Another ‘Roaring Twenties’–Part II?

Posted on February 13, 2021 by Popular Economics Weekly

Financial FAQs

UMichSentiment

For some kind of ‘Roaring Twenties’ recovery to happen, Nobel Prize-winner Joe Stiglitz warns in Project-Syndicate that we must pass President Biden’s $1.9 trillion American Rescue Plan.

“Biden’s proposed spending plan is urgently needed. Recently released data show a slowdown in America’s recovery both in terms of GDP and employment. There is overwhelming evidence that the recovery package will provide enormous stimulus to the economy, and that economic growth will generate substantial tax revenues, not just for the federal government but also for the states and municipalities that are now starved of the funds they need to provide essential services.”

The University of Michigan’s early February consumer sentiment survey says much the same. Consumer sentiment edged downward in early February, with the entire loss concentrated in the Expectation Index and among households with incomes below $75,000 (the income brackets targeted by the government cash payouts).

“Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than anytime since 2014 (see the chart),” said the U. Michigan survey.

When asked to assess their current financial position, the deep divisions become apparent: among those with incomes in the bottom third, just 23 percent reported improved finances, the lowest since 2014; in contrast, among those with incomes in the top third, 54 percent reported their finances had improved. Mentions of income gains fell to just 17 percent among those in the bottom third, compared with 44 percent in the top income third.

The end result is more layoffs – one million-plus applications for unemployment benefits are still being filed each week. Jobless claims total almost 800,000 at state level and 334,524 file though federal emergency program in early February.

BLS.gov

Why won’t the $1.9 trillion in additional government spending cause too high inflation, or some other excess from the fear of too hot economic growth? Because interest rates are in effect at zero, and so is retail (CPI) inflation.

Interest rates measure the cost of money, which in effect is cost-free, at the moment. There is so much money floating around the world’s economy that lenders are begging borrowers to use that surplus, and actually paying borrowers in the case of certain EU countries with negative interest rates.

Now is not the time to hoard what can be used to improve lives—especially the lives of those -such as those police, healthcare essential workers that keep this economy working.

A first priority say leading economists, is to make sure enough funds are available to fight the pandemic, then get children back into schools, as well as allowing state and local governments to provide the essential services we all depend on.

The financial markets are telling us there are a lot of funds available that can be used for such productive purposes that might allow economies to ‘roar’ again, so why not use them?

Harlan Green © 2020

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The American Rescue Plan Must Pass

Posted on February 10, 2021 by Popular Economics Weekly

Popular Economics Weekly

Calculated Risk

The number of job openings was little changed at 6.6 million on the last business day of December, the U.S. Bureau of Labor Statistics reported yesterday. Job growth slowed in January with just 49,000 net payroll jobs created, which is why even Fed Chair Janet Yellen maintains the American Rescue Plan currently in debate must pass.

Janet Yellen said on Sunday the country was still in a “deep hole” with millions of lost jobs, but that President Joe Biden’s $1.9 trillion relief plan could generate enough growth to restore full employment by next year.

“There’s absolutely no reason why we should suffer through a long, slow recovery,” she said.

Otherwise, the Congressional Budget Office projects the unemployment rate could remain elevated for years to come and take until 2025 to get unemployment back to 4 percent, in a recent CBO analysis done on the effects of raising the national minimum wage to $15 per hour by 2025. The jobless rate stood at a half-century low of 3.9 percent a year ago before the pandemic.

Barron’s reports retailers, warehousing, construction, durable-goods manufacturing, and healthcare lost a combined 110,000 jobs in January—all for the first time since last April.

The above JOLTS graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. The sharp spike in red columns showed how severe were last year’s job losses, with 20 million jobs lost last April and May 2020. Layoffs and Discharges were back down the 5.5 million in January.

In December, the number of hires decreased to 5.5 million (-396,000), per the BLS. Hires decreased in accommodation and food services (-221,000); transportation, warehousing, and utilities (-133,000); and arts, entertainment, and recreation (-82,000). Hires increased in retail trade (+94,000).

Nfib.com

The NFIB Small Business Optimism Index also declined in January to 95.0, down 0.9 from December and three points below the 47-year average of 98. Owners expecting better business conditions over the next six months declined seven points to a net negative 23%, the lowest level since November 2013, said the report.

Small business owners are just as excited as consumers in seeing more economic aid from the congress, in part because a separate survey from the NFIB showed a third of small businesses reported in January that they had vacancies they could not fill, with 28% of those for skilled workers.

