(What’s Left of) Our Economy: A Respectable Case for Optimism?

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CCP Virus, China, consumer confidence, consumers, coronavirus, COVID 19, Federal Reserve, Jerome Powell, lockdown, recovery, reopening, restart, restaurants, retail, second wave, shutdown, social distancing, Sweden, testing, vaccines, Wuhan virus, {What's Left of) Our Economy

At the risk of being (undeservedly) tarred as a CCP Virus pollyanna, I can’t help but being struck by the some new evidence that the U.S. economy’s recovery from its pandemic-induced swoon will be faster than widely feared. In fact, I still share these fears to some degree. But I can’t ignore increasing signs to the contrary.

To be clear, this evidence has little to do with the subject of yesterday’s post. Just because data can be cited showing significant national progress in beating back the virus threat doesn’t necessarily mean that a more so-called “V-shaped” economic rebound is on the way. The same goes for the impact of this progress on the economy reopening decisions of individual U.S. states – even though the more decline seen in numbers of new cases (despite gains in testing that should be revealing much more infection), numbers of deaths, and numbers of virus-related hospitalizations, the more reopening obviously will be seen.

Nor are my views being shaped by the strong rebound seen in U.S. stock markets so far (including today so far), or by the newly bullish recovery views voiced last night on “Sixty Minutes” by Federal Reserve Chair Jerome Powell. And this post isn’t even driven by the latest news about vaccine progress (though such reports will clearly help as long as the results continue being validated).

The reason: I’ve been convinced that the key to the recovery’s strength will be Americans’ willingness to start patronizing businesses in an economy where most activity – and most income earning opportunities – depend on consumer spending. So I’ve put considerable stock in predictions that, even though all the objective conditions can show that a return to normality will be safe, too many Americans will remain too fearful to boost the economy significantly.

I also take seriously the idea that all the restrictions on visiting retail stores (including restaurants) and personal service businesses will limit their customer flow either simply by forcing them to operate substantially below capacity, or by dissuading many customers from visiting in the first place, and thereby sharply reducing impulse consuming. Further, I’m well aware that the much more modest shock administered to Americans by the Great Recession triggered by the 2007-08 financial crisis was painfully slow to wear off. (See here and here where I write about reasons for recovery pessimism.)

In addition, the experiences of other countries that started reopening earlier has reenforced consumer caution concerns. Sweden, for example, has imposed fewer economic restrictions than any other major country. But this survey by the consulting firm McKinsey & Co. reports that consumer spending has dropped significantly anyway, and may not recover for months. China claims that it’s beaten the virus and its regime has been easing factory lockdowns since February. But as of late April, retail sales were still way down.

Finally, there’s the second wave threat, which could kneecap the economy as temperatures start dropping in the fall even if summer does witness a decent bounce back toward pre-virus consuming.

So the case against a relatively quick recovery with real legs is still awfully strong.

But don’t overlook reasons for more optimism. One that’s nothing less than amazing: The piece in this morning’s Washington Post reporting that even though virus testing is now much more widely available in the United States than previously, Americans are far from rushing to capitalize on these opportunities. Even accepting the various reasons offered in this article (e.g., not enough Americans know that the situation has changed; there’s too much mistrust of medical providers in some U.S. communities, particularly African-Americans), it’s difficult at least for me to conclude anything else but that many in the United States simply aren’t concerned enough about the pandemic to take this precaution. After all, if they were panic-stricken, wouldn’t they be following every bit of news about the supply of tests with baited breath?

Perhaps more important, the more news that emerges that the CCP Virus is much less lethal than early reports suggested, the (understandably) less concerned about infection more and more Americans seem to be.    

Then there are all the reports of Americans, whether in states that have eased lockdowns more vigorously and those that haven’t, violating social distance guidelines, either by not wearing masks where they’re supposed to, or seemingly ignoring social distancing rules in public place – and indeed returning to restaurants and bars and beaches in pretty impressive numbers. These reports are anecdotal, and therefore should be viewed with lots of caution. Also, please don’t assume that I’m endorsing this behavior! But there sure seems to be a lot of it, these reports also seem related to growing evidence of the virus’ relatively modest death rates, and and as an old adage goes, when enough anecdotes appear, they become data. 

Finally are several indicators pointing to an actual, non-trivial comeback in economic activity, and for a variety of sectors. This account mentions encouraging signs from the tech sector to the automotive industry. This article presents evidence of bottoming even in hard-hit bricks and mortars retail stores and restaurants. And click here for information on the housing industry.

Of course, the references above to “bottoming” could still be entirely consistent with pessimistic predictions of a painfully slow climb back to pre-virus prosperity. But I still find myself wondering if, having seen the overpoweringly depressive effect of various official edicts literally to halt and outlaw much economic activity, Americans might experience a reasonably powerful growth effect from their withdrawal – not to mention declining fears that infection is a death sentence.

