Infrastructure spending will not create jobs
This caught my eye:
President Donald Trump called on Congress to provide $2 trillion for U.S. infrastructure, seizing on the coronavirus outbreak to try once again to advance one of his longest-standing priorities.
Sorry, but when did we switch from talking about spending bills in the billions to spending bills in the trillions? When did trillions become a “thing”?
Right now, we are losing lots of jobs because people are unable to work. Fiscal stimulus won’t change that. When the coronavirus crisis is over, monetary policy will determine the level of employment.
This is madness.
Then consider this Bloomberg headline:
Economists Are Losing Hope in a ‘V-Shaped’ Post-Virus Recovery
Notice how March came in like a lion, with most economists (including me) predicting boom times ahead, and it’s going out like a lamb that’s stricken with coronavirus, with many economists (including me) worried about a sluggish recovery.
This is the most bizarre thing I’ve ever seen. As of yet, we don’t have a single monthly data point indicating any sort of recession (although I am pretty sure we are in one, and a deep one) and we are already speculating on the recovery! How is that even possible?
Maybe market monetarism has won. Maybe economists no longer rely on computer models fed with macro data, and now look to financial market indicators to predict the future path of the economy. If not, what’s your explanation? How are people already able to predict a slow recovery from a recession that is only just beginning?
PS. A sliver of good news?
China’s official manufacturing index rebounded to record an unexpected expansion in March, government data showed on Tuesday, after falling sharply in February as the coronavirus epidemic brought work to a halt across most of the country.
The official manufacturing purchasing managers’ index rose to 52.0 during the month, according to the National Bureau of Statistics, from February’s record low figure of 35.7. The 50-point level separates contraction from expansion. The March reading came in well above economists’ forecasts of 45 compiled by Reuters.
At least good news for decent people; not sure how anti-Chinese bigots regard the news.
PPS. Ten days ago I predicted that Switzerland would have 5 times as many active cases as China by the end of March. It ended up being 6 times as many. Very soon it will be 10 times as many.
PPPS. In East Asia, bigotry against Westerners is on the rise.
PPPPS. For those interested in looking beyond burial urns, a scientific study looks at the extent of the undercount in Wuhan.
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31. March 2020 at 11:38
Scott:
What is your take on Greg Mankiw’s idea for fiscal stimulus? He is proposing federal government send every working adult X ($2000 as an example) dollars a month until pandemic is over(a period of N months), then use a formula of N*X*(Y2020 earning/Y2019 earning) to recoup some of the cost.
To me, this is the simplest and most logical way to do stimulus and puts money into families rather than lobbyists.
31. March 2020 at 11:44
2016’s superficially suboptimal economic growth was the product of low oil prices and Texas having anemic .3% GDP growth. We will have low oil prices through 2021 which is now bad for America in the short term but great for America in the long term.
31. March 2020 at 11:47
https://www.google.com/amp/s/m.jpost.com/international/report-wet-markets-in-china-still-operating-despite-coronavirus-outbreak-622917/amp
Unbelievable.
#ChinaLiedPeopleDied #Chinamustpay
31. March 2020 at 12:24
https://youtu.be/L3tnH4FGbd0
😁😏
31. March 2020 at 12:25
Well Scott,
Thankfully, racism against Asian Americans seems to be subsidizing from the high scope in early March. Wonderful people. Unfortunate about China, but I think the racism there is exaggerated and will quickly subside.
As for China itself, I argued the fact that China did not reveal what % of tests were positive signaled that it had many many more cases than it was revealing.
Now we know that China did not count people who were not exhibiting symptoms from Coronavirus.
https://www.wsj.com/articles/chinas-coronavirus-count-excluded-infected-people-with-no-symptoms-11585650226
I know recorrect my assumption however, US will lose a larger % of its economy than China will. California will do just fine, and apparently Texas. It seems heavily Latino Areas are doing great against the virus…
31. March 2020 at 13:04
LC, I’m not a fan of fiscal stimulus, but the plan may have great merit as unemployment comp.
And check out my new Econlog post.
John, Almost all countries have many times more cases than they are revealing. The data on deaths is better, but even there China undercounted somewhat.
31. March 2020 at 13:05
Prediction has suddenly become problematic? I don’t understand this take, what’s the point of mentioning predictions about a recovery?
31. March 2020 at 13:07
Yes, you are way too succesful.
