Wednesday Night #1995

We are delighted to once again welcome Peter Berezin to Wednesday Night.
The highlighted topics of his weekly report of 29 May entitled “Will There Be A Fiscal Hangover?”

• Fiscal deficits have soared in the wake of the pandemic, putting government debt-to-GDP ratios on a trajectory to reach post-WWII highs in many countries.
• Contrary to popular belief, there is little reason to think that fiscal relief will make it more difficult for governments to repay their obligations down the road.
• Larger budget deficits tend to increase overall national savings when the economy is depressed because private savings rise more than enough to compensate for the decline in government savings. The end result is a higher level of national wealth that governments can tax in the future.
• That said, there is more than one way to tax national wealth. For political reasons, higher inflation coupled with financial repression may prove to be more feasible than other forms of taxation.
• While inflation is not an imminent risk, it could become a formidable problem in two-to-three years. Investors should maintain below-benchmark levels of duration in fixed-income portfolios and favor inflation-linked securities over nominal bonds.
• Gold prices will rise over the long haul. The yellow metal should perform well even in the near term if the dollar weakens during the remainder of this year, as we anticipate.
• Real estate investors should reallocate capital away from densely populated urban areas towards suburbs and farmland.

The previous report of May 19, states “The pandemic is likely to have a more severe impact on Main Street than Wall Street, which helps explain why stocks have rallied off their lows even as bond yields have remained depressed.” A propos, we invite Peter and our other economists to comment on Eric Levitz’s column  Is This What a Recovery Looks Like?
“Apparently, U.S. companies were better off with an uncontained epidemic paralyzing their Chinese operations than they had been months earlier, when the novel coronavirus was still just a twinkle in Satan’s eye. Morgan Stanley assured its clients that markets had nowhere to go but up.
Analysts had expected Friday’s jobs report to show the U.S. economy shedding 7.5 million jobs in May; instead, it showed employers expanding their payrolls by 2.5 million, as the first round of reopenings brought furloughed workers returned to their posts. Meanwhile, personal income in the U.S. rose by a record-high 10.5 percent last month, thanks to stimulus checks and enhanced unemployment benefits. As a result, millions of displaced workers actually gained purchasing power despite their ongoing joblessness. Which means that U.S. consumers are now flush with disposable cash that is sure to flood the economy the minute the pandemic has passed – or, perhaps, before.”
Meanwhile, the National Bureau of Economic Research has officially declared that the U.S. is in a recession, and on the same day, June 8, the World Bank declared that the swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction. According to World Bank forecasts, the global economy will shrink by 5.2% this year.[1] That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870, the World Bank says in its June 2020 Global Economic Prospects. (COVID-19 to Plunge Global Economy into Worst Recession since World War II)
Kemal Derviş advocates Less Globalization, More Multilateralism “One of the most powerful drivers of support for deglobalization is the vulnerability of production models that rely on long and complex global supply chains, which have sacrificed robustness and resilience at the altar of short-term efficiency and cost reduction. With many companies and industries dependent on faraway suppliers – and lacking any alternatives – no part of such value chains can function unless all parts do. And as the COVID-19 crisis has shown, one never knows when parts will stop functioning.”
The O.E.C.D.’s just-released Economic Outlook predicts that the global economy will contract 6 percent this year if a second wave of the virus is avoided. If a second wave does occur, world economic output would fall 7.6 percent, before rebounding by 2.8 percent in 2021. The two scenarios are viewed as equally plausible. The report was issued only hours ahead of the release of the U.S. Federal Reserve’s June Report, as analysts eagerly awaited the chairman’s news conference at which he stressed Wednesday that the economy is likely to need aid from the central bank and Congress for a long time. He repeatedly highlighted his concern that millions of Americans will become permanently unemployed during this crisis as companies that employed them go out of business or their old jobs are eliminated. (Federal Reserve predicts slow recovery with unemployment at 9.3 percent by end of 2020)

