11 April 2020   Leave a comment

David Leonhardt and Yaryna Serkez have written an op-ed for The New York Times on the growing economic inequities in the US economic system. The article has a number of interactive graphs which are dramatic and worthy of viewing. But the data analysis is sobering and it includes a counterfactual example which summarizes the problem quite succinctly:

“One way to think about the rise in inequality is to imagine how different the economy would be if inequality hadn’t soared over the past 40 to 50 years. In that scenario, with the same G.D.P. that we have today but with 1980 levels of inequality, every American household in the bottom 90 percent of income would be earning about $12,000 more — not just this year, but permanently.

“In effect, each household in this bottom 90 percent is sending a check for $12,000 to every household in the top 1 percent, year after year after year.”

This disparity accumulates and the authors suggest that since 1 January 2011, each family in the bottom 90% of families has transferred over $110,000 to families in the top 10%–in reality, the US economic system is “trickle-up”, not the “trickle-down” system romanticized by conservative economists.

The disparities in wealth are equally glaring:

“Overall, the richest 0.1 percent of American households own 19.6 percent of the nation’s total wealth, up from 15.9 percent in 2005 and 7.4 percent in 1980. The richest 0.1 percent now have the same combined net worth as the bottom 85 percent.

“The wealth trends have been especially hard on younger Americans. The median net worth of Americans under age 35 — who started off substantially poorer on average than older Americans — is 40 percent lower than the net worth of Americans under 35 was in 2004. The net worth of Americans over age 65, by contrast, has risen 9 percent over the same period. The Boomers, in short, are richer than their predecessors, and Millennials and Generation X are poorer than their predecessors.”

When race is factored into the analysis of wealth, the disparities grow even wider: “The median wealth of white households is now 10 times higher than the median wealth of black households. In 1992, the multiple was seven to one.”

The inequities have a decisive effect on the quality of life for most Americans: “Rich and poor Americans used to have fairly similar lifespans. Now, however, Americans in the bottom fourth of the income distribution die about 13 years younger on average than those in the top fourth.” Life expectancy in the US now lags behind those in other rich countries such as France and Germany. And the way Americans die has also changed:

“Another reason for the widening gap is “deaths of despair” — from suicide, alcoholism and drug abuse. The rate of these deaths among American adults (ages 25 to 64) without a four-year college degree has nearly tripled since the early 1990s. More now die from these causes than from cancer.

“For Americans with a college degree, the “deaths of despair” rate has risen only modestly over the same period — and is now less than one-fourth as high as it is for people without a degree.”

The health effects of the COVID-19 pandemic have aggravated these disparities. One hopes that the dramatic exposure of the economic inequities by the pandemic will lead to greater efforts to minimize and erase them. That outcome, however, does not seem likely given the economic plans currently being discussed by the US Congress.

A second wave of locusts is overrunning parts of East Africa and it is estimated to be about 20 times the size of the first wave. The locusts are consuming vegetation in large amounts in Kenya, Ethiopia, South Sudan Djibouti, Eritrea, Tanzania, and Congo. Fighting the locust swarms has been complicated by the COVID-19 plague which has made shipments of necessary pesticides significantly more difficult.

Locust Swarm on a Farm in Kenya

The swarms appear to be much larger than those that affected the region earlier. According to Quartz:

“This infestation of desert locusts first arrived in East Africa last June, feeding on hundreds of thousands of hectares of crops and pastureland and chomping a path of destruction through at least eight countries (Kenya, Uganda, South Sudan, Ethiopia, Somalia, Eritrea, Djibouti and Sudan). Scientists say these devastating insects never left East Africa: in fact, favorable wet conditions due to above average rainfall this season means they are likely to achieve two generations of new breeding by June this year, increasing their population size up to 400 times.”

East Africa is already a food insecure region and the locust plague will make the situation significantly worse. Efforts to combat the locusts are hampered by the restrictions on the movement of people due to fears of COVID-19. But it is also the case that the attention of the world is more focused on the coronavirus in rich countries and it is doubtful that the necessary resources can be marshaled to address the locust infestations.

The price of oil continues to drop as demand declines and Saudi Arabia and Russia continue to disagree over the necessary production cuts to stabilize the price per barrel. The Asia Times reports:

“OPEC+, the group of oil producers led by Russia and Saudi Arabia, respectively the world’s second and third largest crude producers and top two exporters, reached a tentative agreement to trim oil production by 10 million barrels per day (bpd) to help ease the economic impact of the coronavirus crisis on global demand.

“The group of producers will cut 10 million bpd worth of production in both May and June, then drop the cut to 8 million bpd for the rest of the year. Starting in January 2021, production cuts will drop to 6 million bpd and last until April 22, 2021.

“The deal, as Asia Times reported, did not include other non-OPEC+ producers like the US, the largest global oil producer (at least for now), but OPEC kingpin Saudi Arabia called on other producers to also cut production.

“The push by both Russia and Saudi Arabia to have the US join a production cut, however, may have been over played since oil prices are so far beneath most US shale producers’ breakeven production costs that around 3 to 4 million bpd of US production could go offline soon.”

It is not clear that production cuts can offset the decline in demand. Air line travel, which accounts for about 8% of global petroleum demand, is at a standstill because of COVID-19, and is unlikely to resume its normal levels soon. And it appears that US shale oil producers are reluctant to cut production even as prices go below profitability: “The United States is currently the largest oil producer in the world — and Texas is the largest oil-producing state, accounting for 5 million of the 13 million barrels produced nationally each day.” While low oil prices are good for the American consumer, they also threaten to bankrupt many oil producers which in turn threatens the viability of the banks that lent them money. The Texas Railroad Commission regulates oil production in the US (a very long an complicated story about how a small bureaucratic organization has so much power) but most producers fear government intervention in price setting. According to the Austin American Statesman:

“But many oil and gas companies — especially major ones involved in production, refining and selling finished gas — are opposed to government intervention.

“’Chevron wants to operate in a fair competitive market and believes that the free market system will aptly regulate the price and supply of crude oil,’ Chevron Vice President Jeff Gustavson wrote the commission on April 8.

“The company is one of the largest acreage owners in the Permian Basin, with 2.2 million acres in Texas and New Mexico. ‘One state’s actions will not positively affect the global market supply, but it could negatively affect Texas’ competitiveness in that market,’ Gustavson wrote.”

Many countries depend on the revenues generated by oil and gas exports. The current price of oil is not high enough to satisfy their revenue demands and that shortfall may have significant repercussions on political stability in those countries.

Posted April 11, 2020 by vferraro1971 in World Politics

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