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The Souls of the People

Published by Anonymous (not verified) on Thu, 02/09/2021 - 5:07am in

Photo by Dorothea Lange, Edison, California, 1940: “Young migratory mother, originally from Texas. On the day before the photograph was made she and her husband traveled 35 miles each way to pick peas. They worked 5 hours each and together earned $2.25. They have two young children...Live in auto camp.” Bureau of Agricultural Economics series on agricultural "Community Stability and Instability." National Archives.

[Introduction to The Souls of the People, a forthcoming sixteen-part series on economics and inequality]


Even in wealthy countries, notably the United States,1 the poor suffer much more than the wealthy from private debt,2 incarceration,3 the inability to pay for healthcare,4 access to- and outcomes of education,5 have little recourse to workplace bullying6 and sexual harassment,7 worse consequences from substance abuse,8 9 suffer more domestic abuse,10 depression and mental illness,11 suicide,12 homelessness,13 exposure to crime,14 exposure to pollution,15 insecurity, stress and pain,16 and related problems. Many of these problems are getting still worse for the poor, as well as for the middle class as some sink into poverty.17 18 19

Besides these life-changing issues the “little” things also build to weigh down the poor, again notably in the United States. The working poor, if hired,20 are nickel-and-dimed,21 suffer ever more small miseries22 that “like small debts, hit us in so many places, and meet us at so many turns and corners, that what they want in weight, they make up in number” (Kipling; see for example Hard Work, Hard Lives23).

Fines and fees that are of little consequence to the wealthy are onerous to the poor, and essentially criminalize poverty. In 2019 “53 million Americans between the ages of 18 to 64—accounting for 44% of all workers—qualify as ‘low-wage.’ Their median hourly wages are $10.22, and median annual earnings are about $18,000.” (2019)24 Fines and fees can and do send these working poor into a downward spiral.25 26 27

The “spiral of inequality” that Paul Krugman could write about in 199628 has only gotten worse.29 The working poor are losing faith in the system.30 The middle class is indeed shrinking and upward mobility out of poverty decreasing.31 32 And all the while the wealthy hide their assets,33 use law to enrich themselves further,34 protected by the courts or better served by them,35 36 even by the supreme court.37 38

This sixteen-part series, The Souls of the People, will explore these issues and the ideas and economics behind them. The values, origins, economics and philosophy behind the call to “cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub” (Norquist). The creation of think tanks specifically to provide a pseudo-intellectual foundation for inequality, and that along with media convince the middle class to vote against their own interests. The rise, reasons for, and effect of beliefs that markets without law allow for full employment and that wage laws cause unemployment. That competition alone can bring about good working conditions. The rejection of progressive taxes, and of the right to avail ourselves of the power and resources of the country through organizing public goods. And most importantly, how all of these are maintained by laws that impoverish the powerless and enrich the powerful, and thus are self-perpetuating. Yet if the laws don’t change, inequality will worsen. If inequality worsens, the laws won’t change. It is hard to know where to start.

And all the while “in the souls of the people the grapes of wrath are filling.”

The souls of the people
The most fatal ailment
Ill fares the land

So long as you are happy
What we yearn to be
The sane and beautiful

The sum of what we have been
A little world made cunningly
Like a sinking star

The cries of the harvesters
The earth with its starkness
Written in blood

To do and die
In this fateful hour
So that we may fear less
The rags of time


Notes & References

Steinbeck’s 1939 The Grapes of Wrath took its title from Julia Ward Howe’s “Battle Hymn of the Republic,” published in 1862:

Mine eyes have seen the glory of the coming of the Lord
He is trampling out the vintage where the grapes of wrath are stored
He hath loosed the fateful lightning of his terrible swift sword
His truth is marching on

which in turn is an allusion to The Book of Revelation 14:19-20:

So the angel swung his sickle to the earth and gathered the clusters from the vine of the earth, and threw them into the great wine press of the wrath of God.


[1] America’s Poor Are Worse Off Than Elsewhere. 2021. Confrontingpoverty.org.

[2] The Private Debt Crisis. 2016. Richard Vague, Democracy, Fall, 42.

[3] Connections Among Poverty, Incarceration, And Inequality. 2020. Institute for Research on Poverty, University of Wisonsin-Madison.

[4] Americans Near Poverty Line Face Significant Gap in Health Care Coverage, May Forego Essential Health Care. 2021. Skylar Kenney. Pharmacy Times, April 9.

[5] The impact of poverty on educational outcomes for children. 2007. Ferguson, H., Bovaird, S., & Mueller, M. Paediatrics & child health, 12(8), 701–706.

[6] Low-Wage Workers and Bullying in the Workplace: How Current Workplace Harassment Law Makes the Most Vulnerable Invisible. 2017. E. Christine Reyes Loya, Hastings International and Comparative Law Review, vol. 40 no. 2.

[7] Low-Wage Workers Aren’t Getting Justice for Sexual Harassment. 2017. Alana Semuels, The Atlantic, Dec. 27.

[8] Understanding the Relationship Between Poverty and Addiction. 2018. St. Joseph Institute for Addiction, June 18th.

[9] Addiction And Low-Income Americans. 2021. Addiction Center.

[10] Moving Families Out of Poverty: Domestic Violence and Poverty. 2001. Deborah Satyanathan and Anna Pollack, Michigan Family Impact Seminars Briefing Report No. 2001-2.

[11] Poverty, depression, and anxiety: Causal evidence and mechanisms. 2020. Matthew Ridley et al, Science Vol 370, Issue 6522.

[12] Poverty may have a greater effect on suicide rates than do unemployment or foreclosures. 2016. UCLA Newsroom, Nov. 16.

[13] HUD: Growth Of Homelessness During 2020 Was ‘Devastating,’ Even Before The Pandemic. 2021. Pam Fessler, NPR.

[14] Urban Poverty and Neighborhood Effects on Crime: Incorporating Spatial and Network Perspectives. 2014. Corina Graif, Andrew S. Gladfelter, Stephen A. Matthews, Sociology Compass Vol. 8, Issue 9 pp. 1140-1155.

[15] How and why are the poorest people most likely to have exposure to toxins? 2021. Medical News Today.

[16] The high costs of being poor in America: Stress, pain, and worry. 2015. Carol Graham, Brookings, February 19.

[17] The Pandemic Stalls Growth in the Global Middle Class, Pushes Poverty Up Sharply. 2021. Rakesh Kochhar, Pew Research Center.

[18] 8 Million Have Slipped Into Poverty Since May as Federal Aid Has Dried Up. 2020. Jason DeParle, New York Times, Oct. 15.

[19] Poverty In America: Economic Realities Of Struggling Families. 2019. Hearing Before The Committee On The Budget, House Of Representatives, June 19.

[20] Concentrated Poverty and the Disconnect Between Jobs and Workers. 2019. David Neumark, EconoFact- The Fletcher School, Tufts University, Jan. 22.

[21] Nickel and Dimed: On (Not) Getting By in America. 2001. Barbara Ehrenreich. Metropolitan/Henry Holt.

[22] Hired: Six Months Undercover in Low-Wage Britain. 2018. James Bloodworth, Atlantic Books.

[23] Hard Work, Hard Lives: Survey Exposes Harsh Reality Faced by Low-Wage Workers in the US. 2013. Oxfam America.

[24] Low-wage work is more pervasive than you think, and there aren’t enough “good jobs” to go around. 2019. Martha Ross and Nicole Bateman, Brookings, Nov. 21.

[25] The Steep Costs of Criminal Justice Fees and Fines. 2019. Noah Atchison and Michael Crowley, Brennan Center for Justice, Nov. 21.

[26] Fees and Fines: The Criminalization of Poverty. 2019. Kiren Jahangeer, American Bar Association.

[27] Fines and fees are a pound of flesh for poor people. 2021. Alexes Harris, Seattle Times, Feb. 25.

[28] The Spiral of Inequality. 1996. Paul Krugman, Mother Jones, Nov/Dec.

[29] Trends in income and wealth inequality. 2020. Juliana Menasce Horowitz, Ruth Igielnik and Rakesh Kochhar, Pew Research Center.

[30] Survey Shows People No Longer Believe Working Hard Will Lead To A Better Life. 2021. InsiderMag summary of the Edelman Trust Barometer 2020.

[31] The costs of inequality: Increasingly, it’s the rich and the rest. 2016. Christina Pazzanese, The Harvard Gazette, Feb, 8.

[32] Squeezing the middle class: Income trajectories from 1967 to 2016. 2020. Stephen Rose, Brookings, Aug, 10.

[33] How the Rich Hide Their Assets. Accessed August, 2021. Ad and discussion for Estate Street Partners, LLC.

[34] How Wealthy People Use the Government to Enrich Themselves. 2017. Jesse Singal, New York Magazine, Dec. 28.

[35] The rich get richer and the poor get prison : ideology, class, and criminal justice. 2010 (9th ed.). Jeffrey H Reiman and Paul Leighton, Allyn & Bacon.

[36] The Importance of Litigant Wealth. 2010. Albert Yoon,, 59 DePaul Law Review 59:2.

[37] How the Supreme Court Favors the Rich and Powerful. 2020. Adam Cohen. Time, March 3; adapted from Cohen’s Supreme Inequality (2020), Penguin Press.

[38] A Court for the One Percent: How the Supreme Court Contributes to Economic Inequality. 2014. Michele Gilman, Utah Law Review, vol. 2014 no. 3.

Fairy tales and the vocabulary of scarcity. Protecting the wealthy and hurting the rest

Fairy tale princess and books in fantasy landImage by Mystic Art Design from Pixabay

“Last time, most of us fell for it. This time, it is critical that we do not. Because, in reality, the crisis we just experienced was waking from a dream, a confrontation with the actual reality of human life, which is that we are a collection of fragile beings taking care of one another, and that those who do the lion’s share of this care work that keeps us alive are overtaxed, underpaid, and daily humiliated, and that a very large proportion of the population don’t do anything at all but spin fantasies, extract rents, and generally get in the way of those who are making, fixing, moving, and transporting things, or tending to the needs of other living beings. It is imperative that we not slip back into a reality where all this makes some sort of inexplicable sense, the way senseless things so often do in dreams.”

David Graeber –  After the Pandemic, We Can’t Go Back to Sleep



Rishi Sunak is looking to raise funds! So says an article in the mainstream media this week. Raise funds for what? A gym, a swimming pool or perhaps tennis courts for his £1.5 million manor? No, nothing so trivial! The article, like so many over the past few months, was speculating on how the Chancellor might get the public finances back on track after the huge spending response by the government to keep the country economically afloat and functioning during the pandemic.

What’s it to be? Capital gains tax, targeting public sector pensions, abandoning the pensions triple lock, cutting public sector spending, raising taxes, or perhaps increasing National Insurance (to fund the proposed social care reforms if they ever get off the drawing board). After all, you’ve got to find the money from somewhere, haven’t you? At this point one cannot help but note with a hint sarcasm, that an excessively wealthy Chancellor is now considering cutting benefits for some of the poorest people in our society, putting balanced accounts over people’s lives.

Last week, the BBC covered yet another fake story about government borrowing. It reported that whilst overall borrowing was down on the same time last year, the government had spent a record £8.7bn in interest on repaying its debts in June, three times as much as in June 2020, as a result of inflation which had raised the value of index-linked government bonds. It also noted that debt to GDP was at its highest since the 1960s.

In the same article, the Chancellor, whilst patting himself on the back for the ‘unprecedented package’ of pandemic support, the only option that he actually had to keep the economy from taking a nosedive, commented that he needed to ensure debt remained under control in the medium term and indicated that his ‘tough choices’ in the last budget were ‘to put the public finances on a sustainable path’.

The IFS, relishing its doom-mongering task, as always, said in July that they expected that the ‘tough choices’ would continue, even if the economy appeared to be recovering more quickly than had been expected at the last budget. It noted that ‘permanent economic damage’ had been done by the pandemic, and that rising debt interest costs meant that, under their forecast, the Chancellor would have little, if any, additional headroom against his stated medium-term target of current budget balance (borrowing only to invest, not to fund day-to-day spending) in this year’s Autumn Spending Review. Analysts did, however, stress that despite record interest, debt servicing costs as a share of GDP remained low by historic standards.

