Thursday, July 9, 2020
WHY THE THIRD QUARTER US ECONOMIC REBOUND WILL FALTER
By Jack Rasmus, Predicting the Global Economic Crisis.
July 8, 2020
https://popularresistance.org/why-the-third-quarter-us-economic-rebound-will-falter/
The reopening of the US economy in June—and some states as early as May—has produced a modest economic ‘rebound’. But rebound is not to be confused with economic recovery.
The current rebound is the natural result of the US economy collapsing 40% between March and June 2020. In the first quarter, January-March 2020, the US economy contracted 5%, virtually all of that in March. While the final data for the 2nd quarter is yet to be announced, the US Federal Reserve Bank’s forecasts of US Gross Domestic Product (GDP) show a much greater collapse, ranging from -30.5% (NY Fed district) to -41.7% (Atlanta Fed district). No economy can continue to collapse at that steep a rate quarter after quarter.
Economies experiencing deep and rapid contractions—which is typical of both great recessions and economic depressions—inevitably experience periods of leveling off for a time, or even a slight bounce back—i.e. a rebound. But that’s not a recovery. ‘Recovery’ means a sustained, quarter to subsequent quarter economic growth that continues more or less unabated until the lost economic ground is ‘recovered’. But a rebound is typically temporary, followed by subsequent economic relapses in the form of stagnant growth or even second or third dip recessions.
Look at the Great Recession 1.0 that began in December 2007. The decline began that month subsequently declined more rapidly in the first quarter of 2008, but then bounced back slightly in the 2nd quarter of 2008. It then took a deep dive in the second half of 2008 through the first half of 2009, contracting every quarter for an entire year. A short, shallow recovery followed into 2010. But the economy relapsed again in 2011, contracting once more for two quarters in 2011. Another small rebound followed in early 2012 and was followed by stagnation in the second half of 2012.
The reported GDP numbers after 2008 were even weaker, and the relapses more pronounced, before the US Commerce Dept. changed the way it defined US GDP and boosted the totals by $500 billion a year after 2013, retroactive to 2008 and before.
All Great Recessions with an initial deep economic contraction, are typically followed by brief shallow recoveries, cut short by subsequent double dips or quarters of no growth stagnation.
That was true of the Great Recession of 2008-09, which didn’t really end in June 2009 but bounced along the bottom economically for several more years. A similar trajectory will almost certainly follow today’s 2020 Great Recession 2.0 now concluding its Phase One initial deep collapse.
The Phase One deep collapse is now giving way to its Phase Two and what will prove a brief and quite modest ‘rebound’. But that’s not a recovery.
Further economic relapses are inevitable after ‘short, shallow rebounds’ that characterize all Great Recessions. That trajectory—i.e. short, shallow rebounds followed by relapses also brief and moderate can go on for years.
What it means is there will be no V-shape and true recovery in the US economy in the second half of 2020. What there will be is an extended ‘W-shape’ period, the next two years 2020-2022 at minimum. And it may continue for perhaps even longer.
The 1929-30 Great Recession: Anteroom To 1930s Depression
A similar scenario occurs prior to bona fide economic depressions, like that which occurred in the 1930s. The great depression began initially as a Great Recession. US policymakers failed to contain it and it slipped into the Great Depression of that decade as we know it. What precipitates Great Recessions collapsing into bona fide Depressions is the collapse of the financial and banking system.
The Great Depression of the 1930s did not begin with the stock market crash of October 1929, however. The real economy was already slipping into recession in the manufacturing and construction sectors in 1929, well before the October 1929 stock market financial crash. The economy contracted in 1930 by -8.5% and continued to contract every year thereafter through mid-1933 as the US economy experienced a series of four banking crashes, one each year from 1930 through 1933. The banking crashes drove the real, non-financial economy ever deeper every year, in a ratchet-like effect.
Rebound and growth followed 1934-36. However, that weakened significantly in late 1937 as a conservative Republican Congress and Supreme Court together began dismantling Roosevelt’s 1935-37 New Deal social spending fiscal stimulus programs. As a result, in 1938 the US economy fell back into depression once again. A partial reversing of the dismantling in 1939 produced a return to positive GDP growth that year. But it wasn’t really until 1941-42 that the economy really exited the Great Depression, as US GDP rose 17.7% in 1941 and then 18.9% in 1942. Recovery—not rebound—was clearly underway after m id-1940—i.e. the result of government spending on both social programs and defense that amounted to more than 40% of GDP those years. That was a fiscal stimulus. That was recovery.
In other words, the lesson of the Great Depression of the 1930s is in order to end a depression, or stop a Great Recession from becoming a Depression, the government must step in and spend at a rate of 40% GDP.
Prior to the onset of the current 2020 Great Recession 2.0, the US government’s spending and share of US GDP was about 20%. It needs to double to 40% to engineer a true recovery from the current crisis. 5.5% is no stimulus in fact; just a partial ‘mitigation’ of the severe collapse that just occurred. That is, a temporary floor under the deep 30%-40% collapse that would have been even greater.
The 2008-09 Great Recession: The 5.5% Failed Stimulus
In January 2009 the incoming Obama administration proposed a fiscal stimulus recovery package amounting to roughly $787 billion and 5.5% of GDP.
Economists advocated double that. Even Democrat party leaders in the US House proposed another $120 billion in consumer tax cuts. But Obama’s economic advisers, mostly former bankers and pro-banker academics like Larry Summers, argued the US could not spend that much. Obama listened to Summers and reduced the amount to $787 billion. It proved grossly insufficient. The real economy continued to lag and job losses continued to mount. Supplemental programs like ‘cash for clunkers’ and ‘first-time homebuyers’ had to be added.
