The next few months are going to be incredibly grim. The pandemic is exploding, but Donald Trump is tweeting while America burns. His officials, unwilling to admit that he lost the election, are refusing even to share coronavirus data with the Biden team.
As a result, many preventable deaths will occur before a vaccine’s widespread distribution. And the economy will take a hit, too; travel is declining, an early indicator of a slowdown in job growth and possibly even a return to job losses as virus fears cause consumers to hunker down again.
But a vaccine is coming. Nobody is sure which of the promising candidates will prevail, or when they’ll be widely available. But it’s a good guess that we’ll get this pandemic under control at some point next year.
And it’s also a good bet that when we do the economy will come roaring back.
OK, this is not the consensus view. Most economic forecasters appear to be quite pessimistic; they expect a long, sluggish recovery that will take years to bring us back to anything resembling full employment. They worry a lot about long-term “scarring” from unemployment and closed businesses. And they could be right.
But my sense is that many analysts have overlearned the lessons from the 2008 financial crisis, which was indeed followed by years of depressed employment, defying the predictions of economists who expected the kind of “V-shaped” recovery the economy experienced after earlier deep slumps. For what it’s worth, I was among those who dissented back then, arguing that this was a different kind of recession, and that recovery would take a long time.
And here’s the thing: The same logic that predicted sluggish recovery from the last big slump points to a much faster recovery this time around — again, once the pandemic is under control.
What held recovery back after 2008? Most obviously, the bursting of the housing bubble left households with high levels of debt and greatly weakened balance sheets that took years to recover.
This time, however, households entered the pandemic slump with much lower debt. Net worth took a brief hit but quickly recovered. And there’s probably a lot of pent-up demand: Americans who remained employed did a huge amount of saving in quarantine, accumulating a lot of liquid assets.
All of this suggests to me that spending will surge once the pandemic subsides and people feel safe to go out and about, just as spending surged in 1982 when the Federal Reserve slashed interest rates. And this in turn suggests that Joe Biden will eventually preside over a soaring, “morning in America”-type recovery.
Which brings me to the politics. How should Biden play the good economic news if and when it comes?
First of all, he should celebrate it. I don’t expect Biden to engage in Trump-like boasting; he’s not that kind of guy, and his economics team will be composed of people who care about their professional reputations, not the quacks and hacks who populate the current administration. But he can highlight the good news, and point out how it refutes claims that progressive policies somehow prevent prosperity.
Also, Biden and his surrogates shouldn’t hesitate to call out Republicans, both in Washington and in state governments, when they try to sabotage the economy — which, of course, they will. I won’t even be surprised if we see G.O.P. efforts to impede the wide distribution of a vaccine.
What, do you think there are some lines a party refusing to cooperate with the incoming administration — and, in fact, still trying to steal the election — won’t cross?
Finally, while Biden should make the most of good economic news, he should try to build on success, not rest on his laurels. Short-term booms are no guarantee of longer-term prosperity. Despite the rapid recovery of 1982-1984, the typical American worker earned less, adjusted for inflation, at the end of Reagan’s presidency in 1989 than in 1979.
And while I’m optimistic about the immediate outlook for a post-vaccine economy, we’ll still need to invest on a large scale to rebuild our crumbling infrastructure, improve the condition of America’s families (especially children) and, above all, head off catastrophic climate change.
So even if I’m right about the prospects for a Biden boom, the political benefits of that boom shouldn’t be cause for complacency; they should be harnessed in the service of fixing America for the long run.
And the fact that Biden may be able to do that is reason for hope.
Those of us worried about the future were relieved to see Trump defeated (even though it’s possible he’ll have to be removed forcibly from the White House), but bitterly disappointed by the failure of the expected blue wave to materialize down-ballot.
If I’m right, however, the peculiar nature of the coronavirus slump may give Democrats another big political opportunity. There’s a pretty good chance that they’ll be able to run in the 2022 midterms as the party that brought the nation and the economy back from the depths of Covid despond. And they should seize that opportunity, not just for their own sake, but for the sake of the nation and the world.
