What Happened To Our Leaders?

 Answering the Kennedys’ Call

Wikipedia

President-Elect Biden is 78 years old, and will be the oldest President in our history when he is sworn in. He continues to uphold the recent age levels of POTUS set by Donald Trump (74), Presidents Eisenhower, Reagan and GHW Bush that were all over 70 by the time they left office.

The NY Times Ian Philbrick reports that we have the oldest leaders in the western developed countries at a time when the age of elected leaders in other developed countries is falling.

“Since 1950, the average age of heads of government in the three dozen member countries of the Organization for Economic Cooperation and Development has steadily declined, from above 60 years old to around 54 today. The average O.E.C.D. national leader is now two decades younger than Mr. Trump — and almost a quarter century younger than Mr. Biden.”

Why does that matter? I believe it is a major reason for the slow slide into populism and the dysfunctional democracy we currently endure without the increased social and economic benefits enjoyed by citizens of other western developed countries with younger and more forward-looking leaders.

The slide into a federal government led by President Donald Trump that is barely able to function has resulted in our inability to manage the new coronavirus pandemic that is infecting and killing a record number of Americans.

We seem to crave the appearance of strong leadership even if he or she eschews the main requirement of leadership, namely the necessity to keep our 50 different states plus territories, each with its own system of governance, safe and united in common purpose,.

“On a national level, many of us have been seduced by “shiny new objects” – what I call “leadership bling, says Nancy Koehn, a historian at Harvard Business School and the author of the 2017 book, “Forged in Crisis: The Power of Courageous Leadership in Turbulent Times.”Too often, we’re dazzled by personal ambition, reasoning that a person who was born hard-charging and who followed his or her self-interest all the way to enormous wealth, celebrity, or authority has to have accumulated great wisdom.”

The Trump administration’s one legislative accomplishment was the 2017 Tax Cut and Jobs Act that resulted in the first $1 trillion annual budget deficit in our history, while Republicans failed in more than 80 attempts to repeal Obamacare.

Our federal government has become out of touch with younger generations in particular that are almost unanimous in wanting better schools, universal health care, a higher minimum wage, and other benefits now enjoyed by all other developed countries.

A Pew Research Center survey conducted in January of this year found that about a quarter of registered voters ages 18 to 23 (22 percent) approved of how Donald Trump is handling his job as president, while about three-quarters disapproved (77 percent). Millennial voters were only slightly more likely to approve of Trump (32 percent) while 42 percent of Gen X voters, 48 percent of Baby Boomers and 57 percent of those in the Silent Generation approved of the job he is doing as president.

The Times also points out that the average age of Congress has also trended upward for decades. Nancy Pelosi, the House speaker, is 80; Mitch McConnell, the Senate majority leader, is 78. The Supreme Court’s nine justices average above 67. Mr. Trump’s cabinet averages over 60, among the oldest in the O.E.C.D.

Even younger Republicans follow Democrats in wanting more benefits in the PEW survey. Gen Z Republicans, for instance, are much more likely than older generations of Republicans to desire an increased government role in solving problems, says PEW.

“About half (52%) of Republican Gen Zers say government should do more, compared with 38% of Millennials, 29% of Gen Xers and even smaller shares among older generations. And the youngest Republicans are less likely than their older counterparts to attribute the earth’s warming temperatures to natural patterns, as opposed to human activity (18% of Gen Z Republicans say this, compared with three-in-ten or more among older generations of Republicans).”

Looked at in economic terms, our slide into extreme conservatism instituted by Ronald Reagan and the Republican Party with their credo of lower taxes and an unregulated, free market capitalist ideology, is the reason we have a federal government out of touch with most Americans.

Whereas our European cousins enjoy universal health care, higher minimum wages, and shorter work weeks for the same pay; all brought about by keeping their governments young and able to adapt to even a COVID-19 pandemic.

So where are the leaders to come that will bring in programs and policies that will govern for future generations, rather than cater to the populace of the past?

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Recovery Slows As Pandemic Spreads

 Financial FAQs

ChicagoFed

This Chicago Federal Reserve graph of national activity starkly portrays the present state of the US economy. The multi-colored bars represent deviations from the historical growth average, which is the zero line on graph. It is still barely positive though down sharply from May and June when the business lockdown ended.

“Led by slower growth in employment- and production-related indicators, the Chicago Fed National Activity Index (CFNAI) declined to +0.27 in November from +1.01 in October. Three of the four broad categories of indicators used to construct the index (production and income, employment, sales and inventories) made positive contributions in November, while personal consumption and housing declined slightly, but all four categories decreased from October. The index’s three-month moving average, CFNAI-MA3, decreased to +0.56 in November from +0.85 in October.”

