Recession

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Britain was not "nearly bust" in March

Published by Anonymous (not verified) on Wed, 24/06/2020 - 2:49am in

"Britain nearly went bust in March, says Bank of England", reads a headline in the Guardian. In similar vein, the Telegraph's Business section reports "UK finances were close to collapse, says Governor":Eh, what? The Governor of the Bank of England says the UK nearly turned into Venezuela? Well, that's what the Telegraph seems to think: 

The Bank of England was forced to save the Government from potential financial collapse as markets seized up at the height of the coronavirus crisis, Governor Andrew Bailey has said. In his most explicit comments yet on the country's precarious position in mid-March, Mr Bailey said 'serious disorder' broke out after panicking investors sold UK government bonds in a desperate hunt for cash. It left Britain at risk of failing to auction off the gilts needed to fund crucial spending - and Threadneedle Street had to pump £200bn into markets to restore a semblance of order.

Reading this, you would think that the UK government's emergency gilt issues had triggered a sterling market meltdown, wouldn't you? If this is indeed what happened, then the Bank of England has strayed far beyond its mandate and compromised its independence. Why on earth the Governor would voluntarily admit this surely requires some explanation. After all, if it is true, it could cost him his job. The source for the Telegraph's extraordinary claim is this 51-minute podcast from Sky News, in which Sky's economics editor Ed Conway and former Chancellor Sajid Javid grill the Governor on his handling of monetary policy during the coronavirus crisis. The particular part of the interview that has raised eyebrows is in this clip, which I have transcribed here:

Bailey: We basically had a pretty near meltdown of some of the core financial markets….I got to Wednesday afternoon, and the markets team came down here, and you know it’s not good when they turn up en masse, and you know it’s not good when they say “we’ve got to talk”, and it wasn’t good. We were in a state of borderline disorderly, I mean it was disorderly in the sense that when you looked at the volatility in what was core markets, I mean core exchange rates, core government bond markets, we were seeing things that were pretty unprecedented certainly in recent times, and we were facing serious disorder.

Conway: How scary was that? What would have happened if the Bank hadn’t stepped in?

Bailey: “Oh I think the prospects would have been very bad. We would have had a situation in which in the worst element the Government would have struggled to fund itself in the short run”. 

So no, the market meltdown was not triggered by high government spending. The market meltdown was because of investors panicking about Covid. It did, however, threaten to cause a government debt crisis.

Or - did it? Government struggling to fund itself "in the short run" simply means that it might have needed to pay out money before it could raise it. Normally it would cover short-term cash needs by issuing Treasury bills, which are short-dated, highly liquid bonds with very low interest rates. But when markets are malfunctioning, it can't do this. And high-interest gilts or pandemic bonds would take time to issue. So it could potentially find itself short of ready cash for urgent spending. However, as I have explained before, not being able to raise immediate funds for an urgent purchase is not insolvency, it is illiquidity. Relieving temporary illiquidity is what central banks do, and have done since the time of Bagehot. Historically they have done so not only for banks, but also for governments. And in the UK, the Bank of England still bears this responsibliity. The Ways and Means overdraft (which was extended in April) is the living evidence of the Bank of England's role as liquidity provider of last resort for the UK Government. But it is simply a working capital overdraft, such as any solvent business would have. Using this overdraft in no way implies that the Government is "insolvent", "bust", "bankrupt" or any of the other inflammatory headlines that journalists like to use. And nor does it mean the Bank of England is financing government deficit spending on anything other than a very short-term basis. It simply smooths out cash flow. Conway's assertion that the Government was "within a whisker of insolvency" is total nonsense, as is the Guardian's claim that "Britain nearly went bust in March". The Government was not shut out of markets long-term, as an insolvent sovereign would be. It had short-term cash flow problems solely because markets were malfunctioning.  Indeed, in another part of the interview Bailey said exactly this (my emphasis):

Conway: At the time you were nervous about government not being able to finance itself. 

Bailey: Yes, because of market instability.

Bailey went on to explain that the reason why the Bank intervened was not because the Government was having funding difficulties, but because market instability was driving up interest rates across the entire economy, and indeed across the whole world:

How would this have played out if we hadn’t taken the action that we and other central banks took? I think you would have seen a risk premium enter into interest rates, I think markets would have priced in a risk premium, and it could have been quite substantial given the degree of instability we were seeing. That would have raised the effective borrowing cost throughout the economy. In terms of the Bank of England's objectives, that would have made it harder for us to achieve our objectives, both in terms of inflation and in terms of economic stability.

The market meltdown was weakening central banks' hold on interest rates. They had to act, not to protect government finances but to prevent monetary conditions from tightening sharply, potentially triggering a dangerous debt deflationary spiral. The first responsibility of central banks in this crisis has been to prevent an exogenous shock to the real economy from triggering a financial crisis that would amplify the shock and significantly deepen the inevitable recession. That's what the exceptional interventions by central banks, including the Bank of England, since March have been all about. 
Bailey observed that although the UK Government was the largest borrower in the sterling market, it was far from the only one. Big corporations were borrowing enormous amounts, both in the market and from banks. Interest rates were rising on their bonds as well as government bonds. So the fact that the Government was the largest borrower was "actually largely irrelevant to that argument about a risk premium and an increase in the effective rate of interest."Bailey said that the £200bn of QE announced by the Bank of England the day after his crisis meeting with the markets team was to provide emergency liquidity to the whole market.  By injecting very large amounts of liquidity into the market, the Bank of England aimed to slake investors' thirst for cash and stop the fire sales that were driving up interest rates. And it succeeded. As a by-product of this action, the UK Government regained access to short-term market funding. But Bailey insists that ensuring the Government could fund itself was not the primary target. Regaining control of interest rates was. 
The market meltdown in March also affected banks. It's a measure of how far we have come since 2008 that Conway & Co made nothing of the fact that the Bank of England had to provide emergency liquidity support to banks. Keeping banks afloat when markets are melting down is all in a day's work for a central bank, these days. Nothing to look at at all. But if a central bank provides emergency liquidity support to a government struggling to raise short-term cash when markets are melting down, that means the government is bust, the central bank is captive and the country is Venezuela? How utterly absurd. 
I found the interviewers' constant focus on government financing a serious distraction from what was an important story about the Bank's vital responsibility for ensuring the smooth operation of financial markets. When financial markets melt down as they did in 2008, the whole world suffers. Central banks saw the same thing happening again in March 2020, and acted to stop it. And their action was extremely effective. It seemed to me that this was the story Bailey really wanted to tell, but the interviewers were intent on pushing him towards the issue of monetary financing and the Bank's independence. Sajid Javid, in particular, seemed to want Bailey to paint the Chancellor's handling of the crisis as irresponsible and profligate. Which genius at Sky News thought it was a good idea for the Chancellor who was forced out of his job without ever producing a Budget to discuss the performance of his successor with the Governor of the Bank of England?
Finally, it is extremely unfortunate that none of the media reports highlighted Bailey's strong endorsement of the Government's exceptional measures to support people through this crisis:

It's entirely necessary that the state has to step in at this point. In a shock of this nature, you can't leave it to individual citizens to find their way through it, "well, good luck" sort of thing. The state has to assert its role at this point, which it did. It wasn't easy, but it did it. 

Fiscal policy is pre-eminent. The Bank of England's job is to ensure the smooth functioning of markets and keep the economy as stable as possible so that the Government can support people through this crisis. And that is what it is doing - successfully. This, not "Britain nearly went bust", is what should be on the front page of every newspaper. 
Related reading:
Pandemic economics and the role of central banksThe End of Britain?

Dating the Recession

Published by Anonymous (not verified) on Sat, 20/06/2020 - 4:58am in

Tags 

Recession

Alarmed by the coronavirus-induced economic collapse, the NBER declares the economy in a recession in record time.

By John Miller

My wife Ellen and I got married in 2013 after living together for 15 years. The Justice of the Peace who married us told our twelve-year old son Sam that are we had already been married, and all she was doing was helping us fill out the paper work to make our marriage official.

On June 8 of this year, the National Bureau of Economics Research (NBER), the nation’s official arbiter of the business cycle, finished its paper work, and made what we already knew official:  The COVID-19 economic collapse is a recession, and a damn bad one.   After reviewing data on the calamitous drop in employment and consumer spending and the deterioration of other economic variables, the NBER declared that the recession began in February (2020).

The depth and diffusion across the economy of the downturn convinced the NBER to announce the onset of the recession far more quickly than it usually does.   The Business Cycle Dating Committee waited a full year into the recession to declare that the Great Recession had begun in December 2007. This time, the NBER declared the onset of the recession just four months after it had begun.  The downturn was so pronounced that the dating committee didn’t bother waiting for data to confirm that the economic contraction would meet the economist’s shorthand definition of a recession, two consecutive quarters of negative real (corrected for inflation) GDP growth.

Identifying Business Cycles

To understand what economists call a “recession,” we need to look more closely at the method used by the NBER dating committee to date a business cycle, and its two phases–economic expansions and economic contractions (also called “recessions”).

