WEBVTT - Black Joblessness Shows Fed Must Look at Inequality 0:00:00.240 --> 0:00:03.040 January, just waiting for the numbers to come out here 0:00:03.160 --> 0:00:06.120 and so far what we've seen is a few numbers. 0:00:06.240 --> 0:00:13.920 Underneath here we go unemployment, um employment. Father Rose, I'm sorry, 0:00:13.960 --> 0:00:17.840 I'm a little stunned here by this number. Employment rose 0:00:18.440 --> 0:00:20.759 by two and a half million in May. According to 0:00:20.800 --> 0:00:24.279 the Bureau of Labor Statistics, the unemployment rate fell to 0:00:24.480 --> 0:00:27.800 thirteen point three percent. I don't know what to tell you. 0:00:28.320 --> 0:00:35.680 We're gonna have to look at these lumbers. Hello, and 0:00:35.760 --> 0:00:38.960 welcome to Stephanomics, the podcast that brings the COVID global 0:00:39.000 --> 0:00:41.400 economy to you. And what you've just heard was a 0:00:41.440 --> 0:00:44.600 big surprise that happened last week when the US job 0:00:44.680 --> 0:00:48.440 numbers came out. Everyone expected US unemployment to go up again, 0:00:48.880 --> 0:00:52.960 but instead, as you heard, it fell. Unemployment rose by 0:00:53.000 --> 0:00:55.080 two and a half million, when the forecast has been 0:00:55.160 --> 0:00:57.760 for it to fall by seven and a half million. 0:00:58.480 --> 0:01:02.960 That's a big forecast era even for economists. But stunned, 0:01:02.960 --> 0:01:05.840 though he was the very experienced reporter you heard there, 0:01:05.880 --> 0:01:08.680 Mike McKee was quick to spot something else in those 0:01:08.720 --> 0:01:12.800 figures that sadly was not so surprising. Though the unemployment 0:01:12.880 --> 0:01:16.199 rate for white Americans had fallen, the rate for Black 0:01:16.240 --> 0:01:19.640 Americans had continued to rise to a decade high of 0:01:19.720 --> 0:01:23.720 nearly seventeen percent. We've spoken in the past on Stephanomics 0:01:23.760 --> 0:01:26.480 about the way that minorities have been hit first and 0:01:26.600 --> 0:01:30.600 hardest by the COVID recession, losing their jobs more quickly 0:01:31.040 --> 0:01:33.280 as well as dying at much higher rates from the 0:01:33.319 --> 0:01:37.360 virus itself, and African Americans have a lot fewer savings 0:01:37.360 --> 0:01:39.520 to fall back on when they lose their job or 0:01:39.560 --> 0:01:43.880 get sick. In Minneapolis, where George Floyd was killed, the 0:01:43.959 --> 0:01:47.200 latest figures show the average African American household had a 0:01:47.280 --> 0:01:51.440 net worth of just over seventeen thousand dollars. That's one 0:01:51.440 --> 0:01:56.600 tenth the net worth of the median white household, one tenth. 0:01:57.040 --> 0:01:58.920 In a little while, I'm going to play you part 0:01:58.920 --> 0:02:01.400 of a conversation about the future for US jobs and 0:02:01.440 --> 0:02:04.840 the economy with the former chairman of President Obama's Council 0:02:04.880 --> 0:02:08.880 of Economic Advisors, now a Harvard professor, Jason Furman. I'm 0:02:08.880 --> 0:02:11.480 also going to talk to our sub Saharan Africa economist 0:02:11.520 --> 0:02:15.840 b Hassi Lawe in Johannesburg about the financing gap facing 0:02:15.919 --> 0:02:20.440 African economies as a result of COVID nineteen but first, 0:02:20.960 --> 0:02:24.480 the protests in US streets and those jobs figures have 0:02:24.680 --> 0:02:28.760 put inequality high on the agenda, and given that the 0:02:28.760 --> 0:02:32.120 Federal Reserve is meeting this week, it seemed especially timely 0:02:32.160 --> 0:02:36.680 to consider the challenge that these stark economic disparities pose 0:02:37.040 --> 0:02:40.320 to the US Central Bank as it sets policy in 0:02:40.440 --> 0:02:44.240 theory for the whole economy. Matthew Bosler is a U 0:02:44.320 --> 0:02:47.640 S economy reporter based in New York. Matt, You've taken 0:02:47.680 --> 0:02:49.399 a look at this, and it is not a new 0:02:49.440 --> 0:02:52.120 issue for the Federal Reserve, is it. No, it's not. 0:02:52.280 --> 0:02:54.880 It's something that they've been really looking at more and 0:02:54.919 --> 0:02:57.200 more over the last few years, and