Im-Politic: The Day After, Part II

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2016 election, African Americans, Bernie Sanders, consumer confidence, Democrats, Elizabeth Warren, exit polls, Hillary Clinton, Hispanics, Im-Politic, labor, NAFTA, polls, TPP, Trade, trade laws, Trans-Pacific Partnership, Trump, white working class

It’s the day after the day after in America, and I’m still stupefied by the advent of the Age of Trump. I have absolutely no inside info on what to expect in the way of policy recommendations from the transition team or the new administration, so I’ll be just as eager as anyone for the hints and trial balloons to emerge.

But continuing with the theme of yesterday’s post, I believe it is possible to identify some important questions that major actors in American politics – and the voters they’ll keep trying to reach – will need to grapple with. Let’s focus today on the Democrats and their allies and constituencies, since they face the most obvious challenges:

>At least one piece of the conventional wisdom about Hillary Clinton’s failings strikes me as being right on target – especially since the emails exposed by Wikileaks make clear that her senior advisers spotted it as well: She never developed a clear, compelling positive message.

It’s not that “Stronger together” isn’t a positive idea, and no doubt had some appeal at a time of deep national division. But this slogan begs the question “Stronger together to where?” Regularly, Clinton suggested that she meant “to the 1990s,” when her husband was president. Many Americans – particularly in the chattering classes – do indeed view the period as a time of unprecedented prosperity along with peace. To many others, however – especially in working class precincts – the decade evoked memories of job-killing trade agreements like NAFTA. And of course many others were reminded of a string of scandals, both real and alleged.

In fact, I’d take the critique of Clinton’s message one step further. Even though her campaign website and many of her speeches were filled with any number of specific proposals, they were quickly replaced on the campaign trail, and especially in her ads, by a non-stop assault on Trump’s character and qualifications for the Oval Office. Clinton’s defeat strongly indicates that you can’t beat even a deeply flawed something with nothing.

>In fairness to Clinton, however, her messaging problems might have been related to a genuine quandary she faced. Democrats have styled themselves, and often acted like, the Party of the Common Man. As I and others have written, when it comes to issues like trade, demographic changes in Democrats’ ranks seem to be clashing with this relatively populist identity, and Tuesday night’s results indisputably show that the party has the majority of the white working class.

Indeed, according to the preliminary evidence, Clinton’s performance among union voters was feeble by the standards of recent Democratic presidential candidates – despite labor leaders’ vehement opposition to Trump. And keep in mind that nearly half of this electoral bloc is comprised of government workers, who naturally tend to favor the freer spending Democrats. As a result, Clinton’s backing from members of private sector unions was probably much weaker still.

So the Democrats face a fundamental choice, and it could well have rhetorically crippled an undecided Clinton. Will they turn their backs on private sector union members, possibly also in the belief that America’s changing population profile is steadily reducing their political importance? Or despite the gulf between private sector union workers and younger, better educated Democrats on issues like trade (along perhaps with immigration and those amorphous but crucial cultural and values issues), will they try to bring them back?

>Nonetheless, major Democratic constituencies and their leaders – including the unions and the party’s progressive wing – still loudly oppose America’s current approach to trade. But as mentioned above, they’ve been almost hysterically anti-Trump, to the point of incoherence.

If they’re serious about overhauling trade policy, it’s time for these folks to wake up and turn the partisanship down. They’ll soon be getting a president who supports most of their major and longstanding trade positions, including opposing the Trans-Pacific Partnership (TPP), sanctioning China for currency manipulation, rewriting NAFTA, and using U.S. trade law more energetically to fight predatory foreign practices.

Working with Mr. Trump, they can achieve these goals. Remaining in spiteful high dudgeon could doom reforms they’ve sought literally for decades. Statements by Senators Bernie Sanders and Elizabeth Warren, and from organized labor, are promising signs that these progressive leaders are open to cooperation with the incoming Chief Executive. Assuming that these declarations are serious, it’s time for the rest of the movement to fall in line and recognize that for the first time in modern U.S. history, the White House looks to be on their side.

>Finally (for now), nothing could be clearer about the 2016 election returns than the serious flaws they’ve revealed in the so-called science of polling. But politically focused surveys aren’t the only soundings apparently needing major surgery. Many of the best known economic surveys arguably were way off base as well.

For example, many polls – including this week’s exit polls – show strong public support for some form of legalization for illegal immigrants. Can this finding be reconciled with Mr. Trump’s win? Other surveys have revealed a notable warming of Americans’ views of free trade and recent trade agreements. That’s also hard to square with this week’s actual results – and would have been even had Mr. Trump lost by a respectable margin.

Also deserving of greater scrutiny – surveys of consumer and other forms of economic confidence. They have strongly tended to show significant improvement since the depths of the last recession, which isn’t hard to understand. But even their general claims of a simple return to pre-recession levels or, in some cases, better, ring false in light of this week’s voting.

One possible explanation is the gap identified by some researchers between rising optimism by African-Americans and Hispanics and the more downbeat views of whites. But if so, why did Trump fare much better among the latter than widely predicted, and why did he best 2012 Republican nominee Mitt Romney with both groups even though the economy was considerably weaker four years ago?

I can’t emphasize enough, however, how tentative my observations are, and how long my (and so many other) questions will defy confident answers. My only certainty so far is that election night this week was the most important historic event I’ve ever experienced. (I was born at the end of 1953.) I just wish I knew whether for good or ill.

