ECONOMIC POLICIES, ANALYSIS, AND RESOURCES
The Economic and Trade Policy Domain tracks and reports on policies that deal with budget, taxation, and finance issues. The domain tracks policies emanating from the White House, Congress, the Department of Commerce and the Department of Treasury.
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Brief #93—Economic Policy
By Rosalind Gottfried
Many workers opt for public sector jobs lured by generous pensions and other benefits such as healthcare and leave time. Private sector work may offer higher salaries and some benefits but they are much less likely to offer guaranteed defined benefit retirement plans.
By Rosalind Gottfried
The Stock market has surged, in August, almost to its historic February high, prior to the onset of the Covid-19 pandemic. This in spite of the absence of a new stimulus, the bi-partisan strife in the capital, and the spike in the Covid-19 cases this summer. In fact, the market has gained 32% since Trump took the office of the presidency.
The Supreme Court has an enormous influence on economic policy though this association is not commonly made. For example, the rights and well-being of the working and middle classes can hinge on the opportunity to unionize. This right suffered a blow in a 2018 Supreme Court case, Janus v AFSCME (American Federation of State, County, and Municipal Employees). The so-called “right to work,” was upheld by the court in a 5 to 4 decision restricting unions from the collecting “fair share dues. Prior to the decision, a union could take a “fair share” of the dues from the employee, without their consent, to cover the cost of collective bargaining. This ruling applies to persons who are in a collective bargaining unit but have not joined the union, since they benefit from the union contract. They can be applied only to collective bargaining.
In a 5 to 4 decision in June 2018, the court negated the fair share mandate saying that collecting fees from non-consenting employees violated the First Amendment rights guaranteed by the Constitution. Prior to that decision twenty two states had fair share provisions and 28 were “right to work” states barring collection of fair share monies. The decision voided the fair share mandates. The dissenting opinion, written by Elena Kagan, cited protections in the 1977 ruling, Abood v the Detroit Board of Education, which stipulated that fair share dues could only be utilized for collective bargaining which benefited all employees. She asserted that the ruling allowed the judiciary to intervene in economic and regulatory policy while weakening the unions.
With the current court poised to get another Trump appointment, the 6-3 conservative majority it would represent can do a lot of damage and, with the relative youth of the newer judges it could be sustained for decades. According to the Bloomberg report, the current nominee Amy Coney Barrett, represents positons to the right of Chief Justice Roberts. The fear is that the Court will overturn the Chevron Deference which maintains that federal agencies can interpret laws they administer as long as they are “reasonable.”
In the past, Anton Scalia supported the Chevron Deference, at least in the earlier part of his tenure, arguing that Congress intended to delegate authority and that the courts should uphold that perspective. Now that interpretation of Congressional intent is considered problematic and the judges are favoring seeing the laws as they are written. Flexibility in agency administration allowed the EPA to interpret the Clean Air Act to permit regulation of carbon emissions. The new court would halt the authority of agencies to interpret policy.
These two examples indicate the great impact the court can have on workers, businesses, and the economy. Unionization is at an all-time low with 33.6% of government employees belonging to a union while only 6.2% of private workers are unionized. Nonunion workers average about $1500 less in salary and have to bargain for benefits. In 2010, Wisconsin Governor Scott Walker signed Act 10 into law that significantly gutted the effectiveness of public employee unions, including the most state and most municipal workers as well as the teachers. Teacher’s salaries fell an estimated 2.6% and their benefits dropped by 18.6%. Walker successfully faced a recall vote in 2011 over the crisis in public unionization.
- https://aflcio.org/about-us/our-unions-and-allies the largest umbrella organization of union and union affiliates.
Many workers opt for public sector jobs lured by generous pensions and other benefits such as healthcare and leave time. Private sector work may offer higher salaries and some benefits but they are much less likely to offer guaranteed defined benefit retirement plans. These refer to a guaranteed payment, often for life, based on formulas computed with age and years of service. Contributions are made from the employees’ salaries as well as by the agency. These pensions are guaranteed untouchable by states laws which protect their future. If revenues fall, the employers must absorb the risk and contribute more to compensate for the shortfalls. In the public sector 77% of employees enjoy defined benefit pensions in contrast to only 13% of private sector workers. The situation is different in counties and municipalities which become vulnerable to some reductions if they enter Chapter 9 bankruptcy. In defined contribution systems, the employee and employer pay into the system but there is no guaranteed payout and the employee assumes the risk. More companies are shifting to these programs and government may follow this path, too.
