Category: Economic Crisis

Resilient Entrepreneurs Quickly Rebuilt Chicago After “Great Fire” of 1871

(p. C8) Along with the San Francisco earthquake of 1906, the Great Chicago Fire of 1871 stands as one of America’s foundational urban legends, a story of death and rebirth, a monument to the resiliency of the nation’s character.

. . .

Photographs taken immediately after the fire show the utter devastation facing residents: a flattened, rubble-strewn landscape, with only the jagged husks of buildings jutting into the smoky air. But “Chicago’s Great Fire” goes beyond the disaster and its cause to recount the remarkable way the city sprang back. An energizing sense of optimism and opportunity, along with a heavy dose of boosterism, had fueled the city’s explosive growth, and those elements quickly went to work. “Almost immediately,” Mr. Smith writes, “many Chicagoans paradoxically came to see the heroic destruction of their city as an unexpectedly positive event, a stage in its irresistible upward development rather than a dispiriting setback.”

“CHEER UP,” exhorted the headline on an editorial in the Chicago Tribune’s first postfire edition, three days after the inferno started. Even while tens of thousands of residents remained homeless, an emissary assured Eastern financiers that the city warranted a new round of investment. Local entrepreneurs built crude shacks in the rubble to sell necessities. Debris not used for rebuilding was dumped on the edge of Lake Michigan, thus enlarging the size of the downtown.

For the full review, see:

Richard Babcock. “A Cow, a Lantern, a City in Flames.” The Wall Street Journal (Saturday, Oct. 17, 2020): C8.

(Note: ellipsis added.)

(Note: the online version of the review has the date October 16, 2020, and has the title “‘Chicago’s Great Fire’ Review: Rising From the Ashes.”)

The book under review is:

Smith, Carl. Chicago’s Great Fire: The Destruction and Resurrection of an Iconic American City. New York: Atlantic Monthly Press, 2020.

Argentines Prefer “Cratered” Cryptocurrency Over Hyperinflating Pesos or Hauling “Large Stashes” of Dollar Bills

(p. A4) Even though the cryptocurrency market has cratered in recent months, many Argentines see it as a safe haven ‌in a country where surging inflation and a grinding economic crisis have battered the national currency, the peso, and people’s bank accounts.

“Money here is like ice cream,” said Marcos Buscaglia, an economist in Buenos Aires, the capital. “If you keep a peso for too long, it melts in terms of how much you can buy with it.”

. . .

Across the world, people in low-income and emerging countries have become the biggest users of cryptocurrencies, according to various reports, overtaking the United States and Europe.

Digital coins are prized in countries where the local money is volatile and where governments have made it harder for citizens to buy foreign currencies.

. . .

Argentina provides some clues about the appeal of cryptocurrencies.

Argentines have long looked to the dollar as a safe haven. Saving in dollars “is tattooed into our DNA,” said Daniel Convertini, 34, who works in communications for a ride-hailing company. “I learned to do it from my dad and my grandfather, not because I read it in some financial newspaper.”

. . .

. . . digital currencies provide an advantage by not requiring people to haul around large stashes of bills.

For the full story, see:

Ana Lankes. “Crypto Is Tumbling. But to Argentines, It Still Beats Pesos.” The New York Times, First Section (Sunday, August 21, 2022): A4.

(Note: ellipses added.)

(Note: the online version of the story has the date Aug. 20, 2022, and has the title “Crypto Is Tumbling, but in Argentina It’s Still a Safer Bet.”)

Minorities, Disabled, Less-Educated, and Felons Are First Laid Off in a Recession

(p. A1) Black Americans have been hired much more rapidly in the wake of the pandemic shutdowns than after previous recessions. But as the Federal Reserve tries to soften the labor market in a bid to tame inflation, economists worry that Black workers will bear the brunt of a slowdown — and that without federal aid to cushion the blow, the impact could be severe.

