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World economy faces supply hit as China battles covid again

By Enda Curran and Tom Hancock
World economy faces supply hit as China battles covid again
Buildings in Shenzhen across the border from Hong Kong on March 15, 2022. MUST CREDIT: Bloomberg photo by Bertha Wang.

The global economy -- already struggling with war in Ukraine and the stagflation risks it's fanning -- is bracing for greater disruption as China scrambles to contain its worst outbreak of Covid-19 since the pandemic began.

Since Wuhan two years ago, China has had relative success in minimizing disruption by bringing virus cases quickly under control. Now, the geographic spread of infections and higher transmissibility of the omicron variant is challenging the country's hawkish pandemic strategy of aggressive testing and locking down whole cities or provinces.

If China fails to contain omicron's spread, further movement restrictions would derail the economy's promising start to the year, weakening a key pillar of global growth.

As manufacturer to the world, any disruptions to exports resulting in shortages could also drive up inflation internationally, just as central banks begin hiking interest rates, like the Federal Reserve is expected to do on Wednesday.

A survey of fund managers released Tuesday by Bank of America Corp. showed confidence in global growth was the lowest since July 2008 and expectations for stagflation jumped to 62%. The survey was conducted in the week through March 10.

"You take all these little paper cuts and you start to add them up and you could be looking at a potential significant slowing of the global economy," said Jay Bryson, chief economist at Wells Fargo & Co.

Much depends on how quickly China can contain the virus. The nation reported more than 5,000 new infections for Monday for the first time since the early days of the pandemic. While a small outbreak by global standards, it's prompting officials to lock down more cities, with more than 45 million people restricted from leaving their homes.

Shenzhen's 17.5 million residents we put into lockdown on Sunday for at least a week. The city is located in Guangdong, the manufacturing powerhouse province, which has a gross domestic product of $1.96 trillion, around that of Spain and South Korea, and which accounts for 11% of China's economy, according to Bloomberg Economics.

Guangdong's $795 billion worth of exports in 2021 accounted for 23% of China's shipments that year, the most of any province.

Bloomberg Economics warns that the restrictions in Shenzhen could inflict the heaviest coronavirus-related blow to growth since a nationwide lockdown in 2020, with the additional threat of sending supply shocks rippling around the world. Morgan Stanley cut its growth forecast for the year to 5.1%, below the government's target of about 5.5%.

"The forceful action to contain the worst Covid-19 outbreak since early March will deal a direct hit to the production and consumption sides of a province that accounts for 11% of GDP," according to Chang Shu, Bloomberg Economics' chief economist for Asia. "Previous steps to contain virus flareups left manufacturing unscathed for the most part. This lockdown will hit output in key industries such as tech and machinery that feed into global supply chains."

On Monday, residents in northeastern Jilin province were asked not to leave or travel. The region of 24 million people is home to Changchun, an industrial hub of some 9 million that accounted for about 11% of China's total annual car output in 2020.

Beijing has vowed to reduce the impact of virus controls on the economy by making them more targeted and shorter.

Shenzhen -- which is aiming to complete its lockdown in a week during which it will test the entire population three times -- and the export hub of Dongguan have both said factories outside the highest risk districts can continue operating if they keep staff in a bubble with regular testing.

Still, manufacturers who were already complaining of rising costs on the back of the Ukraine war are beginning to take a hit.

Key Apple supplier Hon Hai Precision Industry Co. said it was halting production at its sites in Shenzhen, joining global auto-makers Volkswagen and Toyota, which have stopped some operations in the northern province of Jilin.

"Given that China is a major global manufacturing hub and one of the most important links in global supply chains, the country's Covid policy can have notable spillovers to its trading partners' activity and the global economy," said Tuuli McCully, head of Asia-Pacific economics at Scotiabank.

Data on Tuesday showed China's economy had staged a firm rebound in January and February, led by a strong recovery in household spending and investment by state-owned companies.

But economists cautioned those readings are already in the rearview mirror given developments since the end of February. National Bureau of Statistics spokesman Fu Linghui said Tuesday the lockdowns as well as pressure from rising costs and possible disruption could weigh on growth.

Congestion is starting to build at some Chinese ports, which could push up container freight rates again. Worries over renewed supply chain disruption comes just as U.S. West Coast ports are beginning to process some of the pandemic backlog, helped by a lull after the Chinese New Year holidays.

About 20% of the cargo coming into the busiest container gateways in the U.S. is estimated to be from the Shenzhen region, according to a spokesman for the Port of Los Angeles.

The global impact of a Covid-related shutdown in China could be similar to the blockage that roiled supply chains when a container ship blocked the Suez Canal last year, according to Stephanie Loomis, vice president of International Procurement at freight forwarder CargoTrans, Inc.

"If they don't let any of these guys go to factories and produce goods, then nothing will move," she said. "It'll just stop."

Whether China's Covid playbook can continue to contain the virus and minimize negative spillovers to the world will soon become evident, said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"The outbreaks impose downside risk to China's economy at least in the next few months," he said. "A China slowdown would exacerbate the risk of stagflation and global supply chain problems."

- - -

Bloomberg's Katia Dmitrieva, Laura Curtis and Reade Pickert contributed to this report.

10 tournaments, 106 teams, 96 games: How March Madness became a staple in Sin City

By Chuck Culpepper
10 tournaments, 106 teams, 96 games: How March Madness became a staple in Sin City
The Utah Valley Green Man Group fit right in in Las Vegas for the WAC tournament. MUST CREDIT: Washington Post photo by John McDonnell.

LAS VEGAS - Nobody has ever pictured the great Tara VanDerveer as a creature of the Las Vegas Strip. Nobody has ever wondered if the eternal Stanford women's basketball coach ever sneaked down here from Palo Alto and materialized beside a slot machine in a veil and sunglasses, the ice melted in her faded cocktail. It's about as not her as not her gets.

