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Economic Recovery: We All Should Prepare for a Long Convalescence
By Shlomo Maital
How quickly will economies in the US, Canada, Japan and Europe bounce back? Will it be fast, like China, or very slow, like the US?
Bloomberg has been tracking this key issue, using a wide variety of indicators; the visual track for 10 countries is shown in the diagram.
It has been 5 months since these economies bottomed out, with 60% – 80% decline in the economy, owing to lockdown, in a very short period of a month or six weeks.
So far, no matter what the national strategy (or lack of one, as in the US) — herd immunity (Sweden), local lockdown (Italy), school-opening and back-to-normal prematurely (US) — economies are plateau-ing, at 60% to 80% of their previous pre-pandemic level. And in most of the 10, COVID-19 is making a comeback, in a second or third wave — with the age of those infected declining sharply, as young people emerge, head to bars, and parties, and colleges – and become ill.
And, if that isn’t bad enough, a new forecast from the leading pandemic prediction institution, at Univ. of Washington, reports this: A new long-term forecast predicts a significant acceleration in Covid-19 deaths in the U.S. as colder weather takes hold. Under the latest projections from the Institute for Health Metrics and Evaluation at the University of Washington’s School of Medicine, deaths could rise to 410,000 by the end of 2020. In a worst-case scenario, there could be 620,000 fatalities, more than three times the number of Americans who have died over the past eight months. The difference between the projected and worst-case scenarios comes down to how diligent authorities are in mandating masks and social distancing, according to the report.
Readers, fasten your seat belts. Many of us yearn for the good old days, like, those we have 6 months ago. It does not seem likely any time soon. Prepare yourself and your family for a rocky road to recovery. It will be a marathon, not a sprint. Even optimistists believe an effective vaccine won’t be available for many months – and then, how many vaccine-deniers will turn it down, lacking trust in leaders who follow politics rather than science?
(Un)Happy Birthday, America – There’s a Hole in your Bucket
By Shlomo Maital
Happy birthday, America; you are 244 years old today. But it’s an unhappy birthday. Here is why.
“New America” is falling behind “Old Europe”. The term Old Europe was used by Secretary of Defense Donald Rumsfeld in January 2003. It was used in scorn. President Trump continues to mock Europe, and even mock even its brilliant German leader Angela Merkel.
But guess what? Experts believe, as in this New York Times article, that “Europe may bounce back first” (July 3) – long before the US. But why? America spent relatively far more on relief measures – a staggering $2.7 trillion, or 13% of its GDP!, on economic relief to individuals, firms and states. And more will come soon.
What went wrong?
The US spent vast sums on those who did not need it – like big corporations. (Sound Republican to you? Remember the Trump tax cut?). Much money was thrown away through incompetence – thousands of dead people got checks in the mail. A lot of money went toward unemployment payments – companies laid off people so the government could save them money. So expanding unemployment caused layoffs, rather than prevent them. America has a terrible leaky bucket – a near-non-existent social safety net. Just when the pandemic really really needed one with no holes in it.
Europe? Unemployment rose relatively little. The German government reintroduced kurzarbeit– used after the 2008 crisis, in which work hours are shortened and spread around over workers rather than fire or lay off people. Most of Europe simply used its existing safety nets to help those in need, and the safety net expanded nearly automatically. Most people kept their jobs — which means you don’t have to rehire them, something US firms will be hesitant to do.
In the US, with Trump boasting about 11% unemployment (yes, it’s down from 14%), consumers are highly uncertain about their future. And they are just not spending. With consumption at 70% of GDP, no US recovery is possible without consumer confidence. And it is lacking, especially with an election looming on Nov. 3.
America’s bucket is leaky. Somehow it has not managed to create a waterproof bucket for its poor, its ill, its uneducated, its immigrants, etc., in 244 years. So it IS an unhappy birthday. And the specter of that terrible day in 1619, when the first African slaves landed in America, continues to haunt this troubled nation.
Now, a strong US leader could look across the ocean and figure out why Europe, old Europe, crusty old Europe, has done so well, and try to copy its social safety net.
But that would take vision and humility. Those qualities, too, seem to have leaked out of the bucket.
