Daniel Bromley

This morning’s Wisconsin State Journal carried an article about the shortage of a critical item for medical care—rubber gloves. We read this morning that Malaysia is the source of approximately 75 percent of the world’s supply of medical gloves. Unfortunately, we also learned that Malaysia has a long history of abusing migrant workers engaged in manufacturing such gloves—while laboring under quite brutal conditions. The Malaysian government recently ordered all factories to close, and then to apply for an exemption to re-open. The details need not concern us here.

What is surprising to learn, I suspect, is why does Malaysia control three-fourths of the world’s manufacture and distribution of essential medical equipment?

The answer is found in one word—globalization. It is easy to imagine a time, perhaps in the 1980s, when rubber gloves were manufactured by a broad array of companies scattered across America. Indeed, each country would have had, in all likelihood, its own small industry making such gloves. After all, rubber gloves are useful for painters, health-care workers, and those who clean hospitals, hotels, and even homes. But globalization opened up the entire world to the manufacture of such products. Since labor costs in Malaysia are in the range of $2.00 per hour, and probably less for the workers under consideration, it makes economic sense to shift most glove manufacturing “off shore.” Gloves are exceedingly light, and thus transportation costs are very low. The economic theory of “comparative advantage” that underpins global trade is clear that it is better (more efficient) to let Malaysians (and their immigrants) make rubber gloves, while here in the US we will grow soybeans (or produce computer software) and then engage in trade. Both sides gain—we get rubber gloves far cheaper than if they were made here, while the Malaysians can get something of value to them that would otherwise be expensive (perhaps soy sauce).

Globalization is wonderful—until it isn’t.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

I must register the strongest possible objection to the emerging talk of a “tradeoff” between public health and what some people are now calling “the economy.”

Please be assured that “the economy” is not a living organism that can somehow die if not treated and curated in some way. There is no such thing as “the economy”—there are just people who earn income from going to work, and firms that hire people to produce goods and services. Aggregate demand may fall, as it has, but you cannot “kill” an economy.

The “rescue package” will protect businesses from foreclosure. After all, once a business is closed (as most are), and their debt-service obligation suspended (as they seem to be), there can be no further harm. If from kindness or obligation they continue to pay their furloughed workers, it seems they will be reimbursed. If they do not offer that benefit, the government will step in and protect workers. This much is clear and will endure.

Their doors are merely closed, and their owners and managers can stay home like the rest us. They might find time to read some poetry or a nice novel. No further harm will befall them.

They and their “business” (buildings, machinery, tables and chairs, water coolers) are still there and, like an automobile sitting in your garage, ready to be restarted when the time is right.

Humans are adaptable and able to cope. If they are protected financially, as seems to be coming, they too will be fine. A close reading of history tells us that humans have endured worse.

The worst possible thing is for people in positions of influence to start confusing the economic system and its working with the human capacity to adjust, cope, and re-create life under new circumstances.

This talk of a tradeoff must be taken for what it is—sheer stupidity.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

It is now obvious that the world of work is under enormous stress. There are too many perverse incentives in play—firms are penalized (financially) when they hire someone, workers are penalized when they become sick or cannot arrange child care, etc. Workers lose when firms close or embrace automation. We must re-imagine the world of work. I have already made the case that an income must be weaned off of the necessity for work. But work remains essential for our mental health, and for the creation and distribution of the goods and services we desire. We can do better.

Once we start to reimagine something, we realize just how arbitrary and artificial most things in life turn out to be. The status quo is, after all, merely the remnant of past ideas.

Why is a “weekend” just two days? Why not three? Why is the work day 8 hours? Why not 5 or 6? Indeed, why are there 52 weeks in a year? Why not 60? If there were 60 weeks, each week would have 6 days (Leap Year corrections still required). If the “weekend” remains sacred at two days, that would mean the work week becomes four days. There was a time when people worked 10-12 hours per day, six days per week. All of this arbitrary stuff is a mere “social construct.”

