The following is a forum for faculty and students in The New School for Social Research's Economics Department to share their ideas on progressive policies and considerations in response to the economic impacts of the coronavirus.
(PhD. Economics, 2015)
The following is an excerpt from Dr. Assa's piece,"Laissez-Faire, Laissez Mourir," in Developing Economics on March 31, 2020:
But this decline has been in the works since 1980. From that time, economic ‘freedoms’ have increased in the U.S., as corporations, consumers, investors and wealthy individuals have benefitted more than ever from improvements in technology, healthcare, education and other aspects of living in a rich society. The majority of the population, however, has been doing worse, as evident by stagnating or declining real wages, increasing inequalities in various dimensions, and even a drop in life expectancy for some population groups.
In short, the U.S. is only a nominal democracy, in that anyone of voting age can select candidates for local, state and national office and also run for such office. However, the two-party system, coupled with the unparalleled impact of money in political campaigns (made worse by the Citizens United decision of the supreme court) have deflated the power of electoral democracy, since both major parties in the U.S. accept enormous donations from corporations, and are also lobbied much more by firms than by non-profit organisations or individuals (as the latter two groups do not have nearly the same financial resources as private firms). The expansion of economic freedom then – at least of this sort – has come at the expense of political freedom and representation of the public interest, which is now merely a pretense.
Emanuele Citera and Ettore Gallo
Left alone by their European partners, peripheral countries are facing today an unprecedented crisis with the only help of a new wave of QE by the European Central Bank. The burden of crisis resolution, however, cannot be left to the monetary authority only. A coordinated fiscal policy is needed.
The agreement reached on April 9 after the Eurogroup meeting shows that the three set measures implemented, which amounts to roughly half a trillion euros devoted to workers, businesses and member states, are not going to provide an adequate long-term fiscal stimulus for the months to come. At the prevailing conditions, they will be nothing but a straitjacket to peripheral countries, imposing useless rigor and threatening their sovereignty at the risk of triggering a new sovereign debt crisis.
Even to the strongest advocates of European institutions, the emission of Eurobonds – Coronabonds – seems to be the last attempt to safeguard the integrity of the European Union. If the ‘frugal four’ will end up accepting the requests of debtor countries, the fiscal effort that will follow will necessarily contradict the sets of rules that dictated European policies from 1992 onwards. If they are not implemented, the European Union will soon or later collapse under the burden of its inadequacy to effectively respond to this unprecedented challenge.
In any case, one thing is certain: the Europe of the Maastricht Treaty has come to an end.
Exceptional circumstances call for unprecedented measures. Coronabonds are the last attempt to safeguard the integrity of the European Union. Without a coordinated fiscal policy, the Europe of the Maastricht Treaty has come to an end.
(MA Student, Economics)
The unprecedented nature of our current crisis complicates the usual policy prescription of demand targeted stimulus. Boosting the disposable income of households so as to increase consumer spending will not address the issue as to why factories have shuttered and supply chains have broken down with the result being that such stimulus may in fact be detrimental. We may very well face a 1970s style recession of high inflation and high unemployment. Deficit spending must be targeted towards attacking the underlying cause of the crisis: COVID-19. Additional capacity for testing, containing, and ultimately curing COVID-19 must be the focal point of fiscal policy initiative. Finally, a kind of holding action in the form of bailouts to flagging businesses must come with “strings attached.” This includes, inter alia, a temporary suspension of stock buybacks and dividend payouts from companies in need of federal assistance.
(Bernard L. Schwartz Professor of Economics and Director of SCEPA)
Just three months ago, the IMF was predicting that the global economy would grow by 3.3% this year” “Kristalina Georgieva said the sudden onset of COVID 19 pandemic meant the IMF’s new forecasts for the world economy were going to be grim when released next week – and there was a risk that the impact could be even worse than currently expected. She said more than 170 countries will suffer a reversal of living standards in 2020.” Guardian April 9,2020 [...]