Economists have been sounding the alarm, for years, regarding the shortfall or gap between pension obligation and available assets. This is true in all pension plans, to a greater or lesser extent, from small local entities to the California state employee system, Calpers, which services 1.6 million employees. Economists have been warning pension administrators of demographic shifts leading to the decreased contributions from contracted workforces paired with growing numbers of retirees. The pandemic has accelerated this change leading to greater deficits from unemployment and revenues lost when businesses shut down. State and local pensions have seen a loss of one trillion dollars since mid-February. California, for example, has seen a loss of 69 billion dollars in their 404 billion dollar portfolio, compounding a shortfall already predicted by the state budget offices. Overall, estimates suggest an immediate state revenue gap of 650 billion dollars. Although state pensions are predicted to be stable, due to law and political pressures, some localities such as Detroit, were forced into reducing payouts as a consequence of Chapter 9 bankruptcy restructuring. Experts have been cautioning pension planners to shift form high yield to conservative investments but these warnings have gone unheeded. In 2019, state and local pensions averaged a 71% funding level but this is predicted to decrease to 62.7% in a healthy recovery and 55.5% in a sluggish one. Many entities have relied on “gimmicks” such as short term loans, tapping reserves, and/or deferring some costs to cover their obligations. Ultimately, these will exacerbate the problem by delaying a longer term solution.
Suggestions regarding changing investment patterns to solidify the available assets and minimize risk are rational but unlikely to meet the need of the changing ratios of active workers to retirees. It is possible that future public sector employees will not be offered defined benefit pensions. In recent years, increases in pensions and healthcare costs have been favored by unions as these benefits are not subject to income taxes though they are severely impacting government budgets. Some states are closing their pensions to new workers while others are increasing the employee contribution. In Kentucky, a state with a steep shortfall, teachers are now contributing 13% to their retirement, twice as much as their social security payroll tax. Other states, such as Illinois, have added a 3% tax compounded annually, an amount which exceeds inflation. Other remedies have been doubling the gas tax; tripling the real-estate transfer tax; increasing car registration; increasing car metering costs; legalizing and taxing marijuana; and instituting a property fee which is levied on all entities including schools and churches. These actions have cost the state some of its population.
Increased employee contributions to public systems are feared to discourage people from entering the public sector as teachers, firefighters, law enforcement, or agency workers. Post-pandemic restructuring of government agencies is predicted to reduce the number of public employees, further cutting into available revenue. The federal government should be providing aid to ailing states and local governments but it not moving in that direction. Mitch McConnell (R), the Senate majority leader has stated that Congress should move to allow state bankruptcy rather than depend upon federal aid. The short sighted management of pension funds was already putting these at risk prior to the pandemic. Now the issue is accelerating and attention should be turned to redesigning government polices with regard to pensions, social security, and employment.
- https://www.aarp.org/entertainment/books/bookstore/money-work-retirement/info-2016/retirement-survival-guide.html A guide to retirement planning, especially important for those who do not have a defined benefit.
The Stock market has surged, in August, almost to its historic February high, prior to the onset of the Covid-19 pandemic. This in spite of the absence of a new stimulus, the bi-partisan strife in the capital, and the spike in the Covid-19 cases this summer. In fact, the market has gained 32% since Trump took the office of the presidency. Good news? Yes, if you are among the top 1% but if you aren’t, the figure is largely irrelevant. The top ten percent of households account for 84% of all the equity from stocks while the top 1% enjoys one half of all equity. The next 10% account for 9.3% of the stock values and the bottom 80% weigh in at 6.7%. Although 52% – 54% of American households own stock, some by way of investments in 401Ks, they average $40,000 in total value. The value of the market has increased ten times since 1990 during which time the share by the top 1% of households experienced dramatic increases in their portion of the US wealth. The health of the stock market does not accrue equivalently across the sectors of the population. This measure of prosperity pertains to a micro sector of the society.
The market has sustained its performance in August, even after the failure of the government to pass a second set of stimulus programs. Unemployment is high, though the rebound is a bit better than anticipated, and the GDP was down in the second quarter. It is hypothesized that the resilience in the market is based on the assumption that there will be a stimulus passed by the end of September to avoid a government shutdown. The Federal Reserve’s pledge to keep the prime rate low until inflationary rates are attained, at least until 2022, and the faith in an eventual stimulus have kept the market hearty though its health is tenuous.
