Archive | April 25th, 2020

‘A Snapshot of a System In Breakdown’: States Forced to Smuggle PPE Under the Nose of the Feds

“The federal covid response has entered a new phase of political sadism.”

byEoin Higgins,

Staff and volunteers with Project C.U.R.E hold a drive outside the United Center to collect donations of Personal Protective Equipment (PPE) on March 29, 2020 in Chicago.

Staff and volunteers with Project C.U.R.E hold a drive outside the United Center to collect donations of Personal Protective Equipment (PPE) on March 29, 2020 in Chicago. (Photo: Scott Olson/Getty Images)

It’s like the plot of a spy novel: a group of officials on a covert mission for needed supplies racing against time and the attention of the federal government use disguised trucks to ship equipment across state lines and narrowly escape law enforcement asking for papers. 

Instead of being a chapter in a John le Carré novel, however, this was what happened to Springfield, Massachusetts Baystate Medical Center chief physician executive Dr. Andrew Artenstein, who wrote in the New England Journal of Medicine on Friday of his efforts to obtain needed personal protective equipment (PPE) for his hospital. 

“This experience might have made for an entertaining tale at a cocktail party, had the success of our mission not been so critical,” Artenstein wrote.

President Donald Trump’s approach to PPE distribution has come under criticism as frontline healthcare workers continue to reuse masks and wear trash bags as solutions to the supply crisis. As Common Dreams reported, the White House has also rerouted the supplies to private companies, spurring bidding wars between states for the equipment. 

On Monday, the Guardian in an article on the crisis explained that efforts by hospitals to close the gap in funding and access to PPE have led the facilities to lean on wealthy donors rather than the government. 

“I don’t think it’s inappropriate for them to turn to other sources, but it’s just tragic that’s what they’ve had to resort to because our federal government has failed so dramatically,” said Public Citizen health research group director Dr. Michael Carome.

The black market presents its own problems, as Artenstein explained in the New England Journal of Medicine. The doctor described the process of finding a supplier in China with the needed PPE as arduous and complicated, requiring a cloak and dagger approach:

Two semi-trailer trucks, cleverly marked as food-service vehicles, met us at the warehouse. When fully loaded, the trucks would take two distinct routes back to Massachusetts to minimize the chances that their contents would be detained or redirected.

Hours before pickup, the team found that only a quarter of what they had been promised was available. The hospital nevertheless moved forward with the purchase. 

That’s when things got complicated, wrote Artenstein, as federal agents arrived on the scene:

Before we could send the funds by wire transfer, two Federal Bureau of Investigation agents arrived, showed their badges, and started questioning me. No, this shipment was not headed for resale or the black market. The agents checked my credentials, and I tried to convince them that the shipment of PPE was bound for hospitals. After receiving my assurances and hearing about our health system’s urgent needs, the agents let the boxes of equipment be released and loaded into the trucks. But I was soon shocked to learn that the Department of Homeland Security was still considering redirecting our PPE. Only some quick calls leading to intervention by our congressional representative prevented its seizure. I remained nervous and worried on the long drive back, feelings that did not abate until midnight, when I received the call that the PPE shipment was secured at our warehouse.

The story was “a snapshot of a system in breakdown,” tweeted author Stephen Marche.

For New York magazine writer David Wallace-Wells, the normalization of the black market for PPE in the U.S. was a bleak, clarifying moment. Artenstein’s cavalier attitude to what Baystate had to do to obtain PPE is itself an indictment of the system, Wallace-Wells wrote.

“What is most horrifying about his account is that this experience was not all that surprising to him—he expected interference from federal officials, and did everything he could (including staging the shipment in food-service trucks to avoid detection) to get around that interference,” wrote Wallace-Wells.

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Though ‘Children Need Peace Now More Than Ever,’ US and Russia Block UN Efforts to Impose Global Ceasefire

American and Russian diplomats have publicly praised calls for a global ceasefire, but say they cannot sign on to a blanket agreement. 

by: Julia Conley,

Protesters display signs as they march to mark the third anniversary of the war in Iraq March 19, 2006 in Portland, Oregon. (Photo: Greg Wahl-Stephens/Getty Images)

The U.S. and Russia are reportedly standing in the way of an international agreement for a global ceasefire called for by the United Nations, claiming their militaries must retain the ability to attack enemies even as countries around the world face thousands of coronavirus cases.

The Trump administration is reluctant to agree to a universal ceasefire, Foreign Policy reported Friday, because of U.S. counterterrorism operations and partially because a ceasefire could impede key ally Israel’s ability to conduct military operations throughout the Middle East.

President Donald Trump’s position puts him at odds with “a broad global consensus for a ceasefire over all violent conflicts in the midst of COVID-19,” tweeted author Henry Tam.

Dr. Henry Tam@HenryBTam

There is a broad global consensus for a ceasefire over all violent conflicts in the midst of #COVID19;
Except for Trump & Putin, who insist conflicts, deaths, & their countries’ arms exports should continue: …

While both the U.S. and Russia have “publicly praised” the idea of a global ceasefire, according to Foreign Policy reporter Colum Lynch, White House officials insist the U.S. must be able to continue its operations around the world despite the pandemic, which has killed more than 160,000 people worldwide so far and has infected more than 2.3 million. 

“The U.S. pushback against a globally encompassing ceasefire may come from the Trump administration’s increasingly heavy dependence on elite counterterrorism operations and covert strikes to kill Islamic State and Iranian-linked military operatives over the past six months,” wrote Lynch.

Russian President Vladimir Putin is reportedly reluctant to support a blanket ceasefire due to Russia’s continued operations in Syria and its support for groups in Libya and other countries, according to The Guardian.

Luc Dockendorf, a career diplomat from Luxembourg, summarized the American and Russian positions as supporting the ceasefire for other countries only.

Luc Dockendorf@LucDockendorf

Great powers be like: “We support @antonioguterres’s call for a #GlobalCeasefire for *everybody else* but reserve our right to continue blowing shit up” …columlynch@columlynchExclusive: While U.S. and Russia publicly praised U.N. call for a global ceasefire, their diplomats quietly sought to weaken the scope of the UN appeal to ensure their forces have a free hand in their anti-terror campaigns

Since U.N. Secretary-General Antonio Guterres first called for an immediate global ceasefire last month—saying that “the fury of the virus illustrates the folly of war”—French President Emmanuel Macron attempted to garner support from Trump and Putin by making the agreement non-binding. 

Under Macron’s proposal, countries could be exempt from the ceasefire “to continue to carry out military operations against individuals and armed groups designated as terrorists by the U.N. Security Council,” Lynch reported.

Macron’s draft would make the ceasefire “impossible to enforce,” Simon Tisdall wrote at The Guardian Sunday, potentially putting vulnerable populations in as much danger of violence as they are now.

A U.S. State Department spokesperson told Foreign Policy of Macron’s proposal that “the United States supports the Secretary General’s call for a global ceasefire, but have noted that we will continue to fulfill our legitimate counterterrorism mission.”

Although U.S. Ambassador to the U.N. Kelly Knight Craft indicated last week that an agreement based on Macron’s limited, non-binding proposal could be reached in the coming days, even that process has met impediments due to the Trump administration’s objections. The U.S. demanded in March that the resolution include the phrase “Wuhan virus” to refer to the coronavirus, and last week demanded that language praising the World Health Organization (WHO) for its response to the pandemic be removed—an impasse which had not been resolved as of Friday. Trump held funding for WHO last week—at least temporarily—drawing condemnation from public health experts.

Humanitarian group UNICEF urged all countries to halt violent conflicts during the pandemic, calling on world leaders to “protect children under attack.”

Kent Page@KentPage

As we face the unprecedented challenges of #covid19, children need #peace more than ever.

To protect #ChildrenUnderAttack, we need a global ceasefire, NOW.

Please RT if you agree with these #FridayFeelings! v/@unicef@un @unpeacekeeping @unpeacebuilding @unmissmedia

View image on Twitter

“As we face the unprecedented challenges of COVID-19, children need peace more than ever,” tweeted UNICEF strategic communications advisor Kent Page.

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US Hospitals Getting Paid More to Label Cause of Death as ‘Coronavirus’

By Wayne Dupree

Senator Scott Jensen represents Minnesota. He’s also a doctor. He appeared on Fox News with Laura Ingram where he revealed a very disturbing piece of information.

Dr. Scott Jensen says the American Medical Association is now “encouraging” doctors to overcount coronavirus deaths across the country.

Jensen received a  7-page document that showed him how to fill out a death certificate as a “COVID-19 diagnosis” even when there isn’t a lab test confirming the diagnosis.

“Right now Medicare is determining that if you have a COVID-19 admission to the hospital you get $13,000. If that COVID-19 patient goes on a ventilator you get $39,000, three times as much. Nobody can tell me after 35 years in the world of medicine that sometimes those kinds of things impact on what we do.”

This is absolutely bone-chilling.

