E The Road To A Post-Corona Boom - Part 1

The man with the white tipped cane stood up. As everybody turned towards him, the woman next to me leaned towards me and whispered, “No matter the forum, he always says the same thing.”

The man had a simple complaint, one he had delivered time and again. He wanted to work, but as soon as he took in a paycheck, no matter how small, he’d lose the benefits he collected as a blind man. He wanted to preserve his benefits, even if he got a job.

He wanted to contribute to society, without threatening the safety net he needed to survive.

As I look at the economic catastrophe sweeping the world, I find myself reminded of that man.

Photo by Science in HD on Unsplash

The U.S. unemployment rate, including those “absent from work due to COVID-related reasons” is already close to 20%. Vast numbers of people are people are being kept on payrolls despite a lack of work. The actual ‘unemployment’ rate is far higher than is being reported.

Most focus on the economic hardship. Jobs are lost, rent and mortgages can’t be paid, investments have vanished, bankruptcies are spreading. In this environment, our first challenge is ensuring people’s basic needs are met. We can produce food and we can subsidize rent and mortgages.

Even if we succeed in these areas, we’ll be failing to address what I would call the spiritual hardship. As that blind man made clear, resources are not all that matters. Jobs are not just a way to create or acquire resources. Jobs can give those who have them a fundamental sense of meaning, purpose and, ultimately, fulfillment. With a productive job, you are contributing to society. You are contributing to something bigger than yourself.

In the aftermath of corona, even the best subsidy and resource distribution schemes will leave tens of millions lacking the opportunity to lead fulfilling lives. Just as with the blind man’s subsidy, those distribution schemes are already keeping low-skilled workers at home. Impressive unemployment benefits are making workers reluctant to return to work. In this environment, some are suggesting boosting the minimum wage to help those workers through these challenging times. Of course, in an environment where there is less opportunity to create value, higher minimum wages will just price more Americans out of the workforce.

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Joseph Cox 1 day ago Author's comment
Joseph Cox 1 week ago Author's comment

Next part added. It is about universal health care...

talkmarkets.com/.../the-road-to-a-post-corona-boom-healthcare-part-2

DRM 1 week ago Member's comment

The blind man with the cane needs to use it to beat the hell out of the politicians who got us here in the first place! No incentive system, no tax system, no wage system, no economic system whatsoever, can possibly work when politicians, Democrats and Republicans alike, throw away TRILLIONS $$$ of Dollars they don't have. The "House of Cards" is eventually going to collapse and like nothing anyone has ever seen before. Every great society, in the history of mankind, eventually collapsed. I'm sure the citizens of those societies never thought it would happen, just like the citizens of our "great" society can't see it, imagine it or believe it, even though it's really very easy, if you simply take the time to look up from your computer or iPhone screen. And, don't think the end will simply be an economic collapse. When the great nations of history faced intense internal strife, war has always been seen as a means of deliverance from the impending tragedy. If you think our politicians have led us down a slippery slope, wait and see what comes next. Also, you should understand that this will not be another Korean War, Vietnam War, Middle East War or even WWI or WWII. We are closer than we've ever been to nuclear war and I'm not talking about the fact that we've pushed the Russian bear into a corner and are poking it with a sharp stick. Our greatest threat to peace is China and we are mostly responsible for giving them the economic and technological means necessary to arm themselves. Minimum wage? Seriously?

Joseph Cox 1 week ago Author's comment

The article was about economics not nuclear war :)

Throwing away trillions is going to serve as an economic damper for a long time to come. If people see how broke the US actually is, it could deliver a catastrophic blow.

But broken, bureaucratic and corrupt systems can also hold on for a long time. Look at Byzantium.

DRM 1 week ago Member's comment

Neither the Byzantines nor their enemies had nukes.

Gary Anderson 1 week ago Contributor's comment

They probably crashed after weakening the lower classes. Also; we are the world's greatest threat. Not China.

DRM 1 week ago Member's comment

How do you measure the threat? And why do Americans who despise America, stay?

Gary Anderson 1 week ago Contributor's comment

We are continually provoking China in the South China Sea. We are the greatest threat to world peace.

DRM 1 week ago Member's comment

This may surprise you, but I despise that our presidents and congress continue to sacrifice American soldiers in military conflicts, along with trillions of dollars, on practically every continent, year after year and to no avail. No one benefits except the military industrial complex and the politicians they fund. But, I neither support, nor care about those who've become our enemies. We should leave the world to its own demise. The world is full of conflict, as it has been since the beginning of time and will be until the end of time. What a great country we could have if it weren't for politicians.

