Equitable Growth: A college degree is not the solution to U.S. wage inequality [feedly]

A college degree is not the solution to U.S. wage inequality
https://equitablegrowth.org/a-college-degree-is-not-the-solution-to-u-s-wage-inequality/

Overview

Relatively stagnant or declining wages for the vast majority of U.S. workers became a feature of the U.S. economy after the 1970s, along with a shift to "lousy" and low-wage jobs and rising wage and income inequality despite increasing productivity.

One of the explanations for this job-quality crisis is that not enough workers have the skills required for an increasingly digital and technologically advanced jobs market, leading to a widening gap between the rising wages of the highest-paid workers and everyone else. The concept of a skills gap was likewise blamed for high unemployment after the Great Recession ended in July 2009 and is now cited as the key challenge facing low-wage workers amid the current coronavirus recession. The proposed solutions to closing this apparent gap center around education and training for low-wage workers, often with a focus on getting more workers to obtain college degrees, so they can fill these high-wage, high-demand jobs.

A college degree is not the solution to U.S. wage inequalityDownload

Yet this focus on individual workers misses the structural conditions that constrain workers' options and ability to share in economic growth. This issue brief examines recent data-driven research that demonstrates the skills gap is only a small and relatively unimportant explanation for the college wage premium because it fails to account for declining worker power and the role of monopsony in the labor market. These more important explanations for the college wage premium—and its recent decline—underscore why policymakers need to improve the underlying labor market conditions for all workers, instead of shifting responsibility to those already struggling in an uneven playing field.

The college wage premium can't explain the ongoing rise in wage inequality

A recent National Bureau of Economics Research working paper by economists David Autor at the Massachusetts Institute of Technology (and a member of Equitable Growth's Research Advisory Board) and Claudia Goldin and Lawrence F. Katz (also an Advisory Board member) of Harvard University demonstrates how the college wage premium changed over time in response to labor market changes and policy shifts affecting worker power. While the paper itself is based in a skills-focused framework, its findings show that even this framing falls short when attempting to explain the rise in wage inequality since 2000.

The paper is part of a series of research that assumes employers' demand for skilled labor is driven by "skill-biased technological change." This framework holds that technological advancements—such as computers or robotics—improve the productivity of workers with the skills and education necessary to use the technology more than they improve the productivity of less-skilled workers. The result is a "race" between technology and education, where technological advancements lead employers to require more highly educated workers, but immediate shortages in the supply of educated workers result in higher wages for the college-educated candidates already in the workforce.

This framework is premised on a simplistic supply-and-demand model of the market that supposes wages are purely a result of demand for worker attributes and those attributes explain wage levels for individual workers. In framing wage distribution and outcomes in this way, it overlooks other important factors such the influence of institutions, including unions, and the relative power of workers and employers in changing labor markets.

The new paper expands on previous research, including a 2007 paper by Goldin and Katz, "The Race Between Education and Technology," which tracked the differences in wages for workers with different education levels from 1890 to 2005. This paper combines several data sources to extend that analysis to look at the relationship between years of schooling and wages over the period from 1825 to 2017.

In line with previous research, the latest paper by Autor, Goldin, and Katz finds that when demand for educated workers is high and supply is low, such as in the late 1800s, the wage premium for educated workers—defined as the average difference between their wages and those of less-educated workers—is high. When the supply of educated workers increases, as it did over the early part of the 20th century, the wage premium falls. The definition of a relatively eduated or skilled worker shifts over time, of course, depending on eduation trends and available data sources, beginning with those who did clerical work (which generally required a high school background) prior to 1914 and then tracking those with high school and college degrees or equivalents.

Since the beginning of the 20th century, the three researchers find that a 10 percent increase in the relative supply of college-educated workers leads to a 6 percent reduction in the college wage premium. The paper argues that models using this framework can explain most of the wage premium for educated workers—but only until the 2000s, when other factors appear to play a larger role.

As the authors note, the wages of educated workers only describe one side of the education wage premium. Because wage premiums refer to the difference between earnings for educated and less-educated workers, they depend not only on the added value for educated workers but also the opportunities for workers without that educational background. The strong decline in wage premiums for high school and college educations in the 1940s probably did not happen because the supply of educated workers increased dramatically—in 1940, the reach of high school education had expanded, but only 6 percent of men and 4 percent of women had completed 4 years of college. Instead, the authors write, the lower relative returns to education in the 1940s were "likely driven by strong unions, tight labor markets, and government wage pressures during World War II."

Likewise, the three authors find that the strength of American unions and a robust national minimum wage also contributed to a decline in the college wage premium in the late 1970s. This happened because wages improved for those in occupations that did not require a college degree.

When the three authors examine more recent wage patterns, they find that wage inequality rose at roughly the same rate between 1980 and 2000 as it did between 2000 and 2017, but also that the college wage premium could explain 75 percent of this increase in the first time period and only 38 percent in the second time period. Furthermore, wage inequality increased within college degree holders since 2000, and workers with advanced post-college degrees earned even greater wage premiums.

The authors conclude that the framework of a race between education and technology "remains relevant in the 21st century, but needs some tweaks" to fully capture the drivers behind the rising wage inequality the United States experienced since 2000.

