TheChek News Flow

Boosting stimulus checks to $2,000 would add a lot to the debt with little of that benefiting the unemployed

Faced with the U.S.’s worst humanitarian and economic catastrophe in recent memory, it is tempting to assume there is no such thing as too much fiscal stimulus.

There is, and we might be about to witness an example.

The usual justification for federal borrowing is to counteract a collapse in demand that is driving up unemployment, or to meet some urgent societal need such as waging war or alleviating destitution.

Neither justification readily applies to President Trump’s and Democrats’ plan to send almost every adult an additional $1,400 in stimulus checks on top of the $600 checks approved in last week’s stimulus deal, at a cost of $463 billion. True, with interest rates near zero, money is cheap—but it isn’t free. Adding that much to the national debt for stimulus of questionable efficacy now consumes political and financial breathing room that might be better saved for later.

The political appeal is obvious. Mr. Trump would get credit for showering more money on Americans. Democrats, who initially wanted $3 trillion of stimulus instead of last week’s $900 billion, hope to embarrass congressional Republicans into either voting for something they don’t want or crossing Mr. Trump.

The economic case is another matter. As I argued last week, the economy’s biggest problem isn’t demand, it is supply. Most Americans have money; they are just constrained in how they spend it because of pandemic-related business restrictions or fears.

Advocates say hardworking Americans deserve a bigger check. That misses the point of stimulus: by definition, most hardworking Americans have a paycheck. In fact, aggregate wages and salaries were just 0.4% lower in November than before the pandemic. Thanks to past stimulus, total income was actually 2% higher. It will be 13% higher once the new stimulus kicks in.

Yes, the economy is in bad shape. Total employment stands 9.8 million lower than in February. But leisure and hospitality accounts for a third of that deficit, and those jobs are unlikely to return until much of the population is vaccinated. How much the proposed $1,400 stimulus checks might accelerate the jobs recovery is debatable, given the healthy state of most consumers’ finances. The Congressional Budget Office estimates 60% of last spring’s $1,200 stimulus checks will eventually translate into higher economic output, and that might be an overestimate; one study found more than 80% of recipients either saved the money or used it to pay down debt.

So much for boosting aggregate demand. What about unmet needs—the millions of people visiting food banks or who are behind on their rent or mortgage? Academic economists Bruce Meyer and James Sullivan calculate 2.3 million more people were below the poverty line in November than February. About 2 million more mortgages are now seriously delinquent than before the pandemic, according to Black Knight, a mortgage data provider.

This hardship is overwhelmingly the result of people who lost work because of the pandemic: their employer shut down or downsized; they had to attend to school-aged children; they got sick or were trying to avoid getting sick. Because the pandemic fell hardest on low-paid workers, replacing their lost income isn’t that expensive. Returning the 10% poorest households to their February level of income would take $1.5 billion a month, by my calculations. For the lower 50% of the entire population by income, the price is $16 billion.

We can’t target those people perfectly, but we can get pretty close with unemployment insurance. Thanks mostly to a $600 bonus under the Cares Act, 75% of recipients earned more on UI than they did in their regular job, Shai Akabas of the Bipartisan Policy Center, a think tank, estimates. With the smaller, $300 bonus in the latest stimulus, roughly half will earn more, he figures. To get that back to 75% for 11 weeks could be done for about $20 billion, he said, if state processing systems could be upgraded to better calibrate benefits (admittedly a pretty big if).

That would still leave gaps, for example revenue-strapped state and local governments. Helping them isn’t that big a lift: Their planned spending cuts this fiscal year come to $52 billion, a fraction of what Democrats wanted for a stimulus.

Historically, fiscal policy only sought to damp the business cycle’s ups and downs, not eliminate them. Today, the temptation is to borrow whatever it takes to completely neutralize the pandemic’s ill effects. And this column has regularly argued that when interest rates are near zero, fiscal policy is more critical because monetary policy is out of ammunition, and the risks of debt are much reduced.

But the risks aren’t zero. First, there are political ones. Democrats might calculate the odds of Republicans agreeing to stimulus are better now than when Joe Biden becomes president. On the other hand, more borrowing now might stiffen Republican resistance to borrowing later, for potentially higher priorities. Mr. Biden, for instance, has expensive plans for infrastructure, renewable energy and health care. Many who lost jobs during the pandemic need to be retrained for a post-pandemic economy. Another disaster—such as a deadlier phase of this pandemic—cannot be ruled out.

