The Coming Anxiety Pandemic

Posted on May 6, 2020 by Popular Economics Weekly

Popular Economics Weekly

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Dryuz.com

Americans’ confidence in their future is dropping substantially as they decide who to trust during the COVID-19 pandemic. Hence what Nobel laureate economist Robert Shiller has called the rise of its result—an anxiety pandemic.

Dr. Shiller’s predictions on financial behavior include a psychological element. As can be seen from the rising debate over masks, or when and how to open public spaces, the level of anxiety over this pandemic is already sky high.

This, unfortunately, will slow down any sustainable recovery that doesn’t take into account how consumers in particular react to the remedies being proposed to tame COVID-19. A good outcome doesn’t look good at the moment because of the mixed messages coming from on high—the federal government vs. states, Trump’s advisors vs. actual scientific experts.

“It is not good news when two pandemics are at work simultaneously,” Shiller said in a recent Project-Syndicate column. “One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease.”

The University of Michigan’s final April sentiment survey sank to a 7-year low of 71.8. The current conditions component bore the brunt of the deterioration, falling 33 points to 74.3.  Expectations posted a smaller decline, with that index falling just ten points, albeit to a lower level of 70.1.  The record low for the monthly Michigan headline index is 51.7, set 40 years ago, and that could be repeated.

Expectations for the recovery are now running all other the map. The White House has revised its estimate of coronavirus deaths from 100,000 to more than 200,000, while the latest Johns Hopkins raised it latest estimate to 135,000 deaths, in part because of some states opening too early and thus ignoring White House guidelines of at least two weeks of declining infection rates before lifting stay-in-home orders.

Why so much confusion? Major economists are beginning to sound alarms.

Nobel economist Paul Krugman attributes the uncertainty of message to Trump and the Republican Party’s refusal to rely on scientists for advice.

”The disdain for experts, preference for incompetent loyalists and failure to learn from experience are standard operating procedure for the whole modern G.O.P.,” he said recently.

Obama economic advisor Austin Goolsbee said as much on the struggles to provide recovery money:

“The administration has been adamant that it is not required to be fully transparent or accountable in handling these (recovery) funds…They undermine the credibility of the crisis response, which the government will desperately need soon enough.”

Add to this the latest employment numbers. Private payroll data service ADP just predicted a loss of 20 payroll jobs in its latest private sector survey.

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ADP

In other words, we will be seeing much darker days ahead if the American public cannot trust the words of our leaders. They cannot unite if they are listening to different voices. “It’s not about red or blue states,” New York Governor Andrew Cuomo has been saying at his daily press conference. “It’s not about ‘you’ or ‘me’, it’s about ‘we.”

Harlan Green © 2020

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Our Record Income Inequality Needs Fixing

Posted on May 1, 2020 by Popular Economics Weekly

Financial FAQs

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FRED

In an earlier column I imagined what could have been accomplished if the $2 trillion given to corporations in the 2017 Tax Cuts and Jobs Act had been put into upgrading our infrastructure, instead of given to corporations and used to boost their stock prices and executive incomes. We might have avoided what will become another severe, maybe Great Recession lasting years.

This downturn could be as disastrous for the US economy with upwards of 30 million applicants filing initial unemployment claims, and an unemployment rate that approaches 20 percent, if the $ trillions just raised in support of a revival is not put to better use.

The COVID-19 pandemic offers a once is a lifetime opportunity to make drastic changes in American capitalism that would level the playing field for salaried workers most affected with the loss of jobs. Most of the $$ must be spent in the public sector for infrastructure, education, healthcare, R&D, and environmental protection, it the US is to recover from this any future pandemic.

This encapsulates in a few words why America still has record income inequality equaling that of the Great Depression. Most economists agree it has been the underlying cause of most recessions, including the Great Depression and Great Recession that must be corrected if there is to be a robust recovery.

And we are dependent on those salaried workers to generate 70 percent of U.S. economic activity, yet at least 80 percent are earning no more than in the 1970s with inflation factored in.

I say this because we have always been a fragmented country with a weak federal system, a system of red and blue states still fighting over the same issues that prevailed during the civil war, resulting in the least regulated capital and labor markets in the developed world with no universal health care.

The record decline of the American worker’s income and labor organizations that supported it since World War II is a long story, though I will attempt to condense its history without too much simplification.

