THE DEMS, COVID AND SCIENCE

Humanity is now in its third year of battling the SARS-CoV-2 virus (aka Covid). We have become frightened, pained, upset and wounded, as well as wearied and drained. Even Democratic Governors –  from California to Connecticut – have been announcing relaxed rules for dealing with Covid during the past three (3) weeks.

Today the CDC finally issued new, eased and science-based Covid guidelines, following the relaxation already begun at the State level. The CDC guidelines focus on preventing hospitals and health care facilities from being overwhelmed, rather than prior guidelines that emphasized eliminating the transmission of Covid among people. I doubt the CDC would have issued their new guidelines now without being forced by the governors’ prior decisions.

Can we breathe an un-masked sigh of relief? Hope springs eternal. Such hope may now be especially appropriate since Spring will formally appear in less than a month. But what about the BA.2 variant that’s now entering our viral stage?

Throughout this ever-shifting pandemic, Dems have consistently proclaimed their allegiance to “following science” as the only valid way of overcoming this virus. It’s seriously doubtful we will ever overcome Covid. But thanks to vaccines and other health care improvements, we may be able to live with it endemically, as I mentioned in a previous blog .

The Dems’ following science mantra is necessary for Covid policies’ groundwork, but the mantra may not be sufficient as a policy justification. The vaunted Scientific Method, which western science has used for over 400 years, has promoted significant, broad-based societal benefits. Despite this impressive chronicle, many Repubs seemingly beg to differ about using science. That’s farcical.

In contrast, by emphasizing their policies follow science, the Dems seem to believe they can circumvent stating other relevant justifications. That is mistaken. Two issues test this mantra’s policy efficacy. First, certifiable medical science can take considerable time to become digested from its beginnings in academic or private labs into medicines and practices, and finally public policies. Second, science rarely proscribes only one solution. There’s often more than one scientific way to achieve an objective. Each way invariably requires trade-offs to be considered and resolved. Numerous scientific results are controversial at first. In a sense, such trade-offs and resolution are at the heart of the Scientific Method.

A brightly shining star in Covid’s firmament has been the impressively quick commercial development of the vaccines. The first person in the US was inoculated with a Covid vaccine on December 14, 2020. The mRNA vaccines’ production took just a gold medal sprint worthy 11 months to be produced, authorized and shot into arms.

But that swift production of mRNA Covid vaccines required a foundation of basic, scientific research and knowledge that began long ago in the early 1960s. One of the pioneering scientists whose interest in mRNA vaccines began in the 1970s is Katalin Karikó, who is now Senior Vice President of BioNTech. BioNTech, together with Pfizer, has provided 324 million Pfizer-BioNTech mRNA Covid vaccine doses in the US.

The Dems have inappropriately hoisted “following science” as a needed policy pinata, shown below, that will ensure the production of unambiguous, universal guidance for how we should deal with this pandemic. If an FDA or CDC policy is science-based, as these agencies’ policy-makers and the president routinely state, it must be right. If only.

 

The Dems' Covid Pinata 

Numerous groups, disagreeing with such guidance for assorted reasons, have persistently attempted to sling sharp pokes into the Dems’ follow science pinata. They have yet to be showered with treats, but they keep on trying.

Historically, empirically-based scientific inquiry has produced many valued changes that have fundamentally altered and improved how we see ourselves, our world and beyond. An apocryphal apple falling on Newton’s head is but one example.

Scientific inquiry is never static. Scientific knowledge regularly evolves as more data are gathered and new theories are postulated to describe them. Scientific findings on many topics of public interest cannot be carved into a Mt. Rushmore for all time. Here are two examples from the past.

The heliocentric model of the heavens.  Talk about fundamental changes. When Copernicus first suggested that the universe did not revolve around our Earth it was a big deal for those in the know – meaning the Catholic Church. Geocentrism – where the Earth is placed at the center of the heavens – had been accepted wisdom from on high for eons. In 1543 Copernicus first proposed an alternative sun-centered (heliocentric) model of the heavens. Astronomers and others will celebrate his 550th birthday next year.

