“Deeper and
longer recessions can leave behind lasting damage to the productive capacity of
the economy… Avoidable household and business insolvencies can weigh on growth
for years to come.”
Federal
Reserve Chair Jerome Powell on May 13th.
Their voices blend well with the medical experts, state by state, who seem to have established beyond any doubt: 1. We were unprepared for a pandemic, failing to appreciate the evidence as it accumulated, 2. We delayed and still do not have an effective centralized response to stem the pandemic, 3. We remain woefully short on accurate test kits, and we still do not have uniform standards for effectiveness, 4. We are exceptionally unlikely to see a CV-19 vaccine available for wide deployment until well into next year (no guarantees then either), 5. No states have met the federal infection rate guidelines to justify even a slow reopening of the economy, and 6. A premature reopening could result in horrific new levels of infection and death that could easily exceed what we have seen to date.
The only “experts” I see on the other side are economists, often representing a constituency that cannot make money unless the lockdown/safe distancing guidelines disappear, and right wing politicians who have been exceptionally clear that death and infection are simply necessary costs to get the economy back on track. The problem with the deniers and the optimists is that which they deem to be most precious – a functioning and recovering economy – is just as likely to be slammed much harder, last much longer and suffer significantly long-term damage by reopening too soon. They do not seem to be able to think beyond “quarterly.” The pressures to reopen are huge. State and local governments do not generate tax revenues when folks are earning money and cannot or do not have to pay taxes. And unlike the federal government, the states cannot “print money.” Folks have bills to pay. And Trump needs a recovered stock market to win in November. But what if the economy might get much, much worse if we are not prudent?
Although Kentucky is likely to be one of those states that gets hit the hardest, Kentucky Senator and Senate Majority leader, Republican Mitch McConnell, seems fed up with rolling federal assistance packages, suggesting that we just allow states to go bankrupt. Oddly, there is absolutely no provision in the federal bankruptcy code for a state to go bankrupt; that remedy under Section 9 (“Municipal Bankruptcy”) is for governmental entities that are less than the state. So if a state could go bankrupt, who takes it over? Who covers police, fire, prisons, courts, tax collectors, maintenance, public education, regulators, transactional recording functions, Medicaid… well this could be a very, very long list. To me, if states start going bankrupt, with zero statutory guidance, I suspect it means that the United States is done.
What’s already going on is the demise of small business, and restarting and then facing a much worse second wave economy probably cuts the heart out of that economic sector. The big corporations might not care – they have access to capital – but such a large section of our economy is based on those “little guys” that the extension to this pandemic just might continue for years more than it would if we were a bit more logical. Annie Lowrey, writing for the Atlantic (May 4th), tells us how bad things have become:
“Small businesses went into this recession more fragile than their larger cousins: Before the crisis hit, half of them had less than two weeks’ worth of cash on hand, making it impossible to cover rent, insurance, utilities, and payroll through any kind of sustained downturn. And the coronavirus downturn has indeed been shocking and sustained: Data from credit-card processors suggest that roughly 30 percent of small businesses have shut down during the pandemic. Transaction volumes, a decent-enough proxy for sales, show even bigger dips: Travel agencies are down 98 percent, photography studios 88 percent, day-care centers 75 percent, and advertising agencies 60 percent…
“Congress and the Trump administration came up with a $350 billion plan to provide forgivable loans to small businesses, now amplified by a second tranche of $320 billion. The Small Business Administration’s Economic Injury Disaster Loan initiative provides small grants to small firms; its Paycheck Protection Program has small firms apply to retail banks and credit unions for loans of up to $10 million, intended for expenses such as rent, insurance, utilities, and wages. The PPP loans become grants, provided that employers retain their employees and spend 75 percent of the money on payroll.