“As Congress debates another stimulus package, small employers welcome any additional relief that will provide a powerful fiscal boost as their expectations for the future are uncertain,” said NFIB Chief Economist Bill Dunkelberg. “The COVID-19 pandemic continues to dictate how small businesses operate and owners are worried about future business conditions and sales.”

There is some concern that it could be too much aid, on top of the recently passed $900 trillion aid package. But how else do we get those 10 million that lost their jobs back to work that want to work? There is an additional 4 million that have stopped looking for work.

The task at hand will be to bring back a US and world economy under attack by an enemy that has inflicted far more casualties than any war.

Harlan Green © 2020

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January Employment Barely Rises

Posted on February 5, 2021 by Popular Economics Weekly

Popular Economics Weekly

Calculated Risk

The unemployment rate fell by 0.4 percentage point to 6.3 percent in January, while nonfarm payroll employment changed little (+49,000), the U.S. Bureau of Labor Statistics reported today. The US labor market continued to reflect the impact of the (COVID-19) pandemic, which means much more economic aid is needed to offset the damage.

The Calculated Risk red line in graph portrays the damage done by the pandemic in the 10th month of this recession vs. earlier recessions, with 10 million jobs still lost and almost 20 million receiving unemployment benefits of some kind.

In fact, the BLS reports the jobs picture began to worsen in November and December. The change in total nonfarm payroll employment for November was revised down by 72,000, from +336,000 to +264,000, and the change for December was revised down by 87,000, from -140,000 to -227,000. With these revisions, employment in November and December combined was 159,000 lower than previously reported.

The report also showed where most of the damage was done and why unemployment benefits must be extended past March for those in the lower-income brackets. Leisure and hospitality lost 61,000 jobs in January due to the pandemic.  In March and April of 2020, leisure and hospitality lost 8.2 million jobs, and then gained about 60 percent of those jobs back.  However, leisure and hospitality lost jobs in December and January, and is now down 3.9 million jobs since February 2020.

But professional firms in tech, science and so forth added 93,000 employees last month to lead the way in hiring. And 23 percent of the employed “teleworked” from home, a sign of future job trends. These data refer to employed persons who teleworked or worked at home for pay at some point in the last 4 weeks specifically because of the pandemic, said the BLS.

Employment fell in almost every other part of the economy. Jobs in leisure and hospitality — restaurants, hotels, casinos, theaters and the like — dropped by 61,000 in January after a massive 536,000 decline in December.

States began to lift business restrictions last month as coronavirus cases began to recede again, but not enough to give a big boost to employment. Retailers shed 38,000 jobs, health-care providers cut 30,000 positions and firms in warehousing and transportation cut payrolls by 28,000.

COVIDtrackingproject-Calculated Risk

Are we through the worst of this pandemic? The COVID Tracking Project (CTP) reports both COVID positive tests and hospitalizations are down sharply in January.

“The good news in COVID-19 data continued this week, as new cases, hospitalizations, and deaths all dropped,” said the CTP. “For the seven-day period running January 28 to February 3, weekly new cases were down more than 16 percent over the previous week, and dropped below one million for the first time since the week of November 5.

“This is still an astonishing number of new cases per week, but far better than the nearly 1.8 million cases reported on the week of January 14. Tests also declined nationally, but by less than 3 percent, nowhere near enough to explain the steep drop in cases,” reported CTP.

Part of the Biden rescue package being debated in congress is $70 billion for COVID-19 testing and a national vaccine program, and increasing the federal, per-week unemployment benefit to $400 while extending it through the end of September.

All of this aid is necessary and more, as I have reported, if we want the recovery everyone is hoping for.

Harlan Green © 2020

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Q4 Growth Weakens

Posted on February 2, 2021 by Popular Economics Weekly

Popular Economics Weekly

Calculated Risk

This Real Gross Domestic Product graph dating from 1959 shows that the US economy in 2020 had its worst contraction since the end of World War II. No surprise given we have the worst COVID-19 infection rates and death totals in the world.

But that doesn’t dim predictions of economists for a ‘Roaring 2020’s’ this year, if we get the economic aid that harks back to a more progressive, New Deal, era when government was the solution.

It has taken the coronavirus pandemic to end 40 years of trickledown economics that benefited corporate owners rather than their workers. Raising the minimum wage, childcare payments, and aid to state and local governments will benefit those lower-paid, essential workers that are not invested in the surging stock and bond markets.