Rising education requirements are not necessarily due to increasingly skilled work, and the returns of a college education are often less for the workers who need it most

One of the factors complicating a straightforward interpretation of the college wage premium is that employers often require college degrees for positions for reasons other than the content of the role's duties. One way this is evident is when employers often raise job education requirements during times of high unemployment, when there are many candidates for jobs, but may also drop these requirements when the labor market tightens. Over time, as a greater share of workers earns college degrees, education requirements may continue to rise—but, crucially, not because the duties of the job require greater skill or education levels.

As a paper by Paul Beaudry of the University of British Columbia and the National Bureau of Economic Research, David A. Green of the University of British Columbia and Institute for Fiscal Studies, and Benjamin M. Sand of York University found, the decline in demand for college degrees since 2000 led many college-educated workers to take jobs that did not require a degree, which, in turn, pushed workers without degrees down into even lower-wage jobs. The Roosevelt Institute also notes that requiring unnecessary degrees drives more students to attend college, often taking on large amounts of debt in the process, because they've been told they can't afford not to.

The evidence is clear that while a college degree is increasingly a requirement for middle- and high-wage jobs, it is not a guarantee of higher earnings, especially for people of color. Discrimination and occupational segregation continue to limit wages and economic opportunity for Black and Latinx workers and intersect with gender discrimination to additionally lower wages for Black women and Latinas. The new NBER working paper by Autor, Goldin, and Katz examined in the previous section of this issue brief did not break out college wage premiums by race and ethnicity, but other research shows that Black and Latinx workers with college degrees continue to earn lower wages than White workers with college degrees.

In addition, Black workers with college degrees experience higher unemployment rates compared with White workers with college degrees, as shown by economists Jhacova Williams and Valerie Wilson of the Economic Policy Institute. The two economists also find that Black workers are more likely to be underutilized in jobs that do not require a college degree.

Then, there's evidence that shows how external factors limit the role of a college degree in driving economic mobility. As economist Brad Hershbein writes for The Brookings Institution, a college degree is still associated with higher earnings, on average, but actually benefits the wages of those from lower-income backgrounds less. Hershbein finds that college graduates from very low-income backgrounds—those from families below 185 percent of the federal povery level—see less of a relative income bump from their degree over the course of their careers than college graduates from higher-income backgrounds.

College graduates from very low-income families go on to earn 91 percent more than people from the same income background who only graduated high school, but college graduates from families with higher incomes earned 162 percent more compared with high school graduates from that income background. If the content of a college degree is the key to skilled work and greater economic mobility, then these findings should be the reverse. Instead, these findings—along with research on the role of household wealth and of student debt—show that the college wage premium is not a straightforward story.

The skills gap framing ignores the underlying dynamics of job quality and worker power

The new NBER paper by Autor, Goldin, and Katz demonstrates that the college wage premium declined when unions were strong and the real minimum wage was at its peak. The research shows that the college wage premium is less a story of supply and demand—let alone about the inherent value of a college degree—and more about other U.S. labor market factors such as the underlying dynamics of job quality and worker power. It is also the story of the opportunities for workers without a degree and the protections they have.

We see the importance of these factors in another recent NBER working paper, by Matthias Doepke of Northwestern University and Ruben Gaetani of the University of Toronto, which sheds more light on the intersection of skills, job quality, and worker protections. Comparing college differentials in the United States and Germany since 1980, the paper's findings suggest that a major reason why the college wage premium has risen in our nation compared to Germany is that German employment protections reduce the number of worker separations from their employers and encourages employers to invest in workers.

Doepke and Gaetani's model suggests that the very precarity and lower-quality of jobs in the United States do not allow these workers to develop skills over time in the same way that college-educated workers can. This bolsters the idea that part of the cause for the college wage premium is higher-wage workers' bargaining power.

Ultimately, the skills-focused competitive market approach needs more than a tweak to fully capture the forces shaping earnings for workers. As Equitable Growth Labor Market Policy Director Kate Bahn explains, the idea that a skills gap is at the root of wage inequality ultimately ignores the role of unions, worker power, and the broader policy decisions affecting low-wage workers. In a recent Equitable Growth working paper by Bahn and Mark Stelzner of Connecticut College, the authors demonstrate how barriers to job search by race and ethnicity, particularly lack of access to wealth for workers of color and women workers, means that these workers face more difficulty managing their lives and job searches while being unemployed longer without earnings.

Because workers from marginalized groups can't afford to wait for better job opportunities, employers wield a greater ability to offer lower (discriminatory) wages. Fostering worker bargaining power through pro-labor institutions, such as supporting union organizing and enforcing anti-discrimination laws, reduces the ability of employers to use their monopsony power to exploit workers by race and gender. Similarly, other research shows that raising the minimum wage directly benefits low-wage workers, reducing income inequality and narrowing racial wage disparities.

To reduce wage inequality, improve conditions for all workers, not just those at the top

As Equitable Growth noted in 2014, one of the results of assuming that education differences provide the main explanation for rising wage inequality in the United States is to lead policymakers to view college as a blanket solution for inequality. But the evidence from the Great Recession shows that the apparent skills gap is often driven by greater employer power in times of high unemployment, and that a college degree does not protect workers from low-paying, low-quality job options with no bargaining power and no opportunities to learn and grow. Focusing on education as the first and leading solution to wage inequality ignores the larger issues that undercut workers' options and further racial disparities. While education and training are often part of what workers need to access quality jobs, they will not be sufficient without worker power to ensure they share in the productivity gains their value-added inputs create.

