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Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
G
W
DeLong Today
Economic & Other
Consequences of COVID-19
J. Bradford DeLong
U.C. Berkeley
& WCEG
<
https://www.icloud.com/pages/0mpxWnllkyHm9QKgN1CqqN75A
>
<
https://github.com/braddelong/public-fi les/blob/master/hcsf-for-2020-09-10.pdf
>
<
https://github.com/braddelong/public-fi les/blob/master/hcsf-covid.pptx
>
<
https://github.com/braddelong/public-fi les/blob/master/hcsf-covid.
pdf
>
<
https://www.icloud.com/keynote/0cHjGs-K8LxRyF6HMaBzGfpxA
>
2020-09-10
ood late afternoon. The topic is: economic and other consequences
of COVID-19: where are we, and how did we get here?
I thought
I would talk for 20 minutes or so, and then we would go into
questions and answers. Some of your questions I will know the answers to.
Others I will not.
here are we? With respect to the disease, we now
here
in the
United States have one in 1700 people dead of it, heading for one in
1000 dead by
—
to pick a date at random
—
January 21, 2021. That would
be 330,000 deaths.
Those countries that I think of as our peer countries, the ones to whom we
should be comparing ourselves in assessing our performance in dealing
with this plague, have many many fewer deaths
. They
are on a trajectory
1
Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
O
that will bring them only a few more
deaths
looking forward. Canada's
total
death toll currently is one in 4000
. A
ll of Ontario had only two
coronavirus death's last week.
An intelligent man I think of as a rabid right-wing hyena, David Frum—he
who coined the term “Axis of Evil” for President George W. Bush, the
biggest Iraq War booster I knew—
has
an interesting column in the
Atlantic
this week. He muses on crossing the border between New York and
Canada. He calls the U.S.’s response to the coronavirus plague a “state of
denial”. I made a tinyurl link to it—
tinyurl.com
/
dl
-20-09-09a
a
. Or simply
google “David Frum” and “I crossed back into a state of denial”.
It is worth reading—if only for what we could have done and be doing to
deal with this fi rst serious plague epidemic in a century.
n to
the
economics. The rhythm of employment in the American
economy is this: Each year starts with about 3 million net jobs
disappearing as the economy steps down from the Christmas rush and
2
Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
construction shuts down in the north. Then throughout the spring the US
economy adds workers, only to see a net of 1.5 million jobs disappear
when summer begins.
Employment
then
picks
up as fall approaches,
reaching a crescendo with the Christmas rush
. T
hen the cycle resumes
again.
Other, smaller disturbances are superimposed on this seasonal cycle. The
so-called “Great Recession” of 2008-09, for example: There was no fall
hiring boom
,
but rather a loss of a million jobs in the fall of 2008
. T
hen
there was
no net hiring to recover from the post-Christmas slowdown until
after Christmas of
2009
.
But March of 2020 was the fi rst time ever
,
since the payroll employment
data series began
,
that the seasonal cycle was swamped by something else:
the collapse of employment in the United States at the start of last spring,
when in one month 20 million people lost their jobs in March—and only a
third of those managed to return to work in April and May.
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Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
And,
starting in June
,
the bounceback
essentially
ceased. If you
had
not
gotten your job back by the end of June, the odds are high that you still do
not have it.
4
Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
I
t is instructive to look at levels as well as changes. Consider the workers
in the 25
-
5
4
age range. These are all people who are too old for large
numbers of them to still be in education, and
too
young for large numbers
of them to have retired. The se
a
sonally-adjusted share of American 25 to
54-year-olds who have jobs
fell
by 5
%
-points—from 80 to 75
%
—in the
Great Recession of 2008-9
. T
hat was a big deal.
That
share
fell from 81 to 69
%
—by 12
%
-points—in the early spring of
2020
. It
has only recovered 1/3 of the way back to where it was in
February.
The fall in employment naturally carried with it an enormous fall in
production
. B
y July production in the U.S. economy was more than 10
%
less than it had been in January. We will, by the end of September, have
made back half of this decline
—
if we are lucky.
