Yves here. The financial crisis was such a successful exercise in looting the public purse that our oligarchs are at it again, this time via the “stimulus” bill.
By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute
When historians look back on our current government’s response to a public health emergency and resultant economic depression, there won’t be many paeans to profiles in courage. It may seem impressive that Congress has approved legislation worth $2 trillion to help sustain the American economy, but it’s no New Deal. Rather it’s a massive economic slush fund that does its utmost to preserve the old ways of doing things under the guise of masquerading as a response to a public health emergency. In reality, the relief provisions are barely adequate.
Had this been another financial crisis like 2008, it is doubtful that America’s oligarch class would be able to secure such huge provision for themselves again. Under the guise of a public health emergency, though, serial corporate predators are being given dollops from this massive public trough with no means of engendering the kind of economic reconstruction that is truly needed right now, or even preventing a sufficiently robust response if this virus comes back in a second or third wave.
As one might expect in a massive bill (representing around 10 percent of U.S. GDP), there are some decent scraps in this dog’s breakfast, but overall the Coronavirus Aid, Relief, and Economic Security Act represents yet another sad indictment of the American polity, even as it provides an excellent civics lesson in teaching us where power truly lies. There’s $150 billion allocated to hospitals, many of which are already stretched to capacity, but that’s nothing compared to the trillions directed to corporations with minimal disclosure on how those sums are to be allocated, or any conditionality attached. In fact, we appear not to have learned some lessons from 2008, when at least some members of Congress made efforts to scrutinize how we were spending the money. Pam and Russ Martens’s superbly informative digging into the more than 800-page-long bill reveals that:
a) The Fed will leverage the bill’s $454 million bailout slush fund into $4.5 trillion, and will hand it out through the New York Fed.
b) To ensure that they don’t have to answer embarrassing questions about which of their cronies got the money, the bill suspends the Freedom of Information Act for the Fed.
Bloomberg has also confirmed that the NY Fed has outsourced picking the lucky recipients for this slushy cornucopia to a private contractor, BlackRock, the world’s largest asset manager (Goldman Sachs apparently has done enough of “God’s work” this time). The more things change in Washington, the more they stay the same.
By contrast, the relief provisions are barely adequate. They expand unemployment insurance (an additional $600 per week for up to four months), feature one-time direct payments to Americans of $1,200 per adult making up to $75,000 a year, and $2,400 to a married couple making up to $150,000, with $500 payments per child. However, the bill neither addresses the chronic inequality that now characterizes the U.S. economy, nor is there provision for the self-employed or the millions of independent contractor workers who have no employee benefits.
A better template would have been something along the lines of what was legislated in Norway, although it is unrealistic to expect a U.S. Senate dominated by hardline Republicans to acquiesce to something proposed by a Scandinavian social democracy. But highlighting the contrast, Norwegian journalist Ellen Engelstad writes: “Workers put on leave will now get full pay for twenty days (an improvement even on the pre-coronavirus situation), but employers will only cover the first two days, while the rest will be paid by the state. After that period, a worker on leave will receive 80 percent of their previous salary, up to [about $29,000] a year, and 62.4 percent of everything they received on top of that.”
So long as we continue to embrace a lockdown strategy, generous relief is key to securing widespread support for its maintenance. It will become politically impossible to sustain a government-mandated lockdown where workers are forced to stay at home, absent some income support to facilitate compliance with that order. So it is good that the government has also recognized that this relief had to take the form of grants, not loans, because additional private debt assumption would exacerbate long-term economic distress. The provision of $350 billion in “forgivable loans” to businesses are in reality grants, as these “loans” will be forgiven if the businesses targeted maintain payroll. That’s precisely the kind of conditionality that should be attached to the relief provisions.
There will undoubtedly be other measures required once the scale of the economic fallout becomes clearer. But when we get past relief packages and move toward taking the economy out of its current cryogenically frozen state, the U.S. government must engage in a broader effort of reconstruction so as to finally make this an economy that works for all. Policy should not simply be about getting people back into resorts, malls or restaurants, or exhorting mass consumption as a patriotic duty (as George W. Bush suggested after 9/11). Rather, we should be focused on ramping up mass-production essential goods such as food, as well support for the health care systems via expansion of testing kits, surgical masks, ventilators and palliative care, not only for this crisis, but also to ensure that the system is not overwhelmed in the event of future pandemics (or a possible recurrence of this one as we return to work and reintegrate with one another). It also goes without saying that we should also expend vast sums on research and development to find treatments and a vaccine, as well as rapid training of new medical workers. Substantial increases in funding to the National Institutes of Health would be a good place to start.
