Tuesday, February 9, 2021

RIGHT Stimulus, RIGHT Time - Contrary To The Spin Of WSJ Editor Paul Gigot



"Democrats have finally stopped believing in the debt boogeyman and the confidence fairy, who will make everything better if you slash spending." - Paul Krugman, 'How Democrats Learned To Seize The Day',  NY Times, today

Clueless to the fact Covid is more an ongoing natural disaster than a conventional recession,  WSJ editorialist Paul Gigot is once again yammering about too much being spent ('Wrong Stimulus, Wrong Time', p. A12, Feb. 6-7)  One of the main complaints offered is that President Biden "wants twice the spending of 2009 though the economy is stronger now."    But he misses the twin points that: a) the 2009 recession was 'small potatoes' compared to the Covid disaster - which has seen 40 million lose jobs at one time, and b) it is questionable that the economy is stronger now.  

To the first point, as Paul Krugman has observed:

"Right from the beginning some of us tried to explain that the pandemic slump isn’t a conventional recession, and the required policy response isn’t conventional stimulus. What we’re dealing with is more like a natural disaster than a normal recession, and the appropriate policy response is mainly a kind of disaster relief.."

Adding: "This remains a peculiarly hard point to get across; even some sophisticated economists sometimes fall into the trap of assessing policy in traditional stimulus terms."

This is exactly true, given one does not see nearly 470,000 deaths as part of a standard or even terrible recession, along with millions about to be evicted and millions out of work.  This is more the scope of a major disaster, like dozens of 8.0 Richter earthquakes hitting dozens of states and cities.  Hence, Gigot suffers from a failure of perception as to the magnitude of the disaster and its economic and societal effects.  As a further example, he cites a recent jobs report which is just as 1-dimensional in perception, writing: "the details show that most of the damage to the labor market  comes from state lockdowns and supply constraints."   

In fact, the supply constraints derive directly from the business and personal lockdowns, i.e. not enough staff for production, nor enough customers to purchase supplies.  The lockdowns in turn derived from the infections spawned by the virus,  e.g.

and the risk of hospitals being overrun by critical Covid patients in ICUs.

As to Gigot jumping into an attack on "6 months of enhanced unemployment benefits,  $1,400 checks to individuals, $130 billion to public schools,  $350 billion in aid to state and local governments and a potpourri of transfer payments"  Krugman offers this rejoinder:

"Winning, in this case, means providing the resources for a huge vaccination program and for reopening schools safely, while limiting the economic misery of families whose breadwinners can’t work and avoiding gratuitous cuts in public services provided by fiscally constrained state and local governments.

And that’s what the American Rescue Plan mostly involves; it is, as Biden’s economists say, a bottom-up plan that starts with estimated needs."

That superbly sums up the warp and woof of where we are at and what is needed to help emerge from the attendant economic morass. 

The Gigot argument that the economy is getting stronger is also suspect.  For example, the claim that economic strength is indicated by "growth for two quarters"  and "the jobless rate is down to 6.3%".    We already know, from the 2008-09 recession that recessionary indicators tend to lag behind GDP growth.   In the case of the $797 b secured as stimulus at that time, we didn't know until some 1.5 years later that it wasn't enough - and the result was an eventual 1.4%  decrease in growthThis is why Biden and the Dems aren't about to be played by the phony deficit hawks again, having learned their earlier lesson of going way too small.  So they will not be swayed by Gigot's balderdash that:

"State and local governments added 67,000 jobs in January.  They don't need more federal cash."

But they do, because the taxes collected from these recent job additions are still not enough to get out of the hundreds of billions of dollars in state fiscal holes spawned by the pandemic! Here in Colorado, for example, a $3 billion estimated budget shortfall exists because of the pandemic. It will not be eliminated merely by a few thousand  jobs added in the state last month.

Even more relevant  for our current situation, any resolution - thanks to the assorted vaccines- is still uncertain. We have new and possibly more lethal and contagious variants (e.g. UK)  with the potential to kibosh any future growth, especially if too many continue to ignore protocols (masking etc.) and more lockdowns are needed to avert catastrophe.  Hence, Gigot assumes too much based on 2 quarters of growth and with no real herd immunity to the virus yet achieved.

As for the jobless rate of 6.3 %, I have already noted that is a mirage, given the real jobless rate is closer to 12 percent.  The difference arises because the budget number crunchers at the BLS (back in the early 90s) decided to cease counting anyone as officially unemployed after 6 months. It was determined that henceforth they would be designated as  "discouraged" instead of "unemployed".  

The 12 percent translates into roughly 9.8 million unemployed who will now face eviction from their homes and apartments, as well as scrambling to buy food, keep their utilities going.  These are the ones most in need of the extended unemployment benefits and the $1,400 stimulus checks.  

 As for Gigot's claim that "personal bankruptcies, home foreclosures and loan delinquencies last fall were the lowest since 2003", that is also premature.   That success, for what it is, was based on the earlier CARES act money received - which is now long gone.  In addition, the lower middle class and working class groups have already used up their $600 checks.   If they do not receive another significant package of relief - and also get extended protection (i.e. in the form of an eviction moratorium) there will be millions more on the streets and having to steal to get food e.g.

So this is not the time to go small.  Already, thousands have been evicted from apartments across Colorado.   I was startled while on an early a.m. grocery run three days ago to find someone wrapped in blankets on a public bench adjacent to our neighborhood Safeway.    All the stats trotted out by Gigot and his elitist WSJ nabobs about how "strong" the economy already is  (without any more relief) would be little use to that forlorn person.  

In the words of Krugman again:

This plan really needs to go big. The risks, economic and political, of falling short are huge, and should be dispositive.

Bingo!

See Also:

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by Richard Eskow | February 9, 2021 - 6:43am | permalink

Excerpt:

Let's start with that phrase, "stimulus checks." Sure, relief checks will stimulate the economy. But that phrase, used by press and politicians alike, frames the process in an overly technocratic way. The main goal is not macro-economic, although that's important. The real priority is, or should be, to relieve human suffering.

They're not "stimulus checks." They're emergency help for human beings in pain.

Then there is the size of the checks. A lot of Democrats—both politicians and commenters—have defended the decision to call for $1,400 checks, rather than the promised $2,000. They've had to use a complicated argument, which is that people—well, some people—have already received $600 checks. A $1,400 check will bring the total to $2,000.

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