Yet VanDerveer, of all people, wound up crystallizing the galloping evolution of Las Vegas as sports town with 13 words amid this stupendous basketball fortnight boasting 10 conference tournaments in one lit-up valley.

"I'm so far from a Vegas person," she said after her 15th championship (and third in Las Vegas) out of the 21 Pac-12 tournaments held within her 36 Stanford seasons. "But I'm a Vegas basketball person."

Nowadays there are Vegas basketball people, strewn all over the map.

They've come to play or watch March basketball, which has become almost as commonplace to Las Vegas as delight, despair and divorce lawyers. It has joined a dizzying pile of sports in a city a fretful NCAA once shunned, events-wise, a city bulging with the pioneering UFC, the NHL's Golden Knights, the WNBA's Aces, the NFL's Raiders, an NCAA West Regional coming in 2023, a Super Bowl in 2024.

It has sprouted arenas like other towns do Starbucks, so that in a country finally gone oh-what-the-hell about gambling, early March can go like this: 11 days, five arenas, five western conferences, 10 conference tournaments (five women's, five men's), 106 teams, 96 games, enough to exhaust even the eager.

"Las Vegas has been the entertainment capital for a long time, and I think it's becoming the sports capital," said George Kliavkoff, the new Pac-12 commissioner plucked last year from MGM Resorts International, from Las Vegas. He cited the "walking distance from some of the venues to lots of hotels," the hotels "at various different price points, so people with different budgets can afford to come," and "so much else to do while you're here."

Inhale: It has had the Pac-12 since 2013 (men) and 2019 (women), the Mountain West Conference since 2007, the West Coast Conference since 2009, the Western Athletic Conference since 2011, the Big West since 2021. It has arenas named for a German phone titan (T-Mobile), for a brand of a crucial Las Vegas beverage (Michelob Ultra), for two visionary bankers (Thomas & Mack), for a next-door hotel/casino (Orleans), and for another key Las Vegas figure, a lender (Dollar Loan). The city has so many arenas that the Henderson Silver Knights of the American Hockey League have played this season in one (Orleans), but will move shortly to another (Dollar Loan), which has just opened with that new-car smell, its tequila stands up and running for noon tipoffs. It's the Pluto of the basketball bunch, yet only 20-ish minutes from the Strip.

This deluge doesn't deluge the city, because nothing could deluge a city that has so much of so much - indoor skydiving, indoor-outdoor marrying, shark-viewing, zip-lining, organized recreational police-chase simulating, that Ferris wheel, that roller coaster, that Paris, that Venice, that New York, and seemingly every famous singer you ever heard of or didn't hear of except for Adele, who had to postpone.

And David Copperfield, forever.

And that immersive Van Gogh thing.

And Carrot Top.

Also, there's gambling.

The basketball has joined the fray on the sidewalks, somewhere beneath the showgirl plumes. It shows up every now and then: two Colorado State Rams fans near that roulette wheel, that streak of Wildcats from Arizona near those slot machines, the Gonzaga fans here and there and also over there, the visiting Hawaiians in Henderson. All this would have seemed "completely far-fetched" more than 30 years ago when Erick Harper started off in athletics, and now the UNLV athletic director says, "I try to think outside the box, but at the same time, who would think about a city that could host 10 tournaments, and all the tournaments be successfully run?"

Now we know who would.

"It's unbelievable," he said.

It began as a trickle three decades back, with the Big West stopping by in 1994 and 1995, the WAC from 1997 to 1999. That Big West already had the one glam member that seeded the whole phantasmagoria of today: UNLV. That made the site seem routine even if the era did seem raffish, with a team such as Long Beach State coming to town, renting its own three vans and convoying to the Mirage.

"The image of Vegas has really, really changed," said ESPN analyst Seth Greenberg, who coached Long Beach State then. "Vegas is a destination. It's not just, 'Wow, wow, wow,' anymore. It's more established. It's more traditional in lots of ways."

He paused.

"It's still a zoo."

Now the zoo boasts so much March.

There's March in a 48-47 scrap that ends in a scrap beneath the basket - players on the floor, seasons in the balance, the horn sounding, the coach with 47 points hollering at the departing referees. There's March when a winning coach, Laura Beeman of Big West No. 1 seed Hawaii, walks to a losing coach, Greg McCall of No. 9 seed Cal State Bakersfield, a 5-foot-5 woman hugging and consoling a 6-6 man.

"Greg's a great man," she said soon after, and, "And he just kind of looked at me like, Wow," marveling at the game, and, "I've known Greg for 20 years and I consider him an outstanding coach and outstanding person," and, "Not sorry that it came down the way that it did, but sorry that it ends the way it did for [his] group," and, "Bottom line, this is a game, and compassion and some other things matter more than being mad at people."

That's March, even if it feels funky to carry it out into the midday sun of Henderson, up the freeways toward the Strip and past the billboard for Penn & Teller.

There's March in the beauty of the crying coach, in this case a five-year NBA veteran of four NBA franchises. "It's emotional because my kids, the players, wanted it," says Jeff Judkins, the 21-year coach of No. 1 seed BYU (26-3), which lost the WCC women's final to No. 2 seed Gonzaga, 71-59, three weeks after beating the Bulldogs, 63-39. While Gonzaga's affable Idahoan Melody Kempton, the most outstanding player, No. 33, walked up the stands into a cluster of No. 33s - parents, grandparents, fiance, friends et al. - to bring her parents to the floor for deep meaning, the other side of March hit Judkins, who continued: "A lot of times in life you don't get everything, but you sure want it. That's where the emotion is . . . I know how much the players wanted."

And then this 65-year-old former player for the Celtics, Jazz, Pistons and Trail Blazers said: "I'm also crying because it's one less game with my seniors."

He paused for the next question, and the microphone caught a further sniffle.

That's March, even if it feels strange to carry it out of Orleans Arena, into late-afternoon light and into the view of the Strip gleaming and giggling over yonder.

