Bombardier CEO Bellemare to step down
HE WAS FIRED

By Rama Venkat  Reuters March 11, 2020


Bellemare, President and CEO of Bombardier Inc., speaks during a news conference on the acceleration of Global 7000 business jet aircraft interior completion operations and the inauguration of the new Bombardier Centre of Excellence in Pointe-ClaireMore

(Reuters) - Canada's Bombardier Inc said late Wednesday Chief Executive Officer Alain Bellemare would step down and be replaced by former company executive and Hydro-Quebec CEO Eric Martel.

Bellemare, who took over the top job at Bombardier in 2015, has steered the company through some of its biggest challenges, including a brush with bankruptcy due to its costly C Series jet program.

Under his watch, the company has narrowed its focus on making business jets, after offloading its stake in the A220 passenger jet program - formerly known as the C Series - to Airbus SE and selling the rail division to France's Alstom SA earlier this year.

"With the five-year turnaround plan nearing completion, the board, including Mr. Bellemare, unanimously concluded that it was the appropriate time for a new leader to take the helm of the corporation," Bombardier said in a statement.

Martel had worked with Bombardier for 13 years and was the president of its business aircraft unit before joining the hydropower producer as CEO in 2015.

Bombardier removes CEO after trains, planes divisions sold off

AFP•March 12, 2020



Alain Bellemare has been replaced as CEO of Canadian firm Bombardier after a painful restructuring (AFP Photo/Eric PIERMONT)More


Montreal (AFP) - Bombardier has removed its chief executive Alain Bellemare, who oversaw the Canadian manufacturing behemoth's sell-off of its trains and commercial aviation divisions in a painful restructuring.

In his place, the Montreal-based company has hired back the former head of its business jet division Eric Martel.

The announcement comes less than a month after Bombardier sold its trains division to France's Alstom and a remaining stake in its C Series medium-range passenger jetliner program to Airbus, which rebranded it the A220.

Martel will start his new job on April 6. Prior to joining Hydro-Quebec, serving as its president and chief executive since 2015, he held several leadership positions at Bombardier.
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"He is an engaging builder with a deep understanding of our organization and product portfolio as well as of the global business aircraft industry," chairman Pierre Beaudoin said in a statement late Wednesday.

With Bombardier's five-year turnaround almost complete, Beaudoin said the board decided it was time for a change in leadership.

Under Bellemare's stewardship, the company effectively exited commercial aviation with the sale of its A220 stake, discontinued its money-losing Learjet 85 program, and sold its water bomber, Q400 turboprop, CRJ regional jet and flight training divisions.

Hoping to build on the success of its regional aircraft program in the 1990s it had poured billions of dollars into the development of the A220, which became the first new design in the 100- to 150-seat category of single-aisle aircraft in more than 25 years, to go head-to-head against giants Airbus and Boeing.

But it also racked up more than US$9 billion in debts.

The fire sale ended last month with Alstom's acquisition of Bombardier Transport, a leading maker of subway trains and trams.

The company that started out 80 years ago making snowmobiles was left with only one division focused on the market for business jet.

Alstom, Bombardier shares fall after $6.7 billion rail deal

By Sudip Kar-Gupta and Allison Lampert Reuters February 18, 2020

FILE PHOTO: A logo of Alstom is seen at the Alstom's plant in Semeac near TarbesMore

By Sudip Kar-Gupta and Allison Lampert

PARIS/MONTREAL (Reuters) - Shares of Alstom SA and Montreal-based Bombardier Inc fell on Tuesday after the French firm agreed to buy its Canadian rival's rail division for up to 6.2 billion euros ($6.7 billion), a deal likely to draw scrutiny from competition regulators and unions concerned about job cuts.

The cash and shares deal, announced Monday, will make the combined entity the world's second-biggest train maker after China's state-owned CRRC Corp. It is the latest attempt by Western rail firms to try to build scale to lower costs.

JP Morgan analysts said there was uncertainty ahead "during a lengthy anti-trust process."

Bombardier shares were down 7.88% at C$1.52 near midday on Tuesday. Alstom shares closed 3.2% lower at 48.70 euros in Paris.

Bombardier would use sale proceeds to cut its debt, which has been a concern for investors and rating agencies. Its net debt would drop to $2.5 billion once the deal closes in the first half of 2021.

But it also leaves Bombardier as the only large pure business jet maker, compared with rivals which also generate revenue from military sales.

"If there were a serious market downturn, they would be at a major disadvantage, since there would be no defense revenue to compensate," said U.S. aerospace analyst Richard Aboulafia, vice president of analysis at Teal Group.

Bombardier Chief Executive Alain Bellemare said the company is focused on the "most resilient market segments," of business aviation, including large cabin corporate aircraft and an aftermarket business that is "less susceptible to economic cycles."

"We are more than viable as a pure play," he told Reuters by email.

Alstom executives have sought to quell concerns about any hurdles they might face over competition issues, after EU regulators blocked its attempt to merge rail assets with Germany's Siemens AG last year.

U.S. regulators will also examine the deal, a Bombardier spokesman said.

The Bombardier acquisition has a lower market share in signaling than the Siemens option, which had been one of the main sticking points with regulators, Alstom Chief Executive Henri Poupart-Lafarge said on Monday.

The transaction was complementary, with Bombardier more present in Northern Europe and Alstom in the south, Poupart-Lafarge said, adding it would not affect jobs.

The combined groups would have some 10,000 staff, including temporary workers, in Germany, where Bombardier Transportation has its headquarters and seven factories.

France would be the second-biggest market in Europe, with some 6,730 total employees.

French trade unions were initially sanguine about the transaction, saying they were reassured by the fact Alstom was still in hiring mode at the moment and that order books were full.

Regarding job cuts, "the project, such as it has been presented to us, does not seem to be leading down that road, but we remain very vigilant," Patrick de Cara, a representative for the CFDT union at Alstom, said.


(Reporting by Sudip Kar-Gupta in Paris, Allision Lampert in Montreal and Maya Nikolaeva in Paris; Editing by Edmund Blair, Matthew Lewis and Tom Brown)

Airbus, Quebec to buy out Bombardier's A220 stakeBy Sudip Kar-Gupta Reuters February 12, 2020


FILE PHOTO: The logo of Airbus is pictured at the aircraft builder's headquarters of Airbus in Colomiers near ToulouseMore


By Sudip Kar-Gupta

PARIS (Reuters) - Airbus has teamed up with the Quebec government to buy Bombardier's 33.5% stake in the A220 passenger jet programme, completing the Canadian firm's exit from civil aviation and boosting Airbus's position in a new battleground with Boeing.

