Tuesday, June 30, 2020

Gasoline Is Cheap. Americans Can’t Take Advantage.

Inexpensive gasoline normally boosts the economy, but that benefit likely won’t be realized because of the pandemic

By Amrith Ramkumar of The WSJ.

This was from last March. It is a little strange to say  "Americans Can’t Take Advantage." The same thing that caused the prices to fall is what is keeping them home.

Demand fell because of pandemic. Then price falls. That is the end of the story. Price changing is not a shift factor for demand.

Now the article does mention that there was a supply glut. That increase in supply would lower price and, in the absence of any change in demand, would lead to an increase in quantity demanded (or increase in gas purchased).

Since less gas was purchased, it seems like the fall in demand outweighed the increase in supply (if it truly increased-what they call a glut just might be all the gas that firms expected to sell but could not because price fell).


"Demand for fuel around the world has plummeted because of travel restrictions and precautionary measures taken to contain the new coronavirus, which has sent markets into a tailspin and threatens to tip the world economy into a recession. At the same time, an expected glut of crude oil—due to a clash between Saudi Arabia and Russia over their share of energy markets—has amplified the decline in fuel prices."

"the average price of a gallon of regular gasoline in the U.S. has fallen to about $2.20 from $2.55 at the end of last year"

Monday, June 29, 2020

Pandemics and inequality

See How the Coronavirus Might Reduce Income Inequality: The Black Death and other pandemics pushed wages higher, but the impact will likely be different this time, economists say by Paul Hannon of The WSJ. Excerpts:
"Past pandemics have shifted the balance of bargaining power toward workers and away from owners"

"Economic historians have long thought that the Black Death, among other pandemics, had a significant impact on how income is shared between those who own land and other assets and those who provide the labor.

The most direct and brutal way in which that impact is felt is a change in the supply of labor. Viruses and bacteria kill workers, who become less plentiful as a result. For those who survive, wages rise. At the same time, land and other assets are unscathed, and the returns to their owners decline. The result is a more equal distribution of incomes.

The Black Death, a bacterial infection that devastated populations in Europe and Asia in the mid-14th century, is the most widely studied of past pandemics. The full extent of its consequences are still debated, but it almost certainly resulted in higher wages for workers in northwestern Europe."

"In a paper published this month by the National Bureau of Economic Research, three economists examined 15 outbreaks that each accounted for more than 100,000 deaths, the most fatal being the Spanish flu, which took an estimated 100 million lives between 1918 and 1920.

They found that real wages typically rose for three decades after an outbreak, by as much as 5% at their peak. Over that same period, the natural rate of interest—a measure of the return on capital—declined by one-and-a-half percentage points. Overall, pandemics narrowed the income gap between workers and owners of capital."

"the tendency of Covid-19 to kill older people who may have already retired while often sparing the lives of the working age or younger. That is why Stanford University historian Walter Scheidel doesn’t expect to see an impact on wages."

Sunday, June 28, 2020

Dr. Ericsson, professor of psychology who studied how practice leads to excellence, has died

See Professor Studied How Elite Performers Reach the Top: Anders Ericsson of Florida State prescribed a long slog of ‘deliberate practice’ by James Hagerty of The WSJ. Excerpts:

"For anyone who ever wanted to win a marathon, master Beethoven’s “Hammerklavier” on the piano or simply lower a golf handicap, Anders Ericsson had encouraging news: You don’t need to be born with a gift.

Dr. Ericsson, a professor of psychology at Florida State University, argued that sustained practice was far more important than any innate advantages in determining who reaches the top in athletic, artistic and other fields.

That practice, however, couldn’t be mindless repetition. He called for “deliberate practice,” preferably guided by an expert teacher, focused on identifying and correcting weaknesses and monitoring progress. If you were enjoying the practice, it probably wasn’t working."

"His work helped encourage a trend in medical education to put more emphasis on practicing skills and providing feedback to correct lapses, said Graham McMahon, chief executive of the Accreditation Council for Continuing Medical Education.

Though parents and teachers preach the importance of practice, many people don’t know how to do it effectively, Dr. Ericsson said. People often practice what they already know how to do rather than trying to master something they can’t yet do.

To improve at chess, he said, it’s more important to study grandmasters’ games than to play a lot of chess.

One problem is that effective forms of practice are hard work and “generally not fun,” his book warned: “If your mind is wandering or you’re relaxed and just having fun, you probably won’t improve.”

Experts learn to cultivate “mental representations,” or an ability to read complicated patterns and react almost instantly, he said. For a quarterback, pulling off that trick is the difference between a completed pass and an interception.

Early in his career, as a postdoctoral researcher at Carnegie Mellon University in the late 1970s, he hired students to train themselves to memorize long strings of digits. The most successful performers discovered ways to break those strings down into memorable chunks that they could store in their brains and then recall in the proper order.

In a recent interview, Dr. Ericsson recalled pressing the students to explain “what actually happened in your head while you were doing this?”

In the late 1980s, he quizzed elite musicians at an academy in Berlin about their practice habits.
Dr. Ericsson saw major advantages in hiring personal trainers. “No matter how many times you watch a demonstration in class or on YouTube, you are still going to miss or misunderstand some subtleties,” he and Mr. Pool wrote in “Peak.”

Zach Hambrick, a professor of psychology at Michigan State University, agreed with Dr. Ericsson that practice is vital in developing expertise. But Dr. Hambrick said other factors—including personality traits and intellectual abilities—may also play important roles in determining who comes out on top."

Saturday, June 27, 2020

Americans Skip Millions of Loan Payments as Coronavirus Takes Economic Toll

In high-cost areas, jobless benefits aren’t enough to help debt-laden borrowers pay down their bills

By AnnaMaria Andriotis of The WSJ. Excerpts:
"Americans have skipped payments on more than 100 million student loans, auto loans and other forms of debt since the coronavirus hit the U.S., the latest sign of the toll the pandemic is taking on people’s finances.

