2020 has been a year like none other in recent memory.  The unemployment rate jumped from 3.5% in February to 14.7% in April.  New coronavirus infections settled down to 20,000 per day in May and now have spiked as high as 50,000 per day.  Race riots flared up in early June with demands to “defund the police.” As expected, China has finally cracked down on freedom of expression in Hong Kong.  Is the world, and especially the U.S., falling apart? There certainly are plenty of people who think so!

But let’s take a sober look at what’s good and what’s bad about life in mid-2020 both in the U.S. and around the world.  First, the negative:

• The coronavirus pandemic. It originated because of inadequate public health procedures in Wuhan, China, and is still rapidly spreading around the world.  New infections appeared to be under control in the U.S. at 20,000 per day but have now spiked as high as 50,000 per day.  At this point, we badly need an effective vaccine to quickly arrive on the scene.

  

• The U.S. economy has been badly hurt with millions of workers being laid off by forced government business closures.
• The U.S. national debt outlook, already horrible before the pandemic, is now even worse!
• Race riots around the country as the result of the brutal killing of George Floyd by a Minneapolis police officer. This has led to all sorts of different suggestions for how to address racism in America.

But the highly unfortunate events so far this year need to be kept in perspective by comparison with the positive things that are also happening:

• Freedom and democracy are thriving around the world. Freedom House data show that, despite today’s big challenges, the world today is far more free than unfree.  We can never take freedom for granted but it is alive and well today, both in America and many other parts of the world.

  

• The U.S. economy appears to be bouncing back quickly from a deep recession. The unemployment rate dropped to 13.3% in May and then 11.1% in June.  The huge spike in new daily infections need not slow down this rapid recovery (more later).
• The U.S. debt problem, as awful as it is, is still solvable. As soon as we are confident that the pandemic is under control and receding, it will be time to focus hard on fixing the debt.
• Progress on racism. In spite of the latent racism in the U.S., it is important to be aware of the significant economic advances having been made by blacks in recent years.  See here and here.

Conclusion.  Yes, there are many problems in the world in mid-2020.  But we will get past the pandemic in the coming months.  Then our country’s fundamental economic and social strengths will again be quite apparent.  On Independence Day 2020 we should all be proud and grateful to be an American!

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My last three posts have addressed various aspects of racism in the U.S., see here, here, and here.  I have been making a case that fundamental change requires going beyond police reform, as valuable as some police reforms might be.

Here is another key point made by Ian Rowe, a black scholar at the American Enterprise Institute.  He says that “the narrative that white people hold the power conveys a wrong-headed notion of white superiority and creates an illusion of black dependency on white largess.”  “The next generation of Americans – black  and white – might grow up believing that the entire destiny of one race rests in the hands of another, which must denounce its privilege before any progress can be made.”

Along this line, a 2018 report, “Black Men Making It in America” from the American Enterprise Institute and the Institute for Family Studies, is very informative.  Consider:

• Black men’s economic standing. 57% of black men have made it into the middle class or higher as adults today, up from 38% in 1960.  The share of black men who are poor has fallen from 41% in 1960 to 18% today.
• The institutional engines of black men’s success. In addition to higher education and full-time work, three other institutions – the military, the black church, and marriage – play significant roles in black men’s success.
• The importance of individual agency. 52% of black men who had a higher sense of agency – feeling like they are determining the course of their own lives – as  young men, had made it into the middle class when they reached age 50, compared to 44% of their peers who did not have that sense of agency.
• Contact with the criminal justice system. By midlife, only 28% of black men who had contact with the criminal justice system when they were young have moved into the middle or upper class, compared to 57% of black men who had no contact with the criminal justice system at a younger age.

Conclusion.  “There are pathways to power for young black people.”  An important goal of K-12 education should be to help black girls and boys cultivate a sense of personal agency and convince them that their well-being is determined more by their own actions than by support from the dominant race.

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The death of George Floyd in police custody in Minneapolis several weeks ago demonstrates once again that racial bias is entrenched in American society.  It reminds us that we must do a much better job to improve race relations in our country.  How will this be accomplished?  I have already discussed some things that will work and others that won’t, see here and here.