Evidence from the first stimulus package indicates that many Americans who could afford to do so saved their government payouts. Those who did not need to use their checks saved them and overall consumer spending declined indicating a preference for banking the acquired asset for future needs. Since February, personal savings rose from 8.3% to 33.5% of disposable income. Bank of America reported clients’ checking and savings accounts rose by 13% and 8% respectively. Average Americans had between one thousand and three thousand dollars more in the bank than prior to the pandemic. Credit card debt was down. Commercial bank deposits rose by 15% between February and August. Currently, the rate of savings is slowing and there is evidence that household spending has been falling as the stimulus wound down, especially among low income households. Credit card debt is creeping up again. The claim that the robust market is evidence of a good economy pales with respect to the persistent unemployment, failed businesses, and the health costs associated with the virus. After an upsurge of economic indicators in the late spring and early summer, the growth of the economy is slowing.
The evidence of the economic gains of the Trump era speaks mostly to the enhancement of the wealth of the elite. The increase in savings and decreased spending, associated with the stimulus, show what Americans can do if they have some flexibility with disposable income. Because the stimulus was not very accurate in targeting the most vulnerable it demonstrates what people will do if they have discretionary income. For communities with concentrated poverty it can be seen that targeting them for business investment and employment programs is one way to improve the standard of living. Another stimulus would help vulnerable families and businesses and bolster the chances of avoiding the worst fallout from the continued virus threat.
September 5, 2020
In mid-summer, with the resurgence of reported cases of Corona virus, the Federal Reserve announced its intention to maintain its benchmark lending rate at 0 to .25%, until at least 2022. Some members think it will be extended even longer. The decision was made unanimously by the Federal Open Market Committee which is the policymaking branch the Federal Reserve. This rate represents the fee charged for loans between financial institutions and it has a significant impact on consumer interest rates. Although it does not represent any specific rate on mortgages, the current low rate of less than 3%, for a thirty year fixed mortgage, is likely to be sustained with this policy. That is the good news. The bad news is that the standards to obtain the most favorable loan rate will likely be stricter, applying to those with a credit score of 700 or above.
The action was taken as a consequence of the sustained high level of unemployment, which was significantly greater than the highest level (10%) seen in the Great Recession of the last decade. There was a dip in the rate due to more jobs available in the summer, probably due to temporary government hires and the reopening of restaurants, retail stores, and other small businesses. Amid concerns that these openings were made in haste rather than by informed health deliberations, economists fear for the mid-term fallout to the economy. They predict a sustained economic slump due to the slow recovery of industries such as food services, bars, recreation, air travel and any other activity engaging large numbers of participants.
The sustained public health crisis makes it difficult to accurately predict a timetable for its resolution and a concomitant stabilizing effect on the economy. The Fed predicts a 6.5% shrinking of the GDP for 2020 and a growth of 5% in 2021 and 3.5% in 2022. To further aid the economy they have pledged to flood it with “cheap money” and trillions of dollars in loans to keep businesses and local governments intact. They caution that these policies need to be met with similar government programs and urge support for the three billion dollar stimulus passed in the Democratic House in May, and stalled in the Senate. That program would provide the equivalent of the multiple programs passed in March by the Trump administration.
The Fed’s actions regarding the prime lending rate reflect the dramatic crisis facing the economy and highlight the need for policy action on multiple fronts. The rush to reopen the economy may have been penny wise and dollar foolish. This is not a time to herald the resilience of the stock market which has seen gains of 3% in the S and P 500 over the past year and 6% in the Nasdaq 100 so far this year. The suffering of a large portion of American workers and small business owners must be addressed by humane and compassionate financial policies. One way to promote this aid is to vote in November.
- https://www.howweflipthesenate.com/ A national campaign to flip the Senate to the Democrats
Just 1 month after the USMCA officially succeeded NAFTA as the framework for North American trade, one of the country’s most reliable allies finds itself, once again, in the crosshairs of U.S. protectionist trade policy. Under Section 232 of the U.S. Trade Expansion Act of 1962, the Trump Administration cited national security concerns as the underlying condition necessitating the re-application of tariffs on Canadian aluminum. Since the 2016 election, President Trump has continuously claimed that the health and security of the nation rest on the stability of industrialized manufacturing. Moreover, he believes that the inherent strength of the military is dependent on the success of the industrial base, essential for the production of specialized strategic supplies and artillery equipment necessary to ensure protection.
Back in 2018, prior to trade negotiations, the U.S. imposed tariffs on a wide sector of industrial metals ranging from competitive adversaries like China to the traditional alliances of Canada, Mexico, and the European Union. One of the components that became part of the framework of the new trade agreement was to mutually eliminate all forms of duties on steel and aluminum imported from within the production zones of North America, meaning that the U.S. Canada, and Mexico would all work collectively to allow the free-flow of industrialized products to and from supply chains within the region. Recently, however, President Trump insisted that since the country has experienced a surge of metal imports from Canada, the agreement reserved him the right to re-administer tariffs if aluminum continued to flood the U.S. market. The administration believes that the excess importation of Canadian aluminum into the country forces downward pressure on prices, restricting manufacturers from maximizing potential output. Proponents of the president’s trade policy advise the reason for supporting the 10% tariff is that it counteracts the massive degree of state subsidization granted to Canadian steel and aluminum producers, which, they claim, levels the playing field.
