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


Anonymous said...

A sign of what may be coming is what is going on in China....

[ Having controlled the outbreak and while taking precautions everywhere that there will be no new spread of infections China has been methodically reviving economic activity. The Chinese are adept at focusing policy in spurring growth and the economy appears to be growing well already. I can assure the writer that there is no "pretense" in production or in renewed sector growth. Chinese economic recovery is as important for international recovery as American recovery will be. ] said...


I agree that Chinese growth is important for world recovery, but that is the point the problem, it does not seem to be happening as it might, and there aeew these unfortunately crecible reports of things as I noted, factories running machinery to make it look they are doing something to lease the authorities who wish to report that production is back/

Let me add a detail to that that was in the news report. The government knows that enterprises are lying about their production. So they have decided to check on them by lookin g at their electric powwer usage. This has led to this weird phenomenon of factories running machinery so as to use electricity to make it look likek thy are producing things.

I also note that part of the problem for China is that exports have long been important for them, although less so now than in the past, and so the general collapse of the world economy is holding them back.

More generally, a lot of the usual things nations do to get their economies going are not working so well, and this is what is worrying, even if China ends up doing much better than most and getting going before others.

Anonymous said...

The government knows that enterprises are lying about their production. So they have decided to check on them by looking at their electric power usage. This has led to this weird phenomenon of factories running machinery so as to use electricity to make it look like they are producing things...

[ This is absurd, and as is typical of such so-called reporting intended to be belittling of a people. The word "lying" is carefully imitative to be offensive, just as Donald Trump has used such language and worse about China since beginning to run for the presidency.

Washington Post guy knows that Chinese companies are lying, because Washington Post guy records the lies company to company straight from monitoring station in Washington. Chinese government, of course, knows nothing about nothing. ]

Anonymous said...

Dean Baker has written a number of times about the collapse in exports experienced by China in the wake of the 2008 international recession, the point being that China used domestic spending to compensate for the decline in exports. What I am wondering now is whether the Belt and Road program may have insured that export demand from China will recover more quickly than after 2008.

As for the flow of necessary workers, that has been happening for weeks and seems of little concern now. Worker ties to companies were usually maintained. Health checks are done everywhere, but workers can move about almost everywhere.

As for Chinese households, savings were especially high before the crisis began and are available now. Household expenses were heavily subsidized through the crisis.

Work is being monitored carefully and policy is being geared to weak areas as such areas are understood. The point is the Chinese know how to create work and the government intends to do just that, and where needed work will be created.

The government has made clear that even the poverty elimination program is to be continued with the aim of ending severe poverty in this year intact. said...


Probably the Chinese economy will recover better than some others, but really, I see no reason to believe that the report about a plant running machinery to use power to avoid getting in trouble with the government is a lie. We know that they dragged Dr. Li Wenliang into a police station on Jan. 3 because they did not like him publicizing the virus, even as at that time neighboring nations like Taiwan and soon South Korea and Singapore got right at focused testing and tracking. Their case loads never got as bad as in China, and all three of them have managed to avoid the serious damage to their economies, meaning it is easier for them to recover.

China has done better than the US, but it has not done better than some of its neighbors, and given the record of its authoritatian government and how it treats people who do stick sufficiently closely to the curren line, this report is completely believable. said...

I left out a crucial "not" between "d" and "stick" in the final sentence of the preceding comment. Sorry.

Anonymous said...

Barkley Rosser,

Thank you so very much for always patiently correcting me. I understand just how right you are now and how wrong as always I am. Do forgive the mistakes I seem incapable of making for all my studies. I will just have to study even harder, and who knows what might happen then.

Thank you so dearly. said...

Thanks, A.

The leaders of both China and the US have not behaved all that well in this situation, certainly not compared to those of some other nations. They have also gone at each other with various false and nasty accusations. However, I wish to make a positive point at this difficult time.

Apparently Xi and Trump had a phone call on March 27, and each has agreed to cease making the worst of the accusations they have made against each other, which they both seem to be holding to, and perhaps more importantly they agreed to cooperate in dealing with this situation. I do not know how that has going (and have seen some reports that maybe it is not going all that well), but I welcome them cooperating at this time rather than slamming at each other.

Anonymous said...

Adding to the surmise of Barkley Roser, an excellent and scary paper:

April 2, 2020

Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?
By Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub and Iván Werning

We present a theory of Keynesian supply shocks: supply shocks that trigger changes in aggregate demand larger than the shocks themselves. We argue that the economic shocks associated to the COVID-19 epidemic—shutdowns, layoffs, and firm exits—may have this feature. In one-sector economies supply shocks are never Keynesian. We show that this is a general result that extend to economies with incomplete markets and liquidity constrained consumers. In economies with multiple sectors Keynesian supply shocks are possible, under some conditions. A 50% shock that hits all sectors is not the same as a 100% shock that hits half the economy. Incomplete markets make the conditions for Keynesian supply shocks more likely to be met. Firm exit and job destruction can amplify the initial effect, aggravating the recession. We discuss the effects of various policies. Standard fiscal stimulus can be less effective than usual because the fact that some sectors are shut down mutes the Keynesian multiplier feedback. Monetary policy, as long as it is unimpeded by the zero lower bound, can have magnified effects, by preventing firm exits. Turning to optimal policy, closing down contact-intensive sectors and providing full insurance payments to affected workers can achieve the first-best allocation, despite the lower per-dollar potency of fiscal policy.

