In the interview above, he talks about the impact of the coronavirus on the global economy. The actual interview begins about four minutes in.
He points out that ending the lockdowns won’t automatically restart the economy. Ford and General Motors closed their plants without any lockdown order.
Labor unions that represented their workers protested working under unsafe conditions. Suppliers were unable to provide necessary components on schedule. And the automobile sales collapsed. So what was the point of staying open?
Tooze also says that the talk of being in a war economy is wrong. In a war economy, the objective is to mobilize everyone to produce war materials. In a pandemic economy, the objective is to limit production to what is absolutely necessary. People should be paid to stay home to help limit the spread of the virus.
He doesn’t predict a second Great Depression, but neither does he rule it out.
Current job losses and recovery compared with previous recessions
The chart shows how slow the current U.S. economic recovery is compared to recoveries from previous recessions. When and if the number of U.S. jobs returns to the pre-recession level (the 0.0% line on the chart), the jobs recovery will not be complete because the number of working-age Americans will have increased in the meantime.
Why is the current economic recovery so slow? Here is what I think:
Almost all the benefits of economic growth during the past 20 or 30 years have been flowing to a tiny minority of the population — the upper 1% or 0.1% of the population.
These segment of the population spends less of their income than most Americans do. Instead they save their money so that they can become even richer.
Contrary to what “supply-side” economists hoped in the 1980s, they have not been investing their money in enterprises that create American jobs. People don’t invest money just because they have money or just in order to create jobs. They invest money in a business because they have reason to think there is a market for that business’s products and services.
Prior to the 2008 crash, U.S. economic growth depended on the willingness and ability of the American middle class to take on debt in order to maintain their spending power.
Since the 2008 crash, banks, wisely, have tightened their requirements for lending.
Since the 2008 crash, middle class Americans, wisely, have been paying down their debts rather than taking on more.
These leaves us with the situation that John Maynard Keynes wrote about — an economy that does not grow because people have no money to spend, and people without money to spend because the economy is not growing.
I don’t believe in government spending money for the sake of spending money, but there are a lot of things that need to be done that in the long run will add to US economic strength, and this would be a good time to start. One useful way to increase jobs is for governments at all levels to start to repair our deteriorating bridges, water mains and other physical infrastructure.
LINKS
FORGET THE 1% by J.D. Alt for New Economic Perspectives.
This is true, although in terms of purchasing power, the Australian minimum wage for fast-food workers is more like $12 in the United States. Click on Australia minimum wage for details from the Real News Network.
Many economists say, without any empirical evidence, that an increase in the minimum wage will automatically result in increased unemployment. This is because it is a basic principle of economics that if you increase the price of something, people will buy less of it, and so it is with wages.
Under certain conditions, that would be true. Fewer people would be hired for minimum wage jobs if, say, the U.S. minimum wage was raised to $72.50 an hour. But there is no evidence that any of the actual increases in the minimum wage have had any adverse measurable effect on U.S. employment. Indeed, the number of minimum wage and near-minimum wage jobs has increased dramatically since 2007-2009, when the minimum wage was increased from $5.15 to $7.25 an hour.
The basic concept of economics—that the law of supply and demand describes how people respond to economic incentives—is true as far as it goes. This concept has such beauty and explanatory power that it is easy to forget the other dimensions of human behavior. Economists who forget this wind up like the physicist in the joke, who could infallibly predict the outcome of horse races, provided there were spherical horses racing in a vacuum.
Nate Silver’s statistical analysis indicates that incumbent Presidents since World War Two, and especially from 1980, have been likely to be re-elected if U.S. jobs are increasing at a rate of 150,000 a month in the election year. The United States in fact added 227,000 jobs in February.
If Silver is correct, President Obama should be on track to win—barring the unforeseen—in spite of an unemployment rate still stubbornly high and long-term unemployment at record levels. Of course he is helped by the lack of a sensible economic policy from any of his potential Republican opponents.
The top 1 percent of American income earners came bouncing back from the recession in great shape. About 93 percent of the nation’s 2010 income gains flowed to them.
