Oil Slump Worsens Lowflation Risks Central Banks Can't Ignore [feedly]

Here is something not seen before: prices of oil and gas are tanking. Normally this would b e a boost for travel. But travel is crashing too, cuz of pandemic. If prices AND sales crash together, even the big, highly profitable majors, may be less likely to buy up and consolidate the severly damaged shale, and many smaller or debt ridden firms.  

Oil Slump Worsens Lowflation Risks Central Banks Can't Ignore
https://www.bloomberg.com/news/articles/2020-03-14/oil-slump-worsens-lowflation-risks-central-banks-can-t-ignore

Global central banks already struggling to spur inflation amid the spreading coronavirus are facing a fresh challenge -- the oil crash.

The price war between Saudi Arabia and Russia that has given crude its worst week since 2008 will put heavy downward pressure on inflation just as the coronavirus outbreak hits consumer spending. It's undoing the years of effort that monetary authorities have put in, along with trillions of dollars of stimulus, trying to hit their price-stability targets.

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The question now is whether they have the capacity to respond as strongly as needed. Market-based gauges of future inflation have slumped, suggesting that investors doubt they can, or that governments will provide sufficient support.

Central bankers tend to skirt over energy-price shocks if they think they'll be temporary, pointing instead to "core" inflation measures that exclude volatile components. After so many years of low inflation despite massive monetary stimulus, though, there's a risk that companies and households decide this is just the latest sign that prices will stay flat.

"There is a tendency to say oil is a temporary factor that central banks will look through, and won't affect their view of the appropriate stance of policy," said Jacob Nell, an economist at Morgan Stanley, who sees the oversupply of oil persisting. "It's harder for central banks to look through a fall in inflation when inflation expectations are so far off the target. They have to be more ready to respond, or they could risk credibility and it will be that much harder to get inflation back to target in future."

While an oil slump would normally boost purchasing power in the world's biggest economies -- Japan and the euro zone both import most of their energy, and the U.S. status as a net petroleum exporter is nascent and fragile -- this time the coronavirus outbreak is simultaneously hitting consumption and travel.

Brent crude prices were down about 24% this week despite monetary easing by central banks and pledges of fiscal support by governments. JPMorgan Chase & Co. economists say a 20% drop would typically add close to 1% to global output the next quarter, but now customers might not spend the windfall.

"Given the pullback in consumer demand in travel and entertainment, the actual boost to household purchasing power from falling oil prices could be less than usual," they said in a note. "In addition, falling oil prices raises financial-market risks by expanding the set of small and medium-sized enterprises facing concentrated credit stresses in the coming months."

Read more... Bond Market's Dire Inflation View Gets Even Darker on Oil Rout Oil-Hedge Strategy That Failed Shale in 2014 Burns It Again

Disinflation, as slowing inflation is know, isn't a given. Oil prices could rebound if Russia and Saudi Arabia resolve their differences. The coronavirus might actually prove inflationary if it disrupts companies so much that supply of goods and services falls more than demand.

Even after the virus outbreak subsides though, inflation still will be pressured by the trade war, depressed immigration into the U.S., automation, and other longer-term trends, according to David Mann, Singapore-based global chief economist of Standard Chartered Plc.

While productivity investment is expected to pick up sometime in the next decade, alongside implementation of 5G technologies especially in Asia, there's no reason to expect that ramp-up right now.

Euro-zone inflation slowed to just 1.2% in February, compared with a goal of just under 2%, and that was before the oil shock. The Bank of England says U.K. inflation rate could drop below 1%, to less than half its target.

Aside from India, where inflation remains above the 2%-6% target range, Asian economies broadly face weak pressures. Core consumer prices in China are rising at their slowest pace in almost a decade. Japanese inflation is 0.7%, and gains through February were actually driven by rising gasoline costs. Inflation gauges for Indonesia, Thailand and Singapore are all below-target or in the lower end of target ranges.

At Deutsche Bank AG, economists led by Matthew Luzzetti have dusted off a 2017 report which showed the oil price shocks of the mid-1980s and 2014-15 led to persistent declines in inflation expectations that were never unwound. They worry a third episode has now begun which will complicate the work of central banks.

"Inflation expectations at this point are extremely low -- arguably too low," said Mann of Standard Chartered. "They might not pick up for some time."

 -- via my feedly newsfeed

Five Early-Warning Economic Indicators Show U.S. Virus Shock [feedly]

Five Early-Warning Economic Indicators Show U.S. Virus Shock
https://www.bloomberg.com/news/articles/2020-03-14/five-early-warning-economic-indicators-show-u-s-virus-shock

Official U.S. indicators for employment, inflation and gross domestic product might seem badly out-of-date as the rapidly spreading coronavirus outbreak wreaks havoc on the economy.

