INSIGHTS: WHY AMERICA IS EXPERIENCING TWO ECONOMIC RECOVERIES
Guest Columnist: John Miltimore, Managing Editor at Foundation for Economic Education. Reprinted with permission.
Nations across the world are still reeling from the COVID-19 pandemic, which triggered a global recession following economic lockdowns enforced by most developed nations around the world.
New estimates put the economic losses at more than $16 trillion, and the United States saw its GDP shrink 9.5 percent between April and June, its largest drop in modern times.
While macroeconomic data is useful, it doesn’t tell the full story. It’s important to understand these economic losses have resulted in severe pain for people around the world, especially the poor.
A new Columbia University study shows that 8 million Americans have slipped into poverty since May, the New York Times reports. Meanwhile, a recent World Bank study projects as many as 150 million people around the world are projected to slip into extreme poverty by 2021.
As the US seeks to rebound from the global recession, it’s worth noting that some states are having more success than others.
Just the News recently published a breakdown of state unemployment data for August (the latest data available). Based on US Bureau of Labor Statistics data, the figures showed that nationally the unemployment rate was 8.4 percent, but the economic pain was not distributed equally across blue, red and purple states.
“Fueled by broader, faster economic reopenings following the initial coronavirus crash, conservative-leaning red states are by and large far outpacing liberal-leaning blue states in terms of putting people back to work,” writes Carrie Sheffield.
“In red states (those voting Republican for president in all four of the last four elections), the combined unemployment rate stood at 6.6%. Among blue states (those that voted Democrat in all four of the last four presidential elections) the figure was 10.5%. Among purple states (all of the others, either split 2 and 2 or 3 wins for one party and one win for the other), the unemployment figure was 7.8%.”
The data also show that of the 10 states with the lowest rates of unemployment, nine have GOP governors (the lone exception being Montana), while 9 of the 10 states with the highest rates of unemployment are led by Democrats (the lone exception being Massachusetts).
Evidence suggests the disparity stems in large part from the different ways states are approaching the coronavirus. Red states, particularly ones like South Dakota, Utah, Oklahoma, and Idaho, have been much less inclined to restrict economic freedom during the pandemic. Blue states, on the other hand, have been the most proactive in limiting economic activity in an attempt to limit the spread of the virus. This includes states such as California, New Jersey, Rhode Island, New York, and Connecticut.
One might argue that these states could have had high unemployment rates before the pandemic, but BLS data from earlier this year show this is not the case.
Government figures from January 2020 show that just two states had unemployment rates higher than 5 percent—Alaska (6.1%) and Mississippi (5.7 %). Meanwhile, the blue states of California (3.9%, New Jersey (3.5%), Rhode Island (3.5%), New York (4%) and Connecticut (3.7%) had rates of unemployment close to the national average.
The data suggest that the economic recovery of many US states is being inhibited by government regulations designed to limit the spread of the virus. A recent Wall Street Journal article also recently pointed out that the strong economic recovery in the South “is at least partially due to less fear of the virus.”
While it’s unclear if these regulations are having a positive effect—New Jersey and New York have the highest COVID-19 death tolls in the country, and Rhode Island and Connecticut are not far behind—the consequences of government imposed lockdowns have been abundantly clear for months.
The most recent unemployment data are one part of a larger economic picture that shows, so far, red states are doing a better job of balancing the need to save both lives and livelihoods,” said Rachel Greszler, an economist for the Heritage Foundation.
“[W]e’ve seen blue states using a pandemic as an opportunity to expand government control, impose excessive lockdowns not rooted in data, favor politically connected groups and allies, and demand federal bailouts for decades of poor budgeting instead of taking responsibility and confronting their problems head-on,” Greszler told the Washington Examiner.
As lawmakers in American and around the world continue the difficult work of trying to limit the spread of the virus without causing further destruction, we should remember that the cost of curtailing economic freedom is high.
Just ask the 8 million newly impoverished Americans.
ON THE ECONOMY: OLD MAN
John Dunham, Managing Partner, John Dunham & Associates
Old man, look at my life, twenty-four, and there’s so much more. Live alone in a paradise that makes me think of two. Love lost, such a cost. Give me things that don’t get lost. Like a coin that won’t get tossed rolling home to you. Old man, take a look at my life, I’m a lot like you. I need someone to love me the whole day through. Ah, one look in my eyes and you can tell that’s true. The song Old Man, was written and performed by Neil Young on his 1972 album Harvest. It was written for the caretaker of the Young’s ranch and included both James Taylor and Linda Ronstadt on the banjo and vocals.
Right now, we have two old men running to be President of the United States. The current President, Donald Trump is the oldest sitting President, and the two candidates are themselves the 5th and 6th oldest to run for the office. By the way, the oldest candidate ever was Harold Stassen, who first ran for President of the United States in 1948, and did so again 7 times, the last of which was in 1992 when he was 85 year of age.
