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Black Joblessness Shows Fed Must Look at Inequality · Stephanomics

• 0:00
  Speaker 1: January, just waiting for the numbers to come out here
• 0:03
  Speaker 1: and so far what we've seen is a few numbers.
• 0:06
  Speaker 1: Underneath here we go unemployment, um employment. Father Rose, I'm sorry,
• 0:13
  Speaker 1: I'm a little stunned here by this number. Employment rose
• 0:18
  Speaker 1: by two and a half million in May. According to
• 0:20
  Speaker 1: the Bureau of Labor Statistics, the unemployment rate fell to
• 0:24
  Speaker 1: thirteen point three percent. I don't know what to tell you.
• 0:28
  Speaker 1: We're gonna have to look at these lumbers. Hello, and
• 0:35
  Speaker 1: welcome to Stephanomics, the podcast that brings the COVID global
• 0:39
  Speaker 1: economy to you. And what you've just heard was a
• 0:41
  Speaker 1: big surprise that happened last week when the US job
• 0:44
  Speaker 1: numbers came out. Everyone expected US unemployment to go up again,
• 0:48
  Speaker 1: but instead, as you heard, it fell. Unemployment rose by
• 0:53
  Speaker 1: two and a half million, when the forecast has been
• 0:55
  Speaker 1: for it to fall by seven and a half million.
• 0:58
  Speaker 1: That's a big forecast era even for economists. But stunned,
• 1:02
  Speaker 1: though he was the very experienced reporter you heard there,
• 1:05
  Speaker 1: Mike McKee was quick to spot something else in those
• 1:08
  Speaker 1: figures that sadly was not so surprising. Though the unemployment
• 1:12
  Speaker 1: rate for white Americans had fallen, the rate for Black
• 1:16
  Speaker 1: Americans had continued to rise to a decade high of
• 1:19
  Speaker 1: nearly seventeen percent. We've spoken in the past on Stephanomics
• 1:23
  Speaker 1: about the way that minorities have been hit first and
• 1:26
  Speaker 1: hardest by the COVID recession, losing their jobs more quickly
• 1:31
  Speaker 1: as well as dying at much higher rates from the
• 1:33
  Speaker 1: virus itself, and African Americans have a lot fewer savings
• 1:37
  Speaker 1: to fall back on when they lose their job or
• 1:39
  Speaker 1: get sick. In Minneapolis, where George Floyd was killed, the
• 1:43
  Speaker 1: latest figures show the average African American household had a
• 1:47
  Speaker 1: net worth of just over seventeen thousand dollars. That's one
• 1:51
  Speaker 1: tenth the net worth of the median white household, one tenth.
• 1:57
  Speaker 1: In a little while, I'm going to play you part
• 1:58
  Speaker 1: of a conversation about the future for US jobs and
• 2:01
  Speaker 1: the economy with the former chairman of President Obama's Council
• 2:04
  Speaker 1: of Economic Advisors, now a Harvard professor, Jason Furman. I'm
• 2:08
  Speaker 1: also going to talk to our sub Saharan Africa economist
• 2:11
  Speaker 1: b Hassi Lawe in Johannesburg about the financing gap facing
• 2:15
  Speaker 1: African economies as a result of COVID nineteen but first,
• 2:20
  Speaker 1: the protests in US streets and those jobs figures have
• 2:24
  Speaker 1: put inequality high on the agenda, and given that the
• 2:28
  Speaker 1: Federal Reserve is meeting this week, it seemed especially timely
• 2:32
  Speaker 1: to consider the challenge that these stark economic disparities pose
• 2:37
  Speaker 1: to the US Central Bank as it sets policy in
• 2:40
  Speaker 1: theory for the whole economy. Matthew Bosler is a U
• 2:44
  Speaker 1: S economy reporter based in New York. Matt, You've taken
• 2:47
  Speaker 1: a look at this, and it is not a new
• 2:49
  Speaker 1: issue for the Federal Reserve, is it. No, it's not.