COVIDTrackingProject

This is because successive surges in infections have had consumers saving more and spending less, while manufacturing continues to chug along. The pandemic is just not manageable at the current infections rate with more than 200,000 per day (blue line in graph) now testing positive and more than 100,000 per day (red line) being hospitalized with the virus.

It is easy to see the inverse correlation in these graphs. As total infections in cases per day rise (blue line) economic activity in the Chicago Fed bar graph declines.

There is better news coming as more than 144,000 vaccinations have already been administered in 21 states, according to the COVID Tracking Project.

MarketWatch reports that new daily cases of COVID-19 fell to 179,801 on Sunday from 193,947 on Saturday, and down from 251,447 on Friday, according to data provided by the New York Times. The daily death toll was 1,422 on Sunday, down from 2,628 on Saturday and from 2,815 on Friday.

And hospitalizations dropped to 113,630 on Sunday from 113,929 on Saturday and 113,955 on Friday, according to the COVID Tracking Project. That 3-day streak of declines snapped a 12-day streak of record hospitalizations.

But the Christmas holidays have just begun with many more traveling to family and vacation destinations, which will cause another surge in the new year and keep most consumers at home for a longer period.

In looking back at the history of the Spanish flu, there was another infection surge in the spring of 1919, even as the warm weather returned. It actually took several more years for that economy to stutter back to life.

And it will in fact take much more federal aid than the just passed $900 billion coronavirus relief package to bring back any meaningful recovery for most Americans because so many lost jobs; something the incoming Biden administration will have to tackle.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What Civil War?

Answering the Kennedys’ Call

 

Texas, 17 other red state Attorneys General, and 126 Republican House members tried to keep President Trump in power after January 20 by breaking election laws and ignoring the United States Constitution. But the Supreme Court, arbiter of the Constitution, said they had no basis to sue four Democratic states after the election had been decided.

This has led Texas’ GOP Party Chair Alan West to suggest that these states should secede from the United States (which was quickly disavowed by other state GOP leaders).

West and Texas Republicans were in fact still fighting their own version of the 1860s civil war that abolished slavery in suing to overturn the will of a majority of Americans. President-Elect Biden was certified by the Electoral College as our new POTUS and Kamala Harris as our new Vice-President Elect on December 7.

Turning the Supreme Court’s decision on its head, West said, "This decision establishes a precedent that says states can violate the US constitution and not be held accountable," in a statement following SCOTUS’s Friday-night ruling. "Perhaps law-abiding states should bond together and form a Union of states that will abide by the constitution.”

Ben Schatz, the Democratic senator for Hawaii, said Mr West’s statement revealed that the Texas Republican Party had lost its mind, in a post to Twitter.

“The Texas Republican Party is officially in favor of leaving the Union. They have lost their minds,” wrote Mr Schatz. “Biden will be President, but these people are deadly serious about secession and sedition.”

If those red states had ever thought about what they were doing, or even why they were doing it—which they obviously hadn’t—they would have realized many would be bankrupted if they ever wanted a separate union.

They would be in danger of losing much of $437.596 billion in transfer payments made to them from the federal government that is above what they contributed to the US Treasury in FY 2018, according to the Rockefeller Foundation.

There were six states like New York and New Jersey that have large tax revenue surpluses totaling $51.4 billion which are distributed to poorer, mostly red states by the federal government, such as Kentucky that has a $45 billion deficit in their balance of tax payments with the federal government.

The tax surpluses from the richer states are paid out as part of transfer payments (e.g., social security, Medicare, Medicaid, SNAP, welfare) to members of the poorer, mostly red states.

This in fact is why America is a prosperous country—wealthy states help to support the federal programs of citizens in the poorer states. No one state can pull down other states because of its financial problems, and its citizens know they will be covered by our central government, whether in blue or red states.