Key data points after often a month behind. To give a more timely snapshot, below are five high-frequency indicators tracking how consumers are reacting to the crisis.

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Consumer spending makes up 70% of the economy, so any suspension can devastate growth -- or cause a contraction, as economists see as a growing risk. Some sectors are already seeing all activity stop.

1. Hotels

U.S. hotel occupancy fell to 61.8% in the week ended March 7, from 66.6% a year earlier on drops across hard-hit states like California, New York and Washington, according to industry tracker STR. In Seattle, which had the first big U.S. outbreak, the occupancy rate fell to 52.3%, the lowest among the top 25 markets. Rooms also emptied out in Southern California's Anaheim-Santa Ana area around Disneyland, which will be closed from Saturday.

Room at the Inn

Seattle occupancy plunges and other cities see significant declines

STR

Hotel occupancy for week ended March 7 compared with year earlier week.

Personal spending on lodging equals 0.8% of gross domestic product, Commerce Department data show. Those expenditures could plunge by half if the Sept. 11 terrorist attacks are any guide, according to Neil Dutta, head of U.S. economics at Renaissance Macro Research.

The White House is considering a raft of measures to help the country's hard-hit tourism industry including offering more support to hotels, as well as airlines and travel firms.

2. Retail sales

Johnson Redbook's weekly retail sales report continues to be a bright spot showing consumers are still shopping, though they have shifted some purchases to emergency supplies in response to the outbreak.

Month-to-date sales in the week ended March 7 rose 6%, though that reflected a big increase in sales at discount stores, while department stores suffered declines. "Sales were led by pharmaceuticals, cleaning products, household supplies, consumables, bottled water and food," the report noted.

3. Box office

The cinema industry, from the biggest chains to independent owners, are reducing capacity as part of the fight against coronavirus.

AMC Entertainment Holdings Inc., the market leader, said Friday that it would cut in half the number of tickets it sells for each showing, going beyond what's required in places with restrictions on gatherings, such as New York, California and Washington.

While many are avoiding crowds as public health officials advise, the appeal of the movies matters too in drawing an audience. Studios are pushing back some major releases, such as the James Bond feature "No Time to Die" and Disney's "Mulan," a move likely to keep movie theater seats emptier for longer.

4. Broadway Tickets

New York Governor Andrew Cuomo closed Broadway theaters Thursday and banned large gatherings to slow the spread of the virus. Performances will be suspended through April 12, according to the Broadway League. In the week ended March 8, Broadway attendance was down 6.5% from a year earlier, the group said. Even so, many hit shows like "Hamilton" were packed prior to the order.

Broadway Is Dark

Popular Broadway shows were packed before the closure

Broadway League

Theater seats occupied in the week ended March 8.

The closure of theaters reflects a broader halt to cultural attractions. New York's Metropolitan Museum, Carnegie Hall, and Met Opera have shut their doors, in addition other such shuttered sites nationwide.

5. Consumer comfort

U.S. consumer confidence deteriorated for a sixth straight week, the longest such stretch since 2015, according to Bloomberg's Consumer Comfort index. The measure of how consumers view their personal finances took a hit following the plunge in stock prices. Yet consumers are persevering and confidence remains at elevated levels compared with the last recession.

 -- via my feedly newsfeed

White House, House Democrats reach deal on coronavirus economic relief package, Pelosi announces

https://www.washingtonpost.com/us-policy/2020/03/13/paid-leave-democrats-trump-deal-coronavirus/?fbclid=IwAR24qAFF5wLV3R5QOqi3xb03EBqFCv6gsf5MMQVUzXDAPKYgtSuTMhpDYU4  

The White House and House Democrats reached agreement Friday on a coronavirus relief package to spend tens of billions of dollars on sick leave, unemployment insurance, food stamps and other measures to address the unfolding crisis.

House Speaker Nancy Pelosi (D-Calif.) announced the agreement in a letter to fellow House Democrats. "We are proud to have reached an agreement with the Administration to resolve outstanding challenges, and now will soon pass the Families First Coronavirus Response Act."

A vote to pass the legislation was expected later Friday in the House, and in the Senate next week.

The development came after a roller-coaster day that started with a deal seeming imminent, before it looked like it was unraveling over successive hours. House Republicans voiced concerns and Trump himself voiced opposition, complaining at an afternoon news conference that Democrats were "not doing what's right for the country."