in the last 0:02:57.240 --> 0:03:00.240 year or so, they've actually launched a formal reviewer their 0:03:00.400 --> 0:03:06.040 entire policy making framework. That's really overturning assumptions and practices 0:03:06.160 --> 0:03:09.440 that go back many decades at the Central Bank in 0:03:09.520 --> 0:03:12.440 terms of the way that they set interest rates um 0:03:12.600 --> 0:03:17.399 and so part of that involves looking at the way 0:03:17.480 --> 0:03:21.400 that their policy actually affects different groups. And for a 0:03:21.400 --> 0:03:24.639 long time they sort of set policy based on this 0:03:24.720 --> 0:03:28.760 notion of how it affects the overall economy the economic aggregates, 0:03:29.080 --> 0:03:32.799 without paying much attention to those disparities that exists within 0:03:32.840 --> 0:03:35.640 the economy, and something that they're really trying to do 0:03:35.760 --> 0:03:40.400 lately is take a finer look at how uh these 0:03:40.400 --> 0:03:43.080 different groups are being affected and their different experiences in 0:03:43.120 --> 0:03:46.800 the labor market and trying to incorporate that into their 0:03:46.840 --> 0:03:51.720 decision making process a little bit more explicitly. So let's 0:03:51.720 --> 0:03:55.360 some just tease out what that means in practice for policy. 0:03:55.400 --> 0:03:58.080 I mean, when they started raising interest rates after the 0:03:58.080 --> 0:04:03.040 global financial crisis in twin fifteen, that was when supposedly 0:04:03.240 --> 0:04:07.120 they'd reached full employment. But what was the black unemployment 0:04:07.200 --> 0:04:10.720 rate at that point. The black unemployment rate was eight 0:04:10.760 --> 0:04:13.920 point five percent and the white unemployment rate was four 0:04:13.960 --> 0:04:16.359 point four percent. And this kind of speaks to the 0:04:16.400 --> 0:04:19.960 whole issue of looking only at the economic aggregates when 0:04:20.000 --> 0:04:23.560 they set policy. So for many years, they've used the 0:04:23.640 --> 0:04:28.560 overall unemployment rate as a guide to inflationary pressures, and 0:04:28.680 --> 0:04:32.080 the theory goes that when the overall unemployment rate declines, 0:04:32.760 --> 0:04:35.919 then you start to see more inflationary pressures building in 0:04:35.920 --> 0:04:38.800 the economy. But the problem with that is if you're 0:04:38.880 --> 0:04:43.160 using the overall unemployment rate, that's obscuring these really wide 0:04:43.160 --> 0:04:48.680 disparities between groups like white Americans and Black Americans, for example, 0:04:49.279 --> 0:04:52.800 And so you get into this situation where you're raising 0:04:52.839 --> 0:04:56.400 interest rates and trying to slow down the economy even 0:04:56.560 --> 0:05:01.760 when unemployment for a group I Black Americans is still 0:05:01.920 --> 0:05:05.760 very high at levels that we would consider recessionary levels 0:05:05.800 --> 0:05:09.560 if we were talking about the overall unemployment rate. So 0:05:09.600 --> 0:05:13.480 this picture of two America's is really is really start there. 0:05:13.680 --> 0:05:15.320 And I was struck you had in the piece you 0:05:15.360 --> 0:05:18.520 wrote for Bloomberg about it, you had gone back to 0:05:18.680 --> 0:05:24.240 previous times where the fed's policy had been had had 0:05:24.240 --> 0:05:28.479 actually spurred some of the same kind of demonstrations that 0:05:28.520 --> 0:05:30.960 we've seen recently, or it helped to contribute to that. 0:05:31.000 --> 0:05:33.040 I think even in the even in the fifties, there 0:05:33.080 --> 0:05:34.920 was a sense that some of those interest rate right 0:05:35.080 --> 0:05:39.200 hikes then had helped trigger some of the March on 0:05:39.320 --> 0:05:43.400 Washington and pressure for the civil rights legislation in the sixties. 