Let’s agree not to re-create the calendar—let’s just manipulate all of the artificial stuff within that calendar. The new world of work might look like this:

The work day is 6 hours The work week is 4 days

Work is reimagined as a “public good” Firms are reimagined as a “public trust.”

Work is a “public good” because a world without regular work is a dangerous world indeed. The Egyptians figured this out a long time ago. We think those pyramids and obelisks are grand monuments to momentary despotic rulers. Wrong, they were public works projects to keep folks out of trouble. Rulers enjoyed the attention—but they were practical folks and understood that millions of “idle hands” can be politically unstable. What better way to solve that danger than to put people to work. By the way, we did that during the Depression.

This means that society at large—the political community—has a strong interest in creating a meaningful way to accomplish several things at once: (1) keep people busy; (2) provision the nation with good and services; and (3) pay people for the work they do.

With work being a public good, we come to the incentive problems that now contaminate the world of work. Cutting the “work week” to a 6-4 model will create more opportunities for people to work. But the government will need to find new ways to incentivize work. It is time to reward firms—not penalize them—for hiring people. Many firms cannot find workers because of defective transportation systems. Many firms cannot find workers because of the absence of child-care facilities. Many firms cannot find workers because specialized skills have not been made available through technical schools. Each of these impediments to work can be rectified.

Indeed, the Scandinavian countries figured out how to do this decades ago. America is merely stubborn and racist. After all, many of these changes have been resisted because they would benefit a class of people too many Americans prefer to ignore.

Finally, firms must be re-imagined as a public trust. This means there is no such thing as a “private firm.” This is less dramatic than it might seem. Restaurants are licensed and inspected. Work conditions in firms have long been subject to oversight and enforcement (think the Occupational Health and Safety Administration).

If the government (as our agent in this political community) is going to make work more easily arranged for firms (by helping the labor market work better), those firms have some obligations in return.

Firms must:

1. Adopt regular work schedules conforming with the new 6-4 model above. They can hire and staff accordingly. The government can facilitate this new model with incentives and tax breaks. More people will be eager to work, and they will more easily find work.

• Allow workers flexibility to participate in education and training programs. The new 6-4 model offers more time for such activities, yet work schedules must be flexible and adaptable to workers’ needs.

• Firms must adopt a pay regime that assures workers in each category a secure monthly income. There must be a salary schedule much as the federal government has for categories, time in grade, etc. No more focus on a minimum wage since work hours can easily be reduced—thereby harming total compensation. Workers need weekly (or monthly) income assurance, not arbitrary hourly rates. This extension of trust and commitment to workers would then be reciprocated by workers who gradually grow to trust and respect their employer. That would be real change.

Please do not ask about how much this would cost (and be paid for). I do not recall being asked how much entry into World War II was going to cost. Or the Korean War. I do not recall being asked how much our 18-year long engagement in Afghanistan was going to cost. Or the disastrous invasion of Iraq in March, 2003.

Wars elsewhere are easy to justify. Wars at home are not. But they are no less important. In fact, the wars at home are most essential.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

The coming economic crisis will now spell even further grief for the retail sector—where over 52 million Americans are employed. This is about 25% of the workforce.

The industry is now lining up to seek financial relief—pleading that the Covid-19 outbreak will bring “failure.” Already devastated by Amazon and other e-retailers, the picture for “bricks-and- mortar” stores is grim indeed. But does it thereby follow that they deserve financial assistance to remain at their present scale?

Below is a graph depicting a comparison of square feet of retail space per capita.

We have always known that Americans are devoted to their shopping malls. Here is graphic evidence of that. We have 23.5 square feet of retail space per person. Next comes our dear neighbor Canada—mildly infected by the same fetish at 16.8 square feet. The Australians show similar tastes at 11.2 square feet.

Then come the real pikers in this game—the UK (4.6), Japan (4.4), Netherlands (4.1), France (3.8) and then the rest—poor Germany is down there at 2.3 square feet per person (somewhat above Indonesia).

It seems we have over 6 times more retail space than the French, and over 10 times the retail space available to the Germans. How do their consumers possibly manage to cope with such a paucity of places to spend their money?

