tag:theconversation.com,2011:/africa/topics/great-recession-13707/articlesGreat Recession – The Conversation2023-08-10T12:42:23Ztag:theconversation.com,2011:article/2093192023-08-10T12:42:23Z2023-08-10T12:42:23ZSan Jose and the reemergence of the donut city<figure><img src="https://images.theconversation.com/files/537435/original/file-20230714-21-id7lc7.jpg?ixlib=rb-1.1.0&rect=11%2C0%2C3982%2C3000&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">American downtowns were facing headwinds even before the pandemic began.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:SanJoseDowntownMural.jpg">Mark Davidson</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>The specter of downtown decline is again haunting American cities. </p>
<p>After many decades of reinvestment and repopulation, some American downtowns are now <a href="https://www.census.gov/library/stories/2023/03/domestic-migration-trends-shifted.html">showing signs of hollowing out again</a>. </p>
<p>The COVID-19 pandemic certainly bears some of the blame. </p>
<p>The widespread adoption of remote and hybrid work schedules has drained commercial offices and caused tenants to terminate leases. In many downtowns, office occupancy is at <a href="https://www.kastle.com/safety-wellness/getting-america-back-to-work/">50% pre-pandemic</a> levels. Ripple effects include <a href="https://www.washingtonpost.com/food/2022/06/21/covid-restaurant-closures/">shrinking lunchtime crowds</a>, slumping retail sales and a drop-off of public transit ridership. For example, New York City’s subway is at <a href="https://www.apta.com/research-technical-resources/transit-statistics/ridership-report/">65% of pre-pandemic ridership</a> as of early 2023.</p>
<p>I study <a href="https://doi.org/10.1111/cico.12449">how urban governance challenges shape city budgets</a>, so I’m aware of how these pandemic-related changes are making long-term urban problems worse at a time many cities are <a href="https://www.route-fifty.com/finance/2023/05/cities-stare-down-huge-budget-gaps/386139/">dealing with strained budgets</a>. </p>
<h2>Pre- and post-pandemic urbanism</h2>
<p>Tightening city government finances and growing service demands are threatening to produce Donut City 2.0. A donut city is <a href="https://www.nber.org/papers/w28876">defined by out-migration</a>, with the city center losing residents and businesses to the suburbs. </p>
<p>This is not a rerun of hollowing out experienced in many <a href="https://www.journals.uchicago.edu/doi/abs/10.1086/227170">U.S. cities in the 1960s</a>. The usual culprits of economic restructuring, racial tensions, shifting consumer preferences and government inefficiency are all still involved, but these forces are now manifest in new ways.</p>
<p>After the financial crisis that began <a href="https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath">the Great Recession in 2007</a>, cities got spooked. When housing markets collapsed and stock markets sank, cities found themselves running out of money. Many of them, like Chicago and Memphis, siphoned revenues into reserves and made recessionary <a href="https://doi.org/10.1080/00330124.2020.1858886">budget cuts permanent</a>. Some cities, like Dallas and Portland, have also had to face up to their huge <a href="https://www.pewtrusts.org/en/research-and-analysis/articles/2022/07/07/states-unfunded-pension-liabilities-persist-as-major-long-term-challenge">unfunded pension liabilities</a>. Servicing debts and shoring up finances has often been prioritized over providing services and building infrastructure.</p>
<p>This post-Great Recession restructuring has now run headlong into the post-pandemic economy.</p>
<p>Exactly what this collision looks like varies from one municipality to the next, but some broad trends are emerging. Front and center is a growing demand for city services. Since 2020, this demand has been slaked by the federal government’s pandemic relief money, but now these funds are <a href="https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments">running out</a>.</p>
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<a href="https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A young person rides a scooter past a shuttered store displaying the sign " src="https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541097/original/file-20230803-15-adaknt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A tight budget means San Jose has fewer dollars to put toward reinvestment.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/hank-cocas-downtown-furniture-slated-for-redevelopment-news-photo/1240400239?adppopup=true">Gary Coronado / Los Angeles Times via Getty Images</a></span>
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<h2>A growing demand</h2>
<p>What kind of services are needed? Here are a few examples.</p>
<p>According to the U.S. Department of Housing and Urban Development, nationwide homelessness numbers have been <a href="https://www.huduser.gov/portal/sites/default/files/pdf/2016-AHAR-Part-2.pdf">trending upward since 2016</a>. In 2022, a post-pandemic spike left this number just shy of <a href="https://www.huduser.gov/portal/sites/default/files/pdf/2022-AHAR-Part-1.pdf">600,000 people</a>, up 50,000 in six years. </p>
<p>The demand for law enforcement is also growing. <a href="https://datatopics.worldbank.org/world-development-indicators/">World Bank data</a> shows that U.S. crime rates began trending upward in 2014. This trend again accelerated during the pandemic. New York City’s 2021-22 spike in crime made <a href="https://www.thetimes.co.uk/article/gun-crime-soars-as-police-retreat-in-americas-cities-l26dbss9l">headlines globally</a>. Although crime rates have now abated in most U.S. cities, local governments are <a href="https://www.pewresearch.org/short-reads/2022/10/31/violent-crime-is-a-key-midterm-voting-issue-but-what-does-the-data-say/">dealing with a public perception that their cities are less safe</a>. Hiring remains <a href="https://www.policeforum.org/staffing2023">challenging</a>.</p>
<h2>Donut amid shimmering silicon</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A map of California, showing San Jose just south of San Francisco" src="https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=581&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=581&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=581&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=730&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=730&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541583/original/file-20230807-28322-lk2qu0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=730&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">San Jose is located about 50 miles southeast of San Francisco.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/roads-and-national-park-vector-map-of-the-us-royalty-free-illustration/1307750212">Rainer Lesniewski/iStock via Getty Images</a></span>
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<p>San Jose, California, a city of <a href="https://www.census.gov/quickfacts/fact/table/sanjosecitycalifornia/PST045222">1 million</a>, does not conjure archetypal images of urban decline. It is not home to redundant smokestacks and empty houses. It is a city that is home to thousands of <a href="https://www.sanjose.org/attraction/silicon-valley-tech-tours">global technology firms</a> and suffers from <a href="https://www.point2homes.com/news/us-real-estate-news/rank-us-cities-share-of-luxury-homes-for-sale.html">vastly inflated housing costs</a>. And yet, despite its wealth, it is struggling with the pressures of Donut City 2.0.</p>
<p>As may seem fitting for the home of Zoom’s headquarters, San Jose has seen some of the lowest rates of return to office working. The city’s return rate is just 44% vs. national averages that are <a href="https://www.kastle.com/the-data-science-behind-theback-to-work-barometer/">at about 50%</a>. PayPal, Roku, Western Digital and X – formerly known as Twitter – have also laid off what amounts to thousands of San Jose-based employees, putting further pressure on <a href="https://www.sfchronicle.com/tech/article/san-jose-s-paypal-to-cut-2-000-jobs-as-bay-area-17754716.php">commercial occupancy rates</a>. </p>
<p>This does not make San Jose unique. What it does do is put more pressure on city revenues.</p>
<h2>Drop-off in investment</h2>
<p>When cities see declines in commercial occupancy, they get hit in multiple ways. </p>
<p>One way is that it makes future investment less likely. San Jose’s economic growth hinges on <a href="https://realestate.withgoogle.com/sanjose/">Google’s planned expansion</a> and an <a href="https://www.vta.org/projects/bart-sv">in-progress connection</a> to the regional BART transit system. Given all that empty office space and large drop-offs in BART ridership, these plans now face a more uncertain future. </p>
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<a href="https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A woman stands on an otherwise empty subway station." src="https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541585/original/file-20230807-2559-4jjun1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Fewer riders means less revenue for the Bay Area Rapid Transit, cooling plans for expanding the system to San Jose.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Transit%20Financial%20Woes/0eae75429d1e4dfa84ecefc26454396e?Query=Bay%20Area%20Rapid%20Transit&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=477&currentItemNo=1">AP Photo/Godofredo A. Vásquez</a></span>
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<p>San Jose has a US$1.2B <a href="https://www.sanjoseca.gov/your-government/departments-offices/office-of-the-city-manager/budget/budget-documents">general fund annual budget</a>. Business taxes represent a relatively small slice – 6%, or $70 million – of its total revenues. For comparison, property taxes are 32% and sales taxes are 23%. This means San Jose is less sensitive to commercial decline than other cities. And yet, small budget changes can have large consequences. </p>
<p>San Jose entered the pandemic with significant, if not unique, challenges. In 2011, San Jose acknowledged that it <a href="https://sanjosespotlight.com/can-san-jose-reduce-its-pension-debt-by-issuing-bonds/#:%7E:text=As%20of%20June%2030%2C%20San,federated%20plan%20was%2052%25%20funded">owed retirees $3 billion more</a> than it held in assets. An acrimonious fight between the city and labor unions followed. The <a href="https://www.mercurynews.com/2015/07/15/san-jose-unions-reach-pension-settlement/">eventual settlement</a> set San Jose on a path to make good on its pension promises, but correcting for years of skipped and inadequate payments will squeeze the city’s budget for decades to come.</p>
<p>This squeezing has already been felt. San Jose cut its payroll during the Great Recession and these cutbacks have not been restored. The city currently has nearly <a href="https://www.kron4.com/news/bay-area/san-jose-city-employees-prepare-for-possible-strike/">860 vacant staff positions</a>, unfilled because of a lack of funding.</p>
<p>This understaffing exacerbates other problems. Like other California cities, such as San Francisco, San Jose is experiencing a major homelessness crisis. In 2023, the city spent $116 million trying to alleviate the problem by providing counseling services and investing in affordable housing. Yet San Jose’s unhoused population <a href="https://www.kron4.com/news/bay-area/6340-people-hundreds-of-youth-are-homeless-in-san-jose-annual-census-finds/">grew to 6,340</a> by the spring of 2023 – up from an <a href="https://www.sanjoseca.gov/home/showpublisheddocument/38890/636987964835130000">estimated 4,350</a> in 2017.</p>
<p>Debate over the city’s 2023-24 budget revolved around how best to solve growing homelessness. The new mayor, Matt Mahan, succeeded in diverting some long-term affordable housing dollars to more <a href="https://sanjosespotlight.com/san-jose-passes-budget-mayors-housing-plan-fails/">immediate housing needs</a>, but the overwhelming consensus was that this influx of cash would not be enough to solve San Jose’s homelessness problem. </p>
<p>New funds will be hard to find. Raising either property or sales taxes without incurring negative consequences, like further declines in local consumer spending and sales tax revenue, is unlikely. </p>
<p>In 2020, the city was successful in introduced a new property transfer tax to <a href="https://www.sanjoseca.gov/your-government/departments-offices/housing/resource-library/housing-investment-plans-and-policy/measure-e-real-property-transfer-tax">address housing problems</a>, making an additional tax a hard sell. So, the city is left moving around expenditures within a largely constrained budget.</p>
<h2>Multiple stressors</h2>
<p>San Jose is not alone in facing this conundrum. </p>
<p>Cities across the country are experiencing inflexible expenditures and highly constrained revenues. Without residents’ demands being met, the prospects of hollowing out increase. Budget projections look bleak in many cities, with notable cases including large metros such as <a href="https://news.wttw.com/2023/04/18/chicago-faces-85m-budget-shortfall-2024-says-lightfoot-while-defending-her-financial">Chicago</a>, <a href="https://www.houstonpublicmedia.org/articles/news/city-of-houston/2023/07/31/457387/houston-will-face-a-budget-crisis-by-2025-unless-it-cuts-spending-next-year-city-controller-says/">Houston</a>, <a href="https://www.sfchronicle.com/sf/article/s-f-faces-bigger-deficit-even-months-ago-17867788.php">San Francisco</a> and <a href="https://www.nytimes.com/2023/05/19/opinion/new-york-city-budget-cut-eric-adams.html">New York City</a>. </p>
<p>The outlook will largely depend on the reaction of residents and businesses. In 2022, the U.S. Census Bureau reported that San Jose had <a href="https://sanjosespotlight.com/san-jose-shrinks-in-population-and-desirability/">lost 42,000 residents</a>, the city’s population declining 4.1% since 2020.</p>
<p>It’s not yet clear how important or uniform this trend will become. What we do know is that <a href="https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/">the federal</a> and <a href="https://www.pewtrusts.org/en/research-and-analysis/articles/2022/12/16/nine-states-began-the-pandemic-with-long-term-deficits">many state governments</a> have their own budget issues and will therefore not be moving in with a fix.</p>
<p>Unlike 50 years ago, cities are now more entrepreneurial, <a href="https://doi.org/10.1177/2043820619890438">aggressively competing against each other</a> for residents, businesses and state and federal funds. Stemming decline will involve getting creative with limited financial resources. For those cities that lose out, the subsequent struggle for survival could mirror the worst of 20th century urban decline.</p><img src="https://counter.theconversation.com/content/209319/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Davidson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Post-pandemic pressures are compounding stresses cities were already facing, leading to the hollowing out of some American cities.Mark Davidson, Professor of Geography, Clark UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2097362023-08-02T15:22:26Z2023-08-02T15:22:26ZTo fight financial illiteracy, we mapped our money system as waterworks<figure><img src="https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&rect=0%2C59%2C7988%2C5556&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">‘The Waterworks of Money’, an architectural map of the money system drawn by cartographer Carlijn Kingma.</span> <span class="attribution"><span class="license">Fourni par l'auteur</span></span></figcaption></figure><p>Over the past decade, the super-rich and large corporations have been able to borrow at <a href="https://www.reuters.com/breakingviews/interest-rates-have-broken-global-wealth-pump-2023-06-23/">record low interest rates</a>. This influx of easy money has shored up markets for <a href="https://www.ft.com/content/1a09d4e6-e3d6-40f9-903f-2771ad7e4e0a">yacht-backed-loans and securities</a>, <a href="https://cdn.janushenderson.com/webdocs/H050182_0522_English_Issue+34.pdf">dividends</a>, <a href="https://press.spglobal.com/2023-03-21-S-P-500-Q4-2022-Buybacks-Tick-up,-As-2022-Sets-A-Record-Proforma-Buyback-Tax-Would-Have-Reduced-Operating-Earnings-by-0-51-for-2022">share buy-backs</a>, and <a href="https://www.morganstanley.com/ideas/mergers-and-acquisitions-outlook-2022-continued-strength-after-record">merger and acquisition deals</a>. </p>
<p>Meanwhile, those not deemed “creditworthy” find themselves barred from credit, the powerless witnesses of ever surging rents and living costs. Time and again, the financial sector has flooded certain parts of the economy while other parts remained parched. The question is: Why is it so hard to fix the money system?</p>
<h2>Two parts of financial literacy</h2>
<p>Lack of financial literacy among most citizens is at least one of the causes – though there are competing definitions of the latter. On 7 June, the European Commission (EC) <a href="https://finance.ec.europa.eu/system/files/2023-06/european-financial-stability-and-integration-review-2023_en_0.pdf">lamented</a> that “levels of financial literacy in the EU are too low”, posing a threat to “personal and financial well-being, households and society more broadly.” </p>
<p>However, here the institution takes a rather narrow view of financial education, limited to personal finance – i.e., teaching people how to manage budgets, achieve saving goals, and understand different financial products. Earlier in March, Sigrid Kaag, the Dutch Minister of Finance, <a href="https://twitter.com/Minister_FIN/status/1640309155650060288">echoed</a> a similarly minimalist view of financial literacy: “By practising how to save, plan and make choices from a young age onwards, children learn how to make sound financial decisions.”</p>
<p>The other view of financial literacy, which we support, entails a far more ambitious understanding of the money system. We call it <em>systemic financial literacy</em>. “In the age of the CDS and CDO, most of us are financial illiterates”, <a href="https://www.rollingstone.com/politics/politics-news/how-wall-street-is-using-the-bailout-to-stage-a-revolution-177251/">wrote</a> US financial journalist Matt Taibbi in 2009, referring to the complex financial products that triggered the Great Recession. Fast forward fourteen years later, and most of us remain unfamiliar with the jargon of economists, bankers and tax experts. As in 2009, today’s democracies continue to be divided into what Taibbi describes as a “two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.”</p>
<p>With this in mind, we believe any project seeking to boost financial literacy ought to educate us on the roles of a central bank, but also payment infrastructure, the tax regime, and the investment of our pension savings. A number of questions ought to be raised, too, to this end: What do we consider public utilities? Which financial services can better be assigned to private companies? Who gets the power to create and allocate new money – and for what purposes? To answer these big questions requires not only a deeper understanding of the structures of finance, but continuous political engagement.</p>
<h2>The waterworks</h2>
<p>Together with cartographer Carlijn Kingma and investigative financial journalist Thomas Bollen, we sought to create a project that would inspire such questions and demystify the world of finance. For two and half years, we developed the “waterworks of money”, an architectural visualisation of our money system that bypasses the economic jargon.</p>
<p>Kingma spent 2,300 hours drawing this map by hand, based on in-depth research and interviews with more than 100 experts – from central bank governors and board members of pension funds and banks to politicians and monetary activists. In an animated video, we walk you through a metaphorical representation of our money system, its hidden power made manifest.</p>
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<h2>What do we water?</h2>
<p>The metaphor of water was critical to the design of our map. Indeed, the financial sector is to the economy what an irrigation system is for farming lands. Just as irrigation helps crops grow, money allows the economy to flourish.</p>
<p>The architecture of our financial irrigation system and the way the sluices and floodgates are operated impacts us all. “What do we water, and what goes dry?” Kaag <a href="https://www.rijksoverheid.nl/documenten/toespraken/2022/06/07/toespraak-minister-kaag-bij-jubileum-10-jaar-sfl">asked economists, bankers and reporters</a> in June 2022. “Choices made by the financial sector determine what grows and what dies off. That’s where banks, pension funds, asset managers, and insurance firms can make a difference,” she said.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&rect=0%2C59%2C7988%2C5556&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&rect=0%2C59%2C7988%2C5556&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=422&fit=crop&dpr=1 600w, https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=422&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=422&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=531&fit=crop&dpr=1 754w, https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=531&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/540809/original/file-20230802-28303-k4xo5p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=531&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">‘The Waterworks of Money’, an architectural map of the money system drawn by cartographer Carlijn Kingma.</span>
<span class="attribution"><span class="license">Fourni par l'auteur</span></span>
</figcaption>
</figure>
<p>In our map, the long and complex process of financial irrigation starts at the top of the so-called tower of society, where big money keeps their reservoirs. The world’s largest companies, including big oil, big pharma and big retail, are lodged there. Open the floodgates and money flows downstream, setting the wheels of industry in motion. Salaries make their way through the waterworks, and trickle down into employee piggy banks. In return, everyone goes to work.</p>
<p>Money eventually seeps down into the lowest ranks of society, where the conveyor belt is always running, products are assembled and raw materials, mined. People then spend the wages they’ve earned, often in shops and businesses. Sale revenues get pumped up to the reservoir at the top, and the cycle starts all over again. Or at least, that is the idea.</p>
<p>In reality, the <a href="https://theconversation.com/explainer-trickle-down-economics-73062">trickle-down economics</a> popularised by US president Ronald Reagan and UK prime minister Margaret Thatcher, do not take place. Money circulates mainly between the top of the tower and the financial sector. Moreover, the huge growth of the financial sector over the last decades has dug the gap between the haves and have-nots deeper. The growing quantity of money is driving up share prices, house prices and management fees, but most of the money does not reach the everyday economy in the tower of society – where it can be used for productive investments, generates income and add social value.</p>
<p>The structure of our money system is not a natural phenomenon. The way the waterworks are put together is a political choice. In democracies, higher levels of systemic financial literacy are a prerequisite to change this architecture and make the financial sector serve society better.</p>
<hr>
<p><em>This article was co-written with investigative financial journalist Thomas Bollen and cartographer Carlijn Kingma.</em></p><img src="https://counter.theconversation.com/content/209736/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martijn Jeroen van der Linden, Carlijn Kingma et Thomas Bollen a reçu des financements: Follow the Money, The Hague University of Applied Sciences, Stimuleringsfonds Creatieve Industrie, Brave New Works, Rabobank, Kunstmuseum Den Haag et Rijksmuseum Twenthe.</span></em></p>Far from the idea of “trickle-down economics”, a map illustrates how the waterworks of the financial system are parching certain sections of the real economy and producing vast inequality.Martijn Jeroen van der Linden, Professor of Practice in New Finance, Hague University of Applied SciencesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2027092023-04-18T12:43:22Z2023-04-18T12:43:22Z5 policies that could make future bank failures less likely or severe<figure><img src="https://images.theconversation.com/files/521349/original/file-20230417-18-wdwfzm.jpg?ixlib=rb-1.1.0&rect=83%2C83%2C5513%2C2962&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Democratic Sen. Elizabeth Warren of Massachusetts is a big proponent of banking reforms.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/sen-elizabeth-warren-talks-with-reporters-following-the-news-photo/1473759465">Chip Somodevilla/Getty Images</a></span></figcaption></figure><p>The <a href="https://www.fdic.gov/bank/historical/bank/bfb2023.html">abrupt failures of Silicon Valley Bank and Signature Bank</a> and subsequent concerns about the <a href="https://www.npr.org/2023/03/16/1163958533/first-republic-bank-silicon-valley-bank-signature-bank-bank-run">stability of other banks</a> have reignited a fierce <a href="https://www.npr.org/2023/03/28/1166507714/senate-hearing-silicon-valley-bank-signature-bank-failure-collapse">debate among lawmakers</a>, the <a href="https://finance.yahoo.com/news/americas-largest-banks-prepare-to-show-investors-why-theyre-not-like-svb-133532139.html">financial industry</a>, the <a href="https://www.politico.com/news/2023/03/30/biden-fed-regional-banks-svb-00089686">Biden administration</a> and <a href="https://news.yahoo.com/former-fdic-chairman-william-isaac-225504678.html">former government officials</a> about an array of banking reforms and <a href="https://www.marketplace.org/2023/03/14/former-fed-governor-who-implemented-dodd-frank-reflects-on-svb-collapse/">regulatory changes</a>.</p>
<p>The ideas floated within a month of <a href="https://www.axios.com/2023/03/18/silicon-valley-bank-timeline">Silicon Valley Bank’s collapse</a> on March 10, 2023, range from calls to tweak banking regulations to a major overhaul of the government’s oversight of the banking system.</p>
<p>I’m a <a href="https://www.bgendreau.com/">finance professor</a> who previously worked for two major banks and was an economist at the Federal Reserve. Based on what I’ve learned from the <a href="https://theconversation.com/svbs-newfangled-failure-fits-a-century-old-pattern-of-bank-runs-with-a-social-media-twist-202324">banking crises that have occurred in the past 40 years</a>, I’d put all the banking reform proposals under consideration into five categories.</p>
<h2>1. Stronger supervision</h2>
<p>Silicon Valley Bank reportedly <a href="https://www.nytimes.com/2023/03/19/business/economy/fed-silicon-valley-bank.html">ignored six separate warnings</a> from the Federal Reserve Bank of San Francisco that it had too little cash on hand and was engaging in risky practices. So calls for stronger bank supervision and regulation should come as no surprise.</p>
<p>Any such reforms would at least, in part, reverse changes from a <a href="https://www.cnn.com/2023/03/14/politics/facts-on-trump-2018-banking-deregulation/index.html">law Congress passed in 2018</a> that loosened some banking regulations. </p>
<p>Previously, the government had to pay especially close attention to banks with at least US$50 billion in assets. Among other things, it needed to subject them to <a href="https://www.federalreserve.gov/supervisionreg/stress-tests-capital-planning.htm">stress tests</a> – in which the authorities assess whether banks have the ability to respond to hypothetical economic shocks – by having enough cash on hand to meet relatively strict <a href="https://www.federalreserve.gov/publications/large-bank-capital-requirements-20210805.htm">capital requirements</a>.</p>
<p>The 2018 law raised the cutoff for what counts as a “<a href="https://theconversation.com/the-collapse-of-major-us-banks-leads-to-bills-calling-for-more-regulation-201747">systemically important</a>” bank to $250 billion in assets, thus allowing many banks, including SVB, to avoid these more stringent regulations.</p>
<p><a href="https://www.cnbc.com/2023/03/30/silicon-valley-bank-joe-biden-calls-for-new-banking-regulations.html">The White House has already called</a> for new rules similar to what’s listed above for mid-sized banks — those with $100 billion to $250 billion in assets. <a href="https://www.cbsnews.com/news/silicon-valley-bank-signature-bank-collapse-joe-biden-cbs-news-explains/">SVB, which had about $210 billion in assets</a>, fell in this category before its demise.</p>
<p>Sen. Elizabeth Warren of Massachusetts and Rep. Katie Porter of California have introduced legislation in the Senate and the House of Representatives that <a href="https://www.warren.senate.gov/newsroom/press-releases/warren-porter-dozens-of-democratic-lawmakers-introduce-bill-to-repeal-2018-rollback-of-critical-dodd-frank-protections">would simply repeal the 2018 law</a>, returning the threshold to $50 billion.</p>
<p>Major banking trade groups, such as the <a href="https://bpi.com/bpi-statement-on-svb-and-signature-bank/">Bank Policy Institute</a>, which advocates on behalf of its large-bank members, have argued that the 2018 law was not a major factor in the failures of SVB and Signature Bank.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="An ATM with the SVB logo" src="https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/521350/original/file-20230417-24-17dhk2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Silicon Valley Bank’s collapse could lead to tighter regulations.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-svb-private-logo-is-displayed-on-an-atm-outside-of-a-news-photo/1248916556">Patrick T. Fallon/AFP via Getty Images</a></span>
</figcaption>
</figure>
<h2>2. Higher deposit insurance threshold</h2>
<p>The role that deposit insurance plays in staving off and alleviating banking crises could also change.</p>
<p>The Federal Deposit Insurance Corp. was only supposed to <a href="https://www.frbsf.org/education/publications/doctor-econ/2007/september/fdic-deposit-insurance/">insure accounts of up to $100,000</a> during the 2008 financial crisis. But instead, it <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/2016/2016-recordkeeping-3064-ae33-c-01.pdf">covered nearly all depositors</a>, uninsured as well as insured, in most bank failures that occurred at that time.</p>
<p>The government subsequently <a href="https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/">raised that limit to $250,000</a> in October 2008. But the FDIC once again <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.html">broke with its official mandate</a> when it protected depositors from losses in excess of that ceiling during the March 2023 bank failures.</p>
<p>Some lawmakers have suggested raising the $250,000 cap on deposit insurance.</p>
<p><a href="https://www.nytimes.com/2023/03/14/business/maxine-waters-fdic.html">Rep. Maxine Waters</a>, the highest-ranking Democrat on the House Financial Services Committee, says she supports that step. And Warren has suggested that she might <a href="https://www.cbsnews.com/news/elizabeth-warren-fdic-insurance-cap-lift-silicon-valley-bank/">support new limits that are in the millions of dollars</a> rather than the hundreds of thousands.</p>
<p>“Is it $2 million? Is it $5 million? Is it 10 million?” she said in a television interview.</p>
<p>But those lawmakers have so far stopped short of calling for the FDIC to commit to always fully covering all losses among customers who experience losses when bank failures cause their deposits to vanish – rather than doing so on a case by case basis.</p>
<p>FDIC Chair Martin J. Gruenberg told the Senate Banking Committee during a recent hearing that the insurer plans to <a href="https://www.fdic.gov/news/speeches/2023/spmar2723.pdf">release its own proposals on May 1</a>.</p>
<h2>3. ‘Modified deposit payoff’</h2>
<p>Other proposals go further.</p>
<p>For example, <a href="https://www.wsj.com/articles/a-proven-way-to-avoid-moral-hazard-receivership-certificate-modified-deposit-payoff-fdic-fed-8b74dc06">William Isaac</a>, who chaired the FDIC from 1978 to 1986, is calling for the government to insure all non-interest-bearing checking accounts, regardless of size. But he also has a recommendation that might potentially discipline banks that run into trouble.</p>
<p>Isaac distinguishes between deposits that are essentially investments, such as <a href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificates of deposit</a> that people use for long-term savings purposes, and, say, a checking account a customer maintains primarily for basic transactions.</p>
<p>Investors with large sums of money held in CDs are generally wealthy individuals who can either assess financial risks on their own or with input from a paid adviser. People with CDs also have an incentive to leave them with the bank, because withdrawing the money tied up in them before maturity can mean paying a penalty or forfeiting <a href="https://www.cnbc.com/select/high-yield-savings-account-vs-a-cd-whats-the-difference/">the high interest rates that make them attractive</a> investments. </p>