In many cultures, age is associated with wisdom. However, in this election, as is admittedly the case with most elections in America, there is not a huge amount of wisdom on display. This is especially true when looking at the candidates’ economic platforms. Of course, there are a number of reasons why one might vote for or against either candidate, but with the current state of the economy, one of the most important things to consider might be how their proposals may impact jobs, wages and growth.
To do this we will examine the following: Tax policy, trade policy, health care policy, energy policy, infrastructure, and most importantly maybe, the policy toward COVID-19.
Let’s compare the good, the bad and the ugly from each of the platforms to see what we might be able to expect in the next four years.
First the good. Both candidates have elements in their platforms that would likely lead to improvements in the economic situation over the next four years. One of the most important of these – and one that has been repeatedly shut down by Congress, is an extensive infrastructure investment program. While the details of the two plans differ, both candidates want to see Federal infrastructure investments of over $1 trillion. This is one place where government spending pays dividends. By helping to finance the modernization and improvement of the nation’s highway, transportation, broadband, electrical and water infrastructure, the Federal government can leverage low borrowing costs and indifference to the time value of money, to great effect. In fact, using infrastructure investment to provide COVID-19 relief is a much better idea than the giveaways that both candidates are supporting. There is never enough labor available to keep the roads clean, schools painted, and homes insulated.
The President’s deregulatory agenda has already led to substantial economic benefits, and further deregulations will be even more beneficial. This has probably been the most important part of the Administration’s economic agenda so far, even more so than tax reform, which for all of its ugliness has been a net positive.
That said, some of the Vice President’s proposals to modify the tax system, particularly those that reduce incentives for tax havens, evasion, and outsourcing; and reductions in direct subsidies, including those for fossil fuels will be accretive.
In the movie The Good the Bad and the Ugly, the Bad was played by Lee Van Cleef. The character, Angel Eyes, was a sadistic mercenary and assassin. Many of the economic policies being proposed by the candidates are simply bad policy. They may not cause dramatic harm to the economy, but they are unlikely to do much that is positive.
Vice President Biden is proposing a number of giveaways for college students including making four-year public colleges and universities tuition-free for all students whose families make less than $125,000, capping student loan payments at 5 percent of income and providing loan forgiveness after 20 years. While it is important to help increase the education level of the American citizenry, this is simply a giveaway program to colleges and universities. Making something free increases demand but does not improve the quality of the service being offered. In addition, encouraging someone to get a degree in Philosophy or Ethnic Studies will not help to increase future productivity.
On the Republican side, the antagonism against the Affordable Care Act (Obamacare) has led to a great deal of uncertainty in health care markets. While the provisions of Obamacare undoubtedly made the delivery of health care (rather than health insurance) more problematic and have led to extensive rationing and shifts from private physicians to clinics, simply eliminating the ACA will not make America’s health care system any better. In addition, the Administration wants to have its cake and eat it too. Obamacare required insurers to cover pre-existing conditions. They did this by raising premiums, stripping out choice and rationing. The Administration would require health insurers to continue to cover pre-existing conditions, but without extensive subsidies insurers simply cannot do this. One way or another, taxpayers will pay for this entitlement, either through lower quality health care, more expensive insurance premiums, or higher taxes.
The Ugly, Tuco, played by Eli Wallach in the movie was a Mexican bandit wanted for a long list of crimes. When it comes to economic proposals, again, both candidates have a lot of truly ugly things in their platforms.
On the President’s side, trade policy is truly the ugliest component. President Trump has not backed down on protectionist trade policies, not only directed at China, but at other parts of the world. The Administration’s 232 tariffs on aluminum and steel imports have cost more American jobs than they have helped, and his focus on trade deficits rather that terms of trade have increased prices, particularly for the most vulnerable. At the same time, the anti-China rhetoric may be having negative effects on other foreign policy initiatives particularly those directed toward North Korea.
While the President is infatuated with China, Biden and the Democrat party seems to be in the ether when it comes to the concept of climate. No matter what environmentalists claim, a negative effect of a changing climate on the economy of the country has not been established, nor is it even likely. Expensive measures to reduce carbon emissions will not have any impact on global climate and will undoubtedly have serious economic consequences. At best, these broken-window type policies will benefit one segment of the economy over another, and calls to eliminate the fossil fuel industry, to ban hydraulic fracturing, and to spend billions on so called clean energy, are seriously ugly economic policies.
So to is the Vice President’s call for a $15 per hour Federally mandated wage floor. The President was quite right during the last debate to point out that different state’s have different economies and prevailing wage rates, and a wage floor will do little but raise prices and reduce jobs for those who have been most harmed by the COVID-19 shutdowns.
Biden also has called for extensive tax hikes. While this will be bad for the economy, he unfortunately does not need to pass any new legislation, since huge tax increases have already been built into the Tax Cuts and Jobs act. These increases will begin to go into effect next year and will harm the economy no matter which of the two old men becomes President.
In the end, neither candidate has a particularly remarkable economic agenda for the country, and unless the insanity over COVID-19 can be overcome, neither is likely to be facing an economy that can withstand the truly ugly parts of their proposals. In each case, neither is proposing things that don’t get lost. Like a coin that won’t get tossed rolling home to you.