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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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B.C.’s debt and deficit forecast to rise as the provincial election nears

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VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

The Canadian Press. All rights reserved.

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Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

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NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

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HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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