The coronavirus crisis is already biting even though very few US locations have gone for the full bore shelter in place route. However, widespread closures of schools, the elimination of restaurant business except for takeout and delivery, the closure of bars and entertainment venues, the collapse of tourism, and recommendations to stay at home are already having big knock-on effects. A few of numerous examples: Softbank is attempting to renege on a commitment to buy $3 billion in WeWork shares. If Softbank prevails, WeWork is slotted to become the first large coronavirus-induced US business failure. Halliburton is laying off 3,500 employees as a result of the falloff in shale activity. Marriott will “furlough” tens of thousands of workers.
In New York, where restaurants are restricted to takeout and delivery, I’m told many have closed, so it’s hard for people who want to order from restaurants to know who is open and when. Here in Birmingham, where the restaurant restrictions are more severe (the restaurant has to deliver food to the car), I expect most fine dining venues will die. And Birmingham was getting a name as a foodie venue.
Now we may get lucky. The cornavirus may mutate into a milder form. Perhaps someone will come up with a drug cocktail that can be administered to reduce the severity of most cases and thus result in a much lower percentage of the afflicted needing hospital care.
But absent that, things are not looking good. The Imperial College COVID-19 Response Team report makes for grim reading. Not only does it remind us that a vaccine is at best a year to eighteen months away, but it also points out that new vaccines often don’t have great efficacy. And the Wall Street Journal reported that Singapore, Taiwan and Hong Kong, lauded for their early and effective responses to the coronavirus, are now seeing a second wave of cases. That strongly suggests that letting up much, any time soon, on serious restrictions on activity isn’t likely.
As many experts pointed out, the number of deaths resulting from an economic depression would be worse than from the coronavirus itself. Treasury Secretary Steve Mnuchin told senators that refusing to take forceful enough action could lead to 20% unemployment.
At least the Republicans act like they are willing to govern while the Democrats continue to be the party of “No, we can’t.” Ryan Cooper at The Week has a brutal takedown of the Democrats’ sorry performance. For instance:
That brings me to the economic response. So far, the House has passed a small response bill, and negotiated a second response package with the White House, including a provision for sick leave that won’t cover up to 80 percent of American workers. Speaker of the House Nancy Pelosi affirmatively defended the loopholes, saying she didn’t want to subsidize corporations. Then during a press conference Monday, Trump swung wildly to the left, saying in response to a question on sick leave that, “We want it for everybody.”
But bizarrely, during negotiations with White House staff Monday night, Pelosi agreed to weaken the bill even more. The paid leave provision now applies “only to workers caring for a child whose school or day care had been shut,” the Wall Street Journal reports. Either Trump did not understand the question he had been asked and was just running his mouth, he has no idea what his staff is doing, or he was brazenly lying — or some combination of all three.
Meanwhile on the question of broader economic stimulus, several Republicans are now outflanking Pelosi to the left. On Monday, Senator Tom Cotton (R-Ark.) rejected the Pelosi bill as insufficient, while Senator Mitt Romney (R-Utah) proposed an immediate payment of $1,000 to every adult. On Tuesday, the White House released a massive $850 billion stimulus plan (which may get even bigger), including “$500 billion in a payroll tax cut, a $50 billion bailout for airlines struggling from plummeting demand, and $250 billion for small business loans,” Reuters reports.
Even though these are big numbers, recall yesterday that Edmund Saez and Gabriel Zucman’s back of the envelope calculation was that the US GDP could suffer a 10% fall in GDP. Even Stephanie Kelton’s guesstimate that $2 trillion in stimulus was needed is light relative to that.
Moreover, more delay and more complexity leads to permanent damage. Even though the Administration claimed they’d get their $1000 checks out in two weeks, there’s no way that will happen between getting the legislation passed and the operational requirements of printing all the envelopes and checks and getting them out. In 2009, under an Obama stimulus program, the Federal government sent out 52 million checks, fewer than one expects here (presumably to ~155 million filers of Federal tax returns,1 since those are the addresses on hand; Social Security recipients are set up for electronic deposit, but they aren’t the group most in need). It took five months to distribute them, from May to October. One assumes there was also a sense of urgency then.