0:05:43.440 --> 0:05:46.039 That was news to me, That's right, And I think 0:05:46.080 --> 0:05:49.719 that is sort of lost in memory at this point 0:05:49.760 --> 0:05:52.280 for a lot of us observers of the modern FED, 0:05:52.360 --> 0:05:54.680 because we don't really think of the FED over the 0:05:54.760 --> 0:05:59.040 last few expansions as having raised rates really aggressively and 0:05:59.080 --> 0:06:02.440 sort of purpose put the economy into a downturn. But 0:06:02.520 --> 0:06:06.600 back in the fifties UH, sixties, seventies, and eighties, that 0:06:06.720 --> 0:06:09.279 was definitely more the case. You know, FED officials were 0:06:09.279 --> 0:06:12.840 more explicit about trying to you know, break the backs 0:06:12.880 --> 0:06:16.600 of unions and make it so that they would not 0:06:16.720 --> 0:06:20.880 be able to demand higher wages of the type that 0:06:20.960 --> 0:06:25.120 might cause a wage price spiral. And so back then 0:06:25.200 --> 0:06:27.880 this was a much more explicit part of the conversation. 0:06:28.400 --> 0:06:31.760 And as today, when the FED moved to Titan it 0:06:31.760 --> 0:06:38.000 would of course disproportionately affect black workers who were struggling 0:06:38.040 --> 0:06:41.400 to close the kinds of gaps that have existed in 0:06:41.440 --> 0:06:44.239 the labor market really going all the way back throughout 0:06:44.240 --> 0:06:48.640 the nation's history. And the other piece of this is 0:06:49.160 --> 0:06:52.760 the wealth side. I mean I mentioned that the typical 0:06:52.800 --> 0:06:58.479 African American household in Minneapolis UH had a tenth of 0:06:58.520 --> 0:07:00.839 the net worth the savings that it could fall back 0:07:00.880 --> 0:07:03.880 on was a new ten per cent of the average 0:07:04.360 --> 0:07:08.080 net worth of white households. And of course it's it's 0:07:08.120 --> 0:07:12.520 people with assets who have tended to benefit from quantitive easing, 0:07:12.560 --> 0:07:14.800 from the fact that asset prices are going up even 0:07:14.800 --> 0:07:16.840 now in the last few months, you've seen the stock 0:07:16.920 --> 0:07:22.720 markets come roaring back even as main street and the 0:07:22.760 --> 0:07:27.560 Black Americans are facing still a deep, deep recession. I mean, 0:07:27.680 --> 0:07:29.920 is that part of their thinking as well, that the 0:07:30.160 --> 0:07:33.640 wealth inequality is also especially in the age of quantitative easing, 0:07:34.760 --> 0:07:38.200 where the central bank is seen to be propping up 0:07:38.240 --> 0:07:41.560 asset prices. You know, that's another difficult area for them. 0:07:41.960 --> 0:07:43.880 I think that's a huge part of the story. And 0:07:43.960 --> 0:07:46.960 when you start talking about things like the racial wealth gap, 0:07:47.040 --> 0:07:49.720 the data on that front really look even a lot 0:07:49.800 --> 0:07:52.720 worse than the disparities that exist in the labor market. 0:07:52.760 --> 0:07:56.160 And I think that's one reason why this conversation has 0:07:56.320 --> 0:08:00.960 really grown louder in more recent years, because as what 0:08:01.000 --> 0:08:03.200 we saw in the Great Recession is that that was 0:08:03.280 --> 0:08:06.840 just extremely devastating for the Black community in terms of 0:08:06.920 --> 0:08:11.560 household wealth um and overall wealth, and that really hit 0:08:11.600 --> 0:08:16.240 them a lot harder than it did White Americans. And so, uh, 0:08:16.280 --> 0:08:19.280 those are the types of data points that economists are 0:08:19.320 --> 0:08:22.160 looking at more and more now, and the numbers are 0:08:22.240 --> 0:08:25.240 just so hard to ignore at this point that it's 0:08:25.280 --> 0:08:29.160 really become a lot more central part of the conversation. 0:08:29.800 --> 0:08:33.040 I guess what what many activists in this area was 0:08:33.160 --> 0:08:35.480 say is, well, it's all very well talking about it 0:08:35.520 --> 0:08:38.520 more um, but in practice, how is it going to 0:08:38.640 --> 0:08:41.959 change FED policy do you think going forward? Yes, So 0:08:42.000 --> 0:08:46.760 this is really about the Fed's attitude toward inflation and 0:08:46.840 --> 0:08:51.920 being reactive toward inflation versus being proactive toward inflation. And 0:08:52.360 --> 0:08:55.240 what we've really seen over the last thirty years or 0:08:55.240 --> 0:08:59.120 so since Paul Boker's tenure is that the FED tries 0:08:59.200 --> 0:09:03.640 to be pro active against scarding