<p>Isaac also advocates returning to the way uninsured deposits – currently, those above the $250,000 mark – were treated in the 1980s. He calls this the “modified deposit payoff” model.</p>
<p>In resolving a bank failure, the FDIC would cover the full cost of compensating customers with uninsured deposits that don’t pay any interest, yet give uninsured depositors certificates worth 80% of their uninsured funds.</p>
<p>If the government were to recover at least 80% of its cost of covering the uninsured deposits, often by <a href="https://dx.doi.org/10.2139/ssrn.3983380">selling failed banks to financial institutions</a>, investors with large deposits at a failed bank would get paid more, Isaac explained in a <a href="https://www.wsj.com/articles/a-proven-way-to-avoid-moral-hazard-receivership-certificate-modified-deposit-payoff-fdic-fed-8b74dc06">Wall Street Journal op-ed</a>.</p>
<p>“This reform would protect business accounts that are essential to keeping the economy moving and would reduce substantially the risk of panics,” he wrote.</p>
<h2>4. ‘Ring-fencing’</h2>
<p>The most comprehensive proposals that call for restructuring the banking system would use what’s known as a “ring fence” model.</p>
<p>Ring-fencing segregates a portion of bank assets and liabilities from the rest. The <a href="https://www.bankofengland.co.uk/prudential-regulation/key-initiatives/ring-fencing">United Kingdom already follows this approach</a>. </p>
<p>Since 2019, British banks have had to segregate their retail banking activities from their presumably riskier investment banking and international lending.</p>
<p>The most radical of these proposals would lodge all insured deposits in “<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2571000">narrow banks</a>” which would be allowed to hold only cash and U.S. Treasury securities.</p>
<p>All bank lending activity would occur outside of narrow banks, perhaps in finance companylike firms funded with uninsured borrowing and capital instruments such as stocks and bonds.</p>
<p><a href="https://www.brookings.edu/book/what-should-banks-do/">Economist Robert Litan wrote a book about</a> narrow-banking in the 1980s, but the idea can be <a href="https://positivemoney.org/2011/07/what-exactly-is-full-reserve-banking-2/">traced back to Milton Friedman</a> – the late University of Chicago economist and Nobel Prize winner.</p>
<p>Banks are typically required to set aside a portion of their deposits as reserves held either as cash or deposits at their local Federal Reserve bank. However, <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm">the Fed reduced that share to zero</a> in March 2020 – effectively eliminating the requirement altogether.</p>
<p>Some experts question whether ring-fencing, by <a href="https://www.brookings.edu/research/understanding-ring-fencing-and-how-it-could-make-banking-riskier/">preventing the transfer of capital among bank subdivisions</a>, might make banks less flexible in responding to financial shocks – and therefore riskier.</p>
<p>Critics of the narrow-bank model point out that this approach would drastically reduce the amount of money banks could lend. As a result, systemic risks would shift from real banks into “<a href="https://www.investopedia.com/terms/s/shadow-banking-system.asp">shadow banks</a>” – securities firms, hedge funds and other credit intermediaries that face less regulation and supervision. Shadow banks contributed to the <a href="https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Shadow-Banks">2007-2009 global financial crisis</a>, according to the International Monetary Fund.</p>
<h2>5. Compensation clawbacks</h2>
<p>At the heart of the debate about banking reform is “<a href="https://theconversation.com/what-does-moral-hazard-mean-a-scholar-of-financial-regulation-explains-why-its-risky-for-the-government-to-rescue-banks-202091">moral hazard</a>.” That’s a concept regarding how insurance can create an incentive to take bigger risks when people, institutions and <a href="https://dx.doi.org/10.2139/ssrn.3016604">even countries</a> realize they won’t bear the full cost of that risk.</p>
<p>One way to reduce risks in this context is to make bank executives bear some of the costs when the banks they run fail.</p>
<p>A bipartisan group of senators have introduced a bill to do just that. It <a href="https://www.businessinsider.com/elizabeth-warren-josh-hawley-bill-clawback-pay-failed-bank-executives-2023-3">would require regulators to claw back compensation</a>, including the bonuses and stock awards paid to bank executives in the five years preceding a failure.</p>
<p>In my view, it’s too early to tell whether policymakers will make minor adjustments or opt for more significant reforms.</p>
<p>One thing that I hope all policymakers will keep in mind is that there are trade-offs between the financial stability of banks and market discipline. Offering too much government support – such as insuring all liabilities in the event of a bank failure – creates incentives for banks and their customers to ignore risks or to engage in risky behavior.</p>
<p><em>This article was updated to clarify Robert Litan’s contributions to the debate over banking reform.</em></p><img src="https://counter.theconversation.com/content/202709/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Gendreau previously served as a staff economist at the Federal Reserve Board and the Federal Reserve Bank of Philadelphia.</span></em></p>Financial crises are inevitably followed by legislation to restructure the banking system, and the ongoing problems with bank stability are likely to be no exception.Brian Gendreau, Director, Latin American Business Environment program, University of FloridaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2023242023-03-29T12:29:05Z2023-03-29T12:29:05ZSVB’s newfangled failure fits a century-old pattern of bank runs, with a social media twist<figure><img src="https://images.theconversation.com/files/517784/original/file-20230327-17-juw7wk.jpg?ixlib=rb-1.1.0&rect=49%2C19%2C3196%2C2318&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Thousands of banks failed in the Great Depression.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/depositors-congregate-outside-the-state-ordered-closed-news-photo/514877484">Bettmann via Getty Images</a></span></figcaption></figure><p>The <a href="https://theconversation.com/silicon-valley-bank-biggest-us-lender-to-fail-since-2008-financial-crisis-a-finance-expert-explains-the-impact-201626">failure of Silicon Valley Bank</a> on March 10, 2023, came as a shock to most Americans. Even people like myself, <a href="https://scholar.google.com/citations?user=RYY7tWEAAAAJ&hl=en&oi=ao">a scholar of the U.S. banking system</a> who has worked at the Federal Reserve, didn’t expect SVB’s collapse.</p>
<p>Usually banks, like all companies, fail after a prolonged period of lackluster performance. But SVB, the nation’s 16th-largest bank, <a href="https://ir.svb.com/financials/annual-reports-and-proxies/default.aspx">had been stable and highly profitable</a> just a few months before, having earned about US$1.5 billion in profits in the last quarter of 2022. </p>
<p>However, <a href="https://americandeposits.com/brief-history-us-bank-failures/">financial history is filled with examples</a> of seemingly stable and profitable banks that unexpectedly failed. </p>
<p>The demise of <a href="https://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp">Lehman Brothers and Bear Stearns</a>, two prominent investment banks, and <a href="https://publicintegrity.org/inequality-poverty-opportunity/no-1-of-the-subprime-25-countrywide-financial-corp/">Countrywide Financial Corp.</a>, a subprime mortgage lender, during the 2008-2009 financial crisis; the <a href="https://www.investopedia.com/terms/s/sl-crisis.asp">Savings and Loan banking crisis</a> in the 1980s; and the complete collapse of the U.S. <a href="https://www.federalreservehistory.org/essays/great-depression">banking system during the Great Depression</a> didn’t unfold in exactly the same way. But they had something in common: An unexpected change in economic conditions created an initial bank failure or two, followed by general panic and then large-scale economic distress.</p>
<p>The main difference this time, in my view, is that modern innovations may have hastened SVB’s demise.</p>
<h2>Great Depression</h2>
<p>The Great Depression, which <a href="https://www.investopedia.com/terms/g/great_depression.asp">lasted from 1929 to 1941</a>, epitomized the public harm that bank runs and financial panic can cause.</p>
<p>Following a rapid expansion of the “<a href="https://www.history.com/topics/roaring-twenties">Roaring Twenties</a>,” the U.S. economy began to slow in early 1929. The <a href="https://www.investopedia.com/terms/g/great_depression.asp">stock market crashed on Oct. 24, 1929</a> – a date known as “Black Tuesday.”</p>
<p>The massive losses investors suffered weakened the economy and led to distress at some banks. Fearing that they would lose all their money, customers began to withdraw their funds from the weaker banks. Those banks, in turn, began to rapidly sell their loans and other assets to pay their depositors. These rapid sales pushed prices down further.</p>
<p>As this financial crisis spread, depositors with accounts at nearby banks also began queuing up to withdraw all their money, <a href="https://doi.org/10.1016/j.jfineco.2015.01.006">in a quintessential bank run</a>, culminating in the failure of thousands of banks by early 1933. Soon after President Franklin D. Roosevelt’s first inauguration, the federal government resorted to <a href="https://www.newyorkfed.org/research/epr/09v15n1/0907silb.html">shutting all banks in the country</a> for a whole week.</p>
<p>These failures meant that banks could no longer lend money, which led to more and more problems. The <a href="https://theconversation.com/how-high-will-unemployment-go-during-the-great-depression-1-in-4-americans-were-out-of-work-135508">unemployment rate spiked to around 25%</a>, and the <a href="https://www.federalreservehistory.org/essays/great-depression">economy shrank until the outbreak of World War II</a>.</p>
<p>Determined to avoid a repeat of this debacle, the government tightened banking regulations with the <a href="https://www.investopedia.com/articles/03/071603.asp">Glass-Steagall Act</a> of 1933. It prohibited commercial banks, which serve consumers and small and medium-size businesses, from engaging in investment banking and <a href="https://www.fdic.gov/about/history">created the Federal Deposit Insurance Corporation</a>, which insured deposits up to a certain threshold. That limit has risen sharply over the past 90 years, from <a href="https://www.bankrate.com/banking/fdic-limits-history/">$2,500 in 1933 to $250,000 in 2010</a> – the same limit in place today.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The Federal Deposit Insurance Corporation's round logo on a shiny stone wall" src="https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517797/original/file-20230327-28-tieoq7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The government created the FDIC to protect depositors from bank failures.</span>
</figcaption>
</figure>
<h2>S&L crisis</h2>
<p>The nation’s new and improved banking regulations ushered in a period of relative stability in the banking system that lasted about 50 years.</p>
<p>But in the 1980s, <a href="https://www.federalreservehistory.org/essays/savings-and-loan-crisis">hundreds of the small banks known as savings and loan</a> associations failed. Savings and loans, also called “thrifts,” were generally small local banks that mainly made mortgage loans to households and collected deposits from their local communities. </p>
<p>Beginning in 1979, the Federal Reserve began to hike interest rates very aggressively to fight the <a href="https://fred.stlouisfed.org/series/DFF">high inflation rates that had become entrenched</a>.</p>
<p>By the early 1980s, <a href="https://www.presidency.ucsb.edu/documents/remarks-signing-into-law-the-depository-institutions-deregulation-and-monetary-control-act#axzz1mquUfO88">Congress began allowing banks to pay market interest rates</a> on depositers’ accounts. As a result, the interest rate S&Ls had to pay their customers was much higher than the interest income they were earning on the loans they had made in prior years. That imbalance caused many of them to lose money.</p>
<p>Even though about 1 in 3 S&Ls failed from around 1986 through 1992 – somewhere around 750 banks – most depositors at small S&Ls were protected by the <a href="https://americandeposits.com/history-and-timeline-of-changes-to-fdic-coverage-limits/">FDIC’s then-$100,000 insurance limit</a>. Ultimately, resolving that crisis cost taxpayers the equivalent of about <a href="https://www.investopedia.com/terms/s/sl-crisis.asp">$250 billion in today’s dollars</a>.</p>
<p>Because the savings and loans industry was not directly connected to the big banks of that era, their collapse did not cause runs at the bigger institutions. Nevertheless, the S&L collapse and the <a href="https://fraser.stlouisfed.org/title/financial-institutions-reform-recovery-enforcement-act-1989-firrea-1046">government’s regulatory response</a> did reduce the supply of credit to the economy.</p>
<p>As a result, the U.S. economy underwent a mild <a href="https://www.thebalancemoney.com/the-history-of-recessions-in-the-united-states-3306011">recession in the latter half of 1990 and first quarter of 1991</a>. But the banking system escaped further distress for nearly two decades.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Black and white photo of people lined up outside a bank." src="https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=459&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=459&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=459&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=577&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=577&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517790/original/file-20230327-14-hky2rp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=577&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">High inflation spurred failures of many small savings-and-loan banks in the 1980s.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/depositors-lined-up-for-the-fourth-day-to-withdraw-money-news-photo/515242014">Bettmann via Getty Images</a></span>
</figcaption>
</figure>
<h2>Great Recession</h2>
<p>Against this backdrop of relative stability, Congress <a href="https://www.investopedia.com/terms/g/glba.asp">repealed most of Glass-Steagall in 1999</a> – eliminating Depression-era regulations that restricted the scope of businesses that banks could engage in.</p>
<p>Those changes contributed to what happened when, at the start of a recession that began in December 2007, the <a href="https://fred.stlouisfed.org/series/USRECD">entire financial sector suffered a panic</a>.</p>
<p>At that time, large banks, freed from the Depression-era restrictions on securities trading, as well as investment banks, hedge funds and other institutions outside the traditional banking system, had <a href="https://www.investopedia.com/terms/m/mbs.asp">heavily invested in mortgage-backed securities</a>, a kind of bond backed by pooled mortgage payments from lots of homeowners. These bonds were highly profitable amid the housing boom of that era, and they helped many <a href="https://fred.stlouisfed.org/series/BOGZ1FA796060035Q">financial institutions reap record profits</a>.</p>
<p>But the Federal Reserve had been <a href="https://fred.stlouisfed.org/series/DFF">increasing interest rates since 2004</a> to slow the economy. By 2007, many households with <a href="https://files.consumerfinance.gov/f/201204_CFPB_ARMs-brochure.pdf">adjustable-rate mortgages</a> could no longer afford to make their larger-than-expected home loan payments. That led investors to fear a rash of mortgage defaults, and the values of securities backed by mortgages plunged.</p>
<p>It wasn’t possible to know which investment banks owned a lot of these vulnerable securities. Rather than wait to find out and risk not getting paid, most of the depositors rushed to get their money out by late 2007. This stampede led to cascading failures in 2008 and 2009, and the federal government <a href="https://www.russellsage.org/publications/rethinking-financial-crisis">responded with a series of big bailouts</a>.</p>
<p>The government even <a href="https://www.politico.com/story/2018/12/19/bush-bails-out-us-automakers-dec-19-2008-1066932">bailed out General Motors and Chrysler</a>, two of the country’s three largest automakers, in December 2008 to <a href="https://doi.org/10.1093/qje/qjw031">keep the industry from going bankrupt</a>. That happened because the major car companies relied on the financial system to provide potential car buyers with credit to purchase or lease new cars. But when the financial system collapsed, buyers could no longer obtain credit to finance or lease new vehicles.</p>
<p>The <a href="https://www.federalreservehistory.org/essays/great-recession-of-200709">Great Recession lasted until June 2009</a>. Stock prices <a href="https://www.thebalancemoney.com/stock-market-crash-of-2008-3305535">plummeted by more than 50%</a>, and <a href="https://www.bls.gov/opub/mlr/2018/article/great-recession-great-recovery.htm">unemployment peaked at around 10%</a> – the highest rate since the early 1980s.</p>
<p>As with the Great Depression, the government responded to this financial crisis with significant new regulations, including a new law known as the <a href="https://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm">Dodd-Frank Act of 2010</a>. It imposed stringent new requirements on banks with assets above $50 billion.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A group of despondent men look aghast." src="https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=407&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=407&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=407&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517792/original/file-20230327-19-xsl2ub.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Traders in Chicago watch stock index futures plunge on March 17, 2008.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/traders-watch-prices-in-the-s-p-500-stock-index-futures-pit-news-photo/80276991">Scott Olson/Getty Image</a></span>
</figcaption>
</figure>
<h2>Close-knit customers</h2>
<p>Congress <a href="https://www.cnn.com/2023/03/14/politics/facts-on-trump-2018-banking-deregulation/index.html">rolled back some of Dodd-Frank’s most significant changes</a> only eight years after lawmakers approved the measure. </p>
<p>Notably, the most stringent requirements were now reserved for banks with more than $250 billion in assets, up from $50 billion. That change, which Congress passed in 2018, paved the way for regional banks like SVB to <a href="https://www.govexec.com/oversight/2023/03/regulatory-failure-101-what-collapse-silicon-valley-bank-reveals/384124/">rapidly expand with much less regulatory oversight</a>.</p>
<p>But still, how could SVB collapse so suddenly and without any warning?</p>
<p>Banks take deposits to make loans. But a loan is a long-term contract. Mortgages, for example, can last for 30 years. And deposits can be withdrawn at any time. To reduce their risks, banks can invest in bonds and other securities that they can quickly sell in case they need funds for their customers.</p>
<p>In the case of SVB, the <a href="https://www.reuters.com/business/finance/svb-collapse-unleashes-treasury-volatility-whiplashing-investors-2023-03-14/">bank invested heavily in U.S. Treasury bonds</a>. Those bonds do not have any default risk, as they are debt issued by the federal government. But <a href="https://www.schwab.com/learn/story/what-happens-to-bonds-when-interest-rates-rise">their value declines when interest rates rise</a>, as newer bonds pay higher rates compared with the older bonds.</p>
<p>SVB bought a lot of Treasury bonds it had on hand when interest rates were close to zero, but the <a href="https://fred.stlouisfed.org/series/DFF">Fed has been steadily raising interest rates</a> since March 2022, and the <a href="https://www.cnbc.com/bonds/">yields available for new Treasurys</a> <a href="https://www.usbank.com/investing/financial-perspectives/market-news/interest-rates-affect-bonds.html">sharply increased over the next 12 months</a>. Some depositors became concerned that <a href="https://www.npr.org/2023/03/19/1164531413/bank-fail-how-government-bonds-turned-toxic-for-silicon-valley-bank">SVB might not be able to sell these bonds</a> at a high enough price to repay all its customers.</p>
<p>Unfortunately for SVB, these depositors were very close-knit, with most in the tech sector or startups. They <a href="https://www.washingtonexaminer.com/news/business/svb-collapse-peter-thiel-silicon-valley-">turned to social media</a>, <a href="https://www.marketplace.org/2023/03/17/behind-svbs-collapse-are-a-whole-lot-of-texts-on-messaging-groups/">group text messages</a> and other modern forms of rapid communication to share their fears – which quickly went viral. </p>
<p>Many large depositors all rushed at the same time to get their funds out. Unlike what happened nearly a century earlier during the Great Depression, they generally tried to withdraw their money online – without forming chaotic lines at bank branches.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="People line up, social distanced, along a wall with the letters s, v and b." src="https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517794/original/file-20230327-15-712uah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Most of the SVB bank failure drama occurred online rather than in person.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/people-wait-for-service-outside-silicon-valley-bank-in-news-photo/1248284116?adppopup=true">John Brecher for The Washington Post via Getty Images</a></span>
</figcaption>
</figure>
<h2>Will more shoes drop?</h2>
<p>The government allowed SVB, which is being <a href="https://www.fdic.gov/news/press-releases/2023/pr23023.html">sold to First Citizens Bank</a>, and <a href="https://www.fdic.gov/bank/historical/bank/bfb2023.html">Signature Bank</a>, a smaller financial institution, to fail. But it agreed to repay all depositors – including those with deposits above the $250,000 limit.</p>
<p>While the authorities have not explicitly guaranteed all deposits in the banking system, I see the bailout of all SVB depositors as a clear signal that the government is prepared to take extraordinary steps to protect deposits in the banking system and prevent an overall panic. </p>
<p>I believe that it is too soon to say whether these measures will work, especially as the Fed is still fighting inflation and raising interest rates. But at this point, major U.S. banks appear safe, though there are growing risks among the smaller regional banks.</p><img src="https://counter.theconversation.com/content/202324/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rodney Ramcharan does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Crises fueled by bank runs, starting with the Great Depression, have had something in common: Unexpected changes spur bank failures, followed by general panic and then large-scale economic distress.Rodney Ramcharan, Professor of Finance and Business Economics, University of Southern CaliforniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1954142023-01-04T18:59:39Z2023-01-04T18:59:39ZHow the philosophy of the past can help us imagine the economy of the future<figure><img src="https://images.theconversation.com/files/502486/original/file-20221221-13-u2pgfg.jpg?ixlib=rb-1.1.0&rect=8%2C8%2C5542%2C3692&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's more necessary than ever before to re-examine the fundamentals of our economic order.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The economy keeps making headlines for all the wrong reasons — stories about <a href="https://www.cbc.ca/news/business/food-price-report-1.6670597">rising prices</a>, <a href="https://www.cbc.ca/player/play/2041999427744">supply shortages</a> and a looming <a href="https://www.theguardian.com/business/2022/sep/23/unprecedented-events-creating-extremely-severe-risk-of-global-recession-economist-adam-tooze">recession</a> have been frequently making the front page these days. </p>
<p>The <a href="https://www.brookings.edu/blog/future-development/2022/03/18/inflation-could-wreak-vengeance-on-the-worlds-poor/">current economic crisis is deepening the long-standing issue of social inequality,</a> widening the gap between the rich and poor — a problem that was already accelerated by the <a href="https://www.penguinrandomhouse.com/books/301357/crashed-by-adam-tooze/">Great Recession of 2008</a> and the <a href="https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and">economic shock brought on by the COVID-19 pandemic</a>. </p>
<p>The richest country in the world, <a href="https://www.cbo.gov/system/files/2021-08/57061-Distribution-Household-Income.pdf">the U.S.</a>, is among the most drastic examples of this trend. <a href="https://www.cfr.org/backgrounder/us-inequality-debate">Today, American CEOs earn 940 per cent more than their counterparts did in 1978</a>. A typical worker, on the other hand, only goes home with 12 per cent more money than workers from 1978 did.</p>
<p>As a <a href="https://www.epi.org/publication/ceo-compensation-2018/">report by the Economic Policy Institute</a> demonstrates, rising CEO pay does not reflect a change in the value of skills — it represents a shift in power. Over decades, American politics has undermined the bargaining power of workers by <a href="https://www.usatoday.com/story/money/cars/2014/02/20/no-south-carolina-union-jobs/5642031/">discouraging</a> and <a href="https://www.fastcompany.com/90775158/anti-union-bills-bubble-up-in-congress-despite-growing-voter-support-for-organized-labor">obstructing</a> self-organizing efforts, such as <a href="https://dx.doi.org/10.1111/j.1467-8543.2006.00518.x">unionization</a>. </p>
<figure class="align-center ">
<img alt="A man speaks into a megaphone in front of a crowd of protesters holding signs" src="https://images.theconversation.com/files/502482/original/file-20221221-23-3rf8m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502482/original/file-20221221-23-3rf8m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502482/original/file-20221221-23-3rf8m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502482/original/file-20221221-23-3rf8m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502482/original/file-20221221-23-3rf8m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502482/original/file-20221221-23-3rf8m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502482/original/file-20221221-23-3rf8m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Amazon Labor Union protested at the site of the DealBook Summit in New York on Nov. 30, 2022, accusing Andy Jassy, the CEO of Amazon, of union-busting.</span>
<span class="attribution"><span class="source">(AP Photo/Seth Wenig)</span></span>
</figcaption>
</figure>
<p>The growing wealth of a minority at the expense of the majority means power is concentrated in the hands of a few people, <a href="https://inequality.org/facts/gender-inequality/#gender-wealth-gaps">mostly men</a>. It’s not surprising that figures such as <a href="https://www.cnn.com/specials/politics/january-6-insurrection">Donald Trump</a>, <a href="https://www.theguardian.com/technology/2019/mar/17/the-cambridge-analytica-scandal-changed-the-world-but-it-didnt-change-facebook">Mark Zuckerberg</a> and <a href="https://www.brookings.edu/blog/how-we-rise/2022/11/23/why-is-elon-musks-twitter-takeover-increasing-hate-speech/">Elon Musk</a> have a disproportional impact on our communities — sometimes with devastating consequences that threaten our democratic institutions.</p>
<h2>Economics with a human face</h2>
<p>It’s more necessary than ever before to re-examine the fundamentals of our economic order. The search for alternative economic models, however, is made difficult by conventional thinking patterns.</p>
<p>Many believe <a href="https://education.nationalgeographic.org/resource/socialism">we are facing a stark choice</a> between a capitalist market economy on the one hand and a socialist-planned economy on the other. </p>
<p>Although we live in a world that defines economic models in absolutist terms, it doesn’t have to be this way. We argue that the psychological and social perspectives on economy that were developed by 19th-century philosophers such as <a href="https://plato.stanford.edu/entries/hegel/">Georg Wilhelm Friedrich Hegel</a>, <a href="https://www.mqup.ca/john-stuart-mill--socialist-products-9780228005742.php">John Stuart Mill</a> and <a href="https://www.thoughtco.com/georg-simmel-3026490">Georg Simmel</a> can help us re-imagine economics with a human face. </p>
<p>These thinkers were convinced that a good economic order had to incorporate elements of classic capitalism (such as a <a href="https://www.britannica.com/topic/free-market">free market</a> in goods and services) with elements of classic socialism (such as <a href="https://democracycollaborative.org/programs/cwb">collective ownership</a> of the <a href="https://www.oxfordreference.com/view/10.1093/oi/authority.20110803100145887">means of production</a>). This is what we call <a href="https://economicpluralism.com/">economic pluralism</a>. </p>
<h2>Hegel and the problem of affluence</h2>
<p>Hegel is a good example of an economic pluralist thinker. In his <a href="https://www.cambridge.org/highereducation/books/hegel-elements-of-the-philosophy-of-right/09AE6110FE96266A206924435BAF85C5#overview">1820 <em>Philosophy of Right</em></a>, he presented an <a href="https://doi.org/10.1111/ejop.12336">extensive reflection on the modern economy</a>. He discussed the market and its operating principles, social inequality and even the formation of desires through advertisements and consumer culture. </p>
<figure class="align-right ">
<img alt="An oil painting of an older white man with grey hair wearing a white cravat and a fur coat" src="https://images.theconversation.com/files/502247/original/file-20221220-18-jgdche.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/502247/original/file-20221220-18-jgdche.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=781&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502247/original/file-20221220-18-jgdche.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=781&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502247/original/file-20221220-18-jgdche.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=781&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502247/original/file-20221220-18-jgdche.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=982&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502247/original/file-20221220-18-jgdche.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=982&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502247/original/file-20221220-18-jgdche.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=982&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Georg Wilhelm Friedrich Hegel was a German philosopher and one of the founding figures of modern western philosophy.</span>
<span class="attribution"><span class="source">(Jakob Schlesinger)</span></span>
</figcaption>
</figure>
<p>Among the many topics he examined was the <a href="https://doi.org/10.1017/apa.2021.7">problem of affluence</a>. Hegel was not just worried about the poverty created by the modern market economy, but also about the concentration of extreme wealth in few hands.</p>
<p>Writing hundreds of years before modern multi-billionaires arrived on the scene, <a href="https://www.worldcat.org/title/philosophie-des-rechts-die-vorlesung-von-181920-in-einer-nachschrift/oclc/885459313">Hegel already argued that</a> “both of these sides, poverty and affluence, represent the scourge (Verderben) of Civil Society.”</p>
<p>Hegel’s analysis is even more prescient: He believed affluence created the counter-intuitive tendency among the affluent to feel victimized and disenfranchized by society. As a result, the affluent perceived all social demands, like taxes, as unjustified incursions into their personal freedom. </p>
<p>Hegel thought this sense of victimization could lead to an unexpected bond between those at the very top of the economic pyramid and those at the bottom — a bond that overcame differences in lifestyle and mutual antipathy to form an alliance that attacks civil society from both sides. The phenomenon of <a href="https://www.politico.com/news/2020/09/22/donald-trump-union-support-snub-joe-biden-418329">Trump’s MAGA alliance</a> is an interesting modern example of this.</p>
<h2>Re-imagining the economy</h2>
<p>Unlike some later socialists, Hegel did not think problems of affluence were best rectified by introducing a planned economy that enforces wealth equality. Instead, his approach was pluralistic. </p>