If past trends continue, policymakers can expect employers to respond to the current record-setting unemployment levels by continuing to raise education requirements. And many policymakers will attempt to respond to this sudden skills gap with calls for more education and training. But the solution to today's dismal jobs numbers is not tell workers to go into debt acquiring credentials only to be rehired at the same types of jobs that had not previously required a degree. Instead, policymakers need to address the structural conditions shaping jobs and wages across the board, focusing on the needs of workers at the bottom of the income ladder. This will require raising the minimum wage to improve outcomes for the country's most vulnerable workers, actually enforcing anti-discrimination laws to reduce pay disparities by race and gender, strengthening unions to give workers a voice in their working conditions and training opportunities, and checking the rising monopsony power that prevents workers from sharing economic growth.

 -- via my feedly newsfeed

[The Washington Post] A revealing map of the world’s most and least ethnically diverse countries

https://www.washingtonpost.com/news/worldviews/wp/2013/05/16/a-revealing-map-of-the-worlds-most-and-least-ethnically-diverse-countries/

Ethnicity, like race, is a social construct, but it's still a construct with significant implications for the world. How people perceive ethnicity, both their own and that of others, can be tough to measure, particularly given that it's so subjective. So how do you study it?

When five economists and social scientists set out to measure ethnic diversity for a landmark 2002 paper for the Harvard Institute of Economic Research, they started by comparing data from an array of different sources: national censuses, Encyclopedia Brittanica, the CIA, Minority Rights Group International and a 1998 study called "Ethnic Groups Worldwide." They looked for consistence and inconsistence in the reports to determine what data set would be most reliable and complete. Because data sources such as censuses or surveys are self-reported – in other words, people are classified how they ask to be classified – the ethnic group data reflects how people see themselves, not how they're categorized by outsiders. Those results measured 650 ethnic groups in 190 countries.

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One thing the Harvard Institute authors did with all that data was measure it for what they call ethnic fractionalization. Another word for it might be diversity. They gauged this by asking an elegantly simple question: If you called up two people at random in a particular country and ask them their ethnicity, what are the odds that they would give different answers? The higher the odds, the more ethnically "fractionalized" or diverse the country.

I've mapped out the results above. The greener countries are more ethnically diverse and the orange countries more homogenous. There are a few trends you can see right away: countries in Europe and Northeast Asia tend to be the most homogenous, sub-Saharan African nations the most diverse. The Americas are generally somewhere in the middle. And richer countries appear more likely to be homogenous.

This map is particularly interesting viewed alongside data we examined yesterday on racial tolerance, as measured by the frequency with which people in certain countries said they would not want a neighbor from a different racial group.

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Before we go any further, though, a few important caveats, all of which appear in the original research paper as well. Well, all except for the report's age. It's now 11 years old. And given the scarcity of information from some countries, some of the data are very old, dating from as far back as the early 1990s or even late 1980s. Conceptions of ethnicity can change over time; the authors note that this happened in Somalia, where the same people started self-identifying differently after war broke out. And so can the actual national make-ups themselves, due to immigration, conflict, demographic trends and other factors. It's entirely possible, then, that some of these diversity "scores" would look different with present-day data.

Another caveat is that people in different countries might have different bars for what constitutes a distinct ethnicity. These data, then, could be said to measure the perception of ethnic diversity more than the diversity itself; given that ethnicity is a social construct, though those two metrics are not necessarily as distinct as one might think. Finally, as the paper notes, "It would be wrong to interpret our ethnicity variable as reflecting racial characteristics alone." Ethnicity might partially coincide with race, but they're not the same thing.

Now for the data itself. Here are a few observations and conclusions, a number of which draw from the Harvard Institute paper:

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• African countries are the most diverse. Uganda has by far the highest ethnic diversity rating, according to the data, followed by Liberia. In fact, the world's 20 most diverse countries are all African. There are likely many factors for this, although one might be the continent's colonial legacy. Some European overlords engineered ethnic distinctions to help them secure power, most famously the Hutu-Tutsi division in Rwanda, and they've stuck. European powers also carved Africa up into territories and possessions, along lines with little respect for the actual people who lived there. When Europeans left, the borders stayed (that's part of the African Union's mandate), forcing different groups into the same national boxes.

• Japan and the Koreas are the most homogenous. Racial politics can be complicated and nasty in these countries, where nationalism and ethnicity have at times gone hand-in-hand, from Hirohito's Japan to Kim Il Sung's North Korea. The lack of diversity perhaps informs these politics, although it's tough to say which caused which.

• European countries are ethnically homogenous. This is, to me, one of the most interesting trends in the data. A number of now-global ideas about the nation-state, about national identity as tied to ethnicity and about nationalism itself originally came from Europe. For centuries, Europe's borders shifted widely and frequently, only relatively recently settling into what we see today, in which most large ethnic groups have a country of their own. That developed, painfully, over a very long time. And while there are still some exceptions – Belgium has ethnic Walloons and Dutch, for example – in most of Europe, ethnicity and nationality are pretty close to the same thing.