The NBER tracks the waves of economic activity that economists call “business cycles.” A business cycle runs its course from trough of a recession to the peak of an expansion and back down into a trough. In the first phase of the cycle–the expansion–the economy grows as companies produce more goods and services and hire workers. When the economy begins contracting, its second phase, companies produce fewer goods and workers lose their jobs. The NBER has identified ten complete business cycles in the U.S. economy since World War II. The current task of the NBER was to decide when the expansion of the business cycle that began in June 2009 ended and entered its recession phase.

The NBER’s Dating Committee, a group of eight economists, has no rigid rules for determining the start or finish of a business cycle. For instance, the committee looks for “a significant decline in economic activity that is spread across the economy and lasts more than a few months” to identify a recession. The committee considers a broad array of macroeconomic indicators put pays particular attention to two broad monthly measures personal income less transfer payments, in real terms, and payroll employment from the Bureau of Labor Statistics’ household survey, just as they did in dating the onset of the current recession.

In short, the committee eyeballs the data and is guided by their malleable definition of an economic contraction to identify a recession. Dating a recession using the economists’ shorthand definition of a recession as two consecutive quarters of negative real growth measured by GDP would assign similar starting and ending points to a recession, but not always – particularly when a downturn is interrupted by a quarter of slow but positive economic growth. In addition, GDP data are available only after a considerable lag and are often subject to revision.

End of the Expansion

The NBER announcement also closed the books on the economic expansion that began in June 2009 lasted 128 months, making it the longest expansion on record.  The expansion, which spanned the Obama and Trump presidencies, might have been historically long it was also slow, and did little to improve the lot of most people by historical standards.  “Long but limp growth” was The Financial Times’ far from flattering description of U.S. economic performance during the decade long expansion. Its 2.3% economic growth rate was the slowest of any U.S. economic expansions since 1949.  It also failed to even match the 2.9% average posted by the sluggish economic expansion during the last decade that led up the Great Recession, and it was nowhere close to the 4.3% average growth of the ten previous expansions since 1949.

The employment record of the expansion was also a mixed bag. The expansion created fewer jobs per month than any economic expansions in the last five decades with the exception of the jobless expansion from 2002 through 2007.  But 113 straight months of positive job growth was enough to push the unemployment rate down to 3.5%, the lowest rates since 1969.  Still falling unemployment rates did little to improve workers’ wages.   Average hourly earning of production and non-supervisory workers corrected for inflation rose just 0.7%, per year, slower than the 1.1% per year rate during the 120 month long expansion in the 1990s, less than half of the 1.7% per year rate during the 106 month long economic expansion of the 1960s. Only the dismal wage growth during the expansion of the previous decade did worse.

All told, working people were tightening their economic belts even when the economy was expanding.  Now that the COVID-19 economy is contracting at an alarming rate, we are in real trouble.  But you probably didn’t need the NBER to tell you that.

John Miller is a professor of economics at Wheaton College, a member of the Dollars & Sense collective, and author of the “Up Against the Wall Street Journal” column in D&S. 

Sources:   “NBER Determination of the February 2020 Peak in Economic Activity,”  National Bureau of Economic Research, June 8, 2020; “The record-breaking US economic recovery in charts,” by Robin Wigglesworth and Keith Fray, The Financial Times, July 4, 2019;  Bureau of Labor Statistics, Total private: Average Hourly Earnings of Production and Nonsupervisory Employees, 1982-84 Dollars, Seasonally Adjusted.  Federal Reserve Bank of St. Louis, Federal Reserve Economic Data (FRED), Real Gross Domestic Product, Billions of Chained 2012 Dollars, Quarterly, Seasonally Adjusted Quarterly; and, All Employees: Total Nonfarm Payrolls, Thousands of Persons, Monthly Seasonally Adjusted Monthly; Federal Reserve Bank of St. Louis, Federal Reserve Economic Data (FRED).

 

Nothing is written in stone. There is an alternative. Let’s make this the era of people power; we can do this!

Children wearing school uniform holding a chalkboard with the slogan "We are the future"Image by Gerd Altmann from Pixabay

‘Our economic and social prospects in the coming decade depend on today’s policies. The recovery will not gain steam without more confidence which will not recover without global cooperation.  Governments must seize this opportunity to engender a fairer and more sustainable economy. Prospects come from dialogue and cooperation at national and global levels.’

Laurence Boone – OECD Chief Economist

In the week that it was reported that in April the UK economy suffered a record slump with GDP plunging by 20.4%, the OECD suggested that it would likely suffer the worst damage from the Covid-19 crisis of any country in the developed world. It also noted in its most recent report that the global economy was now experiencing the deepest recession since the Great Depression in the 1930s, with GDP declines of more than 20% and a surge in unemployment in many countries.

It is clear that whilst many countries are now coming out of lockdown, the fear of a second wave and ongoing public and business uncertainty will continue to impact on future economic activity. Just this week there has been a slew of redundancy announcements.  BP is planning to cut its workforce by around 10,000 worldwide and in the UK British Gas by 5000 and the Chemicals firm Johnson Matthey by 2500. Heathrow is also launching a redundancy programme as the number of flights and passenger traffic has plummeted, with no sign of any recovery as travel restrictions continue.

This, unfortunately, represents just the tip of an iceberg threatening to sink economies around the world without continuing and adequate state intervention through increased spending. The ManpowerGroup, in its employment survey published this week, found that companies in all the major sectors of the economy are more likely to cut jobs than to hire over the next 3 months and revealed that it was the weakest forecast since records began in 1992. It has been estimated that the unemployment rate in the UK could reach 10% during the second quarter of 2020.

A report by Pro-Bono Economics also published this week reveals that despite the government bailout in April, one in 10 UK charities are facing bankruptcy by the end of the year as a result of financial shortfalls triggered by mounting demand for their services and lost fundraising income due to shop closures. The study said that two-thirds of smaller, local charities had made significant cuts to their services and one in eight were expecting to have to terminate their operations. According to the report it had also forced some big-name charities to use public donations to support those services provided under contract to local authorities and central government (we will return to this later on).

Alongside the economic consequences of the pandemic, Sara Caul, Head of Mortality at the ONS (Office for National Statistics) noted in the statistical report of deaths occurring between1st March and 30th May, that people living in more deprived areas had experienced Covid-19 mortality rates more than double those living in less deprived areas.

Not only are we faced with the very real tragedy of Covid-19 and its effects on the lives of those who have lost loved ones and those that have witnessed the ravages of the disease in our hospitals and care homes, the IFS (Institute for Fiscal Studies) in its Deaton Review observed this week how existing deep-rooted inequalities lay at the heart of the current disparities identified between UK regions.

The IFS then suggests that inequality can only worsen if ministers fail to act, and risks entrenching already deep divides. But confusingly and at the same time as recognising this, then goes on to suggest that the crisis is likely to leave challenging legacies for inequality given that the government’s capacity will be constrained by record peacetime levels of debt.

LET’S STOP RIGHT THERE.

Whilst the IFS deplores the existence of inequality and identifies some of its causes, it fails to grapple with the primary reason why inequality has risen and indulges in a false story which suggests that addressing it will be hindered by the already high levels of government debt.

What the report fails to mention, is that those disparities exposed via the pandemic are linked to the systemic frailty of a decaying economic paradigm. The decades of low wage growth which have left households unprepared financially to face involuntarily imposed unemployment as a result of Covid-19, the stark inequalities that have arisen as a result of an economic system which has penalised working people and impacted on access to good healthcare, education, housing and essential public services. It reveals how government, via its policy decisions and through a decade of austerity and cuts to public spending, has left a landscape ravaged by rising poverty and inequality. It has impacted communities across the country, particularly in the South West and the North, where cuts to local government spending, combined with increasing job insecurity and low wages have affected both poor white and ethnic populations to also create fear and societal division.

David Cameron’s big society, namely the charitable/voluntary sector, has also been affected by fallout from austerity, combined with the economic effects of Covid-19 on its finances.  Years of cuts to local government grants have, in their turn, affected many local charities who were already financially stretched. Closure of fund-raising avenues has left many faced with difficult decisions. This highlights what happens when government shifts responsibility for the provision of essential services to the charitable, voluntary sector whilst at the same time cutting public expenditure.

We are facing a disaster of monumental proportions. The economic fallout from Covid-19 is bad enough, but when combined with the threat posed to human existence by climate change, it is ethically and morally indefensible to hide behind false narratives which are designed to limit the actions a government can take to address these issues.  The crisis is systemic and it is incomprehensible that our leaders, along with think tanks such as the IFS and media hacks, are still working hard to keep the hierarchies of power in place with false narratives about how money really works whilst a credulous and uninformed public accepts the dominant paradigms as being unquestionable and unassailable.

For the moment the public purse has been opened to avert economic disaster but as GIMMS has discussed before how long will it be before the old narratives about unaffordability and paying the debt back creep back into the political and public discourse?

