Tuesday, May 12, 2020

Flattening the Economy

The economic lockdown in response to Covid-19 has resulted in an unprecedented number of Americans losing their jobs.

26 million people have filed for unemployment in the last five weeks. 

The official unemployment rate from the Bureau of Labor Statistics is 14.7% but this number is based on 20.5 million unemployed. Since we know 26 million have filed for unemployment in the last five weeks and there were approximately 6 million that were unemployed before the lockdowns started, that survey number is understated. Most experts put the actual unemployment rate closer to 20%.

The numbers are so large it is hard to wrap your mind around them.

Let's put some of the numbers in context.

One piece of good news is that there are still 111 million people employed in the private sector and paying taxes.

However, there are 20 million government employees, 30 million unemployed and an additional 103 million people over the age of 16 who are not in the labor force (students, stay-at-home parents, retirees).

Those numbers are not economically sustainable. There is no way that 111 million people can pull a wagon in which 153 million need to be supported in some way without the wheels coming off. Keep in mind that this number also does not include children.

As bad as the numbers are in the United States, they are even worse in the United Kingdom. The UK has seen 7.5 million people furloughed in a country of 66.5 million people. The unemployment rate there is 29%. If these unemployed people are added to the public sector sector payroll, 49% of all employees in the country are being paid for by the state.

Those with less education have also been disproportionately impacted by the economic lockdown. The less education a person has, the more likely they are unemployed right now.

What are the business sectors that have seen the largest reductions in employment? (in thousands 000)

Food service and drinking establishments            -5,491

Amusements, gambling and recreation                 -1,062
Temporary help services                                             -842

Accommodations                                                          -839

Personal and laundry services                                    -797

Clothing & clothing accessories stores                      -740

Offices of Dentists                                                          -503

Local government education                                       -469

Educational services                                                      -457

Child day care services                                                  -336
Offices of physicians                                                      -243

Performing arts and spectator sports                          -217

Offices of other healthcare practitioners                    -205

It is probably no surprise that employees of restaurants, bars, recreation, amusements and gambling establishments have been hardest hit.

However, 1 million people have lost their jobs in local schools and in educational services.

Another 1 million jobs have been lost among the offices of dentist, physicians and other health care practitioners. In total, over 1.4 million total jobs have been lost in the health care sector including 135,000 at hospitals and 113,000 at nursing and residential care facilities. All of this in the middle of health care pandemic. Who would ever thought this to be possible?

1.3 million manufacturing jobs have been lost.

975,000 jobs in construction.

650,000 jobs in social assistance.

Motion picture and sound recording industries lost 217,000 jobs and real, rental and leasing lost another 222,000.

There were very few business categories that have escaped unscathed.

The Bureau of Labor Statistics tracks a lot of employment categories and there were only a handful that showed employment gains over the last month. (000's)

General merchandise stores (Costco, Walmart etc.)                                  +93.4

Couriers and messengers  (FedEx, UPS etc)                                                   +1.8

Federal government                                                                                             +1.0

Computer & peripheral equipment manufacturing                                       +0.8

The total of all positive gains does not even total 100,000 new jobs balanced against over 20 million in job losses.

The economic lockdowns began when it was argued that we needed to "flatten the curve" so as not overwhelm our hospital.

By any measure, that objective has been accomplished. Hospitalizations are currently trending down at 2.6% per day. Deaths are trending down at 3.4% per day.

Credit: https://twitter.com/EthicalSkeptic/status/1260332407804375040

However, as the data on unemployment shows, we have also flattened the economy.

What continues to mystify me is that we are continuing to see so much resistance from Democrats to opening up the economy despite the fact that the effects of the lockdown are falling disproportionately on what they say they care so much about---middle or lower income workers, minority workers, education, health care and social assistance.

If you need an example, consider the requirements that Governor Gavin Newsom of California has established for counties in that state to open up. A basic requirement is that there be no more than one new case of Covid-19 per 100,000 people and no deaths from the virus over the course of two weeks.

It is a worthy goal. However, let's put that in perspective.

Last year in the two weeks ending May 25, there were 725 deaths in California attributed to influenza and pneumonia per CDC data. Therefore, how is it reasonable to think that zero deaths from Covid-19 is a reasonable standard to meet before counties within the state can open up? Why did the state keep working last year?

The same for new Covid-19 cases. San Diego County has a population of 3.3 million people. Under Newsom's standards, if only .01% of the county’s population tests positive over a two week period, businesses such as restaurants, shops and fitness centers would not be able to open. That means that no more than 33 people in San Diego County could test positive or the county could not open for business. What are the odds that during any given two week period, in any year, that there are less than 33 people with any case of the flu in San Diego? Again, how realistic is this?

Los Angeles County announced today that it is extending its stay-at-home order for another three months.

If California were a country it would have the 5th largest economy in the world. Its economy is larger than the UK, India and France. How does Gavin Newsom think he is going to provide the government services that are needed for a population of 40 million without that economy working?

By the way, all of the Western states (Washington, Oregon, Nevada, Colorado) that joined with Newsom in calling for this federal aid are run by Democrat governors.

What are they effectively saying? We don't want to open but let's have other states like Georgia, Texas, Florida and others run by Republican governors open up their economies and get people paying federal taxes again so it can be shipped to us without us having to take on any risk. They also see no problem in having the federal government borrow more money when these states are unwilling to attempt to take reasonable steps to get their economies going first. 

It is hard to not think there is more politics going on here than sound public policy.

It is also really hard to look at these unemployment numbers and not think of the economic and human tragedy that underlies every single number cited above.


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