Sunday, November 29, 2020

NYT Wants to Talk About Higher Wages, but Doesn’t Want to Talk About the Real Reasons Wages are Low [feedly]

I welcomed the NYT --  or anyone's --  call for higher wages. Dean adds the issue of super high salaries of CEOs, and the financial sector, and doc and lawyer professionals. The Times gives a sideswipe at collective bargaining ["workers stealing from each other" -- a complete pile of horseshit, in my experience]. Dean does not mention it. 

Weird, to me. If you do not empower collective bargaining, i.e., unionization, the laws of capitalism's worst tendencies will prevail over other reforms: inequality will not recede.

NYT Wants to Talk About Higher Wages, but Doesn't Want to Talk About the Real Reasons Wages are Low

It's good to see the New York Times making the case for higher wages in an editorial. Unfortunately, they get much of the story confused.

First off, the essence of the case is that higher wages will lead to more consumption, which will spur growth. This is true, but higher pay is not the only way to generate more demand. We also get more demand with larger budget deficits, lower interest rates, and a smaller trade deficit.

But that is the less important problem with the piece. The bigger problem is the assertion that the failure of pay to keep pace with productivity growth over the last four decades is due to higher profits.

"Wages are influenced by a tug of war between employers and workers, and employers have been winning. One clear piece of evidence is the yawning divergence between productivity growth and wage growth since roughly 1970. Productivity has more than doubled; wages have lagged far behind."

In fact, a rising profit share only explains about 10 percent of the gap between productivity growth and the median wage since 1979. The overwhelming majority of the gap is explained by rising high end wages — the money earned by CEOs and other top execs, high pay in the financial sector, the earnings of some workers in STEM areas, and high-end professionals, like doctors and dentists.

For some reason, the NYT never wants to talk about the laws and structures that allow for the explosion of pay at the top. This would include factors like our corrupt corporate governance structure, that essentially lets CEOs determine their own pay, a bloated financial sector that uses its political power to steer ever more money in its direction, longer and stronger patent and copyright monopolies, and protectionist barriers that largely shield our most highly paid professionals from both foreign and domestic competition. (Yes, this is all covered in Rigged [it's free].)

Readers can speculate on why these topics are almost entirely forbidden at the NYT, but if we want to be serious about addressing low wages, we have to look where the money is, and most of it is not with corporate profits. And, just to remind people why this matters, the minimum wage would be $24 an hour today if it had kept pace with productivity growth since 1968.

The post NYT Wants to Talk About Higher Wages, but Doesn't Want to Talk About the Real Reasons Wages are Low appeared first on Center for Economic and Policy Research.

 -- via my feedly newsfeed

Xinjiang offers real-site photos to debunk satellite images ‘evidence’ of ‘detention centers’ [feedly]

Xinjiang offers real-site photos to debunk satellite images 'evidence' of 'detention centers'


The "detention center" (geographic coordinates: 38.8367N, 77.7056E) claimed by ASPI, is actually a gerocomium in Markit county, Kashi Prefecture, Xinjiang

Locations that had been marked as "concentration camps" by some Western media and an Australian institute were found to be administration buildings, nursing homes, logistics centers or schools, as Northwest China's Xinjiang Uygur Autonomous Region on Friday offered videos and photos to debunk accusations which used satellite images as "evidences."

For a long time, some Western media and institutes, especially the Australian Strategic Policy Institute (ASPI), have been keen on using satellite images as "evidence" for their claim of Xinjiang's expanding "concentration centers," a term that has been firmly opposed by Chinese authorities.

For example, in a report called "Documenting Xinjiang's Detention System" by ASPI, buildings with outer walls in Xinjiang were all considered as "detention centers."

"This is absurd. As a matter of fact, they [locations marked] are just civil institutions," Eljan Anayt, spokesperson of the Xinjiang regional government, told a press conference in responding to a question from CNN.

The "detention center" (geographic coordinates: 38.9950N, 77.6682E) claimed by ASPI, is actually an elementary school in Yantaq township, Markit county, Kashi Prefecture, Xinjiang
The "detention center" (geographic coordinates: 38.9950N, 77.6682E) claimed by ASPI, is actually an elementary school in Yantaq township, Markit county, Kashi Prefecture, Xinjiang

"The 'detention center' of Turpan city mentioned in the report is actually a local administrative building; the 'detention center' of Kashi is, in fact, local high school buildings. They are all marked on Google Maps, Baidu Maps, and I have photos of them," the spokesperson said, showing photos of these locations at the press conference.