Some 3.5 million Black workers lost or left their jobs in March and April 2020. In weeks, the unemployment rate for Black workers soared to 16.8 percent, the same as the peak after the 2008 financial crisis, while the rate for white workers topped out at 14.1 percent.

Since then, the U.S. economy has experienced one of its fastest rebounds ever, one that has extended to workers of all races. The Black unemployment rate was 6 percent last month, just above the record low of late 2019. And in government data collected since the 1990s, wages for Black workers are rising at their fastest pace ever.

Now policymakers at the Fed and in the White House face the challenge of fighting inflation without inducing a recession that would erode or reverse those workplace gains.

Decades of research has found that workers from racial and ethnic minorities — along with those with other barriers to employment, such as disabilities, criminal records or low levels of education — are among the first laid off during a downturn and the last hired during a recovery.

For the full story, see:

Talmon Joseph Smith and Ben Casselman. “Job Gains for Black Workers Could Reverse in a Downturn.” The New York Times (Wednesday, August 24, 2022): A1 & A14.

(Note: the online version of the story has the same date as the print version and has the title “What Will Happen to Black Workers’ Gains if There’s a Recession?”)

“Maverick” Chinese Entrepreneur Zhou Hang Dares Criticize Zero Covid Policy

(p. B1) China’s entrepreneur class is grappling with the worst economic slump in decades as the government’s zero Covid policy has shut down cities and kept would-be customers at home. Yet they can’t seem to agree on how loudly they should complain — or even whether they should at all.

. . .

Their approach, the equivalent of an ostrich sticking its head in the sand, doesn’t make sense to Zhou Hang. Mr. Zhou, a tech entrepreneur and a venture capitalist, has questioned how his peers can pretend it’s business as usual, given the political and economic upheaval. Stop putting up with the ridiculous reality, he urged. It’s time to speak up and seek change.

Mr. Zhou is rare in China’s business community for being openly critical of the government’s zero Covid policy, which has put hundreds of millions of people under some kind of lockdowns in the past few months, costing jobs and revenues. He’s saying what many others are whispering in private but fear to say in public.

“The questions we should ask ourselves are,” he wrote in an article that was censored within an hour of posting (p. B4) but shared widely in other formats, “what caused such widespread negative sentiment across the society? Who should be responsible for this? And how can we change it?”

He said the lockdowns in Shanghai and other cities made it clear that wealth and social status meant little to a government determined to pursue its zero Covid policy. “We’re all nobodies who could be sent to the quarantine camps, and our homes could be broken into,” he wrote. “If we still choose to adapt to and put up with this, all of us will face the same destiny: trapped.”

. . .

Mr. Zhou, 49, is known as a maverick in Chinese business circles. He founded his first business in stereo systems with his brother in the mid-1990s when he was still in college. In 2010, he started Yongche, one of the first ride-hailing companies.

Unlike most Chinese bosses, he didn’t demand that his employees work overtime, and he didn’t like liquor-filled business meals. He turned down hundreds of millions of dollars in funding and refused to participate in subsidy wars because doing so didn’t make economic sense. He ended up losing out to his more aggressive competitor Didi.

He later wrote a best seller about his failure and became a partner at a venture capital firm in Beijing. In April [2022], he was named chairman of the ride-sharing company Caocao, a subsidiary of auto manufacturing giant Geely Auto Group.

A Chinese citizen with his family in Canada, Mr. Zhou said in an interview that in the past many wealthy Chinese people like him would move their families and some of their assets abroad but work in China because there were more opportunities.

Now, some of the top talent are trying to move their businesses out of the country, too. It doesn’t bode well for China’s future, he said.

“Entrepreneurs have good survivor’s instinct,” he said. “Now they’re forced to look beyond China.” He coined a term — “passive globalization” — based on his discussions with other entrepreneurs. “Many of us are starting to take such actions,” he said.

