Mike Roberts: China: demographic crisis? [feedly]

When Mike Roberts got his China jones, his great economics skills found solid ground.

China: demographic crisis?

Mike Roberts
https://thenextrecession.wordpress.com/2021/05/23/china-demographic-crisis/

Much has been made recently of the slowdown in population growth in China.  China's population grew at its slowest rate in decades in the ten years to 2020, according to the latest census data, which also showed that births declined sharply last year. The nation's once-in-a-decade census, which was completed in December, showed its population increased to 1.41bn in 2020 compared with 1.4bn a year earlier.  The population grew just 5.4% from 1.34bn in 2010 — the lowest rate of increase between censuses since the People's Republic of China began collecting data in 1953.  Those over-65s now make up 13.5% of the population, compared with 8.9% in 2010 when the last census was completed.

This has led many China observers and Western economists to argue that China's phenomenal growth rate that has taken over 850m Chinese out of poverty (as officially defined) is now over.  The argument is that living standards have only risen for the average Chinese because China brought its huge workforce from the land and into the factories in the cities to produce goods for exports at low prices.  Now with an ageing population and falling working-age population, China's economy will flag.  Given falling working population, along with an intensifying campaign by the US and its Western allies to isolate China economically and technically, China's growth story is over.

But is that true?  Real GDP growth depends on two factors: more employment and more productivity per worker.  If it is true that China's workforce is not going to rise but even fall over the next decades, that means sustaining economic growth depends on raising the rate of productivity growth.

In a previous post, I have argued against the sceptics who reckon that China cannot achieve growth rates of say 5-6% a year over the remainder of this decade, or more than twice the rates forecast for the major capitalist economies (the US Congressional Budget Office forecasts just 1.8% a year for the US).

For a start, while China's labour productivity growth rate has declined in the last decade, it was still averaging over 6% a year before the pandemic struck.  That compares with just 0.9% a year in the advanced capitalist economies.  Even if you accept the revisions made by The Conference Board to China's productivity record (which I don't: – see the post above), China still achieved an over 4% a year productivity growth in the last decade, some four times faster than in the advanced capitalist economies.

So even if the labour force does not grow in this decade (or even decline by say 0.5% a year), real GDP growth in China is still going to be at a minimum of 3.5% a year, and much more likely to be 5-6% a year, close to the Chinese government's forecast in its latest five-year plan.

Ah, but you see, China cannot maintain previous productivity growth rates because its economy is badly imbalanced, so the latest argument of Western China 'experts' goes.  What is this imbalance?  Well, up to now China has grown fast partly because of its labour supply (which is no longer rising) and partly because of massive investment, led by the state sector, in industry, infrastructure and technology. 

But now, continued expansion of investment can only be achieved by credit injections and rising debt.  And that lays the basis for either poor productivity growth or a debt crisis, or both in the next decade.  The answer, according to these experts, is that China should reduce its investment ratio (successful in boosting the economy) and switch to raising consumption and expanding service industries.

You might ask, how successful have capitalist economies been while their investment ratios have fallen back and consumption has dominated? Not at all. So this all smacks of the crude Keynesian view that it is consumption that drives investment and growth, not vice versa.  And behind this is also the ideological aim to reduce China's state sector domination and push for a service sector dominated by capitalist enterprises (including foreign ones), particularly in banking and finance.

I have presented the arguments against this consumption model in a previous post on China, so I won't repeat them here.  Suffice it to say that they don't hold water. Indeed, as Arthur Kroeber, head of research at Gavekal Dragonomics, has put it: "Is China fading? In a word, no. China's economy is in good shape, and policymakers are exploiting this strength to tackle structural issues such as financial leverage, internet regulation and their desire to make technology the main driver of investment."  Kroeber echoes my view (as above) that: "On a two-year average basis, China is growing at about 5 per cent, while the US is well under 1 per cent. By the end of 2021 the US should be back around its pre-pandemic trend of 2.5 per cent annual growth. Over the next several years, China will probably keep growing at nearly twice the US rate."

