Relevant and even prescient commentary on news, politics and the economy.

Some Ideas for Pandeminomics

Some Ideas for Pandeminomics

The starting point for all of what follows is that government, if it has the will to act, is currently in the driver’s seat.  Much of the private sector is facing a terrifying confluence of crunches: supply breakdowns, demand falling off a cliff for many goods and services, and a looming shortfall of liquidity to service debt.  A wide swath of business is on the ropes and needs a rescue from government.  This puts the power in our hands if we can wield it.  Of course, with Republican dominance in Washington and the continued loyalty of the Democratic Party to the liberal wing of the plutocracy, the likelihood that we will take advantage of this moment is small.  Still, the opportunity is there, and that’s the basis for thinking ambitiously.

1. Debt-equity buyouts.  There’s a lot of business debt, and borrowers face a crisis as their earnings tumble.  Andrew Ross Sorkin proposes a scheme in which the government would offer no-interest bridge loans to any and all comers, with repayment delayed until after the immediate crisis abates.  The key condition, and just about the only one, is that recipients commit to retaining 90% of their pre-virus workforce.  Dean Baker would go further and provide direct bailout support in exchange for quid pro quo’s, like zeroing out shareholders and limiting CEO pay.

Here is another idea.  Have the government offer to purchase any and all outstanding corporate debt, converting it into an equity stake.  Wipe the debt off the books and take a public ownership position instead, which could be used to pursue objectives, like cutting pay at the top and expanding worker benefits, that the vast majority of Americans support.

2. Public voucher purchases.  For the small business and self-employed sector, particularly in services, I like the Saez-Zucman idea of having the government serve as buyer of last resort.  Specifically, I would set up a public fund to enable the government—perhaps at state and local levels—purchase vouchers for future goods.  A massage therapist, for example, could sell a quantity of vouchers for future massage sessions, providing an income stream to make it through the quarantine.  When the crisis recedes, the government would distribute these vouchers to the public, either through a highly discounted sale or even free distribution.  Perhaps the vouchers could be for steep discounts, say 80%, off the posted price to all for a bit of post-virus income as well.

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The Coronavirus Recession has begun

The Coronavirus Recession has begun

This morning we got two reports that confirm the beginning of the Coronavirus Recession: initial jobless claims and the Philadelphia Fed manufacturing index.

Initial claims rose to 281,000 one week ago. They are now 15% higher than their low last April, as well as almost 15% higher preliminarily on a monthly basis than last March, and the 4 week moving average is just shy of 5% higher than one year ago.  This meets two of my three “recession warning” triggers for this metric.

The Philadelphia Fed’s new orders subindex came in at -15.5, a big decline from last month’s +33.6, that clearly represented manufacturers’ trying to lock in new supplies. Together with the Empire State’s big decline to -9.3 earlier this week, the average of the new orders subindexes for the five regional Feds is -4.

Other high frequency indicators have also tightened or turned neutral this week: credit conditions from the Chicago Fed, the spread between Treasuries and corporate bonds, the Harpex shipping index, the US$, and of course the stock market, which has continued to crash.

I’ll have the full report up this Saturday, but the bottom line is that with this morning’s reports, it is clear in the data that the Coronavirus Recession has begun.

Two final notes:

1.  When I checked a short time ago, reported cases of coronavirus in the US had jumped 45% in a single day to 9415. This is only -6% below Jim Bianco’s exponential forecast from one week ago. Yes, much of this increase can be put down to increased testing, but the point is, that increased testing keeps finding an increased number of infections. This pace of increase is likely to continue for at least one more week.

2.  On the other hand, I will not leave you with DOOOM. I am working on a piece detailing what data to look for to know when we are turning the corner on this crisis.

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The Coming Fiscal Crisis Of State And Local Governments

The Coming Fiscal Crisis Of State And Local Governments

Yesterday my wife Marina and I met with our personal attorney, a close friend also, to fix  some loose ends in our wills due to some recent family deaths, as well the current situation.  He also happens to sit on the Harrisonburg City Council, as well as having been Mayor for a  while and a longtime member of the city Planning Commission, someone whose competence we have great respect for.  Anyway, he noted that on April 14 the City Manager is to present a proposed budget to the City Council, and that it will have a giant hole in it given that taxes on restaurants are a significant source of revenues for the city, and while not completely shut down, restaurants are now seriously restricted in their activity, not to mention that students will not be returning this semester, and they provide a lot of business.  In short, the city will face severe budgetary problems as the now occurring recession proceeds.  It is not only Harrisonburg that faces this problem, but probably just about every state and municipality in the United States.