At one point Pelosi announced that Democrats would be moving forward with a vote, with or without Republicans on board.

But behind the scenes, Pelosi and Treasury Secretary Steven Mnuchin continued negotiations that began earlier this week, By early Friday evening they had spoken by phone 13 times that day alone.

Pelosi praised the legislation in a televised address Friday afternoon. "Put families first — today, we are passing a bill that does just that," she said, laying out provisions of the legislation such as free coronavirus testing, paid sick and family leave, and food assistance for poor families.

"Our nation, our great nation, has faced crises before," she said. "And every time, thanks to the courage and optimism, patriotism and perseverance of the American people, we have prevailed. Now, working together, we will once again prevail, and we will come out stronger than before."

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House moves toward quick vote on Democratic coronavirus package

House Republicans had appeared uneasy about some provisions in the package, which would expand federal spending on Medicaid and provide for federal reimbursement for paid sick leave as well as family and medical leave.

Compounding the GOP concern was Trump's insistence on instituting a broad payroll tax cut to stimulate the economy. He said in a morning tweet that such a cut, increasing paychecks by 7.65 percent for most wage earners, was essential to any recovery package. "Only that will make a big difference!" he wrote.

Lawmakers in both parties have reacted coolly to the proposal, expressing qualms about its cost and the fact that it is not targeted to those directly affected by the pandemic. The legislation negotiated between Pelosi and Mnuchin did not include a payroll tax cut, and that omission emerged as one of the obstacles to reaching a deal, according to the senior administration official.

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Trump pitches payroll tax cut through election to skeptical GOP senators

Last week, Congress passed an $8.3 billion emergency spending plan to address public health needs arising from the crisis. But as the crisis mushroomed through the economy, with schools closing, planes and trains half-empty and major sports and entertainment events canceled, lawmakers increasingly saw the need for a major economic relief package -- probably a series of them. Thursday's massive stock market sell-off rattled lawmakers, although stocks were back up on Friday.

There are now over 1,200 confirmed coronavirus cases in the United States and more than three dozen deaths, numbers that are expected to exponentially rise. Trump declared a national emergency Friday to free up funds, and lawmakers themselves have been announcing plans in growing numbers to shut down their offices and self-quarantine after brushes with infected individuals. For the second day in a row on Friday, McCarthy convened a conference call with House Republicans rather than meeting with them in person, a step he said helped with health concerns.

Live updates: Trump to declare a national emergency in response to coronavirus

The emerging agreement builds upon a bill House Democrats released late Wednesday that included a number of provisions Republicans opposed, setting off hours of frenzied negotiations on Capitol Hill to reach bipartisan consensus.

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A final hang-up was over a provision for paid family and medical leave, with Republicans pushing to structure it in a way so it could be implemented quickly and avoid undue burdens on employers.

As originally introduced, the House bill included a $2 billion boost to state unemployment insurance programs, more than $1 billion in nutritional aid, a new paid-leave benefit for employees affected by the outbreak and an increase in federal Medicaid spending, as well as a guarantee of free coronavirus testing.

Republicans viewed the initial legislation as overly broad, and through hours of phone calls and staff-level negotiations Thursday, Pelosi and Mnuchin agreed to narrow the legislation to focus more squarely on impacts from the coronavirus and those hurt by it.

The initial proposals underwent significant changes over the hours of talks, and toward the end negotiators were haggling over a less ambitious proposal for family and medical leave from Rep. Robert C. "Bobby" Scott (D-Va.) that would expand the number of workers who can take up to 12 weeks of job-protected leave under the Family and Medical Leave Act while drawing down wage replacement. Employees would get two-thirds of their salary replaced up to $4,000 a month, and employees would be reimbursed by the federal government. Separately, employees would also be able to take 14 days of paid sick leave, with the government reimbursing employers for part of the cost.

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Another controversial provision in the original bill would have increased the percentage of Medicaid spending borne by the federal government by eight percentage points through Sept. 30, 2021. That would be a welcome relief to states, which could see an influx of Medicaid enrollees in a time of economic crisis. But the price tag for the federal government could have been vast — stretching easily into the tens of billions of dollars.

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

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It’s a MAGA Microbe Meltdown [feedly]

It's a MAGA Microbe Meltdown
https://www.nytimes.com/2020/03/12/opinion/trump-coronavirus-economy.html

text only:

For three years Donald Trump led a charmed life. He faced only one major crisis that he didn't generate himself — Hurricane Maria — and although his botched response contributed to a tragedy that killed thousands of U.S. citizens, the deaths took place off camera, allowing him to deny that anything bad had happened.

