Posted by: Doug Henwood | April 2, 2020

The hits keep coming

Goldman Sachs attracted a lot of attention with its forecast that US GDP will be off 34% in the second quarter of this year. That is a very big number. It’s three-and-a-half times the worst quarter in US economic history since quarterly GDP stats began in 1947. (That quarter, by the way, was the first of 1958, the onset of a sharp recession, which featured, among other things, an “Asian flu.”) Here’s a little perspective on that number.

That 34% figure is annualized, meaning it’s what the total decline would amount to if the quarter’s rate were sustained for a full year. A 34% annualized decline works out to a 9.9% decline for the quarter alone.* Big, but at least it’s not a third.

Unless you’re a connoisseur of these things, though, you probably don’t know that we never fully recovered from the 2008–2009 recession. That point is made in the graph below. The line marked “trend” is based on the 2.1% average growth rate from 1970 to 2007, the year just before the Great Recession hit. The “actual” line is, as the name suggests, reported GDP per capita. The Goldman Sachs estimate for the second quarter is marked with the dot. If something like that forecast comes to pass, we will have undone the entire 2009–2019 recover/expansion cycle in a matter of months.

GDP gap

Note how from 1970 to 2007, the actual line bounces around the trend, rising above it in expansions (peaking around 1990 and 2000, for example), and falling below in recessions (like 1975 and 1982). Actual never strayed far from the trend—until taking a sharp tumble in 2008 and 2009, from which it never really recovered. Since 2009, the growth rate has averaged 1.6%. Last year, which Trump touted as the greatest economy ever, it managed to get back to the pre-2008 average of 2.1%, an average that includes two deep recessions (1973–1975 and 1981–1982).

At the end of 2019, actual was 13% below trend. At the end of the 2008–2009 recession it was 9% below trend. Remarkably, despite a decade-long expansion, it fell further below trend in well over half the quarters since the Great Recession ended. The gap is now equal to $10,200 per person—a permanent loss of income, as economists say. That doesn’t translate literally into a loss of $10,000 in personal income; there are lot of other things in GDP, like investment. And gains in personal income have been concentrated in the upper brackets for several decades, so that doesn’t mean the average American is $10,000 poorer than they would be had the economy recovered normally after 2009. It does mean we have a lot less in the way material resources than we should. And it suggested there were serious pathologies underlying a superficial and often strange “prosperity.”

That’s all gone now. Regardless of the exact number, we have almost certainly entered a very sharp downturn, one that could rival or exceed that of the early 1930s, though at a much faster tempo. We could experience in months what took three or four years to unfold after the 1929 stock market crash.

Goldman is expecting a rapid recovery later in the year. I find that hard to believe. A shock like covid-19 isn’t easily recovered from. Even if we find our footing in two or three quarters, we’ll probably see another permanent income loss, unless we undergo some serious structural reforms.

Yes, GDP is a flawed measure of material well-being. It says nothing about what the economy produces, at what human and ecological cost, or how it’s distributed. But GDP is a useful shorthand for the principles around which our society is organized. This analysis helps explain why things have felt so unsatisfying despite cheerful economic headlines for the last five or seven years. And it’s only going to get worse, and probably a lot worse.


*Normally, you can annualize a quarterly rate by just multiplying by 4, or “quarterize” an annual rate by dividing by 4. Such approximations are close enough with the small percentages associated with the ups and downs of US GDP. When the numbers get large, however, that trick doesn’t work because of compounding. The formula to compute the real quarterly rate from the annual one is ((1+-0.34)^(1/4))-1, which yields -9.9. Or, if you want to annualize -9.9, it’s ((1+-9.9)^4)-1, which yields -0.34. For simplicity’s sake I’ve omitted the percent sign.

Posted by: Doug Henwood | March 26, 2020

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March 26, 2020 James Meadway on the economic dimensions of the coronacrisis (article here) • David Quammen on zoonotic diseases like covid-19, which leap from animal to human and wreak havoc

Posted by: Doug Henwood | March 26, 2020

Unemployment claims surge

Last week, 3.3 million people* applied for unemployment insurance. That’s five times the previous record weekly number, a series that goes back to 1967. Compared to monthly averages and expressed as a percent of employment, which is how it’s shown in the graph below, that’s over two-and-a-half times the previous record.

As of the previous week, 1.8 million people were drawing unemployment insurance, so the number of new claimants is almost twice the number already on benefits, or 182% as many, to be precise. That ratio has never exceeded 26% before.

This surge is unemployment is unprecedented in both scale and speed. And this is only the beginning.