Then why have Republicans under Trump continued their attempts to overturn the election results? NY Times’ Op-ed columnist Charles Blow said it best. Trump realized that trying to steal the presidency is more lucrative than being president with his calls for donations to his re-election Super Pac that now total more than $200M. In conning his base into believing he won the election, “We are witnessing one of the greatest grifts in history,” said Blow.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen 

Retail Sales, Consumer Spending Falter

 Financial FAQs

FREDretailsales

Sales at U.S. retailers fell in November for the second month in a row and posted the biggest decline since the onset of the pandemic, showing effects of the record rise in coronavirus cases. Retail sales fell -1.1 percent last month, the government said Wednesday

Sales began falling in February at the beginning of the COVID-19 recession, per the gray shading in the St. Louis FED graph. It plunged -15 percent in April and jumped almost 40 percent to a +20 percent increase in June, as the various lockdown measures were eased and people went back to work. But oh, those holidays beginning with the Memorial Day and summer vacations that brought back the virus so that spending declined again.

Sales fell at restaurants, auto dealers, gas stations, clothing stores, department stores and places that sell home furnishings and electronics. The only segments to post higher sales were suppliers of essentials; grocers, home centers and Internet retailers — and even then the increase in receipts were small.

Bars and restaurants suffered a 4 percent drop in sales, marking the second decline in a row and the largest since April during the height of the pandemic. More people avoided going out to eat or were unable to do so because of new government limits on indoor dining or hours of operation.

Sales also fell 1.7 percent last month at auto dealers, but it has been a good year for the industry. Low interest rates have helped boost sales and more people are driving instead of taking public transportation, say the number crunchers.

This is mainly because coronavirus infection rates have barely begun to flatten the curve. The COVI-19 Project reported 1.7 million tests, 190k cases, and 2,918 deaths, 112,816 people are currently hospitalized with COVID-19 on Tuesday. Current hospitalizations are falling in the Midwest and rising in the Northeast and Western states, per the project.

COVIDTracker

But next year may be different when the vaccines reach most Americans. Federal Reserve Chair Powell on Wednesday predicted the U.S. unemployment rate would fall faster in 2021 than it previously believed, but it stuck to a cautious forecast for the broader U.S. economic recovery.

The Fed slightly raised its 2021 forecast for economic growth to 4.2 percent from 4.1 percent, reported MarketWatch, “indicating continued caution on the part of central bank officials as they wait to see how effective the new vaccines for the coronavirus perform.”

‘The official unemployment rate slid to a new pandemic low of 6.7 percent in November and has declined a lot faster than expected, but economists also say it likely underestimates the true number of jobless Americans.”

The vaccines began rolling out in the past week. Chairman Powell also said they would do whatever it takes to keep interest rates low and credit easily available to banks and businesses for maybe years to come.

As I said earlier, there is a path to economic recovery from the worst recession since the Great Recession. The Fed is on board to assist for the foreseeable future, but will congress do its part?

They are close to agreement on a bill slightly less than $1 billion that will be announced later this week. But we have to first control the pandemic.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Path To Economic Recovery--Part II

 Financial FAQs

 

Calculated Risk

As I said in Part I of this series, there is a path to economic recovery from the worst recession since the Great Recession. Firstly, it means studying what economic policies have worked in past recoveries.

It you use job formation as the most important criteria for success, then the Clinton administration wins with its mix of government and private sector programs that cut military spending with the end of the cold war and increase in public spending at no more than 2 percent per year. The policies resulted in four years of budget surpluses from 1996-2000.

The cold war dividend also resulted in the second longest economic recovery on record—1991-2001—only topped by the Obama-Trump era recoveries cut short in February by the pandemic.

Private sector employment increased by 20,970,000 under President Clinton (light blue) in the excellent Calculated Risk, by 14,714,000 under President Reagan (dark red), 11,849,000 under President Obama (dark blue). 9,039,000 under President Carter (dashed green), and 1,511,000 under President G.H.W. Bush (light purple).

But because of COVID-19 during the 46 months of Mr. Trump's term, the economy has lost 2,128,000 private sector jobs (yellow line) to date.

What happened? Most jobs were created, when government spending kicked in to supplement consumer and business activities. Coincidence doesn’t spell facts, as I’ve said, but we can see what worked and to create jobs.

Public payrolls also grew most also during Democratic administrations with the exception of the Reagan administration that wanted to outspend Russia in their arms race. Payrolls grew during Mr. Carter's term (up 1,304,000), then Mr. Reagan's terms (up 1,414,000), H.G.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs). 

However the public sector declined significantly while Mr. Obama was in office (down 277,000 jobs), and during the 46 months of Mr. Trump's term, the economy has lost 870,000 public sector jobs.

Calculated Risk

What exactly did Clinton do to create 10 years of prosperity with budget surpluses to boot?? He was not afraid to raise taxes where it was needed to pay for programs that created more jobs, rather than raise the public debt.