Even with these post-January programs, supplemental spending Obama’s fiscal stimulus proved insufficient to generate a robust recovery, as the historical record shows. The US recession under Obama ‘recovered’ at its weakest rate compared to all the prior ten US post-recession recoveries since 1947. The Obama recovery was only 60% of normal for recession recoveries.
The problem with the Obama 5.5% was not only the insufficient magnitude of the stimulus. Its composition was deficient as well. It called for almost $300 billion of the $787 billion in mostly business tax cuts, which were then hoarded by business and not invested to expand output, hire more workers, and generate thereby more income for consumption. Nearly $300 more was in the form of grants given to the states to spend. They too hoarded most of it and failed to rehire the unemployed as was intended. The remainder of the $787 billion was composed mostly of long term infrastructure investment and spending that had little initial effect on the economy’s recovery. As a result of the insufficient magnitude and poor composition of the Obama 2009 stimulus, the US economy fell into a ‘stop-go, W-shape economic recovery for the next six years. US jobs lost in 2008-09 were not recovered until as late as 2015, and the average wages paid for the new jobs was significantly less than wages paid for the jobs that were lost.
The point is: if 5.5% was insufficient to generate sustained recovery in 2009, today in 2020 the effective 5.5% fiscal spending produced by the CARES ACT in March 2020 will prove even less successful. The US economy’s economic collapse today is five times deeper than in 2008-09 and has occurred in one-fifth the time of the 2008-09 event. If a second more aggressive government spending program does not follow in the second half of 2020, then the current tepid economic ‘rebound’ underway due to the reopening of the US economy will certainly fail at generating a sustained recovery. Here’s why the CARES ACT—the main and only stimulus program to date—is only 5.5% and will fail to generate a sustained recovery as the economy reopens with a modest ‘rebound’.
The March 2020 CARES ACT: Failed Stimulus Deja Vu
As of mid-year 2020, the US government spending to date is summed up in the various provisions of the CARES ACT passed by Congress in March 2020, plus several smaller measures passed before and after it as supplements. It’s actual spending as of late June 2020 amounts to only approximately a 5.5% contribution to US GDP.
The CARES ACT on paper called for $1.45 trillion in loans and grants to small, medium, and large businesses. $500 billion is allocated as loans to large corporations. Another $600 billion to medium-sized plus some other measures. And $350 billion in loans, convertible to grants, to small businesses called the Payroll Protection Program or PPP.
Another $310 billion was added to the PPP small business loan program as banks quickly misdirected hundreds of billions of dollars to many of their ineligible bigger business prime customers which scooped up much of the original $350 billion for small business.
The three business programs combined thus allocated $1.76 trillion in loans and grants.
Another $500 billion was allocated to workers and US households in the form of supplemental income checks of $1200 per adult plus an extra $600 in federal unemployment benefits available through July 31, 2020.
A couple hundred billion dollars more went to hospitals and health care providers in emergency reimbursements before and after the March CARES ACT passage.
That brought the total March CARES ACT fiscal stimulus to roughly $2.3 trillion. However, not discussed much in the media is another $650 billion CARES ACT provided business and investor tax cuts. The tax cuts include a temporary suspension of business payments to the payroll tax; more generous net operating loss (NOL) corporate tax averaging that allows business to use current losses to get tax refunds on prior year taxes paid; faster depreciation write-offs ( de facto tax cut); and more generous business expense deductions. Less than 3% of the $650 billion tax cuts in the CARES ACT went to families earning less than $100,000 per year in annual income.
On paper, the roughly $2.3 trillion CARES ACT amounted to roughly 11% of GDP. But only half of that 11%–or just 5.5—has actually hit the US economy. This contrasts with Germany and other European and Asian countries that boosted fiscal spending stimulus by as much as 15%-20%.
Another 5.5% Stimulus Means Another Failed Sustained Recovery
The 5.5% to not enough to kick start the rebound into sustained recovery. Much of the 5.5% is already spent to mitigate the 2nd quarter deep contraction and is no longer available as a stimulus in the upcoming 3rd quarter.
All the $1200 checks have been spent already and most of the $600 unemployment benefits boost has entered the economy. The latter expires on July 31. Furthermore, the majority of the $1.7 trillion allocated to businesses large and small has yet to get into the US economy as well.
Of the $660 billion in the small business PPP program, about $520 billion has been spent. Less than $100 billion of the $500 allocated to large businesses, like airlines and defense companies, has actually been ‘borrowed’ by big business. And as of mid-June 2020, none of the $600 billion for medium-size businesses had been ‘taken up’ by those businesses. That program only became fully operational by the Federal Reserve in the last week of June, more than three months after its announcement.
Thus far little interest appears on the part of medium and large businesses in the more than $1 trillion loans allocated to them. And as far as the $650 billion in tax cuts is concerned, its effects can be delayed until December 31, 2020, if even then. Given the weak US economy and consumer demand, many businesses will take the tax cuts and hoard them.
In short, more than half the roughly $3 trillion total of government spending, loans, grants and tax cuts provided by the CARES ACT is yet to be committed to the US economy. The official 11% is really only half that at best.
This fact leads to the interesting question: Why have medium and large businesses not take up more of the $1.1 trillion business loans allocated to them?
