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Current pandemic is a 'black swan' for economic forecasters, ASU expert says

Pandemic's economic free fall is an unpredictable 'black swan,' ASU expert says.
March 27, 2020

While economic free fall is unprecedented, recovery could potentially be quick

Every year, Lee McPheters describes the pulse of the economy — which has shown a steady uptick over the past several years for Arizona. McPheters shares his analysis in his role as Research Professor of Economics in the W. P. Carey School of Business at Arizona State University and director of the school’s JPMorgan Chase Economic Outlook Center.

So how do economists, who scrutinize every blip in the statistics, account for a calamity like the COVID-19 pandemic, which has closed businesses and endangered entire sectors of the economy?

The picture is grim. An astounding 3 million jobless claims were filed nationwide over the past week — the highest one-week total in history, according to U.S. Department of Labor statistics released Thursday. In Arizona, more than 29,000 claims were filed for the week ending March 21, compared with about 3,800 the previous week.

McPheters answered some questions from ASU Now:

Question: Have you ever seen anything like this pandemic?

Answer: This is different even from something that would affect a whole state, like (Hurricane) Katrina, which took down the state of Louisiana, or an earthquake in southern California. We’re talking about a global catastrophe.

Have I seen anything like this? No. That’s despite the fact that the common flu has tended to have increasingly greater fatalities in recent years. We have built that into our common understanding of, “This is life in the 21st century and there’s flu, but life and the economy go on.”

Here, the higher fatality rate and the panic response of consumers has really changed everything. So in addition to the economic problems is the overlay of panic on a national scale and apparently on a global scale, in most countries.

Q: So how do economists account for something like this?

A: Economic forecasting models are based on historical relationships among economic variables like income and employment and observed human behavior relative to spending, saving and investing. Forecasting models assume that past relationships, trends and behavior will be continued into the future.

However, forecasters also add the phrase “ceteris paribus,” or “all things remain equal,” and most forecast reports emphasize that the forecast can be affected by what are called “exogenous shocks,” such as war, terrorist attacks, weather catastrophes and most recently, pandemics. These events are regarded as not expected and not part of the forecast.

After the severe recession of 2008, economists adopted the term “black swan,” referring to events that are rare, unpredictable and have wide impact. The financial crisis was a black swan event. 

One of the features of a black swan event is that typically, as you start working back through the history, all the analysis suggests we should have seen this coming. Just as California knows they’re going to get another earthquake and they need to build structures in anticipation of that, here, in hindsight, we should have had much better and wider investment in public health.

Q: So is it too soon to predict what will happen with the economy?

A: We don’t have very many indicators that have a high level of frequency. The stock market is a daily indicator and that’s why it has so much attention. As the disease has spread, it’s changing day by day and we’re focused on the stock market telling us how the economy is doing. But the stock market is disconnected from the real economy, which is jobs and output and production.

One indicator that economists focus on is initial claims for unemployment insurance. Most Americans are in the unemployment insurance system. Their employers pay into the system and when you’re laid off, you have the ability to file for a claim. Those claims are filed every week.

Across the country, we’ve seen a huge jump. In Arizona, we’ve been seeing about 3,000 claims a week, and now it’s up around 30,000. We saw it first in Nevada and Washington, states that were hit earlier than Arizona.

Arizona’s labor force is about 3.5 million people. So 1% is 35,000. So if 35,000 file for unemployment, the unemployment rate goes up by 1%. That might continue for several weeks.

Arizona has been running at about 4.5% unemployment and I expect that to double.

Q: What about other segments of the Arizona economy?

A: The big picture is to look at the drivers of the Arizona economy and one of the drivers is population growth. A big portion of our population growth is made up of people moving here from other states. Last year we were the second highest destination for people who were moving from one state to another. About 83,000 people moved here. Well, people aren’t moving right now. There has been pent-up demand for housing, but I think that with in-migration grinding to a complete halt, it will have an effect on construction.

What I think we’ll see possibly is smaller businesses failing, which means commercial space available in more of the strip malls and smaller square footage offices and retail spaces because it will be hard for them to start back up. That’s why there’s a tremendous emphasis on trying to stop small businesses from failing because they employ a large percentage of people working in this country.

Q: The new federal aid plan that’s expected to be approved provides for a $1,200 payment to many Americans. Will that help?

A: This has been done before. It was done in 2001 and in 2008 and economists writing in economic journals, which are not widely read, show that in both cases, only about 20% of that stimulus money was spent on consumer goods and services. About 50% was spent paying off bills. About 30% held onto the money because they thought things would get even worse than they were. So the effect of mailing people a thousand dollars may not be that a thousand dollars gets into the spending stream.

We can’t say if that will be the case now.

Q: And what about all those empty store shelves?