First a fact. The most recognized measure of income inequality is the Gini inequality coefficient, that calculates the percentage of income earned by different segments of a country’s populace. The U.S. ranks 118th in the list of 157 countries compiled by the CIA World Factbook, which is below every other developed country in the equal distribution of national income—between Peru and Cameroon.

We also know about our record income inequality from countless stories of rising poverty levels, homelessness, and the Occupy Wall Street movement that first focused attention on the extreme wealth of the top one percent of income earners. French economist Thomas Piketty and UC Berkeley economist Emmanuel Saenz were the first to plough through 100 years of tax returns that measured income differences of the wealthy and poor.

The rise in income inequality and poverty levels was partly due to the decline in progressive tax rates. The maximum income tax rate topped out at 92 percent during Eisenhower administration, uniting Republicans and Democrats to build our modern post-WWII public infrastructure, before declining to 36 percent today.

But after the 1973 Arab oil embargo that boosted oil prices and inflation to unacceptable levels, a new kind of economics was born. Some called it trickle-down economics, others supply-side economics. The idea was to shift most profits to the side of business owners so they would produce more by cutting taxes and regulations.

They used an old French economic theory as the justification for such a shift in economic thinking—Says Law named after an earlier French economist. It said that producers should maximize their profits, and enough would trickle down to the workers that produced their increased profits. Everyone would then be happy, there would be enough to go around, a rising tide would lift all boats, etc., etc.

However, lowered taxes did not raise all boats, but it did create soaring federal debt. And labor had lost its clout as higher-paid manufacturing jobs went overseas, leaving the U.S. with lower-paying, service jobs at warehouses and transportation hubs.

The end result was that most industries were deregulated creating today’s dog-eat-dog capitalism that has starved government of public services and rules that would mitigate the predatory behavior of modern capitalism.

All public sector investment consequently declined—in education, Research and Development (that created the Internet and sent us to the moon), and modern infrastructure that would boost our declining labor productivity.

There is really no other choice but reform of the economic system Americans live with. A country that unites behind the support of its workers by giving them a greater of our national wealth—with better healthcare, education, while fixing our infrastructure—and raising taxes enough to keep social security and Medicare financially sound—will put US on the road to a better recovery.

Harlan Green © 2020

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When Will Consumers Recover?

Posted on April 29, 2020 by Popular Economics Weekly

Popular Economics Weekly

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BEA.gov

The key to a robust recovery will depend on how American consumers react to the novel coronavirus pandemic and business shutdown.

We were slipping into a recession, anyway. COVID-19 just sped up the inevitable results of economic mismanagement of America’s growth since the 1990s, in what was the longest economic expansion since World War II.

Why? Can you imagine what could have been accomplished with $2 trillion if it had been put into upgrading our infrastructure, instead of tax cuts for the wealthiest that corporations used to boost their stock prices? We might have avoided what may become another severe, maybe Great Recession that put 8 million Americans out of work.

Economists had been conjecturing what might have been a mild recession beginning in March, anyway, as corporations (-$13T) and the federal government (-$23T) became so heavily indebted that default rates were already climbing—whether students and consumers, or corporations falling behind on their debt payments amid declining profits this year.

Economic growth was no longer sustainable, in other words. COVID-19 was the nail in the coffin of the 11th year of this recovery from the Great Recession, when the most basic investments that would sustain future growth had been drastically curtailed by a deadlocked congress—in infrastructure, education, R&D, and even renewable energy.

First Quarter Real gross domestic product (GDP) decreased at an annual rate of 4.8 percent in the first quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2019, real GDP increased 2.1 percent, said the Commerce Department today.

“The decline in first quarter GDP was, in part, due to the response to the spread of COVID-19, as governments issued “stay-at-home” orders in March, said the BEA. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.”

It is a stark reminder of what has happened to economic growth since the nationwide shutdown. The question haunting economist will be the shape of the contraction—whether it is V, U, or L shaped—i.e., whether it will be a sharp and short contraction, or something more prolonged.

Any decent economic recovery will depend on whether consumers can weather the COVID-19 pandemic and maintain their jobs, of course. And that will depend on how quickly the pandemic curve flattens and so-called coronavirus ‘clusters’ are identified and isolated.

