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Coronavirus response, which could reshape economy, scrambles familiar political lines – The Boston Globe




The virus outbreak has opened a wide on-ramp that could deliver liberal policies like paid family leave and cash grants into the economy at an unexpected moment, one when the most progressive Democratic candidates seemed likely to fail to capture the party’s presidential nomination. The party as a whole has control over the House only.

But this week, it was Republicans who were emerging as the loudest champions of populist economic initiatives and deficit spending while Democrats internally debated how much direct aid they should provide to Americans.

“I’m always happy to hear from the converted,” Representative Richard Neal of Massachusetts said dryly. As the chair of the House Ways and Means Committee, the Springfield Democrat is working with House Speaker Nancy Pelosi on drafting the House’s version of the stimulus legislation.

Most Republicans fought tooth and nail against stimulus measures after the 2008 financial crisis, leaving President Barack Obama and Democrats to push through legislation on their own. But faced with this looming economic crisis under a Republican president, GOP senators appeared to more rapidly coalesce around a deficit-spending bonanza than House Democrats, whose leadership is still weighing its own proposal.


“I think they did not start out thinking as big as they needed to,” said one economist who consulted with House Democrats and did not want to be named, in order to speak frankly about private conversations. “Now they understand the magnitude.”

As more Republicans began floating the idea of sending checks to Americans — and several Democrats also drafted legislation to do so — Democratic leaders warned they did not want to sign onto any proposal that gave wealthy people more money.

“The Speaker supports Congress taking an approach targeted to those most in need,” Drew Hammill, Pelosi’s deputy chief of staff, said on Twitter.

Schumer, the Senate minority leader, said on Monday that “millionaires” shouldn’t be getting payments, and criticized the idea of sending Americans $1,000 checks as “small thinking” since that money would quickly run out for those in need.

Later in the week, Democrats began to regroup, criticizing McConnell’s latest proposal, which would give $1,200 checks to individuals making up to $75,000, for giving less to lowest-income Americans and favoring corporations. In a letter to Democrats on Friday night, Pelosi called McConnell’s proposal a “non starter” and said the response to the crisis had to increase unemployment assistanceand Medicaid, help small businesses, expand paid leave, and “put money directly into the hands of those who need it most.”

“I think there’s a chance here to do some fundamental restructuring of the American economy,” said Neal. “In moments like this, those who embrace intransigence or a rigid ideological position, they’re not likely to be players in that debate.”


Neal said he was open to going “maybe a bit higher” than a $75,000 income limit for people eligible for cash grants, although those negotiations were still ongoing Friday. He said it’s possible Congress would authorize more grants in one or two more major stimulus bills after the one being worked on to address the crisis.

“I think we can find an agreement on cash grants with the understanding that we’re likely going to have to go back for another round on them,” Neal said.

One member of Congress who did not wish to be named in discussing the deliberations said liberal lawmakers are pushing Neal to increase the dollar amount of checks to more than $5,000, and send them to people who make up to $100,000 a year, which would significantly top the Republican proposal.

Representative Katie Porter, a California Democrat, said that Pelosi and Neal have not embraced direct cash assistance to families to the degree that she would like. Some of the tools they have embraced, including tax credits, will simply take too long, she said.

“Democrats in 2008 and 2009 in that bailout made the mistake of putting way too many conditions and way too many hurdles in front of American families who needed help to avoid foreclosure,” Porter said. “Big banks got their bailouts literally overnight. I am discouraged that some of my Democratic colleagues don’t seem to have learned lessons from that.”


Some Senate Democrats also are pushing for more long-term action to stabilize the economy. Warren supports cash assistance, but she is calling for more permanent fixes, like widespread cancellation of student debt to be part of the stimulus package.

“I’m pushing Democrats to push for more,” she said. “A stimulus package that delivers permanent relief to the grass roots and not the treetops could reshape our economy.”

Warren disagreed sharply with McConnell’s plan to give less assistance to lower-income Americans. But even she expressed some surprise at the size of the Republican’s $1 trillion bailout package, which is bigger than the $750 billion stimulus she initially proposed.

“Based on the Republicans’ unwillingness to give President Obama an adequate stimulus package back in 2009, I assumed they would be resistant to going as high as $750 billion in this stimulus package,” she said. “Obviously with a Republican in the White House, Mitch McConnell has changed his tune.”

The size of a rescue package is not the only indication of how progressive it is, and some Democrats cautioned that the Republicans’ big proposal could still do more to help corporations than working families.

