Thanksgiving 2020

Happy Thanksgiving!

At first it sounds like classic irony. I had to look up the word “irony” to make sure I was using the word right. It basically means using words in a way that is counter to what they usually mean implying humor, sarcasm, or emphasis.

Thanksgiving is a time when we usually give thanks. It matters not to which religion you subscribe. It is time in the USA when we take the day off and spend time with friends and family. We usually acknowledge how lucky we are and thank the Lord or someone else who might be listening.

How ironical to say those words in 2020 when there seems to be almost nothing to be thankful for – a time when we are not even supposed to be with other people. Clearly, you will not be in the stands cheering with thousands of people holding a very expensive ticket and watching the Lions and the Cowboys. Of course, if you want to go to New York and watch the 94^th annual Macy’s Thanksgiving Day parade, you will watch it in your hotel room on television. Don’t wander into the streets to catch a glimpse of your favorite float or the Covid police will get you.

But worse than that, depending on which state or city you live in, you will have to read a Bible of regulations on whom and how many people you can be with on Thanksgiving 2020. And even though you might be allowed to be with four close relatives, two bums, and three jack rabbits, you will still have to wear masks and make sure you are never closer than 182.88 centimeters from any of them.

For sure, there will be no hugging allowed and don’t even think about sharing spit in any way, shape, or form. You should not even shout or laugh in a hardy manner, and it might be safe to wear two masks instead of one. Maybe a lovely face shield to top it off. What a look! Some resourceful entrepreneur will hopefully invent a way to eat turkey and mashed potatoes without removing one’s mask or masks.

Some of you will feel safe disregarding most of the above because two days before Thanksgiving you will stand in a line longer than the ones to get into your favorite grocery store on restricted hours, so you can have someone jab a swab up your nose until you see stars. When the news comes back that you and your 300 friends tested negative, you will spend Thanksgiving dancing to fifties rock, drinking Andre champagne, and finally showing your thanks by hugging and kissing everyone right before you drive home drunk from the dinner party.

Okay, some of the above is partly true. But let’s end on a positive note. Since my year in a distant city has been very small since Covid started, I have had to do what so many of you have done. I had to choose priorities. I could sit around and feel sorry for myself or I could learn to live with a new situation – a situation whose terminal day is impossible to know.

I am strumming my guitar unmercifully, but thanks to teacher Dan, I am coming along at a pace that most snails might admire. I have spent more time in the gym and a lot of time walking around Green Lake cursing at people who don’t wear masks. I have gotten back into reading more and, of course, I keep badgering you with blog posts. Luckily, I met a really nice lady named Barbara, and we are able to safely eat a lot of soup and salads together.

So maybe it is not ironical to say Happy Thanksgiving. I hope you are surviving if not thriving in this special week.

Roller Coaster Economy

While the election and covid19’s resolutions are going to take a while, I thought I might take a week to get back into some macro.

Below is a table I hijacked and made some modifications of some data from the US Bureau of Economic Analysis (www.bea.gov).

The table shows us almost two years of data relating to Real Gross Domestic Product for the US.

The numbers are all percentage changes. The first column shows you how much real GDP rose from 2018 to 2019,  2.2%. The next three columns have the same information for each of the three quarters of 2020. The quarterly percentage changes have been seasonally adjusted and annualized so we can compare each quarter to the first column.

The first thing to notice is that after rising by a modest but fairly normal rate of 2.2% in 2019, RGDP fell for two quarters and then snapped back in the third quarter of 2020. The -31.4% followed by +33.1% is just crazy. It is hard to find such huge swings in US history. That, in a nutshell, is the source of a lot of uncertainty right now. How does one think about the future when the economy looks more like kamikaze pilot than an Alaska Air flight to Minneapolis?

We all know that most of that variability came from Covid 19 and its lockdowns – but that doesn’t help us much in making choices about working and spending in the future. How many waves of Covid are coming? How much of the economy will be locked down?

The rest of the table shows us similar information for the parts or components of RGDP. The largest sector of RGDP is spending by households on goods and services. While the goods line shows some ups and downs – the services spending fell by 42% only to recover by 38%. Farther down in the table you see spending on residential housing. Those swings are even larger – a decline of 36% followed by an increase of 59%. That 59% increase in Q3 of 2020 was impressive but not the biggest in the table.

