See that chart above?
It says that another 5 million or so people filed for unemployment last week. That’s 22 million in one month. How much is that, in real terms? The US labour force is 165 million people or so. That’s 13.3% of the labour force unemployed in one month. That’s more than a rate of about 3% a week, as I predicted at the beginning of all this. At that rate, by the end of next month, more than a quarter of the US economy will be unemployed.
We are watching an economy die. There’s simply no other way to put it. As I and most other good economists cautioned, Coronavirus is a shock like we’ve never seen before — ever. Not even a war produces a massive shockwave like this, which is one reason war metaphors are inadequate. But it’s a shock like we’ll again and again in the near future, as climate change and mass extinction and ecological collapse bite — so this is a chance to get our house in order, to make preparations for an age of such shocks.
The first thing you need to understand about watching the economy die like America’s is is that it’s needless: it never needed to happen. The second thing you need to understand about this particular event — a gigantic shockwave of unemployment — is that it’s like the plume of a volcano, or the crest of a tsunami: just a front, which carries a massive wave of destruction right behind it. That damage is yet to come, but it is now on the way, inevitable. So: this massive shock front of unemployment is just the beginning. The nightmarish consequences it will have — depression and what that produces, which I’ll get into shortly — never needed to happen at all, and yet those effects, now that the shockfront is exploding before our very eyes, are going to last, and have dramatic, ruinous consequences of their own. A cascade, a chain reaction of ruin has now been set off.
How and why?
As I pointed out a few weeks ago, the stimulus was woefully inadequate. It provided businesses and households the equivalent of just one week of support…amidst an historic crisis that was going to last months. If the ante wasn’t upped, and fast, the results were going to be catastrophic. Well, here are the results — and they are catastrophic. Of course there’s a massive wave of unemployment, when the government’s only supporting the economy for one week…but it’s already been several.
What’s happening is simple, on one level: businesses are closing their doors, as people stay home. But on a deeper level, as Keynes, the great economist of depressions explained a century ago now, what’s happening is this: a massive loss of confidence. Anticipating no real support, businesses are laying people off. Anticipating no real help, people are cutting back dramatically. The result is the shock front of unemployment mounting at the surreal rate of 3% a week — or about six million people. If that keeps growing — as it’s likely to — what’s going to happen?
Unemployment in America isn’t like other countries. Because of America’s ruinous, obsolete social contract, most forms of social insurance and benefits are tied to “jobs.” As people lose whatever jobs they had, the effects are therefore going to be catastrophic. They’re not just going to lose their incomes. They’re going to lose their healthcare, retirement, childcare, and so forth.
But people will still have to pay for those things — at the astronomical rates individuals must pay in America, without “jobs” to subsidize what should be basic public goods (like healthcare.)
The consequence of that will be a massive rise in the poverty rate. That’s doubly bad news. You see, America has already — and this is before the pandemic — been home to a gruesome phenomenon which its elites overlook, and its pundits politely ignore: the middle class has been imploding over the last decade, and becoming a class of new poor. The working class has been eroded right down to becoming a class of now entrenched poor.
What happens when an imploding middle class and a declining working class collide with the sudden, explosive poverty of a depression? Bang! Poverty skyrockets. As poverty skyrockets, the effects on America’s socioeconomy will be hard to overstate.
One of the key effects will be a lasting decline in entrepreneurship. Think of the small or medium sized business owner, owner of a microbrewery, trying to do something creative and interesting — trapped in this maelstrom. He has to lay off employees he wants to take care of — because he has no option: he has no confidence left in government support or stimulus. Soon enough, he declares bankruptcy: his customer base is gone. But he’s saddled now with months or maybe years of liquidation and debt servicing.
How likely is he to try and put his heart into that microbrewery again? Who wants to risk it — in an age where risk is multiplying out of control, but governments and their institutions don’t seem interested in managing it at all, merely shifting onto those who can bear it least, like the small business owner?
Wham! The decline of entepreneurship is likely to be accompanied by a parallel: many of the jobs being destroyed now aren’t likely to magically, suddenly pop back into existence the moment the economy’s “reopened.” What economists call “hysteresis” is setting in, meaning that many of those jobs have been permanently destroyed, as the small and medium sized businesses offering them shutter their doors for good.
What does the owner of our now-closed microbrewery do, for example? Well, the truth is that during the pandemic, most of the remaining “good” jobs were stripped away from the economy. Why? The big winners were existing mega-monopolies. Like Amazon, which has profited immensely — or Google, Facebook, and so forth. What’s on offer in the ruins of the economy left behind by the pandemic, then, is an explosion in “gig” work. The kind that’s been growing for a decade or so. But the problem with gig work is that it’s not really a “job.” You don’t have any real benefits. You don’t even have a reliable schedule. It’s certainly not a career, with a path to any kind of ownership. You’re scavenging atop the rubble of a destroyed economy for whatever morsels of work you can find this moment, really.