He increased taxes with the Omnibus Budget Reconciliation Act of 1993, his first budget. The Deficit Reduction Act raised the top income tax rate from 28 percent to 36 percent for those earning more than $115,000, and 39.6 percent for income above $250,000. It increased the corporate income tax from 34 percent to 36 percent for corporations with incomes over $10 million.

It also ended some corporate subsidies, taxed Social Security benefits for high-income earners, and created the earned income tax credit for incomes under $30,000.

It raised the gas tax by 4.3 cents per gallon. It also limited the ability of corporations to claim entertainment tax deductions.

The +10 years of tepid economic growth since 2010 were caused in part by limiting government programs (e.g., in infrastructure, scientific research) that would have boosted growth, and because President Obama chose to focus on bringing down national debt after the initial $800B ARRA aid package assisting recovery from the Great Recession.

Republicans in particular seem to have been influenced by the rhetoric of anti-tax activist Grover Norquist when he said,  "I'm not in favor of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub," which did tremendous to economic growth during that time.

The irony in this history is that economists are already predicting a huge economic recovery next year once enough Americans have been vaccinated, as happened with the recovery from the 1918-19 Spanish flu-induced recession, and which became known as the euphoric “roaring twenties”.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Jobs Report Bad News for COVID-19 Recovery

 Popular Economics Weekly

MarketWatch

Economists have been  worrying about a ‘double-dip’ recession; i.e., should the US economy return to negative growth in the fourth quarter or Q1 of 2021. The Bureau of Labor Statistics (BLS) unemployment report is showing signs that it may happen early next year with the nonfarm payroll job creation of just 245,000 nonfarm payroll jobs in November, down from 610,000 jobs in October and 711,000 jobs in September.

Government payrolls shrank almost 100,000, while private payrolls grew 344,000, the BLS reported. “Notable job gains occurred over the month in transportation and warehousing, professional and business services, and health care. Employment in transportation and warehousing rose by 145,000 in November but is 123,000 below its February level; employment rose by 82,000 in couriers and messengers and by 37,000 in warehousing and storage since February.“

The unemployment rate dropped one-tenth of a point to 6.7 percent because 400,000 stopped looking for work.

Calculated Risk

The Calculated Risk graph compares job losses since 1948, with the blue line a picture of the length in months of the 2007 Great Recession losses until returning to the prior employment peak and red line the current COVID-19 induced losses. It also dramatizes the huge gap in current losses that must be closed to return to normal job growth.

When can that be while the U.S. has the highest case tally in the world at 14.1 million and the highest death toll at 276,401, or more than a fifth of the global total as of yesterday? The U.S. counted 216,548 new cases on Thursday, and at least 2,857 people died, just below the record of 2,885 set a day earlier, according to a New York Times tracker.

“In November, 21.8 percent of employed persons teleworked because of the coronavirus pandemic, up from 21.2 percent in October,’ said the BLS. “In November, 14.8 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic—that is, they did not work at all or worked fewer hours at some point in the last 4 weeks due to the pandemic.”

There were now a record 100,667 COVID-19 patients in U.S. hospitals on Thursday, according to the COVID Tracking Project, topping Wednesday's record of 100,226. Brazil has now the second highest death toll at 175,270 and is third by cases at 6.5 million. India is second worldwide in cases with 9.6 million, and third in deaths at 139,188. Mexico has the fourth highest death toll at 108,173 and 11th highest case tally at and 1.7 million cases, or sixth highest in the world.

That is a lot of growth to make up in the midst of this pandemic, if there is no surety when it will end, and double-dip recessions are nothing new in our current boom or bust economic system, as I said recently. And will that change with President Biden assuming power in January?

HarlanGreen © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Path to Economic Recovery

 Financial FAQs

Calculated Risk

There is a path to economic recovery from the worst recession since the Great Recession—and maybe the Great Depression. But it means escaping from the free market economic orthodoxy that has prevailed since 1980, and which has been the major contributing factor of six recessions since 1980, all occurring during Republican administrations.

Concurring events don’t necessarily determine facts, but we know such a boom and bust mentality has been the hallmark of conservative calls for fewer regulations and lower taxes historically. The Federal Reserve was created in 1913 to even out such booms and busts after the stock swindles of the early 1900’s Gilded Age, and the ‘roaring twenties’ financial markets that led to the 1928 market crash and ultimately Great Depression were also eras when governments had few regulations to tame such speculation.

