(What’s Left of) Our Economy: The Big Missing Reason for the Big Jobs Miss

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Anthony S. Fauci, automation, Biden, Build Back Better, CCP Virus, CDC, Centers for Disease Control and Prevention, child care, children, coronavirus, COVID 19, FDR, Franklin D. Roosevelt, immunity, Jobs, jobs report, lockdowns, New Deal, parents, productivity, reopening, school closings, skills, skills gap, teachers, unemployment, unemployment benefits, vaccinations, Wuhan virus, {What's Left of) Our Economy

As reported widely, the big miss marking last Friday’s official monthly U.S. jobs report (for April) ignited a heated debate among politicians, economists, and many others over why the U.S. economy created so much less new employment that month (266,000 net new positions overall) than generally estimated (in the million neighborhood). At the heart of this debate: Do the many positions employers consistently say they’re struggling to fill amid a continuingly high jobless rate mean that the enhanced unemployment benefits offered throughout the pandemic are discouraging Americans from returning to the workplace?

What I’m not seeing, however, is anyone asking whether this is the right debate. It’s increasingly obvious to me that it’s not.

It’s easy to see why those who answer yes are viewing the issue far too narrowly. Surely some unemployed workers are content to stay at home because they’re currently making more from jobless payments than they were making from their previous employer. That should be clear from the number of businesses raising wages to fill the shortages they’re experiencing. (I’m not saying that these raises are or aren’t long overdue or otherwise deserved; simply that the higher pay and other incentives employers are offering can only be interpreted as companies recognizing that the enhanced benefits have, to a degree, increased the relative attraction of remaining on the employment sidelines versus reentering the job market.)

At the same time, is it reasonable to ignore all the other major reasons for this big labor market anomaly? Like ongoing fears of catching the CCP Virus at the workplace, or the need to stay home with school-age children forced to learn remotely? And don’t forget all the uncertainties created by the sudden stop-start nature of the virus-era lockdowns on the economy.

Yes, a rapid U.S. reopening is taking place now. But all over the world, infection surges are producing new economic curbs. Can you blame workers for wondering whether shortly after they leave the unemployment and benefits rolls, their new workplace will need to close, or cut back on its operations, leaving them in the lurch while they either seek other jobs or file for new benefits?

It’s easy to see that all of these developments and circumstances and uncertainties and outright fears are keeping U.S. labor seemingly scarce. You can also add to the list the likelihood of growing skills mismatches in the American economy – that is, the numbers of jobs requiring more or different skills outgrowing the number of workers possessing these skills, and the numbers of companies replacing low-skill jobs with automation of some kind. Not that the resulting mismatches inevitably will be with the nation forever, or even long term. But they’re unmistakably present now.

So maybe the problem is simply too complicated for government to address? Or we’ll simply need to wait until a stable post-CCP Virus normality returns and labor markets start clearing as usual? It seems reasonable that the purely skills-based mismatches will defy ready solutions – unless America’s education system suddenly gets a lot better at preparing students for the economy they’ll be facing, and businesses get more serious about training and retraining workers, and turn  away from needlessly insisting on lofty credentials for jobs that don’t require anything close.

It’s also possible – though that’s the most I’m willing to say – that spreading automation will eventually help businesses become so much more productive that they’ll be able to turn out more products and services, and that this very success will generate all sorts of new jobs whose appearance can’t be predicted with any precision now. (My reservations stem from concerns that the newest forms of automation, especially artificial intelligence and super-sophisticated robotics, are qualitatively more capable of displacing many more kinds of labor than previous technological breakthroughs.)

As long as the federal government and the states remain willing to provide generous unemployment benefits (and other supports), the resulting situation would at least keep most of the jobless adequately fed, clothed, and housed. That’s a big “if,” though, for reasons economic (e.g., maybe Washington can’t keep borrowing and spending massively much longer?) and social and cultural (e.g., maybe ever longer term unemployment will start to produce more in the way of pathological behavior like drug abuse, violent crime, and worse classroom performance from students from families on the dole?).

Consequently, the more progress can be made returning the unemployed to work, the better, and however difficult the challenge of eliminating the purely or largely skills-based mismatches, Americans and their leaders shouldn’t overlook where policy can make a big difference. And the above analysis indicates that one big difference can be made by the U.S. government, and especially its public health authorities.

Specifically, they need finally to stop their CCP Virus alarmism and energetically spread the word that due to a combination of high and mounting degrees of various kinds of immunity, mass vaccinations, and the highly varying nature of the virus’ infectiousness and lethality, normality is unquestionably returning. Further, and crucially, although certain groups of Americans – like the elderly, and those with certain underlying medical conditions – are still too vulnerable and must be protected with special measures, the Biden administration and its health experts should acknowledge that nearly all others can safely return to normal activities because the already low odds of even getting the disease, much less suffering significantly from it, have now plunged to rock bottom.

