On COVID-19 Seasonality [feedly]

An optimistic take on the seasonal distribution of the coronavirus spread.

On COVID-19 Seasonality
http://www.calculatedriskblog.com/2020/03/on-covid-19-seasonality.html

The Flu is seasonal. There are research papers on why this happens, and it is very possible that COVID-19 will be seasonal too.

Here is an optimistic paper that suggests seasonality: Temperature and Latitude Analysis to Predict Potential Spread and Seasonality for COVID-19 

A significant number of infectious diseases display seasonal patterns in their incidence, including human coronaviruses. We hypothesize that SARS-CoV-2 does as well. To date, Coronavirus Disease 2019 (COVID-19), caused by SARS-CoV-2, has established significant community spread in cities and regions only along a narrow east west distribution roughly along the 30-50 N" corridor at consistently similar weather patterns (5-11OC and 47-79% humidity). ...

 Click on graph for larger image.

Because of geographical proximity and significant travel connections, epidemiological modeling of the epicenter predicted that regions in Southeast Asia, and specifically Bangkok would follow Wuhan, and China in the epidemic.7 However, the establishment of community transmission has occurred in a consistent east and west pattern. The new epicenters of virus were all roughly along the 30-50o N" zone; to South Korea, Japan, Iran, and Northern Italy. After the unexpected emergence of a large outbreak in Iran, we first made this map in late February. Since then new areas with significant community transmission include the Northwestern United States and France. Notably, during the same time, COVID-19 failed to spread significantly to countries immediately south of China. The number of patients and reported deaths in Southeast Asia is much less when compared to more temperate regions noted above.

This suggests temperature and humidity may be factors in the spread of COVID-19. If this is the case, then the spread of the disease might slow sharply in May.

This is a possibility, but not a certainty. If there is seasonality, we need to prepare for a resurgence of the disease in the Fall.  

 -- via my feedly newsfeed

Far Better Ways Than Payroll Tax Cut to Contain Virus’s Economic Damage [feedly]

Far Better Ways Than Payroll Tax Cut to Contain Virus's Economic Damage
https://www.cbpp.org/blog/far-better-ways-than-payroll-tax-cut-to-contain-viruss-economic-damage

The threat of a COVID-19 pandemic demands not only an aggressive public health response to contain and treat the virus's health impacts, but also an aggressive fiscal policy response to try to avert a major recession, which is now a distinct possibility. The Trump Administration has suggested trying to shore up the economy through a payroll tax cut, but direct, immediate stimulus payments — like those made with bipartisan support when recession threatened in 2008 — would do far more to reduce immediate hardship and buttress an economy that faces serious risk. Such measures — along with strengthening Medicaid coverage, unemployment insurance, nutrition assistance, and paid sick leave — would deliver assistance quickly to people struggling to get by, who will spend virtually all of the additional resources they receive and thereby help keep consumer purchases from declining too sharply and sending the economy downhill.

A COVID-19 pandemic could trigger a damaging recession by disrupting both supply chains and workplaces, thereby limiting companies' ability to supply or sell goods and services; those disruptions, in turn, would cause growing declines in the purchase of goods and services, generating widespread layoffs and possibly widespread business failures. In addition, workers who lose earnings because they are sick, quarantined, caring for family members, or laid off (or have their hours reduced) will have less income to spend on goods and services, which will further slow the economy and lead to additional layoffs. Fiscal stimulus to shore up demand for goods and services thus is essential. It will be most effective if it is delivered rapidly to those who will quickly spend virtually all additional resources they receive — that is, low- and middle-income households, who spend most of the income they have.