As for conditionality, a case has been made that a force majeure “Act of God” is not the time to play a “game of chicken” and impose major conditions for aid, especially as it is government policy itself that has precipitated the crisis. On the other hand, political realities and historic precedent suggest that crisis conditions are the only time one gets dramatic reforms; otherwise the elites regain their balance and suppress them (as occurred after 2008). Plus, there are corporate bailout recipients in this bill, such as Boeing, that were heading toward a death spiral, even before the epidemic.
Let’s also make clear distinctions here: An “Act of God” argument was invoked in 2008. That financial crisis was described as a “once in a 50-year event,” something that couldn’t have been planned for or insured against, etc. This was a lie. The banks were not blameless, and there was causation between the crash and their behavior. But Wall Street’s bad actors weren’t punished. There were, however, a lot of blameless victims who were and are still paying a price. They didn’t receive compensation and received pain and punishment as if they were responsible, when they were in fact collateral damage.
In many respects, this crisis is even worse. We may not have a financial contagion, but we have a physical contagion that is literally exposing us to conditions comparable to the 1930s. But unlike the 1930s or, indeed, the 2008 global financial contagion, policymakers have a twin task with seemingly incompatible goals: stopping the spread of the virus in many ways exists in tension with the need to arrest the indirect economic fallout from the pandemic. The longer the economic restrictions apply to eliminate the health risk, the greater the economic fallout, which is precisely the dilemma President Trump exposed (in his typically inelegant way), when he signaled his desire to restart the U.S. economy by mid-April.
Trump’s public musings were rightly denounced. His moral calculus is skewed; this president is transparently consumed by the desire to safeguard his narrow economic interests and the presidency (along with the fact that he stripped public health agencies of the staffing, resources, and authority they needed to function). A serious president would send teams of epidemiologists to study other countries’ success models, and adopt them. Instead, Trump is literally gambling with the lives of potentially millions of people as he tries to place this bet on an Easter miracle. Unlike Jesus, those lives lost won’t be resurrected, even if the economy ultimately revives.
Beyond that is the question of how best to assist businesses paralyzed for the sake of public health. This is perhaps the most politically loaded part of the process when it comes to assessing how far we go in terms of changing the behavior of our corporate sector versus the notion of simply compensating businesses for losses sustained by an action deemed to be a public health emergency.
Oren Cass, executive director of the soon-to-be-launched think tank American Compass, has made the case for compensating businesses on the basis of the takings clause of the U.S. Constitution, which states that “private property [shall not] be taken for public use, without just compensation.” Establishing “just compensation” is often in the eye of the beholder, and Cass suggests that a just principle is compensating businesses for the fixed costs they would normally incur in the event that they were able to function as normal operating concerns (as opposed to making estimates of likely profitability and compensating on that basis). The goal is clearly to avoid providing unfair windfalls but to keep businesses solvent until they reopen.
On the other hand, one of the principal complaints directed against the bailouts granted (especially to the banks) in 2008 is that bad corporate actors who were responsible for creating the crisis were given money with no strings attached. In that regard, the bailouts not only allowed them to revive profitability quickly (as the status quo ante was restored), but also actively lobbied against any kind of regulation to prevent a recurrence of the activities that created the crash in the first place.
The lessons many drew from the experience was that the only time to extract concessions and induce changes in behavior from bad corporate actors is at a time when they are economically vulnerable, even if the precipitating cause of that vulnerability was the government-mandated shutdown of the economy. It is impossible to remake an economy if, for example, corporate bailouts are used to perpetuate behavior that undermines economic prosperity. While the Coronavirus Aid, Relief, and Economic Security Act does introduce some restrictions on buybacks and limiting stock dividends, it “avoids the more restrictive language that was included in the House version of the legislation,” according to Defense News.
Many are trying to distinguish this bailout from 2008 (i.e., this time is a non-economic shock, something that couldn’t have been planned for or insured against; businesses that are failing right now are doing so through no fault of their own and they’re still good/healthy businesses), because saying “this is just how creative destruction works” is clearly untenable right now. In reality, the collapse in aggregate demand caused by the 2008 financial crisis arguably was just as exogenous to the consumer economy. Fatuous distinctions to justify further corporate predation simply provide another illustration that what we had before the coronavirus pandemic clearly was not working for most people. The truth is that for decades we’ve had a hollowing out of democracy, and a massive expansion of wealth inequality accompanied by Mussolini-style crony capitalism.
During the Great Depression, legislation was implemented to prevent a recurrence of the 1920s bubble. Roosevelt’s New Deal did not legislate to restore the status quo ante but rather to create a very different sort of economy.
Under the cover of a public health emergency, however, the so-called “new normal” is looking a lot like the old normal. This bill gives the pigs yet another big feed at the public trough, and Congress is happily ladling out the goodies. Much like the 1930s, then, the very legitimacy of liberal capitalist democracy is at stake. Unfortunately, there does not appear to be an FDR ready to lead us in this acute moment of need.