A Simple Rate Tweak Should Do It

Last week, the Federal Reserve and others lowered interest rates in an attempt to counteract the effects of COVID-19 on the economy. Also last week, The Economist optimistically wrote that a recession is unlikely but not impossible:

Yet there is an uneasy feeling that a flurry of rate cuts may not be the solution to this downturn. In part that reflects the fact that they are already so low.

Lowering the prime rate has no effect because it’s not the banks who don’t have enough money: it’s the people. Maybe rate changes would have an effect if the banks changed the interest rate on consumer credit from 25% to -25%, but they won’t. It’s thoroughly irritating how some commentators say there’s too much money in the system when the problem is not how much there is but who has it. We’ve needed a helicopter drop of cash or a debt jubilee for a decade, and a basic income for a century.

In the United States, “full” employment is not having an effect on wages because it’s not full. The labor market is global, or was until yesterday, and global unemployment is roughly 50%, so real wages are still going down. Because employment only counts paid labor–and bears only a passing relation to what work needs to be done–employment is constrained by employers. And there aren’t enough employers, again because of the distribution of money, but also because of a tendency to monopoly: how many paperclip maximizers do we really need? Meanwhile, none of that matters because the system isn’t designed for the public good–or, if you prefer, it’s not designed to maximize marginal benefit for all market participants. Finance capitalism thrives on greed: the world can go to Hell; I’ve got mine.

Besides, it’s not just households who are over-leveraged. Everyone is.

One way the virus hurts the economy is by disrupting the supply of labour, goods and services. People fall ill. Schools close, forcing parents to stay at home. Quarantines might force workplaces to shut entirely. This is accompanied by sizeable demand effects. Some are unavoidable: sick people go out less and buy fewer goods. Public-health measures, too, restrict economic activity. Putting more money into consumers’ hands will do little to offset this drag, unlike your garden-variety downturn. Activity will resume only once the outbreak runs its course.

Then there are nasty spillovers. Both companies and households will face a cash crunch. Consider a sample of 2,000-odd listed American firms. Imagine that their revenues dried up for three months but that they had to continue to pay their fixed costs, because they expected a sharp recovery. A quarter would not have enough spare cash to tide them over, and would have to try to borrow or retrench. Some might go bust. Researchers at the Bank for International Settlements, a club of central banks, find that over 12% of firms in the rich world generate too little income to cover their interest payments.

Many workers do not have big safety buffers either. They risk losing their incomes and their jobs while still having to make mortgage repayments and buy essential goods. More than one in ten American adults would be unable to meet a $400 unexpected expense, equivalent to about two days’ work at average earnings, according to a survey by the Federal Reserve. Fearing a hit to their pockets, people could start to hoard cash rather than spend, further worsening firms’ positions.

https://www.economist.com/finance-and-economics/2020/03/05/a-recession-is-unlikely-but-not-impossible

The Economist longs for Bretton Woods while they chart some of the attempted remedies. It’s quite possible, however, as some commentators have noted since at least the turn of the century, that the global economy is now too complexly intertwined to be centrally managed, if it ever could have been, or ever could be.

May you live in interesting times.

Thou Preparest a Table Before Me

Last Sunday, the pastor of Freedom Plains Presbyterian Church asked for help cleaning the tiny cups used for Communion. They’d switched to glass, or back to glass, from disposable plastic. I was pleased: Glass cups were all I’d known when I was younger, last century.

I’ve helped prepare for Communion and clean up afterward. I’ve filled quarter-ounce glasses with Welch’s grape juice. I’ve collected the empties and not-so-empties from the backs of the pews after the service. I’ve washed the cups. It’s one of the things you do as the preacher’s kid.

Perhaps because I grew up a preacher’s kid in the Presbyterian Church, I’m curious about worship practices among Christians and across cultures. I am not anthropologist enough, or daring enough, to visit other ceremonies uninvited, but I have attended within my comfort zone: mainline Protestant and Roman Catholic.

The service of the Eucharist differs in the details. Some traditions break freshly baked bread; some, wafers. Some use wine; some, grape juice. Some go to the altar rail. Some form lines. Some pass a plate hand to hand. Some sip wine from a chalice; some, from little cups. Some plastic. Some glass. The way the liturgy is structured emphasizes or elides different aspects of the practice of life.

I love the ritual of the Catholic mass: The washing of the hands, the presentation of the gifts, the setting of the table, and then… the cleaning up. No crumbs are dropped. Dishes and utensils are cleaned–and put away–every time. The congregation silently, patiently, waits.

It’s part of the ceremony to set the table. It’s part of the ceremony to wash the dishes. This menial labor is not insignificant.

At some of the services I’ve attended, there’s a rush to leave, immediately, before “the Mass has ended; go in peace.” Parishioners receive communion and walk out the door rather than return to their pew. They jostle in the parking lot, impatient to get on with their day. Did they receive anything other than a stale cracker? I’ve seen this less recently, perhaps because of where or when I’ve attended, or perhaps because I’m older. Or perhaps because attendance has dwindled: those who are there want to be there. Church is not an irritant.

At Reformed, Congregational, and Presbyterian meetings, where the plate is passed, there’s no easy escape. In the Catholic, Episcopalian, and Lutheran traditions, where the congregants rise and move forward to receive, the return is easily abbreviated.

But if you stay, see how the meal ends with the washing and the putting away.

Last week, a couple about my age collected the soiled dishes on a hand cart and wheeled them off to the commercial washer in the social hall’s kitchen.

Who prepares your meals? Who cleans?

Wrong Problem. Wrong Solution.

I intermittently listen to the news while driving, and heard several stories on NPR’s All Things Considered, regarding a raid by Immigration and Customs Enforcement on poultry processing plants in Mississippi. This caught my ear:

“The industry is totally dependent on finding workers who will not raise issues and who, to a degree, live in fear of the company and they’ll just keep their head down and do the work,” [Debbie] Berkowitz says. “For the last 30 years that’s been immigrant labor.”

Chicken Plants See Little Fallout From Immigration Raids

Next, in A Look At The E-Verify Program And Its Blind Spots, economist Madeline Zavodny suggested the addition of biometric data to E-Verify as a means of increasing its effectiveness.

Adding biometrics to our identification papers won’t fix the working conditions in slaughterhouses–decriminalizing immigration might help–though it might possibly improve the accuracy of E-Verify, if we ignore the significant problems with biometric identification. It seems foolish to trust that the industry would prefer the plausible deniability that E-Verify gives them, and some people in power really like the illusion of control, so I expect we’ll soon leave our spit on the I-9 form.

Yet for some reason the problem under discussion seems to be that jobs are being filled by immigrants rather than that this work is hard, dangerous, and poorly compensated. So instead of asking why immigrants do this work, or being willing to pay more for our food, or buying whole chicken instead of individually wrapped thinly sliced chicken breast tenders, we focus on trying to control who can be hired, then punish the employee instead of the, ostensibly ignorant, employer.

America has had a labor problem since Europeans first looked on this continent as a resource to be exploited. Without people to do the work, how can we exploit it? If no one wants to do the work, for the wages paid, then make them. Seems straightforward, right?

Statistical Enquiry of the Devil’s Playground

Certain laws and regulations, and policies related to those, have a non-trivial impact on statistics which are not normally thought of in concert with those laws. For example, mandatory sentencing increases incarceration rates, which in turn will decrease the employable population. Child labor laws directly impact the employable population, but so do mandatory attendance requirements for high school.

How does the unemployment rate of the United States compare to other nations when differences in incarceration rates and school attendance are taken into account?

Or, where do these people find the time to riot?