A payroll tax cut scores poorly on these fronts: it would be too slow, not well targeted, and too narrow. Consider, for example, a payroll tax cut of 2 percent of workers' earnings:

• A single parent getting by on $25,000 a year would receive just $500 over the course of a year, even as a couple with a combined $275,400 income (with each spouse earning half this amount) got $5,500. Even if the tax cut's dollar value were capped, only higher earners would get the maximum benefit. That's not sound economic policy, since affluent households generally spend a much smaller share of any added income than lower-income households do.
• Workers would receive the benefit a little bit at a time in each paycheck, meaning it would not be delivered quickly enough to provide the desired boost to the economy. For example, a payroll tax cut would have to last more than 40 months to give a full-time worker earning the federal minimum wage of $7.25 an hour a $1,000 tax cut. That same amount could be delivered much more quickly in a stimulus payment check.
• People without earnings wouldn't benefit at all, though they are among those likeliest to spend any added resources they receive. This group includes people who have been laid off from work or can't work because they are caring for family members, as well as seniors and people with disabilities. People supporting children and other dependents wouldn't receive any added help.

The Trump Administration has also suggested targeted tax deferrals for certain industries such as airlines. Such responses have limited effectiveness — especially if the hit to demand is large and sustained — as tax deferrals are valuable only if companies continue making taxable profits, which becomes less likely as demand slows. Moreover, there's no guarantee that businesses would use that tax relief to protect their workers economically; with less demand for air travel, hotel rooms, and the like, firms could take the tax deferrals and still lay off workers. And, if they laid off workers or cut their hours, their workers would consume less, which would hurt other industries and further slow the economy.

Sending stimulus checks to most Americans would put more money in households' hands much more quickly than a payroll tax cut of the same cost. Also, stimulus checks can be sent both to workers and to people without earnings, including people receiving Social Security, Supplemental Security Income, or VA benefits and people unable to find jobs.

Other Measures Also Critical

Such assistance to households, while important, should be only part of the response. Policymakers also need to strengthen unemployment insurance (UI), including disaster UI for workers laid off in areas heavily affected by the virus who wouldn't otherwise receive UI; expand nutrition assistance; and extend paid sick leave, among other steps. Such economic security programs would both help people weather a public health and economic crisis and bolster the economy by cushioning the decline in consumer demand.

Also crucial is an increase in federal financial support to state Medicaid programs. State budgets will likely face a double blow from COVID-19: 1) costs directly associated with responding to the virus, including higher state Medicaid costs; and 2) lower state tax revenues alongside an increased need for Medicaid and other state services due to the slower economy and higher unemployment. Temporarily raising the federal share of state Medicaid costs, as federal policymakers did in the last two recessions, is essential to prevent states from restricting coverage precisely when it would be most damaging to public health and the economy. Other measures to expand access to health coverage and cover COVID-19-related costs for those who remain uninsured will likely be needed as well.

The steps above are, of course, in addition to the actions needed to support the direct public health response to the virus and strengthen health system capacity. But the steps outlined here are vital as well, because avoiding a long, severe recession is critical: prolonged unemployment harms not only the health and well-being of workers and their families, but also workers' future job prospects and lifetime earnings. Workers without a college degree and workers of color are the most vulnerable to these adverse effects. And recessions can erode job skills among unemployed workers and reduce business investment in ways that depress the economy's productive capacity long past the end of the recession.

We will discuss these and other issues in forthcoming CBPP analyses and blog posts in the weeks ahead.

 -- via my feedly newsfeed

Amid COVID-19 outbreak, the workers who need paid sick days the most have the least [feedly]

Amid COVID-19 outbreak, the workers who need paid sick days the most have the least
https://www.epi.org/blog/amid-covid-19-outbreak-the-workers-who-need-paid-sick-days-the-most-have-the-least/

The United States is unprepared for the COVID-19 pandemic given that many workers throughout the economy will have financial difficulty in following the CDC's recommendations to stay home and seek medical care if they think they've become infected. Millions of U.S. workers and their families don't have access to health insurance, and only 30% of the lowest paid workers have the ability to earn paid sick days—workers who typically have lots of contact with the public and aren't able to work from home.