Initial claims


*That’s after seasonal adjustment, which attempts to compensate for regular fluctuations in the number from week to week. Before adjustment, 2.9 million actual humans applied. Seasonally adjusted figures are the standard way of looking at this and many other economic series, which is why I’m featuring it and only making this geeky observation in a footnote.

Posted by: Doug Henwood | March 21, 2020

Explaining the rot

In my article about fighting the coronavirus and economic crises yesterday, I said:

We also need to invest in the physical and social infrastructure of this country. For decades, civilian public investment net of depreciation has hovered just above 0, meaning that we’re doing little better than replacing things as they decay.

Here’s some more detail on that, which updates a September 2017 post.

Graphed below are histories of net public investment in the US, from the national income accounts. (The source is table 5.2.5, here.) “Net” means after accounting for depreciation, aka wear and tear. And public investment means government expenditures on long-lived assets like buildings, equipment, and roads. Not all of such expenditures are good. Prisons are in there, though they’re only a small portion of the total. But a robust public infrastructure is a foundation of a civilized life, and, as you can see, we’ve done little to build that foundation. It shows in collapsing bridges, dilapidated schools, and glaringly now, almost no public health system.

Net public investment

(I started the yearly graph in 1950, not 1929 when the national income accounts begin, because the figures for the Great Depression and World War II years would be distracting, but they’re captured in the decade averages.)

The New Deal saw a boom in public investment, creating an infrastructure we still use—bridges, schools, post offices, parks. (For details, see the Living New Deal site.) World War II resulted in a severe squeeze on public investment, taking it down from a peak of 3.2% of GDP in 1939 to zero and less during the war years. It recovered in the 1950s, and by the mid-1960s, came back almost to 1939 levels. That’s when the US was building schools, public universities, and the Interstate Highway system. (It wasn’t just federal spending—state and local governments were active builders as well.) It began falling in the 1970s and continued to fall in the 1980s and 1990s, the time of Reagan’s “government is the problem” and Clinton’s “the era of big government is over.” It stayed flat in the early 2000s, and in stark contrast with the 1930s, fell during the Great Recession and its aftermath. The reaction to that crisis, which took unemployment up to 10%, was austerity, not expansiveness. Public investment has ticked up slightly since, to 0.7% in 2019, which is also the average for the decade. That average is only 0.1 point above the 1940s, the years of world war.

It’s not just the federal government that’s been retrenching—it’s state and local as well. The 0.7% average for the decade is the sum of 0.6% at the state and local level and 0.1% at the federal. In other words, the federal government is barely keeping up with its infrastructure as it rots.

We badly need to turn this around with investments in old-fashioned things like schools as well as new ones, like clean energy generation and high-speed rail (which the private sector isn’t likely to produce on its own). A Green New Deal, in a phrase.

Posted by: Doug Henwood | March 20, 2020

A few ambitious points on fighting the crisis

We are facing two crises at once, health and economic, that are related in very important ways. The covid-19 epidemic has done major damage around the world, but it’s highlighting some serious structural problems with the US social model that better-run countries are not so afflicted by. We are plagued by a deep economic polarization complicated by minimal social protections; severely diminished state capacity, with eroded institutional structures and extremely debased quality of personnel at the highest levels; years of underinvestment in basic infrastructure, both broadly and in health care particularly; and decades of neoliberal policies that have shaped a common sense based on competitive individualism, with little sense of social solidarity. That’s the longer-term context in which we face the acute crisis of this disease—which is almost certainly a portent of what we’ll face as the climate crisis worsens.

To recover from this, we need to do many things, both short- and long-term. To deal with the health crisis, we obviously need testing kits and a rapid mobilization to build hospitals, ICUs, and ventilators. It will take state action to do that properly; The Market will never do it on its own. It may not be socialism, but if we do it well, it will legitimate a public sector badly in need of legitimation. If China can build hospitals in ten days, there’s no reason we can’t. It’s nice Trump is deploying a couple of navy hospital ships but that’s barely a start.

But I’ll leave more detailed plans for the health emergency to people who know the field. My expertise is in politics, economics, and finance, and I want to make several points about that.

The financial crisis is real and potentially devastating. There are some people on the left who doubt the wisdom of saving the banking system, but to let it collapse would be to repeat the mistakes of 1929–1932, when a cascade of thousands of bank failures magnified a downturn into a Great Depression. Actions like the Federal Reserve’s repos and securities purchases are a bare minimum to prevent a replay of the slide into depression 90 years ago. It’s important to point out that all these trillions are not taxpayer money—it’s money created out of thin air by the Fed. That’s not a financing strategy for all time—it can’t fund Medicare for All or a Green New Deal. That will take real resources. But it’s essential in this moment of crisis.