• 2:52
  Speaker 1: It's something that they've been really looking at more and
• 2:54
  Speaker 1: more over the last few years, and in the last
• 2:57
  Speaker 1: year or so, they've actually launched a formal reviewer their
• 3:00
  Speaker 1: entire policy making framework. That's really overturning assumptions and practices
• 3:06
  Speaker 1: that go back many decades at the Central Bank in
• 3:09
  Speaker 1: terms of the way that they set interest rates um
• 3:12
  Speaker 1: and so part of that involves looking at the way
• 3:17
  Speaker 1: that their policy actually affects different groups. And for a
• 3:21
  Speaker 1: long time they sort of set policy based on this
• 3:24
  Speaker 1: notion of how it affects the overall economy the economic aggregates,
• 3:29
  Speaker 1: without paying much attention to those disparities that exists within
• 3:32
  Speaker 1: the economy, and something that they're really trying to do
• 3:35
  Speaker 1: lately is take a finer look at how uh these
• 3:40
  Speaker 1: different groups are being affected and their different experiences in
• 3:43
  Speaker 1: the labor market and trying to incorporate that into their
• 3:46
  Speaker 1: decision making process a little bit more explicitly. So let's
• 3:51
  Speaker 1: some just tease out what that means in practice for policy.
• 3:55
  Speaker 1: I mean, when they started raising interest rates after the
• 3:58
  Speaker 1: global financial crisis in twin fifteen, that was when supposedly
• 4:03
  Speaker 1: they'd reached full employment. But what was the black unemployment
• 4:07
  Speaker 1: rate at that point. The black unemployment rate was eight
• 4:10
  Speaker 1: point five percent and the white unemployment rate was four
• 4:13
  Speaker 1: point four percent. And this kind of speaks to the
• 4:16
  Speaker 1: whole issue of looking only at the economic aggregates when
• 4:20
  Speaker 1: they set policy. So for many years, they've used the
• 4:23
  Speaker 1: overall unemployment rate as a guide to inflationary pressures, and
• 4:28
  Speaker 1: the theory goes that when the overall unemployment rate declines,
• 4:32
  Speaker 1: then you start to see more inflationary pressures building in
• 4:35
  Speaker 1: the economy. But the problem with that is if you're
• 4:38
  Speaker 1: using the overall unemployment rate, that's obscuring these really wide
• 4:43
  Speaker 1: disparities between groups like white Americans and Black Americans, for example,
• 4:49
  Speaker 1: And so you get into this situation where you're raising
• 4:52
  Speaker 1: interest rates and trying to slow down the economy even
• 4:56
  Speaker 1: when unemployment for a group I Black Americans is still
• 5:01
  Speaker 1: very high at levels that we would consider recessionary levels
• 5:05
  Speaker 1: if we were talking about the overall unemployment rate. So
• 5:09
  Speaker 1: this picture of two America's is really is really start there.
• 5:13
  Speaker 1: And I was struck you had in the piece you
• 5:15
  Speaker 1: wrote for Bloomberg about it, you had gone back to
• 5:18
  Speaker 1: previous times where the fed's policy had been had had
• 5:24
  Speaker 1: actually spurred some of the same kind of demonstrations that
• 5:28
  Speaker 1: we've seen recently, or it helped to contribute to that.
• 5:31
  Speaker 1: I think even in the even in the fifties, there
• 5:33
  Speaker 1: was a sense that some of those interest rate right
• 5:35
  Speaker 1: hikes then had helped trigger some of the March on
• 5:39
  Speaker 1: Washington and pressure for the civil rights legislation in the sixties.
• 5:43
  Speaker 1: That was news to me, That's right, And I think
• 5:46
  Speaker 1: that is sort of lost in memory at this point
• 5:49
  Speaker 1: for a lot of us observers of the modern FED,
• 5:52
  Speaker 1: because we don't really think of the FED over the
• 5:54
  Speaker 1: last few expansions as having raised rates really aggressively and
• 5:59
  Speaker 1: sort of purpose put the economy into a downturn. But
• 6:02
  Speaker 1: back in the fifties UH, sixties, seventies, and eighties, that
• 6:06
  Speaker 1: was definitely more the case. You know, FED officials were
• 6:09
  Speaker 1: more explicit about trying to you know, break the backs
• 6:12
  Speaker 1: of unions and make it so that they would not
• 6:16
  Speaker 1: be able to demand higher wages of the type that
• 6:20
  Speaker 1: might cause a wage price spiral. And so back then
• 6:25
  Speaker 1: this was a much more explicit part of the conversation.