The number of accounts that enrolled in deferment, forbearance or some other type of relief since March 1 and remain in such a state rose to 106 million at the end of May, triple the number at the end of April, according to credit-reporting firm TransUnion.

The largest increase occurred for student loans, with 79 million accounts in deferment or other relief status, up from 18 million a month earlier. Auto loans in some type of deferment doubled to 7.3 million accounts.  Personal loans in deferment doubled to 1.3 million accounts.

The surge in missed payments suggests that the flood of layoffs related to the coronavirus has left many Americans without the means to keep up with their debts. Many people have used up their stimulus checks, and unemployment benefits in high-cost areas aren’t enough to replace paychecks or to help debt-laden borrowers pay down their bills.

In some cases, the government is instructing companies to let borrowers defer their loans. The stimulus package signed into law in March, for example, allowed most borrowers to stop making monthly payments through Sept. 30 on federal student loans.

The stimulus package also allowed homeowners hurt by the coronavirus or its economic fallout to ask their mortgage servicers for permission to pause their payments for up to 12 months. If the mortgage is backed by the government, the mortgage servicer is generally supposed to grant the request."

Many credit-card, auto-loan and personal-loan lenders continue to allow consumers to skip or pause payments, in hopes of buying time for the economy to recover and for consumers to get back on track with their payments."

Friday, June 26, 2020

U.S. Marriage Rate Plunges to Lowest Level on Record

Strained finances have Americans forming households without tying the knot

By Janet Adamy of The WSJ. Excerpts:
"The share of Americans getting married has fallen to its lowest level on record, according to government figures released Wednesday that reflect how economic insecurity and changing norms are eroding the institution.

The U.S. marriage rate fell 6% in 2018, with 6.5 new unions formed for every 1,000 people"

"That was the lowest rate since the federal government began keeping data in 1867"

"marriage rates plunged near the start of the Great Depression in the 1930s"

"The marriage rate began a near-steady decline in 1982 that lasted until 2009"

"Many Americans are opting to form households without tying the knot, and strained finances have been a top reason"

"The fallout from Covid-19 is likely to further discourage marriage in the near term since financial insecurity" [is one of] the "matrimonial deterrents"

"A lot of it is the economy" said one expert

There were 10.6 marriages for every 1,000 people in 1982. With 6.5 in 2018, that is a drop of  38.7%. But the economy picked up in 1983 and expanded until 1990. Yet marriage rates kept falling. They kept falling in the boom of the late 90s and in the years before the 2007-09 recession.

Related posts:

A number of women who put off having babies after the 2007-09 recession are forgoing them altogether; more educated women and student debt also contribute to decline in birth rates (2018)

The Economy Affects The Birth Rate (2010)

Did The Recession Help Lower The Birth Rate? (2011)

U.S. Fertility Rate Hits Lowest Level on Record (2012)

Study of Men’s Falling Income Cites Single Parents (2013)

Thursday, June 25, 2020

How much are businesses spending and what are they spending it on to fight Covid-19 and stay in business?

How Much Covid-19 Cost Those Businesses That Stayed Open: From $198,000 to $1 billion, public companies start to disclose the amount spent on paying workers and protecting them and customers by Inti Pacheco of The WSJ. Excerpts:

"A food distributor has paid $20 million for testing and plexiglass. T-Mobile US Inc. has spent $50 million on extra cleaning and safety gear. Walmart Inc. WMT -0.49% and three other big retail chains have put more than $3 billion into higher salaries, benefits and other Covid-19 measures.
Staying open during the pandemic wasn’t cheap. Big companies say they spent anywhere from hundreds of thousands to almost a billion dollars in Covid-19-related costs. Some say they expect the costs to keep rising in coming quarters, even as they face uncertain demand from consumers.

The figures include increased pay for front-line workers, expanded cleaning and sanitization protocols, and the purchasing of coronavirus testing or personal protective equipment, according to a Wall Street Journal review of recent quarterly reports and earnings-call transcripts. These are extra expenses and don’t reflect extra revenue or lost business. Some essential retailers that were open as well as makers of safety gear had a surge in revenue during the lockdown."

"$1 billion

Target Corp. said last week it would keep its starting wage at $15 an hour, after temporarily raising it in March. The company said it expects to spend $1 billion more this year than last on worker-related expenses, including wages, paid leave and safety equipment such as masks.

$900 million
Walmart spent around $900 million in its quarter ended April 30. The company said this included masks, gloves and bonuses for employees, additional cleaning and expanded sick-leave pay. Walmart has about 1.5 million employees in the U.S., and more than 270,000 have taken a coronavirus-related leave. In May, executives said they expected similar costs in the second quarter."

Some things other firms are doing:

-personal protective equipment
-Covid-19 testing
-cleaning enhancements
-partitions for workers
-decals in facilities to maintain social distancing. 

Wednesday, June 24, 2020

ESG Investing Shines in Market Turmoil, With Help From Big Tech: The strength of socially responsible funds suggests they have staying power; ‘ESG is not a fad’

By Caitlin McCabe of The WSJ. Excerpts: 
"Funds focused on socially responsible investing have been a rare bright spot in this year’s market meltdown, the latest evidence that the practice is more than a bull-market trend.

In the first four months of 2020, investors poured a record of at least $12.2 billion into funds that say they invest in environmental, social and governance practices, according to investment research platform Morningstar Direct. That is more than double the amount that ESG funds attracted during the same time last year, when the U.S. was in the midst of its longest-running bull market in history.

The steady inflows into ESG funds come as the group has logged better-than-average returns, despite this year’s wild ride in markets that has pulled the S&P 500 down 11%. More than 70% of ESG funds across all asset classes performed better than their counterparts during the first four months of the year, data provided by Morningstar Direct show.

The strength of sustainable investing suggests that ESG has staying power. Skeptics have long said investors might be willing to put their money into financial products that reduce their exposure to fossil fuels, for example, when stocks charged higher. But they predicted investors would abandon the practice for higher returns in times of turbulence."

