Living with Risk Daily Briefing – April 24

Published on April 24, 2020 / Leer en español

Center for a New Economy

Edited by
Sergio M. Marxuach


Five things you should know today

1) Puerto Rico among countries least prepared to roll back lockdown

Analysis by Raúl Santiago-Bartolomei, PhD, Research Associate, and Deepak Lamba-Nieves, PhD, Research Director

Puerto Rico is among the countries least prepared to roll back its lockdown, according to a Research Note published by researchers from the Blavatnik School of Government at the University of Oxford. The authors provide an overview and ranking of which countries meet four of the World Health Organization’s (WHO) six recommendations on measures to implement before suspending lockdowns, which can be summarized as follows:

  • Transmission of COVID-19 is controlled to only sporadic cases and clusters of cases;
  • There are sufficient public health workers in place to shift from detecting and treating serious cases, to detecting and isolating all cases;
  • Outbreak risks in high-vulnerability places are minimized;
  • Preventative measures are established in the workplace;
  • Managing the risk of importing and exporting cases from high-risk communities; and
  • Communities are fully engaged and understand that the transition away from large-scale movement restrictions and public health and social measures (from detecting and treating serious cases to detecting and isolating all cases) is a ‘new normal’ in which prevention measures would be maintained.

The group of researchers shows that the vast majority of countries in the world are far from complying with the WHO’s recommendations to scale back lockdowns, with Vietnam, Trinidad and Tobago, Costa Rica, and South Korea performing best, while Iran, Mauritania, Palestine, and the United Kingdom performing worst.

Puerto Rico is placed in the bottom half of the listed countries, doing slightly better than Mali and Moldova, but worse than Libya and Venezuela. While the authors determined that the island is doing well in fostering community understanding, there is a substantial underperformance with regard to controlling cases, as well as testing, tracing, and isolating.

2) When to expect a reduction in your electricity bill

Analysis by Malu Blázquez, Executive Director of ReImagina Puerto Rico

In March we saw petroleum barrel prices decrease by more than 50%. This week the unimaginable happened: petroleum barrel prices decreased more than 100%, mainly due to an oversupply of oil coupled with a worldwide decline in demand due to the COVID-19 pandemic. José Ortiz, CEO of the Puerto Rico Electric Power Authority (PREPA), recently reported these lower fuel costs would translate to lower consumer power bills from July onward.

Power rates in Puerto Rico are evaluated and established by the Puerto Rico Energy Bureau (PREB) every three months using PREPA’s reconciliation of projected costs for the previous 3-month period against the actual cost data for that period. That means that the rates in effect for PREPA invoices during the April-June 2020 period will be based on actual costs for the months of December 2019, January, and February of 2020. Therefore, consumers should not expect to see significant reductions in their bills until they get their July-September invoices.

However, on April 22, PREB announced it will order PREPA to submit a monthly reconciliation of projections and costs instead of every three months in order to determine and adjust rates more rapidly since typically 60% of the PREPA invoice amount is related to fuel cost.  According to PREB President, Mr. Edison Áviles Deliz, current regulations for establishing power rates include a clause that specifies that if the monthly reconciliation of estimated and actual costs for fuel and purchased power exceeds more than $20 million, then the rate is to be adjusted at that time for the remaining part of that trimester.  Therefore, once the cost reconciliation for April 2020 is submitted by PREPA, the PREB could adjust power rates during the trimester that ends in June if the difference is greater than $20 million. The current pandemic has caused significant economic hardship to many. Any possible savings should be passed on as quickly as possible to customers.

3) Congressional action on the Paycheck Protection Program

Analysis by Rosanna Torres, Director of CNE’s Office in Washington, D.C.

Yesterday, the House Committee on Small Business (SBC) convened a hearing on the COVID-19 Response and Recovery. The Committee, chaired by Rep. Nydia Velázquez, has jurisdiction over the Small Business Administration (SBA) and its programs. Ms. Velázquez, who herself was infected with the coronavirus, heard from over 55 participating Members of Congress.  Members testified before the Committee regarding their own constituent’s experience with the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) and grants. Puerto Rico’s Resident Commissioner did not participate.

Despite the number of challenges presented to the Committee, the great majority of members agreed it was critical to provide new funding to the PPP and EIDL program. Simultaneously, the full house was considering a Senate Amendment to inject new funding to critical SBA programs and other necessary public health programs.  The measure was passed in a 388-5 vote. The measure now goes to the President’s desk for his signature to become law. This bill will authorize $310 billion in new funding for the PPP, with a special set aside of $60 billion for smaller lenders, including insured depository institutions, credit unions, and community financial institutions.