However,
it really looks
like there the recovery is likely to stall—unless Americans decide to
simply take the hit
,
and spend and work as though there were no
5
Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
coronavirus plague, or unless our government policy changes in a way
that
bring
s
our performance much closer to those of our
peer
nations.
I try to track what is going on with the economy right now with four
series: the weekly new unemployment-insurance claims series, the weekly
continued unemployment-insurance claims series, the monthly disposable
personal-income series, and the monthly personal consumption-spending
series.
New UI claims shows the collapse of employment in March. And
the
series
al
s
o shows us that layoffs are still running at a very elevated rate.
But now it is no longer businesses shutting down temporarily as they
hunker down, hoping to reopen soon after the virus passes. It is businesses
throwing in the towel, declaring bankruptcy, and permanently vanishing
from the stage.
I had huge hopes back in March and April that we could quickly beat the
virus and get back to our February normal. Those hopes were vain. That is
6
Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
not going to happen.
You could try to take continued UI claims as painting a more optimistic
picture. Unfortunately, they are falling not because people are gradually
going back to work in lar
g
e numbers, but bec
au
se people are running out
of benefi ts.
It is important to note that the economy experienced and is now suffering
from not just a supply shock but a demand shock. It is somewhat but not
very much the case that because of the plague there is less work that it is
worthwhile to do, and so people are preferring leisure to non-worthwhile
work.
But t
here is plenty of work to do.
What
we have not managed to
do is to
move those who lost their jobs in
March into some of the work that was then undone but worth doing, and is
now very much worth doing.
There is not the demand to support such a large transfer of workers from
sector to sector.
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Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
A
Why is there insuffi cient demand? Because when the hunker
-
down began,
people decided to postpone a lot of spending until the day when they can
resume normal patterns of activity without fear of coronavirus. And so we
went from an economy that had $1.5 trillion per year of personal savings
to an economy that had $3.0 trillion per year of personal savings. The
government stepped in with the now-expiring CARES act to boost
people’s incomes
. B
ut that was not enough to fund a great worker sectoral
transfer. Business investment did not boom to do it. We could boost
government purchases to do it, but this administration is not interested in
an "infrastructure year" or an "infrastructure quarter” or even an
"infrastructure week.”
s we all know, different people face very different risks from catching
the coronavirus. It is not just a flu—it is much nastier than a normal
flu in many dimensions. But it is also not that deadly to the young and
healthy. For the young and healthy, catching coronavirus is about as likely
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Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
to kill you as is
riding in an
automobile
,
like a normal American
,
for a
decade.
We could have decided to organize ourselves and simply bull through the
coronavirus. A functional society could have decided to competently
shelter the old and other vulnerable from close human contact and thus
from infection, and otherwise tak
e
the hit. It would have been very costly
and expensive
. B
ut economic lockdowns are expensive too
. A
nd it would
perhaps have been not totally and obviously insane
,
as a thing to do.
Indeed, that may have been the policy of the Trump administration toward
coronavirus.
But it never organized the sheltering of the old and vulnerable.
And it never said that was its policy—if, indeed, the Trump administration
can be said to have had a policy.
On the one hand, the Trump administration certainly highlighted its
9
Economic & Other Consequences of COVID-19: 2020-09-09 3039 words
epidemiologists with their calls for suppressing the virus as Japan, Korea,
Taiwan, China, and Australia managed to do. On the other hand, you could
be forgiven for thinking that maybe
,
inside the
O
val
O
ffi ce
,
the decision
had been made to give lip service to the epidemiologists, but otherwise to
simply take the hit. If this was the decision and the policy, the reasons
would have been that the virus ripping through the population of
would
,
all in all, not be that damaging,
while
the economic damage from steps to
retard spread was very costly indeed.
Here the Trump administration was I think, very very badly served by its
economic advisers—Kevin Hassett, Larry Kudlow, Tomas Philippson,
Casey Mulligan, Tyler Goodspeed, and company. Truth be told, the
epidemiological models did the Trump administration preferred to rely on
were not the best
. They
were way optimistic. But the economists then
decided that they could fi t data better than the epidemiologists
. They then
cranked up optimism as to
when
the plague would pass to the max.
I still do not have an explanation of why they were so eager to take on
10