As Professor Prem Sikka wrote in a recent article ‘the right will try and push for a new round of cuts after this crisis. It would be economically illiterate to do so…It’s time to bust some neoliberal myths about debt’

If we continue to allow such myths to dominate, the consequences will be dire for the current and future generations.

As Covid-19 has dominated the news for weeks, it has already been made clear that health and wealth inequalities have played a tragic role in deaths, which combined with the future challenges posed by climate change will be a make or break moment for real and sustainable change.

In an open letter this week the UK Health Alliance on Climate Change, formed in 2016, urged the government to follow its six principles for a healthy recovery from Covid-19. It made clear its position that the health of the planet and the health of people are intimately connected and as such future government action must prioritise the health of both.

Whilst those principles are vitally important and essential to any future governmental policies it will be, as Prem Sikka has already observed, only be a matter of time before the issue of affordability and increasing government debt to pay for it will be raised.

However, without a sea change in the political market-led ideology which currently guides government policy, along with the acceptance of the very real resource constraints which all governments face when making their spending decisions, then those six principles will see little chance of being enacted to deliver those public purpose goals to secure the future.

Furthermore, whilst we remain mired in the household budget version of how government spending happens, we will equally accept its spending limitations and thus our own demise as a species.

This is our wake-up call to protect future generations, not from tax burdens as the orthodoxy prescribes, but from the burden of environmental decay and increasing climate uncertainty.

An economic recovery will depend on a new economic paradigm which puts people and the planet first – not more of the same with an environmental extra tagged on.  A Green New Deal combined with a Job Guarantee to allow a smooth and just transition is the way forward. That can only be underpinned by an understanding that government is not limited by money, but by the resources it has at its disposal to deliver its objectives. We can’t allow past narratives to dictate the future.

As a nation, it will be up to us to decide whether we go forward or stay stuck in the exploitative and destructive paradigm which is currently dictating the economic recovery in terms of more unsustainable growth, more futile consumption to feather the bank accounts of global corporations and more eco destruction.

Our future depends on understanding what is possible and what is not. And getting informed is the first step towards a better understanding of the choices we have.

As such, GIMMS can’t end this blog without a mention of two important books which were published this week, and which complement many others before them.  Firstly, The Deficit Mythby Stephanie Kelton shatters the myths that prevent us from taking action because we can’t get beyond the question of how we can pay for it. Whilst written for an American audience, it is equally applicable for the UK.

And secondly, ‘The Case for a Job Guarantee’ written by Pavlina R Tcherneva, which challenges the idea that unemployment is unavoidable and necessary for an efficient economy and invites us to imagine quite a different world where unemployment is eliminated and which has implications for the wider context of a Green New Deal.

And if you missed this first time around, readers interested in historical background and learning more about how money really works in the post-gold-standard era couldn’t do better than ordering Bill Mitchell and Thomas Fazi’s jointly co-authored book Reclaiming the State’.

And finally, don’t forget GIMMS website, which is a fount of information for anyone – from beginners through to those wanting more detailed information. Starting with our information sheet An introduction to Modern Monetary Theory’.

 

 

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The post Nothing is written in stone. There is an alternative. Let’s make this the era of people power; we can do this! appeared first on The Gower Initiative for Modern Money Studies.

So when did this recession start, exactly?

Published by Anonymous (not verified) on Wed, 10/06/2020 - 1:37am in

Is the U.S. in recession? If so, when did the recession start, and what caused it? 
The usual economic definition of "recession" is two successive quarters of negative GDP growth. But in Q1 2020, growth was positive, though it was apparently slowing sharply (more on this shortly):

So using the standard economic definition, the U.S. is not yet in recession.
But according to the Business Cycle Dating Committee of the National Bureau for Economic Research (NBER), the U.S. entered recession in February: 

The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession. 

February? The New York Fed's nowcasting report for February showed no sign of recession. The most recent nowcast shows the economy dropping off a cliff at the beginning of April: 

Of course, even nowcasts have lagging data. The date of the collapse according to this chart is when the NY Fed reported it, not when it actually happened. But a collapse in February? Really?
No, there was no GDP collapse in February. Quite the reverse, in fact. NBER defines the start of the recession as the point where the growth rate of the economy starts to slow:

A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

So in February, the growth rate peaked. The trend was downwards from then onwards - as the NY Fed's chart shows. NBER's announcement that the recession started in February is therefore entirely consistent with Fed nowcasts showing that it started as late as April. Yes, I know this is bizarre. But bizarre things happen when you define the same phenomenon in two different ways. 
Note that in NBER-world, the growth rate is positive at the start of the recession. Those of you who have read my previous writing on rates of change (or are familiar with differential calculus) will recognise this as our old friend the second derivative - the point where the trend reverses. The economic definition, however, uses the first derivative - the point where the growth rate itself becomes negative. Since trend reversal precedes growth turning negative, recessions as defined by NBER start earlier than recessions defined using the economic definition. If this isn't clear, just imagine what happens when you take your foot off the accelerator while driving your car up a hill. The car slows down rapidly, but it continues going forward. It doesn't immediately start sliding down the hill. 
In NBER-world, the economy also emerges from recession sooner than in the economic definition. NBER takes the lower turning point, when growth is at its most negative, as the end of the recession, whereas the economic definition requires the growth rate to be positive. We can say, therefore, that the recession as defined in the standard way lags NBER's definition, possibly by several months. Thus, according to NBER the U.S. is already in recession, whereas according to the economic definition we don't even know yet if there will be a recession at all. I hope this makes sense. 
But the confusion doesn't end there.  The chart above shows the peak was in Q4 2019. Some people have interpreted this to mean that the recession started some time before the pandemic, and must therefore have been due to other causes. A whole cottage industry has sprung up to devise ever more complex reasons for the recession, ranging from the Fed's interventions in repo markets to the U.S. Government's worsening trade relationships with China. Even the U.K.'s exit from the EU on 31st January 2020 has been fingered by some disgruntled Remainers as a possible cause. But I'm afraid all of these brilliant ideas are wrong.  The apparent time discrepancy is illusory. It arises purely from the view of the data. There is no doubt whatsoever that this recession is caused entirely by the pandemic.
Let me explain. So far, we have been using monthly data. But the FRED chart shows quarterly data. Usually, peak monthly activity occurs within the quarter in which the economy peaks. But the NBER says that the collapse in economic activity in March 2020 was so extreme that despite the peak in February, the aggregate figures for Q1 were below those for Q4 2019:

The fact that the monthly peak of February occurred in the middle of 2020Q1 while the quarterly peak occurred in 2019Q4 reflects the unusual nature of this recession. The economy contracted so sharply in March (the final month of the quarter) that in 2020Q1, GDP, GDI, and employment were significantly below their levels of 2019Q4.

So although the quarterly data show the trend reversing in Q4 2019, suggesting that the recession started three months before the pandemic, this is entirely due to the extreme swings in the monthly data for February and March 2020.   
Perhaps the clearest view of the way in which dreadful economic data in March forced forecasters to downgrade their view of the economy comes from the Atlanta Fed. I've charted their real GDP forecasts by nowcast date for Q1 and Q2 2020:

I haven't marked it on the chart, but the forecasts switch from Q1 to Q2 at 28th April. So they are lagged by 1 month plus whatever lag there is in the incoming data. NBER says the economy fell off a cliff in the middle of March, so the lag in the incoming data would seem to be about 2 weeks. The chart shows just how dramatic that economic collapse was. It was sufficient to downgrade the Atlanta Fed's final forecast for the entire quarter from 3.1 percent in March to ninus one percent by the end of April. 
Perhaps more importantly, there is no sign whatosever of any recession prior to the pandemic. The U.S. economy was ticking along nicely at a growth rate of about 2.5%, unemployment was low and investment was strong. All of that came to an abrupt end in the second half of March. 
So the economy did indeed peak in February 2020, not Q4 2019. And the recession, which definitely exists even though we don't yet have complete Q2 data, was caused by the pandemic. 
Related reading:
Calculus for JournalistsArchive of past GDPNow commentaries - Federal Reserve Bank of AtlantaDetermination of the February 2020 Peak in US Economic Activity - NBER

 
 

 

Save the Post Office — Save the Vote

Published by Anonymous (not verified) on Tue, 09/06/2020 - 9:02am in

Tags 

mail, Recession

The post office could be key to people voting during the pandemic but perverse financial rules and Trump’s hostility put that at risk. Continue reading

The post Save the Post Office — Save the Vote appeared first on BillMoyers.com.

Britain Boos Boris

Published by Anonymous (not verified) on Sat, 30/05/2020 - 6:49pm in

Last Thursday may well have been the last time Britain ‘claps for carers’. The woman who started it all, I believe, now wants it to end because she feels it’s been politicised. In her view, it’s no longer about applauding and showing appreciation for the tireless heroes of the NHS and care workers seeking to combat this terrible disease.

