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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.

There are approximately 15 million restaurant workers in the U.S. In Madison we see an artificial picture of this sector. You know what I mean: lithesome 20-year olds (Hi, I am Amy – or Josh—I will be your server this evening). These college students are happy with their periodic work in the “gig” economy. In economics we have a whole theory of the “permanent income.” These kids are pretty sure they will not be a waiter the rest of their life.

Go to a restaurant outside of a college town and you see broken down women (and a few men) still working because they cannot afford to quit. The average Social Security check in America is 2 about $1,500 a month. A career spent as a restaurant worker means a life spent living on tips— for which there is no payroll tax paid, and hence no credit for SS.

In Europe, restaurant work is a career path and it pays accordingly. Eating out in America is artificially cheap because we are shifting the financial burden on to restaurant workers. Resistance to salaried work in America’s restaurants is severe because it would raise the price point of meals by 10-15 percent. We are beguiled by the posted menu price, forgetting that we
must then add in a tip and tax at the end. The tip can be easily minimized. If we were faced with the full social costs of eating out, we would do it less. But the restaurants that survived would be properly priced and the workers would be treated as important parts of the business.

Once the crisis has passed, do not be surprised to see many restaurants reconfigured to bring employees into the wage/salary economy with fringe benefits. Eating out will become more expensive, and waiters will not try to charm us with their cute names

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