THE U.S. POLICY RESPONSE
The U.S. had a stronger economy than the EU; but a weaker safety net. The European response focused on maintaining the employment relationship between employer and employee, but the U.S. focused on income maintenance, which is good and bad. The bad? Our GDP is projected to decline — 36 percent — three times as steep as the worst quarter during the 2008-09 financial crisis. And Phase 1 of the stimulus package is essentially, more of the same focus on income maintenance. The good? Phase 2 – 3 were different. It included $1200 checks, Unemployment Insurance expansion, and the Paycheck Protection Act. The key to policy is to get income to consumers and companies. However, it would be better to furlough rather than layoff workers in order to maintain the work relationship, and keep the shutdown as short as possible.
In phase 4 of the stimulus package, we need a number of policies including, 100 percent payroll support, a raise in Social Security benefits by $200 per month, provisions that provide workers with Personal Protective Equipment and stop employers from unsafe practices, a paid-sick leave mandate of at least 14 days, a moratorium on all debt payments, as well as on rent, a lower interest rate on debt, state and local aid— so they can start hiring (states and localities spent $3.3tn last year and revenues will drop by maybe $1tn.), more income flows: increased funding for Medicaid (for full coverage for uninsured), and for TANF and SNAP, another round of $1200 checks which includes college students, and an expansion of the ACA which also allow signups now.
In the long term we need a $20 minimum wage for all workers and massive infrastructure investment to ensure recovery is equitable.
According to Paul Krugman in the Times, "this isn't a conventional recession, which calls for broad-based economic stimulus. The immediate mission...should instead be disaster relief: generous aid to those suffering a sudden loss of income as a result of the economy's lockdown.”
However, "generous aid" is difficult to administer. Additionally, no matter how generous, aid will overwhelmingly fall short of what is needed for everyone to survive in this environment where we must pause many non-essential industries. Instead I propose a different solution: a debt and contract moratorium where the federal government pays into a national tab directly covering utilities, food, and medical care while furloughing all non-essential labor. The combination of relief from time payments, payroll, and utility costs will also allow businesses to remain solvent while shuttered so that they may re-open when the time comes.
[Read the rest of David's piece here.]
(PhD Candidate, Economics)
The following is an excerpt Khan's piece "Governments Must Now Make The Case For Capitalism," published on his blog on April 19, 2020.
The pandemic has compromised all modes of human mobility. The fundamental economic problem of material provisioning, and its sub-problems of mobilizing human energy, production and distribution can only be solved by governments being able to bring together warring parties to focus productive and allocative energies. Government who can’t make the case for capitalism and steer it will have failed societies. Governments which make the case for capitalism will be have employed the economic frameworks -- sets of theories, evidence, and historical narratives, that are up to the task at hand.
Such an “economics” persuades because it is dead-on honest, without pretensions of foreknowledge. Such an “economics” works because it views policy as an improvisational, open ended, exploratory, imaginative and creative exercise rather than as levers on a machine. A successful economic framework for policy accepts of the limits of social science, namely that “social science can do little, if anything, to help resolve the structural tensions and contradictions underlying the economic and social disorders of the day”. Yet, this acceptance is exactly what will make economics more ambitious and powerful.
[Read the rest of Daniyal's piece here.]
(MA Student, Economics)
Companies that receive public funding should be required to re-orient worker training to limit the future offshoring and outsourcing of jobs. To do so will necessitate that companies provide skills and technical training for U.S. workers to adapt to technological upgrades in production and an investment in technological upgrading in manufacturing plants in the United States.
To ensure that companies adhere to national labor laws, federal monitoring of domestic labor standards and corporate oversight—akin to practices put in place by President Harry S. Truman during the Korean War - should be implemented. Such a program could decrease the threat of corporate profiteering and ensure greater protection of workers’ rights, while also creating employment opportunities for labor rights monitoring and evaluation.