But I share the frustration with how the Fed is spending trillions in an effort to restore the status quo before this latest crisis. That’s what happened in the 2008–2009 crisis: extraordinary measures were undertaken, but that left the long-term causes of that crisis, like income polarization and unregulated financial buccaneering, unaddressed. Stronger measures are called for this time, for example. Here are some ideas.

• Nationalize several of the largest banks—and unlike the nationalizations in Sweden in the 1990s and the UK a decade ago, they should not be undertaken with the idea of returning them to private ownership as quickly as possible, after the government eats the losses. They should be run on entirely different principles. Shareholders will whine, but without a state-led rescue, the value of their stock would fall close to 0 anyway.

• At the same time, severely rein in with an eye to abolishing, the shadow banking sector of private equity (PE) and hedge funds. PE has saddled companies with crippling levels of debt, which enrich their investors but put them at great risk of failure even in relatively good times. (A subset of PE, venture capital, can play a more constructive economic role, but it’s quite small: there was less than $10 billion in early-stage financing from the sector last year.) And hedge funds do little but destabilize markets. The goal should be to turn finance into something like a utility.

• There’s no reason the nationalized banks couldn’t be run to finance, for example, the Green New Deal (GND). Some of the GND will have to be financed with traditional tax- and bond-financed public spending, but there’s no reason these socialized banks couldn’t participate.

• Along with the nationalized banks, we should create something on the model of the Reconstruction Finance Corporation, to finance the GND. It would be a publicly capitalized bank that would evaluate and fund projects like clean energy generation and new models of food production.

• This would be a propitious time to nationalize the oil and gas sector, undertaken with the idea of putting them out of business. We must move as quickly as possible to stop the use of fossil fuels, and as long as these entities exist, the political and economic obstacles to that necessity are nearly impossible to overcome. Because the price of oil has fallen so dramatically, the value of the major carbon producers has cratered. The five biggest US-based oil companies (Exxon Mobil, Chevron, ConocoPhillips, Phillips 66, and Valero) have a combined market capitalization of under $350 billion, which is equal to about an eighth of JPMorgan Chase’s total assets and less than 2% of GDP. Again, shareholders will whine, but as the financial world wakes up to the inevitability of carbon’s obsolescence, the value of their investments will tend towards 0 anyway.

• Unlike earlier crises from the last few decades, this one is not centered in the financial sector. It’s in what Wall Street like to call the “real sector,” the world of production and labor most people live in. While finance will suffer serious losses in a sharp downturn, the goal of policy should be to prevent catastrophic failure. It will be unable to provide even the modest stimulus quantitative easing did during and just after the 2008 crisis. A real sector crisis requires a much more fiscally centered approach.

• The federal government must provide people with income support as they lose their jobs. It’s distressing that Republicans like Trump and Romney are talking about sending every American a check for $1,000 while House Speaker Nancy Pelosi shot down a similar suggestion from former Obama economic adviser Jason Furman days earlier. This is a bare minimum. Why not $2,000? Unemployment insurance must be expanded (and a lot, as I show here), as must Medicaid, to take care of people who are about to lose their employer-provided health insurance.

• We also need to invest in the physical and social infrastructure of this country. For decades, civilian public investment net of depreciation has hovered just above 0, meaning that we’re doing little better than replacing things as they decay. This economic statistic can easily be confirmed just by walking around anywhere in the US outside our richest neighborhoods. We need massive investment in public infrastructure on the model of the New Deal, both to fight the slump and to make this country habitable for the bottom 80–90% of the population. That infrastructure investment must not simply be more of the same. It needs to be part of a conversion of an economy based on exploitation of workers and nature into something humane and sustainable.

• We also need to get now-unemployed auto workers back to work but building vehicles that don’t threaten life on earth. A model to think about was the proposal to transform a plant in Ontario GM closed into something more earth- and worker-friendly.

• Longer term, never has the need for Medicare for All been so clear. And the reason for that isn’t only the need of freeing people from the anxiety of not being able to pay for essential care, but also because there is little in the way of planning for the distribution of health care resources beyond what The Market demands. A major part of the reason the US is so unprepared to handle the coronavirus crisis is that hospitals are built and outfitted according to where the money is, not where the needs are. Hospitals in rural areas are broke and closing, and recently a hospital in Philadelphia that served a largely poor clientele was closed because it stood on land that developers would prefer to turn into condos. The pharmaceutical industry, which has for decades been turning publicly funded basic research into private profit based on its own priorities and not human need, must be wrestled to the ground.