Although President Trump’s populist rhetoric has resonated with many blue-collar industrial capitalist and factory workers, his policies are rooted in a fundamental misunderstanding of the mutual benefits compatible with free trade. The reckless political approach of the Trump Administration continues to depart from the traditions that have been the staple of American foreign policy. In the first place, to declare any industry in Canada a threat to national security is both shortsighted and obtuse. While the U.S. has acquired steel and aluminum from Canadians for several decades now, it has never occurred at the expense of public safety. In fact, the U.S. and Canadian metal industries are highly integrated. Mid-stream metal producers from both countries utilize supply chains interchangeably when one develops any type of competitive advantage over the other. By taxing “Canadian” aluminum, it is quite conceivable that the US is taxing itself as the product is a collective meld from both foreign and domestic manufacturers alike.
In the second place, subjecting Canadian aluminum to a 10% tariff in no way facilitates American competitiveness. Policies that encourage tariffs and quotas never seem to accomplish the most optimal economic outcome, because it is predicated on protecting the few at the cost of the many. One can argue that levying aluminum tariffs protects the concentrated sector of those who are directly competing against foreigners, but it comes at the detriment and costs to the greater population. Proposing to prop up the handful of aluminum manufacturers by forcing artificially higher costs on other intermediaries utilizing aluminum as inputs to production is rife with error. 97% of the U.S. aluminum industry is positioned in the median to downstream sector of the production process. Consequently, the majority of firms in the aluminum industry would encounter more costs than benefits from tariffs that supposedly protect American producers. The energy market, appliance manufacturers, the beverage industry, and auto-makers are just some of the major commercial interests adversely affected by the billions of dollars of excess costs they will be forced to absorb from the tariffs. It is impossible to protect one sector of the American economy without further damaging another, which only achieves a lateral effect at best.
While President Trump continues to propagate the notion that foreigners are taking advantage of Americans in the international market, he is either evidently unaware of the mechanism that fuels the global economy, or he is blatantly attempting to sabotage American enterprise. If Canadian taxpayers want to subsidize their commercial aluminum industries to the betterment of American standards of living, why should we discourage them? Doing so allows Americans to lower costs and acquire more disposable income, effectively translating into greater capital investment. Companies becoming inundated with excess costs become a drag on the U.S. economy by being forced to allocate more resources without any additional increase in output. Is anyone surprised why manufacturers seek supply chains abroad when the commander in chief has basically declared war on certain businesses for political objectives. The way to enhance American competitiveness is not by shielding them from competition, but by allowing them to choose from as open a market as possible, to achieve the advantage of maximizing output.
Under the Trump Administration, relationships built through the virtues of globalization continue to erode. Free trade is described as mutually beneficial voluntary exchanges between a buyer and a seller, done in the absence of coercion, force, or pressure, where peace and prosperity have been the benefits built by the coalescence of cooperation and support among nations. Declaring Canada a national security threat not only deviates from the perseverance of peace, but actually exists as a greater threat to the nation’s security. The U.S. is supposed to be the beacon of freedom, liberty, and prosperity. Yet the leader of the free world continues restricting freedom, disregarding allies, and propping up special interests.
At a time when the international community should be collectively seeking unification to solve universal problems such as Covid, climate change, and human rights issues, the U.S. continues to promote isolation rather than integration. The global landscape has changed. The planet is more interconnected through technology, communication, supply chains, and travel, than ever before. No longer do global actors compete on the basis of raw power and control, but rather through cooperation in promoting the general well-being and welfare of the global community. Countries who are commercially or actively integrated rarely have conflict. Yet through misguided logic and understanding, the president is threatening to reverse the years of progress made by Americans, allies, and adversaries alike who have all worked together in achieving a safer and more secure world.
- Cato Institute – [https://www.cato.org/research/trade-policy] – is a public policy research organization dedicated to the principles of freedom, free-markets, and peace. Through publishing policy proposals, blogs, web features, op‐eds and TV appearances, Cato has worked vigorously to present citizens with incisive and understandable analysis.
- FEE – Foundation for Economic Education – [fee.org] – An educational foundation that inspires leaders with sound economic and political solutions in both domestic and international policy issues.