There are deficiencies in paid sick days coverage per sector, particularly among those workers with a lot of public exposure. The figure below displays access to paid sick leave by sector. Information and financial activities have the highest rates of coverage at 95% and 91%, respectively. Education and health services, manufacturing, and professional and business services have lower rates of coverage, but still maintain at least three-quarters of workers with access. Trade, transportation, and utilities comes in at 72%, but there are significant differences within that sector ranging from utilities at 95% down to retail trade at 64% (not shown). Over half of private-sector workers in leisure and hospitality do not have access to paid sick days. Within that sector, 55% of workers in accommodation and food services do not have access to paid sick days (not shown).

Figure

Of the public health concerns in the workforce related to COVID-19, two loom large: those who work with the elderly because of how dangerous the virus is for that population and those who work with food because of the transmission of illness. Research shows that more paid sick days is related to reduced flu rates. There is no reason to believe contagion of COVID-19 will be any different. When over half of workers in food services and related occupations do not have access to paid sick days, the illness may spread more quickly.

What exacerbates the lack of paid sick days among these workers is that their jobs are already not easily transferable to working from home. On average, about 29% of all workers can work from home. And, not surprisingly, workers in sectors where they are more likely to have paid sick days are also more likely to be able to work from home. Over 50% of workers in information, financial activities, and professional and business services can work from home. However, only about 9% of workers in leisure and hospitality are able to work from home.

Many of the 73% of workers with access to paid sick days will not have enough days banked to be able to take off for the course of the illness to take care of themselves or a family member. COVID-19's incubation period could be as long as 14 days, and little is known about how long it could take to recover once symptoms take hold. The figure below displays the amount of paid sick days workers have access to at different lengths of service. Paid sick days increase by years of service, but even after twenty years, only 25% of private-sector workers are offered at least 10 days of paid sick days a year.

The small sliver of green shows that a very small share (only about 4%) of workers—regardless of their length of service—have access to more than 14 paid sick days. That's just under three weeks for a five-day-a-week worker, assuming they have that many days at their disposal at the time when illness strikes. The vast majority of workers, over three-quarters of all workers, have nine days or less of paid sick time. This clearly shows that even among workers with access to some amount of paid sick days, the amounts are likely to be insufficient.

Chart

 -- via my feedly newsfeed

A Trump attack on government, flying largely under the radar: Trump wants to help corporations suspected of violating the law [feedly]

A Trump attack on government, flying largely under the radar: Trump wants to help corporations suspected of violating the law
https://www.epi.org/blog/a-trump-attack-on-government-flying-largely-under-the-radar-trump-wants-to-help-corporations-suspected-of-violating-the-law/

Health inspections of cruise ships, to reduce the spread of infections. A recall of flammable infant sleepwear. An order to clean up contaminated soil or water. This work of the federal government often lets us take for granted the safety of the food we eat, the clothes we put on our kids, and even our collective ability to fight new illnesses like the coronavirus.

We can't take it for granted anymore. An obscure agency that most Americans have never heard of has issued a request for information that one-sidedly solicits input about how government is a problem, with the transparent goal of creating more roadblocks to government enforcement of environmental, consumer protection, labor, and other regulations. Right-wing groups are already mobilizing a campaign in response, prompting scores of comments expressing fervent yet vague support for the president. Many more comments are surely in the works, by corporations offering more polished and pointed explanations of their need to operate unfettered. The Trump administration has made clear its intent to do their bidding and more, but we don't have to make it easy. Think tanks, public interest lawyers, community and advocacy organizations, and the general public can and should weigh in, to protect the government's basic ability to protect our shared well-being.

At the hub of the agencies that report to the president is the Office of Management and Budget (OMB), which sets rules across the federal government for what agencies do and how they behave. In late January, the OMB issued a highly unorthodox request that assumes agencies behave unfairly, and asks how to make agency actions friendlier to alleged lawbreakers. It's a clear invitation to corporate wrongdoers to provide anecdotes masquerading as evidence. The OMB's head characterized the request as a means to end "bureaucratic bullying." They've already decreed that agencies must repeal two rules for every new one they issue, no matter the harm to the public; this request is another effort to hamstring the government's ability to pursue corporate wrongdoing.