So there is no reason for China to abandon its growth model based on state-led investment in technology to compensate for the decline its workforce.

It has been the reason for its high productivity growth compared to the West in the last few decades and will continue to be so, as long as the government does not buckle to the siren words of the Western experts.  Those siren words have already led to the further opening-up of the financial sector to foreign companies and an increasing reliance of portfolio capital flows (namely financial investment) rather than productive investment.  Since 2017, foreign investors have tripled their holdings of Chinese bonds and now own about 3.5 per cent of the market. Equity inflows have been comparable. That makes for an increased risk of a financial bust and damage to China's productivity performance.

The move to investment in technology rather than heavy industry and infrastructure is key to China's sustainable growth rate and to reducing the rise in greenhouse gas emissions, where China is now the world leader. 

According to a recent report by Goldman Sachs, China's digital economy is already large, accounting for almost 40% of GDP and fast growing, contributing more than 60% of GDP growth in recent years. "And there is ample room for China to further digitalize its traditional sectors".  China's IT share of GDP climbed from 2.1% in 2011Q1 to 3.8% in 2021Q1. Although China still lags the US, Europe, Japan and South Korea in its IT share of GDP, the gap has been narrowing over time. No wonder, the US and other capitalist powers are intensifying their efforts to contain China's technological expansion.

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Economic Update - Labor and Capitalism's Rise and Fall [feedly]

Economic Update - Labor and Capitalism's Rise and Fall
https://economicupdate.podbean.com/e/economic-update-labor-and-capitalisms-rise-and-fall/

On this week's show, Prof. Wolff discusses Congress Bills H.R.51 giving statehood to Washington, DC, and H.R.1 countering GOP efforts to restrict voting; and Biden's tax reforms to help pay for new and expanded government programs. In the second half of the program, Wolff interviews Prof. Michael Hillard on the role of labor in the dramatic rise and fall of Maine's paper industry, a parable for the economic difficulties facing the US today.

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There is no justification for cutting federal unemployment benefits: The latest state jobs data show the economy has not fully recovered [feedly]

There is no justification for cutting federal unemployment benefits: The latest state jobs data show the economy has not fully recovered
https://www.epi.org/blog/there-is-no-justification-for-cutting-federal-unemployment-benefits-the-latest-state-jobs-data-show-the-economy-has-not-fully-recovered/

Key takeaways:

• There are still nearly 10 million people actively looking for work and unable to find it. April state jobs and unemployment data released last Friday show that in many of the 24 states—led by Republican governors—that are cutting federal unemployment insurance (UI) programs, labor market conditions look similar to the national picture.
• The data likely understate the weakness of these labor markets, as labor force participation has fallen since the pre-pandemic level. And nearly all the states cutting UI still have significantly fewer jobs than before the pandemic.
• Those still filing for these benefits are the workers that need them the most, due to care responsibilities, health concerns, or other factors. Governors cutting off these key supports for these workers are not acting in the long-term best interest of any state's workers or businesses.

Republican governors in 24 states—including Florida and Nebraska just this week—have indicated they will pull out from the federal unemployment insurance (UI) programs created at the start of the pandemic. Some states are ending participation in all federal pandemic UI programs, others only some of the federal supports. These actions are dangerously shortsighted.

UI provides a lifeline to workers unable to find suitable jobs, giving them time to find work that matches their skills and pays a decent wage. Moreover, the money provided through these entirely federally funded programs bolsters consumer demand and business activity in local economies, helping to speed the recovery. In many states, these federal UI programs are providing the bulk of all unemployment benefits to jobless workers. By cutting off these programs—which currently provide an extra $300 in weekly benefits, allow workers who have exhausted traditional UI to continue receiving benefits, and expand eligibility to workers typically not included in existing UI programs—governors are weakening their states' potential economic growth.