- New York Times – [https://www.nytimes.com/2020/08/06/business/economy/trump-canadian-aluminum-tariffs.html] – assisting people in understanding domestic and global issues through expert, independent, non-partisan journalism.
August 18, 2020
Trump asserts that his payroll tax holiday will stimulate the economy, help workers take home more money, and generally be a boon to families suffering economic stress. The payroll tax stems from a 6.2% tax on wages from the employee and an identical payment from the employer. Each will be suspended retroactively from August 1 to December 27. Workers who make less than $100,000 per year will be eligible for the payroll tax cut. Individuals collecting less than $100 a week from the state’s program will not be eligible for this federal subsidy, eliminating supplemental payments to one million workers in need. Employers will also have a cut in taxes but both of these “tax holidays” will be short lived and each will ultimately be paid back unless the President waives the reimbursement in 2021. These taxes support social security which will compensate for the loss by siphoning money from the general fund, the budget that covers government operating costs. The loss of revenues to the Social Security system will be steep. In 2011 and 2012, a recessionary fix included a 2% payroll tax cut to stimulate the economy costing 10 billion dollars per month in revenue loss to the social security system.
The 38 million jobless Americans will have no impact from this executive memo. The real effect of this tax “holiday” is contingent on several vague mandates. For example, an employer can withhold the suspended employee portion for future payback expenses except in states where such actions are prohibited. Another potential negative impact is that repayment may be taken out of future checks as early as the end of the year or in early 2021 and employers can take the whole amount out of one check. Another potential option is that the extra payment will be taken from 2020 income taxes.
Another Trump executive memo to “help” the economy provides a federal unemployment payment of $400 per week, retroactive to August 1, down from the $600 ended on July 31. One challenge of the new order is the requirement that one hundred dollars of it be provided by state funds. Since the states are already covering the regular state benefits many cannot source another $100 a week. Such a mandate would add, for example, $700 million dollars per week to the California state system, a prohibitive burden. The federal funds for this program, Trump proposes, can be taken from FEMA, the federal emergency management agency. This is a terrifying prospect since the summer storm season is already looking severe and storms can cost 22 billion dollars each.
Trump’s executive order regarding evictions does not extend the ban on evictions established in the earlier CARES act but leaves the decision making to the secretary of Health and Human Services and to the CDC director. The potential for assisting renters with payments rests with action by HUD, the federal Housing and Urban Development agency. It estimated that as many as 40 million Americans will be vulnerable to losing their residences.
Finally, Trump extended a suspension of interest payments on student loans until January 1, 2021 but this doesn’t apply to loans private entities like banks.
Trump’s executive acts represent a contracted group of workers with decreased aid in comparison to the earlier CARES act. As in keeping with the federal response to the Covid-19 emergency, this “remedy,” will be a day late and a dollar short.
The bickering between the Republicans and the Democrats has stalled the process and left many workers vulnerable to food shortages, homelessness, and loss of health insurance. The democrats want to extend emergency with a three trillion dollar Heroes plan, more generous than the 2 trillion CARES act passed in March and now expired. The republican program, called HEALS Act would cost one trillion dollars and be far less comprehensive. Chuck Schumer, Senate majority leader, maintains that in addition to help for wages, housing, and tax relief Americans should have programs which include testing, tracing, and treatment of the COVID-19; money for schools to safely reopen and to purchase adequate personal protection equipment; food assistance; budgetary support for local and state governments; money to support safety for the November election; and adequate funding for the Postal Service to support the demands of the election. The likelihood of attaining these measures seems tenuous, at best.
- https://www.cnet.com/personal-finance/trumps-pa yroll-tax-plan-when-the-holiday-starts-how-much-you-get-when-you-pay-it-back/
August 9, 2020
Today young people in school or entering the job market face enormous socio-economic challenges. Their economic and social vulnerability is pervasive especially for those young people who lack a college degree, and particularly if they are female or nonwhite. When job creation is reduced, as it is with the pandemic youth unemployment is the most likely to soar.
In “good times’ youths are three times more likely to be unemployed than people over 25. In the pre-pandemic era 53 million people were employed in low wage jobs with median incomes of $10.22 per hour. Youths comprised 24% of these workers. They also represent the largest group or workers laid off during the pandemic.
Youths who don’t complete college are are also more likely, at 23%, to work in jobs considered to be at “near-term” risk in construction, manufacturing, and real estate. These jobs are less likely to provide “benefits” such as health insurance, sick leave, or parental leave.