As long as Democrats get tagged with (some their own fault) things like police defunding, socialism, etc., that scare the blue collar and Democrats are doing NOTHING for the blue collar — and I mean N-O-T-H-I-N-G — lots of them are going to go Republican, especially after the Fool gets out of the White House. (Here that? More will vote Repub after the Fool loses his scare people away power.)
SEIU’s Andrew Strom’s proposal for a federal law to force regularly scheduled union cert/recert/decert elections will mean the same thing for the American labor force that Martin Luther King’s desegregation efforts meant for African Americans in the 1960s.
Dean Baker: “I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him.”
“Still, I don’t see this as a 1983-84 type spending boom for the simple reason that the sectors that drove that boom, housing and car buying, have not been depressed. … Clearly there is no basis for expecting a boom based on pent-up demand in these sectors.”
“What held recovery back after 2008? Most obviously, the bursting of the housing bubble left households with high levels of debt and greatly weakened balance sheets that took years to recover.”
What Professor Krugman should have wrote was that during the 1997 to 2007 period Americans were using a newly discovered way to run up total household debt. Refinancing their homes supplemented their incomes until about mid 2007, when the investment bankers discovered that home mortgages were defaulting at a much higher rate than anyone had projected. Investment bankers like Bear Stearns were already in deep financial trouble. And when the refinancing loans dried up then the American working class was in deep trouble too. They lost access to those easy to get refinancing loans and they had to make the payments on their previous loans. In other words they were much worse off than when the refinancing began. And their miserable financial condition was going to last way past his projection of 2010 (https://krugman.blogs.nytimes.com/2008/02/10/postmodern-recessions/)
–
“This time, however, households entered the pandemic slump with much lower debt. Net worth took a brief hit but quickly recovered. And there’s probably a lot of pent-up demand: Americans who remained employed did a huge amount of saving in quarantine, accumulating a lot of liquid assets.”
What Professor Krugman should have wrote was that in Q4 2007 total household debt was $12.372Trillion and in Q1 2020 total household debt was $14.3Trillion. And this had occurred during a period of stagnant wages. Follow the link below for the New York Fed report on total household debt and go to page 3 for the graph. And pent-up demand without a good income or savings is never a good sign.
See:https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2020q3.pdf
– “All of this suggests to me that spending will surge once the pandemic subsides and people feel safe to go out and about, just as spending surged in 1982 when the Federal Reserve slashed interest rates. And this in turn suggests that Joe Biden will eventually preside over a soaring, “morning in America”-type recovery.”
This projection is just horribly wrong.
1. Slashing the Fed Funds Rate when a recession occurs and never returning it back to the rate before the recession began is never a sign of recovery. The Fed could only raise their rate up to 2.42% in 2019 before taking their rate back down to 0.25%. In other words even in April 2019 our economy had still not recovered enough to return to the rate of 5.26% in July 2007. (After 12 years!)
See: https://fred.stlouisfed.org/graph/?g=xXYO
And hiding unemployment numbers with lower labor participation rates earns the statisticians another Pinocchio.
–
The US economy is sick and has been sick since at least 1996 or 1997. Praising it for almost insignificant progress will not cure the disease!
– Yes on Participation Rate. The issue is Labor back to work and much of it is lower paying service jobs.
– What, no CDO, CDS, naked CDS, banking reserve issues, Moodys, etc? It is all on the citizen? How did they get away with it?
– About a third (guessing) of the population is in trouble or weak. Congressional Repubs and now the Treasury are going to make it even more dire.
– 2001, Greenspan raced to drop the Fed Rate to kill a recession. It was as high as 6%. Why do you want 5.26%
The only real problem with CDOs, CDSs, and naked CDSs was the US federal government rushing to bail out the losers. When the losers in the financial world are forced into bankruptcy, the other large investment bankers and traders also pay a price. It is not those instruments which we should curse, it is ‘Bazooka’ Paulson and others like him.
And now the politicians in Washington DC believe that the US government can bail out Everyone! ! !
But none of those are as important as the damage done by the Global Free Trade Treaties.
1. Those left very large numbers of Americans out of work.
2. Those left many other Americans with reduced wages.
3. Those allowed China to support a larger military. Today China’s Navy can threaten its neighbors in a way that they could not before the year 2000.
