Saturday, June 13, 2020

Evonomics and Doughnut Economics: The GenX, Millennial and GenZ voters must shift the economic debate out of the candlelight onto device screens

For 100 years, beginning with WWI in 1916 and ending in 2016, a sequence of events assured the economic dominance of the U.S. dollar and the strength of the post-WWII U.S. economy.

Since 2017 the actions of the Trump Administration have undermined that dominance. Within the American consumer economy The Coronavirus Crisis and The Great Economic Lockdown of 2020 have further undermined the dominance of the dollar.

It also became clear last year that the the People's Bank of China and the European Central Bank are both alarmed by, and have rejected the idea that, a consortium of American-led private corporations with a digital global, super-sovereign currency will replace the dollar as the world's reserve currency.

In far less than a decade it appears Americans will see the end of the dollar as the World's reserve currency. It won't be replaced by a currency controlled by Mark Zuckerberg. It will be replaced by a sovereign digital currency probably not involving the United States, most likely multinational but possibly controlled by a single nation.

When that happens, the Extended Economic Distortion could continue American economic stagnation for a decade or more. To address this the GenX, Millennial and GenZ generations must move the economic discussion out of the era of 19 Century candlelight into the 21st Century era of device screens.

Coping with statistics and political terms

In four previous posts here the term "Extended Economic Distortion" was used to label the likely outcome of the world-wide pandemic.

The phrase is suggested instead of using the term"depression", which is not recognized within the economic statistics world, and in lieu of   "recession", which is defined within the economic statistics world.

Since this writer is not an economist, it might be said that this suggestion reflects unwarranted hubris. Perhaps. But that also is an unfortunate trait among economists.

"Extended Economic Distortion" is suggested because:
  1. economists don't agree on the details of the definition of "recession" which has led to some recent confusion; plus
  2. the effects of a crippling world-wide pandemic have not been experienced since modern economic statistical data, such as unemployment and GDP, began to be compiled on a regular and standardized basis after World War II.
Flaws in the understanding of the term "recession" led to these two headlines this week:
The world still has an international economy which very much involves the economy of the United States despite Trump's flailing about. Then a pandemic began in China, the world's largest nation which by some measurements had the world's largest economy. Indeed, our understanding of economics in 2020 has been very much complicated by the pandemic and Donald Trump

By late December parts of the Chinese economy were being shut down with results indicated by this Newsweek headline in April: China Economy Has Worst Quarter in 40 Years After Coronavirus Lockdowns, Leading the World Into Recession. Well, yes, it had the appearance of a "recession."

But the Monday article discussing the Friday US jobs report indicating that more people are working led one economist to state: "We could have the shortest recession in history — it seems ridiculous, but we could. This bottom is going to be uniquely deep, and we don’t know how fast we will get out of the bottom."

Regarding the Monday and Tuesday stories, the National Bureau of Economic Research (NBER), a private economic research organization, is the authority for dating US recessions. The NBER defines an economic recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Academics, economists, policy makers, and corporations rely on the NBER for the precise dating of a recession's onset and end.

To be clear, the NBER has not declared the recession at an end. Rather individual economists are puzzling out loud to news media representatives about how to interpret the statistics.

There is a problem with those statistics as indicated in these two headlines: Surprise: The BLS Admits Another Phony Jobs Report and The May jobs report ‘misclassification error’ explained.

In the real world, not the world of politicized statistics, since February most State employment departments were handling a huge, unprecedented workload with the pressure being to get the paper processed so people could get their money. To address the paperwork problem hundreds of  new employees were hired, many if not most unfamiliar with the job. If the only error discovered is "misclassification" that will be a miracle

This week another 1.5 million unemployment claims were filed. In the real world, not the world of politicized statistics, these numbers represent Americans struggling to pay for food, clothing, shelter, health care, transportation, and communications.

What's going to happen to our dollar? It doesn't look good!

As is the case with the professionals in the biological and medical sciences communities learning about Covid-19, professional economists don't know enough about a coronavirus pandemic accompanied by a "Great Lockdown" to offer us meaningful information, particularly for interpretation.

An unprecedented event has distorted our statistical view of money, meaning it has been pulled or twisted out of shape rendering statistical results that are difficult, if not impossible, to interpret in terms of anticipating the economic future.

Unemployment numbers are not as clear an indicator of the scope of the problem as we might think. The jobless rate statistic in April with whatever errors it may contain indicated an unemployment rate of 14.7%. Unfortunately, discussion in the press compared it to the 1930's Great Depression numbers. Any such comparison is worthless.