Gary Anderson 6 days ago Contributor's comment

We need China, the only real growth machine in the world. China may leave us to our own demise.

DRM 6 days ago Member's comment

Have you been to China and why do you have an affection for a communist dictatorship with slave labor camps?

Gary Anderson 5 days ago Contributor's comment

Look at it this way. China has brought 700 million people out of poverty. I am not a fan, but respect is due. China bailed us out of the Great Recession. They may not help us now.

DRM 5 days ago Member's comment

You can thank the West for bringing China out of poverty. Thank the American and European companies that exported jobs and technology to China. Thank the Western markets for scarfing up China's production. Thank Bill Clinton for sending rocket scientists to fix their missiles that can now reach the USA.

Gary Anderson 5 days ago Contributor's comment

Why would you treat China any differently than Japan? Japan is an ally. China is a fake enemy, set up to be one by our perverse government.

DRM 1 day ago Member's comment

I agree that our government is full of perverse, corrupt politicians. Unfortunately, though there are some honest and good intentioned politicians, there is no uncorrupt government and probably never has been anywhere in the world, at anytime in history. I have flown around the world many times, more than 3 million miles as an adult, for both pleasure and business. I've been to more countries than 99% of Americans. I've lived in Europe (Western and Eastern) and in Asia, as well as both coasts of the USA, and in the North and South. I've seen the corruption that exists elsewhere and it's ugly. Unfortunately, corruption is getting worse and worse in America. About China, if a country acts the same as an enemy, conducting espionage, stealing technology, trade and military secrets, are they not in fact an enemy? Do we have to wait until they attack us by surprise, before we consider them an enemy? Remember Japan?

Gary Anderson 7 hours ago Contributor's comment

Japan's economic boom came years after Pearl Harbor and is the reason why your car doesn't fall apart every few years.

Bill Myers 4 days ago Member's comment

While I don't consider China an enemy (at least not yet, that may change if Trump wins a 2nd term), they are certainly not an ally. Japan is.

DRM 1 day ago Member's comment

I'm a patriot and a capitalist, but I believe that the American corporations, to be more exact, the executives at the American corporations, who exported our jobs and technology overseas are no different than those who betray their country during time of war. They're technically traitors! Their greed and short sightedness will cost future American generations immeasurably. About Japan, allies sometimes become enemies, think about the Soviets. Hopefully, this won't be the case with Japan. One of the biggest problems we face is the insane idea that all cultures have the same morals, values and ethics as we do. They don't! If this were the case, Pearl Harbor would never have happened.

Gary Anderson 1 day ago Contributor's comment

You aren't a capitalist. Free traders are capitalists, and that includes China! Why would we want our greatest customer base to experience hardship? We want customers to prosper. That is capitalism.

Jack S. Chen 7 hours ago Member's comment

Gary, China is NOT a capitalist country.

Gary Anderson 7 hours ago Contributor's comment

Actually, the economic miracle of China is based upon free trade and low tariffs. When the USA was young like China, our tariffs were far higher than China's are.

DRM 1 day ago Member's comment

Why do you think that I'm not a capitalist? I'm an entrepreneur who owns multiple businesses, trading freely with my customers. Based on my research, according to Forbes, Mexico is now America's biggest trading partner, then the EU, then China. India will someday overtake China. If you compare imports/exports or the "trade imbalance", we purchase almost 4 times as much from China as they do from us. About what capitalism is, you need to look at a dictionary. I think that you are either a Chinaman disguised and an American, married to someone from China or have some other connection with China that is clouding your ability accept reason.

Gary Anderson 22 hours ago Contributor's comment

Chinaman? You use a negative term, Chinaman? My natural father was born in Key West. You must understand that US tech makers must be able to trade with China. The Chinese can afford the products. But they are now being stressed. Our companies will pay dearly.

DRM 20 hours ago Member's comment

I disagree! The US "needs" no trading partners. We have all the natural resources and technology necessary to be self sufficient. We don't need the rest of the world. We would be much stronger and economically sound had we never engaged with China. It will be very interesting to see if Trump follows through on his promise to fund the return of American businesses supply chains and manufacturing to the USA. By the way, saying that your natural father was born in Key West sounds exactly like something a foreigner would say if they were trying to show that they were truly American. My heritage is Irish/Cherokee!