Marshall Plan: 70 Years
By Shlomo Maital
Almost 70 years ago, Gen. (retired) Herbert Marshall gave the commencement address at Harvard University, on June 5, 1947. No such address then or now has had a greater impact. In his talk Marshall, a retired five-star general, offered war-torn war-destroyed Europe generous financial aid, $11-$13 b. (in today’s dollars, about $130 b., or 1.5% of the US GDP then). It was offered to Russia and Eastern Europe, too.
There was only one condition, Marshall said. Europe has to decide how to divide the money among the member countries. If America decides, there will endless bickering.
Marshall’s talk was broadcast on the BBC. British foreign secretary Ernest Bevan heard it, and at once called his French counterpart. A meeting was quickly convened in Paris, a committee was launched, and the wheels were set in motion. The aid soon flowed. The rest is history. Without those resources, European recovery would have taken far far longer, and the German economic miracle would not have happened. Never in history has a winning nation paid money to the losing nation in war (compare with the Treaty of Versailles, when Britain and France stripped Germany bare, in war reparations for World War I, and directly led to World War II and the rise of the Nazis).
There is a key lesson in the Marshall Plan, which stands in stark contrast to modern Trumpism. Marshall Plan indeed put “America First” – but how? By perceiving that only if Europe achieved strong economic recovery, built on market economics but with a strong social component, would Europe remain friends with America. And that was America’s vital interest. Do you help yourself, by screwing your friends, or by helping them? It’s that simple.
Today, economists call the Marshall Plan “incentive compatible”. That is, it is a plan that built-in encourages those it intends to help, to engage in constructive appropriate behavior. In the case of Europe: Stop squabbling, and start cooperating. This led directly or indirectly to the European Union.
We need more plans that are incentive-compatible. Sometimes, what seems like altruism – helping others – is actually exceedingly self-serving. That was the secret of the Marshall Plan.
And Marshall? He was a five-star general, a genius at organization, deeply bitter and frustrated because President Roosevelt would not send him over to Europe to fight, but instead kept him home to organize the 8 million US troops sent to fight. I need you here, said FDR. As Secretary of State, Marshall brought great wisdom and skill to the job. The Plan he initiated is his immense legacy, one that changed the world forever.
Why Migrants Are an Undervalued Resource
By Shlomo Maital
My mother and father, grandmother, aunts and uncles, all were migrants. They came from Bessarabia, now Moldova, escaping pogroms, grinding poverty, and seeking a new life in Canada and America a century ago. Canada’s relatively open policy gave them new lives and eventually made Canada prosperous, through their energy and the energy of other migrants. And their offspring have done great things for their country. My father, for instance, built low-cost houses for working people.
Today, Europe faces one million Mideast and African migrants during 2015. Public opinion has largely turned against them. The brutal homicidal use of ISIL of the Syrian migrant pipeline to smuggle in a terrorist has done enormous damage to a great many peaceful Moslems, but what does ISIL care?
What evidence is there that migrants are constructive? NYT columnist David Brooks draws our attention to an essay by Malcolm Gladwell, in the New Yorker, Aug. 24 2015 (awarded Brooks’ prize for one of the year’s best essays). It’s called Starting Over. It’s about sociologist David Kirk, driving around a very poor neighborhood in Post-Katrinia hurricane New Orleans, and wondering:
“As Kirk drove around the Lower Ninth, however, he realized that post-Katrina New Orleans [Katrina destroyed much of New Orleans in late 2005, a decade ago] provided one of those rare occasions when fate had neatly separated the two variables. In the course of bringing immeasurable suffering to the people of New Orleans, Katrina created what social scientists call a “natural experiment”: one day, people were in the neighborhoods where they had lived, sometimes for generations. The next day, they were gone—sometimes hundreds of miles away. “They had to move,” Kirk said. What, he wondered, were the implications of that?
In other words: How productive are migrants who get up and move, far away, compared to those who stay, in New Orleans? Simple answer. Migrants do far better than those who stay mired in the same poverty context.
Kirk’s idea was to look at convicted criminals from New Orleans who had been released from prison after Katrina. As a group, they were fairly homogeneous: largely black, largely poor. For years, their pattern was to return to their old neighborhoods after they were released: to their families, homes, social networks. But for some, by the most random of circumstances, that was now impossible. Their neighborhoods—the Lower Ninth, New Orleans East—had been washed away. How did the movers compare with the stayers?
