Posted on

Most investors and some firms are upbeat about the world economy

ACCORDING TO the theory of cognitive dissonance it is stressful to dwell on contradictions. Pity, then, anyone trying to reconcile the miserable mood of many economic forecasters with booming stockmarkets and the increasingly bullish mood in many boardrooms. This week the OECD, a club of mostly rich countries, predicted “dire and long-lasting consequences” in the rich world from the recessions caused by the covid-19 pandemic. As it did so, the S&P 500 index of American shares was almost back to its level at the start of the year, when to most people “corona” still meant something to be drunk with a slice of lime. For a while the strength of America’s stockmarket, which recently enjoyed its biggest 50-day rally in history, looked like a global exception. But since the end of April European and Japanese markets have outperformed even a jubilant Wall Street.

To some this is a clear sign of spreading irrational exuberance. Shares, it is argued, have been pumped to unsustainable highs by monetary and fiscal stimulus, and, perhaps, by a wave of speculation by idle workers who have been punting on the stockmarket with their stimulus cheques (TD Ameritrade, a retail broker, says trading activity is four times the level of a year ago). In fact, investors have not lost their minds. A stream of positive corporate and economic data provides some grounds for optimism. The trouble is that it would not take much bad news—whether about the withdrawal of stimulus or the pandemic—to throw the rally into reverse.

Start with the good news. Most analysts had thought that America’s unemployment rate would rise from 14.7% to around 20% in May. Instead it fell to 13.3% as millions of Americans were recalled to work (see article). Real-time data on credit-card spending, e-commerce and consumer mobility suggest that American consumer spending reached a trough in April and has now recovered to around 90% of its pre-pandemic level. The recession that was only this week officially declared to have started in March already looks to have bottomed out.

Like the market rally, the green shoots are not confined to America. In May Chinese goods exports were only 3.3% lower than a year ago—analysts had expected almost twice that fall. Labour markets have beaten expectations in Canada and South Korea. In Europe surveys of business sentiment remain depressed but have rebounded strongly from record lows in April. It helps that the euro zone has embraced stimulus. This month the ECB has expanded its bond-buying programme and Germany has fired a fiscal bazooka (see article).

Indeed, one conclusion to draw from this turn in the data is that stimulus works. Governments have successfully shielded firms from bankruptcy and protected consumers’ incomes. America’s banks say that fewer debts are turning sour than you might expect from looking at the unemployment rate alone; household incomes are higher than they were before the pandemic. Meanwhile many investors and firms have persuaded themselves that lifting lockdowns will not cause an immediate second spike in covid-19 infections. All this has led them to look past the evisceration of corporate profits in 2020 to a rapid economic rebound in 2021 and 2022.

Yet each prong of the argument also carries a warning. Stimulus will not last for ever. America’s emergency $600 weekly boost to unemployment insurance payouts, for example, expires at the end of July. Were Congress to continue to support the jobless so generously, it could slow the economic restart by discouraging people from working. But an abrupt withdrawal of benefits would slash incomes and leave many unable to spend. America’s headline unemployment rate may be falling but the number of workers who report that they are jobless because they have been permanently (rather than temporarily) laid off continues to rise ominously. Nobody yet knows how many will join their ranks as the economy changes for good in response to the pandemic. That makes it hard to judge for how long policymakers should keep the pedal to the metal. And for as long as the labour market looks damaged, households will save more than they otherwise might, slowing the recovery.

The second risk stems from the virus itself. It is still poorly understood and, as it spreads through developing countries, the global daily count of new cases is trending higher than ever. Another wave of infections still remains possible, especially during the winter, when its transmission may be easier. That could bring on another round of lockdowns or, failing that, lead consumers to choose to stay at home for their own protection, limiting the extent of the rebound. In February markets were caught out by the speed with which the outlook shifted. Though the world economy has begun to recover, do not rule out a relapse.

This article appeared in the Leaders section of the print edition under the headline “Achilles heal”

Reuse this contentThe Trust Project

Read More

Posted on

Great cities after the pandemic

UNTIL RECENTLY big cities were unstoppable. Year after year places like New York, London and Paris grew richer and busier. Since the turn of the century they have shrugged off a dotcom crash, a financial crisis, terrorist attacks and political populism caused partly by resentment at their prosperity and arrogance. Could their magical run possibly be coming to an end?

