Originally published: Umair Haque
America’s response to Coronavirus has been, in a word, disastrous. It adds disaster to the catastrophe of a new global pandemic. If you’ve thought something like the above, you’re exactly right. And yet because the media is doing a fairly poor job of explaining just why, let me.
America’s stimulus program gives a one-off payment of $1200 to people — and even that’s conditional on income. Good enough, right? Wrong.
Every other rich country by now has guaranteed incomes, in some form or other. Sweden, to 90%. Denmark subsidizing 75% of incomes. Take the other most capitalist society in the world, Britain Even there, incomes have been guaranteed: Britain, to 80% of income. In Europe, most nations have gone even further, making not just emergency payments to workers for as long as the crisis will last, but mortgages have already been suspended, which is another way to guarantee incomes.
By this measure, America’s paltry $1200 one-off payment looks inadequate — because it is. Deeply and profoundly so.
Before I come to the other ways, let’s discuss why America’s response has been so dismal. The fear is that inflation will wrack the economy if people are to “get paid for free.” But nothing could be more wrong. Inflation, often misunderstood by Americans, because American economics, is to put it kindly, a joke, is really this: spirals in wages and prices.
Now think of the average American. He or she is suddenly out of work — and facing the prospect of sudden and long-lasting bankruptcy. In other words, the average American is facing a deflationary shock. One so total, the like has never been seen in modern history. Overnight, literally, their income has gone to zero.
That deflationary shock will ripple outwards through the economy. It will cause prices to fall, because people won’t have enough money to buy the same levels of stuff. Prices for what? For everything. For houses, food, cars, and so forth. That deflation probably won’t make the headlines, because they’ll be full of profiteering scandals. Of course profiteering will take place, but across the larger economy, the effect of deflationary shocks will be what it always is: depression.
Depression means: After they lose their incomes Americans will then lose their savings, their homes, whatever other assets they had, like retirement and college and funds and so forth. They will struggle to afford the basics, even more than the already did — remember, America was already an economy in which 75% struggled to pay basic bills, like food, housing, and utilities, even before Coronavirus. Now imagine them being even poorer than that.
The stage has now been set for a depression. Precisely because idea that a danger from the government supporting people during a catastrophe is “inflation” is backwards — the real danger is deflation. That deflationary shock is taking place as we speak, like a mega-earthquake, an extinction level event, which is making millions of Americans go from a relatively paltry income to…zero income.
That is why a $1200 payment to people isn’t nearly enough. Those jobs aren’t suddenly going to magically come back. Why not? That brings me to the second reason America’s Coronavirus response is inadequate.
Businesses are already going bankrupt. How many can you count? Just take a look down your block. How many small or medium sized businesses are shuttering their doors, or on the verge? Your local bakery, brewer, butcher — if you even had one left?
America’s stimulus program offers little real support to the economy. It gives mega-corporations huge bailouts. But for everyone else, it offers little to no real support. Maybe — and I stress maybe — your average business gets a small loan or a tax break from the government. But what good is a loan or a tax break when the basis of your business has simply fallen apart? Think of a supply chain: it’s a complex web of businesses. Like an ecosystem, the shock of losing customers suddenly ripples outwards and upwards. Sure, all these businesses can take on loans and get minor-league tax breaks. So what? That doesn’t solve the problem of no income at all. Those businesses will all still soon fold, as their debt spirals out of control, while their revenues plunge to near zero — and no amount of tax breaks can fix that, either.
Loans are not really a “stimulus.” The Fed doesn’t give banks “loans” during a crisis — it simply throws free money at them. It literally simply puts money in their accounts in the central bank. Yes, really. That is precisely what America should have done for businesses, too. It should have guaranteed their incomes, just as it should have guaranteed personal incomes. That’s what Italy and Germany did: businesses at risk don’t get loans, they get grants. And in Spain and France, they get government guaranteed funds, in which “guaranteed” means that any debt will probably be written off after the crisis.
Just as the sudden loss of income for people creates an extinction level deflationary shock, so too does the sudden loss of income for businesses. That deflationary shock — business’s revenues suddenly falling to zero — will rip through the economy, causing mass layoffs, bankruptcies, and the extinction of whole sectors. Again: the stage for a historic depression has now been set.
That brings me to the third and biggest reason. What’s missing from this “stimulus” package? Take a look at those brave doctors and nurses. They’re fashioning masks out of pizza boxes. They’re desperately trying to get patients to share scarce ventilators. What’s missing from this stimulus package is…stimulus. As in the real thing.