Eljan said that those so-called "independent think tanks" like ASPI are not academic research centers, but anti-China tools manipulated by the US government.

The "detention center" (geographic coordinates: 39.8252N, 78.5501E) claimed by ASPI, is actually a logistics park in Bachu county, Kashi Prefecture, Xinjiang

ASPI has become an infamous institute for manipulating fake news to hype so-called forced labor in Xinjiang. It is also exposed to receive huge amount of money from the US and disgraced itself as being an anti-China tool for the US.

ASPI's "research" is simply subjective fabrications filled with preconceptions and hostility. Their sources and clues were either from American anti-China nongovernmental organizations, or some unverifiable and untraceable "eyewitness evidence," Eljan said, noting that the international community has also denounced such poor performance of confounding black and white and fabricating lies.

"I want to emphasize that Xinjiang is an open region, and there is no need to learn about it through satellite images. We welcome all foreign friends with objective, unbiased stance to come to Xinjiang and to know a real Xinjiang," the spokesperson said.

 -- via my feedly newsfeed

BizInsider: Amazon is expanding its logistics empire like never before to prepare for this holiday season — and it still may not be enough [feedly]

A tale of late stage monopoly capitalism -- a private corporation bigger than most nations, with footprints in a 100 nations, too big to fail -- esp in the pandemic. What to do? you can call out "nationalization". But who in the US govt can run Amazon

Amazon is expanding its logistics empire like never before to prepare for this holiday season — and it still may not be enough

The inside of an Amazon fulfillment center in Robbinsville, New Jersey on December 2, 2019.

REUTERS/Lucas Jackson/File Photo

  • Amazon has massively scaled up its workforce and logistics network to respond to the surge in online shopping during the holiday season due to the pandemic.
  • The e-commerce giant has hired more than 400,000 employees, grown its delivery fleet to include a total of 80 planes and 50,000 delivery trucks, and has expanded its warehouse space by more than 50%.
  • But Amazon still faces some major challenges, including high worker turnover rates, capacity issues, and unknowns surrounding COVID-19.
  • Visit Business Insider's homepage for more stories.

As Black Friday kicks off the holiday shopping season in the US, few companies have had to prepare quite like e-commerce and logistics giant Amazon.

An Amazon spokesperson told Business Insider the company is confident in the capacity it has added and its delivery speeds while still being able to keep employees safe.

But the unprecedented nature of the COVID-19 pandemic and its impact on online shopping means even with those preparations, Amazon's logistics empire will be in for one of its toughest challenges yet.

Amazon has built one of the world's largest logistics networks, currently operating 1,466 facilities globally that span more than 326 million square feet, according to logistics consulting firm MWPVL. A year ago, by MWPVL's count, those totals stood at 1,068 facilities and just shy of 249 million square feet.

The spokesperson told Business Insider that Amazon has expanded its logistics network square footage by around 50% this year.

That's before taking into account its vast fleet of delivery trucks and planes, and of course, workers — all of which have seen their numbers grow significantly this year.

The pandemic-fueled boom in online shopping is predicted to continue into the holiday shopping season — particularly in places like the US where the virus is still widespread and in-person shopping presents a more significant health risk. The National Retail Federation expects holiday sales this year will grow by as much as 5.2% this year even amid massive economic turmoil and a spike in unemployment.

Amazon's existing dominance in e-commerce has helped it benefit enormously from this trend: the company reported $96.1 billion in revenue during its third quarter, up 37% from the same quarter in 2019. But the increased demand has also driven up Amazon's costs, up 34% to $89.9 billion in those same time periods, including what it says have been around $4 billion in COVID-19 related costs this year.

Amazon's expanding footprint

Ahead of this holiday season, Amazon, as well as its delivery and shipping partners, sellers, and competitors, have had to scramble even harder to ramp up capacity than in previous years.

Between January and October, Amazon hired 427,300 workers, bringing its total global workforce to 1.2 million, The New York Times reported Friday. That's a 50% increase from the 798,000 workers Amazon employed as of December 31, 2019.

An Amazon spokesperson told Business Insider that it has hired around 250,000 workers within operations roles alone since February to deal with increased demand. On top of that, the company announced it's looking to bring on 100,000 seasonal workers this holiday season.

What's less clear is how many of those operational employees have stuck around. Multiple warehouse workers told Business Insider that it's rare to see coworkers last more than six months in the job due to the grueling conditions.