Further, the most recent national jobs and unemployment data show that the country has not yet recovered from the COVID-19 recession. In April, the country was still down 8.2 million jobs from before the pandemic, and down between 9 and 11 million jobs since then if you factor in the jobs the economy should have added to keep up with growth in the working-age population over the past year.

With an official unemployment rate of 6.1%, there are nearly 10 million people actively looking for work and unable to find it. These estimates understate the true level of weakness in the labor market as many people have exited the labor force since the COVID-19 shock began, but would likely rejoin if jobs were available, and others are still awaiting recall from "temporary" layoffs. The country is simply not at a place yet where states should be cutting off supports to unemployed workers.

April state jobs and unemployment data released last Friday show that in many of the states that are cutting unemployment programs, labor market conditions are not much stronger than the national picture. Figure A shows the states that have indicated they will be cutting support for jobless workers. In four of these states, the unemployment rate in April was higher than the national average: Arizona (6.7%), Alaska (6.7%), Texas (6.7%), and Mississippi (6.2%). In another four states, the official unemployment rate was still 5% or above: West Virginia (5.8%), Wyoming (5.4%), South Carolina (5.0%), and Tennessee (5.0%).

However, these estimates likely understate the true weakness in these states' labor markets. In seven of the eight states mentioned above, and in 20 of the 24 states cutting UI, labor force participation has fallen since before the pandemic—in some cases, dramatically. The labor force participation rate has fallen by an average of 1.1 percentage points among the states cutting UI, with declines as large as 3.8% in Iowa, 2.1% in Montana, 2.0% in Florida, 1.9% in Nebraska, and 1.8% in Texas. Some of these declines may be the result of jobless workers opting for early retirement, but it is likely that most have given up looking for work in the face of few suitable options, valid concerns about health risks, or a need to provide care to a child or family member.

Figure A

Nearly all the states cutting UI still have significantly fewer jobs than before the pandemic. Employment is down by an average of 3.5% since February 2020 in these states. Factoring in the jobs that these states would have needed to keep up with working-age population growth, employment is 4.8% lower, on average, than where we might expect it to be had there been no recession.1 Data for individual states are available in Figure B. In states cutting UI, the jobs deficit—the difference between the current level of employment in the state and the level we would expect had job growth kept pace with population grown since February 2020—ranges from a low of 12,000 jobs in South Dakota (or 2.8% of April 2021 employment) to 678,000 jobs in Texas (or 5.4% of April 2021 employment).

Figure B

The most recent decisions by Texas and Florida to cut unemployment benefits are particularly egregious. Texas's unemployment rate is still three percentage points above its pre-pandemic unemployment rate. The state has nearly one million people that are officially unemployed—people actively looking for jobs, but unable to find work. Florida's unemployment rate is 1.5 percentage points above its pre-pandemic rate, with nearly half a million people officially unemployed. Since February 2020, 150,000 people have left the labor force in Texas and nearly 220,000 have exited in Florida.

Claims that the federal UI programs are preventing businesses from finding staff are unsubstantiated by the evidence. Multiple empirical studies have found that expanded unemployment benefits have not meaningfully constrained job growth. In fact, the sectors where generous UI benefits would be most likely to encourage workers to stay out of the workforce would be low-wage sectors, like leisure and hospitality. Yet, that is the sector that experienced the fastest growth in April. The central problem remains a lack of sufficient jobs for everyone that is out of work.

There may be areas where some employers are struggling to staff positions, but the likely obstacle is not overly generous UI benefits—instead it is wage offerings that are too low to make these jobs attractive. As my colleagues Heidi Shierholz and Josh Bivens note:

"Many face-to-face service-sector jobs have become unambiguously worse places to work over the past year. This has in no way been fully restored to the pre-COVID normal, as the coronavirus remains far from fully suppressed. Well-functioning labor markets should account for this degraded quality of jobs by offering higher wages to induce workers back. If enhanced UI benefits and a demand-increasing dose of fiscal stimulus are allowing these higher wages to be quickly offered in the face of supply constraints, then it seems like they're improving labor market efficiency in this regard."