Watch the interview below.

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Basic Economics for Economic Columnists: a Depression is a Process, Not an Event

Great Depression Cartoon


With the economy going into a shutdown mode for at least month, and possibly quite a bit longer, we’re again hearing the cries from elite economics columnists about a Second Great Depression. These are pernicious, not only because they are wrongheaded, but they can be used to justify bad things, like giving hundreds of billions of dollars to the bankers who wrecked the economy with their recklessness during the housing bubble.

The basic and simple error made by the Second Great Depression gang is that they imagine we can be condemned to a prolonged period of high unemployment and slow growth by a single bad event. Their story is that letting the banks fail caused the first Great Depression and that we would have had round two if we let the market work its magic in 2008-09 on Goldman Sachs, Citigroup, and the rest. The uncontrolled bank failures were indeed very bad news for the economy at the start of the Great Depression, and a wave of major bank failures in 2008-09 would undoubtedly have made the initial slump worse in the Great Recession, but neither necessitated a prolonged slump.

What got us out of the Great Depression was the massive spending associated with World War II. There was no economic reason we could not have had this spending in 1931 rather than 1941, except have it focused on building roads, schools, hospitals and other socially useful projects. We didn’t have massive spending in 1931, or 1932, or even during the New Deal, for political reasons, not economic ones.

So let’s stop the game-playing. We need good policy right now to keep people whole through a shutdown period and then to get people back to work when we reopen. Ideally we will also be addressing long neglected needs, like universal health care, child care, and slowing global warming, but this Second Great Depression stuff is just silly.

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The Big Hit: COVID-19 and the Economy

Cartoon Movement - COVID-19 and World Economy


Most sectors took a big hit in employment, most concerning is a loss of 42,500 jobs in health care.

The impact of the coronavirus shutdowns showed up very clearly in the March data as the Bureau of Labor Statistics reported a loss of 701,000 jobs, a decline almost as high as the peaks hit in the housing crash. The unemployment rate jumped 0.9 percentage points to 4.4 percent, while the employment-to-population ratio (EPOP) fell by 1.1 percentage points to 60.0 percent.

The size of the impact on the March data is somewhat surprising since the reference period for this report is the pay period that includes March 12. This was well before most states had initiated shutdowns; although it does seem likely that high turnover sectors, like retail and restaurants, would have put off hiring replacements for workers who had left, given what was known at the time.

Retail lost 46,200 workers in March, while restaurants lost 417,400, 3.4 percent of total employment. There is little doubt that the hit in April will be at least two orders of magnitude higher for retail and an order of magnitude higher for restaurants, as these sectors are at the center of the shutdown.

While these sectors were hit hard by the shutdowns, job losses were seen pretty much across the board. The temporary help sector lost 49,500 jobs, the construction sector lost 29,000 jobs, and the manufacturing sector lost 18,000 jobs. Mining shed 7,000 jobs, mostly in the category of support activities. This decline precedes the sharp plunge in energy prices in the last two weeks. Job losses in the sector will almost certainly be far higher in April.

One surprise, and a very real cause for concern, is a loss of 42,500 jobs in the health care sector. This was mostly in physicians’ and dentists’ offices, presumably the result of non-emergency visits and procedures being canceled.

While the March report shows in a big way the effect of the virus, it still gives us some indication of the pre-crisis direction of the economy. This was already showing signs of weakness, although not any obvious recession signals. Wage growth, in particular, had slowed, from a peak of 3.5 percent year-over-year hit last February, July, and August, to just 3.0 percent in February of this year. This weakening of wage growth is surprising given an unemployment rate well under 4.0 percent.

There was a small pickup to 3.1 percent in March, but this was likely a compositional effect, as we disproportionately lost workers in the low-paying restaurant and retail sectors. There is also a within industry compositional effect, as the lowest-paid workers are the ones most likely to be laid off first. This will almost certainly lead to a jump in reported wage growth in April.

Virtually all the data in the household survey is bad, which is not surprising, given the overall numbers. Women were hit harder than men, with prime-age (25 to 54) EPOP falling by 1.1 percentage points for women, compared to 0.6 percentage points for men. This gap will grow next month, as we see the tidal wave of layoffs in retail and restaurants disproportionately eliminate jobs held by women. Involuntary part-time employment jumped by 1.4 million, a 33.5 percent jump. Voluntary part-time fell by 1.6 million, as jobs offering part-time employment in retail and restaurants disappeared. Not surprisingly, the share of unemployment attributable to voluntary quits plunged from 13.4 percent to 10.5 percent. The March employment data is likely worse than most had expected, but this is simply because the impact of the shutdowns is showing up somewhat earlier than many of us had anticipated. We know with almost certainty that the April data will be far worse, in fact, the worst we have ever seen. It is important to put these terrible numbers in context. We are keeping people from working to slow the spread of the coronavirus, so we should not be upset by data showing that people are not working. The issue for this period of shutdown is ensuring that people can be kept whole as much as possible, that they can pay for their rent, food, and other necessities. Then, once the virus is contained, we have to make sure that we can get people back to work quickly.

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Germany Signals a Historic Shift From Austerity That Could Upend the Economy of Europe


Photograph Source: European Peoples Party – CC BY 2.0

Until March 21, Germany’s policymakers were like the Japanese soldiers who spent years lingering in the jungles of the Philippines, refusing to accept the reality that their country had lost World War II. In the case of Berlin, it was a case of the country stubbornly refusing to abandon six years of fiscal restraint, even as it became clear that such spending would be required to mitigate the impact of a pandemic that was bringing the global economy to a virtual standstill. That all appears to have changed now, with the government announcing a series of proposals that represent in aggregate approximately 10 percent of Germany’s GDP. Part of the package takes the form of direct public spending, but the majority is government funding for purchases of equity stakes in companies, as well as loans. Given the likely catastrophic decline in economic activity not just in Germany (which was already in recession), but the European Union as a whole, more likely needs to be done. The longer-term question, however, still remains: even if Berlin fully scales up on the fiscal front (as it should), can the EU’s institutions as a whole accommodate long-term reform that will adequately address the challenges once we get beyond the immediate crisis response occasioned by the coronavirus pandemic?

Better late than never. One should therefore applaud Berlin for finally acting decisively with the sincere hope that the deficit taboo has finally been destroyed once and for all, as it has all across the rest of the world. Germany matters: it is not only the biggest and most powerful economy in the EU, but its actions also provide political cover for other countries to follow suit (as well providing more leeway for the European Central Bank to act decisively).

Some of the early indications, however, suggest that it might take time before the country’s “stability culture”—the belief that public debt is invariably an evil, the consequences of which must be stopped at all costs—will be eradicated as quickly as one would hope. Wolfgang Munchau’s Eurointelligence March 24 briefing, “Return of the German Professors,” provides an example of potential domestic resistance to a complete volte-face in German policymaking circles posed by still influential figures such as Otmar Issing, the former chief economist and member of the board of the European Central Bank.

So how much further across the fiscal Rubicon does Berlin have to travel? To get some idea of the fiscal scale likely required, Germany might look to the UK, which has established a new Coronavirus Job Retention Scheme, which “will cover 80% of the wages of employees who would otherwise have been… ‘laid-off’ as a result of Coronavirus, subject to an overall cap of £2,500 per calendar month (£30,000 per annum)” (the UK government is also looking to expand the package to the self-employed). Taken in aggregate, the proposals represent at least 15 percent of the UK’s GDP.

The usual German phobias about inflation can also be addressed if the balance of the government spending is focused on expanding the productive capacity of the economy so as to ensure that essential goods can continue to be provided absent price rationing (or martial law). Put bluntly, if all work ceases, people will soon starve or, at the very least, experience shortages in vital supplies. Wealth needs to be added through investment, as well as labor.

Berlin’s so-called “black zero” fiscal rule, a perverse insistence on a budget balanced between fiscal spending and tax receipts, is now gone. The German chancellor, Angela Merkel, has conceded as much. And that should be welcomed. This destructive ideology has dominated not just Germany but all of Europe’s budgetary discussions for a decade. The current proposals, however, still place too much emphasis on debt and equity injections, and not enough direct spending, as the Financial Times’ Wolfgang Munchau observes: “Much of the money is credit, not grants. If a business borrows money while profits fall, solvency deteriorates. This was Italy’s problem after the eurozone crisis. Austerity left the economy in a weaker position to pay down debt.”

To Munchau’s point, the package as currently constituted consists of “a supplementary government budget of €156 billion, €100 billion for an economic stability fund that can take direct equity stakes in companies, and €100 billion in credit to public-sector development bank KfW for loans to struggling businesses,” as the Irish Times reports. Berlin is also extending €400 billion in state guarantees to underwrite the debts of companies affected by the turmoil. On the other hand, there is little direct spending to replace the incomes of those whose incomes have been lost as a result of the economic shutdown to allow small and medium-sized enterprises to weather the storm, against a backdrop of plummeting consumer confidence.