Another way to look at it is backward thinking vs forward thinking:

Examples of backward (negative and not especially useful) thinking are:

• Reparations.  Suggestions for reparations paid to the descendants of slaves are again being made.  A figure of $14 trillion is used to equalize wealth distributions between whites and blacks.  The basic problem with this approach (besides the exorbitant cost) is that America stands fundamentally for equal opportunity, not equal outcomes.  Despite the slavery of their ancestors, what we owe blacks is an equal opportunity to succeed, not a guarantee of equal success.

  

• The limits of police reform.  Strong police forces are needed to maintain law and order.  Most police are not racist but there are a few bad apples.  Making it easier to fire bad cops (without  interference from police unions) is a very good idea but of overall minor value in improving black lives.

  

Examples of forward (positive and useful) thinking are:

• Affirmative action. Giving blacks more opportunities to succeed economically is now solidly entrenched in American society and can have a positive effect on a company’s financial success.

  

• Better educational opportunity.  In an opportunity society like the U.S., a good K-12 education is indispensable.  Unfortunately, many large metropolitan areas have poor inner city public schools.  The answer is to promote both charter schools for these areas as well as early childhood education.
• Economic opportunity. In the U.S. everyone is ultimately responsible for their own welfare and success.  What society can and should do is to provide strong economic opportunity by supporting general economic growth as well as training for skilled jobs.  Restoring our economy to its pre-pandemic status will be very beneficial to all low-income workers including blacks.

Conclusion.  The most effective thing we can do to help blacks achieve a more comfortable niche in American society is providing more and better opportunities for them to work their way up the economic ladder.  False promises such as reparations for slavery and unrealistic police reform will only lead to more disappointment and resentment.

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My last post suggests that police reform, while beneficial if done carefully, will not bring about the fundamental change in U.S. race relations which is so badly needed.

There is only one way to bring about such fundamental change.  Whites and Blacks must be able to interact with each other more comfortably as social peers.  Historically this has been difficult to achieve.  The overall social and economic status of Blacks in American society has to improve significantly for this to happen on a widespread basis.  How can this be accomplished?

• Adopt a colorblind approach to addressing poverty in the U.S.  What I am suggesting is a major coordinated program to give a socio-economic boost to all low-income individuals and families, including Blacks.
• Early childhood education. There is a huge academic achievement gap between middle class kids and kids from low-income families.  It is already apparent by grade three and continues to get progressively worse throughout middle and high school.  An effective way to improve educational outcomes for low-income kids is through early childhood education.  This means intensive intervention with low-income kids at least by age three, if not younger, to make sure that they are ready to succeed academically when they get to kindergarten and first grade.
• Enhanced Economic Opportunity. The Brookings Institution and the American Enterprise Institute have put together an excellent proposal for improving economic opportunity for all members of the working class.  What is needed is a new social contract, emphasizing the centrality of work but also making it more fulfilling for blue-collar workers.  This would include such features as enhanced career education in high school, an expanded Earned Income Tax Credit to boost wages, and increased work requirements for public assistance programs (to provide extra motivation to find and hold onto a job).

Summary.  Substantially improving the black/white racial climate in the U.S. requires lifting the socio-economic status of American Blacks so that Blacks and Whites can interact on a more equal peer-to-peer basis.  This can be more effectively accomplished on a universal interracial basis and could perhaps be considered as the next goal to work for in a more generalized civil rights movement.  More concrete details soon!

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The brutal death of George Floyd during an arrest by a white police officer in Minneapolis has tripped off widespread protests and race riots around the U.S.  There is a general consensus that black/white racism is still pervasive in the U.S.  How should we deal with it?  First, we have to separate myths from facts.

For example:

• Myth #1. There is strong evidence of widespread racial bias among police.  In 2019 police officers fatally shot 1004 people, most of whom were armed. African-Americans were about a quarter of those killed by cops (235), even though they commit 53% of homicides and 60% of robberies.  Of course, officers who use excessive force should always be held accountable.
• Myth #2. Police departments should be investigated for systemic racism and reformed.  When police departments have been investigated following incidents of deadly force that went viral, police activity declined and violent crime spiked.  In Chicago there was a 90% drop in police-civilian contacts immediately after the announcement of an investigation.

If more thoroughly monitoring police behavior will do little to decrease racism, then what will work?  Consider:

• Fact #1. Blacks have been making big gains in employment in recent years, but unfortunately these gains have not yet begun to close the income gap between black families and white families.  The very low unemployment rates for both blacks and whites as recently as February 2020 have now been at least temporarily wiped out by the coronavirus pandemic.
• Fact #2. Poor education is a large barrier to Black progress.  There is a huge academic achievement gap between middle class kids and kids from lower-income families.  Unfortunately the gap gets worse as kids progress through the K-12 grades.  It is very difficult to land a good job and hold on to it without a decent education.