As for the financial risks, we live in a world of probabilities, not certainties. While the probability of a nasty rise in inflation or interest rates is low, adding indiscriminately to the national debt leaves the country more exposed should they materialize—as low-probability outcomes sometimes do.

The controversy started a few days ago, after unidentified individuals posted allegations of misconduct by the designer.

The controversy kicked off Monday after Diet Prada picked up on a post by S–t Model Mgmt, which read, “Alexander Wang is an alleged sexual predator, many male models and trans models have come out and spoken about the alleged sexual abuse that Alexander Wang has inflicted upon them. It is important to show your support to these victims by unfollowing Alexander Wang and boycotting his clothing line.”

Other posts on the site allege sexual misconduct and one of the anonymous accusers claimed to have been given molly water laced with MDMA.

In a video post on the site’s Twitter account, an unidentified male said while at a performance of the rapper Cupcake in an overcrowded New York City club in 2017, a guy ”started touching me up.” He added that he looked to his left, he saw that it was “this really famous fashion designer and I could not believe that he was doing this to me.” However, he did not name the designer in the video.

As of Tuesday afternoon, the video had been viewed 55,600 times.

The Model Alliance posted a message of solidarity with Wang’s accusers on Tuesday on its social media channels. Before highlighting its Respect program, which would “provide a proper complaint mechanism for models,” the organization noted, “Let’s be clear: The fashion industry’s lack of transparency and accountability leaves all models vulnerable to abuse, regardless of their sex or gender identity.”

Tuesday afternoon S–t Model Mgmt thanked the Model Alliance, tweeting “for holding him accountable! ❤️ and to everyone who came forward — WE BELIEVE YOU.”

An e-mail to the unidentified account asking how many models have made allegations against Wang and if any legal action has been filed was not immediately responded to Tuesday.

In its posts, the Model Alliance also asked anyone in need of support to contact its support team. “We can provide legal referrals and assist you with filing formal complaints.”

Erin O’Connor, a model who is friendly with Wang and has collaborated with him in the past, could not be reached to discuss this matter, according to her U.S. agent Jonathan Sanders.

Attorney Harley Lewin, who has worked on intellectual property cases with Wang in the past, said of the current situation, “I have been on both sides of these situations. There are compelling reasons why one treats any allegation of misconduct with respect and with credence and credibility. People have to come forward and perhaps expose themselves to ridicule or other equally nasty things that happen to people on the Internet,” he said. “The other side to it is there is often a level of innocence or stupidity, frankly. Old-school people acting old-school, not being sensitive without the intent, but nonetheless stepping out of line.”

Over the years, the Portland, Maine-based attorney said he watched people submerge their claims for sexual misconduct because testifying on the stand would subject them to ridicule and “withering cross examination. Very often trying to make a woman, for example, into something that she isn’t — perhaps somebody with no morals. They put the woman on trial rather than the potential perpetrator. A lot of that is still on today, despite the various social trends.”

Lewin added how people can be exposed by public shaming by an allegation alone on the Internet. “I’ve been through it. I was wrongly accused. Others that I know have also been through it so I have enormous sympathy for both sides. I would simply urge that people be given adequate credibility to be heard on both sides. And that people refrain from making judgments based on allegations and complaints of public pronouncements in the press.”

Although Lewin does not represent Wang, he said he still considers him as “a friend and colleague, and his team as well. I’ve not known him to tread over the line, so to speak. I know him to be a very nice, thoughtful caring person.”

Here are our forecasts of the macro trends that will drive the next year

If you are feeling like us, you will be heartily glad to see the end of 2020. But what will 2021 bring? We are not going to place bets on when the pandemic might end or economic recovery start. But here, in the last edition of Moral Money for 2020, are our thoughts and forecasts for what the new year is likely to deliver for environmental, social and governance issues in these peculiar times. Please tell us if you agree — or not.

There are not many silver linings to the dark cloud of Covid-19. However, here is one: to the surprise of many (including us), the pandemic accelerated interest in environment, social and governance issues in 2020, and Moral Money predicts this will intensify in 2021. There are at least five reasons:

1. The ESG boom is now being driven as much by risk management as activism: Covid-19 has shown company executives and financiers around the world the perils of ignoring so-called “externalities”.
2. The “externalities” around climate change will be increasingly on the agenda in 2021 due to the COP26 meeting, more instances of extreme weather and polls that show society broadly cares about global warming. Covid-19 proved the perils of ignoring science; it also showed that behaviour can change in surprising ways when the public understands the nature of the emergency.
3. Big money increasingly has a stake in promoting the ESG agenda, for its own benefit, and will lobby for this in 2021. Larry Fink, chief executive of BlackRock, recently told Moral Money that he viewed climate finance as the second big structural shift of his investing career (the first was the rise of securitisation — which he spotted early on, and used to launched his career). And while longtime ESG enthusiasts scoff that Mr Fink is late to the game compared with earlier activists, the key point is this: since Mr Fink (and others) have spotted a momentum trade in ESG, they are determined to maintain this momentum.
4. Transparency is rising in a manner that will make company boards and investment committees nervous about falling foul of ESG norms in 2021, particularly in the face of millennials who have used transparency to demand change (be that employees, customers or anyone else). The shock of the #MeToo movement in 2019 and Black Lives Matter in 2020 has shaken executive attitudes. Even if you hate the idea of “stakeholderism”, ignoring ESG can be bad for shareholders.
5. Politics will back ESG momentum in 2021 too. In the UK, Prime Minister Boris Johnson has thrown his weight behind green reforms. The European Commission is pressing ahead with its green taxonomy and green stimulus plans. The incoming administration of Joe Biden has put climate policy at the centre of its staffing decisions, and is likely to push for rapid ESG investing reforms. China pledged to go carbon neutral and Japan has followed with its own promises. Indeed, these days it is tough to find any government — except Brazil — that is not trying to get a green halo in some form.

To be clear: we are not predicting that the growth of ESG will have a smooth trajectory in 2021. There are big problems dogging the sector such as a lack of accounting consistency, different transatlantic policy approaches, too much money chasing too few viable investment products and the difficulty of deciding how the “E” of ESG should be balanced against the “S”. This will probably produce some scandals and greenwashing complaints in 2021. But the direction of travel is clear: ESG is moving from the margins to the main stage.

So what should investors watch for in particular? Here are a few thoughts . . . 

Colorado officials on Tuesday reported the first known case in the United States of a person infected with the coronavirus variant that has been circulating rapidly across much of the United Kingdom and has led to a lockdown of much of southern England.

Scientists have said the variant is more transmissible but does not make people sicker.

The Colorado case involves a man in his 20s, who is in isolation in Elbert County, about 50 miles southeast of Denver, and has no travel history, according to a tweet from the office of Gov. Jared Polis (D).

“The individual has no close contacts identified so far, but public health officials are working to identify other potential cases and contacts through thorough contact tracing interviews,” the statement said.

A federal scientist familiar with the investigation said the man’s lack of known travel — in contrast with most confirmed cases outside the United Kingdom — indicates this is probably not an isolated case. “We can expect that it will be detected elsewhere,” said the official, who spoke on the condition of anonymity to discuss the broader context of the announcement.

The Centers for Disease Control and Prevention confirmed as much in a statement Tuesday afternoon, saying additional cases with the new variant will be detected in the United States in coming days. The variant’s apparent increase in contagiousness “could lead to more cases and place greater demand on already strained health care resources,” the agency said in a statement.

Researchers have detected the more transmissible variant in at least 17 countries outside the United Kingdom, including as far away as Australia and South Korea, as of Tuesday afternoon. Officials in Canada had previously said they had identified two cases.

Although the U.K. variant appears more contagious, it is not leading to higher rates of hospitalizations or deaths, according to a report from Public Health England, a government agency. Nor is there any sign that people who were infected months ago with the coronavirus are more likely to be reinfected if exposed to the variant, according to the report. All available evidence indicates that vaccines, and immunity built up in the population, should be protective against this variant.

The Colorado case occurred in a county of about 27,000, which is currently classified, along with much of the state, in the “red” level for the virus, denoting serious but not extreme risk.

Two weeks ago, several hundred people gathered at a community church in the county seat of Kiowa to consider whether to pursue legal actions against Polis and other state officials for imposing coronavirus-related restrictions, according to the Elbert County News. County commissioners and the county sheriff have declined to enforce restrictions emanating from Denver.

“I was expecting to see it in ski country first because those areas are where people from across Colorado, the U.S. and internationally gather,” said Elizabeth Carlton, an assistant professor of environmental and occupational health at the Colorado School of Public Health. The absence of any apparent travel history associated with the infected person, she said, suggests he “can’t be the only case in Colorado.”

Polis, in his statement, called on Coloradans to do everything they could to prevent transmission by wearing masks, standing six feet apart when gathering with others, and interacting only with members of their immediate households.

The arrival of the new variant “doesn’t fundamentally change the nature of the threat,” said Justin Lessler, an epidemiologist at Johns Hopkins Bloomberg School of Public Health. “It’s no more deadly than the virus was before, and it doesn’t look like it infects people who are immune.”

