Krugman cautious about the seriousness of the current recession

Noah Smith interviewed Paul Krugman for Bloomberg Opinion on the state of the economy and how severe the recession is likely to be. Krugman is somewhat surprisingly upbeat, though the title of the piece overstates his comments in the interview, Paul Krugman Is Pretty Upbeat About the Economy 05/27/2020.

Krugman is a serious academic economist as well as a public intellectual. And I assume he is giving us his actual views as a professional economist here.

The optimism part comes at the end: "right now I don’t see the case for a multiyear depression. People expecting this slump to look like the last one seem to me to be fighting the last war."

But he actually describes some major risks whose actual seriousness depends to a very large degree on whether or not there are sensible public policies to deal with them:

I’ve been trying to get a handle on this by looking at recessions over the past 40 years. Until now we’ve had two kinds: 1979-82-type slumps basically caused by tight money and the 2007-09 type caused by private-sector overreach. The first kind was followed by V-shaped “morning in America” recoveries; the second by sluggish recoveries that took a long time to restore full employment.

My take is that the Covid slump is more like 1979-82 than 2007-09: it wasn’t caused by imbalances that will take years to correct. So that would suggest fast recovery once the virus is contained. But some big caveats.

One is that we don’t know how long the pandemic will last. Right now, we’re probably opening too soon, which will actually extend the period of economic weakness.

Another is that even if we didn’t have big imbalances before, the slump may be creating them now. Think of business closures, which will require time to reverse.

And I also wonder how much long-term change we’ll experience as a result of the virus. If we have a permanent shift to more telecommuting and less in-person retail, then we’ll have to shift workers to new sectors, which will take time. That was an argument lots of people made, wrongly, in 2009, but it could be true now. [my emphasis]

When Krugman talks about "1979-82-type" slumps, that phrase actually refers to two different recessions, officially designated by the National Bureau of Economic Research (NBER) as January-July 1980 and July 1981-November 1982. The hard-money policy was intiated by Federal Reserve Chairman Paul Volcker, appointed to the position by Democratic President Jimmy Carter in 1979, reappointed by St. Reagan in 1983.

As a glance at the NBER table shows, the previous recession ended in June 2009, which means the expansion lasted almost eleven years, making it one of the longest expansions on record. Based on the average duration of previous expansions, we might say that the economy was "overdue" for a recession. So that makes me wonder how far the induced-recession comparison of today with 1979-82 applies. Krugman uses the term "Covid slump" here for the current recession. (The NBER hasn't yet officially a new recession as having begun in the US. Normally that doesn't come until after two successive quarters of falling GDP is experienced, although that is not itself the NBER's formal definition of recession.)

I am also highly confident that the Trump Administration will not do a good job of promoting policies that will stimulate the real economy. They will continue to concentrate on ways to juice the stock market - which does not directly stimulate the economy - and to give great attention on schemes to enrich the Trump family's business income and spreading around crony-capitalist deals and grift.

And, sadly, the Democratic Party is showing itself unable to do much effective during this election year to force Republicans to adopt more genuinely stimulative measures.

Jamie Galbraith and Yanis Varoufakis on the Coronavirus Recession

James K. Galbraith and Yanis Varoufakis: Another Now #7 DiEM25 TV 05/26/20020:

This is a discussion between my two favorite living economists, Jamie Galbraith and former Greek Finance Minister Yanis Varoufakis. They talk some about Jamie's father, John Kenneth Galbraith, at the start. But it's mainly about the COVID crisis and the economic fallout; how it has been handled in various places including China, the US, and Europe; and some about the US Presidential election.

(Trigger warning for conservative Democrats! They say nice things about NATIONAL HEALTH INSURANCE!!!)

Varoufakis asks Galbraith if he's going to vote for Joe Biden. Jamie responds, "I am a religious Democrat. Which is to say, it's the type of a relationship that many people feel toward their church. However ambivalent about it, it's exceedingly hard to leave. So the answer to that is yes, I will vote for Biden. Of course I will."