<p>He made a case for a free market exchange paired with co-operative modes of production, which are — in some respects — similar to <a href="https://www.newyorker.com/business/currency/how-mondragon-became-the-worlds-largest-co-op">modern-day worker co-operatives</a>. </p>
<p>If most economic production in society was organized co-operatively, Hegel believed, wealthier subjects would be embedded in economic decision-making with others, replacing the detrimental “bond of victimization” between the rich and poor with a collective identity based on shared economic agency.</p>
<figure class="align-center ">
<img alt="A group of people, some holding constriction hats, standing around a whiteboard having a discussion" src="https://images.theconversation.com/files/502483/original/file-20221221-14-jdfiqa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502483/original/file-20221221-14-jdfiqa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502483/original/file-20221221-14-jdfiqa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502483/original/file-20221221-14-jdfiqa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502483/original/file-20221221-14-jdfiqa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502483/original/file-20221221-14-jdfiqa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502483/original/file-20221221-14-jdfiqa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Worker co-operatives could help us imagine a more just and human-centric economic future.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>When reimagining our current economic order, we can take a page out of Hegel’s handbook by focusing on <a href="https://www.mondragon-corporation.com/en/about-us/">worker co-operatives</a>: economic ventures that are <a href="https://institute.coop/what-worker-cooperative">co-owned by workers</a> that make productive decisions together, often — albeit not always — in a democratic manner.</p>
<p>Under what conditions are such co-operative modes of production successful? How can the state incentivize these forms of production within the existing market economy? And are these worker co-operatives really a way to achieve economic justice? These are the questions that, inspired by the past, might help us imagine a new, pluralist, more equal and human-centric economic future.</p><img src="https://counter.theconversation.com/content/195414/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This article is an output of our project "Economic Pluralism: Past and Present" which received funding from SSHRC (Social Sciences and Humanities Research Council). </span></em></p><p class="fine-print"><em><span>.</span></em></p>Psychological and social perspectives on economy that were developed by 19th-century philosophers can help us re-imagine economics with a human face.Johannes Steizinger, Associate Professor of Philosophy, McMaster UniversityHelen McCabe, Assistant Professor in Political Theory, University of NottinghamThimo Heisenberg, Assistant Professor of Philosophy, Bryn Mawr CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1958662022-12-02T18:58:14Z2022-12-02T18:58:14ZJobs are up! Wages are up! So why am I as an economist so gloomy?<figure><img src="https://images.theconversation.com/files/498739/original/file-20221202-15-s5b5ag.jpg?ixlib=rb-1.1.0&rect=0%2C910%2C3515%2C2013&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Why so sad, George?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/frowning-george-on-a-weak-dollar-royalty-free-image/532453858?phrase=gloomy%20economy&adppopup=true">Chuck Savage via Getty Images</a></span></figcaption></figure><p>In any other time, the <a href="https://www.bls.gov/news.release/empsit.nr0.htm">jobs news that came down on Dec. 2, 2022</a>, would be reason for cheer.</p>
<p>The U.S. added 263,000 nonfarm jobs in November, leaving the unemployment rate at a low 3.7%. Moreover, wages are up – with average hourly pay jumping 5.1% compared with a year earlier.</p>
<p>So why am I not celebrating? Oh, yes: inflation.</p>
<p>The rosy employment figures come despite <a href="https://www.marketwatch.com/story/u-s-adds-263-000-jobs-in-november-and-wages-rise-sharply-still-too-much-for-the-feds-liking-11669988407">repeated efforts by the Federal Reserve</a> to tame the job market and the wider economy in general in its fight against the <a href="https://fred.stlouisfed.org/series/CPIAUCSL">worst inflation in decades</a>. The Fed has now <a href="https://www.federalreserve.gov/monetarypolicy/openmarket.htm">increased the base interest rate six times</a> in 2022, going from a historic low of about zero to a range of 3.75% to 4% today. Another hike is expected on Dec. 13. Yet inflation remains stubbornly high, and currently sits at an <a href="https://www.bls.gov/news.release/cpi.nr0.htm">annual rate of 7.7%</a>.</p>
<p>The economic rationale behind hiking rates is that it increases the cost of doing business for companies. This in turn acts as brake on the economy, which should cool inflation.</p>
<p>But that doesn’t appear to be happening. A closer dive into <a href="https://www.bls.gov/news.release/empsit.nr0.htm">November’s jobs report</a> reveals why.</p>
<p>It shows that the labor force participation rate – how many working-age Americans have a job or are seeking one – is stuck at just over 62.1%. As the report notes, that figure is “little changed” in November and has shown “little net change since early this year.” In fact, it is down 1.3 percentage points from pre-COVID-19 pandemic levels. </p>
<p>This suggests that the heating up of the labor market is being driven by supply-side issues. That is, there aren’t enough people to fill the jobs being advertised. </p>
<p>Companies still want to hire – as the <a href="https://www.ft.com/content/85a619b7-105a-44a6-88cf-ac6f89f8d47e">above-expected job gains</a> indicate. But with fewer people actively looking for work in the U.S., companies are having to go the extra yard to be attractive to job seekers. And that means offering higher wages. And higher wages – <a href="https://www.bls.gov/news.release/empsit.nr0.htm">they were up 5.1%</a> in November from a year earlier – contribute to spiraling inflation.</p>
<p>This puts the Fed in a very difficult position. Simply put, there is not an awful lot it can do about supply-side issues in the labor market. The main monetary tool it has to affect jobs is rate hikes, which make it more costly to do business, which should have an impact on hiring. But that only affects the demand side – that is, employers and recruitment policies.</p>
<p>So where does this leave the possibility of further rate hikes? Viewing this as an economist, it suggests that the Fed might be eyeing a base rate jump of more than 75 basis points on Dec. 13, rather than a softening of its policies as Chair Jerome Powell <a href="https://finance.yahoo.com/news/powell-december-signals-50-basis-points-183019709.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALGHyAx2-qnA2cr16ggUIUAR44soXOohQblDirD1gP7r_enM80cPoMfHDKUNX0a8nayZRrJAUAVjZw4SllH3exAZe4X_nayy1fTYGzO-KpNOWvxw_oedTon3XfyNSoNxyOOvlp8YI4Zg-4lFAKSbmtHMTqG6n_uIq1Nd0GxKiqga">had suggested as recently as Nov. 30</a>. Yes, this still would not ease the labor supply problem that is encouraging wage growth, but it might serve to cool the wider economy nonetheless.</p>
<p>The problem is, this would increase the chances of also pushing the U.S. economy into a recession – and it could be a <a href="https://www.bloomberg.com/news/articles/2022-11-26/the-treasury-market-s-big-recession-trade-is-gathering-momentum">pretty nasty recession</a>.</p>
<p>Wage growth still trails behind inflation, and for one reason or another people have been opting out of the labor market. The logical assumption to make is that to make up for both these factors, American families <a href="https://www.bloomberg.com/news/articles/2022-12-01/us-savings-rate-falls-to-17-year-low-amid-relentless-inflation?sref=Hjm5biAW">have been dipping into their savings</a>. </p>
<p>Statistics back this up. The personal saving rate – that is, the chunk of income left after paying taxes and spending money – has fallen steeply, <a href="https://fred.stlouisfed.org/series/PSAVERT">down to 2.3% in December from 9.3% before the pandemic</a>. In fact, it is at its lowest rate since 2005.</p>
<p>So, yes, employment is robust. But the money being earned is eroded by soaring inflation. Meanwhile, the safety net of savings that families might need is getting smaller.</p>
<p>In short, people are not prepared for the recession that might be lurking around the corner.</p>
<p>And this is why I am gloomy.</p><img src="https://counter.theconversation.com/content/195866/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Edouard Wemy does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Usually when jobs and wages are rising, it’s a good thing, but right now they may signal higher odds of a nasty recession – and Americans aren’t ready for it.Edouard Wemy, Assistant Professor of Economics, Clark UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1949782022-11-21T13:16:17Z2022-11-21T13:16:17ZRetailers may see more red after Black Friday as consumers say they plan to pull back on spending – acting as if the US were already in a recession<figure><img src="https://images.theconversation.com/files/496301/original/file-20221120-13-zw5bwr.jpeg?ixlib=rb-1.1.0&rect=252%2C289%2C5978%2C3400&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Black Friday is one of the busiest shopping days of the year.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/NerdWallet-Kimberly-Palmer-Holiday-Shopping-Savings/99625fc4be3f42569f32fc325cdf555b/photo?Query=black%20friday&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=48534&currentItemNo=46">AP Photo/Bebeto Matthews</a></span></figcaption></figure><p>Retailers are gearing up for another blockbuster holiday shopping season, but consumers burned by the <a href="https://fred.stlouisfed.org/series/CPIAUCSL">highest inflation in a generation</a> may have other ideas. </p>
<p>Industry groups are predicting another record year of retail sales, with the <a href="https://nrf.com/media-center/press-releases/nrf-predicts-healthy-holiday-sales-consumers-navigate-economic">National Retail Federation</a> forecasting a jump of 6% to 8% over the US$890 billion consumers spent online and in stores in November and December of 2021.</p>
<p>But Jeff Bezos, founder and chairman of the <a href="https://www.forbes.com/sites/laurendebter/2022/05/12/worlds-largest-retailers-2022-amazon-walmart-alibaba/?sh=57e262ae59e3">biggest retailer of them all</a>, seems to be anticipating a much less festive holiday for businesses. In November 2022, Amazon said <a href="https://www.nytimes.com/2022/11/14/technology/amazon-layoffs.html">it is laying off 10,000 workers</a>, one of <a href="https://www.forbes.com/sites/brianbushard/2022/11/17/cisco-reportedly-lays-off-over-4000-here-are-the-biggest-us-job-cuts-this-year/?sh=4c8b31711d2a">several big companies</a> announcing job cuts recently. Bezos even <a href="https://www.cnn.com/2022/11/14/economy/jeff-bezos-economy#:%7E:text=Bezos%20urged%20people%20to%20put,of%20a%20prolonged%20economic%20downturn.">cautioned consumers</a> to hold off on big purchases like cars, televisions and appliances to save in case of a recession in 2023. </p>
<p>Results from our new survey suggest consumers appear to be already taking Bezos’ advice, as a combination of <a href="https://www.bls.gov/news.release/cpi.nr0.htm">soaring consumer prices</a>, <a href="https://theconversation.com/a-brief-history-of-the-mortgage-from-its-roots-in-ancient-rome-to-the-english-dead-pledge-and-its-rebirth-in-america-193005">rising borrowing costs</a> and <a href="https://theconversation.com/fed-faces-twin-threats-of-recession-and-financial-crisis-as-its-inflation-fight-raises-risks-of-both-193704">growing odds of a recession</a> weighs on their wallets. And if our survey results do pan out, it may mean the <a href="https://www.washingtonpost.com/us-policy/2022/10/20/recession-inflation-white-house-fed/">recession everyone’s worried about</a> happens sooner than expected. </p>
<h2>Crisis behaviors</h2>
<p>We conducted our survey in mid-November, about a week before Black Friday, the historical start of the holiday shopping season. The day after Thanksgiving is known as Black Friday because it signals the period when retailers hope to sell enough goods so that their income statement shows “black,” or profit, for the year rather than “red,” which refers to losses.</p>
<p>We asked over 500 consumers a series of questions about their spending plans, concerns and priorities during this year’s holiday season. Participants were split evenly between men and women, and almost two-thirds had a household income of $70,000 or less. </p>
<p>Overall, the most alarming conclusion from our research is that consumers are reporting consumption behaviors <a href="https://doi.org/10.1016/j.jbusres.2011.06.008">typically exhibited during an economic crisis</a>, similar to <a href="https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/how-the-recession-has-changed-us-consumer-behavior">those observed in 2009 by consultancy McKinsey</a> during the Great Recession.</p>
<p>One data point stands out: An overwhelming 62% said they were concerned about their job security, while almost 35% indicated they were “very” or “extremely” worried about their financial situation.</p>
<p>Here are three behaviors we found in our survey that suggest consumers are behaving as if the U.S. economy is already in a recession. </p>
<p><iframe id="i3Lif" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/i3Lif/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>1. Spending less</h2>
<p>Not surprisingly, cutting spending is the first thing consumers do during economic turmoil.</p>
<p>A study by <a href="https://www.mckinsey.com/industries/retail/our-insights/how-us-consumer-spending-is-changing">McKinsey</a> in early 2009 found that 90% of U.S. households cut spending due to the Great Recession, with 33% of consumers indicating a significant cut. </p>
<p>Similarly, respondents to our survey said they plan to spend, on average, around $700 this holiday season, <a href="https://nrf.com/research-insights/holiday-data-and-trends/winter-holidays">substantially lower</a> than the roughly $880 consumers spent during each of the past three seasons – including early in the pandemic in 2020.</p>
<p>About a third of our sample intended to spend “slightly” or “much” less than in 2021, while 35% said they would spend “about the same” – which from a retailer’s perspective means spending less because last year’s dollars don’t go as far today. The rest said they planned to spend a little or much more.</p>
<p>Inflation is one of the key reasons consumers say they are spending less. Almost 80% of respondents said they are either moderately, very or extremely concerned about the surge in prices, and 87% said those concerns would affect their holiday spending behavior, such as by buying gifts for fewer people or purchasing less expensive items. </p>
<p>Some of our respondents even said they were planning to make their own gifts or buy used goods, rather than shop for new items. The <a href="https://www.thredup.com/resale/">secondhand market has boomed </a> in the last few years, and many shoppers view this option as a way to combat inflationary pressures.</p>
<p><iframe id="LvBqz" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/LvBqz/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>2. Planning ahead</h2>
<p>Another thing consumers do when they sense a troubled economy is they plan their purchases more carefully and <a href="https://doi.org/10.1016/j.jesp.2021.104189">maintain self-control</a> over spending. </p>
<p>Common strategies include spending more time searching for the best deals, adhering to strict shopping lists, prioritizing necessities and making purchases earlier to spread out their spending – all of which were mentioned by our survey respondents.</p>
<p>We may already be seeing signs of this last strategy. <a href="https://www.reuters.com/markets/us/us-retail-sales-beat-expectations-october-2022-11-16/">Retail sales for October</a> were up 1.3% from the previous month and up 8.3% from October 2021, which may reflect consumers’ early holiday shopping. If that is the case, this early shopping may result in slumping sales in December. </p>
<p>Also, purchasing early, aided by the <a href="https://www.cnbc.com/2022/11/19/follow-these-rules-from-experts-to-get-the-most-out-of-black-friday.html">plethora of steep discounts offered</a> well in advance of Black Friday, allows consumers to control their shopping behavior better and reduces the risk of impulse buying. Reduction of impulse buying <a href="https://doi.org/10.1016/j.jbusres.2011.06.00">is a strong indicator</a> that consumers are shopping like the economy is in recession. </p>
<p>In our survey, we found that over 50% of participants said that they would be using savings to cover the cost of holiday spending, with many stressing that they would pay with cash. Using cash as a primary form of payment <a href="https://doi.org/10.1002/bdm.1813">is the main tool consumers have</a> to control spending. </p>
<p>Only 15% of our respondents said that they would use buy-now-pay-later options, which to us is another sign that consumers are preferring cash over forms of credit that creates a new debt. </p>
<p><iframe id="OYLyp" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/OYLyp/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>3. Hypersensitivity to price</h2>
<p>During economic crises, consumers <a href="https://doi.org/10.1016/j.jbusres.2011.06.008">become hypersensitive to prices</a>, which trump most other considerations in the minds of consumers.</p>
<p>A whopping 90% of our respondents confirmed that price is their major consideration when shopping during the holidays this year. Other elements of price sensitivity are free shipping, product value and the level of discount, if any. </p>
<p>The singular focus of consumers on price gives retailers a wide range of potential responses, including promoting house brands and private labels that are perceived as having greater value for money. In fact, according to the <a href="https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/how-the-recession-has-changed-us-consumer-behavior">2009 McKinsey report</a>, one of the biggest shifts in consumer behavior during and after the 2008 recession was the switch in preference from high-priced premium brands to value brands that tend to have lower prices but still decent quality. During an economic slowdown, consumers <a href="https://doi.org/10.1016/j.jbusres.2011.06.008">typically stop buying brands</a> they are not strongly connected with or loyal to.</p>
<p>Consumers in our survey said buying brand names will be one of the least important influences on their purchases this season.</p>
<p>While economists debate whether a recession is coming, or even whether the U.S. is already in one, our data suggests consumers are beginning to behave like one is already here. That risks becoming a self-fulfilling prophecy as consumers tighten their belts.</p><img src="https://counter.theconversation.com/content/194978/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new survey suggests three ways consumers are behaving like the US economy is in crisis, which may become a self-fulfilling prophecy.Ayalla A. Ruvio, Associate Professor of Marketing and the Director of the MS of Marketing Research program, Michigan State UniversityForrest Morgeson, Assistant Professor of Marketing, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1748532022-01-13T13:03:26Z2022-01-13T13:03:26ZInflation inequality: Poorest Americans are hit hardest by soaring prices on necessities<figure><img src="https://images.theconversation.com/files/440554/original/file-20220112-21-1y7fro3.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2995%2C2002&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Not all baskets are created equally.
</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/janelle-myers-of-riverside-fills-her-arms-with-groceries-news-photo/517289220?adppopup=true">Gina Ferazzi/Los Angeles Times via Getty Images</a></span></figcaption></figure><p>The <a href="https://news.yahoo.com/us-inflation-rate-hits-near-135020097.html">fastest rate of inflation in 40 years</a> is hurting families across the U.S. who are seeing ever-higher prices for everything from <a href="https://www.washingtonpost.com/business/2021/09/15/food-inflation-faq/">meat and potatoes</a> to <a href="https://www.cnbc.com/2021/12/28/us-home-prices-surge-18point4percent-in-october.html">housing</a> and <a href="https://www.foxbusiness.com/economy/gas-prices-push-higher-as-oil-remains-stubbornly-strong">gasoline</a>. </p>
<p>But behind the <a href="https://apnews.com/article/consumer-prices-inflation-c1bfd93ed1719cf0135420f4fd0270f9?utm_campaign=SocialFlow&utm_source=Twitter&utm_medium=AP">headline number</a> that’s been widely reported is something that often gets overlooked: Inflation affects different households in different ways – and sometimes hurts those with the least, the most. </p>
<p>Inflation, as calculated by the <a href="https://www.bls.gov/cpi/">Bureau of Labor Statistics</a>, is designed to track the price increases in a typical U.S. household’s basket of goods. The problem is spending bundles differ across households. For example, a family in the lowest 20% of income typically spends around 15% of their budget on groceries – this is nearly <a href="https://jakeorchard.github.io/Written-Materials/Orchard_JMP_cyclical_ds.pdf">60% more than households in the top 20% of the income distribution</a>, according to my calculations.</p>
<h2>The widening inflation gap</h2>
<p>On Jan. 12, 2022, the BLS released figures showing that inflation <a href="https://www.bls.gov/news.release/cpi.nr0.htm">jumped by 7%</a> in December from a year earlier – the fastest pace since 1982. To see how this varied across households, I used the bureau’s own price data and factored in the typical spending habits of different income groups. </p>
<p>I calculate that inflation is running at 7.2% for the lowest income households – higher than for any other group. For the highest income families, the rate of change was 6.6%.</p>
<p>The difference between the two income groups steadily increased throughout 2021, starting the year at just 0.16 percentage point but ending at 0.6 percentage point – near the highest it has been since 2010.</p>
<p><iframe id="wwZHL" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/wwZHL/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The reason for this widening rich-poor inflation gap, known by economists as <a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-091520-082042">inflation inequality</a>, comes down to the typical spending habits of people in each income group.</p>
<p>In times of economic uncertainty and recession, most households tend to hold back on buying <a href="https://jakeorchard.github.io/Written-Materials/Orchard_JMP_cyclical_ds.pdf">luxury goods</a>. But by and large, people can’t cut down on necessities such as groceries and heating – although wealthier consumers are better placed to stock up on these necessities when prices are cheap.</p>
<p>This shift of spending away from luxury items like vacations and new cars, and toward necessities, pushes inflation up for poorer families more than richer ones. This is because lower-income households dedicate a higher percentage of their income on <a href="https://jakeorchard.github.io/Written-Materials/Orchard_JMP_cyclical_ds.pdf">necessities</a>.</p>
<p>My data shows that this inflation gap tends to be widest in times of recession or in the early stages of economic recovery. In the aftermath of the <a href="https://www.federalreservehistory.org/essays/great-recession-of-200709">Great Recession</a> of 2008-2009, the gap in inflation rates between the lowest and highest income groups was close to 1 percentage point – higher than it is now.</p>
<p>By contrast, in times of economic growth – for example, from 2012 to 2018 – the gap narrows. It even inverted at one point in 2016; the inflation rate for poorer Americans was almost a half-percentage point lower than that of richer Americans.</p>
<p>The main driver of the growing gap in 2021 was the increases in groceries and gas prices. This has made inflation run hotter for all households. But given the greater proportion of household income that poorer families dedicate to food and energy costs, it has affected them more. </p>
<p>Take out gas and grocery prices, then the inflation gap is reduced significantly.</p>
<p>Going forward, I expect the inflation gap will follow a similar pattern as we saw after the Great Recession – as economic recovery turns into continued expansion, inflation will be lower for low-income households than high-income households. </p>
<p>[<em>More than 140,000 readers get one of The Conversation’s informative newsletters.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-140K">Join the list today</a>.]</p><img src="https://counter.theconversation.com/content/174853/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jacob Orchard received funding from the Washington Center for Equitable Growth in 2019. </span></em></p>The rising cost of groceries and gas is fueling the fastest increase in consumer prices in 40 years and widening the inflation gap between the rich and poor.Jacob Orchard, Doctoral Candidate in Economics, University of California, San DiegoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1617262021-07-19T12:07:22Z2021-07-19T12:07:22ZThe next big financial crisis could be triggered by climate change – but central banks can prevent it<figure><img src="https://images.theconversation.com/files/410464/original/file-20210708-13-zrifc3.jpg?ixlib=rb-1.1.0&rect=0%2C77%2C5200%2C3378&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Both climate change and policies to prevent it can rattle the economy.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/residential-houses-next-to-oil-refinery-at-wilmington-news-photo/129370063?adppopup=true">Citizen of the Planet/Education Images/Universal Images Group via Getty Images</a></span></figcaption></figure><p>In 2008, as <a href="https://www.theguardian.com/business/2008/dec/28/markets-credit-crunch-banking-2008">big banks began failing</a> across Wall Street and the housing and stock markets crashed, the nation saw how crucial financial regulation is for economic stability – and how quickly the <a href="https://irle.berkeley.edu/what-really-caused-the-great-recession/">consequences can cascade</a> through the economy when regulators are asleep at the wheel.</p>
<p>Today, there’s another looming economic risk: climate change. Once again, how much it harms economies will depend a lot on how financial regulators and central banks react.</p>
<p>Climate change’s impact on economies isn’t always obvious. Mark Carney, the former governor of the Bank of England, <a href="https://www.theguardian.com/environment/2015/sep/29/carney-warns-of-risks-from-climate-change-tragedy-of-the-horizon">identified a series of climate change-related risks</a> in 2015 that could shake the financial system. The rising costs of extreme weather, lawsuits against companies that have contributed to climate change and the falling value of fossil fuel assets could all have an impact. </p>
<p>Nobel Prize-winning U.S. economist Joseph Stiglitz agrees. In a recent interview, he argued that the impact of a sharp rise in <a href="https://sg.news.yahoo.com/us-economist-joseph-stiglitz-warns-220915613.html">carbon prices</a> – which governments charge companies for emitting climate-warming greenhouse gases – could trigger another financial crisis, this time starting with the fossil fuel industry, its suppliers and the banks that finance them, which could spill over into the broader economy.</p>
<p>Our research as <a href="https://sites.google.com/site/stefanocarattini/">environmental</a> <a href="https://sites.gsu.edu/gheutel/">economists</a> and <a href="https://gmelkadze.weebly.com/">macroeconomists</a> confirms that both the effects of climate change and some of the policies necessary to stop it could have important implications for financial stability, if preemptive measures are not undertaken. Public policies addressing, after years of delay, the fossil fuel emissions that are driving climate change could devalue energy companies and cause investments held by banks and pension funds to tank, as would abrupt changes in consumer habits.</p>
<p>The good news is that regulators have the ability to address these risks and clear the way to safely implement ambitious climate policy.</p>
<h2>Climate-stress-testing banks</h2>
<p>First, regulators can require banks to publicly disclose their risks from climate change and stress-test their ability to manage change.</p>
<p>The Biden administration recently introduced an <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2021/05/20/executive-order-on-climate-related-financial-risk/">executive order on climate-related financial risk</a>, with the goal of encouraging U.S. companies to evaluate and publicly disclose their exposure to climate change and to future climate policies. </p>
<p>In the United Kingdom, large companies already <a href="https://www.gov.uk/government/publications/academy-trust-financial-management-good-practice-guides/streamlined-energy-and-carbon-reporting">have to disclose their carbon footprints</a>, and the U.K. is pushing to have all major economies follow its lead. </p>
<p>The European Commission also proposed new rules for companies to report on climate and sustainability in their investment decisions across a broad swath of industries in its new <a href="https://ec.europa.eu/info/publications/210706-sustainable-finance-strategy_en">Sustainable Finance Strategy</a> released on July 6, 2021. This strategy builds on a previous plan for sustainable growth from 2018. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jerome Powell and Mark Carney talk at a conference at Jackson Hole, Wyoming, with mountains behind them." src="https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=437&fit=crop&dpr=1 600w, https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=437&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=437&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=550&fit=crop&dpr=1 754w, https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=550&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/410468/original/file-20210708-19-pggxhx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=550&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mark Carney (right), former head of the Bank of England, has been warning about the economic risks of climate change for several years. The U.S. Federal Reserve, chaired by Jerome Powell (left), has recently begun discussing it as well.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FederalReserveJacksonHole/333e30ae5b1345daac5a692206f312c8/photo">AP Photo/Amber Baesler</a></span>
</figcaption>
</figure>
<p>Carbon disclosure represents a crucial ingredient for “<a href="https://www.scientificamerican.com/article/how-a-climate-stress-test-can-foresee-collapsing-banks/">climate stress tests</a>,” evaluations that gauge how well-prepared banks are for potential shocks from climate change or from climate policy. For example, <a href="https://www.bloomberg.com/news/articles/2021-05-18/boe-s-breeden-says-banks-are-unprepared-for-150-carbon-price">a recent study by the Bank of England</a> determined that banks were unprepared for a carbon price of US$150 per ton, which it determined would be necessary by the end of the decade to meet the international <a href="https://theconversation.com/why-the-us-rejoining-the-paris-climate-accord-matters-at-home-and-abroad-5-scholars-explain-153783">Paris climate agreement</a>’s goals. </p>
<p>The <a href="https://www.reuters.com/article/us-climate-change-ecb/ecb-stress-testing-broader-economy-over-climate-risk-de-guindos-idUSKBN2BA0MY">European Central Bank</a> is conducting stress tests to assess the resilience of its economy to climate risks. In the United States, the Federal Reserve recently established the <a href="https://thehill.com/policy/finance/544548-fed-to-form-committee-focused-on-climate-risks-to-financial-system">Financial Stability Climate Committee</a> with similar objectives in mind. </p>
<h2>Monetary and financial policy solutions</h2>
<p>Central banks and academics have also proposed several ways to address climate change through monetary policy and financial regulation. </p>
<p>One of these methods is “<a href="https://www.reuters.com/article/ecb-policy-climate/green-qe-would-only-help-climate-a-little-ecb-paper-finds-idUKKBN28O22C">green quantitative easing</a>,” which, like <a href="https://www.bankofengland.co.uk/monetary-policy/quantitative-easing">quantitative easing</a> used during the recovery from the 2008 recession, involves the central bank buying financial assets to inject money into the economy. In this case, it would buy only assets that are “green,” or environmentally responsible. Green quantitative easing could potentially <a href="https://web.stanford.edu/%7Epiazzesi/How_unconventional_is_green_monetary_policy.pdf">encourage investment</a> in climate-friendly projects and technologies such as renewable energy, though researchers have suggested that the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3748330">effects might be short-lived</a>.</p>