Obviously this is currently low on the priority list of most people, and while Congress has now voted for a stimulus bill that will help out indiviuals and businesses, and another may be on the way, so far there  has not been a whisper regarding a likely need to help out state and local governments, who, after all, contribute more to the US GDP (and employment) than does the federal government, which mostly just ransfers money, except for the DOD in substantial terms.  The problem is that unlike the federal government, nearly all state and local governments face balanced budget rules for their current activities, with most needing to pass bond referenda for specific projects in order to borrow money.  So when the revenues fall short, which they shortly will start to do for all these state governments, they will face the choice of cutting spending and laying off workers or raising taxes on populations facing sharply reduced incomes and employment.  The sooner the federal government recognizes this and starts to do something, the better, although probably for now natonal politicians are hoping this will all be over before too much damage happens to the local governments, to the extent they are thinking about this at all, which I doubt.

I note that in the Great Recession, this problem was recognized, and the 2009 fiscal stimulus plan by Obama included as about a third of its spending the distribution to state and local governments of revenue  sharing.  This did help out their  problems that arose at that time.  Doing so again I think would be wise, but again, for the moment this problem is under the radar at the national level.

Barkley Rosser

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In the quaint, pre-coronavirus world of February, the economy was already very weak

In the quaint, pre-coronavirus world of February, the economy was already very weak

I have a post up at Seeking Alpha, taking a look at this morning’s retail sales and industrial production reports for February, and briefly considering their implications for employment in the coming months, even before the impact of coronavirus.

Here’s a graph that didn’t make it into that post, showing the past 25+ years of real retail sales (red), jobs (blue), and real aggregate payrolls (green):

For the past 11 months, real retail sales in February were only up +0.9%. We’ll never know for sure, but it is entirely possible that, even without coronavirus, real retail sales might have turned negative YoY this month, suggesting that job growth might screech to a halt in the next few months.

Also, in the more current weekly data, we got two important reads on chain store sales this morning. Both Redbook and the Retail Economist recorded surges in chain store sales last week, as consumer rushed to stockpile supplies.

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Europe’s Response to Coronavirus and the Implications for the U.S.

Europe’s Response to Coronavirus and the Implications for the U.S.

As I listened to the morning news about the coronavirus crisis, I was reminded of this critique of the Eurozone:

In a recent conference, the distinguished economist Paul Krugman repeated the oft-heard critique that the eurozone is not an optimal currency area. Waltraud Schelkle disagrees with this characterisation, and argues that no country or group of countries represents an optimal currency area – one region or country always loses out from a single monetary policy. But countries can use fiscal, social and regulatory policies to overcome these difficulties. When Americans criticise the eurozone’s currency policies, she writes, they are forgetting the US dollar’s shaky start and the adjustments which had to be made to the financial system in the 19th century.

Why mention the optimal currency area debate in reference to this health crisis? This morning I heard statements like this one:

By contrast, the coronavirus crisis has started to look more like the European migration and financial crises: a symptom of globalization that can’t be held back where it started. The exploding outbreak around the Continent — officially declared a pandemic by the World Health Organization on Wednesday — highlights both the promises and limitations of the European Union: a single, largely borderless market made up of 27 countries, each with their own governments, electorates, bureaucracies, health care systems and, as has become painfully obvious, national interests. For weeks, officials in Brussels and national capitals have called for pan-European coordination. Yet even as Italy, the bloc’s third largest economy, embraces a made-in-China solution — putting the entire country under preventative lockdown — the modus operandi across the EU remains fragmented and reactive.

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Benefit-Cost Analysis and the Coronavirus

Benefit-Cost Analysis and the Coronavirus

We are in the middle of a flurry of decision-making on how to deal with COVID-19.  After much resistance, officials are now canceling public events, closing schools and discouraging other activities that put us in contact with each other.  Travel restrictions and possible shutdowns of workplaces, as we’ve seen in Italy, may be up next.

It’s interesting we haven’t heard anything about benefit-cost analysis in all this.  Nearly all economists profess to think that BCA is the single best decision method.  Almost every introductory economics textbook is built around benefit-cost thinking, and for decades federal regulations have mandated BCA for proposals with significant economic impacts.

But now we are facing immense choices—what could have a more drastic impact than shutting down most of the economy by fiat?—and BCA is nowhere to be found.