against inflation because they 0:09:03.679 --> 0:09:06.520 saw what could happen when you let inflation get out 0:09:06.520 --> 0:09:09.080 of control like it did in the nineties seventies, and 0:09:09.120 --> 0:09:12.320 so they've kind of had that mindset for many decades 0:09:12.400 --> 0:09:14.880 where they need to start raising rates ahead of time 0:09:15.320 --> 0:09:17.600 to get out of ahead of that and and squash 0:09:17.640 --> 0:09:20.040 it before it happens. But what we saw in the 0:09:20.120 --> 0:09:23.920 last ten years or so is that that playbook UH 0:09:24.080 --> 0:09:29.840 did not really serve lower income communities so well because 0:09:29.880 --> 0:09:34.400 it ended up foreclosing on you know, further job gains 0:09:34.440 --> 0:09:38.640 before it needed to UH and the inflation never materialized. 0:09:38.679 --> 0:09:40.800 And so that's a big part of the framework review 0:09:40.800 --> 0:09:43.840 that the FETE is undertaking now trying to figure out 0:09:44.160 --> 0:09:47.400 how can we do this in a way that does 0:09:47.440 --> 0:09:51.959 not prevent more people from getting jobs, more people from 0:09:52.000 --> 0:09:54.960 building wealth in the type of economy that we would 0:09:55.040 --> 0:09:58.720 normally think of as a hot economy, uh, one that 0:09:58.840 --> 0:10:03.959 is not necessarily spurring the types of inflationary pressures that 0:10:04.040 --> 0:10:07.120 demand an immediate response. And so I think for the FED, 0:10:07.679 --> 0:10:10.720 it really comes down to this idea of being more 0:10:10.800 --> 0:10:14.920 reactive and taking their time to really wait and see 0:10:14.960 --> 0:10:21.160 those inflationary pressures materialize before moving to slow things down. 0:10:22.480 --> 0:10:25.280 It seems so a million years ago that we were 0:10:25.280 --> 0:10:28.160 talking about running the economy hot. But you know, it 0:10:28.240 --> 0:10:30.840 was not so long ago at all that the even 0:10:30.880 --> 0:10:34.960 the white unemployment rate was three point four percent in 0:10:35.080 --> 0:10:40.680 the US compared to over um now, but do you 0:10:40.720 --> 0:10:44.080 think or nearly thirteen, But do you think just going 0:10:44.120 --> 0:10:46.480 back to the immediate prospects for jobs, I mean, have 0:10:46.640 --> 0:10:50.679 you changed your view of the way the labor market's 0:10:50.679 --> 0:10:52.440 going to work over the next few months as a 0:10:52.440 --> 0:10:56.600 result of that those surprising job numbers, because even even 0:10:56.640 --> 0:11:00.120 with the disconnect with the story for black Americans, it 0:11:00.160 --> 0:11:03.280 was pretty surprising to see the overall number of jobs 0:11:03.320 --> 0:11:04.719 go up. Does that do you think in the end, 0:11:04.720 --> 0:11:08.439 it look like the US the flexible US will come 0:11:08.440 --> 0:11:11.640 out of this better than others. So the tough thing 0:11:11.720 --> 0:11:14.640 about the jobs numbers that we just got when we're 0:11:14.640 --> 0:11:17.600 talking about these racial disparities, is that, yes, the job 0:11:17.720 --> 0:11:21.120 numbers were better than expected, and the unemployment rate for 0:11:21.200 --> 0:11:25.120 white Americans actually went down, but for Black Americans that 0:11:25.320 --> 0:11:27.880 went up further, and so it kind of speaks these 0:11:27.920 --> 0:11:32.120 disparities that exist. Typically, what you see in economic downturns 0:11:32.800 --> 0:11:36.960 is the gap between white and black unemployment rates tends 0:11:37.000 --> 0:11:40.720 to narrow in terms of the multiple uh that the 0:11:40.760 --> 0:11:44.800 black community faces. But then what happens is as we 0:11:45.440 --> 0:11:49.000 go into the recovery phase. In the early phase of recoveries, 0:11:49.040 --> 0:11:52.600 that gap starts to widen again, as white Americans are 0:11:52.640 --> 0:11:57.960 typically hired back into the workforce more quickly. And so 0:11:58.040 --> 0:12:00.480 that is going to be the real challenge for the 0:12:00.520 --> 0:12:04.960 FED and other policy makers going forward is trying to 0:12:05.080 --> 0:12:10.080 find a way to make the recovery