A: You’re getting into the world of psychology there. People feel they need to do something to try to control circumstances and they believe they can do this by buying toilet paper. There is no reason to believe there is a shortage, from my understanding. The problem is in the stocking and, to some extent, the distribution. There’s no reason to think there will be physical damage to production.

Panic buying in and of itself is somewhat of a black swan. It was totally unexpected by grocery stores and retail outlets but I guess in hindsight, they should have thought that like in a hurricane, people will empty the shelves.

Q: What could recovery look like?

A: If we see that, during that second and third quarter, the economy loses jobs, once the turnaround comes, there will probably be a rapid rehiring of all the people laid off. It’s what economists call a V-shaped recession, a sharp dropping down and a strong comeback.

For the 2008 recession, it took Arizona about seven to eight years to come back. Here, I would expect that we will see a comeback probably in the early part of 2021, based on history and what we saw in previous sharp downturns. I looked at some numbers for the 1918 flu, and when the recovery got going, it was only a couple of years to get back to the prior level of employment.

But all bets are off. We just don’t know.

In the long run, we still won’t be able to incorporate this sort of thing. But the hope is, as we did with the financial crisis, after we get out of this, we’ll say, “What could we as a country do better to prepare for this sort of thing?”

Top image: Lee McPheters is Research Professor of Economics in the W. P. Carey School of Business at Arizona State University and director of the school’s JPMorgan Chase Economic Outlook Center. Photo by Charlie Leight/ASU Now

Mary Beth Faller

Reporter , ASU Now

480-727-4503

 
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Looking forward: ASU English fall 2020 courses to prep for the future

March 27, 2020

Although uncertainty abounds today, there is at least one thing you can count on: this fall 2020, edifying and mind-bending courses will be available to you from the Arizona State University Department of English.

Learn how to build alternative worlds in our sci-fi writing class. Or, consider how global events have and will continue to shape both the emergence and the decline of languages. Or get your warm fuzzies in an intellectually rigorous course devoted entirely to the art and industry of Scooby-Doo.

Information about these and other courses is below — but there are even more offerings by the Department of English in the ASU class schedule (search by “ENG,” “FMS,” “LIN”  or “APL” prefixes), where you can find both online and in-person options.

ENG 307 — Writing Science Fiction: World-Building in Science Fiction and Fantasy

The author of the dystopian thriller “Scrapper” and the forthcoming eco-fabulist novel “Appleseed” (2021), Matt Bell knows sci-fi. Besides being a serious literary fiction reader and writer, the associate professor of English has been a gaming aficionado for decades. Bell co-wrote “The Last Garrison,” a Dungeons and Dragons novel, and has even published a sort of gaming memoir: “Baldur’s Gate II.”

“I grew up as a reader of science fiction and fantasy, and still am,” Bell said. “My next novel has many science-fictional elements, and the one I'm working on now takes place in an invented world of my own.”

Students in Bell’s “World-Building” course will have access to his considerable, award-winning imagination. He’ll coach participants through drawing maps of planets, continents and cities; creating new languages; designing alien landscapes and then seeding them with ecosystems; and building urban spaces to populate with competing political factions and new forms of government. “During the course of the semester, every student who begins with a blank page will — 15 weeks later — leave with a brand new world, all their own," Bell said.

If you register: World-Building in Science Fiction and Fantasy (class #90344) meets Tuesdays and Thursdays from 1:30 to 2:45 p.m. on ASU’s Tempe campus.

ENG 318 — The Life and Death of Languages

Image of “The Tower of Babel” by Pieter Bruegel the Elder (1526/1530–1569), oil on panel, collection of Emperor Rudolf II in Kunsthistorisches Museum, from Wikimedia Commons

Professor and sociolinguist Karen Adams is the creator of this survey course, which features, essentially, the “back story” of all language. In addition to learning how languages differentiate and become new ones — and how we ended up with 6,000 of them! — students in the class will explore endangered languages, fictional languages like Dothraki and aspects of interspecies communication.

After that? The future! Can we make better machine translation systems? Will brain-to-brain communication be the norm? Will we be able to communicate with aliens at some point and what would an intergalactic language be like?

Nothing will be lost in translation during this course, which will be guided in its online environment by a teaching assistant in the Department of English.

If you register: The Life and Death of Languages (class # 90346) is offered through ASU Online in Session A. It is open to any currently enrolled online student.

ENG 335 — Slam Poetry

Image of Slam poet Myrlin Hepworth at ASU Night of the Open Door in 2013, photo by Bruce Matsunaga

It didn’t start in coffee shops of the 1990s. In this course, you’ll learn the real roots of slam poetry — the Harlem Renaissance, confessional and Beat poetry, the Black Arts Movement, performance art and hip hop — as well as the genre’s history, from its birthplace in Chicago to its development in New York City and other parts of the U.S.