There is also a curve that measures consumers’ behavior. The moment consumer confidence begins to rise again from the dumps will be the earliest indicator of a revival—it’s when American consumers feel secure enough to buy again, which is 70 percent of economic activity.

The Confidence Board is a survey that measures consumer confidence, and it has been sinking due to the shutdown.

“Consumer confidence weakened significantly in April, driven by a severe deterioration in current conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The 90-point drop in the Present Situation Index, the largest on record, reflects the sharp contraction in economic activity and surge in unemployment claims brought about by the COVID-19 crisis.

(But) “Consumers’ short-term expectations for the economy and labor market improved, likely prompted by the possibility that stay-at-home restrictions will loosen soon, along with a re-opening of the economy. However, consumers were less optimistic about their financial prospects and this could have repercussions for spending as the recovery takes hold.”

President Roosevelt most famously said, “The only thing we have to fear is fear itself,” in his first inaugural address at the beginning of the Great Depression.

We could be entering another such depression, though this downturn will probably be much shorter because so sudden. The unexpected 8.7 percent plunge in March retail sales was another sign of its depressing effect on consumer behavior.

I have seen even more pessimistic scenarios. For instance, if the pandemic lasts into 2021, it could reduce the level of global GDP by 8 percent compared with the baseline, says Gita Gopinath, the IMF’s top economist.

New York Governor Cuomo is now echoing President Roosevelt’s call to unite to fight this pandemic with his words, “It’s not about me, it’s about we.”

That’s how we must conquer this pandemic.

Harlan Green © 2020

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How Do We Recover From This War—Part II?

Posted on April 24, 2020 by Popular Economics Weekly

Answering the Kennedys’ Call

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MarketWatch

“Every human society must justify its inequalities: unless reasons for them are found, the whole political and social edifice stands in danger of collapse, says economist Thomas Piketty in his latest book, “Capital and Ideology” (Harvard). “War, recession, religion—every facet of human existence has its roots in inequality.”

It is a sweeping charge but correcting the record income inequality where the top 10 percent income earners now garner 48 percent of national income will be the only way we achieve a sustainable recovery.

It has been a long time coming, but the COVID-19 pandemic is the major reason we are witnessing the collapse of a united response and record suffering of Americans with infection and death rates far exceeding that of every other country.

The financial aid to date has focused not on the recovery but First Aid to businesses, with no longer term plan in place to restart the larger economy that has in effect come to a dead halt.

We are a society dependent on consumer spending by ordinary Americans that work in the service sector, which is why it’s bad news that another 4.4 million people filed new jobless claims last week to push the total above 26 million since much of the U.S. economy stopped working more than a month and a half ago.

The spike in unemployment has likely pushed the jobless rate to between 15 and 20 percent, economists estimate per MarketWatch’s Jeffry Bartash. “The only other time in American history when unemployment was that high was in the early stages of the Great Depression almost a century ago,” said Bartash.

The flash services PMI that measure service sector activity fell to 27 from 39.8 in March while the manufacturing PMI dropped to 36.9 from 48.5. Any reading below 50 indicates worsening conditions. It is a preliminary read, with a final read at the end of March but doers anyone doubt it will look better then?

The biggest help to ordinary Americans that would lead to a sustainable recovery would be reformation of the U.S. health care system, since medical bills are the largest source of private bankruptcies. COVID-19 will probably make a universal health care plan inevitable as most Americans now support it. The question is what its final form will be.

Six-in-ten Americans say it is the federal government’s responsibility to make sure all Americans have health care coverage, including 31 percent who support a “single payer” approach to health insurance, according to a 2018 national survey by Pew Research Center.

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PEW Research

Another recent PEW study showed how difficult an economic recovery from the COVID-19 pandemic will be. It has already exacerbated the lack of trust in our body politic between red and blue states, the Haves and Have-nots.

Although there are many reasons for the lack of trust, said the PEW study, a key element is ordinary citizens’ belief that elites are placing their own interests above broader shared values.

“The challenge for the existing political order in affluent countries is to show that it can effectively address problems like poverty and precarity (meaning insecure employment or income),” said a recent New Yorker review of Piketty’s new book. “In America, poverty is increasingly concentrated and thus more corrosive, while absolute economic mobility looks to be at a low point.”