But of course we also see that retail sector employs approximately 25 % of the workforce. Uh oh….

It seems that if there is a severe restructuring (a euphemism for failures and closures) of the retail sector—already underway thanks to Amazon and other e-commerce—job loss will be severe.

Hmmm. This is not the dreaded automation—it is simply an outdated business model.

We see two things now underway. First, a number of businesses and sectors are going to be seriously affected by this. Second, there will be an acceleration in the number of businesses and sectors pleading for financial help (in the jargon, a “bailout”).

We have a saying in economics—”capitalism eats its children.” That is what makes a market economy “dynamic” and adaptable. One-half of new firms die within five years. Old ones die

off, and so do many of the new ones. No firm deserves not to die—they must earn their way. They have no moral or financial claim on society.

But now, lots of firms will die, and sectors will be devastated. Financial assistance to “save” them will be a waste of money–they will eventually die. The political and cultural challenge will now turn our attention to how might we meliorate the economic and social trauma associated with this acceleration of closures and demise.

America has never been very good at stepping in to “pick up the pieces” from job losses. It is a tough world out there—America is no place for the timid. Firms have closed, moved away, or automated. We have told people to move to where the jobs are. That is easier said than done (think West Virginia, southern Ohio, the rest of Appalachia). In economic terms, we have “stranded labor.”

But now the “stranding” is going to be far more widely distributed—not confined to places left behind. This will not be pretty. On the other hand, what a perfect time for an election.

It is too easy to imagine that elections are about voting. That is wrong. Elections are about “reason giving”—a large-scale collective argument over which is the better way forward.

This one will be a serious conversation about the way forward. We have never had an election quite like this one will be.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

There seems to be a concern that we will run out of food. How can grocery stores keep shelves stocked?

Once the novelty of hoarding toilet paper is overcome by good sense (and civil courtesy), we should be fine.

They (grocery stores) have a strong incentive to keep stocked up on high-demand items, and to set to one side the frivolous stuff. My sense is that our distribution system—one of the finest anywhere—is up to the challenge. Everyone in the supply chain has a strong incentive to step up their “game.” After all, that is “what they do.” We already see some re-deployment of workers into the distribution network.

Remember, the meat system (and grain) is a deep and highly articulated system with much “inventory” always in the pipeline (on the hoof or in storage). We heard this morning that dairy prices might fall somewhat, which will encourage some culling of herds. That will bring beef into the supply chain—though not tenderloin and other top cuts. I look forward to a drop in the price of hamburger (ground chuck, etc.).

Planting season is just around the corner. Reuter’s reports a surge in grain futures which should encourage substantial spring plantings:

CBOT soft red winter wheat futures were on track for their fourth straight day of gains and hit their highest since Feb. 24. Wheat has risen 7.4% this week, which would be its biggest weekly gain since May, as demand for pasta and bread was expected to rise due to the coronavirus pandemic.

“Wheat has got sort of an interesting relationship with the coronavirus,” said Ted Seifried, chief market strategist for Zaner Ag Hedge. “During the run on the grocery stores, a lot of people forgot about being gluten free.”

At 10:18 a.m. CDT (1618 GMT), CBOT May soft red winter wheat futures were up 8 cents at $5.43 a bushel. CBOT May corn was up 2 cents at $3.47- 1/2 a bushel and CBOT May soybeans were up 15-3/4 cents at $8.59 a bushel.

Chinese importers signed deals to buy U.S. corn and wheat in their first round of major purchases since Washington and Beijing signed a Phase 1 trade deal in January, the U.S. Agriculture Department said.

USDA also said that unknown buyers booked deals for 110,000 tonnes of

U.S. soybeans. On Thursday, two trade sources with knowledge of the deal said that exporters sold soybeans to China.

The 756,000-tonne corn sale, announced on Friday morning, was China’s biggest purchase of U.S. corn since July 2013. But corn futures retreated from their overnight highs after the crude oil market turned lower.