"According to a study published last month by Mr. Serafeim and researchers from State Street Associates, companies that protected their labor forces and supply chains during this year’s stock-market drawdown saw more net inflows from institutional investors and better returns than their industry peers.

Kroger Co., KR 2.24% for example, said in March that it would pay a bonus to its front-line workers, provide paid time-off to employees placed under quarantine and make funds available to workers experiencing financial troubles during the pandemic. Shares of the supermarket company, which receives a high rating from MSCI ESG Research on issues such as labor management, rose 5.2% between Feb. 19 and March 23. In comparison, Walmart Inc. WMT -0.64% and Costco Wholesale Corp., COST -1.09% which have lower ESG ratings than Kroger, according to MSCI, fell 2.9% and 12%, respectively, during the period."

"A Wall Street Journal analysis of ESG equity funds found that nearly 150 of about 200 funds outpaced the average return of a fund’s broader category.

For example, the Integrity Growth & Income Fund Class A—which holds Thermo Fisher Scientific Inc. TMO -2.48% and Intel Corp. INTC -1.39% as part of its mission to invest in companies with “ethical business practices” and “evolutionary innovation”—declined 8.8% in the first four months of the year. In contrast, the category of large-cap value and growth stock funds in which the Integrity fund is included fell 11%, according to Morningstar Direct.

Yet the equity funds that earned the highest returns overall, the data showed, were largely ones that heavily invested in big technology companies."
"One of the biggest criticisms of ESG investing is that funds often look no different than big technology portfolios."

"Still, ESG advocates say, big tech companies aren’t necessarily the kinds of sustainable investments that people envision when they think of ESG. Jeff Buffum, of Buffum Wealth Management, which is affiliated with Northwestern Mutual Wealth Management Co., said he started building an ESG portfolio after clients expressed interest in renewable-energy investments and disdain for gun-manufacturing companies.

However, Jon Hale, Morningstar’s director of sustainability investing research, said that being generally overweight in the technology sector didn’t provide ESG funds much of a boost. Instead, he found, the bigger drivers of ESG success were having less energy-sector exposure and a selection of stocks—including in the technology sector—that scored better on ESG credentials than their peers."

Related posts:

Funds that market themselves as sustainable investments aren’t necessarily focused on companies that fight climate change, develop wind turbines or promote diverse boards

ESG Funds Draw SEC Scrutiny (companies that pursue strategies to address environmental, social or governance challenges)

Is it a retailer’s job to keep shoppers from their vices? (or Adam Smith vs. CVS pharmacy)

Can You Find Virtue by Investing in Vice?

What if companies pledge to adhere to social and environmental accountability guidelines?

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!) 

Data show that socially responsible investments can outperform the S&P 500 index

Is altruism a result of selfishness?

Do you have to be selfish to make more money?

Does collective self-deception mask selfish behavior?

Why Doing Good Makes It Easier to Be Bad

Businesses intentionally display their social and environmental performance in addition to their financial performance to stakeholders

Should you invest according to religious guidelines?

For a humorous view of this issue see

A Snickers a Day Keeps the Doctor Away: Why does CVS want to make my migraine cures hard to find? by Joseph C. Sternberg of the WSJ

Tuesday, June 23, 2020

Why Economics Is Really Called 'the Dismal Science': The (not-so-dismal) origin myth of a ubiquitous term

By Derek Thompson of The Atlantic Monthly. From 2013.

"The story goes like this: Thomas Carlyle, a Scottish writer and philosopher, called economics "the dismal science" in reference to Thomas Malthus, that lugubrious economist who claimed humanity was trapped in a world where population growth would always strain natural resources and bring widespread misery. Dismal, indeed.

But this origin myth is, well, mythical. Carlyle did coin the phrase "the dismal science." And Malthus was, without question, dismal.

But Carlyle labeled the science "dismal" when writing about slavery in the West Indies. White plantation owners, he said, ought to force black plantation workers to be their servants.

Economics, somewhat inconveniently for Carlyle, didn't offer a hearty defense of slavery. Instead, the rules of supply and demand argued for "letting men alone" rather than thrashing them with whips for not being servile. Carlyle bashed political economy as "a dreary, desolate, and indeed quite abject and distressing [science]; what we might call ... the dismal science.

Today, when we hear the term "the dismal science," it's typically in reference to economics' most depressing outcomes (e.g.: on globalization killing manufacturing jobs: "well, that's why they call it the dismal science," etc). In other words, we've tended to align ourselves with Carlyle to acknowledge that an inescapable element of economics is human misery.

But the right etymology turns that interpretation on its head. In fact, it aligns economics with morality, and against racism, rather than with misery, and against happiness. Carlyle couldn't find a justification for slavery in political economic thought, and he considered this fact to be "dismal." Students of economics should be proud: Their "science" was then (as it can be, today) a force for a more just and, crucially, less dismal world."

Monday, June 22, 2020

Japan's unemployment rate is just 2.6% but there is a tradeoff (as usual)

See Why Japan’s Jobless Rate Is Just 2.6% While the U.S.’s Has Soared by Ben Dooley and Hisako Ueno of The NY Times. Excerpts:

"A mix of social, demographic and epidemiological factors has kept unemployment down even as the coronavirus has damaged the country’s already weakened economy."

"Before the pandemic, Japan’s shrinking and graying population had created one of the planet’s tightest labor markets. Even now, some companies are having difficulty finding workers, with more than 120 job openings for every 100 job seekers nationwide in April.

And Japan, unlike the United States or China, has avoided a devastating spike in coronavirus cases, allowing it to keep more of its economy open. It asked businesses to close on a voluntary basis during a state of emergency that lasted a month and a half and ended in May.

But those differences account for only part of the gap. The rest comes down to a fundamental divergence in attitudes and policies toward labor.