A recent investigation by Reveal found that the serious injury rate at Amazon's warehouses in 2019 was 7.7 per 100 employees, or "33% higher than in 2016 and nearly double the most recent industry standard," and that Amazon is aware of its safety issues and has misled the public on the topic. 

Frontline employees working for Amazon have repeatedly gone on strikefiled whistleblower complaints with regulators, and sued the company to draw attention to what they say are unsafe working conditions during the pandemic, and the company has admitted that at least 19,000 workers have tested positive for COVID-19.

"The turnover rate is ridiculous, like, I've never seen a turnover rate like that in my life," a longtime HR professional who worked at Amazon's fulfillment center in Charlotte, North Carolina, from April to September, told Business Insider, adding that her HR team was severely understaffed to handle the wave of new hires.

"It's tough to ramp up on such short notice with the [current] working environment and the ability for recruiting is very limited," SJ Consulting Group president Satish Jindel told Business Insider.

Amazon said that it has invested millions in pandemic safety measures and it values the health and safety of employees.

After struggling with widespread delays earlier in the pandemic and pushing Prime Day to October, Amazon has invested in additional logistics infrastructure as well.

Amazon has added "2,200 delivery trucks, further reducing dependence on other carriers, which are anticipating delays and increasing surcharges in November and December," according to a report from consulting firm Bain & Co.

An Amazon spokesperson said its delivery service partners operate more than 50,000 branded last-mile delivery vans, and that the company has leased 12 Boeing 767-300 cargo jets, bringing its fleet to more than 80.

"There's a lot of capacity that has been added. The question is, is that capacity going to show up on time, and is that going to be enough to deal with the volumes that all of these guys are expecting?" Morgan Stanley analyst Ravi Shanker told Business Insider.

"[Amazon has] been able to run at peak-season volumes for most of the year, which obviously is a pretty unprecedented situation," he said, adding that "historically, peak season has been a 30% to 40% volume boost versus the rest of the year. The question is, does that hold true this year as well, and I think that's the biggest unknown at this point."

Read more: This chart shows Amazon's one-day shipping has significantly rebounded, but many sellers still face long delays getting their own shipments to warehouses

Outsourcing, insourcing, last-mile

The true extent of Amazon's hiring spree and logistics ramp up — and whether it's ready for the holiday rush — is hard to know in part because of its dependence on third parties, such as its delivery service providers and other major shipping companies like UPS and FedEx, all of whom are facing their own capacity challenges.

"No matter how much Amazon is adding, they still have to rely on other people to provide drivers and trucks that are in short supply," said Jindel, the consultant for SJ Consulting Group.

Jindel told NBC News that UPS and FedEx are expecting shortfalls of 7 million packages per day.

Amazon has become increasingly self-reliant in recent years — MWPVL estimates it's on track to ship around 67% of orders through its own logistics network this year and eventually increase that to 85%, according to Bloomberg.

However, Cathy Robertson, founder and president of Logistics Trends and Insights, told Business Insider that she had "a bit of concern due to [Amazon's] recent press release encouraging customers to pick up packages from its hub locations/alternative pick-up locations."

"This tells me that they, like UPS and FedEx, are facing capacity issues which in turn will result in delays," she said.

Several Amazon merchants told Bloomberg earlier this week that some products are taking more than a week to deliver to US customers that would normally take one to two days, and that they've been forced to fulfill orders themselves out of a concern that Amazon's warehouses have hit capacity. 

"How well they move their own packages within their logistics network and how much they move in their network will be watched carefully," Robertson said.

Amazon has spent billions this year on adding last mile and delivery capacity, as well as increasing inventory closer to customers, a spokesperson told Business Insider.

Managing expectations

Jindel said shippers, sellers, and e-commerce companies alike have been trying to train consumers to shop earlier this year to avoid a backlog at the end of the year, and Jindel said that consumers are increasingly valuing predictable shipping times over speed.

Amazon customers are "perfectly okay with things taking two or three instead of one or two days," Jindel said, adding that "speed, while it's of value, people like to have it — predictability and certainty of when they're going to get it, that has equal value."

Amazon and other logistics companies have also had several months of operating at peak volume to help them prepare.

"Back in March, nobody knew what to expect. This was a completely new playbook and everyone was kind of floundering a little bit. Now, all these guys are going in eyes wide open," he said.

But ultimately, Shanker added, the biggest challenge Amazon faces "is the challenge that they and anybody else has faced all year, which is the fear of the unknown."

