Sunday, March 15, 2020

The Economic Crisis The Pandemic Will Cause Is NOT a "Recession," It Is Altogether Different

We need new terms to discuss the economic consequences of the current pandemic.  Terms like Recession (or even Depression), Economic Growth, Jobs Growth, Monetary Policy, and Fiscal Policy simply lose their usual meaning.

The usual goals for addressing a Recession are to create more jobs and more spending. However the economic problem caused by the pandemic is not too few jobs, but essentially too few workers, in the sense that the jobs are still there, but many workers are not able to perform those jobs - in some cases because that are actually sick, but in many more cases because a societal lockdown prevents them from leaving their homes to travel to a job. So the idea of creating more jobs to address the economic crisis of the pandemic is simply meaningless.

As to spending, it will generally decline greatly during the pandemic. Other than food and rent, most purchases will be put on hold for the duration. Why would anyone even think of buying a new home or car or fancy clothes when they are in lockdown at home? All restaurants and all retail stores other than food and medicine will likely be closed. Nothing, and certainly not lower interest rates, will (or should) cause people to spend beyond the basics of survival.

What the pandemic WILL REQUIRE is that the government provide sufficient immediate cash to everyone to make up for the lack of a regular paycheck. 

We need to simply forget about the usual metrics like "Recession," and just focus on surviving both medically and economically during the pandemic.

Sunday, March 1, 2020

The Federal Government Holds All The Cards For Addressing the Climate Crisis, Don't Scapegoat Private Enterprise

If you want to advocate for a Cuba-like system in which there is no stock market and all means of production and distribution are part of a massive government, go for it. (and note that China's miracle of lifting 98% of its people out of extreme poverty in 30 years came from moving toward private ownership - along with a stock market).

But as long as America continues to have it's great free market system, everyone need to understand how it works. Investors are driven by self interest - and it is essential to the operation of the system that they be driven by self interest. When Americans need more toilet paper, toilet paper manufacturers expand their factories out of self interest, and investors provide the money for that expansion out of self interest, and tree farms expand out of self interest, and investors provide the money for that expansion out of self interest.

BECAUSE investors operate out of self interest, they respond very quickly to the slightest government pressures, whether that pressure is beneficial or injurious. As long as our government continues to subsidize oil well drilling and provide public land for it, investors will like oil stocks. On the other side, the enthusiasm for Tesla shares is greatly boosted by the subsidies for electric cars.

Investors and companies will rapidly respond to whatever sticks and carrots our government chooses for the Climate Crisis. So far, our leaders have been worse than unhelpful, for example, BOTH Trump and Bernie Sanders are proposing to block the import of solar panels into the United States. Please assign the blame where it is deserved, on our government, and not on our efficient free enterprise system.