Ruth Gregory, a senior UK economist at Capital Economics, said that ‘the public finances should reap the benefits of a fuller recovery in GDP than the OBR expects, meaning that the deficit will fall still further.’ Assuming of course that the proclaimed recovery remains on track, which is looking less and less certain.

You can trace in the above text a common theme. Tax, borrowing, deficit, debt, and fiscal headroom is the vocabulary of choice by politicians, journalists and institutions when describing how the government spends. It is, therefore, unsurprising that the public accepts the deficit and debt fairy tales.

Whilst it may be the case in terms of how the public accounts are presented, the reality is that it is merely an accounting framework which fails to reflect the capacity of the UK government, as the currency issuer, to spend money into existence, and is designed to keep a lid on monetary reality.

Instead, the media in its analysis, acts to reinforce the incorrect narrative of how the government spends, and focuses either on the capabilities of the chancellor of the day to manage the economy in a fiscally sound manner, or aims to shock the same public when the deficit and debt increase, leading to false accusations by the political opposition of economic mismanagement and spending beyond the nation’s means.

We can certainly expect more of this household budget nonsense in the months to come. After a vast round of government spending to prop up the economy, someone’s got to keep the public’s expectations in check, to keep the status quo in place by suggesting that government must balance its books, sooner or later.

In this, the journalists fall over themselves, as Will Hutton did this week in an article discussing the current economic situation, to frame the issues as per usual in terms of borrowing, deficit and debt, as if they represented monetary reality. To give him his due, he was clear, in a deficit dove sort of way, that the spending responses the government had made to address the prevailing economic conditions had been necessary to stop the economy from crashing, and went on to suggest that such spending would need to continue to support the economy. However, even if he didn’t say it, caught as he is like many others in the false paradigm of how the government spends, he will be equally quick to suggest at some time in the future that whilst we might continue to borrow while interest rates remain low, eventually there will be a reckoning and government will have no alternative but to curb its spending and restore fiscal discipline.

Now is the time to challenge this notion of monetary scarcity, and also the economic orthodoxy which has done huge harm to the UK, and also globally.

As the MMT Lens has noted many times before, it’s not the state of the public accounts that are important in themselves, but the economic conditions that lie behind them. What choices did the government make, faced with those economic conditions? What did the government do, or not do, who benefited and who did not?

The media, acting like a magician using his powers of sleight of hand, guides the public to be afraid of public debt and its consequences, when all the while the future of the planet hangs in the balance, not just in terms of planetary degradation, but also the poverty and inequality which will continue to grow without urgent action.

We need a State of the Nation Address to make clear what the consequences of the ideologically driven policies of successive governments and their spending choices have been, and most particularly over the last decade. While the rich have benefited from an ever-larger proportion of wealth, the living standards of successive generations have fallen, increasing poverty and inequality.

The ‘cheap as chips’ economy flourishes increasingly for only one section of it. The corporate sector. Earlier in the year, it was reported that the wealth of the world’s billionaires had grown by $4tn during the pandemic, despite the global economy suffering its deepest recession since the Second World War. Jeff Bezos, Mark Zuckerberg, and Bill Gates are just a few of those who have come out of the crisis unscathed, and in some cases even richer.

At the other end of the wealth scale, the gig economy continues to flourish for owners of exploitative companies like Deliveroo, whose workers can earn as little as £2 an hour, unscrupulous employers employing the dirty tricks of fire and rehire on the back of the pandemic, and a continuing low wage economy (even if some sectors are under pressure due to shortages). When the question is asked why such employment standards have been allowed by law and why have they persisted under successive governments, there is only one answer; that those successive governments have served their corporate friends and their own interests through the revolving door, rather than those of the electorate.

This week, the charity Citizens Advice warned, as many have been doing over previous months, that the government’s planned £20 a week cut to Universal Credit could drive 2.3million people into debt. That includes people who were already struggling to make ends meet before the pandemic as a result of government policies.

A survey had shown that more than a third would be in debt after paying just their essential bills, if their benefits were to drop by £20 a week. This increased to half of claimants in the so-called ‘Red Wall’ areas. The organisation is warning of a ‘triple whammy of benefit cuts, rising energy bills and further redundancies as the furlough scheme ends, which will push families into hardship.’

Dame Clare Moriarty, the chief executive of Citizens Advice, described the cut as “a hammer blow to millions of people”, saying that it undermined the chance of a more equal recovery, by tipping families into the red and taking money from the communities most in need.

Whatever happened to Boris Johnson’s levelling up plan? In his usual defence of cutting the Universal Credit uplift, he suggested that claimants should rely on their own ‘efforts’ rather than accept ‘welfare.’ More ‘it’s your own fault if you can’t find a job’ neoliberal twaddle!

Whilst some in the media suggest that cutting the uplift would create electoral risks for Conservative constituencies in the Red Wall, they often fail to bring attention to something much more significant. That the poverty which preceded the pandemic, although alleviated by the increase in Universal Credit, is not a blip of nature, it has been politically induced. Johnson’s mantra of ‘getting people into work’ is no option at all, if wages are not high enough to keep people out of want. It helps no one apart from profit-seeking business, and the irony is that in the end, the whole economy suffers. People are poor, not because of their shortcomings or because they are lazy shirkers and not trying hard enough, they are poor because the government has decreed they should be.

The media should name the economic ideology that drives poverty and inequality and creates the vast disparities in wealth that we are seeing today. Neoliberalism. A phenomenon which has captured political parties, institutions, and the media which parrots its tenets of faith. The fact that many on Universal Credit are in work, surviving from hand to mouth on low wages, is a red warning indicator that something is wrong. It is an indictment of the government that poverty and employment insecurity has been built into the system to serve its corporate supporters who lobby to serve their own profit interests. But neoliberalism teaches, falsely, that government has no power to change the economic paradigm, and that its policies are constrained by scarce monetary resources. It is the spread of neoliberalism’s teachings that has prevented people from seeing the possibilities for positive change.

It was depressing this week to read about Labour’s plans for overhauling the Universal Credit System through allowing low-income workers to earn more, without seeing a cut in their welfare payments. The phrase ‘making work pay,’ featured in the presentation of their plans, which was horribly reminiscent of Iain Duncan Smith’s dictionary of human torture which informed his welfare shakeup and the Universal Credit Plan in 2010, and which incidentally and shamefully Labour supported. What changes? Labour sharing a bed with its corporate friends alongside the Tories, when it had the opportunity to break free of the economic ideology which has done so much damage already.

With increased knowledge about the capacity of government to act, it doesn’t have to be this way. With a government that puts the needs of its citizens at the top of its agenda, it could, through adopting full employment as a policy objective, and the implementation of a Job Guarantee, ensure that people are paid a living wage instead of what happens now, which is, in effect, a wage subsidy to help out their corporate friends.

Since the government is the price setter for labour through its legislative capacity, a Job Guarantee would help both those in work on low wages and those who are involuntarily unemployed and seeking work. A centrally paid for employment scheme, paid at a living wage set by the government, would provide training, give people dignity and purpose as well as offer a transition into better paying, private sector employment, as and when economic conditions improve. That is the best option of all.

The macroeconomic bottom line is that people with more money in their pockets spend it back into the economy, thus benefiting their local communities and the wider economy. They can pay for the real essentials like rent, food, clothing, and travel, with enough left over for life’s pleasures. Nobody should have to rely on food banks to feed themselves or their children.

What’s not to like? It’s a no-brainer. The economy would benefit, (which in an alternative world to the one we currently inhabit should be the aim of all governments whichever side of the political spectrum they stand) and working people would benefit through increased financial security and improved health and well-being.

Furthermore, with the challenge that is being presented by the urgent necessity to address the climate emergency and work towards a just transition to a truly sustainable world, it offers us an important opportunity to rethink the way we do things, re-examine what work is, and move towards a world that is less oriented towards the consumption of things, to a world concerned with sustainable living and dedicated to fulfilling public purpose. We need to do this within the context, not of monetary constraints, but the very real constraints related to resources.

This week the Financial Times ran an article with the headline ‘Climate action will stall until the finance problem is solved’, in which it said:

‘The options are to raise debt, raise taxes (including wealth taxes) or adopt a wartime mentality. None are politically attractive which at a profound level is the reason why the finance question remains unanswered, and the climate crisis remains unresolved’.

On that basis, as humanity sinks beneath the waves, the politicians will still be puzzling their little brains about how to pay for it, when all the time they should have been looking at the real and finite resources we will need to deliver a green transition, and how they can be shared fairly to create a more equitable world. As a social media friend commented, referring to what would have happened if the government had said in 1939 at the beginning of the second world war, ‘We will not defend Britain until the finance is sorted’, it would have been lunacy. The government did what only it could do to prepare for the battles to come, it spent the money into existence, whilst at the same time, offering war bonds to remove private purchasing power to ensure that it was not competing for the resources it would need to prosecute the war. Those same tools can be used for a just, green transition.

When the fate of the planet and its citizens are at stake, it is a paltry and self-serving argument to ask how it will be paid for, or to claim that balanced budgets must come before action on climate, poverty, and inequality.

Whilst we may indeed have to develop a ‘wartime mentality’, we should interpret that, not as deprivation but as an opportunity for cooperation. A transformation from a society of endless consumption of things we don’t need, to one which really delivers public purpose, a society formulated around human and planetary well-being. A cup half full and not half empty.

Such a world seems light-years away, when the Business Secretary Kwasi Kwarteng, continues to advocate a ‘free market’ approach to the economy, that same approach which has created the structural weaknesses revealed over the past year and that will do nothing to save the planet. Whilst, at the same time, right-wing journalists mourn massive state intervention and a culture of unlimited spending (even though it’s poured vast sums of public money into private profit) and promote instead a return to the good old days of unrestrained growth and market dominance.

But in the light of the challenges we face, it is time to acknowledge the damage this approach has already caused and will continue to cause if we fail now to rethink how we live.

Finally, with the news that global trade uncertainty continues to affect the economy, retail sales suffered an unexpected fall in July, and figures show that consumption has levelled off. It rather takes the shine off the expectation that people would be anxious to spend their savings as soon as they were able to, thus saving the government from the ignominy of having to admit that its growth expectations were miscalculated or wishful thinking. The exhortation to spend has fallen flat on its face, for the time being at least.

The elephant in the room crashes about as the government continues to ignore its role in the economic trends, which were already weak before the pandemic as a result of cuts to public spending. And, that it needs to spend sufficiently to deal with the ongoing economic uncertainty and create confidence that government actions are operating in the favour of working people and their families, not the politicians’ corporate friends. In such circumstances, it is clear that those lucky enough to have savings are reluctant to splurge out, just in case things go pear-shaped, and it ignores the many who have no such savings and who have been living on the edge for years as a result of government spending and policy decisions.

While the government continues to threaten more cuts and more public sector austerity to pay down the imaginary debt, the removal of the Universal Credit uplift and potentially the pension triple lock, with the still to come uncertainty surrounding the planned withdrawal of furlough arrangements, people will continue to hunker down after a short flirtation with spending, if they had anything to spend.

Such a strategy, based as it is on a false narrative of government spending, and the evils of deficit and debt, and spending beyond the nation’s means, will constrain the government’s promises, weak as they are, to act on the climate crisis and address the consequences of their own ideologically-driven policies.

If we are to avoid further planetary degradation, destruction of land, resources, and biodiversity, and all that will mean for the future survival of human beings on this planet, we cannot afford to ignore the warnings. We have no monetary constraints, only real resource ones, and it is now for governments across the world to cooperate to ensure that we can deliver a sustainable global economy and a fairer distribution of real resources in both the poorest and richest countries alike. Everything is possible with political will, if we choose it.



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The post Fairy tales and the vocabulary of scarcity. Protecting the wealthy and hurting the rest appeared first on The Gower Initiative for Modern Money Studies.

