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How Will We Reopen the Economy After the Coronavirus Crisis?



In the coming months, policymakers will be forced to strike a difficult balance between protecting people’s health and protecting their livelihoods.Photograph by Hannah Yoon / Bloomberg / Getty

The daily coronavirus briefings of Andy Beshear, the governor of Kentucky, used to be sedate affairs. That changed on April 15th, when protesters began gathering regularly outside the window of his briefing room, in the Capitol building, in Frankfort, and attempting to interrupt the proceedings. “Open up Kentucky!” they chanted. “We want to work!” There were horns, whistles, and signs, including one that said “Quarantine is when you restrict the movement of sick people! Tyranny is when you restrict the movement of healthy people!” An activist stood on the Capitol steps and shouted, “We’re free citizens, and we can’t be told we can’t support our families. We can’t be told that we can’t work. How unethical is it of our leadership to say, ‘No, you can’t work’? It’s garbage! If you want to open your business, go open your damn business!”

Beshear, a Democrat, won the governorship by a little more than five thousand votes last November. On the first day of the protests, he paused his briefing and addressed the people outside the window, trying to appeal to rationality. “Folks, that would kill people. That would absolutely kill people,” he said. “My job isn’t to make the popular decision but to make the right decision, and the decision that saves people’s lives.” As of April 23rd, Kentucky has 3,481 confirmed cases and a hundred and ninety-one deaths from COVID-19, which puts it relatively low on the list of affected states. But Beshear’s dilemma is the same as the one facing leaders across the country. Many Americans, understandably, want to return to work. But reopening the economy would likely accelerate the spread of the virus, straining the health system, causing more deaths, and causing further economic damage. In the coming months, policymakers will be forced to navigate the complicated relationship between protecting people’s health and protecting their livelihoods.

There is no clear path for reopening the economy, and various groups have been issuing their own, competing plans. Last Friday, the governor of Minnesota announced that outdoor activities such as hunting and fishing could resume soon and that golf courses and driving ranges could reopen right away. In Texas, retail stores will be permitted to open back up for curbside shopping. But the governor of Maryland announced that restrictions there would not be lifted until there was greater access to testing, improved hospital space and equipment, and an effective contact-tracing system. In California, Governor Gavin Newsom suggested that people visiting restaurants in his state might have to have their temperatures taken before being allowed inside. On April 13th, President Trump suggested that he might force states to reopen their economies but more recently said that he would leave the question up to governors. The White House also released its own set of guidelines for how to move forward, called “Opening Up America Again.” “I think it’ll be really chaotic,” Dean Baker, the co-founder of the Center for Economic and Policy Research, told me.

Most experts, regardless of political orientation, agree on a few principles about the recovery. The first is that the longer the economy stays in its current state of shutdown, the longer it will take to get it going again, and the more protracted the economic depression that will follow. “The longer we’re shut down, the more businesses we’re going to lose, and those businesses are what’s going to create the labor demand that will soak up our unemployed workers,” Michael Strain, an economist with the American Enterprise Institute, told me. Baker added, “Some workers won’t be able to come back. There will be incredibly complicated accounting messes; all these bills haven’t been paid for two or three months. Just getting a place up and running again takes time.” The second is that the rescue programs that Congress passed in March could mitigate the damage, but only if implemented effectively, and they still won’t go far enough. (The first stage of the program, intended to help small businesses, has already run out of funds.) The third is that widespread and accessible virus testing and effective infection tracing will be needed before most people will feel confident returning to their pre-pandemic ways of life. (The guidelines released by the White House mention testing but do not address how it would become more widely available.)

