To American Citizens,
The US and the world are experiencing economic turmoil in
the wake of the COVID-19 pandemic. There are other factors that have been
promoting volatility, but the corona virus has, is and will continue to exert
its outsized dominance on the global economies. In demonstrating its influence,
it is creating conditions that ripple across the global economy and within
national economies. Each ripple reveals connections that were not necessarily
properly or fully understood, or even known to have existed. Understanding all
these ripples is critical because we either react or don’t to them; and if we
have a skewed understanding of why and how things are connected what we choose
to do or not may have consequences that we/you will regret later.
While the health implications of COVID-19 range from
transient discomfort to tragic outcomes, the societal consequences can be much
greater. As already demonstrated in the US and other nations, COVID-19 has
disrupted supply-chains, transportation, travel, education, businesses,
commerce, services, and virtually every aspect of life, even politics. This
broad and multi-faceted influencing character of COVID-19 enables the crisis to
inform everyone from individual citizens to national leaders in every area:
government, business, religious entities, healthcare, technology, and quite
importantly financial & economics; about their inter-relationships and
often over-looked interdependencies. Using the pandemic situation to become
better informed about our society/societies is particularly important because
in response to the pandemic we are making decisions on what to do not just
about containing the virus and bringing it to heel; but what is going to be
done about all those consequences that those rippling effects are having.
One particularly salient dimension that has different
conceptual understandings is the economy is at risk of a virus induced
recession, a Corona-Recession (C-Recession). At issue here is that it seems the
recession concern is viewed as a recession caused by an economic slow-down that
is equivalent or similar to any other recession. It’s very true that the
economy is slowing down because of the virus, but not because there is some
required linkage between a virus and a nation’s financial system or structure.
This is not to say that there aren’t any economic impacts from a virus but that
what levers you pull or not may depend on how you understand how basic
principles of the economy have been effected by our own responses to the virus.
The current economic levers being pulled are attempting to
deliver their results/benefits via a “stimulus” package approach. In a ‘normal’ recession this is one of the
well-established tools. Stimulus packages are expected to provide a boost to
help kick-start some of the economic activities that have either been impacted
or were primary causal factors of the recession. To be effective the
requirement is that the ‘stimulus’ will change at least some of the financial
problems that lead to the recession. Does the C-Recession fulfill the
requirement(s) that a ‘stimulus’ solution would help resolve?
The initial domino that started the C-Recession wasn’t a
fundamental financial factor, it wasn’t part of a Wealth of Nations
capitalistic economic process (yet). It wasn’t capital, resources, labor or
trade; it was biological, a virus. Global economies were already in various
economic states, many dealing with low growth and thus vulnerable to anything
that could push them past a manageable point of stability. The US’s economy was
perceived to be generally in a good condition and even considered strong by some.
And then COVID-19 virus infected a human host and fairly rapidly began its
normal biological spread. As a virus, it didn’t change the state of financial
systems or process. Nothing about capital was altered by the virus. Resources
didn’t become more or less scarce from a physical world perspective. Labor
initially was still able to produce the goods and services that underpinned
commerce/trade.
Then the virus reached a level of infected hosts in a region
of China that ‘tipped’ the vulnerable economy of China. The spread of
infections began to strain their healthcare system and then was recognized as a
threat to their production capacity because the requisite labor was now at risk
to a health impairment. The COVID-19 spread triggered a quarantining of
cities/regions in China which further impaired access to labor. Thus, as a
second or third order effect, labor became perhaps the first financial/economic
domino to fall. With that domino, combined with the global transmission of
COVID-19, the same chain of dominos began to replicate across the globe. Even
before it hit the US, there were concerns and ramifications to the US economy.
Once COVID-19 appeared in the US, the dominos just kept expanding. And for the
US, some of those consequences exerted pressures in some areas to greater
degrees than in other economies.
The ‘strong’ US economy was fundamentally founded upon the
‘consumer’ and ‘services’. So if you pull a lever that depresses consumer
behavior and/or reduces services used then you are playing with a non-linear
lever. And that’s exactly what the US has had to do. To contain the contagion
most states are engaging in efforts to promote or require public isolation and
social-distancing. And of course, that reduces consumer consumption and less
demand for services. By removing the consumer from the “Consumer Economy” the
results should be very self-evident. Because employing these methods to contain
and hopefully eliminate the spread of COVID-19 is a priority to limit the
impact on the economy, there is an immediate cost to the economy. It is a
double-edged weapon; and as with all such weapons one must be careful in
choosing how one uses it. This means you
must understand how the tool works from bottom to top.