Conclusion.  Black/white racism is endemic in American society even though much progress has been made.  Removal of bad cops is needed but systemic police reform will be counterproductive.  What really is needed in more and better economic opportunities for blacks, aided by more effective K-12 education.  More on economic progress next week!

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As new coronavirus infections in the U.S. have steadily decreased from a level of 30,000 per day at the beginning of April, and have now plateaued at about 20,000 per day, it becomes more and more important to try to foresee, and plan for, what the world will look like after the pandemic.

In my last post, I showed that the U.S. has a strong upper hand in relations with China and should be able to maintain both economic and military dominance for many years to come.

It turns out that even more can be said.  Matthew Klein, the chief economist at Barron’s, makes a strong case that Chinese growth relative to the U.S. will level off about 2040 and then begin to decline.  Here is a summary of his argument:

• Starting in the late 1970s, under Deng Xiaoping, the Chinese economy grew to 66% of America’s size by 2019 (see chart).

  
  

• From 2002 through 2011, China’s GDP per working-age adult rose 18% per year compared with 3% per year in the U.S. During this time period Chinese GDP grew from 13.5% to 48% of U.S.GDP.
• After the Great Recession of 2008, the economic collapse of China’s main trading customers caused a huge debt bubble to build in China hitting 250% of GDP by 2019.
• After addressing the debt problem, Chinese GDP per working adult has grown 6% per year from 2014 – 2019, compared with 4% each year in the U.S.
• The U.N. predicts that the number of working age Chinese will fall by half between now and 2100 while the number of Americans of working age should rise by 15%.
• All of this leads to the conclusion that the Chinese economy will peak relative to America’s around 2040 at about 76% of U.S. GDP (see chart). China will then steadily lose ground relative to the U.S., eventually shrinking back to where it was in 2011 when Xi Jinping took office.

Conclusion.  The likelihood is that “the People’s Republic is near the peak of its relative power and will soon enter a long period of relative decline.”  But let’s not become complacent about this!!!

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As new daily coronavirus infections in the U.S. continue to fall and the U.S. economy continues to reopen, it is important to think about the broader implications of the pandemic, among other things with respect to foreign policy.

Clearly our biggest economic and military competitor, and the biggest threat to worldwide political freedom and democracy, is China.  George Friedman, founder of Geopolitcal Futures, has given an excellent analysis of our relationship with China:

• U.S. investment in China has been critical to China’s industrial development, as has been our import of Chinese goods. Thus imposing tariffs on Chinese goods entering the U.S. has been a big blow to the Chinese economy.
• China is taking a great deal of criticism for letting the coronavirus crisis start in Wuhan and then break out of Wuhan and spread around the world.
• China’s trillion dollar Belt and Road initiative is now causing huge anxiety around the world as poor countries are struggling to repay their loans from China.

  

• China badly wants a better economic relationship with the U.S. while wanting the U.S. to accept its desire to dominate the South and East China seas.
• But China also faces hostility from nearby neighbors such as Japan, South Korea, Taiwan, Indonesia and Australia.
• China benefits if the U.S. gets overly bogged down in other parts of the world but, in fact, the U.S. is trying to cut back involvement in Middle East countries such as Afghanistan, Saudi Arabia and Syria.
• One possible response to the coronavirus pandemic is for the U.S. and other countries to diversify supply chains which are overly concentrated in China. This will hurt the Chinese economy.
• All of these factors mean that the U.S. has a lot of leverage with China to be more accepting of U.S. imports as well as ending the theft of U.S. intellectual property.

Conclusion.  In the ongoing competition between the U.S. and China for world military and economic dominance, the U.S. has many strengths and should be able to maintain the upper hand for many years to come.

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Every week lately I begin a new post with the latest chart showing the number of new daily coronavirus infections in the U.S. There is now a slow but steady decrease in this number.  This is good news, of course, because it means that the curve has been flattened and is turning downwards.  This means that we can cautiously begin to open up the economy.

It has been reported that 37% of jobs in the U.S. can be performed from home.  These are “remote” disproportionately knowledge workers, mostly well-educated and well-paid.