Gary Anderson 18 hours ago Contributor's comment

That is ridiculous. We do not make all that we need. China does. We don't. You are naive.

Joseph Cox 23 hours ago Author's comment

DRM Gary Anderson Bill Myers my take on China...

talkmarkets.com/.../the-road-to-a-post-corona-boom-foreign-policy-part-3

Angry Old Lady 1 week ago Member's comment

Why is the answer to get rid of the minimum wage rather than to raise the minimum wage. The minimum wage is to protect workers from being taken advantage of. In an economy like this, people might be willing to work for a few dollars per day. That's practically slavery. It used to be like that here and still is in some 3rd world countries.

DRM 6 days ago Member's comment

Do you have idea why McDonald's, Burger King, KFC, Pizza Hut and other fast food chains are installing kiosks in their restaurants for customers to order and pay for their food, along with the new pickup counters? The kiosks replace employees as businesses fight to keep their costs as low as possible, in order to stay in business and make profits.The major benefit is cost savings. Forcing a $15 minimum wage, or any minimum wage, for entry level labor, ultimately results in fewer jobs, especially as more businesses take advantage of technology developed to help them reduce costs. Labor costs are typically the single highest cost for a restaurant. The wage that businesses choose to pay, at all levels, not just entry level jobs, is the lowest they can get away with. That's the nature of business. When the labor force exceeds demand, wages drop. The opposite occurs when there is a shortage in the labor pool. Entry level jobs are a "commodity" which means wages move with demand for that commodity.

Joseph Cox 1 week ago Author's comment

If you raise the minimum wage you'll raise unemployment (at least long-term). The cost of labor, combined with improvements in technology, has led to marginal automation getting the leg up (think self-checkout, fast food ordering screens, German and Japanese factories). We shouldn't drive labor costs down to address this - if machines are cheaper, great. But we shouldn't artificially raise them either. Instead, we should make it possible for anybody who isn't severely disabled or a criminal to be worth employing. Dropping the obligation on companies to provide a minimum salary enables this. At the same time, we add an obligation on society to supplement those with low wages.

This is a method of getting people into the workforce and subsidizing the little value they can return in this sort of environment.

Of course, as the economy improves the value they can deliver will rise. This is why software developers, doctors and many others don't get paid minimum wage - there is labor market demand that drives up their salaries. This is also why 98.7% of Swiss full-time workers make more than $37,000 a year - despite there being no minimum wage in Switzerland.

People are worth more in a successful economy.

In the modern American economy, employers can't band together to force down wages on employees. There is robust competition between employers and industries for talent. A few months ago, this meant that only 2% of workers earned minimum wage. A robust economy drove up wages. We don't have a robust economy, so instead of minimum wage we'll just see mass persistent unemployment.

I'd prefer to cleanly and simply subsidize the working poor than put them out of work.

Bindi Dhaduk 1 week ago Member's comment

I don't get it. So the man with the cane was blind? What does that have to do with anything?

Joseph Cox 1 week ago Author's comment

He couldn't work because we have a benefits system that 1) threatened his subsistence if he earned a living and 2) required him to be worth more than the value he could deliver.

This is about addressing those issues.

Joseph Cox 1 week ago Author's comment

A friend wrote: "Read the article on TalkMarkets. It is a good idea. You write “spending could be classified as business spending. In these cases, taxes on spending would be refunded.” In this case what we have is a VAT, Value added Tax. This doesn’t change the idea, I just think it is a more accurate description.

One downside is that people currently consider what they spend their money on private. This would force you to show everything you buy to the government.

The argument could be made that the government could find this data by looking at credit cards and bank statements but currently they need to search it is not handed to them. The other issue is the burden of retaining and dealing with all the paperwork for those that don’t have a credit card although I suppose that using debit cards would handle that."

I responded:

A VAT requires a connection in the goods used. It doesn't apply to salaries for example (or replace related taxes). It also requires collection by the business. It is an enormous filling and paperwork burden.They figure out value add but in a very intensive way. This is just cash flow add, which is far simpler. You just have to follow cash, not goods. And you don't need to link inputs and outputs.

The government would only need to be able to see details in an audit. Otherwise all they need is amounts, vendors and dates, not identification of what was purchased.

I am imagining reporting paperwork only being needed for:

1) Non-electronic spending on which you want a subsidy (need evidence so you can collect it)

2) Non-electronic revenue (so you can pay tax on it)

3) Spending you want to classify as business spending (so you can justify it). I'd also add charitable spending to the non-taxable category, and it would also attract audits.

