 Live Mint

In a major win for the government's Aatamnirbhar India initiative, Apple has started manufacturing of one of its flagship devices, the iPhone 11, at Chennai’s Foxconn plant.

Why Beijing Has Resisted Raising the Retirement Age
Houze Song 6/29/2020 Macro Polo. Answer: Job liquidity.

On Thursday I will be discussing US-China relations during a webinar hosted by the Bay Area Council. Registration is free; please join if you can. Enjoy the rest of the summer safely; we will be back next month, on Substack. 

Lyric Hughes Hale
Editor-in-Chief
EconVue
Chicago
lyric@econvue.com
Twitter: @lyrichues

Our most recent Spotlight newsletter: "Are We There Yet?" June 24, 2020
Hale Podcasts can be found on EconVue 
and on ItunesStitchersGoogle Play and Spotify.