Sunday School Extra Credit 4/26/20

As I noted in yesterday's Sunday School, the classrooms were full of folks ready, willing and able to talk. Today, for extra credit, I want to hear from some folks not on the 'usual suspects' list. 

We've got Kevin Hassett, a senior economic advisor in the Trump administration talking with George Stephanopoulos This Week, and Bank of America CEO Brian Moynihan and San Francisco Mayor London Breed talking with Margaret Brennan on Face the Nation,  We'll take them in that order. 

They started out talking about a 'v-shaped' recovery, which happens when there's a strong, fast, consumer-driven recovery after a sharp decline. Some folks, including Apple CEO Tim Cook, have predicted this is what we might see, while others disagree. Hassett says that folks will be aiming for that kind of recovery, and will need to work out how to get there, given that Dems and Reps have their own thoughts on that. And I guess whether the recovery is v-shaped or not, 

But make no mistake: it's a really grave situation, George. This is the biggest negative shock that our economy, I think, has ever seen. We're going to be looking at an unemployment rate that approaches rates that we saw during the Great Depression.

We're losing as many jobs every ten days or so as were lost during the Great Recession, so there's a lot of work to be done. But, it's not impossible; Hassett pointed to sharp differences between what happened in the past vs. what's happening now.

...When President Obama was elected, it was middle of December when they started to have the stimulus bill discussions with Congress and it was the middle of February when they passed it. We just did a major, major bill in a week, and that's because basically people care more about their country than the sort of nastiness in Washington that's covered on the news every day.

Given that it's basically the same people in Congress, including the leaders, are we to believe they only learned to care for their country when Trump got in office? They only care when it's an election year? They only care that it's small businesses, actual people, instead of big banks and large corporations? The possible explanations are endless, I think - including that without the Ds, the Rs can't get it done, but only the Rs get invited to the signing ceremonies. Sorry - riding a huge cynical wave today.

When George pointed out that things might be starting to fray, particularly noting Mitch McConnell's comments about letting states file bankruptcy, Hassett said that a lot of money has gone to the states already, but that since "it feels like the Constitution doesn't allow" for state bankruptcies, everyone's going to have to work things out, and the feds are going to have to help out.

George moved to talking about the debt, noting that while Trump has said he's "open to more aid" for the states and local governments, and he wants infrastructure spending, the Rs are starting to worry about the debt, and he asked Hassett if he was also concerned about that.

Oh, for sure...I think the debt level in the U.S. has climbed up to the point where in the economics literature, we see that it can be a sort of long run negative for growth. And so, for me, I think that as we go into the next phase of legislation, we need to think about long run things that we can do to try to get ahead of the curve on debt. So, for sure we need to do still some short run things but I think looking at long run changes that we can make to things to improve the debt situation, you know, that should be something that should be on the table.

There are lots of problems out there  still,  so the bipartisan action we've seen so far is good but it's going to get ugly. And he says we've managed to dodge a bullet or two so far, given the general stability of the markets and other indicators. And, finally, on whether we're "anywhere close to a new normal anytime soon?" In a nutshell, if people reopen while following the guidelines from Drs. Birx and Fauci, "we can maybe start to get back to normal."

Sticking with the economy, here are highlights of Brennan's conversation with BoA's Moynihan, which started with a question on the sustainability of deferring payments for customers, now that we're only days away from a new month and new payments due. Moynihan said

We have a million and a quarter customers, 1.25 million customers are asked-- asked for a deferral of payments and that will continue to go on for the-- for the near future and into the fall.

He also pointed to other things they're doing, including participating in the PPP, fee-free cashing of stimulus checks for non-customers, $100M in charitable giving, and $350M in community development financial assistance.