And he proceeds to say:

I'm not the sort to think that these problems and the kind of crisis that we're facing is the work of a late arriving individual. ... [T]he reason the US economy has crumbled under the impact of the coronavirus is not simply that it had a federal government in the hands of this particular *gang*. It really has to do with the way in which the economy has been engineered over the last 40 years, and in particular in the return from the financial crisis of 13 years ago.

Varoufakis mentions that for him a choice between Angela Merkel and Trump would be a "no-brainer" in choosing Merkel. Given his clashes with Merkel during the last euro crisis, that's a real "jumping the shark" comment for him!

Both of them are careful about excess optimism, it's safe to say. Galbraith quotes here a comment he attributes to William of Orange, "It is not necessary to hope in order to persevere." There's also this very Galbraithian comment relating to the flexibility of free-market dogma when big corporations are threatened with going under: "The US is sustained by its willingness to suspend all pretence of principle in an emergency."

His father took a similar cautious note in the final paragraph of his The Culture of Contentment (1992):

In the past, writers, on taking pen, have assumed that from the power of their talented prose must proceed the remedial action. No one would be more delighted than I were there similar hope from the present offering. Alas, however, there is not. Perhaps as a slight, not wholly inconsequential service, it can be said that we have here had the chance to see and in some small measure to understand the present discontent and dissonance and the not inconsiderable likelihood of an eventual shock to the contentment that is the cause.

That was in 1992, at a relatively early stage of the 40-year stretch of bad economic engineering that Jamie mentions in the video. The political and economic system of the US has had some serious disturbances of contentment in the decades since: Muslim terrorism including 9/11; the Iraq War; the Great Recession that begin in the US in 2007; the Afghanistan War: Hurricane Katrina's devastation of New Orleans in 2005; Hurricane Maria in Puerto Rico in 2017; increasingly obvious manifestations of the climate crisis like the California wildfires; and, now, the COVID-19 crisis.

The more chronic disturbances to public contentment include the decreasing trend on wages and reduced opportunities for retirement pensions that have been an integral part of the neoliberal order that we now conventionally date from St. Reagan's first administration. The state of both major political parties in the US in their state of asymmetric partisan polarization that has produced a Trumpified Republican Party and a quasi-paralyzed Democratic Party is also a serious crisis, although the extent to which it so far as disturbed the "culture of contentment" that J.K. Galbraith described in 1992 is rather hard to say.

Austerity economics, of course, was already well established as the norm for both parties in the Reagan and Bush 1 Administrations. As the senior Galbraith noted:

In a time of economic recession such as that of the early 1990s, there is a strong case not only for low interest rates but also for increased public expenditure, especially on roads, bridges, airports and other civic needs, and on unemployment compensation and welfare payments, all to employ or protect the unemployed and those otherwise adversely affected.

But there is here a conflict with the tenets of the age of contentment: it is not the comfortable who would thus be aided. And lurking also is the eventual tax effect. During the 1980s, the burgeoning years of contentment, there was the large continuing deficit in the federal budget. Though a topic for voluble discourse, it was less of a threat to the contented than the taxes that would have reduced it. In the ensuing recession a deliberate addition to the deficit, a benefit primarily for those outside the community of contentment and one which might later renew the call for higher levies on those inside, was strongly resisted.

This chronic (and bipartisan) under-investment in public goods has continued until this day. I was a little surprised in the video discussion to hear Jamie Galbraith suggested that not only the European Union but the United States might be confronted in the foreseeable future with a Yugoslavia scenario, i.e., the disintegration of the current political entities. We have seen a concrete example of that with Brexit. It seems less obvious for the United States. And the Yugoslavia scenario to which Jamie refers doesn't necessarily imply some replay of the Balkan Wars of the 1990s. But he's actually framing that in the historical context of how the Chernobyl disaster of 1986 was a major inflection point in the Soviet political system.

But is could be a useful metaphor. If Republicans want to claim that basic social-insurance measures will turn the US into Venezuela, we can respond that Ronald Reagan economics is actually turning us into Yugoslavia!