Associate Professor Heather Maring, a literature expert and author of “Signs that Sing: Hybrid Poetics in Old English Verse,” is the instructor. “I study medieval literature, which may seem very distant from slam poetry,” Maring said. “But I was drawn to my subject area because I love oral poetry, oral traditions and verbal art that truly lives in performance and in connection with communities. Teaching slam also gives me a chance to reconnect with my roots in creative writing and experimental poetry.”

The syllabus was forged in consultation with past course participants, and the result is a student-centric experience. Fall 2020 Slam Poetry enrollees can choose one or more of three paths through the class: analytical, pedagogical or performative.

If you register: Slam Poetry (class #90348) meets Fridays from 3:05 to 6 p.m. on ASU’s Tempe campus.

FMS 354 — Critical Studies in Animation: Scooby-Doo

Image of Scooby-Doo and the gang at ASU Open Door in 2020, photo by Bruce Matsunaga

You probably already knew ASU had the world’s foremost Scooby-Doo authority on its faculty. But did you know that you, too, can be an expert?

“Critical Studies in Animation: Scooby-Doo” deconstructs this much-loved children’s series, approaching it as a microcosm of television history. Instructor Kevin Sandler, an associate professor of film and media studies in the Department of English, is at work on a book about the famous talking Great Dane; Scooby-Doo turned 50 in 2019 — and so did Sandler.

“It’s hard to imagine Scooby-Doo not being part of my life,” Sandler said. “He’s a touchstone for several generations.”

Lest you think the course is a walk in the dog park, Sandler set the record straight on its rigor.

“This class provides a critical history and understanding of Scooby-Doo from its early incarnations on Saturday morning to 24-hour cable channels to feature films to LEGOs,” he said.

Discussions will center on issues related to the nature of children’s entertainment, free-market vs. governmental regulation, the changing face of network viewership, media conglomeration and globalization and more.

If you register: Scooby-Doo (class #88259) meets Tuesdays and Thursdays from 1:30 to 2:45 p.m. on ASU’s Tempe campus.

ENG 311 — Persuasive Writing

Image of ASU students writing with chalk during National Day on Writing activities 2019, photo by Bruce Matsunaga

If you’ve ever struggled to get your point across, learning how to construct a more powerful argument might be in your best interest. This hybrid class with Associate Professor of English Mark Hannah, a frequent collaborator with ASU scientists on projects related to issues of communication, covers that and more.

“Language is not neutral,” emphasized Hannah, who practiced law before joining academia. “The ability to analyze complex, real-life scenarios and develop arguments responsive to unique, contextual circumstances is essential.”

Besides helping students wrap their brains around writing the ever-necessary persuasive argument, the course explores issues of strategy, considers the nature of “argument” itself and engages processes of consensus-building and decision-making.

If you register: Persuasive Writing (class #87278) meets virtually one day per week as well as in-person on Thursdays from noon to 1:15 p.m. on ASU’s Tempe campus.

ENG 480 — Methods of Teaching English: Composition

Image of Students writing at ASU’s annual Día De Los Niños, Día De Los Libros celebration 2019, photo by Bruce Matsunaga

Those aiming to teach language arts in a K–12 setting — or those with simply a curiosity in it — will find this course content compelling. The focus is on a creating “real-world” writing curriculum and delves into adjacent topics, like using technology to teach writing and helping students develop writing portfolios.

Veteran secondary English teacher Michelle Glerum, a fellow of the National Writing Project and summer instructor for ASU’s Central Arizona Writing Project, is the course instructor. Glerum is pursuing a doctorate in English education at ASU, where she focuses on multiliteracies and developing student-centered pedagogy.

“’Methods of Teaching English’ is one of my favorite courses to teach,” she said, “because we focus not only on fostering pedagogical prowess but also on understanding the facets of our own identity as educators and people, developing as teacher-researchers, and understanding sustainable teaching practices that allow us to create a support system for personal and professional growth.”

If you register: Methods of Teaching English: Composition (class #79460) meets virtually one day per week as well as in-person on Tuesdays from 3 to 4:15 p.m. on ASU’s Tempe campus. 

Images: Public domain image of orbital colony Stanford torus, painted by Donald E. Davis, oil on board, for NASA Ames; “The Tower of Babel” by Pieter Bruegel the Elder (1526/1530–1569), oil on panel, collection of Emperor Rudolf II in Kunsthistorisches Museum, from Wikimedia Commons; Slam poet Myrlin Hepworth at ASU Night of the Open Door in 2013, photo by Bruce Matsunaga; Scooby-Doo and the gang at ASU Open Door 2020, photo by Bruce Matsunaga; ASU students writing with chalk during National Day on Writing activities 2019, photo by Bruce Matsunaga; secondary students writing at ASU’s annual Día De Los Niños, Día De Los Libros celebration 2019, photo by Bruce Matsunaga.

Kristen LaRue-Sandler

senior marking & communications specialist , Department of English

480-965-7611