The Troubling Economic Outlook

States are reopening - some with surging cases of Covid-19 - and the American economy appears to have passed its nadir, but the economic future remains troubling. Some industries for now are doing remarkably well - real estate being one of them, at least for those who still have jobs and/or stashed savings that allow them to take advantage of historically low interest rates (I closed a refinance last week where a 15 year mortgage bore an interest rate of 2.25%).   Other sectors of the economy, however, remain bleak as restaurants and retail outlets struggle and the unemployment rate remains in double digits. Disturbingly, the federal government has no plan on how to cure the main factors threatening economic recovery and the Trump/Pence regime appears to want to pretend problems do not exist.  A long piece in The Atlantic looks at the situation and ponders whether America can rise to the challenges it faces or, if instead a long period of economic depression lies ahead.  Here are article highlights:

At least four major factors are terrifying economists and weighing on the recovery: the household fiscal cliff, the great business die-off, the state and local budget shortfall, and the lingering health crisis. Three months ago, the pandemic and ensuing shelter-in-place orders caused mass job loss unlike anything in recent American history. A virtual blizzard settled on top of the country and froze everyone in place. Nearly 40 percent of low-wage workers lost their jobs in March. More than 40 million people lost their jobs in March, April, or May.

Faced with this historic catastrophe, the United States marshaled a historic response: Republicans in the White House and Congress, generally hostile to the notion of economic stimulus for low-income households, came together with Democrats to achieve a $2 trillion rescue package, including a $1,200 onetime payment for most adults and $500 for many children, a radical expansion of the unemployment-insurance system to include gig workers, and a $600-a-week bump to unemployment-insurance payouts. It also created a sweeping small-business rescue plan, covering payroll for companies that kept their employees on the books.

The good: This money kept families afloat—at least for the first, intense months of shelter-in-place. New estimates suggest that the Congressional rescue plan prevented poverty rates from rising, with many jobless workers seeing their incomes increase during lockdown due to the expanded unemployment-insurance payouts. The bad: It left out roughly 15 million people in immigrant families, many of whom were working essential jobs stocking grocery shelves, delivering takeout, and drawing blood in hospitals. And the ugly: The big helicopter drop was a onetime thing, and the unemployment-insurance expansion was time-limited. Congress designed Uncle Sam’s help to dry up this summer, with the unemployment rate still in the double digits. Democrats and Republicans are negotiating another stimulus bill, but concerns about surging budget deficits are complicating the talks.

That means households are headed for a cliff. But not everyone will be affected by it equally. Rich workers, the ones with do-anywhere office jobs, have remained relatively untouched by job and earnings losses thus far. Wealthy families have seen their stock portfolios rebound to close to where they were in the winter. But poor workers—disproportionately black and Latino workers, as well as younger workers—have borne the heaviest employment and earnings losses. They entered this recession with no wealth cushion, many saddled with heavy rents and heavy debts. Income and job losses for them translate into a loss of demand economy-wide, absent federal intervention.

If and when that federal intervention dries up, millions of families just keeping their head above water will sink, as lost jobs and canceled hours force them to stop paying their rent and go into arrears on their debt payments. Hunger, homelessness, forgotten plans to attend community college, babies growing up in stressed households: These are the stakes. The CBO forecasts that every quarter through the end of 2021, American consumers will buy $300 billion to $370 billion less than they would have if the pandemic had never happened.

This steep decline in consumer spending will hasten mass business failure, the second factor weighing on the economy. The Paycheck Protection Program and other federal initiatives shoved an oxygen mask on many companies. But the PPP was scaled to help businesses through a short, intense disruption, though the economy is expected to remain sluggish for months and months. Moreover, the PPP did not include much aid for businesses with significant nonpayroll overhead costs, such as restaurants in high-cost cities. This means that many businesses will fail, if customers fail to return. Already, an estimated 100,000 small companies have shut permanently.

On top of that, numerous businesses—airlines, restaurants, live-events businesses, hotels, private schools, oil and gas companies—face severe and stubborn slumps. Students are not willing to pay as much for online learning as in-person instruction. Companies are not financing travel to conferences and sales meetings. Concerts and festivals are not expected to restart until scientists develop a coronavirus vaccine. Economists expect that 42 percent of people recently let go will not return to their former employers.