more inclusive for 0:12:10.160 --> 0:12:13.920 all Americans in a way that typically has not been 0:12:13.920 --> 0:12:17.920 the case in the past, and prevent that dynamic from 0:12:17.960 --> 0:12:22.000 playing out again where it takes many years before black 0:12:22.040 --> 0:12:27.800 Americans can share in that recovery that white Americans experience 0:12:29.040 --> 0:12:31.400 well we will carry on watching. But in the meantime, 0:12:31.440 --> 0:12:42.760 Matthew Bosler, thank you very much. Thank you. Now that 0:12:42.840 --> 0:12:45.320 question of what happens next for US jobs came up 0:12:45.360 --> 0:12:48.080 recently in a discussion I had with some very distinguished 0:12:48.080 --> 0:12:51.280 economists as part of an event organized by the European 0:12:51.360 --> 0:12:55.400 Leadership Network to Think Thanks, focused on improving relations between 0:12:55.440 --> 0:12:59.200 Europe and Israel. I can't play the whole thing. The 0:12:59.240 --> 0:13:01.720 sound wasn't good apart from anything else, but I thought 0:13:01.760 --> 0:13:05.120 you'd be interested in this exchange with Jason Furman. So, 0:13:05.280 --> 0:13:07.240 the US has seen a lot more job losses than 0:13:07.280 --> 0:13:09.280 Europe in the last few months. We talked about that 0:13:09.360 --> 0:13:12.959 in the past. He thought America might still come out ahead, 0:13:13.880 --> 0:13:21.959 assuming Congress doesn't mess things up. Two ways you can grow. 0:13:22.320 --> 0:13:24.720 One is people can go back to their old jobs. 0:13:25.320 --> 0:13:30.079 Businesses that were shuttered can reopen. That type of growth 0:13:30.480 --> 0:13:33.600 can happen very very quickly, and that's why you'll see 0:13:33.640 --> 0:13:36.000 fast growth in the third quarter. That's why you'll see 0:13:36.080 --> 0:13:39.920 tremendous job growth, um and the like. I think, though 0:13:40.000 --> 0:13:43.000 I'm underlying all of this, there will be parts of 0:13:43.000 --> 0:13:45.560 the economy that continue to be affected by the virus, 0:13:45.559 --> 0:13:49.520 whether it's travel or restaurants and the like. There also 0:13:49.559 --> 0:13:52.400 will be a lot of reallocation companies that decided they 0:13:52.400 --> 0:13:55.160 don't need to rehire everyone, or a company that was 0:13:55.200 --> 0:13:58.280 already having troubles before this, say department store, that goes 0:13:58.360 --> 0:14:02.439 bankrupt as a result to it. So you might get 0:14:02.480 --> 0:14:06.800 halfway back very quickly, but then you'll still be halfway 0:14:07.480 --> 0:14:09.959 um from where you started. In the United States, that 0:14:10.000 --> 0:14:12.520 would mean you're still you know, ten million jobs in 0:14:12.559 --> 0:14:16.440 the whole the equivalent of the financial crisis, and that 0:14:16.559 --> 0:14:19.680 next phase where you need to find jobs at new employers, 0:14:20.360 --> 0:14:22.360 maybe even worse, you need to find a job in 0:14:22.400 --> 0:14:26.160 a new industry, is a process that's never been very quick, 0:14:26.720 --> 0:14:29.640 and so I view that more as a slog. Don't 0:14:29.640 --> 0:14:32.920 expect us to get back to our per capita incomes 0:14:32.920 --> 0:14:38.080 that we had before the crisis until maybe three huge 0:14:38.080 --> 0:14:40.880 amount of uncertainty around that, but I think it could 0:14:40.880 --> 0:14:45.520 be many years before we even begin to get back 0:14:45.520 --> 0:14:48.240 to where we were before all of this. When you 0:14:48.360 --> 0:14:51.640 look to the next phase, what are the risks in 0:14:51.680 --> 0:14:54.880 the US? I guess, particularly around the election, the US 0:14:54.920 --> 0:14:59.040 fiscal response was huge. It's hard to compare across countries. 0:14:59.080 --> 0:15:02.920 It appears to be the the largest of any country. UM. 0:15:02.960 --> 0:15:05.200 One success of that, as you noted in the question 0:15:05.240 --> 0:15:10.280 you're asking Stephanie, is that in the month of April, 0:15:10.680 --> 0:15:15.600 households actually saw their disposable personal incomes rise even though 0:15:15.720 --> 0:15:18.240 there was massive job loss, and that's because of the 0:15:18.280 --> 0:15:23.040 transfers they got through unemployment insurance and UM through checks. 