The $3+ Trillion Uncommitted Business Cash Hoard
The answer is they haven’t because they are already bloated with cash and don’t need or want it. That cash hoard has resulted from several sources in recent months: Large corporations saw the writing on the wall with regard to the virus as early as January-February 2020. They quickly began loading up on cash by drawing down their generous loan credit lines with their banks. That produced a couple hundred billion dollars in cash by March. Then they issued record levels of new corporate bonds to raise still more cash. From March to the end of May more than $1.3 trillion in new corporate investment-grade bonds was raised by the Fortune 500 US businesses—i.e. more than in all 2019. A couple hundred billion dollars more was raised in junk grade corporate bonds. Still another cash source was raised by businesses suspending dividend payments and stock buybacks to shareholders. In 2019 they distributed $1.3 trillion in buybacks and dividend payouts ($3.4 trillion total under Trump’s first three years in office). So buybacks and dividends suspensions saved at least another $500 billion in cash.
Companies also began selling off and cashing in their minority stock interests in other companies. Furloughing workers to work from home also saved still more cash in reduced facilities, benefits, and related costs for many corporations. Tech companies especially benefited from this.
Bloated with trillions of dollars of cash, large and medium-sized corporations had little interest in borrowing from the CARES ACT since the latter came with conditions like the provision that 70% of the loans be spent on keeping workers on their payrolls. They preferred to lay off their workers, and borrow from the credit markets, issue new bonds, and otherwise conserve cash.
A good example was Boeing Corporation. Congress allocated more than $50 billion to Boeing as part of the $500 billion loan program earmarked for large corporations. Instead of borrowing that, Boeing raised $25 billion issuing new bonds and announced layoffs of 16,000 of its workers! Less than $100 billion has been used to date by large corporations under the CARES ACT big corporations’ $500 billion loan allocation. And virtually nothing of the $600 billion to date allocated under the medium-size business loan program called the ‘Main St.’ lending facility.
7 More Reasons Why ‘Rebound’ Won’t Mean Recovery
Here are some seven other reasons—apart from the US current insufficient fiscal stimulus—why the US economy will not experience a sustained ‘recovery’ in the next six months, and why instead the US will follow a W-Shape trajectory of weak un-sustained growth followed by economic relapses through 2020-21 (and perhaps even longer):
1.) 2nd Covid-19 Wave Economic Impact:
It is inevitable a number of states will reinstate shutdowns—in significant part if not totally—as the infection, hospitalization, and death rates rise over the summer due to premature reopening of the economy and a growing breakdown of social discipline in adhering to basic precautions like social distancing and mask-wearing. The partial shutdowns will. To varying degrees, reduce consumer spending, business investment, and result in re-layoffs of workers. Second wave layoffs in services like leisure & hospitality, bars, restaurants, travel, public entertainment, and even education and health care services will emerge—all negatively impacting household consumption demand. It is estimated that at least half of the states, 40% of the reopened economy, will reinstate some degree of re-closures of business activity in the coming weeks and months as a resurgence of Covid 19 impacts the US economy in the second half of 2020 and beyond.
The official US June employment report on July 3, 2020, showed 4.8 million jobs were reinstated. But no less than 3 million of that 4.8 million were recalled in leisure & hospitality, hotels, bars, restaurants, and retail industries. These are the same industries that will be affected most by states reinstituting shutdowns. They are also industries where businesses that have been able to reopen only partially thus far in most cases operate on very thin margins. They are likely to fail in Phase Two of the crisis now beginning, and many closing completely in the second half of 2020 as a result of operating only at half capacity.
The scope of the possible closures is revealed by the recent Yelp survey of 175,000 of its customer business base. During the 2nd quarter, Yelp’s survey found that in May-June only 30,000 of its 175,000 had reopened. More important, its survey showed that 40,000 of its 145,000 that hadn’t yet opened had already closed permanently.
The wave of permanent business closures in the second half of 2020—especially in the leisure & hospitality and retail industries—should not be underestimated. The permanent shutdowns will occur not only due to reduced consumer demand but to a resurgence of Covid-19 and the second wave of layoffs.
2.) Deeply Entrenched Business & Consumer Negative Expectations
The US economy has been deeply wounded by the deep contraction of the past four months. Both businesses and consumers have negative expectations as to the direction of the economy in the short to intermediate run. Businesses don’t see the conditions for returning to expanding investment or even returning to prior levels of production and output. With consumer demand clearly in retreat, business expectations of future sales and profits are dampened. Reducing the cost of investing by lowering business taxes or interest rates have little effect on generating more investment when expectations of profitability—which is what really drives investment—are so low. This is the fundamental reason why business across the board is hoarding its accumulated cash. The same applies to consumers and households. They too are hoarding what cash they have available, spending mostly on necessities only. The evidence is the sharp rise in the household savings rate and bank deposit rates. As much cash is saved and deposited as a precaution that economic conditions may worsen, instead of actually spent. The result is only minimal increase in spending occurs, just as minimal investment. Until negative expectations are somehow reversed, both business investment and household consumption do not rise to levels that result in sustained recovery.
It will take a major event to again shift business and consumer negative expectations, like a vaccine for the virus or a major fiscal stimulus or a program of mass hiring of the unemployed by government. However, none of the above is on the immediate horizon. Therefore negative expectations will continue to dampen any sustained recovery and limit whatever insufficient government fiscal stimulus to generating a modest ‘rebound’ at best.
3.) Business Cost Cutting & Permanent Layoffs
The deep and rapid rate of contraction of the economy over the past four months, and the business expectation of weak recovery, has convinced many businesses to make many of the cost-cutting moves of recent months permanent. An example is how some industries and businesses moved their workforces to work from home. It has saved them significant costs of operation—on facilities, maintenance, and some employee benefits. In recessions businesses always find new ways to cut costs that often result in more layoffs and lower wages. Another phenomenon is rehiring and recalling workers back to work temporarily laid off does not occur en masse and all at once. The typical business practice is to recall only part of their workforce and to recall workers more on a part-time basis. Not least, the cost-cutting and the part-time recalls typically results in businesses leaving part of their furloughed workforce behind, whose unemployment then becomes permanent.
