What is happening out there? Airbnb confidentially filed for its IPO last week. In the spring, the company laid off 2,000 employees and was negotiating over the terms of two fundraising deals totaling $2 billion in debt and equity.

However, total consumer spending on Airbnb in July was 22% higher than in the same period last year, according to Edison Trends. According to the company, it surpassed 1 million bookings on a single day that same month, led by an increase in stays at nearby destinations.

So, are we returning to normal? I would answer no, but there is hope. Normal is a long way away as people are still scared and want to social distance. However, given we can only take so much of staring at the same four walls, we are heading on vacation. Those vacations may not be the ones of pre-COVID days with cruises, trips abroad, or all-inclusive resort, but booking a house for just our family or close friends that we trust, works! Thus as the company reported, bookings are up for close to home destinations, basic economic substitution.

Along with other reports, consumer spending has increased during the pandemic, and I put that down to the fact that we are not spending as much on other things, e.g., commuting, sports, and meals out. However, will that spending last? Last week the Labor Department reported first-time jobless claims increased to 1.1 million, and it was the 22nd consecutive week claims exceeded those during the worst week of the Great Recession. On the positive side, the total number of Americans collecting unemployment fell from 15.5 million to 14.8 million, the lowest since early April. This data goes to show that the recovery will not be quick and a V-curve.

Where exactly are we headed, I am not sure. I hear lots of talk of continued layoffs ahead with about Wells Fargo and Boeing announcing more cuts as well as many smaller companies planning layoff. There is a sense of uncertainty over Q4 2020 and Q1 2021, and expect many are taking a wait and see approach. However, with school restarting, albeit in a confused manner, the Federal Unemployment Benefits in unchartered waters, and Congress in gridlock, there is a lot of confusion out there.

However, as an old Keynesian, the amount of stimulus that the government has poured into the economy is why we are experiencing a robust recovery to date. According to economic theory, in a world of excess capacity and mass unemployment, a combination of vast government borrowing with monetary expansion will not fuel inflation until most of the excess capacity is exhausted, which is where we are now. A Keynesian fiscal stimulus financed with negative real interest rates will boost private consumption and investment and should generate above-trend economic growth. Before the cry of “Crowding Out,” arises from many as I heard during the Great Recession, where all indications showed none. Currently, with central banks worldwide committing to financing this Keynesian stimulus with zero or negative interest rates for years ahead, there is no risk that public borrowing will crowd out private investment.

Thus, will this Keynesian stimulus lead to a healthier and longer growth economy? I would put that down to two factors.

1. As always, public health. The sooner we adopt and proactive, data, and science-driven approach to the COVID crisis, the sooner we return to a functioning economy. Cases are rising again in Europe, which indicates that this is a marathon and not a sprint. I know for many, it already feels like a marathon, but the more apt analogy is the British in September 1939 saying, “It’ll all be over by Christmas!”
2. The Stimulus. The actions by the Fed and the Congress, through the CARES Act, have injected substantial stimulus into the economy. However, as these have ended, we will have to observe to see what happens. As in the Great Recession, Congress stopped the stimulus too soon, for political reasons, which lead to a much weaker recovery than there should have been. Hopefully, this time, they will put the country first and give the economy what it needs to recover.

A lot of economists are arguing that the stock market is pricing in continuous stimuli for the economy, and if Congress fails to deliver the will, a market correction to accompany the economic contraction.

For those gnashing their teeth and anguishing over a Keynesian expansion, it is worth remembering that the 20 years of broadly Keynesian macroeconomic policy in place from 1946 until the late 1960s saw the most robust economic growth and productivity advances ever recorded. At the same time, we experienced generally moderate inflation and almost continuous bull markets in equities, property, and other real-value assets.

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Larry Kudlow is at it again. Last Sunday, on CNN, he said the economy is getting better, fast. Among his many statements were:

• “I don’t think the economy is going south; I think it’s going north.” The economy fell 32% on an annualized basis in Q2. While there was an improvement in late Q2, it appears to be reversing as cases and deaths rise in the South and West.
• “You’re in a housing boom right now.” Building permits fell by 30% in Q1 and 10% in Q2 over 2019.
• “You’re in a retail-sales boom right now.” While retail sales recovered in July, they were down 25% in Q2 and are still below last year.
• “You’re in an auto car boom right now.” On July 29, GM reported second-quarter U.S. vehicle sales declined roughly 34.1% over the last year.
• “Manufacturing—look at the ISM indexes—all are booming.” For Q1, manufacturing productivity was down 30% over the prior year, for Q2 70%. While there was a glimpse of recovery in June, we will have to see if it holds, but we have a long way to get to “booming.”
• “New business applications are skyrocketing.” Business applications were down 2.9% in Q1 and rose 2% in Q2 over the prior year. Again some improvement, but skyrocketing, I think not.
• “The jobs picture remains strong.” The unemployment rate declined from 14.7% in April to 11.1% in June; however, the trend is once more reversing. With such high numbers, “strong” is far fetched.
• “Economic recession? I don’t buy it.” The Definition of an economic recession is two consecutive quarters of economic decline. A 5% fall in Q2 and 32% fall in Q2, I believe, meets the criteria.
• “The V-shaped recovery is in place. There is going to be a 20% growth rate in the third and fourth quarters.” The Conference Board is expecting 20.6% GDP growth in Q3 but 0.8% in Q4.

Now I understand that the administration is trying to push the narrative that the economy is excellent, and we must return to “normal.” However, as I have said many times before, this is a public health crisis, and until we fix the public health crisis, we cannot fix the economy. The surge in cases and deaths through the South and West have harmed the economy in those areas. As the COVID cases stabilize and fall, they should rebound. However, we are now seeing cases starting to surge in the middle of the country. Next up is the winter with flu season and more COVID cases as people stay indoors.

Many good CEOs believe that when talking to your employees during times of crisis, you need to be honest, and I totally agree. They can see what is going on, and if you paint everything in a positive light, you diminish credibility and lead them to fear the worst. So it is with the country. The administration needs to be honest, stop promoting solutions that are ineffective from people that believe “endometriosis and other potentially dangerous gynecological conditions are the residue of sexual intercourse with demons.”

For me, Larry Kudlow lost credibility with after his piece in 2005, “The Housing Bears are Wrong Again” in which he dismissed “All the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.” His piece in 2007, “Bush Boom Continues,” where he predicted the economy would continue to grow just as it was collapsing, only confirmed my views. A banker who worked with Kudlow at Bear Stearns was quoted in Vanity Fair, “Over his entire career, I can’t recall a single forecast that he made that was accurate. You know, there’s the old joke about the economist that predicted seven out of the last four recessions. Kudlow makes that guy look good.”

Sending out Kudlow weakens the belief in the Administration by Wall Street and CEOs, which slows any economic recovery. Be honest and this time “Is the public health crisis stupid.”

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