In 1609, Galileo defended Copernican heliocentrism based on his own, original astronomical observations. For that he incurred the Catholic Church’s unrelenting rath. During the Roman Inquisition in 1615 Galileo was found to be a nasty heliocentric heretic and placed under house arrest until he died nearly 50 years later. Yet the cloistered Church could not stop the heliocentric sun from shining in.

The theory of evolution.  Charles Darwin and Alfred Russel Wallace offered their ground-breaking research about evolutionary natural selection in 1858 at London’s Linnean Society. The next year, Darwin published On the Origin of Species by Means of Natural Selection that was hugely controversial and consequential. Quixotically, it still remains provocative for a few people mostly on theological grounds. After the late-19th century, natural selection has become a foundational cornerstone of modern biology. But folks still petition school boards to stop teaching evolution to their children, not just CRT.

There is no unique, unambiguous prescriptive policy to cure our Covid dilemmas. Policies must change as Covid-reality varies. Science-based policy options involve shortcomings as well as benefits. These trade-offs need to be recognized and discussed. Invariable remedies do not spring forth because they have been wrapped within a mantle of science. Pronouncing policies as “following science” does not obviate the need to acknowledge their trade-offs.

Discussing these trade-offs is key. That’s not something that Dems or policy-makers at the FDA and CDC have seemed comfortable doing in prior stages of the pandemic. The Dems would be wise to cease characterizing their policy remedies as loftier simply because they’re following science and take a more holistic, inclusive approach.

 

 

WHAT’S SO BAD ABOUT GOODS?

Poetry and consumption are the most flattering of diseases. ~ William Shenstone 

 How’s your holiday shopping coming along? Beyond the holidays, have you been buying more goods or services than in the past? As I’ll discuss, some folks are concerned we consumers have been buying too many goods and not enough services. Goods are bad, services are better. The giant consumer segment of our economy is not in balance.

Even Pope Francis is concerned about consumption. He ended his visit to Greece several weeks ago by encouraging its young people to “follow your dreams and not be tempted by the consumerist ‘sirens’ of today that promise easy pleasures.” Those sirens are blowing a different tune of late.

Recently, polls indicate how we have felt increasingly uneasy about the economy. Family finances are in fairly decent shape for most people, due in part to the exceptional series of Covid-related government “economic impact payments” they’ve received since April 2020. The federal government has sent 478 million direct-cash payments to qualified recipients. Ninety-three percent (93%) of Americans have received these outlays.

Government-provided pandemic assistance extended to businesses as well as people. Government-funded, Covid-related business support was $753.8 billion in 2020, principally through the Paycheck Protection Program and the Restaurant Revitalization Fund.

Beginning in July, eligible parents have additionally received five (5) monthly child tax credit assistance checks. Remarkably, this aid – totaling about $90 billion (B) – has quickly reduced the national poverty rate by nearly 50%, compared to three (3) years ago.

Largely because of these support programs, 64% of respondents believed their personal finances were good in a recent poll, but incongruently only 35% described the national economy as good. Stored-up household savings from all these compensations may total $2 trillion (T), which is an impressively large sum. But all is not well.

According to insistent media proclamations by economic wizzes, we consumers are buying too many goods and not enough services with these unspent funds. I find these declarations a bit puzzling, as I’ll mention.

After a very long slumber, inflation has reared its costly head across the economy with consumer demand outstripping available supply. In November, the Consumer Price Index (CPI) increased 6.8%, the largest 12-month increase since June 1982.

Even the Federal Reserve Chair Jerome Powell finally succumbed to this economic reality by stating last week he would no longer call inflation “transitory.” He didn’t mention what he would be calling inflation now. I’d suggest “unfortunately augmented.” The CPI’s energy index rose a whopping 33.3% over the last 12 months, the food index increased 6.1%, which comes as no surprise to those of us who frequent gas stations and grocery stores.