0:15:24.040 --> 0:15:28.320 I'm I think it's a real open question as to 0:15:28.480 --> 0:15:31.600 whether the US system, where an employer can furlow you 0:15:32.200 --> 0:15:34.720 and then you get a check from the government, or 0:15:34.760 --> 0:15:37.400 the European system where you continue to get a check 0:15:37.440 --> 0:15:40.560 from your employer and your employer gets a check from 0:15:40.560 --> 0:15:43.560 the government UM as to which of those will be 0:15:43.560 --> 0:15:45.280 better UM in the long term, I think to a 0:15:45.360 --> 0:15:49.320 first approximation, they might be more similar than everyone thinks. 0:15:50.120 --> 0:15:53.760 If Macy's reopens its stores, it's going to call back 0:15:53.880 --> 0:15:57.360 the employees that it furloughed. It won't not reopen a 0:15:57.400 --> 0:16:00.120 store because it can't find the people that work in 0:16:00.160 --> 0:16:03.800 that store and have to do a fresh new hiring process. 0:16:03.880 --> 0:16:06.240 So if you can reopen in the United States, I 0:16:06.240 --> 0:16:09.400 think you will bring UM your employees back. I think 0:16:09.400 --> 0:16:11.400 it gives you a little bit of an extra option 0:16:11.880 --> 0:16:17.480 on flexibility to handle the reallocations shock. The tricky thing 0:16:17.520 --> 0:16:19.920 over the next couple of months is that everything I've 0:16:19.960 --> 0:16:22.560 just talked that I think has been to some degree 0:16:22.600 --> 0:16:27.120 successful ends at the end of July, and you know, 0:16:27.240 --> 0:16:30.880 Congress came together quickly for the first round. UM. There's 0:16:31.040 --> 0:16:35.320 much more acrimony, much more polarization right now as people 0:16:35.320 --> 0:16:39.320 are talking about UM and debating re upping that round. 0:16:40.360 --> 0:16:44.320 States governments are cutting, which is counter productive to the 0:16:44.360 --> 0:16:48.080 overall for the recovery. Unemployment insurance I don't think should 0:16:48.080 --> 0:16:50.520 be extended exactly as it is, but I think if 0:16:50.560 --> 0:16:53.520 it comes to an end entirely UM, that would mean 0:16:54.040 --> 0:16:57.440 you know, some downward pressure on the economy going into 0:16:57.520 --> 0:17:00.480 the fall, and you know, for that reason alone, my 0:17:00.560 --> 0:17:04.720 guesses Republicans and Democrats will come together to agree on 0:17:04.800 --> 0:17:16.119 something another round. So now I wanted to talk about Africa. 0:17:17.000 --> 0:17:19.919 Something different we've seen in this crisis in the advanced 0:17:19.920 --> 0:17:23.920 economies is that though that output of the economy has 0:17:23.920 --> 0:17:27.600 shrunk further and faster than we've ever seen before, government 0:17:27.720 --> 0:17:31.600 spending has also come in and expanded by an unprecedented 0:17:31.640 --> 0:17:34.880 amount to support businesses and households, to the point where 0:17:34.880 --> 0:17:38.000 when you look at total incomes across the economy, they've 0:17:38.000 --> 0:17:41.240 barely fallen at all. In many cases, the government support 0:17:41.280 --> 0:17:44.640 has matched the decline in the economy, at least on paper, 0:17:45.200 --> 0:17:48.159 and that gives us some hope about the potential for 0:17:48.240 --> 0:17:50.960 a quick recovery out of this, at least for for 0:17:51.000 --> 0:17:53.720 many parts of the economy. But that's in the rich countries. 0:17:53.840 --> 0:17:56.960 The story in large parts of the developing world is 0:17:57.119 --> 0:18:01.080 very different, and we heard the economist Jeffreys talk about 0:18:01.160 --> 0:18:04.320 his worries on that score a few weeks ago. So 0:18:04.560 --> 0:18:09.320 our sub Saharan Africa economists b Haslawe has done the 0:18:09.400 --> 0:18:13.560 numbers for a number of African economies. Um. She's sitting 0:18:13.560 --> 0:18:17.720 in Johannesburg. B great to have you on. Stephanomics. Explained 0:18:17.800 --> 0:18:22.800 to us the calculation you've done and what the results were. 0:18:22.920 --> 0:18:28.480 Thank you, Stephanie. And