The fish rots from the head ~ Turkish proverb
Let’s pause for a moment, take a
deep breath, and somehow not focus on November 3. Next Tuesday has understandably
become an all-consuming emphasis for obvious reasons. It may be impossible, but
it’s worthwhile thinking about the abysmal economic reality we’ve been living
through since shortly after 2020 began. This recession will continue to plague
our nation well after next week because the Republicans have chosen to extend it.
The US has been in a harsh economic
recession at least since early April, when our unemployment
rate skyrocketed to 14.7%. The official arbitrator of business cycles, the
Business Cycle Dating Committee (no, it’s not part of Tinder) of the National
Bureau of Economic Research (NBER), announced in June that the recession began during
this year’s second quarter (April – June).
In September, the (latest)
unemployment rate was 7.9% - that’s 12.58 million people, people who want a job
and can’t find one. This elevated unemployment rate is the largest in 8 years,
not counting the historically-higher unemployment spike between April and
August. Our real (inflation-adjusted) GDP dropped 5.0% in the first quarter and
a massive 31.4% in the second quarter at annualized rates. This second-quarter reduction is the largest
ever. As every conscious, competent person knows, these have not been good
times, despite what #45 falsely asserts.
The NBER’s proclamation noted the
distinctiveness of this recession. “The committee recognizes that the pandemic
and the public health response have resulted in a downturn with different
characteristics and dynamics than prior recessions.” One big distinction is
this recession first affected the services sector, the most prominent
contributor to our national output (GDP). The services sector accounts for over
68% of our GDP and more than 80% of our national employment. Another distinction was
the speed that the previous good times suddenly stopped rolling along. These
distinctions are solely due to the unique cause of this recession: covid-19.
Many previous recessions have
initially battered “traditional” sectors such as manufacturing and more
generally, the goods-producing portions of the economy. This recession hasn’t
hit as hard the manufacturing sector, which is near and dear to every
politician, but now accounts for just 7.3% of national employment. That’s less
than one-half as many people who are employed by state and local governments.
Econ 101 textbooks’ discussions
about how governments can escape the ravages of recessions focus on implementing
expansionary monetary and fiscal policies. Monetary policy is set by the
Federal Reserve Bank’s (the Fed’s) Board of Governors. Fiscal policy is
multi-layered, referring to discretionary funds authorized and spent by
federal, state and local governments.
Most of the Fed’s monetary policy
mechanisms focus on changing the money supply and interest rates for buying or
selling government bonds. During recessions the Fed increases the money supply
and decreases interest rates. As such, monetary policy’s principal channel for
influencing the macroeconomy is narrower than that of fiscal policy. Fiscal
policy expenditures can and have been much broader in scope.
Monetary policy most directly
influences business investment and consumer and business loans. Lowering
interest rates during recessionary periods often lead to more investment and
more lending because it is cheaper to buy loans. Beginning in July 2019 and sensing
up-coming weakness in the economy, the Fed has dramatically lowered interest
rates, via its Federal Funds Rate, FFR. Now the effective FFR is a
bargain-basement 0.09%. More remarkably, the 10-Year Treasury
Inflation-Protected Securities’ (TIPS) interest rate is -0.91%. During
the past year, the Fed has increased the M1 money supply 41%, to $5.5 trillion.
The seven-member Fed Board of
Governors meets about once every six weeks to decide whether or not to change monetary
policy. Last February, the Fed held three emergency meetings to respond to the coronavirus
crisis. They significantly lowered the FFR. Despite these efforts, gross
private domestic investment has steadily declined 21% during the last 18
months.
Because federal fiscal policy
requires legislative action by 535 Congresspeople (435 members of the House and
100 of the Senate), it rarely coincides with the economy’s current needs. It
often lags changes in the business cycle. That’s once again true now.
Congress authorized the unprecedentedly-large
and effective $2.3 trillion CARES Act stimulus seven months ago. The CARES Act increased
individual unemployment benefits, provided $1,200 checks to over 150 million
people, offered more than 600,000 small businesses forgivable loans to pay
their workers via the Paycheck Protection Program, as well as aided large companies
and state and local governments.