Ironically, one of the goals of the package, according to Germany’s economic affairs minister Peter Altmaier, is to preclude a “bargain sale of German economic and industrial interests,” precisely the opposite of what was forced on the Greek government in exchange for receiving economic assistance during its own financial crisis back in 2015 (when the Troika—the European Central Bank, the European Commission, and the IMF—all pressured Athens to engage in a program of wholesale privatization of state assets at highly distressed levels).

There are other indications to suggest that Germany has yet to fully shed its fiscal hair-shirt morality. The country’s leading policymakers are self-righteously suggesting that the country’s years of fiscal restraint is precisely what is now allowing Germany (and by implication no one else) to spend aggressively. This is nonsensical. As far as Germany itself goes, the low levels of the country’s national public debt have been offset by high levels of private debt, especially in the country’s rickety banking system (see Deutsche Bank as exhibit A). Additionally, the other mitigating factor has been the country’s large trade surplus (which was only made possible by the fact that many of its trading partners were willing to incur trade deficits with Berlin).

This raises another aspect of Germany’s tentative fiscal conversion: the stimulus must not be used to reconstruct the country’s export-driven mercantilist model. The rest of the global economy is being devastated. There is therefore unlikely to be much external demand for Germany’s traded goods for some time. Globalization is increasingly being reassessed as countries’ vulnerabilities to global supply chain disruptions are engendering a reexamination of existing economic theologies. There are likely to be attempts to resurrect manufacturing at home.

Some of these provisions are likely to be contrary to EU rules on state aid, but good luck insisting on their adherence as every nation races to avert a national depression. The Italian economy, for example, faces a massive challenge, given the scale of devastation (especially in its small business sector). Much as the UK government is now focusing on “leveling up” its more depressed economic regions long afflicted by globalization, so too are all of the Mediterranean nations likely to use the current suspension of budget austerity rules to maximize their respective chances of national recovery. That means Germany, too, should focus less on reviving its tradable goods sector and more on its domestic economy.

It speaks to the calamity of decades of bad policymaking, not only in Germany, but also in many other countries, that a global lockdown that potentially revives Great Depression levels of unemployment is now considered optimal policy to keep us safe and healthy. That’s the legacy of austerity of which Berlin was a leading proponent. Most of the national health care systems are unlikely to cope with the scale of the anticipated cases, and the limited hospital capacity means that they themselves are becoming vectors of contagion. A short-term depression is being risked on the basis of incomplete (and possibly faulty) information or, at the very least, models that are based on “reasonable” assumptions that are quickly undermined by events on the ground.

The good news about Berlin’s belated action is that it likely provides political cover for other eurozone nations to proceed with more aggressive government spending packages without being subject to the usual austerity-laden strictures that have been threatened and imposed by Brussels in the past (along with Germany’s enthusiastic backing and moralizing). And the ECB also has the scope to undertake more comprehensive action to ensure that national solvency does not become an issue (even though its initial maladroit response caused tremendous damage to the Italian bond market). ECB quantitative easing must continue minus any fiscal conditionality, as additional cuts to government spending as a quid pro quo to ECB bond-buying will simply exacerbate the problem by decreasing incomes and employment.

The bad news is that institutional constraints, such as the arbitrary limits on public debt and national budget deficits within the eurozone, continue to bias national policymaking toward austerity. Simply constructing temporary loopholes on the basis of COVID-19, therefore, is not enough. But attempts to ease those institutional constraints (such as via a mutualized eurobond issued by the ECB) will likely run into legal opposition in Berlin. The German constitutional court has already ruled that a political and fiscal union requires that the country hold a national referendum to transfer additional national sovereignty to the EU. Given today’s political climate in the country, it’s highly unlikely that such a high bar would pass democratic muster.

So while Germany likely will follow the UK and the U.S. with increasingly bigger fiscal actions as the scale of the pandemic’s damage becomes clearer, these measures, however welcome, are unlikely to address the longer-term challenges of attempting to govern the EU effectively absent more profound institutional changes. The political path of least resistance increasingly appears to be shifting momentum back toward a Europe of nation-states, rather than a supranational United States of Europe. On this basis, it is hard to envisage the single-currency union surviving. Governing by crisis is neither easy, nor effective, especially if one is not monetarily sovereign in one’s currency. The sooner all of Europe, especially Germany, recognizes that fact, the better the future is likely to be for all.

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What Will the Post-COVID-19 Global Economy Look Like?

Global economy


The coronavirus has now gone global, and economies are in freefall. The pandemic is clearly the precipitating cause of today’s crisis, but there’s an underlying disease that has been with us for a long time: neoliberal economics. Globalized travel and trade, multinational supply lines, offshoring and overly financialized economies that have prioritized banking interests, cartels and oligarchy above all else have made a large portion of our population highly vulnerable to the effects unleashed by this pandemic.

Policymakers have a tricky task ahead of them. The virus has created a supply shock, as businesses have shut down and workers have been told to stay at home. In response, demand is plunging as a result of the lost income and the corresponding collapse in sales. That’s highly deflationary (as the bond markets are now signaling). What is required is a robust fiscal response so that workers’ incomes are protected and have adequate financial resources to get health care.

At the same time, an environment in which work and production grinds to a halt for a prolonged period to mitigate the effects of the virus likely means that goods are not being produced or delivered. This creates the conditions for hyperinflation, if not accompanied by rationing or some form of price control. Hyperinflationary eras are relatively rare, but they can occur when countries continue to pay the workers in local currency despite limited production being possible, but nominal demand continues to rise relative to real output, which is now grinding to a halt. This is the real downside of mass lockdown, and self-quarantining, if those workers continue to receive fiscal support through the duration of the crisis (as they should). But absent fiscal support (or having it largely directed to society’s top tier as occurred after the 2008 crisis), you could get depression. Get the balance wrong, then, and civil unrest becomes a real possibility in either scenario. To paraphrase Barack Obama’s former Chief of Staff Rahm Emanuel, we can’t afford to let another serious crisis go to waste.

As one might have expected, the Trump administration has proved itself fully inadequate to the task at hand. Their proposed payroll tax cut is useless to someone who is an hourly earner and where there are no wages upon which to be taxed. A better policy for our circumstances is along the lines recently proposed by Jason Furman, former chairman of the Council of Economic Advisers during the Obama administration: “Congress should pass a simple one-time payment of $1,000 to every adult who is a U.S. citizen or a taxpaying U.S. resident, and $500 to every child who meets the same criteria.”

While it is good to see the Trump administration now considering some variant of the Furman proposal, it is obvious that a one-time payment isn’t going to cut it. We need to sustain income support so long as people are affected by this pandemic. Therefore, other measures should also include: 1) Moratoriums on mortgage and rental payments for the duration of the crisis (no interest rate penalties/no evictions). 2) Extensive relief for out of work employees (not just unemployment insurance). 3) An expansion of credit to small businesses to cover carrying costs so long as the economy remains in lockdown.

Likewise, the attempt at providing guaranteed sick leave to most American workers affected by the crisis so far falls dangerously short of furnishing anything close to universal paid sick leave. According to the New York Times, the Coronavirus Bill “guarantees sick leave only to about 20 percent of private-sector workers.” This comes on top of a decades-long crisis in the U.S. health care system, the world’s most expensive health care system that distributes care poorly and inequitably.

What’s most worrying about this bill is that the House Democrats caved on virtually every exemption insisted on by the White House and congressional Republicans, which should give voters a good sense of how a future Biden presidency would perform, given the presumptive Democratic presidential nominee’s long history of appeasing the GOP.

But the problems in the U.S. go well beyond the Trump administration, as the extent of the U.S. government’s long-term misplaced policy priorities is coming home to roost. The Centers for Disease Control (CDC), for example, have thoroughly screwed up the response, first and foremost by bungling testing for the coronavirus. With the same parochial hubris of American exceptionalism that has caused our medical and health care establishment to ignore results of pharmaceutical drug tests and clinical advances from abroad, the CDC rejected the already-developed Chinese and World Health Organization tests for coronavirus and insisted on unnecessarily inventing their own test kits—which turned out to be a dog’s breakfast that delayed our all-important mass testing program by several weeks. And, of course, the testing mess is continuing because the CDC made no advance provisions for turning on adequate emergency test lab capacity during this or any other epidemic crisis. The problems of the CDC are symptomatic of a broader problem in health care, in which a private sector oligopoly largely predicated on employment and income status, and prioritizing profits over adequate public provision, has proved itself wanting.

That said, the growing appreciation of the magnitude of the health crisis is now intersecting with the political dynamics of the 2020 presidential election. This has had the fortuitous result of producing additional fiscal expansion: the Trump administration has superseded its previous paltry paid leave proposal with a new $850 billion stimulus program (though still too reliant on “trickle-down” economics, as opposed to direct economic assistance to those most in need).

What about the rest of the world?