“Since it went live in early April, this rescue effort has been beset with implementation problems. Banks were unclear on what information to collect and were overwhelmed with applications. Small businesses had difficulty figuring out where to put in their paperwork, and what was available to them to begin with. Millions of massage therapists and cupcake makers and furniture companies were left adrift…
“The problems with the relief package run far deeper than a flubbed rollout. For one, banks have been prioritizing applications from bigger clients; some have even developed ‘concierge treatment’ options for wealthy firms. Even after some congressional fixes, the small-business plan, in that way, has helped big small businesses over small small businesses, and established small businesses over new small businesses, as the approval of loans to brand-name companies such as Shake Shack, Ruth’s Chris, the Los Angeles Lakers, Potbelly, and others has demonstrated. (Under public pressure, these companies have returned the funding.) Much of the help has gone to the companies that need it the least, among them firms with employee counts just under the SBA caps, franchises of major chains, and publicly traded firms, which are by definition able to raise money from investors. As structured by the federal government, ‘it was inherently regressive,’ Khanna said.
“Indeed, loans of $1 million or more soaked up half of the initial $350 billion allocated by Congress. Whiter, less populated states got more loan money per capita, with Vermont, North Dakota, and Minnesota overrepresented and Nevada, Florida, and California underrepresented. Researchers found no evidence that money went to the places and industries hit hardest, as measured by business closures and declines in hours worked. The accommodation- and food-services sector accounted for two in three jobs lost, but received just 9 percent of federal aid dollars.” The rich do seem to get richer no matter what. The Dems proposed an additional $1 trillion stimulus package, which was instantly shot down by the Senate Majority leader.
What fascinates be in a horrific way is this separation of medical realities from economic consequences. Last I looked, 71% of the US economy was driven by consumers. And to the best of my knowledge, consumers without money don’t spend much. I also believe that when the businesses that employ a huge segment of the population go out of business, and are not instantly replaced, they fold, jobs are lost, disposal income disappears, the tax based erodes, and the economy suffers. Ah, but people are the ingredient in “all of the above.” And when people get sick, die or are scared even to go out, they tend to kill businesses, suffer deep personal economic pain, and the economy really tanks. We need to begin to bring back the interrelationship of public health to the notion of economic health. They are anything but separate.
I sit at home and watch as Donald Trump encourages businesses and individuals to ignore governmental restrictions on reopening too soon; the law has always been an inconvenience to him, as a developer, taxpayer and as President, and he has always had the lawyers to find a way around those barriers. As a part of the vast horde that stays at home and eschews crowds as most folks should, I am able to watch remotely as protestors crowd together in state capitol buildings, not wearing masks and being the only visible citizens speaking their mind that the press can see, pressing based on rights they do not have, to reopen business for their benefit without regards to the tens of thousands, perhaps hundreds of thousands of Americans who may well die or suffer permanent disabilities as result of government’s opening well before it is safe.
I wonder if there are CV-19 carriers on those steps, generously sharing their parasitic little viruses with those around them. And whether those little germs (the ratio is generally for every person who is a carrier, four people will get infected; you do the math) will find their way to the elderly and infirm back home. I know that under OSHA rules, if the government deems a work environment safe, and if the employer adheres to those safety regulations – even as medical experts tell you that this might not be enough – you can get fired for not going back to work even if you are terrified of the risk, because you listened to the doctors and not the economists and the politicians.
As Wuhan (pictured above) and several other Asian nations are experiencing a new wave of infections, millions of test kits are being ordered to track more accurately. Many states still have vectors of rising infections and mortality levels. If we are doing such a good job, Mr. Trump, please tell me how a country with less than 5% of the world’s population has accumulated 25% of those who have died from CV-19 worldwide. The second wave is shuddering in Europe as well, and for states that opened early and are still willing to report their statistics (Florida and Arizona are not), the numbers suggest that the second wave is happening here… now! Today!!!
I’m Peter Dekom, and now that we know common sense has left the building, politicians and economists have replaced medical doctors in assessing medical risks plus clear indications that the second wave if CV-19 is upon us, I am beginning to think that the United States is one of the most dangerous countries in the world to live.
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