You see, 2019 America was not 1929 America. Consider, for instance, that in 1929 America only about one-fourth of women worked, while about 80% of men worked. Most households were supported by one income.

In contrast, in 2019 more women were working than men, about 60% of households depend upon two incomes, and at least 35% of children under the age of 18 live in single parent households.

So it shouldn't be surprising that the Pew Research Center reported in mid-April (as new layoffs were/are still continuing) that 43% of all households had one or more persons who had lost a job or taken a cut in pay and that among lower income households the number rises to 52%.

Those 2020 American households will struggle with a reduction in income. How they will react doesn't require complex statistical projections. Those consumers will spend less. For how long, it is impossible to know.

This is the situation in a nation, indeed a world, in which everyone describes the economy as a "Consumer Economy",  an economy driven by consumer spending as a percent of its gross domestic product (GDP), as opposed to manufacturing and the other major components of GDP. Most economists say that in the U.S. about 70% of spending is consumer-driven.

(Like everything else in economics there are variations in definitions for GDP.  To be totally confused, one need only read the entire Wikipedia entry.)

Had the United States Government during the preceding three years not engaged in a successful effort to stall the international economic agenda, this Extended Economic Distortion might have been limited to a five-year recovery. (That assumees that the longer-term unemployment and business stresses will be felt mostly within the personal service sector, an assumption that has yet to be supported by data.)

However, with an international economic structure in disarray, "money" becomes a potentially serious problem. The Fed and Congress are trying to prop up an economy by expanding the money supply. That theoretically makes the dollar "worth" significantly less.

A measurement of "money" called M2 includes "liquid" cash and checking deposits plus savings deposits, money market securities, mutual funds, and other time deposits. We are confronted with this comparison:
  1. In the ten years to February 2020, the U.S. M2 money supply increased by an annual rate of 6.3%.
  2. In the six weeks to leading to April 6, the M2 money supply was increased by 7.7%, an annual compounded rate of 90.4%. 
According to economists, 18 to 24 months from now we should get inflation close to triple digits, offering the specter of pushing wheelbarrows full of money to McDonald's to buy a cheeseburger. Fortunately the economists haven't been right about the relationship of M2 to inflation in the 21st Century...yet.

The complication is the U.S. dollar has been the world's reserve currency preference  This has benefited the U.S. economy since WWII. But the fact is world reserve currencies change with the fortunes of countries.

Globalization supported the U.S.reserve currency dominance. Deglobalization would be expected to erode that dominance over a period of time. An Extended Economic Distortion may accelerate that erosion causing a material depreciation in the value of the dollar as the world begins to view the U.S. as just another country among the industrialized capitalist countries, so-called First World countries.

There is nothing stable in the 21st Century world, a world in which only 4% of the population lives in the United States. Both China and India each have over four times that population, and the European Union has a population that is over 50% larger than the U.S.

Even if Donald Trump were to lose the election this year, China, India, and the member nations of the European Union will never again trust Americans.

Almost ironically, last year Facebook CEO Mark Zuckerberg unveiled Libra, a new more convenient method of payment within international transactions. Libra is a digital token administered by a consortium of mostly technology and finance companies and backed by a basket of U.S. dollars, British pounds, euros, and Japanese yen.

In response, a top official of the People's Bank of China stated: “If Libra is accepted by everyone and becomes a widely used payment tool, then after some time, it is entirely possible that it will develop into a global, super-sovereign currency. We need to plan ahead to protect our monetary sovereignty.”

French Finance Minister Bruno Le Maire stated that France would not allow development of Libra in the European Union, as it would be a threat to the monetary sovereignty of states. He also spoke about the potential for abuse of marketing dominance and systemic financial risks.

Bank of England governor Mark Carney proposed the creation of a network of central bank digital currencies as a means of overcoming the destabilizing dominance of the U.S. Dollar on international trade. He proposed a new Synthetic Hegemonic Currency (SHC) provided by the public sector, perhaps supported a network of central bank digital currencies.

The European Central Bank has created a working group with the central banks of Canada, Japan, Sweden, Switzerland, and the United Kingdom to explore cross-border interoperability of national digital currency projects.

This April while Donald Trump struggled to maintain his image because of Covid-19, China became the first major economy to conduct a real-world test of a national digital currency, making it clear that China is years ahead of other nations in the development a central component of a digital world economy.