(Adjunct Professor of Economics)
The following is an excerpt from Doctor Nikiforos's policy note,"When Two Minskyan Processes Meet a Large Shock: The Economic Implications of the Pandemic," published by the Levy Institute:
This shock did not arrive in the context of an otherwise healthy economy. On the one hand, it has coincided with the apogee of a secular trend of increasing divergence between the evolution of goods and equity prices, and thus an increasing inability of output prices to validate equity prices. Hence, the demand or supply shocks have simply aggravated an inevitable adjustment process [in stock markets]. On the other hand, the rising fragility in corporate balance sheets had made the economy particularly vulnerable even to short falls in sales and declining equity prices. Thus, not only were corporate equity prices incapable of validation, the debt issued by corporations was also incapable of validation even before demand and supply shocks emerged in response to the coronavirus measures.
[Read the rest of Michalis's piece here.]
Luiza Nassif Pires
(Research Fellow at the Levy Economics Institute, Economics PhD.)
As the coronavirus pandemic advances through the U.S., researchers at the Levy Economics Institute find that poor and minority individuals will disproportionately experience the health and economic impacts of the COVID 19 crisis. The unequal access to healthcare and other differences in living and work conditions as well as the higher incidence of co-morbidities among poor and majority-minority communities leave them at greater risk of acquiring the virus and more vulnerable to severe outcomes.
Without policies sensitive to class, race, and gender inequalities, hospitalization rates and death rates will be higher among minority populations. Within their short-run policy suggestions are: expanded paid sick leave; cost-free testing and treatment regardless of immigration and insurance status; moratorium on eviction nationwide; federal funding for public school children's meals at home. In the longer run, they argue for universal health care and strengthened labor laws and unions.
The full results— using data from American Community Survey retrieved from IPUMS and the CDC 500 Cities project — and policy implications will be published in a forthcoming policy brief. In the meantime, a concise version of their evidence is presented on the Levy Insitute’s blog, “Multiplier Effect.”
Estimated Health Risk by Minority Share of Population by Census Tract (US, 2017)
Source: Nassif-Pires, L., L. de Lima Xavier, T. Masterson, M. Nikiforos, and F. Rios-Avila Forthcoming. “Pandemic of Inequality.” Public Policy Brief No. 149. Annandale-on-Hudson, NY: Levy Economics Institute of Bard College. Authors calculation using data from American Community Survey data retrieved from IPUMS (2020) and from the 500 cities Project (2019)
(Associate Professor of Economics)
The following is an excerpt from Professor Reddy's piece,"Coronavirus and the Limits of Economics," in Foreign Policy on March 31, 2020:
[Read the rest of Sanjay's piece here]
Paulo dos Santos
(Assistant Professor of Economics)
The following is an excerpt from Professor dos Santos's piece, "Time for a Rethink on the Worth of Work," in Developing Economics on April 2, 2020:
Here we run into serious obstacles. Reflecting general social attitudes, most economists fundamentally undervalue this kind of work. It is predominantly performed by women, the poor, immigrants, and minorities. When this involves people working in their own homes, economists don’t even consider it as productive. It does not count toward GDP. When it is performed by workers in day cares, schools, hospitals, or homes, it is almost always paid very poorly. Society enjoys the fruits of this labor without giving those who perform it very much in return. The current situation offers a stark example of how society habitually takes advantage of those doing this work: the barmy demand by many employers that employees working from home while caring for young children should maintain their regular levels of productivity.
Society also grossly undervalues other kinds of work urgently needed to fight the pandemic. We are asking nurses, doctors, orderlies, janitors, grocery store workers, drivers, postal and utility workers, etc. to take on measures of personal risk no investor ever takes. Yet while grotesquely high levels of income for investors are regularly justified on the basis of the risk of asset losses they face, people performing these jobs experience very low levels of pay, precarious conditions, and weak benefit protections.
(Arnhold Professor of International Cooperation and Development)
Germany is undertaking a policy that, if enacted in the U.S., would preserve jobs rather than leave workers on their own to find new jobs post-crisis. Rather than giving cash payments to workers after they’ve lost their jobs, "Kurzarbeit” is a policy that shortens the work week while using federal funds to assure employees full pay.