Most likely, the economy will come back online through what Strain described as a “staged reopening,” with different sectors switching on at different times. “What would that look like inside a city?” Strain said. “Continuing to prevent really large crowds, maybe opening up the smaller businesses first, having fewer people inside a store at one time. Then maybe you open up the restaurants, but people are spread out.” Larger establishments, such as department stores, would follow, with the time line ideally being driven by what can be determined about the virus’s spread through aggressive testing. It is hoped that the highest-capacity venues, such as stadiums and concert halls, could reopen in the summer. Many governors have pledged to work in regional groups to insure that the transition is as smooth as possible (such plans are already under way: New York, New Jersey, Connecticut, Pennsylvania, Rhode Island, and Delaware recently joined together to coördinate reopening plans.) Strain also noted that even a staged reopening will work only if local leaders can be nimble in response to contagion levels. “If we’re able to do this well, what you should see is pumping the gas pedal and then hitting the brakes,” he said. Schools may reopen in September, for example, and then, if the virus spreads too quickly, close again for two weeks in October. Social-distancing rules in restaurants may have to be continually adjusted. “I think we’re likely to see the virus respond to the level of economic activity, and, if the response is more than we would like, we’re going to need to slow things down again,” he said. “But I don’t know if our system of government is up to that.”

One proposed plan, published by several of Strain’s colleagues at the American Enterprise Institute, outlines the possible phases of a staged reopening. The first is the one we are currently in, when the focus is on slowing the spread of COVID-19 by shutting down public spaces and ordering residents to shelter at home; Phase II occurs on a state-by-state basis, “when they are able to safely diagnose, treat, and isolate COVID-19 cases and their contacts.” During this phase, Scott Gottlieb, an A.E.I. fellow, and his co-authors write, “schools and businesses can reopen, and much of normal life can begin to resume.” Physical-distancing measures may still be in place; vulnerable individuals may still want to limit their contact with others; and much more stringent public-hygiene measures should be adopted in public places. The third phase suggests that physical distancing and other restrictions can be removed when widespread disease tracing, treatment, and vaccines become available. (Vaccine tests are under way, but nothing is expected for at least a year.) After that, the report suggests, we should focus on preparing for the next pandemic. The authors write, “After we successfully defeat COVID-19, we must ensure that America is never again unprepared to face a new infectious disease threat.”

Even after restrictions begin to lift, the economic crisis will probably be unlike anything the U.S. has seen in several decades. On April 14th, the International Monetary Fund published a report predicting that the current period will be the beginning of the “worst recession since the Great Depression, and far worse than the Global Financial Crisis.” Heidi Shierholz, a senior economist at the Economic Policy Institute, said that, while the U.S. government had taken some steps toward alleviating the damage, it hasn’t done nearly enough. She compared the response of American leaders to that of leaders in Denmark, who swiftly implemented a program to replace workers’ lost wages so that they could remain connected to their employers and could be summoned back again easily once it was deemed safe; the U.S. version, an emergency loan fund called the Paycheck Protection Program, has, so far, been riddled with implementation problems and has left many businesses that are in serious need without access to funds. “They’re getting what they need to survive the lockdown,” Shierholz said, referring to workers in Denmark. “So workers aren’t facing the trauma of job loss, which research shows can be very long-lasting, and can have effects on kids.” She went on, “We didn’t do what Denmark did. We chose not to. So we are going to be in a worse position, and we are not going to have as quick of a recovery.”

Pavlina Tcherneva, an economics professor at Bard College and the author of “The Case for a Job Guarantee,” told me that she believes the government should step in with forceful interventions, including more aggressive aid to individual families and a job guarantee through public-service projects. “The shortest distance between two points is a straight line, right?” she said. “The federal government should pay. If the problem is we need jobs, the government should create them. Hire the unemployed. It’s a very straightforward solution.” She believes that the crisis is an opportunity to reflect on economic policies that are currently failing us—such as the absence of universal health care, and tax structures that favor the rich—and to imagine a new world on the other side of the crisis. For inspiration, she suggested looking back to 1933, when Franklin D. Roosevelt took office amid the Great Depression and quickly expanded the role of the government in the economy, including by creating jobs for unemployed workers. “In two short years, Roosevelt did extraordinary things,” she said. “Look at that world of the nineteen-thirties: we didn’t have Social Security; we didn’t have a minimum wage; we didn’t have a forty-hour work week. F.D.R. came in and said, ‘Clearly the market is not solving the unemployment problem; clearly government has to come in and provide basic protections to workers.’ In two years, we did so much.”