The picture is not as bleak for college graduates. This cohort often faces the derailment of first jobs and internships but they tend to be more resilient than their peers who lack degrees. Some analysts believe that Gen C’s resiliency from job loss is due to some of the group returning to finish college or graduate school.
The demand for finishing college and for graduate school attendance generally rises in poor economic times but there is a growing fear that higher education may cost more than it ultimately benefits. Effective K-12 education will also be challenging during the pandemic, especially for youth from low-income communities. Their school districts often lack the capacity to provide quality virtual learning and students from low income communities can lack access to computers and Broadband Internet.
The pandemic also is taking its toll on the mental health of Generation C. It is estimated that one half of adolescents and youths, 18-29, have symptoms of depression. Suicide is now the second leading cause of death in people under 35. A mental health crisis, already appearing, seems likely to worsen.
https://suicidepreventionlifeline.org/ National suicide prevention hotline website.
While American-first has been a theme for the Trump administration’s foreign policy, its unintended consequences have certainly restricted the collective response necessary to overcome Covid-19. President Trump continues to use populist rhetoric to convince Americans that the only way to ensure survival in the global arena is to pivot away from the international community, while shielding domestic business and industry from foreign competition.
For the past two years, under Section 301 of the Trade Act of 1974, the Trump Administration has continued to impose higher degrees of tariffs on a wide range of products from abroad. Imports from China, India, Canada, Mexico, and the European Union have been some of the main targets that have ended up in the crosshairs of U.S. trade policy. Products ranging from steel and aluminum to textiles and from electrical components to chemicals are among the valuable global inputs to production needed by U.S. firms to produce globally competitive products. Billions of dollars of these products have fallen under the blanket of tariffs imposed by the Trump Administration ranging from 15 – 25%, artificially raising the cost of production for many small businesses and manufacturers. Additionally, over $360 billion of Chinese imports have been targeted as well, encompassing more than 60% of U.S. consumer demand from China.
Unfortunately, many of these products incorporated within the president’s protectionist agenda are major components of the healthcare industry, many of which Americans have come to rely on for health, safety, and well-being. Nearly $5 billion of medical necessities from China alone were subjected to U.S. tariffs, accounting for almost 26% of all medical supplies imported by Americans.
To fight against the adversities of this global pandemic, medical professionals have acknowledged the importance of essential consumables such as personal protective equipment, masks, gloves, goggles, hand sanitizer, and medical-wear just to name a few. Additionally, for hospitals and medical facilities to properly treat patients, they should be equipped with necessary durable supplies ranging from respirators to CT systems and patient monitors. In the past, duties on these devices were relatively low, enabling hospitals and medical establishments to stock up on critical care inventory. Prior to the Covid outbreak, Americans were importing over $20 billion of essential medical supplies, which are now subject to higher prices due to heavy trade regulation. Currently, products like pulse oximeters, hand sanitizers, ultrasound and x-ray systems from China are subject to 25% tariffs, while personal protective equipment, goggles, and gloves are levied at 15%.
Back in 2019, medical professionals testified to Congress about the risk tariffs would pose to the healthcare sector by limiting necessary supplies in the likelihood of abnormally high demand resulting from a medical anomaly. Unfortunately, these warnings were disregarded.
The Trump Administration’s trade policy has been predicated on the idea of using one hand to solve a problem that the other hand creates. The president’s protectionist policies have shielded some businesses from foreign competition but has increased the costs of operating for others. Because of the difficulty of protecting one industry without causing harm to another, government ends up subsidizing those who have been adversely affected from the higher costs precipitated by the tariffs. Subsequently this begins the downward spiral of legislation that forces excess challenges on already-burdened taxpayers.
Fighting the effects of Covid-19 will take a mutual unified effort, which underlines the benefits of globalization and free trade. One of the very best ways to protect Americans from the affliction of this pandemic is to allow consumers the advantage of acquiring medical necessities from a global market, rather than limiting supplies from abroad in order to protect concentrated special interests. Because such a wide range of products have fallen under layers of costly trade regulation, it becomes almost impossible for medical manufacturers and suppliers to operate efficiently. While protecting certain participants in the upstream sectors of the market, others in the downstream sectors, who have in the past, depended heavily on selective imports, find themselves absorbing the increased costs of operating. Higher input costs mean fewer output returns. Because several domestic manufacturers are the ones bearing the burden of higher costs associated with tariffs, they have been less incentivized to prioritize the development of critical-care supplies, which exacerbates the shortages associated with global hoarding from other countries who the U.S. has come to rely on.
