Covid tests the merits of different modes of capitalism

Political economy is a discipline in which rigorous empirical testing is difficult. Scholars are rarely presented with the kind of naturally occurring experiments which crop up in other fields of economic inquiry, such as when one state increases its minimum wage while its neighbours do not. Covid-19 is different. Though it is quite the cloud, for political economists the silver lining is that it provides an opportunity to look, in real time, at how different models of governance react to a simultaneous shock.

Various taxonomies are used to categorise models of capitalism. A prominent one was set out in 2001 in “Varieties of Capitalism”, a book edited by Peter Hall, a political scientist, and David Soskice, an economist. It distinguished between liberal market economies (LMEs) such as America, Britain and Canada, and co-ordinated market economies (CMEs) such as Germany, the Nordic countries, Austria and the Netherlands. LMEs’ capitalism is redblooded, relying on market mechanisms to allocate resources and determine wages, and on financial markets to allocate capital. CMEs, though still capitalist, are fonder of social organisations such as trade unions, and of bank finance. Western economies tend to sit on a continuum between these two models. In recent years scholars have also tried to account for the authoritarian, state-driven capitalism found in China and some other countries. Branko Milanovic of the City University of New York calls this model “political capitalism”.

These frameworks are surprisingly good at parsing countries’ responses to the pandemic. Consider innovation. Scholars distinguish between incremental innovation, the continuous process of making marginal improvements to products and processes, and radical innovation, which may involve the launch of entirely new goods and services. Whereas CMEs, with their emphasis on specific skills and long-term thinking, should be better at incremental innovation, they are at a disadvantage when it comes to radical innovation. They are constrained by the structures they have erected to steer the economy, which are slow to adapt to wholesale change.

During the pandemic, CMEs such as Germany have generally had a more coherent strategy for containing the spread of the virus. Lockdowns may not seem like incremental change, but reducing working hours to limit social contact, apportioning the costs across society and gaining public consent for restrictive measures are all easier when there are already institutions in place which allow collective action. Success may be generated more by unity and consistency than by the strength of the intervention that is chosen. For instance, Sweden was able to muster high levels of public support for its unorthodox—but incrementally innovative—strategy of avoiding lockdowns entirely and relying on voluntary social distancing. Co-ordinated economies are well equipped to handle co-ordination problems, such as promoting public health.

By contrast, America’s and Britain’s virus-containment strategies can seem disjointed and occasionally chaotic. As swashbuckling LMEs, however, they are more likely to be the source of the most transformative innovations in the pandemic: treatments and vaccines.

Of 34 vaccine candidates tracked by the World Health Organisation, only four are in CMEs; LMEs have 13 (Astrazeneca, an Anglo- Swedish drugmaker working with Oxford University, straddles both categories). It was British researchers who discovered the effectiveness of dexamethasone, a cheap drug, in treating covid-19 patients who are admitted to hospital. The other leading candidate for effective drug treatment, remdesivir, is American. In a provocative Bloomberg column earlier this year Tyler Cowen, an economist at George Mason University, argued that Britain, despite its high death count, had done more than any other country to stop the spread of the virus.

What about China? Mr Milanovic argues that a key feature of political capitalism is the “zone of lawlessness” that allows the state to suppress and ignore private-sector interest groups. This is reflected in the extreme lockdowns China implemented to suppress the virus. China is also innovative. It has ten different vaccines at varying stages of development. However, political capitalism suffers from endemic corruption, self-dealing and lack of trustworthiness. There might have been no pandemic at all had local officials in China not at first tried to cover up the original outbreak in Wuhan. It also seems doubtful that outsiders would take China’s word that a vaccine it had produced was safe and effective, especially given how much of a propaganda coup it would be for the Communist Party to claim that it had saved the world.

Vaxx factor

The differences between models of capitalism are also apparent in economic trends. To the extent that the pandemic brings about permanent structural change, LMEs seem better placed to adapt. Anglo-Saxon firms have embraced a move towards more home working; France and Germany seem more resistant (see Briefing). The shift to online retail has been faster in liberal economies, too. And while both LMEs and CMEs have taken action to prop up household incomes, China has shown that under political capitalism the state’s lack of accountability to the public can lead to a disregard for individual welfare in the short term. Its stimulus has been focused on promoting investment and construction; poor households have been mostly left to fend for themselves, especially the migrant workers who often slip through local safety-nets.

After the pandemic, it is likely that every system will have some basis on which to claim victory. CMEs are on course to have lower death counts. China is enjoying a rapid economic rebound. But it is likely to be an LME behind the ultimate defeat of the virus. Life under the liberal model of capitalism can be risky and scary; its failures no doubt cause suffering. But the rewards when things go well can be immense.

SOURCE

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Another 1 million leave unemployment in a week as Trump’s predicted rapid recovery continues

By Robert Romano

Another 1 million Americans left continued unemployment claims the week of Sept. 5 on an unadjusted basis, the latest data from the Department of Labor shows.

That brings the number collecting unemployment from its 13.8 million Aug. 29 level, and from its 22.8 million May 9 level, down to its current 12.3 million, an overall decrease of 10.5 million from its peak.

The biggest state gains the week of Sept. 5 were in California, with more than 256,000 coming off of continued claims, 115,000 in New York, 57,000 in Texas, 55,000 in Florida, 55,000 in Illinois and 51,000 in Ohio.

Meaning, when the September jobs numbers are reported the first week of October, the last monthly survey reported by the Bureau of Labor Statistics before the election, it promises to be another huge number of jobs recovered — it might be a couple million more — as the rapid economic recovery almost nobody but President Donald Trump predicted continues.

