Brad DeLong: Worthy reads on equitable growth, April 5–11, 2020

Worthy reads from Equitable Growth:

  1. Equitable Growth’s Heather Boushey considers the larger challenges of economic recovery from the coronavirus recession that we will soon confront in “Beware of Austerity Demands Once the Immediate Crisis Passes,” in which she writes: The need for substantially increased public spending and investment will not diminish once the public-health crisis fades. What will diminish is the broad political consensus that made possible the recently approved $2.2 trillion burst of federal spending to support families and businesses during this economic shutdown. Indeed, if recent history tells us anything, that consensus will fall apart once the immediate health crisis dissipates and people can gradually return to work. That will be another dangerous moment for the country … The risk of doing too little to support families and businesses will still far outweigh the risk of doing too much. We will need to continue to pump money into the economy if we are going to avoid a coronavirus recession that makes the Great Recession of 2007–2009 a fond memory. Families will continue to need support, as businesses struggle to ramp their operations back up … There was a need for substantially greater public spending before any of us ever heard of the coronavirus: to address pervasive economic inequality, to invest in human, physical, and intellectual capital. That need will be even greater in the virus’s wake. But deficit hawks—particularly the über alles crowd, who believe that budget deficits are acceptable only when caused by tax cuts—will be out in force, demanding austerity. We got a taste of what’s to come when some members of Congress objected to the $600 weekly increase in unemployment-insurance checks contained in the Coronavirus Aid, Relief, and Economic Security Act, because some low-income workers might receive a little bit more now than they do when they’re working. Politicians who fretted about short-term work disincentives in a week when more than 3 million people had just been laid off are not going to give a damn about workers a few months from now.”
  2. As incomes fall in savings rates rise in response to expectations that commodities not available now will be available in the near future, extremely delicate macroeconomic management is needed to keep the circular flow of economic activity and income going. The cleanest way would be a universal basic income funded partially by a recapture tax hike plus extremely generous zero interest rate loans to businesses. But we are not going to do the cleanest way, are we? Christina Patterson lays out a path that our current configuration of political power has a chance of adopting, although not a large chance of adopting. Read her “The most exposed workers in the coronavirus recession are also key consumers: Making sure they get help is key to fighting the recession,” in which she writes: “Policymakers should be especially focused on targeting policy responses toward those who lost their labor income if they want to limit the severity of the coronavirus recession … Weekly unemployment benefits and the extension of benefits to part-time and contract workers will help … Moreover, hundreds of billions of dollars targeted for firms that maintain their employee payrolls close to where they stood as of February 2020 could help firms stave off that initial wave of layoffs or encourage them to bring back employees who were either let go or furloughed. There already are reports, however, of Unemployment Insurance systems in the 50 states, the District of Columbia, and U.S. territories being overloaded by recently laid-off workers seeking unemployment benefits. And the financial assistance to firms to keep workers employed is suffering through bottlenecks at their banks and the U.S. Small Business Administration. In order for the smoothing effects of unemployment benefits on workers’ marginal propensities to consume to be successful, we need workers to be able to access those benefits quickly and sustainably now and as the extent of the coronavirus recession becomes more clear.”
  3. It’s not one-stop shopping for information, but it’s as close as you are going to get. Go to Equitable Growth’s “Policy Resources for the Coronavirus Recession” page. Here’s the opening text to a wide variety of content: “’The coronavirus is first and foremost a public health crisis. In order to address the health crisis, policymakers have insisted for the well-being of us all that people stay home and shutter businesses, inducing an economic downturn. It has also put the people who can least afford it on the front lines of this crisis: low-wage and hourly workers, families, and small and medium-sized businesses. Historically high economic inequality, which, when combined with a porous social safety net, makes the United States particularly vulnerable to economic shocks. This economic fragility is a direct result of prioritizing markets over people for the last 50 years. Though a dire problem in boom times, high economic inequality is particularly stark in a downturn because it exacerbates the severity of recessions and amplifies the impact on the people and communities who can least afford it. At the same time, because many low-wage and hourly workers are women and people of color, the coronavirus recession will only serve to exacerbate existing economic and racial inequalities if we do not take appropriate action. A growing body of research provides a framework for how the federal government can make choices that fully supports people and families and ensure that we address the health crisis and move swiftly into economic recovery, rather than falling into a deep recession. To effectively respond to the coronavirus recession and build a more resilient economy for the future, we must level the playing field between the rich and the rest of us and implement policy solutions that will protect U.S. families now and in the future. That includes prioritizing the small and medium-sized businesses who need support now while the economy is on ice, rather than shareholders. The Washington Center for Equitable Growth is producing resources to connect existing evidence-backed research with the policymaking community to ensure the best available ideas inform a broad, deep, and long-term response to this growing crisis.”