I can see her point. From the moment it started I wondered if it was also going to be a way Boris and his gang of murderers could bask in their reflected glory. Was it going to be a way Boris could subliminally manipulate the nation’s mood, so that as they clapped for the NHS, they were also clapping him and the measures his government put in place – grudgingly and belatedly? But still, our NHS and care workers deserved it, especially as so many have died, partly due to the government massively fumbling the supplies of PPE. It’s also been a good way to raise morale and bring people together by getting them out of their homes and onto the streets in collective act of celebration. All while maintaining a safe distance, of course.

But now a new collective ritual may be ready to take over from it. A ritual that has absolutely no government sponsorship and definitely does not reflect positively on Johnson and his pack. Last Tuesday, Brits across the country took part in the national ‘Boo for Boris’. Mike posted several of the videos of people booing our incompetent, malign and murderous prime minister across the country, from Canton in Cardiff to Saltaire. One woman even dressed in ancient Celtic costume as ‘Boodica’, to shout her defiance just as the ancient queen of the Iceni stuck it to the Romans. There’s a parallel with modern history there, as well. Boadicea’s rebellion was partly sparked off not just by Roman brutality against her, her sisters and her people, but from economic recession caused by rich Romans like Seneca withdrawing their money from Roman Britain. This is what happens when the rich don’t spread it around and the economy contracts: people get into their spiked chariots and start mowing down the government.

I didn’t take part because, like Mike, I was too shy. But Mike’s article and the piccies he posted of it can be found at:

Britain boos Boris! And about time too…

Sargon of Gasbag, the man who broke UKIP, posted a video denouncing the whole affair. He seemed to think it was like the three-minute hate in Orwell’s 1984, in which the whole nation screamed its hatred of the totalitarian regime’s archetypal state enemy. Like so many of his libertarian fulminations, it’s absolutely wrong. The three-minute hate in 1984 is the total opposite. It’s a consciously staged even by the regime to direct popular hatred away from itself. As such, it’s far more like the regular denunciations we had over the past four years of Jeremy Corbyn as a Communist, Trotskyite, Russian or Czech spy and anti-Semite from the Tory establishment and a complicit, mendacious press. The ‘Boo for Boris’ campaign, on the other hand, was an act of popular discontent and resistance against a government that insists on a stifling control of the media. If there is a a film parallel, it’s probably with broadcast news when people follow the lead of the angry and confused news anchorman by shouting out of their windows that they’re ‘mad as hell’. Though I hope it doesn’t end badly, as it did in that movie.

But as Boris continues to make himself massively unpopular through his support of the unrepentant Cummings, our clown prime minister may well have to suffer more boos to come.

‘Two roads diverged in a yellow wood’. The question is which one will we take?

Man standing in a wood at a fork where paths divergePhoto by Vladislav Babienko on Unsplash

Two roads diverged in a yellow wood’ are the opening words of a poem by the celebrated poet Robert Frost. Whilst he was writing about his own personal life’s journey, they are words that could not be more appropriate to the situation that not just the UK, but the planet, finds itself in. The COVID-19 pandemic which has brought world economies to a standstill and threatens a deep recession is uppermost in our minds, particularly those people who have been directly affected by the disease or by loss of their employment. But those immediate threats, devastating enough as they are proving to be with no immediate solutions and a government anxious to get the economy going again regardless of the potential human consequences, are overshadowed by another peril. Climate change remains the biggest challenge of all, risking as it does the very survival of the planet’s ecosystems and by implication human existence.

Our daily routines have until now imposed a false sense of permanence. The illusion that despite the cyclical economic instability which capitalist societies are prone to, everything always, eventually, returns to ‘normal’. Even when normal has patently shifted. We have accepted this as part and parcel of how things are, even when it hurts people. But the severity of the pandemic is challenging that view. We are finding that in addition to the risky nature of life which COVID-19 has revealed, danger also comes from the fact that our economic system has been built on shaky ground indeed – one might say quicksand. The rolling death toll and the degradation of our public services is a daily reminder.

As the country moves towards a lifting of lockdown and a return to semi-normality, we are seeing more cars on the road, beaches crowded with day-trippers, people travelling hundreds of miles to visit beauty spots, the prospect of schools re-opening amidst huge controversy and airlines proposing to recommence flights, the question hangs in the air about what sort of future lies ahead. Whether we can indeed continue along the perilous path of growth we have been travelling along without some sort of future reckoning. And if not, what should our world look like?

COVID-19 and its associated threats have revealed in the starkest way possible that the economic system which prevailed for the last forty years and more has left the world unable to meet the challenges so cruelly posed by the pandemic. All as a result of a toxic neoliberal ideology which has left our public and social infrastructure in ruins, impoverished people as a direct consequence of a globalised world which has kept wages and living standards down and focused on the primacy of the individual over collective action. Politicians have listened to the so-called economic gurus and put their faith in a mystical market as if somehow it alone can direct the orchestra from the celestial podium. Letting it rip to find that non-existent perfect equilibrium by serving global corporations through legislative means, promoting the lie of trickle-down, and claiming that the public infrastructure depends on so-called ‘wealth creators’.

We have paid a heavy price and we are indeed at a fork in the road. Where we go from here is not clear. And yet the choices we make next will make all the difference.

Earlier this week, the President of the World Bank said that ‘the pandemic and shutdown of advanced economies could push as many as 60 million people into extreme poverty’. The Chancellor of the Exchequer in the same week warned that Britain was facing a ‘severe recession the likes of which we haven’t seen’ which would cause severe damage to the UK’s economy. He also went back on earlier predictions of an ‘immediate bounce back’ as the lockdown was lifted and said that there would be more hardship to come.

This came as the Treasury confirmed that around eight million UK workers have now been furloughed and two million are expected to receive support from the government. The government’s spending has risen massively to support those affected and keep businesses ticking over until such time as a recovery is underway.

Although there has been some talk of more austerity to pay for this spending, even the most hawkish of commentators from neoliberal institutions like the Adam Smith Institute recognise that the last thing we need now is to worsen the prospect of a full-scale depression, even if those observations are still couched in household budget terms. Borrowing whilst interest rates are low or growing the economy to improve tax revenues are the oft-repeated caveats to that spending. Clearly, this is not closing the door to such false household budget narratives.

It is politically expedient to accept the need for spending to stop the economy from collapsing and causing infinite damage to the business infrastructure and profits much as the Labour government did in 2008 when it bailed out the banks. But in time, those narratives will likely be given a fresh breath of life at least in terms of continuing to deliver a political agenda.

It will likely bring the next instalment of austerity for public services and their employees’ wages and carrying on along the well-trodden path which favours corporations by delivering a legislative framework not just at national level but international level through the pursuit of free trade deals.

The state with its power of the public purse being used, not for the public purpose, but for quite a different estate – the corporations and a few wealthy elites. Indeed, this week the media, economists, politicians and political commentators have been priming the public for the acceptance of more austerity by reinforcing the message that governments have to borrow or that government has to collect money from tax revenue or other charges before it can spend.

Both the Huffington Post and the BBC ran articles this week discussing how governments pay for the government’s increase in spending through bond issuance. Peter Hitchens tweeted that Rishi Sunak’s furlough billions were just giant payday loan that the country will have to pay back with interest (at some future date). And Boris Johnson when challenged about the decision to continue charging health and care workers to use the NHS (before the decision to rescind the charge) suggested that the money was needed to run the NHS. Indeed, Captain Tom has been knighted for his work in raising money for the NHS as if the institution was a charity and not a publicly funded organisation which does not require tax or other contributions to fund it.

The narrative being reinforced in in the public’s mind is that at some time down the track it will all have to be paid for through more austerity or increased tax. It is worth repeating here that a sovereign currency-issuing government does not need to borrow in order to spend. Indeed, logically speaking how could it borrow money unless it had been spent by the government first? What looks like borrowing isn’t and bond issuance has quite another role. It is instead a smoke and mirrors exercise designed to give the appearance of borrowing and continue the narrative that governments are beholden to money lenders in private markets or that the markets call the tunes.

Dispelling the myths about how governments spend is a priority if we are to give ourselves half a chance to make a different and better world. As was indicated at the beginning of this blog COVID-19 and recession are just part of this picture. The talk about ‘getting back to normal’ overshadows the biggest threat that we still face – climate change and what our response should be. The false narrative of the burden of debt and paying it back will, if allowed to persist, persuade people that action to deal with any of those threats whether unemployment caused by a COVID-19 induced recession or climate change is unaffordable in the long term. That there is always a financial price to pay.

The reality is that the price will not be monetary, it will be in the lives of people who are unemployed, and a trashed planet not fit to live on. We will be rulers of a dead planet, poisoned by our own hand.

There is an alternative. It starts with knowing about how money works and being able to challenge the current narrative that success is to be judged by how well our politicians managed the public accounts.

Contrary to Mrs Thatcher’s oft-repeated slogan ‘there is no alternative’; there is one.