A third factor behind a possible second Great Depression is the budget crisis facing states and cities. The federal government does not have to balance its ledger year to year, and perpetually spends more than it takes in. Yet every state but Vermont and most cities and towns are required to remain in the black. Right now, sales taxes, real-estate-transfer taxes, income taxes, fines and fees—they are all collapsing, leaving local governments with a budget gap expected to total $1 trillion next year. Without help from Washington, this will necessarily mean massive service cuts and job losses: namely, an estimated 5.3 million job losses.

The shrinking of the government at the state and local level has already started, as Congress dithers on providing fiscal aid. Michigan is facing a $3 billion budget gap this year and a $4 billion one next year: It has instituted a work-share plan, asking two in three state employees to accept a partial furlough. In New Jersey, the government has asked 100,000 public workers to move to abbreviated schedules. Schools have already let go more workers than they did during the Great Recession, with nearly 500,000 positions lost.

A fiscal cliff for families. Rolling business failures. A budget crisis for state and local governments. Each is bad enough. Each might be a big-enough headwind to tip the economy into recession alone. But the last element is the true alpha and omega of our worst-case scenario: the catastrophe of the American government’s management of the novel-coronavirus pandemic.

Like many of its peer nations, the United States imposed shelter-in-place and social-distancing measures to curtail the spread of the virus. But it did so late, leading to the unnecessary deaths of tens of thousands of people. And it wasted the time these extreme measures bought, because the government failed to set up a strong test-and-trace regime. Countries including South Korea and New Zealand crushed the coronavirus. The United States merely patted it down. The country is reopening with the disease still spreading and maiming and killing, as several states experience a dramatic surge in caseloads.

The botched response means millions of parents will need to continue watching their young children instead of committing to work. It means thousands of offices will remain on work-from-home orders, hurting the commercial operations built to support them. It means Americans will avoid doctors’ offices, bars, and sporting events, staying at home and starving local businesses of revenue. It means localities might end up having to return to extreme social-distancing measures over the summer and fall. And it means fear and mistrust: depressed consumer confidence, ruined faith in government, and concerns about the economy’s ability to recover.

The Trump administration has repeatedly argued that there is a trade-off between the country’s economic health and its public health. But economists and physicians have repeatedly argued that that is untrue: Ending the pandemic would have been the single best thing the federal government could have done to preserve the country’s wealth, health, and economic functioning. The Trump administration, in its hubris, obstinacy, and incompetence, failed to do it.

All four of these factors, and the many others hurting families and killing Americans, are amenable to policy solutions. Congress could extend unemployment insurance, offer new help to flailing businesses, send monthly cash grants to poor families, offer fiscal relief to the states, and implement a nationwide test-and-trace program. The collapse is over. The rebound is under way. But a terrifying future awaits us, one that does not have to come to pass.

Saving American Lives or Propping Up Business: Trump Prefers the Later

An empty Times Square.

As various states are increasingly clamping down and closing business interests - Virginia tightened restriction as of midnight last night - in the hope of containing the COVID-19 virus and avoiding the nightmare playing out in New York City - actions condoned by medical experts - Donald Trump appears poised to loosen restrictions on public gatherings and business closures.  Why?  Because he fears a deep and/or prolonged recession will kill his chances of re-election.  Race baiting and xenophobic behavior may not be enough to rally his base if they are dying financially.  In Trump's mind, thousands of perhaps avoidable deaths of Americans is a small price to pay to help his re-election effort.  It's another example of why doesn't elect a malignant narcissist who has zero empathy for anyone to the White House.  A piece in the New York Times and one at CNN look at Trump's likely disregard for the warnings of medical experts.  For Trump supporters who think he gives a rat's ass about their very lives, they should perhaps open their eyes and think again.  First this from the Times piece:

As the United States entered Week 2 of trying to contain the spread of the coronavirus by shuttering large swaths of the economy, President Trump, Wall Street executives and many conservative economists began questioning whether the government had gone too far and should instead lift restrictions that are already inflicting deep pain on workers and businesses.

Consensus continues to grow among government leaders and health officials that the best way to defeat the virus is to order nonessential businesses to close and residents to confine themselves at home. Britain, after initially resisting such measures, essentially locked down its economy on Monday, as did the governors of Virginia, Michigan and Oregon.