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• The Americas are often diverse. From the United States through Central America down to Brazil, the "new world" countries, maybe in part because of their histories of relatively open immigration (and, in some cases, intermingling between natives and new arrivals) tend to be pretty diverse. The exception is South America's "southern cone," where Argentines and Chileans, many of whom originally come from the same handful of Western European countries, tend to be more homogenous. I was surprised to see Canada rate as more diverse than the United States or even Mexico; it's possible that the survey counted Quebecois as ethnically distinct, although I can't say for sure.

• Wide variation in the Middle East. The range of diversity from Morocco to Iran is a reminder that this part of the world is much less monolithic than we sometimes think. North African countries include large Berber minorities, for example, as well as some sub-Saharan ethnic groups, particularly in Libya. The diversity of Jordan and Syria are reminders of their internal complexity. Iran, with large Azeri, Kurdish and Arab populations, is one of the region's most diverse.

• Diversity and conflict. Internal conflicts appear on first blush to be more common in greener countries, which might make some intuitive sense given that groups with comparable "stakes" in their country's economics and politics might be more willing or able to compete, perhaps violently, over those resources. But there's enough data here to draw a lot of different conclusions. One thing to keep in mind is that ethnicity might not be static or predetermined. In other words, as in the case of Somalia, maybe worsening economic conditions or war make people more likely to further divide along ethnic fractions.

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• Diversity correlates with latitude and low GDP per capita. The report notes, "our measures of linguistic and ethnic fractionalization are highly correlated with latitude and GDP per capita. Therefore it is quite difficult to disentangle the effect of these three variables on the quality of government." As above, keep in mind that correlation and causation aren't the same thing.

• Strong democracy correlates with ethnic homogeneity. This does not mean that one necessarily causes the other; the correlation might be caused by some other factor or factors. But here's the paper's suggestion for why diversity might make democracy tougher in some cases:

The democracy index is inversely related to ethnic fractionalization (when latitude is not controlled for). This result is consistent with theory and evidence presented in Aghion, Alesina and Trebbi (2002). The idea is that in more fragmented societies a group imposes restrictions on political liberty to impose control on the other groups. In more homogeneous societies, it is easier to rule more democratically since conflicts are less intense.

Here's the money quote on the potential political implications of ethnicity:

In general, it does not matter for our purposes whether ethnic differences reflect physical attributes of groups (skin color, facial features) or long-lasting social conventions (language, marriage within the group, cultural norms) or simple social definition (self-identification, identification by outsiders). When people persistently identify with a particular group, they form potential interest groups that can be manipulated by political leaders, who often choose to mobilize some coalition of ethnic groups ("us") to the exclusion of others ("them"). Politicians also sometimes can mobilize support by singling out some groups for persecution, where hatred of the minority group is complementary to some policy the politician wishes to pursue.

The Economic Recovery is Faltering, Say C.E.O.s [feedly]

The Economic Recovery is Faltering, Say C.E.O.s
https://www.nytimes.com/2020/07/20/business/dealbook/coronavirus-economy-recovery-companies.html

Hong Kong, considered an exemplar of coronavirus containment, is seeing a surge in infections — a warning for the rest of the world. And a new study in South Korea suggests that children older than 10 can spread the virus as readily as adults, which could complicate school reopenings. More on that below. (Want this delievered to your inbox each day? Sign up here.)

C.E.O.s are worried

America's corporate chiefs are steeling themselves for prolonged economic disruption and the prospect of a slow, halting recovery, The Times's David Gelles writes. Several C.E.O.s he spoke with were in a gloomy mood about the road ahead.

Fear of illness, arguments over masks and an uncertain future is taking its toll. "It's a grind on the organization's psyche," Brian Niccol of Chipotle told David. He and other leaders also bemoaned a lack of consistent communication from the government. Julia Hartz of Eventbrite said, "The uncertainty and the wildly varying mandates are not helping anybody."

C.E.O.s are losing confidence in the recovery. "I'm less optimistic today than I was 30 days ago," Arne Sorenson of Marriott International said. "I have a more cautious view than I did four weeks ago," Ed Bastian of Delta Air Lines noted.



Now what? "Getting this wrong — overreacting or acting irresponsibly — could be far more devastating to the global economy and the health of Americans," Jamie Dimon of JPMorgan said. "Open intelligently. Treat your fellow Americans respectfully. Start slow."

• Rich Lesser of Boston Consulting Group has perhaps the most eye-catching proposal: The federal government should distribute masks, increase testing and distribute food to vulnerable populations at a cost of up to $100 billion a month. That's a lot of money, but it could reduce hospitalizations by as much as 70 percent, he said, while costing less than the $1 trillion a month that the government spent on relief efforts from March through May.


 -- via my feedly newsfeed

Covid-19 Economic Realities Sinking in as Denialism Wanes, Desperation Rises [feedly]

from Yves Smith, my favorite quasi-Trotskyite economist -- a compelling and dismal summary of the combined COVID and economic bad news.