In the United States, “when the economy gets bad, people get laid off one after the other, and the unemployment rate shoots up,” said Tomohisa Ishikawa, director of the Macro Economic Research Center at the Japan Research Institute. But for Japanese employers, “laying people off is difficult both psychologically and practically.”

Companies in Japan are more likely than their American counterparts to prioritize employees’ interests over those of shareholders, focusing on the sustainability of their business rather than maximizing growth, said Naohiko Baba, chief Japan economist at Goldman Sachs.

“During good times, companies accumulate profits on their balance sheets by restricting rises in worker’s salaries,” Mr. Baba said. “During bad times, companies refrain from firing redundant workers by using retained earnings accumulated during good times, so that people can have secure jobs.”

There are also strong social expectations that Japanese companies will retain workers. Japan’s businesses are often tough on their employees, asking them to put in some of the longest hours in the world, but companies are expected to provide job security in return — in many cases, for life."

"Pro-labor attitudes have been reinforced by strong legal precedents built up since the end of World War II that prevent companies from laying off employees unless they can demonstrate they have no other choice."

"Japanese law requires businesses to pay furloughed employees 60 percent of their wages."

"While Japan’s aversion to layoffs is a godsend for workers in hard times, it also comes with a price.

Critics say it makes companies reluctant to take risks in hiring new employees, reducing options for the country’s young workers. It may also make it more difficult for businesses to retool their work forces to adapt to changing conditions, making them less productive and hurting their ability to compete in the global economy.

In recent decades, companies have tried to gain some flexibility by increasing the ranks of “non-regular workers” — employees on short-term contracts who work for lower wages and have less job security.

In times of crisis, such workers have been let go in large numbers. During the 2008 financial crash, these workers, who currently account for about 40 percent of the work force, were the first to lose their jobs. The pattern has held during the coronavirus pandemic, with 970,000 non-regular workers losing their jobs in April, according to government data."

Sunday, June 21, 2020

Why Some Men Delay Fatherhood

First-time fathers are now more than 27 years old, on average; lengthening transition to adulthood is one reason

By Jo Craven McGinty of The WSJ. Some of the key reasons are economic. Excerpts: 
"First-time fathers, on average, are now more than 27 years old and in total have fewer than two children. In the late 1980s, they were 25 and had 2.1 children."

"A potential reason for the delay in fatherhood, the researchers found, is what demographers call the “lengthening transition to adulthood”—the point at which men (and women) feel as if they’ve achieved adult status.

“You’ve finished your education, you’ve secured a job, you have a stable income and, often, it’s when you’re married and when you’re able to purchase a home,” Dr. Guzzo said.

Having kids is the last step.

But some people take five or six years to earn an undergraduate degree or they extend their education even further by entering a postgraduate program. In the process, they might accumulate a daunting amount of student-loan debt, making the other transitional milestones seem financially impossible, at least in the short term."

"attending a four-year college now costs about five times as much as it did 30 years ago. In current dollars, the average cost of tuition, fees and room and board was $26,593 for the 2016-17 school year, compared with $5,504 in 1985-86."

"When the NCES examined data on students enrolled in the 2003-04 school year, they found that about 60% had taken out federal loans to finance their education, and a dozen years later, more than half were still in debt.

Graduates with an associate degree owed a median of $13,800. Those who earned a bachelor’s degree owed a median of $11,700. And those who borrowed to attend graduate school owed a median of $48,000."

Saturday, June 20, 2020

Evidence Grows of Lockdowns’ Toll on Employment

Social distancing has contributed to job losses, new research suggests, pointing to the case for targeted curbs instead of sweeping orders

By Greg Ip of The WSJ. Excerpts:
"A team of researchers led by Ms. Simon and Ohio State University economist Bruce Weinberg tackled this by studying mobility data of people at work and Google searches related to unemployment, and compared them to when states imposed stay-at-home orders and closed nonessential businesses. They then examined hard data on weekly claims for unemployment insurance and the Bureau of Labor Statistics’ monthly employment surveys.

Their study, released last month, found that work-related mobility dropped notably after the imposition of a stay-at-home order, and unemployment related searches rose sharply after the closure of nonessential businesses. Initial claims for unemployment insurance rose sharply immediately after stay-at-home mandates. Weaker employment is correlated with stay-at-home mandates and business closures.

The authors conclude the share of people 21 and over with a job fell 1.7 percentage points for every extra 10 days a state was under a stay-at-home order between March 12 and April 12. They estimate 60% of the job losses between January and April were driven by states’ social-distancing policies and the remainder by factors common to the whole country, such as fear of infection or the slumping global economy.

In previous research, Ms. Simon had found that mobility fell sharply in mid-March before stay-at-home orders. In an interview, she said it appears that employers didn’t respond to slowing activity with job cuts until states ordered people to stay home and nonessential businesses to close.

While Denmark locked down its economy, Sweden didn’t, which appears to have helped its economy. Between March 11 and the end of May, newly registered unemployed rose by a cumulative 4.2% of the labor force in Denmark compared with 2.9% in Sweden. Between February and April, retail sales fell 4.4% in Denmark compared to 1.3% in Sweden."

South Koreans still socially distanced voluntarily, and that cost jobs. A study by Sangmin Aum of Myongji University and two co-authors found employment nationwide fell 0.9% during February at the start of the pandemic, and by 1.9% in the region where a large religious gathering was the source of most of the country’s infections.

But based on per capita infections, South Korea’s job losses were about half those suffered in the U.S. and U.K., which did have widespread lockdowns.

That social-distancing orders cost jobs isn’t an argument against them, but against using them indiscriminately.

Ms. Simon asked: “What if we go through a second wave and we have policies that are just very blunt, that shut down everything” despite mounting evidence that the risks of various activities differ widely? “Every activity has some transmission risks associated with it, but some are so much lower.”
Lockdowns might be better than no lockdowns, but lockdowns targeted at riskier activity might be better than both, she said."