There are two ways of interpreting this. One is that the 1 percent are Ayn Rand heroes who all by themselves generated 93 percent of the nation’s gains in wealth over 2009. My interpretation is that the system is flawed.
Notice that most of the gains of the upper 1 percent were in the form of capital gains, which is taxed at a 15 percent rate, in contrast to taxes on earned income, which is taxed at rates starting at 10 percent and rising in increments to 35 percent. What this means is that although the income of the middle class is taxed at a higher rate than the income of the poor, and the income of the affluent at a higher rate than the middle class, the income of the ultra-rich is taxed at a lower rate than the income of the middle class.
Click on The World’s Top Incomes Data Basecreated by Facundo Alvarado, Tony Atkinson, Thomas Piketty and Emmanuel Saez for the Paris School of Economics Center for Equitable Growth.
It is a fact that economic recovery began after President Obama took office. I believe that the recovery was helped by his economic stimulus program and by programs already in place such as food stamps and unemployment insurance. These helped cushion the effects of the recession and allow recovery to take place. I can’t prove this. There is no way to go back in time and run another scenario in which the government stood aside and allowed events to take their course.
The problem is that the recovery is so slow, and that even when and if economic conditions get back to the way they were before. During the supposed expansion preceding the 2007 recession, wages were declining (in terms of buying power), American manufacturing was being eroded and poverty was increasing.
Below are some charts which illustrate the weakness of the current economic recovery.
Less than a third of the workers who lost their jobs in the Great Recession have made it back, or are climbing back, to where they were before, according to a Rutgers University study.
In August, 2009, researchers at Rutgers Center for Workforce Development interviewed about 1,200 workers, representing a cross-section of the population, who’d lost their jobs during the preceding year, and the researchers followed them for the next two years to see how they made out. The chart at right shows what they found out.
The meaning of the five categories is as follows.
Workers who have MADE IT BACK consider themselves in excellent, good, or fair financial shape and have experienced no change in their standard of living due to the recession.
People ON THEIR WAY BACK have largely experienced a minor change to their standard of living, but say the change is temporary. They also consider themselves in excellent, good, or fair financial shape.
Workers who have been DOWNSIZED meet one of three conditions; they have experienced: a minor change that is permanent; a minor change that is temporary, but they are in poor financial shape; or a major change in their standard of living that is temporary and they are in at least fair financial shape.
Workers classified as DEVASTATED have experienced a major change to their lifestyle due to the recession. They can be either in poor financial shape and think the change is temporary, or in fair financial shape but think this change is permanent.
Workers that have been TOTALLY WRECKED by this recession have experienced a major change to their lifestyle that is permanent and are in poor financial shape.
Of the 1,202 workers questioned, 47 percent rated their personal financial situation as “poor” and 36 percent “only fair.” The economic situation has had a “major impact” on 58 percent, and 41 percent expect the changes to be permanent.
I have to say that I like the charts a lot more than I do Sloan’s article. He thinks that the economic crisis is primarily a result of federal budget problems, and that it can be fixed by tinkering with the tax code and chipping at Social Security and Medicare. As the chart itself shows, the problems are much more fundamental than that.
This graphic sums up the past 60 years of the U.S. economy very well.
It accompanied an article in the New York Times by Robert Reich, former U.S. Secretary of Labor and professor of public policy at the University of California at Berkeley.
Chart shows monthly change in private-sector jobs under Bush (red) and Obama (blue). Chart by Steve Benen of Washington Monthly. Click to view.
Chart shows monthly jobs loss or gain in the current recession compared to earlier recessions. Double click to view or enlarge.
The U.S. economy is showing some recovery, and reputable economists agree that the Obama stimulus program did some good, but the economic recovery is stalling, and we have a long way to go before we get back to the way things were before the recession.
It would be nice if President Obama, House Speaker John Boehner and other top leaders would show as much concern about the jobs deficit as they do about the federal government’s budget deficit. Even if you think the latter is the only thing that matters, a lot of the deficit is due to the fact that recession has sidelined millions of people willing and able to work and pay taxes.
Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.
In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth. … …
According to the study, between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation.
The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.
“The lack of any net job growth in the current recovery combined with stagnant real hourly and weekly wages is responsible for this unique, devastating outcome,” wrote the report’s authors, Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma.
According to the Bureau of Labor Statistics, average real hourly earnings for all employees actually declined by 1.1 percent from June 2009, when the recovery began, to May 2011, the month for which the most recent earnings numbers are available.
Click on The Wageless, Profitable Recovery for the original article by Steven Greenhouse in the New York Times, which includes a link to the full Northeastern University study.
Hat tip for this link to Marginal Revolution, where Tyler Cowen wrote that such a steep “gradient” is unprecedented.
Current job losses exceed any other post-war recession. Click to view.
This recession is not like other recessions. By every measure, the downturn is the worst since the Great Depressions of the 1930s. Stimulus programs that might have worked in earlier downturns are not working now. That is because the current recession is not just part of a normal economic cycle. It is a day of reckoning for 30 years of trying to run the U.S. economy on debt instead of production.
The great economist John Maynard Keynes had a prescription for recessions which is somewhat like Joseph’s advice to Pharaoh in the Bible. Joseph advised the ruler of Egypt to store up grain during the fat years so it would be available to the people during lean years. Keynes advised the rulers of the United Kingdom and the United States to run budget surpluses and tight money during the expansionary years, and stimulate the economy by pumping money into the system during deficit years.
However, if you are stimulating the economy all the time, which was what was done during the George W. Bush administration, then you have nothing left to do when times turn bad. When the economy is over-stimulated already, the traditional economic stimulus doesn’t work. Historically, when people have more money in their pockets, they spent some of it. Now sensible people will try to pay down their debts.
President Barack Obama is no worse than Presidents Ronald Reagan, George H.W. Bush, Bill Clinton or George W. Bush, who all were happy to go along with financialization and de-industrialization, but more is required of him than was required of the others.
So far President Obama has done good things. He organized a well-thought-out effort to keep General Motors Corp. for failure, which would have been devastating to the industrial Midwest. He has directed money to fostering green industry, which may have a good payoff in the future.
But his main effort seems to be to put Wall Street and the banking industry back the way they were before. But the way things were before is not sustainable. Inflating another financial bubble is not the answer. It may not even be possible.
Rebuilding the U.S. economy will be a long, slow process, if it is possible at all. I hate to think that the hollowing out of American industry has reached the point of no return, but there is such a point. The first step is for our leaders – and this goes for Mitch McConnell, John Boehner and Mitt Romney as well as Barack Obama, Harry Reid and Nancy Pelosi – to make an effort to understand the situation instead of score points off each other, and the second step is to tell the American people the reality of our situation.
What worries small business owners the most is not government regulation, not high taxes, not the cost of wages and benefits. What worries small business owners the most is lack of sales.
Here are the figures, as compiled by the National Federation of Independent Business.
The good news is that private sector jobs are increasing, no longer declining. The U.S. economy gained 64,000 private sector jobs in September, and that’s the ninth month in a row of job growth.
But the U.S. economy has lost 8 million jobs since the start of the recession. According to Paul Krugman, you would need to add 300,000 jobs a month – including the 125,000 needed to keep up with population growth – to get back to 5 percent unemployment in five years.
Also in September, the U.S. lost 159,000 government jobs. Most of these were Census workers who’d completed their tasks, but there also were 76,000 employees of state and local governments.
Now government doesn’t determine how many private sector jobs there are. But it does determine how many government jobs there are. It doesn’t make sense to lay off public workers during a recession. It’s important to maintain vital public services – schools, libraries, maintenance of roads, water systems and sewerage systems – in good times and bad.
Beyond that, public sector layoffs are an anti-stimulus program. Laid-off school teachers and firefighters stop buying goods and services, which leads to less business activity and job growth in the private sector.
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