Covid-19 Economic Realities Sinking in as Denialism Wanes, Desperation Rises
https://www.nakedcapitalism.com/2020/07/covid-19-economic-realities-sinking-in-as-denialism-wanes-desperation-rises.html

Perhaps it was last week's continuation of bad unemployment figures combined with the recognition that PPP employment-maintenance requires were rolling off and more layoffs are likely. Maybe it was Delta saying it was cancelling half the flights it had planned to add in August. Maybe it's the severity of the coronavirus surges. Who knows what the trigger was, or whether it's just the accumulation of evidence, but big businessmen, who are required to project optimism, are more and more sending downbeat messages about where the economy is going.

It's becoming clear that understanding where the economy is going now depends on understanding where Covid-19 is going. The evidence from the lockdowns was that activity and spending fell before governments intervened. And the contraction was most pronounced in wealthy neighborhoods, even though the blow fell on the less-well-off who commuted in to work there. Those who have the luxury of being able to curtail their activities are largely doing so. Look at big cities. Large companies are overwhelmingly continuing work at home where they can. Business travel is dead; business hotels in NYC like the Four Seasons, the Grand Hyatt, and the Hilton on 6th Avenues are closed.

We though the initial recovery would peter out and turn into at best stagnation and more likely further decay, on the assumption of entire sectors not participating much if at all in a rebound (live entertainment, business travel, tourism, elective surgeries, restaurants) plus Covid-19 being likely to rebound in the fall. With Covid-19 infections rising in nearly all states, the situation is even worse than we'd anticipated.

Most of the issues we'll discuss below are familiar to reader, but there's value in putting them together and seeing where they lead. First to the disease, then to the economic implications.

Disease Progress

It's not news that the infection is spiraling out of control over much of the US. From the Washington Post:

Sunday marked the 41st straight day that the seven-day average for new daily coronavirus infections in the United States trended upward….

Here are some significant developments:

• Kentucky, Louisiana, Oregon and South Carolina all set new single-day records on Sunday, contributing to a nationwide tally of 64,650 new known cases. Idaho, Nebraska, Iowa and five other states have seen their seven-day average for daily new fatalities rise by more than 40 percent in the past week.
• More than 100 Florida hospitals have run out of ICU beds for adults.

More color from Gavyn Davies at the Financial Times:

Fulcrum economists have developed a new model which tracks the epidemic on a state-by-state basis, based on the now-familiar SIRD model used by the Imperial College Covid-19 response team and other researchers.

It suggests that the virus's effective reproduction number, known as R, is now above the critical level of 1 in all but five of the US's 50 states. Weighted by gross domestic product, this means that 95 per cent of the US economy is affected by a viral reproduction rate high enough to cause an exponential rise in the number of cases — unless something intervenes to prevent this. Other researchers have found similar results.

This spread of R levels above 1 is the broadest it has been since the epidemic started. In March, absolute levels of R were higher in the north east, when the reproduction rate exceeded 3 for several weeks and infection numbers doubled every few days.

This is bad enough, but the situation is made much worse with the widespread inability to get Covid-19 test results on a timely basis. The US has a duopoly in medical labs. Quest has said Covid-19 tests will have a reporting delay of 7 days. Labcorp has not been as specific but has 'fessed up to its turnaround time for Covid-19 tests now being 1-2 days longer.

This matters because delays this long neutralize what little disease containment the US had. Early studies found the median time from exposure to showing symptoms is a bit over 5 days. Peak viral shedding appears to occur shortly before or at symptom onset. From what I can tell, people who have tested positive do tell family members and co-workers and others close to them, and those people usually do self-quarantine as best they can. Too late test results means this informal contact tracing is useless.

Some are pointing to the much slower rise in death rates to argue that rising alarm is overdone. The worrywarts have the better case. First, as we saw in the initial surge, deaths are a lagging indicator. As infections continue to rise, the increase in deaths comes 2-4 weeks late. Second, it is true that the infections this time are hitting much younger people, and even though a higher proportion of hospitalizations now are of those under 50 than before, and they aren't requiring ventilators as often, higher survival rates aren't the full story. Covid-19 cases serious enough to require hospitalization regularly produce long-term damage to the lungs, heart, kidneys, and brain.

Even young adults are becoming more vulnerable. From UCSF:

Data from the U.S. Centers for Disease Control and Prevention (CDC), not included in the UCSF study, indicates that while patients over 65 are significantly more likely to be hospitalized than younger people, the gap is narrowing. For the week ending April 18, there were 8.7 hospitalizations per 100,000 of the population for the 18-to-29 age bracket, compared with 128.3 per 100,000 of the population for patients over 65. By the week ending June 27, the figures were 34.7 and 306.7 respectively, representing a 299 percent increase in hospitalizations for young adults, versus a 139 percent increase in hospitalizations for older adults.

Things are almost certain to get worse on the disease front before they get better. Atlanta's and Houston's mayors are fighting with their state governors to reimpose restrictions. More and more cities and states are implementing mask requirements but enforcement is toothless, plus defiance and poor compliance are high. Even among my mothers' aides who are Certified Nursing Aide, about half wear their masks below their noses and pull them down when talking. If people with basic medical training who are around old people aren't masking up properly, how many are? When I am out, I see 20% to 25% with their masks below their noses or chins.

Even with church attendance down, some have retreated from in-person services due to reports of churches generating infection clusters. But nearly half are still holding services in person. The row over whether to reopen public schools is underway. Given the institutional inability to impose enough safety measures like student mask-wearing, plexiglass barriers around desks and lunchroom seats, and regular cleaning, most teachers and some parents are opposed. But there's enough ideological and business pressure to make it likely that schools will reopen in most jurisdictions, even if not in big cities. This is pretty sure to produce more infections in those ares.