This second wave of jobless is already beginning to emerge, as businesses downsize in employment after the initial shock to the economy that has already occurred. Airlines are announcing tens of thousands of layoffs. Several other industries are experiencing growing defaults on debt payments and bankruptcies that will result in mass layoffs as well. For example, the oil & energy sector which was a major source of new job creation during the fracking boom of the past five years. More than 200 defaults of companies are in progress. Layoffs are beginning, of a permanent nature, not just temporary furloughs or layoffs.
Cost-cutting and layoffs translate into less household income for consumption and therefore for generating a sustained recovery.
4.) Deeper Global Recession & Global Trade Crisis
The collapse of the US economy in the first half of 2020 has been accompanied by a synchronized contraction of the global economy. Global economic contraction means US production for export does not recover much in the short run. Offshore demand for US goods & services remains weak. That in turn dampens domestic US investment, employment, and therefore business-consumer spending. Although the US economy is relatively less dependent on exports to stimulate economic growth, exports are not an insignificant contributing factor to US growth and recovery.
More than 90% of the world economy has also experienced a deep recession in the first half of 2020. That compares with the first Great Recession of 2008-09 when fewer 60% of countries were in a recession along with the US. Foreign demand for US exports is thus even weaker this time around. Post 2009 China and emerging market economies boomed after 2010 and put a partial floor under US economic contraction by stimulating demand for US product exports; that China-Emerging Market economies’ stimulus effect on the US economy no longer exists in 2020.
5.) Intensifying US Political Instability
One should not underestimate the potential growing political instability in the USA in the second half of 2020. This instability will occur on two ‘fronts’. One is at the level of political institutions. It is likely the upcoming national elections on November 3, 2020, will be challenged and not accepted by either Trump or the Democratic Party nominee. The growing social instability in the USA and Covid 19 effects on voter turnout, combined with the already widespread voter suppression in various states, makes for ripe conditions for the post-electoral crisis should the election be narrowly decided by voters in November. Evidence is growing, moreover, that Trump is prepared to declare voting by mail as fraud and use that as an excuse to throw the election into the Supreme Court—as occurred in the US in 2000. Today Trump, unlike George W. Bush in 2000, enjoys an even firmer majority in the US Supreme Court.
The instability at the level of political institutions in the USA today is accompanied by what appears as growing grassroots civilian conflicts. Street-level confrontations between Trump supporters and rising popular movements and demonstrations are not beyond the realm of possibility, perhaps even likelihood.
The political instability has significant potential to negatively impact both consumer and business expectations and therefore dampen both business investment and household consumption even further in addition to causes already noted.
6.) Wild Card #1: Financial Crisis 2021
Intermediate-term, in 2021 likely more than in 2020, is the wild card of a financial system crisis emerging that would exacerbate the real economy’s faltering recovery still further. This channel by which a financial crisis might emerge is a growing wave of corporate and state & local government defaults. Massive excess debt has built up over the past decade in business sectors in the US. More than $10 trillion in corporate bond debt exists at present. At least $5 trillion in corporate junk bonds and virtual junk like BBB investment grade. Still more for corporate ‘junk’ leveraged loans. A protracted period of recession and weak recovery will generate a major potential for corporate defaults and bankruptcies. If the magnitude and rate of defaults are too great or comes too fast, the banking system could very well experience a major credit crash once again.
Industries highly unstable with high-cost unaffordable debt, and with insufficient revenues with which to service that debt, include: oil fracking and coal, big-box retail, smaller regional airlines, rental car, and other travel-related companies, hotels and resorts, malls, commercial property in general, and hundreds of thousands of small restaurants and regional restaurant chains. Defaults have already begun rising rapidly in many. Household debt and state and local government debt finds itself in much of a similar situation—highly leveraged with debt amidst collapsing incomes to service the debt as unemployment and wage incomes continue to decline and as tax revenues remain depressed long term due to the weak economic recovery.
The US central bank, the Federal Reserve, is in the midst of an historic experiment to pre-bail out non-bank corporations to forestall the defaults and to flood, at the same time, the US banking system with massive excess liquidity with which to manage the defaults should they come excessively and too rapidly. It remains to be seen whether the Fed’s massive liquidity injections thus far ($3 trillion), and promised (unlimited), will prove sufficient to manage the defaults. If not, the US banking system will freeze up as financial institutions begin to crash as well with the transfer of defaulted corporate debt on to their own bank balance sheets.
In 2008-09 it was the banking system that collapsed first and in turn, precipitated a deeper and faster contraction of the real economy in the US. Today it is quite possible the reverse causation may occur in the Great Recession of 2020. But it matters not in a Great Recession which precipitates which first—i.e. the banking system the real economy or vice-versa. The key point is that both cycles—financial and real—feedback on the other in a Great Recession and amplify the downturn in both.
7.) Wild Card #2: Artificial Intelligence Faster Rollout
Another wild card that may emerge with fuller force longer term is the penetration of Artificial Intelligence in business operations. McKinsey Consultants estimated that by 2025 AI would accelerate in its penetration of business practices. By the latter half of the 2020s decade, it would have deep and widespread impact on employment and wages, as AI led to deep cost-cutting by business. As much as 30% of occupations would be seriously impacted. The essence of AI is to eliminate simple decision making jobs, in services as well as manufacturing.