Under the terms of Thursday's deal, Airbus's stake in the A220 programme - known as Airbus Canada - increases to 75% from 50.1%, while Quebec's holding rises to 25%.

In taking the larger holdings, the European aerospace group and Canadian province will be assuming Bombardier’s share of A220 ramp-up costs, while Bombardier will receive $591 million net of adjustments. The deal will secure more than 3,300 Airbus jobs in Quebec, the companies added.

The A220, previously known as the CSeries, is a 110-130 seater aircraft, targetted at regional aviation markets and a little smaller than Airbus's mainstay A320 jet.

The European group's move into that smaller market has been mirrored by U.S. rival Boeing's planned tie-up with Brazilian regional jet manufacturer Embraer and opens a new front in the battle between the two planemaking giants.

Bombardier said the sale would help the company - which faced a cash crunch in 2015 - to improve its financial position. Bombardier on Thursday reported a quarterly loss.

"This transaction supports our efforts to address our capital structure and completes our strategic exit from commercial aerospace," President and Chief Executive Alain Bellemare said.

The deal also postpones until 2026 the agreed date when Airbus can buy out Quebec's stake in the A220 programme, three years later than originally planned. The province increased its stake for "no cash consideration", the companies said, in return for its bigger share of the funding burden.

Sources have told Reuters that Bombardier's rail unit may also be sold to French group Alstom, although any deal has yet to be finalised.

Montreal-based Bombardier ceded control of the A220 programme to Airbus in 2018 for a token C$1 as part of broader efforts to improve its finances.

Airbus announced the increase in its stake in the programme alongside a hefty 2019 net loss due to one-off costs.

(Reporting by Sudip Kar-Gupta and Laurence Frost; Editing by Clarence Fernandez and Mark Potter)

Bombardier exits commercial aviation as it reports $1.6 billion loss

Alicja SiekierskaYahoo Finance Canada February 13, 2020


APMore


Bombardier has completed its exit from commercial aviation, selling its remaining stake of its joint venture with Airbus as the beleaguered company looks to save cash and improve operations.

And there may be more sell-offs to come, as the Quebec-based company continues to look at “strategic alternatives” that will help it accelerate the payment of its significant debt load, which has ballooned to more than US$9 billion.

Bombardier said Thursday that it will transfer its shares in the Airbus partnership, which produces the A220 aircraft formerly known as the CSeries, to Airbus and the Government of Quebec. The move provides Bombardier with approximately US$600 million in cash from Airbus and gets the company off the hook from investing a further US$700 million into the program.

The deal boosts Airbus’ stake in the program from just over 50 per cent to 75 per cent, while Quebec’s share jumps from 16 per cent to 25 per cent.

Bombardier sunk more than US$6 billion into the development of the aircraft, which chief executive Alain Bellemare said on a conference call with analysts Thursday “was the biggest challenge in 2015 when we joined the company.”

“We were losing a lot of money. It was a cash drain,” Bellemare said.

“The strategy was always to exit commercial aircraft, and we’ve done that very successfully, while protecting jobs... We’re going to continue looking at our options and see if there are ways we can accelerate the deleveraging phase of the turnaround plan.”

The company said Thursday that its commercial aviation business, which had included the Airbus A220, the Q400 and the CRJ programs, was burning approximately US$1 billion in cash and lost the company US$400 million as of 2016.

“Addressing the challenging portfolio was a fundamental step in the company’s turnaround plan,” Bombardier said in a statement.

The divestitures are expected to continue. Analysts have said Bombardier may have to consider selling one – or potentially all – of its existing assets, which now only includes its rail division and private business jet program.

Multiple reports have suggested that France’s Alston is in talks to purchase Bombardier’s rail division for just under US$7 billion. Earlier this month, a Wall Street Journal report also said the company was in talks to sell its private jet business to U.S.-based Textron Inc.

When asked about potential asset sales on a conference call with analysts, Bellemare would not confirm the reports, but said the sale of the A220 stake “gives us plenty of liquidity to do the right things.”

“We are looking at our strategic options. As you understand, this is very sensitive,” he said. “We believe we have very strong assets, we have a strong cash position, and we’re going to do it the right way.”

Bombardier executives were challenged by some analysts on the conference call Thursday, with Goldman Sachs analyst Noah Poponak questioning what the company’s strategy is going forward.

“It’s starting to look more like an asset liquidation than a turnaround,” Poponak said.

Bellemare reiterated that the fundamental reason the company is looking at strategic options “is to accelerate the deleveraging of the business.”

“We have been doing a lot of cleanup over the last five years, addressing some of the underperforming businesses,” he said.

“We are now ending up with two very strong franchises – the train side, and the business aircraft side. We have a strong cash position and we have options.”

Bombardier, which reports its financial results in U.S. dollars, saw revenue fall three per cent in 2019 when compared to last year, down to $15.8 billion. The company’s net income fell from a $318 million profit last year to a loss in 2019 of $1.6 billion.

Bombardier exits commercial aviation, ending bold bet on promising jet

By Allison Lampert and David Ljunggren Reuters February 13, 2020
A worker walks in front of a Bombardier advertising board

 at the SBB CFF Swiss railway train station in Bern

MONTREAL/OTTAWA (Reuters) - Bombardier exited commercial aviation on Thursday, selling a loss-making plane program that ended its high-stakes gamble on a new jet that once drove it to the brink of bankruptcy.

The Canadian plane and train maker sold its minority stake in the A220 jet, formerly known as the CSeries, to Airbus SE for $600 million, and said it would take a $1.6 billion charge on the program.

Bombardier once threatened to reshape global aviation with the first all-new narrow-body jet in 30 years, triggering a race by major rivals to develop their own new planes.

But the $6 billion program was beset with delays and cost overruns. Bombardier, which required government bailouts in recent years as it struggled to fund the program, finally sold a majority stake to Airbus in 2017 for one Canadian dollar, partly to avert a potentially devastating trade challenge from U.S. planemaker Boeing Co .

The latest deal gives Airbus a 75% stake in the A220 program and the Canadian province of Quebec will own 25%. It also allows Bombardier to avoid future capital investments of about $700 million.

Quebec, which agreed to invest $1 billion in the program in 2015, said it would not spend further on the venture.

Airbus will buy back Quebec's entire stake on Jan. 1, 2026, said provincial Economy Minister Pierre Fitzgibbon.