University and college reopenings will provide another Covid-19 boost. Even with schools taking precautions, they have no control over what the kids do when outside class. Think they won't go to bars and coffee houses? Go to gyms? Get laid? So the students will frequent pubs and eateries and their staff, who are separately at risk by working in close quarters, are on the front line.

And some of the ones who are back on campus have returned because they are work-study, which will can put them in different settings than they are as students, again offering another transmission route.

In other words, if we don't see a strong change in sentiment by mid August towards aggressive clampdowns, the uptrend could start accelerating in September and October.

And there's no magic solution in sight. Vaccine? At least a year before one would even start being distributed. Dr. Fauci has been dialing down expectations about vaccine efficacy, saying he'd accept 70% to 75% but a level like that in combination with 1/3 of Americans now saying they won't get a Covid-19 vaccine even if it were cheap means the disease will still be with us for quite a while. And that's before getting to the question of how long vaccine or disease-conferred immunity will last.

Economic Impact

The foundations are rotting despite the stimulus-induced appearance of normalcy.1 Evictions are rising in areas with no freezes, the level isn't yet above the old normal. But more tenants are expected to come up short on payments for August than for July, so the level will continue to rise.

As we alluded to in our intro, the level of joblessness remains high, with hiring close to offset by new job losses. And this is before PPP-induced payroll retention rolls off in a big way. Many small businesses have been hanging on by their fingernails, and the longer Covid-19 is running at high enough levels for many people to curtail their activities, the more will go under.

Another contractionary force that is only staring to kick in are state and local government budget cuts. Absent a change of heart in DC leading to direct grants to states and cities, shortfalls in sales, income, hotel, and gas taxes are already biting. Real estate taxes on commercial properties will follow soon, since large property owners are experienced and aggressive at winning reappraisals when their rent rolls fall.

From the Wall Street Journal's downbeat lead story, U.S. Companies Lose Hope for Quick Rebound From Covid-19. Mind you, this is the perspective from large businesses who are in theory best positioned to ride out a severe downturn:

The fierce resurgence of Covid-19 cases and related business shutdowns are dashing hopes of a quick recovery, prompting businesses from airlines to restaurant chains to again shift their strategies and staffing or ramp up previous plans to do so. They are turning furloughs into permanent layoffs, de-emphasizing their core businesses and downsizing production indefinitely….

Executives who were bracing for a monthslong disruption are now thinking in terms of years. Their job has changed from riding it out to reinventing. Roles once thought core are now an extravagance. Strategies set in the spring are obsolete.

"It's going to be a different game," said Bill George, former CEO of medical-device company Medtronic PLC and a senior fellow at Harvard Business School. Mr. George said many companies now need to explore strategies they might have once deemed unthinkable, from hospital chains embracing a long-term shift to telemedicine to apparel makers figuring out how to market and sell their wares in an environment where many stores don't reopen.

The story described how Delta had cut way back on restoring some flights, along with distress at other carriers, with additional retrenchment anecdotes from Chipotle and Vox Media.

Gavyn Davies offered a supposed worst case scenario:

Fulcrum economists have modelled an alternative scenario where full lockdowns are eventually needed in states where the R is currently above 1.5, with partial lockdowns in states where R lies between 1.25 and 1.5, and no lockdowns elsewhere.

This would lead to a large drop in activity — in effect, a double dip — of about 7 percentage points through the whole economy while the lockdowns last. If the situation persisted for three months, it would knock almost 2 percentage points from this year's growth rate, compared to the latest consensus forecasts.

Even if some areas do go back to lockdowns, our pattern has been to quit too soon. Starting from a higher baseline of infection than before implies a longer period of restriction would be needed. So I am not confident that even a second period of lockdowns would get infections low enough that mask-wearing and contact tracing could keep Covid-19 at a sufficiently low level so that most "old normal" activities would resume and the rest of the world would let Americans visit them again.

The other open question is how much will be approved in the second round of stimulus. I'm not following this one closely given the Democratic Party to ask for little and fold easily. However, the extra $600 a week of unemployment benefits ends on July 26. There is a lot of Republican opposition to extending it since 5 out of 6 were making more than when they were employed, which allegedly made it hard for those businesses who wanted to rehire to get people on board.2 And Democrats also seem to accept the idea there should be fewer checks to individuals, say only to lower income households. Thus despite economic prospects worsening before our eyes, Congress seems stuck with the view of a couple of weeks ago, that the damage will continue for perhaps another quarter, and therefore a smaller stimulus is what the doctor ordered.

The problem is stimulus or no stimulus, absent a miracle treatment for Covid-19 very soon, the US is going to lose more productive capacity: restaurants, salons, hotels, theaters, symphonies, businesses near office buildings and commuter hubs, suppliers to airports and airlines. This is not "job loss" in the normal recession sense, where the main source of position and hours cuts is lowering production and reducing shifts, not permanently closures or shuttering locations.