Everything but category 3 would just need meta-data - who from, who to, amount, date/time.

A debit card could handle it. And, for people who are 'unbankable' there could be a government sponsored account that allows no overages etc... but is only used for this purpose.

Gary Anderson 1 week ago Contributor's comment

You are such a typical Republican. You have no real solutions. The problem since 2008 is that the Fed and government do trickle down. But trickle down does not work in an environment of weak demand. We have weak demand. Supply side does not work in that environment. Republicans will never get this.

Joseph Cox 1 week ago Author's comment

I'm actually not a Republican.

I'm not sure where the trickle down is here. The typical trickle down description seems to be very low tax rates and just drive lots of high-income which results in more demand lower down the curve. I'm not sure how that labeling applies here. After all, this is quite a high tax rate and it is also progressive.

Most importantly for me, this not only makes it easier for Betty to have a business, it also has an extensive income support system. I'm pretty sure that isn't typical supply side Republicanism.

The label just seems kind of irrelevant.

If I were to characterize left and right, right would be focused on enlarging the pie and left on making sure everybody has enough of it: Creation vs. Absence of Want/Fear.

This approach is about addressing both. But creation for me isn't some big supply side thing - it comes down to regular people having fulfilling and productive jobs. And the absence of fear isn't about just collecting a guaranteed income - the lack of work rots people (just look at studies on early retirement and early death).

Do I care about supply? Of course. Money without supply is just paper. But I also care about demand - not as a driver of economics but as a reality: people have needs and society ought to help meet them.

I am not interested in making sure people have money, if they have nothing to spend it on.

There are lots of examples of that particular catastrophe.

For me, you ought to aim somewhere in the middle: finding a way to support both creation and the absence of want/fear.

Gary Anderson 1 week ago Contributor's comment

Certainly trade Warriors like Trump have changed the Republican dynamic. Trade warriors shrink the pie. But thanks for letting me know you aren't a Republican. As far as what the Fed has done, it appears skewed to money interests. The Fed does not seem to be geared to assisting end demand.

Gary Anderson 2 weeks ago Contributor's comment

This article would make sense if the Fed would not boost a single asset. House prices would need to be cut in half. How does the author think that would go over? I bet he wouldn't like it. You can't cut wages without cutting the cost of living Joseph.

Dan Richards 1 week ago Member's comment

DRM, what do you think about this?

Joseph Cox 2 weeks ago Author's comment

Why does it cut wages? Currently, if you aren't worth minimum wage, then you will be automated, offshored or just not hired. If you are, you'll be paid that wage. The problem is 20+% of the workforce isn't worth minimum wage and another significant chunk are only worth what they are being paid because the government is paying their salaries for the next few months.

This would mean many people who have *no* wage get one - just one that is subsidized.

Going back to the Switzerland example, they have no minimum wage but very few people make less than $37,000/yr (after tax).

House prices are an entirely different issue. They are a monetary issue. Lots of cash floating around with significantly cheaper production of the goods people make leads to asset inflation. The money has to go somewhere. Very low interest rates just create more money through leverage. More money with fewer places - other than assets - to put it.

A low-salary subsidy combined with consumption tax and massive simplification of taxation systems should lead to significant real creation of goods and services. If excess cash is spun off in such a boom, house prices (or stocks or some other asset) will rise as a result.

Of course, nothing can really be predicted. That's just my analysis.

Danny Straus 1 week ago Member's comment

Is there any indications as to how long the US will be subsidizing Americans? Will there continue to be stimulus checks? Will unemployment continue to be extended indefinitely? Eventually the US will run out of money. How many trillions have they spent in the last couple of months alone?

Joseph Cox 1 week ago Author's comment

Danny Straus Oh, and the US has been subsidizing Americans for a long time. As per the article, the bottom quintile makes an average of <$5000 and received >$45,000 in transfers. The problem is that they are often locked out of making more by the risk of losing the transfers.

Joseph Cox 1 week ago Author's comment

Danny Straus The US 'ran out of money' a long time ago. So long as no other asset is preferred over US dollars, they can continue to print them and they will continue to have value. The more important question is what that money means. I wrote a piece about that as well...

talkmarkets.com/.../some-of-my-best-friends-are-economists

Danny Straus 1 week ago Member's comment

Thanks, reading your other article now...

Flat Broke 1 week ago Member's comment

What percentage of the American population is actually employed, but are paid in cash, under the table and don't pay taxes. They aren't eligible for any of that money.

