I had a chance to catch up with famed economist Milton Ezrati on the state of the U.S. economy and how it is still being impacted by the Coronavirus, the potential need for more economic stimulus and a potential Joe Biden win. You can see the text of our conversation below:
There seems to be talk once again that the White House and Democrats could strike a deal on another possible round of Coronavirus related stimulus. In your view is this a good idea? And if so, what form should this stimulus take? Does the U.S. economy need a boost?
The economy does not seem to need more relief.
Consumption, housing, and employment have come back much faster than anyone expected. Even capital spending is springing back. If Washington wants to help (a dubious proposition I know) it would do well to find some device, a special loan facility perhaps, to help small businesses stave off bankruptcy. They had the thinnest capital base when this started and so are most likely to go under, as many already have, taking their owner’s livelihood with them and that of any employees. These losses could have lasting effects that would hold back the ultimate speed and durability of the recovery.
There has been a lot of talk about how the Coronavirus economic shock has pushed forward economic trends five or even ten years into the future, such as speeding up trends in consumer spending towards e-commerce platforms and delivered services. Is there any changes in the U.S. economy or economics shift over the last six months that has truly surprised you?
I agree that Covid has accelerated trends that were already shaping up — as you point out, deliveries and e-commerce.
The thing that has surprised me most is how quickly remote work has caught on. The Labor Department estimates about one-third of the workforce can work remotely at least some of the time. Further adjustments by businesses will institutionalize the practice. That will in turn have significant effects on location decisions by firms and people. Real estate trends will follow. My guess is that the flight to the suburbs will become a flight to the exurbs. If you can work from home, why pay the high prices and high taxes of a home within commuting range of a major city? You can get so much more for your money if you move further out. If the trend gains momentum it might eventually revitalize small-town life after more than 100 years of decline.
Finally, markets are trying to still make an intelligent prediction on who will win the presidential race in November. Say Joe Biden wins, what do you think his economic strategy will look like to make the U.S. economy stronger?
Part of the market’s problem with Biden is that it is difficult to guess his policies if he takes the White House.
In the primary and also in this campaign, he has put himself forward in two contradictory ways. One is “moderate Joe.” He will, he claims, bring compromise to bridge the gap between the extremes of American politics, take the country back to “normal.” But he has also bowed to the left-wing of his party, less on law and order, which is what Trump hammered on a few days ago [during the debate], than on economic policy. He has, for example, put forward a variant of the Green New Deal. It ain’t AOC’s program, but it will cost a lot and impose more tax burdens. The market no way believes that it will “pay for itself,” as he claimed last night and has claimed at other times. No one can tell where he will fall on this continuum. It is a similar story with health care. His running mate is adding to the uncertainty. There is no one who can reasonably forecast what he will do, except the partisans, and they only use it to promise or frighten.