Because of the Great Resignation, where workers are quitting their jobs in unexpectedly large numbers, businesses are offering higher wages and salaries to entice workers back. Over the past year, wages have increased 4.2%, almost a 50% rise compared to pre-Covid times.

How long will these inflationary trends last? No one knows, despite erudite claims to the contrary. What the Fed is going to do about this continuing, augmented inflation was partially revealed on December 15 when the Fed stated it would further reduce its expansionary policies for the economy “in light of inflation developments.” This means the Fed will likely increase interest rates several times next year. How much will the markets shudder at this key change in monetary policy? On Friday December 17, the S&P500 Index had lost just 1.89%, perhaps because the market’s expectations for a policy change have already been built into stock values.

The current, augmented level of inflation is due to three (3) factors: consumers’ growing demand for goods and services (especially goods), the fragility of some supply-chains to provide more goods and recently-elevated inflationary expectations.

This last item is the most problematic. Policy-makers have next to no control over how or why consumers hold such expectations or how they can influence them, short of implementing broad, contractionary economic policies. Such a policy reversal will not happen by Congress, which with the president dictates fiscal policy. The Dems would resist such policies as exceptionally fraught politically.

Senate majority leader Chuck Schumer has no interest in halting his troops from passing the now-reduced, but still extensive $1.85T Build Back Better (BBB) Act. That’s even though several months of full-court-press worthy efforts by the president and other Dems has yet to convince Sen. Manchin to put his name in the BBB’s yea column. The senator publicly stated on Dec. 19 he could not support the legislation, a change in the usual behind-closed-doors negotiations with the White House. Despite the media hurrah, I expect the negotiating isn’t dead yet, a bit like we saw for a while in Monty Python’s Life of Brian.

It’s ironic that the Dems have argued the far-reaching BBB expenditures will actually reduce inflation. A large upsurge in government spending, like the BBB Act, spreads more money throughout the economy, which raises business and consumer demand, and likely prices. Thus, federal economic policy to reduce inflation will be solely the Fed’s responsibility through its monetary policy mechanisms.

But back to goods. Personal consumption expenditures (PCE) have long been the nation’s single largest type of spending. Consumer purchases account for about 70% of our GDP. In contrast, government expenditures are just 17% of GDP, despite our being saturated with news of trillion-dollar legislative efforts. This is as true currently as it was a decade ago.

Our consumer purchases are placed into two (2) principal categories, goods expenditures and services expenditures. About 60% of our PCE are for services (everything from haircuts and restaurant meals to streaming service fees) and around 40% for goods (including furniture, jewelry, gasoline, rent and college tuition). These proportions haven’t changed much at all during the last year, as shown in the table.

Goods and Services Sectors Expenditures and Employment

Economic Sector	2021Q3	2020Q3	2011
Personal Goods expenditures (trillions $)	$5.524 (40.3%)*	$5.159 (40.2%)*	$3.331 (35.3%)*
Goods employment (millions of workers)	N.A.	20.022 (12.8%)**	18.244 (11.9%)**
Personal Services expenditures (trillions $)	$8.366 (61.0%)*	$7.815 (61.0%)*	$6.102 (64.7%)*
Services employment (millions of workers)	N.A.	122.774 (74.7%)**	114.652 (74.6%)**

*Percent of personal consumption expenditures (PCE). **Percent of total labor force. 

Personal consumer goods purchases have slightly increased during the past year, by $365B, which is a lot of money representing a 6.6% overall increase. Yet it’s only a one-tenth of one percent increase, as a proportion of PCE. From 2020Q3 to this year, services purchases have also increased, by $551B, a 6.6% increase from last year; but with no proportional change. During the last decade, as a proportion of PCE, goods expenditures have fallen by 5% relative to services. These diminutive changes have the wizzes concerned.

Consumers’ minor shift to purchasing goods recently has risen relative to services in no small part because of the pandemic’s restrictions. But the shift to goods expenditures is a very modest change, seemingly not worthy of much attention. However, I found the likely reason for all the interest.