Like cash, China’s central bank-issued digital currency is a liability of the state. Unlike bitcoin, the digital yuan is hypercentralized, controlled by the People’s Bank of China, and integrated with China’s current banking system.

Simply, the rest of the world is not enchanted with the idea of corporations taking control of the world's currency system. And because the United States government has not moved to issue a national digital currency for cross-border use, the end of the dollar as the World's reserve currency seems likely within the period needed for a full economic recovery from the Coronavirus Crisis.

Will economic restructuring after Covid-19 create a healthy economy?

Even after the end of the time frame that included The Great Depression and WWII, a majority of the U.S voters were still beguiled by the American Dream in which freedom includes the opportunity for prosperity and success, as well as an upward social mobility for the family and children, achieved through hard work in a society with few barriers. Those voters elected a Republican majority in Congress that attempted to roll back federal economic policy to 1920's standards. That Republican reactionary conservatism immediately caused a rapid decline in the economy.

Republican reactionary conservatism took a back seat for much of the remainder of the 20th Century. But in the first 20 years of the 21st Century, it has taken control. This has occurred because of, not in spite of, the threat of the Climate Change movement to the American Dream fantasy which relies on unrestricted use of natural resources and penalty free environmental damage.

Of the remaining 80 years of the 21st Century, a radical restructuring of the World's economy, including the United States, is needed to address Climate Change and gross economic inequality. The changes needed will require over the next 10 years the abandoning most of the 18th-20th Century assumptions that permitted the creation of the post-WWII American 20th Century economy. It will require embracing a level of selflessness involving abandoning economic selfishness sufficiently to protect endangered toads.

This burden will fall on members of the GenX, Millennial and GenZ generations who will live through most of the remaining 21st Century. A period of Extended Economic Distortion would seemingly create an opportunity to create a potentially healthier and more egalitarian economic system. Whether those three generations and the one following them will have the will to achieve the necessary radical changes is unclear.

Their first problem will be to, within the next four years, kindly and firmly retire any political office-holders who are members of the Silent and the Baby Boomer generations. It is depressing that the two candidates for President in 2020 are in their 70's. It is even more depressing that the candidate most popular with the younger population was even older and was popular for advocating 19th Century socialism.

Which brings us to a hopeful movement known as Evonomics.

To get a feel for the movement, read Seven Ways to Transform 21st-Century Economics - and Economists: Economics matters enormously for the future, but its fundamental ideas are centuries out of date. Written by renegade economist Kate Raworth known for her book Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, tells us:

    No one can deny it: economics matters. Its theories are the mother tongue of public policy, the rationale for multi-billion-dollar investments, and the tools used to tackle global poverty and manage our planetary home. Pity then that its fundamental ideas are centuries out of date yet still dominate decision-making for the future.
    Today’s economics students will be among the influential citizens and policymakers shaping human societies in 2050. But the economic mindset that they are being taught is rooted in the textbooks of 1950 which, in turn, are grounded in the theories of 1850. Given the challenges of the 21st century—from climate change and extreme inequalities to recurring financial crises—this is shaping up to be a disaster. We stand little chance of writing a new economic story that is fit for our times if we keep falling back on last-century’s economic storybooks.
    When I studied economics at university 25 years ago I believed it would empower me to help tackle humanity’s social and environmental challenges. But like many of today’s disillusioned students its disconnect from relevance and reality left me deeply frustrated. So I walked away from its theories and immersed myself in real-world economic challenges, from the villages of Zanzibar to the headquarters of the United Nations, and on to the campaign frontlines of Oxfam.
    In the process I realized the obvious: that you can’t walk away from economics because it frames the world we inhabit, so I decided to walk back towards it and flip it on its head. What if we started economics with humanity’s goals for the 21st century, and then asked what economic mindset would give us half a chance of achieving them?

On February 13, 2012, then a Senior Researcher for Oxfam, Raworth published a discussion paper A Safe and Just Space for Humanity: Can we live within the doughnut? which sets out a visual framework for sustainable development – shaped like a doughnut – by combining the concept of planetary boundaries with the complementary concept of social boundaries.

Doughnut Economics offers a way of visualizing world economics working to benefit humanity. Raworth's doughnut image depicts a sweet spot of human prosperity (an image that appealed to the Occupy Movement, the United Nations, eco-activists, and business leaders alike), an economics offering a radically new compass for guiding global development, government policy, and corporate strategy, and sets new standards for what economic success looks like.

