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The Economy Will Survive the Coronavirus – The Wall Street Journal




Barbara Kelley

People are worried about the Covid-19 pandemic’s long-term effects on the economy and our collective future. While hunkered down in your homes, try to make the most of this rare opportunity to observe extremely uncommon events unfold in real time. It isn’t all bad news. There are economic blessings to be counted.

Consumers have emptied the shelves of the supermarkets and drug stores. That means these and related industries are prospering. Workers in those industries are prospering, too. As the Journal reported last week, pharmacies, groceries and big-box retailers are taking on more part-time employees and paying more overtime.

We still have diversity of choice in this stressed but predominantly decentralized economy. My wife, Candace, realized recently that we needed a printer-copier-scanner that would enable us to sign and send documents. She called several stores before finding the device she was looking for—the last one in stock! Home appliances of all kinds are in demand as people are becoming more cognizant of in-home needs. Managers are rightly using context-dependent local information to ration access to goods.

I have yet again been made aware of what Alfred Marshall referred to as Adam Smith’s “unsurpassed powers of observation, judgment and reasoning.” In “The Theory of Moral Sentiments” (1759), Smith models human sociability, as it arises from our sense of fellow-feeling. Among many deep insights, Smith refers to the asymmetry between joy and sorrow. Our distress is far greater when we fall from a better situation to a worse one than we ever can enjoy rising from a worse to a better. We seek security, therefore, and to avoid exposing ourselves to loss of health, fortune, rank or reputation.

Our concern for security is the first motive for saving and investment. It’s why we normally find inventories of the goods we want waiting for us on the shelves. If an investor loses sales because an item is out of stock, all other investment in the supply chain is worthless.

Reputation and esteem require us to take care in being properly compassionate for our fellow citizens who contract Covid-19. Generally, we are also focused far more on the downside and its costs than on the upside—its relief, and the eventual return of prosperity. Perhaps that stance better prepares us for whatever is to come. It’s always better to be pleasantly surprised than disappointed.

Now is also a time for learning from our erroneous beliefs. Being wrong is what teaches us all the things we didn’t even know we could know. In my career in experimental economics, my beliefs have been spectacularly wrong three times. Each led to new learning of enduring importance. First, I believed that supply-and-demand models for nondurable goods were abstract ideals that couldn’t predict prices and outcomes. They could and did. Second, I thought asset markets with complete transparent information on their fundamental value wouldn’t yield price bubbles. They could and they bubbled. Third, I predicted that anonymously matched pairs in two- and three-person trust games wouldn’t overcome their self-interest and reach cooperative outcomes. Astonishingly, many can and did. Adam Smith, who understood human mutual fellow-feeling, wouldn’t have been surprised.

When we are right, we merely confirm what we already thought we knew. This is the fount of “confirmation bias,” the form of self-deceit that Smith asserted was “the cause of half the troubles of this world.”

Projecting out, people ask how costly three months of quarantine will be. Perhaps it will hasten the decline of companies and products that are already under competitive pressure, like brick-and-mortar department stores and movie theaters. Such businesses occupy large buildings and may be rescued by innovative conversion into apartments, with handy downstairs theaters and discounters. Such experiments are lubricated by the market’s deep discount of abandoned revenueless space.

The hastened decline of old patterns of service will be more than matched by the growth of mail order, delivery, takeout and related services. Growth firms in these areas are already benefiting from transportation technologies with low transaction costs that match buyers to sellers in real time, place and circumstances.

The businesses lost in a long quarantine will tend to be small and young, as will those that are gained. Today’s larger firms were in many cases the small firms of the 1990s. They found ways to serve customers and escape bankruptcy after the dot-com bust. They matured.

As this crisis unfolds, don’t think of decline in labor and product markets; rather think of the churn, growth and survival that is happening. We are neither a feeble society nor a feeble economy. If, beyond your neighbor, you have leftover compassion, think of those in North Korea and Venezuela. They don’t need a pandemic to know what it’s like to live with empty store shelves.

Once the pandemic passes and we go back to work, the country will recover quickly. The economy will reach new levels of prosperity. The crisis is going to be felt mainly by businesses offering final-demand consumer goods and services. People rent hotel rooms, just as they rent an airplane seat, for use, not to hold as an asset or to resell. As much pain as airlines, hotels and their consumers are experiencing now, these businesses aren’t in a long-term decline. Once the pandemic passes and vaccines and treatments appear, people will be ready again to spend on services, travel and hotels.

Don’t despair. This economic crisis will pass, and pass quickly, once the clampdown is lifted; especially if the financial shock is reduced by fiscal and monetary relief. A more common postcrisis question may be whether policy makers overreacted when fear and uncertainty were at their height. We will never know the answer, but the current anxiety of economic doom will surely pass along with the pandemic.

In fact, with more money chasing goods in stretched production schedules, inflation is a real possibility. Inflation disrupts and distorts the ability of the pricing system to coordinate and direct economic productivity. When everyone rushes to spend for fear that prices will rise, we observe the destructive opposite of what happens when everyone is stuck at home. Witness the nightmare inflation rates in Zimbabwe and Venezuela.