The advance estimate of real fourth quarter GDP was 4 percent when adjusted for inflation after the record Q3 jump of 33 percent. But overall GDP still shrank by 3.5 percent last year due to the pandemic shutdowns, which gives an inkling of the task ahead for President Biden in crafting a recovery plan from the worst pandemic in 100 years.

Economist James K. Galbraith said recently in Project-Syndicate, “Biden has correctly billed his plan an “American Rescue Plan,” rather than as a “recovery” or “stimulus” program. If successful, the package will stem the pandemic, stave off a variety of social calamities, and prevent the collapse of state and local government services. Economic reconstruction is important; but it is a separate objective that can be advanced in a second package.”

Biden is asking for $1.9 trillion just to rescue the American economy. If Democrats can pass it without too many cuts, as well as an infrastructure bill that will create millions of new jobs, economic forecasters are predicting even higher GDP growth this year—upwards of 5 to 6 percent.

The New York Fed’s Nowcast predicts a 6.5 percent jump in 2021 Q1 growth. Most of its prediction came from an increase in manufacturers’ production and inventories of durable goods, which have been building as nondefense capital goods orders have been on a tear, reports the US Census Bureau.

FREDdurablegoods

Businesses are ramping up investments in capital goods that will ensure future growth. Business orders for durable goods such as tools, appliances and new cars rose in December for the eighth month in a row, signaling that companies are preparing for a stronger U.S. economic rebound this year.

Why the optimism when Republicans resisted new spending on anything but tax cuts, border walls and defense over the past four years? The COVID-19 pandemic has brought this second Gilded Age to a crashing halt, as I said.

The party of Roosevelt won the election with the massive support of younger generations that want what citizens of the other developed countries enjoy—universal health care, a higher minimum wage, better social services, public education, paid vacations—the list goes on and on.

Harlan Green © 2020

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What About Another ‘Roaring Twenties’?

Posted on January 26, 2021 by Popular Economics Weekly

Financial FAQs

IMF

Could we be returning to the Roaring Twenties; I mean a Roaring 2020’s as the coronavirus pandemic winds down this summer, leading to an explosion of growth after the worst recession since the Great Depression and worst pandemic since the Spanish Flu pandemic of 1918-19?

The International Monetary Fund is hinting at such with its latest forecast. Its World Economic Outlook forecast projects global growth at 5.5 percent, which is higher than their previous forecast in October. Global growth will moderate to 4.2 percent growth in 2022, said the IMF in its latest blog post.

“In our latest World Economic Outlook forecast we project global growth for 2021 at 5.5 percent, 0.3 percentage point higher than our October forecast, moderating to 4.2 percent in 2022. The upgrade for 2021 reflects the positive effects of the onset of vaccinations in some countries, additional policy support at the end of 2020 in economies such as the United States and Japan and an expected increase in contact-intensive activities as the health crisis wanes. However, the positive effects are partially offset by a somewhat worse outlook for the very near term as measures to contain the spread of the virus dampen activity.”

The economy grew 42 percent during the 1920s, and the United States produced almost half the world’s output because World War I destroyed most of Europe, say the historians. New construction almost doubled, from $6.7 billion to $10.1 billion. Aside from the economic recession of 1920-21, when by some estimates unemployment rose to 11.7 percent (due to the Spanish flu pandemic lockdowns), unemployment in the 1920s never rose above the natural rate of around 4 percent.

We should see a similar rebound from the damage done by COVID-19. The global economy contracted by 3.5 percent in 2020, the worst peacetime contraction since the Great Depression of the 1930s. But it was a short-lived recession, since the economy was at full employment last February at the onset of the pandemic that has killed 2,143,861 worldwide and 421,670 in the U.S., according to the John Hopkins coronavirus tracking center.

“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens,” said IMF chief economist Gita Gopinath, in a blog post accompanying the updated forecast.

The Biden administration is making a good start with its program to vaccinate 100 million in the first 100 days by opening mass vaccination sites and mandating the increased production of PPE and vaccines with the Defense Production Act.

But the IMF emphasizes this must be a global effort, as poorer countries don’t have as ready access to the PPE supplies and vaccines, which means they will continue to harbor virus outbreaks that could prolong the pandemic.

“The international community must act swiftly to ensure rapid and broad global access to vaccinations and therapeutics,” says the IMF, “to correct the deep inequity in access that currently exists…The health and economic arguments for this are overwhelming. The new virus strains are a reminder that the pandemic is not over until it is over everywhere, and we estimate that faster progress on ending the health crisis will raise global income cumulatively by $9 trillion over 2020–25, with benefits for all countries, including around $4 trillion for advanced economies.”