<p>A second policy proposal is to modify existing regulations to recognize the risks that climate change poses to banks. Banks are usually subject to <a href="https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2020-economic-commentaries/ec-202005-evolution-bank-capital-requirements.aspx">minimum capital requirements</a> to ensure banking sector stability and mitigate the risk of financial crises. This means that banks must hold some minimum amount of liquid capital in order to lend. </p>
<p>Incorporating environmental factors in these requirements could improve banks’ resilience to climate-related financial risks. For instance, a “<a href="https://www.banque-france.fr/en/intervention/green-finance-new-frontier-21st-century">brown-penalizing factor</a>” would require higher capital requirements on loans extended to carbon-intensive industries, discouraging banks from lending to such industries.</p>
<figure class="align-center ">
<img alt="A refinery and wet road during a severe rain storm." src="https://images.theconversation.com/files/410463/original/file-20210708-15-15d9qve.jpg?ixlib=rb-1.1.0&rect=0%2C254%2C2836%2C1630&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/410463/original/file-20210708-15-15d9qve.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/410463/original/file-20210708-15-15d9qve.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/410463/original/file-20210708-15-15d9qve.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/410463/original/file-20210708-15-15d9qve.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/410463/original/file-20210708-15-15d9qve.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/410463/original/file-20210708-15-15d9qve.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Reducing fossil fuel use to slow climate change will affect oil industry assets, like refineries, pipelines and shipping, as well as the industry’s suppliers.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/an-oil-refinery-is-seen-before-the-arrival-of-hurricane-news-photo/839116986">Joe Raedle/Getty Images</a></span>
</figcaption>
</figure>
<p>Broadly, these existing proposals have in common the goal of reducing economy-wide carbon emissions and simultaneously reducing the financial system’s exposure to carbon-intensive sectors.</p>
<p>The Bank of Japan <a href="https://www.boj.or.jp/en/announcements/release_2021/rel210716b.pdf">announced a new climate strategy</a> on July 16, 2021, that includes offering no-interest loans to banks lending to environmentally friendly projects, supporting green bonds and encouraging banks to disclosure their climate risk. </p>
<p>The Federal Reserve has begun to study these policies, and it has <a href="https://www.reuters.com/article/us-usa-fed-brainard/fed-intensifies-climate-risk-focus-with-new-panel-scenario-analysis-idUSKBN2BF2GQ">created a panel</a> focused on developing a climate stress test.</p>
<h2>Lessons from economists</h2>
<p>Often, policymaking trails scientific and economic debates and advancements. With financial regulation of climate risks, however, it is arguably the other way around. Central banks and governments are proposing new policy tools that have not been studied for very long.</p>
<p>A few research papers released within the last year provide a number of important insights that can help guide central banks and regulators.</p>
<p>They do not all reach the same conclusions, but a general consensus seems to be that financial regulation <a href="https://www.nber.org/papers/w28525">can help address large-scale economic risks</a> that abruptly introducing a climate policy might create. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3658126">One paper</a> found that if the climate policy is implemented gradually, the economic risks can be small and financial regulation can manage them.</p>
<p>Financial regulation can also help <a href="https://www.nber.org/papers/w28525">accelerate the transition</a> to a cleaner economy, research shows. One example is subsidizing lending to climate-friendly industries while taxing lending to polluting industries. But <a href="https://www.nber.org/papers/w28525">financial regulation alone will not be enough</a> to effectively address climate change.</p>
<p>Central banks will have roles to play as countries try to manage climate change going forward. In particular, prudent financial regulation can help prevent barriers to the kind of aggressive policies that will be necessary to slow climate change and protect the environments our economies were built for.</p><img src="https://counter.theconversation.com/content/161726/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Garth Heutel receives funding from the Alliance for Market Solutions.</span></em></p><p class="fine-print"><em><span>Givi Melkadze receives funding from the Alliance for Market Solutions.</span></em></p><p class="fine-print"><em><span>Stefano Carattini receives funding from the Alliance for Market Solutions, the Department of Energy (United States), and the Swiss National Science Foundation.</span></em></p>It isn’t just the effects of climate change that could destabilize the financial system, it’s also fossil fuel assets losing value. The good news is that central banks can fix it.Garth Heutel, Associate Professor of Economics, Georgia State UniversityGivi Melkadze, Assistant Professor of Economics, Georgia State UniversityStefano Carattini, Assistant Professor in Economics, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1609892021-05-18T20:08:01Z2021-05-18T20:08:01ZThe GFC provided the sauce we used to ward off the COVID recession<figure><img src="https://images.theconversation.com/files/401013/original/file-20210517-15-9ap8bh.jpg?ixlib=rb-1.1.0&rect=11%2C110%2C2489%2C1382&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">aldegonde/Shutterstock</span></span></figcaption></figure><p>We got an awful lot right during the COVID crisis — an awful lot that we couldn’t have got right just a few years earlier.</p>
<p>Which is another way of saying we were incredibly lucky.</p>
<p>Had COVID attacked during the 1980s there would have been no way to make a <a href="https://www.nature.com/articles/nrd.2017.243.pdf">messenger RNA vaccine</a>, not even for animals.</p>
<p>The national broadband network wouldn’t have been thought of. It wasn’t complete until <a href="https://www.nbnco.com.au/corporate-information/about-nbn-co/updates/dashboard-march-2021">2020</a>. </p>
<p>Even three years earlier, in 2017, the NBN reached only <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/National_Broadband_Network/NBN/First%20report/c02">half</a> of Australia’s 10 million households. </p>
<p>Had COVID struck then, before the broadband network was complete, working from home, telehealth and home schooling might have been impossible for many Australians, with devastating educational and other consequences.</p>
<p>And had it struck just a few years earlier still, we wouldn’t have learnt from the global financial crisis.</p>
<h2>War Games</h2>
<p>Australia’s handling of the GFC was exemplary, as evidenced by the fact that in much of the rest of the world it isn’t called the GFC, but <a href="https://www.history.com/topics/21st-century/recession">The Great Recession</a>.</p>
<p>Getting that crisis right owed something to a happy accident, as Ken Henry, head of the treasury at the time, explained on Monday at a seminar organised by the <a href="https://www.act.ipaa.org.au/pastevent_2021_GFC">Institute of Public Administration</a>.</p>
<p>A few years before the crisis in 2004 he was sitting in a room with senior officials discussing “some macroeconomic topic” when his deputy Martin Parkinson, sitting on his right, poked him with his left elbow.</p>
<p>“Martin said: you know it’s just occurred to me that you and I are probably the only people in this room who have ever experienced a recession — maybe we should have a workshop on that, what we would do if there was another crisis”.</p>
<h2>The early 1990s recession was handled badly</h2>
<p>Parkinson and treasury secretary Henry had worked for the Hawke and Keating governments during the early 1990s recession which scarred the Australians who it threw out of work for a <a href="https://www.theguardian.com/business/2019/nov/17/remembering-the-recession-the-1990s-experience-changed-my-view-of-the-world">decade</a>.</p>
<p>In a series of “war games” held away from the treasury building, they and other officials determined that next time they should advise the government to quickly <a href="https://vs286790.blob.core.windows.net/docs/2021%20Events/Fiscal%20response%20to%20the%20Global%20Financial%20Crisis%20of%202008%20(Henry).pdf">abandon budget discipline</a> and fight what was coming with overwhelming force.</p>
<p>As Henry put it: “no matter how great the importance of fiscal discipline in establishing policy credibility, it is nothing compared to the loss of credibility associated with a recession”.</p>
<p>If the treasury didn’t tell the government this, the government would catch on anyway and sideline it for advisers who would.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=278&fit=crop&dpr=1 600w, https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=278&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=278&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=350&fit=crop&dpr=1 754w, https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=350&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/401142/original/file-20210518-17-3h28by.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=350&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.act.ipaa.org.au/pastevent_2021_GFC">Megan Aponte-Payne, Steven Kennedy, David Gruen, Ken Henry, Malcolm Edey, Meghan Quinn, David Tune and Isabelle Franklin at the GFC seminar.</a></span>
</figcaption>
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<p>“I came out of those discussions determined that if Australia were to confront a large negative shock during my tenure as secretary, the treasury would seek to put itself front and centre in advising the government,” Henry said.</p>
<p>“We would not be taking seats in the back row by counselling a government to rely on monetary policy, the exchange rate, or <a href="https://www.brookings.edu/blog/up-front/2019/07/02/what-are-automatic-stabilizers/">automatic stabilisers</a>.”</p>
<p>As for the idea of “proportionate response”, which was still being counselled by some in the early stages of COVID last year, Henry said the word “proportionate” could be applied to a response, but never to preemption.</p>
<h2>Preemption is not proportionate</h2>
<p>“If you want to preempt something, you don’t talk about being proportionate,” he said. “I remember some commentators saying you should wait until you see the ‘whites of the eyes’ before taking action. "I wouldn’t know what action to take at that stage, presumably it would be to run as fast as you could, I just don’t know.”</p>
<p>The key thing was to get money into Australian’s hands immediately. Spending on infrastructure (spending on almost anything other than households) would take too long.</p>
<p>During the financial crisis Labor got money into households’ hands by handing out cheques. During COVID the Coalition did it by doubling benefits and routing payments through employers and calling them JobKeeper.</p>
<h2>Bandwidth matters</h2>
<p>Henry, and David Tune who was in the department of prime minister and cabinet at the time and later headed the department of finance, told the conference that attempting to do other things while getting money out the door got in the way, among them <a href="https://www.abc.net.au/news/2014-05-21/parker-lessons-to-be-learnt-from-the-pink-batts-disaster/5466762">insulating homes</a> and <a href="https://www.anao.gov.au/work/performance-audit/building-education-revolution-primary-schools-21st-century">building school halls</a>.</p>
<p>Governments have limited “<a href="https://vs286790.blob.core.windows.net/docs/2021%20Events/LESSON%7E1.PDF">bandwidth</a>” or “thinking space”, and during the GFC the Rudd government was also considering taking over hospitals, taxing carbon, reforming the tax system and building the NBN.</p>
<p>The Morrison government seems to have learnt that lesson, but it doesn’t seem to have learnt another, which is that the Commonwealth isn’t good at managing projects.</p>
<h2>The Commonwealth can’t run projects…</h2>
<p>Whether it’s vaccinations or quarantine or insulating homes, projects are best managed by state governments who have actual experience of running things.</p>
<p>Another important lesson, reinforced during COVID is that in practical terms the ability of the Reserve Bank to support the government in keeping a recession at bay might be unlimited.</p>
<p>The Reserve Bank deputy governor at the time Malcolm Edey told the conference that the next step after low interest rates and buying government bonds is direct “<a href="https://vs286790.blob.core.windows.net/docs/2021%20Events/The%20role%20of%20the%20RBA%20in%20Australia%E2%80%99s%20crisis%20response%20(Edey)%20with%20Postscript.pdf">money-financed fiscal expansion</a>”, where the bank creates money for the government to spend.</p>
<h2>…but its financial power is unlimited</h2>
<p>With all of the government’s borrowing now in Australian dollars, and most private overseas borrowing effectively in Australian dollars because it has been hedged against exchange rate movements, and with the <a href="https://www.abc.net.au/news/2013-12-04/government-strikes-deal-with-greens-to-scrap-debt-ceiling/5134972?nw=0">debt ceiling gone</a>, there’s no limit to the force and speed with which the government can stave off a recession.</p>
<p>The current treasury secretary <a href="https://cdn.theconversation.com/static_files/files/1577/210518-drkennedy-abeaddress.pdf">Steven Kennedy</a> conceded that in one way fighting the COVID recession had been easier than fighting the GFC. </p>
<p>COVID had a clear start date. The GFC had a rolling series of starts that made it hard to be sure the worst hadn’t passed.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/frydenberg-spends-the-bounty-to-drive-unemployment-to-new-lows-159229">Frydenberg spends the bounty to drive unemployment to new lows</a>
</strong>
</em>
</p>
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<p>And perhaps because of that, we discovered what Australians can do. </p>
<p>Treasury Deputy Secretary Meghan Quinn praised the banks for deferring payments on $250 billion of loans, Coles and Woolworths for working together to stock each other’s stores and the private and public health systems for working together in a way that wouldn’t have been thought possible before the pandemic.</p>
<p>We read the GFC playbook, then went further.</p><img src="https://counter.theconversation.com/content/160989/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Had it not been for the global financial crisis we wouldn’t have known what sudden overwhelming spending could do.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1574952021-04-13T12:43:12Z2021-04-13T12:43:12Z143,518 US public library workers are keeping their communities informed, connected and engaged – but their jobs may be at risk<figure><img src="https://images.theconversation.com/files/391513/original/file-20210324-19-1g9czg6.jpg?ixlib=rb-1.1.0&rect=131%2C123%2C4730%2C2638&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nikki Luman works part-time for a public library in Sycamore, Ohio. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VirusOutbreakOneYearAPPollPersonalFinance/de38fd7164bc401089e169c59b480559/photo?Query=libraries%20AND%20pandemic&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=58&currentItemNo=3">AP Photo/Tony Dejak</a></span></figcaption></figure><figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=255&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=255&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=255&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=321&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=321&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394339/original/file-20210409-21-1gixit4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=321&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>America’s public library workers have adjusted and expanded their services throughout the COVID-19 pandemic. </p>
<p>In addition to initiating <a href="https://www.houstoniamag.com/news-and-city-life/2020/08/curbside-larry-harris-county-public-library-to-go-program">curbside pickup options</a>, they’re doing many things to support their local communities, such as <a href="https://americanlibrariesmagazine.org/latest-links/library-parking-lots-wi-fi-last-resort/">extending free Wi-Fi</a> outside library walls, <a href="https://ktiv.com/2021/03/09/dilling-pharmacy-vaccinates-288-siouxlanders-at-the-morningside-branch-of-the-sioux-city-public-library/">becoming vaccination sites</a>, hosting <a href="https://www.gwinnettpl.org/news/drive-through-food-distribution/">drive-through food pantries</a> in library parking lots and establishing <a href="http://www.ala.org/news/member-news/2021/02/virtual-programs-and-insights-time-crisis">virtual programs</a> for all ages, including everything from story times to Zoom sessions on grieving and funerals.</p>
<p>In 2018, there were 143,518 library workers in the United States, according to data collected by the <a href="https://www.imls.gov/research-evaluation/data-collection/public-libraries-survey">Institute of Museum and Library Services</a>. While newer data isn’t available, the number is probably lower now, and recent history suggests more library jobs may be on the chopping block in the near future. </p>
<p>As <a href="https://scholar.google.com/citations?user=ZiFFNI0AAAAJ&hl=en&oi=ao">library</a> and <a href="https://scholar.google.com/citations?hl=en&user=6vGpdjwAAAAJ">information</a> science <a href="https://scholar.google.com/citations?hl=en&user=7y5Jl3kAAAAJ">researchers</a>, we are concerned about library worker job insecurity. </p>
<p>During the <a href="https://www.history.com/topics/21st-century/great-recession-timeline">Great Recession</a>, the economic downturn between late 2007 and mid-2009, thousands of librarians and other library staff lost their jobs. As local governments cut spending on libraries, the size of that workforce shrank to <a href="https://www.imls.gov/research-evaluation/data-collection/public-libraries-survey">137,369 in 2012 from 145,499 in 2008</a>.</p>
<p>Many library workers actively supported the recovery from that economic crisis in many creative ways. Some loaned patrons <a href="https://www.cnn.com/2018/09/18/health/new-york-library-loans-ties-handbags-trnd/index.html">professional attire to wear for job interviews</a>. Others helped local unemployed people gain basic <a href="http://www.ala.org/tools/research/librariesmatter/economic-impact-libraries">financial literacy and digital skills</a>.</p>
<p>Unfortunately, many of the Great Recession’s job losses were never completely overcome. There were about 2,000 fewer library workers in 2018 than in 2008, at the height of the crisis.</p>
<p><iframe id="uYJy5" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/uYJy5/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Library workers are again losing their jobs despite the important roles that libraries are playing today. According to preliminary data and news coverage collected by the <a href="https://tinyurl.com/librarylayoffs">Tracking Library Layoffs</a> initiative, it’s clear that not all of the library workers furloughed since March 2020, when virtually all U.S. libraries were closed amid lockdowns, have been brought back on staff.</p>
<p>At the same time, many library workers have had to <a href="http://www.ala.org/pla/issues/covid-19/surveyoverview">directly engage in person with the public</a> throughout the pandemic, exposing them to health risks.</p>
<p>There are steps the federal government could take to protect the nation’s libraries.</p>
<p>For example, after Hurricane Katrina in 2005 and Hurricane Sandy in 2012, the Federal Emergency Management Agency <a href="https://www.nlm.nih.gov/dis_courses/seat_at_table/02-000.html">recognized libraries among essential services</a>. The federal government has not <a href="https://www.cisa.gov/sites/default/files/publications/CISA-Guidance-on-Essential-Critical-Infrastructure-Workers-1-20-508c.pdf">taken this step</a> so far during the coronavirus pandemic. </p>
<p>Among other things, lacking this designation may have <a href="https://chicago.suntimes.com/2021/2/4/22266405/chicago-library-coronavirus-pandemic-covid19-vaccine">made it more difficult</a> for librarians and other library staff members to get COVID-19 vaccines.</p>
<p>To date, the federal coronavirus relief packages have included a total of about <a href="https://www.cnn.com/2021/03/13/politics/libraries-covid-relief-funding/index.html">US$250 million to support public libraries</a>. These funds, distributed to state library agencies, amount to approximately $14,304 – about <a href="https://www.imls.gov/research-evaluation/data-collection/public-libraries-survey">1.7% of their annual revenue</a> – for each of the <a href="https://www.imls.gov/research-evaluation/data-collection/public-libraries-survey">nation’s 17,478 library branches</a> and <a href="https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2018/03/28/yes-bookmobiles-are-still-a-thing-we-checked">bookmobiles</a>. We suspect that this infusion of cash will fall short of what’s needed to help public libraries and their workers recover from the tumult caused by the COVID-19 pandemic.</p>
<p>[<em>Over 100,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p><img src="https://counter.theconversation.com/content/157495/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>During economic downturns, local governments tend to cut spending on libraries, even as the need for their services grows.Rachel D. Williams, Assistant Professor of Library and Information Science, Simmons UniversityChristine D'Arpa, Assistant Professor of Library and Information Sciences, Wayne State UniversityNoah Lenstra, Assistant Professor of Library and Information Science, University of North Carolina – GreensboroLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1477272020-10-13T13:25:52Z2020-10-13T13:25:52ZWill it be a ‘V’ or a ‘K’? The many shapes of recessions and recoveries<figure><img src="https://images.theconversation.com/files/363035/original/file-20201012-21-2kyvcs.jpg?ixlib=rb-1.1.0&rect=98%2C81%2C2122%2C1419&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A 'V' recovery is seen as the best way to bounce back from a recession.
</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/canada-geese-flying-in-formation-royalty-free-image/88198774">Steve Stone/Moment via Getty Images</a></span></figcaption></figure><p>Recessions – <a href="https://www.investopedia.com/terms/r/recession.asp">typically defined</a> as two consecutive quarters of declining economic output – are always painful in terms of how they affect our economic well-being. Like all bad things, fortunately, they eventually end and a recovery begins. </p>
<p>But not all recoveries or recessions look the same. And economists have a tendency to compare their varying paths with letters of the alphabet.</p>
<p>For example, during the current situation, you may have the heard the direction the recovery might take compared with a “<a href="https://www.marketwatch.com/story/that-v-shaped-economic-recovery-forecasters-have-been-calling-for-dont-hold-your-breath-11602174696">V</a>,” a “<a href="https://www.freepressjournal.in/business/rbi-governor-says-it-is-not-k-v-u-l-or-w-but-three-speed-recovery-what-does-all-these-letters-mean">W</a>” or <a href="https://www.salon.com/2020/09/09/the-us-is-experiencing-a-k-shaped-economic-recovery-heres-what-that-means/">even a “K.”</a></p>
<p>As <a href="https://scholar.google.com/citations?user=B744wv0AAAAJ&hl=en&oi=ao">a macroeconomist</a>, I know this alphabet soup can be confusing for a lay reader. So here’s a guide to some of the most commonly used letters.</p>
<h2>‘V’ for victory</h2>
<p>While recessions are never a good thing, the “V-shaped” recovery is deemed the best-case scenario. In a recession with a V shape, the decline is rapid, but so is the recovery. </p>
<p>A good example of this type of <a href="https://www.nber.org/cycles.html">recession took place in 1981 and 1982</a>. That recession occurred after then-Federal Reserve Chair Paul Volcker <a href="https://www.washingtonpost.com/politics/2019/12/12/paul-volcker-won-his-fight-inflation-battle-regulate-big-finance-is-ongoing/">rapidly raised interest rates beginning in 1979</a> in an effort to curb high inflation. This caused a sharp recession – leading to what was then the <a href="https://www.bls.gov/opub/mlr/1983/02/art1full.pdf">highest unemployment rate in the U.S. since the Great Depression</a>.</p>
<p>But outside of economic circles, this recession is little remembered. Why? Primarily because the recovery was so rapid. After Volcker began cutting interest rates in the second half of 1982, the economy entered a recovery as sharp as the recession. </p>
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<h2>‘U’ and a long bottom</h2>
<p>Conversely, a “U-shaped” recession generally has a longer duration, both for the downturn and the recovery period. The 2001 recession that followed the dot-com bubble and the 9/11 attacks fits into this category.</p>
<p>In some ways, the post-dot-com recession was a mild one. The fall in employment from the job market’s peak in February 2001 until the trough in August 2003 was only slightly less than 2%. Yet it took over two years of decline for the economy to bottom out, and it took another year and a half for the number of jobs to exceed the pre-recession peak. Furthermore, the amount of time spent near the bottom of the recession was relatively long.</p>
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<h2>The reclining ‘L’</h2>
<p>The last U.S. recession, which coincided with the financial crisis of 2008, was especially brutal.</p>
<p>Economists call it an “L-shaped” recession because there was an initial sharp downturn, but a very plodding recovery. To see the L, you need to imagine the letter sort of reclining backward on its end.</p>
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<p>The economy declined rapidly after the September 2008 failure of Lehman Brothers, and employment plunged about 6.3% from its pre-recession peak before reaching its low point. The pace of job creation in the recovery was very slow. <a href="https://fred.stlouisfed.org/series/PAYEMS">It took almost 4½ years</a> to recover all the jobs lost. </p>
<h2>‘K’ and a two-track recovery</h2>
<p>It may be hard to see how a K could be applied to data on a graph, but it’s the letter <a href="https://www.msn.com/en-us/money/news/why-some-economists-warn-of-a-k-shaped-coronavirus-economic-recovery/ar-BB16Otro">increasingly being used</a> to describe the path of the current recession and eventual recovery.</p>
<p>Fed Chair Jerome Powell didn’t call it a “K” <a href="https://www.npr.org/2020/10/06/920770414/feds-jerome-powell-calls-for-more-economic-aid-warning-weakness-feeds-on-weaknes">but that’s basically what he meant</a> when he discussed the current economic trajectory in a recent address. He expressed concerns that the U.S. will experience a “two-track recovery” in which things get better quickly for some people, while staying bad for others. </p>
<p>Is that the kind of recession we’re in? </p>
<p>It’s unclear. So far, looking at the whole economy, the U.S. has what has been called a <a href="https://www.lpl.com/news-media/research-insights/weekly-market-commentary/prospects-for-swoosh-shaped-recovery.html">“checkmark” or “swoosh” recession</a>. It began to look something like a V, with a sharp drop in employment and then the beginnings of a rapid increase. But that recovery has begun to stall – though not for everyone. </p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>As <a href="https://www.rev.com/transcript-editor/shared/EyhjNkF3lL5sTIMB3u24p5CawMHAZmLvUjYV89JPo8JY5mtx6LMDFBpimV3Hz5nmoGEfsx-mF9vwoVqAbS3oiJxOL88?loadFrom=PastedDeeplink&ts=608.09">Powell suggested</a>, the recovery could look different to various groups. White-collar workers may see a “V,” as their jobs are more capable of being done remotely. Blue-collar workers are seeing something closer to a U or L. <a href="https://www.businessinsider.com/k-shaped-economic-recovery-chart-low-wage-workers-pandemic-economy-2020-10">One analysis shows</a> that medium- to high-wage workers have gained back virtually all the jobs lost during the shutdown earlier this near. Conversely, employment of lower-wage workers is still more than 20% below its pre-COVID-19 peak.</p>
<p><iframe id="ReXKj" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ReXKj/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Recessions are tough for anyone to live through. However, the shape of the recovery can make it more or less bearable.</p><img src="https://counter.theconversation.com/content/147727/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Hauk does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some economists have begun to compare the current recession and recovery with a ‘K,’ while others see a ‘V.’ Which is it, and what does it mean?William Hauk, Associate Professor of Economics, University of South CarolinaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1455242020-09-29T12:34:10Z2020-09-29T12:34:10ZFailure to shore up state budgets may hit women’s wallets especially hard<figure><img src="https://images.theconversation.com/files/359701/original/file-20200924-20-ouvmk4.jpg?ixlib=rb-1.1.0&rect=247%2C209%2C4625%2C2080&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Teachers organize their socially distanced students at Weaver Elementary School in Rossmoor, California.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/kindergarten-and-tk-teachers-organize-their-students-on-the-news-photo/1271437757">Jeff Gritchen/MediaNews Group/Orange County Register via Getty Images</a></span></figcaption></figure><p>States are seeing enormous <a href="https://www.cbpp.org/research/state-budget-and-tax/states-grappling-with-hit-to-tax-collections">budget shortfalls because of the coronavirus pandemic</a>, and the consequences for teachers and other public school employees could be dire. At least <a href="https://www.wsj.com/articles/stalled-coronavirus-aid-talks-test-schools-11598531735?mod=djem10point">640,000 education jobs in state and local government</a> vanished between February and August 2020.</p>
<p>The states, which provide an average of about <a href="https://theconversation.com/federal-spending-covers-only-8-of-public-school-budgets-142348">47% of U.S. public school funding</a>, are cutting school spending because their <a href="https://fortune.com/2020/08/31/us-tax-base-coronavirus-covid-19-state-local-taxes/">tax revenue is declining</a> and they have no easy recourse to balance their budgets; unlike the federal government, <a href="https://www.urban.org/research/publication/balanced-budget-requirements">states can’t just print money</a>.</p>
<p>Negotiations continue around another pandemic relief bill, which would include money for states to spend on public education. But <a href="https://apnews.com/article/virus-outbreak-archive-6878194947f8e4b5791d5454f2f0fd9b">lawmakers have passed</a> <a href="https://apnews.com/3588901312dec9607b6cd22bc83029c2">no measures</a> since May, when the House of Representatives passed a <a href="https://www.vox.com/2020/5/15/21258854/house-three-trillion-stimulus-bill">US$3 trillion coronavirus relief bill</a> that <a href="https://www.cnn.com/2020/09/23/politics/stimulus-negotiations-latest-congress-leaving-town/index.html">stalled in the Senate</a>.</p>
<p>We <a href="https://www.law.virginia.edu/faculty/profile/nrc8g/2915359">study families</a>, <a href="https://law.umkc.edu/profiles/faculty-directory/nancy-levit.html">employment</a>, <a href="https://www.law.umn.edu/profiles/june-carbone">corporations</a> – and gender. We are tracking how the coronavirus pandemic is underscoring the disproportionate financial burden women bear when states slash their budgets in times of recession.</p>
<p>Without sufficient federal aid, recessions have historically prompted job losses, pay cuts and high turnover that burden school <a href="https://www.chalkbeat.org/2020/4/22/21230992/great-recession-schools-research-lessons-coronavirus">districts for years</a>. Because <a href="https://nces.ed.gov/programs/coe/indicator_clr.asp">most public school teachers are women</a>, they are affected more. </p>
<p>We are examining this issue and others more deeply in a book we are writing called “Shafted: The Fate of Women in a Winner-Take-All World.” It explores the jobs women do from public schools to Walmart or hedge funds and demonstrates that the forces that have produced a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2928352">highly unequal economy</a> have <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3605503">undermined women’s well-being</a>.</p>
<p>What we’ve found so far is that women in almost every field have lagged behind men in pay, promotions and leadership opportunities. And in K-12 schools, this issue can appear starkly.</p>