In Europe, the responses from the relevant authorities in Brussels and Frankfurt have exposed any pretensions about the EU acting like a cohesive political bloc. Bereft of a supranational currency, national governments have been reticent to undertake forceful fiscal policy actions absent the support of the sole currency-issuing entity, the European Central Bank (ECB), even as France and Spain have followed Italy by imposing widespread lockdowns and quarantines across each country (which will require a large fiscal stimulus to offset the likely economic impact). Here’s the other problem: Their economies have been shut down in response to the coronavirus, but the lockdowns themselves are a response to decades of austerity that have starved the health care systems of adequate resources to deal with the pandemic, thereby necessitating widespread quarantines to avert an even more serious breakdown of the system.

National borders, which since 2015 have been increasingly subject to “temporary” checks (despite the Schengen Agreement), are starting to look more permanent thanks to the virus. European solidarity is dissipating as all countries scramble to find national responses to the virus. There is no longer any pretense of having a coordinated EU-wide response. It’s every country for itself, as Professor Bill Mitchell notes, quoting a German ministry publication stating that the country’s “Federal Ministry for Economic Affairs and Energy published an order on 4 March 2020 in the Federal Gazette prohibiting the export of protective medical equipment (medical face masks, gloves, protective suits, etc.).” So much for “an ever closer European Union.”

Germany has also moved to seal off its borders to cope with the coronavirus, an ironic development from a government that had humanely granted asylum to 1 million refugees a mere five years ago. Next up, a reassessment of state aid and fiscal rules? Then perhaps repatriation of critical supply lines on national security grounds?

Meanwhile, the single-currency union is fraying at the edges, as credit spreads explode again. The euro may be in its death throes, as the new ECB president, Christine Lagarde, has proved herself unready for prime time. Her botched communication triggered a bond market sell-off on March 12 when she announced: “We are not here to close spreads, this is not the function or the mission of the ECB.” Although she subsequently apologized, the damage remains. Italy’s borrowing costs are likely to soar now that Lagarde has effectively repudiated the measures of her predecessor, Mario Draghi (whose “whatever it takes” speech was widely credited with calming the eurozone’s debt crisis in 2012, thereby substantially narrowing the cost of borrowing in the distressed Mediterranean economies).

It’s all well to call for a coordinated fiscal response, but the ECB president appears unable to recognize that the absence of explicit support from the eurozone’s sole currency issuer (along the lines proposed by Draghi) is precisely what constrains the ability of the national governments to undertake the kinds of robust coordinated actions that she rightly advocates. Absent that support, these countries are all exposed to solvency risk, and the vagaries of private portfolio preferences.

Suffice to say, COVID-19 might prove to be a major tipping point, as it accelerates a paradigm shift in terms of people’s attitudes toward the EU, the role of the state and public health, the need for monetary sovereignty, the madness of austerity, etc. Even the former chief economist of the historically austerity-oriented International Monetary Fund (IMF), Olivier Blanchard, has suggested incurring budget deficits of the magnitude of those sustained by the U.S. during World War II (which went as high as 26 percent of GDP). Truly, the age of austerity is behind us.

Likewise in the UK, Boris Johnson’s budget statement of March 11 outlined the most sustained fiscal loosening seen in that country since 1992. Yet even that is unlikely to be enough, given the rapid spread of the contagion and likely collapse of economic output (which is probably going to be closer to 4-6 percent of GDP, if the 2008 experience is anything to go by). As a result, UK Chancellor Rishi Sunak has followed up the budget with an announced £330 billion to support the economy during the coronavirus outbreak, including a system of loans and grants for companies; temporary tax relief for companies in the retail, hospitality and leisure sectors; and help for the airline industry. The Johnson government is also moving to “war footing,” urging British manufacturers to make the ventilators, masks, gloves, beds, and other items health care workers and others on the front line of the crisis need, according to the Sunday Times.

Wartime analogies have understandably been invoked to convey the magnitude of the crisis and corresponding need for massive, sustained government spending to support the life and health of the population and efforts to restructure manufacturing supply chains in ways reminiscent of war economies. This is more problematic today, given the extent to which excessive offshoring has exposed our inability to ensure consistent and safe supply of anything and decades of austerity that have undermined basic social services.

On the other hand, the wartime analogy only goes so far: human capital is at risk, but physical infrastructure is not being destroyed, as in wartime. And in wartime, economic activity continues flat out, as the requisite munitions are turned out to conduct military operations. Here, workers are being told to self-isolate, and stay at home, which means a lot is not being produced.

In many respects, it is better to think of the current situation as a global economy being in a state of suspended animation: Virtually all activity has been frozen as policymakers work to contain the spread of COVID-19 and the rest of us engage in social distancing and self-quarantine at home, the major byproduct of which has been the decimation global supply chains, along with of a host of service industries, notably travel and tourism, restaurants and retailers.

The other key distinction is that unlike war, there is a definitive endpoint, the glimpses of which are slowly becoming apparent. Although now spreading across the globe, the number of Chinese cases (the original source of the virus) have trickled to a halt since first being identified late last year; that might provide us with a lead indicator in terms of duration in the rest of the world, as we scramble to find a vaccine, and level off the exponential rise in cases outside of China. But in the meantime, the coronavirus is creating an unprecedented situation where possibly half of our workforce, or possibly more, may not be able to work. The impact on economic activity is comparatively that much larger. Absent a return to production at some point, our Western economies could come to resemble Venezuelan anarchy.

It is true that the monetary authorities have responded aggressively, by cutting rates and providing access to cheap credit, especially for small business enterprises hit badly by the crisis. The U.S. Federal Reserve, the Bank of Canada, Bank of England, Bank of Japan, ECB and Swiss National Bank have all cut rates and revived the U.S. dollar swap line arrangements, a development that helped to mitigate the dollar liquidity shortage in 2009. On the other hand, easing credit conditions can only help so much when one experiences a supply shock that induces a cessation of production.

The other challenge is that the coronavirus has vividly illustrated many of the hollow claims behind the “gig economy.” Many of its celebrated “freedoms” masked the precariousness of the independent contractors most heavily exposed to this economy, notably their reliance on consumer debt, paltry wages, and the absence of any employee benefits, such as health care. In the U.S., in particular, this subsector is large and getting larger, “over 31.5 million, constituting nearly 30% of all production and non-supervisory jobs,” according to Dan Alpert, an adjunct professor at Cornell Law School.

Equally disturbing is that much of the postindustrial workforce that is in the front line of dealing with the coronavirus pandemic (in sectors such as health and elder care) is likewise in low-wage, low-benefit, insecure jobs, which not only generates increasing vulnerabilities to demand, but also mitigates the capacity of the system to limit the spread of the virus (especially when the care workers are starved of the resources to protect themselves).

Enforced isolation only provides a brief palliative against the true costs of the fraying of our social safety net brought about by decades of attacks on the working and middle class and in the long-term risks civil unrest. Growth and production do matter. As much as we might laud the sudden switch to telecommuting and working online as one of the liberating aspects of the gig economy, it is manifestly unsuitable for manufacturing, where excessive disbursement and modularization can adversely impact the production processes (the recent travails of Boeing being a perfect illustration of this phenomenon).

It is similarly unclear whether our educational institutes can adequately provide comparable results when so much teaching and research and development depends on a community of interacting minds. On top of this, there are the long-term social implications. If this were to become the “new normal,” increased atomization and anomie will likely follow, and the loneliness and meaninglessness that feed suicide, mass shootings, and drug addiction could well risk becoming a new pandemic.

There is also a risk that this virus could actually delay the transition from “rentierism” to a “national developmentalism,” as I suspect all sorts of goodies will be passed on to the rentier class under cover of dealing with the coronavirus.  That’s already happening: lots more quantitative easing has been announced, and bailouts are being rapidly targeted to industries adversely impacted, such as the airlines, but a lot less to help has gone to the people who work in those industries. Had today’s rapidly emerging depression-like economic state occurred because of another financial crisis a la 2008, it would have been less politically feasible to deploy the same policy matrix we used in 2008. So while it is laudable to see fiscal stimulus proposals growing in proportion to the growth of the pandemic, it is important to consider the distributional aspects of these stimulus measures in the months ahead. We must avoid a situation like the last crisis, where the vast bulk of the gains were quickly funneled to the top 1 percent with minimal political scrutiny, exacerbating the current situation we have today.