Brennan wondered about the next round of PPP, specifically whether mom-and-pops would have a better chance at getting help. Moynihan said that the first round they spend "largely went to small businesses" and that the next round, as long as there's funding for the program, everyone will get assistance. He also said 25% of the small businesses they help are in low- and moderate-income neighborhoods,and that they don't have more applications already than they can support with the new funding, around $50B worth. He also said

...I think it's clear that between Congress and the administration and the American people, we need to get all these funded and not make this a footrace. Just get the work done and get it through. And the work has to be done in a way that is-- supports American taxpayers who will ultimately pay for this and also gets the small business the money and gets the-- and has them pay their employees, which is a goal of the program.

On what things look like going forward, he sees "a deep recession environment in the second quarter, a less deep in the third quarter and then growth in the fourth quarter." And, he said, "our experts think it's late next year when the economy gets back to the same size it was prior to this." He does see some growth in consumer spending in certain areas, which is helpful - and he points to the stimulus payments, the PPP, unemployment insurance (which was bumped up by an extra $600 for four months) and the $1200 checks helping in that regard.

I was very interested in Brennan's next conversation; after all, the real battle against COVID-19 takes place at the local level, and everything is more personal there. San Francisco's Mayor Breed was the first to issue a shelter in place order, and he's added a mask order on top of that. Brennan wondered what he's seeing that others might not be.

It seems there are still many challenges, the biggest of which is making sure they look at the data and the facts from the public health experts, so they can make good decisions. But, he added

The challenges that we face still around PPE, around testing kits is just absolutely insane. We have known that this crisis was coming to our country for a long time now, and the fact that as of April, we're still having the same conversations about the challenges. I know that most cities are seeing the same data I'm seeing that if we do absolutely nothing, it gets worse. And so that's really why we have been really a lot more aggressive maybe than-- than other areas because we wanted to make sure that it doesn't.

His city could be overwhelmed - not enough beds, ICU rooms, or ventilators - if they do nothing or if they had done nothing, and that's the kind of thing "which should alarm any mayor in any city."

Brennan asked about the difficulty getting PPE, about some of it being diverted, and why he has such a hard time getting it. He said he had a shipment, things they had purchased from China, that were diverted to France, and that FEMA has confiscated some things as well. Customs is an issue - some stuff needs to come in via ship not plane, for example - and they've had to be really resourceful to get what they need.

But the fact is, this should be a federal coordinated effort. We should not still be having these conversations, which is a big reason why we have to put these shelter-in-place orders because we don't have the resources that we need to keep people safe, especially around testing.

They also talked about the news that the first COVID-19 death was someone from the Bay area, back on February 6th. Breed said it gives an indication that they really didn't have good facts when they first started announcing numbers. He mentioned his state's desire to do more testing of people who passed away earlier to determine if they were positive for the virus, citing a case originally not classified as a COVID-19 death until they found out that another person in the household was positive, and then testing confirmed that what they thought was a death due to heart attack was a positive case.

Brennan asked about the China travel ban, and how that might have impacted his city. Interestingly, he said they had been monitoring things since December, trying to prepare for what might happen there. Off the top of my head, I'm not sure I've seen that other cities had done so - and we know from reporting that there was less than optimal attention being paid nationally that early.

We set in place a declaration of emergency back in February. We operated our emergency operations center because of those relationships between people who live in San Francisco and their relatives and their friends in various parts of China. And we had experienced, sadly, a lot of xenophobia against our Chinese community early on. I mean, basically, Chinatown was a ghost town in the month of January. And so, we had been keeping an eye on this--and making adjustments in order to prepare our city for what we knew was actually coming here.

Breed said it's likely that the shelter-in-place order, set to expire on Sunday, will be continued. The most recent data from the San Francisco Chronicle shows that the Bay Area has had 7,499 cases and 260 deaths. For the city of San Francisco, the counts are 1,424 cases and 23 deaths.

So - three perspectives: an administration guy, a big banker, and a city mayor. The one thing that's clear in this Extra Credit? No one thinks we're done yet.

We're not done fighting the virus, we're not done fighting the bureaucracy, we're not done with efforts to keep small businesses alive, and we're not really anywhere near done with the economic impact.

And, of course, we're not done washing our hands, wearing our masks, and keeping our distance.

See you around the virtual campus.