<p><iframe id="GhTDi" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/GhTDi/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The government’s role</h2>
<p>Historically, the federal government has implemented policies aimed at keeping the economy afloat during recessions.</p>
<p>During the Great Recession, for example, the 2009 stimulus package included money that <a href="https://www.forbes.com/sites/lizfarmer/2020/07/30/bailout-stimulus-federal-relief-recovery/#784914bd5678">cushioned the impact of the recession on the states</a>. <a href="https://www.nytimes.com/2014/07/30/upshot/what-debate-economists-agree-the-stimulus-lifted-the-economy.html">Economists largely agree</a> that the policy worked. The spending bolstered state budgets, helping to prevent massive layoffs and <a href="https://www.edutopia.org/economic-stimulus-education-school-budget">prompt the start of a recovery</a>.</p>
<p>Nationwide, education spending averages about 30% of state budgets, with two-thirds of the funds <a href="https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/elementary-and-secondary-education-expenditures">supporting K-12 education</a>. More specifically, the average state expenditures are 21% on elementary and secondary education and 10% on higher education.</p>
<p>After Republicans swept Congress in 2010, however, the flow of federal aid related to the recovery <a href="https://www.epi.org/blog/congressional-republicans-smothered-rapid-economic-recovery/">was dramatically reduced</a>. There was an immediate impact on the nation’s schools. Collectively, the states spent <a href="https://www.cbpp.org/research/state-budget-and-tax/a-punishing-decade-for-school-funding">billions less in K-12 education in 2012 than they had in 2011</a>.</p>
<p>As of the 2017-18 school year, 12 states were still <a href="https://www.cbpp.org/research/state-budget-and-tax/a-punishing-decade-for-school-funding">spending less on K-12 education than a decade earlier</a>. In their communities, fewer teachers were employed and schools were scrimping on school maintenance and supplies. Many public school teachers’ <a href="https://www.urban.org/sites/default/files/publication/101700/how_have_teacher_pensions_changed_since_the_great_recession_0.pdf">wages stagnated and their pension benefits were cut</a>. </p>
<p>In these conditions, the most experienced – and expensive – <a href="https://hechingerreport.org/teachers-could-retire-in-droves-by-the-time-schools-reopen/">teachers can be forced out</a>. These are often women. </p>
<h2>A ‘teaching penalty’</h2>
<p>During recent decades of squeezed state budgets, the percentage of K-12 teachers who are women has grown, <a href="https://nces.ed.gov/programs/coe/indicator_clr.asp">rising to 76% in 2018</a> from <a href="https://repository.upenn.edu/cgi/viewcontent.cgi?article=1109&context=cpre_researchreports">67% in 1981</a>. Therefore, the refusal to fund state budgets has fallen disproportionately hard on women.</p>
<p>Today, teachers earn about <a href="https://www.epi.org/files/pdf/153196.pdf">21.4% less than people with the same level of education</a> do in other fields, the highest teaching wage penalty economists have recorded in U.S. history. Female teachers also <a href="https://nces.ed.gov/programs/coe/indicator_clr.asp">earn lower salaries than male teachers</a>.</p>
<p>We believe the low pay and relatively low status of teaching help explain the increasingly high percentage of women in teaching and the <a href="https://www.theatlantic.com/education/archive/2019/02/the-explosion-of-women-teachers/582622/">declining percentage of men</a> who join their ranks. </p>
<p>We see a solution. It is for <a href="https://www.vox.com/science-and-health/2020/5/4/21243725/coronavirus-unemployment-cares-act-federal-job-guarantee-green-new-deal-pavlina-tcherneva">countercyclical assistance</a> – giving more government assistance when times are tough – to the states, and making this support automatic. Other financial stabilizers, such as unemployment insurance and the <a href="https://theconversation.com/how-snap-can-help-people-during-hard-economic-times-like-these-133664">SNAP nutritional support program</a>, already do this by rising during downturns, which also has the effect of <a href="https://www.brookings.edu/blog/up-front/2019/07/02/what-are-automatic-stabilizers/">bolstering the national economy</a>.</p>
<p>That won’t happen, however, without greater political recognition that the federal role in state budgets is essential to the health of public schools – and the national economy. </p>
<p>[<em>Insight, in your inbox each day.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=insight">You can get it with The Conversation’s email newsletter</a>.]</p>
<p>Schoolteachers have begun to fight back, engaging in strikes over the past few years for better pay, <a href="https://www.cnn.com/2019/02/23/politics/teacher-strikes-politics/index.html">better working conditions</a>, <a href="https://theconversation.com/how-much-of-a-difference-does-the-number-of-kids-in-a-classroom-make-125703">smaller class sizes</a> and more services – such as <a href="https://www.nytimes.com/2019/10/24/us/chicago-strike-support-staff.html">guidance counselors and nurses</a> – for students. </p>
<p>The strikes, however, address pressing local issues, not the broader – and, we argue, more critical – role the federal government plays during downturns in school budgets. That requires making the connection among congressional action, the nation’s economic well-being and the health of its educational system much more visible.</p><img src="https://counter.theconversation.com/content/145524/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When the federal government doesn’t intervene during downturns, the states often cut school spending. In turn, teachers may earn less or lose their jobs. And three in four teachers are female.June Carbone, Professor of Law, University of MinnesotaNancy Levit, Associate Dean and Professor of Law, University of Missouri-Kansas CityNaomi Cahn, Professor of Law, University of VirginiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1425392020-07-30T12:13:56Z2020-07-30T12:13:56ZNext COVID casualty: Cities hit hard by the pandemic face bankruptcy<figure><img src="https://images.theconversation.com/files/350026/original/file-20200728-29-giz4cq.jpg?ixlib=rb-1.1.0&rect=11%2C5%2C3916%2C2796&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The pandemic's longterm effects could include city bankruptcies across the U.S.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-lynchburg-virginia-city-hall-is-closed-during-the-news-photo/1212429375?adppopup=true">Olivier Douliery / AFP via Getty Images</a></span></figcaption></figure><p>U.S. cities are fast running out of cash. </p>
<p>The pandemic will reduce local government revenues by an <a href="https://www.clevelandfed.org/newsroom-and-events/publications/cfed-district-data-briefs/cfddb-20200513-estimates-of-state-and-local-government-revenue-losses-from-pandemic-mitigation.aspx">estimated US$11.6 billion</a> in 2020. With COVID-19 requiring residents to stay home and stores to shutter, the bulk of this reduction comes from a slump in local sales taxes. Declines will continue into 2021. </p>
<p><a href="https://theconversation.com/coronaviruss-painful-side-effect-is-deep-budget-cuts-for-state-and-local-government-services-141105">State revenues are heading in the same direction</a>, so many U.S. cities will need to rely on help from the federal government. Aid to cities may be part of the next pandemic aid package now being discussed by members of the House and Senate. <a href="https://www.washingtonpost.com/business/2020/07/27/senate-coronavirus-legislation-heals-act/">But so far</a>, the Republicans’ bill leaves out any new funding for state and local governments, while the Democrats’ bill includes $1 trillion for it.</p>
<p>And if federal assistance arrives, it will not fix every city’s budget.</p>
<p>The pandemic has hit budgets so hard that even cities in relatively good financial health – including those with <a href="https://www.pewtrusts.org/en/research-and-analysis/articles/2018/10/11/how-rainy-day-funds-help-cities-prepare-for-revenue-volatility">rainy day funds</a> to help them through an emergency – will face significant changes to staffing and services. </p>
<p>For cities in the poorest shape, the pandemic could mean bankruptcy.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Downtown in Vallejo, California" src="https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=365&fit=crop&dpr=1 600w, https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=365&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=365&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=459&fit=crop&dpr=1 754w, https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=459&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/350027/original/file-20200728-19-52jrg0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=459&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Northern California city of Vallejo declared bankruptcy in 2008.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/buildings-in-downtown-vallejo-are-relfected-in-a-storefront-news-photo/565997867?adppopup=true">Luis Sinco/Los Angeles Times via Getty Images</a></span>
</figcaption>
</figure>
<h2>Size matters</h2>
<p>Bankruptcy is a legal process where people, companies and governments who cannot pay their debts seek to reduce them.</p>
<p>Which debts get paid during a bankruptcy are important decisions. They involve how comfortable a city employee’s retirement might be, the level of health insurance for pensioners and workers, the extent of labor protections for employees and the future cost of borrowing for a city.</p>
<p>City bankruptcy was created by Congress after the Great Depression, in response to <a href="https://www.jstor.org/stable/2978769">4,770</a> different units of city government going belly up. <a href="https://www.pewtrusts.org/en/research-and-analysis/articles/2020/07/07/by-the-numbers-a-look-at-municipal-bankruptcies-over-the-past-20-years">Twenty-seven states</a> now allow their cities to file for bankruptcy. </p>
<p><a href="https://www.ncsl.org/documents/fiscal/glm11spiotto.pdf">Those states</a> that do not allow city bankruptcy – Georgia and Iowa explicitly prohibit filing, with the other 21 states having no specific allowance or prohibition – manage the problem of city indebtedness in various ways, ranging from strict budget oversight to the disbanding of heavily indebted cities. Since 1938, city bankruptcy has been used <a href="https://muninetguide.com/municipal-bankruptcy-statistics/">around 700</a> times. </p>
<p>A city’s bankruptcy differs from corporate bankruptcy in that it does not allow for the liquidation of assets. For cities, bankruptcy is used to reduce debts, not sell off things - such as public roads and buildings - to pay off debts. The bankruptcy judge’s role is to determine whether the proposed reduction is fair to all people the city owes money to, which may include workers, pensioners, bankers, suppliers and investors.</p>
<p>But bankruptcies can look different in different cities. </p>
<p>We are scholars who research changes in how cities go about budgeting. <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/cico.12449">Our work has</a> showed that the city bankruptcies that followed the Great Recession of 2007 and 2008 were not uniform. </p>
<p>If you were in a big city, your government owed money to lots of people. The converse was true in small cities. As the number of participants in a bankruptcy increases, the task of deciding how much different creditors should get repaid becomes more complicated. </p>
<h2>Somebody doesn’t get paid</h2>
<p>Westfall Township, Pennsylvania, home to about 2,000 people, declared bankruptcy in 2009 after losing a lawsuit to New Jersey real estate developers David and Barbara Katz. <a href="https://www.recordonline.com/article/20090418/NEWS/904180319">Courts ruled</a> that the city owed the Katzes $20.8 million after improperly denying them permission to develop projects in the township. </p>
<p>With annual revenues of just $1 million, Westfall had few options but to file for bankruptcy. </p>
<p>Resolving Westfall’s bankruptcy meant reaching a new agreement with the Katzes. The bankruptcy court approved a <a href="https://www.poconorecord.com/article/20100302/news/3020328">$6 million settlement</a> with the developers and gave Westfall 20 years to pay. The city would also raise property taxes and delay the repayment of other debts. By 2014, Westfall’s budget had recovered enough for Pennsylvania to <a href="https://www.poconorecord.com/article/20140611/NEWS/140619940">remove it</a> from its list of distressed cities.</p>
<p>Bankruptcy proceedings were more complicated in Vallejo, California, which is on the northern end of San Francisco Bay. Vallejo, <a href="https://www.california-demographics.com/cities_by_population">population 120,000</a>, had a 2008-2009 budget of $79.6 million. In 2008, the city lost around one-quarter of its revenues as local sales taxes and real estate development fees collapsed. Vallejo suddenly found itself unable to pay all of its bills.</p>
<p>The City Council voted unanimously to file for <a href="https://journals.sagepub.com/doi/abs/10.1177/0308518x15595756">bankruptcy</a>. </p>
<p>In its bankruptcy filing, the city estimated it had between 1,000 and 5,000 creditors. The most contentious part of the bankruptcy concerned the city’s obligations to its own unionized employees. Vallejo argued that its bankruptcy should include the option of reducing employee wages and benefits, and changing working conditions, if necessary, without union consent. </p>
<p>The judge agreed and, in doing so, <a href="https://www.bondbuyer.com/news/ten-years-after-bankruptcy-filing-vallejo-looks-ahead#:%7E:text=Vallejo%20filed%20for%20Chapter%209,Christmas%2C%20a%20Nixon%20Peabody%20partner">expanded</a> what types of debt could be reduced in bankruptcy. This was, and remains, <a href="https://www.lowenstein.com/media/3098/jcr-chapter-9-levine-gross-article.pdf">controversial</a>. Although unions have <a href="https://www.jonesday.com/en/insights/2009/05/less-stringent-standard-applies-to-rejection-of-collective-bargaining-agreements-by-municipalities-in-bankruptcy">pushed back</a>, later bankruptcies have confirmed the court’s decision.</p>
<p>Vallejo ultimately chose not to impose new employment contracts on most of its employees. </p>
<p>That decision helped Vallejo avoid costly legal battles – but the city’s main expenditures, wages and pensions, remained <a href="https://californiapolicycenter.org/vallejo-faces-2nd-bankruptcy-because-they-didnt-restructure-pensions/">largely unaltered</a>. The city emerged out of bankruptcy solvent but <a href="https://journals.sagepub.com/doi/abs/10.1177/2399654419872218">struggling</a>. Filing for bankruptcy ended up costing Vallejo over $20 million in court and legal fees.</p>
<h2>Art, philanthropy and pension debts in Detroit</h2>
<p>Vallejo’s bankruptcy foreshadowed an even more complex one in Detroit, where revenue decline and failed <a href="https://www.epi.org/blog/detroits-deals-financial-institutions-led/#:%7E:text=%E2%80%9CDetroit%20entered%20into%20the%20swap,Detroit%20if%20interest%20rates%20rose.">Wall Street bets</a> left the city unable to balance its budget. </p>
<p>Detroit listed 100,000 creditors in its 2013 bankruptcy filing, totaling <a href="https://www.freep.com/story/news/local/michigan/detroit/2013/09/15/how-detroit-went-broke-the-answers-may-surprise-you-and/77152028/">$18.5 billion</a> in debts. Like Vallejo, Detroit would have to decide which creditors to stiff, effectively asking them to pay for the city’s budget failures. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Detroit's biggest debt during bankruptcy was to its pension holders." src="https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=472&fit=crop&dpr=1 600w, https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=472&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=472&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=593&fit=crop&dpr=1 754w, https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=593&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/350023/original/file-20200728-17-7aqlgl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=593&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Detroit’s biggest debt during bankruptcy was to its pension holders.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/william-davis-of-detroit-michigan-a-city-of-detroit-retiree-news-photo/454499844?adppopup=true">Bill Pugliano/Getty Images</a></span>
</figcaption>
</figure>
<p>The eventual settlement would reduce Detroit’s debts by $7 billion, mostly by slashing the amount of borrowed money the city would have to repay to banks and investors.</p>
<p>[<em>You need to understand the coronavirus pandemic, and we can help.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=coronavirus-help">Read The Conversation’s newsletter</a>.]</p>
<p>But <a href="https://www.freep.com/story/money/personal-finance/susan-tompor/2018/07/18/detroit-bankruptcy-retirees-pension/759446002/">no creditor</a> would walk away unscathed. Wages, pensions and health care for city employees were all cut. The city also entered into a complex “<a href="https://cppp.usc.edu/wp-content/uploads/2017/08/IHI_Digital_2017.pdf">Grand Bargain</a>” brokered by local philanthropists with the state of Michigan and pension holders that helped settle the city’s largest debt, which was to pensioners, while keeping in the city its one major asset, the Detroit Institute of Art’s collection.</p>
<p>The administrative and legal costs of the Detroit bankruptcy came in at around $100 million.</p>
<h2>No single path</h2>
<p>The bigger the city, the more complicated and expensive the bankruptcy. More creditors means more lawyers making competing claims on the city’s dwindling revenues. </p>
<p>It also makes the process of picking winners and losers more complex and something that can involve testing the limits of bankruptcy law. When these limits expand, just what going bust means can change dramatically. Things that once seemed untouchable, like pensions, can become vulnerable in bankruptcy courts.</p>
<p>With many budgets in tatters, the prospect of growing numbers of city bankruptcies looms. <a href="https://www.sunypress.edu/p-6493-cities-under-austerity.aspx">Distressed cities</a> will have to figure out what the process means for them.</p>
<p>It is rarely possible to predict what any city will decide. With any part of a city’s operations - including salaries, pensions, road repairs, borrowing, park maintenance, policing, libraries - potentially fair game, everyone involved faces great uncertainty. There is no <a href="https://www.brookings.edu/wp-content/uploads/2018/04/Spiotto-J.-v8.pdf">single, predictable path</a> through city bankruptcy.</p><img src="https://counter.theconversation.com/content/142539/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With sales tax revenues plummeting because of the pandemic, many cities will face bankruptcy – and that could affect everything from retirees’ pensions to whether roads get fixed.Mark Davidson, Associate Professor of Urban Geography, Clark UniversityKevin Ward, Professor, University of ManchesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1422032020-07-08T11:52:37Z2020-07-08T11:52:37ZLessons from the 2008 financial crisis for our coronavirus recovery today – Recovery podcast series part six<figure><img src="https://images.theconversation.com/files/346336/original/file-20200708-31-o478pd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Markets panicked following the collapse of investment bank, Lehman Brothers, in 2008.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/stock-market-concept-crash-324802937">Shutterstock.com</a></span></figcaption></figure><p>In this sixth and final episode of <a href="https://theconversation.com/uk/topics/recovery-series-87523">Recovery</a>, a series from <a href="https://theconversation.com/uk/topics/the-anthill-podcast-27460">The Anthill Podcast</a> exploring how the world rebuilt after historic crises, we look at the 2008 global financial crisis. The recovery over the last decade has been slow and painful, and offers important lessons for the coronavirus recovery ahead.</p>
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<p>The 2008 financial crisis resulted in the worst global recession since the second world war. The collapse of US investment bank Lehman Brothers in September 2008 caused a meltdown of the global financial system. Money markets froze and there was a major credit crunch as the ability to borrow money suddenly dried up. </p>
<p>But the crisis had multiple, underlying causes. It followed years of excessive risk taking by bankers and lax government regulation. This had fuelled a US housing market bubble and glut of other dodgy investments. When Lehman went bankrupt, taking US$700 billion in liabilities with it, markets panicked. </p>
<p>To stop the contagion and make sure other major financial institutions didn’t collapse, governments stepped in to shore up the system by bailing out the banks. Anastasia Nesvetailova, professor of international political economy at City, University of London, explains what these bailouts involved and why they were so necessary. </p>
<p>The government response to the crisis had some unintended consequences, she says. Low interest rates and easy access to capital made those who were already wealthy even wealthier, drove up asset prices (like property) and failed to stimulate the economy in a way that benefited everyone. </p>
<p>The recovery was also very uneven geographically. Aidan Regan, associate professor at University College Dublin, tells us how the crisis spread across the eurozone and why some countries rebounded a lot more quickly than others. </p>
<p>The austerity policies that many governments adopted following the 2008 financial crisis also come under the spotlight. Nesvetailova and Regan explain why the decision to cut public spending hampered economic growth in the UK and across Europe. </p>
<p>Plus, we explore how emerging markets were affected by the 2008 financial crisis. Carolina Alves, fellow in economics at the University of Cambridge, outlines how some emerging markets were shielded from elements of the crisis but also left vulnerable to the large reduction in finance that followed. </p>
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<p><em>This episode was produced by Gemma Ware and Annabel Bligh with sound design by Eloise Stevens.</em></p><img src="https://counter.theconversation.com/content/142203/count.gif" alt="The Conversation" width="1" height="1" />
PODCAST: Part six of The Anthill Podcast’s Recovery series looks at the 2008 financial crisis and Great Recession that followed.Annabel Bligh, Business & Economy Editor and Podcast Producer, The Conversation UKGemma Ware, Head of AudioLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1405252020-06-17T16:31:35Z2020-06-17T16:31:35ZBlack Americans, crucial workers in crises, emerge worse off – not better<figure><img src="https://images.theconversation.com/files/341911/original/file-20200615-65947-3lfll4.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5066%2C3379&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A group of sharecroppers, evicted from their land in the Great Depression, stand beside a Missouri road in January 1939.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/evicted-sharecroppers-along-highway-60-new-madrid-county-news-photo/982759676">GHI/Universal Images Group via Getty Images</a></span></figcaption></figure><p>On June 19, 1865 – 155 years ago – black Americans celebrating <a href="https://nmaahc.si.edu/blog-post/historical-legacy-juneteenth">the day of Jubilee</a>, later known as Juneteenth, may have expected a shot at real opportunity. Freedom from <a href="https://www.cambridge.org/us/academic/subjects/history/early-republic-and-antebellum-history/unrequited-toil-history-united-states-slavery?format=PB">slavery</a> should have been freedom to climb up the economic ladder, helped – or at least not hindered – by a nation newly <a href="http://www.abrahamlincolnonline.org/lincoln/speeches/gettysburg.htm">rededicated to human equality</a>.</p>
<p>Black Americans had <a href="https://www.historynet.com/african-americans-in-the-civil-war">served in the war</a>, too, making up more than 10% of the Union Army, a quarter of the Union Navy and untold numbers <a href="https://www.nlm.nih.gov/exhibition/bindingwounds/nursing.html">aiding</a> the Union effort. </p>
<p>In many national crises since then, black Americans have also been essential workers. </p>
<p>But serving in crucial roles has not resulted in economic equality. Government responses to economic crises have historically set black Americans back relative to whites, stripping black wealth and setting new and stronger barriers in paths to success – even in times of national economic growth.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=468&fit=crop&dpr=1 600w, https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=468&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=468&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=588&fit=crop&dpr=1 754w, https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=588&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/341952/original/file-20200615-65947-1r9661j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=588&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Attendees at a Juneteenth Emancipation Day celebration in Texas in 1900.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Emancipation_Day_celebration_-_1900-06-19.jpg">Mrs. Charles Stephenson (Grace Murray)/Wikimedia Commons</a></span>
</figcaption>
</figure>
<h2>After the Civil War</h2>
<p>In the late 1860s, white Southerners desperate to rebuild their war-torn states took advantage of newly freed black workers – but did not treat them fairly.</p>
<p>States like Mississippi declared it <a href="https://www.americanyawp.com/reader/reconstruction/mississippi-black-code-1865/">illegal to be unemployed</a>, forcing former bondspeople to take whatever jobs they could, under whatever terms were offered. </p>
<p>Most African Americans’ living options were limited, too. Sharecropping – renting farmland with a percentage of the harvest – soon trapped many families in <a href="https://www.britannica.com/topic/debt-slavery">perpetual debt</a>. Government land grants in the form of homesteading were <a href="https://www.marketwatch.com/story/heres-why-black-families-have-struggled-for-decades-to-gain-wealth-2019-02-28">mostly off-limits to black people</a>. African-descended landowners often <a href="https://uncpress.org/book/9781469628721/the-land-was-ours/">had their real estate stolen by whites</a>.</p>
<p>Convict leasing jump-started Southern industrialization. When black citizens arrested for petty crimes couldn’t pay the fine, courts contracted out their labor. A conviction for trumped-up charges like “<a href="https://www.penguinrandomhouse.com/books/14301/slavery-by-another-name-by-douglas-a-blackmon/">selling cotton after sun set</a>” could result in a debt that could never be paid.</p>
<p>Imaginary offenses could, effectively, carry life sentences: <a href="https://slate.com/news-and-politics/2018/10/origin-prison-slavery-shane-bauer-american-prison-excerpt.html">40% of prisoners</a> leased to Alabama mines died in 1870. Black women and children too were <a href="https://uncpress.org/book/9781469630007/chained-in-silence/">forced to work in fields and factories</a> for no pay.</p>
<p>By 1880, black workers earned 34 cents for every dollar <a href="http://www.csun.edu/%7Ehfeco002/black%20white%20income%20gap.pdf">white workers earned nationally</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=467&fit=crop&dpr=1 600w, https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=467&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=467&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=587&fit=crop&dpr=1 754w, https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=587&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/341953/original/file-20200615-65916-1gi9y3t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=587&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">These nine men, who won the French Croix de Guerre for gallantry in action, were among troops in the 369th Infantry Regiment, an all-black unit in World War I.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:369th_15th_New_York.jpg">U.S. National Archives/Wikimedia Commons</a></span>
</figcaption>
</figure>
<h2>Early 20th century</h2>
<p>During the First World War, African Americans were <a href="https://www.thoughtco.com/african-americans-in-wwi-4158185">drafted disproportionately</a> to serve in uniform. </p>
<p>Wartime manufacturers also recruited black workers to cities like Chicago, Detroit and Philadelphia to make war materiel. But instead of welcoming refugees from Southern poverty and discrimination, the first wave of what became the <a href="https://www.history.com/topics/black-history/great-migration">Great Migration</a> was <a href="https://www.thoughtco.com/african-americans-in-wwi-4158185">met with violence</a>.</p>
<p>African American migrants seizing economic opportunity were crowded into rundown housing, paying high rents and <a href="https://press.princeton.edu/books/paperback/9780691156163/debtor-nation">ruinous interest rates on consumer credit</a>. Better-paying unionized jobs were <a href="https://press.princeton.edu/books/paperback/9780691134659/black-and-blue">reserved for whites</a>, and during the Great Depression, African Americans with scant job security and resources were most at risk.</p>
<p>Again in World War II, black Americans were a vital domestic labor force and a backbone of U.S. forces globally, fighting for a “<a href="https://www.smithsonianmag.com/history/why-african-american-soldiers-saw-world-war-ii-two-front-battle-180964616/">double victory</a>” against fascism abroad and racism at home.</p>
<p>But black veterans were deliberately excluded from benefits meant to <a href="https://press.princeton.edu/books/hardcover/9780691170497/unequal-gains">improve economic opportunity</a>, including college educations, job training and homeownership, <a href="https://www.history.com/news/gi-bill-black-wwii-veterans-benefits">which went disproportionately to white</a> veterans. Those benefits led to a <a href="https://wwnorton.com/books/When-Affirmative-Action-Was-White/">massive expansion of the white middle class</a> in the mid-20th century. </p>
<p>Because government-insured home loans were <a href="https://wwnorton.com/books/The-Color-of-Law/">unavailable in black neighborhoods</a>, <a href="https://www.npr.org/local/309/2019/05/30/728122642/contract-buying-robbed-black-families-in-chicago-of-billions">predatory rent-to-own schemes</a> stripped billions from black households. By 1963, the median white household in the U.S. had <a href="https://apps.urban.org/features/wealth-inequality-charts/">19 times</a> the wealth of the typical nonwhite one.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/341954/original/file-20200615-65947-1cf36kf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Lady Bird Johnson, the first lady, visits a Head Start early education classroom in 1966.</span>
<span class="attribution"><a class="source" href="https://catalog.archives.gov/id/596401">U.S. National Archives</a></span>
</figcaption>
</figure>
<h2>Into the 1960s</h2>
<p><a href="https://inequality.stanford.edu/sites/default/files/media/_media/working_papers/laurent_king-war-on-poverty.pdf">Antipoverty efforts</a> like the 1964 <a href="https://www.britannica.com/topic/Economic-Opportunity-Act">Economic Opportunity Act</a> were passed as part of a <a href="https://www.americanprogress.org/issues/poverty/reports/2014/01/07/81661/the-war-on-poverty-then-and-now/">War on Poverty</a>. Programs like Head Start, Medicaid and the Job Corps were <a href="https://www.politico.com/magazine/story/2018/01/28/lbj-great-society-josh-zeitz-book-216538">somewhat effective</a> at narrowing inequality. But they were controversial because they targeted black poverty, propagating racist <a href="https://global.oup.com/academic/product/dog-whistle-politics-9780190841805?cc=us&lang=en&">accusations</a> of unfairness. </p>
<p>The Vietnam War helped <a href="https://www.nytimes.com/2017/09/22/opinion/vietnam-war-great-society.html">erode support</a> and resources for antipoverty policies. Yet African Americans again served disproportionately, making up <a href="https://www.nytimes.com/2017/07/18/opinion/racism-vietnam-war.html">23% of combat personnel</a> in 1967, double the proportion of black Americans in the overall population.</p>
<p>By then, black Americans had been excluded from the “<a href="https://press.princeton.edu/books/paperback/9780691175737/the-great-exception">great exception</a>,” an unprecedented rise in middle-class membership and relative economic equality.</p>