COVID-19 is exposing and exploiting the weaknesses of every country that cannot unite behind a common foe. It will make a recovery even more difficult.

This really means do we want perpetual wars and/or recessions, whether it is due to recurring pandemics, or real wars between the Haves and Have nots? Need we say more on the distrust engendered by an unlevel economic playing field?

Harlan Green © 2020

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When Will Housing Recover?

Posted on April 21, 2020 by Popular Economics Weekly

The Mortgage Corner

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CalculatedRiskBlog

The housing market is also in a “medically induced coma” (economist Paul Krugman’s term), as is most of our economy. However, I believe housing will recover sooner than other parts of the economy, because Americans still need more dwellings, to put it bluntly.

But how and what will be provided—whether to the already affluent, or entry-level first timers—will be the overriding issue.

On the construction front, the Commerce Department said March housing starts plunged 22.3 percent to a seasonally adjusted annual rate of 1.216 million units last month. That was the largest monthly decline in starts since March 1984, according to Reuters.

But housing starts are still up 1.4 percent annually from the March 2019 rate. This is a sign that builders aren’t that pessimistic about future prospects, even during a pandemic when prospective buyers can’t visit models, and documents can’t be handled face-to-face.

And though total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 8.5 percent from February to a seasonally-adjusted annual rate of 5.27 million in March, overall sales increased year-over-year for the ninth straight month, up 0.8 percent from a year ago (5.23 million in March 2019).

Not many of the presidential candidates have even broached the issue of affordability. It’s mainly been governors such California’s Gavin Newsome, or mayors like Los Angeles’ Eric Garcetti, because California has the most acute housing problem, being the most populous state and 5th or 6th largest economy in the world continually producing more jobs then housing.

It is so bad that Governor Newsom has acquisitions more than 15,000 hotel units to house the homeless that may have been exposed or become infected with COVID-19.

Senator Elizabeth Warren has been the most outspoken of the candidates about reforming the housing market.

Her American Housing and Economic Mobility Act introduced first in 2018, “…makes historic federal investments to increase housing supply,” she said recently. “It invests $500 billion over the next ten years to build, preserve, and rehab units that will be affordable to lower-income families. A big chunk of that investment leverages private dollars so that taxpayers get the most bang for their buck.

“By building millions of new units, my plan will reduce the cost of rent for everyone. An independent analysis from Mark Zandi, the Chief Economist at Moody’s Analytics, found that my plan would reduce rental costs by 10 percent over the next ten years. And because my plan invests in housing construction and rehabilitation, the Moody’s analysis also finds that it would create 1.5 million new jobs.”

Governments can also increase the availability of government-insured (GSE) mortgages via Fannie Mae, Freddie Mae, and FHA. Lending standards have not been relaxed since the end of the Great Recession, with average credit scores for those approved at the very high bar of +720 FICO scores, when a 680 credit score was more than adequate to qualify for a mortgage before the housing bubble.

I believe the historically-low interest rates will hold and the Fed will continue with the QE purchase of mortgage-backed securities; a market that was on the verge of collapse until the Fed stepped in with its blank-check buying program.

The National Association of Home Builders (NAHB) announced that weekly data reveal significant declines in new home buyer traffic, and the NAHB/Wells Fargo Housing Market Index (HMI) declined 42 points in April, falling from a high level of 72 in March to 30.

“Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak,” said Lawrence Yun, NAR’s chief economist. “More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.”

First-time buyers were responsible for 34 percent of sales in March, up from 33 percent in March 2019. NAR’s 2019 Profile of Home Buyers and Sellers – released in late 2019 – revealed that the annual share of first-time buyers was 33 percent. That is far below the more normal 40 percent historical share of entry-level, affording housing during boom times, said the NAR.

So we will never be able to cure the lack of affordable housing without some kind of government support, such as programs that Senator Warren has envisioned in her Senate bill that sits in committee, held up by a Republican majority that believes government is the problem.

Harlan Green © 2020

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How Do We Recover From This War?

Posted on April 20, 2020 by Popular Economics Weekly

Answering the Kennedys’ Call

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Equitable Growth

Robert Hormat, a former ambassador and national security advisor in three administrations, has warned in a recent article that we are already fighting a Third World War.