• 6:28
  Speaker 1: And as today, when the FED moved to Titan it
• 6:31
  Speaker 1: would of course disproportionately affect black workers who were struggling
• 6:38
  Speaker 1: to close the kinds of gaps that have existed in
• 6:41
  Speaker 1: the labor market really going all the way back throughout
• 6:44
  Speaker 1: the nation's history. And the other piece of this is
• 6:49
  Speaker 1: the wealth side. I mean I mentioned that the typical
• 6:52
  Speaker 1: African American household in Minneapolis UH had a tenth of
• 6:58
  Speaker 1: the net worth the savings that it could fall back
• 7:00
  Speaker 1: on was a new ten per cent of the average
• 7:04
  Speaker 1: net worth of white households. And of course it's it's
• 7:08
  Speaker 1: people with assets who have tended to benefit from quantitive easing,
• 7:12
  Speaker 1: from the fact that asset prices are going up even
• 7:14
  Speaker 1: now in the last few months, you've seen the stock
• 7:16
  Speaker 1: markets come roaring back even as main street and the
• 7:22
  Speaker 1: Black Americans are facing still a deep, deep recession. I mean,
• 7:27
  Speaker 1: is that part of their thinking as well, that the
• 7:30
  Speaker 1: wealth inequality is also especially in the age of quantitative easing,
• 7:34
  Speaker 1: where the central bank is seen to be propping up
• 7:38
  Speaker 1: asset prices. You know, that's another difficult area for them.
• 7:41
  Speaker 1: I think that's a huge part of the story. And
• 7:43
  Speaker 1: when you start talking about things like the racial wealth gap,
• 7:47
  Speaker 1: the data on that front really look even a lot
• 7:49
  Speaker 1: worse than the disparities that exist in the labor market.
• 7:52
  Speaker 1: And I think that's one reason why this conversation has
• 7:56
  Speaker 1: really grown louder in more recent years, because as what
• 8:01
  Speaker 1: we saw in the Great Recession is that that was
• 8:03
  Speaker 1: just extremely devastating for the Black community in terms of
• 8:06
  Speaker 1: household wealth um and overall wealth, and that really hit
• 8:11
  Speaker 1: them a lot harder than it did White Americans. And so, uh,
• 8:16
  Speaker 1: those are the types of data points that economists are
• 8:19
  Speaker 1: looking at more and more now, and the numbers are
• 8:22
  Speaker 1: just so hard to ignore at this point that it's
• 8:25
  Speaker 1: really become a lot more central part of the conversation.
• 8:29
  Speaker 1: I guess what what many activists in this area was
• 8:33
  Speaker 1: say is, well, it's all very well talking about it
• 8:35
  Speaker 1: more um, but in practice, how is it going to
• 8:38
  Speaker 1: change FED policy do you think going forward? Yes, So
• 8:42
  Speaker 1: this is really about the Fed's attitude toward inflation and
• 8:46
  Speaker 1: being reactive toward inflation versus being proactive toward inflation. And
• 8:52
  Speaker 1: what we've really seen over the last thirty years or
• 8:55
  Speaker 1: so since Paul Boker's tenure is that the FED tries
• 8:59
  Speaker 1: to be pro active against scarding against inflation because they
• 9:03
  Speaker 1: saw what could happen when you let inflation get out
• 9:06
  Speaker 1: of control like it did in the nineties seventies, and
• 9:09
  Speaker 1: so they've kind of had that mindset for many decades
• 9:12
  Speaker 1: where they need to start raising rates ahead of time
• 9:15
  Speaker 1: to get out of ahead of that and and squash
• 9:17
  Speaker 1: it before it happens. But what we saw in the
• 9:20
  Speaker 1: last ten years or so is that that playbook UH
• 9:24
  Speaker 1: did not really serve lower income communities so well because
• 9:29
  Speaker 1: it ended up foreclosing on you know, further job gains
• 9:34
  Speaker 1: before it needed to UH and the inflation never materialized.
• 9:38
  Speaker 1: And so that's a big part of the framework review
• 9:40
  Speaker 1: that the FETE is undertaking now trying to figure out
• 9:44
  Speaker 1: how can we do this in a way that does
• 9:47
  Speaker 1: not prevent more people from getting jobs, more people from
• 9:52
  Speaker 1: building wealth in the type of economy that we would
• 9:55
  Speaker 1: normally think of as a hot economy, uh, one that
• 9:58
  Speaker 1: is not necessarily spurring the types of inflationary pressures that
• 10:04
  Speaker 1: demand an immediate response. And so I think for the FED,
• 10:07
  Speaker 1: it really comes down to this idea of being more
• 10:10
  Speaker 1: reactive and taking their time to really wait and see
• 10:14
  Speaker 1: those inflationary pressures materialize before moving to slow things down.