“Excess Savings” Are Not Excessive

Published by Anonymous (not verified) on Wed, 11/08/2021 - 11:55pm in

Florin Bilbiie, Gauti Eggertsson, Giorgio Primiceri, and Andrea Tambalotti


How will the U.S. economy emerge from the ongoing COVID-19 pandemic? Will it struggle to return to prior levels of employment and activity, or will it come roaring back as soon as vaccinations are widespread and Americans feel comfortable travelling and eating out? Part of the answer to these questions hinges on what will happen to the large amount of “excess savings” that U.S. households have accumulated since last March. According to most estimates, these savings are around $1.6 trillion and counting. Some economists have expressed the concern that, if a considerable fraction of these accumulated funds is spent as soon as the economy re-opens, the ensuing rush of demand might be destabilizing. This post argues that these savings are not that excessive, when considered against the backdrop of the unprecedented government interventions adopted over the past year in support of households and that they are unlikely to generate a surge in demand post-pandemic.

Calculating excess savings is simple: they are the cumulative amount by which personal saving during the pandemic has exceeded a counterfactual path without COVID-19. As shown in blue in the chart below, personal saving has been elevated since last March. The red line represents one plausible counterfactual scenario, in which the saving rate out of disposable income is constant at its pre-pandemic level (7.3 percent), while disposable personal income grows at its average rate over the previous twenty years (3.5 percent). Excess savings are the area between the two lines. According to this calculation, they amounted to $1.6 trillion as of December 2020. Different plausible assumptions on the counterfactual evolution of personal saving in the absence of the pandemic lead to relatively small differences in this headline number.

“Excess Savings” Are Not Excessive

Where do these excess savings come from? Three contributing factors are clear. First, many Americans have thankfully kept their jobs and incomes over the past year. However, they have not spent nearly as much as they would have otherwise, because they are not dining out or going on vacation due to the pandemic. Increased purchases of furniture, electronics, and other goods have compensated only in part for this reduced spending on services. As a result, overall consumption has fallen for many households, even if their income is more or less intact. Second, starting with the emergency response approved in early March and the subsequent CARES Act, the government has stepped in to replace some of the lost income, especially for workers in the sectors hardest hit by the pandemic. Some of this income support was spent to keep food on the table and a roof over the heads of many families, but not all of it was. Third, it is possible that households decided to save more than usual as a precautionary measure, given the great uncertainty about their jobs and the overall health of the economy going forward.

Regardless of the precise reasons, there is no doubt that households saved more in the past year than they would have in a world without the pandemic. But is there anything “excessive” about the savings that they have thus accumulated? Are these moneys significantly different from the other $130 trillion in net worth that U.S. households already own, in a way that might lead them to be spent faster than other components of wealth? There are at least three reasons to think that the answer to this question is no.

Excess savings are the accounting counterpart of “extra” government debt. According to the principles of national income accounting, the flow of private saving (by households and businesses) must be channeled to one of three uses. It can finance investment, be lent abroad, or lent to the government. In 2020, the U.S. government spent roughly $2 trillion to fight the COVID-19 recession, most of it financed with debt. The $1.6 trillion in “excess savings” is the accounting counterpart of this increase in government borrowing.

As is often the case with accounting identities, this observation has limited economic implications. It does not reveal why households accumulated the “excess savings,” nor whether they will spend them once the economy fully re-opens. Nonetheless, it helps us to consider them under a different light—not as “extra” resources ready to be spent, but as the flip side of the extraordinary fiscal effort to fight the COVID-19 pandemic.

Excess savings are mostly held by…savers. One reason why many economists do not associate the exceptional increase in government debt over the past year with an imminent explosion in aggregate demand—even though they might worry about it for a host of other reasons—is the idea that government debt is money that citizens owe to themselves. As such, it would not represent “net wealth” that is ready to be spent. In economics jargon, this idea is known as Ricardian Equivalence. According to this proposition, public transfers financed with government debt do not affect consumption because households save them to pay for the increase in taxes that will eventually be necessary to repay that debt. If Ricardian Equivalence held, the marginal propensity to consume out of debt-financed transfers would be zero, and the resulting savings would never be spent.

Ricardian Equivalence is the kind of theoretical benchmark that economists love, but it clearly does not hold in practice. In fact, many U.S. families did spend a significant share of the checks and other income support that they received during the pandemic. According to available estimates, this share is around one-third on average. The rest was used to pay down debt (also about one-third) or otherwise saved. It is hard to know exactly who holds these savings, but it seems reasonable to assume that they are individuals and families with a bit of a buffer in their budgets—and whose consumption decisions are therefore less sensitive to their immediate economic circumstances. This is presumably what allowed them to save part of the support they received. According to economic theory, these savers are more likely to be Ricardian, and hence to continue holding on to these savings. Of course, their economic circumstances might change in the future and they might find themselves in need to spend those accumulated resources, but the end of the pandemic in itself is unlikely to turn them from savers to immediate spenders. If anything, fewer households should face financial hardship as aggregate conditions improve.

Excess savings are unlikely to unleash pent-up demand for services. One caveat to the previous reasoning is that some of the “excess savings” might be due to a dearth of spending opportunities in the sectors of the economy most affected by the virus, such as travel and entertainment. If this is true, some of that lost spending could materialize once those sectors fully re-open.

How large is this “pent-up” demand for services likely to be? On the one hand, there is little doubt that many consumers will enjoy a few extra restaurant meals and perhaps splurge on a nicer vacation after such a long period without them. On the other hand, there is a limit to how many extra restaurant meals and vacations people will be able to enjoy. To have a sense of how much of this pent-up demand might be activated by the “excess savings” accumulated during the pandemic, recall that available estimates of the propensity to consume out of the CARES Act transfers is about one-third. This means that the average household spent about 33 cents out of each dollar received in direct payments. As it turns out, this estimate is in line with those based on previous transfers of this kind, such as the Economic Stimulus Payments of 2008. Therefore, the pandemic does not seem to have substantially limited households’ ability to spend the support that they received.

The bottom line from these three sets of considerations is that, although large by historical standards, the savings accumulated by U.S. households during the pandemic do not appear to be “excessive” when set against the extraordinary need of many American families and the unprecedented government intervention to support them. It is certainly possible that some of these savings will pay for extra travel and entertainment once the COVID-19 nightmare is behind us, but our conclusion is that the resulting boost to expenditures will be limited. This conclusion does not rule out a strong economic recovery from the virus shock. It only implies that spending out of excess savings won’t be one of its major drivers.

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Florin Bilbiie is a professor of economics at the University of Lausanne, Switzerland.

Gauti Eggertsson is a professor of economics at Brown University.

Giorgio Primiceri is a professor of economics at Northwestern University.

Andrea TambalottiAndrea Tambalotti is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:

Florin Bilbiie, Gauti Eggertsson, Giorgio Primiceri, and Andrea Tambalotti, “’Excess Savings’ Are Not Excessive,” Federal Reserve Bank of New York Liberty Street Economics, April 5, 2021, https://libertystreeteconomics.newyorkfed.org/2021/04/excess-savings-are....


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Book Review: Crunch Time: How Married Couples Confront Unemployment by Aliya Hamid Rao

Published by Anonymous (not verified) on Mon, 09/08/2021 - 8:19pm in

In Crunch Time: How Married Couples Confront UnemploymentAliya Hamid Rao offers a new addition to sociological research on unemployment, delving into the ways that gender beliefs unequally shape men’s and women’s experiences of job search and unemployment. Sarah Damaske recommends this wonderful and engagingly written book for introducing a much-needed gender and work-family lens to the unemployment literature. 

If you are interested in this book review, you can read an interview with author Dr Aliya Hamid Rao on Crunch Time and the implications of its findings during the COVID-19 pandemic. 

Crunch Time: How Married Couples Confront Unemployment. Aliya Hamid Rao. University of California Press. 2020.

Find this book (affiliate link): amazon-logo

Aliya Hamid Rao’s Crunch Time: How Married Couples Confront Unemployment is a necessary addition to the sociological research on unemployment that has been surprisingly lacking in a gendered/work-family lens. Published in summer 2020, Crunch Time arrived in the middle of the COVID-19 pandemic, which further elevated the need for more sociological attention on the ways that gender beliefs unequally shape men’s and women’s job search and unemployment experiences.

There are many important contributions and insights in Crunch Time, including the ‘ideal job-seeker’ norm; whether one is ‘morally’ unemployed; men’s and women’s differential use of space in the home; the decision in some families to take a ‘pause’ on the economy of gratitude; and the ways women’s time is used to cut costs, while money is spent to preserve men’s time. Crunch Time is also engagingly written and accessible to a wide audience and would be great for use in both undergraduate and graduate classrooms.

Crunch Time begins with the story of the Barons, a family in which Todd, the primary earner and breadwinning dad, had lost his job and is now seen as not ‘morally’ unemployed by his wife, Kimmie. To be morally unemployed, we learn, would be to be more dedicated (in a devotional sort of way) to the job search. Rao next introduces us to the Brozeks, a family in which Lisa, the primary earner and breadwinning mum, had lost her job, but whose unemployment is not characterised as a problem to be solved or as a moral failing, but as an ‘opportunity’ to figure out what should come next.

Rao argues that time and again families ‘deploy gendered strategies’ in the wake of an involuntary job loss and unemployment experience. These strategies are deeply traditional, recalling the masculine breadwinner and feminine homemaker family structure (even in families that were not originally set up in such a way) as a way to re-affirm their social status, even as other aspects of their social status are lost.

Image Credit: Image by Niek Verlaan from Pixabay

Importantly, Rao argues that as the unemployed’s contact with the world of paid employment retreats, they begin to affirm their ‘devotion to work’ at home, through the fulfillment of the ‘ideal job-seeker’ norm. This norm has a number of characteristics that other research on the job search has similarly identified, including networking, devotion to the job search, large amounts of time spent searching, etc.

Rao shows how this devotion is demonstrated at home through interactions with one’s spouse. She also reveals that the rewards of this devotion are both professional, through the acquisition of a new job, and familial, via the direction of family resources to the job seeker, including time, space, money and emotions to allow them to find work. Rao’s re-framing of the unemployed’s job search as something that is, at its core, both physically and symbolically done at home is a critical insight. This framework helps us to understand why men and women have such different experiences of involuntary job loss, unemployment and the job search process.

One of the ways that Rao illuminates this framework is by examining the ways that men and women (don’t) take up space in their homes. There are many sections in the book that shed new light on our understanding of unemployment, gender and work-family and Rao’s interrogation of the unemployed’s use of space is one of my favourites. The ways that the families set up their homes to facilitate men’s job searches will likely ring true to anyone who has read the news about the stay-at-home orders this year and how households rearranged to accommodate work at home — a situation that often seemed to prioritise men’s paid labour over women’s. Post-pandemic readers will likely not be surprised to learn that Rao found the women carved out very little space for themselves, nor did their families attempt to do so.

The section focused on gendered time in job searching draws out many important ways that women’s time is minimised while men’s time is prioritised. Rao’s discussion of how an egalitarian couple worked to prioritise the husband’s return to work (and how this meant the wife became a ‘helpmeet’ for her husband) is fascinating, as is the discussion of how a couple decided to ‘pause’ on the economy of gratitude, which I thought was an excellent extension of Arlie Russell Hochschild’s original insight. These portraits add to our understanding of how couples can be both mostly egalitarian and also still stigmatise men’s unemployment in a way that makes the couple more traditional during the unemployment period.

Rao concludes by showing us how these gender dynamics play out in the decision-making surrounding household labour during the unemployment period. Women do much more household and childcare labour and men do much less (they, at best, ‘help’). Rao does an excellent job of painting a portrait of how this happens in families (even in families where women seek to avoid this labour). I also thought that Rao’s insight into how women’s time is used to save the family money (primarily via household labour), while the family spends money to place value on the husband’s time, was an important one.