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Coronavirus update: reason for alarm; (small) reason for hope

Coronavirus update: reason for alarm; (small) reason for hope

This weekend has continued the discouraging news: reports just about everywhere that the Young Invulnerables packed the bars Friday night; the Petri dishes of airport security lines packed with Americans returning from Europe; and personally, two friends who I have known for almost 40 years getting very sick this past week and not able to be tested for coronavirus (one of whom by the way went in to work Friday to drive school buses full of kids because so many other drivers called out). All of these are going to be vectors for continued transmission of the virus.

In that regard, let me repost the graph from Jim Bianco that I ran last week. Because we are now 4 days into his linear projection of an exponential curve of coronavirus transmissions. Here’s the graph:

And here is how his projections compare with the actual numbers I pulled each day from the Johns Hopkins site:

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Trump Administration Continues to Attack the Environmental Projections First Put Into Place by the Nixon Administration

Trump Administration Continues to Attack the Environmental Projections First Put Into Place by the Nixon Administration

If you, the reader, are uncertain whether to support Trump or whoever the Democratic candidate turns out to be, I urge you to consider the devastating reduction in protections for clean air, clean water, and clean land (thus also clean air/water and food) under the Trump administration’s ‘hate anything Obama’ approach that has put industry blowhards in charge of the Environmental Protection Administration, an agency created on December 2, 1970 to ensure federal research, monitoring, standard-setting and enforcement of environmental protection.

GP: Donald Trump digs coal lUS-POLITICS-TRUMP 1

(Image of Trump at West Virginia campaign rally in August 2017, from CNBC article on Trump rollbacks of regulation, cited below)

Under Trump, we have instead a complete disregard for the environment, a view that harks back to the times when rich owners of factories, mines, or corporate farms exploited and polluted land, waters, and people in their greed for profits. For example, in July 15, 2019, the New York Times reported that the Government Accountability Office found that the administration “did not consistently ensure” that its appointees to EPA panels satisfied federal requirements.  This was during 2017, when the Trump administration dismissed academic scientists from EPA advisory boards in order to replace them with industry-connected appointees.  Panels that had in the past included a very high percentage (more than 80%) of academic scientists were reduced precipitously under Scott Pruitt, Trump’s first EPA head.  Pruitt, of course, resigned in scandal (as so many in the Trump adminsitration have done) in 2018 after loading EPA advisory panels with industry hacks .  See, e.g.,  E.P.A. Broke Rules in Shake-Up of Science Panels, Federal Watchdog Says, NY Times, July 15, 2019; Removing Academic Scientists from Science Advisory Panels, Harvard Environmental & Energy Law Program, Feb. 26, 2018 (noting replacement of scientists with industry insiders and consultants, including a climate change skeptic, following Scott Pruitt’s October 31, 2017 directive).  Scientists removed from the panels refused often to be silent.  For example, some formed their own air pollution panel after Andrew Wheeler, Trump’s next EPA administrator, disbanded the Particulate Matter Review Panel in October 2018.  It had “some of the nation’s top scientists, who were tasked with reviewing how soot and other microscopic air pollutants impact human health.”  Rebecca Beitsch, Scientists booted from EPA panel form their own group, The Hill (Sept 26, 2019).

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Poor regulation causes scarcity

(Dan here…another  of David Zetland’s students Hanna writes on regulation…a reminder of what also matters during this heated political climate, and from a younger generation. The first mention of water wars at AB was 2007 I believe.)

Poor regulation causes scarcity

Hannah writes*

In 2014, Flint was plunged into a water crisis. However, this was not the result of over abstraction or drought. Instead, the city’s water scarcity which continues today was caused by poor regulation. The tragedy in Flint demonstrates the critical role that regulators play in ensuring both the quantity and quality of the water delivered to communities.

Over the last five years, it has become clear that senior officials were aware of the water quality issues in Flint but continued to claim that the water was safe to drink. This inaction had serious consequences including multiple lawsuits and the trial of Michigan’s health director accused of involuntary manslaughter. From the start, much of the blame for the disaster was directed at the Michigan Department of Environmental Quality (MDEQ). The Flint Water Advisory Task Force Final Report [pdf] from March 2016 said that the MDEQ “failed in its fundamental responsibility to effectively enforce drinking water regulations.”

The failures were not limited to responding to residents’ concerns about the water quality either; the chain of blunders date back to the original switch of city’s water source to the Flint River which triggered the crisis. The report said the shift was rushed, a concern which had been raised at the time by former utility’s administrator for Flint, Michael Glasgow. Furthermore, the report blamed the MDEQ for not treating the river water with corrosion control as is mandated by federal law. A 2017 review [pdf] of the MDEQ by the Environmental Protection Agency (EPA) heavily criticised the state, reporting multiple errors including failing to properly implement key provisions of the Lead and Copper Rule.

 

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