Anonymous said...

Barkley Rosser mentioned Singapore several times as a model of control of COVID-19, and I would agree, however I just noticed a brief note that Singapore is shutting down for a month now. Soon, I will look at the reasons given, since I had thought new infections in Singapore were being limited.

Will the Korean model hold then? I do hope so. said...

A problem for not onley Singapore but also PRC and the rest of us is that there may be a secondary outbreak later.


Peter T said...

This crisis - like previous ones - has driven loose money to seek the safe haven of the US dollar, with consequent negative impacts on developing countries (see Adam Tooze). But the behaviour of the AS administration has accelerated distrust in US governance. I expect we will see a determined effort to move away from the dollar as main trading currency (Russia and China are already pushing this), with consequent negative effects on trade. So the recovery will be complicated by global political re-balancing (as happened in the 30s).

Anonymous said...

April 4, 2020

A German Exception? Why the Country’s Coronavirus Death Rate Is Low
The pandemic has hit Germany hard, with more than 92,000 people infected. But the percentage of fatal cases has been remarkably low compared to those in many neighboring countries.

Anonymous said...

Barkley Rosser

A problem for not only Singapore but also PRC and the rest of us is that there may be a secondary outbreak later.

[ This is of critical importance and the focus of medical articles and discussions (in English) in China. There are precautions everywhere, a person leaving a residence in Shanghai will have a temperature scan on leaving, a temperature scan on mass transit, a temperature scan at work and the reverse when going home. Masks are worn. Distances are kept. Arrivals from abroad are tested and quarantined.... ]

Anonymous said...

April 4, 2020

COVID-19: 19 new cases, 4 more deaths reported on Chinese mainland

A total of 19 new confirmed COVID-19 cases, 18 from abroad, 4 deaths and 64 asymptomatic cases were reported on the Chinese mainland as of Friday midnight, according to China's National Health Commission.

The total number of confirmed cases on the Chinese mainland stands at 81,639; the cumulative death toll is now at 3,326, while 1,030 asymptomatic patients are under medical observation.

On the same day, Chinese health authorities said 180 patients were discharged from hospitals, bringing the total number of recovered cases to 76,751.

The latest numbers of total confirmed cases in Hong Kong and Macao special administrative regions and Taiwan region are as follows:

Hong Kong: 845 (173 recovered, 4 deaths)

Macao: 43 (10 recovered)

Taiwan: 348 (50 recovered, 5 deaths)

Chinese mainland total remaining cases

Chinese mainland new imported cases

Chinese mainland total imported cases

Frank (JMU alum) said...

Professor Rosser,

Former student of yours taking Regional Economics at JMU and came across this blog recently. Given that the PRC in the past few years has developed their own domestic consumption market, though still relies on its export output and the rest of the world buying, do you think their current response to the seemingly decreasing severity of the pandemic will more quickly shift their economy towards domestic consumption?


Anonymous said...

Given that the PRC in the past few years has developed their own domestic consumption market, though still relies on its export output and the rest of the world buying, do you think their current response to the seemingly decreasing severity of the pandemic will more quickly shift their economy towards domestic consumption?

[ Perfect question, and this is precisely what happened as exports declined dramatically in the wake of the international recession of 2008. The Chinese are "preparing" for just this now, however, the development of the Belt and Road might possibly cushion a decline in exports to a significant extent.

Households in addition to always having significant savings have been largely protected against income loss during period.

Household medical costs were all paid for.

Lastly, work against poverty is continuing. ] said...

Former regional econ student (hi, whoever you are), as Anonymous notes China has been gradually shifting to more reliance on its domestic market, although exports continue to remain important. The column by Robert J. Samuelson noted that it looks unlikely that Chinese domestic consumption is likely to surge especially in the near future. A major reason for this is continuing fear of being in crowded public places.

Anonymous said...

Barkley Rosser:

Robert J. Samuelson noted that it looks unlikely that Chinese domestic consumption is likely to surge especially in the near future. A major reason for this is continuing fear of being in crowded public places.

[ Agreed; there will be a caution about crowding for some time. However there are different ways to consume:

April 4, 2020

China's courier sector registers steady growth in March

BEIJING -- China's courier sector saw stable growth in March as the country has generally resumed its economic activities, official data showed.

The country's courier firms delivered a total of 5.7 billion parcels last month, up 17.3 percent year on year, according to the State Post Bureau.

