Archive for August 2020


Disposable income is not holding back the economy

In the Keynesian model, fiscal stimulus boosts demand during a recession by making up for the decline in disposable income during a period of falling GDP. For example, disposable income fell between March 2008 and March 2009, even in nominal terms. That was one motivation for the Obama stimulus package.

This time things are very different. Not only is disposable income not falling, it’s rising at perhaps the fastest pace in history, mostly due to fiscal stimulus.

And yet the recent fall in GDP is even worse than in 2008-09. Clearly the economy is not being held back by a lack of disposable income. So what is holding it back? My theory is that the Covid-19 epidemic is making people reluctant to spend money on services where there is human interaction.

The conventional wisdom is exactly the opposite. I see article after article claiming that the problem is a lack of sufficient fiscal stimulus. Here’s Bloomberg:

Chances for a deal in Congress on a new, comprehensive stimulus package before September diminish with each passing day, leaving the U.S. economy limping and many businesses and millions of consumers coming up short.

So what’s the argument against my claim? I see several, none persuasive:

1. Other things equal, fiscal stimulus would help, even though Covid-19 is also a problem. That may be true to a small extent, but it’s hard to see how it could have a decisive effect. Again, we’ve seen the biggest increase in disposable income in history, coinciding with plunging consumer spending. Doesn’t that suggest that lack of disposable income is not the relevant constraint right now? How is even more disposable income going to make a decisive difference if people are afraid to spend?

2. Disposable income fell between April and June. Yes, but it’s levels that matter, and even in June disposable income was far higher than 6 months earlier. And yet spending is far lower.

3. Inequality. Maybe all the extra disposable income is going to the rich. That seems unlikely. The rich don’t qualify for the $1200 payment or the enhanced unemployment compensation. Yes, the rich have seen their stocks go back to February levels, but that’s not counted as “disposable income”. Both the $1200 checks and the extra $600 unemployment compensation tend to be a higher percentage of the income of the poor. I suspect that if you had a graph of the disposable income of the bottom 50%, or the bottom 25%, it would show the same sort of spike after March that this Fred graph shows, maybe even bigger. If I’m wrong, please present data showing that fact.

I’m genuinely mystified by claims that lack of fiscal stimulus is a big problem right now. I actually do think monetary policy should be a bit more expansionary—enough to prevent disinflation—but I’m under no illusion that this would miraculously cure the recession. We need to address Covid-19 before we can return to a healthy economy.

cHiNa iS tHe reAL thReAt


What will Putin’s puppy say?

Here we arrive at a very awkward truth, however: The last thing Trump wants to do is praise ordinary citizens mobilizing against an illiberal despot about a rigged election.

Even on Trump’s best days, he likes autocrats and dislikes mass protests. He praised Kim Jong Un and Vladimir Putin before he was elected. He also praised China’s leadership for cracking down in Tiananmen Square in 1989. Since he was elected president, Trump has repeatedly demonstrated fawning admiration for Putin. According to former national security adviser John Bolton and others, Trump told Chinese President Xi Jinping that he would not back protesters in Hong Kong and approved of Xi’s plan for Uighur internment camps in western China.

To be fair, the Trump administration has imposed sanctions on China and Russia for human rights abuses in the past few years. To be equally fair, however, not even the most hardcore #MAGA proponent would describe Trump as a fan of social mobilization.

Yes, there might be a few sanctions, but will Trump speak out?

PS. And yet, I think it quite plausible that Trump will be re-elected. (Ignore the election polls, look at betting markets.) After all, by a 50% to 49% margin, Americans believe that Covid-19 is at least somewhat under control. LOL, Trump is so lucky that 50% of Americans aren’t paying attention:

America is an outlaw nation

Each day the US descends further into a moral abyss. Today we read that the US government has begun engaging in piracy, stealing Iranian gasoline shipments on the high seas. Here’s Bloomberg:

It was definitely the 21st century when I went to sleep Thursday night, but by Friday morning it was starting to feel as though I’d slipped back in time a few hundred years, to an age of state-sponsored piracy.

News that the U.S. had seized the cargoes of four oil tankers, allegedly carrying Iranian gasoline from the Persian Gulf to Venezuela, conjured images of British privateers — in essence, state-sponsored pirates — attacking Spanish treasure fleets carrying gold, silver and precious stones from the New World back to Europe in the 16th and 17th centuries.

What the excuse?

The funds realized from the sale of the cargoes will in part be directed to the United States Victims of State Sponsored Terrorism Fund. Almost 80% of the claims on that fund are related to the heinous attack on the World Trade Center in 2001. Yet Iran was not implicated in that event.

Yes, it was Saudi’s that committed that atrocity. But nationalists don’t care about historical truth.

At this rate, four years from today America will be so far down in the gutter the country will be almost unrecognizable.

PS. And people say “China must be stopped.” But who will stop America?

Joel Kotkin on the Chinese dystopia

Joel Kotkin has a piece in Quillete that discusses the way that recent Chinese science fiction portray’s the dark side of the Chinese government.

This caught my eye:

Some prominent Westerners even see China’s rise as the product of a system that is in some respects superior. As two law professors recently argued in the Atlantic:

“In the great debate of the past two decades about freedom versus control of the network, China was largely right and the United States was largely wrong. Significant monitoring and speech control are inevitable components of a mature and flourishing internet, and governments must play a large role in these practices to ensure that the internet is compatible with a society’s norms and values.”

The New York Times’s journalist Thomas Friedman, meanwhile, embraces the Chinese notion of granting more power to credentialed “experts” for societal problems, arguing that they are too complex for elected representatives to address. The similarly minded economist Jeffrey Sachs denounces what he calls “an evangelical crusade” against the Chinese regime, pointing out that America’s own repressions disqualify any presumption of superiority.

I went to the original sources, and the Atlantic piece is every bit as bad as the quotation suggests. It’s pretty appalling that Ivy League professors are apologizing for Chinese government censorship. The Friedman piece is almost as bad.

But the comments on Jeffrey Sachs are completely unfair, at least based on the two links provided. I don’t agree with Sachs’ analysis in the first link (from 2007), but they have nothing to do with moral equivalence. I fully agree with his comments in the second link, where he does not suggest that repression in America is as bad as in China. Rather he criticizes the current administration’s foolish attempt to start a cold war with China, and also points out that America’s military has been far more aggressive than China’s military.

PS. Matt Yglesias directed me to this tweet:

Funny, I had thought that HK was simple—the CCP crushing freedom of speech. I never knew that Xi was saving us lots of money.

Politics in a banana republic

Over many decades, I’ve read hundreds of articles discussing politics in banana republics. It tends to follow a familiar pattern:

1. Accusations that opposition candidates are ineligible to run—claims that they don’t meet the legal qualifications.

2. Accusations of widespread voter fraud.

3. Attempts to suppress the vote of those expected to vote against the incumbent.

4. Attempts to overturn term limits on an office.

5. Launching legal investigations of political opponents.

6. Using the intelligence services to try to influence the election.

7. Encouraging foreign powers to try to influence an election.

I won’t say these things never happened in the US when I was young, but much more rarely. I recall some questions raised about the 1960 election, and of course 2000 as well. But the losers (Nixon and Gore) accepted defeat with a fair degree of dignity. (Nixon and Kennedy respected each other.) Something really has changed.

This caught my eye:

A federal judge appointed by Donald Trump gave the president’s campaign one day to turn over evidence to support its claims of widespread mail-in voting fraud or admit that it doesn’t exist.

I eagerly await the outcome of that inquiry.