Federal fiscal policy has been invisible
since last Spring. Despite the ever-growing need, national expansionary fiscal
policy has been stopped dead by Congressional intra-mural hostility, chiefly due
to Senate Repubs’ intransigence, and the Administration’s incompetent team of
sycophants.
The key proponent for this disinterest
in needed Congressional expansionary fiscal action is Mitch McConnell, the
Senate Majority Leader. On October 20 he warned the White House not to initiate
a new stimulus agreement with House Speaker Nancy Pelosi before the November 3
election. He and his Repub colleagues are consciously choosing to postpone any expansionary
fiscal policy that would begin remedying this recession.
I characterize Mitch’s strategy as
a discretionary recession extension. It is completely perverse from both
economic and political perspectives. Sen. McConnell’s strategy also directly conflicts
with #45’s latest hopes to “go big” with a second stimulus before the election.
The idea of Republican Congresspeople
purposefully deciding to prolong a recession and not alleviate its sizeable, adverse
effects has no precedent. One commentator mentioned that Mitch and his Repub
neo-austerity caucus are not only practicing bad economics but also really dumb
politics.
How would Mitch explain his
refusal to help fellow Kentuckians (along with every other US resident) as soon
as possible? It’s a mystery. Especially because his constituents will be voting
against or for him on November 3. They have been suffering from a giant 77%
increase in Kentucky’s unemployment since last year. For the intransigent
Repubs, folks’ suffering makes no difference.
After Joe wins
on November 3[1],
the Senate and House Repubs, as well as #45 will completely dismiss any more fiscal
policy support on the public’s behalf. Why? Because in their minds such support
will make President Biden’s life somewhat easier. The outer, pro-deficit coat they
have grown with #45 will be promptly shed as they metamorphosize back into
their usual hard-shelled Republicanas hypocritus, representationally shown
below.
Repubs will once again shout their
disingenuous abhorrence of larger public debt, even though every Repub
Senator voted in 2017 for #45s massive, debt-laden tax breaks for the
already-rich. The 2020 federal fiscal deficit is $3.1 trillion, amounting for
15.2% of GDP, more than triple the deficit for last year and the largest
deficit as a share of the economy since 1945.
With the expectation of Joe Biden occupying
the White House, Mitch and his Senate Repubs have already begun to sermonize
about their newly- uncovered distaste for discretionary fiscal policy, just as
they did with President Obama. They conveniently disremembered this stridency from
January 20, 2017 until now.
I recommend Speaker Pelosi promptly
reconsider and act on the latest White House stimulus offer of $1.8 trillion
(versus the Dems’ $2.2 trillion). Sure, it’s only 81% of what she wants and the
nation needs, but Mitch’s Senate will wholly disregard it. Their utter disdain
will again amply reveal the Repubs' neglect of voters’ wellbeing. The Repubs’ deep
interest in extending their discretionary recession will help ensure the Dems’
recapture of the Senate in addition to the White House.
[1]
I’m perhaps naïvely assuming Joe’s popular vote victory will be honored
in all states’ legislatures and the proscribed Joint Session of Congress,
presided by the Vice President, on January 6, 2021. That’s the date Congress
members will formally accept the Electoral College votes and certify the
election. However, before January 6 when the States are assembling their
electors’ votes, Repubs might exercise their virulent hopes by having a state,
whose voters gave Joe Biden their nod, and with a Dem governor but a majority
Repub legislature (prime examples are Pennsylvania, Wisconsin as well as 6
other states) could refuse to accept the governor’s certified results of their own
voters and dismiss the Dem electors in the state’s Electoral College. Such a
dismissal would force these electors to become Electoral College drop-outs.
The Repub legislators then could substitute their own slate of Repub electors,
despite the popular vote results. It’s yet another reason to wish that no
person drops out of college, any college. Of course, it’s never happened
before; but.
No comments:
Post a Comment