In short, Kurzarbeit functions as payroll insurance. When a recession hits and the economy and firms start to contract, the Federal Institute of Labor decides when to shorten the work week and pays the difference in a company’s payroll. For example: firms have work for 2-3 days a week, for which they pay wages. The rest of the usual work week’s wages are paid by the Federal Institute of Labor. If and when funds for Kurzarbeit are exhausted due to a severe and long-lasting recession, the federal government steps in to subsidize payroll.
The program is advance funded. Each employee pays 1.5% of their wages to the Bundesanstalt fuer Arbeit, the Federal Institute of Labor, which is matched by the employer for a total of 3% of wages. This builds up a fund for unemployment insurance, re-skilling, and shorter workweeks.
Germany is now putting this policy into effect again, after successfully implementing it in reaction to the "Great Recession.” Specifically, in the years following 2008/9, the policy allowed workers to keep their jobs, employers to provide a (subsidized) payroll, and firms were saved from bankruptcy, insolvency, or default, and remained creditworthy (in fact there are additional credit flows initiated now by the federal government).
The program was mutually beneficial to both firms and employees. Firms kept their skilled workers and human capital, while workers stay employed, remained part of their unions, and kept their bargaining power. The program also stopped aggregate demand from falling as quickly as it would have otherwise by ensuring household income, allowing many to avoid defaulting on household debt.
Overall, Kurzarbeit prevents the economy from spiraling down too quickly and for too long. Moreover, once the recession flattens out, firms do not need to restart businesses -- with new business plans, new workers, possibly new locations, or the need to secure new financing.
Without such a policy, firms in the United States lay off or fire workers immediately, producing a prolonged period of a recession characterized by great losses in human capital, skilled workers, and workers’ bargaining power.
Gustavo Pereira Serra and João Paulo Braga
Global leaders declared war against Covid-19 in mid-March 2020. Developing countries face much more challenging technological and financial resources than rich countries. Brazil confirmed 3,417 COVID19 cases including 92 deaths on March 27.The Federal Department of Health and State Governors have been actively responding but President Bolsonaro and his Ministry of Finance are actively contradicting Brazilian public health experts insisting on an economic agenda of austerity and liberal reforms. But as economists, we encourage developing countries to implement a mission-oriented development policy to re-shape its growth strategy as economist Marianna Mazzucato (2011) describes.
Considering the roots of the current situation, we doubt conventional fiscal and monetary policies will work under this health crisis. Brazil and other developing nations face the inescapable increasing role of the government to keep business and people alive in the short-run while building new growth drivers in the medium-run.
To maintain the economy, based on other countries’ policy response to this crisis, developing countries' governments could (i) increase cash transfer programs to formal and informal sector workers; (ii) provide subsidized loans to firms to ensure cash flows during the lockdown, conditioned to the maintenance of their payroll; (iii) offer public collateral to private firms to ensure credit access; (iv) implement a mission-oriented program to ensure a public purchase program and a science and technology policy to equipment, medicines and the health sector.
Additionally, despite the closed borders, different countries should re-open dialogue and increase international cooperation to share resources to fight the crisis. Multilateral actions are key to finding and implementing solutions in the developing world.
Hausmann, R. (2020, March 24). Flattening the COVID-19 Curve in Developing Countries. World Economic Forum. Retrieved from https://www.weforum.org/agenda/2020/03/flattening-the-covid-19-curve-in-developing-countries/
International Monetary Fund (2020). Policy Responses to COVID-19. Retrieved from https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19
Mazzucato, M. (2011). The entrepreneurial state. Soundings, 49(49), 131-142.