So our once-proud owner of a microbrewery now tries to make ends meet by driving an Uber today, Instacarting deliveries tomorrow, maybe selling stuff on Amazon the day after. What’s his life like? It’s a grim, bitter struggle. He never has enough to pay the bills — which always seem to rise. He’s always desperately looking for another side hustle. And yet even that in itself somehow seems more palatable than what happened to his business once — he never wants to go through that hell of bankruptcy and liquidation and debt service and financial ruin, ever again.
Let me distill the moral of my little story.
The pandemic is going to accelerate three ruinous trends in American economic life. One, the implosion of the middle and working classes — which means skyrocketing inequality. Two, the erosion of good jobs and decent work and entrepreneurship — which means non-exploitative labour, work with purpose, innovation, creativity, meaning. Three, growing poverty — which means declining living standards. What’s the knock-on consequence of all that: a dying economy?
Let me pause to reiterate — all this is needless. It doesn’t have to happen. But to draw out the lesson, let me continue with my little tale of my average guy.
Once, he had a middle class life. His microbrewery did well enough for him to put money away for retirement, to pay for his kids’ college, to pay for good healthcare — and all that not just for himself, but for the dozen people he employed at first, and the then the hundred people he employed right as the pandemic struck.
Today, though, he employs nobody. How can he? Every month, he barely gets by. As a result, he saves nothing for retirement — which is now a luxury he’ll never have. Putting the kids through college? Why else do you think he sweats away at three different gig platforms every single day of the week? And yet that’s still a distant dream. Healthcare? Forget it — he’s so busy, a good man, trying to provide for his family…he barely takes care of himself at all.
His family once enjoyed a relatively stable middle class life. His microbrewery — all that hard work, entrepreneurship, vision, had steadily raised their living standards. He’d been the son of a working class family, fathers and uncles all auto workers — and now here he was, owner of a business. His family enjoyed nice clothes and cars and a vacation once a year. They bought a new house, every five years or so. It was a good life.
Now they live — the five of them — in a two bedroom apartment. They’d moved there from a three bedroom house — which itself was a major downgrade from the modern five bed they’d lived in at the peak of their success. They’d eaten good food, shopping at trendy organic bakeries and butchers, fresh and nutritious. Now, that kind of diet alone would cost more than he makes in a month, driving cars and delivering groceries.
He looks at the groceries he’s delivering — they’re the kind his family once used to eat. Expensive, good for you, not the artificial junk they’ve been reduced to living on now. He shakes his head? What is he, anyways, now?
Inequality has skyrocketed and surged. The pandemic produced a class of winners, too. Bezos made billions — and his lieutenants, millions. So too did Zuck, Sergey, and the managers of their Google and Facebooks and so on.
The economy has been divided into a kind of caste system. At the very top are the owners of technocapital — Bloombergs and Bezoses and whatnot: they’re a tiny class of mega-billionaires. They have more than they can ever spend — and a single one could have bought all the ventilators America needed. Just beneath them is a larger, but still very, very small class of their seconds and thirds and fourths in command. “Product Manager” here? “CFO” there? “Fund manager” here? You’re doing very well: you’ve probably got at least a mil or several in the bank, or in home equity, and you’re pulling down multiple hundreds of thousands, if not millions, a year.
Beneath them, though, isn’t the broad, expansive middle class of the 1950s American Dream. There’s just a vast, vast pool of the new poor. They can be divided up into the downwardly mobile former middle, and the abandoned working class — but that’s splitting hairs, really. Life in this class is about technological neoserfdom. The app, the platform, the algorithm is your boss. It tells you what kind of work to do, how much it’s worth, when to do it, and even monitors you to make sure you’re doing it fast enough, and with a smile on your face.
This class is the vast, vast majority of people — about 80%. It’s a class that already exists — the 80% of Americans who can’t make ends meet, live paycheck to paycheck, can’t raise a tiny amount for an emergency, and struggle to pay basic bills like healthcare and housing. The pandemic, though, made all that much, much worse — and it destroyed any hope that people beginning to be trapped in this class of neosurfs had of ever escaping it.
After all, there were only three paths, really. One, entrepreneurship — but after the pandemic, that became a cruel joke. Two, education — but even before the pandemic, getting a PhD was becoming a liability, unless it was in math, and you wanted to rip people off with derivatives for a living. And three was turning into Walter White, maybe just in a lightweight way: after all, what boomed in a declining economy was vice. Porn, legalized drugs, camshows — maybe you could find a way out of the class of new poor in all those. But that was it. Play by the old rules — work hard for a living? LOL. I’ll see you on the breadlines, brother.