I do have some questions for future thought. I would have appreciated a bit more discussion about the length of unemployment, as it appears that most of the participants were among the long-term unemployed at the time of the first interview (and it appears from Tables 3 and 4 that, on average, the women had been out of work longer than the men). We know that long-term unemployment is quite a different experience than unemployment experiences that are less than six months long. We know less about whether the gendered dynamics change over time during the unemployment process, although my own recent research suggests that it does. Does the tolerance for unemployment further change/look different if it’s a woman’s or a man’s family who is judging the process? We could expect that it does, as research suggests that men continue to identify as workers even after long periods of unemployment, while research on unemployed women has found that they may retreat into their identities as mothers to protect them from the stigma of unemployment.

I also wanted to know a bit more about the severances and unemployment benefits of the unemployed and how these fit into the families’ overall ability to weather the financial storm they were experiencing. The families are, as Rao describes them, the ‘professional middle-class’ (they are quite elite in many ways with the vast majority of the women holding graduate degrees and the median household income over $150,000). All families were dual-earner and had savings, but I wondered whether severances or unemployment benefits (and their duration or end date) shaped the discussions Rao witnessed at all. Finally, I very much appreciated Rao’s discussion of the ‘morally’ unemployed and would have loved to see this concept brought into dialogue with Jennifer Sherman’s conception of how morality matters among the rural poor and their use of unemployment or welfare.

In sum, this is a wonderful book that introduces a much-needed gender and work-family lens to the unemployment literature. I expect it will appeal to scholars of gender, work and family. I also believe the book will be appealing to undergraduates and I look forward to teaching it in my undergraduate and graduate classrooms.

Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics and Political Science. The LSE RB blog may receive a small commission if you choose to make a purchase through the above Amazon affiliate link. This is entirely independent of the coverage of the book on LSE Review of Books.


The cost of Covid-19 is no reason to put off tackling inequality and climate change

Money next to piggy bank wearing surgical maskPhoto by Konstantin Evdokimov on Unsplash

“Emperor Nero, it’s said, fiddled while Rome burned. If you don’t want our politicians to continue to follow his example while the world burns, get politically active now.”

Thom Hartmann – Counter Punch


We live in a world of contradictions.

Every day we see warnings about human-induced climate change and its effects on the planet in terms of floods and droughts which is, in turn, impacting on global food production. From the US to Canada, South America, Australia, Asia, and Europe no continent has remained untouched.

In 2019, as reported in the Guardian, 11,000 scientists from 153 countries declared that the world was facing a climate emergency. William Ripple, a professor of ecology at Oregon State University said that ‘despite 40 years of major global negotiations we have continued to conduct business as usual and have failed to address the crisis’.

Two years on, the research team that issued the declaration has warned that ‘there has been an unprecedented surge in climate-related disasters including record-shattering heatwaves, wildfires, hurricanes and devastating cyclones’, and that ‘earth’s vital signs are still deteriorating’.

This week, new research shows a further dangerous slowing of the Gulf Stream. In 2019, currents were at their slowest for at least 1600 years, but a new analysis suggests they may be nearing shutdown, even though precisely when that might happen is still in question. Regardless, we have no time to lose. The Guardian article noted that such an event ‘would have catastrophic consequences around the world, severely disrupting monsoons that billions of people depend on for food in India, South America and West Africa; increasing storms and lowering temperatures in Europe; and pushing up the sea level in the eastern US. It would also further endanger the Amazon rainforest and Antarctic ice sheets.’

Not insignificant consequences, more life-threatening ones.

Niklas Boers, from the Potsdam Institute for Climate Impact Research in Germany who did the research, commented that ‘The signs of destabilisation being visible already is something that I wouldn’t have expected and that I find scary. And, according to the same 2019 analysis, the planet ‘may have already crossed a series of tipping points’ which will result in ‘an existential threat to civilisation.’

Peter Kalmus, a Climate Scientist at NASA’s Jet Propulsion Lab, and one of a panel of experts asked by the Guardian about when we need to start changing our economies and ways of consuming and producing said: ‘We have zero years before climate and ecological breakdown, because it’s already here. We have zero years left to procrastinate.’

Globally the signs are not good, and as the recent floods in London and many other climate-induced events elsewhere in the UK have shown, we are not immune. Scientists have said that the UK is singularly unprepared for what is to come, as recent floods have demonstrated. The once-in-a-lifetime events are likely to become ubiquitous features of our climate landscape, and yet we still procrastinate. The government’s recent multi-billion-pound investment in flood prevention is welcome, but it is still failing to deal with the underlying causes of climate change. The unsustainable way we live.

It was surprising therefore that the same Public Accounts Committee that warned earlier this year that the government was not doing enough to prevent damage from flooding, recently said that taxpayers will be left facing significant financial risk for decades to come because of the high levels of government spending on the pandemic.

Once again MPs, with their incomplete knowledge about how the government spends, are claiming that the debt will be a problem. Which then begs the question where do they think the extra cash will come from to deal with the increasingly damaging effects of the climate crisis? If, as they believe, taxpayers are going to be burdened with debt arising from the pandemic?

The contradictions grow daily.

Whilst Rishi Sunak is promising to restore fiscal discipline at the earliest opportunity, the media builds on the narrative that there will be a financial cost to citizens to restore the public accounts to health. While the water pours over our heads. We cannot apparently afford to save ourselves from planetary and human degradation. We must pay back the debt at the cost of human lives.

Surely, at some point, those that govern us will have to acknowledge monetary reality and accept that the real constraints to spending are not fiscal, but real resources and how they are managed to create a sustainable and fairer society.

Contradictions abound wherever you look.

Whilst the Guardian and other media outlets solemnly report regularly on the climate emergency, at the same time they glory, as they did last week, in the expected opening up of the economy to tourism. In this case specifically ‘to unlock more business travel to boost the economy’. We need more growth, but who cares what sort? News of changes to travel restrictions was greeted with a rise in the stock market value of airline companies and demonstrate everything that is wrong about how we determine value. It seems the prospects for a different way of doing things is not so straightforward. The old normal still has its attractions.

In November, the government will be hosting the global climate summit COP26, which is supposedly going to be yet another defining moment of change. Based on previous experience of similar ‘defining moments’ over decades, which promptly got put on the ‘to do’ list and were shelved as soon as everyone went home, why should we believe that this time will be any different?

If it is so important, why are we not grasping the nettle right now? Why are we waiting for another talking shop to tell us what we know today, right now? As has been pointed out in previous MMT Lens, the UK government’s commitment to addressing the climate crisis is lukewarm, known more for its fancy rhetoric than concrete action.

We must not let COP26 become yet another failed opportunity. The time for warnings is over. As Mike Hall, a recent guest on one of GIMMS ‘In Conversation’ events, commenting on social media this week about the slowing of the Gulf Stream, said:

‘This is really shocking. In order to act on, and sustain, any of this, planners and decision makers need to unlearn the mainstream economics drivel they were taught and learn how a monetary economy actually works – something we mostly knew in WWII in building a ‘Mobilisation Economy’. We need to ramp up action now in order to transform all of our major systems by 2050, energy, transportation, industry, agriculture, waste management. We’ll need to eat less meat, farm in ways that store more carbon in the soils, re-forest degraded or abandoned land and restore wetlands.’

But no, instead, the media talks about opening up, creating more unsustainable growth, and unlocking business to boost it, at a time when we should be urgently talking about how we move the global economy towards sustainability, and addressing the huge global wealth inequalities that have kept a destructive economic system in place for decades, creating vast wealth inequity and leading to the on-going decay of our public and social infrastructure.

For over a decade, working people and their families have been at the sharp end of those consequences, which have proved stark, not to mention disturbing, as public money has been shovelled and continues to be shovelled into private profit, whilst at the same time, further austerity in the form of higher taxes or cuts to public spending, is being promoted daily in the media as the solution to paying down the debt’. The message is stuck in a groove that seems inescapable and is preparing us for the next bout of fiscal retrenchment, not because the government needs to pay down the illusory debt, but because it forms part of its neoliberally driven political agenda.

That neoliberal ideology insidiously pervades our belief systems and is destroying us bit by bit. As George Monbiot wrote in an article in 2016

‘We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.


Never mind structural unemployment: if you don’t have a job, it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.


Neoliberalism has brought out the worst in us.’

The adherence by all political parties to this toxic economic creed, over decades, is responsible for the exploitation of the planet’s resources and has caused huge environmental destruction, it has impoverished people financially and culturally, created huge wealth inequality, left our public and social infrastructure in tatters, and created huge societal divisions to distract us while the political elites continue to serve the insatiable god of unsustainable growth and their own bank accounts. It has divided us and diluted the concept of common cause and cooperation.

As a result, while we are facing an environmental crisis of gigantic, life-threatening proportions, we are now watching the Minister of Hard Decisions in No 11 evaluate options for paying down the non-existent national debt with the media savouring its role in keeping people fearful of the future. What will the Chancellor do? Almost daily that is the question posed. Will he remove the pension triple lock to reduce the pensions bill as if it were a question of monetary affordability, which it is not, or claim that it is a question of intergenerational fairness as if there were a finite pot of money, which there isn’t. Or will he continue with his plan to withdraw the £20 Universal Credit uplift from some of the poorest people in the country? People who were already struggling to make ends meet before the pandemic.

With this week’s announcement that energy prices will rise, charities are rightly warning that this will hit families very hard at a time when many household budgets are already stretched to the limit.

While the government spews out its rhetoric, our society is in meltdown and our children, who represent the future, are bearing the brunt of government failure. This week it was reported that high levels of deprivation in the north-east of England are driving more and more demand for children’s social care services. A Director of children’s services said that ‘poverty is stark, shameful and obvious. Life chances are blighted. I’ve worked in a number of local authorities all over the country, but I’ve never worked anywhere where poverty is as bad and life chances so poor.

Whilst directors are calling for a radical rethink of how to provide good foster homes for children who need them and recommend the removal or capping of profit-making opportunities in the residential care sector, we should also be looking at the origins of this failure, which is rooted not only in government cuts to spending over a decade, but also the insecure, low wage employment environment which has been promoted for decades and which, in turn, has impacted on the lives of many families.

The pandemic is not over, furlough is ending, and unemployment is predicted to rise as a result. The National Institute of Economic and Social Research said this week that the jobless rate would likely increase from 4.8% to 5.4%. Whilst an upbeat picture is being presented contending that the opening up of the economy will lead to new jobs, nothing is certain if the Chancellor continues along the fiscal retrenchment route. Cutting spending or increasing taxes as the Chancellor suggested earlier this year might be an option, would be, at this time of great challenge and uncertainty, the wrong path to take. As would increasing taxes to pay for social care as No 10 proposed last month or as Zoe Williams from the Guardian put it in an article this week the ‘blindingly obvious way’ would be to fund it with ‘inheritance tax’.

Again, we have politicians and journalists reinforcing the pervasive message that taxes fund spending, without even thinking about the economic consequences of doing so. Whilst they promote boosting the economy, they take away the means for that to happen. Again, contradictions.

Taking money out of people’s pockets when the economy is still emerging from the effects of the pandemic would be not just unwise, but hugely damaging. Adding to the harm already caused by 10 years of spending cuts and public policy decisions which have ravaged our public and social infrastructure, forced people into homelessness and hunger, driven poor wages and employment insecurity with all the associated consequences on people’s health and well-being, would be tantamount to madness. Combine that with the challenges posed by the climate emergency, such a route would be more than disastrous.

Worse, the fact that it is predicated on the lies of monetary scarcity or rising debt, which it is claimed will pose a financial burden on future generations, begs the question, yet again, in whose interests do such lies work? Certainly, not those of working people and their families and friends, nor the planet!

Although much improvement has been made through MMT education networks such as GIMMS and the MMT Podcast, with a nation still largely ignorant of monetary reality, there remains much work to do. At first sight, the mention of economics may be seen as irrelevant to people’s lives, inducing an immediate mental switch off. It is understandable. But once one realises the potential of such an understanding it becomes the art of the possible. Economics is not an arcane subject; it is about us and the impact of government spending and politically driven policies on our lives.  Nobody needs a degree to understand this, and the basics of how the government spends can be described very simply in less than 10 minutes, as the video below shows.

