Wednesday, April 29, 2020

Which Nations Have Most Rapid Rate Of Increase In Deaths Per Million from SARS-Cov-2?

As of earlier tody, 4/29/20,. according to "Our World in Data", there are currently nine nations that based on looking at the three-day rolling average, have rates of increase of more than 5 per million per day.  They are in order with their rates:

Belgium 15.97
Ireland 10.73
UK 9.2
Spain 9.01
Sweden 8.38
Italy 7.82
France 7.32
USA 6.2
Netherlands 6.13.

For what it is worth, many of these are declining, although source only showed this over time for a sub-sample of these (not including Sweden, but including Canada, whose rate of increase is accelerating)..

Barkley Rosser

Tuesday, April 28, 2020

An Update on Shadow Government

Not only is the current level of testing for the coronavirus insufficient, the tests themselves are flawed.  Read this summary by infectious disease specialist Michael Osterholm and a coauthor for particulars.  Their key policy conclusion is
A blue-ribbon panel of public health, laboratory and medical experts, ethicists, legal scholars and elected officials should be convened immediately to set out a road map with realistic goals for testing and contact-tracing.
If we had a reliable government, it would get this done, but we don’t.  Concretely, one of the main jobs of a shadow government organized by Democrats would be to assemble this group and give it a regular, high profile platform.

Saturday, April 25, 2020

The Wide Open Origin Question Regarding SAR-Cov-2

More than a century later, we still do not  know the origin of the Spanish flu, with at least three currently scientifically supported origins out there: North America (possibly Kansas), China, and British soldiers in France. This will not be resolved.  I suspect that this may become the outcome of the current debate over the origin of our current pandemic.  While mostly this seems to have become a matter of random infection from animals versus an accident in a lab in Wuhan, upon further study this seems more complicated on all sides of this, with crucial data missing forever.  I fear the outcome of this debate will be no more resolved a centuury from now than the matter of the Spanish flu origin is now.

I also note before proceeding further that this discussion has become highly politically charged, with some regular readers here having strong views on this.  I want to be as csreful and clear in my further discussion here as possible, withoug getting dragged into the hot politics that indeed are adhering to this matter. 

Upfront I shall take off from two columns in the Washington Post, 4/24/20, one by David Ignatius and the other, just below it, by Josh Rogin, both on this issue.  Given firewalls and all that, I shall indulge by quoting extensively from both of their columns:

Ignatius's is titled, "China puts even the truth on lockdown." I follow wih selected quotes:

"Top scientists I contacted over the past week were skeptical about theories that are spinning about deliberate Chinese attempts to engineer the toxic virus. But many said it's possible that a pathogen that was being studied by researchers in Wuhan could have leaked accidentally of two virology labs  there, setting off the chain of infection."

"Chinese researchers did some careful research in January and February, when the virus was spreading. But research was subsequently tightly controlled, and in at least one case with scientists in Guangzhou, suppresed."

"The recent commotion about conspiracy theories comes partly from an unpublished paper by several maverick European scientists that was privately circulated last week. The authors argued that covid-19 was a 'purposefully manipulated' virus created partly through 'gain of function' research at the Wuhan Institute of Virology. A 2015 paper by Chinese and American scientists had described such an effort to enhance the potential infectivity of the bat coronoviruses so they could be studied  and treated better.

Both U.S. and British intelligence analysts are skeptical that covid-18 resulted from deliberate human engineering. The claims about 'engineered origins' in the paper were 'not substantiated' by British government scientists, a British official told me. U.S. intelligence analysts are also confident that the virus wasn't created in a laboratory, but they haven't ruled out the possibility that a natural organic virus that was enhanced for scientific reasons may have leaked accidentally in Wuhan."

Just below Ignatius's column is the one by Josh Rogin entitled, "The risks of collaberation with China." Following are selected quotations from it:

"The Chinese government won't share actual virus samples from the earliest cases. The Shanghai lab first released the coronaviurs genome was shut down for 'rectification.' All research on the virus origin in China is now restricted. Critics have disappeared."

"Jonna Mazet , professor of epidemiology at the University of Californial at Davis, was director of the U.S. Agency for International Development's $200 million Predict program, which spent 10 years trying to anticipate the next viral pandemic, before the Trump adminstration cut almost all of its funding last September. Shi [lead scientist at Wuhan Virology Institute handling bat coronovirus reseach] was Predict's principal investigator in China.

Mazet told me she did not believe it was likely the coronavirus escaped the Wuhan lab, but she acknowledged, 'Absolutely, accidents can happen.'"

So there we have the argument that it might have come from a lab in Wuhan, of which there are two, the other being the Wuhan Center for Disease Control and Prevention. with most of the  claims of an accidental source for the world coming from the other lab, WIV.

The main alternative to the above (which absolutely does not include any claim that it was bioweapon consciously cooked by the Chinese govt as some, such as  Sen. Cotton have claimed, a view now accepted by nodody outside the US) is that it came from animals directly to humans, not from a lab.

I am not an expert on the underlining science of this, but there are several serious possible sources for an ultimately animal  rather than accidental lab, source of this pandemic.  There are several possible alternatives here, and while now most think an animal source is it, the disagreement and uncertainty over just which of these is ir is striking.  I see at least three theories, of all which have problems,

1) It came from snakes, either as the original source or as an intermediate transmitter from bats in Yunnan, a southwestern province of China, several hundred miles from Wuhan, with at least two Chinese candiates out there, the kral an cobra.. Something supporting this theory is that snakes may have been sold at the Hunan Seafood Market in Wuhan, the definite site  of  the major original outburst  of the virus in late 2019.As of now this theory does not have much support, but...

2) It came from pangolins, not bats or snakes.The snake theory dates back to January, but the pangolin theory has more recent academic support, if not yet accepted in a peer-reviewed journal, Sorry, that is not a functioning link as I have put it, but that on google will get it for you. While that was a fairly recent serious scientific report, it has convinced near nobody among serious scients. This theoy has not been generally accepted among most relevsnt scientist, although it is possible that either snakes or pangolins might have been intermediate species from bats. For the possible theory that pangolins were not the originators but the transmitters  from bats, it is an unresolved debate over whether or not pangolins were sold in the Hunan wet market of Wuhan, with the weight of current eviidence leaning to they were not.

3) That it ultimately came from horseshoe bats in caves in Yunnan province, several hundred miles south of Wuhan, is probably the most widely accepted theory. It is accepted that bats were not sold im the wet market of Wuhan. So if the mutation that created this virus happened in those bats rather than in one of the labs in Wuhan only 300 yards from the notorious wet market, shut down and scrubbed on Jan. 1 it had to come through an intermediate animal, which happened wih SARS going through civets and with MERS that went through dromedary camels.

4)   It may not have come out of the wet market in Wuhan. Of the first 41 identified cases, 13 of them were not from there, with exactly where the earliest officially recognized case on Nov. 17 was precisely from remains a state secret of the the Peoples' Republic of China.