Im-Politic: Economy/Election Poll Shows Surveys’ Strengths and Weaknesses

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2016 election, blue-collar workers, Cato Institute, consumer confidence, Democrats, Donald Trump, economy, Financial Crisis, Great Recession, Hillary Clinton, Im-Politic, Jobs, millennials, minorities, polls, recovery, Republicans, students, The Conference Board, TPP, Trade, Trans-Pacific Partnership

I was going to start off with today a post-mortem on last night’s presidential debate but decided to wait until we get what are billed as the complete TV ratings – which are scheduled to be released later today. In my view, until we get the first reliable polls, these will be crucial to answering the question of who won in the all important minds of the voters (as opposed to the chattering classes). I’ll explain what I mean in that post, so stay tuned!

In the meantime, I was really struck by the results – and the interpretations – of a new poll on how Americans view the high profile issues of the economy and trade. All else equal, at this point, these seem to be the main determinants of both the upcoming presidential and Congressional election results.

The survey was commissioned by the publication Politico and the Harvard University school of public health. (Go figure!) And when it comes to Americans’ assessment of the country’s performance since the financial crisis peaked in 2008, the findings look like good news for Republican presidential candidate Donald Trump. That’s no major surprise. What was more unexpected was how bipartisan the downbeat views are, and how that finding was soft-pedaled in the summary article.

Respondents were asked whether they thought that the U.S. economy had gotten “better” since the downturn in 2008, “worse,” or “stayed the same.” “Better” won with a 41 percent plurality, “worse” came in at 32 percent, and “stayed the same” was the answer of 24 percent. So that seems fairly encouraging for Democratic presidential nominee Hillary Clinton, who served in the administration that’s been responsible for the economy since 2009. At least, it seems, there’s no mass political uprising brewing against the Obama record.

But think about 2008. That wasn’t the run-of-the-mill “downturn” suggested by the poll’s bland wording. That was perfect economic storm time, a period when the Lehman Brothers bankruptcy in particular nearly triggered a global financial and economic meltdown. In addition, the second half of the year in particular was also a time when Americans were losing not only their jobs but their homes in droves. So one in four respondents seeing no change since then is stunning enough. Even more so is the belief of nearly one in three that matters are worse.

Nor should you put too much stock in the article’s claim of “a clear partisan split on this question” with Democrats more upbeat than Republicans. It’s true that 67 percent of Democrats (versus only 21 percent of Republicans) perceived an improving economy since 2008. But 32 percent saw the situation just as bad or worse than during that crisis period. Just as important, a total of 62 percent of independents gave the expansion (which technically began in mid-2009) that kind of lousy grade.

The big questions that still arise, though, from these findings:

>How do Americans perceive their own economic and financial circumstances, as opposed to the country’s? Usually they feel much better about their own lots, and the latest Conference Board consumer confidence survey supports that proposition. It just hit a nine-year high.

>Which of these judgments will matter more in the voting booth?

>Will Americans who are down on the economy place more trust in Trump or Clinton to set things right?

>How will these and other economic poll results break down by state – which of course will influence the all-important Electoral College count?

Meanwhile, the Politico-Harvard survey produced several important results on the trade policy front. First, it found that although only 29 percent of the public has heard of President Obama’s Trans-Pacific Partnership (TPP), the Pacific Rim trade agreement that’s currently before Congress, 63 percent of those familiar with the agreement oppose it. And 68 percent disagree that Congress should vote on the matter in a lame-duck session of Congress – which the president is pushing for.

At the same time, such trade soundings have been all over the board lately – see this poll released a little earlier from the Chicago Council on Global Affairs for some contrasting results.

Much more interesting to me was the genuinely partisan split – which both surveys found. As Politico described it, Americans who call themselves Republicans have swung not only to being sharply critical of U.S. trade policy, but decidedly more critical than self-identified Democrats.

In GOP ranks, the Politico-Harvard poll found that 47 percent of respondents said that free trade agreements have hurt their communities and fully 85 percent called them net job killers. The comparable results for Democrats? Only about 25 percent and 50 percent.

My big takeaway here: “The party of the common man” may now be a misnomer for the Democrats. And interestingly, an analyst from the Cato Institute, which disagrees with nearly all my views on trade policy and even politics, concurs. He told a Politico reporter that the trade shift 

“might also reflect a shift in party affiliation among voters [especially among] ‘less-educated white males, blue-collar folks who probably used to support Democrats, but who are now Republicans. For cultural reasons, I think they are more prone to subscribe to the characterization of trade that Trump likes to use, the sort of nationalist view of us versus them.’”

Conversely, more and more Democrats look to be college students and other younger Americans (who have relatively limited experience in the job market or who take more cosmopolitan views of the global economy); government employees and workers in low-wage service industries (who face no foreign competition); and minority citizens (who have never been terribly active on the trade front but who should be).

Of course, polls shouldn’t be taken as gospel, especially this year – even when they agree. But if you look at enough of them, and read a bit between the lines, you’ll probably wind up more informed about American politics, not less. So I’ll be keeping an eye on them for the rest of this campaign – and you should, too, if you’ve got the time.