There's March in the sadness of the shipwrecked season, as in the bewildering 13-month trajectory of Oregon State. Last March 29, the Beavers lurked on the edge of the Final Four, having clambered from a 34-17 deficit in a Midwest Region final to a 55-55 tie with 3:21 left. Houston won, but Oregon State soared, until it just went 3-28 this season.

The players clearly tried in their closing 86-72 loss to Oregon, and the commendable sliver of Beaver fans reveled at the Las Vegan Glenn Taylor Jr.'s three-point play that narrowed the deficit to 61-58 with 11 minutes left, and big man Roman Silva spoke of taking "as much positive out of the season as I can," and valuing "the relationships that I've made here" that "are going to last a lifetime."

Still: How could basketball do this to a 6-10 man who has adored it all his 56 years, who played it in Division I as did his wife and all three children? "It's funny how life goes, the feelings we had just over a year ago to now," said that man, Oregon State Coach Wayne Tinkle, "and there's some valuable lessons in there . . ." And: "And obviously it's a devastating season. I've got to take the blame."

That's March, too, even if it's carried out of T-Mobile Arena into the shadow of an ersatz New York skyline.

There's March in the hidden wonders of a sport with 358 teams, and here's Utah Valley, which would make a swell name for a Cinderella. Here's the coach, Mark Madsen, 46, 6-9, still part man and part topographical formation, 24 years after the 1998 Final Four with Stanford, 13 years after an NBA career that included Shaquille O'Neal's praise of him for his impossible energy during Lakers practices.

Yet over behind the baseline, here's a revelation: Utah Valley's "Green Man Group," three lines of drummers with heads and bodies swathed in breathable green fabric, glorious aliens in the Vegas night. They do many kinds of shows, but here they do March, drumming in special cadences for made free throws at times, swaying together arm-in-arm at times, reminding what drums can do to neck hairs at all times.

They went late into a WAC Tuesday night in Utah Valley's win over Chicago State, and though they exited one night later to Abilene Christian, they, too, lent some fine March, even to carry out of the Michelob and into Mandalay Bay and the chronic bells of the slots.

And there's never more March than in a frenzied three-point shot rising out of the corner from a player with some storybook name such as Essence with a tattoo of the Las Vegas sign on her right biceps. It came with 45 seconds left. It came after a timeout with the shot clock at a hapless two seconds, after teammate Khayla Rooks, said, "Make this shot."

Essence Booker's shot gave her irresistible UNLV team a 72-65 lead, gave her 25 points, clinched a Mountain West title against a scary challenge from Colorado State, whose coach, Ryun Williams, lauded his players with, "We went for it." Then UNLV's Vegas, a Las Vegan former Stanford player and assistant to VanDerveer, spoke of love and trust and called this moment "way, way, way up there" and said, "I would do anything for [my players] because I know they would do anything for me."

That's so much March to carry out of Thomas & Mack into warm nighttime air in this Las Vegas era, past the statue of a seated Jerry Tarkanian chewing a metal towel, onto the boulevard and toward that billboard of Donny Osmond.

Record gas prices are pushing up everyday costs, dampening economic recovery

By Abha Bhattarai
Record gas prices are pushing up everyday costs, dampening economic recovery
Lakeville Trucking in Rochester, N.Y., has seen diesel costs nearly double to about $400,000 a month. MUST CREDIT: Photo for The Washington Post by Libby March.

Americans are facing sticker shock at gas stations across the country, but surging global energy costs are rippling through the economy in other ways, too: Airlines are scaling back on flights. Truckers are adding fuel surcharges. And lawn care companies and mobile dog groomers are upping their service fees.

Russia's invasion of Ukraine and the surge in energy prices appears to be making the country's inflation problems much worse.

"Customers really don't want to hear it, but fuel prices are going through the roof so we're having to charge more," said John Migliorini, vice president of Lakeville Trucking in Rochester, N.Y., where diesel costs have nearly doubled to about $400,000 a month. "What choice do we have? I've never seen prices jump this high, this fast."

The company has a fleet of 30 tractor trailers that transport general freight and food products, including groceries for the supermarket chain Wegmans. Each truck goes through about 100 gallons of diesel a day, Migliorini said.

Record-high gas prices are seeping into everyday costs beyond the pump, adding new uncertainty to the economic recovery. Prices hit $4.33 this week after the Biden administration took steps to ban Russian oil imports, boosting the prospect of higher short-term inflation while threatening economic growth and spending and even reshaping hiring patterns. Higher energy costs are also complicating the Federal Reserve's efforts to rein in inflation, which jumped to a new 40-year high this week.

Economists say the one-two punch of rising prices and the intensifying geopolitical crisis could put the brakes on the rapid rebound. Goldman Sachs this week lowered its forecast for annual U.S. economic growth, citing "higher oil prices," and said there is a risk the United States will enter a recession in the next year.

But unlike in the 1970s, when spiking oil prices triggered a years-long downturn, the underlying strength in the U.S. labor market, combined with extra household savings and a reduced reliance on oil, could help shield the country from economic turmoil.

"The rise in energy prices will weigh on U.S. economic growth," said Peter McCrory, an economist at J.P. Morgan. "But overall we still are looking for above-trend growth for the year."

The average price for a gallon of gas jumped 13% this week, according to AAA. Overall gasoline prices are up 38% from a year ago, according to the Labor Department's latest inflation figures.

That sudden jump is creating new challenges for Dennis Coyle, who owns a landscaping business in Morris County, N.J.

"My entire business runs on gas: cars and trucks, lawn mowers, weed whackers, leaf blowers," he said. "The simple math is that if prices stay this high, my fuel costs are going to go from $20,000 to $40,000 this year."

Coyle, whose employees drive Ford pickups, has begun raising prices for some of his customers by $1 or $2 a week, though he says he's wary of driving them away.