5) Both Ignatius and Rogin, and a vast number of others  think that what should happen is that the US and China should stop playing games with each other and be fully  open about relevant information, which they should share with the whole world.

Barkley Rosser

Friday, April 24, 2020

We Need a Shadow Government

Republican rule in the US is a horror show.  We get incoherent ramblings from our president on injecting bleach into our veins, calls for the states to file for bankruptcy from the Senate majority leader, a veto of modest IMF support for developing countries hammered financially by the virus, and a complete absence of guidance on the most crucial aspects of public health.

We already know this.

The greater tragedy is that the Democrats are barely better.  Their program, to the extent it makes sense to speak of one, is protecting the immediate interests of their key constituents.  This begins with the financial sector, and since the Republicans share the same commitment, their multi-trillion dollar bailout zipped right through.  Small business is also important to both parties, if not quite as much, and upwards of a billion will wend its way to them—via the banks, of course.  Lots of health sector money flows to the Democrats, and Pelosi and Schumer found a way to bail them out too.  Beyond this it has been hit or miss.  The unemployed will get greater wage replacement, even above 100% for the bottom end of the labor market.  There may be future money for the states.  A few billion for testing, and that’s about it.

What all this adds up to is top-heavy interest group protection.  It’s not a plan.

The irony is that informed opinion has largely converged in the two key areas of public policy.  To overcome the pandemic we need four things:

  • A rapid increase in the production and dissemination of personal protective equipment, first to the health care sector and then to other workers who can’t avoid social contact.  This should be mandated and organized by the government through established emergency powers.
  • Mandatory use of face masks in public by everyone—no exceptions.  Masks, even simple homemade cloth coverings, are highly effective in reducing transmission.  (No, they don’t do much to shield the wearer from ambient exposures; yes they eliminate most transmission by the wearer.)

  • The government should make an immense expansion of testing capability its top priority.  No resources should be spared.  In addition, all available R&D capability should be directed toward improving the specificity and sensitivity of testing methods.

  • Measures should be taken immediately to establish a network of local and regional contact tracing systems.  Doing this in a manner that minimizes broader loss of privacy risks should be a primary concern.  Between vastly expanded testing and contact tracing, we have a pathway out of economic lockdown without inviting an even more devastating second wave of infections and deaths.

Economically, we need three broad initiatives:

  • A payments moratorium, with no accrued interest.  No rents, mortgages, premiums or other payments for essential services.  This means stopping the clock for the duration of unavoidable economic restrictions.
  • Universal income maintenance.  Income streams disrupted by the response to the pandemic should be sustained at public expense, with some percent reduction to reflect reduced spending opportunities—especially if a payments moratorium is also in effect.\
  • Liberal use of the Fed’s asset book to finance public services and sustain incomes.  We should have unrestricted ability to borrow to achieve all of the above, and the Fed should be authorized to purchase all such loan instruments.  Money should never be a constraint on policy, only real constraints like people, skills, resources and productive capacity.

My reading of the policy chatter is that, while emphases differ, in broad terms both agendas have overwhelming professional support.  What they lack is a political vehicle.

In a better world, that vehicle would be the Democratic Party, which would establish a shadow government to refine these proposals and push for their adoption.  It would assemble committees for particular policy areas, conduct regular—even daily—press briefings, organize petition campaigns, and in general act as though it had responsibility for progress in this country in economics and public health.  In their absence, which is the world we actually live in, no one is assuming this responsibility, and policy is in chaos.

Note that this is separate from the debate over how progressive the Democrats should be—whether they should campaign for Medicare for All, free public higher education and other reforms.  The need for leadership on matters of basic governance is prior and does not depend on resolving political disagreements over the future of the country once the pandemic has passed.

Wednesday, April 22, 2020

Where Are People Dying Most Intensively Now of SARS-Cov-2?

I am putting this up because I have been hearing seeing people making claims about this that do not agree with what I have just seen at Statista for today, the 50th anniversary of the first Earth Day, for deaths per million according to the pandemic virus. I am not going to comment on the list further, although I am tempted, but the situation is changing so fast.

United Kingdom

Oh, I suppose I should provide the same list for infections per capita, a less definite number due to testing variations, than the former.  Best I could do was a three day old list from Statista, but here it is.


Addendum after 4 comments:  Here are top 15 in terms of testing rates per capita


Barkley Rosser

Happy Sesquicentennial Birthday, Vladimir Lenin! (Oh, And Happy Half Century Earth Day)

A half century ago today was the first Earth Day, which I paerticipated in while at the University of Wisconsin-Madison.  Although I did not know him well, I even met the founder of the event, then Senator Gaylord Nelson of Wisconsin.  While it is easy to be discouraged by the ongoing failure to deal with the global warming issue as well as the large amount of rollbacks of reasonable environmental regulations in the US by Donald Trump, with several happening very recently under cover of the SARS-Cov-2 pandemic, much has also been achieved, with vastly reduced air and water pollution of many types over the last half century in most nations.

It is easy to forget that in 1970 there was no Enviromental Protection Agency and that most of the most basic laws regulating most air and water pollutants were not in place almost anywhere in the world. I remember seeing the Cuyahoga River in Cleveland in 1965, a year it caught fire, when it not only stank but had an unpleasant pinkish hue to it. Today it looks like regular water and fern bars and restaurants stand beside it where in good weather (and no pandemics) people sit outside to eat and drink beside it.

Which gets to the irony of my title for this post.  I am remembering an odd sideshow at the time of the first Earth Day, which came only a few weeks prior to the killing of four students in anti-Vietnam War protests at Kent Sate, which would be followed by the largest and most widespread of such protests across the US.  This was probably the culminating point (punctuated at the end of the summer by the bombing in Madison of the Army Math Research Center) of the revolutionary socialist New Left movement in the US among students.  On the Madison campus, one of the leading strongholds of the movement, where we had at  least three different Trotskyist groups competing with each other, not to mention with Maoists and various other radical left groups, there was fairly harsh criticism of that first Earth Day be many from someof these groups.

One particular point noted by more than one critic was that this event somehow happened to occur on the centennial of the birth of Vladimir Lenin in 1870, admiration of whom was something that the usually feuding Maoists and Trotskyist factions could agree on, even if they disagreed about Stalin and Mao.  So this event was according to some cooked up by the right wing, ultimately Richard Nixon who was indeed beginning to support environmentalism somewhat and would indeed oversee the founding of the EPA and the passage of some important environmental laws (a sharp contrast with today's Trump).  It was cooked up to distract the revolutionary workers and students from focusing both on the anti-Vietnam War movement as well as the broader revolutionary socialist movement, with proper socialist revolutionaries needing to be focused on Lenin and the centennial of his birth rather than going all gaga over reducing automobile emissions, as one pamphlet I saw then put it.