In terms of economic theory, the 21st Century is well into the Industry 4.0, aka the Fourth Industrial Revolution, having moved through the Digital Revolution, aka the Third Industrial Revolution, which began in the mid-20th Century.

Industry 4.0 enbraces the combination of traditional manufacturing and industrial platforms with practices with the latest smart technology reducing the role of labor to a minimum. This primarily focuses on the use of large-scale machine to machine communication (M2M) and Internet of Things (IoT) deployments to provide increased automation, improved communication and self-monitoring, as well as smart machines that can analyse and diagnose issues without the need for human intervention.

Which brings us to the curious continuing debate over elements of capitalist versus socialism, effectively a discussion of late 18th to early 20th Century issues.

''The Father of Capitalism'' Adam Smith published his An Inquiry into the Nature and Causes of the Wealth of Nations (aka Wealth of Nations) in 1776. At that time the Industrial Revolution was just beginning. Over 70 years later, in 1848, at the beginning of what is known as the "Second Industrial Revolution", Karl Marx and Friedrich Engels published The Communist Manifesto presenting an analytical approach to the class struggle (historical and then current) and the conflicts within capitalism and the capitalist mode of production.

You could fill a sizeable library with printed paper publications related to, even extolling the theories within these 18th and 19th Century books, some written after the year 2000. You could sit and read them by candlelight. Why not? That's what folks did immediately after Wealth of Nations and The Communist Manifesto were written.

The point is members of the GenX, Millennial and GenZ generations need to move beyond the mythology of American Dream, beyond discussion of capitalism versus socialism. The discussion must shift to Evonomics and Doughnut Economics, it must move out of the candlelight era onto the screens of devices.

If they don't, by the mid-21st Century the American economy will become no more relevant than the post-Colonial British economy did by mid-20th Century.

Sunday, June 7, 2020

The American darkness of 50 years ago. Can today's protesters avoid repeating tragedy and failure?

When President Donald Trump started ranting about governors not using the National Guard and talked about active duty Army troops to deal with protesters, this writer's memory turned to the darkness of 50 years ago.

On May 4, 1970, 13 unarmed Kent State University students were shot by members of the Ohio National Guard. Four were killed. All were white.

The killings took place during a peace rally against the expanding involvement of the Vietnam War into neutral Cambodia by United States military forces. Twenty-eight National Guard soldiers fired approximately 67 rounds over a period of 13 seconds.

Students Allison Beth Krause, 19, Jeffrey Glenn Miller, 20, Sandra Lee Scheuer, 20, and William Knox Schroeder, 19, were killed.

One of the wounded, Dean R. Kahler, suffered permanent paralysis.

Protests across the United States followed.

Only ten days later, 14 black students were shot by police, two of whom were killed, at Jackson State University in Jackson, Mississippi.

Not surprisingly, that event did not receive the same nationwide attention as Kent State. Following the Mississippi shootings, a State Grand Jury commended members of the State Highway Patrol and city police for their actions, terming the 28 second fusillade of police gun fire “right and justified.” A 23‐member Federal grand jury (18 white, 5 black) failed to return any indictments or even submit any written findings.

On June 13, as a consequence of the killings at Kent State and Jackson State, President Richard Nixon established the President's Commission on Campus Unrest. Having avoided probing the question of why the shootings happened, its September 1970 report harshly criticized both the protesters and the Guardsmen, but it concluded that "the indiscriminate firing of rifles into a crowd of students and the deaths that followed were unnecessary, unwarranted, and inexcusable."

It seems that America in 1970 included a lot of folks who would have been among Donald Trump's core supporters.

A Gallup Poll taken the day after the Kent State shootings reported that 58 percent of respondents blamed the students. Students from Kent State and other universities often got a hostile reaction upon returning home. Some were told that more students should have been killed to teach student protesters a lesson. Some students were disowned by their families.

These protests were, at their core, against the Vietnam War. In this writer's opinion they had little impact on the timing of the Fall of Saigon in April 1975, but they may have contributed to a growing reduction in enthusiasm for the War within the white American middle class.

Nothing about the 1970 events led to a reduction of violence in law enforcement. Plus racism as an issue got lost in the Vietnam War controversy. In the decades that followed a national memory grew for Woodstock which was held in August 1969 - in between the events of 1970 and 1968, when Martin Luther King and Bobby Kennedy were assassinated.