Containing COVID-19

Dr. Anthony Fauci of the CDC, You don't make the timeline, the virus does CNN 03/25/2020:

It's not often mentioned in the reporting I've seen. But Fauci will turn 80 in December of this year. He's obviously a sharp guy. And while he has to put some effort to stroke the Orange-Clown-in-Chief's immense ego, he doesn't seem to be at all intimidated by him. He seems to be focused on his professional duty and doesn't actually care what the Mad King actually thinks about him.

This article from Wednesday about the situation in New Orleans (Andrea Gallo et al, 'It's like a war zone': Fighting coronavirus, limited ICU beds, bracing for chaos in New Orleans Nola.com 03/25/2020) provides a good illustration of what not having a "flattening curve" on new COVID-19 infections means. People get sick from the virus and need hospital care. Hospital capacity gets overwhelmed - projected for New Orleans by April 4, the end of next week - fewer people can get the treatment they need, more people die. The better the containment is - which relies most heavily on social distancing - the less likely the health care sytem's capacity is to to overwhelmed, the fewer people die.

"With hospital beds quickly filling up, workers being forced to ration critical supplies like N95 masks and Gov. John Bel Edwards warning federal officials that a rising tide of coronavirus patients will likely overwhelm the New Orleans area’s hospital systems by April 4, Louisiana’s health care workers are bracing for chaos."

Faimon Roberts III et al also report, Louisiana officials identify 6 coronavirus nursing home clusters; only 3 publicly named Nola.com 03/25/2020.

Sara Chodosh has a helpful article on interpreting COVID-19 displays in the press, Why so many of the COVID-19 graphs you see are misleading Popular Science 03/24/2018. This is a critical point, that the accuracy of the information researchers and authorities have depends on how extensive the testing is:

Iceland is perhaps the most interesting. As a country of only about 365,000 people it would be easy to assume it’s only on this list by virtue of its small size, but the truth is that Iceland has the highest testing rate of any country in the world right now. South Korea has tested about 5,200 people per million, and that’s twice as high as any other country, Iceland excluded. But Iceland has achieved double South Korea’s rate. That means they’ve found far more cases than anywhere else because they’ve tested an enormous number of asymptomatic people and found the coronavirus lurking in places few other countries are even looking.

And that brings up another major issue with looking at pure case counts: You’re only ever looking at confirmed cases. Most places aren’t testing a huge number of people right now, which means there are certainly many more folks infected than the stats suggest. And because of the massive variation in testing rates, it’s close to impossible to compare case counts between countries (or sometimes even within one) because our ability to detect mild cases is so low in some areas." [my emphasis]

Sara Goudarzi reports for Scientific American (Lessons from Past Outbreaks Could Help Fight the Coronavirus Pandemic 03/23/2020):

“Past influenza pandemics give some sense of what the overall [trajectory] of a virus like this would be because the reproductive number of this virus” - defined as how many people each infectious person transmits the disease to in a completely susceptible population - “is pretty similar to that of a pandemic flu,” says Marc Lipsitch, a professor of epidemiology and director of the Center for Communicable Disease Dynamics at Harvard University. Although it is difficult to determine exact figures for an emerging disease, reports put the reproductive number of COVID-19 between 2 and 2.5. The median reproductive number for the 1918 flu pandemic was around 1.8. Lipsitch estimates that between about 20 and 60 percent of the global population will ultimately become infected with the novel coronavirus, or SARS-CoV-2. ...

The most effective class of nonpharmaceutical control measures were those related to social distancing: canceling public gatherings, closing places of worship, schools, bars and restaurants, isolating the sick and quarantining those they came in contact with. (Many cities around the world have adopted such measures in the current outbreak.) “In my opinion, that is probably the most important single class of things to do, as quickly as possible, to slow the spread” of a pandemic, Lipsitch says. “Waiting until you can see that you have a problem is waiting too long, because there’s a delay in seeing the fruits of the measures.”