<p>Outlawing discrimination did not, however, overthrow the structural racism that impeded equality. The 1968 Fair Housing Act prohibited racial discrimination. But <a href="https://theconversation.com/3-things-schools-should-teach-about-americas-history-of-white-supremacy-111347">redlining</a> – excluding black neighborhoods from loan guarantees – was replaced by “<a href="https://uncpress.org/book/9781469653662/race-for-profit/">predatory inclusion</a>.” In cities like Detroit, lenders targeted black customers likely to default so they could seize the property and collect government loan guarantees. Such practices stripped wealth while not alleviating racial economic inequality. </p>
<p>The war on drugs led to mass incarceration of nonwhite drug offenders and <a href="https://www.cato.org/publications/commentary/war-drugs-has-made-policing-more-violent">aggressive policing</a> of nonwhite neighborhoods. A conviction could be an <a href="https://www.brookings.edu/blog/social-mobility-memos/2014/09/30/how-the-war-on-drugs-damages-black-social-mobility/">economic life sentence</a>, because of lost wages while imprisoned, and <a href="https://theconversation.com/i-went-from-prison-to-professor-heres-why-criminal-records-should-not-be-used-to-keep-people-out-of-college-97038">reduced educational</a> and <a href="https://theconversation.com/banning-the-box-would-help-people-released-from-prison-rebuild-their-lives-45539">employment opportunities</a> for former prisoners.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/257104/original/file-20190204-193229-4jv9zb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/257104/original/file-20190204-193229-4jv9zb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/257104/original/file-20190204-193229-4jv9zb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/257104/original/file-20190204-193229-4jv9zb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/257104/original/file-20190204-193229-4jv9zb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/257104/original/file-20190204-193229-4jv9zb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/257104/original/file-20190204-193229-4jv9zb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Martin Luther King Jr. often spoke of economic justice.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-AP-A-DC-USA-APHS348927-Dr-Martin-Luther-/41998f155f5b41d0af6f2f2ae99e6374/390/0">AP Photo</a></span>
</figcaption>
</figure>
<h2>The Great Recession and then a pandemic</h2>
<p>The 2008 housing crisis destroyed <a href="https://nlihc.org/resource/report-shows-african-americans-lost-half-their-wealth-due-housing-crisis-and-unemployment">nearly half of black wealth</a> in foreclosures and lost equity.</p>
<p>On the eve of the COVID-19 crisis, the typical black family had <a href="https://apps.urban.org/features/wealth-inequality-charts/">1/12th</a> the wealth of the typical white family, and the racial wealth gap was growing. Black families <a href="http://www.equality-of-opportunity.org/assets/documents/race_paper.pdf">are likelier to get poorer with each generation</a> than to get wealthier.</p>
<p>In 2016 “the median black-white earning gap” was <a href="https://newrepublic.com/article/158142/black-wage-gap-income-inequality">the same proportion as in 1950</a>. Analyses indicate that in 20 years, without policy turnarounds, the typical black American family will <a href="https://ips-dc.org/report-the-road-to-zero-wealth/">have less wealth than today</a>.</p>
<p>Factors widening black-white wealth inequality include <a href="https://journals.sagepub.com/doi/10.1177/2329496516686620">higher black education debt</a>, low <a href="https://socialequity.duke.edu/wp-content/uploads/2019/10/Bootstraps-are-for-Black-Kids-Sept.pdf">intergenerational wealth transfer</a> and racial barriers to <a href="https://tcf.org/content/report/racism-inequality-health-care-african-americans/?agreed=1">health care access</a>.</p>
<p>Many African-descended Americans are again <a href="https://www.epi.org/publication/black-workers-covid/">essential workers in the COVID-19 crisis</a>, ensuring deliveries and providing health care. Black Americans constitute <a href="https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/racial-ethnic-minorities.html">one-third of the cases</a> nationally. Paradoxically, many of those essential jobs are also insecure, so the economic slowdown is also creating <a href="https://www.usatoday.com/story/money/2020/06/04/black-unemployment-2020-joblessness-compounds-anguish-over-brutality/3138521001/">higher black unemployment</a>.</p>
<p>Black lives have been taken for granted amid the persistent forces of racial inequality, and what journalist and author Ta-Nehisi Coates terms “<a href="https://www.theatlantic.com/magazine/archive/2014/06/the-case-for-reparations/361631/">the quiet plunder</a>” has allowed economic white supremacy to reemerge from each crisis.</p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p><img src="https://counter.theconversation.com/content/140525/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Calvin Schermerhorn does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In many national crises, black Americans have been essential workers – but serving in crucial roles has not resulted in economic equality.Calvin Schermerhorn, Professor of History, Arizona State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1403952020-06-12T14:16:08Z2020-06-12T14:16:08ZWhy stocks are soaring even as coronavirus cases surge, at least 20 million remain unemployed and the US sinks into recession<figure><img src="https://images.theconversation.com/files/341357/original/file-20200611-80746-1mleeuv.jpg?ixlib=rb-1.1.0&rect=65%2C56%2C6175%2C3125&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Throwing cash at the problem seems to help – investors at least.</span> <span class="attribution"><span class="source">elenabs/Getty Images</span></span></figcaption></figure><p>The number of new COVID-19 cases in the U.S. <a href="https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html?action=click&pgtype=Article&state=default&module=styln-coronavirus&variant=show&region=TOP_BANNER&context=storylines_menu">is still climbing rapidly</a>, <a href="https://fred.stlouisfed.org/series/CCSA">over 20 million Americans remain unemployed</a>, <a href="https://www.forbes.com/sites/hanktucker/2020/05/03/coronavirus-bankruptcy-tracker-these-major-companies-are-failing-amid-the-shutdown/#5751b7ca3425">dozens of major companies</a> have reportedly filed for bankruptcy, the country is <a href="https://www.nber.org/cycles/june2020.html">officially in a recession</a> and there’s still no vaccine in sight. Yet America’s <a href="https://www.marketwatch.com/investing/index/spx">main stock market index</a> has surged as much as 44% since hitting a three-year low on March 23, erasing most of its coronavirus losses. </p>
<p>What’s going on?</p>
<p>As an <a href="https://business.wvu.edu/faculty-and-staff/directory/profile?pid=2384">economist who closely follows financial markets</a>, I believe the short answer is the Fed.</p>
<p>On March 22, just before the Standard & Poor’s 500 bottomed out, the U.S. <a href="https://www.federalreserve.gov/publications/files/pmccf-smccf-talf-5-29-20.pdf">Federal Reserve announced</a> it would begin buying an unprecedented array of assets, including corporate bonds, for the first time. The Fed, which later <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm">committed to buying</a> up to <a href="https://theconversation.com/how-the-federal-reserve-literally-makes-money-140305">US$2.3 trillion in assets</a>, also said it would increase funding to its Exchange Stabilization Fund – which helps regulate the foreign currencies trade – and would purchase more U.S. government bonds and mortgage-backed securities. </p>
<p>The Fed’s decision to begin buying corporate bonds matters to stock investors because it ensures corporations can access credit markets and borrow at very low rates, which ultimately leads to higher profits down the road. Borrowing costs, or yields, on top-rated corporate bonds <a href="https://fred.stlouisfed.org/series/AAA">are about the lowest in at least a century</a>. </p>
<p>This had a second positive impact on stock investors by signaling that the Fed’s unprecedented firepower will eventually be able to restore economic stability, mitigating concerns that the economic and health crises would cause a financial crisis. In just the past few weeks, the amount of securities held by the central bank <a href="https://www.federalreserve.gov/releases/h41/current/">has swelled</a> from under $4 trillion to $5.96 trillion as of June 3 because of its massive purchases of various securities.</p>
<p>So in a nutshell, despite the dire economic situation still sharply felt by so many, particularly consumers, investors have been fueling and experiencing a <a href="https://www.reuters.com/article/us-usa-stocks/nasdaq-ends-at-record-confirms-bull-market-on-economic-recovery-hopes-idUSKBN23F19F">sudden bull market</a>, built on optimism that the Fed has put a bottom under the economy – just as it did <a href="https://www.federalreservehistory.org/essays/great_recession_of_200709">during the Great Recession</a> in 2008. </p>
<p>Will it last? A <a href="https://www.marketwatch.com/story/dow-futures-tumble-550-points-as-stock-market-investors-watch-rising-cases-of-coronavirus-fed-offers-grim-outlook-of-us-economy-2020-06-11">sharp crash on June 11</a>, over concerns of a second wave of coronavirus infections, suggests that day traders should tread carefully. <a href="https://www.cnn.com/2020/06/09/health/fauci-coronavirus-worst-nightmare/index.html">Dr. Anthony Fauci’s “worst nightmare”</a> isn’t over yet. </p>
<p>[<em>You’re too busy to read everything. We get it. That’s why we’ve got a weekly newsletter.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybusy">Sign up for good Sunday reading.</a> ]</p><img src="https://counter.theconversation.com/content/140395/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan T. Fluharty-Jaidee does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>US stocks have nearly erased much of their coronavirus losses even as many Americans continue to suffer from the pandemic’s impact.Jonathan T. Fluharty-Jaidee, Assistant Department Chair and Professor of Finance, West Virginia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1361382020-04-27T12:08:03Z2020-04-27T12:08:03ZCoronavirus bailouts will cost taxpayers hundreds of billions of dollars – unlike past corporate rescues that actually made money for the US Treasury<figure><img src="https://images.theconversation.com/files/330432/original/file-20200424-163122-16ka2t6.jpg?ixlib=rb-1.1.0&rect=0%2C649%2C6979%2C4925&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fire up the printing presses.</span> <span class="attribution"><span class="source">Nerthuz/Getty Images</span></span></figcaption></figure><p>The U.S. government <a href="https://www.bloomberg.com/news/articles/2020-04-24/congress-braced-for-a-bruising-fight-over-next-virus-relief-bill?srnd=premium&sref=Hjm5biAW">has now pledged almost US$3 trillion</a> to save the economy and Americans from the coronavirus recession. </p>
<p>Most of that is aimed at individual Americans in the form of <a href="https://www.vox.com/future-perfect/2020/3/24/21188470/coronavirus-unemployment-benefits-senate-stimulus">additional unemployment insurance</a> or the so-called <a href="https://www.irs.gov/coronavirus/economic-impact-payments">economic impact checks</a>. About $1.2 trillion – and counting – represent bailouts for American companies, large and small. </p>
<p>And more than 60% of that is in the form of grants or other financial assistance that will likely become grants – funds that will not be recovered by taxpayers. The Congressional Budget Office estimated on April 23 that the company-related coronavirus bailouts, excluding the <a href="https://www.nytimes.com/2020/04/23/us/politics/house-passes-relief-for-small-businesses-and-aid-for-hospitals-and-testing.html">fourth one just signed into law</a>, will <a href="https://www.cbo.gov/system/files/2020-04/hr748.pdf">ultimately cost more than $400 billion</a> over 10 years. Given that most of the latest bailout, worth $484 billion, will most likely end up becoming grants to small businesses as well, the price tag is bound to get a lot higher. </p>
<p>It may not come as a surprise that taxpayers ultimately foot the bill when lawmakers spend their money to bail out a corporate industry – such as <a href="https://www.rasmussenreports.com/public_content/business/federal_bailout/october_2011/60_oppose_financial_bailouts_74_say_wall_street_benefited_most">Wall Street during the Great Recession</a> – or the entire economy today. But this is actually the exception, not the rule. </p>
<p>The truth is, as my research shows, the vast majority of business bailouts passed by Congress over the past half century have either broken even or generated a profit. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/330567/original/file-20200426-163122-19o7xo4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/330567/original/file-20200426-163122-19o7xo4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=479&fit=crop&dpr=1 600w, https://images.theconversation.com/files/330567/original/file-20200426-163122-19o7xo4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=479&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/330567/original/file-20200426-163122-19o7xo4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=479&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/330567/original/file-20200426-163122-19o7xo4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/330567/original/file-20200426-163122-19o7xo4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/330567/original/file-20200426-163122-19o7xo4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The U.S. aided Lockheed after the defense contractor struggled to secure financing for its new large luxury jetliner, the L-1011 TriStar.</span>
<span class="attribution"><span class="source">Bettmann/Getty Images</span></span>
</figcaption>
</figure>
<h2>Profitable bailouts</h2>
<p>As part of <a href="https://politics.ucsc.edu/graduate/graduate-student-directory/index.php?uid=swnewsom">my ongoing research</a> on economic policymaking during recessions, I studied 10 corporate bailouts approved by Congress since 1969.</p>
<p>I only looked at bailouts that involved direct assistance – in the forms of loans, guarantees, grants or capital injections – by Congress to a company or industry in financial distress. I excluded the <a href="https://www.investopedia.com/terms/s/sl-crisis.asp">Savings and Loan crisis</a> of the 1980s and 1990s because that was less of a bailout and more of an expensive regulatory wind-down. All of the figures below have been adjusted for inflation. </p>
<p>I found that half of the bailouts made a clear profit for taxpayers. </p>
<p>For example, Lockheed Martin ran into <a href="https://www.nytimes.com/1971/02/02/archives/lockheed-accepts-a-loss-of-200million-on-c5a-lockheed-accepts-a.html">financial difficulties</a> in 1971 because the planes, helicopters and other military equipment it was making for the U.S. Department of Defense cost more than the Pentagon agreed to pay, which led to significant losses and fees. The defense contractor pinned its survival on making money off its <a href="https://www.lockheedmartin.com/en-us/news/features/history/l-1011.html">state-of-the-art TriStar airliner</a> but struggled to secure enough financing to finish the project. </p>
<p>Congress, concerned with the loss of at least 25,000 jobs if Lockheed went bankrupt, provided Lockheed with a lifeline in the form of loan guarantees. That is, it agreed to back a $1.62 billion private loan in exchange for a fee. Although the TriStar was a flop, it was enough to keep Lockheed solvent, and taxpayers earned $198 million. </p>
<p>Similarly, automaker Chrysler <a href="https://www.washingtonpost.com/archive/business/1979/11/04/the-bottom-line-details-of-the-chrysler-bailout/a7175793-ac11-4b4f-bbce-3cfbf620f77c/">found itself in financial peril</a> in late 1979 in part due to its slow reaction to market shifts brought about by the 1970s energy crisis. Consumers wanted more fuel efficient cars; Chrysler made too many gas guzzlers. <a href="https://publishing.cdlib.org/ucpressebooks/view?docId=ft4x0nb2jj&chunk.id=d0e2181&toc.depth=1&toc.id=d0e2181&brand=ucpress">Post-bailout studies</a> suggested the company <a href="https://books.google.com/books/about/Riding_the_Roller_Coaster.html?id=aQhTq18vi7AC">was headed toward insolvency</a>.</p>
<p>The potential loss of 250,000 jobs and the adverse impact on automotive dealers and suppliers spurred Congress to offer Chrysler up to $4.98 billion in loan guarantees. As a precondition for this help, Chrysler, in addition to paying fees on the loans, granted the U.S. government rights to buy 14.4 million company shares at a set price. This arrangement provided taxpayers with $1.03 billion – on $4 billion worth of loans – when the <a href="https://www.nytimes.com/1983/09/13/business/chrysler-top-bids-to-buy-back-stock-rights.html">government sold the shares</a> in 1983.</p>
<p>And more recently, Congress <a href="https://www.bloomberg.com/news/articles/2012-09-14/tallying-the-full-cost-of-the-financial-crisis?sref=Hjm5biAW">pledged trillions of dollars</a> saving the financial system in 2008. For my purposes, I split the aid to companies into four distinct bailouts, three of which made large profits. </p>
<p>One in particular, the <a href="https://ftalphaville.ft.com/2010/09/17/346281/why-does-everyone-hate-tarp/">much-derided</a> <a href="https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx">Troubled Asset Relief Program</a>, was a $854 billion bailout for financial companies. Ultimately, $382 billion was dispersed to Wall Street firms like Citigroup, JPMorgan and AIG in exchange for preferred stock and other compensation. Taxpayers earned $32.5 billion. </p>
<p>A <a href="https://fas.org/sgp/crs/misc/R44525.pdf">separate bailout</a> to Fannie Mae and Freddie Mac was <a href="https://www.bloomberg.com/quicktake/fannie-mae-and-freddie-mac-irbtxzdk">even more lucrative</a>. The U.S. government received preferred stock for the $234 billion invested in the two housing giants. Taxpayers got its money back as well as $123 billion in profits. </p>
<p>There were also two bailouts – for the <a href="https://fas.org/sgp/crs/misc/RS21278.pdf">Farm Credit System</a> in 1987 and the <a href="https://www.congress.gov/106/plaws/publ51/PLAW-106publ51.pdf">Steel and Oil and Gas industries</a> in 1999 that likely made money, but I was unable to find all the details necessary to do the full analysis. At a minimum, my review suggests both broken even. </p>
<p><iframe id="vnpqz" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/vnpqz/7/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Losses (mostly) by design</h2>
<p>Three bailouts approved by Congress since 1969 cost taxpayers’ money. In two of the cases, this was by design. </p>
<p>The railroad industry, from 1960 to 1970, <a href="https://www.nytimes.com/1973/02/11/archives/collapse-of-penn-central-reflects-ills-of-railroads-collapse-of.html">saw its total net income cut in half due</a>, in part, to mismanagement, market shifts in transportation from rail to vehicles and poor oversight by regulatory agencies. Its collapse not only ensured a large spike in unemployment, it meant losing a mode of transportation that, at the time, moved 41% of the nation’s goods and shipped U.S. military equipment domestically. </p>
<p>Congress, seeing this industry as vital to U.S. commerce and defense, <a href="https://fas.org/sgp/crs/misc/R46277.pdf">wanted to ensure the railroad industry remained afloat</a>. Beginning in 1970, several ailing railroad companies received $25.3 billion worth of loan guarantees and grants that were never meant to be repaid. Eventually, seven bankrupt rail companies were consolidated into one profit-making corporation on the taxpayers’ dime. </p>
<p>The terrorist attacks on 9/11 <a href="https://link.springer.com/chapter/10.1057/9780230100060_7">shut down the national aviation system</a> for three days and significantly reduced airline traffic for the remainder of 2001. The airline industry, which made up close to 10% of U.S. GDP at the time, was expected to lose $5 billion by the end of 2001. </p>
<p>Congress quickly <a href="https://www.washingtonpost.com/archive/politics/2001/09/22/congress-passes-15-billion-airline-bailout/964da954-32ef-4689-b5e5-cf3ef8f6f982/">provided the industry</a> with $22.1 billion in financial assistance to ensure its stability and viability. A third of this assistance came in the form of grants never meant for repayment as compensation for losses stemming from 9/11 and the three-day shutdown of the national aviation system. The remainder came in the form of loan guarantees that produced a slight profit. </p>
<p>And with extra money left over from the Troubled Asset Relief Program, the <a href="https://www.treasury.gov/initiatives/financial-stability/reports/Documents/2020.03%20March%20Monthly%20Report%20to%20Congress.pdf">U.S. Treasury loaned automakers</a> General Motors and Chrysler and their financing units about $97.2 billion in exchange for the right to purchase stock at a set price. This was in addition to a <a href="https://money.cnn.com/2008/09/29/autos/federal_loans/index.htm?section=money_latest">$30.5 billion loan</a> issued in September 2008 to finance more fuel-efficient cars. While most of the aid actually disbursed was paid back, taxpayers lost $14.9 billion after both companies went bankrupt.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/330569/original/file-20200426-163062-9eygsl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/330569/original/file-20200426-163062-9eygsl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/330569/original/file-20200426-163062-9eygsl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/330569/original/file-20200426-163062-9eygsl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/330569/original/file-20200426-163062-9eygsl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/330569/original/file-20200426-163062-9eygsl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/330569/original/file-20200426-163062-9eygsl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chrysler’s second bailout wasn’t as successful as its first.</span>
<span class="attribution"><span class="source">Joe Raedle/Getty Images</span></span>
</figcaption>
</figure>
<h2>Coronavirus bailouts</h2>
<p>Like the bailouts for the railroad and airline industries, a large chunk of the coronavirus aid is never meant to be paid back. </p>
<p>As long as small businesses keep workers on their payrolls, they won’t have to pay back the <a href="https://www.marketwatch.com/story/house-set-to-pass-bill-that-replenishes-coronavirus-aid-program-for-small-businesses-2020-04-23">$659 billion in total assistance</a> under the payroll protection program. </p>
<p>The <a href="https://fortune.com/2020/04/19/airlines-coronavirus-travel-industry-bailout/">airline industry has received $61 billion</a> in financial assistance from Congress, including a little more than half in grants. Small passenger airlines, the bulk of applicants, will not repay this assistance, while large airlines are expected to. </p>
<p>Congress also authorized Treasury Secretary Steven Mnuchin to provide distressed corporations and state and local governments <a href="https://www.schiffhardin.com/insights/publications/2020/cares-act-500-billion-economic-stabilization-fund-for-severely-distressed-businesses">with up to $454 billion in loans</a> and $17 billion for public companies <a href="https://www.bloomberg.com/news/articles/2020-04-24/mnuchin-asks-for-equity-stakes-in-exchange-for-17-billion-aid">deemed critical to national security</a>. Taxpayers will get interest and possibly equity stakes in some cases. </p>
<p>At the end of the day, Congress knows that when literally tens of millions of jobs, millions of small businesses and dozens of vital industries are at stake, you don’t haggle over the details. You just rescue them.</p>
<p>[<em>You need to understand the coronavirus pandemic, and we can help.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-help">Read The Conversation’s newsletter</a>.]</p><img src="https://counter.theconversation.com/content/136138/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott Newsome does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Seven of the past 10 business bailouts since 1969 have either broke even, or more frequently, ended up making a tidy profit for taxpayers.Scott Newsome, Ph.D. candidate in Politics, University of California, Santa CruzLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1351672020-04-14T12:21:23Z2020-04-14T12:21:23ZShuttered by the coronavirus, many gay bars – already struggling – are now on life support<figure><img src="https://images.theconversation.com/files/327479/original/file-20200413-155610-1xz96jw.jpg?ixlib=rb-1.1.0&rect=14%2C7%2C4778%2C3219&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Abbey, one of Los Angeles' most famous gay bars, announces its temporary closure due to the coronavirus pandemic.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/sign-on-the-fence-of-the-abbey-in-west-holywood-announces-news-photo/1208074025?adppopup=true">Luis Sinco/Los Angeles Times via Getty Images</a></span></figcaption></figure><p>Gay bars have been shuttered by public-place closure orders during the coronavirus pandemic. In March, <a href="https://www.eater.com/2020/3/15/21180761/coronavirus-restaurants-bars-closed-new-york-la-chicago">more than half of U.S. states</a> issued statewide closure orders for bars and restaurants, decimating the nightlife industry. This has left LGBT people without a place to gather in public and LGBT workers without employment. </p>
<p>But gay bars were already closing their doors before the virus hit. Their decline began sometime around 2002 and has since accelerated. <a href="https://doi.org/10.1177/2378023119894832">My research shows</a> that as many as 37% of the United States’ gay bars shut down from 2007 to 2019. </p>
<p>On the one hand, this decline can be seen as a sign of <a href="https://www.nytimes.com/2019/06/18/us/americans-lgbt-opinions.html">shifting attitudes toward LGBT people</a>; on the other hand, their closure represents the loss of a vital community space. Unfortunately, gay bars in communities where they’re needed most – where they serve the most vulnerable segments of the LGBT population – will have the most difficult time rebounding from the crisis.</p>
<h2>Acceptance comes with a cost</h2>
<p>What’s behind the trend?</p>
<p><a href="https://nyupress.org/9781479826230/the-gay-marriage-generation/">In this era of increasing LGBT acceptance</a>, there’s growing competition from straight establishments. “I go wherever I want with my friends,” one former employee of a gay bar <a href="https://talkingpointsmemo.com/theslice/can-graham-veysey-make-cleveland-not-suck">told Talking Points Memo in 2015</a>. “Every bar is a gay bar.” In addition, the debut of geolocating smartphone dating and hookup apps like <a href="https://www.ft.com/content/be9779b6-bfcb-11e7-823b-ed31693349d3">Grindr</a> also heralded an era where cruising for sex – one of bars’ primary offerings – could be conducted anywhere, anytime. </p>
<p>The Great Recession <a href="https://www.ers.usda.gov/data-products/charts-of-note/charts-of-note/?topicId=14886">also hammered bars and full-service restaurants</a>, pushing some vulnerable establishments to the edge. And in coastal cities, <a href="https://doi.org/10.1177/0042098014555630">gentrification is blamed for pushing gay bars out</a> of the neighborhoods they helped make hip. </p>
<p>Not all gay bars face equal risks of closure, however. Bars serving women and people of color, along with those that cater to men interested in <a href="https://leatherarchives.org">fetishes, kink and BDSM</a>, <a href="https://doi.org/10.1177/2378023119894832">faced closure rates of over 50% between 2007 and 2019</a>. Similarly, bars serving working-class and poor LGBTQ people <a href="https://doi.org/10.1177/0042098014555630">are more likely to be pushed out by gentrification</a> than bars that serve middle-class and white gay men. And in the nation’s interior, <a href="https://lithub.com/we-have-a-gay-bar-here-you-dont-need-a-coast-to-be-cosmopolitan/">economic and population declines</a> have eroded patron bases. </p>
<h2>A community hub</h2>
<p>The mainstreaming of LGBT people is a positive sign of progress, but something is lost when gay bars close. </p>
<p>They were once the <a href="https://books.google.com/books?id=398bDQAAQBAJ&pg=PA8&dq=%22bars+were+the+only+public+place%22&hl=en&newbks=1&newbks_redir=0&sa=X&ved=2ahUKEwi8sKDY_-XoAhWbAZ0JHd94BmkQ6AEwAHoECAMQAg#v=onepage&q=%22bars%20were%20the%20only%20public%20place%22&f=false">only places where LGBT people could gather in public</a>. Today, they are often the only place where they regularly do. Going to a gay bar is still a rite of passage for every LGBT person’s coming out.</p>
<p><a href="https://www.curbed.com/2016/6/17/11963066/gay-bar-history-stonewall-pulse-lgbtq">A wellspring of modern LGBT politics and social life</a>, they’re still hubs for political organizing. They’re the training ground of <a href="https://www.popsugar.com/entertainment/where-are-rupaul-drag-race-winners-now-47205179">America’s Next Drag Superstars</a>, and the place some parents <a href="https://www.queerty.com/mom-called-gay-bar-asking-advice-son-came-bars-response-perfect-20180122">call for advice about their child’s coming out</a>. They’re also <a href="https://doi.org/10.1111/cico.12443">fundraising powerhouses</a> and regularly host events for queer cancer survivors, gender affirmation surgeries or burial fees. </p>
<p>Big cities have many gay bars and LGBT organizations, but most places only have one or two gay bars. In many smaller municipalities – from McAlester, Oklahoma, to Lima, Ohio, to Dothan, Alabama – <a href="https://doi.org/10.1111/cico.12443">the local gay bar is the only public place that caters to an LGBT crowd</a>. When one of them closes, whether it’s due to the coronavirus or an owner’s retirement, <a href="https://lithub.com/we-have-a-gay-bar-here-you-dont-need-a-coast-to-be-cosmopolitan/">entire regions</a> are left without an LGBT community hub. </p>
<h2>Grappling with an uncertain future</h2>
<p>Some well-known establishments from big cities have responded to the coronavirus closures by moving their programming online. </p>
<p>New York City’s Marie’s Crisis began <a href="https://www.facebook.com/groups/120608734673633/">broadcasting show tune sing-alongs</a> on Facebook. Chicago’s Sidetrack rushed to produce new episodes of its drag talk show, “<a href="https://www.youtube.com/channel/UCIdEb15BysFtnW6bi5xnoXw">IMHO Show</a>,” for YouTube. <a href="https://www.twitch.tv/dragalive">San Francisco’s Stud moved its weekly “Drag Alive!”</a> to the live-streaming network Twitch. In greater Los Angeles, Latino nightclubs <a href="https://www.latimes.com/entertainment-arts/story/2020-03-19/gay-nightlife-club-cobra-stream-performances-relief-fund">Club Cobra and Club Chico</a> began broadcasting go-go dancers and drag queens on OnlyFans. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/327472/original/file-20200413-130362-6j6lgz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/327472/original/file-20200413-130362-6j6lgz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/327472/original/file-20200413-130362-6j6lgz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/327472/original/file-20200413-130362-6j6lgz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/327472/original/file-20200413-130362-6j6lgz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=496&fit=crop&dpr=1 754w, https://images.theconversation.com/files/327472/original/file-20200413-130362-6j6lgz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=496&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/327472/original/file-20200413-130362-6j6lgz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=496&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Gay bars like Stud have moved events online for their housebound patrons.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Gay-Bar-Rent-Hike/621116d980ea460cb19341e9f96aebb4/29/0">AP Photo/Jeff Chiu</a></span>
</figcaption>
</figure>
<p>These shows, however, represent a mere fraction of the bars’ regular weekly schedules, and virtual tip jars don’t bring in the same cash as the regular live shows did. Still, it’s something, and for LGBT people with disabilities, these online offerings are often more accessible than the physical places.</p>
<p>Partial relief comes in other forms, too. Some states, like <a href="https://sla.ny.gov/Restrictions-in-Response-to-COVID-19">New York</a> and <a href="https://www.clevescene.com/scene-and-heard/archives/2020/04/08/ohio-restaurants-and-bars-now-permitted-to-sell-carry-out-alcoholic-beverages">Ohio</a>, have relaxed rules to allow carryout liquor sales, giving some bars a revenue stream. In bigger cities, supporters have established <a href="https://www.them.us/story/queer-nightlife-support-coronavirus">relief funds for the LGBT nightlife workers sidelined by COVID-19 closures</a>. Bars like Milwaukee’s This is It! have taken to GoFundMe <a href="https://www.gofundme.com/f/save-this-is-it">to plead for donations</a>.</p>