This is the moment to think about a permanent Job Guarantee to manage both the catastrophic effects of COVID-19 on people’s lives and the economy in terms of stabilising it through ending involuntary unemployment and facilitating the transition towards a green and sustainable world. So much potential but will our government act?

Maybe that time is coming; only time will tell. The political discourse has so far been dedicated to a return to normality, growth and rising GDP.

Fiona Harvey, the environment correspondent in the Guardian began an article this week with a stark warning:

‘Global leaders must heed the lessons of the financial crisis of 2008 when they look to repair the damage from the coronavirus pandemic, leading experts have warned, to avoid entrenching disastrous social, health and environmental inequalities and hastening climate breakdown.

The stakes are high.

Earlier this month the Oxford Smith School of Enterprise and the Environment published its paper ‘Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?

In its introduction, it noted that the crisis had demonstrated that governments can intervene decisively once the scale of an emergency is clear and public support is present. It went on to say that:

‘The climate emergency is like the COVID-19 emergency, just in slow motion and much graver. Both involve market failures, externalities, international cooperation, complex science, questions of system resilience, political leadership, and action that hinges on public support. Decisive state interventions are also required to stabilise the climate, by tipping energy and industrial systems towards newer, cleaner, and ultimately cheaper modes of production that become impossible to outcompete’

Its recommendations for contributing to achieving economic and climate goals were:

  • clean physical infrastructure investment
  • building efficiency retrofits
  • investment in education and training to address immediate unemployment from COVID-19 and structural unemployment from decarbonisation, — natural capital investment for ecosystem resilience and regeneration
  • clean R&D investment.

A state-run Job Guarantee implemented to serve both national and local community objectives offers the perfect vehicle to deliver a green-led recovery and reduce the inequality of past decades. Retrofitting existing buildings, creating cities which are cyclist and pedestrian-friendly, digging trenches for broadband connections, planting trees or putting in networks for charging electric-powered vehicles are just a few examples of the work that Job Guarantee participants could accomplish. Our imagination can determine the rest. Serving the public purpose must be the quest.

A Job Guarantee provides an immediate solution to the problem of rising unemployment to stabilise the economy, an opportunity for training the workforce and, out of the catastrophe of pandemic, also provides the perfect opportunity to start along the path towards a more equitable, greener and sustainable world.

We as a nation may also want to consider what sort of future we want in terms of public infrastructure to serve the public purpose. Do we want more state provision – a publicly provided and paid for infrastructure and employment to ensure that we can meet whatever the future holds? If the current situation is anything to go by, there are lessons to be learnt. Or do we prefer to continue as we are and move into a Mad Max dystopian type world where corporate profit is the guiding light and government is its servant?

Brian O’Callaghan, a co-author of the paper said that it was ‘this is the single biggest opportunity for the government to shape the future decade…’ which indeed it is.

Robert Frost ended his poem:

‘Two roads diverged in a wood, and I —

I took the one less traveled by,

And that has made all the difference.’

Therein lies the challenge. Not directly a personal one in this case but one which involves us all. Do we continue as we are or choose another path for the sake of the future and those that will inherit it?

 

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The post ‘Two roads diverged in a yellow wood’. The question is which one will we take? appeared first on The Gower Initiative for Modern Money Studies.

A Post-COVID Vision: The Full and Sustainable Employment Act

By Brian Czech

If COVID-19 has taught us anything, it is that the Great God of GDP is a false god after all, impotent as Baal. The mighty American economy, with unprecedented GDP, has been knocked to its knees by one of the lowest conceivable life forms, a mere virus possessing not a single strand of DNA. Politicians who thought their legacies would be associated with “the greatest economy ever” now look like ridiculous priests of a sham religion.

GDP exceeding $21 trillion in 2019 ($87 trillion globally) has been powerless to cure the sickness, financial trauma, and fear experienced by millions of Americans and billions of souls worldwide. Adapting to the new reality of a COVID-infected world and the uncertain hope for a vaccine is depressing in the best of scenarios and devastating in the worst. Yet adapt we must, and that includes public policy as much as individual behavior.

Coronavirus briefing. We need a Full and Sustainable Employment Act.

Pushing for growth vs. protecting the public: COVID-19 as the latest episode. (Image: CC0, Credit: The White House)

The CDC, NIH, and WHO have provided recommendations for lowering the spread of the virus and helping infected patients survive. Politicians are attempting to balance such recommendations with the concern for a healthy economy. The problem is that virtually every major politician in the USA, as well as a majority of politicians in the world, think of economic health in terms of GDP growth. For that matter, so do the economists advising these politicians and appearing on mainstream media. Their “adaptation” to the COVID-caused recession is nothing more than a hapless attempt to get back to business as usual; that is, growing the GDP through fiscal and monetary “stimulus.” In other words, it’s no adaptation at all!

Common sense and a pair of eyes is enough to recognize that the need for social distancing—effective adaptation to COVID-19 at the individual level—translates into lower levels of economic activity and a lower velocity of money. Unfortunately, politicians are now handling public health as they handled environmental protection for decades, acting as if we can have our cake and eat it too. They seem to think that, with enough Plexiglas panels on factory floors and retail counters, we can stimulate the economy back into $21-trillion territory without suffering a pandemic death toll. We can expect claims of “there is no conflict between growing the economy and protecting public health,” echoing the decades-old mantra that “there is no conflict between growing the economy and protecting the environment.”

Will we be fooled again by the win-win rhetoric? I don’t think so—at least not nearly so many of us—because this time the threat of the growth obsession is a direct, imminent matter of life or death. As employees are prematurely pressured to return to work “for the economy,” knowing fully well that doing so increases their odds of contracting the deadly virus, surely they will rethink what “the economy” is really for and who is behind the push to “stimulate” it.

There will be a significant percentage of individuals who decide more or less happily never to return to the jobs that dominated their life pre-COVID. Many will wrestle with trade-offs, such as extra gardening and more childcare, and certainly less luxury goods and entertainment. Some will have saved enough—and were cautious enough to avoid debt traps—such that they may find the new lifestyle to be empowering and even more joyful than the old 9-to-5 grind. They won’t be contributing much to GDP, but they’ll be healthier and happier, and will hardly be a burden on the nation’s infrastructure and budget.

Unfortunately, many others will be desperate to return to work or find a new job. They may have little means of subsistence—no lawn for a victory garden—and some will be threatened with homelessness when they can’t pay the rent. Even they, however, will see through the lie that “there is no conflict between growing the economy and protecting the public from COVID-19.” They are victims of an unfair capitalist system who must go to work “for the economy” and risk their health in the process.

The experience of individuals far and wide, then, will be conducive to a sea-change in attitudes toward the economy, GDP growth, and the government’s role in defending its own taxpaying citizens.

A New Economic Policy for 21st Century America

A new policy vision for the post-COVID economy entails replacing the current policy. So, what exactly is the current policy? What is it that steers us constantly, relentlessly back onto the GDP growth path? Let’s take a short trip down institutional memory lane…

Harry Truman and the Full and Sustainable Employment Act

President Harry Truman signed the Employment Act in 1946; a first step in the formal pursuit of GDP growth. (Image: CC0, Credit: Abbie Rowe)

As a response to the Great Depression, Franklin Delano Roosevelt gave Americans the New Deal. Most of the work programs were cultural successes and employed significant numbers of young men. Yet the Depression wasn’t “solved” until World War II, with the mobilization of the civilian labor force and technological progress spinning out of war-time laboratories. Most Americans know this basic story of the Great Depression, New Deal, and World War II, but few seem aware of the Employment Act of 1946. We must be fully aware of it to move toward a new economic policy for the 21st century.

The Employment Act was a Keynesian adaptation to the experience of the Great Depression; that is, it was largely a result of John Maynard Keynes’ General Theory of Employment, Interest, and Money. Prior to Keynes, economists clung stubbornly to their ideal of laissez faire (let do; non-interference) as the proper governmental approach to economic affairs. General Theory was the paradigm-shifting book that persuaded Western governments to take active fiscal and monetary measures for ensuring adequate demand for goods and full employment of the labor force.

In crafting the Employment Act, the 78th Congress was especially concerned about the social and cultural ravages of unemployment. It was less concerned with any explicit notion of economic growth. For one thing, national income accounting was in its infancy. Also, Congress was still reluctant to get the federal government very involved in economic affairs, especially with heightened concerns over the sway of communist ideology. That said, the Employment Act did establish the Council of Economic Advisors, which turned out to be a highly influential pro-growth institution for decades to come.

The American economy ran fairly smoothly and grew very rapidly for the next couple of decades, but by the 1970s, American political leadership was beside itself with the problem of stagflation, that is, recession (“stagnation”) concurrent with inflation. Economists thought you could have only one or the other for any significant period of time and that they were, in fact, countervailing forces. Unlike World War II, though, the Vietnam War wasn’t sufficient to kick the real economy into high gear. Efforts to stimulate investment and consumer spending by loosening the money supply only led to inflation. Thus, stagflation.