"In my type of business, if you raise peoples' prices, they'll just go somewhere else," the 35-year-old said. "It's really hard to know what to do."

As gas prices rise, consumer spending tends to fall. Each 10% increase in gas and oil prices means consumers will have to spend an additional $23 billion a year to keep up with earlier spending patterns, analysts at J.P. Morgan found. But the pandemic has also boosted Americans' bank accounts, leaving them with an additional $2.5 trillion in savings to help cushion that blow.

"Oil price shocks tend to not have as severe of an impact on the aggregate U.S. economy as they once did, but there are still concerns - about not just energy prices, but general inflation leading to recession," said Harrison Fell, a senior research scholar at Columbia University's Center on Global Energy Policy. "There is still a lot of uncertainty about which way things could go."

For businesses that rely heavily on fuel, recent price jumps have already become a major sticking point. Airlines, for example, typically spend about one-third of their expenses on fuel, which means any spike in prices has a discernible impact. As a result, some international carriers are already tacking on fuel surcharges to ticket prices. Alaska Air Group is cutting back on up to 5% of its flights in the first half of the year as a result of "the sharp rise in fuel costs," it said in a corporate filing this week.

And though many airlines lock in lower rates by "hedging" oil prices - essentially committing for future use - major U.S. carriers including United Airlines and American Airlines do not, making them particularly susceptible to swings in energy costs. Experts say airfares, which are already ticking upward because of heightened demand and rising jet fuel costs, are likely to surge even higher in the coming months as the industry factors in the latest energy shocks.

At the same time, rising gas prices could also lead consumers to pull back on travel and retail spending. Executives at clothing chain the Children's Place said this week that "the volatility surrounding oil and gas prices and its impact on our customer" were likely to eat into sales and profits, while outstripping the benefits of last year's federal stimulus payments. Meanwhile, online retailer Overstock.com is already paying more for ground shipping because of rising fuel costs, according to chief executive Jonathan Johnson.

"We do feel it," Johnson said. "And we suspect - though it's probably a little early to tell - that customers are being extra careful with how they spend their discretionary income."

"Higher energy costs impact businesses on both sides of the equation: By raising their costs and also leaving consumers with less money to spend on other things," said David French, senior vice president of government relations at the National Retail Federation, an industry trade group. "We've seen more than a dollar increase in the price of gas in the last year - and something like 60 cents this week alone - which means a lot of billions of dollars are probably not getting spent at other establishments because of gas prices."

Beyond lifting gas prices, spikes in energy costs could reshape the mix of U.S. job openings and exacerbate labor shortages in certain industries, according to Guy Berger, principal economist at LinkedIn. Sectors like leisure and hospitality, which have been rapidly hiring back workers in recent months, could scale back if consumers start canceling travel plans because of higher prices.

On the flip side, energy and mining companies - where hiring has stalled during the pandemic - could see a resurgence of demand.

"If crude oil prices remain sky high, it's going to reallocate job openings across sectors and geographies," Berger said. "Up until now energy and mining have been among the least well-performing industries during covid, but that could quickly change."

In Palestine, Texas, EasTex Solar has increased its workforce by 30% in the last year to keep up with demand, according to owner Cal Morton.

Demand for solar panel installations with battery storage quadrupled in early 2021 after severe winter storms left much of the state without power for days, he said. Business has remained brisk since and continues to increase week over week.

"People in Texas have a real awareness of energy prices and are starting to realize prices won't remain cheap forever," he said. "Many just got their highest electric bill of the year and, at the same time, they're worried that energy prices are going to shoot up because of the war."

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How does Ron DeSantis sleep at night?

By dana milbank
How does Ron DeSantis sleep at night?

DANA MILBANK COLUMN

Advance for release Tuesday, March 15, 2022, and thereafter

(For MILBANK clients and FOR PRINT USE ONLY)

For Print Use Only.

By DANA MILBANK,Dana Milbank

Republicans are killing us.

No, really.

Until now, we've known that covid-19 death rates were higher among the unvaccinated, and also higher in counties that went for Donald Trump, whose supporters were more likely to resist vaccinations, masks and other pandemic precautions.

Now that the omicron wave is over, a couple of new analyses of state-by-state data both point to an inescapable conclusion: Living in states run by a Republican governor is dangerous to your health.

Using data from the Centers for Disease Control and Prevention, consultant Doug Haddix reported Sunday that since July 1 (when the lifesaving vaccine was widely available), the 14 states with the highest death rates were all run by Republican governors. This included Florida (at about 153 deaths per 100,000 residents), Ohio (142 deaths per 100,000), Arizona (138) and Georgia (134). Contrast that with the deep-blue District of Columbia (only 27 deaths per 100,000) and California (58 per 100,000).

For verification, I checked with health-care analyst Charles Gaba, whose data on covid-19 and voting patterns has been widely cited. He ran the numbers for me using data mostly from Johns Hopkins and found similar results. The 16 states with the highest coronavirus death rates since July 1 were all run by Republicans. The worst was West Virginia (about 204 deaths per 100,000), followed closely by Oklahoma, Tennessee, Wyoming and the aforementioned Florida.

The states with the lowest death rates, by contrast, were all run by Democrats -- or, in the case of Vermont, Maryland and Massachusetts, by moderate Republican governors who had heavily Democratic legislatures and embraced vaccines and masks. The best jurisdictions were D.C., Vermont, Hawaii and California. Looking at data from the period since May 1 (by which time all U.S. adults theoretically could have been vaccinated) produced similar results.

Florida residents were, since vaccines have been widely available, nearly seven times as likely to die from covid-19 as residents of D.C., nearly three times as likely to die as residents of California and 212 times as likely to die as residents of New York. With Florida's population of about 22 million, that's a lot of unnecessary deaths.