What does that mean? A massive, historic, generational wave of investment in healthcare like America’s never seen before. Isn’t it obvious that’s what’s necessary right about now? That America’s barely functional healthcare system — and economy — can hardly cope with the magnitude of this shock? And yet, on the same day as it announced this stimulus package, the government also proclaimed it couldn’t spend a billion dollars on…ventilators. Wait, what? Perhaps you see the problem.
Let me put it more plainly. This stimulus bill isn’t really one. It doesn’t put, say, a trillion dollars towards building new hospitals, clinics, care centers…and another trillions to new labs, research facilities, university research programs. It doesn’t recruit a million people or ten to do the sudden work of gearing a whole economy towards building the missing resources a society crippled by disease now urgently needs. What kind of work is that?
This stimulus doesn’t create institutions like a Works Progress Administration — only this time for people to work in factories suddenly building ventilators and masks, or a million bright young people researching pandemics harder, or an army of everyday people visiting the elderly and making sure they’re ok, or legions making films about the pandemic, or writing about it — things which are the equivalent of digging ditches during a pandemic. Yet think about how much of that is the necessary, crucial work of this moment. Think how much work there is to really do — from building the resources we need, whether simple things like ventilators and masks, to doing new research and development, fast, to manning and managing it all, to chronicling this moment in literature and film, to building whole new hospitals and clinics, to creating a whole new sector of crisis planning.
This stimulus doesn’t do any of that. It doesn’t even have a billion dollars for the scarcest and most urgently necessary resource of all — ventilators, for Pete’s sake — let alone new hospitals and clinics, or staffing existing ones better.
The result is that America’s economy is still scarce of the resources it needs most to fight this pandemic, like ventilators and masks. This stimulus isn’t one because it doesn’t invest in anything new at all.
Let me put all that in more formal, technical terms. A stimulus is not a stimulus when it doesn’t create any resources, lead to any larger surplus, in society. A stimulus is a stimulus when it suddenly, massively invests in society, so that new resources can be created. Often, whole new institutions must be built — like the Depression’s WPA or Reconstruction Finance Corporation — to coordinate and manage those investments.
The whole point of a stimulus is to suddenly, rapidly expand society’s surplus of resources — especially desperately necessary ones — or it isn’t a stimulus at all. Those desperately necessary resources differ from crisis to crisis. What are they this time around? Ventilators. Masks. Hospitals. Care workers. Factories. Transportation. Meanwhile, mass unemployment has set in.
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See the obvious solution? The government can and should “employ” people who are suddenly unemployed and broke to balance that equation — to create those desperately necessary resources. If it needs to create new institutions to do that — A Healthcare Crisis Agency, a Pandemic Response Bank, a Reconstruction Finance Corporation — all the better: even more people are employed to create another scarce resource, planning and coordinating. That is what a stimulus is — when we genuinely take collective action to invest together to create a surplus of critical resources that we suddenly, desperately lack.
This bill literally does none of that. As in: zero. And in that way, it’s not a stimulus at all. What it is is a bailout. It’s a rescue of corporations and Wall St and the same old. It’s a bailout of capitalism — at the expense of the economy, people, and life itself.
What’s a depression? A society in desperate scarcity — whether of money, homes, income, medicine, and so on, the basics — usually, as the result of a sudden, catastrophic shock. The correct result is a real stimulus — as Keynes discovered a century ago — precisely so that society can have a surplus of those critical resources. Otherwise, a deflationary spiral sets in: wages and prices fall in tandem, and people get sharply poorer in real terms, fast. The prices of these few critical resources rise, of course — but only amidst fresh and terrible poverty.
But that poverty is disaster added to catastrophe. Because depression results from some shock — the loss of a war, natural calamity, in this case, pandemic. Poverty is a consequence of inaction, folly, negligence — the lack of collective action and shared investment.
America’s response to Coronavirus is as flawed and inadequate as you probably think. Compared to other rich countries, America is essentially doing next to nothing. It sets the stage for depression — by being a bailout of capitalism’s mega-rich, who already have too much, while the average person and his or her small business have long had too little. Instead of massively investing to create a surplus of critical resources, it…doesn’t invest in anything at all.
That is why we will go on hearing surreal horror stories about doctors making masks from pizza boxes and nurses dying because they treated the sick without protective gear…even as we lose our own jobs and incomes…while the mega-rich go on laughing all the way to the bank.
Don’t get me wrong. This stimulus is better than nothing. But what it isn’t is nearly good enough for a society as broken as America to be able to cope with catastrophe — much less grow as an improbable result of it.
There’s another, harder, way to put all that. Did you really expect a ruthlessly capitalist society to be able to save itself from a pandemic? Or was it always just going to use it as a way to exploit people even harder? Sadly, the answer, my friends, is one every country but America knows by now.
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