The driving success behind globalization has been as a result of countries being able to put aside political, social, and religious differences in order to come together to solve a common problem, ultimately promoting both peace and prosperity. Global actors who share collective interests rarely engage in conflict. However, when individual nations begin to deviate from unification, there exists more adversity. The beauty and efficiency of globalization and free trade is evident when we see how different nations have been able to take advantage of specialization and come together to produce globally competitive products like cars, computers, cell-phones, and other devices that the world has become the benefactors of. Supply chains have been the engine of enriched productivity, effectively being the paradigm that has given the international community the collective resources to ensure a higher standard of living.
It is no secret that because of the benefits of globalization and free trade, the quality of life has improved globally and that has shielded not only Americans, but others around the world, from disease and sickness. True, there are large swaths of the global population who unfortunately still live in abject poverty, but globalization and free trade offer the best possibility of alleviating the persistency of deprivation rather than the ideological mindset of the president’s nationalist-isolationist strategy.
Even before the pandemic, regulating demand of medical essentials from abroad through tariffs and quotas has put pressure on healthcare, especially since the baby-boomers are aging and requiring more medical services. It makes no sense to close the country off to the benefits of a global market, while almost ensuring that both patients and medical manufacturers would be restricted to a minimal supply of resources, all in the name of protecting some of the most powerful interests.
If the conditions dictate that a definitive second round of Covid could emerge, policies that force the domestic market into shortages and rationing by artificially limiting medical supplies from abroad should be considered both shortsighted and obtuse.
- Peterson Institute for International Economics – [https://www.piie.com/] – An independent research organization dedicated to strengthening cooperation and prosperity globally through practical solutions.
- Cato Institute – [https://www.cato.org/research/trade-policy] – is a public policy research organization dedicated to the principles of freedom, free-trade, and peace. Through publishing policy proposals, blogs, web features, op-eds, and TV appearances, Cato has worked vigorously to present citizens with incisive and understandable analysis.
- FEE – Foundation for Economic Education – [fee.org] – An educational foundation that inspires leaders with sound economic and political solutions in both domestic and international policy issues.
August 2, 2020
The headline 32.9% drop in the Gross Domestic Product (GDP) for the second quarter is stunning, but what does it actually signify? A Dow Jones survey had predicted a drop of 34.7%. The GDP represents all the purchases made in the US plus the net exports, government spending, and investments made in the period discussed. This figure actually indicates what the annual figure would be if the same rate occurred for the entire year. If this really reflects the annual rate, it will be far worse than the worst year of the depression which was a 12.9% drop in 1932.
The second quarter represents activities from April through June. The actual figure for the second quarter, compared to the same quarter last year, is 9.5%. The largest quarterly drop was 10% in 1958. How does this translate in behavioral terms? Overall personal consumption, the largest chunk of the GDP, was down 10%. In contrast, expenditures for the unemployed population rose by 10%. This is likely attributable to the generous benefits subsidized by the $600 weekly payment provided by the federal government. Low income workers likely could make purchases of essential goods they had put off for lack of funds. Spending for healthcare, clothing, footwear was down as was inventory investment for motor vehicle dealerships, equipment, and personal housing. Prices for domestic purchases fell 1.5% and for personal care expenditures 1.9%, indicating some deflation. Exports were down by 9.4% and offset by increases in imports of 10%.
The last week of July saw 1.4 million filings for new unemployment claims. New claims filed by gig and self-employed workers were at 830,000 for the same week. This continued an upward trend for the past two weeks, down from 15 weeks previously where the claims had decreased after the initial virus swelling. Nevertheless, claims numbered over one million for the past 19 weeks. Research indicates a spreading pessimism as 47% of the unemployed expect their jobs to be permanently lost while in April 78% expected to return to their jobs. Unemployment for women, particularly women of color, is really at risk partially due to the types of jobs they have had and also as a consequence of lack of childcare.
Stocks fell in response to the data though the tech industry has had explosive growth. Facebook, for example, reports an 11% uptake in revenue compared to the same quarter in 2019. They report a profit increase of 98%. Three billion people use one of its apps regularly and 2.47 billion do so daily. This use data is an increase of 12% from a year ago and likely reflects the greater dependence on tech due to the sheltering in place mandates. June saw a grass roots campaign Stop the Hate for Profit to pressure advertisers to pull back ads to protest hate speech on the sites. Sources admitted that Facebook did see an impact in their July figures as a consequence of the campaign. Zuckerberg, chief executive of Facebook, pledged to maintain his free speech policies in spite of the campaign.