This is a terrifying moment, with sickness, death, and imminent destitution haunting all of us. Things could get very ugly. But it’s also an opportunity to emerge from this crisis a better country. The ideas I’ve listed here are fanciful under the current political order. But we have to think big to challenge that order. Over the last few decades, neoliberalism has encouraged a consciousness of self-reliance. We need to articulate a vision of solidarity and mutual care. Millions of lives depend on that.

Thanks to Jerry Epstein, Leo Panitch, Bob Pollin, and especially Sam Gindin for helpful comments on this little effort.

Posted by: Doug Henwood | March 19, 2020

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March 19, 2020 David Himmelstein of Physicians for a National Health Program and CUNY on how US health policy got us to this desperate pass • Helen Yaffe on Cuban interferon and COVID-19, and the country’s biotech industry and health system (YUP article here)

Posted by: Doug Henwood | March 19, 2020

Why UI isn’t enough

I’m going to be posting a series of commentaries on the current crisis. Here’s a quick first

It’s odd to see Democrats like Pelosi and Schumer objecting to Republican schemes to send everyone a check for $1,000, maybe two. Of course, one- or two-off checks for $1,000 won’t pay many of the the bills for very long. But talk of means-testing right now looks mean, cheap, and politically suicidal.

Schumer says that rather than write checks, we should expand unemployment insurance (UI) benefits. It would have to be some expansion. Benefits are low, of short duration, and available to a smaller share of the unemployed than in the past.

Right now, the average UI check is $372 a week and the average duration of benefits is just under 15 weeks. That works out to a total of $5,515. While well above $0, it still won’t take you very far. During the worst months of the last crisis, in early 2010, the average check was $307 and the duration of benefits 20 weeks, for a total of $6,236. That’s about a tenth the average household’s yearly income ($63,179).

And the share of the unemployed drawing benefits has declined over the decades. Now, less than a third of the unemployed are drawing benefits. (Those are known as “continuing claims,” in the jargon). In the 1970s it was around 40%, sometimes as high as 50%. The unemployed include people who’ve quit their jobs voluntarily, or are just entering or reentering the workforce. If you take them out and compare continuing claims to the number of job losers among the unemployed, the numbers are higher, but still dispiriting: not quite two-thirds. It was actually lower in the aftermath of the 2008–2009 crisis, just over 50%. In the 1970s, it was between 90% and 110% (!). It’s all in the graph below.

UI share of U

One wonders what sort of expansion Schumer has in mind, but it would have to be a very serious expansion to be of serious help in the coming months. In the meanwhile, don’t complain about $1,000 checks.

 

 

Posted by: Doug Henwood | March 13, 2020

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March 12, 2020 Kali Akuno on why black voters like Joe Biden • Dibyesh Anand on the belief system of India’s Hindu Fascists (book here)

Posted by: Doug Henwood | March 5, 2020

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March 5, 2020 Andrew Bacevich, historian and president of the Quincy Institute, on the history and structure of the US permanent war mobilization (Harper’s article, The Age of Illusions) • Chris Brooks on the UAW bribery/embezzlement scandal (articles: ITT, Intercept)

Posted by: Doug Henwood | February 28, 2020

Taxing the rich revisited

Back in October, I wrote about how taxing the rich, while a nice start, won’t be enough to fund a serious welfare state. That would require taxing the broader population seriously and we need to be honest about that. Until we are, Reagan will continue to rule from beyond the grave.

Most of that post was about the details of financing—the cheapness of our own welfare state and what it would take to get to something more Scandinavian. But the political angle deserves more attention. That was developed nicely the other day by the Financial Times columnist Janan Ganesh. As he says, “What the US left appears to want is social democracy as understood by Robin Hood. It would tax astronomical wealth to fund popular programmes. It would not ask much more of the middle or even the upper middle classes.” After pointing out that there’s just not enough money there to make it work, Ganesh writes:

[T]here is the larger issue of principle. In targeting just the richest, Democrats rather imply that a welfare state is only worthwhile insofar as someone else pays for it. It is not an inherent good. It is not a nation’s binding agent. In this sense, the Sanders and especially the Warren platform is a tacit concession to the Republican view of the world, with tax as a burden, not what the jurist Oliver Wendell Holmes defined as “what we pay for civilised society”. The Democratic appeal is less to Nordic universalism and solidarity than to the noblesse oblige of a remote overclass who will not miss the money.