All of this seems moot if not quite absurd in the context of today's politics.  Anti-environmental conservatives criticize environmentalists as being "watermelons," green on the outside but red on in the inside (or they did 20 years ago before red became the color of the US Republican Party).  But in 1970 "brown Marxism" was dominant on the left.  In the USSR and China the rulers focused on meeting production quotas and did not worry about pollution, a view that led Marshall Goldman a few years later to write about "the convergence" between capitalism and socialism on pollution.  The strong emphasis on controlling population that was very strong in the 1970 Earth Day as symbolized by a leading role for Paul Ehrlich who was getting much attention for his book, The Population Bomb, also fed into skepticism by those on the radical left who saw the hand of reactionary racist and imperialist Malthusianism in the celebration, with Marx himself having criticized Malthus as the ultimate reactionary, not without reason.

And while most of this has long gone by the wayside and still-Communist China now at least officially is striving to combat global warming (in contrast to the US officially under Donald Trump), we see vague echoes of that old link between conservation and conservatism, and the even deeper link between ecology and even fascism, as advocates of a purification based on "blood and soil" in Germany that followed Hitler included students of students of Ernst Haeckel, the man who coined the word "ecology" in the late 19th century.  Today we have neo-ecofascists on the far right among those who rail against immigrants "polluting" our society.

No, I do not think these elements will come to dominate the modern green movement, which is predominantly progressive. But my ironic title for this post is to remind that some of these older ideas are out there trying reappear.  Let us move on to make sure the green movement is progressive.  Right now with our president moving so sharply against the environment on so many fronts, this should not be too hard to do.

Anyway, happy half century Earth Day, everybody (and if you like, the sesquicentennial of Lenin's birthday, although whatever happened to all those Trotskyist factions anyway?).

Barkley Rosser

Monday, April 20, 2020

Negative Oil Prices

Yes, earlier this afternoon, very briefly, western Canadian oil was selling for $ -0.15.  At least I saw a report of this.  The price may have been there for only three seconds, but it is the first time I have ever heard of there being negative oil or energy prices ever.  Negative interest rates, which are now quite common are one thing, but negative oil prices?

OTOH, some energy related assets have had negative prices before. I am thinking of abandoned coal mines and some highly polluting energy production facilities in certain locations with strict environmental laws that mandate that the owner of the asset pay for cleaning up the pollution coming out of it.  One location and period when and where I heard numerous reports of negative price sales of such asets was in the former East Germany after unification with privatization by the Treuhandstalt.

Addendum, 4:40 PM: So I jusr saw a Reuters story claiming that at some point this afternoon, the price for May West Texas Intermediate crude, one of the world's two main oil benchmarks (Brent crude is the other) hit a price  $-36.73 per barrel.  If true, this is quite  astounding.  Apparently they have run out of storage for all the surplus WTI (and west Canadian) crude.  I note that at 4 PM the sopt price for WTI was  $1.50, just barely positive.  Meantime, Brent has held at around $26.  Frankly I do not know where this is going, but it is definitely unprecedented.

The only story I have seen is that this is Putin in Russia and MbS in Saudi Arabia working to really thoroughly bust the US fraking industry, which faces much higher variable costs than conventional oil drilling, which tends to have higher fixed costs.  This is certainly possible, although I am not sure how they are able to target WTI without it hitting Brent.  In any case, this certainlyi makes absud Trump's parading around and bragging about how he cooked up a deal between him and the other two, with AMLO from Mexico on board as well as implicitly the rest of OPEC beyond KSA, to cut world oil production by as much as 20 mbpd to stabilize the price.  This deal, if it was ever really there, looks to be in complete tatters like so many other diplomatic initiatives Trump has engaged in and bragged about, only to lead to vacuous if not negative results.

Barkley Rosser

Does Google’s Search Algorithm Protect the New York Times?

Yesterday morning, after reading the Sunday New York Times, I posted two pieces on EconoSpeak within a few minutes of each other.  One was a short, cute little item (a visual grab from the paper) entitled “The Art of Juxtaposition”; the other was a longer, more substantial takedown of a deficit hysteria “analysis” I called “The Usual Deficit Blather from the New York Times”.

As usual, I monitored the posts through the day to see if they were being picked up anywhere.  This has become largely an exercise in nostalgia, since with the fading of the economics blogosphere there isn’t much to track.  What happened next was interesting, however.

Before long, Google had indexed “The Art of Juxtaposition” and returned it on my search, but the “Blather” piece was nowhere to be found.  Curious.  Then this morning I awoke to discover that Angry Bear had reposted “Blather” but not “Juxtaposition”.  That’s fine, since the one they used actually has some content.  But now, when I go back to Google search, “Blather” turns up from Angry Bear but still not EconoSpeak.

What I suspect is that, in a misguided attempt to slow the spread of fake news, Google’s algorithm blocks criticism of the Times and other “reputable” media unless it issues from sites with sufficiently high traffic.  Angry Bear made the cut but not EconoSpeak.

This is just a hypothesis, and I’m not invested in it.  I’d be happy to hear some other explanation—have one?

UPDATE: 24 hours later, I've done a Google search for "Does Google’s Search Algorithm Protect the New York Times?"  The result: no link to this post.

Stairway to Serfdom

I posted the above chart four days ago in "From Social Distance to Social Justice" to illustrate Arthur Dahlberg's argument about the eventual consequences of a declining labor share of income. Dahlberg was inspired by Stephen Leacock's The Unsolved Riddle of Social Justice and both Leacock and Dahlberg were influenced by Thorsten Veblen.

The chart also illuminates arguments made by Moishe Postone about Marx's theory of capitalist production. I happen to agree substantially with Postone's interpretation of Marx even though I find his presentation repetitive and difficult to follow. That is, I think I agree with what I think he was trying to say in Time, Labor and Social Domination

What the chart shows is that in spite of a more than threefold increase in productivity over roughly the last half-century, the per capita hours of work increased in a series of steps with each successive business cycle culminating in a higher level of hours per capita. "Because total value created is a function only of abstract labor time expenditure." Postone wrote, "increased productivity yields a greater amount of material wealth but results only in short-term increases in value yielded per unit time." Postone later remarks that one consequence of this dynamic "is the accelerating destruction of the natural environment."

The object of capitalist production is not the material wealth that it yields in increasing quantities. The object is the expanded accumulation of capital through the production of surplus value. At one point Postone asserts that "labor is actually the object of production" and elsewhere that "value operates as a socially constituted form of abstract domination." This may sound like "the man who mistook his wife for a hat" but I think it is absolutely correct and extremely important, if difficult to parse. 

Let me try. Value is abstract, as is surplus value. Material wealth is concrete but it doesn't increase proportionately to value. Labor is also concrete but, in contrast to material wealth, increases in abstract labor time are, ultimately, proportionate to increases in value. Social domination is what ties labor to abstract labor time.