“This is not a confrontation of countries with nuclear and other advanced weapons, but it does involve massive numbers of countries throughout the world in a very different way. They are not fighting one another but, instead, this Third World War is against a small, unseen virus that threatens all nations — regardless of the nature of their governments or their political philosophies — and millions of their people.”

Then why call it a war? The novel coronavirus can only be defeated if we create a worldwide alliance to heal the real enemy—massive poverty levels that could result once the virus is conquered, which will be once science perfects a vaccine.

Whereas worries are growing that COVID-19 will worsen the record income and wealth inequality that already exists in America. So much so, that some studies are predicting a coming poverty epoch rather than episode, one that lasts decades instead of years. We could then have an actual World War III, as the world plunges into deeper recessions.

Studies have shown what happens when nations compete for what they see as scarce resources in a zero-sum, winner-take-all game, rather than the win-win sharing in alliances that have kept us out of major wars since World War II.

“For seven decades after World War II, the notion that global trade enhances security and prosperity prevailed across major economies,” said a recent Sunday NYTimes Op-ed by Peter Goodman, et. al. ”But in many countries—especially the United States—a stark failure by governments to equitably distribute the bounty has undermined faith in trade, giving way to a protectionist mentality in which goods and resources are viewed as zero-sum.”

And that is what we are seeing now, the ascendancy of authoritarian regimes that foment fear and breed chaos to maintain power in countries such as Hungary, where the Prime Minister has taken this opportunity to disband parliament and rule by decree.

Columbia’s Center on Poverty and Social Policy predicts poverty levels will worsen even with a normal recovery.

“Our projections demonstrate that if unemployment rates rise to 30 percent, the poverty rate in the United States could increase to 18.9 percent from 15.1 percent (an increase of 21 million people) and would mark the highest recorded rate of poverty since at least 1967. Even if unemployment rates return to normal after the summer, our projections suggest poverty rates that rival those of the Great Recession.”

If we don’t confront this possibility, we might lose the opportunity to create an economic and social response to the pandemic that also lessens the occurrence of future pandemics, and the economic damages they will inevitably cause.

There will be incredible suffering at the bottom of the economic ladder, if we don’t implement policies that lessen the inequality. Without a more equitable distribution of our wealth, we remain a country divided with record suicide, alcohol and drug abuse rates of white, working class males in rust belt America that Princeton economists Anne Case and Angus Deaton, a 2015 Nobel Prize recipient, have documented in Deaths of Despair and the Future of Capitalism—their best-seller of that title.

Richard Wilkinson and Kate Pickett, sociologists and epidemiologists, in the Spirit Level and other books, have been sounding the need for greater equality.

“More equal societies are marked by strong community life, high levels of trust, a greater willingness to help others and low levels of violence,” they said recently in The Guardian. “As inequality rises, all this goes into reverse. Community life atrophies, people cease to trust each other, and homicide rates are higher.”

The urgency is there in the face of a another looming Great Recession or Depression. The U.S. congress has already agreed to three recovery programs, such as the $2 trillion CARES Act to distribute income directly to individuals, as well as grants and loans to large and small businesses.

It won’t be easy. As Keynesian economist John Kenneth Galbraith once said about the wealth-holders, “…the privileged feel also that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right.”

Americans are really staring at the possibility of a second Great Depression.  The first lasted 1o years from 1929-39 and the outbreak of World War II. The unemployment rate is expected to soar, as more than 20 million members of our 150 million work force will be out of work for a prolonged time due to COVID-19.

It will be the communities and countries that know how to care and share their wealth, rather than isolate and compete with each other for resources and knowledge, that will create a more peaceful future.

Harlan Green © 2020

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“It’s Not About Me…”

Posted on April 15, 2020 by Popular Economics Weekly

Popular Economics Weekly

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FRED

New York Governor Andrew Cuomo is sounding like President Roosevelt when he intones, “It’s not about me, it’s about we.” in his morning COVID-19 press conferences.

President Roosevelt most famously said, “The only thing we have to fear is fear itself.” in his first inaugural address at the beginning of the Great Depression. Roosevelt was telling us we could conquer a Great Depression if we conquered our fears and came together to fight economic collapse.

We could be entering another such depression, though this downturn will probably be much shorter. The March 8.7 percent plunge in U.S. retail sales is the first major indication of the effects of the business shutdown and shelter-in-place mandates.