For the full story see:

Li Yuan. “A Solitary Critic on ‘Zero Covid’.” The New York Times (Saturday, June 11, 2022): B1 & B4.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date June 10, 2022 and has the title “A Chinese Entrepreneur Who Says What Others Only Think.”)

Chair of Obama’s Council of Economic Advisers Worries that the Huge Covid Stimulus Spending Is Causing “Permanently Higher Inflation”

Jason Furman, quoted below, was the Chair of President Obama’s Council of Economic Advisors. He is now a professor of economics at Harvard.

(p. B1) The United States spent more aggressively to protect its economy from the pandemic than many global peers, a strategy that has helped to foment more rapid inflation — but also a faster economic rebound and brisk job gains.

Now, though, America is grappling with what many economists see as an unsustainable worker shortage that threatens to keep inflation high and may necessitate a firm response by the Federal Reserve. Yet U.S. employment has not recovered as fully as in Europe and some other advanced economies. That reality is prodding some economists to ask: Was America’s spending spree worth it?

. . .

“I’m worried that we traded a temporary growth gain for permanently higher inflation,” said Jason Furman, an economist at Harvard University and a former economic official in the Obama administration. His concern, he said, is that “inflation could stay higher, or the Fed could control it by lowering output in the future.”

For the full story, see:

Jeanna Smialek and Ben Casselman. “Same Relief Goal, Different Costs.” The New York Times (Wednesday, April 27, 2022): B1 & B3.

(Note: ellipsis added.)

(Note: the online version of the story has the date April 25, 2022, and has the title “Rapid Inflation, Lower Employment: How the U.S. Pandemic Response Measures Up.”)

Warren Harding Fostered Economic Growth by Reducing Government

(p. A15) Poor Warren G. Harding, burdened with the distinction of being America’s pre-eminent presidential bottom-dweller. In surveys on White House performance, Harding invariably ranks dead last, with almost no prospect that he will ever climb the rankings as others have done—Dwight D. Eisenhower, for example, or Ulysses S. Grant.

Historians have variously described Harding as “a prime example of incompetence, sloth, and feeble good nature,” “the most inept president” of his century, “lazy,” “a black mark in American history” and “quite the bumbler.” Is this an accurate appraisal? Ryan S. Walters answers with a defiant no. In “The Jazz Age President: Defending Warren G. Harding,” the author even indulges in a few flights of outrage at what he considers the “rumors, lies, smears, and innuendo” that have been “used to wreck” Harding’s reputation.

. . .

When Harding became president in 1921, the nation was struggling through one of its greatest crisis periods, beset by soaring inflation followed by debilitating deflation, bloody racial and labor strife, ominous episodes of domestic terrorism, and the fallout from Woodrow Wilson’s harsh wartime assaults on civil liberties. Harding’s first priority was the economy—the gross national product was down 17%, stock values were cut nearly in half, unemployment was at 12% and farmers were devastated by plunging prices. Harding reduced government spending, slashed individual taxes (the marginal rate had reached a high of 77%), increased tariff rates, and shrank the size and intrusiveness of the federal government.

All this flouted the progressivism that had dominated American politics since Theodore Roosevelt’s presidency of 1901-09. But Harding’s efforts worked, setting in motion a decade of economic expansion unequaled in American history. The economy grew at an average of 7% a year between 1922 and 1927, and the nation’s wealth soared to $103 billion in 1929 from $70 billion in 1921.

. . .

Harding was a man of little intellectual sophistication, with a gentle nature, hardly any pretense and almost no guile—in other words, the kind of man who is often underestimated and easily ridiculed. But he harbored serious convictions and a degree of common sense that served him well.

For the full review, see:

Robert W. Merry. “BOOKSHELF; A President Revisited.” The Wall Street Journal (Monday, April 4, 2022): A15.

(Note: ellipses added.)

(Note: the online version of the review has the date April 3, 2022, and has the title “BOOKSHELF; ‘The Jazz Age President’ Review: Correcting the Record.”)