The difficulty here is that Postone -- and Marx -- are referring to a contradictory process. Literally. Explicitly. "Capital itself is the moving contradiction," Marx wrote in the Grundrisse, "[in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth." Here we have an explanation for the oscillations in the red line in the chart above. Productivity gains propel the economic recovery, which enlists more labor and more labor time, which creates a drag on productivity. Statistically, this is a tautology since hours of work is the denominator in the productivity equation.

Why is each successive peak higher than the last one through five business cycles? I suspect that this is not a characteristic feature of "market capitalism" but is an unintended consequence of managed capital. One could call it "inflation" if that term hadn't already been thoroughly colonized by the apologists for capital. "Inflation is always and everywhere a monetary phenomenon," proclaimed Milton Friedman, thereby foreclosing once and for all consideration of any alternative analysis.

Hours inflation is a type of inflation -- just as asset bubble inflation is a type of inflation. But pay no attention to the man behind the screen. "Inflation is a process by which the presumed nexus between signifier (monetary value) and signified (material commodity), representation and 'reality,' becomes strained or even broken altogether," wrote Sarah L. Lincoln. There is that word, "value" again and it is instructive to shuffle through the phases: value, surplus value, labor time, abstract domination.

The presumed nexus between monetary value and the material commodity is that a certain quantity of labor time was expended in production of the quantity. But this is a presumption that becomes more and more strained with the development of modern industry. "On the one side, then, it [capital] calls to life all the powers of science and of nature, as of social combination and of social intercourse, in order to make the creation of wealth independent (relatively) of the labour time employed on it," Marx wrote in the Grundriss. "On the other side, it wants to use labour time as the measuring rod for the giant social forces thereby created, and to confine them within the limits required to maintain the already created value as value."

Clearly, in Marx's analysis labor time is not the power behind the creation of wealth. Instead it is the yardstick, imposed by capital, for measuring the worth of all that creation. Why? To maintain the already created value as value. The danger is that properly acknowledging the powers of science, nature, social combination and social intercourse in the creation of wealth would devalue the massively inflated assets, which presumably entitle the capitalist to a large and increasing share of material wealth. Those assets become "stranded assets," which is a nice way of saying liabilities. 

Marx's argument here is that the more labor time is rendered superfluous by modern industry, the more desperately does capital cling to it as the measure of value. Capital "diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition – question of life or death – for the necessary." The relentless ascent, decade after decade, of hours worked per capita documents the increasing superfluity of that labor time. The less labor time is needed the more of it is needed! This is the very definition of contradiction.

In the last four weeks, 22 million Americans filed new claims for unemployment insurance. What will it take to "get them back to work"? Those 22 million -- along with another 22 or 44 million -- were already redundant before the coronavirus lockdowns were imposed. What if creating those 40 or 60 million jobs requires destroying 30 to 50 trillion dollars worth of imaginary asset value? Anybody wanna buy a barrel of Western Canada Select? A bargain at minus fifteen cents a barrel.

Sunday, April 19, 2020

The Art of Juxtaposition

Seen in today's New York Times in Print:

The Usual Deficit Blather from the New York Times

The Times today ran a truly execrable article warning us that, once the virus has passed, we will suffer dire consequences from the runup of government debt.  As most readers know, this argument is theoretically illiterate, derived from the false comparison between household and government debt.  We've been through this many times before, and I have nothing to add.

I do want to focus on one sentence, however, to illustrate how intellectual blinders can lead to absurd conclusions.

To quote the author, Carl Hulse, "In other words, the bill will come due, as it always does."

Does it?  Check out total Federal debt measured as a percent of GDP:

As you can see, it skyrocketed during the 1940s, when the US went to war against Germany, Italy and Japan.  By the time the war was over it was at an all-time high.  Yes, we had to borrow to produce all the war materiel and send millions of troops around the world; no one doubts that.  But after V-E and V-J, how were public finances affected?

For the answer, take a look at the federal budget surplus or deficit as a percent of GDP:

Well, we ran a surplus for a few years after the war, hardly of the same caliber as the wartime deficits, and then it was business as usual: mostly modest deficits with the occasional surplus or breakeven year.  So when did we "pay off" all those war bonds?  Never.  We just rolled them over and regularly added more debt along the way.  Nominal growth took care of it.

So no, the bill will not come due, as it didn't before.

Wednesday, April 15, 2020

Trump Defunds WHO and USPS: Will Motherhood and Apple Pie Be Next?

Yes, Trump is out to cut the roughly half a billion $ US contribution to the $6 billion budget of the World Hea viruslth Organization (WHO).  It seems that he now sees his path to reelection to be based on blaming China for the coronavirus and the WHO for supposedly supporting China in their supposedly nefarious conduct, alloeing hin to wallow in  fit of xenophobia as well as accusations against Joe Biden for being "soft on China."  Certainly China was slow to act against the virus, although not as slow as Trump and his team here in the US, and the WHO may well have been too soliciitous of China and its interests. But the WHo remains the central organization for  coordination the global response to thie situation.  This is simply stupid in terms of fighting the virus.

And then we have him going out of his way to demand that funds for the nearly bankrupt US Postal Service (USPS) be removed from the recent stimulus bill. GOPs in Congress have burdened them with having to fund future pensions at a level no other entity in the nation has to do, and, of course their business is in long term decline.  But apparently the USPS is the single most popular federal agencyy there is, with a 90% popularity rating, putting it ahead of even NASA and the National Park Service.  That the government should support it is written into the Constitution. But, hey, it delivers packages for Amazon, whose owner owns the Washington Post, which says bad things about him, not to mention if USPS can be shut  down, then all these Dem proposals to have people mail in their votes can be quashed, and as we have seen in Wisconsin, making it hard for people to submit ballots by mail is really popular.

Anyway, at this rate, I expect Trump's next move to be to defund entities supporting motherhood and apple pie.

Barkley Rosser

Prairie du Chien Selects Jill Karofsky Over David Kelly!

I have previously posted on the highly swingy politicsal nature of southwestern Wisconsin, symbolized by the town there at the mouth of the Wisconsin River, French-founded Prairie du Chien (named for an Indian cheif, it turns out, who was "Dog of the Prairie" in English).  It seems that how SW Wixsonsin goes, so goes the whole state, at least in 2012, 2016, and 2018.

Now we can add an election in 2020, that for a seat on the state Supreme Court, where liberal Dem Jill Karofsky from Madison clobbered incumbent super conservative Justic David Kelly by 11%.  And, yes, SW Wisconsin went for her, along with some areas not expected, such as traditionally conservative counties in the Northeast that contain Green Bay, Appleton, and Oshkosh.  Milwaukee suburbs still went for Kelly, bur Karofsky made gains there.

Of course this election was marked by major GOP efforts to suppress voting, restricting absentee ballots (a move backed 5-4 by the SCOTUS)  and with only 5 out of 180 polls open for voting in Milwaukee, source of the largest Dem voting base in the state.  But even with covid-19, long lines formed there, and many observers think the GOP shot itself in the foot with its restriictive moves, angering Dem-leaning voters who turned out indroves, despite the health danger.