The link between Education and a healthy economy is undeniable.
For a simplistic, accurate, argument see How Education and Training Affect the Economy
For some time, discussion has centered on the high cost of education in the U.S. -and to a lesser degree in Canada-, the advantages and disadvantages of the need for recognition of the importance of trade skills, and the charter school debate in the U.S. Experts point to the success of  the Finnish model ; free, or very low-cost university education in a number of countries around the world ; others zeroed in on the pros and cons of Tiger Mom, helicopter and free-range parenting, admittedly largely preoccupations of the privileged.  At the other end of the spectrum were concerns regarding availability and quality of education for developing nations, remote indigenous and rural communities and inner city schools. Those topics have been upended by Covid-19, as students of all ages around the world have been locked down with online courses, and parents of many younger ones have been co-opted as (literally) home-room teachers.
As we try to envisage the post-pandemic world, debate intensifies about what education will look like in the future. Is online education the way of the future? What impact on social and coping skills for all ages?  What about diversity in classrooms and social contacts? Can we learn something from remote communities? Will bricks and mortar establishments disappear?

A small sampling of  recent articles:
Frank Bruni: The End of College as We Knew It?
Colleges and universities are in trouble — serious trouble. They’re agonizing over whether they can safely welcome students back to campus in the fall or must try to replicate the educational experience imperfectly online. They’re confronting sharply reduced revenue, severe budget cuts, warfare between administrators and faculty, and even lawsuits from students who want refunds for a derailed spring semester. And a devastated economy leaves their very missions and identities in limbo, all but guaranteeing that more students will approach higher education in a brutally practical fashion, as an on-ramp to employment and nothing more.
The case for more international cooperation in education
Christopher J. Thomas
International cooperation helped many countries universalize basic education during the 1990s and 2000s. More cooperation today could boost secondary and higher education and help build a world that is more sustainable, peaceful, and prosperous.
A Looming Financial Meltdown For America’s Schools
(NPR) “I think we’re about to see a school funding crisis unlike anything we have ever seen in modern history,” warns Rebecca Sibilia, the CEO of EdBuild, a school finance advocacy organization. “We are looking at devastation that we could not have imagined … a year ago.”
Let’s admit it – online education is a pale shadow of the real thing
Mark Kingwell, professor of philosophy at the University of Toronto
I’ve heard administrators insist that online instruction is just a “change in delivery system,” not a diminution of content. But this bureaucratic bromide wilfully ignores the wisdom of Marshall McLuhan, whose work I often teach. The medium is always the message. You can reduce a seminar to a distortion-addled screen, sure, but that will never substitute for being there.
The Coming Disruption: Scott Galloway predicts a handful of elite cyborg universities will soon monopolize higher education.
… There’s a recognition that education — the value, the price, the product — has fundamentally shifted. The value of education has been substantially degraded
Containing-the-long-term-impact-of-covid-19-on-higher-education
By Michael A. O’Neill
Before austerity measures lead to inevitable cuts, let’s use this year for a long-overdue dialogue about the most critical matters facing the sector.
And this more positive appraisal:
Jeb Bush: The future of learning doesn’t involve classrooms. Here’s how we can prepare for it now.