“Why do you want 5.26%”
Twelve years ago, before the 2008 Great Recession, the Fed Funds Rate was 5.26%. The highest that those rates have been since 2008 is 2.5% and that was only for a very brief period. If the Federal Reserve could be forced to return to that higher rate then the US Congress would be confronted with an economy so dismal that they could not pretend that it had Recovered. Then perhaps they would be ready to ignore their well heeled-lobbyists.
Global Free Trade Treaties…allowed China to support a larger military. Today China’s Navy can threaten its neighbors in a way that they could not before the year 2000.
[ False and offensive, but this is the prejudiced way in which this administration has been teaching us to think. ]
“[ False and offensive, but this is the prejudiced way in which this administration has been teaching us to think. ]”
Prejudiced? You believe that it is prejudiced to look out for the voters who elect the President and the legislature? You don’t seem to understand why the US Constitution gives the citizenry the power to select people for office. You know, those deplorables!
China has built a much larger military since the year 2000. Surely you do not expect me to believe that the peasants in western China paid for the enlarged PLA and its equipment? (Including 2 aircraft carriers.)
Why has China become so belligerent at the China/India border? The answer, China’s history is that they do what they have the power to do. Such as the conquest of Tibet in 1951 and the Second East Turkestan Republic, the homeland of the Uyghurs, at about the same time. If the annexation of East Turkestan was mutually beneficial then why is China having so much trouble re-educating the Uyghurs?
I believe that in about 2014 China realized that the western democracies would not continue those lower tariffs forever. And that they had to continue to build up their military and to use their military power to intimidate their neighbors before it was too late.
And I guess that you believe that when China began building islands over reefs in the South China Sea, the Philippines, Vietnam, and Malaysia were in total agreement! The Philippines did try to block them, but China has ignored the ruling in favor of the Philippines. Or is it that you believe that China has a right to claim the entire South China Sea?
Making the Most of the Coming Biden Boom
NY Times – Paul Krugman – November 19
The next few months are going to be incredibly grim. The pandemic is exploding, but Donald Trump is tweeting while America burns. His officials, unwilling to admit that he lost the election, are refusing even to share coronavirus data with the Biden team.
As a result, many preventable deaths will occur before a vaccine’s widespread distribution. And the economy will take a hit, too; travel is declining, an early indicator of a slowdown in job growth and possibly even a return to job losses as virus fears cause consumers to hunker down again.
But a vaccine is coming. Nobody is sure which of the promising candidates will prevail, or when they’ll be widely available. But it’s a good guess that we’ll get this pandemic under control at some point next year.
And it’s also a good bet that when we do the economy will come roaring back.
OK, this is not the consensus view. Most economic forecasters appear to be quite pessimistic; they expect a long, sluggish recovery that will take years to bring us back to anything resembling full employment. They worry a lot about long-term “scarring” from unemployment and closed businesses. And they could be right.
But my sense is that many analysts have overlearned the lessons from the 2008 financial crisis, which was indeed followed by years of depressed employment, defying the predictions of economists who expected the kind of “V-shaped” recovery the economy experienced after earlier deep slumps. For what it’s worth, I was among those who dissented back then, arguing that this was a different kind of recession, and that recovery would take a long time.
And here’s the thing: The same logic that predicted sluggish recovery from the last big slump points to a much faster recovery this time around — again, once the pandemic is under control.
What held recovery back after 2008? Most obviously, the bursting of the housing bubble left households with high levels of debt and greatly weakened balance sheets that took years to recover.
This time, however, households entered the pandemic slump with much lower debt. Net worth took a brief hit but quickly recovered. And there’s probably a lot of pent-up demand: Americans who remained employed did a huge amount of saving in quarantine, accumulating a lot of liquid assets.
All of this suggests to me that spending will surge once the pandemic subsides and people feel safe to go out and about, just as spending surged in 1982 when the Federal Reserve slashed interest rates. And this in turn suggests that Joe Biden will eventually preside over a soaring, “morning in America”-type recovery.
Which brings me to the politics. How should Biden play the good economic news if and when it comes?