The OMB's request strangely floats importing criminal due process concepts into the civil administrative context. It asks whether there should be an "initial presumption of innocence," for example, and whether investigated parties should be able "to require an agency to 'show cause' to continue an investigation." But we are talking about corporations under civil investigation based on potential harm to broad swaths of people. If a business is suspected of polluting a playground, do we really want to slow down investigation and enforcement? Most of us would prefer swift government action in such circumstances.

And remember, these are civil cases: unlike in the criminal context where defendants face loss of liberty or even life, potential consequences in these civil administrative enforcements are generally payment of money and an order to follow the law. Fans of TV courtroom dramas know that criminal defendants must be proven guilty "beyond a reasonable doubt." But the burden of proof is, and has always been, much lower in civil cases.

As former government lawyers who have spent decades standing up for workers and consumers, we are deeply concerned about the potential seismic impact of the OMB's request. The request never mentions the environment, labor, consumers, food safety, banks, privacy, or housing discrimination, for example. (Perhaps this generalized, non-issue specific approach has helped the request to avoid widespread attention; advocates focus on their specific issue areas, but in the fire hose of daily life in the Trump era, something so broad is easier to miss.)

The request also doesn't ask whether kid-glove enforcement would hamper the government's ability to contain the spread of new infections, like the coronavirus. It doesn't ask how many more children would die or suffer irreversible injury, or how much money Americans would have stolen from them. It just asks how to provide additional protections for companies suspected of breaking the law. But its scope could imperil important government action in all these areas and more.

If we want the government to be able to restrain the most egregious corporate abuses, all of us—community organizations, advocates, and everyday people—must take this opportunity (by March 16) to give our side of the story, telling about how the government actually has served our communities. It might be a time an agency helped combat housing discrimination or fight sexual harassment on the job, or when the labor department recovered wages that were owed. The moment we learned that a car or child's toy wasn't safe. The anxiety we feel about the prospect of identity theft or data hacking—and our desire for government to address such acts. Or it could be sharing a story about the things many of us have never thought much about, like safe food or clean air. Without our voices, the Trump administration will win another battle in its war on the government's ability to act for good.

If we expect the government to act on behalf of us when we need it, to stand as a bulwark against corporate overreach and predation, we have to be prepared to act on behalf of the government when its core role is threatened. With the OMB's request, Trump's team is asking how they can help corporations. What they should be asking is how they can help the rest of us.

This blog post was originally posted by the American Constitution Society. 

 -- via my feedly newsfeed

The Case for Permanent Stimulus (Wonkish) [feedly]

PK is right: this post IS wonky(contains some math and advanced econ lingo, but most of it is accessible. AND, it is a good review of the NEED for REAL fiscal policy when monetary action (at the zero interest bound) is useless.

The Case for Permanent Stimulus (Wonkish)
https://www.nytimes.com/2020/03/07/opinion/the-case-for-permanent-stimulus-wonkish.html

If you're a normal human being considering reading this post, fair warning: although it's not super-technical, it's aimed at a very wonky audience, and parts of it won't exactly be in English. Also, it's of limited policy relevance: the Trump administration would never consider the policy I suggest, and even a Biden administration would probably balk at going where I suggest. The only reason I'm writing about it is to get the idea out there. Oh, and I don't think it's very different from what Larry Summers has been saying, but I thought it might be helpful to put some stylized numbers to what I believe, and believe he believes.

OK, if you're still with me: I hereby propose that the next U.S. president and Congress move to permanently spend an additional 2 percent of GDP on public investment, broadly defined (infrastructure, for sure, but also things like R&D and child development) — and not pay for it.

The starting point for my argument is the astonishing drop in interest rates over the past few weeks. They were historically very low even a year ago, but at the time of writing the 10-year rate was only 0.76 percent. That's below the rates on Japanese debt during the Lost Decade:

Image

US rates now below Japan's during the Lost DecadeCredit...St. Louis Fed

What this tells us is that the bond market isn't just pricing in a global recession driven by the coronavirus, but that it expects the Fed funds rate to be near zero a lot of the time looking forward. That is, the market sees a future of secular stagnation, in which the economy is in a liquidity trap, that is, a situation in which monetary policy loses most of its traction, much if not most of the time. We were in a liquidity trap for 8 of the past 12 years; the market now appears to believe that something like this is the new normal.