Lessler echoed others, saying he would be “astounded” if this were the only chain of transmission of the new variant in the United States. “We know that the virus spreads easily and quickly between countries,” he said, and the fact that the infected person had no travel history indicates “this strain has gotten here sometime in the past, and there are chains of transmission ongoing.”

The variant has a higher attack rate, according to the U.K. report, which bolsters the hypothesis that the variant has out-competed other versions of the coronavirus and is now the dominant variant across much of the United Kingdom. Among people known to have been exposed to someone already infected with the variant, 15.1 percent became infected. People exposed to someone infected with the non-variant version had a 9.8 percent infection rate.

That difference suggests the variant is more transmissible, though Public Health England said more investigation is needed to bolster the hypothesis.

The working theory among many scientists is that the increased transmissibility of the variant, known as B.1.1.7, is driven by mutations that have altered the spike protein on the surface of the virus. The variant has 17 mutations — eight of which alter the spike protein.

Precisely how those changes are leading to more infections is unknown. The virus may be binding more easily to receptor cells in the human body, or replicating more easily and driving higher viral loads, enhancing viral shedding by someone who is infected. Another possibility is that people are shedding the virus for a longer period, increasing the chances of passing it along.

“Preliminary evidence suggests that the new variant does not cause more severe disease or increased mortality,” Susan Hopkins, a senior medical adviser to Public Health England, said in a statement released Tuesday.

The newly published data echo the findings in a separate study published last week, based on modeling and hospitalization data — and not yet peer-reviewed — that estimated that the variant is 56 percent more transmissible but does not appear to alter the lethality of the virus.

“The good news is that B.1.1.7 does not seem to cause much more severe disease, and there’s no evidence that it is managing to evade the immune system, which means vaccines are expected to protect against it,” William Hanage, an epidemiologist at the Harvard T.H. Chan School of Public Health, said Tuesday after reviewing the new report. “The bad news is that B.1.1.7 does appear to be much more transmissible.”

Officials in the United States have been signaling since last week that the new variant was probably already present in this country.

“I’m not surprised,” Anthony S. Fauci, director of the National Institute of Allergy and Infectious Diseases, said Tuesday. “I think we have to keep an eye on it, and we have to take it seriously. We obviously take any kind of mutation that might have a functional significance seriously. But I don’t think we know enough about it to make any definitive statements, except to follow it carefully and study it carefully.”

Research findings on coronavirus variants have been ambiguous at times, and scientists say they are still trying to extract reliable signals from noisy data. There have been several false alarms sounded about virus mutations in the past. A major challenge is discerning whether a virus variant is spreading rapidly because it has a competitive advantage based on genetic and structural differences, or because it is simply lucky, having arrived early to a location or leveraged a few superspreader events to gain dominance.

But with the United Kingdom seeing a severe winter surge of infections, public officials are taking no chances and have effectively locked down southern England, including London. Other countries have banned travelers from the United Kingdom.

The United States, despite having the world’s highest number of documented infections, has a weak track record in publishing genomic sequences, the process that enables researchers to track changes in the virus. Most sequences have been published by academic or private research institutions. By comparison, the United Kingdom has a national health system with a robust surveillance component.

“The U.K. made the decision in the spring to do this. The U.S. has sequencing equipment and infrastructure. As with many things in this pandemic, it was not executed the way it should have been,” said Neville Sanjana, a geneticist at New York University.

All viruses mutate randomly, and over time some of those mutations appear to confer some kind of advantage to the virus as it adapts to the human species. The novel coronavirus, SARS-CoV-2, mutates at a slow rate, and scientists do not think the genetic changes seen in the variant so far are sufficient to allow it to elude the vaccines now being administered to millions of people in many countries. But the coronavirus is a moving target, and these mutations require surveillance.

Many scientists call the arrival of more transmissible mutations a wake-up call. “The lack of virus sequencing and case tracking in the USA is a scandal,” said Jeremy Luban, a virologist at the University of Massachusetts Medical School.

Francois Balloux, who directs the Genetics Institute at University College London, on Twitter predicted that within two weeks, enough data will accumulate to determine whether this new variant is indeed more transmissible. Previously, Balloux and his colleagues combed through genome sequences, looking for evidence that common variants had increased transmissibility.

“We don’t see much,” he said, referring to a report published in the journal Nature in November that found no signs of mutations that helped the virus to spread more easily. However, he said he “wouldn’t underestimate the evolutionary potential of SARS-CoV-2.”