An amusing tidbit is that now GOPs are saying it was all a plot by Dems (probably Obama in the background) urging Bernie Sanders to stay in the race through Wisconsin, something many observers had long predicted since his losses on Super Tuesday.  Maybe that made some difference, although personally I think it is the Prairie du Chien Effect.

Barkley Rosser

From Social Distance to Social Justice: An Unsolved Riddle

In the last two weeks of March and the first week of April, 2020 16.5 million new claims for unemployment were filed in the U.S. After the novel coronavirus is successfully contained some but not all of those jobs will return. The post-pandemic economy will not be the same as the economy before and to assume a return to business-as-usual economic growth would be folly.

There will need to be immediate share-the-work policies along with basic income guarantees. These must be viewed not as temporary measures to be abandoned as soon as "normality" returns but as transitional steps toward an entirely new regime of work, income and common wealth. Addressing climate change has momentarily taken a back seat to the urgent immediacy of the pandemic. But the irreversible long-term consequences of failing to free ourselves from the fossil-fueled treadmill of growth will make Covid-19 seem like a flash in the pan.

Tuesday, April 14, 2020

Corporate Bond Spreads and the Pandemic

The St. Louis FED has an economics blog:
The ongoing COVID-19 pandemic has caused significant disruption in economic activity across the globe. Financial markets, in particular, have experienced surges in volatility that had not been seen since the 2007-09 financial crisis … The figure below plots the median value for our measure of credit spreads (the difference between a corporate bond’s yield and a benchmark interest rate on U.S. government securities) at the daily frequency, since the beginning of the year ... The figure highlights two important dates. The first one is Feb. 28, when stock markets experienced the largest single week declines since the 2008 financial crisis. While the median spread had been stable at around 100 basis points since the beginning of the year, it started rising around this date, as financial market turmoil became more evident. The second line corresponds to March 23, the day when the Fed announced a series of new measures to support the economy.
The post discusses the role of monetary policy. I could object that this first chart fails to distinguish between credit spreads on corporate bonds with high credit ratings versus credit spreads on corporate bonds with lower credit ratings. Except the authors present more detail information:
The figures below plot the median and standard deviation of credit spreads for three groups of bonds: Those with high ratings (A- and above) Those with medium ratings (between BBB and BB-) Those with low ratings (B+ and below, including unrated)
While credit spreads are not quite as high as they were during late 2008 and early 2009, this spike in credit spreads is something we should continue to monitor.

World Chess Championship Ends

The two best chess players in the world faced off this month, undeterred by lockdowns, travel bans or any other restrictions.  They never had to see each other either.

It helped that they were both computer programs.  The former champ, Stockfish, is the strongest of the traditional type of program, designed by humans and invested with all the fine points of judgment the best human players can translate into code.  Because of its tremendous calculating abilities, it is rated far higher than the top flesh and blood competitors: 3600 to 2800+ for Magnus Carlsen and his closest challengers.  (The numbers are measured on the Elo scale, named for physicist and chess enthusiast Arpad Elo, who developed it over 50 years ago.  Players' scores rise and fall based on how they do against other rated players.  I had the pleasure, long ago, of sipping homemade cordial at Arpad's modest home in Milwaukee.)

But the new top performer is lc0, Leela Chess Zero, a pure implementation of machine learning.  No one told it how to calculate or evaluate; it played millions of games with itself and learned through experience how to make the best moves.  As a result, it has odd blindspots (poor appreciation for fortresses, for instance) but also finds strategies no human would ever consider.  It has a rating a little higher than Stockfish's, and the gap will be wider still after the latest match.

They played 200 games.  Most were drawn, but Leela came out on top, 106-94.  The format was a series of two-game mini-matches in which the opening moves were preselected, and the programs had a chance to play the resulting position once from each side.  (One opening was botched by the organizers; it incorporated a blunder that, at this level, ensured a win for Black.  This didn't change the final spread, but it effectively made the match 198 games rather than 200.)

You can see the whole match here.  Make sure you click on "View Crosstable".  If you see nothing else, check out game 169, which I predict will be regarded as some kind of watershed.  Stockfish, with superhuman calculation chops, rated over 700 points higher than the nearest human, thought it had a pull when it made its 15th move, simultaneously threatening a bishop and a pawn.  Then Leela came back with 16. f5, and immediately Stockfish re-evaluated, its assessment dropping radically.  If computers can have an "ooooh shit" moment, this was it.  And the move can only be called extraordinary.  Leela simply gives up the bishop with no clear followup or compensation, yet somehow, several moves later, Stockfish finds there is simply no defense.

This game is amazing in its own right, but it also expresses the "romanticism" of Leela's self-taught playing style.  She is cavalier about material, much preferring easier play and more scope for her pieces to having more "stuff".  She can't be bothered to keep track of who has the most pawns, and she makes exchange sacrifices with abandon.  If god has come down from silicon heaven to show us how the game should be played, she turns out to a lot wilder than we expected.

Trump All Over The Place On Oil Prices

Indeed, are we surprised? But POTUS has reached a new level of hypocrisy on all this.

So a while ago when oil prices began falling sharply, Trump bragged about how much this was going to help consumers, and he should get credit for it, of course.

More recently, since WTI crude and even Brent fell below $30 per barrel (with WTI just over 20 right now, and Brent just over 30), he became worried about his pals in the oil patches of Texas, Oklahoma, and North Dakota, with Putin and MbS openly declaring they want to put US frackers out of business, oh dear.  So Trump piled in to strong arm Putin and MbS into supposedly making a production cut deal, maybe 10 mbpd, although unclear either of them actually following through solidly (and some others, such as Oman, pumping it up all the way). This got about a day or two's worth of a blip in the prices.

But now we find out that Trump has not agreed to any cuts in US production, and the prices have proceeded to plunge again, for better or worse.

This has led to something almost unheard of in more than half a century, the Texas Railroad Commission.  It has authority over number of days oil can be pumped in Texas, and it and its equivalent in Oklahoma are apparently contemplating intervening and on their own to reduce production in their states in order to try to prop up prices.  There was a time, back in the 1950s, when the Texas RR Commission was effectively OPEC, controlling global marginal production. That has not been the case for many decades, but who knows, maybe they will be back.

But then maybe Trump will not like this, given his recent claims about having "absolute authority" over all state entities and actors.  As it is, on this, he does not seem to know what  he wants.  But what can one expect from somebody who one minute is declaring himself free of "all responsibility" but the next is claiming "absolute authority"?

