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

First Pass of Small Business Loans to States

This was the first pass (Ernie Tedeschi of Evercore prepared the data) and it is arranged by the percentage of loans completed in each state. As you can see Nebraska received ~81% of the loans applied for by the small businesses in Nebraska. One million, 35 thousand and 86 SBA PPP Loans (1,035, 086) were approved by April 13 totally $247, 543, 397, 521 by 4,664 lenders. Seventy percent of the funds were already allocated by April 13.

Some Applicant Complaints:

  • Applied at Bank 0f America on April 3. Got 3 calls on Friday Saturday and Tuesday asking if I uploaded my documents. They were already there!! Instead of approving my loan BOA is delaying and stalling to run out the clock.
  • In Michigan, one small company dealing with Comerica was told repeatedly Comerica had not received the code to apply for the loans yet. The small ten person  applied when the program first started.

Some detail from Bob Clough at “CloughNotes” which looks at the numbers in a different manner after the leap.

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Epidemiologists, government failure, and COVID-19

Jason Brennan has a new post up doubling down on his earlier criticism of epidemiologists and government policy in response to the COVID crisis.  I responded to his earlier blog posts here.  I am still not convinced, but there are useful lessons to be learned from going through his argument.

Brennan continues to claim that epidemiologists produced bad statistical analysis, and that we should not take their advice seriously (all bolding is mine):

I’ve been criticizing epidemiologists–including the ones publishing in JAMA, the Lancet, NEJM, etc., and the famous ones who were making apocalyptic predictions on TV last month–for doing what is clearly bad work. My main complaint is, again, that their estimates about the danger of the virus are based on the wrong data (current infections) collected the wrong way (non-random testing of people who present themselves as sick). We all know better than that. You don’t sample on the dependent variable. You don’t sample in ways that suffer from severe selection bias. If you mostly test people who show up saying they are sick, and 3.4% of them die, it doesn’t tell you how many people have the infection, nor does it tell you what percent of people who have the infection will die.
Now, while many economists and others trained in stats have been saying the same thing, it’s surprising how many untrained people say we should instead defer to epidemiologists. You can see some of their arguments on Facebook and others in the comments to previous posts.

He does not repeat the suggestion in his earlier post that decisions based on analysis from epidemiologists “presumptively lack authority and legitimacy”, but he doesn’t withdraw it either.

Here is one way to think about the claims Brennan is making.  Suppose the following statements are true:

  • Epidemiologists overestimated the risk of COVID-19 by applying bad statistical methods to poor data
  • Politicians adopted costly lockdown policies based on flawed risk estimates produced by epidemiologists
  • Lockdown policies were unjustified at the time they were adopted, and this could have been known if better statistical analysis had been undertaken
  • Lockdown policies are unjustified now, given currently available information, and should be replaced by a different policy

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Define Rich, part II: Rat Race and the American Dream

I have had this re-posted today because I believe it is as relevant today as when I wrote it in May, 2009.  My hope is that this event we are living moves enough new people to realize the society we built is not sustainable.  My hope is that one of the basic questions I was trying to answer in a more completely when I started blogging at AB is answered in a manner such that the nation and ultimately humanity becomes more inclusive: Why do we have an economy?  I will not accept the answer: To make money.

I believe today, people are discovering the rat race they have voted themselves into. I hope enough people will come to understand that just making money is not life sustaining.

My concern is that the use of the “war” analogy will lead us to policy which implies an end point…a win.  We are not at war.  You can not have a war with nature.  Nature has no ideology to fight against.  Nature just is.  It’s just doing.  It has no persona.  It has no intent.  It just reacts based on what has come in the past.  It’s not logical, it’s not irrational.  There is no end.  There is no win.  There will be another virus.  If we are lucky, only 1 virus at a time.  Yes, as we saw the past 2 days, weather events still exist.  Nature can do more than one thing at a time.

We are in the first nationwide crisis since the Depression.  WW2 was not a crisis in this nation.  The biggest difference between the Depression and now is that man created the Depression which had a natural event imposed on top of it (the Dust Bowl).   That natural event only effected a part of the nation.  Today we have a depression being imposed on us by nature.  The entire nation.  The Depression could and was undone by its creator.  This current developing one can not be undone by the creator: nature.  It can be argued that our policies pushed nature (pollution, climate change) and thus we created the disaster leading one to believe we can undo it.  Not really.  Not in the sense of simply undoing the policies that set up the environment such that nature has brought us to this point.  Nature only reacts.  It just does.  There is no simple solution as with the Depression.  It only required some policy changes addressing only the economy.

We can’t win.  We can only live.   Hopefully with a more inclusive thought process and thus society.