This raises a question: How does Ron DeSantis sleep at night? Florida's Republican governor has been among the most outspoken in raising fears of the coronavirus vaccine (most recently suggesting, falsely, that it could harm women's fertility), suing to stop vaccine mandates, promoting ineffective cures, blocking rules requiring face masks, scolding mask-wearing kids for "covid theater" and touting misleading statistics.

It's likely no coincidence that Florida, under DeSantis, has had by far the highest covid-19 death rate among the most-populous states and is in the top five of all states. Other factors, including climate, health-care infrastructure, and the age and underlying health of the population, don't fully account for it. Maine, with an even older population than Florida's, had a death rate just over half as high. Also, Florida's vaccination rate appears to be overstated thanks to vaccine tourism.

In addition to the state rankings, Gaba's latest county-level data confirms earlier patterns: Since May, people in the most pro-Trump tenth of U.S. counties had a death rate more than three times as high as those in the most anti-Trump tenth. The number of overall cases, however, was only 1.3 times as high, indicating that vaccines were preventing death.

Every week, it seems, brings fresh confirmation of the basic truths about the pandemic that have long been obvious to all except those consuming the disinformation of the Trumpy right: Vaccines work. Masks work. Conspiracy theories don't.

Last week, a new CDC study confirmed that -- shocker -- masks prevent illness. A study of Arkansas school districts found that those with full mask requirements had a 23 percent lower incidence of covid-19 among students and staff compared to districts with no mask requirements. Those with partial mask requirements were in between, and those that switched from no mask to masks had reduced illness.

Before that, a pair of studies late last month added evidence to the original belief that the virus emerged in late 2019 in a wet market in Wuhan, China. Though the matter isn't settled, the findings make the scenario that the virus was spread accidentally or intentionally by a lab in Wuhan -- an incendiary accusation recklessly trumpeted by Trump, DeSantis, Fox News and the like -- considerably less likely.

"Falsehood flies," Jonathan Swift wrote, "and truth comes limping after it." The truth has taken the lead, for those who care. Alas, for some of those who accepted the lies DeSantis and other leaders told about vaccines, masks and cures, it's too late. They're already dead.

- - -

Follow Dana Milbank on Twitter, @Milbank.

Inflation and the risk of recession are about to get much, much worse

By catherine rampell
Inflation and the risk of recession are about to get much, much worse

CATHERINE RAMPELL COLUMN

Advance for release Tuesday, March 15, 2022, and thereafter

(For RAMPELL clients and FOR PRINT USE ONLY)

For Print Use Only.

By CATHERINE RAMPELL,Catherine Rampell

The outlook for the U.S. economy has darkened.

Just as it seemed as though the global economy and its tangled supply chains could be getting back to normal, three factors might supercharge inflation and/or raise the risk of recession.

The first of the three developed in just the past few days: a new covid wave in China that has already led to major lockdowns and will further stress the world's struggling supply chains. If you haven't heard much about this yet, you probably will soon.

Daily covid cases in China have reached numbers not publicly reported since 2020. Thanks partly to low vaccination rates for the elderly in China, plus the relative ineffectiveness of Chinese-made coronavirus vaccines, the Chinese government has responded to outbreaks with an iron fist. Under its so-called "zero covid" policy, several areas have been locked down in recent days, with nonessential workers mostly barred from leaving their homes in the major manufacturing hubs of Shenzhen (a city of 17.5 million people) and Changchun (9 million).

Transportation to Shanghai, the country's largest city (25 million), has been severely restricted, raising fears of a possible lockdown there, too.

These measures have forced factories, including plants affiliated with Apple, Toyota and Volkswagen, to suspend operations. The backlog of container ships waiting off Qingdao, one of the country's biggest ports, has also swelled, with nearly twice as many ships queued up Monday as at the end of February. These bottlenecks are expected to drive container freight prices (even) higher.

All of this will be bad for already elevated inflation, in both the United States and the rest of the world. The only possible economic upside is that factory shutdowns will likely reduce global demand for oil.

This might be helpful in light of Shock No. 2: the disruptions in commodity markets, including oil, resulting from Russia's unprovoked invasion of Ukraine.

This issue has obviously generated more coverage. Oil and natural gas prices have climbed in recent weeks as governments and individual corporations have placed new restrictions on transactions with Russia. Oil prices have fallen back a little in the past few days but remain high.

Equally worrisome are rising prices for other commodities produced in that part of the world. Russia and Ukraine together supply nearly a third of global wheat exports, with the Ukraine planting season usually occurring in mid-March (i.e., now). Even before the war, global stocks of wheat were low, and prices high, thanks to unfavorable growing weather over the past two years. In the wake of Russia's invasion, wheat prices have skyrocketed, threatening to boost food inflation more broadly. The risk of widespread hunger and economic hardship is especially high in lower-income countries that are most reliant on Europe's breadbasket.

Finally, there's the third risk: tightening financial conditions, thanks to the Federal Reserve.

The Fed is widely expected to raise interest rates at its meeting this week. Given that U.S. inflation is already at a 40-year high, this is hardly surprising. In a different era, few would have predicted that interest rates could be at zero when inflation hit nearly 8% (as happened in February). With hindsight, even Fed officials would probably agree that they should have begun tightening months ago.

Fed officials had delayed taking these measures earlier because they feared doing so would derail the post-pandemic recovery. Most previous Fed efforts to tamp down inflation by making it harder to borrow ended with the Fed plunging the U.S. economy into recession, after all.

Central bankers have been hoping to avoid that outcome this time, particularly because there are still 2 million fewer jobs today than existed before the pandemic. And for a long time, most economic forecasters believed inflationary pressures would largely abate on their own as supply chains normalized. That clearly hasn't happened.

Engineering a "soft landing" for this hot economy was always going to be difficult. But it got more difficult in light of recent global events, because the Fed is being pulled in conflicting directions. Chinese supply chain problems and Russia/Ukraine commodity market disruptions are widely expected to push overall inflation even higher, which would normally nudge the Fed to raise interest rates faster. But those same forces are also expected to drag down economic growth, which usually suggests the Fed should raise rates more slowly.