While the right-wing press cries wolf over public debt and urges fiscal retrenchment, those on the progressive left are still, disappointingly, adopting Margaret Thatcher’s narrative about how governments spend. Week in, week out, left-wing groups on social media are awash with memes decrying the Conservative record on deficits and debt. Progressive Labour politicians demand on their pages that the rich are made to pay their tax so that public services can be funded, when, instead, they should talk about taxing the rich to address wealth and real resource inequalities to remove some of their purchasing power and the political influence their wealth wields. That is just as powerful a message and stops dead the incorrect narrative that taxes fund spending. As Warren Mosler says, it’s all a question of sequence and progressive politicians need to understand that governments like the UK’s spend to tax not tax to spend, and whilst they also indulge in the illusion of borrowing, they can’t do that either until they have spent the money into existence. It’s simple when you know.

Instead of calling out the Tories on their economic record, those on the left allow themselves to be side-tracked by such memes which do more damage than good and reinforce in the minds of their readers the idea that the public finances are like their own household budgets. Instead of worrying about the size of the National Debt they could, instead and more productively, focus more on critiquing the economic policies which have, for more than a decade, created huge poverty and inequality, created vast disparities in wealth and destroyed our public infrastructure, whilst at the same time benefitting global corporations and those politicians that serve them through the revolving door.

At election time, the household budget narrative is used by politicians of all shades to discredit each other’s records on deficit and debt. The note left in the Treasury by the Labour MP Liam Byrne, claiming that there was no money left, is an example of this false narrative and proved a gift to the Conservatives allowing them to justify their austerity agenda.

This is absolutely the wrong measure by which to determine the efficacy or otherwise of a government’s time in power. Such beliefs will ultimately drive us into a destructive cul-de-sac at a time when we need to address the climate emergency and bring about a just transition towards a sustainable world as a matter of urgency.

It matters not who increased deficits or created the most debt – it is a red herring designed to take the public’s eyes off the real ball. What matters are the economic conditions at the time and how the government responded. What did they do or not do to ensure the economy could function effectively both in good times and bad? Who benefited and who did not?

Currently, as Frances Ryan, the journalist and disability campaigner, wrote in the Guardian this week:

‘The gap between reality and Boris Johnson’s “levelling up” rhetoric could hardly be starker. It is only concrete action that can lead us down a different path: on housing, disability, insecurity at work, and the gaping holes in our welfare state. A government that leaves millions of the public unable to even eat or wash has, by any definition, failed. Poverty is indeed a mark of shame – but one solely on ministers’ shoulders.’

It is interesting to note this week that Steve Baker, who is the Conservative MP for Wycombe in the traditionally conservative home counties, has urged ministers to abandon its plans to cut universal credit, remarking on the ‘intolerable’ hunger and poverty faced by many of his constituents.

These are the direct consequences of a decade and more of spending decisions and public policy.

Last week, it was astonishing to learn that the Prime Minister and his Home Secretary Priti Patel were proposing a new crime-fighting strategy consisting of ‘chain gangs’ of offenders dressed in such a way as to draw public attention to who was litter picking. Will they be calling for a return of the stocks next or public shaming? Apart from the vile nature of their proposals, reminiscent of Victorian ideals and Dickens novels, it is symptomatic of their singular neoliberal belief in the value of personal responsibility which, at the same time, ignores the role of government in creating an economic environment that strips people of the means by which they can live with dignity and sufficiency and is conducive to an increase in crime.

James Timpson from the UK shoe repair chain was critical of the proposals and tweeted in response:

‘Instead of making offenders wear high viz jackets in chain gangs, how about helping them get a real job instead? In my shops we employ lots of ex-offenders and they wear a shirt and tie. Same people, different approach, a much better outcome.’

Why not go one step further and introduce a properly funded Job Guarantee so that no one faces the indignity of involuntary unemployment? It would provide useful community-based work at a living wage, give people employment and training opportunities when they need them and allow them to make their contribution to society and the economy. It would, at the same time, also promote a sense of self-worth and improve their chances of transitioning into private sector work when the opportunity arises.

Over the past year, we have learned the value of real resources, in this case, the people who do the jobs and keep the economy functioning and productive. Leaving people to flounder, without good work or wages, is detrimental to those affected and detrimental to the economy. These are the people who should be paid decent wages and benefit from good terms and conditions, not be at the mercy of employers exploiting their labour for more profit. A Job Guarantee sets the price for labour and ensures that working people don’t have to work for peanuts or precariously.

This is a time for radical action. Not just to deal with the pressing and urgent climate crisis by rethinking how we live our lives, but also to deal with the vast global inequities of wealth and resources that have arisen over many decades as a result of the exploitation of both people and the finite resources that sustain our western lifestyles.

Time to think the unthinkable! Time to start thinking MMT.



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Black and White Differences in the Labor Market Recovery from COVID-19

Published by Anonymous (not verified) on Tue, 27/07/2021 - 5:56am in

David Dam, Meghana Gaur, Fatih Karahan, Laura Pilossoph, and Will Schirmer


The ongoing COVID-19 pandemic and the various measures put in place to contain it caused a rapid deterioration in labor market conditions for many workers and plunged the nation into recession. The unemployment rate increased dramatically during the COVID recession, rising from 3.5 percent in February to 14.8 percent in April, accompanied by an almost three percentage point decline in labor force participation. While the subsequent labor market recovery in the aggregate has exceeded even some of the most optimistic scenarios put forth soon after this dramatic rise, the recovery has been markedly weaker for the Black population. In this post, we document several striking differences in labor market outcomes by race and use Current Population Survey (CPS) data to better understand them.

Recessions tend to have disproportionately adverse effects on the labor market outcomes of Black workers. For example, in the years leading up to the Great Recession of 2007-09, the unemployment gap between Black and white workers reached as low as 3.4 percentage points, but it peaked at 8.5 percentage points during the aftermath of the Great Recession. The COVID recession has been no outlier in this regard, as shown in the chart below. The unemployment rate rose significantly more for the Black population, pushing the Black-white unemployment gap from 3 percentage points in February to 5.4 percentage points in August. Similarly, while the long expansion following the Great Recession had narrowed the long-standing Black-white participation gap, the pandemic erased these gains. Participation fell more severely for the Black population at the onset of the pandemic and has since recovered more slowly.


The evolution of the unemployment and labor force participation rates is shaped by flows between employment, unemployment, and being “not in” the labor force. For example, the unemployment rate declines if more people find jobs or fewer workers are displaced. Given that a large share of the unemployed are currently classified as temporarily unemployed (namely, those who have been given a date to return to work or who expect to return to work within six months) and that temporarily and permanently unemployed workers tend to find jobs or drop out of the labor force at very different rates, we distinguish between these two groups in our analysis. We use data from the CPS on individuals age 16 and older, and we compute the rate at which Black and white workers transition between employment (E), temporary unemployment (TU), permanent unemployment (PU), and not in labor force (N).

The rate at which workers find jobs out of unemployment has declined for both Blacks and whites this year, with the level of job-finding significantly lower for Blacks until a recent reversal. Breaking down the job-finding rate into transitions from permanent and temporary unemployment clarifies the disparate experiences of Black and white workers (see chart below). Blacks have lower job-finding rates from both permanent and temporary unemployment but have seen a more gradual decline in job‑finding as the recession has progressed. In recent months, the white job-finding rates from both permanent and temporary unemployment have dropped below the corresponding Black job-finding rates. If the current job-finding rates were to continue, all else the same, we would expect a somewhat faster decline in the Black unemployment rate.

LSE_2021_COVID-recession_karahan_ch2-v2_Artboard 2

Black and white job loss rates have exhibited a similar pattern. For both Black and white workers, job loss resulting in temporary unemployment peaked in June before declining in recent months, as shown in the chart below. Job loss resulting in permanent unemployment similarly peaked in June. However, for employment loss resulting in both permanent and temporary unemployment, Black workers have experienced significantly higher rates than whites. The Black-white gap in job loss resulting in temporary unemployment widened at the peak of job loss resulting in temporary unemployment, while the gap in job loss resulting in permanent unemployment has been relatively stable throughout the recession.

LSE_2021_COVID-recession_karahan_ch3-v2_Artboard 2

An important feature of the U.S. labor market is that flows out of employment are not always to unemployment; a nonnegligible share of workers drop out of labor force each month. These flows are important determinants of the unemployment and labor force participation rates. Indeed, labor force exit from employment varies significantly for Black and white workers. Until June, the two groups exhibited similar trends as labor force exit from employment dropped. However, in recent months the labor force exit rate for white workers has reverted to pre-pandemic levels, while the labor force exit rate for Black workers has increased dramatically (see chart below). The divergence in Black and white labor force exit rates from employment in recent months suggests that labor force participation for the Black population may remain significantly depressed in the coming months while white labor force participation may recover more quickly, with this combination erasing the gains achieved during the long expansion following the Great Recession.

LSE_2021_COVID-recession_karahan_ch4-v2_Artboard 2

The COVID recession, like most post-war recessions, has had disproportionate effects on the Black population. We trace the rising and persistent Black-white unemployment and labor force participation gaps to the underlying flows between labor market states. For Black workers, a lower job-finding rate and a higher separation rate into unemployment have contributed to the larger increase and subsequent slower recovery of the unemployment rate. While the job-finding and job-loss rates for Black and white workers have converged recently, resulting in a narrowing of the Black-white unemployment gap, the transition rate from employment into nonparticipation for Black workers remains elevated. This relatively high rate of labor force exit for Black workers may lead to a persistently elevated Black-white labor force participation gap and an uneven labor market recovery.

Chart data

David Dam is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.
Meghana Gaur is a senior research analyst in the Research and Statistics Group.
Fatih Karahan is a senior economist in the Research and Statistics Group
Laura Pilossoph is an economist in the Research and Statistics Group.
Will Schirmer is a senior research analyst in the Research and Statistics Group.

How to cite this post:

David Dam, Meghana Gaur, Fatih Karahan, Laura Pilossoph, and Will Schirmer, “Black and White Differences in the Labor Market Recovery from COVID-19,” Federal Reserve Bank of New York Liberty Street Economics, February 9, 2021, https://libertystreeteconomics.newyorkfed.org/2021/02/black-and-white-di....

Related Reading

Economic Inequality Research Series
Economic Inequality and Equitable Growth


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Who Benefited from PPP Loans by Fintech Lenders?

Published by Anonymous (not verified) on Thu, 15/07/2021 - 6:03am in

Jessica Battisto, Nathan Godin, Claire Kramer Mills, and Asani Sarkar

Who Benefited from PPP Loans by Fintech Lenders?

In the previous post, we discussed inequalities in access to credit from the Paycheck Protection Program (PPP), showing that, although fintech lenders had a small share of total PPP loan volumes, they provided important support for underserved borrowers. In this post, we ask whether smaller firms received the amount of PPP credit that they requested, and whether loans went to the hardest-hit areas and mitigated job losses. Our results indicate that fintech providers were a key channel in reaching minority-owned firms, the smallest of small businesses, and borrowers most affected by the coronavirus pandemic.

Did Smaller Firms Seek and Receive PPP Loans?

A request for a small dollar loan—defined as $25,000 or less in the Federal Reserve’s Small Business Credit Survey–may indicate credit demand by smaller firms that find such loans better suited to their business needs. In support of this interpretation, we find that firms with fewer employees, lower annual revenues, and women owners were more likely to apply for small loans, consistent with prior research that women-owned firms are smaller, on average, than those owned by men. For example, the median amount requested by nonemployer firms (those with no employees other than the owner) was just $12,000. Nonemployer firms were also more likely to apply to fintech lenders, perhaps because banks have higher fixed costs of processing small dollar loans than fintech firms. Since the PPP lender fees are a percentage of loan size (for example, 5 percent for loans of no more than $350,000), banks may have insufficient incentives to provide small PPP loans.

