US economy suffers sharpest contraction in decades
Tony Nash joins the BBC Business Matters to discuss the US economy contraction, Federal government’s cash subsidy, the upcoming US election and Trump’s issue on postal ballots, lithium batteries and electric vehicles, and Eid al-Adha.
This podcast first and originally appeared in BBC Business Matters at https://www.bbc.co.uk/sounds/play/w172x18vhgd3z2p
Official data shows that the world’s biggest economy contracted by 9.5% in three months. That’s worse than at any point since the US government started keeping quarterly records in 1947. We hear from Professor Tara Sinclair, an economist at George Washington University. Black Lives Matter protests have added to a continuing backlash against brands selling skin-whitening creams in South Asia; Nikhil Inamdar reports from Mumbai on an industry under threat. We talk to listener, Elizabeth Pendleton, in Colorado Springs about the unemployment picture in Colorado. The BBC’s Ed Butler reports on the world’s biggest lithium deposit; it’s in Bolivia and is worth billions of dollars to a world scrambling to reduce its reliance on carbon. Plus, we’re joined throughout the programme by Tony Nash, co-founder and Chief Economist at Complete Intelligence in Houston, Texas and from Lahore in Pakistan, Mehmal Safraz, co-founder of The Current PK.
BBC: Talk about Houston for us.
TN: Just on my block, I have 6 houses for sale. If that tells you anything about the oil and gas down turn as a result of COVID, we really are starting to see some action on the real estate side. It is a seasonal thing partly because of summer. But we are the epicenter of epicenter of oil and gas. And the oil and gas went to receptical in May. We’re still seeing the after-shock of that even though we’re back above $40 for WTI and Brent. Something interesting is that I’m speaking recently with somebody from Panama Canal today and they were telling me about the volume in trade and what they’ve seen. They’ve reflected what Samara said and that things kept slowing down until June and then in July, they’ve started to come back. I really thought that April and May was the worst of it, but things kept declining into June, which was really difficult.
BBC: And that shipping, of course, is a crucial indicator, because we can track not just what China is doing, what US is doing. We can follow everybody’s trade globally by watching those boats.
TN: That’s right. And this is not a market failure. This was governments pulling the plug on economies and we say that personal consumption fell by 25% in the first quarter. But it’s no surprise because nobody can get out of their house because restaurants were closed, etc. On one hand these are shocking numbers, but on the other hand they are not shocking numbers when states and local governments pull hte plug on economies and people cannot get out, then this really isn’t a surprise. To be honest, I’m surprised that more data isn’t as bad or worse than the US because there were harsher lockdowns in a lot of other countries. I don’t understand it on some level.
BBC: In Houston, are we rising predictably to debate as the president proposes another idea by tweet?
TN: It’s more about his objection to postal ballots than it is about election day because there is a recent study done by CBS News in the US looking at potential fraud around election ballots and they found that something like 3% of them didn’t even arrive to the person and then fraudelent ballots that looked like what they’ve sent out, could have been sent similarly. I think what Trump is doing is trying to get the discussion going about fraud around postal ballots more than moving the election.
BBC: Has it always been a relatively tiny minority voting by post apart from those early voting?
TN: Well he said, and he said this several times. He doesn’t have an issue with what’s called absentee balloting, which is a slightly different process. But with mass postal balloting, there are several states like Oregon that do mass postal balloting. But fraud in US elections has become a very big concern. In the last election, ballots were found in the back of people’s cars. There was a rental car that was returned with ballots in it. Fraud in US elections has become a very big concern and I think Trump is voicing that concern a lot of people.
BBC: In Texas, dig into the nitty gritty of the state level.
TN: What ends tomorrow in the US is Americans are getting $600 a week additional from the Federal government on top of the state funds, unemployment funds, that they get, which are lower, like $350 a week. The $600 a week is extraordinary. I know people who don’t even make that much money when they are working fulltime, who are getting $600 a week. But at the local level, the problem is, you have the state and local governments who are closing things down. But it’s actually the Feds who have had to pay more money and it’s a lot of money to help make up for the economic decisions that were made at the state and local level. This is really where, through the whole COVID thing, and I said this many, many times to people, the state and local governments don’t have the resources to pay back for the decisions taht they’ve made. The decisions are made at the lower level. But it’s really only the Fed who has the money to provide this level of income to allow the economy to keep moving forward.
TN: Obviously, the environment is a big concern. But I think the payoff is also a big concern. It really all depends on how quickly the battery industry grows. If the payback isn’t there, it’s like looking at the Tarzans in Canada. Relatively expensive way to pull up oil, but oil now is too cheap for the Tarzans to function. If they pull it out in a very expensive way, the question really is not just environmental sustainability but economic sustainability as well.
BBC: I take your point on the environment, but compared to some of the alternatives. What I thought I knew in places like the Democratic Republic of Congo had the lithium mines, which is the other resource to be tapped, leading to headlines a couple of years ago in Financial Times, “Congo child labor in you electric car”, makes up that whole sector really problematic.
TN: Absolutely. Look, if it’s a better way, it’s great. I mean, the problem then is the supply chains and figuring out how to get it to market, which those are never easy. But if it’s a better way, more humane, then great.
BBC: Were you surprised by the little footnote in the report that it’s China that has the downstream value chain sewn up.
TN: No, not at all. China has a very high profile electric car program. And really a lot of subsidies for electric vehicles. So that actually doesn’t surprise me at all. It is the largest market.
BBC: And this is why the developments happen, right? Because I read recently, I probably get the numbers slightly wrong, but it said there’s a new battery coming that can run something like a million miles over 16 years instead of a couple of hundred thousand miles in 5 years.
TN: Yeah. But people will get bored by their car by then. People want to sell their car after a couple hundred thousand miles. If it can change hands multiple times, great.
BBC: This is something not widely celebrated in the US, but certainly a lot of Muslims in the US will bring this extremely to heart today.
TN: Absolutely. And Houston is the most diverse city in the US, so we’ve got a very large Moslem population in Houston. I have friends in Austin who are celebrating, so it’s definitely all around here.