"Yes, the aerospace sector has experienced some turbulence these past few years but I think this will soon be behind us," Fitzgibbon told reporters in Quebec City. "I think this step was essential for the firm to continue its activities."

The Canadian government, meanwhile, was confident that a C$372 million ($280.59 million) loan it gave Bombardier in 2017 will be repaid and Ottawa will not write it off, a government source said.

The source added it wasn’t yet clear whether Bombardier or Airbus would be responsible for paying the rest of the loan.

Bombardier has been shedding businesses to turn itself around. Chief Executive Alain Bellemare told analysts on Thursday that the "clean up over the past five years" would continue.

"We have options and we are going to continue looking at our options to see if there (are) ways that we can accelerate the deleveraging phase of the turnaround plan," he said on a conference call.

The company forecast a near-positive cash flow, a closely-watched metric, for 2020. Its cash flow was a negative $1.20 billion in 2019.

The company is weighing a possible sale of its remaining business jet or rail divisions.

Bombardier's shares were down 1% in afternoon trading after earlier dropping 9% on disappointment the company did not announce a deal to sell its rail unit to France's Alstom .

Bombardier has faced higher rail costs due to a few challenging contracts and has $9.7 billion in outstanding bonds according to Refinitiv data.

The company sees 35-40 deliveries of its flagship Global 7500 business jet in 2020, which list for $73 million each.

(Reporting by Allison Lampert in Montreal and David Ljunggren in Ottawa. Additional reporting by Ankit Ajmera and Rachit Vats in Bengaluru; Editing by Bernadette Baum)

Bombardier to suspend business jet production in Canada over coronavirus: source

FILE PHOTO: An attendee exits the Bombardier Global 6500 business jet at the National Business Aviation Association (NBAA) exhibition in Las VegasMoreBy Allison Lampert Reuters March 23, 2020

MONTREAL (Reuters) - Bombardier will suspend Canadian production of its corporate jets to comply with restrictions imposed by provincial governments aimed at curbing the spread of the coronavirus, a source familiar with the matter said on Monday.

The Canadian provinces of Ontario and Quebec, where Bombardier's flagship Global 7500 and other model business jets are respectively assembled and completed, have ordered all non-essential workplaces to close as of late Tuesday.

The source said the company was weighing the performance of essential services such as customer service operations.

The Ontario plant does final assembly for the Global 5500, 6500 and 7500 jets.

Ontario's premier announced a two-week shutdown of non-essential businesses starting Tuesday, while Quebec's order will last until April 13.

Bombardier spokeswoman Anna Cristofaro said by email the company was "currently evaluating what today’s announcements from the Quebec and Ontario governments mean for our operations."

But an internal letter to Bombardier Aviation employees seen by Reuters said the company would be shutting down "all non-essential operations" in Quebec and Ontario until April 13, or further notice, to support the two governments' announcements.

Bombardier is set to become a "pure play" business jetmaker when it completes the sale of its rail division next year to France's Alstom SA .

Earlier on Monday, some of the workers at Bombardier's plant in Toronto were sent home after a contractor tested positive for the novel coronavirus called COVID-19, the union's acting plant chair Bill Bell said in an interview.

The worker got sick a week earlier and had stopped working at the plant since, said Bell of Unifor's local 112.

Cristofaro said "a positive case of COVID-19 has been confirmed relative to a contractor at this site, and the individual had already been in self-isolation since March 16, following proper Bombardier policy."

Bombardier has isolated team members at the facility and "continues to take all necessary measures to safeguard the health of all its employees," Cristofaro said.

The incident, combined with the new government restrictions, illustrate the challenge for manufacturing during the global outbreak which began four months ago and has so far infected more than 351,00 people and killed over 15,330, according to a Reuters tally.

On Monday, Boeing Co said it would halt production at its Washington state twin-aisle jetliner factory as a temporary measure to help fight the coronavirus outbreak.

(Reporting By Allison Lampert; Editing by Denny Thomas, Chris Reese and Tom Brown)

March 24 (Reuters) -

* BOMBARDIER - TO STOP PRODUCTION TEMPORARILY AT ALL OUR NORTHERN IRELAND SITES UNTIL APRIL 20

* BOMBARDIER - CRITICAL SUPPORT WILL BE REQUIRED TO CONTINUE DURING FURLOUGH, SOME EMPLOYEES REQUIRED TO WORK

* BOMBARDIER - FURLOUGH CONSISTS OF 3 WEEKS ON UK GOVERNMENT’S JOB RETENTION SCHEME, 5 DAYS' VACATION AT EASTER ON FULL PAY 

Further company coverage: (Reporting By Padraic Halpin)

Coal Is Now the World’s Most Expensive Fossil Fuel

Dan MurtaughBloomberg March 23, 2020


(Bloomberg) -- Coal, the dirtiest and usually the cheapest option for energy, is now the world’s most expensive fossil fuel.

Oil’s epic collapse over the past month means the global crude benchmark is now priced below the most widely traded coal contract on an energy-equivalent basis, according to Bloomberg calculations. Australia’s Newcastle coal on ICE Futures Europe settled at $66.85 a metric ton on Friday, the equivalent of $27.36 a barrel of oil. Brent futures ended at $26.98 a barrel.

While coal use in the U.S. and Europe has fallen because of cheap natural gas and renewables, as well as flat energy demand growth, consumption continues to rise in Asia, where it’s traditionally been the cheapest option for energy-hungry emerging markets. It’s also the dirtiest fossil fuel, emitting about twice as much carbon dioxide as natural gas and 30% more than gasoline when burned.

The new top price ranking, which is more a function of the sudden drop in crude prices than a surge in coal demand, must be sustained to incentivize switching plants and investments away from coal. In the short term, coal use in Japan could fall marginally this summer in favor of cheaper LNG, according to Goldman Sachs Group Inc.

The Newcastle contract represents coal for power generation use, which mostly has different supply and demand fundamentals than the oil market. Flight cancellations and travel restrictions may have slashed global petroleum use by as much as 20%, while Saudi Arabia and Russia are about to flood the market with extra supplies. That’s sent Brent down about 60% since the start of the year. Power markets in Asia that are the biggest customers for seaborne coal have been more resilient.

Newcastle coal, which is priced at Australia’s main loading port, has already been trading on an energy-equivalent basis above the Japan-Korea marker, the benchmark for liquefied natural gas in Asia, for most of this year.

©2020 Bloomberg L.P.