But it is highly possible that AI will now penetrate even faster, accelerated by business cost-cutting and productivity-enhancing drives, as a consequence of the current deep economic crisis. The deeper and more protracted the current recession, the more likely business will engage in multiple ways to reduce costs as a means to weather the crisis. AI offers businesses a prime opportunity to do just that. But AI also means a significant reduction in net jobs, especially simple low paid service and retail work. And with the net jobs and wage loss come reduced consumer household demand, consumption, and therefore sustainable economic recovery.
The Case For 40% Government Share Of GDP
As previously noted, recoveries from great recessions and depressions require at least a 40% US government spending share of total GDP. Obama’s raised the US government share of GDP to barely 25%, not 40%. The economy accordingly struggled after 2009.
The current 2nd Great Recession 2020, the first phase of which has just concluded in June, is following the same rough trajectory and scenario as the 2008-09. There has been only token fiscal stimulus to the economy thus far from the CARES ACT. Indeed, Congress never considered, at least in the House of Representatives, the CARES ACT was a stimulus bill. It was called a ‘mitigation’ bill, designed to put a partial floor under the collapse of the economy going on at the time in the 2nd quarter 2020. A true stimulus bill was to follow. That’s the HEROES ACT now blocked in Congress by Republican Senate and Trump. What the latter want is to end the unemployment benefits and provide no further income supplement payments. They want to exchange further unemployment benefits for direct wage subsidies to businesses. They want even more tax cuts for business—permanent payroll tax cuts, more capital gains tax cuts, and more business expense deductions. And they are reluctant to provide funding support for state and local governments with accelerating deficits as a result of tax revenue collapse. Should support for state and local governments not occur soon, it is likely mass layoffs will emerge in states and local governments soon.
However, it does not appear so far that anything resembling a real stimulus will get passed with the HEROES Act. The unemployment benefits extension will likely be eliminated. More business tax cuts, should they be added to the $650 billion provided by the CARES ACT, will be hoarded in large part. As will corporate income that would have been otherwise used to pay wages, as the government pays the wages of their workers instead.
An insufficient fiscal stimulus from an eventual HEROES Act, should it occur, will ensure the current tepid ‘rebound’ of the US economy will fail to evolve into a sustained recovery of the US economy. The seven other, additional factors noted above will further prevent a sustained recovery—and indeed may precipitate a subsequent further serious economic contraction. The summer of 2020 is thus a critical juncture period for the US economy.
The US is currently experiencing what might be called a ‘triple crisis’. A health crisis that shows little sign of abating. A deep economic crisis that is still in its early phases. And a ripening political crisis. Never before in its history have three such major events converged. The one of the three that is potentially most manageable is the economic. The Health crisis depends heavily on the development of a vaccine. Not much can be done to prevent a deepening political crisis. It will run its course, whatever that may be. But a government fiscal stimulus equivalent to about 40% of US GDP would very likely stabilize the economy and set it on a path to sustained recovery. However, it is highly unlikely that in the current political climate of instability, deep splits within the US political elites, growing grassroots social confrontations, and failure to mount an effective strategy to address the Covid-19 health crisis that the capitalists and their political representatives will be capable of introducing the necessary 40% wartime economic stimulus.
A DECADE OF RESEARCH ON THE RICH-POOR DIVIDE IN EDUCATION
By Jill Barshay, The Hechinger Report.
July 8, 2020
https://popularresistance.org/a-decade-of-research-on-the-rich-poor-divide-in-education/
Many Studies Show Large And Growing Inequities.
Americans like to believe that education can be a great equalizer, allowing even the poorest child who studies hard to enter the middle class. But when I looked at what academic researchers and federal data reports have said about the great educational divide between the rich and poor in our country, that belief turns out to be a myth. Basic education, from kindergarten through high school, only expands the disparities.
In 2015, during the Obama administration, the federal education department issued a report that showed how the funding gap between rich and poor schools grew 44 percent over a decade between 2001-2 and 2011-12. That meant that the richest 25 percent of school districts spent $1,500 more per student, on average than the poorest 25 percent of school districts.
I wish I could have continued to track this data between rich and poor schools to see if school spending had grown fairer. But the Trump administration crunched the numbers differently. When it issued a report in 2018, covering the 2014-15 school year, it found that the wealthiest 25 percent of districts spent $450 more per student than the poorest 25 percent.
That didn’t mean there was a giant 70 percent improvement from $1,500. The Trump administration added together all sources of funds, including federal funding, which amounts to 8 percent of total school spending, while the Obama administration excluded federal funds, counting only state and local dollars, which make up more than 90 percent of education funds. The Obama administration argued at the time that federal funds for poor students were intended to supplement local funds because it takes more resources to overcome childhood poverty, not to create a level playing field.
Rather than marking an improvement, there were signs in the Trump administration data that the funding gap between rich and poor had worsened during the Great Recession if you had compared the figures apples to apples, either including or excluding federal funds. In a follow-up report issued in 2019, the Trump administration documented that the funding gap between rich and poor schools had increased slightly to $473 per student between the 2014-15 and 2015-16 school years.
It’s not just a divide between rich and poor but also between the ultra-rich and everyone else. In 2020, a Pennsylvania State University researcher documented how the wealthiest school districts in America — the top 1 percent — fund their schools at much higher levels than everyone else and are increasing their school spending at a faster rate. The school funding gap between a top 1 percent district (mostly white suburbs) and an average-spending school district at the 50th percentile widened by 32 percent between 2000 and 2015, the study calculated. Nassau County, just outside New York City on Long Island, has the highest concentration of students who attend the best-funded public schools among all counties in the country. Almost 17 percent of all the top 1 percent of students in the nation live in this one county.