Friday, June 19, 2020

How this recession is different from past recessions

Two articles deal with this. It is hurting women more than men. Also, the causes are different and the duration may be shorter than The Great Depression.

See Coronavirus Employment Shock Hits Women Harder Than Men: Women are more likely to work in vulnerable sectors like retailing and personal care by Sarah Chaney and Lauren Weber of The WSJ. Excerpts:
"Women usually fare better than men during an economic downturn. Not this time.

Growth in service professions has allowed women to overtake men as a proportion of the U.S. labor force. But it has also made them more vulnerable to job losses, because sectors with more women, such as education, leisure and hospitality, have been hardest hit by social-distancing measures.

In April, when the full force of the coronavirus-related lockdown struck, unemployment surged to 14.7% from 4.4%. Among women, the rate rose to 16.2%, compared with 13.5% for men, according to Labor Department data released last week. In February, before the pandemic, the rates were similar at close to 3.5%.

Job losses in April were particularly steep among industries in which women account for more than half of all workers.

Stefania Albanesi, a University of Pittsburgh professor of economics, found that women account for about 77% of workers in occupations that require close personal contact and cannot easily be done remotely, such as food preparation, health-care support and personal service.
In the past, men were more likely to be unemployed during downturns because they held a dominant share of jobs in sectors like manufacturing and construction, which typically bear the brunt of a recession. Unemployment among men reached 11.1% in 2009, compared with a peak of 9.0% for women in 2010.

“Every recession is a ‘mancession’ except this one,” Ms. Albanesi said."
See also Coronavirus Slump Is Worst Since Great Depression. Will It Be as Painful? Today’s downturn is comparable in scale to that of the 1930s, but it probably won’t be as damaging or long-lasting, economists say by Josh Zumbrun of The WSJ. Excerpts:

"“I don’t find comparing the current downturn with the Great Depression to be very helpful,” said former Federal Reserve Chairman Ben Bernanke, who has studied that 1930s era. “The expected duration is much less, and the causes are very different.”"

"“The breakdown of the financial system was a major reason for both the Great Depression and the 2007-09 recession,” Mr. Bernanke said. Today, however, “the banks are stronger and much better capitalized.”"

"Comparisons with the Depression are difficult because most of the data sets collected today didn’t exist in the 1930s. But some rough measures are available, including global trade tallies from the League of Nations, Federal Reserve data on factories and Works Progress Administration records on joblessness.

In the 1930s, industrial production fell by more than half. Production slowly made up ground for almost four years, only to decline sharply again in 1937-38."

"When the coronavirus hit, industrial production had already been dipping as a result of the recent trade wars. While many factories closed as consumer demand shrunk, some are rapidly retooling. Auto makers General Motors Co. and Ford Motor Co., for example, have switched from making cars to ventilators. Medical-supply factories are struggling to keep pace with demand.

From 1929 to 1933, the economy shrank for 43 consecutive months, according to contemporaneous estimates. Unemployment climbed to nearly 25% before slowly beginning its descent, but it remained above 10% for an entire decade."

"This time, many economists believe a rebound could begin this year or early next year if the virus is sufficiently contained.

While unemployment in the U.S. hit 14.7% in April and is likely to rise further, the blow today is softened by safety-net programs such as unemployment insurance."

"“But if we’re able to get reasonable control of the virus, the economy will substantially recover, and this downturn should be much shorter than the Great Depression, Mr. Bernanke said.”"

"“We’ve had this very abrupt, very sharp, immediate reduction in economic activity, driven by government policies to shut down economies. And because it’s very abrupt, the numbers are astronomical,” said Douglas Irwin, a professor at Dartmouth College who has studied U.S. trade policy during the Depression."

"By contrast, he said, “The way the world evolved into the Great Depression was a slow and steady decline. It was a slow strangulation of the economy.”

As in the Depression, today’s collapse is global. But the scale is smaller, Gita Gopinath, chief economist at the International Monetary Fund, said in a briefing last month. The IMF estimates the world economy shrank about 10% during the Great Depression, versus an expectation of about 3% this year and an expected return to growth next year. Advanced economies shrank about 16% in the Depression, compared with about 6% forecast for this year."

Thursday, June 18, 2020

When Workers Can Live Anywhere, Many Ask: Why Do I Live Here?

Coronavirus prompts Americans to reassess the need to reside near hot job markets

By Rachel Feintzeig and Ben Eisen of The WSJ. Because of remote working, more people are deciding to live farther from work. The internet has basically lowered the price of living farther away from the office. So, ceteris paribus, more people are doing it. Excerpts:
"The coronavirus is challenging the assumption that Americans must stay physically tethered to traditionally hot job markets—and the high costs and small spaces that often come with them—to access the best work opportunities. Three months into the pandemic, many workers find themselves in jobs that, at least for now, will let them work anywhere, creating a wave of movement across the country.

Recessions tend to damp migration. Americans typically move with a new job already in hand, and hiring plummets during downturns. The 2008 financial crisis limited Americans’ mobility because millions of homeowners found themselves underwater on their homes, unable to sell without taking a loss.

But this time might be different. Home prices haven’t yet taken a major hit. And the forces at play are novel. Confronted with the prospect of not being able to easily fly in for a visit with an elderly parent, grown children are suddenly questioning why they live so far away in the first place.

Many newly remote workers are finding they prefer somewhere closer to family or fresh air. Others are giving up on leases they can’t afford, chasing opportunities in states that are reopening faster or heading back to hometowns.

All told, at one point in April, Americans were relocating at twice the pace they did a year earlier, according to Cuebiq, a data firm that tracks movement via mobile phones. They continued to move at an elevated rate through mid-May. Cuebiq’s tally includes any trips away from home that last at least three weeks, so it also captures some temporary movement, like people decamping to vacation homes and students moving home from college."