 -- via my feedly newsfeed

More Bad News About the Pandemic Recession: Longer Hours [feedly]

More Bad News About the Pandemic Recession: Longer Hours

We know that the economy is likely to get worse in the immediate future as the pandemic is spreading out of control in most parts of the country. However, the latest data on average weekly hours indicates we may be facing a longer term issue that has not generally been anticipated.

In a normal recession we see both a loss of jobs and a reduction in hours for those who managed to keep their jobs. The shortening of hours is a better way for employers to deal with reduced demand for labor, since it keeps workers attached to their jobs. (This is the argument for worksharing as an alternative to unemployment.) However, in this recession we are actually seeing some lengthening of the average workweek, not the usual shortening.

The chart below compares the change in the average workweek from 2007 to 2009 and from 2019 to 2020. For 2020, I have used the most recent two months' data (September and October) to just take the period where the economy was operating at a level somewhat close to normal.

Source: Bureau of Labor Statistics and author's calculations.

As can be seen, we see a very different picture in the pattern of work hours between the two recessions. The average workweek for all employees, fell by 1.5 percent in the Great Recession. By contrast, it increased by 1.2 percent from 2019 to September and October of this year. Some of this was undoubtedly due to composition effects. In the Great Recession, like most recessions, construction and manufacturing were the hardest hit sectors. These sectors have longer average hours than most, so job loss in these sectors will automatically reduce the length of the average workweek.

To control for this, I have compared the change in average hours in the two recessions for production and non-supervisory workers in several major sectors. Starting with the overall average, the difference is even sharper. The drop in the Great Recession was 2.0 percent, compared to a 1.6 percent increase in the Pandemic Recession.

Looking at major sectors, there was a drop in the length of the average workweek of 3.0 percent in manufacturing in the Great Recession compared to 1.0 percent in this recession. This may be explained largely by the fact that manufacturing was much harder hit in the Great Recession.

This explanation doesn't fit for other sectors. Average hours fell by 1.1 percent in retail in the Great Recession, they rose by 2.2 percent in this recession. In the broad category of professional and business services, hours fell by 0.1 percent in the Great Recession, they have risen by 1.8 percent in this recession.

In education and health care, average hours fell by 1.0 percent in the Great Recession, they have risen by 1.9 percent in this recession. In the category leisure and hospitality, which includes hotels and restaurant workers, hours fell by 2.7 percent in the last recession, compared to a drop of just 0.2 percent in this recession. Hours in other services, which includes areas like laundry, gyms, and hair salons, fell by 1.4 percent in the Great Recession, they have risen by 1.9 percent in this recession.    

The rise in hours this recession is a really big deal because it accentuates the unemployment problem. To take the simple arithmetic, if the average workweek is 3 percent longer because of a change in employer behavior, with our pre-pandemic employment of roughly 150 million, that means 4.5 million fewer jobs given the same demand for labor. The real world will of course always be more complicated, but the basic story would apply. Longer hours means fewer jobs.

This is likely to matter not just for the immediate future when the pandemic limits employment in large areas of the economy, but also in the longer term, as we adjust to work structures that have been permanently altered as a result of the recession. As I have written elsewhere, the increase in telecommuting is likely to be enduring, meaning that there will be many fewer jobs serving a smaller population of commuters. 

One way of dealing with this reduction in employment opportunities is to have shorter workweeks/work years. Unfortunately, it seems we are now headed in the wrong direction.  


 -- via my feedly newsfeed

Thursday, November 26, 2020

Profits over people: frontline workers during the pandemic [feedly]

Profits over people: frontline workers during the pandemic

It wasn't that long ago that the country celebrated frontline workers by banging pots in the evening to thank them for the risks they took doing their jobs during the pandemic. One national survey found that health care workers were the most admired (80%), closely followed by grocery store workers (77%), and delivery drivers (73%). 

Corporate leaders joined in the celebration. Supermarket News quotedDacona Smith, executive vice president and chief operating officer at Walmart U.S., as saying in April:

We cannot thank and appreciate our associates enough. What they have accomplished in the last few weeks has been amazing to watch and fills everyone at our company with enormous pride. America is getting the chance to see what we've always known — that our people truly do make the difference. Let's all take care of each other out there.

Driven by a desire to burnish their public image, deflect attention from their soaring profits, and attract more workers, many of the country's leading retailers, including Walmart, proudly announced special pandemic wage increases and bonuses.  But as a report by Brookingspoints out, although their profits continued to roll in, those special payments didn't last long.

