Obsession with Recession

While the President’s miserable and erratic performance vis-à-vis the coronavirus pandemic has been mega-focused on the economy – which he believes is his path to re-election – a significant market correction had already been on the lips of economists over the past few months even before this debacle. The post “Great Recession” recovery began in 2010 during the Obama administration and has exploded (at least in the traditional metrics of success: stock market, unemployment and GDP, which skew heavily in favor of the top of the economic ladder) and run for a decade. Was the up and down cycle primed to reverse anyway? Perhaps the market was looking for that downward trigger or perhaps it was just COVID-19 by itself that is forcing downward economic reset. Whatever the cause, we seem to be “there” right now.

While the “R” word, recession, technically does not happen in a short time span, sometimes the tea leaves are so clear that I wonder why that label cannot attach faster. I suspect it is incumbent politicians held responsible for the economy wanting to avoid that label, particularly in an election year that yearn for “more time.”

Investopedia tells us: “A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It is typically recognized after two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators like employment.” Two quarters? Six months? Under that definition, we won’t have enough information until summer to apply the “R” word. But it sure feels like a recession right now… and to me anyway, there is no obvious path to a quick recovery.

So much unrecoverable hard-dollar value is being sucked out of the economy in a relatively short time, so many businesses are contracting that by definition will take a long time to restart, such that the indicators may just tell us we are already in a recession. When exactly will people feel totally comfortable stepping back fully to shop in bricks and mortar retail, to attend mass entertainment and sports venues or to go out to dinner (from fast food to more elegant choices)? When will factory floors regain full production? Offices providing services open to full capacity? Hotels and airlines booked to normal levels? Consumer comfort and confidence do not spring back in an instant. Especially consumers who have lost earnings for a while and faced (perceived?) life-threatening uncertainty.

Just looking at the massive cutbacks in shipping present in our major harbors today, we know that there fewer retail goods being imported, fewer parts required for domestic manufacturers, fewer basic commodities also required in manufacturing and that even once shipping gets back to full bore, it could take months if not years, to bring everything back to the way it was before the outbreak. There already shortages. Not to mention that since this is a global pandemic, we are inevitably linked to problems in other nations, as buyers of our products or sources of necessary imports. The world needs an overall calming and end to this pandemic.

“The novel coronavirus has been a boon to a handful of very specific businesses, including those producing disinfectant wipes, canned goods, and telecommunication apps. But, as social distancing and self-quarantining become the norm, the economy is taking a deep hit, as restaurants, hotels, airlines, theaters, and a host of other industries find themselves suddenly without customers, and workers are being left without tips, or furloughed, or simply laid off. The stock market’s continuing tumbles—exacerbated by the president’s performance—is prompting fears of a looming recession. Bloomberg News’ recession predictor now places the odds at 53%.

“Economists and lawmakers are debating various techniques for preparing to lessen the blow of a downturn, but one is swiftly gaining traction: lump-sum cash payouts to every citizen. It’s been touted by leading macroeconomists, and by an Obama economic advisor, who are pitching it as the optimum way to infuse life into a slowing economy by encouraging spending, which traditionally drops during recessions because of declining incomes. It would also give out-of-work workers a way to pay their bills (though cities are starting to offer policy fixes like moratoriums on evictions to help these issues as well).” FastCompany.com, March 13th.

Unfortunately for those theoretical economists preaching such a linear cash infusion for every citizen, to expect a GOP Senate and Presidency to embrace one of the most “socialist-appearing” policies is a tough ask. Funding furloughed workers. Maybe. A moratorium on rents and mortgages. Perhaps. Approaching this, as Donald Trump originally proposed, as a payroll tax cut was so obviously flawed that it should, by now, have passed. See my March 12th Fix the Coronavirus Crisis with a Tax Cut? blog if you want deeper analysis. But if Americans don’t spend, the recession will only accelerate and extend.

And while we have low interest rates, making deficit borrowing reasonably inexpensive, the inane mega-corporate-tax cut has so hamstrung the government from funding policies that benefit “most Americans” – pushed the deficit to absurd levels under virtually any perspective – that there will be GOP resistance to raising that deficit higher even for desirable expenditures that would be best for our nation as whole. Without some powerful stimulus, a bailout if you will, this recession will roll!

From “hoax” to “blame the Democrats for exaggerating” to promises of medical support (test kits being the first major such pledge) which have not materialized to date to contradicting the CDC experts to travel bans and even, the March 13th Trump declaration of a national emergency (finally focused on a new and better testing program), it is clear that the direction from the top is not only unreliable but possibly one of the greatest sources of fomenting and continuing American fear and under-reaction underpinning this entire COVID-19 pandemic. Delayed reaction on steroids. To think that such “leadership” is going to find a way to solve the medical crisis in time to stop a recession that is already underway is dramatically unjustified optimism. Trump’s White House announcement on Friday March 13th said this will crisis pass, and we will be “much stronger” as a result. When exactly is that “stronger” going to happen again?

What has been missing from all of this is a combination of logical calmness, dealing timely with an unpoliticized reality, planning by medically-qualified personnel (not mere untrained loyalists), firm, swift, focused and decisive action without “electability” as the driver and a willingness to implement a massive and coordinated deployment of state and federal resources – not red states win and blue states suffer.

Is there a ray of hope for a coming together? Congress may be on the brink of a first step deal with the administration: “The deal — being forged by House Speaker Nancy Pelosi (D-San Francisco) and Treasury Secretary Steven T. Mnuchin via frequent phone calls — is expected to eliminate insurance co-payments for COVID-19 testing and provide billions of dollars in aid to state and local governments for food programs and unemployment benefits. It is also likely to include assistance for workers dealing with coronavirus who don’t receive sick pay from their employers.” Los Angeles Times, March 13th. But politics has definitely not left the building.

The Dems also have proposed their own immediate emergency legislation that was announced on CNN on Friday, March 13th with more than a hint of politics: “House speaker Nancy Pelosi addressed the nation Friday to introduce today’s Congressional bill, ‘The Families First Coronavirus Response Act.’ She outlined what the House Democrats and the Senate minority had already proposed, which have not gone through.

“Of this new bill, Pelosi said, ‘The three most important parts of this bill are: testing, testing, testing… This legislation facilitates free coronavirus testing for everyone who needs a test, including the uninsured,’ Pelosi continued. ‘We can only defeat this outbreak if we have an accurate determination of its scale and scope.’

“Many of Pelosi’s statements seemed to be chosen deliberately to emphasize the Democrats’ differences with Donald Trump’s approach. In his Oval Office address Wednesday [3/11] night, he only vaguely mentioned testing, saying, ‘Testing and testing capabilities are expanding rapidly, day by day. We are moving very quickly.’ And Trump’s relief proposals also focused on businesses, rather than families… In her short remarks, Pelosi used the phrases ‘evidence-based’ and ‘science-based’ multiple times.” Variety.com, March 13th.

Even as Congress comes to grips with this necessity, from both sides of the aisle, does anyone really believe that the Trump administration can bring us together and lead a viable medical or economic solution for all Americans? We just may have to wait for November to implement the beginnings of a real fix. In the overused words of Donald Trump: “sad.”

I’m Peter Dekom, and wouldn’t it be sadly ironic if the first act of new Democratic president were to propose a massive bailout to begin to reverse a recession triggered during a Republican administration?