I looked at six African economies, 0:18:28.600 --> 0:18:31.480 the sixth largest in terms of their presence in the 0:18:31.480 --> 0:18:36.040 commercial dead markets, private capital markets, and what I did 0:18:36.119 --> 0:18:39.000 there was I looked at the growth forecast that we 0:18:39.040 --> 0:18:42.000 had for them in October last year. I am a 0:18:42.080 --> 0:18:45.360 growth badcast, and then I compare them to the deterioration 0:18:45.400 --> 0:18:47.840 and that growth forecast that we have now in April 0:18:47.880 --> 0:18:50.800 twenty and then I used that difference to get a 0:18:50.840 --> 0:18:53.800 sense of what the last income or last output might 0:18:53.800 --> 0:18:56.920 be in those economies, and then to determine how much 0:18:56.920 --> 0:19:01.800 of that gap has been filled. I looked at three numbers. 0:19:01.800 --> 0:19:06.280 The first was sort of automatic stabilizers in those countries, 0:19:06.560 --> 0:19:08.960 and that's just to get a sense of, by virtue 0:19:08.960 --> 0:19:11.479 of the fact that output has fallen, UM, what are 0:19:11.480 --> 0:19:14.720 the safety nets embedded in the system that will make 0:19:14.800 --> 0:19:19.000 up for that gap. Now, unfortunately, Africa, unlike most of 0:19:19.200 --> 0:19:22.760 unlike a lot of advanced economies, and we have very 0:19:22.760 --> 0:19:25.199 little safety nets and taxes as a share of revenue 0:19:25.240 --> 0:19:28.040 account for a very small share of GDP, so that 0:19:28.160 --> 0:19:30.840 number was quite small. Then the next number that I 0:19:30.880 --> 0:19:34.760 looked at was discretionary fiscal measures, and that is over 0:19:34.760 --> 0:19:37.960 and above UM, what will automatically take place, What have 0:19:38.080 --> 0:19:41.119 government's done or announced um in order to supplement that 0:19:41.320 --> 0:19:44.640 or to try and cushion the fallen output. And then 0:19:44.680 --> 0:19:48.800 the last number was then to look at, Okay, on 0:19:48.880 --> 0:19:52.240 top of these two fiscal measures that have been announced, 0:19:52.600 --> 0:19:54.119 what is the I M have done to try and 0:19:54.160 --> 0:19:59.240 help cushion or bolster that response, um, I guess a 0:19:59.359 --> 0:20:02.320 broad conclu usion is just the funding gap or the 0:20:02.359 --> 0:20:06.080 income loss is massive. The stimulus in Africa has been 0:20:07.160 --> 0:20:10.359 less than a tenth of what developing countries have been 0:20:10.400 --> 0:20:14.560 able to do. And the obvious conclusion is then that, well, 0:20:14.600 --> 0:20:16.760 the recovery is going to be quite delayed, but also 0:20:16.800 --> 0:20:19.879 the falling output this year will be quite massive. We 0:20:20.040 --> 0:20:24.200 like you to see probably the largest contraction um on 0:20:24.359 --> 0:20:27.639 record this year as a result of cod And of 0:20:27.680 --> 0:20:30.119 course I guess that I mentioned at the start the 0:20:30.119 --> 0:20:33.359 differences that you're also seeing the largest ever decline and 0:20:33.400 --> 0:20:37.280 output at least ever short period for the advanced economies. 0:20:37.320 --> 0:20:40.600 But they, as you say, what the difference is that 0:20:40.720 --> 0:20:43.640 you've not had the capacity for government to really jump 0:20:43.720 --> 0:20:45.840 in the way they have in most of these economies. 0:20:45.960 --> 0:20:48.800 If we just want to put it in perspective, how 0:20:48.840 --> 0:20:52.520 does the potential economic impact of COVID compared to say, 0:20:52.560 --> 0:20:55.920 the global financial crisis of two thousand and eight nine 0:20:56.640 --> 0:21:00.840 for Africa. Sure, definitely the impact is a lot more 0:21:00.920 --> 0:21:05.199 devastating one just because of how quick it's been. The 0:21:05.240 --> 0:21:10.919 impact has been quite immediate, whereas so the impact of 0:21:10.880 --> 0:21:13.240 a financial crisis on Africa is a bit more of 0:21:13.280 --> 0:21:16.199 a slow burner, but also in terms of how the 0:21:16.280 --> 0:21:19.840 countries were positioned to respond or even absorb the shock, 0:21:20.359 --> 0:21:24.639 there are a lot weaker or more vulnerable this time around. 