Among participants in the Small Business Credit Survey with between one and 499 employees, the median amount of PPP funds sought by those applying to fintech lenders was $32,000, compared to about $60,000 for bank applicants (see chart below). Fintech lenders approved loans with a median size of $20,000 (about 63 percent of the amount applied for) while banks approved loans with a median size of $50,000 (about 83 percent of the amount applied for). The lower shares of requested amounts that were approved for applicants to fintech lenders may reflect the smaller size of such firms, and their lesser familiarity with PPP rules. For example, the smallest businesses were less aware of PPP and less likely to apply to it, and, if they applied, they were more likely to apply late and face longer processing times.

Who Benefited from PPP Loans by Fintech Lenders?

Could small loan sizes indicate credit rationing by fintech lenders? This seems unlikely since applicants requested smaller loans. Historically, fintech firms have provided small dollar loans but at high interest rates, perhaps incentivizing applicants to request smaller loans. However, since rates are fixed in PPP, this incentive seems absent.

The survey results are corroborated with the PPP loan data. The chart below shows that fintech loans were concentrated in small loan sizes, especially those below $25,000. Fintech lenders’ share of loan volumes during Wave 1 of the PPP (April 3-16, 2020) was about 7 percent and 1 percent for loan sizes below $25,000 and above $1 million, respectively, and increased to 29 percent and 4 percent, respectively, during Wave 2 (April 27-August 8, 2020). The shares of small loans for large and small banks were 30 percent and 57 percent, respectively, during Wave 1 and 36 percent and 29 percent during Wave 2. In other words, the increase in fintech lending during Wave 2 mostly occurred in the smallest loan sizes. While all lenders increased their share of small loans from Wave 1 to Wave 2, the relative increase was greater for fintech lenders than banks. Prior research had also noted a substitution between fintech lenders and banks but not that this occurred for small sized loans.

Who Benefited from PPP Loans by Fintech Lenders?

Did Fintech Loans Reach Hard-Hit Borrowers?

Some design features of the PPP program and the importance of pre-existing banking relationships may have prevented PPP lenders from reaching borrowers most affected by the pandemic, at least during Wave 1, but smaller banks did better than large banks. Did fintech lenders improve on banks in targeting loans to borrowers most in need?

To answer this question, we regress a lender’s loans in a county as a share of its loans in the state on the share of a race or ethnic group residing in the county and measures of county characteristics (such as its education and income levels relative to the state). We find that fintech lenders provided more small loans (less than $25,000) in counties with higher fractions of Black residents during Wave 1. By comparison, small loans by banks during Wave 1 had a negative or no correlation with the fraction of Black residents in the county. These results highlight the outsized impact of the few fintech lenders that were authorized to provide PPP loans during Wave 1.

Did fintech loans go to counties with higher COVID-related deaths? In the regressions, we include an additional explanatory variable: the county’s death rate from COVID-19 on May 4, 2020 (for Wave 1) and May 27, 2020 (for Wave 2). The dates were selected to account for the fact that COVID-19 deaths lag the incidence of the disease. We find that fintech lenders provided more small loans (less than $25,000) in counties with higher death rates. This is illustrated in the scatter diagram below where the difference in death rates between the highest and lowest death rate counties in a state is plotted against the difference in fintech lenders’ share of small loans for those same counties. Fintech firms’ small loan shares have high correlation with death rates, especially in states with large geographical dispersion in death rates. For example, in New York, fintech lenders’ share of small loans was almost twice as large in the counties with the highest death rates as compared to counties with the lowest death rates. By comparison, bank loan shares were statistically uncorrelated with death rates during Wave 1. During Wave 2, loans of all lenders had a similar correlation with death rates, consistent with other research.

Who Benefited from PPP Loans by Fintech Lenders?

Were PPP Loans Associated with More Rehires?

Firms that applied for emergency assistance (PPP or other government programs like the EIDL) were more adversely affected by the pandemic than those that did not. Half of firms that completed an application had reduced their workforce, as compared to about 27 percent for firms that did not apply for emergency assistance. This was particularly true for Black-owned firms. About two-thirds of Black-owned firms that applied for emergency assistance had reduced their workforce while less than half of white-owned firms had done so.

When applicant firms received PPP loans, they were then more likely to rehire employees. More than three-fourths of firms that received PPP funds took actions to rehire employees compared to just over half of firms that did not apply for or receive PPP funds. Black-owned firms that received PPP were as likely as white-owned firms to have attempted to rehire their employees. However, among firms that did not receive PPP funds (either because they did not apply or they applied but were not approved), Black-owned firms were less likely than white-owned firms to attempt to rehire.

Our results do not establish that PPP loans caused more rehires since we do not account for credit demand effects. Nor can our data speak to the magnitude of job loss preventions, but prior research has found that the PPP had modest employment effects. However, it may have helped in other ways—for example, to enable firms to meet non-PPP loans and other non-payroll obligations and to improve their chances of survival.

Final Words

While fintech lenders accounted for a small share of total PPP loan volumes, they played an important role in serving minority owners and businesses that needed small loans but were less likely to receive them from other sources. These smallest of small establishments are critical in supporting vibrant commercial districts and have higher shares of female and minority entrepreneurs. Reflecting this, special efforts were made in the most recent round of PPP funding to make the program more attractive to sole proprietors, independent contractors, and the self-employed.

Chart data

Jessica BattistoJessica Battisto is a senior research analyst in the Federal Reserve Bank of New York’s Outreach and Education Group.

Nathan GodinNathan Godin is a senior research analyst in the Bank’s Research and Statistics Group.

Claire Kramer MillsClaire Kramer Mills is an assistant vice president and director of community development analysis in the Bank’s Outreach and Education Group.

Asani SarkarAsani Sarkar is an assistant vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Jessica Battisto, Nathan Godin, Claire Kramer Mills, and Asani Sarkar, “Who Benefited from PPP Loans by Fintech Lenders?,” Federal Reserve Bank of New York Liberty Street Economics, May 27, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/who-benefited-from....

Additional Posts in This Series

COVID-19 and Small Businesses: Uneven Patterns by Race and Income
Who Received PPP Loans by Fintech Lenders?

Related Reading

Economic Inequality series

Press Briefing

Who Benefited from PPP Loans by Fintech Lenders?


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Politicians and the media coax the public to accept a new period of austerity

Elderly woman looking out of her windowPhoto by Kaspars Eglitis on Unsplash

“The political class in Westminster have failed us. They inoculate themselves against the pain that we suffer. We will not forgive them, and no, we will not be patient with their political ideology – a belief system which sees exploitation, grotesque levels of inequality, the constant threat of war and destitution as a fair price for the protection of a system which serves them and the richest so well. We have run out of patience with their destruction.

They wilfully look away at the crisis in housing, at poverty pay, they have encouraged a system of privatisation and fragmentation of our NHS, taking away more and more of our services, they stoke a despicable nationalistic racism and cultivate culture wars to distract us, to divert our attention and to obscure the truth. The truth is they refuse to serve our interests and they have disdain for our lives.”

Laura Pidcock


This week, the debt doomsters have been out in force! The media and politicians alike have yet again been trying to pull the wool over our eyes with warnings about public debt, handily reinforced by the publication of the Office for Budget Responsibility’s (OBR) Fiscal Risks Report.

Whilst Labour’s Rachel Reeves commits to a cosy conversation with the public about how we can pay for social care, saying that the party would be willing to put up taxes to do so, the OBR’s report has set off a spate of media articles designed to prepare the public for some ‘hard choices’, as Rishi Sunak has previously described it.

We are being primed for the government to abandon its commitment to the pension ‘triple lock’ with scaremongering about its cost, as Sunak claims that concerns about the 8% rise to the state pension due this year under the policy are ‘completely legitimate’, and that any decision will be ‘fair for pensioners and taxpayers.’ And thus, yet again, we see politicians creating and reinforcing societal and intergenerational division for a political agenda, based on the lie that taxes fund state pensions. By claiming that there is a limited pot of ‘taxpayers’ money’, they imply that the triple-lock for pensioners will deprive young people of a stable life and burden them with higher taxes in the future, leading to the conclusion that pension costs must be controlled to be fair to the young. At the same time, it ignores the ongoing reality of decades of government created pensioner poverty and the mess of government-encouraged private pensions that rely on a corrupt and unstable financial sector. Yet again, we see the government creating conflict and absolving its responsibility for its citizens on the false premise of monetary unaffordability.

Then, this week, it was announced that the government would be withdrawing the £20 a week Universal Credit uplift which gave people a lifeline during this difficult time, and went some way to repair the damage caused by 10 years of cuts to public and social security spending.

What sort of perverted logic claims that reducing weekly payments will contribute to getting people ‘back into work’? What sort of perverted logic suggests that people already in work and existing on low incomes and in precarious employment, and for whom the uplift represented an improvement in their living standards, should now be denied it?

Apart from lacking moral compass, such a decision is also macroeconomically bonkers, as it removes money that was being spent into the economy by both those unfortunate enough to have been made unemployed or indeed those receiving in-work benefits because of low incomes. In this respect, the government’s preoccupation with the economy is laughable, since it fails to recognise the role of private spending. It also fails to recognise that it is the government that is actually responsible for creating an environment conducive to the good functioning of the economy.

When asked how a cut would help people to find work, Sunak’s response was that the government was ‘making sure that people are funded by the government to get new qualifications and skills.’ However, as the parable about the 100 dogs and 95 bones (told by Warren Mosler, below) and the economist Bill Mitchell make clear, ‘training does not equal jobs.’


And as for job creation, we can look to the government’s Kickstart scheme which allows employers to offer a six-month work placement funded by the government. It was revealed this week by the work and pensions secretary, Therese Coffey, that just over 40,000 young job seekers had started work on the scheme out of a planned 250,000. A scheme that expires at the end of the year, and we are already halfway through. Not exactly a roaring success.

Those in government suggesting that reducing the current payments is a solution and would contribute to getting people back into work, presumably because then they will accept a low wage and insecure employment, clearly have never had a day of living with government-created want in their lives. Even former Tory work and pensions secretaries have asked that the government rethink, as government ministers have admitted that they have made no studies on how many more children the withdrawal of the Universal Credit uplift will push into poverty, with figures being suggested of over 400,000.

In that light, a report published this week by Loughborough University revealed that even before the pandemic arrived 4.3 million children were living in poverty, up 200,000 on the previous year – and up 500,000 over the past five years. It also noted that 75% of children living in poverty in 2019/20 were in households with at least one working adult, which was up 67% on 2014/15.

Anna Feuchtwang, Chair of the End Child Poverty Coalition said:

“The figures speak for themselves – the situation for children couldn’t be starker. We all want to live in a society where children are supported to be the best they can be, but the reality is very different for too many.

“The UK Government can be in no doubt about the challenge it faces if it is serious about ‘levelling up’ parts of the country hardest hit by poverty. After the year we’ve all had, they owe it to our children to come up with a plan to tackle child poverty that includes a boost to children’s benefits. And they need to scrap plans to cut Universal Credit given parents and children are having a tough enough time as it is.”

The solutions lie in a much broader and radical approach to unemployment which puts government at the heart of policy, rather than leaving the market to dictate unpalatable responses which are about maintaining a competitive environment to keep profits rolling in, but which are at the expense of working people. People who have been exploited and manipulated to serve an economic system that depends on keeping some of them unemployed to control inflation and benefit employers, by keeping wages low and jobs insecure, whilst at the same time blaming those very same people for being unemployed.

Given the huge environmental challenges ahead, we need a policy mix which includes expanding the public sector to restore its efficiency and effectiveness. We need to enable a shift in what we consider to be a healthy economy by moving away from endless growth and consumption of stuff to keep the profit wheels oiled, towards one which values human well-being and planetary sustainability as key to success.

This policy mix should be underpinned by the implementation of a permanent Job Guarantee to provide economic and price stability when the next recession hits, as most surely it will, along with a fit for purpose benefit system for those who are unable to work for any reason.

And yet while the very real challenges which will define our future remain, with respect to the consequences of climate change, the continuing exploitation of human beings, land and oceans for profit motives, we are being coached daily and relentlessly to accept the likelihood of increased taxes and more public sector austerity to pay for public debt, as the OBR’s report shows. Someone, somewhere, will have to pay in financial terms on this model.