The inequality question will become even more germane in the U.S. if we get a Biden restoration of the status quo ante. Even as the coronavirus has exposed many longstanding weaknesses, notably our inability to make and distribute the things people need, the Democratic Party is still prone to deficit fetishism. Democrats are today being outflanked by the GOP, even its most right-wing members. Trump is finally responding to the belated recognition that his presidency is now imperiled by this crisis. But even if he loses, the indications suggest that a political reconfiguration could emerge first in the GOP, especially if it is ultimately led by a “New Deal Republican,” such as Josh Hawley or Marco Rubio. Meanwhile, the eurozone stands alone as it risks repeating the dreadful 1931 policies that exacerbated a global depression. As surprising as it might have seemed a mere six months ago, the optimal way forward might be provided by the United Kingdom if it continues in its goal of revitalizing the country via intelligent economic nationalism in which government-guided industrial policy is used to revive high-end industrial activity and redomicile a whole host of supply networks that generate highly skilled, well-paid jobs that benefit the many, as opposed to a limited number of economic rentiers. Post-Brexit, this is exactly what the UK will need, as it extricates itself from the ideological sterility of Thatcherism and the eurozone’s neoliberalism.

But the biggest takeaway from the crisis is that our societies must be immunized from the sickness of a diseased ideology that has done far more long-term damage to us than the current pandemic.

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Coronavirus Reveals the Cracks in Globalization


Photograph by Nathaniel St. Clair

The coronavirus will eventually pass, but the same cannot be said for the Panglossian phenomenon known as “globalization.” Stripped of the romantic notion of a global village, the ugly process we’ve experienced over the past 40 years has been a case of governmental institutions being eclipsed by multinational corporations, acting to maximize profit in support of shareholders. To billions of us, it has resembled a looting process, of our social wealth, and political meaning. Governments that wanted to stay on top would have to learn to master soft power to learn to be relevant in a globalized world, mostly acting to smooth transactions and otherwise stay out of the way.

In a globalized world, nation-states were supposedly becoming relics. To the extent that they were needed, small national governments were said to equate to good government. This hollow philosophy’s main claims now appear badly exposed, as the supply chains wither, and the very interconnectedness of our global economy is becoming a vector of contagion. In the words of author David Goodhart, “We no longer need the help of rats or fleas to spread disease—we can do it ourselves thanks to mass international travel and supply chains.”

To be sure, there were many warning signs that called into question our hitherto benign assumptions about globalization: the Asian financial crisis of 1997-98 (during which the Asian tiger economies were decimated by unconstrained speculative capital flows), the vast swaths of the Rust Belt’s industrial heartlands created by outsourcing to China’s export juggernaut, the concomitant rise in economic inequality and decline in quality of life in industrialized societies and, of course, the 2008 global financial crisis. Nobel laureate Joseph Stiglitz described many of these pathologies in his book Globalization and Its Discontents, as did economist Barry Eichengreen, who lamented that “the nation state has fundamentally lost control of its destiny, surrendering to anonymous global forces.” Both noted that globalization was severing a working social contract between national governments and their citizens that had previously delivered rising prosperity for all.

Those who would argue that the inexorable march of globalization cannot be reversed should consider the parallel during the early 20th century. Globalized economic activity and free trade were dominant before the onset of World War I; in 1914, trade as a proportion of global GDP stood at 14 percent. Needless to say, two world wars, and the Great Depression (which brought us the Smoot-Hawley tariffs), reversed this trend. The Cold War sustained regionalization and bifurcated trading blocs. Its end, and China’s accession into the World Trade Organization (WTO), ushered in a new high-water mark in globalized trade.

But while it is true that viruses do not respect national boundaries, nothing has blown apart the pretensions of this New World Order as dramatically as the coronavirus, a pandemic now assuming global import, as international supply chains are severed, and global economic activity is brought to a screeching halt. We are increasingly seeing the hollow political content at the core of supranational entities such as the EU, structured more to comfort merged investor groups than strengthen public health systems.

Speaking of Europe, while the coronavirus started in China, its most long-lasting impact might be in the EU, as it has dramatically exposed the shortcomings of the latter’s institutional structures. Take Italy as the most vivid illustration: The spread of COVID-19 has been particularly acute there. Being a user of the euro (as opposed to an issuer of the currency) the Italian national government risks exposing itself to potential national bankruptcy (and the vicissitudes of the volatile private capital markets) if it responds with a robust fiscal response, absent the institutional support of Brussels and the European Central Bank (which is the sole issuer of the euro). According to MarketWatch, “Italy needs a €500 to €700 billion ($572 billion to $801 billion) precautionary bailout package to help reassure financial markets that the Italian government and banks can meet their debt payment obligations as [the] country’s economic and financial crisis becomes more fearsome.”

The tragic case of Italy (where the entire country is now in full quarantined lockdown) provides a particularly poignant example of the gaping lacunae at the heart of the eurozone. There is no supranational fiscal authority, so the Italian government has been largely left to fend for itself, as it is trying to do now, for example, providing income relief by suspending payments on mortgages across the entire country. Here is a perfect example of where European Central Bank support for the Italian banking system would go a long way toward mitigating any resultant financial contagion. But so far, as Wolfgang Munchau of the Financial Times has noted, the ECB remains in “monitoring” mode. Indeed, the eurozone as a whole lacks the institutional mechanisms to mobilize on a massive, coordinated scale, in contrast to the U.S. and UK, and eurozone finance ministers remain incapable of agreeing on a coordinated policy response.

Other eurozone countries may no longer be complacent about the threat posed by COVID-19, but their national governments are more focused on the need to stockpile their own national resources to protect their populations. Italy remains particularly vulnerable to the ravages of this virus, as it has an aging population, so if coronavirus runs rampant through the country, it could potentially crash the nation’s entire hospital system, as this account by an Italian doctor suggests.

EU solidarity, showing cracks on issues ranging from finance to immigration, increasingly resembles every country for itself.

Defenders of the EU may well retort that health care is designated as a “national competency” under the Treaty of Maastricht. But how does one expect national competencies to be carried out competently in an economic grouping devoid of national currencies (the key variable as far as supporting unconstrained fiscal capacity goes)? Additionally, the evil of decades of Brussels-imposed austerity has meant there aren’t enough hospital beds, materials and staff anywhere in Europe, let alone Italy. This might well represent the death knell for a European project based on aspirations for an “ever closer union.”

In spite of the manifest incompetence of the Trump administration, the U.S. at least has institutional mechanisms in place via the Centers for Disease Control (CDC) and the Federal Emergency Management Agency (FEMA) to provide Americans with clear, credible instructions devoid of political spin. As Professor James Galbraith has persuasively argued, the U.S. government has the capacity to “establish a Health Finance Corporation on the model of the Depression-era Reconstruction Finance Corporation. Like the RFC, which built munitions factories and hospitals during and after World War II, the HFC should have broad powers to create public corporations, lend to private companies (to fund necessary production), and cover other emergency costs. Even more quickly, the National Guard can be deployed to deal with critical supply issues and to establish emergency facilities such as field hospitals and quarantine centers.” Likewise, Senator Marco Rubio has “sought to expand what’s called the Economic Injury Disaster Loan program, which allows the Small Business Administration to start lending money directly instead of just encouraging banks to do so,” as Matt Stoller has written. Parenthetically, this represents a marked break with historic GOP policy, which for the most part has accepted the embedded assumptions inherent in globalization.

And while traditional monetary policy tools such as interest rate cuts are hardly adequate to stem a supply shock, Galbraith also points to the ability of the Federal Reserve to offer emergency financial support to help American companies through the worst of the coronavirus outbreak, by “buy[ing] up debt issued by hospitals and other health-care providers, as well as working to stabilize credit markets, as it did in 2008-09.” Andrew Bailey of the Bank of England has made similar recommendations to the UK government.

Even with the measures proposed by Galbraith, Bailey and Rubio, virtually all Western economies, having largely succumbed to the logic of globalization, are now vulnerable, as supply chains wither. China, the apex of these offshored manufacturing supply chains, is in shutdown mode. Likewise South Korea and Italy. Worse, there appears to be a singular lack of understanding on the part of many multinational companies as to how far these supply chains go: “Peter Guarraia, who leads the global supply chain practice at Bain & Co, estimated that up to 60 per cent of executives have no knowledge of the items in their supply chain beyond the tier one group,” reports the Financial Times.

A “tier one” company supplies components directly to the original equipment manufacturer (OEM) that sets up a global supply chain. But as is now becoming increasingly recognized, there are secondary-tier companies, which supply components or materials to those tier-one companies. When goods are widely dispersed geographically (instead of centered in a localized industrial ecosystem), it is harder for executives to have full knowledge of all of the items in their respective companies’ supply chains, so the deficiencies of the model only become apparent by the time it is too late to rectify.

In the U.S. specifically, the mass migration of manufacturing has seriously eroded the domestic capabilities needed to turn inventions into high-end products, damaging America’s ability to retain a lead in many sectors, let alone continue to manufacture products. The country has evolved from being a nation of industrialists to a nation of financial rentiers. And now the model has exposed the U.S. to significant risk during a time of national crisis, as the coronavirus potentially represents.