0:21:24.800 --> 0:21:28.160 Going into the financial crisis, we'd literally just come off 0:21:28.160 --> 0:21:32.000 the high of the commodity um price boom. A lot 0:21:32.040 --> 0:21:34.600 of countries had a lot more fiscal space and dead 0:21:34.680 --> 0:21:36.520 levels were a lot lower, so there was a lot 0:21:36.560 --> 0:21:40.919 more fiscal space to respond to the crisis this time around, 0:21:41.080 --> 0:21:46.680 not as much. You had growth pre the global financial 0:21:46.720 --> 0:21:51.199 crisis in the region averaging about six percent overall, and 0:21:51.200 --> 0:21:54.280 then after the crisis about three percent growth and debt 0:21:54.400 --> 0:21:57.720 levels then around and that's almost doubled now to about 0:21:57.760 --> 0:22:01.480 six The profile of it as well is also a 0:22:01.480 --> 0:22:05.240 lot more risky, which means um that there's a lot 0:22:05.440 --> 0:22:08.560 less scope to increase borrowing to make up for that 0:22:08.640 --> 0:22:11.919 short form. We've talked on the podcast before about this 0:22:12.000 --> 0:22:15.359 sort of big change in the attitude to government in 0:22:15.440 --> 0:22:17.720 a time of crisis. You know, we've had years of 0:22:18.280 --> 0:22:21.280 saying that the private sector should be left to do things, 0:22:21.320 --> 0:22:24.359 but when you have an emergency, the government has stepped 0:22:24.440 --> 0:22:26.480 right back in and people have been reminded of that 0:22:26.680 --> 0:22:30.760 core government sort of safety net function. But in Africa, 0:22:31.040 --> 0:22:34.240 as you say, has also been We've been told that 0:22:34.320 --> 0:22:37.560 private investment was the solution to Africa and there was 0:22:37.600 --> 0:22:41.639 lots of exciting talk about frontier markets and growth coming 0:22:41.640 --> 0:22:45.360 out of that for some of the more successful economies. 0:22:46.200 --> 0:22:49.520 Rwanda has been touted in some cases a lot of places, 0:22:49.560 --> 0:22:53.080 but they haven't got that safety net that that core 0:22:53.520 --> 0:22:55.959 government is just not there in the same way, and 0:22:56.000 --> 0:22:59.400 it it doesn't seem like there's an international replacement for that. 0:22:59.600 --> 0:23:01.960 What's also yeah, I don't think there's going to be 0:23:02.000 --> 0:23:05.360 a little there's gonna be any more support. And then 0:23:05.400 --> 0:23:07.720 even the support that has been given, um, if we 0:23:07.880 --> 0:23:13.919 just think about it, it's been mostly or let me 0:23:14.000 --> 0:23:17.880 split it one. Africa was completely unprepared from a health 0:23:17.880 --> 0:23:21.240 perspective coming into the crisis. So whatever money there was 0:23:21.359 --> 0:23:23.720 or whatever space there was, a lot of those resources 0:23:23.760 --> 0:23:27.399 have been diverted to preparing the health sector as opposed 0:23:27.440 --> 0:23:30.399 to bolstering the economy as what you've seen in advanced economies. 0:23:30.640 --> 0:23:34.320 That's the one thing. The second thing, um, in terms 0:23:34.320 --> 0:23:39.160 of the additional international support that you might see. UM, 0:23:39.200 --> 0:23:43.320 the debate so far has centered around dead relief UM 0:23:43.440 --> 0:23:46.400 or you know, UM stalling dead payments for this year. 0:23:46.720 --> 0:23:49.400 That has helped a lot, but that still falls short 0:23:49.560 --> 0:23:51.639 given the fact that a lot of countries actually didn't 0:23:51.640 --> 0:23:54.880 have dead payments do this year. UM So that's still 0:23:54.920 --> 0:23:57.240 not wanting. And then in terms of the loans and 0:23:57.359 --> 0:24:00.600 the external support that I've spoken about that hasn't really 0:24:00.640 --> 0:24:03.480 come through and what that has done, I think, UM 0:24:03.760 --> 0:24:08.879 in terms of affecting Africa's response to the crisis is 0:24:08.920 --> 0:24:13.320 that you've been forced to choose between containing the virus 0:24:13.400 --> 0:24:16.520 and allowing livelihoods UM and people to just go out 0:24:16.560 --> 0:24:19.880 and continue by themselves. UM. So in Africa, I think 0:24:19.920 --> 0:24:22.679