CNBC says Wall Street honchos talk to Trump about re-opening economy. Guest suggests this was a bad look. Chaos ensues

Wall Street shouldn’t be telling Main Street when it’s safe to go back to work, says Ben White of Politico



Published: March 24, 2020 By Greg Robb

A fight broke out on CNBC.

Ordinarily, maybe not so notable. But this argument was about when the U.S. economy might be able to re-open if and when the coronavirus pandemic eases, a question on everyone’s mind, not least President Donald Trump.

CNBC reported Tuesday that leading Wall Street traders like Third Point’s Dan Loeb, Blackstone’s Stephen Schwarzman, Vista Equity’s Robert Smith, Intercontinental Exchange’s Jeffrey Sprecher and Paul Tudor Jones participated on the call that touched on the question of restarting the economy.

Shortly after the call, Trump said he wanted the re-open the economy by Easter.

Ben White of Politico, a guest on the CNBC program, said the idea of Wall Street executives telling Americans when to go back to work was off-putting.

“I can’t tell you how awful the politics are of the idea that President Trump is on the phone with these billionaire investors who are losing money in the stock market and want all the plebes and the blue-collar folks to go back to work,” White said.

“These are the richest Americans who can easily socially distance themselves, telling everyone else to put themselves at risk,” he added,

The CNBC host, Scott Wapner, defended the phone call, saying he was told by a source that the discussion was “about a thoughtful way to try to get the economy back at the appropriate time.”

But it doesn’t work to have a date certain, White replied.

“I don’t see any reason why the people who were on the call today shouldn’t have been on the call,” Wapner said. “To suggest they were making the pleas that you describe, I don’t think it’s fair.”

White said he might have misconstrued the report, but noted that there is a reason that hashtags like “#NotWillingToDieForWallStreet” are trending.

Besides, Trump doesn’t have that authority, aside from some industries, and states don’t have to comply.

Marc Short, the chief of staff to Vice President Mike Pence, said later on CNBC that Trump might set out different coronavirus guidelines for different parts of the country.

Rex Nutting
Opinion: Why Trump’s hint about resuming our normal lives and reopening businesses would be the wrong thing to do now

There’s no reason to think the economy would do much better under full-fledged plague conditions

Not everyone is serious about social distancing. 

Getty Images

Published: March 24, 2020 By Rex Nutting


Should we just rip off the bandage?

President Donald Trump seems to think that we might be better off if we all resumed our normal lives in three weeks.

However, if we did, the scientists tell us, the coronavirus pandemic would certainly spread quickly throughout the population, with 100 million or more infected, and 2 million or so dying because they couldn’t get any health care. But then the crisis would be over within months.

Trump and some of his advisers suggest that the costs of social distancing are just too high, in economic as well as human terms. The cure might be worse than the disease, Trump said. Others are having the same conversation, even if they are coming to different conclusions.

Revving up the economy prematurely would be a very risky gamble in my view. It might not help the economy much at all. It’s quite possible that there is no trade-off between our lives and our livelihoods.

Read:Trump says he wants country ‘opened up’ by Easter

While resuming economic life before we flatten the curve would likely kill hundreds of thousands (if not millions), there is no guarantee that the economy could avoid a severe contraction even if we did it. It’s hard to see how the economy or the stock market SPX, +9.38% would fare much better in full-fledged plague conditions with millions of new cases every week and thousands of deaths a day.

There’s a better way, both economically and ethically. Many of the persistent economic costs of the recommended social-distancing measures could be avoided by underwriting systemic economic insurance to replace income that workers and businesses stand to lose while the economy is temporarily shut down to limit the spread.

Also read: We’ll need to keep the vital organs of the economy alive while we hunker down waiting for the pandemic to end

There’s no doubt that the pandemic creates all sorts of ethical issues about our individual and collective responsibility to others. For health-care workers, it presents the worst sort of dilemmas about who should live and who should die, given that we’re already running short of vital resources to treat everyone who needs care. Some will be saved, others will be left to die.

As a nation and as a species, we’re faced with ethical choices about how much we value human lives. The decision in this case is immeasurably more difficult because we don’t know with any certainty what the consequences of our actions might be. Unless we just recovered from COVID-19, we don’t even know with any certainty that we don’t have the deadly disease right this second. And we don’t know if those around us are infectious.

Here’s what we need to know: Will isolating ourselves to slow the spread of the disease make a big enough difference in terms of health to justify the cost? Are there effective ways to insure workers and businesses against insolvency so they can weather this storm and get back to work when it’s past? What would be the economic and health impact of telling people they are free to move around the country?

We have some guidance, even if this crisis seems unique. All the major religions and ethical systems impose an obligation on us individually and collectively to care for one another, even strangers.

What’s the value of a human life?

It may seem crass to bring money into this, but we assign a monetary value to life all the time. Individually, we decide how fast to drive based on a complicated and unconscious cost-benefit calculus. Collectively, we decide how much pollution is OK, how much contamination is acceptable in our food, and how much health care we are willing to provide to people with chronic and expensive diseases.

It’s pretty clear that our culture puts a very low value on some human lives at some times, but a very high one on others. A life that could be improved by expanding access to health care and education is not valued very much, but a life that could be saved by shutting down the economy is precious. Our politics has been consumed for decades over the question of how much we should value the life of a 12-week-old fetus.

Whenever they have been faced with existential crises, human civilizations have put a high value on life (at least on the lives of the elites). Nations have gone to war to protect the lives of just a few citizens. In this crisis, even the most authoritarian nations have come down on the side of valuing life more than gross domestic product.

It would take a wise ruler to make such a choice, but unfortunately we are fresh out. We are being led by people who can’t even get the basics of this right. What kind of person orders us not to gather in groups of more than 10 but then conducts daily news conferences with dozens of people in close proximity? What kind of person goes to the gym while waiting for his coronavirus test to turn positive?

Trump has never been shown any empathy for others, and seems to base all of his personal and political decisions entirely on what is in his own best interest. Don’t forget that Trump’s hotel and resort businesses are losing money every day they are closed. Trump’s calculation of this cost-benefit analysis might be different than yours or mine.

With an election coming up, Trump can’t be trusted to do the right thing. Solomon he’s not.

About the Author

Rex Nutting
Rex Nutting is a columnist and MarketWatch's international commentary editor, based in Washington. Follow him on Twitter @RexNutting.

Market rout leaves public pension funds nursing a nearly $1 trillion loss for fiscal 2020: Moody’s

As of March 20, public pension plans were on pace for an average investment loss of about 21% in the current fiscal year

Getty Images
Published: March 24, 2020 By Sunny Oh

The global rout of financial markets this year is putting pressure on state and local government pension funds in the U.S., many of which were already struggling to pay for the future retirement benefits of public-sector workers.