The book under review is:

Walters, Ryan S. The Jazz Age President: Defending Warren G. Harding. Washington, D.C.: Regnery History, 2022.

Federal Covid-19 Stimulus Subsidies Reduced Labor Force Participation

(p. A2) . . ., home prices and stocks have soared, in part because of stimulus from the Fed. From the start of 2020 through Sept. 30 this year, U.S. households’ total assets soared 22% to nearly $163 trillion, Fed data show.

At the same time, the labor-force participation rate fell sharply and has remained stubbornly low. At 61.8% in November [2021], it was 1.5 percentage points below its pre-pandemic level. Many older workers retired early. But even among prime-age workers—those between 25 and 54—participation remains down more than a percentage point.

Some economists believe the extra cash is one reason for this. In part, that is based on research showing declines in wealth seem to have had the opposite effect. Falling housing and stock values from 2006 and 2010 led many who otherwise would have fallen out of the labor force to stay in, according to the Federal Reserve Bank of Chicago. The study found that participation was 0.7 percentage point higher than otherwise as a result.

Families that win at least $30,000 in the lottery tend to earn less in the next five years, according to a National Bureau of Economic Research working paper released in July by four University of Chicago scholars. The more a person wins, the bigger the effect that the award has on earnings and employment, the paper found. Upper-income winners are more likely to reduce their hours, while lower-income winners are more likely to drop out of the labor market entirely, the paper found.

In Austria, workers who received severance payments worth two months of pay were far less likely to find a job within 20 weeks compared with those who received no such lump sum, according to a 2006 paper released by the NBER. The researchers also found a similar effect among workers whose unemployment benefits were extended from 20 weeks to 30 weeks.

For the full commentary, see:

Josh Mitchell. ” THE OUTLOOK; New Hope for Easing Labor Shortage.” The Wall Street Journal (Monday, Dec. 20, 2021): A2.

(Note: ellipsis, and bracketed year, added.)

(Note: the online version of the commentary has the date December 19, 2021, and has the title ” THE OUTLOOK; Vast Household Wealth Could Be a Factor Behind U.S. Labor Shortage.”)

The July 2021 NBER working paper mentioned above is:

Golosov, Mikhail, Michael Graber, Magne Mogstad, and David Novgorodsky. “How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income.” National Bureau of Economic Research Working Paper #29000, July 2021.

The published version of the 2006 NBER working paper mentioned above is:

Card, David, Raj Chetty, and Andrea Weber. “Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market.” The Quarterly Journal of Economics 122, no. 4 (Nov. 2007): 1511-60.

“Americans Think the Economy Is in Rough Shape Because the Economy Is in Rough Shape”

(p. A12) Offices remain eerily empty. Airlines have canceled thousands of flights. Subways and buses are running less often. Schools sometimes call off entire days of class. Consumers waste time waiting in store lines. Annual inflation has reached its highest level in three decades.

Does this sound like a healthy economy to you?

In recent weeks, economists and pundits have been asking why Americans feel grouchy about the economy when many indicators — like G.D.P. growth, stock prices and the unemployment rate — look strong.

But I think the answer to this supposed paradox is that it’s not really a paradox: Americans think the economy is in rough shape because the economy is in rough shape.

Sure, some major statistics look good, and they reflect true economic strengths, including the state of families’ finances. But the economy is more than a household balance sheet; it is the combined experience of working, shopping and interacting in society. Americans evidently understand the distinction: In an Associated Press poll, 64 percent describe their personal finances as good — and only 35 percent describe the national economy as good.

There are plenty of reasons. Many services don’t function as well as they used to, largely because of supply-chain problems and labor shortages. Rising prices are cutting into paychecks, especially for working-class households. People spend less time socializing. The unending nature of the pandemic — the masks, Covid tests, Zoom meetings and anxiety-producing runny noses — is wearying.