And in Chicago in 1968, to "protect" the Democratic Party Convention-goers, the Democratic Mayor held police riots attacking demonstrators as seen in the news pictures below:

For an old guy like me who as a teen first experienced outrage over the Vietnam War beginning in the late 1950's, what we saw in 1970 on the news were protesting students in their teens being killed in the United States by law enforcement and the military.

My hope is that the current protesters can sustain their protests until American governments at all levels embrace their goals.That would be so much better for this Covid-19 year than for 2020 to become the darkness remembered 50 years from now.

Monday, June 1, 2020

Please note: This very American rebellion isn't in 1791 or 1968 but rather a historical continuation

Lexington and ConcordSuffolk Resolves. Ah, the history of American uprising.

Numerous news sources have begun the process of comparing this year to 1968. An American tendency exists to think of difficult periods in history in terms a specific year or even specific events.

Unfortunately, comparing one-year-to-one-year across history allows Americans to ignore the long trend of our cultural, social, and economic disarray as a not-united people.

In the pre-Trump 2016 post here Dissidents in American Politics: The Authoritarian U.S. President, we noted the Whiskey Rebellion protest by dissidents in the United States beginning in 1791 which ended when then President George Washington rode at the head of an army of 12,950 militiamen provided by the four governors. Because relatively few men volunteered for militia service, a draft was used to fill out the ranks. Draft protests were widespread, and conscription efforts resulted in protests and riots, even in eastern areas.

That was in year 3 of the existence of a not-very-United States. An honest discussion of that protest would have to begin prior to the American Revolution because the Whiskey Rebellion was about taxes, the subject used by American economic interests prior to the Revolution to justify the Revolution - you know, "no taxation without representation."

But there's nobody alive today to reminisce about the times of George Washington. Plenty of us are around to remember 1968, however.

While 1968 was a year of protests, it followed the 1967 Detroit Riots which were among the most violent and destructive riots in U.S. history. By the time the bloodshed, burning and looting ended after five days, 43 people were dead, 342 injured, nearly 1,400 buildings had been burned and some 7,000 National Guard and U.S. Army troops had been called into service. In our household one of us has a personal memory of walking through the 1967 Detroit Riots. It was not abstract, impersonal.

In contrast, for this writer 1968 was a vivid amplification of American failures at the end of WWII regarding Southeast Asia. The outcomes of those failures began to become more intense with the assassination of Jack Kennedy in 1963. That left us with Lyndon Johnson whose weakness was international affairs. Johnson decided not to run for reelection in 1968 because of the protests over the Vietnam War.

In this writer's opinion, the 1967-68 protests and riots along with the assassinations of MLK and Bobby assured the victory of Richard Nixon. Republican Nixon beat Democratic former Vice-President Hubert Humphrey. Humphrey was a nice guy with lots of good experience. Though different, the very experienced former Vice-President Joe Biden offers a certain nice-guy resemblance to Humphrey.

That's a worry.

The year 1968 offered another similarity to this year discussed by some news sources along with the riots.

In September 1968 what was labeled as the Hong Kong flu entered California, carried by troops returning from the Vietnam War, but did not become widespread in the United States until December 1968. The disease was allowed to spread through the population without restrictions on economic activity, until a vaccine became available four months after it started. It had a second wave in 1969. Even though its impact was mitigated because a similar Asian Flu strains had been circulating since 1957, it's estimated that it killed up to four million people worldwide (we've had 375,000 deaths from Covid-19 to date with double the total population of 1968).

All of this tends to confuse us about the commonality of the recurring protests - the divide between
  1. those who embrace the White Anglo-Saxon Protestant traditional American culture which sustains the class system supported by unbridled capitalism and
  2. the rest of us.
We need to be mindful of the statement by U.S. historian John Seung-Ho Baick: "What's fundamentally common for all of these things in our history is a lack of agreement of what reality is - a lack of agreement about facts, about causes. When we can't agree on basic truth, we reach our greatest periods of divide."

Aspiring fascist dictator Donald Trump mines as if it were coal the American propensity to deny facts, causes, truths, reflecting a dangerous preference for beliefs. He intends to use it to energize his campaign and heat up the anger of his core supporters.

In this context liberals and members of the the news media are "carrying coals to New Castle" instead of shutting down Trump's successful publicity effort.

Trump is not Nixon, he's worse. It's not 1968 in America, it's 2020 and we are far less knowledgeable about government than we were in 1968.