2020-03-23 Bloomberg Businessweek

◼ ECONOMICS Bloomberg Businessweek March 23, 2020

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JULIE DERMANSKY. DATA: DALLAS FED, BUREAU OF LABOR STATISTICS

● Thestatemayseeitsgrowthratehalvedthisyearby the

combinationofplungingoilpricesandthecoronavirus pandemic

Texas Blues

1/2009 12/2019

300k

250

200

150

▼ Oil jobs in Texas

Whencrudeoilpricesfellto$46a barrelduringthe

firstweekofMarch,PatrickPayton,themayorof

Midland,Texas,seemedoddlycalm,almostrelieved.

ThedefactocapitalofthePermianBasin,thebiggest

shalepatchintheworld,couldusesomethingofa

slowdown,hefigured,afterbreakneckgrowthhad

stretchedservicessothinthatthepoliceforcecould

barelykeepenoughofficersonthebeat.

Then a coupleofdayspassed,andthesign

downtownthatflashesthecurrentoilpriceread—

suddenly—$30.Paytoncouldhardlytakeit in.“Crisis

is anoverusedword,butit’sa crisisofshock,”he

says.“Wehavetoadjusttoournewreality.”

SodoesallofTexas.Despitea decades-long

effortatdiversifyingitseconomy,thestateis still

highlydependentonoilandgas.Ingoodtimes,

that’shelpedTexasgrowfasterthanmostofthe

U.S.,whileinbadtimesit’sweighedongrowth.

ThepricewarbetweenRussiaandSaudiArabia

thatsentcrudetumblingis a threat.So,too,is the

newcoronavirus:Besidesthrottlingglobaldemand

foroil,theoutbreakcouldstrainthestate’shealth-

caresystemtothebreakingpoint.Texashadthe

nation’shighestshareofresidentswithouthealth

insurancein2018,at17.7%.Peoplewithoutcover-

agemaythinktwicebeforegoingtothedoctorfor

testing,whichcouldcontributetothespreadofthe

virus.Covid-19couldalsohavea lastingimpacton

thefast-growingleisureandhospitalityindustry.

DallasbankComericaInc.mayfurtherdown-

gradeits 2020 economicgrowthforecastforTexas

to2%,afterprojectinginFebruaryit wouldslow

to3.1%,fromlastyear’s4.4%.Although2%isn’t

exactlybad,andbetterthanwhat’sexpectedfor

THEBOTTOMLINE Governmentshaveannouncedtrillionsin

stimulusmeasurestoblunttheeconomichitfromthecoronavirus.

Themedicinemightbemorepotentif theiractionswerecoordinated.

modelbeingtested—free-marketliberalism—

wasalsonotfacingthesameassaultfrompopu-

listalternativessuchasTrump’s“AmericaFirst”

brandofcapitalism.

Althoughmanyexpectthecurrenteconomic

shockto be short and sharp,thereare also

concernsthatit mayhaveother,longer-lasting

consequences.AttheInstituteofInternational

Finance,chiefeconomistRobinBrooksandhis

teamhavebeentrackinghugeoutflowsofmoney

fromemergingmarketsthatcouldtriggerold-

fashionedbalance-of-paymentscrisessimilarto

theonesthatengulfedMexicoandmostofAsia

in the1990s.

Brooksalsofretsthatgovernmentsindevel-

opedeconomiesaremovingtootentativelyand

onparalleltracks,whichwilldilutethepotencyof

measurestooffsetthedownturn.“Weneedwith

greaterurgencygloballya fiscalresponse,andit

needstobecoordinated,”hesays.“There’snorea-

sonsfordelaynow.Weknowthisthingis coming,

andit is cominghard.”

InDecember 2008 theIMF’smanagingdirec-

tor,DominiqueStrauss-Kahn,pushedfora coor-

dinatedglobaleffortbygovernmentstospendan

additional2%ofglobalgrossdomesticproduct,

or$1.2trillion,andeconomistsincreasinglysay

somethingofthesameorderis needednow.

AsofMarch 17 governmentshadannounced

stimulusmeasuresaddinguptojustunder$3tril-

lion,or3%ofglobalGDP.Includedinthattotal

is a$1.3trillionpackageproposedbytheTrump

administrationthatwillstillhavetogetthrougha

dividedCongressinanelectionyear.

Whilefinancial marketshavebeen under-

whelmedbytheresponsesofar,it’sworthremem-

beringthattheU.S.hadbeeninrecessionfor

almosta yearbythetimetheG-20nationscon-

venedinWashingtoninNovember 2008 tocoor-

dinatepoliciesintheaftermathoftheglobal

financialcrisis.“Ifwehadthatamountoftime

withthecoronavirus,we’dfeelprettylucky,”says

Tooze.Today,“thesheerpaceis staggering.”

Obstfeldsaysthesuddenstopineconomic

activityhittingEuropeandtheU.S.nowlooksa

lotlikeanacceleratedversionofwhathappensin

a classicemerging-marketcrisiswhencountries

abruptlyloseaccesstocapitalmarkets.Whichis

whyheworriestheworld’sbiggesteconomiesmay

beabouttoexperiencea Greece-likeshock,with

allitsconsequences,fromsharplyrisinginequal-

itytoa realignmentofthepoliticalorder.Aninad-

equatepolicyresponse—withlessfiscalstimulus

thanneededandtheerectionofmorebarriersto

trade—would mean a contraction that could be

deeper and longer than the one the U.S. suffered

in the Great Recession. An adequate one may

mean a rapid recovery and avoiding the economic

doldrums that followed the last crisis. “That,”

Obstfeld says, “would require a lot more coordi-

nation between countries.” �Shawn Donnan