I no longer understand the stock markets. First there was no crash at all, even after Scott had suspected for weeks what was going to happen with corona. Then there was this brief crash, but the Fed intervened and since then we’ve been seeing a small rise nearly every day, even though one piece of bad news after another is coming from the physical real-world US every day. It’s surreal.
Let’s see if I understand the study correctly: the US should lockdown NYC immediately. Basically, it’s already days too late.
And one more remark:
Do these people also explain the big differences between Madrid, Lombardy and Hubei? My two guesses were: cover-up or significant different mobilities. But are the Chinese really so much less mobile? It’s difficult to see how the paper can help here, these kind of papers only spit out what you type in before.
@Jason
Yeah, I was also hoping they would close the wetmarkets. At least no more exotic animals like bats and armadillos. Can’t you survive if you don’t eat bats and armadillos? Where are all those crazy religions with their dietary restrictions when you need them?
31. March 2020 at 13:09
Wow, Sumner is a voice of reason in a sea of irrationality and bigotry. My opinion of Dr. Sumner has really gone up over the last few posts. Why is that? Have the scales fallen from my eyes? Temporary (in) sanity? Am I still trolling? But give credit where it’s due, Sumner has nailed the Swiss forecast, which is hard to do when dealing with numbers that are governed by power laws and exponential functions (recall the chess – rice fable about the single grain of rice doubling on a chessboard, and the king who agreed to this wager being bankrupted by it)
31. March 2020 at 13:23
The problem is, say the death rate is 1% or 0.5% or 0.1%. Then I’m afraid any “accidental” misscount is relatively bad. 1,000 more deaths equals 100,000 more infections, you can do the math.
My current problem is: If China has “missed” too many deaths in Wuhan, it means that the infection there almost completely burned out, because there was no stopping it, which would mean that the infections will burn out in the current western hotspots as well, which means that we will get many more deaths than initially thought. It also means that there is no stopping it in the hotspots and that the US would have needed a lockdown of NYC a few days ago.
So yeah, I still think it’s important to know how much the CCP has lied to us. It’s a matter of life and death. Or rather: It was.
31. March 2020 at 15:13
How far away are we from widespread serological testing for antibodies?
31. March 2020 at 15:22
China kept its economy growing through the 2008 Global Financial Crisis, while Western economies nearly collapsed. It appears China will hurdle COVID-19, while Western economies nearly collapse.
I loathe the Communist Party of China. I think the US is entirely justified in seeking trade relations that benefit the US in general, and not just multinationals in particular.
But the China economic-financial model is formidable, perhaps even superior to the US model at this point in time.
31. March 2020 at 15:35
PS Trump’s infrastructure spending plans are interesting, from the perspective of “never let a crisis go to waste.”
Also, we do not know how long the COVID-19 crisis will keep the economy shut down. But on the other hand, outdoor work appears safe enough.
Can we get those office workers out in the field, welding steel girders?
“Scotty, the Riveter”?
31. March 2020 at 16:11
“FDA Approves Emergency Use of Hydroxychloroquine and Chloroquine to Treat COVID-19
The agency concludes that the possible benefits outweigh the risks.”
—-Reason magazine
—30—
So, the story line is not that the FDA killed many by denying them medicine that might work, but rather that Trump killed that guy in Tennessee or Texas who took medicine intended for an aquarium.
31. March 2020 at 16:12
I think the thing to note about China’s economic model is that the people running the country aren’t necessarily any smarter or purer than Western elites. It is simply that China’s elites all agree that the economy must grow, and they will not accept it shrinking. Not surprisingly, given the level of knowledge and expertise at the disposal of people at the present moment, their economy continues to grow.
31. March 2020 at 16:15
Is there finally something like “Kurzarbeit” in the US? It may not be perfect, but it might be better than mass unemployment benefits, helicopter money, and bridges to nowhere. Has Ben come up with this idea yet?
And what in the world happend to Ray? Either someone is force-feeding him his medication again or the corona crisis has caused him losing all access to his illegal drugs.
31. March 2020 at 16:45
“ When the coronavirus crisis is over, monetary policy will determine the level of employment.”
In Sumner’s dreams that’s true. Not sure that is true in reality. The Fed is the same Fed that has successfully kept inflation under 2% per year for the past 10 years. I am pretty sure that means that they will not, in response to the current recession, place any greater priority on full employment than they have in keeping inflation under 2%. Which means, I think, that fiscal policy can have large impacts on employment, because it can simultaneously boost employment and labor force participation when the Fed is unwilling to do so.
Isn’t that what happened with the Ryan/McConnell tax cuts?