Now, however, we face a much bigger crisis with the coronavirus. And Trump's response has been worse than even his harshest critics could have imagined. He has treated a dire threat as a public relations problem, combining denial with frantic blame-shifting.

His administration has failed to deliver the most basic prerequisite of pandemic response, widespread testing to track the disease's spread. He has failed to implement recommendations of public health experts, instead imposing pointless travel bans on foreigners when all indications are that the disease is already well established in the United States.

And his response to the economic fallout has veered between complacency and hysteria, with a strong admixture of cronyism.



It's something of a mystery why the Centers for Disease Control and Prevention, normally a highly competent agency, have utterly failed to provide resources for widespread coronavirus testing during the pandemic's crucial early stages. But it's hard to avoid the suspicion that the incompetence is related to politics, perhaps to Trump's desire to play down the threat.



According to Reuters, the Trump administration has ordered health agencies to treat all coronavirus deliberations as classified. This makes no sense and is indeed destructive in terms of public policy, but it makes perfect sense if the administration doesn't want the public to know how its actions are endangering American lives.

In any case, it's clear what we should be doing now that there must already be thousands of cases all across the United States. We need to slow the disease's spread by creating "social distance" — banning large gatherings, encouraging those who can to work from home — and quarantining hot spots. This may or may not be enough to prevent tens of millions from getting sick, but even spreading out the pandemic over time would help prevent it from overloading the health care system, greatly reducing the number of deaths.

But there was almost none of this in Trump's speech; he's still acting as if this is a threat foreigners are bringing to America.

And when it comes to the economy, Trump seems to fluctuate day to day — even hour to hour — between assertions that everything is fine and demands for enormous, ill-conceived stimulus.

His big idea for the economy is a complete payroll tax holiday. According to Bloomberg News, he told Republican senators that he wanted the holiday to extend "through the November election so that taxes don't go back up before voters decide whether to return him to office." That is, he apparently said the quiet part out loud.

This would be an enormous move. Payroll taxes are 5.9 percent of G.D.P.; by comparison, the Obama stimulus of 2009-2010 peaked at about 2.5 percent of G.D.P. Yet it would be very poorly targeted: big breaks for well-paid workers, nothing for the unemployed or those without paid sick leave.

Why do it this way? After all, if the goal is to put money in people's hands, why not just send out checks? Apparently Republicans can't conceive of an economic policy that doesn't take the form of tax cuts.

Trump also reportedly wants to provide aid to specific industries, including oil and shale — a continuation of his administration's efforts to subsidize fossil fuels.

Democrats, by contrast, have proposed a package that would actually address the needs of the moment: free coronavirus testing, paid sick leave, expanded unemployment benefits and an increase in federal matching funds for Medicaid programs, which would both help states meet the demands of the crisis and sustain overall spending by relieving the pressure on state budgets.

Notice, by the way, that these measures would help the economy in an election year, and therefore arguably help Trump politically. But Democrats are willing to do the right thing anyway — a stark contrast to the behavior of Republicans after the 2008 financial crisis, when they offered scorched-earth opposition to anything that might mitigate the damage.

The White House, however, is having none of it, with an official accusing Democrats of pushing a "radical left agenda." I guess sick leave equals socialism, even in a pandemic.

So what's going on? What we're seeing here is a meltdown — not just a meltdown of the markets, but a meltdown of Trump's mind. When bad things happen, there are only three things he knows how to do: insist that things are great and his policies are perfect, cut taxes, and throw money at his cronies.

Now he's faced with a crisis where none of these standbys will work, where he actually needs to cooperate with Nancy Pelosi to avoid catastrophe. What we saw in Wednesday's speech was that he's completely incapable of rising to the occasion. We needed to see a leader; what we saw was an incompetent, delusional blowhard.


 -- via my feedly newsfeed

Tim Taylor: Some Coronavirus Economics [feedly]

Some Coronavirus Economics
http://conversableeconomist.blogspot.com/2020/03/some-coronavirus-economics.html

Back in the mid-1980s, when I worked for a few years at the San Jose Mercury News as an editorial writer, my boss would sometimes remind us (channeling Murray Kempton): "An editorial writer is someone who comes down from the hills after the battle is over and shoots the wounded." Similarly, authors of books about important events have the luxury of time and distance before they commit themselves to print. But Richard Baldwin and and Beatrice Weder di Mauro, much to their credit,  decided to step into the arena of arguments about an appropriate response to the novel coronavirus while the disputes are ongoing by editing an e-book: Economics in the Time of COVID-19(March 2020, free with registration from VoxEU.com). The very readable book was literally produces over a long weekend: it includes an "Introduction" and 14 short essays, many of them summarizing and drawing on longer work. Here, I'll draw up on some comments from the book as well as my own thoughts. 