It's not obvious what path the Fed should or even could take to get inflation under control without tipping us into recession. Frankly, even without aggressive rate hikes, recession risks are piling up.

There's never a good time for a downturn. But given all the other suffering and loss of life over the past few years, it's hard to imagine a worse time than the present.

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Catherine Rampell's email address is crampell@washpost.com. Follow her on Twitter, @crampell.

What the shocking images of Ukraine's dead say about the media - and our biases

By eugene robinson
What the shocking images of Ukraine's dead say about the media - and our biases

EUGENE ROBINSON COLUMN

Advance for release Tuesday, March 15, 2022, and thereafter

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By Eugene Robinson

WASHINGTON - Brave journalists have long risked their lives to document the horrors of war. But why has coverage of the Russian invasion of Ukraine felt so intimate, so explicit and so shockingly gory? Does this say something about the times we live in, and the ability technology has given us to broadcast -- and consume -- just about anything? Or does it reveal more about the news media's own affinities and biases?

The war in Yemen, now in its eighth year, has been every bit as brutal. The war in Syria has been far deadlier, and both sides have employed chemical weapons. Yet in those and other conflicts, we were not shown such raw and immediate images of the dead, among them the now-iconic New York Times close-up of a mother and two young children killed by Russian mortar fire in the Kyiv suburb of Irpin.

It's not that journalists didn't see and document such atrocities in other wars. Photos of children starving in Yemen, or the image of Phan Thi Kim Phuc running naked down a road in Vietnam after being burned with napalm have shocked the conscience. But news organizations traditionally have been squeamish about publishing images of people who had been killed in conflict, with an especially strong taboo about showing victims' faces.

As an editor, I helped police those boundaries. Our goal was to inform readers while preserving the dignity of the dead and their families. We aimed to avoid turning our customers' stomachs to no productive end.

That was before social media, however. In 1994, when the bloodiest genocide since World War II took place in Rwanda, there was no way for observers to capture incidents of mass slaughter with the cameras on their phones and then instantly disseminate the images worldwide. The husband and father of those victims in Irpin first learned of the death of his family from pictures he saw on Twitter. In that moment, "I lost everyone and lost the meaning of life," he told The Post.

Mainstream news organizations could reasonably ask themselves whose sensibilities they imagine they're protecting, given the ubiquity of social media. They could also point to other contexts in which showing images of people as they died and after their deaths were universally considered to be in the public interest -- the nine-minute cellphone video of Derek Chauvin's knee on George Floyd's neck, for example.

Still, I have to wonder whether something more than technology is involved in the way this war, as opposed to other wars, is being presented. The unmistakable subtext of the coverage is: These are people just like us, and we could be at risk like them.

The vast majority of the victims in Ukraine are European, White and Christian. Quite a few speak at least a little English. With their puffer coats and their rolling suitcases, they look familiar as they climb onto the trains that speed them into exile. Their children play with Muppets dolls and Legos.

Whether intentionally or subconsciously, news organizations make this war more vivid and more tragic by focusing so tightly on victims and refugees. We get to see them as individuals, not as an undifferentiated mass. Viewers and readers are invited, if not forced, to imagine ourselves in similar circumstances. It is no wonder that so many members of Congress, reflecting the views of their constituents, are pressing the Biden administration to intervene more robustly, despite the obvious risks of entering an armed conflict with Russia.

Civilians killed and displaced by the 2003 invasion of Iraq suffered no less grievously. But the fact is that we rarely get intimately acquainted with the victims (who, in that case, were neither European nor White nor Christian) when U.S. forces are the ones firing the cruise missiles and lobbing the artillery shells.

I don't believe these are willfully biased decisions being made by editors. And I have nothing but awed respect for the reporters covering the Ukraine war, including Brent Renaud, the American journalist and filmmaker killed on Sunday at a checkpoint outside Kyiv.

"This was not his first war. This was not his first highly complex situation. He was not a cowboy," said Ann Marie Lipinski, curator of the Nieman Foundation for Journalism at Harvard University, where Renaud spent the 2018-2019 academic year as a Nieman fellow. "He was such an unusual man, with a very deep sensitivity, a shyness that made people at ease. There was a profound humanity about him. It was OK to love your subject."

Wounded in that same incident was Juan Arredondo, Renaud's collaborator and Nieman classmate, who has undergone surgery at a hospital in Ukraine.

Bless the journalists with that kind of courage and compassion. And may the same empathy be extended to war victims everywhere who are every bit as human as the people of Ukraine.

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Follow Eugene Robinson on Twitter: @Eugene_Robinson

The painful lesson for inflation doves: Be careful what you wish for

By megan mcardle
The painful lesson for inflation doves: Be careful what you wish for

MEGAN MCARDLE COLUMN

Advance for release Tuesday, March 15, 2022, and thereafter

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By Megan McArdle

WASHINGTON -- In policy, as in life, almost every problem you're not having seems easier to handle than the ones you're suffering through.

In recent years, people worried about inflation were regarded as falling somewhere between fogies and cranks. Serious inflation was a thing that had happened in the past, to people who wore funny-looking pants. Or it was something that happened abroad. But it hadn't happened to the United States since the early 1980s, and after a while people started to worry that we had too little inflation -- that the Federal Reserve was choking off the economy before it could get to full employment and should set a higher target such as 4% annual inflation, rather than its timid 2%.

Now, suddenly, we have all the inflation the doves ever wanted, and then some. The rate was 7.9% in February, a 40-year high, and that alarming figure doesn't yet reflect what the Russian invasion of Ukraine is doing to the price of oil, natural gas and other critical commodities. We are now rediscovering why central banks were so obsessed with keeping inflation low.