The BBC, The Telegraph and The Financial Times, like many other news outlets covering the OBR’s report, focus yet again on debt piles and the so-called ‘eye watering’ record levels of borrowing. The Telegraph, quoting from the report, claimed that soaring costs would threaten to make Britain’s debt unsustainable, should interest rates rise to curb inflation. It painted a picture of a chancellor ‘battling to steady the public finances’, as if he is a captain straining to keep control of his ship in a raging storm. It suggested that addressing the spending pressures could require both cuts to the budgets of government departments and tax rises. It cautioned that the fiscal impact of achieving net-zero could add 21% of GDP to public sector net debt in 2050-51, that lost fuel duty due to the move towards electric vehicles would impact on the government’s fiscal position, and that investment in zero-carbon technologies would add to costs as it would only be partly offset by higher carbon tax revenues. The report also warned of the potential rising costs of servicing government debt in the event of what it called the ‘future shocks’ of higher inflation or interest rates.

The classic household budget narrative of how governments spend rules the roost, and acts to prepare the public for an unpalatable solution to rising debt.

Of course, this narrative does not reflect monetary reality, however hard the orthodoxy tries to suggest it does. The government doesn’t have a debt pile and the Chancellor doesn’t have to tackle it with tax rises or cuts to public spending in any government departments. There is no finite pot of money to share out.  The government is the financial and legislative ‘controller’.

The concerns about dealing with public debt and the potential ‘threat’ of the rising cost of borrowing, which would, according to the orthodoxy, place future burdens on taxpayers, are continuing headline themes on the right of the political spectrum. Whilst on the left, the message is that we must sting the rich to pay for public services, and that politicians must have supposedly ‘sensible’ conversations with the public about paying more tax to provide social care, or being able to borrow at low interest rates to spend on public infrastructure.

However, whilst the monetary orthodoxy prevails, it is becoming more and more difficult to believe that Rishi Sunak, at least, or his Treasury staff really don’t know how the government spends. One can only draw the conclusion that denying monetary reality allows them to continue delivering their political agenda by claiming that money is scarce. It is quite simply all part of the ongoing smoke and mirrors of how the government spends, which gives them power over the public purse and who benefits from it and who loses out.

At this point, it would be useful to revise the facts of monetary reality. It is not difficult to understand and doesn’t require the services of an economist to decipher. Such general knowledge could make a huge difference to how people view politics, which would allow them to examine the connection between government policies and spending decisions and who benefited and lost out as a result. Neither politics nor the economy exist in a vacuum; they both determine how well society functions or not as the case may be. Without that understanding, such narratives will always, in the end, put the brakes on government action, on the false count of unaffordability, and threaten the implementation of policies to deal with the climate crisis and rising poverty and inequality.

Firstly, the government is the currency issuer. It spends money into existence. That is where the story of how the government spends begins.

Secondly, as the currency issuer, the government neither needs to tax in order to spend, nor to borrow to cover its spending over and above its tax revenue. The government’s deficit, which sounds quite scary to ordinary people who compare it to a shortfall in their own household budgets, is everyone else’s surplus. That is the money in our savings and circulating in the economy, in our pockets. The use of the tax, deficit, debt and borrowing frameworks are just accounting conventions that bear no relation to the monetary reality of how the government spends.

Thirdly, by asking where the ‘money’ in our pockets and bank accounts comes from, we find that logically speaking the government must spend before any of us can pay our tax, and by extension before it can ‘borrow’, which is just another smoke and mirrors illusion.

The act of spending is the primary step, and on that basis, why would any government want to borrow money it had spent in the first place? However, the term borrowing’, which is often accompanied by the phrase ‘living beyond our means’, serves to keep the public on board with the idea of the need for fiscal discipline. Relating those concepts to people’s own budgets keeps people accepting the prospect of tax rises and cuts to public services.

In the Times this week in the light of the OBR’s fiscal risk report, the paper reported that Sunak had been warned by the OBR that the £10bn ‘deficit’ (which is the money in our savings and pockets) can be fixed only by taxation and yet more spending cuts, as apparently ‘there is no longer any easy way of cutting Britain’s debt.’

Referring to the ongoing challenges of clearing hospital backlogs, maintaining the test and trace and vaccination programmes, catch-up funding for schools and making up lost rail fare income would, it said, ‘add around £10bn a year on average in the next three years.’

 What can one say? Good luck with that Rishi! Thinking caps need to be at the ready! How will taking money out of an uncertain economy with a virus still raging and furlough unwinding help? The idea that the government needs any tax to reduce the deficit or pay down debt is quite simply yet more deliberately sowed confusion. Worse, to suggest more austerity when we are living the consequences of 10 years of public sector spending cuts, is, without doubt, absurd and would continue to damage an already fragile public infrastructure.

By extension, the false logic must surely follow that we cannot then afford to deal with the planetary emergency that threatens our existence, because there will always be a burden of debt hanging over us and a shortfall in revenues, which will require the government to make difficult decisions by increasing taxes, cutting its spending, or divvying up a finite money pot to serve its agenda. In the end, such narratives will always lead to the government putting on the spending brakes to balance the public accounts, regardless of the impact of such decisions.

The same false logic suggests that we cannot afford to rebuild our public and social infrastructure, even if we had a government with the political will to do so, rather than one that spent 10 years dismantling it. That we cannot address the growing poverty and inequality that has arisen over a decade, due to politically motivated austerity by a government which over the last year has shown its true colours, using its spending capacity as the currency issuer to benefit corporations with little or no accountability or transparency. Corporate welfare at the expense of public purpose.

By that false logic, abandon all hope ye who enter here because, apparently, we’ve spent too much and need to attend to the public finances. The deficit spending in itself, however, does not represent the material risk to the public spending outlook that is being suggested. In fact, we need to turn this argument right on its head and ask a different question.

Instead of worrying about the public finances and the size of the deficit, we would do better to consider first what the deficit represents, and who has benefited from the government spending and who has not. Secondly, rather than seeing the deficit as a problem, we need to examine how we can best address the future challenges before us through government policy and spending decisions. And thirdly, if finance is not the constraint, then what is?

If spending is always reduced to the concept of fiscal discipline to keep the public accounts in order – how much tax is collected and how much has been borrowed -then the future will most certainly be bleak. The cutting spending and increasing taxes recipe that the Chancellor will most certainly trot out on budget review day later in the year, will satisfy the Treasury bookkeepers tallying their modern computer-driven version of the public accounts, thus giving the government an opportunity to promote itself as a safe pair of fiscal hands in future elections. However, such thinking will fail at the first hurdle by creating yet more economic pain for a nation that has already had a bellyful, as delivering public purpose is relegated yet again to being unaffordable.

The real constraints we face are, as we are finding out, resource-driven, and the potential that creates for inflationary pressures. Early on in the pandemic, we experienced such pressures on the NHS when trying to source PPE and other equipment, not to mention the pressures on a service which was and remains short of over 40,000 nurses as a result of government policy and cuts to spending.

In recent weeks, the lack of HGV drivers has put increasing pressure on supermarket delivery networks. The construction industry is experiencing shortages of building materials and transport capacity and is being affected by long lead times for items coming from abroad. And then there is also a shortage of the semiconductor chips which form the basis for the technologically driven world in which we live, from TVs, PCs and cars to hospital and other vital equipment that drive our energy and water networks.

Even though the Bank of England has said that it expects these current price pressures to be temporary as economies start to open up, the inflation doom merchants continue to rattle their warnings about high levels of public debt and future financial burdens. They should instead turn their attention to the real issues related to continuing economic uncertainty and raised levels of unemployment, the all too real threat of climate change and managing our finite resources to create a stable and sustainable economy. That is the real role of the government, not balancing the books. Future shocks will have nothing to do with the rising costs of borrowing, but will be related to any government decision to cut spending or impose more austerity at the expense of people and the planet.

We have a government which must know about monetary reality by now, advocating fiscal discipline on the backs of human existence and abdicating its role in spending and legislation to drive public purpose aims. At the same time, it promotes killer growth and the role of the profit-motivated private sector as the mechanism for human betterment. A contradiction in terms. We have a government wielding the power of life and death for the supposed sake of balanced budgets and the maintenance of the status quo.

In the words of Naomi Klein:

Our economic system and our planetary system are now at war. Or, more accurately, our economy is at war with many forms of life on earth, including human life. What the climate needs to avoid collapse is a contraction in humanity’s use of resources; what our economic model demands to avoid collapse is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.”



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Job Seekers’ Beliefs and the Causes of Long-Term Unemployment

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:41am in

Andreas I. Mueller, Johannes Spinnewijn, and Giorgio Topa

LSE_2021_job-finding_topa 920_x_576

In addition to its terrible human toll, the COVID-19 pandemic has also caused massive disruption in labor markets. In the United States alone, more than 25 million people lost their jobs during the first wave of the pandemic. While many have returned to work since then, a large number have remained unemployed for a prolonged period of time. The number of long-term unemployed (defined as those jobless for twenty-seven weeks or longer) has surged from 1.1 million to almost 4 million. An important concern is that the long-term unemployed face worse employment prospects, but prior work has provided no consensus on what drives this decline in employment prospects. This post discusses new findings using data on elicited beliefs of unemployed job seekers to uncover the forces driving long-term unemployment.

The long-term unemployed face significantly worse employment prospects

A robust finding in labor economics is that the chances of finding a job decline significantly the longer a person is unemployed (see, for example, Machin and Manning [1999]). This empirical regularity is referred to as “negative duration dependence.” A long-standing question is the extent to which this phenomenon reflects an actual worsening in job-seekers’ job prospects—for instance because one’s skills deteriorate over time—or rather the shifting composition of the pool of unemployed (see, for example, Lancaster [1979], Heckman and Singer [1984]): if the unemployed are heterogeneous in their propensity to find a job, those with a higher underlying job-finding rate exit unemployment sooner, while those with a lower job-finding rate make up a progressively larger and larger share of the unemployed. We refer to the former as “true” duration dependence and to the latter as “dynamic selection” or heterogeneity in job-finding. While separating the two effects is empirically challenging, the two competing explanations have different implications for labor market policy. True duration dependence may require timely job search incentives or re-training programs, while heterogeneity would call for the targeting of re-employment efforts.

A novel way of disentangling these effects is to jointly use data on job-seekers’ subjective perceptions of their chances of finding a job, together with actual job-finding rates at different unemployment durations. As we show in Mueller et al. (2021), the covariance between perceptions and actual job finding helps uncover the extent of ex ante heterogeneity in underlying job-finding probabilities. The remaining duration dependence can then be attributed to a “true” decline in one’s employment prospects.

Here we use data from two novel sources, namely the New York Fed’s Survey of Consumer Expectations (SCE; see Armantier et al. [2017]) and the Survey of Unemployed Workers in New Jersey (NJUI; see Krueger and Mueller [2011]). Both surveys follow the same respondents over time, enabling us to trace how the same individuals update their perceptions as their unemployment spells progress and when they find employment. The SCE is a monthly online survey of a rotating panel of household heads in the United States that started in June 2013, whereas the NJUI is a weekly survey of unemployed workers sampled among recipients of unemployment insurance benefits in New Jersey in the fall of 2009. In the SCE, unemployed job seekers report the probability that they expect to find a job within the next three months. In the NJUI, job seekers report the probability that they expect to be re-employed within the next four weeks. The beliefs are elicited up to twelve times in the SCE, and up to five times in the NJUI, for job seekers who remain unemployed.

Job-finding perceptions and actual labor market transitions

The chart below shows the average realized job-finding rate at the three-month horizon for different sets of job seekers, grouped by the length of their elicited three-month job-finding perceptions. The positive relationship reveals the strong predictive nature of the elicited beliefs: on average, those who report a higher perceived chance of finding a job over the next three months are more likely to find a job within that time frame. A related finding (not shown here) is that job-finding perceptions are also highly predictive of actual job-finding rates over the subsequent three months—that is, between months four and six from the time the belief was elicited. This indicates the persistence of potential differences in job finding.