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Conventional monetary policy doesn't work in a liquidity trap, but fiscal policy is highly effective. The problem is that the kind of fiscal policy you really want — public investment that takes advantage of very low interest rates and strengthens the economy in the long run — is hard to get going on short notice. That's why current proposals for fiscal stimulus, like the one advanced by Jason Furman, basically involve handing out cash — a good idea given the constraints, but a shame given the missed opportunity to invest in the future.

Hence my suggestion. Why not put investment-centered stimulus in place all the time? It would cushion the economy when adverse shocks hit. It wouldn't be necessary to achieve full employment in better times, but it wouldn't hurt either, given low interest rates and the need for public investment.

But, you say, what about debt? Well, that's where the arithmetic of debt in an era of low interest rates becomes crucial to understand.

Let's consider a stylized, round-number economy that I'll call "America." This economy currently has public debt equal to 100 percent of GDP. It can expect, on average, to experience nominal GDP growth of 4 percent a year, half real, half inflation. It can also expect, on average, to pay an interest rate of 2 percent on its debt. The actual numbers don't match my example exactly — right now, growth prospects may be a bit worse than that, but interest rates are even lower. But I think this is close enough to make my point.

In the long run, fiscal policy is sustainable if it stabilizes the ratio of debt to GDP. Because interest rates are below the growth rate, our hypothetical economy can in fact stabilize the debt ratio while running persistent primary deficits (deficits not including interest payments.)

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Let d be the ratio of debt to GDP, b be the primary balance as a share of GDP, r and g be the interest and growth rates, respectively. Then the equation for debt dynamics (I warned you, normal human beings) is

Change in d = -b + (r — g)*d

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So in my hypothetical case, where d = 1 (debt is 100 percent of GDP), the debt ratio can be stabilized while running a primary deficit of 2 percent of GDP.

Put the interest payments back in, and this translates to a headline deficit of 4 percent of GDP. Our actual deficit is a bit bigger than that, but we could get back into that range by repealing Trump's giveaways to corporations, which don't seem to be doing anything for investment anyway.

OK, now let's introduce a public investment program of 2 percent of GDP, with no pay-fors. The debt ratio will now begin to rise, but not without limit. If nothing else changes, d will eventually stabilize at 2 — debt at 200 percent of GDP.

That's terrible, right? Um, why? Don't tell me about the burden of paying interest on the debt — that's already taken into account by the calculation. Maybe we'd have a debt crisis, but Japan has debt exceeding 200 percent of GDP, with no crisis in sight.

 -- via my feedly newsfeed

IMF: Limiting the Economic Fallout of the Coronavirus with Large Targeted Policies [feedly]

Limiting the Economic Fallout of the Coronavirus with Large Targeted Policies
https://blogs.imf.org/2020/03/09/limiting-the-economic-fallout-of-the-coronavirus-with-large-targeted-policies/

 -- via my feedly newsfeed

his blog is part of a special series on the response to the coronavirus.

By Gita Gopinath

This health crisis will have a significant economic fallout, reflecting shocks to supply and demand different from past crises. Substantial targeted policies are needed to support the economy through the epidemic, keeping intact the web of economic and financial relationships between workers and businesses, lenders and borrowers, and suppliers and end-users for activity to recover once the outbreak fades. The goal is to prevent a temporary crisis from permanently harming people and firms through job losses and bankruptcies.

The human costs of the coronavirus outbreak have risen at an alarming rate and the disease is spreading across more countries.

The first priority is clearly to keep people as healthy and safe as possible. Countries can help by spending more to boost their health systems, including on personal protective equipment, screening, diagnostic tests, and additional hospital beds.

Without a vaccine to stop the virus, countries have taken measures to limit its spread, like travel restrictions, temporary school closures, and quarantines. Such measures also buy valuable time to avoid overwhelming health systems.

