We left on a two-month vacation the day after Presidents Day – February 18. At the time, there were only 25 cases of Coronavirus reported in the U.S. Like most of you, we were caught flatfooted by the pandemic and its astounding spread. A graphic in the online New York Times tells the tale. China’s delay in recognizing the disease and its effects led to millions of people leaving Hubei province, many carrying the virus, over two months. Nine hundred per month were destined for New York now the epicenter of the crisis in the U.S.
As I write this, the Senate has approved a $2 trillion stimulus package to keep the economy on track during the Coronavirus crisis. In a post last week, I suggested now is not the time to worry about fiscal deficits. Let’s focus on keeping people healthy first. But the virus and our response to it will have some long-lasting effects – some good, some bad, some ugly.
The Good
The future is now! Trends predicted to take shape over the next decade or two have taken root overnight. We are telecommuting and teleconferencing at work. Similarly, universities have moved coursework online, shedding expensive infrastructure and adopting a model I predicted in 2015. Will there be a snap back to the old model, or will there be a shift to a new way of working and learning?
Traffic is lighter just about everywhere. Demand for fuel has dropped dramatically (I paid $1.99/gallon the other day). That means reduced emissions and stress on our infrastructure. Will work at home become a lasting effect of the crisis?
No one will be denied healthcare because of a lack of insurance during this crisis. Bernie Sanders points to the need to nationalize healthcare like, you know, Italy… um, maybe not a good idea. And, Republicans are unlikely let go of their objections to any solution. It is perhaps Joe Biden’s incremental approach to reforming Obamacare that might lead to the best outcome. Will that lead to universal coverage?
Crisis response has necessitated that government regulations pretending to protect us have been set aside to, well, protect us. FDA has eased up on guidelines for testing drugs and manufacturing ventilators, and companies are repurposing without the obstacle of licensing rules. Will the crisis cause us to question the need for all those regulations?
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| New York Governor Andrew Cuomo |
Governors are stepping up to respond according to the needs of their individual states. Wyoming doesn’t need what New York needs. So, there is a renewed focus on the effectiveness of regional and local response. States have powers not afforded to the federal government according to Constitutional experts. Only states have police power to enforce quarantines or compel vaccinations, for example. Will governors finally press the point and take back authority they have abdicated to Washington?
The Bad
In the last twenty years, we have consistently been failed by our institutions of government. The 9/11 attacks revealed a weakness in national intelligence, particularly the CIA. Hurricane Katrina placed the failures of FEMA at center stage. The Great Recession was caused primarily by banking regulators not doing their jobs. And, now there’s COVID-19 which has revealed the soft underbelly of our ability to protect our citizens from a pandemic. Meanwhile, congressional politicians can’t seem to set aside their dysfunctional behavior for the sake of the nation.
The era of free trade, that was nailed into place by China’s entry into the World Trade Organization, has restructured supply chains so that we no longer have the manufacturing capacity to make critical supplies. Meanwhile, China is providing Europe with masks, gloves and other medical supplies. It sounds like an echo of the Marshall Plan. It’s another way in which we have abdicated our role in global leadership.
The Ugly
This ain’t the 1950’s, a time when the nation was led by a war hero whose minimalist approach to governance resulted in the paydown of war debt while maintaining a balanced federal budget, the construction of the interstate highway system and the inception of NASA. No, Democrats, we aren’t going to raise marginal tax rates to 90%. And, no, Republicans, we aren’t going to shrink government to balance the budget. Bipartisanship in the 21st Century means more government spending and debt not less. That’s how the coronavirus stimulus went from $1 trillion to $2 trillion in the course of a week.
A former business partner suggested a scenario I deem likely. Likely because of the way in which the nation’s institutions responded to the financial crisis a decade ago. The first round of QE or Quantitative Easing by the U.S. Federal Reserve Bank in 2009 was viewed as a positive step toward getting investors to invest and get the economy moving again. In this process, the Fed purchased U.S. Treasury bonds and mortgage-backed securities to keep interest rates low and encourage the acquisition of assets. Low interest rates help those who can invest in stocks and real estate but they penalize savers and retirees.
Back to my former partner’s prediction: the Fed will not only purchase the additional U.S. Treasury debt but also will write it off, he says. In other words, since the Fed can create as much money as it wishes, they can also reduce the government’s debt with the stroke of a pen.
Two years ago, the election of Rep. Anastasia Ocasio-Cortez made a big splash in the national news. Among her more controversial suggestions was that the nation’s economy could be managed by Modern Monetary Theory (MMT) – the creation of money out of thin air. There was a minor uproar in business and economic circles. Now, under the cover of a pandemic, MMT may become the government’s tool of choice to feed our addiction to debt.
Conservatives warn this approach will result in hyperinflation, citing Post-WWI Germany as the relevant example. Liberals, led by Nobel economist Paul Krugman, have pointed out that we’ve been pursuing MMT for the last ten years and inflation is low. They’re both looking in the wrong place. Hyperinflation hasn’t occurred in consumer prices. It has occurred in asset prices – stocks, bonds and real estate – enriching those with the capital to invest at the expense of everyone else.
Once the crisis has passed, we’ll applaud those who have crafted and voted for the $2 trillion package and reelect them in the Fall. And, there will be no one to stop this juggernaut.
WHO WILL LEAD?
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