So the food system is responding to price signals, as we would expect.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

The current crisis will actually help us NOT to run out of food. Ironic. How is that possible?

It is estimated that we waste 30-40 percent of the food in this country. I am not sure what the percentage represents (particularly the denominator), but it is abundantly clear that restaurants are an enormous source of wasted food. Serving sizes are excessive, salad bars and buffets are enormously wasteful, and sloppy inventory management in restaurants is surely a problem.

With all restaurants closed, with many large organizations closed or on reduced schedules, with large-scale cafeterias reduced in scope, we will now go back to cooking and eating as our parents and grandparents did.

When many Baby Boomers were growing up, very few families ate out. Don’t forget, in those days we did not have almost 700,000 restaurants to choose from. In 1977 less than 20% of food was consumed out of the home, yet by 2012 that had risen to almost 35 percent. Here is a chart showing trends.

Thus, one could infer that the rapid shift to home-based food consumption that is now underway would be profoundly beneficial to the food system.

I also predict that we will see a new consumer focus on a narrower (and somewhat simplified) part of the enormous spectrum of food that burdens the system with specialty products, exotics, etc.—the sort of stuff restaurants like to offer (bang bang shrimp, mussels, Kobe beef, etc.).

If the food system can focus on staples (have you noticed the sudden fascination with rice, beans, and other starches?) our production capacity is prodigious. If supply lines remain open from Mexico (from which we obtain much)– and a few other places– we will be fine.

With world oil prices plunging because of the Russian-Saudi battle, it will be much cheaper to transport food. We might even see a small price drop.

So I see the food system as becoming more focused, more coherent by a “slimming-down” of consumer expectations, and a general “hunkering down” mentality. Superfluous consumption, parties, banquets, and general gluttony is going to stop. Food wastage will plummet. Our mother’s cookbooks will be rediscovered.

We will be fine.

By the way, please give up on frogs’ legs, caviar, graved lox, Norwegian salmon and rediscover simpler fare. We all might lose a little weight along the way….

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

The corona virus crisis exposes the perils of an economy in which household income is completely dependent upon work (employment). Revising this arrangement is unimaginable. Bear with me.

The 400-year experiment in which one group of citizens pays another group of citizens to show up for “work” on a regular basis is now in serious jeopardy.

The question worth asking, therefore, is what are people to do when there is no work? This problem has now been driven home to us in an abrupt and tragic way. But the acute nature of this crisis masks a deeper problem—there has not been enough work at a sufficient level of remuneration for the vast majority of Americans since the 1970s. The Recession of 2007-2009 was an early warning of this problem. That crisis was a “wealth” crisis more than an “income” crisis. Ten million people lost their homes. Many lost their jobs. But 60 + percent of households had two people in the labor force and so could scrape through—if losing your retirement savings qualifies as “scraping through.”

But this is not a wealth crisis as much as it is an income (jobs) crisis. Mortgages and rental commitments seem protected. Jobs are not. Millions of people are now jobless. The alleged “social safety net” of state-run (often clunky) unemployment insurance is a bureaucratic nightmare.

The country will now begin to come to grips with a new world of “income-without-work.” It is too dramatic to fathom. But it is coming—of necessity. The candidate Andrew Yang advocated a monthly check of $1,000 for each adult. He must have been reading my mail. This is probably too low for many adults, and unnecessary for millions of the better-off. But one statistic has managed to stick in the public mind over the past 2-3 weeks. That is, approximately 40% of American households cannot absorb a $400 shock. Most of us can remember that situation when we were in college, or just starting out as a family. Few of us can grasp the daily terror of that situation now. Yet there it is. And it will get worse.

By the way—the coming job losses will not be confined to the low-skilled job categories. There is work on Artificial Intelligence that suggests many rather routine white-collar jobs are equally at risk. Politically, the unskilled and marginal participants in the economy can be jobless and few will notice. But when white-collar workers start to lose their job we know there will action.

A guaranteed monthly “subsistence payment” will become available to every adult in America, scaled to each situation. There will a “means-test” of this payment, and it will not be necessary for all.

