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How to Save a Half-Open Economy – The New York Times

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When states began to order businesses to close and residents to stay home as the coronavirus outbreak spread, economists likened the policy to a medically induced coma: shutting down all but the most vital functions to focus on the underlying affliction.

Now the patient is awake, but the malady remains.

A surge in coronavirus cases has forced several states to reimpose restrictions and dashed hopes of a rapid economic rebound. But a widespread return to the shutdown policies that dominated in March and April seems unlikely.

Instead, the economy looks likely to remain in a sort of limbo, neither fully open nor fully shut, for months or even years.

For certain workers in certain industries in certain locations, life again seems somewhat normal. But for many others — those whose age or health conditions make them especially vulnerable to the virus, or who have young children at home, or who work in high-risk industries, or who live in places where cases are rising rapidly — the pandemic remains a major disruption.

This new phase poses a unique challenge for policymakers. Economists across the political spectrum say it would be a mistake for the federal government to cut off support for workers and businesses while the economy remained weak. But those policies may need to be revamped to help the worst-hit industries and regions — and will have to change as the crisis evolves.

“We don’t know how the pandemic is going to unfurl, and we don’t know where the hot spots are going to be,” said Wendy Edelberg, a former chief economist for the Congressional Budget Office and now the director of the Hamilton Project, an economic policy arm of the Brookings Institution. “That’s going to demand that the policy response be a lot more nimble.”

Still, economists and other experts say there are steps that government, at all levels, can take to mitigate the economic damage.

Credit…Scott McIntyre for The New York Times

In the political debate over reopening, economic and public health considerations are often portrayed as being at odds. But economists have said since the beginning of the crisis that the two go hand in hand: The economy cannot recover until the virus is in check.

“One thing we’ve learned thus far is that a halfway commitment to public health measures just isn’t very effective,” said David Wilcox, a former Federal Reserve official who is an economist at the Peterson Institute for International Economics. “It’s not effective in arresting the virus, and you still incur tremendous economic damage. In order to build the foundation of a secure recovery, the imperative is to bring the virus under control.”

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If political leaders want businesses to reopen and customers to return, Mr. Wilcox said, they need to invest in widespread testing and tracing to make consumers confident that they are safe. And they need to avoid encouraging businesses to reopen before it is safe to do so.

Credit…Dennis M. Rivera Pichardo for The New York Times

More than 20 million Americans are getting an extra $600 a week in their unemployment checks because of the federal aid package passed in March, but that provision is scheduled to expire this month. While some economists say the enhanced benefits could be scaled back or modified, most say it would be a mistake to let them lapse altogether.

Unemployment benefits are serving three purposes. In states where the virus is raging, they help residents afford to stay home, which is crucial to overcoming the pandemic. In all states, they help jobless workers avoid hunger, eviction and financial ruin. And by providing billions of dollars to the people most likely to spend it, they stimulate the economy.

The extra $600 means that many low-wage workers are earning more on unemployment than they were on the job, which Republicans in Congress worry could discourage returning to work. Economists say that is a valid concern — when the unemployment rate is low and workers are scarce. Right now, the situation is the opposite: In May, there were roughly five million open jobs and 20 million unemployed workers.

“There’s not enough jobs for everybody anyway,” said Erik Hurst, an economist at the University of Chicago who has been studying the economic effects of the pandemic.

Some economists, particularly on the right, say it may make sense to reduce the weekly supplement as the economy improves, and some have suggested tweaks like a “back-to-work bonus” that rewards people for finding jobs. But few think it makes sense to scrap the enhanced benefits.

Credit…Lucy Nicholson/Reuters

Whether or not to reopen schools this fall has become a political point of contention in recent days. But economists say there is no doubt about one thing: The economy can’t get back to normal while millions who would otherwise be working must stay at home caring for their school-age children.

Epidemiologists and public health experts are unsure that in-person classes can be held safely in places where the virus is out of control, like Florida and Arizona. But in other places, the biggest obstacle is money: It would cost billions of dollars to retrofit classrooms, overhaul ventilation systems, buy protective equipment and add staff members to ensure that both children and adults were safe.

“Schools are going to need a lot more resources to get open safely, given we haven’t gotten the virus under control in a lot of places,” said Melissa Kearney, a University of Maryland economist who heads the Economic Strategy Group at the Aspen Institute. “The less control we have over this virus, the more expensive it’s going to be.”

State and local governments, reeling from plummeting tax revenues, don’t have the resources for such changes. But the federal government does. And it could be money well spent: Allowing schools to reopen safely would free up adults for work and allow other economic activity to resume.

Credit…Travis Dove for The New York Times

Even in states where the virus is less prevalent, some businesses, like indoor bars, movie theaters and concert venues, may not be able to open safely for a long time. Others, like restaurants, will have to operate at a capacity unlikely to turn a profit.

That means that without government help, thousands of businesses are likely to fail in the months ahead. That could have devastating economic consequences, turning temporary furloughs into permanent job losses and slowing the eventual recovery.

Lost jobs “are going to come back very slowly — it’s going to be months and months of hard work,” said Betsey Stevenson, a University of Michigan economist who was on President Barack Obama’s Council of Economic Advisers. “The question is, do we have 30 million people who are going to go through that process, or do we have five million? We don’t have the answer to that yet, but every month it goes on, that number grows larger.”

Experts say Congress needs a new approach to save businesses.

The Economic Innovation Group, a Washington think tank focused on entrepreneurship, has proposed giving interest-free loans to small employers. Rather than providing a temporary injection of cash, they argued, a loan program could let companies invest in improving their long-term prospects. A retailer could buy a building it had been renting, for example, bringing down monthly costs. Or a restaurant could add outdoor space, reducing dependence on indoor dining.

Mr. Wilcox of the Peterson Institute has recommended a more expansive — and expensive — approach, essentially having the government fill in the revenue shortfall created by the pandemic through direct grants to businesses. The government has effectively forced business owners to take a hit, he said, so it should help them survive.

“Start from a social agreement that the government is going to take onto its shoulders the cost of sustaining businesses through the period of intense public health crisis,” he said.

Credit…Hiroko Masuike/The New York Times

No one knows where and when cases will surge, how long the pandemic will last, or when a vaccine will be ready. That makes it harder for both businesses and policymakers to plan effectively, said Martha Gimbel, an economist and a labor market expert at Schmidt Futures, a philanthropic initiative.

“If we knew we were going to have a vaccine in January, we could make decisions,” she said. “If we knew we were going to have a vaccine in January 2022, we could make decisions. But we don’t know, and economies don’t do well when there’s uncertainty.”

Economic policy can’t eliminate that uncertainty. But right now, it is making it worse: Jobless workers don’t know whether their extra benefits will run out in a matter of days. Businesses don’t know if they will be able to apply for a new round of federal loans, or have to enroll in a new program, or get nothing at all. State and local governments are trying to plug multibillion-dollar budget holes with no idea whether they will get federal help, or how much.

Economists have urged Congress to answer some of those questions — not just now, but for the future. Benefits could be linked to the unemployment rate, for example, so that workers would not have to worry about losing benefits before the job market improved. Similar steps, linked to different metrics, could make businesses and state and local governments confident that government support won’t evaporate without warning.

Brinkmanship, on the other hand, could have economic costs even if Congress ends up extending support at the last moment.

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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