Brad DeLong: Worthy reads on equitable growth, May 19-26, 2020

Worthy reads from Equitable Growth:

  1. Equitable Growth last week launched a new lecture series. The first installment is with Claudia Sahm, who is saying something very worthy of your attention. Watch her Fighting the coronavirus and the way forward video, in which she discusses promising research ideas that support a robust response to fight the coronavirus recession, as well as longer-term efforts to ensure a more resilient U.S. economy in the years to come.
  2. Claudia Sahm sees the freight train bearing down on us, in the form of a very deep and long depression. She watches ideologues and partisans try to tie us to the railroad tracks. Why? Some because they do not understand the importance of ensuring a rapid and complete bounce back from the coronavirus depression. Some because they cynically dismiss the importance of ensuring a rapid and complete bounce back from the coronavirus depression. We have seen this story before, as tragedy. A decade ago ideologues, partisans, and centrists declared victory in late 2009 over the then Great Recession. They shifted their attention away from boosting recovery to austerity. Sahm is terrified that they are doing it again. And she is right to be scared. Read her “The coronavirus recession is severe, and the damage to the U.S. economy will last years,” in which she writes: “The U.S. economy is in a severe recession, at least twice as severe as 2007–2009…Today’s national unemployment rate is rivaled only by the heights of the Great Depression, when 30 percent of workers were unemployed. Lost income leads to less spending, which leads to business closures and more layoffs …People and businesses are living with overwhelming anxiety. Policymakers need to do more than contain the coronavirus and allow stores to reopen. They need to get money in the pockets of people and calm their fears. If Americans have money to spend, they will spend. Many have no choice. Their low wages make it impossible to support their families in good times, let alone now … Even with relief from Washington, immense damage is happening across country right now. This is not a drill. The Great Recession showed how long it can take to get us back on our feet.”
  3. The U.S. Bureau of Labor Statistics reports that still more workers, 2.4 million of them, lost their jobs and applied for unemployment benefits in the past week. Relaxing lockdowns looks to have increased the virus caseload. Relaxing lockdowns has not all has not yet boosted production. See Equitable Growth’s graphic about the applications for Unemployment Benefits in the week of May 10–16.


Worthy reads not from Equitable Growth:

  1. The extremely thoughtful David Glasner explains why those who analogize the coronavirus supply shock to the monopoly oil price shocks of the 1970s are profoundly mistaken. This is not an inflationary supply shock. This looks overwhelmingly likely be a profoundly deflationary supply shock. Read his “The Idleness of Each Is the Result of the Idleness of All,” in which he writes: “Some, perhaps many, seem to think that if the shock is a supply, rather than a demand, shock, then there is no role for a countercyclical policy response designed to increase demand … The problem with that reasoning is that reductions in supply are themselves effectively reductions in demand. The follow-on reductions in demand constitute a secondary contractionary shock on top of the primary supply shock, thereby setting in motion a cumulative process of further reductions in supply and demand … The interconnectedness of the entire economy, and the inability of any individual to avoid the consequences of a social or economic breakdown … was recognized by… Frederick Lavington, in his short book The Trade Cycle published in 1922 in the wake of the horrendous 1921-22 depression … To call unemployment “voluntary” under such circumstances is like calling the reduced speed of drivers in a traffic jam “voluntary.” To suppose that the intersection of a supply-demand diagram provides a relevant analysis of the problem of unemployment under circumstances in which there are massive layoffs of workers from their jobs is absurd. Nevertheless, modern macroeconomics for the most part proceeds as if the possibility of an inefficient Nash equilibrium is irrelevant to the problems with which it is concerned … In the face of an adverse supply shock, a spell of inflation lasting as long as the downturn is therefore to be welcomed as benign and salutary, not resisted as evil and destructive. The time for a decline in, or reversal of, inflation ought to be postpone till the recovery is under way.”
  2. Great Depression-level unemployment rates are reached not after three years but after two months. Read William M. Rodgers III and Andrew Stettner, “New Data Show That the True March Jobless Rate Could Near 20 Percent,” in which they write; “The Century Foundation has revised upwards our projections for the true March unemployment rate nationally to 18.3 percent … Unemployment insurance … data tell only part of the problem, as issues with overwhelmed state UI systems and eligibility restrictions that exclude many gig workers and independent contractors from receiving benefits … The current jobs crisis is unlike anything we’ve seen before. Past recessions and economic downturns have brought a snowstorm of job losses—a steady fall, spread over many months, if not years, whose impacts we could address in real-time, with existing tools, to mitigate the damage and keep the accumulation manageable. Today, however, we’re facing an avalanche.”
  3. The political intellectual policy tide from 1975 to 2005 was the neoliberal one: stepping back from even indicative planning and from any form of commitment to equality of result or even of opportunity—the conventional wisdom becoming that there was very little indeed that government was capable of doing efficiently, that sharper and harder incentives were almost always to the social benefit, and that to the extent social democratic ends could be obtained at all they could best be obtained through market means. As of 2005 this neoliberal movement was in intellectual bankruptcy. But in politics and policy it has continued its zombie-like shamble forward to this day. Now my colleagues here at the University of California, Berkeley have decided to see if they can do you some of the intellectual spadework needed to prepare the ground in which to grow a better way of thinking about the political economy. Check out their Network for a New Political Economy: “An interdisciplinary group of faculty and students at the University of California, Berkeley, has launched a Network for a New Political Economy supported by the Hewlett Foundation to rethink political economy and develop a new intellectual paradigm as an alternative to neoliberalism. The roots of the new paradigm reside in ongoing research in social science departments such as Economics, Political Science, Sociology, and History, plus professional schools such as Business, Law, and Public Policy. The Network fosters an intellectual conversation among faculty and students across these units, and encourages them to frame their insights and to package them for public engagement and policy relevance. It facilitates collective deliberation on how political economy should be studied and taught, and how new perspectives on political economy can be applied to broad public debates and pressing policy problems.”

May 26, 2020


Brad DeLong


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