The wizzes’ focus may not be on changes in expenditures, but on employment levels, also shown in the table. Our economy’s services sector employs a disproportionately larger number of people, relative to the goods sector. In 2020Q3 (latest year for data), 122.8 million people were employed in the services sector, far more than the 20 million in the goods sector. Services employment is 6x larger than the goods industries, and accounts for almost 75% of our total labor force. Intriguingly, services sector labor productivity (measured by output per employee) is much lower, just 45.3%, than the goods sector.

During the last 12 months, workers’ wages and salaries have risen higher than any time in more than 15 years. These increases reflect the labor market’s growing tightness. Goods-producing workers’ wages and salaries increased 3.5% on an annual basis. Service-providing workers’ wages and salaries increased 4.3% during the same period, among the highest of any sector.

During the pandemic, six (6) of the 13 services sector sub-industries, accounting for 74% of the sector’s total employment, have lost 2.8M employees as of November. The largest losses have been in leisure and hospitality – 90,000 restaurants have closed permanently during Covid – and government, especially local governments.

Despite the ever-lowering official unemployment rate, now 4.2%, the services sector’s loss of employees is a serious personal and  macroeconomic problem. Our low unemployment rate masks the ever-increasing number of workers who have dropped-out of the labor market, are no longer actively looking for jobs, and thus technically are not “unemployed.”

Santa’s bag filled with more goods and less services.

The rise of Omicron will only intensify simultaneous inflationary prices and dwindling labor availability. Covid keeps making services, like eating in restaurants and a host of other shared, public activities riskier. Even Santa’s becoming concerned. His bag of goodies will likely need to be enlarged, making his travels down chimneys that much more challenging. 

PROGRESSIVES WALK ON THE $15 PLANK

The art of simplicity is a puzzle of complexity. ~ Douglas Horton  

As many of us now remember the federal government’s minimum wage is $7.25 per hour, which works out to be about $15,000 per year. It has not been changed since 2009, despite Congressional Democrats’ past efforts. All told, the federal government has raised the minimum wage 22 times since 1938, when Franklin D. Roosevelt signed the Fair Labor Standards Act that first created a minimum wage at $0.25/hr for workers. In today’s dollars, the original minimum wage is $4.64/hr. Democrats have raised the minimum wage 20 times when they held Congressional majorities.

Twenty-nine states now have minimum wages higher than the federal wage. Five states in the South have no minimum wage, which means their covered workers earn the federal minimum wage. This year, the state with the highest minimum wage is California’s at $14.00/hr, for firms with 26 or more employees. Next year, the Golden State’s minimum wage will be $15.00/hr for these firms, the magic number for Progressives.

According to the Bureau of Labor Statistics, workers in the US who earn the federal minimum wage or less represent 1.5% of all hourly-paid workers or 0.68% of the entire labor force in 2020. Despite their slender (and decreasing) share of the labor force, these minimum-wage workers will meaningfully benefit from a higher minimum wage.

Ever since 2012 this benefit has been the focal point of the “Fight for $15” labor movement which began when fast-food workers assembled outside a New York City McDonalds to demand better pay. They’ve succeeded in the Big Apple, but not beyond. Since 2019, the New York City minimum wage has been $15/hr.

This key benefit, backed by a key Dem constituency, labor unions, is why the Dems decided to raise the federal minimum wage to $9.50/hr immediately (and to $15/hr over four years) as part of President Biden’s $1.9 trillion Covid relief legislation.

The House passed this legislation on February 27, with a slim seven-vote majority; two House Dems voted against the bill. Because the Senate Dems at best have only 51 votes (counting VP Kamala Harris), they need to use the Senate’s very peculiar reconciliation process to pass this legislation. This process only applies to legislation that directly involves budgetary taxing and spending matters.

After being prompted last week by the Repubs, the non-partisan Senate parliamentarian, Elizabeth MacDonough, determined if the Dems’ bill could proceed under the reconciliation process’ rules. As parliamentarian, Ms. MacDonough advises the Senate Majority Leader, Chuck Schumer, as the referee when the Senate Dems and Repubs play their legislative games.