The economic impact is already visible in the countries most affected by the outbreak.

Economic fallout

The economic impact is already visible in the countries most affected by the outbreak. For example, in China, manufacturing and service sector activity declined dramatically in February. While the drop in manufacturing is comparable to the start of the global financial crisis, the decline in services appears larger this time—reflecting the large impact of social distancing.

The global supply and demand for dry bulk shipping stocks such as building materials and commodities has also dropped similar to during the most acute phase of the global financial crisis, reflecting curtailed economic activity associated with the unprecedented containment effort. This drop was not seen in recent epidemics or after the 9/11 attacks.

Supply and demand shocks

The coronavirus epidemic involves both supply and demand shocks. Business disruptions have lowered production, creating shocks to supply. And consumers' and businesses' reluctance to spend has lowered demand.

On the supply side, there is a direct reduction in the supply of labor from unwell workers, from caregivers who have to take care of kids because of school closures, and sadly, from increased mortality. But an even larger effect on economic activity occurs because of efforts to contain the spread of the disease through lockdowns and quarantines, which lead to a drop in capacity utilization. In addition, firms that rely on supply chains may be unable to get the parts they need, whether domestically or internationally. For example, China is an important supplier of intermediate goods to the rest of the world, particularly in electronics, automobiles, and machinery and equipment. The disruption there is already having knock-on effects to downstream firms. Together, these disruptions contribute to a rise in business costs and constitute a negative productivity shock, reducing economic activity.

On the demand side, the loss of income, fear of contagion, and heightened uncertainty will make people spend less. Workers may be laid off, as firms are unable to pay their salaries. These effects can be particularly severe on some sectors such as tourism and hospitality—as seen for example in Italy. Since the start of the recent US equity market selloff on February 20, 2020, airline stock prices have been hit disproportionately, in line with the post-9/11 terrorist attacks but lower than after the global financial crisis. In addition to these sectoral effects, worsening consumer and business sentiment can lead firms to expect lower demand and reduce their spending and investment. In turn, this would exacerbate business closures and job losses.

Financial effects and spillovers 

As seen in recent days, borrowing costs can rise and financial conditions tighten, as banks suspect consumers and firms may be unable to repay their loans on a timely basis. Higher borrowing costs will expose financial vulnerabilities that have accumulated during years of low interest rates, leading to a heightened risk that debt cannot be rolled over. A reduction of credit could amplify the downturn arising from the supply and demand shocks.

And when these shocks are synchronized across many countries, the effects can be further amplified through international trade and financial linkages, dampening global activity and pushing commodity prices down. Oil prices have fallen dramatically in recent weeks and are about 30 percent below their levels at the start of the year. Countries reliant on external financing could find themselves at risk of sudden stops and disorderly market conditions, possibly requiring foreign exchange intervention or temporary capital flow measures.

Targeted economic policies are needed

Considering that the economic fallout reflects particularly acute shocks in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to help affected households and businesses.

Households and businesses hit by supply disruptions and a drop in demand could be targeted to receive cash transfers, wage subsidies, and tax relief, helping people to meet their needs and businesses to stay afloat. For example, among other measures, Italy has extended tax deadlines for companies in affected areas and broadened the wage supplementation fund to provide income support to laid-off workers, Korea has introduced wage subsidies for small merchants and increased allowances for homecare and job seekers, and China has temporarily waived social security contributions for businesses. For those laid off, unemployment insurance could be temporarily enhanced, by extending its duration, increasing benefits, or relaxing eligibility. Where paid sick and family leave is not among standard benefits, governments should consider funding it to allow unwell workers or their caregivers to stay home without fear of losing their jobs during the epidemic.

Central banks should be ready to provide ample liquidity to banks and nonbank finance companies, particularly to those lending to small- and medium-sized enterprises, which may be less prepared to withstand a sharp disruption. Governments could offer temporary and targeted credit guarantees for the near-term liquidity needs of these firms. For example, Korea has expanded lending for business operations and loan guarantees for affected small- and medium-sized enterprises. Financial market regulators and supervisors could also encourage, on a temporary and time-bound basis, extensions of loan maturities.