Worthy reads not from Equitable Growth:


  1. When economists write the history of the coronavirus depression and when historians of medicine write the history of the coronavirus plague, everyone involved in the Trump administration, especially its economic policy and epidemiological staff, will be judged extremely harshly for failing to understand how important it was to ramp up testing, failing to take steps to ramp up testing, and failing to properly use the testing resources available. This may be the greatest single policy and governance mistake the United States has made in half a century. Read James Stock, “Data Needs for Shutdown Policy”, in which he writes: “If the virus is still not widespread, then … there is still time to implement measures—more severe than those currently in place in the US—to suppress it until a vaccine or treatment becomes available. If the virus is widespread, then the true death rate is low and cautiously opening up the economy becomes an option. Data from random testing of the population, which are still unavailable, are critical to informing this choice … All available options are bad, but some are worse than others. The problem is, we don’t know which options are the least bad because we don’t know the true mortality rate or how prevalent the virus is in the population … The positive testing rates to date cannot be readily generalized. At the same time, there are some individuals, possibly many, who have or have had the virus but did not meet stringent guidelines for getting tested. Sometimes this is called the asymptomatic rate, although more precisely it is the fraction of infected who do not meet testing guidelines … The asymptomatic rate is critical for projecting the epidemic dynamics and the policy response … If the [fraction of those infected and developing immunity who are not tested or whose test is not positive] rate is low … this ‘protracted status quo’ policy will lead to very many deaths, perhaps in the millions, and it could be preferable to take very strong action now to stamp out the virus, avoid those deaths, and wait until a vaccine is available. In the jargon of the model, doing so requires bringing … [the] rate of new infections … [close] to zero … restrictions … more stringent than currently in place in Italy.”
  2. Superbly written and analyzed by Adam Tooze. Read his “Shockwave: The World Goes Bust,” in which he writes: “’By this time last year, a miasma of uncertainty was clouding global markets. Investment was retreating … True conservatives, as distinct from those merely wedded to the religion of the stock market, welcomed the prospect of a shakeout. It was time for a purge, time to slim down the businesses that had gorged on too much cheap funding, time for a return to discipline. This, they believed, was the way out of the weird alternate reality created by monetary stimulus since 2008. Instead, in the summer of 2019 the central banks once again stepped into the ring … As 2020 began, the self-confidence of the technocrats remained intact. The chief preoccupation in Europe wasn’t the immediate economic situation, but the possibility of striking a new Green Deal … Then news of a new threat began to trickle out. On 31 December 2019 China informed the World Health Organization of a novel virus. Its lethality, and the fact that it could be passed from human to human, were quickly confirmed. But Trump and his adherents had no more time for the ‘Wuhan virus’ than they did for climate change. On the stump at Davos on 22 January he scornfully waved away questions about it … On 23 January the Chinese leadership began an unprecedented lockdown: a cordon sanitaire was thrown around Wuhan, a city of 11 million people in Hubei province … How to gauge the threat? The obvious model was SARS in 2003, and it was a reassuring one: China may have botched the first steps of its response to Covid-19, but it had experience with these things and would soon regain its grip … In the course of February, economic forecasters began adjusting their predictions downwards by 0.1 or 0.2 per cent … The weekend of 22 and 23 February… Beijing might be winning its war against Covid-19, but in Italy the containment strategy had failed. As the quarantined area stretched to include Milan, the weakest link in the Eurozone was about to lose half of its national output. Given the impasse over banking risks and a common fiscal policy, how would Europe rise to this public health challenge? … Hard on the heels of the Italian shock came the realization that something was terribly wrong in the United States itself. America has a formidable public health apparatus, and had well-laid plans for dealing with a pandemic. But, as became increasingly clear, the Centers for Disease Control and Prevention and the Food and Drug Administration had disastrously botched the deployment of a test for the virus. Trump remained obstinately unconcerned. As financial markets began to show signs of real nervousness, he advised investors to ‘buy the dip’ and lashed out at China and the Democrats for fearmongering … Meanwhile, people who actually do the sums were arriving at terrifying conclusions … Monday, 8 March it was clear that a massive sell-off was underway. Over the next two weeks markets collapsed. Everything sold. The dollar surged, threatening to crush those who had borrowed dollars. To halt the wave of panic-stricken selling, the Fed has propped up every major domestic credit market … The massive response of the central banks has stopped the panic. But we are only at the start of the shutdown. Every day brings news of corporate downgrades, which will progressively tighten the supply of credit. The recessionary spiral is only just beginning. In the United States the unemployment numbers released on 26 March and 2 April were unlike anything seen before: 3.3 million people registered for benefits in the first week and 6.6 million in the second. Even worse is expected in the days and weeks to come. Forecasting at this point is little more than a guessing game.”
  3. The Obama administration had the chance to profoundly overhaul the White House Office of Information and Regulatory Affairs. It did not. I have never gotten a straight story as to why it did not. Read Todd N. Tucker and Rajesh D. Nayak, “OIRA 2.0: How Regulatory Review Can Help Respond to Existential Threats,” in which they write: “The next administration should overhaul the Office of Information and Regulatory Affairs (OIRA). Changing OIRA’s structure and its regulatory review process are an essential step toward long-term, structural change. Proposed changes include: enhancing the office’s capacity, promoting sustainability in cost-benefit analyses, and building equity and inclusion considerations more firmly into formal review.”

April 11, 2020


Brad DeLong
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