"Telecommuting is fueling many of the moves. Companies like Twitter Inc. and Facebook Inc. are already declaring their monthslong experiment with remote work a success, giving many workers permanent permission to detach themselves from the office. Other companies that just six months ago would have scoffed at letting employees work from home are embracing it."

Wednesday, June 17, 2020

Boats, Pools and Home Furnishings: How the Lockdown Transformed Our Spending Habits

Consumers who held on to jobs or who are getting government benefits have seen bank accounts swell during the coronavirus pandemic because of restrictions on shopping and tourism. Now, they are spending with surprising strength to renovate homes and entertain families.

By Matthew Dalton and Suzanne Kapner of The WSJ. Excerpts:
"But many consumers in the U.S. and Europe who have held on to their jobs or are getting government benefits have seen their bank accounts swell during lockdowns, according to government data, because of restrictions on shopping and big-spending activities such as tourism.

Consumers with means are driving surprising strength in a number of sectors. People are flocking to home-improvement stores and car dealerships. They want to install pools in their backyards and Jacuzzis in their bathrooms. Spending on furniture has jumped. So have sales of fitness and sports equipment."

"For those still employed, paychecks have continued to roll in. Many of those laid off or whose businesses are suffering also have cash in hand, at least for now, as governments step in to replace much of their lost income. These measures include checks sent directly to consumers and increased unemployment benefits. In Europe, governments are subsidizing tens of millions of paychecks in order to persuade companies to forgo layoffs."

"So far though, deposits in commercial banks in the U.S. hit growth records in March and April and surged again in May.'

"the average balance of smaller accounts—those with less than $5,000—was up 30% to 40% at the end of May compared with 12 weeks previous, before the U.S. went into lockdown."

"Revolving consumer credit outstanding—mainly credit cards—fell in April by $56 billion, or 5.5%, the biggest monthly drop on record"

"For the week ended June 6, sales at home improvement retailers jumped 32%, while sales at furniture stores were up 6%, compared with the same week last year"

"U.S. car sales rebounded in May after a historic drop in April, easily beating analysts’ expectations. Though they were 30% lower than in May 2019, dealerships in many states are still closed. Dealerships that are open are running out of popular models."

"Also in France, demand for Jacuzzis and other home spa equipment is booming. “Spa sales have been explosive,” said Hervé Mery, who owns a spa and pool business east of Paris. “We’re selling one a day. Before the lockdown it wasn’t even one a week.”"

Related post

Has the pandemic changed tastes (which change demand)? (From May 28)

Tuesday, June 16, 2020

The Toll That Isolation Takes on Kids During the Coronavirus Era

Playing with peers has important developmental benefits, and doctors worry that children are missing out on them now

By Andrea Petersen of The WSJ.

Government policies can have unwanted and unexpected costs. This might be an example. Excerpts: 
"With many summer camps canceled, many families continuing to practice social distancing and the upcoming school year a big question mark, pediatricians and psychologists are raising alarms about the potential impact of prolonged social isolation on children. Some point to research that has found an array of benefits of positive peer relationships: Children who have them are more likely to later develop healthy romantic relationships and be more effective at work. Good relationships with peers during the teen years are linked to better health during adulthood.

“There’s a key connection between having good peer interactions and social emotional well-being,” says Rebecca Rialon Berry, clinical associate professor of child and adolescent psychiatry at NYU Langone Health in New York. “In certain populations, we’re seeing that our depression and anxiety are heightening with continued quarantining” and other aspects of the pandemic. “We have to start talking about the calculated risk and taking some more.”

There’s already evidence that social isolation may lead to mental health issues. About 23% of elementary school students in Hubei province in China had symptoms of depression and 19% had anxiety symptoms after two or more months of home confinement earlier this year during the region’s coronavirus outbreak, according to a survey of 1,784 children published in April in JAMA Pediatrics.

Psychologists are particularly concerned about how socially anxious children and others who already struggle making or keeping friends will fare. These youngsters might be relieved now to have a break from the social minefield of the lunchroom or playground, but “not having as many opportunities to practice, you might see a kind of withering of the social skills or a lack of development of the social skills,” says Eli R. Lebowitz, associate professor at the Child Study Center at Yale School of Medicine.

Children are less likely than adults to become seriously ill from Covid-19 and many show few symptoms. However, there have been rare cases of a dangerous complication called multisystem inflammatory syndrome in children. And doctors are still trying to understand how easily infected children could spread the virus to more vulnerable people.

Friendships play different roles throughout children’s development. For preschoolers, playing with other children and “learning to share, keeping your hands to yourself” helps develop our “core moral building blocks of empathy, perspective-taking, negotiation, collaboration and cooperation,” says Dr. Rialon Berry. Playing with peers teaches children to regulate their emotions and behavior. “If we can do so, more people are going to want to hang with us and play with us,” she says. These skills are critical to navigating all sorts of adult relationships."

Monday, June 15, 2020

Remote work is surprisingly productive (for now, but what about in the long-run?)

See What If Working From Home Goes on … Forever? by Clive Thompson of The NY Times.

In the book Economics in One Lesson, Henry Hazlitt said that you can't judge an economic policy based on how it only affects one group nor in just the short-run and not the long-run.

Excerpts from the NY Times article:
"In a May working paper, Erik Brynjolfsson, a professor in management science at M.I.T., and a group of academics reported survey results indicating that half of those who were employed before the pandemic were now working remotely. That’s a significant increase — pre-Covid-19, the paper estimates, the figure was about 15 percent. (In 2018, a U.S. Census Bureau survey found that just 5.3 percent of Americans worked from home full time.)"

"Employees adapted quickly, he says: “They were using ironing boards as a stand-up desk.” But what astonished him was that even though they had lost the easy rapport of face-to-face office contact, productivity didn’t sink. It went up, when measured by several metrics — developer productivity, for example."

"Research conducted before the pandemic found that remote work offers significant positive effects for both employee and employer.