Barkley Rosser

Monday, April 13, 2020

Pandemic Panorama

"The helpless fixation on notions of security and property deriving from past decades keeps the average citizen from perceiving the quite remarkable stabilities of an entirely new kind that underlie the present situation." -- Walter Benjamin
Vor Dem Maskenball (with updates) -- Max Beckmann, 1922

The contemporary relevance of the section titled "Imperial Panorama: A Tour of German Inflation" from Walter Benjamin's One-Way Street never ceases to astonish me. Yesterday I finally understood what Benjamin meant by "German inflation." I had mistaken it for the name of an event, like "Great Depression" or "World War I" that referred to a monetary phenomenon in the Friedmanite sense of "inflation is always and everywhere a monetary phenomenon." I had attributed to it an ironic, metaphorical sense in which the "stupidity and cowardice" with which the German bourgeoisie insensibly confronted the "silent, invisible power" was "like" the rapidly evaporating value of the banknotes.

But no. The German inflation was not a metaphor for cultural impotence. It was not an event or a monetary phenomenon. The German inflation was literally that cultural impasse, that ineffectual nostalgia for foregone "stabilities" that had benefited those pining for them. Benjamin's "Imperial Panorama" was a diagnosis that "inflation is always and everywhere a cultural phenomenon."

Who knew that the economists have been lying to us about inflation? If prices go up by ten percent and wages go up by ten percent, that is inflation. If prices go up by five percent and wages don't go up at all -- voila! no inflation! "Austerity" policies, in which the price of previously public goods goes up by infinity, is not inflation -- because it is "anti-inflation."

In this cultural diagnosis of inflation, the hyper-inflation of 1923 was not something that came out of the blue in the 1920s. Nor were the printing of banknotes, the financing of the war or the demand of the Allies for reparations the cause. They were symptoms that aggravated the malaise. The inflationary die was cast long before the war.

"things can't go on like this"

Saturday, April 11, 2020

CNN’s Slavish Service to Trump

I had to do a double-take when I saw this news item.  First came the headline, “Pence won't let public health officials appear on CNN unless Trump's disinfo briefings run in full”.  I thought, this is horrible: the administration is holding Fauci and Birx hostage to force CNN to cover not only them but also Trump in his daily blatherings.  But no, it was exactly the other way around.  Pence was keeping them from being interviewed on CNN unless the network also covered their regular briefings.  What CNN has been doing instead is broadcasting the Trump portion and then cutting away when people who actually have something to say step forward.

Bad enough that Trump has a high profile daily outlet for his ravings; it’s incredible the media would treat this as news and CDC updates as disposable filler.  I guess they think they are doing the guy a favor by giving him free media so he doesn’t have to buy as much.

This has been a peeve of mine for some time; see here and here.  We expect Fox to offer itself as a mouthpiece for Trump, but why should the self-designated “enlightened” wing of journalism be just as craven?  Yes, the owners care more about ratings than the political consequences of their coverage, but why do working journalists go along without a peep?  What would it take to get through to them?

Why was the PREDICT Program Suspended Last Fall?

A discussion from October 29, 2019:
A crucial federal program tracking dangerous diseases is shutting down. Predict, a pandemic preparedness program, thrived under Bush and Obama. Now it’s canceled … Ever since the 2005 H5N1 bird flu scare, the US Agency for International Development (USAID) has run a project to track and research these diseases, called Predict. At a cost of $207 million during its existence, the program has collected more than 100,000 samples and found nearly 1,000 novel viruses, including a new Ebola virus ... But on Friday, the New York Times reported that the US government is shutting down the program. According to its former director Dennis Carroll, the program enjoyed enthusiastic support under Bush and Obama, but “things got complicated” in the last few years until the program “essentially collapsed.” … That’s a shame, and it’s indicative of a bigger problem. While pandemics make the news when they happen, efforts to understand, predict, and prevent them are underfunded. The US government has several agencies that do work on pandemic preparedness, but experts say that much more leadership in the area is needed … Predict’s mission, according to USAID, is “detection and discovery of zoonotic” — that is, animal-originating — “diseases at the wildlife-human interface.” Anywhere where wild animals live in close contact with humans, there’s potential for disease transmission. Humans can kill and eat wild animals, exposing themselves to diseases.
Another story from early February:
Shutdown of PREDICT Infectious Disease Program Challenged by Senators Warren and King … The joint letter follows-up on a November request from Senator King, who asked for information on USAID’s decision to end PREDICT. In response to Senator King’s initial letter, USAID indicated that it intends to initiate a successor project – but just two months away from the project’s March 2020 closure, no additional details regarding this replacement have been released.
A more recent discussion:
The severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) pandemic began only a few weeks after the end of PREDICT-2, the last-standing United States Agency for International Development (USAID) Emerging Pandemic Threats funding programme, which supported a decade of virology, ecology, and epidemiology around the world. Since 2009, PREDICT worked with more than 60 countries to build capacity and strengthen zoonotic pathogen surveillance, and identified at least 931 novel virus species from 145 000 samples of wildlife, livestock, and humans. The end of PREDICT leaves the closely connected Global Virome Project and a much broader coalition of multidisciplinary research in the lurch; one virologist observed to The New York Times that “PREDICT needed to go on for 20 years, not 10”. Despite a lack of immediate causation, the coincidental timing with the emergence of COVID-19 has not gone unnoticed, especially on social media; the issue even gained traction in the 2020 Democratic Party presidential primaries, with Senator Elizabeth Warren's plan for COVID-19 response explicitly mentioning the need to restore PREDICT.
Senator Warren was right about the need to restore this program. More needs to be asked as what on earth was the White House thinking last fall?

Friday, April 10, 2020

Lessons from the Pandemic

First, all who produce things we need or want are “essential workers”.  Health care practitioners are essential, but so are the people who stock pharmacies and grocery and hardware stores or staff customer service phone lines.  Truck drivers are essential.  Farmworkers who pick the crops we plan on eating are too.  Nothing demonstrates whose work matters in this world better than a pandemic that threatens to pull them off the job.

Second, because they are essential, whatever these workers need is what we all need.  If they need a bus to get to work, we all need that bus.  If they need childcare, we all need it.  Obviously, if they need healthcare or time to stay home and get over an illness or tend to their kids, that’s our need too.  And if they need a paycheck that provides secure housing, covers their expenses and gives them a chance to recharge their batteries periodically, we all need them to have it.

A virus does not respect the boundary of skin, the line we draw between ourselves and others.  It tells us that “we” is not just an idea or an attitude, but real economic and physical interconnection.  It’s true that we are not all in the same boat, that the burden of this pandemic falls unequally according to how much money we have, what neighborhood we live in and how much respect we get from those with power over us.  But those inequalities were always in front of us if we were willing to look.  It’s the interconnectedness that is suddenly starkly visible.

Thursday, April 9, 2020

Something Good From The Pandemic? Maybe A Cease Fire In Yemen

Yes, in the midst of deaths and deep recession there may be someting good that may come from this pandemic.  Saudi Arabia's leaders have announced a cease fire in Yemen after five years of war, one also accepted by its ally, the recognized government there.  Unfortunately so far the Houthi enemies of the Saudis and the recognized government have not so far accepted this proposed cease fire, and in fact it is not the first time the Saudis have called for one, with the previous efforts having failed.