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Rat Race and the American Dream

There were some good responses to the first posting that I agreed with. They were, could we say, jumping the gun as to how I want to proceed, however. So, with this post I want to continue with looking at phrases/concepts/thoughts that are a part of, or were a part of any discussion regarding “rich”.

Have you missed the phrase: Rat Race?
Wonder why we ask: Is the American Dream dead?
Could it be that in an economy where “rich” is not or will not be defined, the race is won and the dream obtained? After all, we’re all rich now! Sodahead specifically asked the question.

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News flash: Libertarian invents new reason not to help people!

Thinking about the coronavirus is bleak, so let’s do some political philosophy to cheer ourselves up.

Libertarian philosopher Jason Brennan has a new post up claiming that our obligations to help strangers are much weaker than we might think they are, and may not exist at all, because most people are “morally very bad”.

Brennan begins with this question:

To what degree are our moral obligations to provide help and assistance to strangers reduced because those strangers are likely to be morally bad people?

He answers this question in 3 steps.  First, he argues that you do not have any reason to keep Bob, a rapist or child molester, from starving, even if you can easily afford to help.  Second, he argues that even if Bob has not actually done anything wrong, if Bob has a bad character and would do something very bad if he could get away with it, then you don’t have any reason to help Bob:

Bob is an evil person, though he has not yet done anything evil. We owe evil people less. You are free to, say, spend the money on toys for yourself rather than keep him alive through your charity. Indeed, you probably are obligated to refrain from helping keep Bob alive.

Finally, Brennan argues that most people are in fact morally very bad:

. . . Most people are disposed to be utter conformists and to obey evil authority. Nearly all our neighbors are disposed to be obedient concentration camp guards; they only reason they haven’t done that is because, thanks to moral luck, they haven’t been in such a situation. Further, most of people’s apparently altruistic behavior is in fact motivated by self-interest . . . People in general have quite bad moral character, but most of them haven’t done anything particularly bad because they haven’t had the opportunity . . .
This seems like a good reason to discount our estimates of what kinds of assistance we owe them.

The question I want to ask is whether this argument gives us a (strong) reason to oppose social insurance and progressive taxation, the main institutions that capitalist democracies use to assist those who find themselves in difficult circumstances.  (If Brennan is merely claiming that our obligation to help others on an individual basis is not as strong as we tend to think, I also disagree, but this is a less interesting and less important claim.)

Brennan assumes that people have fixed, immutable moral characters, and that their characters are either good or bad.  To use his terminology, people are either “saints” or “scoundrels”.  Scoundrels will act terribly when circumstances permit; saints always act decently towards others.  Brennan assumes that most people (“nearly all”) are scoundrels, and that the obligation of saints to help scoundrels is limited.  Note that Brennan is viewing morality entirely from the point of view of saints, even though he claims that most of us are scoundrels.

We could certainly push back on Brennan’s model and his empirical claims, but let’s run with them and see what happens.

Imagine a group of scoundrels who live together in a representative democracy with a market-based economy.  Even though everyone is a scoundrel, the society functions reasonably well because informal norms, social pressure, and the threat of civil and criminal sanctions all encourage people to behave decently towards one another.  Most people are vaguely aware of the fact that they might commit atrocities under less favorable circumstances, when they bother to reflect on such things, but they nonetheless come to think of themselves as imperfect but morally decent people.  This kind of grandiose moral self-delusion is, sadly, all too typical of scoundrels.

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CDC Early Release – Syndrome Coronavirus 2

High Contagiousness and Rapid Spread of Severe Acute Respiratory Syndrome Coronavirus 2,” CDC, Emerging Infectious Diseases

Doing my usual morning reading, I ran across a comment concerning an early release article by the CDC which as the CDC points out is not considered to be a final versions. I believe what is important about the preliminary information is the increase of R-naught from 2.3 to 5.7. By now I believe you know what R-naught means; but, I will repeat it anyways. R-naught reflects the potential number of people who are infected by one contagious person. The abstract also emphasizes continued active surveillance, contact tracing, quarantine, and early ‘strong’ social distancing efforts are needed to stop transmission of the virus.

Meanwhile our president wants to open up the country come May as some states have just started to initiate “stay at home” policies, and other states have yet to implement stay at home policies. Our leaders Washington D.C. are also pushing “herd immunity” which I believe is influencing our president’s desire to open up for business come May. A post by Yves Smith at Naked Capitalism  develops the theory of “herd immunity” as briefly explained by one of the NC readers;

“The herd is allowed to be infected and then observed the course of the disease. Those left are either immune to the disease or robust enough to fight off the infection. This immunity of course applies only to the given pathogen and can’t be easily generalized. This is not usually a strategy adopted for human beings.