Gladwell cites distressing evidence that black Americans born in poor neighborhoods are stuck there, contrary to the ‘American dream’ of upward mobility: “Over the past two generations, 48 percent of all African American families have lived in the poorest quarter of neighborhoods in each generation. The most common experience for black families since the 1970’s, by a wide margin, has been to live in the poorest American neighborhoods over consecutive generations. Only 7 percent of white families have experienced similar poverty in their neighborhood environments for consecutive generations.”
One of the researchers, named Graif, found compelling evidence that those who moved from New Orleans poverty did far better than those who stayed, despite the traumatic circumstances.
“I think that what’s happening is that a whole new world is opening up to them,” Graif said. “If these people hadn’t moved out of the metro area, they would have done the regular move—cycling from one disadvantaged area to another. The fact that they were all of a sudden thrown out of that whirlpool gives them a chance to rethink what they do. It gives them a new option—a new metro area has more neighborhoods in better shape.” That is, more neighborhoods in better shape than those of New Orleans, which is a crucial fact. For reasons of geography, politics, and fate, Katrina also happened to hit one of the most dysfunctional urban areas in the country: violent, corrupt, and desperately poor. A few years after the hurricane, researchers at the University of Texas interviewed a group of New Orleans drug addicts who had made the move to Houston, and they found that Katrina did not seem to have left the group with any discernible level of trauma. That’s because, the researchers concluded, “they had seen it all before: the indifferent authorities, loss, violence, and feelings of hopelessness and abandonment that followed in the wake of this disaster,” all of which amounted to “a microcosm of what many had experienced throughout their lives.”
Here is the surprising conclusion. We can learn about Mideast and African migrants from similar American migrants. They are resilient. They overcome the enormous trauma of their original homes. They do better than if they had stayed home, because nearly any place is better than that. And, they contribute massively to their new homes, as productive energetic families desperate to build better lives for their children. Like my family did.
In America, people can move anywhere they wish. In Syria, they risk their lives to get to Europe, where they are herded into camps for years, even though no native Europeans will do the kind of hard labor these migrants gladly seek.
Will anyone pay attention to sociological evidence? Or will Europe listen to the hate-mongerers on the right, and vote their emotions and fears. Can anyone translate Gladwell’s essay into language the Europeans will read and listen to?
Deflating Europe: The Simple Truth
By Shlomo Maital
Pope Francis has quickly become one of my favorite role models, even though I am Jewish. He has taken on the moribund Vatican establishment and turned it upside down. His speeches are thoughtful and tackle the key issues of our day. And recently, last Nov. 25, he addressed the European Parliament – and told the Europeans some very very hard things they needed to hear, that their own leaders dare not say.
He told the Europeans bluntly: “Europe seems to give the impression of being somewhat elderly and haggard, feeling less and less a protagonist in a world which frequently regards it with aloofness, mistrust and even, at times, suspicion….. Men and women risk being reduced to mere cogs in a machine that treats them as items of consumption to be exploited, with the result that – as is so tragically apparent – whenever a human life no longer proves useful for that machine, it is discarded with few qualms, as in the case of the terminally ill, the elderly who are abandoned and uncared for, and children who are killed in the womb.”
Elderly and haggard. Right on.
Pope Francis has deflated Europe. And he does so, while Europe itself has sunk again into deflation, with prices now falling for the first time since 2008.
What’s wrong with falling prices? Put simply: there are two kinds of deflation (falling prices): a) the kind caused by higher productivity and lower costs, and b) the kind caused by falling demand. Europe suffers mainly from the latter. And it is an evil. Because it is accompanied by higher unemployment, stagnation and inequality.
And the problem is, Europe’s deflation is largely man-made, caused by the wrong-headed principle of austerity and budget cuts, partly imposed by Germany on Greece, Spain, Portugal and other “spendthrift” nations. And now Germany’s economy too is paying the price, because when Europe sinks, Germany does too.
Kudos to Pope Francis for deflating deflated Europe. Black marks to economists for selling Europe on the wrongheaded austerity policies. Why does it take a Pope to try to set Europe in the right direction?
TIMnovate 