By undertaking these steps early, populations can also prevent peak demands on their health care systems and flatten the pandemic curve - that is, have a gradual increase in cases over time rather than many all at once. This slowdown is especially important because it can take two or three weeks before those infected with SARS-CoV-2 are sick enough to require intensive care, so demand could spike quickly. In a 2007 Proceedings of the National Academy of Sciences USA paper, Lipsitch and two other researchers showed that during the 1918 influenza pandemic, cities that intervened early and intensively to slow transmission through social distancing, such as such as St. Louis, Mo., had slower epidemics with smaller peaks, compared with those that waited longer to act, such as Philadelphia. [my emphasis]

Overlapping crises: COVID-19, eurozone, refugees

Wolfgang Münchau, who was one of the best commentators on the eurozone crisis in the Great Recession is hearing new alarm bells going off. (Eurozone stability is under threat again Financial Times 03/15/2020)

The last ten years showed that there were two big issues that could blow up the EU: the flaws in the structure of the euro currency and the refugee crisis on the southern border. Both in practice promoted nationalistic attitudes that encouraged anti-EU sentiment. Neither has been adequately addressed. Now the COVID-19 crisis is showing the cost of kicking the can down the road on both issues. The scandalously overcrowded refugee in Greece are particularly vulnerable to COVID-19 outbreaks, which Doctors Without Borders have been sounding the alarm about. (Immediate evacuation of migrant camps in Greece needed to contain coronavirus, says MSF Euronews 03/14/2020)

And that makes both the current refugee emergency and the COVID-19 pandemic more difficult to address.

The "social distancing" that is requiring a massive reduction of immediate economic activity in EU countries, along with the lack of EU-wide fiscal policy to compensate for it, could very well bring a new round of the euro crisis. Which is what Münchau focuses on here:

Taken together, the national policies will constitute a stimulus of sort, but they will end up increasing the eurozone’s internal imbalances. The fiscal deficits of Italy, Spain and France will increase a lot. Those of Germany, the Netherlands and Finland may go up too, but by a lot less. The fiscal gap between the north and the south will widen. ... we are back to arguing about Italy’s solvency, which depends on low bond yields.

In other words, it can set off a new euro crisis. "Italy has not forgotten the reluctance of other EU member states to take in Syrian refugees who landed on Italian shores. Italy will emerge from its Covid-19 nightmare to a different world. It is not good for the EU to antagonise a founding member state."

Yanis Varoufakis talks about the economic repercussions of the COVID-19 crisis in Yanis Varoufakis on the economic and political impact of the coronavirus DiEM25 03/15/2020:

Videos for a quarantine day

Bernie Sanders previews debate strategy against Joe Biden in 'fireside chat' The Hill 03/15/2020. The next couple of days will presumably be either the height of Sanders influence, or a big turnout in his Presidential campaign. And he's in top form. "You can't be a President and just talk off the top of your head. Especially when you don't know anything."

Yanis Varoufakis: The fight against pandemics can only be won with free, public health care DiEM25 03/13/2020 (Greek with English subtitles). Yes, the global economy is largely riding on a private debt bubble right now. And the yield curve was already strongly signalling recessions for the US. Varoufakis is pretty much in full Cassandra mode here:

For a music break, Ina Regen feat. Helene Fischer-Heast as net 12/30/2018:

Here's a video by Richard Wolff. TRIGGER WARNING, especially for corporate Democrats. Wolff identifies as a MARXIST. So if your reaction to that is "OMG!! VENEZUEEEEE-EEEELA!!!", you should probably skip this one. I think he tends to be a bit melodramatic anyway, but staring straight into the camera enhances the effect. AskProfWolff: COVID-19 and the Stock Market Democracy At Work 03/11/2020:

And, for good measure, the Steve Earle song from the 2000s that suddenly has new currency, And I'll show a little solidarity with the Bidenistas and suggest this should be Joe Biden's campaign song, Amerika V. 6.0 (The Best We Can Do) (Live):



Okay, that's kind of thin solidarity, I know. But, hey, "it's the best that we can do."

Three high-level takes on the COVID-19 pandemic (Sanders, Biden, Trump)

Ranked in order from best to worst.