There are three important takeaways from the report: First, don't trust corporate PR statements; once people stop paying attention, corporations do what they want.  Second, workers need unions to defend their interests.  Third, there should be some form of federal regulation to ensure workers receive hazard pay during health emergencies like pandemics, similar to the laws requiring time and half for overtime work.

The companies and their workers

In Windfall Profits and Deadly Risks, Molly Kinder, Laura Stateler, and Julia Du look at the compensation paid to frontline workers at, and profits earned by, 13 of the 20 biggest retail companies in the United States.  The 13, listed in the figure below, "employ more than 6 million workers and include the largest corporations in grocery, big-box retail, home improvement, pharmacies, electronics, and discount retail." The seven left out "either did not have public financial information available or were in retail sectors that were hit hard by the pandemic (such as clothing) and did not provide COVID-19 compensation to workers."

Pre-pandemic, the median wages for the main frontline retail jobs (e.g., cashiers, salespersons, and stock clerks) at these 13 companies generally ranged from $10 to $12 per hour (see the grey bar in the figure below).  The exceptions at the high end were Costco and Amazon, both of which had a minimum starting wage of $15 before the start of the pandemic. The exception at the low end was Dollar General, which the authors estimate had a starting wage of only $8 per hour.  

Clearly, these companies thrive on low-wage work.  And it should be added, disproportionately the work of women of color.  "Women make up a significantly larger share of the frontline workforce in general retail stores and at companies such as Target and Walmart than they do in the workforce overall. Amazon and Walmart employ well above-average shares of Black workers (27% and 21%, respectively) compared to the national figure of 12%."

Then came the pandemic

Eager to take advantage of the new pandemic-driven business coming their way, all 13 companies highlighted in the report quickly offered some form of special COVID-19-related compensation in an effort to attract new workers (as highlighted in the figure below).  "Commonly referred to as "hazard pay," the additional compensation came in the form of small, temporary hourly wage increases, typically between $2 and $2.50 per hour, as well as one-off bonuses. In addition to temporary hazard pay, a few companies permanently raised wages for workers during the pandemic."

Unfortunately, as the next figure reveals, these special corporate payment programs were short-lived.  Of the 10 companies that offered temporary hourly wage increases, 7 ended them before the beginning of July and the start of a new wave of COVID-19 infections. Moreover, even with these programs, nine of the 13 companies continued to pay wages below $15 an hour.  Only three companies instituted permanent wage hikes.   While periodic bonuses are no doubt welcomed, they are impossible to count on and of limited dollar value compared with an increase in hourly wages.  So much, for corporate caring!

Don't worry about the companies

As the next figure shows, while the leading retail companies highlighted in the study have been stingy when it comes to paying their frontline workers, the pandemic has treated them quite well.  As the authors point out:

Across the 13 companies in our analysis, revenue was up an average of 14% over last year, while profits rose 39%. Excluding Walgreens—whose business has struggled during the pandemic—profits rose a staggering 46%. Stock prices rose on average 30% since the end of February. In total, the 13 companies reported 2020 profits to date of $67 billion, which is an additional $16.9 billion compared to last year.

Looking just at the compensation generosity of the six companies that had public data on the total cost of their extra compensation to workers, the authors found that the numbers "paint a picture of most companies prioritizing profits and wealth for shareholders over investments in their employees. On average, the six companies' contribution to compensating workers was less than half of the additional profit earned during the pandemic compared to the previous year."

This kind of scam, where companies publicly celebrate their generosity only to quietly withdraw it a short time later, is a common one.  And because it is hard to follow corporate policies over months, they are often able to sell the public that they really do care about the well-being of their workers.  That is why this study is important—it makes clear that relying on corporations to do the "right thing" is a losing proposition for workers.

 -- via my feedly newsfeed

Saturday, November 21, 2020

Michael Roberts: G20: the debt solution [feedly]

Another impressive post from Mike Roberts on the G20, and related issues.

G20: the debt solution

Michael Roberts

This weekend, the G20 leaders' summit takes place – not physically of course, but by video link.  Proudly hosted by Saudi Arabia, that bastion of democracy and civil rights, the G20 leaders are focusing on the impact on the world economy from the COVID-19 pandemic.

