Every state is now relaxing or
modifying in some fashion their Sheltering-in Place (ShiP) orders. The first
state to withdraw its ShiP order was Georgia on April 24, others like Florida
and Alaska followed the next week. Now all states are in this process, each following
their own reopening paths.
In California that means localities
are exercising Governor Gavin Newsom’s four-stage plan
for reopening to some sort of newly-defined normalcy. The qualified good news
is there’s a plan; the bad news is it needs to be followed. How will this
happen? What’s in store with this “reopening”? No one really knows; everyone’s
wandering down their own recovery road. Ultimately, it will be up to us
consumers as we decide when and how much to partake in the nation’s commerce.
California’s current covid
situation is quite mixed. Some areas have done better than others; no surprise
for a state as varied and large as ours. According to Google, Californians have
more strictly abided with ShiP orders than people in other states, with fewer
visits to retail stores and pharmacies. 👍 However, on May 26 California
was the only state that had more than one metro area in the NYTimes’s list of
areas with the dozen highest daily growth rate of covid-19 cases; both cities
are in Southern California.
New coronaviral cases have risen state-wide,
despite extant ShiP orders. There’s no recent decline or even plateauing; they’ve
steadily ascended since May 17. During the past four days coronavirus cases
have climbed 44.4% in California. 👎 That result is hardly according to
anyone’s plan.
The governor has announced California
sits in a very large, very deep hole because of covid-19. This threatening cavity
is an expected $54 billion (B) fiscal deficit, together with unemployment hovering
above 20%. It means the state is already in a substantial, viral recession.
For perspective, this $54B deficit
is by itself larger than 40 states’ entire 2018 budgets. This fiscal hole will
require state-funded services to be reduced (when they should be expanded), budgets
to be cut, furloughs and layoffs to occur and taxes likely increased especially
for richer folks. Unfortunately, there aren’t enough richer folks even in
California to fill the state’s colossal revenue hole.
Here’s a local example of one
consequence: the Berkeley School Board is now engaged in the painful process of
how to quickly cut 10% from its coming school-year budget, a reduced budget
that somehow has to provide a viral-safe PK-12 education for its 9,500 students.
California’s viral recession, like
most places, has been caused by both supply-side (producers) and demand-side
(consumers) shutdowns, which is the objective of ShiP orders. It means economic
recovery will require both stimulating producers and consumers to
re-participate in economic transactions. It also very likely means such a recovery
will not be characterized as a “V” (relatively quick). Nope, it’s more likely
to follow an “L”. This is unfortunately consistent with the Federal Reserve Bank
of Atlanta’s most recent real GDPNow forecast for 2020Q2 (April-June) of a
staggering -40.4%. This is not a recession forecast, it’s a depression
forecast.
When former governor Jerry Brown
was asked what could be done about California’s dismal economic dilemma he
said, “The response should be a Rooseveltian intervention and effort to
mobilize the economy the best way we can.” These are fair, but fictional words,
as Mr. Brown knows. Such broad-scale intervention requires big-time federal funding.
The current occupant of the White House now has no intention of “intervening”
with hefty heaps of fiscal largesse to assist true blue California, or for that
matter any other state. In the unlikely but best of circumstance, #45 and Sen. McConnell
might offer selective, non-Rooseveltian funds only after the state agrees to provide
some politically-substantial payment in return; maybe a guarantee that each California
recipient will receive a certificate with #45’s beaming, orange-ish image at
the top. Oh my, that’s what having to deal with Beelzebub (aka, our Lord of the Lies) may come down to.
California is now relaxing its
Stage 1 rules in most regions, leaving reopening decisions up to local
authorities. The City of Berkeley, like the rest of the hesitant SF Bay Area
counties, remains in Stage 1 through the end of May – we’re staying in our homes,
attempting to flatten the now well-known curve. Nevertheless, the Stage 1 restlessness
index is rising. The transition to Stage 2 will ease the ShiP orders and lift
restrictions for lower-risk workplaces.
We’re at Stage 1.8 in Berkeley, and
expect to enter Stage 2 soon, by necessity. We should also expect that as
cities, counties and states open up, they might selectively move or reorient
the official goalposts, changing imperatives to rid themselves of rules they
cannot fully comply with, like Washington DC has done.
