# Nusefile

This site gathers links and commentary on what I think are useful news items that match my interests as a development journalist and communications researcher.

BookZone

Can governments learn sensible economic policy from the pandemic?

By Peter Hulm

Surprisingly little has changed about the pandemic and the U.S. economy since mid-July 2020, when this study was published. The Brookings Institution, hardly a nest of crypto-Leftists, has issued a Keynesian [e.g. rational] prescription for shoring up and reviving the economy which the U.S. has still to adopt. As the 5-page framing essay declares on page 2:

"Our strategy calls for combining increased public investments in key growth-enhancing areas, a secure social safety net, and fiscal discipline," the authors write. What they mean by fiscal discipline remains obscure, but you can guess it means keeping a close watch on budgets (for whom? Lobbying businesses or voters?)

In any case, their advice is valid for other countries as well.

Their prescriptions:

In their framing Wendy Edelberg and Jay Shambaugh point to three essays by Hamilton Project authors:

Those who remember John Kenneth Galbraith's assessment that four companies tend to dominate each industry, and our knowledge of Amazon, Google, Paypal and Twitter's position in their markets, will find this concern rather puzzling.

Despite this, the essay offers a brisk and well-written summary of what economists know of the probably effects. I offer these just just as presented:

Individuals will drop out, firms fail and investments drop

"Previous research shows that deep and protracted recessions can have long-lasting negative effects as some individuals leave the labor force, some firms fail, and some firms forgo making investments.(3)"

Sharper contraction, quicker recovery

"The nature of the shutdown led to a much sharper contraction than during prior [economically triggered] recessions but also — so far — to a shorter period during which the economy was contracting. The unemployment rate began to fall just two months after it initially rose, and job gains in May were the fastest on record (BLS 2020). Retail sales bounced up in May after a sharp downturn in April (U.S. Census Bureau 2020a)."

But output will will be well down and unemployment sharply up into 2021

"The resurgence of the virus in June and July may signal more ups and downs for the economy. Even if improvements in the labor market and spending continue to be significant, the U.S. economy will likely face a sharply elevated unemployment rate and sizable gap in output relative to precrisis levels for well over a year (Congressional Budget Office 2020)."

Food shortages and financial stress for low-income families

"The uneven distribution of economic pain has contributed to spikes in food insecurity and financial stress for many low-income households (Bauer 2020; Bitler, Hoynes, and Schanzenbach 2020)."

U.S. virus management "not successful" compared to peers

"Slowing the recovery, the U.S. management of the virus has not been successful compared to most other advanced economies. Cases and deaths have grown, making reopening complicated and requiring backtracking in some states."

Fewer longer-term scars?

"For this recession, it is a public health crisis rather than an obvious imbalance triggering the downturn. Conceivably, that could mean this shock leaves fewer long-term scars than the typical recession."

Upending sectors and practices

"On the other hand, the shock is so large that it could upend many sectors and practices in the economy." (3)
"Already, the monthly rate of large corporate bankruptcy filings is approaching the peak levels last seen following the 2008 financial crisis (Brunnermeier and Krishnamurthy 2020). In addition, a rapid decrease in start-ups during the peak of the crisis has left the economy with tens of thousands fewer new businesses that could have become new employers."
Other changes will be more structural: There will be some reallocation between sectors since certain sectors, such as the travel sector, may remain smaller for some time. In addition, as some firms fail and fewer new firms are created, the surviving firms will have a bigger share of the market and thus more market power. That, in turn, will exacerbate problems created by market power in product and labor markets.(3)

One laid-off job in 3 will go

"Research suggests that roughly a third of job losses will eventually turn into permanent layoffs (Barrero, Bloom, and Davis 2020)." (4)

Distresssed communities, such as Black Americans, are slower to recover

"Moreover, some communities are extremely distressed. In particular, the unemployment rate for Black Americans, which reached nearly 17 percent in May, has fallen more slowly than the aggregate rate and has fallen by less (BLS 2020)."

Prime working age men lost some of their earlier gains

"Finally, labor force participation rates have plummeted across many demographic groups. For example, the participation rate of men of prime working age (ages 25-54) fell from 89 per cent in March to 86 per cent in April (BLS 2020). The decrease interrupted what had been a relatively steady increase in their participation rates since 2015 — after decades of decline."

Labour and earnings distribution a challenge for public policy

"If workers are outfitted with more equipment and machines than before, productivity should be higher. On the other hand, if firms decrease their demand for labor, that would put downward pressure on wages. How the gains from productivity and automation are distributed is a question of labor market institutions and a challenge for public policy." (4)

Policy responses wrongly assumed a short, temporary shutdown

"Many of the policy responses taken in March assumed a very short and temporary shutdown. [...] The direct economic effects of the pandemic will be longer lasting than periods suggested by the initial policy responses."

Protracted pain likely without fiscal action

"Moreover, the indirect effects, including persistent economic weakness, will likely last long after the public health crisis has been resolved. [...] Forecasts suggest protracted pain that is especially likely without fiscal support. On top of that, firms could reorganize their business practices and workers might face a different labor market and be hampered in their ability to work after the shock, making their place in the economy look very different even after the recovery."

Be prepared for the economy to fundamentally change

"Policy needs to focus on pushing the economy back to its full potential and cushioning those most directly harmed by the downturn. But policymakers also need to prepare for the fact that  – much as individuals are changed by extended periods of isolation or fear – the economy will not go back to exactly what it was before."

Provide opportunities and support for labour

"In addition to the many policies that were needed prior to the pandemic to support broadly shared economic growth, in the wake of this health and economic crisis there will need to be a renewed emphasis on antitrust, on making sure a reimagined economy can provide far-reaching opportunities, and on ensuring that people have the support they need to participate in the labor force." (5)

How the Pandemic is Changing the Economy, by Wendy Edelberg and Jay Shambaugh, Directors of the Hamilton Project at the Brookings Institution. July 2020. (LINK)


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