Source: the-new-yorker

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German economy to shrink by 5.2% this year, grow by 5.1% next year – Ifo –



BERLIN (Reuters) – Germany’s Ifo institute on Tuesday said Europe’s largest economy would likely shrink by 5.2% this year, raising its previous estimate for a 6.7% drop, in the latest sign the damage caused by the COVID-19 pandemic could be smaller than initially feared.

“The decline in the second quarter and the recovery are currently developing more favourably than we had expected,” Ifo chief economist Timo Wollmershaeuser said.

For 2021, Ifo cut its economic forecast for Germany to 5.1% growth from its previous estimate of 6.4%. It expects the economy to expand by 1.7% in 2022.

The number of people out of work is seen rising to 2.7 million this year from 2.3 million in 2019, before edging down to 2.6 million in 2021 and then to 2.5 million in 2022.

That would translate into a jump in the unemployment rate to 5.9% this year from 5.0% last year. The rate would then drop to 5.7% percent in 2021 and 5.5% in 2022, Ifo said.

The Ifo institute cautioned that there was an unusually high degree of uncertainty attached to the forecasts. It pointed to the rising number of coronavirus infections, the risk of a disorderly Brexit and unresolved trade disputes.

(Reporting by Michael Nienaber; Editing by Michelle Adair)

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Coronavirus economy: The 'banker ladies' saving friends from debt – BBC News



Minority communities in the US and elsewhere have sometimes turned to traditional money saving methods outside the formal banking system. The economic shock from the coronavirus pandemic could spur renewed interest in those savings clubs.

When Hilda Robles recalls her first years in America, tears come to her eyes.

“I cried and even wanted to leave at one point because I felt alone,” she says. “I would ask people for help and they couldn’t help me because they didn’t understand Spanish and I didn’t understand English.”

When she came to San Antonio, Texas some 20 years ago, even daily duties like getting to work or going to the doctor were feats of bilingual diplomacy and logistical planning – she had no car, no English and almost no one to turn to for help.

Opening a bank account seemed impossible. “When I stepped into a bank for the first time, I was told I couldn’t open a bank account because I had no social security number,” she says.

“Someone told me about a bank where I could open an account with no social security number, but the language barrier stopped me from going.”

So Ms Robles, 49, went a different route – she started a tanda, an informal savings club popular in Latin America, with contributions from her extended relatives.

Members of the club each contribute a fixed sum to a pool of money on a regular, periodic schedule, with the lump sum going to one member each round until everyone gets paid.

This means that members get back what they put in over the course of the scheme, but by getting it in the form of a lump sum, the money can be put to use for purchases, investments or debt payments they otherwise could not afford. Members who get their “hand” early are effectively receiving an interest-free loan, while those who receive theirs later in the cycle are essentially withdrawing a lump of “saved” cash.

With the $5,000 lump sum she received for her turn of her tanda, Ms Robles bought her first car. Her relatives and friends in the savings club were able to put down payments on houses, pay for university tuition – and now, amid the Covid-19 pandemic, survive when their families have been out of work or sick.

Since that first savings club 14 years ago, Ms Robles has run them continuously with only a few months break to organise the next one.

“It gives me a lot of joy to see people reach their goals because of the tandas without having to drown in debt from loans,” she says. “It’s proof that among us Hispanics, we can get ahead here.”

Hispanic-Americans are not alone in their use of this ancient savings mechanism that has parallels all over the globe, known generally as a rotating savings and credit association, or roscas.

In Mexico, they are popularly called tandas, but they are also known as huis, susus or ballot committees in various parts of the world. Immigrant communities continue their practice in the US.

As economic hardship accompanies the public health crisis caused by the Covid-19 pandemic, for some families, traditional methods of saving outside the banking system have become a lifeline, especially for hard-hit immigrant communities with little access to mainstream sources of capital.

Financial access and security in America has become an increasingly pressing subject of discussion in 2020. Even before the pandemic, the US was behind other rich countries when it comes to accessing money and credit.

Some seven percent of Americans over the age of 15 did not have any kind of bank accounts in the US in 2017, compared to less than one percent of Canadians, and less than four percent of Britons, according to the World Bank.