But first, let's give the inflation doves their due. Despite the worries of extreme inflation hawks, the doves are right about one thing: Some inflation is better than none. Inflation eases problems such as "sticky wages" -- workers are reluctant to take pay cuts, and employers are therefore reluctant to offer them, so when firms run into cash-flow problems, they lay off some people instead of giving everyone a small pay cut. By providing that pay cut in real terms -- if the cost of living goes up while your salary remains flat, my friend, you've taken a pay cut -- inflation avoids some unemployment.

Virtually all economists agree on this much; we're just arguing about how much inflation is too much. But our situation is highlighting the high personal and political costs of inflation -- costs that doves might have underestimated after so many years of steady prices.

As the example above suggests, one way inflation boosts employment is by lowering real wages -- the opposite of what most advocates of "running the economy hot" seem to expect. And if that lower unemployment rate represents people lured into the job market by nominally higher paychecks, some of them will probably march right back out again when they realize how little purchasing power that check represents.

Meanwhile, there are the other costs. Retirement savers, for example, have long been cautioned to shift more money into bonds as they approach 60, because bonds are safer. But bonds become unsafe when inflation rises, because their fixed payouts get steadily less valuable. Nor is that the only way retirees get whacked by inflation: Some will pay taxes on capital "gains" that just reflect the general increase in prices; some have pensions without cost-of-living adjustments.

Workers get hit in a different way: Since salaries rarely adjust to inflation in real time, they will typically see price increases before their paychecks rise to meet them. And while there will be offsetting gains for some people -- this is a great time to be sitting on a mountain of fresh debt -- the joy of homeowners luxuriating in 2% fixed-rate mortgages as the cost of everything else goes up probably doesn't outweigh the cumulative anxieties of renters worried about buying gas and food.

The doves might retort that this all has nothing to do with what they were suggesting. They wanted a modestly higher inflation target, not a convulsive leap to nearly 8%. The fact that unpredictable inflation is bad doesn't mean that the planned kind would also be terrible.

Yet one could ask just how much good it does to double a completely predictable target: If it really all comes out in the wash, how effective could 4% possibly be? One could also ask whether it was ever reasonable to demand that everything stay the same except the inflation rate.

That predictability was hard-won by central bankers who did roughly the same thing, decade after decade, giving the markets confidence that there would never be another inflationary spiral. Had they shifted those targets to a higher level, they would have sacrificed some of that credibility. And the transition costs were bound to be large, because plans made for a low-inflation environment fall apart when inflation rises, as happened in the 1970s and early '80s, and as is happening now.

For 40 years, central bankers have shielded us from those costs. That came at a price. But that's the point: We were never choosing whether to impose costs on people, just which costs to impose, and who would pay them. It's always tempting to assume that some other collection of trade-offs would sting less. But before we advocate for any major policy switch, we should always seriously consider the unfortunate possibility that whatever unsatisfactory thing we're doing now might, in fact, be better than any realistic alternative.

- - -

Follow Megan McArdle on Twitter, @asymmetricinfo.

The case for hopeful realism

By e.j. dionne jr.
The case for hopeful realism

E.J. DIONNE JR. COLUMN

Advance for release Monday, March 13, 2022, and thereafter

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By E.J. DIONNE JR.,E.J. Dionne Jr.

WASHINGTON - It's time for hopeful realism about what government can achieve in 2022 and beyond.

Putting this disposition to work is essential to dialing down the political divisions that have torn the country apart, beginning with the rise of the tea party in the Obama years and even more toxically by the Trump movement. It also happens to be the only approach that gives Democrats a fighting chance to hold their majorities in the House and Senate this fall.

Hopeful realism is both "centrist" and "progressive," yet also neither. It would push aside abstract debates about whether programs were too radical or insufficiently bold, too big or not big enough. The focus instead should be on what can be done, now, to deal with problems that moderates and liberals alike see as urgent.

Three developments undergird the case for this approach.

By making the stakes so high, Russia's invasion of Ukraine has reminded us how puny and recklessly trivial our nation's debate has become. With democracy, world order and freedom under threat, we can begin to see more clearly how our politics are insufficient to the moment.

Second, the scuttling of President Biden's Build Back Better program requires a return to the drawing board. The plan was always more practical in its aspirations than it got credit for. But Democrats allowed (and Republicans encouraged) a debate that focused relentlessly on how big the program should be rather than what it would do.

Now, the question for all wings of the Democratic Party is what useful measures from Build Back Better can be salvaged -- on battling climate change, cutting prescription-drug costs, caring for and educating children, making taxes fairer. It is, by the way, more moderate Democrats from swing districts who have the biggest need to get something done. They want to go home to their constituents with achievements to talk about.

The third factor is the one most easily overlooked: passage last week of a $1.5 trillion bill to fund the government for the rest of the year that included a $46 billion increase in nondefense spending and a $42 billion increase in military spending.

True, Congress passing a budget should not be a big deal. This is what normal government looks like. But we have not had normal government for a long time.

With all the big numbers that were thrown around in the Build Back Better debate (as well as the enormous expenditures that kept the economy from collapsing during the height of the covid-19 pandemic), you might also say that these sums don't seem, well, transformational.

But as Rep. Rosa L. DeLauro, D -Conn., chair of the House Appropriations Committee, noted in an interview, the year-to-year work of Congress involves major public investments in many issues addressed by Build Back Better and the new budget reflects a "paradigm shift" in domestic spending.

A lot of work got done in this bill. For starters: a reauthorization of the Violence Against Women Act; $1 billion for Biden's priority of financing research into cures for diseases such as cancer and Alzheimer's; substantial new money for maternal and child health programs; a major increase in Pell grants to help lower-income students pay for higher education; and a down payment on spending to fight climate change.

In his State of the Union message, Biden also highlighted the urgency of efforts to grapple with the opioid crisis, and on Thursday, Sen. Rob Portman, R-Ohio, hailed the nearly $1 billion in grants in the budget under the Comprehensive Addiction and Recovery Act (CARA).

