Unprecedented. That is the key word in these opening rounds of the Coronavirus pandemic. Just so. And as such, countries will need to apply unprecedented solutions to the crisis. Make no mistake: this is the time for overreaction, especially of the monetary type. Otherwise, we are probably looking at millions of deaths, instead of just thousands.
Here is my big picture take on our situation. Following the observations of Larry Brilliant (aptly named), we know that Covid-19 is a new virus. That is, no one on the planet has immunity from any previous infection. That means that flattening the curve is not going to reduce the number of people who will be infected. It just spreads it out and buys us time, so that our health care system doesn’t collapse, and so that we can work on both a vaccine and an anti-viral drug. And speaking of time, the vaccine really is going to take 12-18 months to develop. An anti-viral treatment could possible come faster, but nothing is guaranteed. The difference between a vaccine and an anti-viral is that a vaccine prevents the infection, while an anti-viral treats someone who already has the virus. Brilliant holds out some hope that an effective anti-viral could also have vaccine-like prophylactic traits as well, but that can’t really be counted on. Also, anti-virals generally don’t work unless they are given very early in the onset of the infection.
So does that mean that we’ll be socially-distant for a year? Not at all. But it does mean that we need to very aggressively cut down the possible channels and vectors for virus spread, while we work hard to get testing applied all over the country as quickly as possible. We have to understand where the virus is, so that we know what kinds of limits and restrictions are needed where. Brilliant suggests a massive randomized test across the US, to pinpoint geographical concentrations, as well as targeted testing for all healthcare professionals, police, firefighters, teachers, and home aid workers. The next step would then be identifying large groups of people who have become immune by recovering from the virus, and who have been tested again and confirmed non-contagious. Those workers could then be used to reestablish economic and institutional platforms, where people can safely obtain needed services again. If all goes well (a big “if,” if there ever was one), then we could be looking at another 8-12 weeks of intense social distancing to get us back to some semblance of social stability, and to lay a controllable foundation for continued testing and development of the anti-virals and vaccine.
So that’s our future as far as the disease goes. When you take all of the other social and economic considerations out of the picture, it’s fairly straightforward. This is not a disease that wipes out 90% of the population, with a gestation period of hours, like in many movies. It is certainly potent and very contagious, and has shown the typical RNA-virus trait of mutating fairly rapidly (like the flu). But with proper containment and assuming the usual lead-time of vaccine development, there is nothing to indicate that Covid is the last chapter of the human drama.
But the real terror, as is often the case in today’s landscape, is when you look at the economic impact of the pandemic. Huge swaths of our economy have shut down virtually overnight. And the United States is perhaps the least-equipped rich nation to handle such a situation. Why? Because despite having the richest economy in the history of civilization, regular people have virtually no margin for error in their own financial and work situations. The vast majority of US wealth and income is concentrated at the very top, while most workers live paycheck-to-paycheck, have little or no savings, and are deeper in debt than they have ever been. Trends in the labor market over the last 20 years have been pushing more and more people into part-time, temporary, contingent, and non-benefited jobs. Gig work has been expanding rapidly, leaving millions with no recourse to unemployment insurance or employer-sponsored health insurance.
Small businesses, self-employed independent contractors, and workers whose jobs require sustained in-person services are getting pummeled. Consumer spending accounts for 70% of the US economy, and a good portion of that is from businesses that require close, continual physical proximity. All of that activity has basically had the mat rolled up and the door slammed shut. Without massive financial intervention from the federal government, things will get ugly very quickly.
Think of it this way: if we need to be fully sequestered from each other for two months, and then after that can only gradually reinstate services and businesses based on testing-confirmed immune people, are we really prepared to let millions of people lose their apartments and homes, to see millions of families scrambling to not go bankrupt, and to have hundreds of thousands of small businesses go belly-up? Additionally, without massive stimulus, people will not just sit in their living rooms and starve. If they have to, they will break the sequester and go about their normal routines, spreading the virus faster and spiking the curve.
Again, 70% of the US economy is based on consumer spending. I know we like to pretend that America is this plucky nation of entrepreneurs, thrifty go-getters who throw themselves into their work with boot-strapped gumption, forgoing the immediate gratification of consumption. But that is simply not the case. We have a consumer-centric economy, and much of that depends on personal interactions in shared physical spaces. There is no moral failing when a novel virus wipes out that economic sector for months on end. There is no blame involved.