The severest part of the oncoming recession could  last only a matter of months if we listen to the health care experts and do the required testing and contact tracing required to prevent a further spread of the novel coronavirus in all 50 states.

But the abrupt shutdown of businesses with consumers unable to shop outside of buying necessities will cause a horrific decline in economic growth—on the order of 3 to 6 percent, according to the IMF, depending on how closely Americans follow the stay-at-home recommendations.

And there are more pessimistic scenarios. For instance, if the pandemic lasts into 2021, it could reduce the level of global GDP by 8 percent compared with the baseline, said Gita Gopinath, the IMF’s top economist.

Retail sales sank 27 percent at auto dealers and 17 percent at gas stations, two of biggest segments of the retail industry, according to the U.S. Census Bureau. Fewer people are buying cars with millions of Americans losing their jobs and millions more worrying about their next paycheck.

“Americans also drove less as an economic shutdown spread across the country, exacerbating already steep price declines caused by a global price war that has cut the cost of crude oil by two-thirds in just a few months,” said MarketWatch’s Greg Robb, commenting on the retail sales figures.

It may console us a bit that the 1930s were a much different time. The Great Depression only became ‘Great’ because it lasted 10 years over two successive recessions, until the beginning of World War II.  This COVID-19 pandemic doesn’t have to be a repeat if we keep the necessary safeguards in place long enough to prevent successive recurrences of the pandemic.

Governor Cuomo’s words could end up to be as historically significant in helping to inspire Americans, for they signal what Americans must also conquer—the narcissism exemplified by our Narcissist-in-Chief and his political party—in order to work together and ignore political affiliations and ethnic divisions.

It takes a certain kind of selflessness that many are showing in banding together to supplement the shortage of PPE masks and clothing, while states work together to supply each other with medical equipment, including scarce ventilators.

This is while we see President Trump’s fumbling responses to the pandemic that so exemplifies the personality disorder we seem to have been living through as a country. Maybe this worldwide pandemic will bring us out of the Age of Narcissism itself, the ‘me first’ attitude that has been the byword for the fragmentation of the U.S. into blue states and red states, white vs. brown skins, and native-born vs. immigrant divisions that our Narcissist-in-Chief has fomented to enhance his own political power.

President Roosevelt in the 1932 speech also said, “…we now realize as we have never realized before our interdependence on each other; that we can not merely take but we must give as well; that if we are to go forward, we must move as a trained and loyal army willing to sacrifice for the good of a common discipline, because without such discipline no progress is made, no leadership becomes effective.”

Simply put, we can no longer think of just ‘me’, if we want to survive this pandemic and prevent another Great Depression.

Harlan Green © 2020

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Collaboration vs. Confrontation—Who Wins?

Posted on April 13, 2020 by Popular Economics Weekly

Financial FAQs

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theverge.com

Is the era of trickle-down economics, of Reagonomics that saw so much wealth redistributed to the top 1 percent, finally ending? Yes, if we want to really ‘cure’ the pandemic decimating the U.S. and world economies, because the pandemic has brought out all the weaknesses of an economic system that has boosted the wealth of the top 10 percent of college-educated and left everyone else to the mercies of globalization and a service economy that barely pays living wages.

“For seven decades after World War II, the notion that global trade enhances security and prosperity prevailed across major economies,” said a recent Sunday NYTimes Op-ed by Peter Goodman, et. al.…”But in many countries—especially the United States—a stark failure by governments to equitably distribute the bounty has undermined faith in trade, giving way to a protectionist mentality in which goods and resources are viewed as zero-sum.”

So it turns out that to defeat the ‘novel’ coronavirus we must create a new sharing society and caring world that prevents the hoarding of the resources to defeat it, which will also preserve our democracy that was built in the seventy years after WWII expressly to prevent another Stalin, Hitler and Emperor Hirohito of Japan.

Americans are now staring at the possibility of another Great Depression because of Covid-19. The unemployment rate is expected to soar, as more than 20 million members of our 150 million work force will be out of work for a prolonged time due to COVID-19.

Unless we find a new capitalist model of sharing—that mitigates the record income disparities of rich and poor last seen before the Great Depression—neither a novel coronavirus solution nor a robust economic recovery is possible.