For the full commentary, see:

David Leonhardt. “The Economy Looks Healthy, but Americans Know It’s Rough Out There.” The New York Times (Saturday, December 11, 2021): A12.

(Note: the online version of the commentary has the date Dec. 10, 2021, and has the title “Covid Malaise.”)

Solve Future Crises by Allowing the Nimble to Innovate

Donald Boudreaux, on his Café Hayek blog, quotes a passage from my Openness book, saying that the best way to prepare for unknown future crises is to sustain a society where nimble innovators are allowed to nimbly innovate. Donald posted the quote on Mon., Dec. 6, 2021.

My book is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Higher Demand and Lower Supply Cause Higher Electric Bike Prices

(p. A1) For a glimpse at why inflationary pressures aren’t likely to ease anytime soon, consider the bicycle.

Bike prices in the U.S. and Europe rose sharply at the start of the pandemic because of booming consumer spending and snarl-ups in global supply chains that meant long delays and higher costs for manufacturers.

Now, manufacturers are working on building bikes for 2022 in a continuing environment of economic uncertainty—with more questions added recently by the emergence of the Omicron variant of the coronavirus. Today’s rampant demand and strangled supply are already pushing next year’s prices higher.

“The cost of our product is not going down,” says Richard Thorpe, chief executive of Karbon Kinetics Ltd., which sells Gocycle electric bikes world-wide from its base in Chessington, southern England. “If that is inflation, I wouldn’t call it transitory.”

. . .

(p. A12) Mr. Thorpe resisted pushing up prices for Gocycles in 2021 because he spent a chunk of the year explaining to unhappy customers why supply-chain disruptions meant there would be delays to their orders.  . . .

He says he is pressing ahead with price increases for 2022 because he doesn’t expect these supply-chain issues to get much better. He estimates the cost to the company of producing a single bike has shot up by 20% to 25% compared with the cost before the pandemic, as competition between manufacturers for common parts pushes prices skyward.

Seatpost prices have gone up 20% in the past 12 months. So have prices for the cranks the rider turns when pedaling. Handlebars are up 11%. Brake levers and calipers are up 14%. Chain prices are up 17%, and reflectors are up 50%, according to Karbon Kinetics.

Mr. Thorpe learned by email Wednesday that higher prices for magnesium—used in Gocycle wheels—mean future shipments of wheels will be 17% more expensive than they are now.

Multiple industries are competing for the batteries, semiconductor chips and tiny electronic components Gocycle uses for its dashboard displays, power management systems and charging ports.

. . .

Shipping a container full of parts from China costs him around $20,000, Mr. Thorpe says. It used to cost $4,000. Shortages of pallets and blockages at ports mean he can’t be certain when shipments will arrive. He estimates shipping costs for a single bike have effectively doubled, on average, depending on where exactly it is destined.

The flood of demand for bikes as the pandemic arrived took the industry by surprise, executives say, an example of how unprepared the global economy was for the mass switch in consumption to goods from services as the pandemic forced people to stay home.

. . .

Part of the explanation for consumer demand for bikes is a Covid-19-related trend that is pushing up prices for all sorts of manufactured goods. The pandemic has meant people are less able to spend their income on eating out, overseas travel and other services, so have been splashing out on gadgets and recreational products instead.

Retailers say consumer demand pushing up bicycle prices is still intense. Some bike buyers are seeking ways to avoid traffic or public transport as they return to the regular commute, a trend that is fueling adoption of pricey electric bikes in particular. Some retailers say they are seeing recent converts to cycling upgrade basic models for more expensive rides.

For the full story, see:

Jason Douglas. “Bicycle Makers Offer Clues on the Persistence of Inflation.” The Wall Street Journal (Thursday, Dec. 02, 2021): A1 & A12.

(Note: ellipses added.)

(Note: the online version of the story has the date December 1, 2021, and has the title “Is Inflation Sticking Around? Bicycle Makers Offer Some Clues.”)