Wednesday, December 2, 2020

Covid-19, unemployment, & realigned world trade: Extended Economic Distortion begins to take shape

We are nearing the end of a year of pandemic after four years of the Trump Administration. It is not surprising that Covid-19, unemployment associated with changes in consumer habits, and a realignment of world trade towards the Pacific-Southeast Asian nations are creating a picture of a probable Extended Economic Distortion within the U.S.

The Pandemic

The Covid-19 pandemic has worsened severely. As of November 30, here in California's hospitalizations exceeded the previous high as can be seen in this chart...

...while the 7-day death rate climb has just begun - 133 days after the hospitalization rise exactly as last time. These charts do not reflect Thanksgiving infections and, with Christmas and New Years coming up, hospitalizations will continue to skyrocket probably through February. (It has become clear that Californians are no better than any others waiting for the vaccine while protecting the vulnerable among them.)


Expanded unemployment has, and will continue to, create difficult economic pressures. Obviously, a runaway pandemic is going to put pressure on businesses directly serving the public. Many restaurants and retailers have closed. But that isn't the major issue.

The most immediate issue is the impact of expiring expanded unemployment related benefits enacted to reduce economic losses from the Covid-19 pandemic. By the end of December the last of the aid will be paid out that Congress provided through a series of emergency measures in the spring.

Direct checks of $1,200 per person to most U.S. households, $600 a week in supplemental unemployment benefits and hundreds of billions of dollars in support for small businesses reduced the effects through the summer. But according to U.S. employment data the number of people out of work for more than six months (the indicator of long-term unemployment) rose 1.2 million in October, to 3.6 million - a rise - and is likely to continue to increase well into 2021. In addition, workers are facing these realities:

  • Nearly four million Americans are receiving benefits under the pandemic compensation program, a number that doubled in the past month and which will keep rising as more people reach the end of their 26-week state benefits.
  • There are 9.3 million people receiving Pandemic Unemployment Assistance, a program to cover people left out of the normal unemployment system, such as freelancers and self-employed workers, as well as those unable to work because of pandemic-related child care issues and similar obstacles.
  • Tens of millions of workers will lose access to federally mandated paid sick and family leave from the Families First emergency program which required many employers to provide workers with two weeks of coronavirus-related sick leave at full pay and up to 12 weeks of family and medical leave to care for family members at two-thirds pay.

All this must be viewed in the context of an October 2020 report titled Household Financial Fragility during COVID-19: Rising Inequality and Unemployment Insurance Benefit Reductions which makes us acutely aware that even in January 2020 when our economy was thought to be booming a large majority of American households were dependent upon that next paycheck to cover their cost of housing and food.

In theory Congress could extend, modify-and-extend, or create new programs. Recent headlines indicate a compromise bill proposed by nine Senators has some support. But the divided national political scene as reflected by the Republican Senate versus Democratic House - Senate Majority Leader Mitch McConnell (R-KY) versus Speaker of the House Nancy Pelosi (D-CA) - will not make that easy.

We will know by the end of January 2021 the level of success of McConnell's election 2024 goal to make Joe Biden seem responsible for an economic disaster by minimizing benefits to unemployed workers.

21st Century Economic Restructuring

As noted here in a September 1 post, the first 20 years of the 20th Century and the first 20 years of the 21st Century solidified major transitions in the economy.

The most significant of the changes was brought about by the embracing of the internet for communications, entertainment, and sales of goods and services. Consider this story:

    US ecommerce sales will reach $794.50 billion this year, up 32.4% year-over-year....
    “We’ve seen ecommerce accelerate in ways that didn’t seem possible last spring, given the extent of the economic crisis,” said Andrew Lipsman, eMarketer principal analyst at Insider Intelligence. “While much of the shift has been led by essential categories like grocery, there has been surprising strength in discretionary categories like consumer electronics and home furnishings that benefited from pandemic-driven lifestyle needs.”
    “There will be some lasting impacts from the pandemic that will fundamentally change how people shop,” said Cindy Liu, eMarketer senior forecasting analyst at Insider Intelligence. “For one, many stores, particularly department stores, may close permanently. Secondly, we believe consumer shopping behaviors will permanently change. Many consumers have either shopped online for the first time or shopped in new categories (i.e., groceries). Both the increase in new users and frequency of purchasing will have a lasting impact on retail.”

The numbers in the table below reflect that changing market when comparing the 2019 financial statement total revenue to the most recently reported current esales:

The likelihood that gains in internet sales after Covid-19 will revert to in-store sales is not great. And expected holiday sales will shift further to online. The impact on local retail sales cannot be overstated.