You might ask how can this be funded. Trillions of dollars of waste and unnecessary costs can be stripped out of the health care system. Our health-care expenditures are about 18% of our GDP— that is, $3.6 trillion. The new economic relief plans being discussed are in the range of $1-2 trillion. If our health-care costs were at the level in Canada, Japan, Germany we would spend 11

% of our GDP—which would be about $2 trillion.

So bringing total health spending down from $3.6 trillion to $2 trillion liberates $1.6 trillion. Our defense budget is a little less than $1 trillion. Perhaps they might donate 40 % of that. There are other places to look for the means to get started on this agenda.

We will now see beginning of a subsistence payment to millions of adults in need.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

The Greek philosopher Heraclitus (dates obscure) insisted that war is the father of all things. If we are indeed in a “war” against the corona virus, then many things will change. The most important will be the end of employer-provided health insurance.

People who have insisted that they like their employer-provided health insurance may now be excused for changing their mind. My earlier observation about restaurants replacing people with iPads is symptomatic.

There is an enormous “employment tax” that falls on firms. They must contribute to our social security (6.2% of our pay) up to a certain maximum, they must pay a Medicare tax of 1.45%, plus various local (state, city, county, and school district) taxes. Our cobbled-together system of public finances is an enormous economic dis-incentive to hire labor. No wonder firms do not wish to pay for health insurance—there is already an incentive away from hiring labor and favoring machines. And then firms are criticized for their failure to provide their workers with health insurance. They should not have to do that—it is not their function nor is it their purpose. Their function is to provide goods and services, and employment. Why are they in the middle of our health care?

Employer-provided health insurance was an “accidental” trade-off following World War II when large employers—notably the auto industry—figured it would be better to offer some form of “benefits” to their workers rather than to give in to wage demands. Higher wages would get built into the base salary structure of the firm, while health-care premiums might be more easily negotiated with insurance companies—and perhaps might be cost-shared with the government.

So workers gave up a wage increment in exchange for fringe benefits. That is why we see unionized workers resisting the move to a single-payer (“Medicare-for-all” system). They figure they have lost life-time earnings and will not make that up with a shift to a different system.

Indeed, they are afraid their taxes might go up a little to help finance the new system. They cannot be sure that the new savings will be realized for them. But unions are now such a small fraction of the US work force that they can be ignored as a political force (now just 6% of workers in the private sector versus about 30% in the public sector).

Many non-union workers also get insurance through their employer, but that is now seen to be a precarious situation.

More importantly, the current crisis now highlights the financial flaws—and the perverse incentive properties—of our jerry-rigged health-care system.

When this crisis settles down, a single-payer health care system is a sure bet. It will remove the current economic disincentive against hiring labor—and that will be good. It will also eliminate the enormous dead-weight loss of administrative costs that now bloat the insurance industry (said to be in the range of 20-25% of premiums). It will also allow the government to negotiate drug prices, it will dampen the perverse incentives inherent in the current “fee-for-service” pricing that induces excessive “services,” and it will help hospitals that are now required to accommodate patients but then are stuck with the inability to collect for services rendered.

Hospitals bear an incredible administrative (cost) burden simply trying to collect payments from

individuals who will never be able to pay. Emergency departments have become primary care providers. All of the terrible cross-subsidization will be gradually eliminated.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

The corona pandemic is now ravaging a part of our economy that is (and has been) in social and economic peril. In the late 1960s, 95 percent of men in the prime working age (25-54) had regular work. In 2018 that percentage had fallen to 86 percent. More seriously, of the 14 percent still out of work, less than 20 percent were looking for work. The rest had given up.

Some observers connect this despair to the opioid crisis. About a million Americans are estimated to use heroin on a regular basis. The single best predictor of opioid use, suicides, alcohol-related deaths, etc. is NOT poverty, it is NOT location (West Virginia versus Maryland), and it is NOT inequality (anger at the “one percent”). It is, rather, the percentage of the local population that is without work (and the absence of hope about work). This is an affliction confined to white men and women without college degrees. Blacks and Latinos seem immune from this condition. Perhaps they are more accustomed to the absence of hope.

