Paradise Regained? - EconVue Spotlight April 2020

I had planned to be in Washington last week at the IMF/World Bank meetings, a chance to hear the latest policy debates and catch up with old friends. Not this spring; the meetings were entirely virtual and didn't offer much clarity beyond a dismal forecast for 2020. I have however indulged in a cornucopia of online offerings, some of which I have included below. 

After spending many weeks listening, reading, and talking to experts I have become convinced of one thing: no one knows what will happen. No one fully understands this virus, nor the repercussions of suddenly shutting down many of the world's economies. Both epidemiologists and economists share the same toolkit, data, which by definition is information which occurs in the past. So far pandemic data has been confusing, unreliable, and difficult to compare across national boundaries. If we cannot understand what has already happened, it is near impossible to predict what will.  Hopefully, the result of this crisis will be Paradise Regained, not Pandemonium, the name John Milton gave Satan's palace in Paradise Lost, published just after the Great Plague in 1667.

Greg Mankiw has a terrific piece in the New York Times. He admits he cannot foretell the future with certainty and instead tells a tale of two possible outcomes.  On his blog he writes fondly about his mother, who tested positive for COVID-19, and passed away the same day his article was published. For economists especially it is hard to square the human toll of this event with financial forecasting. In the links below I have  tried to balance both optimistic and pessimist views. It is possible for example, that a vaccine will not be found, and we will be living with the consequences of COVID-19 for many years to come. Or that science will find a definitive cure next week. 

Of critical importance to the global recovery will be the effect of COVID-19 on relations between the world's two largest economies. China just announced its greatest GDP decline since 1976. The pandemic coincides with an election year in the US, and both sides of the aisle are equally negative on China. Scenario planners and strategists need to look at the possibility of a more isolated Beijing and Washington, and the probability of slower global growth overall. This will be most difficult for countries that have become reliant on trade with China over the last decade, such as Australia, and much of Southeast Asia. The irony, as Brad Setser at the CFR has said, is that China's much-criticized 2025 goal of attaining national industrial self-sufficiency is something that every country in the world will now need to pursue at some level. 

In the US, the Payroll Protection Program has ground to a halt.  Out of money, only a small percentage of surprisingly large businesses were able to get assistance. Many laid-off workers have been unable to access unemployment benefits. The plan to have citizens stay at home and keep most businesses closed, enabled by a printing press running hot at the newly merged Fed/Treasury, is meeting operational if not fiscal limits. Either the closures have to end, or twice as much money needs to be delivered ten times more efficiently and fairly. Political strains, if not outright resistance, are going to increase over the coming weeks.

Finally, EconVue expert Michael Lewis has written a pithy data-rich analysis that is a road map to the US recovery.  We've included his entire report, usually sent only to subscribers. Let me know if you'd like to become one too. 

EconVue Experts & Colleagues

The Roller-Coaster Recovery
Michael Lewis

After a devastating 2020Q2 (-30% or more drop in real GDP), the US is headed for a big summer gain, late fall slump, and then a sustained post-vaccine expansion. Real GDP should finally surpass its 2019Q4 peak in 2021Q3.

The Shape of the Economic Crisis and What Can Really Be Done About It  
Robert Shapiro

The future shape of the economic crisis driven by the federal government’s inadequate response to the coronavirus pandemic is coming into focus. The widespread social isolation that has sent both the demand for and production of goods and services into a free-fall reflects our spotty knowledge about the contagiousness and lethality of the virus. At the same time, we don’t know where hospital admissions will spike next. These new facts of life point to two potential economic scenarios, based on aspects of the virus that are beyond our control.

Exceptionally Strong Growth of US Bank Deposits
Tim Congdon 

We have another week of data on the US commercial banks’ assets and liabilities. Deposits rose by 2.6% in the week to 25th March, after a (revised) increase of 2.2% in the previous week. The increase in the fortnight to 25th March may have been the highest ever in such a short period of time. The implied annualized rate of increase was not much less than 250%.  When will we see inflation?

Covid-19 Won’t Derail Sustainability Momentum 
Marsha Vande Berg 

The microscopic pathogen that is threatening global health and wreaking havoc from Singapore to Seoul, Tokyo to New York and Berlin to Milan is clearly reshaping the 2020 global outlook. But it should not derail the current momentum driving sustainability investing and corporate governance. 

Now Is The Time. Time to Reconfigure Routine Care
David W. Johnson

The future of routine care delivery belongs to integrated, high-volume, low-margin providers that offer convenient, customer-friendly healthcare services.

Network Origins of the Global Economy: East vs West in a Complex Systems Perspective
Hilton L. Root, 2020, Cambridge University Press

In our current state of emergency we are highly focused on nation state dynamics. However complexity economics looks at the dominance of systems and networks beyond these constructs. Hilton Root has written about the interconnectedness of Europe and China through the lens of history. My conclusion: supply chains and other relationships won't be that easy to dislodge once this crisis is over. I highly recommend this book to our readers, especially those with an interest in economic history.  Just out this week.

Global Economy

How the Coronavirus Almost Brought Down the Global Financial System
Adam Tooze 4/14/2020 The Guardian

How Globalization Came to the Brink of Collapse
Anthea Roberts 4/2/2020 Barron's

COVID-19 pandemic is a stress test for the entire world.

The Uncertain Path of the Coronavirus Pandemic Poses Its Own Risk
Greg Ip 4/3/2020 Wall Street Journal

Uncertainty on multiple levels overwhelms our ability to measure risk but “at some point things will get worse at a decelerating rate.” 

Averting Economic Disaster Is the Easy Part
Anatole Kaletsky 3/19/2020 Project Syndicate

The results of the medical battle against Covid-19 are still unknown. But smoothing out income lost by individuals and businesses is doable with effective policy, quickly implemented. Inflation & moral hazard need not apply.