The term is usually used in the context of the introduction of a vaccine where you are creating, to the extent you can, herd immunity. You then observe how well the vaccine works. If the vaccine works, you have created herd immunity for a certain period of time, a period associated with the pathogen and the immune system’s response to it. It will be different for each pathogen. For standard flu, it appears to be about a year. For covid-19, no one seems to know.”

Dominic Cummings, the promoter of herd immunity in England has come down with Coronavirus and has of yet has not returned to Downing Street after quarantining himself a week ago. That is as it should be, if a countries leader is to promote herd immunity to open an economy or keep an economy open as he did, they should lead the way and set the example for the rest of the herd. Dominic Cummings is a Boris Johnson advisor. It is doubtful we shall see many of our leaders lighting the way for us as examples.

In any case read the abstract (after the leap) and view the chart I posted. There is more information and charts in the article itself which will shed more light on the Coronavirus.

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Canceling Student Loan Debt Petition

Alan Collinge of the Student Loan Justice Org. has a petition promoting the cancellation of Student Loan Debt. When Angry Bear ran (April 1) his commentary on Student Loan Debt asking for signatures, there were 161,000 signatures on the petition. A couple of days later, the number of signatures was approaching 200,000 Today, I was advised, they now have 211,000 signatures.

If the Fed will be supporting the asset-backed markets, the primary corporate bond markets, the secondary corporate bond markets. The Fed will also purchase of Treasuries, mortgage backed securities in vast amounts. Fannie Mae and Freddie Mac also made some announcements. There were also rumors of a special carve-out just for Boeing and GE even though Boeing refusing to give an ownership  stake to the Fed. At the least, the Fed could discount the price paid and sell back at market.

The issue for Alan, the Student Loan Justice Org, and its members is; why not bail out people with excessive student loan debt much of which is the result of interest from forbearance, penalties, etc.?

The student loan justice.org is needs your help by your signing the President Trump: Cancel Student Loans NOW petition. Please join student loan justice.org and the 211,000 (up from 161,000) signers of the petition calling for President Trump to prioritize canceling student loan debt. Doing such would cause many citizens burdened with debt to be more productive promoting economic growth.

Angry Bear has posted Alan’s words over the years on Student Loans and the resulting Student Loan debt to which there is no bankruptcy relief; the same relief our president has enjoyed multiple times, also abused by corporations who gambled on Wall Street, and used in every day by businesses, unions, and ordinary citizens caught up in bad economies. There is a large economic potential benefit to freeing them from the loan debt so as to be more productive.

Read the petition and if you can spare a signature, please add your name.

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A last look at the 2009 – 2020 expansion

A last look at the 2009 – 2020 expansion by New Deal democrat

All of the most important economic from February has been reported. Since that was the last month before coronavirus derailed everything, I thought I would take a look back and see what shape the economy was in just before the moment of impact.

As usual, the 4 coincident indicators that the NBER usually looks for in determining whether the economy is in expansion or contraction are: industrial production, nonfarm payrolls, real sales, and real personal income minus government transfer receipts. Here’s what they look like through February, with each normed to a level of 100 as of August 2019, first in a longer term view:

And now focused on the past year:

Note that all 4 flattened or rolled over at the outset of the 2008 recession. In 2016, production turned down and income flattened, but both jobs and sales continued to increase. In the latter part of 2019 into early 2020, production and sales turned down, but jobs and income continued to increase.

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Weekly Indicators for March 23 – 27 at Seeking Alpha

Weekly Indicators for March 23 – 27 at Seeking Alpha by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

As you might expect, almost all of the “hard” indicators have crashed. What sticks out is that consumer spending, as measured by chain store sales, has not – even though one week ago the coronavirus restrictions were very much in place in many regions.

As usual, clicking over and reading will bring you thoroughly up to date. It also helps reward me for my efforts, especially now that I have cut back on posting there in order to spend a lot of time documenting what is happening and what is likely to happen going forward with the coronavirus pandemic.

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Mass testing for Covid-19: economics, politics, and policy options

The Covid-19 epidemic is creating a painful dilemma for policymakers.  On the one hand, we need to practice social distancing to keep people healthy and to prevent our hospitals from being overwhelmed.  Unfortunately, this strategy is causing a severe economic contraction as people avoid contact with others.