But overall, life expectancy in America has fallen three years in a row. This is unprecedented in a modern industrial nation. Only when the Soviet Union collapsed in 1991 have we seen a drop in life expectancy among industrialized countries.

Work is not just bringing home income. Work is a social activity that bestows prestige, selfregard, meaning, and the satisfaction of being a provider for others. Work is deeply psychological. And work is now a problem—and it was before the current crisis.

That is why I have been so hostile to the disrupters and giggers. They probably destroy as many jobs as they create. Uber and Lyft have devastated the taxi sector in NYC and produced hundreds of suicides among taxi drivers—while flooding the streets of Manhattan with up to 10,000 cars a day, cruising around waiting to be pinged (burning up gasoline in the process). Uber/Lyft have undermined urban bus systems (one of the few well-paid occupations open to minorities). Bus ridership in Madison is down. Guess which socio-economic class depends on busses? What
4 happens when busses disappear? Will the poor use Uber at $12.00 a ride? General Motors once had a bus division to manage the Los Angeles bus system—before undermining that system in order to sell more cars. Once mass transit is gone, it is hard to revive. And the well-off prefer other means of movement.

The world of work in America is now a precarious wasteland and a place of unbelievable stress, anxiety, and dread. This public health crisis will only make it worse.

Consider three graphs. The first shows what has happened to manufacturing employment–while manufacturing output has blossomed (think automation). The second graph shows work as a share of total population (related to my comments above). And the third graph shows total jobs in net new firms since 1993. These are net firms that survive on an annual basis. In this regard, 50 percent of new firms fail within five years. For restaurants, 60 percent of new restaurants fail within five years. The idea that new firms represent salvation for “working people” is a myth.

Most large employers are eliminating jobs as quickly as possible. Have you noticed iPads at Panera and other restaurants? We think it is to help us order more quickly. Panera sees it as a means to replace labor with machines (capital). What will become of clerks? Machines do not get sick. Machines do not ask for time off. Machines make no demands on management.

The changes that will now attend this crisis cannot be known. What is clear is that political anger among the “working poor” is sure to arise. And it will be those who have lost hope who will have the most reason to be angry.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

It is estimated that there are about 15 million workers in the “gig” economy.

The trouble with the gig economy is that it shifts the costs of work away from the “company” (whatever that is these days) and lodges it on the workers. Uber and Lyft have never been a viable business model because they have been free-riding on the use of free capital (the cars owned by their drivers). And the companies have spent millions to avoid classifying drivers as employees because—guess what—they would then need to pay fringe benefits, etc. If those disrupters had to pay the full costs of their business model, they could not compete with the taxi sector.

For those of you charmed by Airbnb my hostility is even more pronounced—sorry. Rich folks buy extra houses (thereby reducing the stock of residential housing), rent them out, do not provide much (if any) employment, probably take a nice tax break on the mortgage (because the home is now a “business”), and steal jobs from hotels who actually hire (mostly women) to clean rooms and serve meals. Those women are in the Social Security and pay into that system for when they are too old to work. It is not luxury to be sure, but it is better than those who earned tips.

All of this disruption has destroyed work life in America. There is now a large fund of liquidity (cash) fueled by our inequality that has created an odd aspect to capitalism.

In the old days, businesses would go to bankers to get liquidity to start, expand, etc. Now, large pots of money (from the ultra-high net worth crowd) is sloshing around looking for business on which to bestow their largesse. They will pour money into Uber and Lyft (and all of the other 3 catchy shams like WeWork) hoping to cash out when they and the investment bankers take the company public. It is not the workers that gain from this—it is the rich who have funded these bizarre schemes. The market seemed to recognize this aspect recently when both Uber and Lyft had very disappointing IPO results.

So we have an economy in which the young—unable to find plausible work—sit around their iPhones trying to create the next app-based zombie disrupter that will attract big money from the ultra wealthy.

The gig economy is doomed.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.