There is no national redundancy built into current supply networks, with the most problematic consequences now evident in the pharmaceutical markets. Countries such as China or India are beginning to restrict core components of important generic drugs to deal with their own domestic health crisis. This has the potential to create a major crisis, given that the U.S. “depend[s] on China for 80 percent of the core components to make our generic medicines,” writes Rosemary Gibson in the American Conservative. She also notes that “generic drugs are 90 percent of the medicines Americans take. Thousands of them, sold at corner drug stores, grocery store pharmacies, and big box stores, contain ingredients made in China.” Constraints on production, therefore, intensify as more and more of the manufacturing process pertaining to the drugs themselves is geographically globalized. And in regard specifically to research-intensive industries, such as pharmaceuticals or biotech, the value of closely integrating the R&D with manufacturing is extremely high, and the risks of separating them are enormous.

These are by no means new problems. We’ve been dealing with supply-side shocks emanating from hyper-globalization for decades, and the response of Western policymakers has largely been in the form of fiscal or monetary palliatives that seldom address the underlying structural challenges raised by these shortages. To the contrary: democratic caveats to globalization have been characterized as inefficient frictions that hinder consumer choice.

For now, we should start by reducing our supply chain vulnerabilities by building into our systems more of what engineers call redundancy—different ways of doing the same things—so as to mitigate undue reliance on foreign suppliers for strategically important industries. We need to mobilize national resources in a manner akin to the way a country does during wartime or during massive economic dislocation (such as the Great Depression)—comprehensive government-led actions (which runs in the face of much of today’s prevailing and increasingly outdated economic and political theology). In other words, the revival of a coherent national industrial policy.

To save the global economy, paradoxically, we need less of it. Not only does the private/public sector balance have to shift in favor of the latter, but so too does the multinational/national matrix in manufacturing. Otherwise, the coronavirus will simply represent yet another in a chain of catastrophes for global capitalism, rather than an opportunity to rethink our entire model of economic development.

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Boris Johnson, Not Donald Trump, is the Real Blue-Collar Conservative

Boris Johnson lights his Brexit bomb – cartoon | Opinion | The ...


Call him an upper-class Etonian twit if you like, but the reality is that Boris Johnson, not Donald Trump, might be the 21st century’s first genuine blue-collar conservative. Since becoming prime minister, Johnson has represented a profound break from the prevailing market fundamentalist ideology of the past 40 years in terms of both his rhetoric and, more importantly, his actions. His policies evoke a 1970s-style economic corporatism (much derided by Margaret Thatcher) or, in more historic terms, a reversion to a kinder, gentler form of “one nation conservatism.” In the words of UK-born, U.S.-residing pundit Andrew Sullivan, the core of Johnson’s ideology is an appeal to “the working poor and aspiring middle classes, [by being] tough on immigration and crime, but much more generous in spending on hospitals and schools and science.”

Is it for real? Recall that this was also the promised policy formula that helped elect Donald Trump president in 2016, but which he hasn’t implemented while in office. By contrast, Johnson’s actions suggest a more serious intent, which could have long-lasting consequences for British politics and beyond. The center-left of Europe and the U.S. ignores this phenomenon at its collective peril.

To caricature Johnson as a “British Trump” is a lazy narrative that grossly mischaracterizes what he has done already during his comparatively short tenure leading the United Kingdom. When Donald Trump first entered the White House, his then-chief domestic policy adviser Steve Bannon pushed the president to raise taxes on the wealthy and embark on a big program of infrastructure reconstruction to consolidate his political gains with white working-class voters who provided him with his margin of victory in 2016. Of course, we now know that Trump rejected this advice, as the president hewed instead to Paul Ryan’s austerity politics, attacking existing health care plans, and government social welfare programs, all the while promoting corporate tax “reform” where the benefits skewed heavily toward the top tier. Similarly, on infrastructure, Trump has done nothing, and so far as immigration policy goes, his signature proposal to build a wall has been a case of “sound and fury, signifying nothing.” Trump and the GOP accordingly paid the price in the midterm elections of 2018, one of the biggest congressional wipeouts over the past half-century.

Perhaps Johnson is mindful of this. In his victory speech, he acknowledged that voters in the traditional Labor heartlands merely “lent” their votes to him, and that more needed to be done to consolidate their long-term support. With that in mind, he has already backed off his party’s original plan to cut corporate taxes by 2 percent, so that his government could spend more on voters’ priorities, including the state-funded National Health Service (on health care, Johnson’s Conservative Party is farther to the left of most of the Democrats now running for president other than Bernie Sanders, let alone Trump and the GOP). On infrastructure, Johnson has greenlit approval for the construction of a high-speed train line to the Midlands and northern England, a $130 billion venture that many have derided as a wasteful money pit, but which the PM views as a crucial means of regenerating these depressed regions outside the home counties. As a transport concept, the High Speed 2 (“HS2”) benefits might be marginal: Huge expenditure and big dividends to builders. In reality, light rail is all the UK probably needs. But the proposal was symbolically important, of course. And the amounts approved represent something well beyond tokenism, as the project constitutes one of the largest infrastructure spends of its kind anywhere in the world.

At the same time, Johnson has been able to culturally connect with voters in the post-industrial Midlands and northern England, who wanted nothing to do with Labor’s “woke” identity politics. Historic indifference to their deep, often unstated misgivings about where the country and its culture were going was often dismissed as racism, much as Hillary Clinton derided a large chunk of Trump supporters in 2016 as a “basket of deplorables.”

Even on immigration (where we see echoes of Trump and the charges of racism have become most pronounced), it should be acknowledged that Johnson’s prioritization of a skills-based immigration policy is not inherently restrictionist (in fact, both Canada and Australia, the models for his new immigration policy, have high net immigration rates).

Unlike Margaret Thatcher or Ronald Reagan, the new British PM’s goal is not to roll back the frontiers of the state but, rather, to use it to mitigate inequality by enhancing middle- and working-class wage growth, arrest the stagnation of dying communities and, above all else, reassert the primacy of the nation-state as the central organizing foundation for society (as opposed to subsuming it into a larger supranational political grouping). In Johnson’s vision, the state, labor and business would all play major roles in the promotion of national economic development, as well as restoring the social contract long shredded by economic neoliberalism on the left and radical free-market libertarianism on the right. Of course, a range of powerful trend lines are working against this model: the scale of challenge to make necessary advances in scientific and medical research to sustain a human population in the billions requires international collaboration, the tidal wave of merged investors and industry continues at a rapid clip, and the globalized telecommunication process is homogenizing culture and taste across the planet.

In fiscal policy terms, Johnson’s rejection of the Treasury’s prevailing austerity bias has been particularly noteworthy. The former chancellor, Sajid Javid, had repeatedly insisted that the UK should run a balanced budget by 2023, the maintenance of which would have severely hampered the Johnson administration’s ability to offset potential trade shocks emerging from a more restrictive trade relationship with the EU, as well as mitigating the government’s ability to embrace a robust national industrial policy post-Brexit. The resultant clash was brought to a head when Johnson forced out his chancellor, by issuing an ultimatum to Javid to fire all his advisers—a condition that the chancellor later said “no self-respecting minister” would accept.

The clipping of the Treasury’s wings (and the corresponding resignation of Britain’s chancellor of the exchequer) has been caricatured by Johnson’s opponents in both Parliament and the press as the actions of an insecure, power-hungry prime minister seeking to centralize power. But in reality, the move represents a long-overdue move to cut down the Treasury’s stranglehold over the totality of economic policy relative to other government departments and paves the way for an expansionary post-Brexit budget.

It is true that government spending under Donald Trump has not been marked by deficit fetishism. But unlike Trump, much of Boris Johnson’s anticipated spending bonanza is largely being directed toward the working and middle classes, as opposed to society’s top tier.

By and large, Johnson’s policy reflects the embrace of a national industrial policy that collides with the prevailing neoliberal notion that the government should be nothing but a neutral umpire, delegating all entrepreneurial activity and innovation to the private sector. That is an idea akin to Holy Writ in Brussels. The problem with this view, as I have written before, is that it arbitrarily restricts the range of fiscal activity that can be undertaken for broader public purpose:

“When governments occasionally find a way to redistribute the benefits of [extracting value from the economy] to the broader population [rather than to the top 1 percent], whether via a minimum wage, tighter regulation, state intervention, or similar policy, these measures are invariably castigated as wrongheaded, inevitably leading to less efficiency, sub-optimal growth and lower standards of living.”

The Johnson government’s prioritization of redistributing fiscal resources to the country’s poorer northern regions runs in the face of these neoliberal shibboleths. The regions on which he is focusing have long been the losers of globalization at the expense of London and the southern home counties, which boomed as communities in the rest of the country began to wither away.

Johnson’s measures also send profoundly important political signals. They are designed to build on his recent political success where he breached Labor’s “Red Wall,” the party’s traditional working-class base in the manufacturing and mining districts of northern England, which largely supported Brexit and turned to the Tories during the December election for the first time in decades. Johnson’s political endgame is to ensure that these newly acquired working-class constituencies are converted to long-term electoral strongholds for the Tories.