31. March 2020 at 17:15
Burgos,
How far from antibody testing? I hope not far.
Makes me think… Can’t wait until this whole thing is over… gonna have a huge big time firework infested party with my whole street. I long for that day. Gonna roast 2 whole pigs, a whole lamb, big cuts of beef, and kegs and wine for the entire hood… Can’t wait.
Ray i am with you a bit. I used to think sumner was a douche…
Until he proved himself right via data. Data is a bitch if u actually look at it. Over time, it wins u over. Is he always right, far from it. But I have learned to give him at least 5 think overs when he is speaking of what he knows.
31. March 2020 at 17:27
“When the coronavirus crisis is over, monetary policy will determine the level of employment”
Why should the Fed wait to at least maintain much employment as possible? There is not reason to let NGDP fall, although that’s sure what the TIPS spread indicates that bond traders expect.
31. March 2020 at 19:56
Christian, You said:
“If China has “missed” too many deaths in Wuhan, it means that the infection there almost completely burned out, because there was no stopping it”
Don’t be innumerate. Wuhan has 11 million people.
Ben, I’ve always favored abolishing the FDA. Do I have to mention it every single day to get your approval?
I’ve never commented on the effectiveness of Chloroquine. Not once.
Burgos, You do realize that fiscal policy shocks over the past 12 years have consistently failed to impact NGDP, don’t you?
31. March 2020 at 20:46
“Ben, I’ve always favored abolishing the FDA. Do I have to mention it every single day to get your approval?
I’ve never commented on the effectiveness of Chloroquine. Not once.”–Scott Sumner.
—30—
Well…okay, if you say so.
I am not sure I would abolish the FDA (though I would property zoning). But some serious reforms are probably in order. Probably every federal agency needs a deep re-think.
Meanwhile, we may have an experiment going here:
“Belarus president plays hockey, says global coronavirus measures are result of ‘psychosis'”
–USA Today
—30—
Evidently, Belarus is following a do-nothing policy. I would prefer sequestering the elderly and stockpiling masks, chloroquine, ventilators, tents for hospitals. But we will see.
Some AEI’ers say if the US feds, states did nothing, the costs of COVID-19 would be $9 trillion, or call it 50% of GDP. (Marginal Revolution)
Will the economy of Belarus endure losses of up to half of GDP by not shutting down? Seems unlikely. Speaking rationally, it is not workers who will taken down, but unproductive elderly, by COVID-19.
Why would the Belarus economy suffer from the pre-mature deaths of elderly smokers and those with co-morbidities?
Is not a cruel truth that when unproductive people are removed, the whole economy will benefit?
Belarus will be worth watching.
31. March 2020 at 21:20
Scott,
yes that would be 55,000 deaths if the death rate is 0,5% and 11,000 when the death rate is 0,1%.
30,000-60,000 are the projections and estimates that one can hear from (supposedly) independent sources in Wuhan, I assume you have read those sources.
It would be important to know, because that would be the (maximum) death toll a city like NYC can expect.
And it would be important to know, because then one would have to prevent people from fleeing the city and spreading the virus everywhere until it burns out in other densly populated cities as well.
It’s questionable that NYC isn’t quarantined either way.
So again: When even the Chinese have not stopped the virus in Wuhan from basically burning out, than the infection will burn out in other major American cities as well.
@Ben
Or better yet you move over there? You know, the closer you are, the better you can watch.
What productive work are you doing in Thailand again? If one follows your “logic” consistently, one would have to close all hospitals and euthanize all unproductive people, because hey, it’s better for the economy. Don’t let this crisis go to waste.
1. April 2020 at 00:36
@SSumner – Dr. Sumner correctly criticizing the conspiracy post by C. List that China deliberately undercounted Covid-19 stats and in fact Covid-19 (C-19) may have burned out naturally: “Don’t be innumerate. Wuhan has 11 million people.”. Christian List makes a good conspiracy theory post that may be true. If in fact, as the Epoch Times says, based on rare and hard to cancel, cancelled cell phone accounts, that in fact 22M people died in China from C-19 and not just 3310 people, then de facto China beat C-19 via Ben Cole / Dr. Hanson / Dr. Ferguson (UK) ‘herd immunity’ and not quarantine. It would be an even bigger shock to me than the near certainty that C-19 virus is a chimeric virus (see my previous post). It’s hard however to get good data from China, analogous to the USSR. Read Alec Nove, “The Soviet Economy” by analogy. Everything was going well in the USSR until it all fell apart (and, paradoxically, even western economists agree GDP per capita fell in the early 1990s)
@Student – data always wins. Dr. Sumner is very sure in his pronouncements, which is a strong sign of leadership. As somebody involved on occasion in litigation I learned the Third Law of Litigation: for every expert, there’s an equal and opposite expert.
