Living with Risk Daily Briefing – May 15

Published on May 15, 2020 / Leer en español

Center for a New Economy

Edited by
Sergio M. Marxuach


Five things you should know today

1) A conversation with Professor Yarimar Bonilla

In this new Living with Risk Conversation we are joined by Professor Yarimar Bonilla. Yarimar is a renowned anthropologist who teaches at the City University of New York and studies Caribbean cultures. She recently co-edited a book titled, “Aftershocks of Disaster: Puerto Rico Before and After the Storm” and has published opinion columns in local and international publications like El Nuevo Día, The Washington Post and The Nation. At present, she is working on a book that examines the myriad repercussions of the string of disasters that have impacted the island. Our conversation topics ranged from government response, to critical perspectives on resilience and community activism, amongst others.

The conversation was conducted in Spanish.

2) Puerto Rico in the HEROES Act – Part 2

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

We continue our analysis of the HEROES Act, the $3 trillion, 1,800-page bill unveiled by House Democrats on Tuesday. This policy package serves as the Democratic starting point for negotiations with Republicans. According to House Majority Leader Steny Hoyer, the House expects to vote on the bill as early as today. However, it is highly unlikely the bill will be approved in the Senate in its current form.

Nonetheless, as drafted, the House bill includes a substantial amount of aid for Puerto Rico. Below are some of the relevant policies for the island:

Emergency Rental Assistance – Authorizes $100 billion for an Emergency Rental Assistance program under the Department of Housing and Urban Development to provide temporary assistance with rent and rent-related costs, including utility costs, arrears, security and utility deposits. Although there is language that sets aside 2 percent for Native American tribes, and another 0.3 percent for the US Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands, there is no special mention of Puerto Rico.  CNE has proposed pandemic rental assistance for Puerto Rico of approximately $455 million through the expansion of the Section 8 voucher program.

COVID-19-Related Temporary Increase of Medicaid FMAP – Temporarily increases Federal Medical Assistance Percentage (FMAP) payments for State Medicaid programs by 14 percentage points for a year starting on July 1, 2020. This new allocation will not count against the established Section 1108 cap.

Supplemental Nutrition Assistance Program – Appropriates a modest amount to increase the existing block grant for Puerto Rico and American Samoa. The value of benefits is calculated at 115 percent of the June 2019 value of the Thrifty Food Plan, which equals an estimated $285 million. 

Federal Highway Program – Of the $15 billion appropriated for the Federal Highway Infrastructure Program, $60 million is set aside for the full federal financing of the Puerto Rico Highway Program.

Emergency relief for State, Territorial, Tribal, and Local Governments – Amends the Federal Reserve Act to ensure U.S. territories, as well as a greater number of cities and counties, can participate in the Fed’s program to purchase COVID-19 related municipal debt issuances. Without this fix in legislative language, U.S. territories, small cities, and rural populations would be left out of the program’s design.

Child Tax Credit – Extends the allowable the Child Tax Credit (CTC) in Puerto Rico to families with one or two children and makes Puerto Rico’s child tax credit fully refundable in 2020 when residents file with the IRS.

Additional Recovery Rebates – Appropriates new funding to issue a second wave of economic stimulus checks for individuals. The stimulus, crafted as a refundable tax credit, provides $1,200 per individual and $1,200 per dependent with the same phase-out approach included in the CARES Act.

Coronavirus Local Relief Fund – $375 billion are allocated for payments to local governments (metropolitan cities, counties, and other units) to offset the negative effects of COVID-19.  

COVID–19 National Testing and Contact Tracing Initiative – One billion dollars are appropriated to establish and implement a nationwide evidence-based system for testing, contact tracing, surveillance, containment, and mitigation. Subject to the availability of appropriations, the CDC is held responsible for awarding grants to state, local, territorial, and tribal health departments that request funding for this initiative.

Child Care Covered Assistance – States can apply for child care assistance in the event care centers are closed for more than five consecutive days. In order for Puerto Rico, and the two other territories that do not participate in the federal Supplemental Nutrition Assistance Program (SNAP), to do so, the USDA Secretary must first submit a feasibility study regarding the implementation of the program using an electronic benefits transfer (EBT) system.

Low-Income Household Drinking Water and Wastewater Assistance – Authorizes $1.5 billion for financial assistance to low-income jurisdictions to ensure payments for drinking water and wastewater services.

Farm Stress Program – Directs the USDA Secretary to issue grants for states, D.C., and the U.S. territories that need to expand or sustain agricultural activities upon review and approval of state plans.

3) Chairman of the Federal Reserve asks Congress for more spending

In a reversal of the traditional roles in economic policymaking, Jerome Powell, chair of the Federal Reserve System Board of Governors, is asking Congress to increase fiscal stimulus to avoid permanent damage to the economy. Speaking at a virtual event hosted by the Peterson Institute for International Economics, he warned that “the scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II” and that the recovery could take significantly longer than many expect or would like.