A quarter of American adults – more than 80 million people – were “unbanked” or “underbanked”, meaning either that they had no accounts entirely, or that they are forced to use alternative services besides traditional banks in order to get enough financial access to meet goals or obligations.

Households most likely to fall into the two categories were black or Hispanic, lack university qualifications and to be poor. To access loans, they must sometimes turn to non-bank lending options like payday lenders or loan sharks.

These shadow banking options can be risky, charge high interests and bring dire consequences for borrowers who struggle to pay – but a rosca can provide a safer, more trustworthy alternative.

“These systems are actually useful when we have bank systems that have a finite possibility,” says Caroline Hossein, a professor of business and social studies at York University who studies roscas in communities in Canada.

“Banks only have a certain amount of money, and if you only have a certain amount of money, you’re only going to dish it out to those that are less risky.

“So it makes perfect sense that people would engage in these kinds of mutual aid or money pooling systems.”

Often, they are run by women, whom Dr Hossein calls the “banker ladies” of the community.

“The banker lady, who might be the one organising it – you can be in touch with her anytime of day, it may be someone who lives in your neighbourhood so [there’s] the ease of getting there.

“The paperwork is not as treacherous as it would be as a formal bank, so there’s a kind of kinship that exists because it’s people who voluntarily like and know each other.”

Though they tend to be “more of a life line for people who have difficulty accessing banking, particularly on the lending side,” such savings schemes are also used by more established members of communities who may have inherited knowledge about them from immigrant parents.

Beyond access to a pool of money, “a primary benefit is building ‘bonds of mutual trust’ within a network of trustworthy people,” says Lee Martin of the University of California, Davis. Roscas are primarily beneficial for people without access to mainstream forms of credit, he says.

But because they are used by marginalised communities, studying their overall prevalence and use has been difficult, says Dr Hossein, who participates in a rosca – known as a su-su in her Afro-Carribean community – as part of her research.

“A lot of these roscas, particularly in places like Canada, the US or Europe, tend to be underground,” she says, because many worry that the endeavour is seen as an unrespectable or even an illicit form of financing, only for those who are short of options. Clearly, unlike a savings account, they do not generate interest.

Yet economists believe they are probably quite common in the West. One survey of Korean-American garment business owners in Los Angeles from 2004 found that 77% of households had participated in a version of the lending scheme.

Self-lending within communities can have unexpected benefits. A rosca-like system among Chinese immigrants in Spain, for example, helped expatriate businessmen weather the Euro crisis of the late 2000s and 2010s.

The Chinese business community was “largely insulated from the vagaries of the country’s tottering retail banking system” – precisely because the system that shut them out meant they turned to each other, reported the Financial Times in 2014.

In the 2020 Covid-19 crisis, families who participated in the tanda Ms Robles is running were able to pay their bills when some fell ill and could not work.

For most, it was their only source of cash, Ms Robles says – only one of the families has received a cheque from the government for coronavirus relief because they lack the papers to get onto the dole.

Like any investment scheme, however, roscas are not risk-free. A participant could fail to pay their hand, or take their share and run.

Ms Robles says there have been rare times that she misplaced a contribution and had to make up the difference out of her own pocket, which can be costly.

As they operate on trust, usually within a deeply connected community, the social consequences of misdeeds dissuades wrong-doing.

But since they are run by privately, there is little legal recourse for cheating. And unlike putting money in a bank savings account, there is no interest paid.

Could roscas catch on and become more mainstream? The Federal Reserve Bank of Philadelphia asked just such a question in 2006, but was sceptical given the depth of trust it would require.

An attempt by Yahoo Finance to popularise a tanda app in 2018 was unsuccessful. The scheme shut down after only a few months due to, it would seem, lack of participation.

There are two big hurdles, as Dr Hossein sees it – the stigma attached to a non-traditional financial tool used by ethnic minority communities, and the barrier in trust that must be surmounted to put one’s faith in other people to handle money.

But with the Covid-19 pandemic, a younger generation of North Americans with an interest in sharing resources and the technology to do so efficiently – from crowdfunding to forms of “caremongering” – roscas are bound to be a savings method that continue and evolve and expand.