1) The hard question is how bad the novel coronavirus will get, and the short answer is that nobody really knows. 

It is already clear that COVID-19 is worse than the SARS outbreak in 2002-3. Worldwide, that ended up being slightly more than 8,000 total cases and slightly less than 800 deaths. The Johns Hopkins School of Medicine maintains a continually updated page on confirmed cases of coronavirus around the world, as well as deaths and recoveries. As I write, it already has more than 120,000 cases and more than 4,000 deaths. 

For some context, the Centers for Disease Control estimates each year the cases and deaths from flu in the US. In the last decade or so, 2011-12 was a low mark for flu-related deaths, with "only" 12,000. Conversely, 2014-15 and  2017-18 were especially bad flu seasons in the US, with 51,000 and 61,000 deaths respectively. The 2009 Avian flu (N1H1) ended up causing between between 151,700 and 575,400 people deaths worldwide (according to Centers for Disease Control estimates), most of them in the US and Mexico. 

Predicting the path of an epidemic is difficult. Baldwin and Weder di Mauro offer a useful diagram, showing that in the early stages, a straight-line prediction will dramatically understate the harms, while in the middle stages, a straight-line prediction will dramatically overstate the harms. They offer a comment from Michael Leavitt, a former head of the US department of Health and Human Services: "Everything we do before a pandemic will seem alarmist. Everything we do

after will seem inadequate." The challenge is to predict the length and peak of the curve --which depends not only on the epidemiology of the disease but also on what public health steps are taken. 

In addition, there is no guarantee that the coronavirus will ever disappear. AsBaldwin and Weder di Mauro note: "[T]he virus might become endemic – that is to say, a disease that reappears
periodically – in which case COVID-19 could become one of humanity's constant
companions, like the seasonal flu and common cold."

2) What are some common estimates of potential economic losses from the coronavirus? In their chapter, Laurence Boone, David Haugh, Nigel Pain and Veronique Salins of the OECD  estimate a base scenario and a downside scenario. 

In a first best-case scenario, the epidemic stays contained mostly in China with limited
clusters elsewhere. ... In this best-case scenario, overall, the level of world GDP is reduced by up to 0.75% at the peak of the shock, with the full year impact on global GDP growth in 2020 being around half a percentage point. Most of this decline stems from the effects of the initial reduction in demand in China. Global trade is significantly affected, declining by 1.4% in the first half of 2020 and by 0.9% in the year as a whole. The impact on the rest of the world depends on the strength of cross-border linkages with China. ...

In the downside scenario, the outbreak of the virus in China is assumed to spread much
more intensively than at present through the wider Asia-Pacific region and the major
advanced economies in the northern hemisphere in 2020. ...  Together, the countries affected in this scenario represent over 70% of global GDP ... Overall, the level of world GDP is reduced by up to 1.75% (relative to baseline) at the peak of the shock in the latter half of 2020, with the full year impact on global GDP growth in 2020 being close to 1.5%.

Warwick McKibbin and Roshen Fernando simulate seven economic scenarios--three where the disease stays mainly in China, three where a pandemic spreads worldwide, and one in which a mild pandemic recurs each year into the future. For a sense of the range, their low pandemic scenario (S04) estimated 15 million deaths globally, with 236,000 in the US. Their most aggressive pandemic scenario (S06) is based on 68 million deaths worldwide, more than 1 million of them in the US. In this scenario, US GDP falls 8.4 percent in 2020, and the world economy falls by a similar amount.  To get a sense of what this scenario means, it is roughly equivalent to half the world's population being infected by the coronavirus, with a mortality rate of 2% for those infected.

3) How will the coronavirus affect the world trading system? Weber di Mauro writes: 

Supply chain disruptions may also turn out to be larger and more extended than is currently evident. Maersk, one of the world's largest shipping companies, has had
to cancel dozens of container ships and estimates that Chinese factories have been
operating at 50-60% of capacity. Shipping goods to Europe from Asia via sea takes
about five weeks, so at the moment goods are still arriving from pre-virus times. The
International Chamber of Shipping estimates that the virus is costing the industry
$350m a week in lost revenues. More than 350 000 containers have been removed
and there have been 49% fewer sailings by container ships from China between mid
January and mid February. ... China has become a major source of demand in the world economy and many core European industries are highly dependent on the Chinese market. Sales in China account for up to 40% of the German car industry's revenues, for example, and they have collapsed over the last weeks.

