Crypto Market Commentary
23 April 2020
Doc's Daily Commentary
The 22 April ReadySetLive session with Doc and Mav is listed below.
Mind Of Mav
The Economic Doom Loop
This week, another 5 million Americans filed for unemployment. Five million. Let’s put that number in context. At the beginning of this crisis, I predicted a rate of 3% unemployment growing per week. The US labor force is 165 million people. The total now filing for unemployment is 32 million and counting. That’s nearly 20% of the labor force which is now unemployed.
Over just five weeks. Which is a rate of almost exactly three percent per week. That’s not to toot my own horn. It’s to point out a grim but inescapable conclusion.
This is how an economy dies.
At that rate, in another three weeks — two months in — a full quarter of the labor force will be unemployed. In another two months, half the labor force will be unemployed. We probably won’t get quite that far, if we’re lucky — but aren’t numbers that are rising towards 25% already devastating enough?
This isn’t just a surge in unemployment — it’s a historic tsunami. We have never seen numbers this fast and this catastrophic before. Ever. Not during recent financial crises, not during wars, not even during the Great Depression. We are living through a catastrophe that’s genuinely unprecedented and without parallel.
The reason that this catastrophe is multiplying and accelerating, ripping through the economy, is that the response to it was woefully inadequate. Seeing the effects of a pandemic — lockdown, quarantine, a whole society effectively staying at home — any good economy (and there aren’t many of those around) called for a stimulus at the same scale as the catastrophe: historic, massive, unprecedented. That only makes sense: if the crisis is without parallel in history, then the response must be too.
But what the American government produced was something so feeble and inadequate as to beggar belief. I don’t say that for effect. The stimulus that was passed was the equivalent of supporting both businesses and households for just one week. And yet it’s already been a month. The stimulus was like trying to stop a tsunami with a brick, or a fire with a water pistol. It was never going to work, because it was simply too small to withstand a force much, much greater.
Added to that, the stimulus was byzantine and baroque. Who knew exactly how to get their hands on what little funds were available? And who knew if you met the conditions, anyways? The result is that right about now, stories are emerging of tiny, tiny fractions of what little stimulus there was reaching people’s hands. That’s like using a water pistol to fight a forest fire — and making people sign about a thousand forms just to fill up the peashooters to begin with.
Remember I said we’re nearly at 20% unemployment?
Here’s Treasury Secretary Mnuchin, the one behind the stimulus rollout, saying, “we will not let 20% unemployment happen” a month ago.
The result of both those factors — a stimulus that was too small, and too complicated — was that money didn’t reach people fast enough. And that, my friends, in an unprecedented economic crisis adds disaster to catastrophe.
What is setting in now is a contractionary spiral — the doom loop of depression, which Keynes (love him or hate him) discovered more than a century ago. That loop goes like this. Some shock (supply shock, demand shock, consumption halt, or rarely all three at once) sets off a great wave of unemployment — sometimes a stock market crash, other times a natural disaster like a pandemic. The unemployed spend less, so businesses shutter. And soon enough, people have lost confidence in the economy — they change their habits for good, pessimistic, afraid, having lost faith in their institutions to protect and safeguard them. With a permanently lower level of spending — and earning — depression sets in.
What about big business, megacapital? Well, it’s learning something it’s not about to froget: that it can get by on much, much lower labour costs. If you’re the CEO of a megacorporation, you’re discovering, right about now, just how much radically less employment you really need to keep things operating, going, moving. Maybe you never really needed all those cashiers, stockroom assistants, accountants, managers. Maybe you never even needed all those stores or showrooms or warehouses at all. Instead, you can use Amazon, Instacart, Google, or any other number of hyper-efficient services. Eye-opening, because your only goal is to maximize profits. Bang! Your level of hiring is reduced…permanently. Those jobs don’t come back…period.
Coronavirus — or the lack of adequate response to it — is therefore going to radically accelerate seven already catastrophic existing trends.
One, the stunning fall in living standards over the decade — whether longevity, happiness, meaning, incomes, savings, or trust.
Two, as what was left of the old industrial jobs base is finally killed off, people becoming “low-wage service workers”, which those of us who speak plain English simply call…servants.
Three, a caste society of those servants, those new poor, versus a tiny number of ultra rich.
Four, inequality spirals further.
Five, the average person growing even more indebted, and becoming a true neoserf, never owning any major asset outright in their lifetime.
Six, an economy monopolized by mega-scale institutions, which exploit and abuse their power, as small business is replaced by mega-biz.
Seven, authoritarianism, as a result of all the despair that produces.
Let me translate that into plainer English. Those jobs aren’t coming back. The ones that do are going to be replaced with “low-income service work” — and even that will be subcontracted and outsourced so that people see a fraction of what income they might have once earned. Mega-business will learn it can get by on much, much less employment — while small business will shutter in a great paroxysm of death.
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