@Christian List – EU/DEU ahead of USA for unemployment benefits, so no such thing as “Kurzarbeit” (workman’s comp where they keep entire groups together so they can continue to train as one unit) in the USA. Nor “Untermenschen”, sorry.
1. April 2020 at 02:31
Scott,
This looks like a roughly symmetrical pair of shocks to supply and demand, with demand somewhat easier to manage than supply (you remove a lot of labour while gvt assistance allows that labour to continue some spending). In a command economy it might be possioble to coordinate both the twin downward movements and the subsequent recvovery (assuming no lasting trauma to potential output in the medium term. In a highl;y decentralized market economy there woulod be a lot of scope for markets failing to coordinate properly ( covering the whole spectrum from benevolence to malevolence to put it euphemistically). How exactly would the monetary authority go about NGDP level targeting?
1. April 2020 at 03:18
Christian List-
I am a tree farmer, sometimes animals. No doubt due to Teutonic heritage, I can only work.
I am only wondering why GDP would drop if productive workers are largely, almost entirely, spared from the effects of COVID-19. It is the reaction to COVID-19 that has crushed the economy, no?
I think the elderly should be voluntarily sequestered, while other volunteers paid to inoculated until we reach herd immunity.
In Thailand, workers are saying, “We will not die from COVID-19. We will die from hunger.” They are saying that as they have been forced out fo work by national ukase.
Germany is not the US, and not Thailand.
Moreover, there is no exit plan. We will still have a naive population and a novel cold virus in two weeks, thanks to the lockdowns. So…we stay on lockdown for how long?
1. April 2020 at 04:29
@ Benjamin Cole – how long do we stay in lockdown? See today’s MR cited new AEI paper by Anna Scherbina: 8 weeks minimum, and up to eight months maximum.
1. April 2020 at 06:16
Dr. Ray Lopez:
I think I must be the only one that read that report. To wit:
“The economic cost of the pandemic, calculated as described above, is projected to be $13.2 trillion when VSL for the fatalities is taken into account and $1.2 trillion when it is not.”
VSL? That stands for “value saved life.” They also assumed 1.8 million dead from COVID-19 and also assumed that comorbidities play no role. In other words, COVID-19 gets full credit for every death.
Why does President Trump have better macroeconomic insights than a peer-reviewed paper from AEI?
The macroeconomics profession is in a discredited shambles, and they are attempting rectification by disgorging through through posterior apertures.
1. April 2020 at 06:30
CNN breaking news headline today: “Asia May Have Been Right About Face Masks” https://www.cnn.com/2020/04/01/asia/coronavirus-mask-messaging-intl-hnk/index.html
Is there anything that Dr. Sumner is not right about? Wow I might have to revise my views on short-term money neutrality if this keeps up. April Fools?
PS–the fake German internet ‘doctor’ Christian List was wrong about masks. Ignorant as usual. I probably know more about WWII than he does, from his sanitized school textbooks.
1. April 2020 at 08:25
Christian, The vast majority of deaths in Wuhan occurred in a brief period of late January and early February. If there were that many deaths in Wuhan, then why not in Milan? The numbers simply don’t add up.
Again, I’ve always argued the Chinese have undercounted cases, from the very beginning. But there’s no evidence of a grand conspiracy here, just the normal incompetence.
Rien, The Fed should buy assets until 12 or 24 month forward NGDP expectations are growing at 4%/year. If they need help, they can offer to take long and short positions in NGDP futures contracts.
Thanks Ray.
1. April 2020 at 08:59
Scott’s basic answer on any critique of China’s numbers is innumeracy, racism, China-phobia, “everyone lies”—–and while all of that can be true it still ignores the issue.
We know he believes they have more cases. Based on what? Why do they have more cases? Using Korea as a benchmark for per capita, China should have 260,000 cases—which coincidently is close to Scott’s guestimate. But China has a “4%” death rate while Korea has a 1.7% death rate. Which one should we use? if we use China’s death rate with Korea’s case rate we have 10,400 deaths—not 3000.
Why is China “disappearing” some outspoken Doctors? Why does China claim no virus outside Hubei? Why has China kicked out foreign journalists?