Sanders makes statement about coronavirus and the economy PBS Newshour 03/12/2020:

Joe Biden gives speech on coronavirus pandemic NBC 03/12/2020:

Joe Biden Speech Transcript on Coronavirus Rev 03/12/2020


Trump Addresses The Nation On Coronavirus From Oval Office 03/11/2020:

Read Trump's coronavirus Oval Office address Politico 03/11/2020


This Steve Earle protest song applies to the last two. Amerika V. 6.0 (The Best We Can Do):

Strong Super Tuesday for Make America Boring Again

Bernie Sanders win in California Tuesday is a real win. But the other states' results mean that the day didn't come close to being the blowout his supporters would have liked to see. Biden's streak of wins, including in Massachusetts and (apparently at this writing) Texas is impressive. We won't know for a while yet what the delegate counts will be in California. There is a 15% threshold statewide to win any delegates and how the vote sorted out by Congressional district also affects the delegate count. But it looks like only Sanders and Biden and maybe Michael Bloomberg are likely to surpass the minimal hurdle to win delegates. Depending on how the final count shakes out, Sanders could win a majority of the California delegates if Bloomberg doesn't make the hurdle.

A few things seem pretty obvious immediately afterward. Maybe the most impressive is how well Biden did in large states like California and Texas while having a minimal field operation and his own campaign not having much money to spend on media buys compared to Sanders. His high name recognition and the weekend consolidation of the centrist wing of the party after Biden's South Carolina win came through for him. It's definitely now a Sanders vs. Biden race, with Bloomberg apparently on the verge of backing out.

It sounds from the early results that the Sanders' campaign's goal of activating new primary voters wasn't achieved in most places. And his vote skews young, while older voters are more likely to participate.

Sanders is definitely the anti-establishment candidate and that's how he consistently has positioned himself. Now he'll have to make that work in a head-to-head contest with Biden. Elizabeth Warren is still a minor factor. But based on the polling of her supporters, it's hard to tell at this point whether her presence in the race benefits either Sanders or Biden more.

The punditocracy processes primary results especially through as though voters make their choices along a consistent left-to-right ideological scale. And no amount of contrary evidence seems to be able to shake them off that approach. At this point, Biden undoubtedly benefits from a comfort factor, i.e., Make America Boring Again. No doubt a worthy goal in comparison to the Malicious Orange Clown Show that we've experienced for the last three years.

It may be near-impossible for pollsters to measure. But I wonder to what extent Trump's bumbling, irresponsible handling of the coronavirus crisis may have boosted the return-to-normalcy mood among Democratic voters on Tuesday.

Biden's victory speech focused around familiar and optimistic Democratic platitudes (quoted by Karoli Kuns, Biden Celebrates Big Super Tuesday Victory: 'We Are Better Than This President' Crooks and Liars 03/03/20):

This is about the future. It's not about the past. It's about our children and grandchildren about leading in this country and leading the world once again. We have to remember who we are. This is the United States of America. It is time for America to get back up. And once again, fight for the proposition that we hold these truths to be self-evident that all men and women are created equal, endowed by the creator with certain inalienable rights.
We saw it often in school but don't realize how profound it is. We never lived up to these words, but until this president we never walked away from it. Ladies and gentlemen, I believe with every fiber of my being that's who we are. Let's get back up. We are a decent brave, resilient people. We can believe again but we are better than this moment. We are better than this president.

Charlie Pierce evoked the memory of Warren G. Harding to remark on the appeal of a comfort vote (It Looks Like Democratic Primary Voters Want a President They Can Ignore 4 or 5 Days a Week Esquire Politics 03/04/2020):

It’s plain now that, for the moment, anyway, a large part of the Democratic primary electorate is hungering for a president that it can ignore for four or five days a week. ...

I will grant you that the Harding precedent doesn’t bode well for a possible Biden presidency. However, what he’s been pitching ever since South Carolina is essentially the same appeal, with Sanders (and, to a lesser extent, Warren) in the roles of revolution, agitation, surgery, and so forth. It was the theme of all three endorsement speeches presented at the big hootenanny in Dallas; of course, it was Pete Buttigieg’s raison d’etre for his own campaign, so that wasn’t a stretch at all. The comfy shoes are triumphing.

The coronavirus crisis is a dramatic instance where boring and competent is dramatically better than bad know-nothing melodrama.