Compounding the problem of returning to economic health is that the ‘cure’ of a prolonged national lockdown will be worse than the ‘problem’ of returning to economic growth to achieve it.

There will be incredible suffering at the bottom rung of the economic latter, and it will be the communities and countries that know how to collaborate rather than compete with each other for resources and knowledge that will recover most quickly.

That is because in the words of Robert Shiller, the 2013 Novel Prize recipient, there is a second, anxiety pandemic that we must live through, and that white, non-college educated males, in particular, are still living through.

Princeton economists Anne Case and Angus Deaton, a 2015 Nobel Prize recipient, say such men are dying of drug overdoses, drink-induced liver disease and suicide — what they call Deaths of Despair and the Future of Capitalism—in their best-seller of that title.

“We are feeling the anxiety effects of not one pandemic but two,” said Dr. Shiller in a recent Project-Syndicate article. “First, there is the COVID-19 pandemic, which makes us anxious because we, or people we love, anywhere in the world, might soon become gravely ill and even die. And, second, there is a pandemic of anxiety about the economic consequences of the first.”

And that is what only governments can do—enforce the cooperation needed to defeat the virus and consequent anxiety. It is what President Roosevelt did in the New Deal, because of the necessity of recovering from the Great Depression and a 25 percent unemployment rate.

This is also what a historical study of the other major international pandemic in the past century—the Spanish flu pandemic—has shown. It was those communities and cities that learned the art of cooperation and banded together to help each other, pooled their resources that had the lowest death rates and recovered most quickly.

Like the Spanish flu, this pandemic has no borders that can be shut down, no particular region or ethnic group that is immune. This is a borderless disease that requires a borderless response from every member of humanity to defeat it.

Former Obama UN Ambassador Samantha Power sounded the alarm in a recent NYTimes Op-ed: “…despite Washington’s own bungled domestic response, we nonetheless must immediately begin to build a broad and determined global anti-covid coalition. Such a coalition must create hubs for sharing scientific data in the virus, testing and vaccine efforts, taking advantage of our ability to learn from infection cycles that have peaked earlier…Unless the United States exerts leadership to prevent Covid-19 from raging out of control abroad, the crisis will not end at home.”

So let us jettison the myth of self-reliance that ignores the welfare of others in the name of private ownership of everything, and the government ownership of nothing, except military weaponry.

Richard Geldard, Author of ‘Emerson and the Dream of America: Finding Our Way to a New and Exceptional Age’ titled this chapter “The New Self-Reliance”, “…because it is clear now that since Emerson’s first assertions of this theme 140 years ago, we may have assimilated personally and culturally some of the language and substance of his intention, but what remains is the actual work and its realization to a larger sphere.”

By that larger sphere, Geldard means self-discovery must lead to a larger meaning of life—the recognition we all belong to one species, and only as one family of nations can we survive a worldwide pandemic—whether it is COVID-19, or the lingering effects of overwhelming anxiety—by recognizing our inter-connectedness.

Harlan Green © 2020

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Consumer Sentiment in the Dumps

Posted on April 9, 2020 by Popular Economics Weekly

Financial FAQs

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MarketWatch

Consumer sentiment is plunging.  And why not? With an additional 6.6 million initial unemployment compensation claims this week, it brings the total in just the past three weeks to 16.8 million since the COVID-19 national lockdown of businesses and stay-in-home orders, according to the Labor Department.

It has already pushed the revised March unemployment rate to 5.4 percent, but it could easily top 10 percent in future months if unemployment claims rise to +20 million, say economists. That would top numbers for the Great Recession.

The University of Michigan preliminary April sentiment survey sank to a 7-year low of 71.0. The current conditions component bore the brunt of the deterioration, falling 31 points to 72.4.  Expectations posted a smaller decline, with that index falling just ten points, albeit to a lower level of 70.0.  The record low for the monthly Michigan headline index is 51.7, set 40 years ago, and that could be repeated.

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U.ofMichigan

“Consumer sentiment plunged 18.1 Index-points in early April, the largest monthly decline ever recorded,” said surveys chief economist Richard Curtin. “When combined with last month’s decline, the two-month drop of 30.0 Index-points was 50% larger than the prior record. Of the two Index components, the Current Conditions Index plunged by 31.3 Index-points, nearly twice the prior record decline of 16.6 points set in October 2008.”

