In yesterday’s post, I pointed out
that the fear that many Americans – and in particular some GOP Senators – have about
the effects of passing a huge new coronavirus relief bill aren’t justified
simply by examining the facts. There’s no reason to fear that we’ll just be
giving more control of our debt to the Chinese, since it’s likely that the
great majority of the debt created will be held by the Federal Reserve – we’ll
literally owe the debt to ourselves. There’s also no reason to fear that the
huge bill will cause either interest rates or inflation to jump, since the
markets clearly don’t fear either eventuality, and there’s no inherent economic
reason why either interest rates or inflation should go up because of the bill.
However, I realize that it still doesn’t
seem right. After all, if I decided to shore up my family’s finances by taking
on a huge debt with no realistic likelihood of paying it back anytime in the foreseeable
future, I’d be justly condemned – and of course I wouldn’t be extended the funds
I wanted anyway. Yet it seems we’re asking for a free lunch. How can that work?
Perhaps the person most associated
with the words “There is no such thing as a free lunch” is Milton Friedman, who
wrote a book titled exactly that (the phrase originated long before him, though).
Yet, having studied with Friedman at the University of Chicago a long time ago,
I can assure you that he wouldn’t use that to argue against another big relief
bill at this time – or the three other huge bills that have already been
passed.
This is because you have to look at
what Friedman believed was the ultimate driver of economic fluctuations:
variations in the money supply. He tried to demonstrate this in his huge study (with
Anna Schwartz) of the US economy since the Revolutionary War: “A Monetary
History of the United States”. In that, he tried to show (and basically
succeeded, IMHO) that the biggest downturns in the US economy had been driven
by big drops in the money supply, or even just a slowing of the constant rate of
growth that he advocated for good times and bad – around 2% a year.
When I took courses with him, he had
become well known for attacking the Federal Reserve for allowing the money
supply to expand too rapidly in the late 1960’s and early 1970’s. This led to a
huge bout of inflation in the 1970’s, culminating in a 12.4% rate of growth in
the Consumer Price Index in 1980 (which of course made Jimmy Carter a one-term
president).
However, in the two courses I took
with him, he regularly went off topic – the subject was microeconomics – and pointed
out why the Great Depression had been so bad: The US money supply had fallen by
about one third during 1931 and 1932, the last two years of the Hoover
administration, by far the largest drop in history. People didn’t trust the banks
and pulled their money out, making many of them insolvent. When the banks
failed, the businesses that depended for them on credit failed. And the
resulting unemployment simply snowballed because unemployed people don’t have
money to spend.
What could Hoover have done to keep
this fall from happening? For one thing, he could have just told the Federal
Reserve to print lots of money and made the banks whole (even though some of
them had failed because of the effects of fraudulent activity they’d engaged
in, that led to the stock market crash in 1929). He could have mailed checks to
everybody who was unemployed – of course, there was no unemployment insurance
at the time. Even better, he could have started large-scale public works
projects like those that Franklin Roosevelt launched a few years later, which
put millions of people back to work.
But of course, Hoover did none of
these things, because he couldn’t see beyond the prevailing ideology – and certainly
the consensus of economists at the time – that, when a country starts to see
tough times, it needs to do just what a family would do: cut back its spending.
Unfortunately, that’s literally the opposite of what needs to be done. A dollar
I send at the store is a dollar that others receive as income. If consumers are
all retrenching, it’s up to government to step in and fill the gap with
spending of their own. And the deeper the downturn, the greater the amount of
spending that’s needed.
Of course, we learned this week that US
GDP fell in the second quarter by 9.5%, or about 34% at an annual rate. This is
the biggest fall since at least the demobilization after World War II, and perhaps
since the Great Depression itself (modern economic statistics weren’t compiled
until the postwar period). Sure, we’ve spent something like $5 trillion already.
But this obviously isn’t enough, especially since employment is falling steeply
again, after rebounding some in May and June. We need to spend a lot more. And
Friedman would agree with this.
So is there really a free lunch
to be had in this case? No. However, you could call this a lunch we’ve paid for
in advance. The huge GDP drop last quarter greatly reduced overall demand. We’re
just stepping up and restoring some of the demand that was lost then. The point
is to do what we can to keep these from becoming permanent losses, meaning our
economy and our country would be permanently shrunken, for no reason other than
that we were worried about having a free lunch.