First of all, he should celebrate it. I don’t expect Biden to engage in Trump-like boasting; he’s not that kind of guy, and his economics team will be composed of people who care about their professional reputations, not the quacks and hacks who populate the current administration. But he can highlight the good news, and point out how it refutes claims that progressive policies somehow prevent prosperity.
Also, Biden and his surrogates shouldn’t hesitate to call out Republicans, both in Washington and in state governments, when they try to sabotage the economy — which, of course, they will. I won’t even be surprised if we see G.O.P. efforts to impede the wide distribution of a vaccine.
What, do you think there are some lines a party refusing to cooperate with the incoming administration — and, in fact, still trying to steal the election — won’t cross?
Finally, while Biden should make the most of good economic news, he should try to build on success, not rest on his laurels. Short-term booms are no guarantee of longer-term prosperity. Despite the rapid recovery of 1982-1984, the typical American worker earned less, adjusted for inflation, at the end of Reagan’s presidency in 1989 than in 1979.
And while I’m optimistic about the immediate outlook for a post-vaccine economy, we’ll still need to invest on a large scale to rebuild our crumbling infrastructure, improve the condition of America’s families (especially children) and, above all, head off catastrophic climate change.
So even if I’m right about the prospects for a Biden boom, the political benefits of that boom shouldn’t be cause for complacency; they should be harnessed in the service of fixing America for the long run.
And the fact that Biden may be able to do that is reason for hope.
Those of us worried about the future were relieved to see Trump defeated (even though it’s possible he’ll have to be removed forcibly from the White House), but bitterly disappointed by the failure of the expected blue wave to materialize down-ballot.
If I’m right, however, the peculiar nature of the coronavirus slump may give Democrats another big political opportunity. There’s a pretty good chance that they’ll be able to run in the 2022 midterms as the party that brought the nation and the economy back from the depths of Covid despond. And they should seize that opportunity, not just for their own sake, but for the sake of the nation and the world.
As long as Democrats get tagged with (some their own fault) things like police defunding, socialism, etc., that scare the blue collar and Democrats are doing NOTHING for the blue collar — and I mean N-O-T-H-I-N-G — lots of them are going to go Republican, especially after the Fool gets out of the White House. (Here that? More will vote Repub after the Fool loses his scare people away power.)
Try this to bring them ALL (!) back.
https://onlabor.org/why-not-hold-union-representation-elections-on-a-regular-schedule/
SEIU’s Andrew Strom’s proposal for a federal law to force regularly scheduled union cert/recert/decert elections will mean the same thing for the American labor force that Martin Luther King’s desegregation efforts meant for African Americans in the 1960s.
That would really be something.
Dean Baker: “I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him.”
“Still, I don’t see this as a 1983-84 type spending boom for the simple reason that the sectors that drove that boom, housing and car buying, have not been depressed. … Clearly there is no basis for expecting a boom based on pent-up demand in these sectors.”
https://cepr.net/the-krugman-boom-dont-bank-on-it/
I did have a mental image of the evicted’s personal possessions in a heap in Lafayette Square.
I agree with Dean Baker.
“What held recovery back after 2008? Most obviously, the bursting of the housing bubble left households with high levels of debt and greatly weakened balance sheets that took years to recover.”
What Professor Krugman should have wrote was that during the 1997 to 2007 period Americans were using a newly discovered way to run up total household debt. Refinancing their homes supplemented their incomes until about mid 2007, when the investment bankers discovered that home mortgages were defaulting at a much higher rate than anyone had projected. Investment bankers like Bear Stearns were already in deep financial trouble. And when the refinancing loans dried up then the American working class was in deep trouble too. They lost access to those easy to get refinancing loans and they had to make the payments on their previous loans. In other words they were much worse off than when the refinancing began. And their miserable financial condition was going to last way past his projection of 2010 (https://krugman.blogs.nytimes.com/2008/02/10/postmodern-recessions/)
–
“This time, however, households entered the pandemic slump with much lower debt. Net worth took a brief hit but quickly recovered. And there’s probably a lot of pent-up demand: Americans who remained employed did a huge amount of saving in quarantine, accumulating a lot of liquid assets.”