The other, roughly two-thirds, of the employed are “exposed”.  This includes everyone such as shop owner, waiter, cab driver, sales associate, factory worker, flight attendant, and so on, for whom physical presence is a job requirement.

For the remote, social distancing and shutdowns are at most a mild irritant.  A few more weeks or even months of this response to the pandemic is easily bearable. For many of the exposed the economic shutdown has instead been a catastrophe. Their livelihoods and social sanity are at stake.

The Governor of Pennsylvania, Tom Wolf, says that those pushing against the shutdown are “cowards”.  The Governor of Michigan, Gretchen Whitmer, has called the shutdown protesters “racist and misogynistic.”

Michigan and Pennsylvania are so-called “purple” states where the governor is from one political party (in these cases, Democratic) while both legislative chambers are from the other party.  These two states, along with Wisconsin, all went for Donald Trump in 2016 which swung the electoral vote in his favor.

The people making key decisions on how and when the shutdowns will end are not themselves members of the exposed class.  “Those who think the world can be run by remote control may well have their folly exposed as failure by those who know it can’t.”

Summary.  Prolonging economic shutdown any longer than absolutely necessary, in order to be extra safe against coronavirus infection, is a risky economic and political strategy.

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The number of new infections in the U.S. has leveled off at about 30,000 per day in the last five weeks and appears to be showing a slight drop off.  This is very positive since more and more people are being tested all the time.

So much about the coronavirus is as yet poorly understood that it is hard to even know the best way to implement the social distancing strategy which most of the world (except for Sweden!) is taking very seriously.

As I discussed last week, many states, including Nebraska where I live, are beginning to reopen their economies.  Considering the uncertain timeline for the further spread of the coronavirus, it is critical to do this, even if the effort starts out slowly and hesitantly.

Many people, including myself, have speculated on how the pandemic is going to significantly change the way we conduct our personal lives, both at work and at home, such as, for example, by speeding up even more quickly the adoption of technology.

Another big change is going to occur in how we relate to the rest of the world in the future, especially China. Not only was the pandemic caused by poor public health measures in Wuhan, China, but it has now become obvious that the developed world has become too dependent on industrial supply chains centered in China.  This has enabled China to dictate the terms of access to its market in circumvention of established international trade rules.  The U.S. and its allies can’t protect their interests without confronting China.

Conclusion.  The coronavirus pandemic has presented a huge shock to the entire world.  Trying to limit the number of infections and deaths is an enormous public health issue.  But is will also have a big effect on everyday life in the future.  And world affairs will be greatly impacted.  It is worthwhile to try to anticipate what is coming down the pike and prepare for it, even if imperfectly!

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As the number of new cases of coronavirus infections in the U.S. continues to level off at about 30,000 per day, and should soon start beginning to drop, America is thinking more and more about how to return to normal.

For example, restaurants in many different states are reopening with seating restrictions.

It turns out that Middle America is leading the way in loosening restrictions so that the economy can begin to reopen. It is urgent to begin doing this.  We simply cannot stay locked down until an effective vaccine appears on the scene which may be many months, or even a year or more, from happening.

An at least temporary retreat of the regulatory state is helping this to happen.  For example, medical personnel have been freed to practice across state lines.  Obstacles to telemedicine are being dismantled by Medicare and Medicaid.  Private firms are being liberated to develop Covid-19 and antibody tests.  The FDA has authorized emergency use of the Gilead drug Remdesivir for Covid-19 patients.

Long term, the pandemic has exposed several weaknesses of overly strict central planning.  For example:

• Net neutrality price controls on internet service providers, now overturned, never anticipated that the entire country would be simultaneously stuck at home, requiring much more flexibility for internet traffic.
• The 2010 Dodd-Frank law piled a multitude of unnecessary restrictions on small banks which prevent them from serving desperate small-business applicants at the present time.
• Obamacare outlawed short-term health insurance plans lasting more than three months (now loosened), not anticipating that millions of people could be thrown out of work, with no guarantee of being back in less than three months.
• Our decentralized federal system of government is now showing its great strength in the coronavirus pandemic.

Conclusion.  Led by Middle America, the U.S. is now just starting to recover from the economic disruption caused by the coronavirus pandemic.  This forward movement has been greatly aided by a loosening of various regulatory restrictions.  Our decentralized federalist system is demonstrating its great strength and resilience.

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