This underscores that "bipartisan" does not automatically mean "lacking substance." Portman has long championed the CARA program, along with Sens. Sheldon Whitehouse, D-R.I.; Shelley Moore Capito, R-W.Va.; Amy Klobuchar, D-Minn.; and Jeanne Shaheen, D-N.H., while Sens. Lisa Murkowski, R-Alaska; and Edward J. Markey, D-Mass.; and Rep. Ann Kuster, D-N.H., have pushed for expanded access to opioid treatment in correctional facilities.

We need to take bipartisan wins where we can find them. On drug addiction, it's urgent to act in inner cities and rural areas alike.

Skeptics might see hopeful realism as a form of retrenchment, and in some ways it is. It means accepting that narrow majorities, particularly in the Senate, could not sustain the level of change that many of us thought they could.

But it's still possible to make this a year of step-by-step progress and to show that government has the capacity to function effectively -- and, maybe, with a little less rancor.

Sen. Chris Van Hollen, D-Md., summed up the imperative this way: "We have to get done what we can get done with the votes we have," he told me, "and that would be a big step forward."

That's hopeful realism talking.

- - -

E.J. Dionne is on Twitter: @EJDionne.

Yes, voters 'deserve to know' this GOP plan would raise taxes by $1 trillion

By dana milbank
Yes, voters 'deserve to know' this GOP plan would raise taxes by $1 trillion

DANA MILBANK COLUMN

Advance for release Sunnday, March 13, 2022, and thereafter

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By DANA MILBANK,MILBANK,Dana Milbank

WASHINGTON - Suppose, for a moment, that the head of the Democratic Senatorial Campaign Committee, the group overseeing the 2022 campaigns of all Democratic senators and Senate candidates, announced that Democrats, if they keep congressional majorities after November's elections, would enact a plan that would raise taxes on working families more than $1 trillion over 10 years.

Further suppose that this top Democratic official also pledged that the Democratic majority would "sunset" laws that provide Americans with Social Security and Medicare, military retirement benefits, veterans programs, unemployment compensation, student loans, deposit insurance and more. Additionally, the Democrats would require U.S. businesses to shut down $600 billion a year in foreign trade and abandon countless billions in overseas investments.

The cry from Republican officials and the Fox News echo chamber would be deafening. Socialism! Defund! Tyranny! They might not even have time left to blame President Biden for Russia's Ukraine invasion or high gas prices.

Now, back to reality: An outline of exactly such a legislative agenda was introduced two weeks ago -- by the head of the National Republican Senatorial Committee, Sen. Rick Scott (R-Fla.). The sweeping plan caused a kerfuffle for a couple of days, but Senate Republican leader Mitch McConnell (Ky.) stepped in to disavow it, the coverage died down and the issue faded.

That the Republican's plan is not kitchen-table conversation across America is a testament to the asymmetry of our current politics, in which Democrats are at a decided disadvantage.

Scott's proposal is easily the most radical document to be put forward by a member of the leadership of a major political party in modern times. "Americans deserve to know what we will do," Scott, who is in charge of the GOP bid to retake the Senate, wrote in the introduction to his "An 11-Point Plan to Rescue America."

The NRSC chairman is proposing a 10-year tax increase of more than $1 trillion on, in his own words, "more than half of Americans," to make sure every household pays taxes. The bean counters at the Urban-Brookings Tax Policy Center and the Institute on Taxation and Economic Policy ran the numbers on what ITEP called the "only possible interpretation of Sen. Scott's proposal" (making sure every household pays at least $1 in federal income tax) and found that the Republican plan would raise taxes by $100 billion a year, or more than $1 trillion over the standard 10-year budgeting time frame. Almost all of it would be shouldered by households with income of $100,000 or less.

Scott's plan would also sunset -- eliminate -- all federal legislation over five years, under the (risky) assumption that worthy laws would be reenacted. That could mean an end to Social Security, Medicare, Medicaid, everything else mentioned above -- and potentially more.

Don't just take my word for it. Here's how McConnell recently described the Scott plan: "We will not have as part of our agenda a bill that raises taxes on half the American people and sunsets Social Security and Medicare within five years."

Of course, even if passed by a Republican-majority Congress, none of these plans would become law with Biden holding a veto pen, but it's significant that the NRSC chief -- Donald Trump's preferred candidate to oust "Old Crow" McConnell as Senate GOP leader -- is still standing behind it, and Republican candidates have generally not disowned it.

The GOP-Fox News echo chamber has successfully branded Democrats as proponents of the "green new deal," "defunding the police," "socialism" and "woke" indoctrination in "critical race theory" -- even though such ideas are not embraced by the vast majority of Democrats in office, and certainly not by anyone in a leadership position such as Scott's.

The difference, of course, is Democrats don't have an equivalent of Fox News, which repeats the propaganda du jour in multiple "reports" throughout the day. Democrats are also congenitally unable to stick to a message.

Could this time be different? The White House, House Speaker Nancy Pelosi and Senate Democrats have been hammering away at the Scott plan. The DSCC has done radio ads, news conferences, statements and a mobile billboard that circled this week's Senate Republican retreat. Senate Democrats are talking about holding show votes on elements of Scott's plan.

All Democrats need do is repeat Scott's own words. "Gradually end all imports from Communist China." That's $600 billion a year in trade. "Build supply chains that rely solely on American workers and allies." That would wipe out vast amounts of U.S. foreign investment. "Cut the IRS funding and workforce by 50 percent." Good luck getting your tax refund. Sell off all "non-essential" government property. Goodbye, national parks? Cut off funds to states "other than disaster relief." No money for health care, education, housing or roads. "Prohibit debt ceiling increases." Get ready to default.

As Scott himself says, "Americans deserve to know what we will do."

- - -

Follow Dana Milbank on Twitter, @Milbank.

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