The most recent example during the Clinton administration when budget surpluses were generated during his last four years. The moment President Bush took office, Vice President Cheney trumpeted Reagan’s maxim that “budget deficits don’t matter,” and fired Paul O’Neill, his first budget-conscious budget director that had recommended using the surplus to pay down the national debt to shore up social security and other social programs.

Bush instead proceeded to cut taxes so much that the first $trillion national debt was born and two recessions followed during his eight years, including the Great Recession of 2007.

In fact, if we look at Calculated Risk’s graph history of job loss durations since 1948, we see that the longest job recoveries took place during the 1980 (black line), 2001 (brown line), 2007 (blue line), and 2020 (red line) recessions; all during Republican administrations when budget deficits no longer mattered, as I said.

It goes back to the conservative free market, small government orthodoxy that government regulations retard growth, when since 1980 it has been the de-regulation of whole industries and championing of free-market maxims that have increased the boom and bust cycles we have seen since then, while worsening our income inequality.

There is much more that went into these recessions, of course, such as Reagan’s the cold war arms race with Russia, the Desert Storm Gulf War of GW Bush, and Iraq-Afghanistan invasions of GW Bush that they paid for with borrowed money.

But the dire results of such free market orthodoxy are incontrovertible, as Rutger’s economic history James Livingston put it once in a memorable NY Times Op-ed that described what corporations do with most of their profits these days.

In the early 1900s, most business investment came from the private sector, not government, whereas by 2000 most of such investments—in public projects as well as research to develop new products and services—came from government.

And that was in large part because of the sky-high tax rates for the wealthiest and corporations that prevailed immediately after World War Two—as high as 90 percent during the Eisenhower years and beyond. As President Eisenhower once put it, higher taxes induce people and businesses to invest more in their future, rather than pay Uncle Sam.

“So corporate profits do not drive economic growth — they’re just restless sums of surplus capital,” Professor Livingston wrote, “ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”

The COVID-19 pandemic has created the need to do what was done when past generations faced the Great Depression and World War Two. They are government policies (more progressive taxation is one such) that will induce US to create more sustainable growth paths with fewer booms and busts, as President Eisenhower foresaw.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Ending Our Economic Civil War—Part II

 Answering the Kennedys’ Call

MarketWatch

President-Elect Joe Biden can call a truce from the ongoing Red vs. Blue states economic civil war with just announced picks of his economics team, including Janet Yellen as Treasury Secretary and the economic advisors.

They are what have been called “progressive” economists because they advocate a national government that works for all the people in red and blue states, including stronger labor laws to protect wages and benefits of the salaried workforce that has been suppressed since the 1980s, causing most of the record income inequality we have today.

Janet Yellen is a UC Berkeley economist known for her labor expertise in advocating policies that combat income inequality. She worked to keep interest rates low when she was Fed Chair and advocated more public investments that the private sector avoided as Obama’s chief economic advisor.

Biden’s other progressive economists include Wally Adeyemo for deputy secretary of the Treasury; Cecilia Rouse as chair of the Council of Economic Advisers; and Jared Bernstein and Heather Boushey as members of the Council of Economic Advisers, all advocates of New Deal, Keynesian economics that cured the Great Depression.

Nobel Laureate Paul Krugman said on MSNBC that the advisors are incredibly qualified--even overqualified for the job—since anyone of them could be Biden’s CEA chair and chief economic advisor.

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” Yellen said in a speech to a conference on inequality sponsored by the Boston Fed.

In her conference slide show, Professor Yellen showed that after adjusting for inflation, the average income of the top 5 percent of households grew by 38 percent from 1989 until 2013, Yellen said. By comparison, the average real income of the other 95 percent of households grew less than 10 percent.

Federal Reserve

Increasing the income of ordinary Americans will not only increase economic growth with their consumer spending (which even Henry Ford understood), but the concomitant rising tax collections will also help pay down the $1 trillion annual budget deficit engineered by the 2017 Republican tax cuts.

Higher taxes would also help to bring down the deficit. But Republicans that only love budget deficits when it means lower taxes for them, must be convinced that public service projects (e.g., infrastructure) or social programs (e.g, health care) are necessary for a strong economic recovery.

This economy cannot even begin to dig itself out of the COVID-19 pandemic damage to growth and jobs unless massive government aid is injected that includes social programs such as expanded health care that will aid the recovery.

In fact, due to the seriousness of this virus, economists are beginning to discuss the possibility of a ‘double-dip’ recession occurring due to the “dark winter” epidemiologist are predicting ahead for the pandemic.