Even though giving individuals subsidies to enable them to pay rent and keep food on the table is a critically important stopgap, it will shortly be nowhere enough. If positions are permanently destroyed, the answer is direct employment by government, either through block grants to cities and states or Federal programs.3 The US has a tremendous amount of deferred infrastructure maintenance and upgrades as a place to start. But the odds of this Congress and Administration going down this path are about zero. And I don't hold much hope for a Biden Administration having the gumption.

_____

1 Fortunately, I don't have to have it, but I still have not gotten my $1200. I really hate having to spend time chasing it down.

2 A testament to how many employers are either nor or barely paying a living wage.

3 Here is where some will start champing for a UBI. Please don't. Even in the old normal, a UBI high enough to provide enough to live on would be massively inflationary. With productive capacity shrinking, it would be even more so. A UBI at less than a living wage level winds up simply being a wage subsidy for big employers like Walmart and Amazon. Silicon Valley squillionaires who have been backing a UBI too often have let the toad hop out of their mouth: a UBI would allow people with jobs to quit them and work in their "incubators" for free, alleviating them of the need to pay a stipend

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Defunding police and challenging militarism, a necessary response to their “battle space” [feedly]

Defunding police and challenging militarism, a necessary response to their "battle space"
https://economicfront.wordpress.com/2020/07/18/defunding-police-and-challenging-militarism-a-necessary-response-to-their-battle-space/

The excessive use of force and killings of unarmed Black Americans by police has fueled a popular movement for slashing police budgets, reimagining policing, and directing freed funds to community-based programs that provide medical and mental health care, housing, and employment support to those in need.  This is a long overdue development.

Police are not the answer

Police budgets rose steadily from the 1990s to the Great Recession and, despite the economic stagnation that followed, have remained have largely unchanged.  This trend is highlighted in the figure below, which shows real median per capita spending on police in the 150 largest U.S. cities.  That spending grew, adjusted for inflation, from $359 in 2007 to $374 in 2017.  The contrast with state and local government spending on social programs is dramatic.  From 2007 to 2017, median per capita spending on housing and community development fell from $217 to $173, while spending on public welfare programs fell from $70 to $47.

Thus, as economic developments over the last three decades left working people confronting weak job growth, growing inequality, stagnant wages, declining real wealth, and rising rates of mortality, funding priorities meant that the resulting social consequences would increasingly be treated as policing problems.  And, in line with other powerful trends that shaped this period–especially globalization, privatization, and militarization–police departments were encouraged to meet their new responsibilities by transforming themselves into small, heavily equiped armies whose purpose was to wage war against those they were supposed to protect and serve. 

The military-to-police pipeline

The massive, unchecked militarization of the country and its associated military-to-police pipeline was one of the more powerful factors promoting this transformation.  The Pentagon, overflowing with military hardware and eager to justify a further modernization of its weaponry, initiated a program in the early 1990s that allowed it to freely provide surplus military equipment to law enforcement agencies, allegedly to support their "war on drugs."  As a Forbes article explains:

Since the early 1990s, more than $7 billion worth of excess U.S. military equipment has been transferred from the Department of Defense to federal, state and local law enforcement agencies, free of charge, as part of its so-called 1033 program. As of June [2020], there are some 8,200 law enforcement agencies from 49 states and four U.S. territories participating. 

The program grew dramatically after September 11, 2001, justified by government claims that the police needed to strengthen their ability to combat domestic terrorism.  As an example of the resulting excesses, the Los Angeles Times reportedin 2014 that the Los Angeles Unified School District and its police officers were in possession of three grenade launchers, 61 automatic military rifles and a Mine Resistant Ambush Protected armored vehicle. Finally, in 2015, President Obama took steps to place limits on the items that could be transferred; tracked armored vehicles, grenade launchers, and bayonets were among the items that were to be returned to the military.

President Trump removed those limits in 2017, and the supplies are again flowing freely, including armored vehicles, riot gear, explosives, battering rams, and yes, once again bayonets.  According to the New York Times, "Trump administration officials said that the police believed bayonets were handy, for instance, in cutting seatbelts in an emergency."

Outfitting police departments for war also encouraged different criteria for recruiting and training. For example, as Forbes notes, "The average police department spends 168 hours training new recruits on firearms, self-defense, and use of force tactics. It spends just nine hours on conflict management and mediation."  Arming and training police for military action leads naturally to the militarization of police relations with community members, especially Black, Indigeous and other people of color, who come to play the role of the enemy that needs to be controlled or, if conditions warrant, destroyed.

In fact, the military has become a major cheerleader for domestic military action.  President Trump, on a call with governors after the start of demonstrations protesting the May 25, 2020 killing of George Floyd while in police custody, exhorted them to "dominate" the street protests.

As the Washington Examiner reports:

"You've got a big National Guard out there that's ready to come and fight like hell," Trump told governors on the Monday call, which was leaked to the press.

[Secretary of Defense] Esper lamented that only two states called up more than 1,000 Guard members of the 23 states that have called up the Guard in response to street protests. The National Guard said Monday that 17,015 Guard members have been activated for civil unrest.

"I agree, we need to dominate the battle space," Esper said after Trump's initial remarks. "We have deep resources in the Guard. I stand ready, the chairman stands ready, the head of the National Guard stands ready to fully support you in terms of helping mobilize the Guard and doing what they need to do."