In other words, Washington should announce that work places are safe to return to, bricks and mortars businesses are now safe to patronize, in-person schooling is just fine for both students and teachers and administrative staff alike, (thus solving the childcare dilemma), and that lockdowns have become a thing of the past.

Instead, of course, you’ve got a Centers for Disease Control and Prevention (CDC) that seems stuck in hyper- (and increasingly unscientific) caution territory, not to mention decimating its own message about vaccines’ effectivness by admitting almost no behavior payoff whatever; and a President and leading figures of his own party continuing to wear facemasks even in settings that “the science” had made crystal clear are as safe as they can be for the fully vaccinated.

To top if off, the President’s chief medical adviser, Dr. Anthony S. Fauci, has just taken pains to speculate that Americans may start wearing facemasks to guard against all sorts of respiratory diseases on a seasonal basis. Given this administration’s record so far, it doesn’t seem all that far-fetched to worry that new CDC guidelines along these lines, plus recommendations to resume some forms of social distancing, and even new business curbs, could quickly follow if this kind of Chicken Little-ism isn’t stopped. For now, though, no wonder so many Americans are still scared stiff of the virus.

It’s becoming more and more common to compare President Biden and his ambitious plans for “Building the U.S. Economy Back Better” with Franklin D. Roosevelt and his New Deal programs.  (See, e.g., here and here.) But it’s hard to imagine Mr. Biden succeeding to any lasting degree if his CCP Virus policy doesn’t start reflecting one of FDR’s most and most deservedly famous insights: “[T]he only thing we have to fear is fear itself.”

(What’s Left of) Our Economy: Is the Fed Taking Us to Economics Infinity – & Beyond?

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big govenment, CCP Virus, coronavirus, COVID 19, credit, economics, Fed, Federal Reserve, finance, fiscal conservatism, Franklin D. Roosevelt, Great Depression, Great Recession, Jerome Powell, moral hazard, New Deal, stimulus package, Wuhan virus, {What's Left of) Our Economy

Since I’ve never liked recycling my own material, I’ve rarely written here on specific arguments I make on Twitter. (And I make a lot of them!) But since these times are so exceptional, and have just generated such an exceptional response from the Federal Reserve, an exception here seems more than justified. So here are three longer-than-a-tweet expressions of concern about the broadest impacts of the massive support for the everyday economy (as opposed to the financial system) just announced by the central bank in response to the CCP Virus.

The first has to do with the perils of super-easy money. Fed Chair Jerome Powell has just again made clear in remarks this morning that there’s “no limit” to the amount of credit the central bank can pump into the economy to create a “bridge” over which imperiled businesses large and small, and now state and local governments, can cross in order to return intact to “the other side” of the pandemic.

Yes there are conditions – mainly, the borrowers need to be creditworthy (though the definition of “creditworthy” has been expanded). So at least in principle, previous individual or business “bad behavior” won’t be rewarded and thereby enabled going forward – a practice economists call incurring “moral hazard.” That’s (again, in principle) different from the previous financial crisis-related bailouts, when lots of bad or incompetent behavior, especially by Wall Street and the automobile industry, was generously rewarded.

(More encouragingly, other, impressive conditions have been placed on beneficiaries of previously announced fiscal economic aid – the type provided with taxpayer money by the Executive Branch and Congress – including temporary bans on stock buybacks.)

But moral hazard doesn’t necessarily result from the behavior of apples that are already bad. The concept is so powerful (and has long been so convincing) in part because it holds that showering borrowers with easy (and now free money) tends to turn good apples bad. That’s because a credit glut greatly reduces the penalties created for poor decisions by the normal relative scarcity of capital and the price (interest rates) that lenders normally demand in order to impose some degree of discipline.

The lack of adequate discipline on borrowers is surely one big reason why the post-financial crisis economic recovery had been so historically sluggish: Capital wasn’t being used very efficiently, and therefore wasn’t creating as much output and employment as usual. Maybe, therefore, all these new stimulus programs, whether desperately needed now or not, are also setting the stage for a dreary repeat performance?

Which brings up the second issue raised by the latest Fed and other federal rescue operations: Their sheer scale, and the Powell’s “no limits” declaration strongly undercuts the most basic assumption behind the very discipline of economics: that resources will be relatively scarce. That is, there will never be enough wealth in particular to satisfy everyone’s needs, much less wants.

Think about it. If all the wealth needed or wanted could somehow be automatically summoned into existence, why would anyone have to think seriously about economic subjects at all? What would be the point of trying to figure out how to use resources most productively, or even how to distribute them most equitably?