• 10:22
  Speaker 1: It seems so a million years ago that we were
• 10:25
  Speaker 1: talking about running the economy hot. But you know, it
• 10:28
  Speaker 1: was not so long ago at all that the even
• 10:30
  Speaker 1: the white unemployment rate was three point four percent in
• 10:35
  Speaker 1: the US compared to over um now, but do you
• 10:40
  Speaker 1: think or nearly thirteen, But do you think just going
• 10:44
  Speaker 1: back to the immediate prospects for jobs, I mean, have
• 10:46
  Speaker 1: you changed your view of the way the labor market's
• 10:50
  Speaker 1: going to work over the next few months as a
• 10:52
  Speaker 1: result of that those surprising job numbers, because even even
• 10:56
  Speaker 1: with the disconnect with the story for black Americans, it
• 11:00
  Speaker 1: was pretty surprising to see the overall number of jobs
• 11:03
  Speaker 1: go up. Does that do you think in the end,
• 11:04
  Speaker 1: it look like the US the flexible US will come
• 11:08
  Speaker 1: out of this better than others. So the tough thing
• 11:11
  Speaker 1: about the jobs numbers that we just got when we're
• 11:14
  Speaker 1: talking about these racial disparities, is that, yes, the job
• 11:17
  Speaker 1: numbers were better than expected, and the unemployment rate for
• 11:21
  Speaker 1: white Americans actually went down, but for Black Americans that
• 11:25
  Speaker 1: went up further, and so it kind of speaks these
• 11:27
  Speaker 1: disparities that exist. Typically, what you see in economic downturns
• 11:32
  Speaker 1: is the gap between white and black unemployment rates tends
• 11:37
  Speaker 1: to narrow in terms of the multiple uh that the
• 11:40
  Speaker 1: black community faces. But then what happens is as we
• 11:45
  Speaker 1: go into the recovery phase. In the early phase of recoveries,
• 11:49
  Speaker 1: that gap starts to widen again, as white Americans are
• 11:52
  Speaker 1: typically hired back into the workforce more quickly. And so
• 11:58
  Speaker 1: that is going to be the real challenge for the
• 12:00
  Speaker 1: FED and other policy makers going forward is trying to
• 12:05
  Speaker 1: find a way to make the recovery more inclusive for
• 12:10
  Speaker 1: all Americans in a way that typically has not been
• 12:13
  Speaker 1: the case in the past, and prevent that dynamic from
• 12:17
  Speaker 1: playing out again where it takes many years before black
• 12:22
  Speaker 1: Americans can share in that recovery that white Americans experience
• 12:29
  Speaker 1: well we will carry on watching. But in the meantime,
• 12:31
  Speaker 1: Matthew Bosler, thank you very much. Thank you. Now that
• 12:42
  Speaker 1: question of what happens next for US jobs came up
• 12:45
  Speaker 1: recently in a discussion I had with some very distinguished
• 12:48
  Speaker 1: economists as part of an event organized by the European
• 12:51
  Speaker 1: Leadership Network to Think Thanks, focused on improving relations between
• 12:55
  Speaker 1: Europe and Israel. I can't play the whole thing. The
• 12:59
  Speaker 1: sound wasn't good apart from anything else, but I thought
• 13:01
  Speaker 1: you'd be interested in this exchange with Jason Furman. So,
• 13:05
  Speaker 1: the US has seen a lot more job losses than
• 13:07
  Speaker 1: Europe in the last few months. We talked about that
• 13:09
  Speaker 1: in the past. He thought America might still come out ahead,
• 13:13
  Speaker 1: assuming Congress doesn't mess things up. Two ways you can grow.
• 13:22
  Speaker 1: One is people can go back to their old jobs.