Further, as mentioned in the article above, the real surprise is that online grocery sales have skyrocketed as noted in this Atlanta Constitution article:

    Recent numbers show the pandemic pushed online grocery sales in the U.S. to extraordinary heights. In August 2019, sales were $1.2 billion, according to data gathered by the companies Brick Meets Click and Mercatus. In June 2020, they were $7.2 billion.
    Meanwhile, online sales grew from 3.4% of the grocery buying market in 2019 to 10.2% a year later, according to Mercatus and consumer data firm Incisiv.
    The change is creating thousands of new jobs in Atlanta, from high-tech positions to warehouse and delivery workers.
    Online shoppers will see improved delivery services and a better online user experience as companies compete for their share of the $1 trillion annual U.S. grocery market, industry analyst David J. Livingston said. But some smaller grocers likely won’t be able to keep up and could end up closing as behemoths like Walmart and Amazon continue to take bigger chunks of the online grocery business.
    Grocery store chains are staying competitive by throwing more resources into the fight. Kroger, for instance, has hired the British company Ocado to build a $55 million warehouse in Forest Park where robots will help sort online grocery orders. The chain will begin delivering in the metro area in 2021.
    “We’ll all look back on this year as being possibly the most significant inflection point for online grocery shopping,” said David Hardiman-Evans, Ocado’s senior vice president for North America.

One must also note that the "shoppers" are gig workers reflecting another shift in our economy.

China's Crucial Win in World Trade

China clearly has has offered a 21st Century non-military challenge to U.S. economic strength with a crucial win in world trade, along with a manufacturing focus shift inward.

This must be viewed in the context of China's relative success at suppressing Covid-19 outbreaks. China's one-party unitary national government can impose mandatory lockdowns, testing, and vaccination more effectively than in an undisciplined multiparty federation such as the United States.

China's one-party unitary national government can, and has, turned inward to promote its own consumer economy with the context of the 14th Five-Year Plan and the 2035 Vision to be taken up by the Party Congress next year. Consider this news story:

    President Xi Jinping called on the nation in May to rely more on domestic demand for future growth – dubbing it a dual circulation strategy – and his directive requires significant changes in both internal supply and demand.
    “The pandemic has made it difficult for us to sell abroad, but we do feel as though Chinese customers are less … enthusiastic for foreign brands, especially mid-level products,” said a sales manager at a fashion jewellery brand with shops all over the country.
    “Frankly, it may be becoming fashionable and more politically correct to make and consume good-quality Chinese goods,” he added, asking not to be identified.
    That sentiment seems to be felt by a growing number of Chinese export manufacturers, some of whom say they have started shifting investments to the domestic market even as their exports have seen a huge resurgence recently.
    Orders have been returning to China as other producing countries are still being ravaged by the pandemic, but manufacturers know the trend is most likely unsustainable.

However, China's one-party unitary national government can, and has, turned toward the Pacific-Southeast Asia to join with Australia, Brunei, Cambodia, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam to create the Regional Comprehensive Economic Partnership (RCEP). The RCEP, signed November 15, includes almost one-third of the world’s population and about one-third of its gross domestic product. It is the first ever free trade agreement between China, Japan and South Korea – Asia’s largest, second-largest and fourth-largest economies. It's goal is to progressively lower tariffs and aims to counter protectionism, increase investment and allow more free movement of goods.

Brunei, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and the Philippines are members of the Association of Southeast Asian Nations (ASEAN) trade group. It was announced December 1 that the European Union has joined with the ASEAN group in a strategic partnership to "stand up for safe and open trade routes and a free and fair trade" according to German Foreign Minister Heiko Maas after a virtual meeting with his EU and ASEAN counterparts. "Together, we represent more than a billion people and almost 25 per cent of global economic power," noted Maas.

Then, to the surprise of many, President Xi Jinping announced that China “will actively consider” joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Chinese Premier Li Keqiang’s in May noted that “China has a positive and open attitude toward joining the CPTPP”. Were this to be accomplished it would add Canada, Chile, Mexico, and Peru to China's trade group partners.

For Americans who don't remember as far back as four years ago (most Americans), the CPTPP evolved from the Trans-Pacific Partnership (TPP), which failed due to the withdrawal of the United States after Trump took office. Twenty-two TPP provisions that were priorities of the U.S., but not other negotiating partners, were suspended or modified in the CPTPP.

President Barack Obama's push to pass the TPP in 2016 was resisted by the 2016 presidential candidates in both major parties. Clinton and Trump opposed the deal, arguing that it would hurt American workers.

The problem for Clinton was former 2016 presidential candidate socialist U.S. Sen. Bernie Sanders rallied his supporters to urge the Democratic National Committee (DNC) to include language in their platform rejecting the TPP. CNN reporter Eric Bradner wrote, "By keeping specific opposition to the Trans-Pacific Partnership out of the platform, Democrats avoided embarrassing President Barack Obama." Although the DNC's decision was a disappointment to Sanders, he, along with U.S. Sen. Elizabeth Warren, continued to spearhead efforts in the Senate to get their colleagues to vote against Obama's trade deal.