In particular, the leaders are alarmed by the huge increase in government spending engendered by the slump forced on the major capitalist governments to ameliorate the impact on businesses, large and small, and on the wider working population. The IMF estimates that the combined fiscal and monetary stimulus delivered by advanced economies has been equal to 20 per cent of their gross domestic product. Middle income countries in the developing world have been able to do less but they still put together a combined response equal to 6 or 7 per cent of GDP, according to the IMF. For the poorest countries, however, the reaction has been much more modest. Together they injected spending equal to just 2 per cent of their much smaller national output in reaction to the pandemic. That has left their economies much more vulnerable to a prolonged slump, potentially pushing millions of people into poverty.

The situation is getting more urgent as the pain from the pandemic crisis starts to be felt. Zambia this week became the sixth developing country to default or restructure debts in 2020 and more are expected as the economic cost of the virus mounts — even amid the good news about potential vaccines.

The Financial Times commented that: "some observers think that even large developing countries such as Brazil and South Africa, which are both in the G20 group of large nations, could face severe challenges in obtaining finance in the coming 12 to 24 months."

Up to now, very little has been done by the G20 governments to avoid or ameliorate this coming debt disaster.  In April, Kristalina Georgieva, the IMF managing director, said the external financing needs of emerging market and developing countries would be in "the trillions of dollars". The IMF itself has lent $100bn in emergency loans. The World Bank has set aside $160bn to lend over 15 months.  But even the World Bank reckons that "low and middle-income countries will need between $175bn and $700bn a year".

The only co-ordinated innovation has been a debt service suspension initiative (DSSI) unveiled in April by the G20. The DSSI allowed 73 of the world's poorest countries to postpone repayments.  But pausing payments is no solution – the debt remains and even if G20 governments show some further relaxation, private creditors (banks, pension funds, hedge funds and bond 'vigilantes') continue to demand their pound of flesh.

In advanced economies and some emerging market economies, central bank purchases of government debt have helped keep interest rates at historic lows and supported government borrowing. In these economies, the fiscal response to the crisis has been massive. In many highly indebted emerging market and low-income economies, however, governments have had limited space to increase borrowing, which has hampered their ability to scale up support to those most affected by the crisis. These governments face tough choices.  For example, in 2020, government debt-to-revenue will reach over 480% across the 35 Sub-Saharan Africa countries eligible for the DSSI.

Even before the pandemic broke, global debt had reached record levels.  According to the IIF, in 'mature' markets, debt surpassed 432% of GDP in Q3 2020, up over 50 percentage points year-over-year. Global debt in total will have reached $277trn by year end, or 365% of world GDP.

Much of the increase in debt among the so-called developing economies has been in China where state banks have expanded loans, while 'shadow banking' loans have increased and local governments have carried out increased property and infrastructure projects using land sales to fund them or borrowing.

Many 'Western' pundits reckon that, as a result, China is heading for a major debt default crisis that will seriously damage the Beijing government and the economy.  But such predictions have been made for the last two decades since the minor 'asset readjustment' after 1998.  Despite the increase in debt levels in China, such a crisis is unlikely.

First, China, unlike other large and small emerging economies with high debts, has a massive foreign exchange reserve of $3trn.  Second, less than 10% of its debt is owed to foreigners, unlike countries like Turkey, South Africa and much of Latin America.  Third, the Chinese economy is growing. It has recovered from the pandemic slump much quicker than the other G20 economies, which remain in a slump.

Moreover, if any banks or finance companies go bust (and some have), the state banking system and the state itself stands behind ready to pick up the bill or allow 'restructuring'. And the Chinese state has the power to restructure the financial sector – as the recent blockage on the planned launch of Jack Ma's 'finbank' shows.  On any serious sign that the Chinese financial and property sector is getting too 'big to fail' , the government can and will act.  There will be no financial meltdown. That's not the picture in the rest of the G20.

And most important, globally the rise in debt was not just in public sector debt but also in the private sector, especially corporate debt.  Companies around the world had built up their debt levels while interest rates were low or even zero.  The large tech companies did so in order to hoard cash, buy back shares to boost their price or to carry through mergers, but the smaller companies, where profitability had been low for a decade or more, did so just to keep their heads above water. This latter group have become more and more zombified (ie where profits were not enough even to cover the interest charge on the debt).  That is a recipe for eventual defaults, if and when, interest rates should rise.

What is to be done?  One offered solution is more credit.  At the G20, the IMF officials and others will push not just for an extension of the DSSI, but also for a doubling of the credit firepower of the IMF through Special Drawing Rights (SDRs).  This is a form of international money, like gold in that sense, but instead a fiat currency valued by basket of major currencies like the dollar, the euro and the yen and only issued by the IMF.