• 13:25
  Speaker 1: Businesses that were shuttered can reopen. That type of growth
• 13:30
  Speaker 1: can happen very very quickly, and that's why you'll see
• 13:33
  Speaker 1: fast growth in the third quarter. That's why you'll see
• 13:36
  Speaker 1: tremendous job growth, um and the like. I think, though
• 13:40
  Speaker 1: I'm underlying all of this, there will be parts of
• 13:43
  Speaker 1: the economy that continue to be affected by the virus,
• 13:45
  Speaker 1: whether it's travel or restaurants and the like. There also
• 13:49
  Speaker 1: will be a lot of reallocation companies that decided they
• 13:52
  Speaker 1: don't need to rehire everyone, or a company that was
• 13:55
  Speaker 1: already having troubles before this, say department store, that goes
• 13:58
  Speaker 1: bankrupt as a result to it. So you might get
• 14:02
  Speaker 1: halfway back very quickly, but then you'll still be halfway
• 14:07
  Speaker 1: um from where you started. In the United States, that
• 14:10
  Speaker 1: would mean you're still you know, ten million jobs in
• 14:12
  Speaker 1: the whole the equivalent of the financial crisis, and that
• 14:16
  Speaker 1: next phase where you need to find jobs at new employers,
• 14:20
  Speaker 1: maybe even worse, you need to find a job in
• 14:22
  Speaker 1: a new industry, is a process that's never been very quick,
• 14:26
  Speaker 1: and so I view that more as a slog. Don't
• 14:29
  Speaker 1: expect us to get back to our per capita incomes
• 14:32
  Speaker 1: that we had before the crisis until maybe three huge
• 14:38
  Speaker 1: amount of uncertainty around that, but I think it could
• 14:40
  Speaker 1: be many years before we even begin to get back
• 14:45
  Speaker 1: to where we were before all of this. When you
• 14:48
  Speaker 1: look to the next phase, what are the risks in
• 14:51
  Speaker 1: the US? I guess, particularly around the election, the US
• 14:54
  Speaker 1: fiscal response was huge. It's hard to compare across countries.
• 14:59
  Speaker 1: It appears to be the the largest of any country. UM.
• 15:02
  Speaker 1: One success of that, as you noted in the question
• 15:05
  Speaker 1: you're asking Stephanie, is that in the month of April,
• 15:10
  Speaker 1: households actually saw their disposable personal incomes rise even though
• 15:15
  Speaker 1: there was massive job loss, and that's because of the
• 15:18
  Speaker 1: transfers they got through unemployment insurance and UM through checks.
• 15:24
  Speaker 1: I'm I think it's a real open question as to
• 15:28
  Speaker 1: whether the US system, where an employer can furlow you
• 15:32
  Speaker 1: and then you get a check from the government, or
• 15:34
  Speaker 1: the European system where you continue to get a check
• 15:37
  Speaker 1: from your employer and your employer gets a check from
• 15:40
  Speaker 1: the government UM as to which of those will be
• 15:43
  Speaker 1: better UM in the long term, I think to a
• 15:45
  Speaker 1: first approximation, they might be more similar than everyone thinks.
• 15:50
  Speaker 1: If Macy's reopens its stores, it's going to call back
• 15:53
  Speaker 1: the employees that it furloughed. It won't not reopen a
• 15:57
  Speaker 1: store because it can't find the people that work in
• 16:00
  Speaker 1: that store and have to do a fresh new hiring process.
• 16:03
  Speaker 1: So if you can reopen in the United States, I
• 16:06
  Speaker 1: think you will bring UM your employees back. I think
• 16:09
  Speaker 1: it gives you a little bit of an extra option
• 16:11
  Speaker 1: on flexibility to handle the reallocations shock. The tricky thing
• 16:17
  Speaker 1: over the next couple of months is that everything I've
• 16:19
  Speaker 1: just talked that I think has been to some degree
• 16:22
  Speaker 1: successful ends at the end of July, and you know,
• 16:27
  Speaker 1: Congress came together quickly for the first round. UM. There's
• 16:31
  Speaker 1: much more acrimony, much more polarization right now as people
• 16:35
  Speaker 1: are talking about UM and debating re upping that round.
• 16:40
  Speaker 1: States governments are cutting, which is counter productive to the
• 16:44
  Speaker 1: overall for the recovery. Unemployment insurance I don't think should
• 16:48
  Speaker 1: be extended exactly as it is, but I think if
• 16:50
  Speaker 1: it comes to an end entirely UM, that would mean
• 16:54
  Speaker 1: you know, some downward pressure on the economy going into
• 16:57
  Speaker 1: the fall, and you know, for that reason alone, my
• 17:00
  Speaker 1: guesses Republicans and Democrats will come together to agree on
• 17:04
  Speaker 1: something another round. So now I wanted to talk about Africa.
• 17:17
  Speaker 1: Something different we've seen in this crisis in the advanced
• 17:19
  Speaker 1: economies is that though that output of the economy has
• 17:23
  Speaker 1: shrunk further and faster than we've ever seen before, government
• 17:27
  Speaker 1: spending has also come in and expanded by an unprecedented
• 17:31
  Speaker 1: amount to support businesses and households, to the point where
• 17:34
  Speaker 1: when you look at total incomes across the economy, they've
• 17:38
  Speaker 1: barely fallen at all. In many cases, the government support
• 17:41
  Speaker 1: has matched the decline in the economy, at least on paper,
• 17:45
  Speaker 1: and that gives us some hope about the potential for
• 17:48
  Speaker 1: a quick recovery out of this, at least for for
• 17:51
  Speaker 1: many parts of the economy. But that's in the rich countries.