Funding inequities are happening in the context of increased poverty in our schools. In 2013, I documented how the number of high poverty schools had increased by about 60 percent to one out of every five schools in 2011 from one out of every eight schools in 2000. To win this unwelcome designation, 75 percent or more of an elementary, middle, or high school’s students lived in families poor enough to qualify for free or reduced-price lunch. It’s since gotten worse. In the most recent federal report, covering the 2016-17 school year, one out of every four schools in America was classified as high poverty.
It’s not just that poverty is becoming more concentrated in certain schools; more students in the school system are poor. In 2014, I documented a 40 percent jump in the number of school-aged children living in poverty between 2000 and 2012 from one out of every seven children to one out of every five students. In the most recent report, for the 2016-17 school year, the poverty rate declined from 21 percent in 2010 to 18 percent in 2017. About 13 million children under the age of 18 were in families living in poverty.
When you break the data down by race, there are other striking patterns. One-third of all Black children under 18 were living in poverty in 2016-17, compared with a quarter of Hispanic children. White and Asian children have a similar poverty rate of 11 percent and 10 percent, respectively.
Sociologists like Sean Reardon at Stanford University and Ann Owens at the University of Southern California have built a body of evidence that school segregation by income is what’s really getting worse in America, not school segregation by race. But it’s a complicated argument because Black and Latino students are more likely to be poor and less likely to be rich. So the two things — race and poverty — are intertwined.
In 2019, Reardon studied achievement gaps in every school in America and found that the difference in poverty rates between predominantly Black and predominantly white schools explains the achievement gaps we see and why white schools tend to show higher test scores than Black schools. When white and Black schools have the same poverty rates, Reardon didn’t see a difference in academic achievement. The problem is that Black students are more often poor and attending schools with more poor students. And other than a handful of high-performing charter schools in a few cities, he couldn’t find examples of academic excellence among schools with a high-poverty student body.
“It doesn’t seem that we have any knowledge about how to create high-quality schools at scale under conditions of concentrated poverty,” said Reardon. “And if we can’t do that, then we have to do something about segregation. Otherwise, we’re consigning Black and Hispanic and low-income students to schools that we don’t know how to make as good as other schools. The implication is that you have got to address segregation.”
Previous Proof Points columns cited in this column:
The number of high-poverty schools increases by about 60 percent
Poverty among school-age children increases by 40 percent since 2000
The gap between rich and poor schools grew 44 percent over a decade
Data show segregation by income (not race) is what’s getting worse in schools
In 6 states, school districts with the neediest students get less money than the wealthiest
An analysis of achievement gaps in every school in America shows that poverty is the biggest hurdle
Rich schools get richer: School spending analysis finds widening gap between top 1% and the rest of us
THE WORLD CAN SHOW HOW PHARMA MONOPOLIES AREN’T THE ONLY WAY TO FIGHT COVID-19
By Prabir Purkayastha, MR Online.
July 8, 2020
https://popularresistance.org/the-world-can-show-how-pharma-monopolies-arent-the-only-way-to-fight-covid-19/
After His Disastrous Handling Of The COVID-19 Epidemic, Trump Is Trying To Improve His Waning Electoral Chances By Reserving All Of Gilead’s Stock Of Remdesivir.
The U.S. has bought up almost all of the stock of remdesivir from Gilead, making it nearly impossible for this COVID-19 drug to be available anywhere else in the world. After making America sick again, Trump is trying to compensate for his administration’s failure by buying Gilead’s production for the next three months for the U.S., leaving nothing for the rest of the world.
This makes it all the more urgent for India and other countries that featured prominently in previous drug license fights against Big Pharma in the U.S. and around the world for more than a decade to break Gilead’s patent and issue compulsory licenses to manufacture the drug locally. The patent laws of most countries and the World Trade Organization’s 2001 Doha Declaration have clear provisions for compulsory licensing during a health emergency or an epidemic. COVID-19 obviously qualifies on both accounts.
On July 1, the U.S. reached a point of more than 50,000 new COVID-19 cases in a single day, about 23 percent of the 218,000 new cases worldwide that day, making it the global leader on how not to fight the COVID-19 epidemic. As of July 1, Brazil and India were in second and third place, respectively, for new cases.
Remdesivir is the only drug that in drug trials has shown some benefit in fighting the virus infection. Remdesivir works by reducing the replication of the virus in the human body, and this helps in shortening the hospital stay of the patient by about 25 percent. If the patient progresses to a more serious stage, needing oxygen support or ventilation, remdesivir is of little help. Here, anti-inflammatory drugs like dexamethasone become important. Dexamethasone has shown efficacy treating COVID-19 patients in clinical trials, and, unlike remdesivir, it works by reducing lung inflammation arising out of the infection, rather than by fighting the infection itself. Dexamethasone is off-patent and is widely available at low costs.
But if remdesivir cuts down the infectious period, not only is it beneficial to the patients who receive it, but it is also useful for society. By reducing the patient’s infectious period, it lowers the rate of virus transmission.
I have argued previously that after the battle for access to cheap AIDS drugs, the next big battle would be fought over COVID-19 medicines and vaccines. In the World Health Assembly, the U.S. was the only country that opposed the resolution that all medicines and vaccines should be put in a common patent pool, and accessible to all countries at reasonable costs.
We now know the reason for the U.S. opposition. It wants control over medicines and vaccines for the fight against the pandemic. One reason is to make U.S. citizens feel that Trump is looking after them by providing medicines, even if his administration has failed miserably in the fight against COVID-19. The second reason is that by controlling the medicine for the rest of the world, Trump can bargain with them and try to regain the global hegemon status that the U.S. has lost.