She determined that the minimum wage increase portion of the Dems’ bill did not abide by the Byrd Rule and thus cannot be part of the reconciliation process. The Senate’s reconciliation process and Byrd Rule are so opaque and seemingly quixotic that mere (non-political) mortals cannot hope to understand exactly how they work.

The Byrd Rule restricts legislative provisions, apparently like the minimum wage hike, because they do not directly produce a change in expenditures or tax revenues. After the parliamentarian’s decision, the Dems could still try to pass a wage hike, but that would require 60 Senate votes, which they don’t have because of a lack of any Republican support. Realistically, Sen. Chuck Schumer undoubtedly knew that adding the minimum wage increase would be a stretch for passing this bill via reconciliation. But he wisely never said so publicly before Ms. MacDonough’s decision.

The Progs, especially in the House, are beside themselves about the parliamentarian’s decision. They have called for her firing and for the Senate to overrule her decision. The Progs sturdily walked the $15/hr plank in the House bill and want misplaced retribution paid for its demise in the Senate. That will not happen.

The Progs’ verbal fury is purely for public consumption not action, for two reasons. First, under Nancy Pelosi’s leadership, the Dems already enjoy their needed, simple-majority control to pass bills in the House. House bills are not subject to the Senate’s filibuster process, which requires super-majority (60 votes) for passage of “regular order” bills. Second, Majority Leader Pelosi has already stated the House will agree to the Senate’s bill without the minimum wage increase, if needed, during the bill’s conference committee. She realizes, as the Progs apparently don’t, that the other, substantial parts that remain in the Covid relief legislation will provide important benefits for everyone, including hourly workers.

But Dem Senators haven’t given up the $15/hr fight yet. Senators Ron Wyden and Bernie Sanders have proposed a contorted, substitute measure that would create a 5% tax/penalty on payrolls of large corporations, if any of the companies’ workers are paid less than a $15/hr wage. This penalty would increase over time, if the firm continued to under-pay its workers. Sen. Wyden said this alternative plan would provide “safeguards” to prevent the firms from contracting out these workers, the Uber anathema despised by Dems. He also mentioned that as part of the plan, very small businesses who have middle-class owners would receive an income tax credit to cover 25%of their employees’ wages, up to $10,000 per year per employer, in an effort to incentivize higher pay at those businesses. But, if Sen. Schumer were to push for inclusion of the Wyden/Sanders tax in the Covid relief bill, it would take more time to pass the entire legislation, probably beyond mid-March when the current supplemental unemployment benefits will expire.

Also, to implement this convoluted, almost Goldbergian proposal would require the already-underfunded and over-committed IRS to gather and process a profusion of additional data from thousands of businesses and their owners. This would certainly be more complex and less efficient than mandating a phased-in $15/hr minimum wage for all hourly employees in the nation.

A Rube Goldberg machine, similar to the Wyden-Sanders tax.

This tax would apply solely to the largest corporations. Many low-wage workers work at small businesses. The two largest industries that employ minimum-wage workers are the education and health services and wholesale and retail trade industries. These industries include many lesser-sized businesses and public entities that would not be subject to this possible tax. Finally, if this proposal were to become part of the current Covid relief legislation, such a new tax would likely lose the votes of Sen. Joe Manchin (D-WV) and Sen. Krysten Sinema (D-AZ) in addition to each and every Repub, meaning the Covid relief bill would not pass the Senate under reconciliation.

The Progs should stop being so thin-skinned about their favorite piece of the Dems’ Covid relief bill, be creative by temporarily folding up their $15 plank, and appreciate that 7/8’s of the bill will soon become law of the land. The Dems should take a deep breath or two and wait to incorporate their $15/hr minimum-wage leap as an adder to a “must-pass” appropriations bill, say for the Defense Department. Such bills already would have nominally strong Repub support that the Dems could leverage to have their wage increase more likely become actual law. By being a bit more patient and less truculent, the Dems’ goal of walking the $15 plank can be successful.