Why do we just assume—which Scott does—that there is nothing to see in China—nothing to be worried about regarding their lack of transparency?
His answer–innumeracy, China-phobia/conspiracy theories/ etc—-but no possibilty worth worrying about that their hiding real numbers—which he believes—-could be masking something for worse.
1. April 2020 at 09:55
@ B Cole
When can we start relaxing social distancing?
I would think when we have good reason to think that doing so will not lead to an overwhelmed healthcare system.
From my perspective, that means that we need enormous and quick testing capacity. Perhaps we need to be able to do millions of tests a day. I think we also need to have enormous production of PPE for healthcare workers, and also enough production of face masks so that we can require everyone to wear a face mask when in public. I think we also likely need a stockpile of the most promising treatments for Covid-19, which we would combine with very frequent testing for healthcare workers and perhaps others who come into frequent contact with those who may be infected. The idea would be to catch illnesses among those workers very early and then administer things like anti-vitals and serum plasma in order to get them better outcomes and shorter duration of illness, thus preserving vital healthcare capacity. We also would need serological testing to identify to see who has had it and recovered from it, both so that we know who isn’t at risk, but also to help identify potential plasma donors and to identify people who can perhaps help or work for those at greatest risk of hospitalization. Of course we also probably should remain fairly strict on social distancing until we can establish low enough levels of infection, widespread enough testing, and enough manpower to very vigorously test, trace, and isolate people with the virus and their close contacts. I also think we need contactless thermometers for nearly every business, store, and other enclosed public area to deny people access who have a fever.
So given the overall level of competence of the US government, I am thinking that it will be a long time before relaxation of social distancing. Is four months too optimistic?
Also, until we have effective treatments, or until I test positive for anti-bodies, I am not going to want to spend as little time in public as I can.
Various parts of China are set to start reopening schools this month. That may give us a good idea of whether reopening schools will lead to more outbreaks.
1. April 2020 at 15:40
P Burgos–
I just don’t see an exit strategy from lockdowns. We still have a naive population in relation to a novel cold virus.
True, China made the lockdown policy work but evidently the virus was more or less confined to Hubei Province from the start. That is not the US situation, and obviously we retain some marginal increase of political and human freedoms compared to China. And possibly, China is lying and engaging in self-delusion presently.
Also, a non-PC topic, there are 1 million apprehensions of would-be border-crossers every year along our border with Mexico. No one knows the number who successfully cross without being apprehended.
Perhaps natural inoculation of volunteers is a good idea.
The US has embarked on a course that is economically catastrophic, and could get worse. That much is not debatable.
1. April 2020 at 17:13
Scott, yes you are right, the numbers don’t add up because the CCP undereported.
I don’t have any figures from the city of Milano directly, the city itself was not the direct epicentre anyhow according to press reports, but the region around it was.
Lombardy has about 10 million inhabitants, so that can compare well with Wuhan. So even though Lombardy is not as densely populated, it has about 7,500 dead so far and Wuhan allegedly has only how many? Like 2,200? That’s highly suspicious.
One can also take the Comunidad de Madrid as an example, half as many inhabitants as Wuhan, but 3,800 dead so far.
Call it what you want, of course it was intentional, what else, the CCP has never stated their war victims correctly. Counting dead people is not so difficult, you may be able to miscount by a few hundred, but not by a few thousand.
Nevermind, you can at least double or triple the death toll in Wuhan, and then we come to a point where the infection might have almost completely burnt out.
2. April 2020 at 09:51
Michael, You said:
“Scott’s basic answer on any critique of China’s numbers is innumeracy, racism, China-phobia, “everyone lies”—–and while all of that can be true it still ignores the issue.
Yes, they are all “true” but I don’t ignore the “issue”
https://www.themoneyillusion.com/was-china-the-worst-possible-place-for-the-coronavirus-to-hit/
I just don’t repeat myself in every single post. And I push back against unhelpful scapegoating of foreigners at a time when our own government is killing thousands of people through gross incompetence.
Christian, Yeah, I think it’s possible that Wuhan has 7500 dead. But recall that 14% of Italy is over age 70, whereas 5.5% of Hubei province is over 70. So you’d expect a somewhat higher death rate in Italy.
I very much doubt the 40,000 figure, but of course I don’t know for sure. I’m not sure it’s even that important, as the death rate in China has recently has fallen sharply under any plausible estimate of caseloads. Those temporary hospitals in Wuhan have been shut down.