<p>But shuttered gay bars outside of big cities don’t have the resources -— nor the national reach —- to move content online or raise money. Because these bars in smaller cities <a href="https://doi.org/10.1111/cico.12443">are often the only LGBTQ address for multi-county regions</a>, their temporary closure leaves already-isolated LGBTQ people even more isolated than ever. <a href="https://www.thedailybeast.com/lgbtq-party-scene-confronts-devastating-coronavirus-crisis">As one gay bar owner told The Daily Beast</a>, “The vast majority of bars don’t operate with margins to be able to sustain themselves for two weeks, four weeks or eight weeks without cash flow.”</p>
<p>If these temporary closure orders become permanent business failures, bars are unlikely to reopen quickly. Investors are required to open a bar in expensive, gentrified coastal cities. Savvy business owners may be able to declare bankruptcy and eventually reopen, but nearly all gay bars in America’s interior are mom-and-mom and pop-and-pop shops. These owners sometimes commingle personal finances with the professional, and lack the lines of credit to bounce back quickly. </p>
<p>The extent to which the stimulus package will help gay bars remains to be seen – all <a href="https://www.npr.org/2020/04/09/830474620/small-businesses-say-theyre-still-waiting-for-covid-19-relief-funds">small businesses</a> are in a state of limbo as they await relief funds. But the pathways for financial support for independent contractors and gig workers are even <a href="https://www.usatoday.com/story/money/2020/04/09/coronavirus-gig-workers-self-employed-delays-jobless-aid/5126751002/">more cumbersome and convoluted</a> in many states. These are the people not on the payroll who provide the sparkle to LGBT nightlife: the DJs, drag queens, dancers and security guards. </p>
<p>True, gay bars were never all things to all LGBT people. Caring about them means reckoning with their histories of exclusion of women, of transgender people, of people of color. Scholars once described them as the “<a href="https://books.google.com/books?id=A7FbFnrYz_8C&pg=PA5&dq=%22gay+bar%22+%22primary+social+institution%22&hl=en&newbks=1&newbks_redir=0&sa=X&ved=2ahUKEwiM1uaj7N3oAhXTmHIEHQ9uBkcQ6AEwAHoECAEQAg#v=onepage&q=%22gay%20bar%22%20%22primary%20social%20institution%22&f=false">primary social institution</a>” of gay and lesbian life, but they haven’t been that for years. <a href="https://www.thedailybeast.com/post-orlando-truth-for-you-gay-bars-arent-safe-spaces">For many LGBT people they never were</a>, even among the white gay men they primarily served. There are long histories of gay bars excluding those under 21, the undocumented, the disabled and those in addiction recovery. </p>
<p>But only a pessimist would condemn bars for these exclusionary sins, while only a willful optimist would celebrate the closure of what is often the only place for LGBT people to find like-minded others to celebrate in our queer ways. </p>
<p>Whether 37% fewer gay bars is a lot or a little depends on where you stand. True, there are fewer of them now than at any time in the last 40-plus years. There were more gay bars during the depths of the AIDS crisis, even. On the other hand, <a href="https://doi.org/10.1177/2378023119894832">there are still over 800</a> across 46 states, with new ones appearing each year. Gay bars may be in trouble, but they’re not disappearing. </p>
<p>Nonetheless, the pandemic threatens the most vulnerable establishments – and their loss affects those of us in the LGBT community who have the least to lose. </p>
<p>[<em>You need to understand the coronavirus pandemic, and we can help.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-help">Read The Conversation’s newsletter</a>.]</p><img src="https://counter.theconversation.com/content/135167/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Greggor Mattson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Their loss affects those in the LGBT community who have the least to lose.Greggor Mattson, Associate Professor of Sociology, Oberlin College and ConservatoryLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1359812020-04-10T18:22:21Z2020-04-10T18:22:21ZPlummeting tax revenues will put governors in tough budget situations<figure><img src="https://images.theconversation.com/files/327037/original/file-20200409-122223-j67fb4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Good old days: Before the coronavirus hit, governors, like California's Gavin Newsom, had easier jobs.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/California-State-of-State/e577a60fbabf47ea818d8dd126040e79/96/0">AP/Rich Pedroncelli, Pool</a></span></figcaption></figure><p>“Governors Have the Best Political Jobs in America” is the name of one of my lectures in a leadership course <a href="https://batten.virginia.edu/people/raymond-scheppach">I occasionally teach at the University of Virginia</a>. </p>
<p>In that class, I describe how governors have huge appointment powers for <a href="https://www.nga.org/consulting/office-functions/">their personal staff</a>, <a href="https://www.governor.ny.gov/news/governor-cuomo-announces-administration-appointments-38">agency directors</a> and <a href="https://gov.texas.gov/organization/appointments">even boards and commissions</a>. </p>
<p>Governors <a href="https://www.nga.org/consulting/powers-and-authority/">dominate state legislatures</a>, which are often part-time with few staff. They have <a href="https://www.adn.com/politics/2020/04/07/gov-dunleavy-signs-state-budget-with-vetoes-promises-to-use-federal-aid-to-compensate/">substantial say over state budgets</a>, which in 2019 ran from US$6.1 billion for a small <a href="https://das.nh.gov/budget/Budget2018-2019/Executive%20Summary%20Final.pdf">state like New Hampshire</a> to <a href="https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/2019_State_Expenditure_Report-S.pdf">$311.3 billion for California</a>.</p>
<p>When former governors <a href="https://www.washingtonpost.com/archive/opinions/1985/08/11/a-line-item-veto-who-needs-itreagan-already-has-the-power-hes-asking-congress-to-give-him/626ccdd5-3df6-4b24-8247-7388f7e7cbd8/">Ronald Reagan</a>, <a href="https://www.washingtonpost.com/wp-srv/national/longterm/supcourt/stories/wp062698.htm">Bill Clinton</a> and <a href="https://georgewbush-whitehouse.archives.gov/news/releases/2006/03/text/20060306-7.html">George W. Bush</a> later became president and had to work with the U.S Congress, they wished they still had the line-item veto powers they had as governors, which allowed them to cut individual items in the budget passed by the legislature.</p>
<p>Today, as governors continue to provide <a href="https://theconversation.com/governors-take-charge-of-response-to-the-coronavirus-134983">leadership on the coronavirus crisis</a> they are about to confront a second crisis, as their state’s fiscal positions will rapidly deteriorate. In my view, it will be <a href="https://theconversation.com/we-are-entering-a-recession-but-what-did-we-learn-from-the-last-one-131435">as bad as the Great Recession</a> of 2008 to 2009 and its aftermath. </p>
<p>I might call that lecture now “Governor, why did you want that job anyway?” </p>
<p>The magnitude of the fiscal crisis that governors and their states will have to face is just starting to emerge. And that crisis will affect states’ abilities to do everything from paying teachers to paving roads to providing social services.</p>
<h2>Money in, money out</h2>
<p>Total <a href="https://www.thecentersquare.com/national/report-state-spending-accelerated-in-fiscal-led-by-increases-in/article_e94e2db6-1047-11ea-8136-4fe940915fea.html">state spending in 2019 was about $2.1 trillion</a>. In national summary figures, the largest state program is Medicaid, which is <a href="https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/2019_State_Expenditure_Report-S.pdf">about 28.9% of total spending</a>, substantially above the 19.5% for elementary and secondary education and the 10.1% for higher education. The other major spending is for transportation, which is about 8.1%. </p>
<p>The remaining 33.4% is for a catch-all category of smaller programs like the environment and economic development. </p>
<p>On the revenue side of the equation, which is also about $2.1 trillion, the three major taxes on sales, personal income and corporate income make up 40.8% of the total. Special fees and other taxes represent 28.5%. The federal government, through grants and contracts, contributes 30.7%.</p>
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<p>There are five key components in understanding the seriousness of the challenge to states and their governors. They reflect the complex interplay between the federal and state levels of government, commercial activity and a state’s need for money to operate and provide services:</p>
<h2>1. Rainy day funds will quickly evaporate</h2>
<p>Before the pandemic hit, states collectively had built-up rainy day and other surpluses of <a href="https://www.pewtrusts.org/en/research-and-analysis/articles/2020/03/18/states-financial-reserves-hit-record-highs">$113.2 billion</a> – an all-time high – amounting to 13% of their general fund spending in 2019. Governors thought they were prepared for the next economic downturn. </p>
<p>Unfortunately, these pots of money <a href="https://www.city-journal.org/covid-19-impact-on-state-budgets">will likely be empty</a> by the end of June 2020. This is because <a href="https://www.lohud.com/story/news/2020/03/17/sales-tax-slump-coronavirus-by-county-local-governments/5066567002/">sales tax revenues began crashing</a> as early as March. </p>
<p>That crash is continuing through the second quarter of the year, as people stop purchasing goods because restaurants, stores and bars are closed and as individuals practice social distancing. Once the revenue from sales taxes dives, states will be forced to turn to – and ultimately deplete – their rainy day funds.</p>
<h2>2. Revenues will collapse</h2>
<p>The Congressional Budget Office <a href="https://www.cbo.gov/publication/56314">recently released its forecast</a> that included the impact of the coronavirus pandemic. It indicated that <a href="https://www.cnbc.com/2020/04/02/cbo-sees-gdp-down-7percent-in-second-quarter-and-the-jobless-rate-past-10percent.html">economic activity will drop at least 7%</a> in the second quarter and <a href="https://www.marketwatch.com/story/the-soaring-us-unemployment-rate-could-approach-great-depression-era-levels-2020-04-03?link=MW_latest_news">unemployment will exceed 10%</a>. </p>
<p>Others are far more pessimistic. James Bullard, the President of the Federal Reserve Bank of St. Louis, said <a href="https://www.marketwatch.com/story/unemployment-could-reach-30-in-the-us-says-st-louis-feds-bullard-2020-03-22">unemployment could reach 30%</a> in the second quarter. </p>
<p>Masses of people no longer getting paychecks means a big drop in income tax revenue to states.</p>
<p>The three main state taxes on sales, personal and corporate income totaled $718.9 billion in revenues in 2019. During the Great Recession, the Pew Charitable Trusts estimates that states <a href="https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2019/06/lost-decade-casts-a-post-recession-shadow-on-state-finances">were denied about $283 billion in tax revenue they would normally receive between 2008 and 2013</a>. </p>
<p>How much states will fail to collect in projected tax revenues this time will depend on the depth and length of the downturn. But it clearly will be deeper than the previous downturn. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/327040/original/file-20200409-38906-seaky7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Nevada Gov. Steve Sisolak has proposed $687 million in budget cuts to his $14.7 billion budget because of the coronavirus pandemic.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Virus-Outbreak-Nevada/c45d6afbf22d48918322d8e495f01cf9/10/0">AP/John Locher</a></span>
</figcaption>
</figure>
<h2>3. Medicaid spending will explode</h2>
<p>As mentioned earlier, Medicaid, a health-care program for low income individuals paid for by both federal and state governments, represents about 28.9% of total state spending. </p>
<p><a href="https://www.kff.org/medicaid/issue-brief/status-of-state-medicaid-expansion-decisions-interactive-map/">Thirty-six states</a> have already expanded eligibility of this program up to 140% of poverty (annual income of <a href="https://q1medicare.com/q1group/MedicareAdvantagePartD/Blog.php?blog=2019-Federal-Poverty-Level-Guidelines--FPL---2019-and-early-2020-LIS-Qualifications-and-Benefits&blog_id=743&category_id=8">$17,486 for one person; $36,050 for a family of four</a>) under the Affordable Care Act. </p>
<p>Now, as unemployment skyrockets, many people will have lost their employer-paid health insurance and will qualify for Medicaid if they are under the income threshold. That is an echo of what happened during the Great Recession, when an additional <a href="https://www.vox.com/policy-and-politics/2019/6/3/18650609/health-care-medicaid-expansion-recession">6 million people – a 14% increase – came on to the Medicaid rolls</a>. </p>
<p>In 2019 states spent $234 billion of their own revenues on medicaid so another 14% increase in the case load could cost over $30 billion per year extra. Far more people will come on the rolls this time, because the unemployment rate will be higher than the peak of 10.5% in the last downturn and the states have substantially expanded eligibility.</p>
<h2>4. Governors will cut spending and increase taxes</h2>
<p>State governments can’t spend more money than they bring in: 49 of the 50 states have some type of balanced budget requirement in law or in the state’s constitution. Sometimes that simply means that the <a href="https://www.ncsl.org/research/fiscal-policy/state-balanced-budget-requirements.aspx">governor has to submit a balanced budget</a>. Other state mandates require balance to be maintained during the year.</p>
<p>You can already see governors taking action to meet this requirement. Gov. Steve Sisolak of Nevada <a href="https://elkodaily.com/news/state-and-regional/sisolak-asks-state-agencies-to-prepare-for-up-to-687-million-in-budget-cuts/article_43be0049-c8a1-51ac-bddd-4f010dc635e0.html">just asked his state agencies to prepare</a> for up to $687 million in budget cuts to his $14.7 billion budget. Gov. Jay Inslee of Washington is in the process of <a href="https://www.seattletimes.com/seattle-news/politics/as-coronavirus-freezes-the-economy-inslee-slashes-hundreds-of-millions-of-dollars-in-state-spending/">cutting his state’s $48.5 billion budget by $445 million</a>. </p>
<p>States have not yet begun to raise taxes or fees but, in my view, that will come later.</p>
<h2>5. Federal action will be required</h2>
<p>The budget cuts and tax and fee increases that governors will be forced to make will weaken aggregate demand and the economy and make the economic downturn deeper and longer. </p>
<p>In the recently enacted <a href="https://www.forbes.com/sites/michaelstudenka/2020/03/30/the-cares-act-and-its-impact-on-employers-considering-mass-layoffs-or-furloughs/#2d191da3104f">Coronavirus Aid, Relief and Economic Security Act</a> the federal government made <a href="https://www.schiffhardin.com/insights/publications/2020/cares-act-150-billion-appropriated-for-covid-19-relief-to-state-and-local-government">$150 billion available for state and local governments</a>.</p>
<p>But only the $30 billion in the Education Stabilization Fund created by the act will be to replenish state coffers by offsetting state revenue losses. The rest goes to local governments and to states for additional non-Medicaid health care and hospital costs incurred in the fight against the coronavirus. </p>
<p>States are looking to the federal government to include in its fourth relief package both <a href="https://www.politico.com/news/2020/04/07/democrats-medicaid-incentives-coronavirus-rescue-package-173402">a major increase in the federal contribution for Medicaid</a> as well as a stabilization fund of <a href="https://time.com/5817172/paycheck-protection-program-trump-coronavirus-aid/">$250 billion</a> to assist states in filling the budget gap and buoy the economy. </p>
<p>Because the economy is so much larger now, that would be a contribution similar to the <a href="http://bok.ahima.org/doc?oid=93532#.Xo-AV5NKhmA">2009 American Recovery and Reinvestment Act, which provided states with $147 billion</a> in Medicaid and education funds.</p>
<h2>The people’s judgment</h2>
<p>The economic and public health crises facing states and their governors will have an impact in another realm: politics. In November, <a href="https://ballotpedia.org/Gubernatorial_elections,_2020">2020 there will be 11 gubernatorial elections</a>, with nine incumbents likely to be running for re-election. </p>
<p>The real test of leadership during the these twin crises will be reflected in the results of those elections.</p>
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<p class="fine-print"><em><span>Raymond Scheppach does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Congress considers further financial help for victims of the coronavirus pandemic, the magnitude of the fiscal crisis that governors and their states will have to face is just starting to emerge.Raymond Scheppach, Professor of Public Policy, University of VirginiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1348692020-04-02T18:18:54Z2020-04-02T18:18:54ZHow the coronavirus recession puts service workers at risk<figure><img src="https://images.theconversation.com/files/323642/original/file-20200327-146678-1e36ygw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Waitress Casey Stewart works at two restaurants, at least one which may have to close for at least a week or more.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Virus-Outbreak-New-York/be0d57e1bc3b4802a7284e7fb7ec048f/1/0">AP Photo/Kathy Willens</a></span></figcaption></figure><p>Economic activity is slowing rapidly, both <a href="https://www.forbes.com/sites/sarahhansen/2020/03/26/weekly-unemployment-claims-surge-to-328-million-as-coronavirus-batters-the-economy/">in the United States</a> and <a href="https://foreignpolicy.com/2020/03/26/the-coronavirus-war-economy-will-change-the-world/">around the world</a>.</p>
<p><a href="https://blogs.berkeley.edu/2020/03/10/the-economic-consequences-of-social-distancing/">Social distancing</a>, <a href="https://www.bizjournals.com/sacramento/news/2020/03/13/another-voice-how-the-coronavirus-could-affect.html">stalling global trade</a>, <a href="https://www.technologyreview.com/s/615379/antibody-test-how-widespread-coronavirus-covid-19-really-is/">widespread illness</a> and the closing of <a href="https://www.bloomberg.com/news/articles/2020-03-19/australia-to-ban-all-non-residents-from-entering-country">borders</a>, <a href="https://ny.eater.com/2020/3/13/21179388/nyc-restaurants-closed-coronavirus-pandemic">restaurants</a> and <a href="https://www.usatoday.com/story/opinion/voices/2020/03/26/coronavirus-school-closings-turn-parents-into-teachers-column/2912797001/">schools</a> will all contribute to <a href="https://theconversation.com/we-are-entering-a-recession-but-what-did-we-learn-from-the-last-one-131435">the next Great Recession</a>.</p>
<p>Early estimates suggest that between <a href="https://www.epi.org/blog/states-are-projected-to-lose-more-jobs-due-to-the-coronavirus-14-million-jobs-could-be-lost-by-summer/">14 million</a> and <a href="https://www.jobqualityindex.com/">37 million</a> jobs could be lost during the initial spread of COVID-19. Even the low-end estimates are five times larger than the job losses the U.S. experienced in the first few months of <a href="https://theconversation.com/we-are-entering-a-recession-but-what-did-we-learn-from-the-last-one-131435">the Great Recession that lasted from 2007 to 2009</a>.</p>
<p>Since <a href="https://www.nbcnews.com/business/economy/record-6-6-million-americans-filed-unemployment-last-week-n1174776">nearly 6.6 million jobs</a> were lost in just one week at the end of March, the odds are that unemployment will be very, very high, perhaps as high as <a href="https://www.history.com/news/working-women-great-depression">the 25% range of Great Depression of the 1930s</a>.</p>
<p>As scholars of <a href="https://www.umass.edu/employmentequity/team/swerzenski">communications</a>, <a href="https://sites.google.com/view/erichoyt/home">labor economics</a>, <a href="https://www.umass.edu/sociology/users/tomaskov">inequality</a> and <a href="https://scholar.google.com/citations?user=AfSJBMkAAAAJ&hl=en">equity</a>, we know that recessions generally hit insecure families hardest. That will be true this time as well.</p>
<p>However, this recession will be different in an important way – service sector jobs will be shed first. For the majority of service sector workers, those that are paid poverty-level wages – <a href="https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2024-would-lift-pay-for-nearly-40-million-workers/">typically defined as those that make below the $15 per hour living wage threshold</a> – this recession will hit fast and hard.</p>
<p>Because they risk exposure to COVID-19 or face unemployment because of it, workers receiving the lowest hourly wages are more likely to lack the financial resources, health care and sick leave to deal with the crisis. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/323641/original/file-20200327-146678-84vsyf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/323641/original/file-20200327-146678-84vsyf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/323641/original/file-20200327-146678-84vsyf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/323641/original/file-20200327-146678-84vsyf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/323641/original/file-20200327-146678-84vsyf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/323641/original/file-20200327-146678-84vsyf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/323641/original/file-20200327-146678-84vsyf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Restaurants, bars and other venues keep parts of their services going while closing others.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Virus-Outbreak-Colorado/e66f03c7d4c64dc8a4cee8a33f63d421/10/0">AP Photo/David Zalubowski</a></span>
</figcaption>
</figure>
<h2>The risks to service workers</h2>
<p><a href="https://www.bls.gov/emp/tables/employment-by-major-industry-sector.htm">Almost 80%</a> of all U.S. private sector employment is in the service sector, totaling some 129 million jobs. The coronavirus pandemic poses a unique threat, both of eliminating jobs and putting workers at risk of infection. </p>
<p>These workers are among the least equipped to deal with these risks. About 69% of service workers are low-wage, meaning they make less than $15 an hour, as shown in our research.</p>
<p>Some 58% do not have paid sick leave, 61% have no or inadequate health insurance and very few have paid family leave to care for the sick and dying.</p>
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<p><a href="https://www.umass.edu/employmentequity/covid-19-recession-opportunity-reform-our-low-wage-economy#overlay-context=user">Our analysis</a> pinpoints the states, industries and demographic groups where these low-wage workers are most likely to be found, and provides recommendations for better assisting those most at risk.</p>
<h2>By industry</h2>
<p>Most U.S. service and retail <a href="https://www.cnbc.com/2017/04/20/wal-mart-still-front-and-center-of-debate-over-minimum-wages.html">employers pay low wages</a>. As is well known, the U.S. has <a href="https://www.pewresearch.org/fact-tank/2020/02/07/6-facts-about-economic-inequality-in-the-u-s/">the highest inequality</a> among high income countries, meaning there is the broadest gap between the salaries of the best and worst paid workers.</p>
<p>We found that restaurants and bars are the worst employers, paying less than $15 per hour to 79% of all employees. Hotels also employ a lot of low-wage workers, paying about 63% of their workers less than $15 per hour. Many workers in the business of direct customer services are likely to be fired as their workplaces close.</p>
<p><a href="https://www.umass.edu/employmentequity/covid-19-recession-opportunity-reform-our-low-wage-economy#overlay-context=user">Our report</a> estimates that 57% of nursing home workers, 69% of grocery store workers and 74% of cleaning employees are low-wage workers. </p>
<p>These types of service workers are less likely to lose their jobs, having been deemed essential during the crisis – but they risk exposure to the virus. <a href="https://www.nytimes.com/interactive/2020/03/15/business/economy/coronavirus-worker-risk.html">A recent New York Times report</a> cites cashiers, janitors, messengers and food service employees as among the most at-risk workers based on their exposure to possible carriers of the virus.</p>
<h2>By demographic</h2>
<p>Women and people of color <a href="https://www.umass.edu/employmentequity/covid-19-recession-opportunity-reform-our-low-wage-economy#overlay-context=user">hold a disproportionate share of service industry jobs</a>, and will likely bear the brunt of the economic recession as a result.</p>
<p>Women hold 60% of all service jobs in the U.S. Among these female service workers, 70% earn less than $15 an hour. Broken down by race, 69% of white, 71% of black and 76% of Latina women workers are paid wages below the living wage threshold of $15 per hour.</p>
<p>Men do only marginally better, with 58% percent of men working in service occupations paid less than $15 an hour. The low-wage nature of these jobs does not vary much by race: The majority of white, black and Latino men in service occupations – 55%, 63% and 62% respectively – are in low-wage jobs.</p>
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<p>The high proportion of women in low-pay, high-risk industries such as house cleaning, nursing and store retail <a href="https://www.umass.edu/employmentequity/sites/default/files/CEE_Private%2BSector%2BIndustry%2BDisparities%2B2012.pdf">further increases their economic and health vulnerability</a>.</p>
<h2>By state</h2>
<p>The majority of service workers in every state — with the lone exception of Hawaii — earn less than $15 per hour. Arkansas <a href="https://public.tableau.com/profile/rodrigo.dominguez.villegas#!/vizhome/shared/R2P74XHX9">has the highest percentage of low-wage service workers</a> in the U.S. at 77.6%, a figure that rises to 81.4% among women.</p>
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<p>States like Arkansas, Mississippi, Idaho, New Mexico and South Carolina that have the highest percentage of low-wage workers <a href="https://www.umass.edu/employmentequity/covid-19-recession-opportunity-reform-our-low-wage-economy#overlay-context=diversity-reports">will likely fare the worst</a> in the coming economic recession.</p>
<p>Among these, the citizens of Mississippi and South Carolina, both of which <a href="https://www.kff.org/medicaid/issue-brief/status-of-state-medicaid-expansion-decisions-interactive-map/">rejected the extension of Medicaid</a> under Obamacare to their working poor, will likely fare even worse.</p>
<p>States with higher urban density and costs of living are also at increased risk. In New York, California and Washington, currently the states hardest <a href="https://www.npr.org/sections/health-shots/2020/03/16/816707182/map-tracking-the-spread-of-the-coronavirus-in-the-u-s">hit by the pandemic</a>, more than 57% of service workers make less than $15 an hour, but have to pay more than the national average for rent, food and housing.</p>
<h2>Hopeful signs for service workers</h2>
<p>The U.S. is <a href="https://worldpopulationreview.com/countries/richest-countries-in-the-world/#undefined">the richest country in the world</a>, yet 40% of its jobs pay poverty-level wages. Paying low wages and low or no health benefits <a href="https://www.rsfjournal.org/content/rsfjss/5/4/56.full.pdf">is business as usual</a> for many firms, particularly in retail, service, warehousing and agriculture.</p>
<p>The COVID-19 pandemic – and its economic consequences – presents the U.S. with an opportunity to reject our low-wage labor market structure and transition to an economy similar to that of other high-income countries, one characterized by jobs that deliver living wages and a society that insures universal health care and job security in the face of illness, <a href="https://www.theatlantic.com/ideas/archive/2020/03/denmark-freezing-its-economy-should-us/608533/">such as Denmark</a>.</p>
<p>The new federal economic stimulus <a href="https://www.nytimes.com/article/coronavirus-stimulus-package-questions-answers.html">legislation</a> contains useful short-term reactions to this enormous crisis. It expands access to unemployment benefits and sends money to households, but does little to keep workers on the job. There are already widespread <a href="https://www.washingtonpost.com/business/2020/03/31/worker-retaliation-mistreatment-coronavirus/">reports</a> of employers putting profits over the welfare of their employees.</p>
<p>Importantly, there are also some hopeful signs that <a href="https://www.bostonglobe.com/2020/03/21/metro/stop-shop-gives-union-employees-raises-additional-sick-leave/?event=event25&fbclid=IwAR0q4RpqPoVPgNgGSDBD_KcUePtt71VgDkicIm410HB7Jn0kfkHHXmrET3Y">service workers are demanding and gaining additional pay and benefits</a> even during the COVID-19 pandemic.</p>
<p>We believe <a href="https://www.theatlantic.com/ideas/archive/2020/03/denmark-freezing-its-economy-should-us/608533/">Denmark’s recent measures</a> to combat the crisis, which include paying 75% of employees salaries, along with proposals championed by Sens. Bernie Sanders and Elizabeth Warren are closer to what the country needs in the longer run: <a href="https://finance.yahoo.com/news/minimum-wage-warren-143549362.html">high minimum wages</a>, <a href="https://www.cnbc.com/2019/04/10/bernie-sanders-unveils-medicare-for-all-bill-amid-2020-democratic-primary.html">universal health care</a> and a strengthened <a href="https://jacobinmag.com/2020/03/bernie-sanders-unions-vermont-labor-movement-cwa-ibew/">labor movement</a>. </p>
<p>[<em>You need to understand the coronavirus pandemic, and we can help.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-help">Read The Conversation’s newsletter</a>.]</p><img src="https://counter.theconversation.com/content/134869/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eric Hoyt is affiliated with the Center for Employment Equity, which receives funding from the W.K. Kellogg Foundation.</span></em></p><p class="fine-print"><em><span>JD Swerzenski receives funding from the W.K. Kellogg Foundation.</span></em></p><p class="fine-print"><em><span>Rodrigo Dominguez-Villegas receives funding from the W.K. Kellogg Foundation</span></em></p><p class="fine-print"><em><span>Donald T. Tomaskovic-Devey does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Service workers are some of the most at risk of both the coronavirus and financial woes.Donald T. Tomaskovic-Devey, Professor of Sociology; Director, Center for Employment Equity, UMass AmherstEric Hoyt, Research Director of the Center for Employment Equity, UMass AmherstJ.D. Swerzenski, Ph.D. Candidate in Communication, UMass AmherstRodrigo Dominguez-Villegas, Research Assistant, Center for Employment Equity, UMass AmherstLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1336642020-03-27T17:49:19Z2020-03-27T17:49:19ZHow SNAP can help people during hard economic times like these<figure><img src="https://images.theconversation.com/files/323331/original/file-20200326-132985-40ehou.jpg?ixlib=rb-1.1.0&rect=0%2C68%2C3800%2C1808&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government helps tens of millions of Americans buy groceries.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/customers-bagging-there-products-at-the-tills-in-forest-news-photo/614265074">Jeff Greenberg/Getty</a></span></figcaption></figure><p><a href="https://www.cnn.com/2020/03/16/economy/job-losses-coronavirus/index.html">A record number of Americans</a> are seeing their hours cut or losing their jobs due to the initial economic repercussions of the coronavirus pandemic. How will millions of <a href="https://www.dol.gov/ui/data.pdf">newly jobless</a> families keep putting food on the table?</p>
<p>They might get some help from the <a href="https://www.fns.usda.gov/snap/supplemental-nutrition-assistance-program">Supplemental Nutrition Assistance Program</a>. The nation’s largest anti-hunger system helped about <a href="https://www.fns.usda.gov/pd/supplemental-nutrition-assistance-program-snap">35 million low-income people buy groceries</a> in 2019, down from a peak of over 47 million in 2013 in the aftermath of the Great Recession. </p>
<p>After repeatedly trying to <a href="https://theconversation.com/scaling-back-snap-for-self-reliance-clashes-with-the-original-goals-of-food-stamps-128839">scale back SNAP</a> the White House recently agreed to Congress’s efforts to ramp it back up. The <a href="https://www.congress.gov/bill/116th-congress/house-bill/6201/text">Families First Act</a>, which President Donald Trump signed into law on March 18, included an additional US$1 billion in funding for other nutrition programs and will let more people enroll in SNAP nationwide. The measure also permits the states, which administer this federal program, to temporarily offer higher monthly benefits to many families.</p>