The IMF has issued them in past crises and proponents say it should do so now. But the proposal was vetoed by the US last April. "SDRs mean giving unconditional liquidity to developing countries," says Stephanie Blankenburg, head of debt and development finance at Unctad. "If advanced economies can't agree on that, then the whole multilateral system is pretty much bankrupt."

How true that is. But is yet more debt (sorry, 'credit') piled on top of the existing mountain any solution, even in the short term?  Why do not the G2 leaders instead agree to wipe out the debts of the poor countries and why do they not insist that the private creditors do the same?

Of course, the answer is obvious.  It would mean huge losses globally for bond holders and banks, possibly germinating a financial crisis in the advanced economies. At a time when governments are experiencing massive budget deficits and public debt levels well over 100% of GDP, they would then face a mega bailout of banks and financial institutions as the burden of emerging debt came home to bite.

Recently, the former chief economist of the Bank for International Settlements, William White, was interviewed on what to do.  White is a longstanding member of Austrian school of economics, which blames crises in capitalism, not on any inherent contradictions within the capitalist mode of production, but on 'excessive' and 'uncontrolled' expansion of credit.  This happens because institutions outside the 'perfect' running of the capitalist money markets interfere with interest and money creation, in particular, central banks.

White puts the cause of the impending debt crisis at the door of the central banks.  "They have pursued the wrong policies over the past three decades, which have caused ever-higher debt and ever greater instability in the financial system."  He goes on: "my point is: central banks create the instabilities, then they have to save the system during the crisis, and by that they create even more instabilities. They keep shooting themselves in the foot."

There is some truth in this analysis, as even the Federal Reserve admitted in its latest report on financial stability in the US.  There has been $7 trillion increase in G7 central bank assets in just eight months in contrast to the $3 trillion increase in the year following the collapse of Lehman Brothers in 2008. The Fed admitted that the world economy was in trouble before the pandemic and needed more credit injections: "following a long global recovery from the 2008 financial crisis, the outlook for growth and corporate earnings had weakened by early 2020 and become more uncertain."  But while credit injections engendered a "decline in finance costs reduced debt burdens", it encouraged further debt accumulation which, coupled with declining asset quality and lower credit underwriting standards "meant that firms became increasingly exposed to the risk of a material economic downturn or an unexpected rise in interest rates. Investors had therefore become more susceptible to sudden shifts in market sentiment and a tightening of financial conditions in response to shocks."

Indeed, central bank injections have kicked the problem can down the road but solved nothing: "The measures taken by central banks were aimed at restoring market functioning, and not at addressing the underlying vulnerabilities that caused markets to amplify the stress. The financial system remains vulnerable to another liquidity strain, as the underlying structures and mechanisms that gave rise to the turmoil are still in place."  So credit has been piled on credit and the only solution is more credit.

White argues for other solutions. He says: "There is no return back to any form of normalcy without dealing with the debt overhang. This is the elephant in the room. If we agree that the policy of the past thirty years has created an ever-growing mountain of debt and ever-rising instabilities in the system, then we need to deal with that."

He offers "four ways to get rid of an overhang of bad debt. One: households, corporations and governments try to save more to repay their debt. But we know that this gets you into the Keynesian Paradox of Thrift, where the economy collapses. So this way leads to disaster."  So don't go for 'austerity'.

The second way: "you can try to grow your way out of a debt overhang, through stronger real economic growth. But we know that a debt overhang impedes real economic growth. Of course, we should try to increase potential growth through structural reforms, but this is unlikely to be the silver bullet that saves us."  White says this second way cannot work if productive investment is too low because the debt burden is too high.

What White leaves out here is the low level of profitability on existing capital that deters capitalists investing productively with their extra credit.  By 'structural reforms', White means sacking workers and replacing them with technology and destroying what's left of labour rights and conditions. That might work, he says but he does not think this will be implemented by governments sufficiently.

White goes on: "This leaves the two remaining ways: higher nominal growth—i.e., higher inflation—or try to get rid of the bad debt by restructuring and writing it off."  Higher inflation may well be one option, one that Keynesian/MMT policies would lead to, but in effect it means the debt is paid off in real terms by reducing the living standards of most people. and hitting the real value of the loans made by the banks.  The debtors gain at the expense of the creditors and labour.

White, being a good Austrian, opts for writing off the debts. "That's the one I would strongly advise. Approach the problem, try to identify the bad debts, and restructure them in as orderly a fashion that you can. But we know how extremely difficult it is to get creditors and debtors together to sort this out cooperatively. Our current procedures are completely inadequate." Indeed, apart from the IMF-G20 and the rest not having any 'structures' to do this, these leading institutions do not want to provoke a financial crash and a deeper slump by 'liquidating' the debt, as was proposed by US treasury officials during the Great Depression of the 1930s.