The hit to the returns of retirement systems for firefighters, police and civil service employees could, in turn, endanger the financial health of local governments that have to pick up the tab, according to a Tuesday report penned by analysts at Moody’s Investors Service.

“Recent U.S. public pension investment losses, which we estimate are approaching $1 trillion, stand to severely compound the pension liability challenge already facing many governments,” said Tom Aaron, vice president at Moody’s, in the note.

Since the financial crisis, such concerns have been shared by municipal bond analysts who have worried a slump in public pension funding levels after a recession could hurt the overall creditworthiness of municipalities.

As of March 20, public pension plans were on pace for an average investment loss of about 21% in the fiscal year ending on June 20, according to Moody’s estimate.

In stocks, the S&P 500 SPX, +9.38% was down more than 24% year-to-date, and the Dow Jones Industrial Average DJIA, +11.36% was on pace for a more than 27% drop over the same period. The major U.S. equity benchmarks managed to roll back a chunk of their losses on Tuesday amid expectations for a fiscal stimulus package to pass Congress soon.

Managers of pension funds for state and local governments have also grappled with the issue of lower interest rates.

On one hand, the fall in Treasury yields have lifted the value of pensions’ fixed-income portfolios, serving as ballast for the broader decline in financial markets.

But this has also had the effect of ballooning the overall liabilities of public pensions by lowering the average return they can expect from bonds, forcing pension fund managers to rely on volatile equity markets and other risky assets to make up for the shortfall.

The 10-year Treasury note yield TMUBMUSD10Y, 0.850% closed at 0.813% on Tuesday, down from around 1.91% at the start of the year, based on Tradeweb data.

Moody’s noted that markets still have the potential to bounce back.

But if stocks and other risky assets fail to stage a substantial rebound and cover the lost ground, the financial hit to public pension plans could leave a hefty bill for local and state governments to pick up.

“Without a dramatic bounceback of investment markets, 2020 pension investment losses will mark a significant turning point where the downside exposure of some state and local governments’ credit quality to pension risk comes to fruition because of already heightened liabilities and lower capacity to defer costs,” said Aaron.

Small investors and pension funds may be collateral damage, says economist who predicted coronavirus danger

Carl Tannenbaum, chief economist at Northern Trust, says risks that shadow banks were taking might soon be revealed

When the tide is low, you get a good look at the shape of all the boats in a harbor. iStockphoto

Published: March 24, 2020 By Greg Robb

In late February, two Federal Reserve officials, Cleveland Fed President Loretta Mester and Fed Vice Chairman Richard Clarida, spoke at a conference of top economists in Washington to give their outlook for the economy. Asked about the coronavirus, the officials said it was too early to tell how it might affect the U.S. economy.

As the audience filed out, Carl Tannenbaum, chief economist at Northern Trust, looked stricken.

The Fed was being ”tone-deaf,“ Tannenbaum said. Conventional wisdom — that the economy was going to have a short downturn, followed by a quick pickup — was very optimistic, he said.

Read: Inaction on coronavirus would be tone-deaf, economist says

A month later, Tannenbaum sighs when reminded of our conversation.

“No one could have predicted how prophetic that turned out to be,” he said.

Looking at the aggressive Fed actions over the past few weeks, Tannenbaum said he was impressed.

“The Fed got off to a slow start but got up to a sprint very quickly,” he said.

In addition to cutting its benchmark rate close to zero, the Fed has thrown the kitchen sink at the credit markets, trying to get money to all corners of the financial markets including municipal bonds, student loans, and commercial paper.

Only a few weeks ago, there a concern that the reforms Congress engineered in the wake of the 2008 financial crisis would have hamstrung the central bank during the next crisis. But that turned out not to be.

“If there is any impairment to Fed powers, it has not been apparent,” Tannenbaum said.

The Fed’s actions are aimed in part at breaking the sense of fear that has gripped financial markets, with investors seeking cash. Everyday Americans who are not investors need to know that helping out markets is helping Main Street, he said.

“The broad failure of the financial system is no good for anybody,” Tannenbaum said.

But Congress must follow through with stimulus to drive the message hope that this isn’t just about helping Wall Street, and that there would be help for average Americans, he said.

Some of the small business loans and direct checks under consideration seem a bit clunky and Tannenbaum worries that the relief won’t arrive until too late.

“It could be weeks before relief gets out. How many businesses are going to be at the breaking point?” he asked.

Mass layoffs would slow any recovery.

Tannenbaum said he hoped there would be some sort of national holiday for credit card payments or mortgages would be just the direct relief that some families are desperately hoping for.

It was also good news that there hasn’t been the need for any bailouts, Tannenbaum said. Banks look to be in strong position.

Going forward, Tannenbaum said he would be watching closely to see if any shadow banks, like hedge funds and mutual funds, or if investment products struggle.

There could be a ‘democracy” of loss if some small investors or pension funds invested in risky products, or firms.

“Some small investors or [pension] funds might own hedge funds or mutual funds who could struggle in the weeks ahead,” he said

In 1994, Orange County California had to file for bankruptcy after billions of dollars in Wall Street loans tied to risky derivative made to its investment fund went sour after a surprise Fed interest-rate hike.

Paraphrasing Warren Buffett, the tide has gone out and we’re about to find out who was swimming without a swim suit, Tannenbaum said.

The Fed’s hundreds of billion of dollars in loans programs are aimed at preventing “that kind of crack” in the financial system, he said.

U.S. equity benchmarks finished sharply higher on Tuesday on hopes of a quick end to negotiations over a roughly $1.8 trillion coronavirus stimulus package. The Dow Jones Industrial Average DJIA, +11.36% soared over 11%.

China will emerge from the coronavirus crisis stronger than the U.S., experts warn

China has, so far, won the propaganda battle over which superpower can best handle a pandemic

AFP/Getty Images
Published: March 24, 2020 By Chris Matthews

The coronavirus pandemic gripping the globe may have its origins in China, but experts say that current trends indicate the crisis will leave it in a much stronger position geopolitically relative to the United States.

“The Chinese are in a much stronger position than they have been coming out of any recent global crisis,” Ian Bremmer, president and founder of the Eurasia Group, told MarketWatch.


“They own most of the global medical supply chain. They’ve basically contained the virus through technology-powered, authoritarian surveillance, and they’ve leveraged this success by providing aid to Europe and emerging markets,” in the fight against COVID-19.