Need we say more on what is needed to bring us a  new Roaring ‘20’s’?  Let us hope we can keep the peace as well, since the Great Depression and a second World War followed the original Roaring Twenties.

Harlan Green © 2020

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Housing Construction Soars

Posted on January 21, 2021 by Popular Economics Weekly

The Mortgage Corner

Calculated Risk

As much housing is being built today as in 2006 at the height of the housing bubble. What is going on? People want to move away from cities, where fear of COVID-19 contagion is highest, and work from home to replace empty offices as the digital economy makes over white collar working places.

This looks like a more permanent transformation because Fifth Generation, 5G networks will begin to kick in with up to 40 times faster transmission speeds for all kinds of AI connections that will ultimately be able to power factories, as well as homes and offices.

Privately-owned housing starts in December were at a huge seasonally adjusted annual rate of 1,669,000, said the Census Bureau. This is 5.8 percent above the revised November estimate of 1,578,000 and is 5.2 percent above the December 2019 rate of 1,587,000.

Building permits were authorized at an even higher rate. Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,709,000. This is 4.5 percent (±1.4 percent) above the revised November rate of 1,635,000 and is 17.3 percent (±1.8 percent) above the December 2019 rate of 1,457,000.

This is while total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 2.5% from October to a seasonally-adjusted annual rate of 6.69 million in November, according to the NAR. But sales in total rose year-over-year, up 25.8% from a year ago (5.32 million in November 2019).

“Home sales in November took a marginal step back, but sales for all of 2020 are already on pace to surpass last year’s levels,” said Lawrence Yun, NAR’s chief economist. “Given the COVID-19 pandemic, it’s amazing that the housing sector is outperforming expectations.”

The demand for more housing will further increase with the expanding 5G networks, as described in a World Economic Forum 2020 White Paper.

“5G will be critical because it will enable unprecedented levels of connectivity, upgrading 4G networks with five key functional drivers: superfast broadband, ultra-reliable low latency communication, massive machine-type communications, high reliability/availability and efficient energy usage. Together, these defining features will transform many sectors, such as manufacturing, transportation, public services and health.”

The WEF estimates that significant economic and social value can be generated by enabling cases activated by 5G. “An IHS Markit study estimates that $13.2 trillion in global economic value will be made possible by 2035, generating 22.3 million jobs in the 5G global value chain alone.”

There is another problem that needs to be tackled, however. The upcoming surge in evictions is on temporary hold until March. Low-income renters are most affected, as a UC Berkeley housing study found more than one million renter households in California alone had lost their jobs. And the US Census Bureau estimated that 1.9 million US tenants were behind on their rents last December.

The moratorium does not cancel out owed back rents, however. But California tenants and landlords are in line to receive some $2.6 billion in rental assistance from the coronavirus aid package approved last month, reports the LA Times. That and the additional unemployment benefits and cash aid will do much to cushion the losses incurred by both tenants and landlords from the pandemic.

Adequate housing will be problem for years to come, in other words, so building new homes will solve only part of the problem.

Harlan Green © 2020

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A ‘New’ New Deal

Posted on January 20, 2021 by Popular Economics Weekly

Popular Economics Weekly

FREDgdpgrowth

Even before his inauguration, the Biden administration announced its ‘new deal’ for a new administration doing government’s business as we recover from the worst recession since the Great Depression of the 1930s.  Yes, this is the worst of the worst as the FRED graph dating from 1950 shows.  Only government at such a time of need can provide aid to businesses and working Americans.

President Biden’s first priority will be closing the income inequality gap that has persisted since the 1970s when most of the fruits of increased productivity and technology were kept by the owners of capital rather than paid to their employees.

This is when we have just witnessed one of the consequences of that inequality, as I said last week—the storming of the US Capital by extreme-right terrorists bent on overthrowing our duly-elected government that was verifying the electoral victory of President-elect Joe Biden and Vice president-elect Kamala Harris.

Here is what the Biden administration is proposing to Congress:

  • Direct payments of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments
  • Increasing the federal, per-week unemployment benefit to $400 and extending it through the end of September
  • Increasing the federal minimum wage to $15 per hour
  • Extending the eviction and foreclosure moratoriums until the end of September
  • $350 billion in state and local government aid
  • $170 billion for K-12 schools and institutions of higher education
  • $50 billion toward Covid-19 testing
  • $20 billion toward a national vaccine program in partnership with states, localities and tribes
  • Making the Child Tax Credit fully refundable for the year and increasing the credit to $3,000 per child ($3,600 for a child under age 6)

It is a lot to ask of American taxpayers with more than $3 trillion already appropriated to keep the United States from sinking even deeper into a long term depression.  Cash payments and extended unemployment benefits will boost incomes, while raising the minimum wage will double what was a starvation-level minimum wage to $2,580/month with a 40-hour week that barely rectifies the disparity.