Instead, the G20 will agree to extend the DSSI payment postponement plan, but not write off any debts.  It will probably not even agree to expand the SDR fund.  Instead, it will just hope to muddle through at the expense of the poor countries and their people; and labour globally.

 -- via my feedly newsfeed

No improvement in initial unemployment claims as labor market gains falter [feedly]

No improvement in initial unemployment claims as labor market gains falter

Another 1.1 million people applied for unemployment insurance (UI) benefits last week, including 742,000 people who applied for regular state UI and 320,000 who applied for Pandemic Unemployment Assistance (PUA). The 1.1 million who applied for UI last week was an increase of 55,000 from the prior week's figures. Last week was the 35th straight week total initial claims were greater than the worst week of the Great Recession. (If that comparison is restricted to regular state claims—because we didn't have PUA in the Great Recession—initial claims last week were still 3.3 times where they were a year ago.)

Most states provide 26 weeks of regular benefits, but this crisis has gone on much longer than that. That means many workers are exhausting their regular state UI benefits. In the most recent data, continuing claims for regular state UI dropped by 429,000, from 6.8 million to 6.4 million.

For now, after an individual exhausts regular state benefits, they can move on to Pandemic Emergency Unemployment Compensation (PEUC), which is an additional 13 weeks of regular state UI. However, PEUC is set to expire on December 26 (as is PUA).

In the latest data available for PEUC (the week ending October 31), PEUC rose by 233,000, from 4.1 million to 4.4 million, offsetting only about 60% of the 383,000 decline in continuing claims for regular state benefits for the same week. This is likely due in large part to the fact that many of the roughly 2 million workers who were on UI before the recession began, or who are in states with less than the standard 26 weeks of regular state benefits, are exhausting PEUC benefits at the same time others are taking it up. More than 1.5 million workers have exhausted PEUC so far (see column C43 in form ETA 5159 for PEUC here). Last week, 634,000 workers were on Extended Benefits (EB), which is a program that eligible unemployed workers in some states can get on if they've exhausted PEUC.

Figure A shows continuing claims in all programs over time (the latest data are for October 31). Continuing claims are nearly 19 million above where they were a year ago.

Figure A

Senate Republicans allowed the across-the-board $600 increase in weekly UI benefits to expire at the end of July, so last week was the 16th week of unemployment in this pandemic for which recipients did not get the extra $600. And worse, as mentioned above, PUA and PEUC will expire in just over five weeks, on December 26—unless Congress acts. Millions of workers are depending on these programs—DOL reports that a total of 13.1 million workers were on PUA (8.7 million) or PEUC (4.4 million) during the week ending October 31. When these programs expire, millions of these workers and their families will be financially devastated.

An excellent new paper from The Century Foundation finds that 12 million workers will lose PUA or PEUC benefits when they expire on December 26—on top of the 4.4 million who will have exhausted them before then. It also finds that only 2.9 million will then be eligible for Extended Benefits. That means a total of 13.5 million workers (12.0 million + 4.4 million – 2.9 million) will have lost CARES Act unemployment benefits by the end of the year with nothing to fill in the gap.

The House passed a $2.2 trillion relief package that would extend the UI provisions in the CARES Act, but Senate Majority Leader Mitch McConnell has thus far blocked additional COVID relief, knowing full well that millions will see their benefits disappear on December 26 if he doesn't act. The cruelty is beyond belief.

And blocking more COVID relief is not just cruel, it's bad economic policy. UI is great stimulus. The spending made possible by pandemic UI benefits is supporting millions of jobs. Letting these benefits expire means cutting those jobs. There are now 25.7 million workers who are officially unemployed, otherwise out of work because of the virus, or have seen a drop in hours and pay because of the pandemic. And job growth is slowing. Stimulus is desperately needed.

Blocking stimulus is also exacerbating racial inequality. Due to the impact of historic and current systemic racism, Black and Latinx communities have seen more job loss in this recession, and have less wealth to fall back on. The lack of stimulus hits these workers the hardest, which means stimulus is a racial justice issue. Further, workers in this pandemic aren't just losing their jobs—millions of workers and their family members have lost employer-provided health insurance due to the COVID-19 downturn. Senate Republicans are failing struggling families.

 -- via my feedly newsfeed