In other words, if some workers are opting to pass on low-paying, potentially dangerous, or otherwise undesirable jobs while they look for something better suited for their skills or circumstances, that's a positive, economy-enhancing feature of a strong UI system.

As the threat from the pandemic fades and businesses resume regular operations, more workers are returning to work and fewer will need to rely on unemployment programs. In every state, the volume of weekly unemployment claims filed has fallen significantly from peaks earlier this year. On average, the total number of initial claims for both regular UI and pandemic unemployment assistance (PUA) have fallen 30% and 38%, respectively, since the beginning of February.2 Continued claims for both programs have fallen similarly.

But those that are still relying on these programs are likely those that need them most—the people having the hardest time finding suitable work or facing significant constraints on their ability to resume working due to care responsibilities, health concerns, or other factors. Cutting off adequate supports to these workers to try to force them to take whatever job might be available—even if it is low-paying, high-risk, not suited to their skills, or incompatible with their responsibilities at home—is cruel and not in the long-term best interest of any state's workers or businesses.

1. Author's calculation using Local Area Unemployment Statistics from the Bureau of Labor Statistics.

2. Author's analysis of unemployment insurance data from the U.S. Department of Labor. Values describe the change in the six-month rolling average of claims since the first week of February. Reporting of UI claims for some states is highly volatile, and subject to delays and errant reporting. This range reflects averages having removed a handful of clear outlying values, such as spells of reporting zero claims followed by enormous increases that are likely delayed reporting.

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Summers: The inflation risk is real [feedly]

This is an easy argument for a Marxist to defeat, since from a Marxist perspective, practically any version, any program to address a crisis of capitalism that starts with a war on working class incomes after a half century of austerity is full of shit from the git.

Were we to have lunch, I would say to Larry: "Yes, Larry, there is a risk of inflation. There is also a risk of starvation, of no child care, of unlivable wages, of uncovered pandemic medical and income losses, of police murders every week, of assault on voting rights, of breaking unions, of mass incarceration and addiction,...AND, Larry, I really appreciate, I do, your concern for the impact of inflation on wages.. indeed,  I thought this paragraph in your op-ed was a true 'Beauty':

" How much does it matter whether inflation accelerates? In general, increases in inflation disproportionately hurt the poor and are associated with reductions in trust in government. Progressives might consider the role that inflation played in electing Richard M. Nixon in 1968 and Ronald Reagan in 1980. "

Larry -- they 'disproportionately' hurt the poor ---- but they obliterate bank profits! Odd you did not mention that one.

The inflation risk is real

Larry Summers

http://larrysummers.com/2021/05/24/the-inflation-risk-is-real/

The covid-19 chapter in U.S. economic history is coming to a close more rapidly than almost anyone expected, including me. Within weeks, gross domestic product will reach a new peak, and it is likely to exceed its pre-covid trend line before year's end, as the economy enjoys its fastest year of growth in decades. Job openings are at record levels, and unemployment may well fall below 4 percent in the next 12 months. Wages and productivity growth are increasing.

This is both very good news and a tribute to the aggressive covid-19 containment policies of recent months, as well as to strong fiscal and monetary policies since the onset of the pandemic. Our economy has outperformed those of other industrial countries. U.S. policymakers can take satisfaction from that.

But new conditions require new approaches. Now, the primary risk to the U.S. economy is overheating — and inflation.

Even six months ago, it was reasonable to regard slow growth, high unemployment and deflationary pressures as the predominant risk to the economy. Today, while continuing relief efforts are essential, the focus of our macroeconomic policy needs to change.

Inflationary pressures are mounting from the boost in demand created by the $2 trillion-plus in savings that Americans have accumulated during the pandemic; from large-scale Federal Reserve debt purchases, along with Fed forecasts of essentially zero interest rates into 2024; from roughly $3 trillion in fiscal stimulus passed by Congress; and from soaring stock and real estate prices.