The consequences of that kind of electoral success could have long-lasting implications. With his policy actions so far, the British PM is appealing to a mass of working-class constituencies long alienated by successive governments, both Tory and Labor, that prioritized the European Union’s technocratic market fundamentalism. To put it in U.S. terms, the equivalent would be the Republicans converting the Midwest into a permanent GOP regional stronghold (which would almost certainly relegate the Democrats to perpetual minority party status). In the meantime, the opposition Labor Party experienced its worst result since 1935 and more recently lost a municipal by-election in northeast England, where a 20-year-old Tory candidate decisively took almost 50 percent of all votes cast.

On the immigration policy front, the new Conservative government has introduced a new policy that prioritizes skill, largely modeled after the Australian and Canadian points-based systems, whereby a non-resident who is able to score above a threshold number of points in a scoring system that might include such factors as education level, income, skills in high demand, language fluency, existing job offer, etc., is given priority for immigration.

This policy too has predictably engendered charges of the Tories pandering to racists. What has many critics up in arms is that among the “essential” criteria is being able to speak English (even though proficiency in a country’s native tongue helps to engender more social cohesion, less cultural alienation, easier links to studies, and other such benefits). It should also be noted that language requirements are not unique to the UK (Canada likewise prioritizes fluency in its two official languages, English and French).

Other provisions of the new immigration law include having a job offer to qualify for entry and being above a designated “skills threshold.” Again, there is nothing particularly novel about these features: Virtually all EU countries demand economic self-sufficiency as a prerequisite to the free movement of people.

Nor is a points system that prioritizes skilled labor inherently restrictive. To mitigate short-term disruption to businesses, the new proposed legislation does provide alternative social safety valves, retaining existing youth mobility schemes and family reunification from the existing immigration laws. Finally, even though the law might create short-term disruption for service industries, notably in food and beverage, as they wean themselves off cheap sources of external labor, there are long-term benefits to the proposed new policy, as the Telegraph’s Matthew Lynn notes:

“In truth, curbing low-skilled immigration can change the economy for the better. Why? Because it will force the economy into higher-productivity, higher-wage industries.

“Just take a look at the evidence from the places where it has been tried. According to OECD data, each of the main countries with a points system has done significantly better than the UK at increasing output per worker. Taking 2010 as 100, GDP per worker has risen to 110 in Australia, to 107 in Canada and 103 in New Zealand, but only to 102 in Britain (the OECD average is 106). Our output [per] person has barely grown over the past 10 years.”

It will also revalue these service jobs, as a smaller labor pool makes those job openings harder to fill.

A skills-based system also changes the migration pattern from the same regions. We are seeing evidence of this in the U.S., as Professor Michael Lind highlights in his new book, “The New Class War: Saving Democracy from the Managerial Elite.” Lind notes, for example, that an increasing number of South Americans in the U.S. are educated professionals—World Bank officials from Uruguay, etc. And in neither the U.S. nor Europe is there a backlash against Indian doctors or Chinese engineers (except in the case of H1Bs, but that is a matter of labor exploitation, as Matt Taibbi highlighted in a recent Rolling Stone piece).

Boris Versus EU

What about the big elephant in the room, namely Brexit and the UK’s future trading relationship with the EU? Boris Johnson’s domestic political jiujitsu has understandably discombobulated his negotiating interlocutors in the EU, which likely means a much more contentious negotiation about the evolution of the post-Brexit relationship between the UK and EU. Hints of the challenges lurking became evident when Boris Johnson’s chief Brexit negotiator, David Frost, warned Brussels that the UK would not under any circumstances sign up to EU rules in a trade deal with Brussels, which circumscribed the former’s sovereignty and enforced the EU’s regulatory and legal framework via the European Court of Justice. To be sure, these are but the opening shots in what is likely to be a difficult negotiation, but in contrast to the previous administration of former Prime Minister Theresa May, Johnson’s government is reversing the government’s priorities: national sovereignty over the maintenance of frictionless trade, rather than the opposite.

The reality is that Johnson’s nationalism represents a vision that is ultimately irreconcilable with that of Brussels, a fact that the EU is only beginning to grasp as it establishes its negotiating brief. Brexit was never an end in itself, but a means to a very different sort of destination for the UK. As such, not only is the UK a regulatory rival of the EU, but also, in a broader sense, it presents an ideological challenge to much of the prevailing framework that has dominated policymaking globally for over half a century, but which is likely ending. Johnson will succeed if he can re-establish a social contract among business, labor and government constituents, a modern-day tripartism that replaces today’s incipient caste system, characterized by a steadily growing underclass, often foreign-born, in menial, dead-end personal service jobs. Rather than simply deriding him, the Left would do well to pay heed. Failure to do so could have catastrophic consequences for them.

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Last Chance to Save the Euro?

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After a faulty start to the coronavirus pandemic, the European Union members appear to be getting their act together, as they all appear to have abandoned ruinous slash-and-burn austerity policies (including budget cuts to health care, education and other social services) in order to cope with the onset of a global depression. At least that’s the consensus view, now that both the European Central Bank (ECB) and the European Commission (EC) have temporarily given up the fiscal rulebook and given eurozone members full rein to deploy all available government spending measures to address the pandemic and ultimately help the region’s economy to recover.

The key word here is “temporarily.” Nothing short of a major permanent conceptual leap of imagination is required to preserve the European Monetary Union (EMU). The ECB already underwrites the solvency of the national governments via its bond-buying operations in the secondary market (although it comes with conditions on their government spending attached). Europe’s central bank must therefore move to the next stage, similar to one the United States federal government routinely takes as it allocates a range of funds to citizens across the states. As there is currently no EU fiscal authority, it is the ECB that must take on this quasi-fiscal function, by making annual distributions of funds to the national governments (credited to their accounts at the national central banks) on a per capita basis. That in turn will give the national governments the fiscal latitude to cope with the pandemic and engender long-term economic recovery.

To be sure, it would necessarily take a hard policy backstop for the more rigid financial players in Europe to go along with it; the ECB would have the right to withhold future distributions to members who fail to comply with deficit rules (so that one avoids a race to the bottomwhereby the incentives are totally skewed to spending as much as possible). But it’s easier to withhold something than to take it back, as occurs under the system today. And if these distributions are done on a per capita basis, then no eurozone member could claim they were being penalized or that others were being given unjustifiably favorable treatment. Consider that as the biggest recipient of per capita distributions, Germany might find that particularly appealing. Cost offsets through mergers of EU member national infrastructure, like universities and advanced research institutions, airports, or postal systems, could provide a funding balance, and again strengthen the EU.

Absent something this bold, the existential threat to the euro becomes far more acute. At a minimum, countries under financial duress that the EU should have supported rather than starved two decades ago, such as Italy, will be eyeing the exits as Britain did. “Italexit” becomes a probability, not a mere possibility. In Italy today, as the Financial Times has reported, “there is a rising feeling among even its pro-European elite that the country is being abandoned by its neighbours.” That is important: If Italians begin to lose their emotional attachment to the idea of a broader European community, then the mindset becomes much more like Brexit, where the economic arguments are superseded by something far more profoundly visceral.

On March 26, the European Council (the European Commission’s governing body) released a joint statement from its members that supposedly constitutes Brussels’ Damascene conversion away from fiscal austerity:

“The COVID-19 pandemic constitutes an unprecedented challenge for Europe and the whole world. It requires urgent, decisive, and comprehensive action at the EU, national, regional and local levels. We will do everything that is necessary to protect our citizens and overcome the crisis, while preserving our European values and way of life.”

This statement followed an earlier March 18 pronouncement, where the ECB announced it was taking measures including a pandemic emergency purchase program (PEPP) as well as directing cash transfers at the national levels. The ECB’s role is key because, as sole issuer of currency in the eurozone, it is the only entity that can credibly guarantee the national solvency of all the euro member states.

That’s all fine and well, but as usual with anything relating to the European Union, check the fine print. When you do that, it’s harder to make the case that the commissars of Brussels have done a full-on conversion to Modern Monetary Theory (MMT), as some of the more enthusiastic eurozone advocates have recently suggested, writes economist Dirk Ehnts on Brave New Europe.

For one thing, the arbitrary fiscal rules of the eurozone are being suspended, not eliminated. If anything, the temporary suspension of these rules (the duration of which is still left in the hands of unelected technocrats) reinforces the notion that this represents the ultimate bait and switch risk for countries such as Italy, Spain, or any other eurozone member state that avails itself of limited opportunity to spend whatever it takes to save its respective economy. In reality, lured by the promises of billions of euros to assist their decimated economies, the Mediterranean nations will find themselves trapped like a fox in a foot-clamp the minute the emergency measures are lifted and the countries are forced back into austerity hell.