Barney Frank, the former chairman of the Financial Services Committee, said Democrats who backed the $700 billion bank bailout in 2008 got “burned” in the 2010 elections when many of them lost seats as Republicans gained control of the House. That history may make Democrats nervous to back another gigantic rescue package this time around.


“There’s a little hesitancy, but I think it’s being overcome,” Frank said.

The fierce blowback to the Troubled Asset Relief Program, the bank bailout legislation known as TARP, which passed under President George W. Bush, may also explain Republicans’ enthusiasm for a more populist framing of the fast-changing coronavirus bailout proposal.

“I think a lot of Republicans don’t want to repeat the PR mistakes of the 2008 bailouts, where it appeared they were just helping Wall Street and not Main Street Americans,” said Alex Conant, a Republican strategist.

Progressive Democrats are calling for strict conditions on any aid received by big industries, and for the bulk of the aid to go to individuals. “Any aid to industry needs stringent restrictions and should be targeted to prevent workers from being laid off and to prevent cuts in their pay,” said Representative Ro Khanna, a Democrat from California. “Not a dime should go to shareholders or executives.”

Representative Joseph P. Kennedy III disagreed with the notion that Republicans had moved to the left of House Democrats on stimulus efforts.

“The Senate is moving first, but I believe Speaker Pelosi has some leverage here and I expect that you’re going to see them use it,” said Kennedy, who had proposed his own stimulus package that included a $4,000 payment for every adult making less than $100,000, plus $2,000 for each child, and scaled-back payments for those making more than that income level.

Jared Bernstein, a progressive economist who served as then-vice president Joe Biden’s top economic adviser from 2009 to 2011, pointed to a Goldman Sachs estimate that the economy could contract by an eye-popping 24 percent next quarter

“This is no time to jam the opposition,” he said. “Both sides are going to have to give.”

Jess Bidgood can be reached at Follow her on Twitter @jessbidgood. Liz Goodwin can be reached at Follow her on Twitter @lizcgoodwin Victoria McGrane can be reached at Follow her on Twitter @vgmac.

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Don’t count on a fast global economy bounceback –



The world economy is experiencing a sudden stop that is without precedent in peacetime. Investors have now accepted that as an unpleasant fact and started to ask how the next stage — the exit from this sudden stop — will unfold. That, though, depends entirely on how fast the coronavirus lockdowns can be reversed.

The major economies have entered lockdown at different times — first China, then Europe and last the US — but most forecasts suggest that the annualised rate of decline in global gross domestic product in the first quarter of 2020 could approach minus 20 per cent, triple that recorded in the worst quarter of the Great Recession in 2009.

Federal Reserve officials have accepted that the US economy is probably already in recession, with new weekly activity estimates by the New York Fed showing a drop in GDP that is as deep, and much more rapid, than in 2008/09.

The latest US forecasts from Goldman Sachs show the trough of recession being reached in the second quarter of 2020, with GDP likely to be 11-12 per cent below the pre-virus reading. This would involve a dramatic decline at an annualised rate of 34 per cent in that quarter. 

GDP is then projected to rise very gradually, not reaching its pre-virus path before the end of 2021. This pattern, implying almost two “wasted” years in the US, has been common in recent economic forecasts. A similar picture is expected in the eurozone, which is experiencing a collapse in manufacturing output more precipitous than in the 2012 euro crisis.

There is some cause for optimism from the partial recovery recorded in China in March. The Fulcrum Chinese nowcast shows that the month-on-month annualised growth rate rebounded to 4.6 per cent in March, compared with minus 2.0 per cent in February.

But China’s exports orders are weakening as foreign markets decline sharply. Industrial output growth is still markedly negative from a year earlier, and the State Council has had to announce new measures to restore economic growth in the second quarter. Beijing has also reintroduced partial lockdowns in several major cities in the past week.

The central expectation of mainstream economic forecasters is of a strong global recovery in the third quarter (see graphs below). This would follow the pattern in mainland China and Hong Kong after the Sars crisis in 2003.

Since then, economists have generally viewed epidemics as inherently temporary events that need not cause long-term structural damage to productive capacity, provided widespread business failures and long-term unemployment are avoided. That is the basis for today’s consensus forecasts of recovery this year.

Coronavirus, however, is clearly having much more pervasive effects on worldwide economic activity than other epidemics, such as Mers, Ebola or swine flu. If there is a prolonged path to economic normalisation, lasting more than a few quarters, fiscal and monetary support for private corporate activity might encounter political resistance. Deep-seated recessionary forces could then take hold. The widespread weakness in equities last week suggested that markets think these risks are rising.

Is there any early escape route for the world economy?

