WASHINGTON (Reuters) – In normal times massive unemployment and a collapse in economic output would be tragic.
This time, as the coronavirus cloisters millions of Americans and shuts down the U.S. economy, it should instead be saluted as an investment in public health that lays the groundwork for a rapid rebound.
That is the view of St. Louis Federal Reserve President James Bullard, who argues that a potential $2.5 trillion hit coming to the economy is both necessary and manageable if officials move fast and keep it simple. It may seem an unconventional view in a moment of global anxiety, but Bullard argues the shutdown measures now being rolled out are essential to shortening the course of the pandemic.
They must also be coupled with massive federal government support to sustain the population through its coming isolation and prime the economy to pick up where it left off.
To Bullard that means:
Match any lost wages.
Match any lost business.
No questions asked.
No arguments about bailouts or “moral hazard” – the sticky issue of publicly funded rescues of bad actors.
And, above all, when the losses are tallied, don’t call it a recession.
Recessions are the ordinary – even predictable – contractions in activity that mark the end of normal business cycles. Bullard, who has earned a reputation inside the Fed for a penchant to rethink problems and reframe debates, said this is anything but.
“Frame this as a massive investment in U.S. public health,” Bullard said in a Friday telephone interview.
“CRAZY HEAVY” JOBLESS CLAIMS? THAT’S OK
Bullard’s comments came as U.S. lawmakers debated emergency economic measures worth $1 trillion or more, a figure Bullard says may underestimate what’s needed.
Nonetheless it is still opening old wounds from the 2007-2009 economic crisis over who deserves what, whether corporations should get help, and how generous the government should be with workers.
The spread of the coronavirus has touched off those discussions worldwide, but with an urgency that is shredding old hesitancies. United Kingdom Prime Minister Boris Johnson’s government on Friday announced it would pick up 80% of the national wage bill for the next three months.
Many Fed officials have called for a stronger U.S. fiscal response in recent days, but Bullard went a step further with an explicit call for the U.S. government to match what is being lost dollar for dollar.
For now, he said, economists and policymakers should turn their view of data on its head because little will make sense otherwise.
The recent jump in unemployment claims? That’s a win, a sign that so-called government stabilizers are being used. The hope should be that such programs get “crazy heavy use” in coming weeks, he said.
If economic output falls by half in the second quarter, that’s a win – not a record-setting defeat. It means businesses have heeded orders to close and customers to stay home.
“We are not trying to move production and income up in the second quarter. We are trying to keep it out of the second quarter,” Bullard said.
“You want capital to just sit in place. Switch off the factory … Then switch it back on.”
30% UNEMPLOYMENT A POSSIBILITY
Bullard was among the large group at the Fed who at first felt the virus risk would pass with little economic damage, as have other similar health scares such as SARS and ebola.
They are all now trying to catch up, with emergency rate cuts, extensive new programs to keep markets working, and other steps to aid an economy grinding to a halt.
In line with his colleagues, he said he was ready to do more, including putting more of the Fed’s direct lending powers to work if needed.
“It is early days and we are willing to do more. I am willing to do more,” he said.
Bullard was blunt about the dilemma posed, saying the economics profession was “reeling” as it tries to understand what is taking place.
For now what’s usually good – jobs and production – are bad, and the headline numbers are going to be staggering.
Bullard’s ballpark estimate is that unemployment could hit 30%, higher than in the Great Depression and three times more than the 2007-2009 recession. Output in the second quarter could be half the norm, a hit of about $2.5 trillion.
That is unavoidable if the virus is to be contained through “social distancing” or government orders to stay at home.
KEEP EVERYONE WHOLE
All this needn’t wreck the economy. Legislation working its way through Congress has begun to roll out some support.
Bullard said the “core aim” can be kept simple: “keep everyone, households and businesses whole through the second quarter.” Do it with a quick expansion of unemployment insurance to cover lost wages, and through grants and loans to business to cover losses from “unemployed” capital.
From a macroeconomic standpoint, he argues, it is a tractable problem.
Again using back of the envelope math and a 30,000-foot view, he said perhaps half a trillion dollars of lost output will be accounted for by necessarily lost consumption – all the movie tickets and clothes no one buys and trips people will not take.
As to the other $2 trillion, Bullard said the federal government should borrow and distribute it to people and business.
“That is completely feasible,” in service of limiting economic damage, he said. “This is a planned, organized partial shut down of the U.S. economy. We are throttling back output on purpose to meet health guidelines… Transfer income to affected households.”
“Call it pandemic relief,” Bullard said. “Get transfers to businesses that are affected heavily, and come out on the other side. Identical economy. Produce the same goods as before.”
(Reporting by Howard Schneider; Editing by Dan Burns and Daniel Wallis)
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
