Authors Glenn Hubbard and Tony O’Brien look at the economic outlook given the current status of the presidential election. Will a divided government lead to economic prosperity or result in more gridlock? They discuss how much the President actually controls economic policy by setting the tone but that other instruments of our government likely have more effect in creating long-term growth in the Economy.
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Authors Glenn Hubbard and Tony O’Brien discuss the economic impacts of what was discussed in the final Presidental debate on 10/22/20. They discuss wide-ranging topics that were raised in the debate from reopening the economy & schools, decreasing participation of women in the workforce due to COVID, healthcare, environment, and general tax policy. Listen to gain economic context on these important items. Click HERE for the New York Times article discussed during the Podcast:
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Advances in technology and expanding international trade have disrupted some key U.S. industries. These developments have made new products available, lowered the prices of existing products, and fostered the creation of new companies and new jobs. Yet, there has also been a downside. Some U.S. manufacturing firms have disappeared and some workers have been left unemployed for long periods. How can economists help frame a discussion about policies that will help everyone participate as the economy continues to evolve? Glenn Hubbard discusses a new approach in his article “The Wall and the Bridge”, published in National Affairs in September 2020.
Glenn & Tony address questions asked of Glenn during a recent virtual class visit to Eva Dziadula’s Principles of Economics class at the University of Notre Dame. They deal with Glenn’s tenure with the CEA and his feelings on the current challenges facing the CEA. They also discuss career options for Economists and how an economic way of thinking will help in any career.
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Authors Glenn Hubbard and Tony O’Brien continue their weekly discussion about the effects of the Pandemic on the US Economy. They discuss the disconnect between stock market performance and the overall economy. Also, they look at the decision of restaurants to stay open despite struggling to breakeven due to limitations on indoor seating. The Fed’s pivot on the dual-mandate is also discussed as they announce more of their monetary policy focus will be on unemployment rather than inflation.
Over the next several weeks, we will be gearing up this podcast to become an essential listen during your week. Whether your interest is teaching or policy, you will learn from this discussion.
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Authors Glenn Hubbard and Tony O’Brien revisit some of the policy responses to the Pandemic to discuss unemployment payments and other government fiscal responses. They also consider some of the longer-term impacts on business – like supply-chains – and the role that Economics can play in these issues. Glenn and Tony discuss how tourism is impacted in places like Orlando or college towns without college football as an economic engine.
Over the next several weeks, we will be gearing up this podcast to become an essential listen during your week. Whether your interest is teaching or policy, you will learn from this discussion.
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Glenn Hubbard and Tony O’Brien talk about the effects of the Covid-19 pandemic as we head into fall classes. They discuss the impact on teaching and learning as well as a fresh look at the impact of government policies over the past few months. The challenges facing the US economy are discussed as well as how the Nike swoosh or V-downturn is now looking somewhat differently in August 2020. We will begin doing WEEKLY podcasts as we head into Fall of 20202. Please look for new episodes at the end of each week and please subscribe to our Podcast feed via your preferred Podcast app – including iTunes Podcasts!
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Glenn Hubbard and Tony O’Brien talk with Kim Holder of the University of West Georgia. Kim discusses many best practices in preparing for her fall courses that are so flexible they can easily adapt to in-person, hybrid, or online. Listen to her observations about the delicate nature of discussing COVID-19 in classes this fall as well as her passion for personal financial literacy in the wake of the traumatic event. Both instructors and students will learn from what Kim has to say!
Links for podcast of June 12th, 2020 with Kim Holder of the University of West Georgia:
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Glenn Hubbard and Tony O’Brien continue their podcast series hosting guest – Professor Bill Goff of Penn State University. In talking with Bill, we discuss the challenges of teaching online during the Pandemic this past spring. We talk some about unemployment as well as hearing how Bill how he developed his passion for photography in his travels around the world. The image on this post was a picture of the Milky Way taken by Bill in North Central Pennsylvania!
Links for podcast of May 29, 2020 with Bill Goffe of Penn State
Apply the Concept: If the Economy Is Down, Why Is the Stock Market Up?
Here’s the Key Point: In determining a firm’s stock price, the firm’s current profitability is less important than its expected future profitability.
The price of a share of stock reflects the profitability of the firm that issued it. During economic recessions, firms experience declining sales and profits and the prices of their stocks fall. We saw such a decline at the beginning of the downturn caused by the Covid-19 pandemic in 2020. As the following figure shows, the S&P 500 stock market price index reached a high the week ending on February 14. By the week ending on March 20, this index had declined by 29 percent.