<p>Based on the research I’m doing for an <a href="https://news.richmond.edu/releases/article/-/16856/ur-political-science-professor-awarded-funding-to-advance-book-project-on-history-of-americas-food-stamp-program.html">upcoming book</a> about SNAP’s history, I believe this expansion of the program will not just ease the personal economic pain brought on by this crisis. SNAP also <a href="https://www.ers.usda.gov/amber-waves/2019/july/quantifying-the-impact-of-snap-benefits-on-the-us-economy-and-jobs/">pumps more money</a> into local communities, as it’s designed to do whenever the economy weakens.</p>
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<h2>Help for low-income people</h2>
<p>SNAP helps a wider range of people than many other parts of the safety net. Almost two-thirds of recipients are <a href="https://www.fns.usda.gov/snap/characteristics-supplemental-nutrition-assistance-program-households-fiscal-year-2018">children, elderly or disabled</a>. But it is also available to able-bodied adults with and without children, working or not – <a href="https://www.washingtonpost.com/business/2019/12/04/trump-administration-tightens-work-requirements-snap-which-could-cut-hundreds-thousands-food-stamps/">albeit with some restrictions</a>.</p>
<p>SNAP offers a family of four a maximum benefit of $646 a month. The average person on SNAP gets around <a href="https://fns-prod.azureedge.net/sites/default/files/resource-files/SNAPsummary-2.pdf">$130 a month</a> – about $1.40 per person per meal. That might not sound like much to you, but it can make a big difference to anyone facing severe economic hardship.</p>
<p><a href="https://www.fns.usda.gov/snap/characteristics-supplemental-nutrition-assistance-program-households-fiscal-year-2018">More than 80% of families on SNAP</a> have incomes at or below the federal poverty line, which is $26,200 for a family of four.</p>
<p>People who apply for SNAP get their benefits <a href="https://www.fns.usda.gov/snap/facts">within 30 days and sometimes within a week</a>. The funds come on a debit-type card that can be used at roughly <a href="https://www.fns.usda.gov/resource/snap-retailer-management-year-end-summaries">260,000 retailers</a> including grocery stores, convenience stores and even some farmers markets.</p>
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<h2>Helping the economy</h2>
<p>The number of people on SNAP typically tracks how well the economy is doing. Losing a job is the <a href="https://frac.org/wp-content/uploads/frac-facts-snap-strengths.pdf">most common reason</a> people turn to SNAP.</p>
<p>Economists have found that every percentage point increase in the unemployment rate boosts the number of people on the program <a href="https://www.doi.org/10.1257/pol.20140016">by 15%</a>. SNAP recipients <a href="https://www.fns.usda.gov/snap/benefit-redemption-patterns-supplemental-nutrition-assistance-program">spend their benefits quickly</a>, injecting those dollars directly into the economy. </p>
<p>Use of SNAP is so widespread that the Center for Budget and Policy Priorities, a think tank, estimates based on its analysis of USDA data that <a href="https://www.cbpp.org/research/food-assistance/snap-boosts-retailers-and-local-economies">10% of all the food</a> U.S. families consume at home is purchased with SNAP.</p>
<p>Most SNAP funds are spent in big box or large grocery stores. But SNAP spending can account for <a href="https://www.dailyyonder.com/snap-plays-outsized-role-economy-rural-grocers/2017/08/04/">20-30% of sales</a> – <a href="https://www.bloomberg.com/news/articles/2020-03-15/coronavirus-pandemic-saves-poor-americans-from-food-stamp-cuts">or more</a> – for smaller, independent retailers in depressed areas helping keep these stores open.</p>
<p>Retailers, producers, distributors and marketers all benefit from SNAP purchases. SNAP benefits <a href="https://www.ers.usda.gov/amber-waves/2019/july/quantifying-the-impact-of-snap-benefits-on-the-us-economy-and-jobs/">increase spending on food</a>. But because some or all of a family’s food costs are covered by SNAP, they also have more money to spend on other things.</p>
<p>Recent studies have estimated that each $1 of SNAP benefits spent expands the economy by <a href="https://www.ers.usda.gov/topics/food-nutrition-assistance/supplemental-nutrition-assistance-program-snap/economic-linkages/">$1.54</a> to <a href="https://www.ers.usda.gov/webdocs/publications/44748/7996_err103_1_.pdf">$1.79</a> during a recession.</p>
<p>In fact, government economists concluded that SNAP <a href="https://www.ers.usda.gov/webdocs/publications/93169/err-263.pdf?v=1509.3">got more bang for the buck</a> in terms of creating jobs during the Great Recession than other federal and state assistance.</p>
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<h2>Families First Act</h2>
<p>The new <a href="https://www.congress.gov/bill/116th-congress/house-bill/6201">law changes who can get SNAP</a> and revises other aspects of the program. States will be able to use SNAP benefits to help families with children who get <a href="https://theconversation.com/americas-poorest-children-wont-get-nutritious-meals-with-school-cafeterias-closed-due-to-the-coronavirus-133341">free or reduced-price meals at school</a> but whose schools have closed.</p>
<p>Until the coronavirus crisis is over, the law <a href="https://www.federalregister.gov/documents/2019/02/01/2018-28059/supplemental-nutrition-assistance-program-requirements-for-able-bodied-adults-without-dependents">suspends a cap</a> that had limited benefits to just three months over a three-year period for able-bodied adults without kids under 18. Designed to require able-bodied people to get a job in order to get help, this cap normally applies to people who are aren’t working or are working less than 20 hours a week.</p>
<p>The suspension prevents <a href="https://www.supermarketnews.com/laws-regulations/snap-rule-change-would-cut-food-stamp-benefits-700000-recipients">roughly 700,000 people</a> from being kicked off the program, as the Trump administration had planned. </p>
<p>The law also allows states to offer some people getting SNAP benefits <a href="https://fns-prod.azureedge.net/sites/default/files/resource-files/SNAP-COVID-EmergencyAllotmentsGuidance.pdf">additional emergency aid</a>. This could mean several hundred <a href="https://www.wavy.com/news/virginia/virginias-snap-program-will-issue-emergency-benefits-amid-coronavirus-crisis/">extra dollars</a> for these families to stock up on food for at least a while. Some states have already <a href="https://www.fns.usda.gov/programs/fns-disaster-assistance/fns-response-covid-19/snap-emergency-allotments-current-snap">gotten approval</a> from the federal government to make these additional benefits available in March.</p>
<p>Finally, the law gives states <a href="https://www.cbpp.org/research/food-assistance/usda-states-must-act-swiftly-to-deliver-food-assistance-allowed-by-families">more administrative flexibility</a> to make it easier to keep people on SNAP and add new applicants. For example, stressed state agencies may be allowed to relax a requirement that all applicants be interviewed in person or over the phone before they can get benefits.</p>
<h2>Costs are unclear</h2>
<p>Low-wage workers, such as those who work for hotels, restaurants, bars and stores will be especially hard hit by the sharp economic downturn the new coronavirus is causing. These workers often live paycheck to paycheck and many more of them will need help than before.</p>
<p><a href="https://www.washingtonpost.com/business/2020/03/16/food-banks-are-seeing-volunteers-disappear-food-supply-evaporate-coronavirus-fears-mount/">Food banks and pantries</a> are scrambling for volunteers and donations and will not be able meet the soaring need. To be clear, even in good times, food banks typically offer only <a href="https://www.politico.com/story/2017/09/03/food-banks-fight-congress-food-stamp-cuts-242268">10% of the food assistance SNAP provides</a>.</p>
<p>Unlike some government programs, there is no set spending limit on SNAP. It covers benefits for all who qualify for help, regardless of what it’s going to cost.</p>
<p>No one knows yet how many more people will enroll in the program or what the total tab will be. But I believe the gains reaped as a result will be well worth it.</p>
<p>[<em>Get facts about coronavirus and the latest research.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-facts">Sign up for our newsletter.</a>]</p><img src="https://counter.theconversation.com/content/133664/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tracy Roof does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The food aid program helps low-income families put food on the table and injects money straight into struggling local economies. It will be critical throughout the crisis the coronavirus is stoking.Tracy Roof, Associate Professor of Political Science, University of RichmondLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1339032020-03-23T12:02:47Z2020-03-23T12:02:47ZWhat happens to charitable giving when the economy falters?<figure><img src="https://images.theconversation.com/files/322020/original/file-20200320-22594-f9jlre.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3600%2C2204&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will Mark Zuckerberg and Priscilla Chan quickly get money to charities?</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/7th-Annual-Breakthrough-Prize-Awards/340d2e755e9f4e6b919a56749722136b/1/0">Peter Barreras/Invision/AP</a></span></figcaption></figure><p><em>As the new coronavirus pandemic sends the economy into a tailspin, <a href="https://scholar.google.com/citations?user=uO3Ibh4AAAAJ&hl=en&oi=ao">Patrick Rooney</a>, an economist at the Indiana University Lilly Family School of Philanthropy, and <a href="https://scholar.google.com/citations?user=plWgMBcAAAAJ&hl=en&oi=ao">Jon Bergdoll</a>, a philanthropy statistician, explain what usually happens to giving during recessions.</em></p>
<h2>Do Americans give more to charity when more people are in need?</h2>
<p>No. Overall, for the last 64 years <a href="https://store.givingusa.org/collections/data-tables/products/2019-data-tables?variant=22181967790159">total giving has grown at an average annual rate of 3.3%</a> adjusted for inflation. But the picture changes if you compare what’s happened when the economy has grown versus when it has contracted. During years with economic growth, average giving has increased by 4.7%. During the years marked by economic downturns, average giving has actually decreased by 0.5%.</p>
<p>During economic downturns, <a href="https://dx.doi.org/10.7758%2Frsf.2017.3.3.01">more people are out of work</a> and need a hand. But individuals, along with other sources of philanthropy including foundations, typically are making less income and have reduced wealth available, and so they decrease their giving accordingly.</p>
<p>The <a href="https://theconversation.com/what-influences-american-giving-78800">Great Recession</a> was an extreme example. Total giving dropped by 7.2% in 2008, and then decreased by another 8% in 2009.</p>
<p>The change wasn’t just because Americans had less money. Measuring <a href="https://theconversation.com/what-influences-american-giving-78800">giving as a share of gross domestic product</a>– the total of all economic activity – is one way experts like us measure relative generosity on a national scale. U.S. giving as a percentage of GDP declined from 2.2% in 2007 to 2% in 2009.</p>
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<h2>Why don’t people give more during downturns?</h2>
<p>There’s a strong relationship between how much money Americans give to charity and their after-tax income. There is a similar correlation between giving and the stock market’s performance. That means people give more when they feel that they have money to spare. </p>
<p>To be sure, some people see charity as a religious or moral obligation that they must try to uphold regardless of their personal economic circumstances. But for some of us, giving is a luxury rather than a necessity that can go on hold when times get tough.</p>
<p>At the same time, there’s some evidence that people may try to help others deal with the hardships that recessions bring about. In 2008 and 2009, giving fell by a total of 15%. But giving to nonprofits such as food banks and homeless shelters that provide <a href="https://www.doi.org/10.3390/admsci4030350">essential social services</a> grew by 10%.</p>
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<h2>What about foundations?</h2>
<p>Foundations exist to fund charitable activities such as the pursuit of science, education, culture and religion. They are <a href="https://www.cof.org/content/foundation-basics">required by law to disburse at least 5%</a> of their assets. There is no legal limit to how much they can spend, but in practice they try to retain most of their holdings to ensure that they can continue to exist in the long term.</p>
<p>And although spending more than 5% of their assets when times are tough might make a difference and is perfectly legal, historically, <a href="http://www.iupress.indiana.edu/product_info.php?products_id=40880ss">most have not taken this step</a>.</p>
<p>We have tried to assess the validity of the concerns foundations have about spending more than 5% of their holdings every year by running <a href="https://doi.org/10.4337/9781785363528">thousands of simulations</a>. These experiments modeled a variety of economic circumstances, different investment strategies, and various levels of disbursement relative to a foundation’s total holdings.</p>
<p>We consistently determined that U.S. foundations would have enough funding to keep operating in the the long term. That was true even if they were to distribute as much as 9% of their assets annually for 50 years or even a century.</p>
<p>However, it’s important to acknowledge that their asset base would decline conspicuously. For example, unless they obtained additional capital and depending on how they manage their investments, foundations would lose between a third and a half of their starting value with a 7% payout rate.</p>
<h2>Does it have to be that way?</h2>
<p>Fortunately, a growing group of foundations is rapidly responding to the many competing needs arising because of the pandemic. More than 40, so far, have <a href="https://www.cof.org/news/call-action-philanthropys-commitment-during-covid-19">joined forces</a> to declare that they’re making grants with fewer or no strings attached and quickly chipping in to support emergency-response funds in hard-hit communities.</p>
<p>The Bill and Melinda Gates Foundation, in particular, has committed <a href="https://www.gatesfoundation.org/TheOptimist/Articles/coronavirus-mark-suzman-therapeutics">US$125 million to speed up research</a> into vaccines and treatments, along with everything it will take to swiftly distribute any breakthrough products as quickly as possible. </p>
<p>Likewise, the Chan Zuckerberg Initiative is partnering with the University of California, San Francisco and Stanford University to <a href="https://chanzuckerberg.com/newsroom/czi-cz-biohub-to-quadruple-ucsf-covid-19-testing-capabilities/">quadruple their testing and diagnosis capacity</a> for the new coronavirus. They are also making a new dataset around the virus open access and machine-readable. </p>
<p>Regardless of how large philanthropic institutions respond to the repercussions from bringing the global economy to a screeching halt, it’s important to keep in mind that while foundations play an important role in society, their impact is inherently limited.</p>
<p>All foundations combined held nearly <a href="https://fred.stlouisfed.org/series/BOGZ1FL164090015Q">$1 trillion in assets</a> at the end of 2019, prior to the financial upheaval that has surely reduced the value of their holdings.</p>
<p>There’s no amount they can give away over the coming years that would compare to the proposed <a href="https://www.cnn.com/2020/03/21/politics/stimulus-package-negotiations-congress-coronavirus/index.html">federal stimulus package</a>. It may top $2 trillion and is likely just the first salvo in response to this battle to stop the new coronavirus and its health and economic effects.</p>
<p><em>Editor’s note: The Gates Foundation is a funder of The Conversation Media Group.</em></p>
<p>[<em>You need to understand the coronavirus pandemic, and we can help.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-help">Read our newsletter</a>.]</p><img src="https://counter.theconversation.com/content/133903/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Rooney and the Lilly Family School of Philanthropy receives funding from numerous charities, foundations, and donors. He serves on numerous boards, task forces, and advisory committees for charities.</span></em></p><p class="fine-print"><em><span>Jon Bergdoll does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In past recessions, donors have tightened their pursestrings even as the need has grown. But two scholars explain why, at least for foundations, there’s room for more generosity in tough times.Patrick Rooney, Executive Associate Dean for Academic Programs, Professor of Economics and Philanthropic Studies, IUPUIJon Bergdoll, Applied Statistician of Philanthropy, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1314352020-03-20T12:12:31Z2020-03-20T12:12:31ZWe are entering a recession – but what did we learn from the last one?<figure><img src="https://images.theconversation.com/files/315322/original/file-20200213-11044-1kmgqeu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Families recovered from the Great Depression much more quickly than the Great Recession.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/photos/great-depression?agreements=pa:77130&phrase=great%20depression&sort=best#license">Bettmann/Getty Images</a></span></figcaption></figure><p>As the coronavirus <a href="https://www.cdc.gov/coronavirus/2019-ncov/healthcare-facilities/prevent-spread-in-long-term-care-facilities.html">continues to spread around the world</a>, it is abundantly clear that <a href="https://www.forbes.com/sites/richkarlgaard/2020/03/08/covid-19-and-the-economy-as-seen-from-a-technology-investment-conference/#709bcd214fc7">the global economy is entering a recession</a> – the first we’ve seen since 2008.</p>
<p><a href="https://money.cnn.com/2014/08/27/news/economy/ben-bernanke-great-depression/index.html">Some officials have compared</a> the last period of economic decline – also know as the Great Recession – to <a href="https://books.google.com/books?id=tGiktQc6yWMC&printsec=frontcover&dq=Great+Depression+best+scholar+treatment&hl=en&newbks=1&newbks_redir=0&sa=X&ved=2ahUKEwiVluLug6foAhUSVN8KHUzZDBEQ6AEwA3oECAQQAg#v=onepage&q&f=false">the Depression</a>, which began in 1929. </p>
<p>Yet it is clear that these two downturns differed not only in severity but also in the consequences they had for inequality in the United States.</p>
<p>Though the Depression was <a href="https://money.cnn.com/news/storysupplement/economy/recession_depression/">bigger and longer than the Great Recession</a>, the decades following the Great Depression substantially reduced the wealth of the rich and improved the economic security of many workers. In contrast, the Great Recession exacerbated both income and wealth inequality.</p>
<p><a href="https://www.jstor.org/stable/10.7758/9781610447508">Some scholars</a> have attributed this phenomenon to a weakened labor movement, fewer worker protections and a radicalized political right wing.</p>
<p>In our view, this account misses the dominance of Wall Street and the financial sector and overlooks its fundamental role in generating economic disparities.</p>
<p><a href="https://www.kenhoulin.info">We are experts</a> in <a href="http://www.megantobiasneely.com">income inequality</a>, and our new book, “<a href="https://global.oup.com/academic/product/divested-9780190638313">Divested: Inequality in the Age of Finance</a>,” argues that inequality from the Recession has a lot to do with how the government designed its response.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/315323/original/file-20200213-10995-wgcxbt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/315323/original/file-20200213-10995-wgcxbt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/315323/original/file-20200213-10995-wgcxbt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/315323/original/file-20200213-10995-wgcxbt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/315323/original/file-20200213-10995-wgcxbt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/315323/original/file-20200213-10995-wgcxbt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/315323/original/file-20200213-10995-wgcxbt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Great Recession exacerbated a persistent wealth gap in the U.S.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/photos/great-recession?agreements=pa:77130&phrase=Great%20Recession&sort=best#license">Xinhua News Agency/Getty Images</a></span>
</figcaption>
</figure>
<h2>The Depression</h2>
<p>Reforms during the Great Depression restructured the financial system by restricting banks from risky investment, Wall Street from gambling with household savings and lenders from charging high or unpredictable interests.</p>
<p><a href="https://www.history.com/topics/great-depression/new-deal">The New Deal</a>, a series of government programs created after the Great Depression, took a bottom-up approach and brought governmental resources directly to unemployed workers. </p>
<p>On the other hand, the regulatory policies since the financial crisis that began in 2008 were largely designed to restore a financial order that, for decades, has been channeling resources from the rest of the economy to the top.</p>
<p>In other words, the recent recovery was largely focused on finance. Governmental stimuli, particularly a <a href="https://www.nytimes.com/2008/10/09/business/economy/10fed.html">mass injection of credit</a>, first went to banks and large corporations, in the hope that the credit eventually would trickle down to families in need.</p>
<p>The conventional wisdom was that banks knew how to put the credit into best use. And so, to stimulate economic growth, the Federal Reserve increased the supply of money to banks <a href="https://www.latimes.com/business/la-fi-federal-reserve-stimulus-20170710-htmlstory.html">by purchasing treasury and mortgage-backed securities</a>.</p>
<p>But the stimulus didn’t work the way the government intended. The banks prioritized their own interests over those of the public. Instead of lending the money out to homebuyers and small businesses at historically low interest rates, they deposited the funds and waited for interest rates to rise.</p>
<p>Similarly, corporations did not use the easy credit to increase wages or create jobs. Rather, they borrowed to <a href="https://taxfoundation.org/economics-stock-buybacks/">buy their own stock</a> and channeled earnings to top executives and shareholders.</p>
<p>As a result, the “banks and corporations first” principle created a highly unequal recovery.</p>
<h2>Who lost in 2009?</h2>
<p>The financial crisis wiped out almost three-quarters of financial sector profits, but the sector had fully recovered by mid-2009, as we covered in our book.</p>
<p>Its profits continued to grow in the following years. By 2017, the sector made 80% more than before the financial crisis. Profit growth was much slower in the nonfinancial sector.</p>
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<p>Companies outside of the financial sector were more profitable because they had fewer employees and lower wage costs. Payroll expenses dropped 4% during the recession and remained low during the recovery.</p>
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<p><a href="https://www.nytimes.com/2013/03/29/business/daily-stock-market-activity.html?searchResultPosition=2">The stock market fully recovered from the crisis in 2013</a>, a year when the unemployment rate was as high as 8% and the single-family mortgage delinquency still hovered above 10%. </p>
<p>Median household wealth, in the meantime, had yet to recoup from the nosedive during the Great Recession.</p>
<p>The <a href="https://theconversation.com/african-americans-economic-setbacks-from-the-great-recession-are-ongoing-and-could-be-repeated-109612">racial wealth gap only widened</a>, as well. While the median household wealth of all households dropped around 25% after the burst of real estate bubble, white households recovered at a much faster pace.</p>
<p>By 2016, black households had about <a href="https://global.oup.com/academic/product/divested-9780190638313">30% less wealth than before the crash</a>, compared to 14% for white families.</p>
<p>As the government debates a stimulus package, officials can either decide to continue the “trickle-down” approach to first protect banks, corporations and their investors with monetary stimuli.</p>
<p>Or, they can learn from the New Deal and bring governmental support directly to the most fragile communities and families.</p>
<p>[<em>Get facts about coronavirus and the latest research.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-facts">Sign up for our newsletter.</a>]</p><img src="https://counter.theconversation.com/content/131435/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ken-Hou Lin receives funding from the National Institutes of Health, the Bill & Melinda Gates Foundation, the Joyce Foundation, and the Institute for New Economic Thinking. </span></em></p><p class="fine-print"><em><span>Megan Neely does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While the Great Depression reduced inequality and closed the racial wealth gap, the Great Recession of 2009 did the opposite.Ken-Hou Lin, Associate Professor of Sociology, The University of Texas at AustinMegan Neely, Postdoctoral Researcher, Stanford UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1238502019-09-19T11:18:42Z2019-09-19T11:18:42ZFed’s rate cut signals a recession may be ahead – and it may not have enough ammunition to fight it<figure><img src="https://images.theconversation.com/files/293093/original/file-20190918-187985-1xr3lvl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Fed's Jerome Powell keeps his cards close to his chest. </span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Federal-Reserve/5dabab15e711433ea1241f898d8a9f16/7/0">AP Photo/Patrick Semansky</a></span></figcaption></figure><p>The Federal Reserve seems a lot more concerned about the state of the economy than it’s been letting on. </p>
<p>The Fed <a href="https://www.bloomberg.com/news/articles/2019-09-18/fed-makes-second-straight-rate-cut-splits-on-further-action?srnd=premium">lowered its target interest rate</a> by a quarter point on Sept. 18, the second such cut since July – and the first reductions since the Great Recession more than 10 years ago. </p>
<p>Judging by the words of Fed Chair Jerome Powell, this isn’t that big a deal. In his statement following the decision, he said: “We took this step to help keep the U.S. economy strong in the face of some notable developments and to provide insurance against ongoing risks.” </p>
<p>True, the economy has been pretty strong for 10 years now, pushing the unemployment rate to a <a href="https://data.bls.gov/timeseries/LNS14000000">near record-low 3.7%</a>. But in my view, as an <a href="https://econofact.org/about">economist and expert on monetary policy</a>, Powell’s calm words belie a deeper concern. And, if a recession is on the way, the Fed may be ill-equipped to fight it. </p>
<h2>Trouble brewing</h2>
<p>A clear sign of the Fed’s concern is the back-to-back rate cuts, something that <a href="https://fred.stlouisfed.org/series/FEDFUNDS">only happens during recessions</a> or in anticipation of a downturn.</p>
<p>But there are many other troubling signs in the economic outlook. </p>
<p>For example, earlier this month, the Institute for Supply Management <a href="https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm?SSO=1">reported that manufacturing activity</a> has slowed significantly. The sector actually contracted in August for the <a href="https://www.marketwatch.com/story/ism-manufacturing-index-falls-below-50-indicating-contraction-in-activity-2019-09-03">first time in three years</a>. And although the unemployment rate remains historically low, <a href="https://www.nytimes.com/2019/09/06/business/economy/august-jobs-report.html">jobs growth is slowing</a> as a result of global trade turbulence. </p>
<p>Bond investors’ apparent deep unease about the state of the economy resulted in the <a href="https://econofact.org/what-information-does-the-yield-curve-yield">inversion of the yield curve</a>, which is often viewed as a <a href="https://theconversation.com/the-yield-curve-is-one-of-the-most-accurate-predictors-of-a-future-recession-and-its-flashing-warning-signs-119963">harbinger of recession</a>. Usually investors demand higher yields to lend for longer terms than for short periods. An inverted yield curve means that’s reversed, a sign investors are expecting trouble ahead. </p>
<p>The global outlook is also disconcerting. China’s economic growth has <a href="https://www.cnn.com/2019/07/15/economy/china-gdp-growth/index.html">slowed</a> to its lowest rate in 27 years, and if Germany has <a href="https://tradingeconomics.com/germany/gdp-growth">another quarter of negative growth</a> it will officially be in recession. That would mean fewer buyers for American products – a problem made worse by <a href="https://econofact.org/is-china-weakening-the-yuan-to-fight-u-s-tariffs">the strong dollar</a>.</p>
<p>And then there’s the <a href="https://markets.businessinsider.com/news/stocks/pantheon-macroeconomics-charts-show-trump-trade-war-impact-on-us-economy-2019-9-1028531230">ongoing trade war with China</a>, <a href="https://www.nytimes.com/2019/09/15/business/saudi-arabia-oil-energy-prices.html">oil shocks</a> because of the attacks in Saudi Arabia and <a href="https://theconversation.com/a-no-deal-brexit-wont-end-the-uncertainty-for-business-123217">disruptions associated with Brexit</a>, which is supposed to occur, plan or not, at the end of October. </p>
<p>All of these events can play havoc on business investment, consumer sentiment and global supply chains. </p>
<h2>Little ammo left</h2>
<p>What is especially challenging now is that there seems to be little room for policymakers to respond if – or perhaps we should say “when” – a recession hits. </p>
<p>The recent move by the Fed puts its policy interest rate – known as the fed funds rate – at a range of 1.75% to 2%. In a typical recession, the Fed usually cuts rates by much more than 2 percentage points in hopes of getting the economy humming again. If that becomes necessary, the Fed would need to lower rates below zero – and there is a question of how far into negative territory rates could go. Negative interest rates <a href="https://econofact.org/how-low-can-we-go-prospects-for-negative-interest-rates">could cause other problems</a> in the financial system.</p>
<p>Furthermore, monetary policy is only effective when the Fed’s target rate affects interest rates throughout the economy, such as the rate you pay to get a mortgage on a house or take out a loan to buy a car. There’s limited scope for that to happen when <a href="https://fred.stlouisfed.org/series/MORTGAGE30US">borrowing costs</a> throughout the economy are already so low. </p>
<p>What’s more, it’s not clear the government will be able to do all that much either in terms of fiscal policy. The budget deficit <a href="https://www.wsj.com/articles/u-s-deficit-tops-1-trillion-in-first-11-months-of-fiscal-year-treasury-says-11568311201">exceeded</a> US$1 trillion during the first 11 months of the current fiscal year, which ends this month. That’s the first time it’s been that high since 2012, a time when the economy was weak – which itself raises the deficit – leaving the government with little room to add new stimulus. </p>
<p>So the concerns of Powell and other Fed governors – fully expressed or not – look well founded. Another worry, perhaps less rational, is that we’re heading into autumn, which is when some of the darkest days of American economic history occurred, including <a href="https://www.history.com/topics/great-depression/1929-stock-market-crash">Black Friday</a> just before the Great Depression in 1929 and the <a href="https://www.thebalance.com/the-great-recession-of-2008-explanation-with-dates-4056832">turmoil that led to the Great Recession</a> in 2008. </p>
<p>Let’s hope that the fall of 2019 does not become another season of dark days.</p>
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<p class="fine-print"><em><span>Michael Klein is the Founder and Executive Editor of EconoFact, a non-partisan website that publishes research from its network of academic economists (<a href="http://www.econofact.org">www.econofact.org</a>). </span></em></p>The US economy may be in worse shape than it seems.Michael Klein, Professor of International Economic Affairs at The Fletcher School, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.