I remain deeply skeptical about the idea that money literally “grows on trees” (as most of our ancestors would have put it). But Powell’s statement sure seems to lend it credence. Moreover, I’m among the many who have been astonished that the United States hasn’t so far had to pay the proverbial piper for all the debt that’s been created especially since financial crisis hit. So it’s entirely possible that I – and others who have fretted about the spending and lending spree the economy had already been on before the pandemic struck – have had it completely wrong.

It would still, however, seem important for economists and national leaders to make this point at least more explicitly going forward. For if it’s true, why even lend out money? Why have banks and financial markets themselves? Why shouldn’t the government just print money and distribute it – including to government agencies? Why for that matter tax anyone, rich or poor?

Just as important, if “on trees” thinking remains wrong – and possibly dangerous – folks who know what they’re talking about had better make the possible costs clear, too. Because if enough Americans become persuaded that there is indeed this kind of massive free lunch, what would stop them from demanding it? Why wouldn’t it be crazy not to? And how could elected leaders resist?

In fact, I’m also concerned about the emergence of a shorter term, more humdrum version of this situation. (This is my third worry for today.) Specifically, Powell clearly views the new Fed programs as emergency measures, which will be dialed back once the emergency is over. Similarly, at least some of the nation’s supposed fiscal conservatives are claiming that they’ve supported the sweeping anti-CCP Virus because it amounts “restitution” for all those individuals and businesses whose “property and economic rights” have been taken from them by the government decision to shut down the economy.

Nonetheless, let’s keep in mind that as former President Franklin D. Roosevelt was rolling out his New Deal programs to fight the Great Depression of the 1930s, he continually justified them as emergency measures. The President himself tried returning to his previous backing for budget balancing once some signs of recovery appeared.

His optimism, as it turned out, was premature, and helped bring on a second slump. Nonetheless, even had this about-face not failed, is it remotely likely that many other New Deal programs, ranging from Social Security to the Tennessee Valley Authority to the Federal Deposit Insurance Corporation to federal mortgage support agencies wouldn’t be alive and kicking, to put it mildly. Obviously that’s because however much most Americans may talk a small government game, they understandably like big government when it delivers tangible benefits.

As a result, when Powell, and others, promise that “When the economy is well on its way back to recovery…we will put these emergency tools away,” you’re free to smirk. The first clause in this sentence alone is grounds for caution, stating that the aid won’t be withdrawn once the worst is over, or when a rebound starts, but when normality is a certainty. If the national experience following the last financial crisis is any guide, when the Fed, for example, even pre-CCP Virus kept interest rates super low for many years after some growth had returned, “the other side” is going to be a place whose location will keep receding for the foreseeable future.

So the specter of the economy remaining hooked on massive government stimulus both for economic and these political reasons could be another reason for bearishness about a robust near-term rebound. (And no, I’m not trying to give out any investment advice here.)  

I’m not necessarily being critical here of the stimulus packages. Just trying to spotlight the safest bets to make, and the need to examine the future with eyes wide open. Is there any viable alternative?

Im-Politic: The Meaning of Trump-ism

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2016 election, Andrew Jackson, Barry Goldwater, big government, Donald Trump, establishment, Franklin Roosevelt, free trade, Hillary Clinton, Im-Politic, Immigration, internationalism, Jacksonian Democracy, Mainstream Media, middle class, New Deal, Open Borders, Populism, presidential debate, protectionism, Ronald Reagan, Sun Belt, working class

On the eve of what could be an historically transformational debate for American politics, I’m still struck by (a) how mysterious to the nation’s chattering classes Donald Trump’s appeal to so many Main Street Americans remains; and (b) how vividly the elites’ befuddlement at – and clear disdain for – the maverick Republican presidential nominee keeps signalling their (witting or unwitting) cluelessness about life outside their increasingly chichi urban bubbles.

First, though, I’m serious about the importance of tonight’s debate between Trump and his Democratic counterpart, Hillary Clinton. His insurgency against an entire, bipartisan national political power structure may be no more sweeping than Ross Perot’s in 1992. But having captured one of the two major parties, he faces none of the so-far insuperable institutional obstacles encountered by third party candidates in presidential politics. As a result, Trump’s odds of victory in November seem solid, and it’s at least arguable that this event would produce the greatest shock to America’s political culture since the Jacksonian revolution of the 1820s.