For Mayra Martinez, 30, a university administration professional in Dallas, Texas, being in tandas has helped her learn about trust and foster a sense of obligation to save, which can otherwise be hard for young people like herself she says.

“It’s not like your commitment to yourself, where you can easily say ‘hmm, I’m not going to do that this month because I just don’t want to,” she says.

It is an added layer of security in an economic world that has been particularly unpredictable for young professionals, which Ms Martinez says she has seen first-hand – her sister and brother-in-law each recently tested positive for Covid-19 and could not work.

“She just happened to get her tanda this week,” says Ms Martinez. Because of that, Ms Martinez says, her sister was able to tell her husband: “It’s ok”.

The tanda Ms Martinez is involved in now consists of family members from all generations and is run by her mother.

Would she ever take over and start one for her own cohort of siblings and cousins once the older generations retire from such schemes?

“I wouldn’t mind running one,” she says, adding with a laugh, “but it depends on which cousins.”

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Trudeau Poised to Announce Three-Pillar Economic Recovery Plan – Yahoo Canada Finance



Trudeau Poised to Announce Three-Pillar Economic Recovery Plan

(Bloomberg) — Prime Minister Justin Trudeau is set to unveil a new plan to try to contain the spread of Covid-19 and recharge Canada’s pandemic-battered economy, according to a senior government official.

The broad themes in this week’s so-called Throne Speech — which outlines his government’s priorities — will be a focus on the immediate task of tackling the coronavirus, a medium-term commitment to support Canadians through the pandemic and a “resiliency agenda” to spur recovery and reconstruction.

Trudeau’s agenda won’t establish budget targets, which will be left for Finance Minister Chrystia Freeland to detail later this year in a fiscal update, the official said, speaking on condition they not be identified because the document isn’t yet public.

Wednesday’s speech is one of the most anticipated in Trudeau’s five years in power, with questions mounting over how his governing Liberals plan to navigate their next policy steps amid surging Covid-19 case numbers and soaring budget deficits.

The prime minister needs to balance the need for more health-care spending with pledges to engineer an ambitious and green post-pandemic agenda. And he needs to do it without further eroding the nation’s financial credibility after one major credit-rating agency downgraded Canada’s debt.

“This government has set certain expectations and now the pressure is on them to meet their own expectations,” pollster Shachi Kurl, executive director of the Angus Reid Institute, said by phone.

Parliamentary Reset

Health care spending will be the first pillar for the economic recovery, the official said. This includes spending for vaccines, Covid-19 testing and support to localize outbreaks to maintain control over a resurgence of cases.

The second will be a pledge to provide financial support to Canadians who are struggling economically due to the pandemic, with a focus on shifting people back into the workforce.

Economic recovery and reconstruction efforts are the third pillar. This will include a pledge to help foster green investments, resolve major health issues such as long-term care for seniors and bolster support systems for the most vulnerable, like low-income women and minorities.

Trudeau has spoken publicly about plans to overhaul the employment insurance system, provide support for childcare and long-term care and build a cleaner economy through climate initiatives like retrofitting buildings and electric vehicles.

The prime minister suspended all parliamentary business last month after a public rift with his previous finance chief prompted Freeland’s appointment, claiming he needed a new legislative slate in order to move ahead with a “bold” new spending plan to help drive the recovery.

Canada has already budgeted C$380 billion ($289 billion) in new debt this year as a response to the downturn, spending that will likely drive the federal government’s debt to about 50% of economic output, from 31% last year. That’s triggered a backlash from business groups and economists, who are calling on Trudeau to commit to specific new debt targets to impose discipline on the budgeting process.

To assuage those concerns, Freeland vowed last week to preserve Canada’s reputation for sound fiscal management as her government considers the next steps to drive the recovery.

Trudeau is prepared to spend whatever it takes to combat the immediate impacts of Covid-19, given the emergency expenditures will only be temporary, the official said. Any future spending deemed structural, however, would be within new “fiscal tracks” that will be laid out by the finance minister later this year.

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