Broader monetary stimulus such as policy rate cuts or asset purchases can lift confidence and support financial markets if there is a marked risk of a sizable tightening in financial conditions (with actions by large central banks also generating favorable spillovers for vulnerable countries). Broad-based fiscal stimulus consistent with available fiscal space can help lift aggregate demand but would most likely be more effective when business operations begin to normalize.

Considering the epidemic's broad reach across many countries, the extensive cross-border economic linkages, as well as the large confidence effects impacting economic activity and financial and commodity markets, the argument for a coordinated, international response is clear. The international community must help countries with limited health capacity avert a humanitarian disaster. The IMF stands ready to support vulnerable countries with different lending facilities, including through rapid-disbursing emergency financing, which could amount up to $50 billion for low-income and emerging market countries.

NYTimes.com: Thomas Piketty Turns Marx on His Head

From The New York Times:

I am glad the book is now out in English I downloaded it when first announced, but my French could not get me past page 2.

Now i will read it. If Krugman is right, it is a step away from materialism (~~ Marx) toward a more ideological explanation). My intuition and education says that would not be step in the right direction. But, anytime you get close to Marx, either in economics and philosophy, Krugman, unlike his friend Brad DeLong, get squishy. Trust bur Verify!!

Still - a good read

Thomas Piketty Turns Marx on His Head

Piketty's latest book, "Capital and Ideology," takes a global overview to inequality and other pressing economic issues of our time.

https://www.nytimes.com/2020/03/08/books/review/capital-and-ideology-thomas-piketty.html

[text only]

CAPITAL AND IDEOLOGY
By Thomas Piketty

Seven years ago the French economist Thomas Piketty released "Capital in the Twenty-First Century," a magnum opus on income inequality. Economists already knew and admired Piketty's scholarly work, and many — myself included — offered the book high praise. Remarkably, the book also became a huge international best seller.

In retrospect, however, what professionals saw in "Capital" wasn't the same thing the broader audience saw. Economists already knew about rising income inequality. What excited them was Piketty's novel hypothesis about the growing importance of disparities in wealth, especially inherited wealth, as opposed to earnings. We are, Piketty suggested, returning to the kind of dynastic, "patrimonial" capitalism that prevailed in the late 19th century.

But for the book-buying public, the big revelation of "Capital" was simply the fact of soaring inequality. This perceived revelation made it a book that people who wanted to be well informed felt they had to have.

To have, but maybe not to read. Like Stephen Hawking's "A Brief History of Time," "Capital in the Twenty-First Century" seems to have been an "event" book that many buyers didn't stick with; an analysis of Kindle highlights suggested that the typical reader got through only around 26 of its 700 pages. Still, Piketty was undaunted.

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His new book, "Capital and Ideology," weighs in at more than 1,000 pages. There is, of course, nothing necessarily wrong with writing a large book to propound important ideas: Charles Darwin's "On the Origin of Species" was a pretty big book too (although only half as long as Piketty's latest). The problem is that the length of "Capital and Ideology" seems, at least to me, to reflect in part a lack of focus.

[ This book was one of our most anticipated titles of March. See the full list. ]

To be fair, the book does advance at least the outline of a grand theory of inequality, which might be described as Marx on his head. In Marxian dogma, a society's class structure is determined by underlying, impersonal forces, technology and the modes of production that technology dictates. Piketty, however, sees inequality as a social phenomenon, driven by human institutions. Institutional change, in turn, reflects the ideology that dominates society: "Inequality is neither economic nor technological; it is ideological and political."

But where does ideology come from? At any given moment a society's ideology may seem immutable, but Piketty argues that history is full of "ruptures" that create "switch points," when the actions of a few people can cause a lasting change in a society's trajectory.

To make that case, Piketty provides what amounts to a history of the world viewed through the lens of inequality. The book's archetypal case study is French society over the past two and a half centuries. But Piketty ranges very far afield, telling us about everything from the composition of modern Swedish corporate boards to the role of Brahmins in the pre-colonial Hindu kingdom of Pudukkottai.