An intelligent road map to reopening the economy, recently published by the American Enterprise Institute, suggests there is indeed a way of avoiding a very prolonged recession, based on virus and antibody testing with partial quarantining of affected citizens and localities. A localised, stop-start recovery is therefore about the best we can expect. But the institute has given no timetable for the stages of its plan, and it is hard to believe it could be completed before the end of this year.

Successfully managing the exit from lockdown will require skill and resolve across many areas of government policy. Unfortunately, the disorganised response to the virus so far in most of the major nations does not inspire much confidence about the likely speed of global economic recovery.

A sudden stop but no depression?

A new activity tracker released by the New York Fed shows US GDP growth slumping to -4.5 per cent, year-on-year, in the week of 21 March.

The latest “representative” forecasts by leading market economists, collected by Fulcrum, show the quarterly annualised growth rate in the advance economies bottoming in the second quarter of 2020, then rebounding strongly in the third quarter.

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COVID response offers chance to shift direction of Canadian economy: experts – National Post



The end of the COVID-19 pandemic may be a long way off, but analysts are already looking ahead to how Canada could hasten its recovery and position itself for a low-carbon economy.

“The main thing we need to be doing right now is protecting Canadians’ health and well-being,” said Josha MacNab of the Pembina Institute.

“Within that context, we’re starting to turn our minds to what does economic recovery look like.”

Downturns like the one being caused by the global pandemic routinely reduce carbon dioxide emissions. In the past, they’ve always recovered as economies rebuild.

This time, many are asking how the economy can be restored without greenhouse gases tagging along. Open letters on the issue have already been signed by hundreds of thousands of Canadians, from academics to church groups.

Groups such as the World Resources Institute in the United States are calling for clean energy tax credits, programs to increase the energy efficiency of public buildings and a switch from diesel to electric transit buses. It notes similar measures after the 2009 crash saw 900,000 jobs supported.

Pembina has its own list: funding and training for jobs more resilient to market swings, incentives for switching to electricity, support for industries that produce lower-carbon goods.

“We see this as a once-in-a-generation opportunity to make a down payment on a resilient economy and a healthier future,” MacNab said.

Once the immediate crisis has passed, the Canadian Institute for Climate Choices wants any upcoming stimulus package to focus on making the country more resilient to climate-related shocks such as wildfires or floods.

“These are what we perceived as (remote) risks in the past,” said the group’s economist, Dave Sawyer. “Suddenly, they’re happening all the time.”

The long-term response to COVID-19 could be a chance to do things the Canadian economy will have to do anyway, he said, such as retrain workers from high-carbon industries.

“We know that some industries under this low-carbon future will shed workers,” Sawyer said.

“Where do these workers go? There has been a growing trend to think about transitions for workers.”

Not everyone thinks a post-pandemic green stimulus is appropriate.

“Maybe, to some extent,” said Mark Jaccard, an energy economist at Simon Fraser University.

He suggests the need for relief is going to be so great that governments will at first simply try to restore normalcy.

“Governments are going to pour the money in, short-term, to where workers are already skilled and to regions where they’re already working,” he said. “So it’s going to be in to fossil fuel-endowed areas.”

The real challenge, Jaccard said, will be to not let COVID-19 derail policies already planned or in place.

“It isn’t government spending that will lead to a decarbonized economy. It’s policies.”

Groups such as the Canadian Taxpayers’ Federation and the federal Conservatives have already called for the planned increase in the federal carbon tax to be delayed. The increase, to $30 per tonne, has gone ahead.

Still, Keith Stewart of Greenpeace said that once the immediate dangers of the novel coronavirus have passed, the upset it will leave behind is a chance for a reset.

“It’s a shock to the system that makes things that once seemed natural and inevitable seem unnatural and avoidable.”

Stewart said any money that does go to companies must be accompanied by promises of change — much as car manufacturers promised fuel efficiency improvements in accepting their 2009 bailout.

Once initial needs of public health and well-being are funded, government spending should have an eye to the future, said Stewart.

“That investment could entrench existing systems or it could be an investment in the clean-energy economy.”

This report by The Canadian Press was first published April 5, 2020.

— Follow Bob Weber on Twtter at @row1960

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Reeling World Economy Slammed by Dangerous Disinflationary Shock – Financial Post



(Bloomberg) — The sinking global economy is suffering through a colossal disinflationary shock that could briefly push it into dangerous deflation territory for the first time in decades.

With many national economies all but shutting down in an effort to contain the coronavirus, prices on everything from oil and copper to hotel rooms and restaurant take-out are tumbling.

“A powerful disinflationary tide is now rising,” said Joseph Lupton, global economist at JPMorgan Chase & Co.