• 17:53
  Speaker 1: The story in large parts of the developing world is
• 17:57
  Speaker 1: very different, and we heard the economist Jeffreys talk about
• 18:01
  Speaker 1: his worries on that score a few weeks ago. So
• 18:04
  Speaker 1: our sub Saharan Africa economists b Haslawe has done the
• 18:09
  Speaker 1: numbers for a number of African economies. Um. She's sitting
• 18:13
  Speaker 1: in Johannesburg. B great to have you on. Stephanomics. Explained
• 18:17
  Speaker 1: to us the calculation you've done and what the results were.
• 18:22
  Speaker 1: Thank you, Stephanie. And I looked at six African economies,
• 18:28
  Speaker 1: the sixth largest in terms of their presence in the
• 18:31
  Speaker 1: commercial dead markets, private capital markets, and what I did
• 18:36
  Speaker 1: there was I looked at the growth forecast that we
• 18:39
  Speaker 1: had for them in October last year. I am a
• 18:42
  Speaker 1: growth badcast, and then I compare them to the deterioration
• 18:45
  Speaker 1: and that growth forecast that we have now in April
• 18:47
  Speaker 1: twenty and then I used that difference to get a
• 18:50
  Speaker 1: sense of what the last income or last output might
• 18:53
  Speaker 1: be in those economies, and then to determine how much
• 18:56
  Speaker 1: of that gap has been filled. I looked at three numbers.
• 19:01
  Speaker 1: The first was sort of automatic stabilizers in those countries,
• 19:06
  Speaker 1: and that's just to get a sense of, by virtue
• 19:08
  Speaker 1: of the fact that output has fallen, UM, what are
• 19:11
  Speaker 1: the safety nets embedded in the system that will make
• 19:14
  Speaker 1: up for that gap. Now, unfortunately, Africa, unlike most of
• 19:19
  Speaker 1: unlike a lot of advanced economies, and we have very
• 19:22
  Speaker 1: little safety nets and taxes as a share of revenue
• 19:25
  Speaker 1: account for a very small share of GDP, so that
• 19:28
  Speaker 1: number was quite small. Then the next number that I
• 19:30
  Speaker 1: looked at was discretionary fiscal measures, and that is over
• 19:34
  Speaker 1: and above UM, what will automatically take place, What have
• 19:38
  Speaker 1: government's done or announced um in order to supplement that
• 19:41
  Speaker 1: or to try and cushion the fallen output. And then
• 19:44
  Speaker 1: the last number was then to look at, Okay, on
• 19:48
  Speaker 1: top of these two fiscal measures that have been announced,
• 19:52
  Speaker 1: what is the I M have done to try and
• 19:54
  Speaker 1: help cushion or bolster that response, um, I guess a
• 19:59
  Speaker 1: broad conclu usion is just the funding gap or the
• 20:02
  Speaker 1: income loss is massive. The stimulus in Africa has been
• 20:07
  Speaker 1: less than a tenth of what developing countries have been
• 20:10
  Speaker 1: able to do. And the obvious conclusion is then that, well,
• 20:14
  Speaker 1: the recovery is going to be quite delayed, but also
• 20:16
  Speaker 1: the falling output this year will be quite massive. We
• 20:20
  Speaker 1: like you to see probably the largest contraction um on
• 20:24
  Speaker 1: record this year as a result of cod And of
• 20:27
  Speaker 1: course I guess that I mentioned at the start the
• 20:30
  Speaker 1: differences that you're also seeing the largest ever decline and
• 20:33
  Speaker 1: output at least ever short period for the advanced economies.
• 20:37
  Speaker 1: But they, as you say, what the difference is that
• 20:40
  Speaker 1: you've not had the capacity for government to really jump
• 20:43
  Speaker 1: in the way they have in most of these economies.
• 20:45
  Speaker 1: If we just want to put it in perspective, how
• 20:48
  Speaker 1: does the potential economic impact of COVID compared to say,
• 20:52
  Speaker 1: the global financial crisis of two thousand and eight nine
• 20:56
  Speaker 1: for Africa. Sure, definitely the impact is a lot more
• 21:00
  Speaker 1: devastating one just because of how quick it's been. The
• 21:05
  Speaker 1: impact has been quite immediate, whereas so the impact of
• 21:10
  Speaker 1: a financial crisis on Africa is a bit more of
• 21:13
  Speaker 1: a slow burner, but also in terms of how the
• 21:16
  Speaker 1: countries were positioned to respond or even absorb the shock,
• 21:20
  Speaker 1: there are a lot weaker or more vulnerable this time around.