But right now, even though our situation is unprecedented, the reactions by government are all too familiar. After some initial fumbling, the Trump administration is taking things a little more seriously, but we have not heard a clear, unified plan for the future. As usual, the President himself is concerned with his own image and legacy, and he continually latches onto unproven and half-baked theories on a miracle cure coming out of nowhere to save the day (which his medical people then need to correct). But more likely, he is probably just hoping that the summer heat will come early and squelch down the spread, although most experts think that this is can-kicking at best, since the virus would return in the fall.
But more alarming is the wrangling that is about to happen in Congress about the relief package. The usual mumblings of “who’s gonna pay for that” are starting to echo, and the initial proposals have plenty of the usual gifts to large corporations and the usual middle-fingers to poor people. The basic feeling, though, is of a pampered class of Congressional millionaires who have no idea how quickly things will slide into social chaos when rent checks cannot be paid, and when groceries cannot be bought. About half of US workers report living paycheck to paycheck, which is about to become no-check to no-check. But our national leadership is basically acting as if this is just another budget-ceiling standoff or immigration debate. So the finger-pointing, scapegoating, politicking, and accusations of fake news continue unabated, as if the studio walls for this kabuki theater are not about to be smashed in by economic reality.
Here’s the issue that Covid-19 has forced on us: what is money, and what is it for? Is money a precious, rare, tangible thing, something that needs to be clawed after and yearned for because it is so hard to get? Is it something that needs to be kept scarce, to compel everyone to work as hard as possible all the time, just to survive? And is money the measuring stick by which we should continue to make all of our social and moral judgments, so that the rich and powerful are always esteemed more highly than those who struggle to get by?
Here’s the truth. Money is not scarce. Indeed, there is more if it in the US economy right now than in any other society in the history of civilization. And much of it is unearned. About 20-25% of our economy is based on financial services, and much of that is simple arbitrage, the shifting around of numbers and bets by robo-algorithms. There is plenty of money sloshing around, but it’s at the top, where it does not circulate or trickle down. So money is only scarce for those at the bottom and in the middle.
So we have crafted an economy that is top-heavy, keeping money scarce for most people. And that is why this pandemic is so terrifying. Regular people just have no wiggle-room to make ends meet. Even if we try to rapidly restructure businesses to allow for a lot more remote work, the simple truth is that productivity and consumption will go down substantially, because some things just cannot be done virtually. And of course, millions of people are in trades that simply cannot be done remotely at all.
The social disruption and psychological fear that Covid-19 has brought are bad enough on their own. But if you stack economic uncertainty and dread on top of that, life will become unthinkably dire for millions of us.
So there is really just one way to give people the peace of mind that they will need to approach the coming months of social distancing and economic contraction. We need to turn on the money spigot full-blast. Two months of GDP is about $3.5 trillion, so we will probably need to be spending close to that much, if not more. Most of that money will need to go to individuals: to workers, independent contractors, and small business owners. Larger corporations will also need some money, preferably via no-interest loans that have strings attached. There should be restrictions placed on foreclosures, bankruptcies, and other debt-related problems. Large banks and financial forms should not be able to profit off of the wholesale (hopefully temporary) collapse of certain economic sectors.
The federal government can spend whatever it needs to, to get us through this unprecedented time. As I have covered in other posts, a sovereign country that issues its own currency does not need taxes to pay for things. The federal government is the issuer of the currency, not a user of the currency. As such, there is no need for the US government to balance its budget, or take in taxes to pay for things. The government can just spend money into existence to accomplish social and economic goals. There are certainly issues of inflation and currency stability, but there is no inherent solvency issue in the US government spending US dollars, which it creates in the first place.
Right now, and for the last 40 years or so, the social goal of government spending has been to make money abundant for those who already have it, and scarce for those who don’t. The time has come to reverse that dynamic. We have to decide if we’re just trying to weather the Coronavirus storm for a few weeks, so that we can get back to our normal situation, where massive inequality makes life for regular people highly unstable and uncertain, or if we want to fundamentally change the social purpose and meaning of money. We have a chance to unite people behind a collective national effort to build a different kind of social reality on the ground, where money is consistently pumped into our economy and society from the bottom up, so that people can create more resilient and self-sufficient communities.
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