However, this time maybe it will stick.  So far there are no officially recognized cases of covid-19 in Yemen.  But tens of thousands of Yemenis are returning home from KSA, thrown out as low oil prices have strained the Saudi economy, with the numerous Yemeni guest workers taking the hit, Yemenis being the only non-Saudis allowed to come and go without getting visas, so easy come and easy go.  In KSA there are now over 3,000 recognized cases while in Yemen more than half the health infrastructure has been destroyed by the Saudis in the war.  Yemen is facing a potentially disastrous situation.

A further aspect of this on the Saudi side is that 150 members of the Saudi royal family have apparently become infected.  Most of these are in the lesser branches, with the family now ridiculously large at about 15,000, of whom about 2,000 are "core."  But in fact some serious "senior" members have fallen ill, with perhaps the most prominent (and seriously ill) is the powerful governor of Riyadh province, which contains the capital city, Faisal bin Bandar bin Abdulaziz, a nephew of King Salman, who is reportedly hiding on an island in the Red Sea, with de factoo ruler Crown Prince MbS also in seclusion somewhere.  This seems to have spooked the Saudi leadership so that even if the Houthis do not like what is being offered, the Saudis may simply stand down.

The virus may be bringing about peace in a long-suffering nation. Let us hope so.

Barkley Rosser

Monday, April 6, 2020

Remdesivir and Transfer Pricing III

Robert Waldmann posted his Remdesivir III:
I do not understand the need for “evidence-based medicine” or rather I do not understand how the phrase is used by doctors. There is no evidence that Covid 19 patients (without heart disease) do better without Chloroquine. I learn that “evidence based medicine” does not imply choosing the therapy that a fair balance of evidence suggests is best for the patient. Pharmaceuticals are presumed guilty until proven safe and effective. The evidence is treated as evidence in a criminal trial with the burden of proof on the pharmaceutical.
Back on March 2, he wrote:
I think that aside from the trials, Remdesivir should be given to patients and contacts of patients. It is known to be safe (from the trial which shows that it doesn’t cure Ebola). Also a whole lot of it should be produced starting a month ago.
Remdesivir is undergoing phase III trials in rapid fire fashion with some promising results. I have such hopes that I’ve been writing on the transfer pricing implications. But a little news on this production issue:
Mr O'Day said that Gilead has had to “effectively start from ground zero in ramping up our supplies” to meet demand for the agent. He said: “As soon as we knew that remdesivir may have potential in treating the novel coronavirus, our teams began to establish a supply chain for large-scale production.” One of these challenges of producing large quantities of the agent is the length of time it takes to produce remdesivir, he said, noting that the complex chemical reactions take “several weeks to complete.” After investing in ways to reduce the production timeline, Gilead has been able to cut the end-to-end manufacturing process in half, down to around six months. As well as repurposing some of its own facilities, the company has increased its network of external manufacturing partners to meet anticipated demand. Existing supplies of the therapy amount to 1.5 million individual doses, roughly 140,000 treatment courses, and the company has committed to providing the entirety of the existing supply for free. Mr O'Day said: “Providing our existing supplies at no charge is the right thing to do, to facilitate access to patients as quickly as possible and in recognition of the public emergency posed by this pandemic.” The firm has set a goal of producing more than 500,000 treatment courses by October and more than 1 million treatment courses by the end of the year, working with pharmaceutical and chemical manufacturers. I
f we need 10 doses per patient, having 1.5 million doses now and only another 1 million by year end translates into being able to treat 250 thousand patients this year. I agree with Robert that we need to push production as soon and as fast as possible. Gilead has produced some of its other life saving treatments using third party contract manufacturers in the past. The following passage is from their 2013 10-K filing, which was the last year before their Hep C product started dominated what was basically a company that designed and distributed HIV products:
We contract with third parties to manufacture certain products for clinical and commercial purposes, including Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Hepsera, Emtriva, Tybost, Vitekta, Sovaldi, Ranexa, AmBisome, Cayston and Vistide. We generally use multiple third-party contract manufacturers to manufacture the active pharmaceutical ingredients in our products. We are the exclusive manufacturer of ambrisentan, the active pharmaceutical ingredient of Letairis, although another supplier is qualified to make the active pharmaceutical ingredient in Letairis. We also rely on third-party contract manufacturers to manufacture our tablet or capsule products. For example, we use multiple third-party contract manufacturers to tablet Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Tybost, Vitekta, Sovaldi, Letairis, Hepsera and Ranexa. Emtriva encapsulation is also completed by third-party contract manufacturers.
Back then manufacturing costs represented 25 percent of revenues. We know in the next couple of years, the share of manufacturing costs for the Hep C products were a mere 5 percent of revenues in part because these new products commanded incredibly high prices. If Remdesivir turns out to be successful, the world will want a lot of it. How it will be priced and exactly where it will be produced is still open to question but Robert and I want to see a lot of production going on even if that production is turned over to Gilead’s “external manufacturing partners”. Now a brief comment on intercompany pricing. Let’s suppose that a lot of these products are produced in places like China and India (and let’s hope we do not get a stupid Trump trade war). If the manufacturing facilities are related party manufacturers, you can count on the local income tax authorities wanting as much profit in their local jurisdiction as possible. A fair question would be to inquire what is the arm’s length price? A natural answer would be to look at what is being paid to the third party manufacturers. The alternative would be some sort of cost plus approach. But what markup should one pick? I have seen credible analyzes that put the markup as low as 10 percent but there are other situations where a biopharma contract manufacturer receives cost plus 25 percent. Such a transfer pricing controversy might be an interesting exercise in the future but for now let’s hope this treatment works and if so – let’s get busy manufacturing it!

Sunday, April 5, 2020

Philip W. Anderson, RIP

1977 physics Nobel Prize winner Philip Warren Anderson has died at a Princeton nursing home at age 96, cause not reported.  He received his prize for work in "condensed matter physics," a label he coined.  His work, done at Bell Labs (later he was at Princeton U.), had relevance for the functioning of circuits in computers and other important uses.  He also did important work on antiferromagnetism, the Higgs particle, spin glassses, and several other topics, with several effects named for him ("Anderson localization effcct," "Higgs-Andrson effect").  I am not going to get into the detailed physics of any of these, but he is of interest here because he has had interactions with econoimists as well, with his work on spin glasses in particular important for work in econophysics..