Most of the trends seen in the second quarter represent the dramatic impact of a full quarter of viral repercussions. There was some mitigation in the reopening that occurred in June, much of which has been drawn back. It is notable that spending went up only for the unemployed which has been attributed to the government payouts and unemployment aid. These have not yet been renewed and Federal Covid-19 unemployment benefits ended July 31st. The consequences of a failure to provide another stimulus package are imagined to be dire. In order to divert the worst possible economic fallout another stimulus should be imminent and generous. There should be more cash transfers to all low and moderate income; sustained generous federal aid for the unemployed; rent assistance; an eviction moratorium; subsidies for childcare and healthcare; and aid for schools and communities. With appropriate planning the worst economic fallout can be averted. The successes in the government programs of the European Union can be used as guides.
- https://www.stophateforprofit.org/ Website for the campaign to pressure advertisers to cut support to Facebook
Many feel work to be a citizen’s right as well as a personal source of income and satisfaction. Recently US unemployment has been as high as 14.7% though some experts estimate it actually may be as high as 20%. Labor force participation has fallen to 60.2%. Job loss is not an equal opportunity trend. It is well documented that low wage workers are suffering greater losses than professionally employed persons. It also is undisputed that people of color, especially Latinos and African Americans have been hard hit by the pandemic as have women. Predictions regarding when the labor force will regain its pre-pandemic levels are fluid and growing worse with the recent virus resurgence and the mandated school closings. The future shape of work in American is going to change, possibly in good and bad ways.
The potential benefits for those who telecommute are enticing. Greater flexibility in the workday; reduced or nonexistent commutes; less work associated costs such as clothes, gas, and meals; and cheaper rents/mortgages are among the most apparent. Companies will benefit as well, saving up to $11,000 per employee expenses. More people working remotely and at-home can have a detrimental effect on other sectors of society as these changes will cause concomitant losses in restaurant serves, retail, flying, personal services, and housecleaning.
For low wage workers the pandemic-induced economic downturn is likely to lead to fewer job opportunities and stagnant or decreased wages a pattern that has been prevalent for the past forty years. Loss of jobs to automation, already a fear of the previous decade or more, may be accelerated.
But, perhaps the greatest economic impact will be felt among the cohort of students who are attending high school in the era of the pandemic.It is predicted that the “at risk” populations of students of color and among low income students will suffer the greatest deprivations as a consequence to distance learning; they will lose more in educational advancement and will be more likely to drop out of schooling. This will not only greatly impact their personal incomes but will have a significant impact on the overall economy.
McKinsey & Company has estimated that if students do not attend classes until January 2021, students with poor online instruction will loses an average of 7-11 months of skill development and those who receive no instruction will lose 12-14 months. Those with adequate instruction will lag behind by 3-4 months compared to in-class instruction. If classrooms are not reconvened for the spring term, the situation will be even worse. Estimates suggest, for example, that 60% of low income students regularly log on to online instruction compared to 90% of high income students and some states have no mandated online coursework. This will surely exacerbate current achievement gaps. It is suggested that these achievement gaps will cost individuals the equivalent of a year’s salary over their lifetime. The cost to the economy will be about 110 billion dollars annually for the working years of the current cohort of students in high school.
In additional to lost wages, educational attainment is correlated with better health; reduced crime; decreases in incarceration; greater family stability; and increased political participation. Addressing these deficiencies in a growing group of the population has not yet been defined in monetary terms but we cannot afford to ignore these trends.
There are many suggestions of ways to ameliorate these issues. For education, policy-makers need to spend more money and create enrichment programs for students; provide greater opportunities for support, tutors, quiet workspaces; assure the necessary educational “infrastructure,” with satisfactory computers, internet access, study areas, desks, lighting, and good chairs. Provide real skills learning and training for teachers and mental health support for students, families, and instructors. The federal government needs to step up to the plate and support these measures because the strain on states will make them unable to fully address these needs.
For employment, there are also many solutions, for example a living wage, daycare, adequate sick leave, family leave, and some safety measures will have real impacts. For furloughed or unemployed workers, skills training for labor force re-entry should be a priority.
Congress must act quickly in a number of ways. There should be a second, generous CARES act continuing unemployment aid for all including those usually ineligible; health insurance and healthcare for those who are newly or chronically uninsured; and paid sick leave and family leave with return employment. Essential societal needs, largely unaddressed in the first aid package, while profitable industries were receiving emergency aid, must be attended to. These would include support for childcare; school and after school care; support for bargaining units for laborers; and interest free lending to support infrastructure grsowth and job creation. The resources are available; the will to garner them needs to be exercised over increasingly divisive bipartisan bickering.
- Contact our representatives and support a second CARES act
- Contact info for House representatives
- Contact info for Senators