Living with Risk Daily Briefing – April 2

Published on April 2, 2020 / Leer en español

Center for a New Economy

Edited by
Sergio M. Marxuach


Four things you should know today

1) NPOs and the pandemic

Analysis by Malu Blázquez Arsuaga, Executive Director of ReImagina Puerto Rico, a CNE program that works to achieve a coordinated post-disaster reconstruction process.

Nonprofit (NPOs) and community-led organizations proved to be indispensable in supporting communities after the impact of Hurricane Maria, by helping to provide essential supplies, auxiliary energy and water systems, equipment, and communications. Many of these NPOs, both local and international, depend on donations and support from philanthropic foundations to function.

After the devastation caused by Hurricane Maria, we received worldwide attention and many national and international NPOs came to provide unprecedented aid to our communities and local NPOs. However, in these first months of 2020, most of these foreign NPOs were starting to leave Puerto Rico when the coronavirus pandemic began. In this emergency, the reality of Puerto Rico is totally different. It is not receiving as much support or additional donations for the emergency, since the impact of COVID-19 is global, and social distancing is making it almost impossible for NPO volunteers and employees to be able to serve communities appropriately.

Our NPOs need to receive state and federal aid to survive this crisis in order to continue providing essential services to communities, including food, care and services for the most vulnerable, mental health services, among many other services.

The recently passed federal legislation (CARES ACT, H.R. 748) will provide assistance to NPOs classified as 501(c)(3) entities. Although this package does not include direct donations to NPOs, it does provide NPOs with incentives and access to funds just like it does small businesses with less than 500 employees. Meanwhile, at the local level, NPOs are advocating for the same incentives and assistance that small businesses and first responders receive, as many perform this role in their communities. Furthermore, Puerto Rico would benefit from the creation of a Social Task Force made up of NPOs and community organizations that can advise and coordinate efforts with the government in the response to communities.

2) White House estimates between 100,000 and 240,000 deaths in the United States due to COVID-19

The White House Task Force on COVID-19 released its estimates of expected deaths in the United States due to the coronavirus.

Goals of Community Mitigation graph
Source/Fuente: White House Task Force on COVID-19

In a remarkable turnaround, the White House is now estimating that in the best case scenario approximately 100,000 Americans may die from the virus during the next two months, even if all states implement shelter-in-place policies. To put in this context, keep in mind that approximately 58,000 U.S. soldiers died during the decade-long Vietnam War. Note, however, that epidemiological models are dynamic: their initial assumptions are adjusted as real data (from diagnostic tests) comes in. Thus, while useful in making decisions, they are only math, not prophecy. And their forecasts can be altered by well-thought-out public policy interventions. Which leads us to the obvious question: why has Puerto Rico proven unable to produce this kind of model? Does the government of Puerto Rico even have an estimate of the number of infected people, or the number who would need hospitalization or intensive care?

3) The economic effects of the pandemic could be long-lasting

Economic activity has slowed down to crawl in basically all advanced economies, and rightly so. It would be irresponsible to open for business when people are still dying daily by the thousands across the globe. Eventually, however, this crisis too shall pass. The question then is how long will it take the economy to bounce back. The honest answer is we don’t know. It depends on the duration of the pandemic, its intensity (infection, hospitalization, and mortality rates), the impact of expansionary fiscal and monetary policies, and perhaps most importantly, human psychology.

As Peter Goodman writes in this piece for The New York Times, some economists are remarkably sanguine, and forecast a sharp but relatively short decrease in economic activity. Marie Owens Thomsen, global chief economist at Indosuez Wealth Management in Geneva, believes that “you hit the pause button, and then you hit the start button, and the machine starts running again.” Others, however, are more skeptical. For example, Charles Dumas, chief economist at TS Lombard, an investment research firm in London, believes that “people have had a real shock. The recovery will be slow, and certain behavior patterns are going to change, if not forever at least for a long while.” Still others, like Kenneth S. Rogoff, a Harvard economist, believe the massive losses accrued by companies “already saturated with debt” could trigger another worldwide financial crisis. Unfortunately, then, the best we can say at this time is that there is too much uncertainty, and an uncomfortable number of unknown unknowns, to make a reliable forecast at this time.

4) Puerto Rico fiscal plan under question as economy slows down

As the economic outlook for the globe, the United States, and Puerto Rico becomes more complicated by the day, it is important to keep an eye on whatever negotiations or mediation processes may be ongoing with respect to the restructuring of Puerto Rico’s tax-supported debt. The certified Fiscal Plan currently in effect was drafted prior to the January earthquakes and the current pandemic, both of which have had adverse effects on the island’s economy. At a minimum, the Fiscal Plan should be amended to take into account the economic damage of these disasters; to update macroeconomic and population forecasts; delay the imposition of counterproductive fiscal austerity measures; and reduce the amount of any projected “surplus” available for debt payment and re-direct it to public investment in Puerto Rico.

Quote of the Day

Nothing hurts a new truth more than an old error.

—Johann Wolfgang von Goethe

Note from the editor

It never ceases to surprise me how many people really believe the economy behaves like a giant machine. If something goes wrong, just press here, tinker with that, add some of these, and presto. We are back to full speed ahead. The reality, unfortunately, is a lot more complex as economic activity fundamentally depends on the intricacies of human psychology. That’s why I believe it will take us a lot longer to recuperate from this economic crisis. We are going through a transformative event at a global level. And while many people may or will yearn for a return to the good old days of unbridled globalization, many will not.

People are already questioning the need for all that air travel, the long commutes, the precious time lost away from home and loved ones, the never-ending rat-race to acquire the fastest, newest, coolest gadget made in China, the sheer insanity of it all.  Do we really believe, as Peter Goodman writes in the NYTimes, that “once the virus is contained, enabling people to return to offices and shopping malls, life will snap back to normal. Jets will fill with families going on merely deferred vacations. Factories will resume, fulfilling saved up orders[?]”. I doubt it.

Rather, sensible human beings will probably think twice about getting on that plane; really consider the need to attend yet another business dinner in an uncomfortably tight private room; and carefully ponder whether to go to that crowded, sweaty, impossibly humid, disturbingly viral, and utterly glandular music concert. Similar life-altering changes occurred after the First World War (which was followed by the 1918 Flu Epidemic); the Great Depression; and the Second World War. Why would it be any different this time around?

This is the end of today’s briefing.
Stay safe and well informed!