There are reasons to worry. Covid-19 struck the most exciting, global cities hardest—the ones you find on the side of bags full of designer clothes. With 3% of America’s population, New York has suffered 19% of deaths attributed to the disease (see Briefing). One in four French deaths was in Paris and its region. Even as lockdowns lift, international travel restrictions and fear of infection will linger: London is only 15% as busy as normal.

Such quietness poses a grave threat to cities, especially the big, global ones. Much of the joy of suburban life derives from the houses and gardens that are more affordable there. The pleasure of village life is the peace and the countryside. But cities thrive on their busy streets, restaurants and theatres, which are now quiet or closed. That is a loss for urban consumers, and a calamity for the many people, often immigrants, who sell services.

The virus has attacked the core of what makes these cities vibrant and successful. They prosper not so much because of what they do for businesses, but because they cram together talented people who are fizzing with ideas. Americans in cities with more than 1m people are 50% more productive than those elsewhere.

But crowding people in offices and bars now seems irresponsible. And, in contrast to when Spanish flu struck a century ago, many workers have alternatives. People are learning to toil from home; some have discovered that they like it. Facebook, until recently a heroic office-builder, has announced that it will let many employees keep working remotely even after the virus is seen off. Commercial- and residential-property markets could slump as jobs move out of cities, even if only for part of the week. High-street shops and cafés are likely to go under as they adjust to the cut in office workers, tourists and students.

If they lose people, cities will run into a fiscal crunch, too. Their income from things like hotel taxes and bus fares has evaporated. New York’s independent budget office reports “absolute gloom and uncertainty” and frets that tax revenues may fall by $9bn in the next two fiscal years. The great danger is that cities enter a spiral of budget cuts, deteriorating services, rising crime and middle-class flight. It would be the 1970s all over again.

And yet cities are stronger and more resilient than they seem. As with so much else, the fate of cities hangs on the development of treatments and vaccines. But their magic cannot be woven from afar as easily as some suppose.

Cities remain invaluable as places where people can build networks and learn how to collaborate. The brain-workers now logging into Zoom meetings from commuter towns and country cottages can do their jobs because they formed relationships and imbibed cultures in corporate offices. Their heads are still in the city, though their feet are not. Even a socially distanced, half-full office is essential for teaching new hires how a company works. If offices facilitate chit-chat and gossip, they are functioning well. Answering emails can be done from home.

The hope is that, even if bankers and programmers stop coming into town, cities will adjust. Young people, who are at less risk from covid-19 and less worried about crime, could suddenly discover that life in the big smoke is affordable again.

To encourage that, cities need to run themselves for the post-covid era. They are already grappling with how to move millions of people when nobody wants to squeeze onto crowded buses and trains. Some have bold plans for expanded networks of bike paths, and have erected plastic barriers to encourage walkers to occupy the roads. This is encouraging. But cities that fear commuters will drop trains and buses for private cars, clogging the roads, would do even better to manage demand by pricing driving and parking more highly.

Cities also need more autonomy. New York’s hapless mayor, Bill de Blasio, has been a poor advertisement for muscular local government. But Seoul’s world-beating coronavirus response has been organised largely by the metropolitan government and by local officials. By contrast, the mayor of London, Sadiq Khan, had to lobby the national government to insist on face masks on public transport. It agreed two months too late.

Bright lights

National governments and states will need persuading that cities should have more power, especially as many will also be begging for money. They should step back anyway. Great cities are obnoxious, but they are normally big contributors to national budgets. And the trick they perform for their countries is not just economic. Cities are where people learn to live in a modern, open society. They are machines for creating citizens.

This article appeared in the Leaders section of the print edition under the headline “After disaster”

Reuse this contentThe Trust Project

Read More

Posted on

Boris Johnson’s government should prolong the Brexit transition

CAUGHT UP IN covid-19, Britons have largely forgotten the crisis that preoccupied them for three-and-a-half years. But Brexit has not gone away. A crunch is approaching, and unless the prime minister, Boris Johnson, acts swiftly, its damaging economic consequences will compound those of the pandemic.

