Another fearless prediction—we will see a dramatic drop in births (along with a rise in deaths).
The light-hearted speculation is that all of this tight staying at home will bring a birth boom in December. Do not bet on it. In fact, bet against it.
Times such as this have a profoundly unsettling effect on livelihoods, and this economic uncertainty quickly shows up in fertility decisions.
The U.S. is already close to replacement fertility–this will drop it in a dramatic fashion. Demographic restructuring is now underway.
The issue today is ethical not economic. If the government demands that businesses close, and that “non-essential” people stay isolated, it has deprived them of their livelihood. Urging people to stay home is one thing. Demanding that they stay home is a very different matter.
A libertarian would be shocked by this heavy-handed exercise of authoritarian rule. The Chinese government might be able to do this, but in America?
Are not millions of working people, now deprived of their livelihood, justified in demanding full compensation for their lost incomes?
When government regulations deny an individual the use of her “property” through some regulation, her lost income must be paid to her (fair compensation under the Fifth Amendment to the Constitution).
Wouldn’t a libertarian be angered that the Congress was debating whether or not—and how much—to offer in relief? If the government causes an income loss, of course the government must make those individuals “whole.”
But wait…government “hand-outs”? Libertarians hate that as well. These are vexing times, aren’t they?
One of you asked if this (“relief versus stimulus”) is not a mere “semantic quibble”?
Not at all. Confucius pointed out long ago that “The beginning of wisdom is to call things by their proper name.”
More recently, the philosopher Robert Brandom stated, exquisitely, that “Grasping a concept is mastering the use of a word.”
The concept of a stimulus is, as I pointed out, very different from the concept of relief. They have a different purpose, they are used under different circumstances, and they are expected to have different results.
If the program is called a “stimulus,” and if we think of it as a stimulus, it will be too easy, when this thing is over, for some skeptics to look back and complain that all of that massive spending did not do much stimulating of the economy. They will be correct. That was not its purpose.
Those with a more honest grasp of the situation will ask, instead, “did the program provide relief?” And, of course, the answer will be that, indeed, the program provided a great deal of relief. Was it “enough” relief? We must wait and see.
The media seem confused about what to call the $2.2 trillion legislation coming our way.
We might see it depicted as a “relief” package, and then see that it is a “stimulus” package. Whether or not this new legislation brings necessary relief is yet to be determined. But we must be clear that it is NOT a stimulus package.
A stimulus is required when an economy is suffering from slack and languid aggregate demand. Perhaps consumers are reluctant to spend money because they fear for their job (sound familiar?). Perhaps consumers are trying to pay down some of their credit-card debt and are more discerning about what they think they need. In such cases, the Federal Reserve may take steps to reduce interest rates so that credit—for instance an auto loan—is less burdensome. Banks can be encouraged to reduce lending rates by several steps. These efforts will stimulate spending. If demand for gasoline is suffering a downturn and the oil industry is suffering, the government can purchase crude oil and place it in the Strategic Oil Reserve. The point here is to “prime the pump” so that spending will gradually pick up.
The new legislation is not intended to stimulate aggregate demand since most commercial firms are closed—or on a “war footing.” Here we are trying to mitigate the harmful effects of a severe drop in aggregate demand. And that drop has two sources: (1) millions of individuals have lost their job and are told to stay home; and (2) others, with more stable incomes (retirees, salaried workers with secure earnings), cannot go out and spend as they otherwise might.
As we will now see, the relief will come in several forms: (1) debt forbearance (not forgiveness); (2) income replacement for lost wages (checks in the mail); (3) augmentation of state-run unemployment insurance programs; and (4) some loan-based (not grants) relief for businesses—with conditions attached (no payouts to executives, no stock buy-backs, etc.).
The point is not to stimulate anything—it is to protect people and businesses.
Some may object that this is a mere semantic quibble. I disagree, and so does Confucius.
He said that “The beginning of wisdom is to call things by their proper name.” More recently, the philosopher Robert Brandom stated, exquisitely, that “Grasping a concept is mastering the use of a word.” The concept of a stimulus is, as above, very different from the concept of relief. They have a different purpose, they are used under different circumstances, and they are expected to have different results.
If the program is called a “stimulus,” and if we think of it as a stimulus, it will be too easy, when this thing is over, for some skeptics to look back and complain that all of that massive spending did not do much stimulating of the economy. They will be correct. That was not its purpose.
Those with a more honest grasp of the situation will ask, instead, “did the program provide relief?” And, of course, the answer will be that, indeed, the program provided a great deal of relief. Was it “enough” relief? We must wait and see.
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).
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.
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:
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.
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.
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.
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….