Business spending on equipment recovered by 70% in Q3. In contrast, business spending on structures fell in all three quarters of 2020 after declining somewhat in 2019.

International trade was wackier yet. Exports of US goods and services to the world increased by 60% in the third quarter; our imports of goods more than doubled (108%).

That leaves us with the final part of the table labelled Government Spending. That’s a bit of a misnomer since it only includes purchases of goods  and services by the government (tanks, paper clips etc) and does not include payments to individuals like welfare, Medicare, and Social Security.  So much of what has transpired this year as government payments to individuals and companies does not show up in this table.

The table shows that Federal government spending for non-defense items rose by almost 38% in the second quarter. Defense spending by the Feds and state and local spending show no major changes.

What is the upshot? Trump brags about the third quarter rebound without noting that we are not back to where we ended in 2019. Of course, a Q3 rebound is better than no rebound. Moreover, all that volatility creates a muddy crystal ball. If the table was affected by a virus and we can't be sure about the future of the virus -- then surely we know almost nothing of value to help us know the future economy. 

Anti-Racism

Macroeconomics is easy to write about. Racism is not.

Luckily, I have some good friends who have introduced me to the concept of anti-racism. I read a book by Judy Picoult called small great things. I recently read pieces by Jonathan Kanter and Ben Danielson.

No, it doesn’t make me an expert. But it’s enough to get me thinking. You are my friends and I like to share my thinking with you. Even if it is not macro.

Anti-racism is a new term to me. It simply means that you no longer are willing to put up with racism. I don’t consider myself a racist but then most of us don’t. Anti-racism makes you a little more action-oriented. It means when you come across a racist action you don’t sit quietly – it means you confront it.

Confronting it does not mean you have to punch someone or embarrass a person in front of others. Being anti-racist means you do it in your own way. I will probably never walk in a parade, carry a sign, or shout slogans, but I can find ways to speak with people or to write about what I see and hear. That’s my way. You might prefer to take part in public activities or maybe you want to fight with those advancing racism. Each should find their way – but anti-racism implies you find some way that is compatible with your personality and knowledge.

Why take on anti-racism? Why not let other people do it? My answer to that is that there is still much to do so that black* people feel as natural and comfortable as white people in going about their business. Talk to a black friend about that. His experience is not the same as yours.

Sure, much has changed since I was a boy growing up in Miami. Or much has changed since I graduated from Georgia Tech in Atlanta. I recall that Lester Maddox, before he became Governor of Georgia, owned a restaurant in Atlanta. He became famous for giving axe handles to his white patrons to use against any black people who tried to eat in his barbq restaurant. Much has changed since blacks sat in the back of buses.

Even more has changed at workplaces where we find more black persons working side by side with white colleagues. But it doesn’t take much effort to find vast differences in the ways whites and blacks live. A residual blanket of racism lies almost everywhere we care to look. Even if it is simply the numbers. When you go into a restaurant, a bar or Wendys, most of the people are just like you, white. That’s not prejudice but it does speak to the different ways we experience life.

I used to think to myself that if I did it and Russell Wilson did it, then why can’t more blacks do it? I grew up Jewish in a time when Jews were not loved much more than blacks. I got myself educated and I played by all the rules and everything turned out fine. 

But this is self-deception. I had two parents who were perfect parents. No they weren’t high income, but they came from traditions and families that passed down success traits. They did not come from dangerous neighborhoods and they did not teach us to shy away from white people. They did not teach us to be afraid that because of our skin color we might be suspected or accused of things we didn’t do.

Some like to use the term white privilege and I used to recoil at that. I used to hate the term institutional racism. But those reactions come from one who has always benefited from being white. Of course, I didn’t want to admit that I was advantaged. And sure, I had to work hard to get into and get out of Georgia Tech. But that’s not the point. It is not so much that I gained an advantage. It is more that so many other people were left out of that. In comparison to what many blacks were facing, my achievements were a walk in the park. Call it institutional racism or call it white privilege or call it black prejudice, what matters is that there exists a tilted field.

Maybe it isn’t tilted as much as before but it is still tilted. And that’s why we can’t sit on our hands. When an artist roughs in a landscape, she draws the big picture. After that takes form, she can work on the details of the ducks and the geese on the pond. We have drawn the landscape of a more equal society; now we need to address all the remaining details.