• 21:24
  Speaker 1: Going into the financial crisis, we'd literally just come off
• 21:28
  Speaker 1: the high of the commodity um price boom. A lot
• 21:32
  Speaker 1: of countries had a lot more fiscal space and dead
• 21:34
  Speaker 1: levels were a lot lower, so there was a lot
• 21:36
  Speaker 1: more fiscal space to respond to the crisis this time around,
• 21:41
  Speaker 1: not as much. You had growth pre the global financial
• 21:46
  Speaker 1: crisis in the region averaging about six percent overall, and
• 21:51
  Speaker 1: then after the crisis about three percent growth and debt
• 21:54
  Speaker 1: levels then around and that's almost doubled now to about
• 21:57
  Speaker 1: six The profile of it as well is also a
• 22:01
  Speaker 1: lot more risky, which means um that there's a lot
• 22:05
  Speaker 1: less scope to increase borrowing to make up for that
• 22:08
  Speaker 1: short form. We've talked on the podcast before about this
• 22:12
  Speaker 1: sort of big change in the attitude to government in
• 22:15
  Speaker 1: a time of crisis. You know, we've had years of
• 22:18
  Speaker 1: saying that the private sector should be left to do things,
• 22:21
  Speaker 1: but when you have an emergency, the government has stepped
• 22:24
  Speaker 1: right back in and people have been reminded of that
• 22:26
  Speaker 1: core government sort of safety net function. But in Africa,
• 22:31
  Speaker 1: as you say, has also been We've been told that
• 22:34
  Speaker 1: private investment was the solution to Africa and there was
• 22:37
  Speaker 1: lots of exciting talk about frontier markets and growth coming
• 22:41
  Speaker 1: out of that for some of the more successful economies.
• 22:46
  Speaker 1: Rwanda has been touted in some cases a lot of places,
• 22:49
  Speaker 1: but they haven't got that safety net that that core
• 22:53
  Speaker 1: government is just not there in the same way, and
• 22:56
  Speaker 1: it it doesn't seem like there's an international replacement for that.
• 22:59
  Speaker 1: What's also yeah, I don't think there's going to be
• 23:02
  Speaker 1: a little there's gonna be any more support. And then
• 23:05
  Speaker 1: even the support that has been given, um, if we
• 23:07
  Speaker 1: just think about it, it's been mostly or let me
• 23:14
  Speaker 1: split it one. Africa was completely unprepared from a health
• 23:17
  Speaker 1: perspective coming into the crisis. So whatever money there was
• 23:21
  Speaker 1: or whatever space there was, a lot of those resources
• 23:23
  Speaker 1: have been diverted to preparing the health sector as opposed
• 23:27
  Speaker 1: to bolstering the economy as what you've seen in advanced economies.
• 23:30
  Speaker 1: That's the one thing. The second thing, um, in terms
• 23:34
  Speaker 1: of the additional international support that you might see. UM,
• 23:39
  Speaker 1: the debate so far has centered around dead relief UM
• 23:43
  Speaker 1: or you know, UM stalling dead payments for this year.
• 23:46
  Speaker 1: That has helped a lot, but that still falls short
• 23:49
  Speaker 1: given the fact that a lot of countries actually didn't
• 23:51
  Speaker 1: have dead payments do this year. UM So that's still
• 23:54
  Speaker 1: not wanting. And then in terms of the loans and
• 23:57
  Speaker 1: the external support that I've spoken about that hasn't really
• 24:00
  Speaker 1: come through and what that has done, I think, UM
• 24:03
  Speaker 1: in terms of affecting Africa's response to the crisis is
• 24:08
  Speaker 1: that you've been forced to choose between containing the virus
• 24:13
  Speaker 1: and allowing livelihoods UM and people to just go out
• 24:16
  Speaker 1: and continue by themselves. UM. So in Africa, I think
• 24:19
  Speaker 1: one thing that's been different is well, one we were
• 24:22
  Speaker 1: quite quick to respond to lockdown or to we were
• 24:26
  Speaker 1: quite quick to respond to the virus. But we've also
• 24:28
  Speaker 1: been very quick to lift the lockdowns that we had,
• 24:32
  Speaker 1: and I think that's been necessitated by the fact that
• 24:35
  Speaker 1: governments actually don't have much to offer. And so then
• 24:39
  Speaker 1: you then I guess I have to allow people to
• 24:41
  Speaker 1: go out and continue to fend for themselves. Um. A
• 24:44
  Speaker 1: lot of the population UM is engaged in informal activity,
• 24:49
  Speaker 1: and in that sense, even if you did have some
• 24:52
  Speaker 1: kind of safety in it, it's difficult to deploy it.