With this step, the U.S. has also made clear its intention regarding COVID-19 vaccines. The U.S. has backed a set of five companies with a $13 billion purse, as a part of its Operation Warp Speed to support vaccine development. One of these five is Moderna, a U.S. biotech company, and one of the frontrunners in the current vaccine trials. The other four backed by the U.S. are AstraZeneca (in consortium with Oxford University); Johnson & Johnson; Merck; and Pfizer with BioNTech. If any of these vaccines succeed and others do not, we can expect the U.S. will guard that vaccine as it is doing with COVID-19 medicine in the case of remdesivir. Fortunately for the world, there are a total of 17 vaccines in the World Health Organization’s list of ongoing clinical trials, and another 132 in the pipeline.
Apart from the U.S. buying up almost all of the remdesivir stock, the other issue in making remdesivir accessible to those who need it is the price at which Gilead is selling this drug. For U.S. patients, the cost is about $3,000 for a typical five-day course (which consists of six vials of the drug—two on the first day, and one per day after that). Gilead has granted a handful of licenses to drug manufacturers in other countries—including three Indian companies, Cipla, Hetero and Jubilant—to sell generic remdesivir. This means a full course of remdesivir to Indian patients will cost about $400 (at $66 per vial, for six vials).
What is the actual cost of a course of remdesivir? According to an article in the Journal of Virus Eradication by Hill et al in April, the active pharmaceutical ingredient for one day’s treatment should not cost more than $1. If we add to that the cost of making it into the typical five-day course of six injections, the total cost should not be more than $6. Calculations by two authors from the Institute for Clinical and Economic Review in the U.S. use Hill’s data to estimate that the price of remdesivir for a full course of treatment (they use a longer course of 10 days) in the U.S. should be less than $10.
Why should a full course of remdesivir, costing less than $10 to produce, be priced at $3,000, or 300 times its cost of production, in the U.S.? Even at Gilead’s concessional price of $400 for India, it is still 40 times the cost of its production! Gilead’s argument is that because its medicine decreases the duration of hospitalization, it saves COVID-19 patients about $12,000 each in hospital bills—and by charging only one-fourth of that, even if it is 300 times the cost of production, Gilead is doing the customers a big favor.
As we know from the results of the clinical trials, remdesivir fights the virus, but if the patient becomes seriously ill, it does not have a statistically significant impact on mortality rates. If it did, Gilead’s price probably would have factored in lifetime earnings saved by remdesivir, and its price would probably have been even 10 times higher!
But even if remdesivir becomes significantly cheaper, it is uncertain that it can get to countries outside the U.S. thanks to the U.S.’s plan to buy almost all of Gilead’s stock of the drug. So what can the rest of the world do? It may need to prepare to fight a long battle, as India and other countries did during the AIDS epidemic against the U.S. and its drug cartel allies like Switzerland, France, the UK and Germany.
Big Pharma priced AIDS drugs around $10,000-15,000 for a year’s worth of treatment in the U.S. and Europe, and a ‘concessional’ price of $4,000 for poor countries. Indian companies were manufacturing the generic version of these drugs at a fraction of these prices, but countries who wanted to import AIDS drugs from India faced lawsuits and political pressure from the U.S.
This battle was fought for nearly a decade. In the World Trade Organization’s Doha Round in 2001, the Doha Declaration accepted that in the case of a health emergency or an epidemic, any country has the right to issue a compulsory license for producing lifesaving drugs. And the license to produce the drug could be issued even to a company outside the country’s borders. Indian generic drug manufacturer Cipla could then supply the AIDS drugs at $350 for a year’s course to a number of countries, which would otherwise have been completely bankrupted by patented drugs’ higher prices—or else they would see their AIDS patients die in large numbers without medicines.
The victory to secure cheap generic AIDS drugs sets a precedent for the current pandemic. COVID-19 has already killed an estimated half a million and infected more than 10 million. No one can dispute that is both a health emergency and a pandemic. The remedy of using a compulsory license already exists in most countries’ patent laws and in the Doha Declaration.
Why, then, are other countries not starting the manufacture of remdesivir? Are they hoping that Gilead and the U.S. will behave better than they did earlier during the AIDS epidemic? Or are they afraid of the threat of retaliatory sanctions from the U.S.?
Every year, the U.S. Office of the United States Trade Representative (USTR) issues a Special 301 Report that it has used to threaten trade sanctions against countries that don’t comply with its patents. India figures prominently in this report year after year, for daring to issue a compulsory license in 2012 to Natco to sell the cancer drug nexavar for less than 3 percent of Bayer’s price of more than $65,000 a year. After India issued the compulsory license on Nexavar, Marijn Dekkers, the CEO of Bayer, said, “We did not develop this medicine for Indians… We developed it for Western patients who can afford it.”
In April, Indian Prime Minister Narendra Modi buckled under Trump’s threat and exported hydroxychloroquine to the U.S. even though it was under an export ban at that time. Will he—and the leaders of other countries—be willing to stand up to the U.S. on remdesivir? Or will they agree with Trump that remdesivir should be reserved for only U.S. patients, even if they have the capacity to produce it for their people?
WHY DID THE BUREAU OF PRISONS IMPOSE A NATIONAL LOCKDOWN?
By Natalia Schuurman, AFGJ.org.
July 8, 2020
https://popularresistance.org/why-did-the-bureau-of-prisons-impose-a-national-lockdown/
It Started Days After The Murder Of George Floyd.
Following the murder of George Floyd by a white police officer in Minneapolis on May 25, a nationwide uprising of unprecedented proportions has swept the U.S. in thousands of cities and towns, large and small, across all 50 states. This surge of mass resistance around issues of racial injustice, occurring against the backdrop of a major public health crisis and increasingly deteriorating economic conditions, has laid bare the failure of our capitalist system to protect working class communities of color. In addition to facing a much higher possibility of being endangered by an encounter with law enforcement, these communities are also coping with disproportionately high rates of unemployment and COVID-19 contagion.