This is where the C-Recession needs to be understood in a
different context than most or other recessions. Let’s consider why. In any
economy suffering a recession you target the financial factor(s) that have
caused the downturn. In a Consumer dominated Economy the fundamental financial
factor is by definition consumer spending. Public isolation &
social-distancing brings that factor down with each individual who suspends the
bulk of their ‘consumer’ spending; but it doesn’t stop there. These consumers
don’t just stop spending in one specific area, they suspend spending in many
areas. Those lost consumer activities reduce each and every consumer-oriented
business or service; and the employees and owners are also going to reduce
their own spending. This reduction in spending spreads more rapidly than the
virus itself because it doesn’t require a successful transmission; secession of
spending is automatic and guaranteed when the consumer just stops spending. So,
the shock to the economy occurs more rapidly than with almost any other
recession.
The next reaction from the C-Recession is that the consumers
are also the production resources that create what is no longer being purchased
and this can result in lost wages, lost jobs, and lost businesses. As these
dominoes fall, they create their own sub-chains of dominoes falling. And this
illustrates two dimensions of the C-Recession.
First, this recession is due to consumers-labors-owners
cannot engage in the normal exchange of value, a fundamental principle of
capitalism. It has nothing to do with not wanting to, needing to, or having
everything that each party needs to engage in these activities. It’s that they
are prohibited from doing so for societal reasons and needs. If the virus
disappeared tomorrow, the economy could return to normal. [Note: The
disruptions that have been induced during the crisis timeframe would have to be
‘flushed’ through the system, but the requirements for the good Economy we had are
still fundamentally there.]
Second, since COVID-19 won’t magically disappear the problem
to preventing or minimizing a C-Recession isn’t to ‘stimulate’ the economy. The
economy wasn’t lacking capital, so providing capital doesn’t address a causal
problem nor does it create demand that can’t be responded to since the
consumers can’t engage in many of the activities they’ve been forced to suspend
or the services that they cannot use. A better terminology would be to “bridge”
or “protect” the economy from the disruption of the economy’s transaction
process.
The economy isn’t there for the financial industry or
government. The economy is there for the citizens of a nation or the world. It
only exists because every individual is both a consumer and a laborer. The US
economy is strong and large because it allows everyone to seek their interests,
and to do this they engage in transactions with and for all comers. The economy
is an aggregate of all these transactions; and because the US’s transactions
are numerous and valued the economy is strong. We aren’t trying to ‘stimulate’
the economy, we are seeking to restore the transactions that have been stifled
by the outbreak. To do this requires understanding what providing government
funding means in this context.
Who is providing the capital, the funding, to build the
‘bridge’ for our economy? If you think it’s Congress, the Administration,
States, or businesses you would be wrong. Congress is authorizing spending
funds. The Administration would have to deliver on distribution that funding to
whomever Congress allows the funds to be given to. States are effecting laws
& regulations to support businesses and citizens to avoid the loss of jobs,
and businesses (at least some) are working to sustain their workers because
it’s in their own interests and the economy’s.
So, if it’s none of those entities who is providing the
capital? It’s you, the citizens of the nation of each country. In the US,
capital only exists because of citizens. It’s your labor, your consumption, you
products, and your businesses. Remove the people and there is no capital, no
value, no products, no services, and no economy. All the other entities and
financial concepts are just various rearrangements of processes for structuring
how the transactions are operationalized. Even those processes and structures
are simply reconfigurations of laborers. Adam Smith termed this ‘specialization’
of labor.
Given it’s the US citizens who are providing US citizens
with the capital/funds to bridge the C-Recession crisis, it’s not a risk that
we are collectively taking; it’s what is in own self-interests. We are loaning
ourselves the money, so we don’t lose our jobs, or our customers, or
businesses, or investments. This is the mistake that our Congress is making.
They think, they are providing the funds and some are worried that the
government can’t afford it. It’s not the government that has to afford it, it’s
the people and we are going to pay for it either by restoring our economy or we
are going to pay for it by impairing or crippling that economy for years.
This is why the response to the C-Recession isn’t comparable
to most or perhaps any other financial crisis that treating it like its just
another financially induced crisis to our economy is not just the wrong
concept, it will lead to and result in misinformed and bad decisions. Bad
decisions which we all are use to from government.
The challenge here is to find ways to retain the labor and
businesses that we had before the crisis, and to do so quickly. Whether our
leaders are up to this task is not guaranteed, and if they play their typical
political games we should be prepared for the usual ineptitude and to suffer
the consequences.