• 24:55
  Speaker 1: So I think we've been lived in a position where
• 24:58
  Speaker 1: governments have just how don't know, you just let people
• 25:01
  Speaker 1: go out and try and mitigate however they can. It's
• 25:07
  Speaker 1: such a stark trade off that these governments are facing
• 25:11
  Speaker 1: and you're living with it, uh to some extent around
• 25:15
  Speaker 1: you in in Johannesburg. You just moved back there, um,
• 25:19
  Speaker 1: having joined Bloomberg at the beginning of the year. I mean,
• 25:22
  Speaker 1: how how have you found it the last few months
• 25:24
  Speaker 1: during the COVID crisis. To some extent, I've been shielded
• 25:28
  Speaker 1: from it. But one that highlights, I guess the gross
• 25:31
  Speaker 1: inequality of how differently the virus has been impacting people. UM.
• 25:36
  Speaker 1: But one thing I think that's been very clear to
• 25:38
  Speaker 1: me is just the fact that government, how limited government
• 25:41
  Speaker 1: is in the ability to respond. UM. Government has been
• 25:45
  Speaker 1: quite slow to you know, roll out or respond and
• 25:49
  Speaker 1: with the stimulus package that they've that they've given, and
• 25:52
  Speaker 1: I think it shows to you the additional headwinds I
• 25:55
  Speaker 1: think that African countries have to contend with during UM,
• 26:00
  Speaker 1: during I guess this pandemic, And how do you how
• 26:03
  Speaker 1: do you feel about going out of your house, your friends.
• 26:08
  Speaker 1: I don't leave my house at all, just one because um,
• 26:14
  Speaker 1: the virus is still ramping up. I would not like
• 26:17
  Speaker 1: to find myself in hospital anyway, UM during this time
• 26:22
  Speaker 1: UM And I think that's generally been the approach of
• 26:24
  Speaker 1: a lot of my friends. But again, that speaks somehow
• 26:28
  Speaker 1: to a level of privilege. There are some people who
• 26:30
  Speaker 1: don't have, um, the privilege of making the choice. They
• 26:34
  Speaker 1: do have to go out again, because you either go
• 26:37
  Speaker 1: out to make a living or you stay home and
• 26:39
  Speaker 1: you have absolutely nothing. And so that's been tough, but overall,
• 26:45
  Speaker 1: from the comfort of my home, comfortable and scary. But
• 26:49
  Speaker 1: I think concerning UM, given who bears or who's most
• 26:54
  Speaker 1: impacted UM, and that government is unable to mitigate the
• 26:57
  Speaker 1: impact of that, I think that's perhaps in the starkest
• 27:01
  Speaker 1: thing for me to contend with, and your numbers make
• 27:04
  Speaker 1: it very stark as well. A tenth of the response
• 27:07
  Speaker 1: that governments have been able to do relative to the
• 27:10
  Speaker 1: shop compared with advanced economies, UM be hassi lawa, we
• 27:14
  Speaker 1: will come back to you. I fear this is one
• 27:17
  Speaker 1: part of the COVID story that's going to be with
• 27:19
  Speaker 1: us for a long time. But thank you very much.
• 27:22
  Speaker 1: It's it's a pleasure. Thank you very much for having me,
• 27:31
  Speaker 1: Thanks for listening to Stephanomics. We'll be back next week
• 27:33
  Speaker 1: with more on how COVID nineteen is transforming the global economy.
• 27:38
  Speaker 1: Remember you can always find us on the Bloomberg Terminal, website, app,
• 27:41
  Speaker 1: or wherever you get your podcasts, and you can also
• 27:44
  Speaker 1: get more news and analysis from Bloomberg Economics by following
• 27:47
  Speaker 1: at Economics on Twitter. This episode was produced by Magnus Hendrickson,
• 27:52
  Speaker 1: with special thanks to Matthew Bosler, Jason Furman, l Nett,
• 27:56
  Speaker 1: Startup Nation Central, be Hassi Lawe, and Mike McKee. Lucy
• 28:01
  Speaker 1: Meekin is the acting executive producer of Stephanomics and the
• 28:04
  Speaker 1: head of Bloomberg podcast is francesco leag