Four things you should know today
1) Governments need to pay attention to household balance sheets
The usual remedy for economic slowdowns or outright recessions is to increase government spending to stimulate aggregate demand, get businesses to open again, and eventually start hiring. That remedy, however, is insufficient to effectively address the current economic crisis because workers are precluded from working for public health reasons (and rightly so). In other words, this means that governments cannot stimulate their economies with the usual policy tools because those very same governments are ordering businesses to close and workers to stay home.
So, while income supplements are necessary, they are not sufficient. It is imperative to help households to protect their balance sheets. Just as a business has assets and liabilities, so do households. For most individuals and families, the largest liabilities are mortgage loans or rent contracts, usually followed by student loan debt, health and auto insurance, car loans and credit cards. If they miss payments on any of these loans, or outright default on them, their credit will be affected or ruined and many will be forced to seek bankruptcy relief, through no fault of their own. That is why Michael Hirsh and Martin Guzman write in Foreign Policy and Project Syndicate, respectively, about the need to legislate automatic moratoria on certain debt payments, in order to provide the financial space many households need to successfully withstand the current economic crisis.
2) An urgent policy for renters is due
For many families and individuals, the beginning of the month is when rent payments are due. As the economic crisis spurred by the global coronavirus epidemic deepens, these next few days will be especially hard for workers who lost their jobs or have seen their incomes reduced, and find themselves making very hard financial choices like paying their landlords or buying food and medicines. That is why, as Gianpaolo Baiocchi and H. Jacob Carlson argue in a recent New York Times op-ed, federal and local authorities should enact legislation to provide a 90-day moratorium on residential rent payments.
A temporary suspension of payments that covers all renters, not just those living in government-backed or owned properties, would provide much-needed support for people who stand to lose their homes during an immensely challenging time. Especially at risk are families who already pay more than a third of their incomes on rent—which is more than half of renters in Puerto Rico. But a key question still remains: what happens once moratoriums are lifted? Some will be able to go back to work and slowly pay back what they owe. But those who are not able to recoup earnings or access jobs will eventually find themselves in a serious financial bind. Perhaps it’s time to think about stronger measures, like rent forgiveness, as some lawmakers in New York City have proposed.
We mustn’t forget that these are just temporary measures. As we have argued previously, Puerto Rico urgently needs a housing policy that addresses some of the serious structural problems we have ignored for decades. That should be one of our top priorities on the morning after the pandemic.
3) Initial claims for unemployment insurance set a new record (again)
Initial unemployment insurance claims increased to 6,648,000 for the week ending on March 28, an increase of 3,341,000 from the revised previous week total of 3,307,000, equivalent to an increase of 101%. According to the U.S. Department of Labor, “This marks the highest level of seasonally adjusted initial claims in the history of the seasonally adjusted series.”
Most economists were expecting a big number, but the magnitude of the increase still took many by surprise. As we stated last week, the sudden increase in unemployment is a function largely of the shelter in place policies implemented by many state and local officials, which have put on the brakes on economic activity. Yet, that does not mean we can simply disregard this jump in unemployment as just a merely aberrant data point. We still have a long way to go before the economy stabilizes and even longer before all restrictions on movement are lifted.
Therefore, all these recently-unemployed people need help, a lot of help. That is why it is imperative for Congress to start working on another relief bill. Keep in mind we really don’t know when the pandemic will be over and when economic activity will revert back to “normal”, if ever. As Matthew Yglesias and Christina Animashaun write: “Policymakers currently seem to be assuming that the economy is kind of like a light switch that they’ll be able to turn back on when the virus is under control. But that’s not really an idea the world has a lot of practical experience with, and it’s far from obvious that it will work in practice.” Certainly, additional assistance will be needed.
4) Confirmed coronavirus cases exceed 1,000,000
According to data compiled by Johns Hopkins University the number of confirmed coronavirus cases around the globe now exceeds 1 million and over 51,000 deaths have been attributed to the virus. The United States leads the world in the number of confirmed cases (236,000+), followed by Italy (115,000+), and Spain (110,000+). The rapid spread of the virus has led governments to implement shelter-in-place policies and to essentially shut down the world economy. As a result, we all are witnessing events and scenes not seen since before the Second World War.
Quote of the Day
“Tho’ much is taken, much abides; and tho’
We are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.”
—Alfred, Lord Tennyson
Note from the editor
Well, the world just passed a grim milestone: there are now more than a million confirmed cases of COVID-19 and more than 50,000 people have died as a result. You would imagine that in light of this existential threat, governments would set politics as usual aside. And you would be wrong. Petty partisan politics are alive and well, and not only here in Puerto Rico. The people who live up north, in the city by the Potomac, also have their problems getting the blues and the reds to agree on almost anything.
Yes, Congress just enacted a $2 trillion economic relief package, but it took them an unduly long time. And more will be needed, as economic data starts to flow in. Yet people disagree bitterly about the way forward. Senate Majority Leader Mitch McConnell believes the federal government has done enough, while Speaker Pelosi disagrees. The president, well, he seems to change his mind every day. Meanwhile, basic health recommendations such as hand washing and social distancing have become fraught with partisan politics. Even Dr. Anthony Fauci, a man who has dedicated his life to public health, has received death threats. Do things really have to be this way? Is the human condition such that we are condemned to this eternal march of folly? Are the days really “stacked against what we think we are,” in the words of poet Jim Harrison? In the answers may lie the keys to our survival.
Here are some reading recommendations from the CNE team:
- The Good Life of Staying at Home – The Hedgehog Review
- The Coronavirus Is the Worst Intelligence Failure in U.S. History – Foreign Policy
- Internal Emails Show How Chaos at the CDC Slowed the Early Response to Coronavirus – ProPublica
- Stimulus package will remain half-baked unless local governments get more of the dough – The Conversation
- The President Is Winning His War on American Institutions – The Atlantic
- How does the Coronavirus Behave Inside a Patient – The New Yorker
- The global hunt for a coronavirus drug – Financial Times
This is the end of today’s briefing.
Stay safe and well informed!