An ideal response to this dilemma would have three basic components.  First, we would implement a hard, nation-wide lockdown to slow the spread of Covid-19.  This would “flatten the curve” and save lives by preventing hospitals from being inundated with patients in the next few weeks.  It would also buy time to put in place the testing, prevention, and surveillance measures we will need to start cautiously re-opening our economy.  Putting these measures in place should be the second element of our strategy.  Finally, as Paul Romer and Alan Garber argue, we need a major effort to increase our capacity to test for Covid-19, and to produce masks, gloves, and other forms of personal protective equipment (PPE) by an order of magnitude or more.  The ability to do mass testing and to provide masks and other PPE to most Americans will substantially reduce the risk that the epidemic drags on for many months and leads to an economic catastrophe.  (For further discussions, see here, here, and here.)

In this essay I explain why it is important to massively increase our ability to produce Covid-19 tests and PPE.  I also discuss how this can be done, considering the apparent reluctance of the Trump administration to lead this effort.  I make four basic points.

First, the ability to test millions of people daily for Covid-19 and to produce PPE for millions of Americans will require a large up-front capital investment by manufacturers that may turn out to be unneeded, but this investment is socially justified to lessen the risk of a severe and protracted economic shutdown.

Second, without firm contractual commitments from the government, businesses will not invest at the scale required to ensure that we can avoid a disaster.  Several factors will deter adequate investment by industry; the most important is probably the risk that the epidemic will abate and they will not be able to recover their investment costs.  The government can overcome this problem by agreeing to pay companies for tests and PPE even if the epidemic abates, by subsidizing investment in the capacity to produce tests and PPE, etc.  The critical point is that the government needs to make binding commitments NOW, it cannot wait to see if the epidemic can be brought under control using other means.  Valuable time has already been lost.

Third, the powers that the President has under the Defense Production Act to directly control the use of resources are not particularly useful if our goal is to spur investment in the capacity to produce tests and PPE.  We need to give firms incentives to invest in new capacity using contracts, competitions, and similar tools.

Fourth, an ambitious effort to expand production of tests and PPE will inevitably lead to genuine contracting failures and to situations that create the perception of failure.  Trump is clearly anxious to avoid setting ambitious goals and taking actions that might later be used to criticize him.  In response, Congressional Democrats want to force Trump to exercise his powers under the Defense Production Act.

This is a mistake.  Trump would likely veto any bill that tried to force him to act, and, in any event, it is very difficult for Congress to force a reluctant President to act.  Fortunately, there is no need for contracting efforts to be directed by the President.  Rather than trying to force a reluctant Trump to exercise his contracting powers under the DPA, Congress should either delegate the power to an agency, or it should create incentives itself, directly.  I will sketch out how this can be done.  The same point applies to efforts to organize mass testing, the distribution of equipment, and other activities where direct commands are an effective means of achieving our goals:  Congress should accept that Trump is unwilling (and arguably unable) to lead these efforts and try to work around him in ways that he can accept.

Mass testing and distribution of PPE mitigate the risk of economic disaster

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A Dog that Didn’t Bark

The USA is about to experience the largest fiscal policy shift since World War II. The House is debating whether to add $ 2,200,000,000,000 to the Federal Budget Deficit (counting loans as if they were expenses because that’s what they do). There appears to be a near consensus as all are speaking in favor. It is just possible to guess which are Republicans

I’m sure there is a similar near consensus that Rep Thomas Masie of Kentucky, who made them fly to DC by threatening to call a quorum, is a jerk (the Rep. is short for reprehensible). I don’t really wonder if someone is going to get knifed in the members only men’s room.

The Supply of Treasury securities is about to experience the largest shock in history. So what is happening to the price in anticipation of the huge supply shock ?

Quick find the shift from arguing about $ 2.5 billion vs 8.5 billion to arguing about $ 100 billion more to discussing $ 1800 billion more to approving $ 2200 billion more on the graph.

The rate is not quite at the all time record low, but it is close. One might argue that a huge Federal Debt will crowd out investment, beause it will create an illusion of wealth which makes people consumer more so the Fed will have to achieve high real interest rates in order to keep the economy from overheating. One can argue that the huge debt will cause high inflation (perhaps because the Federal Government is the world’s main dollar debtor and can make the dollar worth as little as they want) which will imply high nominal interest rates.

But one will not be able to convince investors of this. the invisible bond vigilantes clearly have got their hands on Harry Potter’s invisibility cloak.

This isn’t even a matter of much debate (except for Massie). It is clear that stimulus will help the USA and also, in particular, the GOP. When the interests of the USA and the GOP allign there is (almost) no debate, because Democrats care about the country and not just about hurting the other party. In 2009 Republicans demonstrated that they were partisans not patriots. Today, Democrats are demonstrating they are patriots more than they are partisans.

Many economists (some winners of the Nobel memorial prize) should admit that they were totally wrong. But of course they won’t.

Some economists whose response to the horrible Trump tax cut was more debt no problem can say “I told you so”

I told you so.

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