It will be hard for a government to do that and that is what I find so compelling about anti-racism. It says that each of us can play a part. Like in the famous whack-a-mole game – when we see something pop up, we whack it to the ground. A few years of racial whack-a-mole, we might make some headway.

A personal note to end on. Sometimes my friends note or joke that my move to Seattle has changed me. In economics terms, I always considered myself a moderate or a conservative. But never was I conservative when it came to race. Marge and Sonny Davidson, my parents, wouldn’t have it. I tried to raise my children that way too. But I am tired of telling people I am not a racist because it doesn’t mean anything. Today I see the point. Not being a racist isn't enough. Being anti-racist means that I will do what I can to work against racism around me. I hope you will too.

*I use the term black people here and I realize that term might not be the best way to describe the issue. Surely there are other people of color not to mention others who face racism. No harm is intended and my use of that term came from things I am reading that were written by black people. 

Covid Debt: Baby Steps

Last week I brought up the idea that it might be necessary to think of Covid 19 as equivalent to war financing. That is, with a war on Covid,  we might have to spend a lot of money and go into considerable debt to win the war. I worried primarily about the aftermath of the war using data from 1940 to 1955 to illustrate the difficulties of reversing engines – of bringing debts back to pre-war levels.

I offered no solutions for how we could reverse engines but I have had some nice discussions with several of you about that topic. So here we go again. At one extreme is one friend who basically said that we shouldn’t worry about the government debt. He is in no hurry to return to pre-war debt levels. Technology is roaring and will restore economic growth even in the face of historic debt.

Should we worry about the national debt in 2020 and 2021? It’s a good question. With household and business debt at high levels and government debt historically high, I wonder where all the saving comes from to buy all that debt. With the world in a recession, surely the amount of saving is low. Yes, it might be high as a percent of income when stores are closed, but the gross amount can’t be much.

And where do global investors want to invest? Much depends on how they see the US as the leader when these investors view the strength of the US government and economy. Will they see us as handling our issues better than Japan or Germany? Or will we look like global village idiots? If it is the latter, then the world will not want to fund our debts and we will be indistinguishable from Venezuela. If the former, then we can move forward with historical debts for the time being.

So maybe we have some time. What do we do with it? The first thing to note is that we don’t have to clean up historically high debt over the weekend. We could send a decent signal to the rest of the world that we have started on the right path.  Perhaps your doctor puts you on a diet because you have been gaining 10 pounds each year. A good sign might be to only gain 5 pounds next year. It might seem better to start losing weight – but in a tough situation you might see halving your weight gain as the beginning of a  win.

My point is that we don’t have to balance the budget tomorrow. But we could begin by making a bold statement that we will start by improving budgetary dynamics and then will turn to smaller deficits and debt. You gotta start somewhere.

But even that seems tough right now. How do you start? Where do you start?

Logically you start by remembering that the debt is the result of annual budget deficits and annual budget deficits are the net result of decisions about government spending and taxing. With respect to spending – you are already in a fight. What gets cut? What gets cut the most? What spending items are sacred?

If this is not your usual budget year and you face challenges of historic proportions, you don’t get wild and crazy. You just had the flu and you haven’t eaten well in days – so you don’t go out and run your fastest mile. With respect to the US government budget recently – it might not be that hard to find a little fat in the spending. What I am saying is that you let government spending grow but you let it grow a little slower than before. Seriously, are you telling me that a bipartisan group of adults could not pare back a little of the future growth of government spending? Stop it.

The story about tax revenues is the same – find a way to have revenues grow a bit faster. Don’t gouge business or the middle class or even rich people. I am sure you can find a loop hole or two. The point here is to start a turnaround. Make a statement. You cut back some of the growth of spending. You also will increase the growth of tax revenues. The deficit will get smaller.

The result is a beginning wherein you reduce the 2021 or 2022 budget deficit by a few billion. Hey mom, we turned things around. The deficit is smaller this year.

I am running out of space (and your patience) so let me say that once you get started, take five to 10 years rolling in the same direction. So long as you move in the right direction and you do things that seem reasonable and not cutthroat – you don’t scare away world investors. 

There was a major, historic  shock to the US economy in 2020. It will take a while to reverse it. As we get into the process, the decisions about spending and tax revenues will get harder. But with some years of working together on the budget, and seeing progress in the economy result, then maybe our politicians will catch the hint. 

But if you don’t take the first step, I am not sure what you do next. Let's get off the dime.