The bedeviling bouts of stagflation finally led Richard M. Nixon to announce, “We are all Keynesians now,” recognizing that conservative diehards were some of the last to accept any government involvement in macroeconomic policy. Nixon had established the Bureau of Economic Analysis in 1972 for state-of-the-art accounting and GDP calculation. The 95th Congress, led by Hubert Humphrey and Augustus Hawkins, worked to update the Employment Act, which was finally amended as the Full Employment and Balanced Growth Act (FEBGA) and signed by President Carter in 1978. As of then, the US government was fully and formally committed to GDP growth as central economic policy.

It was easy for supporters of FEBGA to argue mathematically that, all else equal, more jobs could be had with greater GDP. It was also easy for Big Money to hide behind pro-growth policy for purposes of accumulating more capital and increasing CEO salaries, without any concern for creating more jobs. Not surprisingly, FEBGA ended up a thick mix of fiscal and monetary policy that serves the capitalist as well as the labor force.

FEBGA is often referred to with the shorthand “Employment Act,” saving a number of syllables and reminding us of its original (1946) focus. I favor the full 1978 title, even if only via acronym, as a reminder that GDP growth is not just some wistful political notion or rhetorical tool but rather a formal, central policy of the USA pursued with fiscal, monetary, and deregulatory means, as well as diplomacy and terms of trade in international affairs.

Now, more than a half century later and in the midst of an economy-crushing pandemic, it’s time to rewrite FEBGA. We need a Full and Sustainable Employment Act, with the very name change communicating that growth is no longer sustainable.[1] The Full and Sustainable Employment Act will mark the transition from economic growth to a steady state economy, politically and every bit as formally as FEGBA called for growth.

Pro-growth politicians (or perhaps Big Money) came up with the brilliant metaphor, “A rising tide lifts all boats.” While at least one source attributes the phrase to President John F. Kennedy, it seems like the stuff of Madison Avenue. And, when limits to growth aren’t acknowledged, the logic illustrated by the metaphor is unassailable. All else equal (“ceteris paribus” in econ-speak), a growing GDP means more jobs. Of course the devil is in the phrase “all else equal,” because little is equal on the tilted chess board of a capitalist economy. Instead of more jobs, a growing GDP too often means more expensive technology and billionaire CEOs, who are just as effective at blasting ships out of the water as making way for more boats.

Either way, the metaphor of the rising tide sinks like a presidential approval rating when limits to growth are recognized, as they increasingly are and should especially be in the context of COVID-19. There is only so much water; the tide can’t rise forever. There is a limit to the number of boats at sea, too, and even a limit to boat-building material on shore. It’s high time for the “rising tide” metaphor to ebb all the way back into the rustic recesses of faded political minds.

It so happens that the acronym of Full and Sustainable Employment Act—FSEA—is useful for nailing the coffin shut on the “rising tide” metaphor. Combining “F” (for Full) and “SEA” invokes the image of a full sea. Why not take advantage of such a linguistic coincidence and make the message a little clearer yet? It is not unprecedented for Congress to wax metaphorical with the short title of a paradigm-shifting statute; they might as well call this one the “Full Seas Act.”

ships and the Full Sustainable Employment Act

“A rising tide lifts all boats” was a fine metaphor for the 20th century, but in the 21st century the seas are full. (Image: CC0, Credit: Good Free Photos)

What might the Full Seas Act actually look like? How will it conduce a steady state economy? What happens to the pro-growth arrangements established by FEBGA? The best way to envision these developments is to consider a proposed Section 2.[2]

Full Seas Act—Findings and Declaration

In a typical act of Congress, Section 1 provides a short title (“Full Seas Act” in this case). Section 2 is in many ways the most important section of a path-breaking statute because it establishes the key findings and declarations of Congress. It comprises a sort of preamble and emanates the spirit of the law. It justifies the details laid out in subsequent sections, and future policy development at the agency level will be informed by its content as well.

On the other hand, readers should keep in mind that Section 2 is never designed to address all the details of the challenge at hand, much less all the problems of the world. The crux of the Full Seas Act is a formal transition from economic growth to the steady state economy (most likely via degrowth). Therefore, Section 2 will not include references to specific policy tools such as minimum wages, energy caps, banking reforms, etc. Sections 3 and beyond just as surely will, however.

Without further ado, then, the initial public offering of the Full Seas Act, Section 2, more or less consistent with the canons of statutory construction:

 

SEC. 2.

(a) FINDINGS. The Congress finds that—

(1) Economic growth, as measured with gross domestic product (GDP), requires a growing human population, increasing per capita consumption, or both.

(2) Consistent with the natural sciences, including basic principles of physics and biology, there are limits to economic growth within and among nations.

(3) There is a fundamental conflict between economic growth and environmental protection, including the maintenance of: clean air and water; productive soils; biological diversity; stocks of natural resources including water, timber, fisheries, minerals, and fossil fuels, and; funds of ecosystem services including nutrient cycling, pollination, waste absorption, and carbon sequestration.

(4) A well-maintained, non-degraded environment is the foundation of a productive economy. Therefore, and because of the fundamental conflict between economic growth and environmental protection, there is also a fundamental conflict between economic growth and the long-term maintenance of the economy including jobs, income, and wellbeing.

(5) A well-maintained economy is vital to national defense. Therefore, and because of the fundamental conflict between economic growth and the long-term maintenance of the economy, there is a fundamental conflict between economic growth and national security.

(6) There is abundant environmental and economic evidence that long-term limits to growth have been and are being reached and exceeded in the Nation, other nations, and globally.

(7) There is abundant evidence that perennial fiscal and monetary efforts to stimulate GDP growth are increasingly causing environmental, economic, and social harm while resulting in fewer benefits, with the harm gradually exceeding the benefits.

(b) DECLARATION. The Congress declares that—

(1) It is heretofore the policy of the Nation to undertake a gradual but certain transition from the goal and pursuit of economic growth to the goal and pursuit of a sustainable steady state economy, with stabilized or mildly fluctuating population and per capita consumption as generally indicated, all else being equal, by a mildly fluctuating GDP.

(2) The transition to a steady state economy must be undertaken with every intent and effort to achieve and maintain the full employment of the labor force consistent with environmental protection and other aspects of economic sustainability including a balanced federal budget and the effective control of inflation.

(3) The President, President’s Cabinet, Council of Economic Advisors, Federal Reserve, and federal agency directors will immediately cease and desist from developing strategies and initiatives to grow or stimulate the economy. Existing policies, programs, and projects designed explicitly to grow or stimulate the economy shall not be extended beyond fiscal year 2021 or beyond the designated sunset date, whichever comes later.

(4) The Congressional Research Service, collaborating with the Office of Management and Budget and Council of Economic Advisers, will review and summarize the federal agency mission statements, goals, objectives, policies, programs, and practices designed for GDP growth, producing a Report on Federal Growth Incentives no later than 30 April 2022.

(5) A Commission on Economic Sustainability (“the Commission”) is hereby established to include the Administrator of the Environmental Protection Agency and the Secretaries of Agriculture, Energy, and Commerce, chaired by the Secretary of the Interior, to estimate and monitor environmentally sustainable levels of population and socially optimal levels of GDP. The Commission will produce a Report on Sustainable Population and Optimal GDP no later than 31 August 2022.

(6) The Commission Chair, with counsel of the Chairman of the Council of Economic Advisors, Secretary of Commerce, Federal Reserve Chair, and Secretary of the Treasury, drawing on the Report on Federal Growth Incentives and the Report on Sustainable Population and Optimal GDP, and pursuant to the framework provided in subsequent sections herein, will develop and deliver to the President, no later than 31 August 2023, a 25-year Steady-State Transition Plan detailing and scheduling the adjustments, modifications, additions, and deletions necessary to establish a system of government operations most conducive to a steady state economy at an estimated optimal level of GDP.

(7) The President, Cabinet secretaries, and federal agency directors shall not overlook the existence, neglect the enforcement, or underfund the performance of the Clean Air Act, Clean Water Act, Endangered Species Act, National Environmental Policy Act, or any other of the Nation’s environmental laws or regulations on grounds that said laws or regulations may interfere with the workings of the economy or slow the rate of GDP growth.

 

Stay Tuned for the Rest of the Full Seas Act

For policy wonks and steady-state advocates, exciting times lie ahead as Sections 3 and beyond of the Full Seas Act will feature long-awaited steady-state policy instruments. The starting point should be the top ten policies favored by Herman Daly. Chapter 11 of Supply Shock is largely for purposes of informing the Full Seas Act. And, at the risk of unintentionally omitting dozens of helpful individuals, now is the time to revisit specific proposals of scholars such as Peter Victor, Tim Jackson, Dan O’Neill, and Phil Lawn as well as the rich mix of overlapping ideas emanating from the European degrowth movement.