This is serious for a number of reasons. It affects consumer spending, the main engine of economic growth, but we also can’t ignore the psychological effects of such a worldwide pandemic, which Nobel laureate economist Robert Shiller labels a second anxiety pandemic that causes irrational behaviors—both financially and personally—in a prolonged business shutdown.

“It is not good news when two pandemics are at work simultaneously,” he said in a recent Project-Syndicate column. “One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease.”

An anxiety pandemic can cause a deeper recession, as consumers save more and spend less over a longer period as well. Starbucks is already reporting a drop in same-store coffee sales of 60-70 percent, reports MarketWatch. Its only business during the lockdown is takeout or drive-thru pickups, which might become even more prevalent during and after lifting of the lockdown if such changes in consumer behavior become permanent.

Such a jarring economic disruption—even if it doesn’t rise to the level of a Great Depression or Recession—has to cause permanent changes in behavior.

The loss of consumer confidence can be deadly to any recovery. We already know about the mounting Deaths of Despair with the rise in drug addiction, alcoholism, suicides among the long term unemployed, and can only hope this ‘medically induced’ work stoppage isn’t prolonged.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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When Will it End?

Posted on April 7, 2020 by Popular Economics Weekly

Popular Economics Weekly

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COVID-19 Tracking Project/Calculated Risk

When will the pandemic end and recovery begin, is the question asked of every expert and non-expert.  Foremost of the experts is former Federal Reserve Chairman Janet Yellen who in a recent CNBC interview commented on just when the U.S. economy might be taken out of its “medically-induced coma” (to use Paul Krugman’s words), and return to growth.

She and other leading economists are saying it will depend on how quickly and thoroughly the novel coronavirus testing and contact tracking (tracing of infected persons back to their source) is done.

Research from the 1918 Spanish flu pandemic has shown that cities and regions with the strictest lockdown protocols, including longer lockdown periods, had the lowest death rates and strongest recoveries.

Los Angeles and Oakland, California were among cities that had the lowest death rates and strongest recoveries in 1918, whereas heavily industrialized Pittsburgh and Philadelphia didn’t follow as strict guidelines and suffered the most, said the study.

Calculated Risk’s above graph portrays the increase in testings from the COVID Tracking Project today, and just how daunting is the challenge to track all infected persons. The total U.S. percent positive over the last 24 hours was 19 percent (red line).  The US needs enough tests to push the percentage below 5 percent (probably much lower), said Calculated Risks’ Bill McBride.

Today’s results also prove the 1918 Spanish flu outcomes. New York, late in calling for a statewide lockdown, is the center of the pandemic with 131,000 that have tested positive, and 190,000 tested negative as of Monday.

Whereas California with the largest U.S. population was one of the first to call for the statewide lockdown and had 14,336 testing positive and 115,364 testing negative. The difference in mortality is also stark: California had 343 deaths, whereas New York 4,758 deaths as of Monday.

Economists are looking at various recovery scenarios for this worldwide contraction that in no way resembles either the Great Depression or Great Recession. In those cases there was a sharp decline in aggregate demand—the collective spending of consumers, investors, and governments—which induced a collapse in industrial production. The unemployment rate had soared to 25 percent, the highest on record—until now.

But today’s pandemic has halted both production (the business shutdown) and consumption (because of stay-in-home requirement) simultaneously when the economy still was fairly strong, hence the induced coma.

Here is the Conference Board’s graph for the three most common scenarios once again. Professor Yellen said she hopes a Fall scenario (per graph) is most likely; or what is called a ‘U’ shaped recovery that needs at least two quarters to return to actual GDP growth.

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Conference Board

But that can’t happen until and unless this novel coronavirus is tamed sufficiently to allow our country to return to work. And that is dependent on a better coordinated response that brings down the infection and death rates within months.

But there is the possibility COVID-19 may return in the upcoming winter, as did the 1918 Spanish flu, and even continue to recur annually if a majority of Americans aren’t vaccinated and immunity isn’t built up in at least 75 percent of all U.S. residents.

If this is like a World War, as some have intimated, then we need a Commander-in-Chief who knows how to lead a coordinated strategy, and not be the “back-up” General.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Keynesian economics, Politics, Weekly Financial News | Tagged , , , , , | Leave a comment