Meanwhile, the sector's business revenue increased 20 percent from one year earlier to 71.5 billion yuan (about 10.06 billion U.S. dollars) in the month.

The aggregated business revenue in the first quarter reached 157.99 billion yuan, data showed.

Propelled by policy support and accelerated process of recuperation, the sector is expected to come out of the shadow of the epidemic in April, the bureau said, adding that business volume is anticipated to see an around 20-percent expansion in this month.

A recent report from the bureau indicated that the parcel volume is expected to see over 74 billion parcels in 2020, with a growth of 18 percent year on year. ]

Anonymous said...

Also, a number of Chinese consumer sectors are being subsidized. Electric vehicles, for instance, will be significantly subsidized. China has been moving to 5G, but the move is now being accelerated... I will pay close attention to specifics, but the government intends to foster household consumption increases from here.

Then too, a significant aspect of the poverty elimination program involves building homes and entire communities. said...

Ah, former regional econ student, I see that you are "Frank." said...

BTW, the information on China came from an article in The Economist, not from Samuelson's column.

Anonymous said...

As I recall, D stands for Dismal! Unemployment could be above 10% (and that assumes folks say they are looking for work - BLS probably won't conduct in-person interviews and will rely on phone interviews) and GDP will be negative for two quarters - a recession for sure, but is there a formal definition of a depression?

Anonymous said...

"BTW, the information on China came from an article in The Economist, not from Samuelson's column."

March 26, 2020

The post-virus economy
China goes back to work
But not back to normal said...


No, there is no formal definition of a depression, but then there is disagreement about what consitutes the definition of a recession. Officially it is called in the US after the fact by a committee of the NBER, but the old public and media criterion is two successive quarters of negative GDP growth. It is not clear that what is going on now will qualify for that. It is clear growth was negative and sharply so in March, but this follows two months of positive growth. It is possible that quarter will still come out net positive, although probably not.

Clearly second quarter will be negative, but third quarter might be positive after the hard down of this quarter. I further note that the term "recession" only came into widespread use in 1937 with nobody calling any ownturn since a "depression," although that was the term widely used previously for many downturns.


I hope you are doing well. When did you take my coursee? I last taught it four years ago in Spring 2016. I first taught it 41 years ago. There have been a number of occasions in between those. It is a course I like, although it is one now not taught at many places and more often than not when it is it is combined with urban economics as in "Urban and Regional Economics." The two certainly have overlap, but we still have them as separate courses at JMU, and I just taught Urban this past fall, last semester, when things were normal for the whole semester, to theextent they ever are, certainly way more normal than this semester.

Anonymous said...

What I read in the Chinese press tells me that people are largely back to work, especially back to work in large enterprises, and even back to work in Hubei Province. I have no reason to think otherwise, no matter the account in the Economist. Reporting in the Economist involves always finding an exception to Chinese policy goals, and there are always exceptions, but in development terms exceptions have proved very limited.

As for Chinese policy that will be increasingly stimulative for some while, but what counts is that policy kept household incomes and assets largely intact through the crisis and this should have already allowed for a fairly sharp recovery.

Anonymous said...

Chinese transportation infrastructure is very helpful and becoming steadily more so and the government has been steadily moving workers to employment sites. Workers moved are not going to pretend production sites or tasks. There appears to be ample domestic and foreign demand to be met. Farm work appears to be close to normal. Poverty ending programs are being emphasized.

Frank (JMU alum) said...

Professor Rosser,

Spring 2016 was when I took it as a matter of fact, and had "Comparative Economics" with Professor Marina that same semester, for which I did a project about the Finnish education system. I sat to the right of you in one of the board style rooms in Showker and did the project about Silicon Valley firms opening up SF offices vs closer to San Jose. Fond memories in these times. The class was invaluable and probably my favorite of all my classes at JMU, and is making me currently consider pursuing master's programs in urban planning and regional economics, as especially now as I read Jane Jacobs' "The Death and Life of Great American Cities." Hope you and Marina are doing well!

Frank said...

Ah yes, Frank, I remember you and your paper. Marina retrired last spring and I am teaching the comparative course now, online at this moment. We are doing fine. Good luck. said...

So, Francis K., found you. You did well. Hopw all going well.

Of course, you took me when I had my heart surgery, a bit of a show there. Sorry, but that great room, 242, no longer exists. Has been knocked out as part of the new building project going on that will have us all tossed out of our offices. I am massively purging or moving everything, otherwise it just gets thrown in mid-May, over a half century of work and stuff.

Frank (JMU alum) said...

Professor Rosser,

So I've heard regarding construction of the new building, project plans look exciting, with more of a "capital markets" feel. An intern last year at my firm also mentioned that they started a real estate club as well. Occasionally when the COB organizes student outreach programs with alumni in the DC area, I always recommend to the real estate-focused students to look out for when Urban/Regional Economics are available.

Frank said...

There is also a new algorithmic financce student group that i am the faculty adviser for.

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