The Top Line

• A survey of economic indicators for last week shows continued improvement in the outlook.

• Republicans seek to revive the Paycheck Protection Program to provide Americans a helping hand while Speaker Pelosi pushes a progressive, partisan wish list to the ire of some of her own members.

• After suppressing knowledge of COVID-19 that allowed the virus to spread worldwide and shock the global economy, China is pursuing its own economic recovery at others’ expense.

• Creating the power of the sun.

A Run Through the Numbers

As economic recovery from COVID-19 continues, last week was filled with welcome news. Numbers beating expectations appeared in the jobs report, consumer sentiment, and elsewhere.

Sources: Bureau of Labor Statistics, The Conference Board, MarketWatch

*The U6 Unemployment Rate is a broader measure of unemployment that includes underemployed workers who would take more hours if available and workers seeking employment in the last year.

**The Consumer Confidence Index measures consumers’ attitudes and buying intentions, providing a gauge of prevailing business conditions and expectations for the months ahead. The Index is compiled from a monthly Consumer Confidence Survey asking consumers about their perception of business conditions, labor market conditions, and other factors.

How Much Is Enough?

At the height of the COVID-19 pandemic and the shutdowns it brought, Congress passed the bipartisan Paycheck Protection Program (PPP) to help keep businesses open and workers employed.

• After an extension lengthening the original expiration date past June 30, Congress was unable to pass a further extension. PPP stopped taking applications after August 8, despite the fact that nearly $134 billion in available funds remain.
• In an effort to reopen the program and put the remaining funds to work for the American people, House Republicans have created a discharge petition that would force a vote on their bill to reopen PPP and disburse more loans through the end of the year.
• A number of moderate Democrats, frustrated with their leadership’s refusal to negotiate realistic positions for a new COVID-19 package, threatened to buck Speaker Pelosi’s stance and sign the discharge petition.
• Speaker Pelosi’s first attempt at a package, the $3.4 trillion Heroes Act was an unrealistic progressive wish list that was “dead on arrival” according to members of her own party; 14 Democrats voted against it. Her latest attempt, Heroes 2.0, conceded that $3.4 trillion was irrational, but still offered a monumental $2.2 trillion in spending, over 10% of U.S. GDP.
• This time, 18 Democrats voted against Speaker Pelosi’s bill, urging their leadership to actually seek a compromise instead of voting on a show bill with no chance of becoming law.
• Meanwhile, working in good faith, the White House moved up its spending proposal to $1.6 trillion from its previous $1.3 trillion in an attempt to find a compromise. True to form, Speaker Pelosi said it was not enough, despite the fact $1.6 trillion is twice as much as the $787 billion Obama-era American Recovery and Reinvestment Act stimulus during the Great Recession.

Myth vs. Fact

Source: Bureau of Labor Statistics

MYTH: Critics have charged that the Federal Reserve has “bailed out” the American oil and gas industry by purchasing bonds issued by companies in the sector. They contend that this amounts to an unfair level of support for companies and workers in the oil and gas sector.

FACT: The Federal Reserve’s Secondary Market Corporate Credit Facility to which the critics refer is a broad-based facility available to any United States company that meets the eligibility requirements. There is no specific targeting of the energy sector by the Federal Reserve; these companies’ bonds are entering the same facility as other sectors’ bonds, and the facility’s purpose is to support the economy as a whole by preserving market liquidity. Moreover, the oil and gas sector supports nearly 85,000 jobs across the country, paying yearly wages above the median annual wage in every state in which the industry has significant numbers of workers (see above).

Recovering at Others’ Expense

Source: Peterson Institute for International Economics

As the world recovers from the virus that sprang from China, that country is pursuing avenues to its own recovery at the expense of the rest of the world.

• With the largest consumer base in the world, China has the ability to help propel the world economy via its massive internal market. However, China is pursuing a state-subsidized beggar-thy-neighbor export surge to save itself at others’ expense.
• After stagnating for decades following the communist takeover of China in 1949, China began modernizing its economy in stages. A key growth strategy was use of its plentiful labor to produce cheap exports for sale to other countries, creating jobs and inflows of foreign exchange.
• As the Chinese economy matured, the effectiveness of this strategy diminished as labor in China became more expensive. Beginning around the turn of the millennium, Chinese policymakers began making efforts to turn the outward-focused export promotion strategy to a more sustainable inward-focused strategy driven by domestic consumption.
• In recent years – especially following the rise of Xi Jinping in 2012 – this domestic consumer-focused reorientation has slowed with consumption’s share of GDP plateauing in recent years.
• Much of the slowdown can be attributed to Xi’s reemphasis and championing of state-owned enterprises (SOE) as large employers and producers in the economy (see above). Unfortunately, China’s SOEs are notoriously unproductive, corrupt, and a barrier to competition by private Chinese firms while competing unfairly with foreign firms.

Disruption of the Week

A power plant that does not burn fossil fuels, does not eject greenhouse gases, does not need uranium or other dangerous material, and produces 10x the energy it consumes – now we just have to build it.

• Developing the technology to generate energy through nuclear fusion, the process that also “powers” the sun, has long been a goal of scientists and energy researchers across the globe.
• Simply put, nuclear fusion creates energy by heating hydrogen isotopes to 100 million+ degrees, which creates a superheated, highly energetic plasma that shoots off neutrons. The heat created by these extremely fast moving neutrons is captured and used to produce steam that can power turbines and alternators, creating electricity.
• While R&D into the technology and underlying concept had been, until recently, slow-moving; a recent proof of theory breakthrough in the potential for developing small scale reactors has scientists believing they can produce and harness energy from a nuclear fusion reaction within the next ten years.
• Specifically, the breakthrough came thanks to new technology that uses super strong magnets to better contain and sustain the plasma field created by the fusion reaction.
• While it is not yet the “limitless energy” that we could one day realize, thanks to a renewed focus on nuclear energy and R&D, we may be closer to creating a sustainable, safe, and carbon-free source of commercial power than we think.

Further Reading

• With the calls from the left growing louder and louder for “stakeholder capitalism,” a term that largely means whatever its speaker wants it to, some businesses are capitulating. Unfortunately, satisfying the left on this subject is likely unachievable, at least anywhere short of the point where the left’s goal of politics controlling private business decisions is realized. A contemporary example of the old adage, “you give an inch, they take a mile.” Wall Street Journal

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