Less obvious is the child tax credit that makes childcare more affordable as well as improving K-12 education.  A huge income and opportunity gap has yawned between high school and college educated citizens, which has caused an alarming increase in “deaths of despair” from alcohol and drug abuse among high school-educated, unemployed males that have suffered from the pandemic.

Incoming Treasury Secretary Janet Yellen at her confirmation hearing said, “It will be my core focus if I’m confirmed as Treasury secretary to focus on the needs of American workers, those living in cities and rural areas, and to make sure that we have a competitive economy that offers good jobs and good wages.”

The coronavirus pandemic has reinforced the need for an economic science that recognizes the needs of all Americans.  As many have said before, we are all poorer if we ignore the plight of the poorest.

Harlan Green © 2020

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Economy Has Room to Expand

Posted on January 14, 2021 by Popular Economics Weekly

Financial FAQs

Calculated Risk

The latest Job Openings and Labor Turnover Survey (JOLTS) report showed that small businesses are hurting the most during this pandemic with even outdoor dining banned in some regions, such as Southern California, while new hires and job openings were basically unchanged in November.

It looks like most businesses are holding their breath over future plans until there is more certainty about COVID-19 outcomes.

The number of job openings was little changed at 6.5 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Hires were little changed at 6.0 million (deep blue line on graph) while total separations increased to 5.4 million. Within separations, the quits rate (yellow line) was unchanged at 2.2 percent while the layoffs and discharges rate (red bar) increased to 1.4 percent.

Details include the fact that layoffs increased 295,000 to nearly 2.0 million in November. Hiring rose 67,000 to 5.979 million. The hiring rate was steady at 4.2 percent. A separate report showed a sharp decline in confidence among small businesses in December.

Hires increased in professional and business services (+175,000) and mining and logging (+13,000). Hires decreased in accommodation and food services (-73,000), other services (-67,000), and information (-43,000). The number of hires was little changed in all four regions as we said.

AppleMobility

What is still missing from this picture? Apple mobility tracks the number of Google map requests, which is a proxy for frequency of travel (except for regular commuters). It confirms people are traveling approximately 50 percent less, another so-called high frequency indicator of economic trends, which is why entertainment, leisure and hospitality jobs have declined as indicated in the most recent unemployment report.

Also, the NFIB Small Business Optimism Index declined 5.5 points in December to 95.9, falling below the average Index value since 1973 of 98. Nine of the 10 Index components declined and only one improved. Owners expecting better business conditions over the next six months declined 24 points to a net negative 16 percent, said the press release.

“This month’s drop in small business optimism is historically very large, and most of the decline was due to the outlook of sales and business conditions in 2021,” said NFIB Chief Economist Bill Dunkelberg. “Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.”

The beige-book report, prepared by the Federal Reserve on information collected by regional Fed banks on or before Jan. 4, showed modestly higher growth in most parts of the country but found that two districts reported no change in activity (St. Louis and Kansas City) while two noted a decline (New York and Philadelphia).

So there is no inherent reason business and consumer confidence might return to pre-pandemic levels once the vaccinations begin to reach the general population. Most economists predict a rebound by the beginning of fall when schools are scheduled to fully open again.

Much will depend on what kind of legislation a Democratic congress will pass—including a higher minimum wage, expanding Obamacare with a public option, and a national reconstruction program that will begin to upgrade our badly obsolescent infrastructure and create millions of good-paying jobs.

Harlan Green © 2020

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Job Losses Mount From COVID-19

Posted on January 11, 2021 by Popular Economics Weekly

Popular Economics Weekly

MarketWatch

Total nonfarm payroll employment declined by 140,000 in December, and the unemployment rate was unchanged at 6.7 percent, the U.S. Bureau of Labor Statistics reported today.

“The decline in payroll employment reflects the recent increase in coronavirus (COVID-19) cases and efforts to contain the pandemic. In December, job losses in leisure and hospitality and in private education were partially offset by gains in professional and business services, retail trade, and construction.”

The U.S. economy shed jobs for the first time in eight months in December, suggesting a significant loss of momentum that could temporarily disrupt the recovery from the pandemic. The economy has recovered 12.4 million of the 22.2 million jobs lost during the pandemic. Employment at bars and restaurants tumbled 372,000, accounting for three quarters of the drop.