One is productivity. What Accenture discovered is not, it seems, a fluke: Output often rises when people work remotely. In 2012, the U.S. Patent & Trademark Office, headquartered in Northern Virginia, began a program allowing patent examiners to live anywhere. For those who chose to work remotely, productivity rose by 4.4 percent, according to a study last fall by Prithwiraj Choudhury, a professor at Harvard Business School, and two colleagues. A 2015 case study by Nicholas Bloom, a professor of economics at Stanford University, and others found that when one Chinese travel agency assigned a random group of employees to work remotely for nine months, their productivity went up by 13 percent, generating an increase of roughly $2,000 in annual profits per employee. (It later rose even higher, to 20 percent.)"

"“But it was win-win,” Bloom says. As far as could be determined, the boost in productivity derived from employees’ being able to work more efficiently, without interruptions from their colleagues."

"People also worked more hours: There was no commute to make them late for their shifts, and even their tea breaks were briefer."

"Working at home can also improve how employees feel about their jobs. Historically, “research has shown a powerful correlation between telecommuting and job satisfaction,” says Timothy Golden, a professor of management at Rensselaer Polytechnic Institute who has studied telework for two decades. People tend to prize the greater flexibility in setting their work hours, the additional time with family members, the reduced distractions. Even with the onslaught of online messages confronting teleworkers, “no one’s stopping by your cubicle standing over you saying, ‘Hey, I need this,’ or ‘I need your help right now,’” Golden told me recently.

Another attraction for employers: shrinking real estate costs. With fewer employees in-house, firms can shed space; for the U.S. Patent Office, “real estate savings were immense” — fully $38 million, according to Choudhury. What’s more, companies can hire talented employees who can’t afford or don’t want to relocate to exorbitantly expensive coastal cities."

"Ben Waber, the president and co-founder of Humanyze, has spent his career tracking patterns among how employees communicate and how these correlate to companies’ health; Humanyze creates software that lets an organization map how communication flows internally. Waber suspects that in the long run, a company’s culture and creativity risk declining in a remote setup, because that alters the way an organization talks to itself. Specifically, the “weak ties” inside a company might fray."

"Waber predicts that companies will continue to hit their marks and be productive while remaining partly — or heavily — remote. The real damage will sneak up a year or two later, as the quality of new ideas becomes less bold, less electrifying. He also suspects that the overall cohesion of employees, how well they know one another, might suffer. “I think we’re going to see just this general degradation of the health of organizations,” he says."

Sunday, June 14, 2020

Fastest-Rising Food Prices in Decades Drive Consumers to Hunt for Value

Food makers, retailers respond by restoring promotions, bundling products to help offset biggest price jump since 1970s

Annie Gasparro and Jaewon Kang. They mention shortages of meat below. But a shortage means that the price is below where supply and demand intersect and the quantity demanded is greater than the quantity supplied. If price goes up because supply decreased there is no shortage. Yes, the equilibrium quantity might be less than it used to be. But that is not a shortage.


"Food makers are designing value packs, and supermarkets are restoring promotions, aiming to offset disruptions wrought by the coronavirus pandemic that have led to the fastest rise in food prices in more than four decades.

While food companies and supermarkets say they have reopened plants and resolved supply constraints that contributed to higher prices, they also expect prices to remain elevated because of increased costs for labor and transportation. Companies are buying equipment and reconfiguring factories and stores to keep people safe from the new coronavirus. Some of those changes are adding costs that are trickling down to shoppers [when it costs more to produce a good, its supply decreases]."

"Prices for store-bought food rose a seasonally adjusted 2.6% in April from a month earlier, according to the Labor Department, the biggest monthly increase since 1974. The department is due to release figures for May on Wednesday, and many economic analysts expect it to be a sharper increase than April [The cost of food bought for home consumption climbed 1% in May]. Market-research firm Nielsen said food prices rose 5.8% in the 13 weeks from March 1 to May 30 compared with the year-ago period."

"The jump in meat prices has propelled the overall increase in food prices. The pandemic has disrupted meatpacking plants, creating shortages of meat and pushing up prices. While the meat supply is improving, promotions are still hard to find, and prices remain high, retailers said. Meat prices rose 15% in the week ended May 23 from the prior year, according to Nielsen.

Transportation and logistical costs for food makers are rising, too. With most air traffic canceled, Be Well Nutrition Inc., maker of protein-drink brand Iconic Protein, recently chartered a plane to pick up its main ingredient, grass-fed milk protein, from Ireland."

"Grocery costs also rose because food makers and supermarkets have pulled back on the discounts they typically apply to about a third of the items they sell. Consumers are finding some 28% fewer discounts, according to Nielsen, because manufacturers are focused on their top sellers, grocers said."

Saturday, June 13, 2020

Fed Report Says Coronavirus Shock Has Hit Low-Wage Workers Hardest

By Nick Timiraos of The WSJ. Excerpts:

"Employment had fallen nearly 35% from February to mid-May for workers who were previously earning wages in the bottom fourth of wage earners, the central bank said Friday in its semiannual report to Congress. Higher-wage earners, by contrast, had seen employment fall by 5% to 15%.

Because lower-wage earners are disproportionately African-American and Hispanic, unemployment has risen more sharply for those groups."

"“As lower-paid workers are disproportionately employed by small businesses—which typically have fewer financial resources than larger firms—they may be at heightened risk of seeing their former employers shut down and hence experiencing the scarring effects of permanent separations,” the report said."

Friday, June 12, 2020

Trash Burning Ignites as World’s Waste Swells: The growth of incineration, buoyed by moves against landfills, raises concerns about fumes and impact on recycling efforts

By Saabira Chaudhuri of The WSJ. Seems like when the price of a substitute increases (cost of recycling goes up), the demand for the good in question increases (more incinerators). Excerpts:
"The world is creating more garbage, and it is getting tougher to dispose of it. That is propelling more cities to send their trash to the incinerator.