Britain formally left the EU on January 31st, and is now in a transition period until the end of the year, during which time a deal on future relations is meant to be thrashed out. If it is not, and Britain ends that transition without a trade deal, the impact on the economy is likely to be painful.

The prospects are not good. Talks are deadlocked. The two sides have taken extreme positions on fisheries, governance and competition. The chances of sealing a deal in six months look slim. The first, supposedly easier, stage of Brexit talks on withdrawal took 30 months to finish. Negotiating this stage remotely is an unwelcome complication.

Under the withdrawal treaty, the two sides can choose before the end of June to extend the transition for up to two years. After that, any extension would need a fresh treaty and the approval of all 27 national and some regional parliaments. That makes brinkmanship risky. The obvious solution is for Mr Johnson, when he meets EU leaders virtually next week, to ask for an extension. Voters think he should, according to most polls. Yet he refuses to do so.

Mr Johnson says that to extend transition would betray those who voted for Brexit. Yet Brexit happened in January: the only question now is whether it is orderly or disorderly. Mr Johnson also says Britain may have to pay vast extra sums into the EU budget, and even contribute to its new rescue fund. But though there would be a bill to pay, the treaty says it is negotiable; and since Britain is no longer in the common agricultural policy, the bill should be a lot smaller than were its dues as a member.

Would staying in transition constrain Britain’s response to covid-19 through state subsidies, as opponents of an extension also argue? No, because the EU’s state-aid rules are suspended. Claims that transition would stop new free-trade deals are misleading, as negotiations with other countries can continue, and in any case none is ready to come into force soon. Suggestions that an extension would prolong uncertainty for businesses are wrongheaded. It is the risk of leaving without a trade deal that troubles firms. They are already hit by covid-19, and unprepared for tariffs, quotas and customs checks.

Mr Johnson thinks the EU caves in only under the pressure of time. He believes that his renegotiation of the withdrawal treaty last autumn, after he became prime minister, shows the benefits of going up to the wire. Yet it was not the EU, but Britain, that made the big concession then, by accepting a customs border between Great Britain and Northern Ireland. And once again, as last time, Britain needs a deal more than the EU does.

Privately, the government believes that covid-19 has reduced the political risk of leaving without a deal, since its costs will be hidden by the greater damage from the pandemic. Yet this argument is not only improperly self-serving but also fallacious. Covid-19 has severely affected non-tradables, such as restaurants and bars, whereas Brexit without a trade deal would hit big exporters such as carmakers (goodbye, Nissan?) as well as creating visible chaos in Dover.

A sensible, responsible government would treat an extension of the transition not as a political weapon but as an option contract, for use only if a deal cannot be struck in time. If Mr Johnson continues to reject it out of hand he will show his government to be, on the matter of Brexit, neither sensible nor responsible.

This article appeared in the Leaders section of the print edition under the headline “Don’t pretend, extend”

Reuse this contentThe Trust Project

Read More

Posted on

How drawing can set you free | Shantell Martin

Who are you? To answer this question, artist Shantell Martin followed her pen. In this brilliantly visual talk featuring her signature freestyle line work — drawn across everything from the screens of Times Square to the bodies of New York City Ballet dancers — Martin shares how she found freedom and a new perspective through art. See how drawing can connect your heart to your hand and deepen your connection with the world.

Read More

Posted on

What tech companies know about your kids | Veronica Barassi

Read More

Posted on

How to turn your dissatisfaction into action | Yvonne Aki-Sawyerr

After the devastating rebel invasion of Freetown in 1999 and the Ebola epidemic in 2014, Yvonne Aki-Sawyerr, mayor of the city, refused to be paralyzed by her frustration with the status quo. Instead, she used her anger as a catalyst for action. In this inspiring talk, she shares how she transformed her city by taking the risks necessary to bring about dramatic change — and shows how you can find power in your dissatisfaction.

Read More

Posted on

L3Harris Technologies CEO: Technology is driving the future of defense and national security

Read More

Posted on

A new way to “grow” islands and coastlines | Skylar Tibbits

What if we could harness the ocean’s movement to protect coastal communities from rising sea levels? Designer and TED Fellow Skylar Tibbits shows how his lab is creating a dynamic, adaptable system of underwater structures that uses energy from ocean waves to accumulate sand and restore eroding shorelines — working with the forces of nature to build rather than destroy.

Read More