Relaxing those restrictions could significantly increase the death toll from the virus, public health officials warn. Many economists say there is no positive trade-off — resuming normal activity prematurely would only strain hospitals and result in even more deaths, while exacerbating a recession that has most likely already arrived.

The economic shutdown is causing damage that is only beginning to appear in official data. Morgan Stanley researchers said on Monday that they now expected the economy to shrink by an annualized rate of 30 percent in the second quarter of this year, and the unemployment rate to jump to nearly 13 percent. Both would be records, in modern economic statistics.

Mr. Trump and a chorus of conservative voices have begun to suggest that the shock to the economy could hurt the country more than deaths from the virus.

On Monday, Mr. Trump said his administration would reassess whether to keep the economy shuttered after the initial 15-day period ends next Monday, saying it could extend another week and that certain parts of the country could reopen sooner than others, depending on the extent of infections.

Any push to loosen the new limits on commerce and movement would contradict the consensus advice of public health officials, risking a surge in infections and deaths from the virus. Many economists warn that abruptly reopening the economy could backfire, overwhelming an already stressed health care system, sowing uncertainty among consumers, and ultimately dealing deeper, longer-lasting damage to growth.

The recent rise of cases in Hong Kong, after there had been an easing of the spread of the virus, is something of an object lesson about how ending strict measures too soon can have dangerous consequences. Yet places like China, which took the idea of lockdown to the extreme, have managed to flatten the curve.

The piece at CNN looks at this issue as well and what may be Trump's motivations which have lettle to do with reducing the death toll.  Here are excerpts:

President Donald Trump appears to have made his choice in the awful dilemma posed by the coronavirus pandemic -- whether to destroy the nation's economic foundation in order to save lives.

In his zeal to fire up American prosperity after helping to trigger an unprecedented self-inflicted economic meltdown, Trump is already losing patience -- weeks before the virus may peak. His comments came on day when the number of confirmed cases soared past 40,000 and 100 people died in a single day for the first time. Dr. Deborah Birx, a member of Trump's coronavirus task force, warned that the "attack rate" of the disease in New York, America's dominant economic and financial powerhouse, was five times that of elsewhere. Trump's change of emphasis previewed a building confrontation inside his own administration -- between public health officials using the science of epidemiology to battle Covid-19 and political and economic officials desperate to save an economy that is fundamental to basic life and Trump's reelection hopes.

[Trump's] The President's upbeat prediction of a return to full speed ahead directly contradicted the actions of state governors nationwide -- who are imposing stay-at-home orders, closing businesses and ordering schools out for summer in March.

Local and public health authorities fear the highly contagious virus will cause a tsunami of critically ill patients that will swamp hospitals and mean people will die in the thousands.

The idea that the situation will stabilize in a few weeks -- when most experts say that much, much worse is to come -- appears fanciful. This raises the question of whether Trump is willing to take a decision that could indirectly cause many deaths but that could save millions of other Americans from the deprivations brought on by economic blight. Trump's course change -- after warning last week the shutdown could last until July or August -- was consistent with the scattershot way in which he has managed the coronavirus pandemic.

He spent weeks denying it was a serious problem, predicting it could simply go away and was not much worse than the flu. It was noticeable Monday that Trump was talking about the virus in the past tense. . . . And he went back to comparing Covid-19 to the seasonal flu even though it is far more virulent, has a far higher death rate and has no vaccine. Then he borrowed an argument being made by conservative commentators.

"You look at automobile accidents, which are far greater than any numbers we're talking about. That doesn't mean we're going to tell everybody no more driving of cars. So we have to do things to get our country open," Trump said. Trump's apparent impatience, only days after declaring war on the virus, raises questions about the depth of his thinking and his own motivations given the importance of a strong economy to his reelection campaign. And his sudden lurches make it more difficult to unite the nation behind him in the grim fight.

This would not be the first time that Trump has been influenced by conservative news chatter or that his personal political goals might weigh heavily on his thinking.

A strong economy will mean nothing if one or one's loved ones are dead.  Once again, Trump puts his personal interests ahead of the lives of citizens.  Sadly, no one should be surprised.