LSE_2021_job-finding_topa chart-01

While highly predictive, the subjective perceptions in our data also display an optimistic bias overall, confirming prior evidence in Spinnewijn (2015). The next chart shows averages of the elicited three-month job-finding perception and realized three-month job-finding rate for different ranges of unemployment duration. The chart confirms the strong negative duration dependence in actual job-finding rates. Perceived job-finding probabilities also decline but at a slower pace. Indeed, while perceptions are roughly in line with realizations at the start of a spell, a gap emerges as the spell continues, with elicited beliefs on average higher than actual job-finding rates—indicating a widening optimistic bias at longer durations. Moreover, we find that job seekers do not revise their beliefs downward as they remain unemployed, so the observed decline in perceived job finding is fully driven by dynamic selection.

LSE_2021_job-finding_topa chart-02

True duration dependence or heterogeneity?

As mentioned above, to disentangle the roles of dynamic selection and “true” duration dependence in explaining the observed decline in actual job finding, we exploit the availability of data on both the individual perceptions and realizations of job-finding, together with the ability to follow the same individuals over time. As detailed in Mueller et al. (2021), we do so both in a “model-free” way, looking for a lower bound of the contribution of heterogeneity, and in a statistical model that allows for biases in perceptions and for transitory as well as persistent differences in job finding across job seekers. We find that about 85 percent of the decline in job-finding rates by duration is due to heterogeneity in job-finding “types,” suggesting a limited scope for actual deterioration in one’s employment prospects over the course of an unemployment spell. The chart below illustrates this graphically: at an unemployment duration of zero months, the distribution of underlying job-finding probabilities is very dispersed, reflecting the large heterogeneity in types. At higher durations (six or twelve months), the distribution becomes more and more compressed toward lower job-finding propensities, reflecting the effects of dynamic selection in the unemployment pool.

LSE_2021_job-finding_topa chart-03

Biased beliefs and long-term unemployment

Our analysis underlines the importance of the heterogeneity in unemployed job seekers’ employment prospects. But job seekers underestimate these differences. Those with low underlying employment prospects tend to be overly optimistic and vice versa. The corresponding dynamic selection drives the optimistic bias among the long-term unemployed. Importantly, the under-response of beliefs can itself induce a higher incidence of long-term unemployment. Job seekers with worse employment prospects discard too many potential job offers, as they hold out for the possibility of a better offer in the future. Workers with better prospects do the opposite. The differences in re-employment thus get magnified through job-search behavior. Incorporating such biases in beliefs into a model of job-search behavior, we find that they may raise the incidence of long-term unemployment by 10 percent—a significant amount.

Overall, these findings suggest that the design of unemployment policies should take the heterogeneity across workers losing their jobs seriously due to the resulting selection into long-term unemployment. Improving job seekers’ information about their employment prospects may further help to lower the high incidence of costly long-term unemployment.


Armantier, Olivier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar, “An Overview of the Survey of Consumer Expectations,” Economic Policy Review, 2017, 23 (2), 51-72.

Heckman, James J. and B. Singer, “The Identifiability of the Proportional Hazard Model,” The Review of Economic Studies, 1984, 51 (2), 231-241.

Krueger, Alan B. and Andreas I. Mueller, “Job Search, Emotional Well-Being, and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data,” Brookings Papers on Economic Activity, Spring 2011, 1 (1), 1-70.

Lancaster, Tony, “Econometric Methods for the Duration of Unemployment,” Econometrica, 1979, 47 (4), 939-56.

Machin, Stephen and Alan Manning, “The Causes and Consequences of Longterm Unemployment in Europe,” in Orley C. Ashenfelter and David Card, eds., Handbook of Labor Economics, Vol. 3, Part C of Handbook of Labor Economics, Elsevier, 1999, pp. 3085-3139.

Mueller, Andreas I., Johannes Spinnewijn, and Giorgio Topa, “Job Seekers’ Perceptions and Employment Prospects: Heterogeneity, Duration Dependence, and Bias.” American Economic Review, 2021, 111 (1), 324-63.

Spinnewijn, Johannes, “Unemployed but Optimistic: Optimal Insurance Design with Biased Beliefs,” Journal of the European Economic Association, 2015, 13 (1), 130-167.

Andreas I. Mueller is an associate professor of economics at the University of Texas at Austin.

Johannes Spinnewijn is an associate professor of economics at the London School of Economics.

Giorgio Topa is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:

Andreas I. Mueller, Johannes Spinnewijn, and Giorgio Topa, “Job Seekers’ Beliefs and the Causes of Long-Term Unemployment,” Federal Reserve Bank of New York Liberty Street Economics, January 29, 2021, https://libertystreeteconomics.newyorkfed.org/2021/01/job-seekers-belief....


The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Some Workers Have Been Hit Much Harder than Others by the Pandemic

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:40am in

Jaison R. Abel and Richard Deitz


As the COVID-19 pandemic took hold in the United States, in just two months—between February and April 2020—the nation saw well over 20 million workers lose their jobs, an unprecedented 15 percent decline. Since then, substantial progress has been made, but employment still remains 5 percent below its pre-pandemic level. However, not all workers have been affected equally. This post is the first in a three-part series exploring disparities in labor market outcomes during the pandemic—and represents an extension of ongoing research into heterogeneities and inequalities in people’s experience across large segments of the economy including access to credit, health, housing, and education. Here we find that some workers were much more likely to lose their jobs than others, particularly lower-wage workers and those without a college degree, as well as women, minorities, and younger workers. However, as jobs have returned during the recovery, many of these differences have narrowed considerably, though some gaps are widening again as the labor market has weakened due to a renewed surge in the coronavirus. The next post in the series examines differences in patterns of commuting during the pandemic, and finds that workers in low-income and Black- and Hispanic-majority communities were more likely to commute for work. The final post in the series analyzes unemployment dynamics during the pandemic, and finds that Black workers experienced a lower job-finding rate and a higher separation rate into unemployment than white workers during the recovery, though this trend has reversed to some extent recently.

Low-Wage Workers Hit the Hardest

Lower-wage workers have borne much more of the brunt of job losses during the pandemic than higher-wage workers. To illustrate, we separate jobs into four categories based on each occupation’s median wage. Low-wage workers work in jobs that typically pay less than $30,000 annually, and include jobs such as food servers, cashiers, home health aides, and childcare workers. Lower-middle-wage workers work in jobs that typically pay between $30,000 and $50,000, and include jobs like administrative assistants, hairdressers, carpenters, and truck drivers. Upper-middle-wage workers work in jobs that typically pay between $50,000 and $85,000, including jobs such as teachers, police officers, accountants, and financial managers. High-wage workers are employed in jobs that typically pay over $85,000 per year, including software developers, engineers, lawyers, and business executives. For perspective, our high-wage and low-wage categories represent roughly the top and bottom 10 percent of workers, while the two middle-wage categories each cover about 40 percent of workers. As the chart below shows, between February and April 2020, employment declined by more than a third for low-wage workers, compared to a decline of 18 percent for lower-middle wage workers, and nine percent for upper-middle wage workers. By contrast, employment for high-wage workers held steady.


The economy returned a substantial number of jobs after bottoming out in April 2020, particularly for low-wage workers. This partial but strong recovery helped narrow the gap between low-wage workers and their higher-paid counterparts. However, employment for the two lower-wage groups began to decline again in October as the winter wave of the virus began, even as jobs for the two higher-wage groups grew, opening up the gap once more. All in all, employment among high-wage workers is now slightly above where it was before the pandemic hit, and employment among both middle-wage groups is just slightly below. By contrast, employment among low-wage workers remains 14 percent below pre-pandemic levels and is trending down again.

Why have lower-wage workers been hit so much harder during the pandemic? Much of it can be traced to differences in the types of jobs held among the groups. Due to a combination of government restrictions and behavioral changes people made to avoid exposure to the virus, the largest losses during the pandemic accrued to the leisure and hospitality industry—most notably, restaurants, bars, and hotels—as well as retail, both of which tend to employ large numbers of lower-paid workers. Further, lower-wage workers have much less ability to work remotely—think food servers and cashiers—compared to higher-wage workers, such as managers, accountants, and attorneys. In fact, according to new data collected by the Bureau of Labor Statistics after the pandemic began, an average of nearly 60 percent of workers in our high-wage group reported that they telecommuted during the pandemic, compared to less than 10 percent for low-wage workers, as shown in the chart below. This pattern is consistent with findings by our colleagues in a related post showing that workers in low-income areas are more likely to commute to work than workers in high-income areas, suggesting that such workers are more dependent on occupations that require in-person work.


An Uneven Experience

More broadly, employment outcomes through the pandemic have been highly uneven among different types of workers, as shown in the chart below. We group workers into categories based on educational attainment, race and ethnicity, gender, and age. While we find big differences in initial job losses across groups of workers, many of the initial gaps that opened have narrowed considerably through the recovery.


The length of each bar in the chart represents the magnitude of initial job loss, while the solid portion represents the remaining job shortfall at the end of 2020. Overall, for the nation as a whole, initial job losses totaled 15 percent and the remaining job shortfall is 5 percent. The first set of bars corresponds to workers of different wage levels, summarizing trends presented earlier. The next set of bars considers differences by educational attainment, and shows a similar pattern given the high correlation between education and wages. The least-educated workers—those without a high school diploma—saw employment fall by 24 percent, compared with 7 percent for workers with a college degree—a gap of 17 percentage points. By the end of 2020, job shortfalls totaled 6 to 7 percent for those without a college degree, compared with just two percent for those with a college degree—a smaller but still substantial gap of around 4 percentage points.

Looking across demographic groups, it is clear the pandemic caused outsized job losses for women, minorities, and younger workers as the pandemic took hold. Initial job losses among women were 4 percentage points higher than for men, and initial job losses among Black and Hispanic workers were several percentage points higher than for white workers. Furthermore, the pandemic has been quite challenging for younger workers (those under 30), with initial job losses nearly twice as large as mid-career (those aged 30 to 49) and older workers (those 50 and over).

These differences in job losses early in the pandemic reflect a combination of factors. First, some groups may be overrepresented in the two industries hit hardest by the pandemic—leisure and hospitality and retail—including younger workers and those without a college degree. Further, some jobs have been easier to hold onto than others, particularly those that can be done from home, and different groups may be overrepresented in jobs that can or cannot be performed remotely. College graduates, for example, tend to have more flexibility in their jobs and a greater ability to work remotely. And, a factor that may help explain the outsized job loss among women is that women tend to bear more of the burden of childcare responsibilities, which have increased significantly during the pandemic due, in part, to schools teaching online and many students at home. This factor may have contributed to a disproportionate share of women not working in order to care for their children. There may also be differences in the willingness to work among different groups given the dangers of COVID-19. However, it is difficult to determine the nature and magnitude of these influences.

Interestingly, consistent with recent research, most of the gaps across demographic groups have narrowed considerably during the recovery, particularly as jobs have been added in the hardest-hit sectors. The shortfall between men and women has closed completely, while the gap between Black and Hispanic workers relative to white workers has closed to one percentage point. This is consistent with research by our colleagues which finds that the job finding rate among Black workers has risen above the corresponding rate for white workers. And, the remaining jobs shortfall among younger workers has narrowed to within a couple of percentage points of mid-career and older workers. Unfortunately, as the job market began to weaken in late 2020 due to a renewed surge in the virus, there are signs that some of these gaps have begun to widen once more, as many of the most vulnerable workers are yet again being hit hardest.

Chart data

Jaison R. Abel is an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Deitz_richardRichard Deitz is an assistant vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Jaison R. Abel and Richard Deitz, “Some Workers Have Been Hit Much Harder than Others by the Pandemic,” Federal Reserve Bank of New York Liberty Street Economics, February 9, 2021, https://libertystreeteconomics.newyorkfed.org/2021/02/some-workers-have-....

Related Reading

Which Workers Bear the Burden of Social Distancing Policies?

Economic Inequality Research Series

Economic Inequality and Equitable Growth

COVID-19: Information, Research and Analysis and Resources


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.