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As Covid-19 tears through America, employment, production, and the markets have crashed with terrifying force and speed. People may wonder, is this just a shock, a one-time event that will be over if and when the pandemic comes under control?
It is not. On the contrary, a house of cards has fallen. An entire world of illusions, self-deceptions, and sophistries has died. We’ve come to the end of a very long string.
This crisis has been coming since the glory days of Milton Friedman and Friedrich von Hayek, whose disciples were not only Margaret Thatcher and Ronald Reagan, but also Jimmy Carter and Bill Clinton, Tony Blair and Gordon Brown, the George Bushes and Barack Obama and many lesser figures. It reflects a binational, bipartisan coalition of catastrophe in the Western realm of ideas. Donald Trump and Boris Johnson are consequences, not causes, of this mental failure, and their responses to Covid-19 follow suit.
The delusion is economics as we’ve known it. Here, two concepts have ruled: self-organization and the veil of money. The first argued for markets, for all of society to be mediated by the forces of supply and demand. Its supposed virtues were competition, flexibility, incentives, efficiency; the reality is a fragile web, woven of thin threads of glass. Meanwhile the veil of money obscured the financial system. The banks were not part of the models, which said that money and credit had nothing to do with employment or output, but only with prices and inflation. Bankers, traders, and speculators were ostensibly mere messengers—invisible, unimportant, and critically misunderstood.
In this crisis, the most deluded are the worst hit. Europe has dissolved under the force of the emergency. A friend in Rome, locked alone in his apartment, corrected me: Europe never really existed. Like the fiction of a society organized by markets, the mirage of a union managed by finance ministers and central bankers has evaporated. Border controls are back. Emmanuel Macron speaks for France alone, Angela Merkel for Germany and no other place. For critical weeks, no medical help flowed from Germany to Italy, and the response to date remains trivial. The initial response of the European Central Bank—some bond buying—was overshadowed by an inept remark from its president, Christine Lagarde. Only now are the fiscal rules that have strangled Europe finally, perhaps, being relaxed.
In the United Kingdom, a country run by bankers, traders, and debaters from the Oxford Union, an addled government leaned, at first, toward letting the fire burn: Social Darwinism on the scale of the Irish Famine. While the government pissed away time, the fire got out of hand. But on March 16, a light came on, and the nation reversed course. It may be that over there, the war is now on.
Meanwhile, in China the power of the state backed by a seemingly cooperative and committed citizenry has been observed. Say what you will about the means, which included electronic monitoring, social controls, a quarantine of nearly 60 million people, and a harsh decision to sacrifice thousands in Hubei in order to save hundreds of thousands throughout China. War is like that. But China has, so far, apparently, controlled the outbreak and is socially intact; Chinese teams are fanning out around the world to staff hospitals and bring supplies. In South Korea it seems more advanced methods worked even better: There is hope in competence, organization, productive capacity, and short lines of supply. Those societies held together, and their economies will recover.
The Situation in America
And the United States? At the moment, it is breaking apart. Federal officials, with a few exceptions, are predatory, indifferent, or merely stupid. Bailouts, tax cuts, and slush funds have been proposed, alongside cash payments, as “stimulus” (that vile meth metaphor)—as though with enough money, the market will organize itself. It is the same delusion. The few steady hands are those of some governors, many mayors, county judges, and other local officials—in both parties—who are following the guidance of health professionals and shutting things down.
For the population, it is a test of character. The urgent need is to go into survival-first mode and halt the spread of the pandemic. Ordinary Americans are for the most part community-minded, prepared to follow instructions and do right, if others will do likewise. Around me in Austin, Texas, people are sheltering in place. Virtually all public facilities are closed—we’re told for several weeks. Everyone knows it could be months. Most remain calm, except for high officials far away, pressed by panicky voices from Wall Street, which are sowing further disasters through false hopes.
As everyone also knows, there has been far too little testing. There are scant reserves of hospital beds or ICU units and far too few masks, gowns, ventilators, and other critical equipment. Global supply chains have been interrupted, and medicines of many types may run short. Hospital care may become unavailable for some time; if there are no beds, there are no beds for any type of care. One of the few advantages to being in America right now is that it is a large country. Many people live in more space and can self-isolate more easily, for a time, so that critical supplies can start to be produced and delivered. This is not a consolation for the poor or for New Yorkers or for those who rely on assistance that they may not be able to get. Nor for those surrounded by people who haven’t heard the message.