I chafe at the nationalism of this passage, but bracket that for now. And bracket too the reality that the Nordics have moved away from universalism. But the central political point about universalism and solidarity is really crucial.

I understand the argument that the US public may not be ready for this kind of talk, so we should focus on Medicare for All as both massively necessary on its own and a plausible gateway drug to something more ambitious. But something has to break the hold of the neoliberal mentality: solidarity has to replace self-reliance, or we’ll compete ourself into penury and climate catastrophe. That transformation can’t happen if the argument isn’t made explicitly.

As Ganesh says, “you can sense that Mr Sanders burns to make the higher case,” but electoral reality inhibits him. Those of us not constrained by electoral reality need to start making it openly.

Posted by: Doug Henwood | February 22, 2020

No robo

You can hardly look at Twitter without reading something about the impending AI revolution: robots are coming for your job. I’m a skeptic. By that I don’t mean to argue that IT and AI and all the other abbreviations and acronyms aren’t changing our world profoundly. They are. Tech affects everything—work, play, love, politics, art, all of it. But the maximalist version, where robots, equipped with artificial intelligence, are going to replace human workers, is way over done. No doubt they will replace some. But not all.

Back in 1987, ancient history in tech time, the economist Robert Solow observed, “You can see the computer age everywhere but in the productivity statistics.” That observation achieved cliché status, but unlike many of that breed, it was true. Productivity—measured as the dollar value of the output per hour of work, adjusted for inflation—had fell below its long-term average in the mid-1970s, one of many signs of the end of the post-World War II Golden Age, and would say there for 20 years. (See the graph below. Trend productivity in the graph is computed with a Hodrick–Prescott filter.)

Productivity NFB 19Q4

Then, around 1995, productivity accelerated with the commercialization of the internet and the dot.com boom, which came with a surge in corporate investment in IT. Solow’s quip was retired, and the dawn of a new era was pronounced. Curiously, that productivity acceleration was a time of low unemployment and rising real wages—unlike the present, when unemployment is low but wage growth sucks. So by that precedent, there’s no reason to associate a productivity acceleration with job loss.

That new era lasted only about ten years. Productivity fell back into a slump, reaching all-time lows from 2014 to 2016. It’s picked up some since, but trend productivity growth is at levels comparable to the productivity slump of the late 1970s, 1980s, and early 1990s. So, we’re back in the land of Solow’s quip: robots aren’t visible in the productivity stats.

Here’s another way to look at it. Historically, it took just over 2% of GDP growth to generate a 1% increase in employment. For most of the last decade, employment growth has outstripped that historical norm. Lately the US economy has added almost 40,000 jobs a month more than GDP growth would suggest. That compares to an average gain lately of around 200,000. In other words, one out of every five jobs being produced in the US today wouldn’t be here if normal relationships between growth and employment were still holding sway. (See the graph below.)

Empl act & pred from GDP

GDP growth—which has been slow by historical standards—has also been producing larger declines in unemployment than you’d expect if old relationships were still in effect. If the robots were moving in, you’d expect just the opposite—job growth badly lagging economic growth, unemployment stickier than it has been. But these things are just not happening.

Maybe they will, though we’ve heard panicked tales of disappearing human workers since the onset of capitalism. Cries of alarm like “the robots are coming!” undermine the confidence of the working class and make people more grateful for whatever crap the system feeds them than they should be. Economic life is hard enough as it is without promoting mechanical competitors.

Posted by: Doug Henwood | February 22, 2020

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Just added to my radio archive (click on date for link):

February 20, 2020 Colleen Eren, author of Bernie Madoff and the Crisis, on why the Ponzi schemer deserves release from prison (op-ed here) • Jamieson Webster psychoanalyzes money and left melancholy (interview with Fiona Alison Duncan here)

Posted by: Doug Henwood | February 17, 2020

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February 13, 2020 Yasha Levine on Chrystia Freeland, Ukrainian Nazis, and the proxy war against Russia • Lizzie O’Shea, author of Future Histories, on fake techno-utopianism and imagining a better future

Posted by: Doug Henwood | February 7, 2020

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February 6, 2020 Sofia Japaridze on Congressionally protected wage theft in the libertarian paradise of post-Soviet Georgia • Margaret Kimberley, author of Prejudential, on the long, oppressive relationship of presidents to black people

Posted by: Doug Henwood | January 31, 2020

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January 30, 2020 John Clegg, co-author of this article, on the economic roots of mass incarceration • Tobita Chow & Jake Werner, authors of this paper, on the US–China trade war

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