“Steady statesmanship” an essential aspect of the Full Seas Act. (Image: CC0, Credit: U.S. Department of State)

Speaking of the latter, the Full Seas Act could hardly be effective in a world pursuing GDP growth with only rare exceptions such as Bhutan and New Zealand. Ramped up levels of international trade will be difficult to reconcile with the steady state economy of a huge nation-state. Therefore, the Full Seas Act must address the need for steady statesmanship in international diplomacy.

We should take a page from the playbook of the 93rd Congress, which passed the Endangered Species Act of 1973. Congress used Section 8 largely to implement American obligations pursuant to the Convention on International Trade in Endangered Species of Wild Fauna and Flora, or “CITES,” one of the most sweeping international conservation agreements to date.

Our approach in the Full Seas Act needs to be more proactive, because in this case there is no convention ready and waiting to be implemented. We should devote one section, then, to fleshing out and pursuing the development of a Convention on Economic Sustainability, most likely with a United Nations secretariat. This convention will be assembled for purposes of addressing global limits to growth and the need for “contraction and convergence,” or the acceptance of degrowth in wealthy countries while nations with ubiquitous poverty are assisted to the extent that they have diplomatically established their own sustainable steady-state goals.

Steady statesmanship may be even more difficult than the domestic policy reforms required for an American steady state economy. Yet the harsh realities of COVID make such statesmanship feasible as well. In any event, does it matter how difficult it is, in deciding whether to pursue it? After all, what is the alternative? As we like to say at CASSE, peace is a steady state economy.

And so is health.

[1] See Chapter 11, “A Call for Steady Statesmen,” in Czech, B., Supply Shock: Economic Growth at the Crossroads and the Steady State Solution (2013, New Society Publishers) for the initial proposal of the Full and Sustainable Employment Act along with numerous policy tools and institutions to be considered in drafting the legislation.
[2]The Section 2 proposed herein does not include amending specifications. The bill presented to Congress will specify which clauses of FEBGA are to be amended, and how. Basically, however, the intent is to replace Section 2 of FEBGA with the proposed Section 2 herein.

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

The post A Post-COVID Vision: The Full and Sustainable Employment Act appeared first on Center for the Advancement of the Steady State Economy.


New Zealand Deprioritizes Growth to Improve Health and Wellbeing

Published by Anonymous (not verified) on Tue, 12/05/2020 - 11:00pm in

By James Magnus-Johnston

Last May, New Zealand Prime Minister Jacinda Ardern released a budget to improve the “wellbeing” of citizens rather than focusing on productivity and GDP growth. And, not so coincidentally, New Zealand has one of the best coronavirus outcomes of any democracy in the world. Perhaps this provides a global model to make economic health cohere with health for all life.

Jacinda Ardern

New Zealand’s Prime Minister, Jacinda Ardern, has deprioritized GDP growth in favor of improving wellbeing, and her personal approval rating is 65 percent. (Image: CC BY 4.0, Credit: Ministry of Justice of New Zealand)

To improve wellbeing, Ardern emphasized goals that focus on care for people and the planet. Goals included community and cultural connection as well as intergenerational equity. Under the policy, new spending had to focus on one of five priorities: improving mental health, reducing child poverty, addressing inequalities of indigenous peoples, thriving in a digital age, and transitioning to a low-emission economy.

While New Zealand isn’t the only country to float the idea of wellbeing over income, it is the first country to make it a reality. Guided by this philosophy, New Zealand is not in a rush to open its economy even as the headlines of a “stock market crash” or a “recession worse than 2008-09” appear in newspapers across the globe. Is Ardern’s example wise? Can we build upon it to further improve life after COVID?

Health and the Economy

In the postwar-capitalist framework, economic “health” became equated to income growth, price stability, and full employment. There are increasingly serious pitfalls to thinking of “health” as a capitalist metaphor rather than a desirable end goal. Using GDP and stock market values as measures of overall economic health made sense in the postwar era, when growth was necessary to improve human wellbeing by raising material living standards. In much of the Global North, it is now necessary to focus instead on improving wellbeing without growing our material footprint. Ardern gestures at this by focusing on mental health, inequality, and poverty, without emphasizing income.

By the postwar logic, human health and wellbeing can be upheld when there is enough money to purchase and provide care. After all, supplies and infrastructure need to be paid for. But as the American and British pandemic strategies have demonstrated, a growing economy in which GDP (or “opening the economy”) is prioritized over general wellbeing doesn’t always improve health outcomes. The USA has one of the highest COVID death rates in the world, and the US infection rate is rising as states open up. Experts on public health and leadership, like those writing in the Harvard Business Review, suggest that New Zealand’s Ardern provides a system that prioritizes maintaining and improving public health that global leaders should follow.

We can also think of health in the broader sense, i.e., health for nonhuman life. The economy is a trophic system, which means that economic health requires the consumption (i.e., death) of nonhuman life. And presently, growth is occurring on a scale that is unsustainable. Here, too, Ardern doesn’t suggest a transition to degrowth, but she does emphasize the need for a low-emission economy. Her movement away from GDP growth as a metric of economic “health” does provide an opportunity to make economic health cohere with the idea of ecological health: sustaining the power and vitality that supports all life.

One of the other tangible ways in which some have experienced a positive impact to their wellbeing during the pandemic is a temporary reprieve from productivist pressures and workplace stress. As I mentioned in a previous article, the term “capitalism” refers to Max Weber’s “modern Kultur” centering around a code of values for the 20th-century West. In this new economy, the highest virtue became “the making of money and ever more money, without any limit.” Growth-as-prosperity requires a certain level of constant busyness to prop up the outputs for mass consumption and technological improvement rather than human warmth and connection.

As a result of the pandemic, many of us have gained clarity about the things we value most, such as food, health, income security, education, mobility, access to nature, social connection, and public services. An economy designed for wellbeing can prioritize these tangible things rather than assuming that income will deliver them.

How Can We Build on Arden’s Success?

As we seek to cultivate a new normal in which health is prioritized, perhaps New Zealand offers a glimpse of the way forward. The Wellbeing Economy Alliance published a piece by Amanda Janoo and Gemma Bone Dodds that suggests that the COVID-caused “Great Pause,” as it were, provides an opportunity to improve our focus on wellbeing. They provide an argument in four parts: (1) The stock market is not a reflection of our economic reality; (2) We will enter a recession, and that’s okay; (3) Economic policies for a Great Pause; and (4) Building back better.

Basic needs

The pandemic has revealed how important it is for basic needs to be met through redistributive cash benefits. (Image: CC0, Credit: Mick Haupt)

With respect to the first two, Janoo and Bone Dodds argue that the stock market can’t possibly predict the future because the future will look starkly different from the past. As a result, trades merely reflect anxiety rather than future prosperity. Secondly, while policymakers are presently fearing a recession—a fall in GDP for two consecutive quarters—inevitably the economy will contract to ensure our collective wellbeing. As they point out, just because the economy contracts, that doesn’t mean our basic needs can’t be met. If anything, this situation has revealed that basic needs might be better met by providing cash benefits (or a universal basic income) where income is redistributed to preserve social solidarity and care. The economy won’t disappear, it will just focus on providing basic needs first. Particularly the ones that our free market sometimes fails to provide for a large part of society.

And to “build back better,” we could examine Ardern’s model and take it one small step further. To focus on health and wellbeing, economic policies should ensure basic needs are met through redistributive mechanisms without trying to balance budgets through austerity measures. Philosophically, this is an opportunity to consider how to live full and meaningful lives without unnecessary excesses. Janoo and Bone Dodds also note that during this time we’ve witnessed how many of our most precarious and poorly-paid workers, including “healthcare workers, farmers, grocery clerks, delivery drivers, and caregivers,” are in fact the most critical for our collective wellbeing.

An economy focused on improving wellbeing is not a distant theoretical idea. The postwar social welfare system helped raise material living standards by improving incomes. But in the 21st century, we have new social and ecological constraints. Ardern has provided a model for the world to refocus on health and wellbeing, and the global pandemic reveals how wise this strategy truly is.

James Magnus-Johnston headshotJames Magnus-Johnston is a PhD researcher at McGill University in the Leadership for the Ecozoic program.

The post New Zealand Deprioritizes Growth to Improve Health and Wellbeing appeared first on Center for the Advancement of the Steady State Economy.


Change is not a pleasant process, but we must not shy away from it. There is an alternative. It’s time to engage. It’s time to make the world anew.

Published by Anonymous (not verified) on Mon, 11/05/2020 - 1:47am in

World in handsImage by Mariana Anatoneag from Pixabay

All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.

Martin Luther King, Jr.

 

While the scale of the real human tragedy of austerity and lack of strategic planning continues to be revealed in our hospitals, care homes and community settings, this week the Bank of England warned that the UK was facing an historic recession. UK demand has plummeted, and consumer confidence has declined sharply as the unemployment rate has risen and people’s concerns are reduced to the daily task of just living in lockdown.