Richard Baldwin and Eiichi Tomiura write:

There is a danger of permanent damage to the trade system driven by policy and firms' reactions. The combination of the US' ongoing trade war against all of its trading partners (but especially China) and the supply-chain disruptions that are likely to be caused by COVID-19 could lead to a push to repatriate supply chains. Since they supply chains were internationalised to improve productivity, their undoing would do the opposite. We think this would be a misthinking of the lessons. Exclusively depending on suppliers from any one nation does not reduce risk –  it increases it. ...  We should not misinterpret pandemic as a justification for anti-globalism. Redundant dual sourcing from multiple countries alleviates the problem of excess dependence on China, though with additional costs. Japanese multinationals have already begun diversifying the destinations of foreign direct investment away from China in recent years, not foreseeing COVID-19 but prompted by Chinese wage hikes. We hope more intensive use of ICT enables firms to more effectively coordinate global sourcing.

4) Perhaps there will be a separation of global trade, which isn't likely to transmit pandemics, and free movement of people, which is more likely to do so. Joachim Voth raises this question clearly:

Fortunately, many – but not all – of the benefits of globalisation can be achieved without enormous health risks. The free exchange of goods and capital does not have to be restricted; only very few diseases are transmitted by contaminated goods. The free movement of people itself also contributes to the advantages of globalisation, but it is far less important for production. It is not obvious that running the risk of coronavirus outbreaks every few years – or worse – is a price worth paying for multiple annual vacation trips to Paris and Bangkok, say. Severe restrictions may well be desirable and justifiable, bringing to an end a half-century of ever-increasing individual mobility. In addition, specific restrictions could be brought in. For countries where, for example, wild animals are regularly sold and eaten (such as China, until recently), the certification for travel could be withheld without restrictions; anyone who comes or returns from there must undergo a medical examination and possibly spend a few weeks in quarantine. This would not only build a virtual plague wall against the next major outbreak, it would also put pressure on health authorities around the world to restrict dangerous practices that allow pathogens to jump from one species to the next. Even if airlines, hoteliers and tour operators would suffer from such rules in the short term and would complain, the lesson from Wuhan should be that we need a broad discussion within and outside of academia about how much mobility is actually desirable.

Voth also reminds us of some grim historical episodes:

The ship, Grand Saint Antoine, had already come to the attention of the port authority of Livorno. A cargo ship from Lebanon loaded with expensive textiles, it reached the port of Marseille in 1720. The Health Commission had its doubts – the plague was widespread in the eastern Mediterranean. Like all ships from affected regions, the Grand Saint Antoine was placed in quarantine. Normally, the crew and the property would have had to stay on board for 40 days to rule out the possibility of an infectious disease. But a textile fair near Marseille, where the importing merchants hoped for rich business, would soon begin. Under pressure from the rich traders, the health agency changed its mind. The ship could be unloaded, the crew went to town. 

After only a few days it was clear that changing the initial decision had been a mistake. The ship had carried the plague. Now the disease spread like a forest fire in the dry bush. The city authorities in Marseille could not cope with the number of deaths, with corpses piling up in the streets. ... At the behest of the French king and the pope, a plague wall (Mur de Peste) was built in Provence. Tourists can still see parts of it today. The wall was over two meters high and the watchtowers were manned by soldiers. Those who wanted to climb over it were prevented from doing so by force. Although some individuals managed to escape, the last major outbreak of black death in Europe was largely confined to Marseille. While probably 100,000 people – about a third of the population – died in Marseille, the rest of Europe was spared the repeated catastrophe of 1350 when millions of people lost their lives. 

5) Should the economic policies in response to the coronavirus be general or targeted? 

By general policies, I mean policies that refer to cuts in interest rates by central banks, or plans for government to send out checks to everyone (or in a US context, to cut Social Security payroll tax rates). By specific policies, I mean economic policies where the government focuses on specific issues like sick pay for workers not covered by employers, medical bills, support for small/medium firms with cash-flow problems, making sure banks have funds to lend and are not pushing firms into bankruptcy right now, and support for specific hard-hit industries like airlines and tourism.

John Cochrane put it this way:

We need a detailed pandemic response financial plan, sort of like an earthquake, flood, fire, or hurricane plan that (I hope!) local governments and FEMA routinely make and practice. Is there any such thing? Not that I know of, but I would be interested to hear from knowledgeable people if I am simply ignorant of the plan and it's really sitting there under "Break glass in emergency" down in a basement of the Treasury or Fed. Without a pre-plan, can our political system successfully make this one up on the fly, as they made up the bank bailouts of 2008?