And now the pandemic’s toll is 4,000 deaths  per day, which shows that without central planning to slow its spread the toll will only get worse. It is one more example of why government must be part of the solution to today’s problems, especially in protecting Americans’ health.

COVIDTrackingProject

I believe the coronavirus pandemic is a major reason why this shift to more effective government is coming with the January 20 change of administrations, as even the vaccination rollout has lacked coordination that only the federal government can provide states in charge of disbursing the vaccinations.

Operation “Warp Speed” is not reaching recipients-especially essential workers and the elderly—at anything approaching a warp speed.

The US does lead countries in providing COVID vaccinations as of January 7 with 5.92 million doses administered and China is second with 4.5 million doses as of Dec. 31, according to the World Data, a worldwide data collecting service. But this is a far cry from the HHS and the CDC prediction that 20 million doses should have been administered by Dec. 31.

According to Steven Rattner, a former Treasury official interviewed on MSBNC’s Morning Joe, Trump is the first president to have lost more jobs than he gained during his term since Herbert Hoover at the beginning of the Great Depression.

And businesses will remain shuttered and a majority of consumers continue to stay home until the pandemic has been brought under control.  Any guesses on when that will happen? 

Harlan Green © 2020

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Finding a Path to Greater Equality

Posted on January 8, 2021 by Popular Economics Weekly

Popular Economics Weekly

CenterforEquitableGrowth

Economic theory is finally catching up to political theory in showing policymakers how to right the record income inequality—worst in the developed world—that has plagued working Americans since the 1970s.

It is about time when we have just witnessed one of the consequences of that inequality—the storming of the US Capital by domestic terrorists bent on overthrowing our duly-elected government that was in the midst of verifying the electoral victory of President-elect Joe Biden and Vice president-elect Kamala Harris.

Economists are modernizing New Deal Keynesian economics that brought us out of the Great Depression and World War II, the economics that says government must be part of the solution to today’s problems, including the protection of workers’ rights, the environment, and keeping America strong and prosperous for all Americans, not just the 1 percent.

For instance, a recent MIT research project confirmed that Four decades ago, for most U.S. workers, “…the trajectory of productivity growth diverged from the trajectory of wage growth. This decoupling had baleful economic and social consequences: low-paid, insecure jobs held by non-college workers; low participation rates in the labor force; weak upward mobility across generations; and festering earnings and employment disparities among races that have not substantially improved in decades.”

Much of that divergence was caused by trickle-down economics, a political theory from the Reagan era that rationalized making the wealthy wealthier with the teaser that some of that wealth might trickle down to the 80 percent, which are wage and salary earners that power most economic activity.

While new technologies have contributed to these poor results that promote labor-saving AI and robotics, researchers are now saying these outcomes were not an inevitable consequence of technological change, nor of globalization, nor of market forces. Similar pressures from digitalization and globalization affected most industrialized countries, and yet their labor markets fared better.

It was, “…the decay of unions and collective bargaining, the explicit hardening of business (by the Business Roundtable formed in the 1970s), the popularity of right-to-work laws (mainly in conservative red states), and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all pointing he same direction: the share of wages in national value added may have fallen because social bargaining power of labor has diminished,” said the MIT study.

And therein lies the solution that only government policymakers and legislators can enact by expanding government healthcare, raising the minimum wage, more progressive taxation, making college education more affordable, and expanding workers’ collective bargaining rights that red state right-to-worker laws have drastically curtailed.

This list of economic can-dos has been obvious to any professional economist that has not been defending the one percent’s right to most of the wealth created by working Americans. Free market ideologies have held sway for the past 40 years—not based on empirical research—that advocated unfettered economic growth by any means, and enshrined maximized profits as the greatest good, while ignoring business ethics and a morality that promotes caring for our brothers and sisters.

The economic disparities are growing due to the pandemic, as I reported earlier. In April, nearly 12 million low-wage workers were laid off, while some 6 million workers who were earning between $18 to $29 an hour were laid off. By November, all but 400,000 of those workers earning $18 to $29 an hour had returned to work, Raj Chetty, a Harvard economics professor, has said. Meanwhile, some 6 million workers who earned less than $13 an hour have yet to return to work.

Now the coronavirus pandemic has reinforced the need for an economic science that recognizes we are all in this together. As many have said before now, we are poorer if we ignore the plight of the poorest.

Harlan Green © 2020

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