At the same time, in response to the government’s fiscal injection to mitigate the dire consequences of the economic slide that is unrolling before us, the debt sirens are predictably rising from the icy waters in an attempt to lure, yet again, an unsuspecting public into believing that there will be a future financial price to pay, when the human cost is the real issue. Given ten years of cutting vital public infrastructure, the consequences of which we are currently living through, the prospect of a deep recession which will last well beyond the end of the pandemic and the challenges we face from climate change are what we should worry about rather than the government deficit.

If we are to believe politicians and think tanks, there will be no option but to cut public spending to reduce public debt once the pandemic is over. Indeed, that message is being reseeded in the public consciousness by past and present Tory Chancellors of the Exchequer. With George Osborne calling for more austerity only a few weeks ago, Rishi Sunak waded in this week with the suggestion that he was preparing to ‘wean’ businesses and workers off the government’s furlough scheme by cutting wage subsidies as part of an attempt to get people back to work as and when the lockdown is eased in the future. The flaw in his plan is that is difficult to see at this precise moment in time where these ‘alternative’ jobs will come from – at least in the short to medium term.

He also claimed that the nation might become ‘addicted’ to state generosity. Apart from the offensive nature of this statement (which suggests that working people are living the high life and lazing their lives away behind the curtains on public money when in reality they are trying to make ends meet on 80% of their pay, or still waiting as self-employed to get any money at all), the idea that anyone would choose to remain out of work tells us two things; firstly that the government is not beyond using scare tactics to bully people back to work when they are already fearful for their financial security and secondly that the government’s fiscal injection, which was initially hailed as a positive step forward, comes with conditions that are still being framed in household budget terms. The narrative is being cynically being shaped for a new normal. The government, instead of serving the nation, is once again and predictably intending to serve only a small section of it while punishing the rest.

It would seem that under the radar the groundwork is being laid for an economic reset to complete the already skewed distribution of resources into ever fewer hands. More austerity, more cuts to our public and social infrastructure which is already on its knees and then the final ‘coup de grace’ or end game the privatisation of the remaining parts of the public infrastructure including the NHS. As we are already seeing, the government is using the pandemic to transfer even more key public health duties into the private sector. Government contracts are already being awarded centrally to the private sector under the emergency measures with no public scrutiny. Deloitte, KPMG, Serco, Sodexo and Boots are just some of the companies which have secured public funding to manage drive-in testing centres, purchasing of PPE and other vital equipment. This is disaster capitalism at work and the alarm bells should be ringing loudly. Allyson Pollock, who is director of the Newcastle University Centre for Excellence in Regulatory Science, co-author of the NHS Reinstatement Bill and NHS campaigner said ‘We are beginning to see the construction of parallel structures, having eviscerated the old ones. These structures are completely divorced from local residents, local health services and local communities.’

Democracy, both local and central, has over decades been undermined. Now, under cover of COVID-19, we are seeing the State using it to ally with big business to suit the continuing ideological interests of the former and the profit motives of the latter. Trade deals currently being negotiated with the US by the UK government are part of this growing globalised structure aiming to reinforce the power of corporations with state support and dictate the terms by which citizens live their lives.

In 2010 people accepted Tory austerity because they believed the narrative that Labour had overspent, and they had to get the public finances under control. They understood their own personal finances and thought, understandably, that the state’s must be the same. Even now, despite the growing number of people that know that the State’s finances cannot be likened to their own household budget, the government is trying to re-forge the worn-out austerity record anew.

Will the public be taken in yet again by this false narrative? The economist Danny Blanchflower said recently that he thought that people would not accept more austerity. If that were true, then at this moment of national crisis it should be a public wake up call. We don’t have to be economists to understand what the consequences are. Every afternoon at 5pm with the government’s daily briefing, the evidence is increasingly being revealed of the very real human costs as financial hardship bites and the death toll increases.

We need to learn that economics is then not the dry, boring subject that we have patronisingly been told should be left to the experts. Quite simply, it determines what happens to each and every one of us as a result of the ideologically driven political decisions made by our elected politicians. Although distrust, quite rightly, has grown about our political institutions, the truth remains that whilst we still have an important role to play in holding them to account for their policy decisions we can only do so from a position of knowledge and the willingness to challenge the status quo.

Over decades, we have been primed by politicians, institutions and the media to accept the economic narrative. We have stood by as our health and welfare systems have been cut to the bone. We have accepted that cuts were necessary rather than questioning the economic orthodoxy which spawned them. We have accepted the flawed, politically pushed narratives that deficit reduction or balanced public accounts were more important objectives than serving the interests of citizens. Those who have borne the consequences in terms of hidden poverty and inequality, attributed by pernicious ideology to their own failings, are now slowly waking up to the economic realities of their lives. Insecure employment and low wages, hunger and food banks and homelessness have all arisen from the pursuit of a damaging ideology whereby government has relinquished its responsibility to serve the best interests of its citizens and placed the blame on those citizens themselves. All the while also sowing division to serve its smoke-and-mirrors agenda – the expropriation of public wealth into a few private hands.

We have been persuaded by a false narrative that government deficits are a burden rather than an essential and normal mechanism to serve the national interest. While the government focuses on getting the ‘economy’ back to normal, as if it were an unidentified object out there in space, it has ignored that, fundamentally, the economy is its people. After decades of living in a financialised world of rentiers, hedge funders and money men we have lost sight of the real wealth – which consists of people and the natural and other resources which sustain life on our planet.

The economy is nothing without the people, or indeed those resources. Health and social care workers, teachers, local council employees delivering vital services, police officers keeping the peace, farmers producing the food we eat, factories processing it or lorry drivers delivering it to supermarkets and stores, those who collect our rubbish, clean the streets and provide all sorts of other services to the public, the list is long of essential workers whose value during this extraordinary event we are only just beginning to appreciate having taken them for granted for too long. It is not the billionaires that create the wealth of the country, it is the people. We make our contributions to societal and economic wellbeing, not through the tax we pay (which whilst essential is not required to fund government spending as we are led to believe) but through the vital work we do to keep society functioning.

It defies belief that whilst politicians and others are already preparing the public for more austerity, the Bank of England is warning that the COVID-19 crisis will most likely push the UK economy into the deepest recession for 300 years. At a time when the worst effects of a global economic crisis are yet to unfold (despite the Bank of England’s laughable and misplaced confidence that there will be ‘only limited scarring of the economy’ and it will ‘bounce back […]much more rapidly than the pull back from the global financial crisis’) a government of any political shade should be proposing targeted fiscal spending aiming at four objectives:

  • To ensure in the immediate future sufficient spending to keep people safe, fed and sheltered until the immediate threats of COVID-19 are under control and that strategic services such as health and social care, energy and food production and transport and communications can operate as effectively as possible with the least risk to their future stability. This might involve more state intervention, price controls and rationing if necessary.
  • To take back public services into the public domain and reinvest in our public and social infrastructure to secure the vital foundations for a healthy economy for today’s and future generations. It won’t be enough for Boris and his ministers – or indeed the public – to clap for our public sector workers. We need a commitment to changing the ideological narratives which have done so much damage and to reward those who make the real contributions to economic stability and social well-being.
  • To offer a permanent Job Guarantee programme to provide the necessary counter-cyclical mechanism to support people whose livelihoods are likely to be disrupted for some time in the future as unemployment continues to rise as a direct result of both the domestic and global economic slowdown. Unemployment is a political choice, not an economic necessity.
  • To develop a workable and just pathway towards a greener and more sustainable economy without which the future of the planet is in jeopardy.

Whilst this is what should happen, whether it does is yet another question. It is regrettable that government, whilst having seemingly recognised its sovereign currency-issuing powers to avert economic disaster, now seems to be rowing backwards at a time when government intervention is vital if we are to secure a future at all. The entire economic system has been built on sand. The 2008 Financial Crash was practice for what might come and yet our elected politicians failed to grasp the nettle in any meaningful way, tweaking here and there but leaving the status quo in place.

Without putting too fine a point on it, globally we are at a planetary crossroads and COVID-19 is just one issue of many which will necessarily have to drive a reset in how we do things. We certainly need an economic recovery, but the question is what values will it be based on, what will it consist of and finally and very importantly who will benefit? The big questions of our time remain unanswered for the moment and given this government’s ideological agenda it is difficult to see exactly where we may be going. Although one might make some educated guesses. However, with increasing public recognition of the mess we are in and how we got here, combined with a better understanding of how government spends and what the real limitations to spending are, we could take a first step towards that better world we aspire to create for our children. Change is not a pleasant process, but we must not shy away from it. So much depends on what we do next. There is an alternative – so let’s make sure we are part of it. Ignoring it won’t make it go away.

 

 

A Job Guarantee is fundamental to any healthy economy. To find out more follow the link for an in-depth look at what it is and how it works.

https://gimms.org.uk/job-guarantee/

 

 

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The post Change is not a pleasant process, but we must not shy away from it. There is an alternative. It’s time to engage. It’s time to make the world anew. appeared first on The Gower Initiative for Modern Money Studies.

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