America’s long been becoming the world’s first poor rich country — and the stunning, epic, shocking mismanagement of the pandemic is going to accelerate it, viciously.
What happens when economies hit the magical point of about 25% or so unemployment? They tend to destabilize, hard and fast. America’s already been destabilized — if you understood all the above, that poverty was setting in, that opportunity was declining, that mobility had withered…you could have easily predicted Trumpism years out. I did, and that’s not to toot my own horn — it’s just to say that these relationships are the closest thing the economic world has to ironclad laws. Chief among them is the relationship between poverty and authoritarianism.
The first great wave of new American poverty — the decline of America’s middle and working class, the former from about 2000 on, and the latter from about 1990 on — produced Trumpism. An atavistic return to old forms of order, as a lunatic demagogue scapegoated every minority in sight for the economic woes of “real” Americans. But the problems of stagnant income and lost mobility had nothing to do — for Pete’s sake — with little Mexican kids, or even Chinese factory workers. They simply had to do with a society in which all the gains were taken by the mega-rich.
Never mind — even the opposition failed to really explain that, or fight against it, and so, quite predictably, Trumpism took over American politics wholesale. To the point where the mad king now dictates a shattering lack of response to a global pandemic, cuts funding for the WHO, and only offers people and businesses one week of support.
The second great wave of American poverty — the one that’s going to be unleashed by the Coronavirus depression — is going to have one of two similarly destabilizing effects. In the good scenario, Americans realize the folly of their choices, and instead become a social democracy. But I think that scenario’s a remote one. More often, in declining societies, where fresh poverty’s set in, the result is a swift, hard, lasting turn to the right. Why?
Think of our poor guy again. Once he was proud, capable of providing a good life for not just his whole family — but many families he employed. Today, as a technoserf, he does gig work that doesn’t even provide for his own. He’s fighting for self-preservation, in other words. What happens when people have to do that?
They don’t have anything left to invest in their neighbours. If you ask him to pay higher taxes — so that he himself can have better retirement and healthcare — he’ll laugh at you incredulously, and then look at you scornfully. Higher taxes? With what? The pittance he earns from the algorithm that already exploits him to the bone as a glorified servant to the neo-rich? Give him a break, dummy. He can’t put bread on the table as it is.
So the second great wave of American poverty is going to have a final, catastrophic consequence. It’s going to empty what little public purse there is in America. Poor people can barely afford to support themselves — what do they have left over to pay for public healthcare, retirement, education, childcare, and so on, with?
That’s the vicious cycle sets of self-preservation. Tax bases are going to dry up. Local, municipal, state, regional, federal. As they do, what tiny public goods Americans enjoy will shrink and erode even further, to vanishing point. Their chances of ever really having decent healthcare, education, retirement, and so on, will disappear.
America probably won’t ever be able to make the transition to becoming what the rest of the rich world is — a social democracy, in which every citizen enjoys expansive public goods, never has to worry about paying astronomical medical or educational or retirement bills. Instead, America is likely to turn even harder to the right. Say hello to Presidents Eric, Donald Jr, and Ivanka. Meet your new authoritarian dynasties.
This botched response to Coronavirus is going to produce a Greater Depression. That depression is going to kick of a bitter, vicious spiral of self-preservation. As people’s hostility and aggression and bitter struggle to make ends meet grow ever more intense, they are likely to be even easier prey for the next wave of demagogues. As tax bases dry up, the possibility of better public goods — and a functioning social contract made of them — will vanish.
As a result, America’s likely never to be able to modernize, and join the rest of the rich world, in being a functioning, civilized society, where people aren’t charged $50K for childbirth or $150 for an operation or $300K to educate a child. America’s future is the world’s first poor rich country — only poorer, harder, faster.
That’s why I say we’re watching an economy die. I don’t just mean: businesses are going to go bankrupt and people will be unemployed. That’s now, not then. I mean that as a consequence of this failure, which adds disaster to catastrophe, America’s path, trajectory, as a socioeconomy is likely to be forever changed. It’s now trapped by the already explosive shockwave of depression its failed leaders have produced. Poverty produces brutality, and brutality produces poverty, and that way, many societies — whole civilizations, even — have fallen. In that vicious cycle, the one thing that must be done, to stop it, and kickstart a virtuous one, never happens: cooperation and investment, at a massive scale, even more expansive and deep and lasting than the crisis which has caused a standstill. That is the only thing that can stanch the bleeding of a dying economy. Where is it? Nowhere to be found. While America’s leaders bicker and squabble, the patient is bleeding out, hemorrhaging — and every ounce of blood lost is now doing permanent, lasting, terrible damage.
I don’t say all that to be cruel, or mean, but out of a kind of horror, pity, and sadness. Remember: all this was needless. Let history, perhaps, learn that lesson.