McGeever, J. (2020, March 30). Brazil austerity fervor threatens fight against coronavirus. Reuters. Retrieved from https://www.reuters.com/article/us-brazil-economy-fiscal-analysis/brazil-austerity-fervor-threatens-fight-against-coronavirus-idUSKBN21H2FL
Nikiforos, M. (2020). When Two Minskyan Processes Meet a Large Shock: The Economic Implications of the Pandemic (No. 20-1). Levy Economics Institute.
Savarese, M., Biller, D. (2020, March 26). After Bolsonaro Labels Coronavirus a 'Little Flu,' Brazil's State Governors Defy President's Call to Reopen Businesses, Schools. Time. Retrieved from https://time.com/5810902/jair-bolsonaro-brazil-governors-coronavirus/
Worldometers (2020, March 27). Total Coronavirus Cases in Brazil. Retrieved from https://www.worldometers.info/coronavirus/country/brazil/
(Professor and Chair of Economics)
1. This time differs from last time (at least right now) in the sense that last time, the financial crisis heralded the loss of a structural source of demand (household borrowing) that had no obvious replacement -- suggesting an L-shaped recession. As far as I can see that was borne out by experience, the gap between log output and 'potential' output (as reflected in the unemployment rate etc) having closed largely because of continual downward revisions in the path of potential output. This time, the recession should be U-shaped, in the sense that there is no initial loss of a structural source of demand: if the virus went away tomorrow, people would go back to theatres, restaurants etc. That's not to say it won't be severe, however, or that it won't be persistent -- the degree of persistence depending on natural forces (the virus itself) and social forces (efforts to contain the virus on one hand, and possibly also habit persistence even after the medics give us the 'all clear' -- will people immediately go back to restaurants because of cabin fever, or will they continue to stay away, despite medical assurances, out of fear for their health?) These themes (depth and persistence) bring us to ....
2. ... how to make a potentially U-shaped recession L-shaped. Answer: inadequate initial policy response that piles on problems related to the debt structure, and turns one crisis (interruption of economic activity and hence income flows due to COVID-19) into another (a financial crisis of some sort, based on inability to service outstanding stocks of debt -- as discussed by Michalis Nikiforos in his recent Levy brief) I think the "one crisis into another' could become real if either (a) the initial policy response isn't big enough (so the depth of the recession is great) or isn't timely enough (so that the persistence of conditions has cumulative effects on households and small businesses slowly that eventually result in defaults).
3. I think the policy response should be more targeted than the 'give everyone $1000' approach, and needs to address both supply- and demand-side concerns arising from what is (iniitially) a very large but asymmetric shock. First things first: medical facilities are inadequate. So use state university dorms, army corps of engineers etc, and test/treat anyone regardless of ability to pay. Also, it's obvious that the service sector is taking the immediate hit -- this accounts for the bulk of employment and a lot of low wage, low/no benefit employment, and small businesses. So replace/prop up their income streams immediately (never mind giving me $1000) -- same for 'gig' workers who will experience a big loss of hours. I haven't thought through the details -- massive extension of unemployment benefits to include 'layoff benefits', for example? -- but I think targeting the policy response may be necessary to avoid the sort of problems in noted 2. After all, this isn't just replacing private demand with public demand writ large: give me $1000 and I still can't spend it in a restaurant or on a hotel room, so how do the millions of workers in hotel/catering/retail ever make rent/mortgage/credit card payments, and when they don't ... (Notice also that in terms of eventual default, I'm more concerned about the household sector than the corporate sector. The latter have been the focus of Levy et al in recent years -- as witnessed by Michalis's Levy brief, but don't forget that many households are still deeply indebted and depend on borrowing (not savings) to address unforeseen emergency expenditures. In all likelihood both household and corporate debt are important.)
The Schwartz Center for Economic Policy Analysis (SCEPA) works to focus the public economics debate on the role government can and should play in the real productive economy – that of business, management, and labor – to raise living standards, create economic security, and attain full employment. Our team of faculty and research associates works from the broad and critical perspectives representative of The New School’s department of economics, including post-Keynesian, neo-classical, classical and institutionalist schools of thought.