On March 25, the President promised, “I don’t think it’s going to end up being such a rough patch. I think it’s going to, when we open — especially, if we can open it — the sooner, the better — it’s going to open up like a rocket ship. I think it’s going to go very good and very quickly.”

Turns out, President Trump was right.

The 1 million who came off unemployment will surely build on the record 13.8 million jobs recovered in the Bureau of Labor Statistics’ household survey in just four short months after labor markets bottomed in April with 25 million jobs lost — with millions more expected in the coming months as coronavirus daily new cases continue to stabilize.

In comparison, it took the Obama-Biden economy almost 5 years to recover the 8 million jobs lost in the financial crisis and the Great Recession after labor markets bottomed in Dec. 2009.

That’s a real contrast, and one the American people would do well to remember.

Just think, we were at a 50-year low in unemployment at just 3.5 percent, and the latest Census data shows household median income increased by $4,400 in 2019 to a record of $68,700.

Americans for Limited Government President Rick Manning reacted to the favorable economic news, saying, “2019 demonstrated that capitalism, cutting unnecessary regulations, lower taxes and honest trade deals work together to decrease income inequality … While the impact of the China virus has set our economy back, there can be no doubt that President Trump has the right prescription for continuing the record rebound we are currently experiencing.”

Now, President Trump is promising to get the economy back quickly, whereas former Vice President Joe Biden is told ABC News’ David Muir that “I would shut it down” again to deal with the Chinese coronavirus.

On Aug. 24 tweet, President Trump responded to Biden’s call to shut down the country again, writing, “Joe Biden has said he would lock down the Country again. That’s crazy! We’re having record job growth and a booming stock market, but Joe would end it all and close it all down. Ridiculous!”

One item to keep your eyes on is pending phase four legislation in Congress, a continuation of the CARES Act. The payroll protection plan supported 5.2 million small businesses — which President Trump credits with saving 50 million jobs during the state-led lockdowns.

Now, Senate Republicans have offered legislation that would continue that program, as well as to send more checks to taxpayers, extend the current unemployment benefits while removing perverse incentives for some workers to get paid more than they did at their jobs, and to cut down on potential fraud in the pandemic unemployment assistance by compelling beneficiaries to document that they had a job, mirroring existing federal disaster unemployment assistance standards.

So far, House Speaker Nancy Pelosi has blocked new legislation, but after a series of Trump executive orders to provide more financial support for the American people, vulnerable Democratic members in the House have prevailed on Pelosi to get something done for fear of being viewed as obstructing the economic recovery — and getting no credit for what was already done.

U.S. Rep. Max Rose (D-N.Y.) said he sent a direct message to Pelosi, telling Fox News, “To the leadership, we said this very simple message: It’s time for you to stop playing games. Let’s stop the charade. Let’s stop this stupidity. Let’s put the country first.”

That tells you that many Americans are still hurting from the lockdowns — and time could be running out for Pelosi to preserve her House majority.

When most Americans were afraid about what the pandemic might mean, and Democrats were urging an economic shutdown, President Trump was taking aggressive action to save as many lives as possible and to plan ahead to enable the economy to safely reopen, with millions of jobs recovered.

At the end of the day, as the American people evaluate an incumbent administration they tend to be pocketbook-minded, and this happens to be one area President Trump does indeed have a great story to tell to voters. Stay tuned.

SOURCE

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IN BRIEF

Election fraud? Four voters claiming NPR as residence turn up in search of California voting records (The Daily Signal)

Judge blocks Postal Service changes that slowed mail delivery (Fox News)

“The questions … sound as if they were written by Biden’s campaign”: CNN panned for softball Joe Biden town hall (Fox News)

Trump fielding roughly five times more reporter questions than Biden since July (New York Post)

Leaked 2016 phone call to Ukrainian President Petro Poroshenko reveals that hypocrite Joe Biden — who suggested using the Logan Act against Michael Flynn — risked national security to sabotage Trump (The Federalist)

Birds of a feather: Twitter public policy director decamps for Biden transition team (Politico)

DOJ considered bringing charges against Portland officials over unbridled rioting (New York Post)

Seventeen-year-old arrested for shooting at troopers in Arizona; third attack on police officers in a week (Daily Mail)

Louisville city council votes “no confidence” in mayor for handling of media-distorted Breonna Taylor case (NBC News)

New California Rainbow Mafia law increases the risk of child sexual abuse (The Daily Signal)

Not just Chicago: New York City murder rate soars by 27% and gang violence rises 52% in 2020 (Daily Mail)

New Jersey to hike taxes on state’s millionaires (Fox Business)

FBI Director Chris Wray: “Antifa is a real thing”; FBI has cases against people identifying with movement (Fox News)

U.S. pushes arms sales surge to Taiwan, needling the ChiComs (Reuters)

Planned Parenthood whistleblower David Daleiden sues abortion mill for defamation (The Federalist)

Woman with concealed carry permit holds supermarket murder suspect at gunpoint until cops arrive (New York Post)

Pandemic restrictions reintroduced across Europe under threat of a second wave (Washington Examiner)

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For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, AUSTRALIAN POLITICS, and Paralipomena (Occasionally updated), A Coral reef compendium and an IQ compendium. (Both updated as news items come in). GUN WATCH is now mainly put together by Dean Weingarten. I also put up occasional updates on my Personal blog and each day I gather together my most substantial current writings on THE PSYCHOLOGIST.

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