Of course, American political history has been dotted with other strong candidates for the mantle of revolution (at least by the nation’s admittedly moderate standards). Ronald Reagan originally came from Hollywood, and promised to kill off the post-New Deal model of mixed capitalism that even a critical mass of Republicans had embraced since the Eisenhower era. But Reagan was strongly backed not only by big segments of middle- and working-class Americans who felt neglected, and on the tax front, even exploited, by Big Government politicians. He would never had made the White House had he not also championed a counter-business establishment that had risen outside the Northeast, and especially in a Sun Belt region that styled itself as the embodiment of traditional American rugged individualism.

Moreover, although Reagan also promised a much harder line in foreign policy, in crucial respects his worldview and proposals still fell within the bounds of the strategic ideology that had prevailed in America since Pearl Harbor – which has been dubbed internationalism. Though much more confrontational than his immediate predecessors, Reagan still bought the notion that America’s vital interests still spanned the globe, and the related assumption that active U.S. engagement of some form in even the remotest countries and regions was essential.

Barry Goldwater had run on a similar insurgent platform in 1964, but lost in a landslide – though his nomination victory over that Republican establishment of that era clearly paved the way for Reagan’s far more complete and lasting triumph.

Policy-wise, a strong case can be made that Franklin Roosevelt’s New Deal was more of a break with the past than practically anything Trump has proposed. Nor was New Deal innovation restricted to the domestic economy, as its pursuit of trade liberalization reversed a protectionist approach that had reigned in America for most of its history since the founding. In political, social, and cultural terms, Roosevelt’s triumph in 1932 revealed that eastern ethnic cities and their worldviews had supplanted those of small midwestern towns and rural communities. In many cases, moreover, the New Dealers themselves were something fundamentally new – especially the academics. But in an ironically Reaganesque way, they were less outsiders than representatives of an emerging counter-establishment.

As personally flamboyant as he was, Theodore Roosevelt was an establishmentarian at heart as well. In fact, one of his most important – and underappreciated – contributions to American politics was encouraging his upper class patrician peers to stop looking down their noses at public life, take an active role in politics, and make sure that noblesse oblige steered the nation’s course as opposed to the petty concerns of Democratic machine politicians and the ferocious greed of the nouveaux riches Captains of Industry.

So I really do think that you need to go back to Old Hickory to find an American politician who explicitly stood for the rabble and actually won the White House. Will Trump actually follow through with a populist agenda ? I know how many skeptics continue insisting that Trump’s only interest is further lining his own pockets and those of the Wall Street-ers he’s chosen as economic advisers. Since I’m not clairvoyant, I don’t feel confident in voicing an opinion either way. But interestingly, much of the rest of Wall Street doesn’t seem to agree. Nor does Big Business. Further, would Trump excite such vehement opposition from the nation’s offshoring- and Open Borders-happy Mainstream Media and bipartisan policy establishments if he was simply a crook? Their reactions to Trump’s views on national security don’t seem exactly blasé, either.

Which brings us to the combination of bafflement and outrage voiced ceaselessly by these elites regarding Trump’s appeal – which has brought him to within striking distance of the White House. I don’t claim to have all the answers on this score, but here’s one consideration that establishment Never-Trump-ers not only haven’t thought of but seem incapable of appreciating: Their charges of Trump bullying and even Trump business scamming are failing and even backfiring for the same reason that their charges of Trump’s working the system as relentlessly as any other special interest have met the same fate.

Simply put, when many of his supporters hear these indictments, they’re not thinking about whatever rudeness or prejudice or even indecency the relevant remarks allegedly reveal. Just as Trump’s lobbying apparently has prompted hopes that, “Finally! Someone’s going to work the system for me!” the moral turpitude charges suggest “Finally! Someone’s going to be my bully! Someone’s going to be a con man on my behalf!”

And though these aspirations sound odious themselves, it’s revealing – and in my view encouraging – that the two likeliest issue candidates for this Trump approach seem to be trade and immigration. After all, they concern international relations, where for all the talk issuing from the establishment about the importance of and need for norms and rules, power and skill in its use is the paramount currency, and will remain so for the foreseeable future.

Nonetheless, as has been true throughout his campaign, this source of Trump strength has been a persistent Trump weakness – or perhaps more accurately, a foregone opportunity. For as I have long maintained, with just a little more precision, these points could be made every bit as powerfully without slurs directed at largely blameless parties (e.g., illegal immigrants, moderate Muslims), or understandably perceived in this way, and without vulgar sexism (against, e.g., his Republican primary rival Carly Fiorina, or Fox News anchor Megyn Kelly, or even Clinton for taking a lavatory break). Hard-core Trump-ers would have been just as enthusiastic, and many fewer independents turned off.

All the same, since Trump has essentially pulled even in the race, since not trivial amounts of voters remained undecided, and since big turnout questions dog Clinton in particular, his foregone opportunity has not been completely lost. Will he begin seizing it starting tonight?