The militarization of the federal budget

The same squeeze of social spending and support for militarization is being played out at the federal level.  As the National Priorities Project highlights in the followingfigure, the United States has a military budget greater than the next ten countries combined.

Yet, this dominance has done little to slow the military's growing hold over federal discretionary spending.  At $730 billion, military spending accounts for more than 53 percent of the federal discretionary budget.  A slightly broader notion, what the National Priorities Project calls the militarized budget, actually accounts for almost two-thirds of the discretionary budget.  The militarized budget:

includes discretionary spending on the traditional military budget, as well as veterans' affairs, homeland security, and law enforcement and incarceration. In 2019, the militarized budget totaled $887.8 billion – amounting to 64.5 percent of discretionary spending. . . . This count does not include forms of militarized spending allocated outside the discretionary budget, include mandatory spending related to veterans' benefits, intelligence agencies, and interest on militarized spending.

The militarized budget has been larger than the non-militarized budget every year since 1976.  But the gap between the two has grown dramatically over the last two decades. a

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The Next Disaster Is Just a Few Days Away [feedly]

The Next Disaster Is Just a Few Days Away
https://www.nytimes.com/2020/07/16/opinion/coronavirus-economy-unemployment.html

text only

Some of us knew from the beginning that Donald Trump wasn't up to the job of being president, that he wouldn't be able to deal with a crisis that wasn't of his own making. Still, the magnitude of America's coronavirus failure has shocked even the cynics.

At this point Florida alone has an average daily death toll roughly equal to that of the whole European Union, which has 20 times its population.

How did this happen? One key element in our deadly debacle has been extreme shortsightedness: At every stage of the crisis Trump and his allies refused to acknowledge or get ahead of disasters everyone paying attention clearly saw coming.

Blithe denials that Covid-19 posed a threat gave way to blithe denials that rapid reopening would lead to a new surge in infections; now that the surge is upon us, Republican governors are responding sluggishly and grudgingly, while the White House is doing nothing at all.


And now another disaster — this time economic rather than epidemiological — is just days away.

To understand the cliff we're about to plunge over, you need to know that while America's overall handling of Covid-19 was catastrophically bad, one piece — the economic response — was actually better than many of us expected. The CARES Act, largely devised by Democrats but enacted by a bipartisan majority late in March, had flaws in both design and implementation, yet it did a lot both to alleviate hardship and to limit the economic fallout from the pandemic.

In particular, the act provided vastly increased aid to workers idled by lockdowns imposed to curb the spread of the coronavirus. U.S. unemployment insurance is normally a weak protection against adversity: Many workers aren't covered, and even those who are usually receive only a small fraction of their previous wages. But the CARES Act both expanded coverage, for example to gig workers, and sharply increased benefits, adding $600 to every recipient's weekly check.

These enhanced benefits did double duty. They meant that there was far less misery than one might otherwise have expected from a crisis that temporarily eliminated 22 million jobs; by some measures poverty actually declined.

They also helped sustain those parts of the economy that weren't locked down. Without those emergency benefits, laid-off workers would have been forced to slash spending across the board. This would have generated a whole second round of job loss and economic contraction, as well as creating a huge wave of missed rental payments and evictions.


So enhanced unemployment benefits have been a crucial lifeline to tens of millions of Americans. Unfortunately, all of those beneficiaries are now just a few days from being thrown overboard.

For that $600 weekly supplement — which accounts for most of the expansion of benefits — applies only to benefit weeks that end "on or before July 31." July 31 is a Friday. State unemployment benefit weeks typically end on Saturday or Sunday. So the supplement will end, in most places, on July 25 or 26, and millions of workers will see their incomes plunge 60 percent or more just a few days from now.

We want to hear from you
Opinion | The New York Times Opinion
How Will Your Life Change if Congress Cuts Your Jobless Benefits?July 15, 2020

Two months have gone by since the House passed a relief measure that would, among other things, extend enhanced benefits through the rest of the year. But neither Senate Republicans nor the White House has shown any sense of urgency about the looming crisis. Why?

Part of the answer is that Trump and his officials are, as always, far behind the coronavirus curve. They're still talking about a rapid, V-shape recovery that will bring us quickly back to full employment, making special aid to the unemployed unnecessary; they're apparently oblivious to what everyone else sees — an economy that is stumbling again as the coronavirus surges back.

Delusions about the state of the economic recovery, in turn, allow conservatives to indulge in one of their favorite zombie ideas — that helping the unemployed in a depressed economy hurts job creation, by discouraging people from taking jobs.

Worrying about employment incentives in the midst of a pandemic is even crazier than worrying about those incentives in the aftermath of a financial crisis, but it seems to be at the core of White House thinking (or maybe that's "thinking") about economic policy right now.



One last thing: My sense is that Republicans have a delusional view of their own bargaining position. They don't seem to realize that they, not the Democrats, will be blamed if millions are plunged into penury because relief is delayed; to the extent that they're willing to act at all, they still imagine that they can extract concessions like a blanket exemption of businesses from pandemic liability.

Maybe the prospect of catastrophe will concentrate Republican minds, but it seems more likely that we're heading for weeks if not months of extreme financial distress for millions of Americans, distress that will hobble the economy as a whole. This disaster didn't need to happen; but you can say the same thing about most of what has gone wrong in this country lately.

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

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Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman


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