This year, President-elect Joe Biden stated: "When it comes to trade, either we're going to write the rules of the road for the world or China is – and not in a way that advances our values. That's what happened when we backed out of TPP – we put China in the driver's seat. That's not good for our national security or for our workers. TPP wasn’t perfect but the idea behind it was a good one: to unite countries around high standards for workers, the environment, intellectual property, and transparency, and use our collective weight to curb China’s excesses."

What Biden did not foresee was the RCEP, the EU-ASEAN agreement, and China's positive outward reach to the CPTPP.

The problem for the U.S. is that while two-thirds of the original chapters remain in the CPTPP,, among the 22 provisions set aside include such things as investors’ ability to litigate disputes under investment agreements and investment authorizations - which are used mostly for mining and oil investments - are more limited.

Further regarding intellectual property the length of patent protection for innovative medicines has been shortened, technology and information protections have been narrowed, and copyright periods for written materials have also been shortened. Particularly, the stringent requirements that the United States pursued in technological protection measures, rights management information, encrypted satellite and cable signals, and safe harbors for internet service providers have all been removed.

Effectively, the American-East-Coast oriented ignoramuses handed a massive international trade win to China. They didn't protect any American interests or American workers. As Biden said: "We put China in the driver's seat."

The 46 nations within the CPTPP, RCEP, and EU-ASEAN are home to 38% of the world's population and control 50% of the world's Gross Domestic Product (GDP) - 51.64% of the 2019 Nominal GDP, 50.03% of the 2019 Purchasing Power Parity GDP.

The map below with the countries in white (most importantly the United States, India, and Russia) representing non-participants will shape our future Extended Economic Distortion:

The fact that the EU has chosen to get its foot in the door should be a clear warning that the United States no longer has the "collective weight" (to use the term Biden used) it had in the 20th Century. Americans made significant choices at the beginning of the Millenium, choices which will continue to hang over the U.S. economy in complex ways for decades.

The Undercurrent in U.S. Politics Enters the Limelight

The future of the United States is currently bound up in a (almost) fanatical dispute between three points of view. Most certainly the socialists versus the libertarians (recently in the persons of Bernie Sanders versus the Koch Brothers) have chiseled their ideological way into the electorate as reflected in Congress and the state capitols.

But added to that is a formerly "silent" significant minority.

Speaking in Madison, Wisconsin on April 15, 2011, Sarah Palin said everything that needs to be said about that significant minority: "And speaking of President Obama, I think we ought to pay tribute to him today at this Tax Day Tea Party because really he's the inspiration for why we're here today. That's right. The Tea Party Movement wouldn't exist without Barack Obama."

Palin epitomizes what appeals to the significant minority:

  • Of English, Irish, and German ancestry, she was born February 11, 1964 in Sandpoint, Idaho, to "Chuck" Heath (a taxpayer supported science teacher and track-and-field coach) and "Sally" Sheeran (a taxpayer supported school secretary), the third of four children.
  • When she was a few months old, the family moved to Alaska where her father had been hired to teach,  settling in Wasilla, Alaska in 1972.
  • She attended Wasilla High School, where she was head of the Fellowship of Christian Athletes and a member of the 1982 Alaska state champion girls' basketball team and cross-country running team.
  • In 1984, Palin won the Miss Wasilla beauty pageant and she finished second runner-up in the Miss Alaska pageant, where she won the title of "Miss Congeniality".
  • In 1987 she received her bachelor's degree in communications with an emphasis in journalism from the University of Idaho, and then worked as a sportscaster for Anchorage TV stations and a newspaper sports reporter.
  • In August 1988, she eloped with Todd Palin, her high school sweetheart, and they have five children, the youngest of who born in 2008 was prenatally diagnosed with Down syndrome.
  • Todd worked for the oil company BP as an oil-field production operator, retiring in 2009, and owns a commercial fishing business.
  • They are now divorced.

Simply, Palin is a celebrity who foreshadowed the successful candidacy of Donald Trump. It is unclear what would have happened in 2008 had her fame and experience not been limited to Alaska, the third least populous state ahead of only Wyoming and Vermont. Of course, social media such as Twitter and Facebook had not yet completely replaced traditional news sources in 2008 when she ran for Vice-President.

In today's political reality, political candidacy favors celebrity contestants and the significant minority accepts its beliefs from the likes of sportscasters and reality show hosts. The Regional Comprehensive Economic Partnership (RCEP) signed in November 2020 was introduced as a concept in 2011 during the 19th ASEAN Summit. The original proposal for the Trans-Pacific Partnership was made in 2008 with the final agreement stalled by the U.S. disinformation machine in 2016. Sportscasters and reality show hosts cannot compete on a world stage that depends upon 8+ years of informed participation in detailed economic negotiations.

Whatever else you may think, Barack Obama was a well-educated, experienced politician who also was young and black. Future elections will tell us if the U.S. is destined to be a bystander in the world.

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