Global waste is expected to hit 3.4 billion tons by 2050 from 2.01 billion tons in 2016, according to the World Bank. As recycling programs encounter challenges and landfills in the U.S. and Europe reach capacity or face regulations making them more expensive, incinerators are becoming the most viable option for many municipalities to deal with much of their garbage."

"Local communities and environmental groups have launched strong opposition to expansion of incineration plans, citing environmental and public-health concerns. Incinerator plants are also called waste-to-energy plants since the heat from burning trash is used to generate electricity, and many governments classify that electricity as renewable energy, a characterization opponents dispute.

“Waste-to-energy is a public-relations term,” said Mike Ewall of the Energy Justice Network, a nonprofit which is campaigning in Baltimore for a law that would reduce incinerator emissions and in Maryland to strip energy derived from trash of its renewable designation. Advocates for clean energy, such as Mr. Ewall, say that while some energy is recovered by burning, recycling or composting garbage would save far greater amounts of energy.

Critics also say cities that own their incinerator plants have little incentive to pursue waste-reduction efforts because the plants are designed to run at full capacity.

“Many countries are over-investing in incineration to cut down on landfilling, which will eventually lock them into burning,” said Janek Vähk, development and policy coordinator for Zero Waste Europe. The nonprofit recommends nonrecyclable waste be treated so it produces little to no gas, and then sent to landfill.

In the U.S. and Europe, municipalities’ tab for recycling programs has risen, since China banned waste imports in 2018. That’s propelled some places to cancel recycling programs altogether. The coronavirus pandemic dealt recycling programs another temporary setback as cities stopped or cut back collections.

Incineration-industry executives say that concerns about trash-burning are outdated, citing what they describe as stricter emissions standards for modern incinerators. Some companies have also been working to shrink the volumes they send to landfills by recovering more metals from ash.

Environmental Protection Agency data shows landfills contributed 81.9% of direct emissions from the waste sector in 2018, while solid waste combustion made up 8.8%. Per unit of electricity produced, waste incinerators generate fewer greenhouse-gas emissions than coal or oil, but slightly more than natural gas, according to the EPA."

Thursday, June 11, 2020

For the first time ever, the Core CPI falls for three straight months

See Coronavirus Continues to Weigh on U.S. Consumer Prices: CPI fell 0.1% in May; cost of groceries rose with people staying at home to contain virus by Harriet Torry of The WSJ.

In yesterday's post, I discussed how both supply and demand were decreasing. But with prices still falling, it looks demand is falling a bit more than supply. Since 1957, there have been only twelve months when the Core CPI fell.

"U.S. consumer prices dropped for a third straight month in May as the coronavirus pandemic kept shoppers and travelers at home, but the rate of decline in inflation eased as the cost of groceries, rent and medical services rose.

The consumer-price index, which measures what Americans pay for everything from alcohol to lawn mowers, fell a seasonally adjusted 0.1% in May after comparable declines of 0.8% in April and 0.4% in March, the Labor Department said Wednesday.

Excluding volatile food and energy categories, so-called core prices fell 0.1% compared with a 0.4% decline in April, marking the first time that index has declined in three consecutive months, according to the Labor Department."

"Some categories posted outsize gains. Grocery costs climbed as shoppers prepared more meals at home during the pandemic. The cost of food bought for home consumption climbed 1% in May following April’s increase of 2.6%, which was the largest month-over-month jump in grocery prices since 1974.

A report Wednesday from Mastercard SpendingPulse, which tracks both online and in-store spending with all forms of payment, found retail sales for May were down 5.6% year over year compared with a decline of 14.1% in April, suggesting the pandemic’s hit to consumer spending is beginning to lessen. The tally excludes automobiles."
The following site from the St. Louis Fed. has the annual data for the Core CPI going back to 1957.

Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average

This site has historical data on the seasonally adjusted CPI

Seasonally Adjusted Consumer Price Index

Wednesday, June 10, 2020

The Covid Surcharge: Companies Confront the Unforgiving Economics of Coronavirus

Rising costs, weak demand and customer limits challenge efforts to reopen for business

By Matt Grossman of The WSJ. This generally makes sense since higher production costs reduce supply which raises the price of the good. But weak demand would tend to lower the price. Maybe the supply effect is stronger. Excerpts:
"Facing higher costs to keep workers and customers safe and an indefinite period of suppressed demand, businesses are navigating an ever-narrower path to profitability. To make the math work, some businesses are cutting services and jobs. Others are raising prices, including imposing coronavirus-related fees aimed at getting customers to share some of the expenses.

For large companies, the price—and perils—of operating in a pandemic are already coming into focus.

Walmart Inc., Target Corp. and Home Depot Inc. this week said they absorbed more than $2 billion combined in added expenses for wages, bonuses and other benefits for workers during the early months of the pandemic. McDonald’s Corp. laid out conditions for franchisees to reopen their dining rooms that include cleaning bathrooms every half-hour and digital kiosks after every order. Ford Motor Co. this week opened its American assembly plants for the first time in two months, and promptly had to idle factories in Michigan and Illinois after employees tested positive for Covid-19."

"Billy Yuzar saw adding a surcharge to diners’ tabs as a simple way to compensate for higher food prices at his West Plains, Mo., restaurant, Kiko Japanese Steakhouse & Sushi Lounge. It was more convenient than raising menu prices, Mr. Yuzar said, because he could update the fee in the business’s point-of-sale computer in one step."

"Herman Halici, the owner of Dan’s Super Subs in Woodland Hills, Calif., said the price of meats such as pastrami, roast beef and corned beef has risen by up to 60%, and new procedures mean that employees must spend 25% more time on cleaning. In response, the shop has added a surcharge of 75 cents to $1 a sandwich."

"The pricing strategy also has landed at large package carriers, with United Parcel Service Inc., FedEx Corp. and DHL Express applying surcharges for some international shipping during the pandemic.

"DHL Express said its costs have risen in part because cargo space it buys on commercial airliners has become scarce because of flight reductions."