Let’s take a step back and recall a crucial MMT insight: namely, states that issue a fiat currency that is not backed by any metal or pegged to another currency are in no way constrained in their ability to fund government operations. The money is literally created electronically via computer keystrokes. Hence, these governments are said to be “sovereign” in their own currencies. They can never run out of money, unlike a household or a private business. Nor can they face solvency issues (so long as they do not borrow in a foreign currency). To be sure, sovereign governments do face real resource constraints, but any perceived financing constraints are arbitrary and more apparent than real, given their powers as a monopoly currency issuer.

Of course, the eurozone doesn’t have this feature. The member nation states in the eurozone are “non-sovereign” because they are currency users, not issuers. Only the ECB issues the euro, which means that the individual eurozone countries (like a U.S. state or municipality) can go bankrupt because they are effectively borrowing in a “foreign” currency. To compensate for this enormous potential solvency risk, the members of the monetary union have belatedly conceded (arguably forced on them by former ECB president Mario Draghi after his “whatever it takes” speech) that only the ECB could credibly backstop the national debts of the individual eurozone states via its bond-buying program because only the ECB has unlimited capacity to create euros.

The ECB’s new PEPP program doesn’t attach the usual fiscal conditions (i.e., cuts in government spending in exchange for ECB support), which it had hitherto adopted in earlier bond-buying operations, but the suspension of those conditions is temporary. Other proposed lending programs have included the suggestion of using the €400 billion lending capacity of the European Stability Mechanism (ESM) that was originally established to help recapitalize eurozone banks in difficulty. Dutch and German leaders have been particularly enthusiastic advocates of using this mechanism. The problem here is that access to the ESM also has conditions attached to its lending provisions. And even if these limited conditions are temporarily suspended, they are not eradicated.

In part, these suggestions reflect a wild casting around of any available instrument because thus far the eurozone members cannot make the ultimate conceptual leap to “corona bonds”—yet another attempt to mutualize the European bond markets, in effect creating a supranational eurobond that would not expose individual nation-states to the risk of national insolvency. German and Dutch resistance to joint debt issuance appears insurmountable, as they view it as another form of free-riding by the so-called fiscally profligate economies that would ultimately undermine the northern eurozone members’ pristine credit ratings. There is little appetite there for a “Hamiltonian moment,” whereby the legacy costs of the individual nation-states are assumed by a supranational treasury with expansive fiscal powers.

So, let’s take the example of Italy to illustrate what could happen if Rome were to accept the “assistance” being offered by the European Commission. As a result of increased borrowing to deal with the coronavirus emergency, Italy’s debt-to-GDP ratio could exceed 160 percent, estimates Goldman Sachs. Once the conditions that occasioned the suspension of the eurozone’s rules diminish, pressures will inevitably grow to revert to the status quo ante. Absent continued unconditional ECB support, it is highly unlikely that Italy will be able to continue to refinance its growing debt on the markets anywhere close to prevailing market rates and will find itself experiencing classic debt trap dynamics.

At that point, there are three likely scenarios, as Italian journalist Thomas Fazi writes in a tweet responding to Dirk Ehnts’ recent article on MMT: “(1) ECB accepts to engage in permanent and *unconditional* monetisation of Italy’s debt” (unlikely, as Germany would never sanction it); “(2) as per EU rules, ECB accepts to do the above conditional on Italy entering an ESM austerity programme” (which would consign Italy to decades of economic depression); “(3) Italy leaves the euro” (which would likely lead to a broader breakup, as Italy is the third-largest economy in the eurozone and severance of that link would almost surely destroy the chain).

However, there is also a fourth option that might entail a less fundamentally abrupt institutional change such as the introduction of a “United States of Europe” style treasury: As I wrote 10 years ago, the ECB has historically responded to the European Commission’s Economic and Monetary Union (EMU) “solvency mess by conducting large-scale bond purchases in the secondary market (which, unlike direct purchases of government debt, is not contrary to the Treaty of Maastricht rules [that govern the European Union]) for the debt of the [member states of the EMU].” And, unlike corona bonds, it might encounter less resistance from the likes of Berlin.

Why? As noted earlier, the principal rationale for per capita distributions is that Germany would get the largest distribution of euros from the ECB. Its fundamentally strong position vis a vis other member states wouldn’t change, much as per capita distributions from Washington don’t fundamentally alter the relative economic positions of California versus, say, Arkansas. The distributions would effectively amount to swaps of national debt for reserves, which in turn would immediately adjust national government debt ratios downward (because as an accounting matter, reserves are not counted as national debt). This goal would be to dramatically ease credit tensions and thereby foster normal functioning of the credit markets for the national government debt issues. The governments in turn could use this newfound fiscal relief to pursue fiscal packages that revive their domestic economies (as opposed to using the mechanism for covert bank bailouts).

As I wrote in 2011 and 2012, the trillions of euros’ distribution would end up as reserves on the accounts of the national central banks, they could not be deployed directly for fiscal expenditures (as the Bank for International Settlements notes, bank reserves can only be used for interbank lending, or in settlements with the central bank). But the ECB distributions would enable the national governments’ sovereign bonds to be swapped for reserves. The resultant reduction of public debt on the national government’s balance sheet would in turn give fiscally strained governments additional flexible freedom to borrow and reconstruct their economies (the reciprocal would be reflected as a negative cash balance on the ECB’s balance sheet, but as the issuer of the euro, the ECB does not face solvency issues).

So in essence, the ECB ships money to Italy, Italy uses money to reduce its nominal debt load. That in turn gives Italy more room to borrow and spend on bridges, income support, coronavirus relief, etc. Given the current depression-like conditions, this activity is hardly likely to contribute to additional inflationary pressures either, as much of the spending will ultimately enhance the productive capacity of the affected economies.

Call this process gimmicky, but many forms of public accounting are predicated on similar gimmicks. The U.S. has a “Social Security trust fund” on its balance sheet, but in no way does the government have an actual trust where it stores dollars to pay for one’s Social Security payments. The existence of this trust fund on the U.S. government’s books does not in any way, shape or form enhance Uncle Sam’s ability to meet Social Security commitments.

The resultant flexibility on the size of the fiscal stimulus would in any case trigger growth, which in turn would likely reduce the deficits downward as the economies grow, tax receipts expand and less social welfare provision becomes necessary (it is also worth noting that even before the onset of this pandemic, net of its interest payments, “Italy has been running a fiscal surplus almost continuously since 1992,” according to the Financial Times; the country is hardly a fiscal profligate).

Furthermore, making this distribution an annual event greatly enhances the ability to enforce EU rules, as the penalty for non-compliance can be the withholding of these distributions, which is vastly more effective than the current arrangement of fines and penalties for non-compliance. Historically, fines have proven themselves unenforceable as a practical matter. It is much easier to withhold something than to enforce a take-back.

As I wrote a decade ago, “There are no operational obstacles to the crediting of the accounts of the national governments by the ECB. What would likely be required is approval by the finance ministers.” In theory, there should be “no reason why any would object, as this proposal [which will enhance the SGP] serves to both reduce national debt levels of all member nations and at the same time tighten the control of the European Union over national government finances.”

Ten years ago, when I first made this proposal, it was considered too radical. For years, fears persisted that it would turn the entire eurozone into some bankrupt version of Greece. The concerns of the hyperventilating hyperinflationistas look increasingly less relevant today, especially at a time of a growing international crisis and mounting threats to the existing order. Trillions have been created out of thin air, and there isn’t a Weimar hyperinflation situation to be found anywhere. But what has become increasingly evident to many eurozone countries is that the ongoing use of fiscal conditionality has impinged on their ability to create economic conditions to sustain growth; likewise, national sovereignty has been more apparent than real. Through a series of hastily created programs (usually done in response to a crisis), the leaders of the eurozone have continued to patch up pre-existing institutional flaws, but there are no tangible economic benefits experienced by the vast majority of people.

Assuming of course, that these are flaws. From the European Commission’s perspective, the democratic deficit is the one deficit Brussels’ technocratic elites all seem to like, as it leaves considerable power left in the hands of unelected officials, who can readily override the aspirations and goals of national parliaments. They strengthen the EU’s oligarchic character, centralizing further power in the hands of anti-democratic institutions such as the European Commission, without bringing any concrete benefit for most citizens within the European Union as a whole.

But that’s a politically unsustainable stance amid a global economic depression and lockdown. It’s also bad economic policy, as the evidence relating to the costs that the EU’s austerity policies have built up and a whole generation has been lost. Perhaps the custodians of austerity are calculating that they will be able to continue with an ideology that has created so much misery for so many within Europe (with no corresponding payback). Like Shakespeare’s Macbeth, they are “in blood stepped in so far that should I wade no more, returning were as tedious as go o’er.” But that’s hardly a solid foundation stone to a prosperous and sustainable ever closer European Union. To the contrary, it’s a route to anarchy, more economic chaos and, ultimately, rupture. One hopes therefore that all of the individual member states in the single-currency union do whatever they consider it takes to buttress their overtaxed health systems and enable their economies to recover, and that the hardliners will ultimately experience a Damascene conversion toward rational economic policy-making and nation-building.

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