The world being a complicated place, some of my predictions may not pan out. But so what if I’m wrong? It will give me another opportunity to learn.

Mr. Smith is a professor at Chapman University and the 2002 Nobel Laureate in Economics.

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Quebec looks to revive economy weakened by coronavirus crisis by fast tracking infrastructure projects – Global News



Quebec is looking to ramp up 202 infrastructure projects across the province in response to the novel coronavirus pandemic’s toll on the economy.

Bill 61, known as an “Act to restart Quebec’s economy and to mitigate the consequences of the public health emergency” due to the COVID-19 crisis, was unveiled by the government on Wednesday.

As part of the plan, the government wants to accelerate the construction of schools, seniors’ homes, roads and public transit systems. If passed, the bill will allow some projects to be fast tracked without all the regular procedures in place.

Treasury Board President Christian Dubé said the province wants to help people and sectors recover during the health crisis as lockdown measures implemented in March are slowly eased. He insisted that rigor will still be used when it comes to doling out contracts.

“We will not go against laws or regulations,” he said, adding the bill will permit for certain authorizations to be given more quickly.

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READ MORE: Different deconfinement approaches spark calls for change in Quebec massage industry

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The proposed legislation will revive the economy and allow for a less bureaucratic process, according to Dubé.

“We know we were all weathering an unusual storm,” he said.

Under the plan, about 90 infrastructure projects would be ramped up in the health sector, including construction on 48 seniors’ homes. This also includes renovation plans for hospitals in Montreal, such as the renovation and expansion of Lachine Hospital.

In the education sector, about 39 projects would be fast tracked. This includes the construction of new elementary and high schools as well as the expansion of other academic institutions such as Dawson College in Montreal.

When it comes to roads and public transit, the Legault government is looking at accelerating about 50 projects. This includes the long-awaited extension to the Montreal Metro’s blue line.

READ MORE: City of Montreal publishes economic recovery recommendations issued by panel amid coronavirus crisis

Finance Minister Eric Girard described the situation as “exceptional” when outlining the details of the bill alongside Dubé.

Girard also announced that he will provide an update on the province’s finances on June 19, but warned that the pandemic has had a grip on the economy.

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“This year is going to be a negative year,” he said. “The worst year for the economy since World War Two.”

The announcement comes as Quebec saw 291 new cases of COVID-19, the disease caused by the virus, on Wednesday. It leads the country with 51,884 infections.

The death toll stands at 4,794 after 81 more fatalities were reported from the previous day.

As of Wednesday, the number of hospitalizations decreased by 34 for a total of 1,141. There are 158 people in intensive care.

With files from the Canadian Press

© 2020 Global News, a division of Corus Entertainment Inc.

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Mayor Watson asks province to consider local reopening of economy – Ottawa Citizen



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Mayor Jim Watson has asked Premier Doug Ford to consider reopening the City of Ottawa’s economy as part of a regional approach to relaxing COVID-19 restrictions.

“Mayor Watson spoke to Premier Ford last night and expressed his support for a more regional approach given our city is doing better than many other parts of the province,” Watson’s press secretary Patrick Champagne said Wednesday morning.

“As you know, we also have the added challenge of being a border city, creating an unlevel playing field, as businesses like hair salons and barber shops have reopened in Gatineau but not in Ottawa. Premier Ford fully understood our dilemma and committed to keeping the Mayor’s perspective in mind as they consider a regional approach to reopening the Ontario economy.”

Ford last week expressed interest in a regional approach to reopening Ontario’s economy based on COVID-19 testing and results, rather than tweak provincial emergency orders and have the rules apply to the entire province.

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US services index shows biggest part of economy is stirring –



U.S. service providers started to emerge in May from a pandemic-induced tailspin as nationwide lockdowns on business and social interaction began to lift.

The Institute for Supply Management said Wednesday that its non-manufacturing index rose 3.6 points to 45.4.

While the monthly increase was the largest in more than two years, the gauge remained below the 50 mark that shows most service-related industries continued to contract.

The purchasing managers group’s gauge of business activity, which parallels the ISM’s factory production index, jumped 15 points, the most in records dating back to 1997, to a still-tepid 41. Along with an improvement in new orders, the figures are a welcome sign that the economy is stabilizing and will gradually recover from a deep recession.

The median forecast in a Bloomberg survey of economists called for an improvement to 44.4 in the overall non-manufacturing index.

The report, however, also showed the labor market remains severely disrupted by the pandemic. The ISM measure of employment at services, which represent almost 90 per cent of the economy, only rose 1.8 points from the worst reading on record in April.

A Labor Department report on Friday is projected to show another 8 million decline in May payrolls after an unprecedented 20.5 million slump in April. The unemployment rate is forecast to soar to nearly 20 per cent.

A pickup in demand as states lift lockdowns and businesses begin to reopen is needed to help stabilize the job market. The ISM’s report showed an index orders at service providers climbed 9 points to a still-weak 41.9.

Meanwhile, the index of supplier deliveries in non-manufacturing industries fell for the first time in four months, indicating an easing in supply-chain bottlenecks and transportation delays.

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