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Instead of providing just social and economic solutions, our political institutions have mobilized the National Guard to militarize our streets in at least 24 states in order to help police quell the unrest. So far, police have arrested tens of thousands nationwide on “protest-related” charges. A handful of protestors are now facing lifelong prison sentences for various charges associated with their attacking of police cars, while law enforcement continues to use violence and “less than lethal” deadly force against protestors, medics, journalists, and bystanders alike.
This most recent wave of state-sanctioned violence carried out by law enforcement against the civilian population has made very clear how the repressive U.S. state apparatus working under the political domination of a capitalist oligarchy continues to internally intervene in mass civil unrest when material conditions create explosive socioeconomic inequities and breed widespread public insecurity.
Less evident is the significance of the national lockdown swiftly put in place by the Bureau of Prisons (BOP) for the first time in 25 years in response to the eruption of nationwide civil unrest, as word has gotten out that the brutal repression of anti-racist protests by law enforcement officials on the streets is drawing solidarity from the incarcerated population within our federal prisons and detention centers.
On June 1, the BOP announced that its facilities would begin operating under an “enhanced modified operating model” through the enforcement of “additional, temporary security measures” to “ensure the safety of staff and inmates.” This is an extension of what staff and union officials have called a federal “modified lockdown” already put in place to promote social distancing and prevent the spread of COVID-19.
Unsurprisingly, these “modified operations” have failed to implement basic precautionary measures needed to trace and contain the spread of the virus. Prisoners–the disproportionate majority of which are poor people of color–continue to be confined in overcrowded and extremely unsanitary facilities. Meanwhile, arrests, imprisonments, and releases without testing have continued throughout the pandemic and have undoubtedly contributed to the spread of the disease to their communities.
This criminal mistreatment of prisoners throughout the COVID-19 pandemic is exacerbating unlivable conditions and fueling unrest already taking place within federal prisons for months now–most notably in Kansas, Ohio, and Mississippi. The full-fledged national lockdown currently in place (as of the time this was written)–which restricts inmate internal movement, suspends social and legal visits, and is encouraging a massive rise in solitary confinement of prisoners speaks to the BOP’s concern that a nationwide uprising against racial injustice could be making its way into one of the most foundational institutions of race and class oppression: the prison system.
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Prison rebellions have historically coincided with uprisings against deteriorating material conditions and resistance to racial injustice in wider society. The last time the BOP imposed a national prison lockdown was 25 years ago, when a series of rebellions from within four widely separated federal prisons known as the “October Rebellion” erupted. Prisoners were unified against the racial injustice evident in the imposition and execution of prison sentences related to drug possession charges. The trigger was the U.S. Congress’ refusal to reduce crack cocaine sentences to parity with sentences for the more expensive powder cocaine. This decision enabled a skyrocketing in “zero tolerance” policing, arrests, and mass incarceration of poor people of color in possession of the cheaper form of the drug who faced prison sentences 100 times longer than wealthy white people in possession of powder cocaine.
The strength of solidarity between protestors and prisoners during this historical moment sheds light on how the struggle to end police brutality continues to intersect with the struggle to end mass incarceration. “Tough on crime” policing and mass incarceration go hand-in-hand as functions of a racist criminal justice system designed to uphold the social order.
The police brutality we’re seeing today is a legacy of the racist “zero-tolerance” policing introduced by the Clinton Administration, which has enabled the skyrocketing in policing, arrests, and mass incarceration of disproportionately people of color from poor inner-city communities. Working class people of color are more likely to be targeted by police, not only for subversive actions but also for commonplace behaviors deemed undesirable by the state (such as possession of narcotics, drunkenness, petty thefts, or begging). Before Derek Chauvin put George Floyd in a chokehold and murdered him, he had planned to arrest him for selling loose cigarettes illegally on the streets and using a counterfeit $20 bill to buy the pack of cigarettes. Floyd’s murder is emblematic of the risk people of color face when they are forced to interact with law enforcement, particularly within urban working class communities. It follows they’re also more likely to be convicted by the justice system and incarcerated by the state as the penalization for having allegedly wronged society as a whole.
Who’s actually wronged society at large? The ultimate responsibility falls on the ruling economic class, which has capitalized on yet another business opportunity created by mass incarceration: the industrial-scale production of maximum security prisons, the provision of prison services, and forced prison labor for the profit of private prison contractors.
The established punitive approach to “criminal justice” deliberately falls short of tackling root problems of social rupture and public insecurity within and outside of U.S. borders: the systemic dismantling of the welfare state, reduction of social benefits, and continued impoverishment and dispossession–all harmful byproducts of the expansion of neoliberal economic policies pushing sectors of the poor to the margins of society.
Just as police brutality and mass incarceration go hand-in-hand as functions of the repressive U.S. state apparatus, so too does the resistance to police brutality and resistance to mass incarceration in the struggle to decolonize society. Wealth redistribution and the abolition of the class system, as anti-colonial theorist Frantz Fanon argues, are necessary conditions for decolonization, but likely to fail if attempted within the framework of a fundamentally oppressive political system backed by the violent state apparatus. The defunding of law enforcement institutions is an important first step for depriving the settler-colonial capitalist oligarchy of its monopoly over the use of violence, as well as the dismantling of the most foundational institution for the systematic perpetuation of race and class-based oppression: the prison-industrial complex. As Marxist philosopher Jean-Paul Sartre said in his preface to Frantz Fanon’s Wretched of the Earth, “the colonist has but one recourse: force or whatever is left of it.” It’s time to take away that force.
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