That’s worrying because it could lengthen what may be the deepest recession since the Great Depression. Ebbing pricing power makes it harder for companies that piled on debt in the good times to meet their obligations. This could prompt them to make additional cuts in payrolls and investment or even default on their debts and go bankrupt.

While weak or falling prices may seem like an unalloyed good for consumers, a widespread deflationary price decline can be deleterious for the whole economy. Households hold off buying in anticipation of ever lower prices, and companies postpone investments because they see limited profit opportunities.

Even after the coronavirus crisis eases, the scars from the shutdown — elevated unemployment, shattered consumer and company confidence, and staggered returns to work — may keep price pressures in check, prompting central banks to hold interest rates at rock-bottom levels for a protracted period.

“They’re at zero for at least the next two years,” Ethan Harris, head of global economic research for Bank of America Corp., said of the Federal Reserve.

Monetary Largess

Further down the road, though, there’s a chance that all the monetary largess — coupled with a massive outpouring of government debt to pay for measures to fight the virus — could spawn a build-up in price pressures.

“It’s possible that the response to this over the longer term could have an inflationary consequence,” former New York Federal Reserve Bank of New York President Bill Dudley told an April 2 webinar organized by Princeton University. “But in the near term, it’s very definitely on the disinflationary/deflationary side.”

Lupton and his fellow JPMorgan economists forecast that their global consumer-price index will temporarily fall below its year-ago level sometime around the middle of 2020, the first time that’s happened in many decades.

Much of that is due to plunging oil prices. Even with their rebound last week on reports of potential production cutbacks, they’re still down about 55% since Jan. 1.

But other prices are also slipping, including for services. They have long been resistant to the downward tug that prices for internationally traded goods have been subject to, but now service-sector businesses are being slammed by the shutdowns. Lupton sees worldwide core inflation — excluding food and energy costs — falling below 1% and says there’s a risk it could stay there.

Disinflationary Force

“The overwhelming disinflationary force is quite large,” Diane Swonk, chief economist at Grant Thornton in Chicago, told Bloomberg Radio on April 3.

While industrial countries — with the exception of Japan — avoided falling into deflation in the wake of the 2008-09 financial crisis, they’re entering this one with inflation already at depressed levels.

Perhaps the world’s biggest source of deflation right now is China, where producer prices registered a 0.4% decline in February compared with a year ago after rising 0.1% in January. That’s a drag on the price of goods being shipped overseas from the world’s biggest trading nation.

But China isn’t the only country in pain.

Chain restaurants across Japan have rolled out discount plans for takeout menus, including Yoshinoya Co., which serves bowls of beef on rice and is running a 15%-off campaign.

Read more: Deflation a Real Risk for Japan, Former BOJ Economy Chief Says

The British Retail Consortium reported on April 1 that shop prices fell 0.8% in March, the biggest decline since May 2018, following a 0.6% February drop.

And in the U.S., domestic air fares plunged by an average of 14% between March 4 and March 7, according to booking site Average revenue per hotel room plummeted 80% during the March 22-28 week from year-ago levels, hospitality-data firm STR reported.

“In terms of our business, COVID-19 is like nothing we’ve ever seen before,” Marriott International Inc. Chief Executive Officer Arne Sorenson said in March 19 video. “For a company that’s 92 years old, that’s borne witness to the Great Depression, World War II and many other economic and global crises, that’s saying something.”

Investors seem to be looking for a long period of very low inflation, according to trading in inflation-protected securities, although some analysts caution the readings may be distorted by a dash for cash.

Even before the crisis, monetary-policy makers were worried inflation was too low for the good of their economies. Now they have even more reason for concern.

“Deflation cannot be ruled out, but I refuse to make an estimate,” European Central Bank Governing Council member Robert Holzman said. “If deflation is due to a slump in the real economy, it will be difficult to solve this through monetary-policy instruments alone.”

Some economists think it’s inflation, not deflation, that’s the problem.

“What will then happen as the lock down gets lifted and recovery ensues, following a period of massive fiscal and monetary expansion?” London School of Economics Emeritus Professor Charles Goodhart and Talking Heads Macroeconomics founder Manoj Pradhan wrote for VOX on March 27. “The answer, as in the aftermath of wars, will be a surge in inflation, quite likely more than 5% and even in the order of 10% in 2021.

Former chief White House economist Jason Furman said faster inflation should be welcomed, not worried about.

“I don’t think we should be afraid of getting inflation,” Furman, who is now a professor at Harvard University, told Bloomberg Radio on April 2. “If we get inflation that would be good. That would be a good sign that we have adequate demand.”

©2020 Bloomberg L.P.

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