And what does $1,000 per adult do? The average US mortgage payment is over $1,000, so for a couple, in most cases, housing costs will eat up a lot. It doesn’t take a lot of budget estimations to show that for most this money will support critical payments like housing, car expenses, the cell phone, perhaps student debt payments, for a month. It’s a very short term stopgap.
And even more important…that amount of money is chump change compared to paying any coronavirus treatment-related bills, and all we have from the officialdom on that front so far is empty promises. Look at an indicator of the costs even for those with insurance. From The Verge:
Someone with health insurance from their employer could pay $1,300 or more out of pocket for treatment if they’re hospitalized with a severe case of COVID-19, the disease caused by the novel coronavirus, according to one analysis. Health researchers based that prediction off of the costs associated with hospitalization for pneumonia…
Rae and his co-authors analyzed a database of insurance claims for people enrolled in employer insurance plans. They found that the total cost of treatments for people on those insurance plans who were hospitalized with severe pneumonia with complications was, on average, around $20,000 — though it ranged from around $11,000 to around $24,000. Insurers covered most of that cost, but the out-of-pocket expense for most people usually reached or exceeded $1,300.
And for those who have jobs or a bit more of a cushion, a lot will be saved. It was for the most part in 2008 when the Bush Administration also launched a stimulus package that included sending checks of up to $600 to individuals, $,1200 for couples, and an additional $300 per dependent child. Even thought there was more to spend it on at that time (shops and entertainment venues were open), that was also a juncture when it looked like the economy might collapse into a depression. From The Balance:
The Bush Economic Stimulus Package didn’t have the impact it should have. A 2008 survey found that only 20% of those who received checks spent them. Another 32% put the money into savings. The rest use the checks to pay off debt.
In other words, while saving people from bankruptcy or living on the street is a worthy goal, stimulus this ain’t. It’s a band-aid over the gunshot wound of business closures, job losses and pay cuts.
And loans to small businesses? Are you kidding? What small businessman wants to take on more debt when he isn’t sure of his income or even business survival? A few who are in situations where they have genuine reasons to think the coronavirus impact on them is as blip rather than a body slam might take the plunge, but the rest? Fuggedaboudit. Plus the time and effort involved in getting together a loan application and the uncertainty as to if and when any money might be forthcoming are further stressors when someone is fighting for his commercial survival. A business owner hit by the coronavirus lockdown needs money to pay his bills now, if he still has a prospect of riding out months of the new normal, and that’s just not how these programs work.
But in the meantime, the GOP is making sure to take care of its friends on the sly:
So I hope I’m wrong in my interpretation of this, but the regulators seem to be telling banks to go ahead and dip into their capital buffers while giving them more flexibility to make shareholder payouts. https://t.co/TGFvoo9ujp via @FederalReserve
— Sheila Bair (@SheilaBair2013) March 18, 2020
So while the Republicans are thinking big by neoliberal standards, it isn’t remotely big enough. And that means Washington will be at best in catch up mode as this crisis evolves.
Update 9:30 AM EDT: More dire data, the first from Scott:
LA Times: a new poll has found that 18% of US workers have lost jobs or hours since the virus hithttps://t.co/Tp7GonwHcN
— FLATTEN THE CURVE (@TenYearNote) March 18, 2020
Between Friday and the end of yesterday the State ofConnecticut received 30,000 first-time claims for unemployment or more than 10X what would normally be filed during that period
— FLATTEN THE CURVE (@TenYearNote) March 18, 2020
Reader PD says Ohio is in the same boat.
1 Obviously many of these are couples filing jointly, but this is to give an order of magnitude idea of the printing and mailing task.