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Fixing it

Notwithstanding the [late] reckoning with our very own special coup, the one we think we dodged and the very one over which Our Media is fascinated by exactly all the wrong details; the battle between Chicago and lake Michigan; and the new Gilded Age space flights for plutocrat tourists, the economy seems to have magically withstood a pandemic (Narrator: It’s not magic):

Initial unemployment claims came in at 360,000 for the week ending July 10, below the previous week’s revised read of 386,000. That reading matched the consensus forecast among economists, according to Bloomberg.

The decline in the seasonally adjusted number resumes the overall downward trend of the volatile data series after an unexpected rise in initial claims last week. The Labor Department noted that this marks a new pandemic-era low.

While the number of Americans newly filing for unemployment benefits tends to bounce around from week to week, it’s been on a general downward trend after spiking to record-shattering numbers amid the early days of the pandemic last spring. The return to that downward trend matches other data suggesting a steadily recovering labor market.

360K is still a very many lot of people, and yet you ask: after years of making sure our billionaires had enough nest eggs to color-coordinate their space suits, how was it possible to get through a year of very limited economic activity and still be able browse and sniff at the want ads and generally avoid most of the fascist tendencies on offer? Give. People. Money.

CARES and PPP run themselves out by design, which is helping people stay afloat. This is why we’re longing for vacations instead of standing in breadlines. And the infrastructure bill will bring more of this – not gifts and not luxuries – but investments in people and how we live, with recommendations for new arrangements for different needs that WE have made absolutely necessary (see Chicago example above and read the history). Move the monuments. Buy the trains. Pay the carpenters, or become one. As legend has it, the profession has a storied past.

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Helicopter Drop

We are all the financial crisis now.

But when you have bought so much debt and created so much money that rates are near zero, the public is saturated with liquidity; from that point on, they’re holding money simply as a store of value, which makes it no different from bonds — and hence a perfect substitute for bonds. And at that point further open-market operations do nothing — they just swap one zero-interest asset for another, with no effect on anything.

So why not forget about open-market operations, and just drop the stuff from helicopters? Well, remember that at this point cash and short-term bonds are equivalent. So a helicopter drop is just like a temporary lump-sum tax cut. And we would expect people to save much or most of such a tax cut — all of it, if you believe in full Ricardian equivalence.

Ricardian equivalence refers to the suggestion that it does not matter whether a government finances its spending with debt or a tax increase, the effect on total level of demand in an economy being the same. And it doesn’t seem that we believe this at all.

Definitely difficult for the casual observer to stay out front of the forward thinking on what to do about the meltdown, especially where unemployment is the lead canary staggering out of the mine – ostensibly the easiest thing to do something about – infrastructure!

Burying billions and hiring people to dig it up would be productive, to the extent that it put money in people’s pockets, money they would then spend. But what if instead we hired people to re-build bridges, and/or faltering water and sewer systems… much less super trains.