4) Three scenarios for the post-COVID-19 world

Two analysts affiliated with the Scowcroft Center for Strategy and Security of the Atlantic Council, Matt Burrows, and Peter Engelke, have just published a paper outlining three possible scenarios for the post-COVID-19 world. The three scenarios outlined by Burrows and Engelke are:

  • Great Accelerator Downwards: “In the gloomiest of three post-COVID-19 scenarios, the United States, Europe, and China all struggle to recover despite major fiscal and monetary efforts. A global depression unlike anything seen since the 1930s grips the world as countries embrace isolationism and open conflict looms between the US and a China-Russia alliance.”
  • China First: The second preliminary post-COVID-19 scenario “features an ascendant China, as it deploys its ‘Belt and Road’ assistance to own large portions of infrastructure in Asia, Africa, and Latin America. A new cold war looms as the U.S. and Europe draw closer to counter a growing China-Russia alliance.”
  • The New Renaissance: The most hopeful of the three preliminary post-COVID-19 scenarios “sees the world drawing together in increased cooperation. A new commitment to better governance leads to the creation of international bodies to counter global threats such as disease, conflict, and climate. Improved international cooperation leads to a V-shaped recovery as major economies resume growth.”

As you read through the paper, keep in mind that the value of these exercises does not lie in their predictive significance, but rather as planning tools to help governments identify and prepare for managing emerging trends, heretofore unforeseen risks, and overlooked threats. It is also a good read for those who think Puerto Rico is immune to worldwide trends and developments.

5) The end of austerity? Maybe, maybe not…

During the last forty-five years, the world has seen the widespread rejection of Keynesian policies in general and of government intervention in the economy in particular, in favor of austerity policies and neoliberal, limited intervention in economic affairs. However, the response of governments and central banks around the world to the COVID-19 pandemic appears to be challenging that intellectual paradigm. The United States, for example, has recently witnessed massive liquidity injections by the Federal Reserve, and the U.S. Congress has legislated an economic relief package that includes direct payments to individuals and bailouts for small businesses.

As Sven Steinmo and Mark Blyth write in Foreign Affairs, that is not the American way: “The U.S. government does not usually spend liberally. Rather, it tends to adjust to economic shocks through unemployment and austerity—especially at the state level, where governors are often required by law to maintain balanced budgets. As soon as the COVID-19 outbreak abates, the familiar calls to slash spending and balance budgets will return. Federal debt will have risen to levels not seen since the 1940s—and in response, the proponents of austerity will demand to get the ‘free market’ back to work by cutting both taxes and spending.”

Their prediction has proved true. Mitch McConnell, Majority Leader in the Senate, is already signaling that he would prefer to let states declare bankruptcy rather than bail them out. As expected, that comment generated a strong reaction from some governors. Andrew Cuomo, Governor of New York, called the bankruptcy suggestion “one of the saddest, really dumb comments of all time. OK, let’s have all the states declare bankruptcy — that’s the way to bring the national economy back.”

Score a point for Governor Cuomo in Economics 101. But to be fair to Sen. McConnell, it appears his comments were directed at the U.S. House rather than at state governors. As Congress prepares to debate a fourth economic relief bill, Republicans are starting to feel the pressure from the deficit hawks. Senator McConnell may be tempering expectations on the Democratic side as to what may be possible to enact in the Senate. It is, after all, an election year and the Republicans need to keep their base on board. Whether they can do that while preventing another Great Depression remains to be seen.

Quote of the Day

The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd.

—Bertrand Russell

Note from the editor

Several states have begun to lift shelter-in-place restrictions, at a pace that some public health experts find worrisome. This is unfortunate, as it will inevitably result in unnecessary deaths. As Jeffrey Shaman, epidemiologist at Columbia University, puts it “the math is unfortunately pretty simple. It’s not a matter of whether infections will increase but by how much.” That is, if we are not careful, the virus will find us. It really is simple. Yet some people appear not to get it.

In addition to the risks to public health, a premature reopening will also be bad for the economy. Neither President Trump nor state governors can force people to go out to bars, coffee shops, restaurants, or gyms if they don’t feel safe. Those establishments would then be forced to close again due to a lack of clients and furlough their staffs or declare bankruptcy. This would set back the economic recovery for weeks, if not months. Yet some people appear not to get it.

According to the analysis of my colleagues, Raúl Santiago-Bartolomei and Deepak Lamba-Nieves, Puerto Rico ranks below Libya and Venezuela in the WHO’s ranking of compliance with its criteria for lifting shelter-in-place restrictions. Think about that the next time somebody claims it is time to reopen the economy. Yes, we do have to do it, no doubt. But responsibly, and that means not now, not yet.

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