Mr. Powell is aware that additional fiscal stimulus will be costly “but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.” The Federal Reserve for its part has reduced short-term interest rates to zero, purchased government bonds to inject liquidity into the financial system, and implemented nine new lending programs. But it is Congress that has the power to spend under the Constitution. Mr. Powell’s speech, therefore, is a recognition of the limits of monetary policy to jumpstart the economy without fiscal stimulus.

4) The end of globalization?

The world has gone through several waves of globalization. Time periods during which the flows of goods and services, capital, and people across boundaries increase significantly. These massive flows impact the economic policies and political institutions of nation-states through three specific pathways:

  1. By creating new policy preferences and coalitions within nation-states;
  2. by triggering domestic economic and policy crises; and
  3. by undermining government control over macroeconomic policy.

The current cycle, which began in the late 70s, was under pressure before the pandemic due to increased inequality, the financial crash of 2008, and the U.S.-China trade war. According to The Economist, “now it is reeling from its third body-blow in a dozen years as lockdowns have sealed borders and disrupted commerce.” Furthermore, the pandemic has unleashed new political coalitions against migration, in favor of protectionism for “national champions”, and for limiting capital investments across boundaries.

Will these changes be permanent? Difficult to answer right now, but The Economist, for a change, is pessimistic. It believes these “body-blows have so wounded the open system of trade that the powerful arguments in its favor are being neglected. Wave goodbye to the greatest era of globalization—and worry about what is going to take its place.”

5) Only by saving lives can we save the economy

As the months go by and the SARS-CoV-2 virus keeps spreading, a form of “pandemic fatigue” seems to be taking hold. People are tired of being lockdown at home, workers are correctly worried about the future of their jobs, and attention has shifted to the economic impact of the public health measures implemented to stop the spread of the virus. At the same time a crude utilitarian calculus has crept into the public debate: saving fewer lives may be worth it, if economic activity resumes faster.

But as Rajeev Cherukupalli and Tom Frieden write in Foreign Affairs, “pandemic economics doesn’t work that way, and neither can pandemic response. Only action that places people’s health at its center will enable an economic recovery.”

That is because “individuals’ perceptions of safety will drive consumer and business decisions in the coming months. If governments fail to save lives, people afraid of the virus will not resume shopping, traveling, or dining out. This will hinder economic recovery, lockdown or no lockdown. Accordingly, only investing in strategies that protect health will allow the economy to rebound; holding back on such spending will mean more outbreaks, more lives lost, and protracted economic suffering.”

Therefore, implementing inadequate measures to control the pandemic and reopening the economy too soon will only increase the damage in terms of both lives and jobs. Our “leaders must recognize that what’s good for public health is also good for business.”

Quote of the Day

Economics is all about how people make choices. Sociology is all about why they don’t have any choices to make.

—James S. Duesenberry

Note from the editor

It would be a mistake to assume globalization has progressed in a linear fashion or smoothly throughout time. Instead, the process has been punctuated by periodic sharp qualitative and quantitative jumps and by abrupt discontinuities as governments throughout history have hindered or tried to reverse the process through protectionist policies, trade restrictions, capital controls, and outright war.

Historians disagree as to the root causes of the instability of the globalization process. Some argue, following Marx, that recurrent crises are the result of globalization’s own contradictions; others argue that crises are the inevitable result of political backlash, in the form of calls for protectionism, generated by lost employment and reduced income; while still others argue that globalization eventually fails because humans and the imperfect institutions they create cannot handle the psychological and institutional consequences of an interconnected world.

Perhaps the best-known case is the collapse of the highly integrated world of the nineteenth century. During the second half of that century the world economy became truly interconnected for the first time. Steamships, railways, and telegraphs all contributed to connect the then imperial powers with their far-flung colonies around the world.

These technological changes gave birth to what is still considered to be the golden era of globalization. The era prior to 1914 was a time, in the words of John Maynard Keynes in The Economic Consequences of the Peace, when:

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep…he could at the same time and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world…and he could secure forthwith, if he wished, cheap and comfortable means of transit to any country or climate without passport or other formality.

As we all know, the world of the Pax Britannica described by Keynes came to an abrupt end with the First World War. Sir Edward Grey, then the British Foreign Secretary, pithily described the poignancy of the moment when he famously stated that “the lamps are going out all over Europe; we shall not see them lit again in our lifetime.”

Unfortunately, Sir Edward turned out to be quite right. Notwithstanding the feeble inter-war attempts to rebuild the global economic system—attempts that ended in the Great Depression and yet another brutal war—the engines of economic expansion, political progress, and global integration were turned off and remained shut down until the late 1940s.

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