The
numbers
These
numbers are updated every day, based on reported US Covid-19 deaths the day
before (taken from the Worldometers.info site, where I’ve been getting my
numbers all along). No other variables go into the projected numbers – they are
all projections based on yesterday’s 7-day rate of increase in total Covid-19
deaths, which was 5%.
Note
that the “accuracy” of the projected numbers diminishes greatly after 3-4
weeks. This is because, up until 3-4 weeks, deaths could in theory be predicted
very accurately, if one knew the real number of cases. In other words, the
people who are going to die in the next 3-4 weeks of Covid-19 are already sick
with the disease, even though they may not know it yet. But this means that the
trend in deaths should be some indicator of the level of infection 3-4 weeks
previous.
However,
once we get beyond 3-4 weeks, deaths become more and more dependent on policies
and practices that are put in place – or removed, as is more the case nowadays
- after today (as well as other factors like the widespread availability of an
effective treatment, if not a real “cure”). Yet I still think there’s value in
just trending out the current rate of increase in deaths, since it gives some
indication of what will happen in the near term if there are no significant
intervening changes.
Week ending
|
Deaths reported during week/month
|
Avg. deaths per day during
week/month
|
Deaths as percentage of previous month’s
|
March 7
|
18
|
3
|
|
March 14
|
38
|
5
|
|
March 21
|
244
|
35
|
|
March 28
|
1,928
|
275
|
|
Month of March
|
4,058
|
131
|
|
April 4
|
6,225
|
889
|
|
April 11
|
12,126
|
1,732
|
|
April 18
|
18,434
|
2,633
|
|
April 25
|
15,251
|
2,179
|
|
Month of April
|
59,812
|
1,994
|
1,474%
|
May 2
|
13,183
|
1,883
|
|
May 9
|
12,592
|
1,799
|
|
May 16
|
10,073
|
1,439
|
|
May 23
|
8,570
|
1,224
|
|
May 30
|
6,874
|
982
|
|
Month of May
|
42,327
|
1,365
|
71%
|
June 6
|
6,544
|
935
|
|
June 13
|
5,427
|
775
|
|
June 20
|
4,457
|
637
|
|
June 27
|
6,167
|
881
|
|
Month of June
|
23,925
|
798
|
57%
|
July 4
|
4,166
|
595
|
|
July 11
|
5,087
|
727
|
|
July 18
|
5,476
|
782
|
|
July 25
|
6,971
|
996
|
|
Month of July
|
26,102
|
842
|
109%
|
August 1
|
6,846
|
978
|
|
August 8
|
7,269
|
1,023
|
|
August 15
|
7,486
|
1,069
|
|
August 22
|
7,828
|
1,118
|
|
August 29
|
8,185
|
1,169
|
|
Month of August
|
32,596
|
1,051
|
125%
|
Total March – August
|
188,820
|
|
|
I. Total
deaths
Total US deaths as of yesterday: 155,306
Deaths reported yesterday: 1,466
Yesterday’s 7-day rate of increase in total deaths: 5% (This number
is used to project deaths in the table above; it was 5% two days ago. There is
a 7-day cycle in the reported deaths numbers, caused by lack of reporting over
the weekends from closed state offices. So this is the only reliable indicator
of a trend in deaths, not the three-day percent increase I used to focus on,
and certainly not the one-day percent increase, which mainly reflects where we
are in the 7-day cycle).
II. Total
reported cases
Total US reported cases: 4,635,226
Increase in reported cases since previous day: 67,189
Percent increase in reported cases since 7 days previous: 9%
III. Deaths as a percentage of closed cases so far
in the US:
Total Recoveries in US as of yesterday: 2,285,613
Total Deaths as of yesterday: 155,306
Deaths so far as percentage of closed cases (=deaths + recoveries): 6%
For a
discussion of what this number means – and why it’s so important – see this post. Short
answer: If this percentage declines, that’s good. It’s been steadily declining since
a high of 41% at the end of March. But a good number would be 2%, like South
Korea’s. An OK number would be 4%, like China’s.
I would love to hear any comments or
questions you have on this post. Drop me an email at tom@tomalrich.com
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