We now have a pretty good idea what to do to minimize the reach and impact of the new coronavirus, COVID-19. We have a pretty good idea what to do to ameliorate its economic impact, or at least provide needed relief. But we don’t yet know what to do to fuse consideration of the physical and fiscal into an integrated policy that keeps us as safe as possible now while minimizing economic disruption and preserving the ability of the economy to snap back from its current low.
President Trump has gone through several stages. Stage One. Denial. It can’t happen here. A hoax concocted by Trump’s enemies to make him look bad. Stage Two: When it became obvious that America was indeed playing host to this easily transmitted disease, lethal for the elderly and those with pre-existing conditions, enter the doctors. Trump created a task force headed by vice president Mike Pence, consisting of several doctors until then working more or less anonymously in the federal bureaucracy. Under pressure to act quickly, the President did not consider adding to the panel anyone who would speak for a policy that balanced concerns about the virus with concerns about the consequences of what the uni-focused doctors would inevitably recommend.
Predictably, the doctors called for the internment of most people in their homes and apartments, vigorous hand-washing, and social distancing to reduce human contact and transmission of the virus. Not a twin of China’s more draconian version, but at least a distant relative.
The doctors quite naturally have focused exclusively on the health issue. If the only tool you have is a hammer, treat everything as if were a nail, advised assorted wise men. The doctors have in effect ordered the American economy to have a major recession. A record 3.3 million workers filed for unemployment insurance last week, compared to 282,000 a week earlier, and 665,000 at the peak of the Great Recession. Oxford Economics foresees 15-20 million job losses in America in the coming weeks and an unemployment rate above 10% in April. Morgan Stanley researchers put the number at 13%. Small businesses are closing. Big businesses are crying for bailouts. Banks stand to lose $57.5 billion on real estate loans, estimates data firm Trepp LLC. Rating agencies are stripping companies of triple-A ratings, reclassifying other until-now safe investment-grade bonds as junk, and junk bonds as junkier. The economy will shrink at an annual rate of 30% in the quarter that begins on Wednesday predict analysts at Morgan Stanley.
Trump’s performance in Stage 2 satisfied most Americans. Gallup pollsters report that 60% of Americans approve of his handling of the crisis, as do 60% of independents and 25% of Democrats. Restrictions on large public gatherings have forced Trump to cancel the mass rallies that allow his base to show their love. Fortunately for him, his daily televised reports on COVID-19 have extended his popularity far beyond that base.
Which brings us to Stage Three. Trump’s inner businessman demanded his attention. That voice did not always serve him well in the private sector, where several of his enterprises were forced to declare bankruptcy. But now it has. Looking at the plight of the American economy, the President erupted. “Our country wasn’t built to be shut down. … We cannot let the cure be worse than the disease. … If it were up to the doctors they may say, ‘Let’s … shut down the entire world … for a couple of years. … You can’t do that … with the No.1 economy…. People can go back to work and still practice good judgment.”
Pressed for his best guess as to when he would begin to ease his guidelines’ restrictions, Trump replied, “A lot sooner than three or four months.” More specifically, on Easter because “It’s such an important day for other reasons…. a very special day for me.” He wants “packed churches”. His Evangelical supporters couldn’t be happier, a fact that might possibly have occurred to the President.
The President continues to take advice from the doctors while he decides on future guidelines. As well he should. They want the economy to remain closed. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, has become something of a media celebrity because of his star turn on the Pence panel’s daily briefings. He has taken to giving television interviews on, among others, “The Today Show,” to contradict the President. He dismisses Trump’s Easter target as merely an “aspirational projection to give people some hope … [this is] not the time to pull back … you got to hunker down, nail down, mitigate, mitigate, mitigate”. Fauci wants to keep the economy closed until more data are available, perhaps even until we know whether the disease recurs in the Fall if it ebbs before then.
But the doctors’ exclusive access to the Presidential ear has been broken. He now is hearing urgently from leaders of the financial community, who want the economy re-opened. And from economists who can help him balance the competing considerations. . “Saving lives … [is] not the only consideration. That’s why we don’t shut down the economy every flu season. They’re [the doctors] ignoring the costs of what they’re doing,” University of Chicago economist Casey Mulligan told New York Times reporters Eduardo Porter and Jim Tankersley. “Why is nobody putting some numbers on the economic costs of a monthlong or yearlong shutdown against the lives saved? The whole discipline is well equipped for it,” added Walter Scheidel, economic historian at Stanford University.
Now we enter Stage Four – listen and decide. Fortunately, the President will have at his side Kevin Hassett, who several months ago departed his job as chairman of the President’s Council of Economic Advisers. With honour intact. He is returning as an unpaid personal adviser to Trump, with no job to protect by being a yes-man to the President. It is no coincidence that Trump’s policy reversal, his search for a balanced policy, coincided with Hassett’s return.
The economic costs of shutting down the economy are now being weighed against the advantages the doctors claim for such a shut-down. Trump will listen (probably with mounting impatience) to a presentation of the wide-ranging results of competing medical models, be told of the economists’ best guesses as to the impact on jobs, now and in the future. The Fauci faction will tell him to stay the course with the existing guidelines. Hassett will summarize economists’ views with a pithy, “If everyone stays home for six months it’s going to be like the Great Depression.”
Trump will make the political judgement that only a President can make – how to balance these considerations, how much will the public tolerate before obedience to the guidelines gradually erodes. No one promised the until-now all-powerful doctors a rose garden when they entered the policy lists, but the voters did hand the President one, so Trump and neither the doctors nor the economists — an elected official and not bureaucrats — will decide on guidelines. And elected officials, governors and mayors, will decide whether and how they should be implemented, with hard-hit Washington and New York going in one direction, and, say, Florida in another. Good thing.
The President says that he has decided to postpone his Easter announcement and now plans to review the existing guidelines one month from now.
The next steps will be for state and local governments to permit some businesses to respond to relaxed federal guidelines by re-opening, and for the federal government to get the cash available from the relief act to those who need it and to those who managed to insert their snouts into the trough.[1] It isn’t easy to spend $2.2 trillion: it will take longer than many potential recipients would like, and be too late to save some of the smallest businesses from folding.
Two trillion dollars is a whopping 10% 0f GDP. “A drop in the bucket as to need,” complains Andrew Cuomo, governor of hard-hit New York. “Just the start”, opines The Wall Street Journal.
[1] I am indebted to the invaluable Kimberley Strassel, of The Wall Street Journal, for this list of those who used this crisis to have their begging bowls filled. NASA $60mn; National Archives $8mn; Energy Department $99mn; Forest Service $37mn; National Foundation for the Arts $75mn; Kennedy Center $25mn; Legal services for the poor $50mn. Among recipients in the billion-dollar class are education $32bn and housing $12bn. “This is a massive expansion of the welfare state … Appropriators can sneak a lot into 880 pages,” Strassel notes. To which I would add massive new tax breaks for wealthy real estate developers.