Even as China’s economy has taken a large hit from the outbreak, and will continue to suffer from falling global demand as it spreads throughout Europe and the United States, the country does appear to be opening for business, with the city of Wuhan — where the outbreak began in December — scheduled to lift its lockdown next week.


Carl Weinberg, founder and chief economist at High Frequency Economics, said in an interview that while it may be too early to declare the Chinese economic recovery underway, policy makers there appear to have a better handle of the situation. “The Chinese built a hospital with 2,000 beds in 10 days from start to finish,” he said. “They started building it in January before the pandemic was fully recognized. We’re way behind the curve on it.”

Meanwhile, the U.S.-China relationship has deteriorated in recent weeks, as Chinese and American leaders have sought to blame one another for the pandemic. On Tuesday, Sen. Josh Hawley of Missouri said there should be an international investigation “into the origins of the coronavirus,” and submitted legislation that calls for China to provide compensation for the economic impact.




Rising tensions, and what has so far been an American inability to stop the acceleration of new cases, are likely to lead to further decoupling of the U.S.-China economic relationship and push Europe into the arms of China, said Edward Alden, senior fellow at the Council on Foreign Relations.

“The pandemic is going to reinforce that the United States is simply not the highly functional, advanced role model it used to be,” he said in an interview. “The Europeans have, in the past, looked at the U.S. with a fair degree of awe,” because of its innovative companies, strong university system and the ability to attract highly skilled immigrants.

“We are on a trajectory now to have a worse outbreak than Italy,” he warned. “This is going to reinforce the impression that the U.S. has nothing to teach the rest of the world.”

The implications of what appears to be a pending geopolitical victory will be far-reaching for U.S. economy and businesses, said Eurasia Group’s Bremmer. “This will accelerate the deglobalization trend in data and manufacturing. It means that on issues like Huawei and 5G, the Europeans are less likely to follow the United States. And it increases the ability of the Chinese to follow its standards and join initiatives like One Belt, One Road,” a Chinese global development strategy.

There may still be time for the U.S. to get the crisis under control and save face on the global stage. Serious social distancing measures have only been in place for a little more than a week in the hardest-hit areas of the United States, so it remains to be seen what effect they will have on containing the virus to already known hot spots like New York City, or on slowing the spread of the virus in those places.

But with President Donald Trump announcing that he’d like to have the economy “opened up,” by the April 12 Easter holiday, he runs the risk of convincing his supporters that the dangers posed by the virus have passed, before we understand the scope of the problem.

“Right now Americans are believing the same thing about the crisis,” Bremmer said. “In four weeks time that might not be true. If half this country believes the crisis has passed, we’re going to have a lot more outbreaks.”

Ford partners with GE, 3M to build ventilators, COVID-19 protective equipment
Car maker empowers teams to be ‘scrappy and creative’ to quickly boost production of GE Healthcare ventilators, 3M’s air purifiers and PPEs
Everett Collection
Published: March 24, 2020 By Tomi Kilgore

A car maker, industrial conglomerate and Post-it Notes maker said Tuesday they are working together to help ease the COVID-19 national emergency, as they look to boost production of equipment to help prevent the spread of the novel coronavirus.

“This is such a critical time for America and the world. It is time for action and cooperation,” said Bill Ford, executive chairman at Ford Motor Co. “By coming together across multiple industries, we can make a real difference for people in need and for those on the front line of this crisis.

Ford F, +23.44% and General Electric Co.’s GE, +14.73% health care unit are collaborating to accelerate the production of much-needed ventilators. Ford said it would provide its technical and production expertise to manufacture a simplified design of GE Healthcare’s existing ventilators.

The announcement comes as New York Gov. Andrew Cuomo pleaded for thousands of ventilators to be sent to New York within the next 14 days to deal with an expected severe shortage. New York has been the U.S. epicenter of the COVID-19 outbreak with at least 125 deaths.

“We are encouraged by how quickly companies from across industries have mobilized to help address the growing challenge we collectively face from COVID-19,” said GE Healthcare Chief Executive Kieran Murphy. “We are proud to bring our clinical and technical expertise to this collaboration with Ford, working together to serve unprecedented demand for this lifesaving technology and support clinicians as they meet patient needs.”

Ford also is teeming up with 3M Co. MMM, +12.59%, the maker of consumer products such as Post-it Notes and Scotch tape, but also of health care equipment, to boost production of powered air purifying respirators (PAPR) and other personal protective equipment (PPE). 3M also makes surgical masks and respirators.

“We’re exploring all available opportunities to further expand 3M’s capacity and get health care supplies as quickly as possible to where they’re needed most – which includes partnering with other great companies like Ford,” said 3M Chief Executive Mike Roman.

Ford is helping with ways to increase the manufacturing capacity of 3M’s PAPR designs and collaborating on developing a new design, using parts from both companies. The companies have been locating “off-the-shelf” common parts to make the PAPRs, including fans from the Ford F-150 trucks’ cooled seats for airflow, 3M HEPA air filters to filter airborne contaminants and portable tool battery packs to power the respirators.

“Working with 3M and GE, we have empowered our teams of engineers and designers to be scrappy and creative to quickly help scale up production of this vital equipment,” said Ford Chief Executive Jim Hackett.

Ford, GE and 3M aren’t the first companies to get creative as the fight the COVID-19 crisis. CVS Health said Monday it planned to hire the furloughed employees of its customer Marriott International Inc. MAR, +12.84% and Hilton Worldwide Holdings Inc. HLT, +9.56%, and mall real-estate investment trust Washington Prime Group Inc. WPG, +10.09% offered to use its open air malls as distribution centers for medical supplies, COVID-19 testing centers and food depositories while the malls are closed for retail business.

See related: CVS plans to hire furloughed workers from its customers as companies get creative during coronavirus pandemic.

And last week, Carnival Corp. CCL, +14.00% offered to use some of its empty cruise ships as temporary hospitals to treat non-COVID-19 patients, to free up additional for land-based hospitals to treat COVID-19 cases.

Ford also said Tuesday it was volunteering facilities for additional production of medical equipment, as well as using its 3-D printers to make disposable respirators. Ford is also starting to test transparent full-face shields for medical workers and first responders.

Separately, GE Healthcare has provided information on its website, in alignment with guidance from the U.S. Food and Drug Administration, on the use of its anesthesia devices for patients requiring mechanical ventilation. “Clinicians can use these details in the treatment of patients at their discretion,” GE Healthcare said in a statement.