Joseph Cox 1 week ago Author's comment

Flat Broke, this brings those jobs out of the shadows and actually inverts the traditional gray market challenge. It creates an incentive to go legal for the bottom of the pile, not just the those who have scale. The benefits (reading the economic Hernando De Soto) could be huge.

Gary Anderson 2 weeks ago Contributor's comment

You almost make the case that there is too much money at the top. If that is the case, paying less than minimum wage seems unnecessary.

Joseph Cox 2 weeks ago Author's comment

If you have a million dollars would you prefer to pay somebody $10/hr to do $3/hr in work or would you prefer to buy assets?

The answer, of course, is to buy assets. So if people are only worth $3/hr, they can't get work. Of course, the money ends up coming out of your pocket anyway - government transfers to the bottom fifth of Americans average over $45,000. People just don't work at all for the money.

This system enables you to pay $2.50/hr for $3/hr in work while bumping up the spending power of that payment so it spends like $10/hr.

Old way: No work, no fulfilling activity, still a subsidy

New way: Work, fulfilling activity and still a subsidy

Gary Anderson 2 weeks ago Contributor's comment

But making widgets for a less than assistance wage is better done in China where the cost of living is lower. It is more efficient. If labor cannot afford to buy what is produced it means trouble. By the way; if it weren't for the Fed and Chinese buying assets over the years we would have a lower cost of living.

Joseph Cox 2 weeks ago Author's comment

I lay it out as a simple comparison:

If higher value jobs are available, Americans shouldn't be doing work Chinese could.

But let's take a situation in which higher-value jobs (those Americans are worth paying > minimum wage) do not exist.

Then we have two choices:

1) Have Americans consumers pay Chinese labor while tax revenue supports the American jobless (and non-productive/fulfilled) with transfer payments because they aren't worth minimum wage

2) Have Americans pay American labor what they would pay the Chinese while tax revenue boosts their pay. The benefit is that Americans have jobs and productivity despite being worth less than minimum wage.

When economic options improve, American labor will price itself out of the lower end jobs. They won't do work worth $3/hr if they can do work worth $10/yr. Despite the lack of a minimum wage, nobody in Switzerland is making clothes (except for very high end luxury accessories).

In that case, we can either let subsidies largely disappear or we could raise thresholds and go back to the world where you could support two kids on a high-school education - as used to be the case with automotive employees. Either way, we'll have a far healthier economic ecosystem.

In 2019, unemployment among those with only a high-school education was 150% as high as it was for those with master's degrees. I'd presume more of those people would want to work, but that they aren't worth it. The spread is even larger for those with less than a high school diploma. Some number of these people can't find work because they aren't worth employing at present rates.

There is an entirely different benefit, of course: a far simpler tax system and the streamlining that would allow.

Gary Anderson 2 weeks ago Contributor's comment

Sub minimum wage jobs would not be in high demand. Costs too much to get to work. Not financially practical at all.

Angry Old Lady 1 week ago Member's comment

Great back and forth between you two. Enjoying reading this thread as the debate unfolds.

Joseph Cox 2 weeks ago Author's comment

Again, the *spending power is subsidized*. So the actual value of the job to the worker is higher than their pay rate from the company. Rather than government paying unemployment or welfare the governments pays a supplement to low-wages.

Angry Old Lady 2 weeks ago Member's comment

"On our present course, lower skilled workers may justifiably expect a decade or more of jobless despair." A DECADE? What is that based on? That sounds quite extreme to me.

Joseph Cox 2 weeks ago Author's comment

People are still feeling the effects of 2008. Our labor force participation rate was 66% in 2008. It fell to 62.4% in 2015 before rising back to 63.4% prior to Corona. As in, 75% of the loss is still there.

Now it is 60.2% - the lowest it has been since the early 1970s, when many women didn't work.

We are still feeling 2008. This is far far worse than 2008.

Joe Black 2 weeks ago Member's comment

This is true. I've been saying this for quite a while.

Joseph Cox 2 weeks ago Author's comment

Great minds think alike - we happen to as well :)

Craig Newman 2 weeks ago Member's comment

Where/when is part 2?

Joseph Cox 1 week ago Author's comment

Next part added. It is about universal health care...

talkmarkets.com/.../the-road-to-a-post-corona-boom-healthcare-part-2

Joseph Cox 2 weeks ago Author's comment

Haven't written it yet... seeing what kind of feedback I got on this one :)