Certain: “settled, to be depended on” according to my OED. Certainty is a blessing reserved for the doctors predicting that doom awaits if several governors go through with plans to re-open their states’ economies. Dr. Anthony Fauci, the government immunologist and telegenic spokesman for his colleagues, was so certain of their dire prediction that their senate testimony last week rattled markets and law makers who were hoping that re-opening might lead to better days ahead for the U.S. economy. No such luck warned Fauci & Co. We might squeak through the summer with an unlocked economy, but come winter and the flu season a new outbreak will make us regret ignoring their advice.
Economists, who must weigh the costs of reopening the economy against the benefits of getting people back to work and able to feed their families, are denied certainty. Not so government doctors, with their data and models on the course of the pandemic, and who concern themselves only with costs of reviving the economy: they can assure their audience that they have it right. With their guaranteed salaries and pensions, they can share the physical pain of their patients but cannot identify with their economic pain, and give little or no weight to the consequences of extended periods of joblessness – suicides, increased addiction and domestic violence, permanent departures from the work force as people lapse into dependency.
Economists are even denied the ability to use past experience to guess at the future performance of the economy, which no less a figure than Federal Reserve chairman Jay Powell labelled “highly uncertain”. We were taught that if you conjure trillions of dollars out of thin air – more precisely from the printing presses – inflation will eat into the dollar’s value. We have printed $3 trillion new greenbacks, en route to $10 trillion, and are worried, not about inflation, but about deflation.
We were also taught that persistent, large fiscal deficits would cause nervous investors to demand higher interest rates on their loans to the U.S. government, and even precipitate a flight from the currency. Deficits are running at a record annual rate of $4 trillion, an astonishing 20% of GDP, and interest rates, rather than soaring, remain close to zero, while investors scramble to buy rather than unload dollars.
Most governors are requiring or recommending continued social distancing, testing, contact tracing, and good personal hygiene – Americans now come to international bargaining tables with clean hands. But one policy does not fit all, there being more than a few differences between the rural areas of Texas and New York City. Some governors are permitting only some shops to open, others are permitting beauty salons to work their morale-boosting magic, and tattoo shops to create body art, activities that do not permit social distancing.
Complicating matters is a partisan divide. Democrats are opposing other than the most restrictive re-openings. They say they are merely dutifully following the advice of the doctors, but with an election looming they cannot be unaware that Trump’s claim to have Made America Great Again would ring hollow were he forced to campaign with more than 36 million unemployed, small businesses going under at record rates, the manufacturing and service sectors operating at abysmally low levels, unhappy voters under house arrest.
Democrats also know that if re-opening becomes a re-awakening for the economy, their plan to conjure more trillions of fiat money to relieve the plight of hard-hit Democratic states with long, pre-virus histories of fiscal imprudence, would lose support. That would make the public-sector, lumbered with under-funded pensions, quite cross, perhaps cross enough to stint on financial support and withhold the army of doorbell ringers on which Democratic candidates rely.
Republican governors generally prefer to let consumers and business owners make their own decisions about acceptable risks. They know, or should, that the price for releasing the economy from the shutdown will be an increase in infections, but not so large as to overwhelm local health care facilities. But they reckon that price is worth paying to enable workers to feed their families, pay their mortgages and car payments, and recapture the sense of worthiness that comes with such self-sufficiency. And to enable everyone to regain a sense of freedom of movement.
Meanwhile, several Republican legislators are reverting to their party’s long-forgotten concern about ongoing deficits, and want to see what the trillions already spent have accomplished before spilling more red ink across the nation’s ledgers. The President, not one to see a virtue in consistency, foolish or otherwise, agrees with a spending pause that would rein in deficits while simultaneously calling for deficit-bloating reductions in capital gains, corporate and payroll taxes.
As for the doctor’s warnings, fear not, advises the President, “We have met the moment and we have prevailed … We will revive our economy.” Trump knows that unless voters spy some green shoots his chance of overtaking Joe Biden, now leading in the polls, either because of or despite the vitriol pouring out of the President and his team, is not very good.
Especially since Trump, during his frequent television reports on the pandemic, revealed what Woody Allen, in a self-deprecating comment, calls “the unquestioning confidence of the truly ignorant.” Because of that demonstrated ineptitude, older voters, the most vulnerable to the disease and in need of sound advice, are not certain to give Trump the eight-percentage point margin they bestowed in 2016. Indeed, they might empathize with rather than be repelled by Biden’s symptoms of ageing.
All of this leaves economists searching for data fragments to supplement whatever entrails they (we) choose to consult for guidance to the success, or lack thereof, of phased opening of the economy:
- a slight uptick in gasoline sales, perhaps foretelling an oil industry recovery;
- a noticeable recovery in sales of quick-service food chains such as Chipotle and Shake Shack, a sign that the outlook for the devastated restaurant sector might be brightening;
- an 8% rise in home prices in March, a possible harbinger of a recovery in the construction sector;
- a burst in the number of millennials opening brokerage accounts, suggesting they either view investing as another video game, or sense opportunities to build wealth;
- my local Starbucks doing a decent business in a once-deserted outdoor mall, its large parking lot no longer so deserted that it could comfortably house the Super Bowl;
- healthy advance bookings reported by, get this, some cruise lines, a glimmer of hope for the entertainment and hospitality industry.
Perhaps more important was the ability of Boeing to avoid a federal bailout by raising $25 billion in a debt sale, capping off a record month for investment-grade bond issuance. The 40-year bonds in the mix carried an interest rate of 4.625% above the negligible rate on U.S. Treasuries. “Despite the worst economic contraction in history, the debt markets are wide open,” says David Knutson, of Schroder Investment Management. Go figure.
One thing is certain. There will be more government in our lives when all this is over. Whether that government will be led by Donald J. Trump is less certain than it was before the onslaught of COVID-19. He needs a major economic recovery to avoid taking up residence in a re-opened Mar-a-Lago come next January.