On the figure, the shaded area shows the weeks during this period when the economy was in a recession. We are dating the beginning of the recession using the Weekly Economic Index published by the New York Federal Reserve and compiled by James Stock of Harvard, Daniel Lewis of the New York Federal Reserve, and Karel Mertens of the Dallas Federal Reserve. The index is comprised of 10 economic variables including sales in retail stores, claims by laid off workers for government unemployment insurance payments, steel production, and railroad freight traffic.
Notice two things about the figure:
Stock prices began to fall in mid-February 2020, about a month before the recession began in mid-March. This result is not surprising because the stock market is often a leading indicator, that is, stock prices tend to decline before production and employment fall. The incomes of professional stock traders and managers of mutual funds and exchange-traded funds (ETFs) depend in part on their ability to sell stocks before their prices decline and buy them before their prices increase. So these finance professionals have a strong incentive to attempt to anticipate changes in the economy before they occur.
Stock prices began to rise in mid-March while the economy was still in recession. In fact, the S&P 500 stock index increased more than 20 percent between mid-March and early May even though, as measured by the WEI, the economic recession was becoming worse as production and employment were rapidly declining. This result surprised many people who had trouble understanding how, as the headline of an article in the New York Times put it: “The Bad News Won’t Stop, but Markets Keep Rising.”
Both these points reflect the same key fact about the stock market: Although a firm’s stock price depends on the firm’s profitability, the firm’s current profitability is less important than its expected future profitability. You wouldn’t pay much for the stock of a firm that was making a profit today but that you expect will be driven out of business in the future by another firm about to introduce a superior competing product. Even though the profitability of most firms in the United States had yet to decline in mid-February, many investors were beginning to fear that Covid-19 would have a major effect on the U.S. economy, so stock prices began to decline.
Why then did stock prices turnaround and begin to rise only a month later, and why did they rise and fall significantly on many days? Those swings in stock prices reflected a key result of investors interacting in financial markets: Buying and selling of financial assets like stocks results in the prices of those assets fully reflecting all the available information relevant to the value of the assets. In the case of the stock market, buying and selling stock results in stock prices reflecting all available information on the future profitability of the firms issuing the stock. New information that is favorable to the future profitability of a firm—for instance, Apple announces that iPhone sales have been higher than investors expected—will lead investors to increase demand for the firm’s stock, raising its price. The opposite happens when new information becomes available that is unfavorable to the future profitability of a firm.
Because new information becomes available continually, we would expect stock prices to change day-to-day, hour-to-hour, and minute-to-minute. Stock prices for the market as a whole, as reflected in stock price indexes like the S&P 500, will rise and fall as new information becomes available on the future strength of the economy. During the Covid-19 pandemic, investors were particularly concerned with the following four issues:
The development of new medical treatments for the disease, particularly vaccines.
The effectiveness of government programs, such as loans to businesses, that were intended to help the economy recover from the effects of the lockdowns used to reduce the spread of the virus.
The ability of the economy to adjust to the possibility that the virus might persist in some form for years.
The willingness of consumers to resume buying goods and services, such as restaurant meals and movie tickets, that seemed particularly affected by the virus.
Optimistic news about these factors, such as successful early trials of a vaccine for use against Covid-19, caused sharp increases in stock prices and pessimistic news caused prices to fall. For example, here are the percentage changes in the S&P 500 stock price index for consecutive trading days in mid-March (the stock market is closed on Saturdays and Sundays):
Stock prices are rarely this volatile. Wall Street investment professionals spend a great deal of effort gathering all possible information about the future profitability of firms, but in this period they had difficulty interpreting the importance of new information. No investor had experienced a pandemic as severe as Covid-19, so it was particularly challenging for them to determine the implications of new information for the likely future strength of the economy and, therefore, to the profitability of firms.
The large fluctuations in stock prices were another indication of how unusual an event the Covid-19 pandemic was and the difficulty that investors had in understanding its likely long-run effects on the U.S. economy.
Sources: Matt Phillips, “The Bad News Won’t Stop, but Markets Keep Rising,” New York Times, April 29, 2020; and Federal Reserve Bank of St. Louis.
Question:
In May 2020, an article in New York Magazine noted that, “The stock market zoomed on Monday in response to very preliminary positive news about a vaccine” being tested by the pharmaceutical firm Moderna. Positive news about one of its products might be expected to increase Moderna’s future profits and the price of its stock, but why would prices of many other stocks increase on this news?
For Economics Instructors that would like the approved answers to the above questions, please email Christopher DeJohn from Pearson at christopher.dejohn@pearson.com and list your Institution and Course Number.
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