Let me note now a broader debate he was involved with, that over "reductionism" in physics, particularly over particle physics, although this is a debate that goes far beyond physics into many other disciplines, certainly including economics. Some would say his position was "holistic," although he apparently preferred "anti-reductionist."  The reductionist position in particle physics argued that the key to understanding reality is to understand the functioning of its micro-level parts, in this case individual particles and the fundamental parts they are made of.  A major debater with him on this was the late (also Nobelist) Murray Gell-Mann of Caltech, who introduced the word "quark" into particle physics from James Joyce's Finnegan's Wake for a fundamental sub-particle, and also drew from Buddhism the phrase "Eightfold Way" to describe the emerging consensus view on particle physics.

To further this discussion I shall quote two paragraphs from the obituary for him by Martin Weil that appeared in today's Washington Post that followed mention of this debate (although it did not name Gell-Mann or anybody else besides Anderson himself):

"In his career, he became identified with a phrase he developed: 'More is different." A play on other expressions involving the significance of 'more," it represented a view of physical reality that emphasized the unknown possibilities that were offered by complex systems of particles.

In this, he was regarded as an apostle of complexity, of ths sort of behavior that has come to be studiied in chaos theory, in shich an array of particles, each understood individually, can in the aggregate produce behavior of an unpredictable nature."

This is then followed in the obit by a a disccussion of the specific work that won him his Nobel, the "Anderson localization effect," which I shall not describe in any detail here.

The final paragraph of the abit is the following:

"His interst in compleixty and his aversion to reductionism led him to to help found the Santa Fe Instiitute, with its concern for interdisciplinary work."

That is what especially interests me, as that is a favorite place of mine, although I never met him.

What is not in the obit but I think is important is who the other main co-founders were, two fellow Nobelists.  One was Gell-Mann, mentioned above, Anderson's debating partner in the reductionism debate in particle physics.  This indicates at least an acknowledgement by Gell-Mann that Anderson was at least partly right, and Gell-Mann would go on to be a major participant at SFI (no, I never met him either, although my brother-in-law, Michael Werner, knew him at Caltech).

The third co-founder, also a Nobelist and no longer among the living, was someone also associated with a potentially reductionist view of reality, general equilibrium theory in economics.  That was Kenneth Arrow, whom I did know.  As with Gell-Mann, this also was a case of someone associated with a strongly reductionist view recognizing the importance of the antii-reductionist view.  All of these now dead great intellectuals will be sorely missed.

In any case, for now, RIP Philip Anderson.

Barkley Rosser

Friday, April 3, 2020

The D Word

Yes, depression, and not the psychological type, although the economic type leads to the psychological type, whether ot not it is the other  way around (see Keynes' "animal spirits).

I often make fun of Robert J. Samuelson in the Washington Post, but in Washington Post today he raised the possibility that we are going into a depression, not just a bad recession.  On TV this evening I heard Austen Goolsby throw it out as well.  I suspect we are going to hear it a lot more.

The problem is not just that we have seen the highest increase in joblessness ever, but the increasing prospect that there will not be a quick recovery once the virus is under control. This is partly due to the global nature of this pandemic and the economic decline that has come with it. 

A sign of what may be coming is what is going on in China.  The virus seems to be under control, despite some doubts about their numbers and new cases happening due to people arriving there.  But they have been to get their economy started up again, even in Wuhan. Supposedly 98% of firms have restarted.  But there are problems.  One is that many such places are missing crucial workers still under quarantine somewhere  or other.  Then there is the other side of this, the demand side.  China expects to sell goods through exports, but other countries are not buying.  And also domestic consumers are not buying either out of fear and low income.  Apparently there are factories running machines and using power even though they are not producing anything just to please the government that is making these claims of 98% of firms operating, but this seems to be an exaggeration.

Clearly at least on the demand side getting money to people and businesses through easy credit and a large fiscal stimulus are the obvious things to try to avoud this D outcome.  But Samuelson fears that they may be insufficient to this current situation, with no obvious alternative.  I fear he might be right on this one

Barkley Rosser

Thursday, April 2, 2020

The Climate Crisis and the Green New Deal

The Covid-19 pandemic won’t last forever, and at some point we will have to return to figuring out how to respond to the climate crisis.  (What a depressing opening line.  No, I have no desire to live in a world of permanent crisis.)  Is the answer a Green New Deal?  Challenge has just published my analysis of this; you can find the link here.

Abstract: The Green New Deal, an attractive agenda of increased investment in energy efficiency and renewable energy sources, is not remotely sufficient to stabilize global warming at a non-catastrophic level. Such a policy needs to be accompanied by direct measures to curtail the use of fossil fuels, although this may complicate the intended messaging.

Wednesday, April 1, 2020

Credit Spreads: Comparing COVID-19 to the Collapse of Lehman Brothers

On March 18, Reuters noted something I have been following of late:
Concerns about the impact of the coronavirus on corporate America's balance sheets has tripled the premium investors are demanding to hold even the highest-rated corporate bonds. The difference between the average yield of investment-grade U.S. bonds over virtually risk-free Treasuries widened to 303 basis points (bps) on Wednesday, according to the ICE/BofA investment grade index. That's up from 101 bps at the start of the year and the highest since July 2009, For riskier high-yield securities, the average spread over Treasuries on Wednesday was 904 bps, the highest since October 2011, and more than 2-1/2 times the rate at the start of the year, using the ICE/BofA high-yield index ... This hit to earnings has come at a time when U.S. corporate debt is near all-time highs, as is the size of the so-called triple-B segment of the market - companies one notch above junk status.
The spread between long-term corporate bond rates with credit rating BBB and long-term government bond rates jumped very quickly to almost 4%, which was not quite as high as the 5% or more spreads observed after the collapse of Lehman Brothers. FRED provides a series entitled ICE BofA BBB US Corporate Index Option-Adjusted Spread that dates back to 1997 when this spread was modest. It hit sort of a tidal wave during the turn of the millennium with the collapse of the internet/computer/telecommunication boom and a host of notorious bankruptcies. What happened after the collapse of Lehman Brothers was a tsunami. I did find some Thomson Reuters discussion entitled the implications of the credit crunch for intercompany loans, which talked about market interest rates as of February 2009:
Spreads for even AAA-rated long-term corporate debt, however, have recently been higher than 100 basis points, while spreads for borrowers with lower credit ratings have been much higher.
Its figure 2 shows that the spread for BBB-rate long-term corporate debt jumped to above 500 basis points. The thrust of this paper seems to be that U.S. affiliates were about to incur a lot of intercompany debt with their foreign parents. The recent Reuters story alludes to the potential need for U.S. companies for debt as we work through this COVID-19 crisis. It is ironic that the OECD just released its Transfer Pricing Guidance on Financial Transactions, which spends 46 pages making basic economic issues as convoluted as possible. But that is what international tax attorneys do. Cutting past all the legalese blah, blah, blah – it does make the important point that estimating a borrower’s credit rating is both controversial and challenging. But once one estimates a credit rating – which is a letter grade – it needs to be translated into a numerical credit spread. As the tsunami following the collapse of Lehman Brothers showed – credit spreads can jump very quickly. It seems the COVID-19 crisis is following suit.