This is not just conjecture. The consumer price index rose at a 7.5 percent annual rate in the first quarter, and inflation expectations jumped at the fastest rate since inflation indexed bonds were introduced a generation ago. Already, consumer prices have risen almost as much as the Fed predicted for the whole year.

"We are seeing very substantial inflation," Warren Buffett recently observed in remarks typical of business leaders throughout the country. "We are raising prices. People are raising prices to us, and it's being accepted."

Fed and Biden administration officials are entirely correct in pointing out that some of that inflation, such as last month's run-up in used-car prices, is transitory. But not everything we are seeing is likely to be temporary. A variety of factors suggests that inflation may yet accelerate — including further price pressures as demand growth outstrips supply growth; rising materials costs and diminished inventories; higher home prices that have so far not been reflected at all in official price indexes; and the impact of inflation expectations on purchasing behavior.

Higher minimum wages, strengthened unions, increased employee benefits and strengthened regulation are all desirable, but they, too, all push up business costs and prices.

It is possible that the Fed could contain inflationary pressures by raising interest rates without damaging the economy. But in the current environment, where markets around the world have been primed to believe that rates will remain very low for the foreseeable future, that will be very difficult, especially given the Fed's new commitment to wait until sustained inflation is apparent before acting. The history here is not encouraging. Every time the Fed has hit the brakes hard enough to slow growth meaningfully, the economy has gone into recession.

How much does it matter whether inflation accelerates? In general, increases in inflation disproportionately hurt the poor and are associated with reductions in trust in government. Progressives might consider the role that inflation played in electing Richard M. Nixon in 1968 and Ronald Reagan in 1980.

Jason Furman, chairman of President Barack Obama's Council of Economic Advisers, recently said that the American Rescue Plan is definitely "too big for the moment," stating: "I don't know of any economist that was recommending something the size of what was done." Excessive stimulus driven by political considerations was a consequential policy error that would be tragically compounded if valid concerns about the economy overheating prevented Congress from making the types of necessary public investments that are the focus of President Biden's Jobs and Families Plans.

So how best can we contain overheating risks and promote sustainable growth while also making necessary investments in infrastructure, greening the economy and helping low- and middle-income families?

First, starting at the Fed, policymakers need to help contain inflation expectations and reduce the risk of a major contractionary shock by explicitly recognizing that overheating, and not excessive slack, is the predominant near-term risk for the economy. Tightening is likely to be necessary, and it is critical to set the stage for that delicate process. Meanwhile, the administration needs to continue to respect the independence of the Fed as it changes course. Clear statements that the United States desires a strong dollar will also be helpful in anchoring inflation expectations.

Second, policies toward workers should be aimed at the labor shortage that is our current reality. Unemployment benefits enabling workers to earn more by not working than working should surely be allowed to run out in September; in some parts of the country they should end sooner. Re-employment bonuses should be considered, and a major focus should be on promoting mobility and training workers for occupations where labor is short. Where "made-in-America" requirements exacerbate labor shortages and raise prices, they should be reconsidered.

Third, it is essential to make long-term public investments to increase productivity and enable more people to work. It would be a grave error to cut back excessively on public-investment ambitions out of inflation concerns. That is not because of the immediate jobs they create, but because of the long-term increases they generate in productive potential, sustainability and inclusivity. But where possible, infrastructure investments should be financed by reprogramming of Rescue Plan funds, such as those now being used by some states to finance tax cuts. Additionally, current spending financed by future taxes might further stimulate an already overheated economy. The opposite — revenue increases ahead of spending, or at least parallel to spending — can ensure more sustainable growth.

The winding down of the covid-19 crisis provides a historic opportunity for taking the next step toward providing for all Americans in an ever more effective and inclusive way. But to avoid squandering the opportunity, policymakers need to accept economic reality. The moment has come to move past emergency policies and fight for our country's long-term future.

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