He describes four broad inequality regimes, obviously inspired by French history but, he argues, of more general relevance. First are "ternary" societies divided into functional classes — clergy, nobility and everyone else. Second are "ownership" societies, in which it's not who you are that matters but what you have legal title to. Then come the social democracies that emerged in the 20th century, which granted considerable power and privilege to workers, ranging from union representation to government-provided social benefits. Finally, there's the current era of "hypercapitalism," which is sort of an ownership society on steroids.

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Piketty tries to apply this schema to many societies across time and space. His discussion is punctuated by many charts and tables: Using a combination of extrapolation and guesswork to produce quantitative estimates for eras that predate modern data collection is a Piketty trademark, and it's a technique he applies extensively here, I'd say to very good effect. It is, for example, startling to see evidence that France on the eve of World War I was, if anything, more unequal than it was before the French Revolution.

But while there is a definite Francocentric feel to "Capital and Ideology," for me, at least, the vast amount of ground it covers raises a couple of awkward questions.

The first is whether Piketty is a reliable guide to such a large territory. His book combines history, sociology, political analysis and economic data for dozens of societies. Is he really enough of a polymath to pull that off?

I was struck, for example, by his extensive discussion of the evolution of slavery and serfdom, which made no mention of the classic work of Evsey Domar of M.I.T., who argued that the more or less simultaneous rise of serfdom in Russia and slavery in the New World were driven by the opening of new land, which made labor scarce and would have led to rising wages in the absence of coercion. This happens to be a topic about which I thought I knew something; how many other topics are missing crucial pieces of the literature?

The second question is whether the accumulation of cases actually strengthens Piketty's core analysis. It wasn't clear to me that it does. To be honest, at a certain point I felt a sense of dread each time another society entered the picture; the proliferation of stories began to seem like an endless series of digressions rather than the cumulative construction of an argument.

Eventually, however, Piketty comes down to the meat of the book: his explanation of what caused the recent surge in inequality and what can be done about it.

For Piketty, rising inequality is at root a political phenomenon. The social-democratic framework that made Western societies relatively equal for a couple of generations after World War II, he argues, was dismantled, not out of necessity, but because of the rise of a "neo-proprietarian" ideology. Indeed, this is a view shared by many, though not all, economists. These days, attributing inequality mainly to the ineluctable forces of technology and globalization is out of fashion, and there is much more emphasis on factors like the decline of unions, which has a lot to do with political decisions.

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But why did policy take a hard-right turn? Piketty places much of the blame on center-left parties, which, as he notes, increasingly represent highly educated voters. These more and more elitist parties, he argues, lost interest in policies that helped the disadvantaged, and hence forfeited their support. And his clear implication is that social democracy can be revived by refocusing on populist economic policies, and winning back the working class.

Piketty could be right about this, but as far as I can tell, most political scientists would disagree. In the United States, at least, they stress the importance of race and social issues in driving the white working class away from Democrats, and doubt that a renewed focus on equality would bring those voters back. After all, during the Obama years the Affordable Care Act extended health insurance to many disadvantaged voters, while tax rates on top incomes went up substantially. Yet the white working class went heavily for Trump, and stayed Republican in 2018.

Maybe the political science consensus is wrong. What I can say with confidence, though, is that until the final 300 pages "Capital and Ideology" doesn't do much to make the case for Piketty's views on modern political economy.

The bottom line: I really wanted to like "Capital and Ideology," but have to acknowledge that it's something of a letdown. There are interesting ideas and analyses scattered through the book, but they get lost in the sheer volume of dubiously related material. In the end, I'm not even sure what the book's message is. That can't be a good thing.

Paul Krugman is an Op-Ed columnist for The Times.

CAPITAL AND IDEOLOGY
By Thomas Piketty
Translated By Arthur Goldhammer
1,093 pp. The Belknap Press of Harvard University Press. $39.95.