California’s tourist industry is
the largest in the US. Oops, no one is touristing these days and hasn’t been
for several months. I’m not alone in cancelling several trips. About 600,000 of
California’s travel industry employees have lost their jobs. Hotel rooms in
California’s famed Napa Valley are empty; on a recent weekday only 6% of the
thousands of rooms in Napa were occupied. Vineyards’ tasting room revenues have
been transformed into empty glasses; revenues have dropped 400%. Overall
spending on California wines has fallen at least 25%. Vintners wonder how
they’ll survive.
Such revenues are all
highly-taxed. Travel-related tax proceeds are an important item for many
California cities’ revenues, totaling about $12B last year; they won’t be
anywhere near that level this year.
No matter what the official ShiP
orders state, more people now are publicly walking, hiking, driving, meeting
and interacting, even in Berkeley. Our masks-to-exposed-lips (MEL) ratio remains
fairly high here, thankfully. I expect we’ll seep into Stage 2 without
satisfying every one of the governor’s requirements.
Why? Because ShiP fatigue is at
hand, people want orders relaxed and rules’ enforcement is a no-win proposition
for anyone. Equally importantly, state, county and municipal budgets clearly necessitate
it. The costs of ShiP continue to escalate. State tax revenues have greatly
dropped, county property tax receipts are flagging, local tax revenues are unsustainably
dwindling.
It’s not quite Exodus, but the fiscal
waters parted when Berkeley, whose city council has consistently disdained the
need for automotive transport (while sizably raising parking meter fees),
stopped the collection of parking meter payments during Stage 1. It’s as if the
city told residents please, please drive downtown to safely engage in
commercial activity.
Unlike many people, my ShiP
“quarantine” hasn’t been a binary change from full-time work to staying at home
watching the artichokes grow. My change is one of degrees, because I’ve been
retired for a while and have worked only part-time. Increasing numbers of people
are unsick and tired of ShiP and want to re-engage in some hopefully-benign
fashion. Beyond being simply stir-crazed, large numbers of folks need money
that’s headed into their wallets from worked wages, no matter what their covid
concerns. Increased income is everyone’s – workers and businesses – very top
priority.
The policy “contest” between epidemiologists
and economists that I previously
characterized has rapidly edged into reopening, after following the epidemiologists’
prescriptions since March. According to one assessment, 25 million more
Americans ventured out of their homes on any given day during the first week of
May than over the prior six weeks. Nonetheless some steroidal epidemiologists believe,
among other needed changes, cities should be thinking about installing new doors
that don’t require grasping a handle and re-engineering traffic signals so
pedestrians don’t have to push crosswalk buttons. They also suggest that meatpacking
plants turn entirely robotic and paid sick time might become a necessity for
jobs of all types.
Despite swimming in the deep end
of daily pronouncements about covid-19’s treachery, much technical knowledge
about the coronavirus remains unknown. Including how contagious and how deadly
it is for whom, and under what circumstances infections can be mitigated for how long.
Epidemiologists remain unsure
about how to answer the “What should I do?” question that has been posed since
the pandemic began more than three months ago. The process of gathering and
assessing relevant covid data has indeed been sped up. But as one scientist put
it, “The pace of uncertainty reduction in science is way slower than the pace
of a pandemic.” That uncertainty means people will favor safely reopening the
economy, come covid or high water.
In due course when we consumers gain enough disposable income and confidence, our demand for goods and services can grow, benefiting all of us. That hasn’t happened yet. US consumer spending dropped in April by 13.6%, the largest one-month decline since this data series began in 1959. This colossal reduction includes spending on durable goods, non-durable goods and services.
In due course when we consumers gain enough disposable income and confidence, our demand for goods and services can grow, benefiting all of us. That hasn’t happened yet. US consumer spending dropped in April by 13.6%, the largest one-month decline since this data series began in 1959. This colossal reduction includes spending on durable goods, non-durable goods and services.
Since #45 has selfishly rejected providing
further federal government support or specifying how we are to re-engage
commercially and personally, each state and locality is forging a distinct path
forward. We can think of this now as our potpourri pandemic. Here’s hoping your
and my paths deliver healthy benefits for us and many others.