What Professor Krugman should have wrote was that in Q4 2007 total household debt was $12.372Trillion and in Q1 2020 total household debt was $14.3Trillion. And this had occurred during a period of stagnant wages. Follow the link below for the New York Fed report on total household debt and go to page 3 for the graph. And pent-up demand without a good income or savings is never a good sign.
See:https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2020q3.pdf
–
“All of this suggests to me that spending will surge once the pandemic subsides and people feel safe to go out and about, just as spending surged in 1982 when the Federal Reserve slashed interest rates. And this in turn suggests that Joe Biden will eventually preside over a soaring, “morning in America”-type recovery.”
This projection is just horribly wrong.
1. Slashing the Fed Funds Rate when a recession occurs and never returning it back to the rate before the recession began is never a sign of recovery. The Fed could only raise their rate up to 2.42% in 2019 before taking their rate back down to 0.25%. In other words even in April 2019 our economy had still not recovered enough to return to the rate of 5.26% in July 2007. (After 12 years!)
See: https://fred.stlouisfed.org/graph/?g=xXYO
And hiding unemployment numbers with lower labor participation rates earns the statisticians another Pinocchio.
–
The US economy is sick and has been sick since at least 1996 or 1997. Praising it for almost insignificant progress will not cure the disease!
Jim:
– Yes on Participation Rate. The issue is Labor back to work and much of it is lower paying service jobs.
– What, no CDO, CDS, naked CDS, banking reserve issues, Moodys, etc? It is all on the citizen? How did they get away with it?
– About a third (guessing) of the population is in trouble or weak. Congressional Repubs and now the Treasury are going to make it even more dire.
– 2001, Greenspan raced to drop the Fed Rate to kill a recession. It was as high as 6%. Why do you want 5.26%
“CDO, CDS, naked CDS, banking reserve issues”
The only real problem with CDOs, CDSs, and naked CDSs was the US federal government rushing to bail out the losers. When the losers in the financial world are forced into bankruptcy, the other large investment bankers and traders also pay a price. It is not those instruments which we should curse, it is ‘Bazooka’ Paulson and others like him.
And now the politicians in Washington DC believe that the US government can bail out Everyone! ! !
But none of those are as important as the damage done by the Global Free Trade Treaties.
1. Those left very large numbers of Americans out of work.
2. Those left many other Americans with reduced wages.
3. Those allowed China to support a larger military. Today China’s Navy can threaten its neighbors in a way that they could not before the year 2000.
“Why do you want 5.26%”
Twelve years ago, before the 2008 Great Recession, the Fed Funds Rate was 5.26%. The highest that those rates have been since 2008 is 2.5% and that was only for a very brief period. If the Federal Reserve could be forced to return to that higher rate then the US Congress would be confronted with an economy so dismal that they could not pretend that it had Recovered. Then perhaps they would be ready to ignore their well heeled-lobbyists.
Global Free Trade Treaties…allowed China to support a larger military. Today China’s Navy can threaten its neighbors in a way that they could not before the year 2000.
[ False and offensive, but this is the prejudiced way in which this administration has been teaching us to think. ]
“[ False and offensive, but this is the prejudiced way in which this administration has been teaching us to think. ]”
Prejudiced? You believe that it is prejudiced to look out for the voters who elect the President and the legislature? You don’t seem to understand why the US Constitution gives the citizenry the power to select people for office. You know, those deplorables!
China has built a much larger military since the year 2000. Surely you do not expect me to believe that the peasants in western China paid for the enlarged PLA and its equipment? (Including 2 aircraft carriers.)
Why has China become so belligerent at the China/India border? The answer, China’s history is that they do what they have the power to do. Such as the conquest of Tibet in 1951 and the Second East Turkestan Republic, the homeland of the Uyghurs, at about the same time. If the annexation of East Turkestan was mutually beneficial then why is China having so much trouble re-educating the Uyghurs?
I believe that in about 2014 China realized that the western democracies would not continue those lower tariffs forever. And that they had to continue to build up their military and to use their military power to intimidate their neighbors before it was too late.
And I guess that you believe that when China began building islands over reefs in the South China Sea, the Philippines, Vietnam, and Malaysia were in total agreement! The Philippines did try to block them, but China has ignored the ruling in favor of the Philippines. Or is it that you believe that China has a right to claim the entire South China Sea?