The news from Ford, GE and 3M comes as each has struggled in their core businesses as a result of the COVID-19-related drop in demand. GE’s stock closed at a 28-year low on Monday, while 3M shares ended at a 7-year low. Ford’s stock, which was downgraded to neutral from buy at UBS on Tuesday, closed Monday at an 11-year low. Meanwhile, the S&P 500 index SPX, +9.38% closed at a 3-year low on Monday.

See also: GE’s stock falls to 28-year low after aviation unit cuts jobs as coronavirus weighs.

On Tuesday, U.S. stocks soared, with the blue-chip Dow Jones Industrial Average DJIA, +11.36% rising 2,113 points, or 11.4%, amid optimism that Congress could soon agree to a massive fiscal stimulus package to help soften the economic blow of the coronavirus.

“We are focusing our efforts to help increase the supply of respirators, face shields and ventilators that can help assist health care workers, first responders, critical workers as well as those who have been infected by the virus,” said Ford’s Hackett.

SCUMBAG OF THE WEEK

Owner of the NBA’s 76ers wanted to cut pay of coaches and staff by 20%, but reverses decision

Team co-owner Josh Harris, of Apollo Global Management, also wanted to cut pay for the New Jersey Devils, which he also co-owns
Josh Harris says after listening to his staff and players, 

it’s clear that the pay cuts were the wrong decision. 

AP Photo/Bill Kostroun


March 24, 2020 By Weston Blasi

The Philadelphia 76ers and the New Jersey Devils have reversed course and have decided against forcing a 20% salary reduction on team employees. The news comes a day after announcing temporary pay cuts due to the economic impact of the coronavirus outbreak.

Both the Philadelphia 76ers and the New Jersey Devils are owned by Josh Harris and David Blitzer. Harris co-founded Apollo Global Management and has a net worth of $3.8 billion, according to Forbes.

The NBA recently suspended its regular season for at least 30 days, and potentially longer.

There was apprehension among members of the Sixers coaching staff and front office staff on giving back money — especially with the uncertainty surrounding the future of their employment, according to ESPN.

Co-owner Josh Harris says after listening to his staff and players, it’s clear that the pay cuts was the wrong decision.

“This is an extraordinary time in our world — unlike any most of us have ever lived through before — and ordinary business decisions are not enough to meet the moment. To our staff and fans, I apologize for getting this wrong.”

Employees’ benefits were never changed and the teams plan on keeping their 1,500 hourly workers paid throughout the regular season.

The Associated Press contributed to this article.

Bow and Arrow Hunting
The invention of bow and arrow hunting is at least 65,000 years old
San Bushman Rock Art, Sevilla Rock Art Trail, Traveller's Rest, Cederberg Mountains, Clanwilliam, Western Cape Province, South Africa. Hein von Horsten / Getty Images
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By
K. Kris Hirst
Updated May 19, 2019

Bow and arrow hunting (or archery) is a technology first developed by early modern humans in Africa, perhaps as long as 71,000 years ago. Archaeological evidence shows that the technology was certainly used by humans during the Howiesons Poort phase of Middle Stone Age Africa, between 37,000 and 65,000 years ago; recent evidence at South Africa's Pinnacle Point cave tentatively pushes the initial use back to 71,000 years ago.

However, there is no evidence that the bow and arrow technology was used by people who migrated out of Africa until the Late Upper Paleolithic or Terminal Pleistocene, at most 15,000-20,000 years ago. The oldest surviving organic elements of bows and arrows only date to the Early Holocene of about 11,000 years ago.

RECENT DISCOVERY PUTS THIS DATE BACK 20,000 YEARS

Africa: Middle Stone Age, 71,000 years ago.

Europe and Western Asia: Late Upper Paleolithic, although there are no UP rock art paintings of archers and the oldest arrow shafts date to the Early Holocene, 10,500 BP; the earliest bows in Europe are from the bog site of Stellmor in Germany, where 11,000 years ago someone lost a pine arrow shaft with nocks in the end.
Japan / Northeast Asia: Terminal Pleistocene.
North / South America: Terminal Pleistocene.

Making a Bow and Arrow Set

Based on modern-day San Bushmen bow-and-arrow manufacture, existing bows and arrows curated in South African museums as well as archaeological evidence for Sibudu Cave, Klasies River Cave, and Umhlatuzana Rockshelter in South Africa, Lombard and Haidle (2012) operationalized the basic process of making a bow and arrows.

To make a bow and a set of arrows, the archer needs stone tools (scrapers, axes, woodworking adzes, hammerstones, tools for straightening and smoothing wooden shafts, flint for making fire), a container (ostrich eggshell in South Africa) for carrying water, ochre mixed with resin, pitch, or tree gum for adhesives, fire for blending and setting the adhesives, tree saplings, hardwood and reeds for the bow stave and arrow shafts, and animal sinew and plant fiber for binding material.

The technology for making a bow stave is close to that of making a wooden spear (first made by Homo heidelbergensis more than 300,000 years ago); but the differences are that instead of straightening a wooden lance, the archer needs to bend the bow stave, string the bow, and treat the stave with adhesives and fat to prevent splitting and cracking.

How Does It Compare to Other Hunting Technologies?

From a modern standpoint, the bow and arrow technology is definitely a leap forward from lance and atlatl (spear thrower) technology. Lance technology involves a long spear which is used to thrust at prey. An atlatl is a separate piece of bone, wood or ivory, that acts as a lever to increase the power and speed of a throw: arguably, a leather strap attached to the end of a lance spear might be a technology between the two.

But bow and arrow technology has a number of technological advantages over lances and atlatls. Arrows are longer-range weapons, and the archer needs less space. To fire off an atlatl successfully, the hunter needs to stand in big open spaces and be highly visible to his/her prey; arrow hunters can hide behind bushes and shoot from a kneeling position. Atlatls and spears are limited in their repeatability: a hunter can carry one spear and maybe as many as three darts for an atlatl, but a quiver of arrows can include a dozen or more shots.

To Adopt or Not to Adopt

Archaeological and ethnographic evidence suggests that these technologies were rarely mutually exclusive—groups combined spears and atlatls and bows and arrows with nets, harpoons, deadfall traps, mass-kill kites, and buffalo jumps, and many other strategies as well. People vary their hunting strategies based on the prey being sought, whether it is big and dangerous or wily and elusive or marine, terrestrial or airborne in nature.

