Coronanomics Revisited

OUCH!

I recall lining up for polio shots when I was in school.  The vaccine provided at no cost by the federal government eliminated polio from the United States over the course of two decades according to the CDC, the organization on the front lines of the battle against COVID-19.  That’s what it will take before I personally feel safe again -- safe enough to resume normal life or whatever passes for normal on the other side of this.  Best case – two years!  Am I overreacting?  Maybe.  A preliminary study of Santa Clara County, California suggests the mortality rate of COVID-19 is no worse than seasonal flu.  So, I might be at the extreme end of a spectrum whose opposite is defined by those protesting the shutdown of the economy (the Walking Dead?).  You might be somewhere in between.  

A panel of experts from the American Association for the Advancement of Science has modeled the impact over the next five years.  They assume that, like the flu, immunity may not last forever.  Vaccinations might be an annual requirement.  Further, their model assumes there will be new waves of outbreaks as we begin to reopen the economy.  History provides examples.  In the Spanish Flu pandemic of 1918, cities that reopened quickly – Denver and Philadelphia -- dealt with a second wave that decimated their workforce and disabled their local economies.  

Despite the absence of anything resembling leadership from the president, a task force has laid out a three-phase plan to reopen the economy based upon some broad and easily understood criteria.  It wisely leaves the implementation to governors and local government officials.  But it’s clear that there must be federal support for it to work.  The governors can decide when to open up businesses and scale back stay-at-home orders.  However, there are serious resource constraints on what the task force describes as “Core State Preparedness Responsibilities.”  Left on their own, the states would be competing with one another for supplies of test kits, vaccines and protective gear.  And, of course, the states lack the funds to follow through.  The New York Times has reported on a Harvard University study calling for testing at triple the current as a prerequisite for reopening the economy.  As it stands today, we have no national plan or infrastructure to support testing on that scale.  Nor can we perform contract tracing to ensure proper treatment in a more open economy.  Both are part of the strategy outlined by the presidential task force.  But a strategy without a plan is just a wish.   So, for now, we are sticking with medieval rules: isolation or risk death.  

So, what happens to the economy? Well, for starters, we’ve got a thirteen-figure hole to fill.  That’s just my back of the envelope calculation.  But I figure that a 20% unemployment rate will amount to a $3 trillion dollar drop in annual GDP.  Add the budget gap in the states most affected and the need to shore up hospitals and you’ve got another trillion or two.  The $2 trillion CARES Act won’t be enough.  

A few weeks ago, I predicted a short-term drop-in GDP or a V-Shaped recovery.  I also said, the real long-term risk was a supply disruption.  Well, that’s what we have.  There are those who suggest that weak businesses should be allowed to fail.  Corporations have loaded up on low-interest debt over the last decade.  Now, they should pay the price.  Only the stronger firms should be allowed to thrive.  In most circumstances, I would agree.  However, much like federal response to the banking crisis of the last decade, allowing global businesses to fail may be too much for the economy to bear. 

To some degree, our prosperity relies upon the efficiency of supply chains that run from raw materials to manufacture to distribution to retail to consumers. Too much disruption will result in massive unemployment that will not resolve itself when we’re all permitted to go back to work.  Products won’t get to market; companies will shut down; and, people won’t be earning paychecks.  

The one economic bright spot in all of this has been the response of the Board of Governors of the U.S. Federal Reserve System.  Having learned the hard lessons of the 2008/09 financial crisis, they have focused on ensuring liquidity not just domestically but also globally, opening lines of credit for foreign central banks.  These actions will serve us not only in the near term but also in the long term as sovereign governments as well as foreign investors continue to see U.S. Treasury Bonds as the safest of safe havens in times of crisis.

After all, how else can we fund those multi-trillion-dollar fiscal deficits?  

WHO WILL LEAD? 

Cuomo and Crozier: contrasts in leadership

Governor Andrew Cuomo

We returned from a shortened seven-week vacation last week.  Part of getting resettled in our home was reinstalling a Roku we’d taken with us.  It’s an easy task I’ve done many times before.  Nevertheless, I tested it to make sure it worked properly.  Coincidentally, I turned it on as Governor Andrew Cuomo was giving his daily press briefing.  I never watch TV news (see Stop Watching Cable News Now); so, I hadn’t seen our governor in action despite hearing wonderful things about his leadership during the current pandemic.  

Regular readers know I am not a fan.  Yet, I was struck dumb as I listened to him.  Who is this guy? I thought.  He is calm, rational and articulate.  Where is the arrogance to which we’ve become accustomed?  Even his tone of voice had changed.  He answered questions directly without evasion.  If he didn’t know the answer to a question, he said so.  If a member of his team couldn’t provide a good answer, he said they’d find out.

There is no doubt he will have to make some tough choices in the days and weeks ahead.  He’ll move equipment to where it is most needed, move patients to facilities better prepared to handle them and approve triage protocols that sacrifice some in favor of others (much like it’s done on a battlefield).  The trust he has engendered will give him the credibility to make those decisions on behalf of the citizens he serves.  

Contrast Cuomo’s leadership with that of Captain Brett Crozier who, this week, was relieved of the command of the USS Theodore Roosevelt, a nuclear-powered aircraft stationed in the western Pacific.  The whiners in the Twitterverse and the great grandson of the man for whom the ship is named have called him a hero.  I submit that not only is he not a hero, he has failed in his basic responsibilities as Commanding Officer.  

I must digress for a moment.  Americans take the security provided by the military for granted.  It took one hundred fifty years for the US Navy to achieve dominance of the seas.  In the post-Revolutionary War years, American ships were attacked routinely by the British Navy and the United States did not have the sea power to respond.  We have achieved our current status by virtue of the century-long pursuit of Manifest Destiny, our victories in World War II and the Spanish-American War (in which the aircraft carrier’s namesake was a central figure) and a deal made by FDR to take over the North Atlantic British naval bases prior to entering World War II.  Despite our diminished status (the US Navy has half the ships it had a decade ago), no foreign power would dare challenge the US Navy directly.  

 

Captain Brett Crozier (USNA '92)

What the military does to ensure our security is described as “readiness.” There is a lot of protocol or S.O.P. involved.  In battle, no one should have any doubts who’s giving the orders.  So, we observe a chain of command.  Since readiness is what we must achieve to go to war at the drop of a hat, we provide reports of our status up the change of command. Today, as has been the case since well before I received my officer’s commission, the movement of ships and their readiness to go to war are highly classified. 

An aircraft carrier is at the center of the Navy’s military capability and strategy.  To reveal its operational status on an unsecured communication channel is an egregious breach of a process meant to ensure the national security of our nation.  That’s why Crozier should have been and was properly relieved of his command.  

In his op-ed in the New York Times, Tweed Roosevelt describes Captain Crozier as a hero because he sacrificed his career to do what he thought was right.  Unfortunately, he wasn’t right.  The official statement of the Secretary of the Navy outlines the reasons why. 

As a midshipman at Crozier’s and my alma mater (U.S. Naval Academy), we were trained to say, “I’ll find out” rather than “I don’t know.”  We were trained to say “no excuse” when asked why we screwed something up.  The admiration heaped upon Cuomo has rightly resulted from his adoption of those kinds of responses.  He has exhibited true leadership where Crozier failed.

WHO WILL LEAD?