Then we have to figure out how to prevent the atrocious moral hazard that such interventions produce. Pandemics are going to be a regular thing. Ex-post bailout reduces further the incentive for ex-ante precautionary saving. Too good a fire department, and people store gasoline in the basement.
This starts down the same bailout and regulate road that suffocates our debt-based banking system. I welcome better ideas.

6) Will manufacturing or services be hit harder? 

Richard Baldwin and Eiichi Tomiura emphasize the problem for manufacturing:

An important point is that manufacturing is special. Manufactured goods are – on the whole – 'postpone-able' purchases. As we saw in the Great Trade Collapse of 2009, the wait-and-see demand shock impacts durable goods more than non-durable goods. In short, the manufacturing sector is likely to get a triple hit.

1. Direct supply disruptions hindering production since the disease is focused on the world's manufacturing heartland (East Asia), and spreading fast in the other industrial giants – the US and Germany.
2. Supply-chain contagion will amplify the direct supply shocks as manufacturing sectors in less-affected nations find it harder and/or more expensive to acquire the necessary imported industrial inputs from the hard-hit nations, and subsequently from each other.
3. Demand disruptions due to (1) macroeconomic drops in aggregate demand, i.e. recessions, and (2) precautionary or wait-and-see purchase delays by consumers, and investment delays by firms.

However, Catherine Mann points out that while manufacturing may be hit more in the short-term, it is also more likely to recoup its losses: 

Manufacturing will show a 'V' or 'U' shape. Manufacturing spillovers from factory closures loom large in the near term, but production will rebound to restock inventories once quarantines end and factories reopen. However, the duration of closures, as well as spillovers through supply chains and through virus cases and closures worldwide, will generate a set of Vs that should take on a U-shape in the global data. Importantly, the loss to global growth momentum will drag on both in individual country data and global rebound economic data, particularly trade and industrial production. Services, on the other hand, will experience an 'L' shape. The shock to tourism, transportation services, and domestic activities generally will not be recovered, and the projected slowing of global growth will further weigh on the L-shape evolution of demand for these non-storable tradeable services. Domestic services also will bear the brunt of the outbreak, depending in part on the responses of authorities, business, and consumers.

 -- via my feedly newsfeed

GAO: 2017 Tax Law Creating New Compliance Challenges for IRS [feedly]

GAO: 2017 Tax Law Creating New Compliance Challenges for IRS
https://www.cbpp.org/blog/gao-2017-tax-law-creating-new-compliance-challenges-for-irs

The already overburdened IRS "may face challenges ensuring compliance" with certain parts of the 2017 tax law, a Government Accountability Office (GAO) report finds, particularly the 20 percent deduction for certain "pass-through" business income. That's one more reason why policymakers should boost funding for IRS enforcement and operations to offset nearly a decade of significant budget and staffing cuts.

Even before the 2017 law, tax filers' underreporting of pass-through income (income from sources such as S corporations, partnerships, and sole proprietorships, which overwhelmingly flows to wealthy households) made up the largest single part of the "tax gap" — the $441 billion-a-year gap between what taxpayers owe and what they voluntarily pay on time. But the 2017 law added complexity to the tax code and arbitrary distinctions between how it treats different kinds of income, which may make it even harder for the IRS to police pass-through tax evasion. Given the steep funding cuts and audit rate drop over the last decade, the IRS may lack the resources to effectively enforce this and other parts of the 2017 law, GAO warns.

The pass-through deduction cut the top tax rate on qualifying income to 29.6 percent, well below the 37 percent top rate on wages and salaries. That gives wealthy taxpayers a big incentive to shift as much of their wage and salary income into pass-through entities as possible. As we've noted, pass-through owners can easily exploit the distinctions between income that qualifies for the deduction and income that doesn't to minimize their taxes.

For instance, the law prohibits the deduction for high-income doctors but may allow it for similarly compensated medical researchers. In another example, the law prohibits the deduction for high-income taxpayers engaged in "brokerage services," but later Treasury regulations allow real estate brokers, insurance brokers, and banks to qualify for it.

Taxpayers self-report much of the information the IRS needs to determine whether income qualifies for the deduction (for example, whether the taxpayer is a doctor who isn't eligible or a medical researcher who is), the GAO report points out. In general, pass-through income faces far less third-party information reporting — that is, information the IRS can use to independently verify information in tax returns — than other types of income, like pensions and Social Security benefits. That makes tax evasion easier: "compliance is far higher when income items are subject to information reporting," according to the IRS.