Doug Sweet offers a few thoughts:
The only point where opinions come close to agreement is in the financial hit colleges and universities (especially in the States) are likely to face. Canada’s publicly funded universities will probably be able to weather the storm better than many of their private/public American counterparts, but there’s no doubt this is what’s keeping university presidents up at night. I know at McGill it’s all hands on deck on the recruitment file in a concerted effort to try to maintain both the quantity and quality of applicants. The smaller, liberal arts universities are facing a steeper mountain.
“My recent conversation with Ollivier Dyens, former Deputy Provost (Student LIfe and Learning) at McGill was interesting.
“You don’t change your system for fear of a virus in the next 10 years,” he told me. “And nobody really knows how this virus operates. To me, online is complementary to person-to-person education, but we took that relationship for granted.”
You can’t duplicate the professor-student relationship via Zoom, Dyens said,” but one of the things we’ve discovered is that students use its chat functions really, really well. That’s an amazing thing I’ve discovered.”
Zoom, he noted, was not meant for teaching, and here’s where the MOOCs (Massive Open Online Courses) comes into play. All the rage less than a decade ago – McGill was an enthusiastic proponent at one point – MOOCs have, in large part, fizzled. Online learning lacks a critical dimension.
The biggest mistake, Dyens said, is to assume that one size fits all. Should everything be online? No.
One of the critics of more widespread working from home (as well as online education) spoke recently of the loss of spontaneous creativity that used to come from the classroom or the office cafeteria. You can’t replicate these unplanned interactions on Zoom, the kind of encounters where two people start bouncing ideas off each other and end up with a solution to a problem or a creative vision for a new product or service. And a lot of that kind of interaction leading to progress happens over drinks at the end of the day in a nearby bar. These kinds of human interactions, which afford a chance for people to build on each other’s ideas, are a fertile garden for the advancement of human thinking – in academia, in business and industry, in government, in social advancement.
“This (the casual contact, not necessarily a bar) is where you can find new ideas you could never get through Zoom,” Dyens said.
Zoom can’t replicate that creative crucible, the consensus says, so we need to find a way to borrow from the past and steal from the present in order to create a more perfect academic future.
The big fear is this: the apparent decline in education in the United States, thanks to funding cuts to inner city schools or the disparity in post-secondary education between the Ivy League elite and the more desperate publicly funded state universities, has resulted in a large segment of the population that is now more susceptible to conspiracy theories, leery of science (the value of vaccines, for example) and willing to equate a guy online in his parents’ basement with a white-coated PhD in biology or physics.
This is not a new problem, but it is a persistent one –  that may only get worse if education is handicapped by successive waves of Covid.

We have opted to defer the issue of racism, racial profiling, protests, discrimination, police brutality and defunding. There is so much to absorb on a minute-to-minute basis, and sorting the good, bad and ugly commentary was simply not possible in the available time. However, we do want to highlight a point raised by Andrew Caddell in this week’s Hill Times column Social change depends on each of us doing our part (paywall) “In rural Quebec towns like Kamouraska, the population is still close to homogeneous: white, francophone, and nominally Catholic. As many urban police recruits are from rural Quebec, the lack of contact with people of other races is a key source of discrimination and violence against “les autres” in multi-ethnic Montreal.”
As the NYT states Other Protests Flare and Fade. Why This Movement Already Seems Different.  What is also evident is that Trump’s antics and pronouncements are finally having some effect on his enablers and sycophants (perhaps they have read Anne Applebaum’s powerful History Will Judge the Complicit), -along with the military brass who usually avoid public commentary on the Commander-in-Chief- if not the base. Poll numbers are falling  and even Mitch McConnell may be hurting. Finally, if that isn’t enough good news, rumors are flying that Trump wants to send Jared K. back to New York (don’t hold your breath, however).

Cleo Paskal has been busy. Her long analysis China versus the world is a must-read. She elaborated on the content during an engrossing University Club of Montreal webinar on Tuesday evening.

Finally, a reminder

Wednesday June 10 8-9pm
The World After Covid-19: A Conversation with Ian Bremmer
Munk Dialogue with political scientist and bestselling author Ian Bremmer for a Munk Dialogue on the future of Great Power politics after COVID19. Facebook Live.

Fri, June 12, 2020
7:00 PM – 9:00 PM EDT
Capitalism, COVID-19, and a New Way Forward: An Evening of Conversation with Julius Grey
The Thomas More Institute is pleased to host a web-interview with Julius Grey, renowned Montreal lawyer, professor, human rights activist, and author of the book Capitalism and the Alternatives, published last year by McGill-Queen’s University Press. Me Grey will be interviewed by Martin Baenninger and Pam Butler of the Thomas More Institute. Brian McDonough will host the event.
To access the Zoom webinar, click here to register. You will receive the meeting link and password via email.