Key Economic Facts About COVID-19
Michael Greenstone 3/27/2020 Becker Friedman Institute for Economics at the University of Chicago

So social distancing and $6T in stimulus by the US government produce a very good return on investment in terms of public health. But I'm not so sure that we truly understand the all-in costs of this sudden stop. 

When Plagues Pass, Labor Gets the Upper Hand
John Authers 4/5/2020 Bloomberg

I disagree. In a low demand world, with sudden and catastrophic unemployment overshadowed by continuing uncertainty, labor will not have bargaining power.

COVID-19

Don't bet on vaccine to protect us from Covid-19, says world health expert
Robin McKie, Toby Helm, Michael Savage 4/18/2020 Guardian

In South Korea, a growing number of COVID-19 patients test positive after recovery
Se Eun Gong 4/16/2020 NPR

More on Chloroquine/Azithromycin. And On Dr. Raoult
Derek Lowe 3/29/2020 Science Magazine

Dr. Didier Raoult of Marseilles and his co-workers have published another preprint on clinical results with the chloroquine/azithromycin combination that their earlier work has made famous. And I still don’t know what to think of it.

A recent Nature paper reveals a remarkable trick COVID-19 learned that makes it nastier than the SARS
Peter Kolchinsky 4/5/2020 Twitter threads

Read this very lucid and knowledgeable thread to understand this novel virus.

Australia says true coronavirus infections could be as high as 10 million cases
Colin Packham 4/3/2020 Reuters

Brendan Murphy, Australia's Dr. Fauci, says true coronavirus infections could be as high as 10 million cases. "The only numbers I have total faith in are the Australian numbers, frankly."

UK has enough intensive care units for coronavirus, expert predicts
David Adam 3/25/2020 New Scientist

Update to a key story focused on the UK: Covid-19 is more contagious, but less lethal, making it more manageable than originally thought. Major economic implications if correct.

People should get tested 'as regularly as we have our morning lattes' to stop Coronavirus, says Nobel Prize economist
Josie Ensor 3/21/2020 The Telegraph

A focus on testing for Covid-19 will do more to prevent fatalities than building millions of ventilators, which represent end-of-life treatment for 75% of all respiratory patients.

The world after coronavirus
Yuval Noah Harari 3/20/2020 Financial Times

Under-the-skin technology and more in the post-corona age.

WHO

Secret vote on WHO bodes ill for future of global health
Laurie Garrett Humanosphere 

Laurie Garrett called it back in 2016.

Why the Bell Must Toll for WHO Chief Tedros
Geoff Raby 4/17/20 Australian Financial Review

China

China After COVID-19: China's Role in the World and US-China Relations (Conference Call)
Council on Foreign Relations Conference Call 4/16/20 Liz Economy, Brad Setser, Robert Blackwill

The Pandemic Won’t Make China the World’s Leader, Few Countries Are Buying the Model or the Message From Beijing
Michael Green, Evan Madeiros 4/15/20 Foreign Affairs

China Wants to Use the Coronavirus to Take Over the World
Bruno Macae 4/3/2020 National Review

Are pandemics, planned or unforeseen, the functional equivalents of war?

The Long Hard Road to Decoupling from China
Andrew Michta 4/8/2020 The American Interest

China Needs Bigger Government
Brad Setser 3/25/2020 Foreign Affairs

In order to build a broader funding base for its public health needs, China should adopt a progressive income tax and institute property taxes. Yes, China really needs more, not less big government.

US

A Bridge Past COVID-19: The path for the economy
Constance L Hunter Chief Economist, KPMG US, 4/1/2020

Everyone knows unemployment numbers will continue to be horrific. The real question is about the pace of rehiring? Will a large percentage remain unemployed as businesses try to recoup losses, and less confident, make permanent staff cuts permanent? This number could be stickier than we think.

Many Tampa Bay businesses left out at $349B relief fund drained
Richard Danielson and Graham Brink 4/17/2020 Tampa Bay Times

Larger businesses with existing loans have been first in line to receive payroll relief from the same banks who hold their preexisting debt.  Has the SBA program been a stealth bank bailout in disguise?

A Family Financial Facility for Credit-Card Forbearance, Micro-Biz Lending
Karen Petrou 4/8/2020 Economic Equality Blog

The Fed and Treasury plan to roll out a “Main Street” facility for mid-sized businesses in addition to the SBA guarantee program, but Karen points out that micro-businesses – the real heart of most Main Streets – remain unserved.  She sketches out a second facility suitable for barbershops, doctor’s offices, independent cafes, small garages, and other ventures with fewer than fifty employees.

Extremely Concerned about a Coronavirus Outbreak, State by State (chart)
Twitter 3/26/2020

This division along party lines over concern about #COVID19 is truly amazing.

FBI re-sends alert about supply chain attacks for the third time in three months
Catalin Cimpanu  ZD Net 3/31/2020

Focused on medical supply chains.

Behind the Race to Fight COVID-19, Can Illinois Keep Its Finances in Order?
David Greising 4/2/2020 Chicago Tribune

Probably not but maybe this crisis will force the pension fund changes that Illinois politicians have been afraid to make. Illinois has been first in line to ask for Federal assistance, but states cannot go bankrupt and the Fed cannot guarantee their debts.  Until now perhaps. 

Arrests plummet, crime nosedives in early days of COVID-19
CWB Chicago 3/25/2020

Silver lining.

Newest Shortage in New York: The City Is Running Out of Dogs to Foster
Bailey Lipschultz and David R Baker 3/25/2020 Bloomberg

Dogs win.

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