Without robust reporting, the IRS must rely on costly audits to determine whether taxpayers are complying with the pass-through deduction and other parts of the 2017 tax law. But nearly a decade of budget cuts since 2010 have severely depleted the IRS' enforcement function. Enforcement funding is down by roughly a quarter in inflation-adjusted terms, and enforcement staff have dropped by more than 30 percent. Meanwhile, audit rates have plummeted, especially for high-income people and large corporations.

These trends make auditing pass-through businesses particularly difficult. Accounting Today's recent roundup of "10 major trends in IRS audits" advises, "Want your business to escape audit? Be an S corp or partnership," adding that "audit rates for S corps and partnerships are both 0.22 percent — or, put another way, one in every 455 passthrough entities were examined in 2018."

In a promising development, there's growing bipartisan support for reversing the IRS cuts. The President's 2020 and 2021 budgets proposed a multi-year budget mechanism to provide added enforcement funding that wouldn't count against the annual caps on overall non-defense appropriations; the House last year adopted a similar proposal.

Policymakers should act on this support. They should also close tax loopholes that invite pass-through owners to push the boundaries of tax avoidance — and they can start by repealing the pass-through deduction.

 -- via my feedly newsfeed

Trump’s payroll tax cuts are a terrible opening bid to address the economic fallout of COVID-19: But employer tax credits can be part of the economic response if they finance direct benefits for workers [feedly]

Trump's payroll tax cuts are a terrible opening bid to address the economic fallout of COVID-19: But employer tax credits can be part of the economic response if they finance direct benefits for workers
https://www.epi.org/blog/employer-tax-credits-can-be-part-of-the-economic-response-to-covid-19-if-they-finance-direct-benefits-for-workers/

Unconditional tax cuts for employers are a terrible policy response to the economic fallout of COVID-19. But employer tax credits that are tied to the provision of specific benefits for workers can be a useful way to deliver emergency help. In the long run, key benefits like paid sick leave and strong unemployment insurance should not rest on employer tax credits, but these credits might be the best way to deliver emergency benefits right now.

The Trump administration has put forward the idea of cutting both employee and employer-side payroll taxes as the centerpiece of an economic response to the COVID-19 epidemic. This is a terrible opening bid. In late 2010, the Obama White House and a Republican-led Congress agreed on a temporary payroll tax cut for employees only as a compromise measure to provide economic stimulus.

But the employee-side payroll tax cut is an even worse potential compromise this time. One reason is that it would not get enough money out the door and into households' pockets quickly enough. A COVID-19 recession will come fast and people will need lots of help quickly. A payroll tax cut will dribble out gradually over time. Another reason is the employee-side payroll tax cut is poorly targeted and sends lots of money to high-income households. A COVID-19 recession is laser-targeted at sectors with lots of low-wage workers, and the response should be too. So, even employee-side payroll tax cuts are a poor centerpiece of any policy package responding to the coming slowdown.

Employer-side payroll tax cuts are even much worse. They are a pure windfall to business and would do nothing for workers in the short run. These employer-side cuts should be flatly opposed.

There is, however, a potential role for employer tax credits as a way to stand-up emergency paid sick leave or work sharing or unemployment insurance. The optimal way for these programs to work is to have them be an ongoing part of our social safety net that take effect automatically during downturns. In the case of work sharing and unemployment insurance, these should be social insurance programs financed in the long run by payroll taxes. Paid sick leave should be a mandated labor standard. But since we do not have strong systems in place to provide these benefits to workers affected by the economic fallout of COVID-19 in the short run, and because placing new costs on employers just as revenue potentially craters might not be optimal, we could use employer tax credits to finance the emergency provision of key benefits like paid sick leave and expanded unemployment insurance.

Economists Jared Bernstein and Jesse Rothstein, for example, have a proposal to use employer tax credits to finance quicker-acting unemployment insurance that allows workers to stay on payroll and be paid even while not working during a COVID-19 downturn. Dean Baker made a similar proposal as the Great Recession loomed.

Policy discussions about buffering the economy from the COVID-19 shock are moving very quickly and lines are being drawn. It remains the case that large direct payments to households and having the federal government pick up states' Medicaid spending for a year are likely the most valuable macroeconomic support that could be provided because they're well-targeted to counteract the particular damage inflicted by a COVID-19 recession.

It also remains the case that unconditional employer tax cuts should be rejected flatly as a solution. But there does remain a potential role for employer tax credits in helping deliver benefits to workers. As long as these tax credits are used solely for this purpose, they should be considered.

 -- via my feedly newsfeed