It is hard to look past the imminent swamping of the health system, but food and medicine are no less basic to survival and social order. We are told there is plenty of food in the country. Can it get to the stores? Yes, for now, but for how long? How long will people be there to stock and sell and protect it? Distribution and security are the weak links in the food chain. The market has given us efficiency and a high living standard in normal times. It has by the very same token not given us resilience, spare capacity, coordination, or leadership. It has, instead, given us fragility. A web of glass. Panic is both the rational response and the enemy. If panic takes control, it will destroy whatever is left.
When the immediate catastrophe passes, how long will it take before normal life resumes? After the Great Crash of 1929, it took four long years—for just the beginning. To take a distant example, when the Soviet Union collapsed, markets were supposed to organize things quickly—that was the point of shock therapy—but they could not. So the successor states passed through six years of hell, of privation and despair. Factories still existed but were idle; fields existed but went unplowed. Things fell apart. The people could not withstand privatization and looting, loss of wages and pensions, rampant inflation, and the opening to foreign supplies. Millions died of stress, violence, alcohol, and suicide. The US today bears no small similarity to the Russia of 1992.
What Must Be Done
The American economy must convert, in full and at once, to fight the pandemic. The big bailout did not fix the medical supply chain; a public corporation—the Health Finance Corporation, based on the Reconstruction Finance Corporation created during the Great Depression and run by professionals with the power to borrow, allocate, and meet problems as they arise—is needed now. The National Guard and the Army and all their resources must be deployed. The Federal Reserve can backstop state and local governments. And every necessary resource must be enlisted.
The immediate medical need is supplies, beds, personnel. If hospitals can’t be built in days—as the Chinese did in Wuhan—then space can be requisitioned. Hotels and dormitories are empty. In extremis, even tents will do; Cuban medical teams have them up and running in Italy right now. The Defense Production Act gives the president the authority to command companies to make masks, oxygen tanks, respirators. People will be needed to clean and perform other basic functions. It’s risky work, and it must be decently paid. But if you pay well and give workers protection and cover their health care—and promise legal status, as we do with soldiers in wartime—people will step up.
The next need is to stabilize priority civilian supplies: food, medicines, cleaners, paper goods. The existing system may hold for a while. The key is to lock it in place, and the key resource is the people already doing the indispensable jobs: drivers, stockers, checkout clerks, cooks and kitchen help, scrubbers, and security guards. They don’t need cash to stay home; they need pay and protections to keep them working. Suddenly, all these workers are essential and must now be treated that way. If the necessary goods keep coming in at fair prices, most of us will stay calm and get by. If we don’t, rationing and price controls must come next.
Among the most necessary big corporations right now are those that run mass distribution networks: Amazon, Walmart, FedEx, UPS, and the drugstores and major fast food chains. They should be run as if they were public utilities for the duration. That means giving delivery at cost on essential goods and, as Amazon has done already, stop orders on nonessential items. Those workers also should get raises and health care and unions. In return for staying on the job, they, too, should emerge in an entirely different position after this ends. Overpaid top executives should take a hit, for once, and contribute their time.
Meanwhile, wage workers staying home should be kept on payrolls, at a discount from present wages, as the British and Danes are doing. Banks can finance this at 0 percent, and the government can reimburse the companies at tax time. For the self-employed and gig workers, the fast solution is to make them eligible for unemployment insurance, on similar terms. Evictions and foreclosures and utility stoppages must be halted at once, and utilities restored. Compared with these measures, sending cash to tax filers is slow, meager, inaccurate, and possibly counterproductive, as it may contribute to panic buying and supply-chain disruptions. A new bill to get these measures done is urgently needed.
All the information services should now be drafted, and basic customer bills should be suspended for the duration: cable, cellular, landlines, the Internet. The government can compensate the companies for those costs. Having secure communications and entertainment will help keep people at home. The boost in disposable incomes will help in exact inverse proportion to wealth; those losing work income will benefit most.
Many large, medium, and small employers are down for the count and but for the bailout would be bankrupt soon: airlines, hotel chains, shopping malls, convention centers—more than anyone can list. Whether the gigantic gift just sent to their owners and bondholders will save them is doubtful. With no debt relief so far and future income prospects grim, a vast financial crisis is building for the middle classes and the working poor. Their anxiety will only grow, starting now, unless the next round of legislation moves to relieve it. Otherwise, the health crisis and economic shutdown will give way, eventually, to an even greater social upheaval.
Through it all, the people must be reassured. Those at home must be cared for. And those who remain healthy must be given useful work. Solidarity, organization, determination—these are the words for us now.