The adoption of new technologies can profoundly affect the way a society is constructed or behaves. Perhaps the most important difference is that lance and atlatl hunting are group events, collaborative processes that are successful only if they include a number of family and clan members. In contrast, bow and arrow hunting can be achieved with just one or two individuals. Groups hunt for the group; individuals for the individual families. That is a profound social change, affecting almost every aspect of life including who you marry, how big is your group, and how status is conveyed.

One issue that might also have affected the adoption of the technology may be that bow and arrow hunting simply has a longer training period than atlatl hunting. Brigid Grund (2017) examined records from modern competitions for atlatl (Atlatl Association International Standard Accuracy Contest) and archery (Society for Creative Anachronism InterKingdom Archery Competition). She discovered an individual's atlatl scores increase steadily, showing improvement in skill within the first few years. Bow hunters, however, do not begin to approach maximum skill until the fourth or fifth year of competition.

The Great Technology Shift

There is much to be understood in the processes of how technology changed and indeed which technology came first. The earliest atlatl we have dates to the Upper Paleolithic, only 20,000 years ago: the South African evidence is quite clear that bow and arrow hunting is much older still. But archaeological evidence being what it is, we still don't really know the complete answer about the dates of hunting technologies and we may never have a better definition of when the inventions occurred than "at least as early as".

People adapt to technologies for reasons other than just because something is new or "shiny". Every new technology is characterized by its own costs and benefits for the task at hand. Archaeologist Michael B. Schiffer referred to this as "application space": that the level of adoption of a new technology depends on the number and variety of tasks that it could be used on, and which it is best suited to. Old technologies are rarely completely obsoleted, and the transition period can be very long indeed.

Sources
Angelbeck B, and Cameron I. 2014. The Faustian bargain of technological change: Evaluating the socioeconomic effects of the bow and arrow transition in the Coast Salish past. Journal of Anthropological Archaeology 36:93-109.
Bradfield J. 2012. Macrofractures on bone-tipped arrows: analysis of hunter-gatherer arrows in the Fourie collection from Namibia. Antiquity 86(334):1179-1191.
Brown KS, Marean CW, Jacobs Z, Schoville BJ, Oestmo S, Fisher EC, Bernatchez J, Karkanas P, and Matthews T. 2012. An early and enduring advanced technology originating 71,000 years ago in South Africa. Nature 491(7425):590-593.
Callanan M. 2013. Melting snow patches reveal Neolithic archery. Antiquity 87(337):728-745.
Coolidge FL, Haidle MN, Lombard M, and Wynn T. 2016. Bridging theory and bow hunting: human cognitive evolution and archaeology. Antiquity 90(349):219-228.
Erlandson J, Watts J, and Jew N. 2014. Darts, Arrows, and Archaeologists: Distinguishing Dart and Arrow Points in the Archaeological Record. American Antiquity 79(1):162-169.
Grund BS. 2017. Behavioral Ecology, Technology, and the Organization of Labor: How a Shift from Spear Thrower to Self Bow Exacerbates Social Disparities. American Anthropologist 119(1):104-119.
Kennett DJ, Lambert PM, Johnson JR, and Culleton BJ. 2013. Sociopolitical Effects of Bow and Arrow Technology in Prehistoric Coastal California. Evolutionary Anthropology: Issues, News, and Reviews 22(3):124-132.
Lombard M, and Haidle MN. 2012. Thinking a Bow-and-arrow Set: Cognitive Implications of Middle Stone Age Bow and Stone-tipped Arrow Technology. Cambridge Archaeological Journal 22(02):237-264.
Lombard M, and Phillipson L. 2010. Indications of bow and stone-tipped arrow use 64,000 years ago in KwaZulu-Natal, South Africa. Antiquity 84(325):635–648.
Whittaker JC. 2016. Levers, Not Springs: How a Spearthrower Works and Why It Matters. In: Iovita R, and Sano K, editors. Multidisciplinary Approaches to the Study of Stone Age Weaponry. Dordrecht: Springer Netherlands. p 65-74.

Opinion: Suspending the Social Security payroll tax is a terrible idea

It doesn’t solve today’s problems and sets bad precedents in terms of messing with the program

March 24, 2020 By Alicia H. Munnel

I know that the president’s proposal for a Social Security payroll tax cut has met with little enthusiasm in Congress. But let’s put it to rest for good. It’s not the appropriate response to the COVID-19 crisis, and it’s best not to fool around with the nation’s most valuable program.

As I understand it, the initial notion was to suspend until the end of the year both the employee and employer portions of the payroll tax. That is, the government would stop collecting the 6.2% Social Security tax on the first $137,700 of earnings paid by the employer and the employee. It would also eliminate the 1.45% Medicare tax paid by both parties. Self-employed workers would be entirely relieved of the 15.3% they pay.

Such a cut would involve a massive loss of revenues. The Congressional Budget Office reports that total payroll taxes in 2019 amounted to $1.2 trillion. The proposed suspension is far more ambitious than the relief provided in 2011 and then extended through 2012, which reduced the Social Security payroll tax rate by 2 percentage points for employees and the self-employed.

In the 2011-12 period, the law provided that the Treasury make up for this reduction by reimbursing the trust fund with general revenues. Thus, the earlier cut had no direct financial implications for the short- or long-term outlook of Social Security. I presume the mechanics would work the same way under the current proposal.

The problem is that a payroll tax cut is the wrong medicine for our current problems

First, in terms of providing support to families, the major problem is people losing their jobs. A payroll tax cut only helps those who are working and not those furloughed or quarantined as a result of the virus. Second, in terms of a general stimulus, any relief would be dribbled out in bits and pieces. The worker earning $50,000 would see $74 a week from the employee tax cut. The impact of the cut of the employer’s tax would depend on the extent to which employers pass on their relief in terms of higher wages. Moreover, people do not respond very much to cuts they know are temporary.

In terms of the Social Security program, financing it through a general revenue transfer from the Treasury would be a big departure from financing it by an earmarked tax. It would break the link between contributions and benefits. In addition, while a general revenue transfer would not technically affect the program’s financial balance, it would have the potential of making Social Security’s shortfall look bigger to policy makers.

When considering changes to eliminate the long-run deficit in the program, Congress not only would have to find money to cover the 2.78% of taxable payroll reported in the 2019 Trustees Report, it would also have to consider the reaction of workers and employers when the current 12.4% payroll tax is reinstated after the suspension period ends. Solving the problem on the revenue side, which last year looked trivial, could now appear daunting.

In short, suspending the payroll tax is an ineffectual and potentially dangerous step. Let’s make sure that the idea doesn’t gain any momentum.