“Our failure to protect ourselves has caught up to us” said New York Times’ infectious disease expert Donald J. McNeil, Jr. in a recent front-page article. “The nation must endure a critical period of transition, one that threatens to last for too long, as we set aside justifiable optimism about next spring and confront the dark winter ahead.”

He said there are epidemiologists predicting a doubling of the death toll by next March—to more than 500,000, which is approaching the 675,000 deaths estimated to have occurred during the 1918 Spanish flu pandemic.

McNeil also cites a recent U. of Washington study that estimates 130,000 lives could be saved by February if mask use became universal in the US immediately.

Unfortunately, this modern economic war had been caused by one political party’s nostalgia for an illusory past with their attempts to limit government’s role by repealing Obamacare and undermining support needed to conquer this virus, as well as a White House that won’t institute a national mandate to wear masks and socially distance in the name of personal responsibility.

And, “The regions of the country now among those hit hardest by the virus;” continued McNeil, “Midwestern and Mountain States, and rural counties, including in the Dakotas, Iowa, Nebraska and Wyoming; are the ones that voted heavily for Mr. Trump in the recent election.”

A majority of Americans in this election—six million and counting—have said that the income and wealth inequality resulting from owners garnering the lion’s share of income and wealth will no longer be tolerated with their choice of President-Elect Biden.

It has taken natural or human-made catastrophes--such as wars and disease-caused pandemics—to bring Americans together in past times. Let US not lose this opportunity the COVID-19 pandemic presents to end the economic civil war and begin a new economic peace.

President-Elect Biden looks to have picked his economic advisors that will do just that.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Are We Having a Double-Dip Recession?

 Popular Economics Weekly

FREDgdp

What if we have a ‘double-dip’ recession; i.e., when and if the US economy returns to negative growth in the fourth quarter, or even in Q1 2021? Notwithstanding the record 33.1% annualized snapback in real gross domestic product growth in the third quarter of this year, the U.S. economy was still 3.5 percent below its previous peak in the fourth quarter of 2019, as I said recently, and the pandemic has to run its course before GDP can return to its previous highs.

Except for the 4 percent peak-to-trough decline during the 2008-09 global financial crisis, the current 3.5 percent gap is as large as that recorded in the depths of every other post-WWII recession.

That is a lot of growth to make up in the midst of this pandemic, and we have had double-dip recessions before; the last in 2008 per the above GDP graph. It happened then because President Obama decided in 2010 that it was more important to begin to pay down the national debt, rather than spend more in basic services to bring the US economy out of the Great Recession, the worst one since the Great Depression.

Economist Stephen Roach in Project Syndicate says, “Consequently, it is ludicrous to speak of a U.S. economy that is already in recovery. The third-quarter snapback was nothing more than the proverbial dead cat bounce—a mechanistic post-lockdown rebound after the steepest decline on record. That is very different than the organic, cumulative recovery of an economy truly on the mend. The U.S. remains in a deep hole.”

The real problem with a possible double-dip recession is that job creation will slow down from its current pace, leaving maybe 20 million still dependent on continuing government support.

So preventing another double dip would mean much more government aid that extends unemployment compensation programs scheduled to end this year, if we have learned anything since 2008. as well as more aid to fight the ongoing pandemic that former FDA Commissioner Scott Gottlieb now says is on track to infect 30 percent of Americans.

Reuters

Though the claims report showed the number of people receiving benefits after an initial week of aid declined 299,000 to 6.071 million in the week ending Nov. 14, that was because many have exhausted their eligibility, which is limited to six months in most states.

In addition, a record 4.509 million workers filed for extended unemployment benefits in the week ending Nov. 7, up 132,437 from the prior week. These benefits as well as those for gig workers and the self-employed will lapse on Dec. 26.

The real problem is the lagging consumer spending and services sector of the economy, where spending is down some 30 percent from January and lockdowns are being re-instituted in many of the largest states.

“Services consumption,” says Roach, “which makes up over 61% of total US consumer spending, is a different matter altogether. Services accounted for fully 72% of the collapse in total consumer spending from January to April. While services have since partly bounced back, as of September, they had recouped just 64% of the lockdown-induced losses earlier this year.”

There are now 93,219 COVID-19 patients in U.S. hospitals, according to the COVID Tracking Project. The U.S. leads the world by cases, at 13.2 million, and fatalities, at 257,920, according to data aggregated by Johns Hopkins University.

How can we know when economic growth will return until sometime next year when the vaccines are available and begin to be administered to all Americans?

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen