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China – Newest Global Growth Engine?

By Shlomo Maital

    source: Bloomberg

Once, when the world economy was in trouble, there was a locomotive to pull it out of stagnation – the US economy.  After World War II, when the rest of the world was destroyed, the US supplied purchasing power through its imports.  With frequent global recessions, again the US appetite for consumer goods supplied badly-needed demand for the world.

      Today?  With an incompetent xenophobic addled President (at least for the next 13 days, or 92 days until the Inauguration), and the pandemic worsening in the US in up to two-thirds of all states —  the United States is not the locomotive but in fact the quicksand.

       Enter China,  vilified by Trump, but arguably emerging fastest and strongest from the pandemic.  China’s quarterly GDP growth rate annualized, is nearly 5%….   and that means demand for imports, especially from the Asian ecosystem at which China is at the center.   China can be at least a regional locomotive, and the effects will spread more widely.

       Why has China’s economy done a “V-shaped” recovery, when the US recovery, and that of the EU,  are far more likely to be flat-bottomed U-shaped?  

       China’s local authorities have poured easy credit and infrastructure projects into the economy; lockdown has virtually ended, and when the virus rears its head, China rapidly tests millions of people, to gain control.  

        It is possible to admire China’s economic resilience, while fiercely criticizing its flawed civil rights.  Why cannot every nation learn from other nations, embracing the good, rejecting the bad?   

        Bloomberg News shows regularly how the US economy is lagging – and the conclusion is,  you cannot jumpstart an economy without gaining nearly-full control of the virus.  The failed US administration – not just the President, but the incompetent Cabinet and advisors he has appointed, including Dr. Atlas, who espouses ‘herd immunity’ and denigrates masks —  will go down in history as one that outdid Calvin Coolidge (1928-32) in failing to see what was clearly written on the wall.

It’s NOT the Economy, Stupid!

Trump’s Former Chief of Staff Speaks Out

By Shlomo Maital    

Mick Mulvaney, former Trump Chief of Staff

“It’s the economy, stupid” is a phrase coined by James Carville in 1992. Carville was a strategist in Bill Clinton’s 1992 presidential campaign against George H. W. Bush. His phrase was aimed at campaign workers. Carville wanted it to be one of three messages for them to focus on. The other two were boring and not worth mentioning.

     Clinton used the 1991/2 recession in the United States to successfully defeat George H. W. Bush.

     Fast forward. President Trump pushes prematurely to open schools and get the economy restarted. A massive second wave of coronavirus occurs. And his former Chief of Staff, Mick Mulvaney, speaks out against him, in a CNBC Op-Ed. Here is what Mulvaney, until very recently privy to the innermost circles of the Trump administration, said today:

   “….lawmakers still see the need to run the [money] presses, they need to realize that the current economic crisis is public-health driven. As such, using ordinary fiscal tools might not be particularly efficacious. Put another way, the fact that people aren’t going on vacation probably has more to do with fear of getting sick than it does with their economic condition. Giving people a check, or some financial incentive to travel, won’t solve their problem. Make people feel safe to go back on an airplane or cruise ship, and they will of their own accord.   Any stimulus should be directed at the root cause of our recession: dealing with Covid. I know it isn’t popular to talk about in some Republican circles, but we still have a testing problem in this country.”

     Yes, you got it. It is NOT the economy, Stupid. (Mulvaney did not say ‘stupid’). If you don’t gain control of the pandemic, you will not be able to restart the economy, schools or no schools. It’s that simple. It is the VIRUS, Stupid!   People won’t spend until you get control of it. And personal consumption is 70% of GDP, or $13 trillion, in 2019 (pre-pandemic).  

     Government programs can spill massive amounts of money into the economy, including IRS checks sent to dead people. But they can’t come close to what people spend, when and if they are comfortable, confident and reassured. So, it is NOT the economy, it is the public health crisis. Tackle that first!  

     It’s that simple. Trump’s inability to understand that will cost him a heavy defeat on Nov. 3 – but it will cost the American people far more, until Biden is inaugurated on Wednesday, January 20, 2021. That’s 190 days away! More than half a year. A lot of people are going to get sick, and some will die, during those six months.

 Very very sad. Very very troubling. Very very angering.





It’s So Darn Simple! Wear the Damn Mask!

By Shlomo Maital

Listen carefully. Wear the damn mask! In Asia, countries where people are used to wearing masks, and do so, have fewer cases. Wear the damn mask! Make it a federal requirement. Personal freedom? First amendment rights? Come on, blockheads – you do not have the right to infect others and endanger their lives.

But hey – don’t believe me. Would you believe Goldman Sachs? They are very careful about what they say – the service investment banks offer is mainly trust and credibility. And Goldman Sachs says, 60% (you got it – 60%) of current cases could be prevented if everybody, everywhere, would wear masks in public. If everybody agreed to wear the damn mask, it would not be so necessary to keep shutting and opening restaurants, bars, beaches, small businesses, etc. The benefits would be huge.

   So why don’t people wear them in the US? Why are cases spiking, in 30 or more states?

   Ask your President.

   Unless mask attitudes and behavior change fast, the picture for the US economy is bleak. Here is Goldman Sachs’ take on it:

   “The sharp increase in confirmed coronavirus infections in the US has raised fears that the recovery might soon stall,” Jan Hatzius, Goldman’s chief economist, said in a note. “Although a significant part of the increase reflects higher testing volumes … a broader look at the CDC criteria for reopening shows that not only new cases but also positive test rates, the share of doctor visits for covid-like symptoms, and hospital capacity utilization have deteriorated meaningfully in the last few weeks.”   GDP fell 5% in the first quarter, part of a mostly self-induced recession aimed at stopping the coronavirus spread. It was the biggest one-quarter drop since the fourth quarter of 2008, during the Great Recession. As cases decreased, states slowly began reopening amid hopes that the sharp drawdown would be short-lived. Indeed, even if Goldman’s reduced call is correct, that would mark, by a wide margin, the biggest quarterly rebound since at least 1947. The U.S. has seen 340,000 new virus cases over the past week, a rise of 13.4%. That has come with 3,447 deaths, a 2.9% increase.”

Keep it simple, Stupxxx.   Wear the damn mask!



America’s 3 % Economy: Why It Is In Deep Trouble

By Shlomo  Maital

3 percent

  Writing in the latest TIME magazine issue (Oct. 6), Rana Foroohar explains why the U.S. economy is in deep trouble – and why many are distressed that nobody seems to be tackling the core issues.

   Foroohar says it has taken 41 months to replace the jobs lost in the “Great Recession”  (2008-11).  This is more than three years, far longer than in previous recessions.

    But, which jobs??   Mostly, burger flippers, at $8/hr.  “That’s a problem in an economy that’s made up chiefly of consumer spending.  When the majority of people don’t have more money, they can’t spend more, and companies can’t create more jobs higher up the food chain.  So, poor job creation and flat wages are holding back a stronger recovery in consumer spending.   

    Foroohar concludes: “If this trend is left unchecked, we are looking at a generation that will be permanently less well off than their parents.”   This is disastrous, because there is an intergenerational contract, in which older generations offer younger generations the hope of better lives, jobs and strong futures.  This is the first time the opposite is the case.  We are giving our children a far worse economy and society than the ones we received. 

    This is by far the core issue today facing America –not ISIL.  Let’s focus on the real issues.  America’s real enemy is at home, not abroad – its own failing economy.   A general estimates the war on ISIL could cost as much as $10 b.  This is money needed for schools, colleges, research, innovation and technology.  ISIL, the Islamic State, is hurting America deeply simply by diverting resources into jet fuel, smart bombs and cruise missiles.  Boots on the ground?  America needs special forces to ‘light up’ with lasers the true problem – education, poverty, and above all,  low-wage jobs. 

Rebuilding America – Literally!   It’s Really Simple

By Shlomo  Maital


Image  Singapore’s Changi Airport


Image  A Crowded American airport

     It has been six years since America’s recession began, at the end of 2007, and as New York Times columnist Floyd Norris notes, the U.S. still has fewer jobs than it did then.  


   The answer is simple.  The U.S. labor-intensive construction industry has not recovered.  In the spring of 2006 construction employment was 7,476,000;  today, it is 5,851,000.   Nearly 1.7 million jobs were lost in construction.   This has deeply hurt the U.S. economy’s recovery, because construction jobs pay quite well, and underpin a lot of consumer spending.   The housing bubble not only claimed financial victims, from sub-prime mortgages and related assets; it threw many workers out of a job and has not brought them back.  Construction is a major, perhaps the main, drag on the recovery.

   The solution is really simple.  America’s infrastructure is ragged.  The interstate highway system was built in the 1950’s, 60 years ago, under President Eisenhower. It needs investment.  American airports are old, incredibly crowded (see the photo), and need renewal.  Been to JFK lately?  Thousands of American bridges are rusting and crumbling and need replacement.  Many roads inside cities have huge potholes.  Schools need new modern buildings. 

   If government spending were increased and focused on infrastructure investment, the construction industry could recover and lead a general economic recovery. This in turn would help the rest of the world, too.  Such spending is not wasteful, nor harmful, even if it temporarily increased the budget deficit, because it has been proven that infrastructure investment pays a high rate of return.  Will it work?  China proves it does.  China massively invested in construction and investment, when its economic growth flagged during the global economic crisis,  building railroads and highways, and quickly restored its rapid growth.

    But alas, it is unlikely to happen.  There is a Republican-Democrat budget compromise on the table that may avert another U.S. government shutdown, but it includes very small restoration of cuts made under the previous ‘sequestration’ legislation.   And it won’t help construction one bit. 

    America needs rebuilding – its infrastructure, and its society and political system as well.  It has the resources to do it.  But does it have the will?  It seems not.


Blog entries written by Prof. Shlomo Maital

Shlomo Maital