From Portside <[email protected]>
Subject A Lasting Remedy for the Covid-19 Pandemic’s Economic Crisis
Date May 23, 2020 1:49 AM
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[As catastrophic as it is, the Covid-19 pandemic offers a moment
of reflection. If we set our sights high and not throw money at big
corporations, perhaps we can emerge from the crisis with an economy
and society that are stronger than before.] [[link removed]]

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Joseph E. Stiglitz
April 8, 2020
New York Review of Books
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_ As catastrophic as it is, the Covid-19 pandemic offers a moment of
reflection. If we set our sights high and not throw money at big
corporations, perhaps we can emerge from the crisis with an economy
and society that are stronger than before. _

Notes held by White House coronavirus response coordinator Deborah
Birx during the Task Force’s daily briefing on the morning the
government reported an unprecedented 6.6 million jobless claims due to
the pandemic, Washington, D.C., April 2, 2020, Win McNamee/Getty


The Covid-19 pandemic has led to an unprecedented global health and
economic crisis, with unprecedented government responses. With the
deficit-to-GDP ratio already at 5 percent before the pandemic, a
record for the US in peacetime with near full employment, that deficit
has now already tripled, to at least 15 percent—and negotiations are
underway for a fourth package that would send it still higher. This is
all well and good: when you go to war, you don’t ask, “Can we
afford it?” And we are at war with this terrible virus. But that
doesn’t mean that resources aren’t scarce. We must think carefully
about priorities, about how to spend money well so that we are in a
position to emerge from the pandemic quickly, with the kind of
twenty-first century economy we would like to have.

The aid packages that Congress has passed have—after a lot of
haggling—reflected reasonably well what our priorities should be:
first, contain the pandemic; second, help the most vulnerable; and
third, set the stage for a strong recovery. But there are still some
big gaps. We don’t want sick and contagious people going to work,
and that means we have to have paid sick leave. Congress recognized
this but, at the behest of large companies, exempted 80 percent of all
workers—all those working at firms with over five hundred employees
or under fifty! That is unconscionable.

Similarly, we don’t want undocumented workers going to work, or not
getting treated, for fear of deportation. The Trump administration
recognized this, putting ICE actions on hold, but no commitment was
made not to use information gathered from treatment for future
deportations. We recognized that hospitals were in desperate need for
funds, but states have had to provide health care with the pittance
they’ve received from the federal government—not enough even to
cover the additional costs imposed by the pandemic, let alone to deal
with plummeting revenues. Because states have constitutionally
mandated balanced budgets, unless there is help from the federal
government, there will be cutbacks in health, education, and basic
welfare services—imperiling the most vulnerable and diminishing
prospects of a strong recovery.

There are other gaps in protecting those most in need, some which have
only become clear after the legislation’s passage. With so many
Americans living paycheck to paycheck—with less than $500 in their
bank accounts—it is imperative that money gets to
them _quickly. _The president promised “two weeks.” It took two
weeks to pass the legislation, and now the US Treasury Department says
it will be another three weeks for those who filed tax returns this or
last year. But for those who didn’t—and these include the poorest
Americans, because their income was so low that they didn’t have to
pay taxes—it now looks like it may be months. Other countries, such
as Argentina, have been able to get money to their citizens _in three
days_. The deficiencies in our system of social protection have become
starkly evident.

While most of the economy is on hold, one part that doesn’t seem to
be is the banks. They’re still demanding to collect interest, and
increased fees to manage the disbursement of the loans to small
businesses—1 percent, meaning some $3.5 billion, while
bearing _no _risk. The consequences of not having a stay on credit
card and car debt are obvious: cars will be repossessed, and in a
country with such poor public transportation, that will make it
difficult for many people to get to work and a return to normalcy all
but impossible. With so many credit cards charging usurious interest
rates and fees—annual rates in excess of 25 percent—without such a
stay, families will emerge from the crisis with unmanageable debt
burdens; and this, too, will slow the recovery. With all their money
going to servicing their debts, Americans won’t be buying much. The
bank-friendly 2005 bankruptcy bill makes it all the more difficult for
American families to discharge their debt—far harder, for instance,
than it was for the president to walk away from his millions of
dollars in debt.

In the most recent bill, there were important provisions providing
money to small businesses and not-for-profits (with a couple of sneak
provisions allowing large hotel franchises to fall within the ambit of
the program)—but hardly enough money, and with insufficient
capacities of the banks to administer the program, to disperse funds
quickly. The reported snags in the US should be contrasted with the
smooth sailing in Switzerland, where funds went out to small
businesses in just a few days. With no strategic prioritization, and
with some estimates putting the needs in excess of twice the amounts
allocated, there will be a scramble. Will it be first come, first
served, until the money runs out? Will the Small Business
Administration, or the banks, for that matter, have the administrative
capacity to disperse funds quickly? Will the D.C. swamp swallow the
program, with the politically connected going to the front of the
line? We simply don’t know.

Erin Clark/The Boston Globe via Getty ImagesVanderleia da Silva, a
fifty-three-year-old house-cleaner and undocumented immigrant from
Brazil who has lost all of her clients, but will be ineligible for any
payment under the Congress’s $2 trillion stimulus plan because of
her immigration status, Medford, Massachusetts, March 24, 2020

It’s in the last category—preparing the economy for a quick
emergence from the pandemic—that matters are most unsettled.
There’s a growing consensus that there won’t be the quick V-shaped
recovery, with a bounce back as vibrant as the plunge downward was
precipitous. That’s partly because, contrary to the
administration’s initial claims, the economic shutdown is going to
last much longer than a couple of weeks. The longer it lasts, and the
more glaring the deficiencies in the “rescue package,” the harder
it will be to recover quickly.

Balance sheets of households and firms will be greatly weakened;
breadwinners and key personnel will have died, and many firms will go
out of business. They won’t come back to life when the pandemic
ends. Many households and companies will face a liquidity
crisis—bills will have piled up while revenues have plummeted. The
rescue package got money to big corporations, clearly demonstrating
the priorities: those with the best lobbyists got the most money on
the best terms. Research universities and big not-for-profits, serving
a needy clientele, couldn’t compete. Their revenue streams are being
eviscerated, their endowments have plunged. The cutbacks in jobs will
show up in the unemployment statistics, but the deeper effects—on
our economic growth and social fabric—won’t be fully apparent for
years to come.

There’s a growing consensus that the current measures won’t
suffice in either caring for the vulnerable or ensuring a strong
recovery, so discussions are underway for a fourth package. But as the
scarcity of resources becomes (or should become) more evident—after
all, US GDP will almost surely fall more this year than it has at any
time since the Great Depression—we have to have keep in mind what is
likely to engender a strong recovery and be inspired by a vision of
what kind of economy we want post-pandemic.

One idea circulating is a large infrastructure program. The
administration has repeatedly tried to use the pandemic to advance its
own political goals. It tried to use the third package to create a
half-trillion-dollar slush fund for businesses—with no
accountability, no transparency. It appears that it is now trying to
use the fourth package to do what it failed to do for the previous
three and half years: build the infrastructure that the country
desperately needs.

In the 2008 crisis, there was rightly an emphasis on the spending
being “timely and targeted,” with strong accountability. The same
should apply here, only more so. Then, we saw how difficult it was to
find “shovel-ready” projects. Typically, the shovel-ready projects
aren’t those that really fill the economy’s deep infrastructure
needs. And after the administration openly attacked the idea of an
inspector general who was put in place to oversee funds for the big
corporations, and then brazenly appointed someone from the White House
as the Inspector General to oversee Treasury, we can confidently
predict that any infrastructure funding will not only lack
transparency but will be used to reward Trump’s friends. We need
infrastructure, and we especially need green infrastructure, but a
Covid-19 recovery package is not the place to get it.

That’s a first lesson for this fourth package: Congress has to set
priorities, limiting the administration’s discretion. Fundamentally,
and sadly, the administration can’t be trusted either to set the
right priorities or to provide assistance based on principles of good
governance, rather than political expediency.

Those priorities have to be set with an understanding of the three
major crises the country was facing _before _the pandemic: an
inequality crisis, a climate crisis, and a health crisis (which has
seen Americans’ life expectancy decline to a lower level today than
it was in 2016, before Trump took office). All this has to be
accomplished remembering the lessons we should have learned from the
2008 bailout and the 2017 tax bill: simply giving more money to
corporations doesn’t result in higher growth, more investment, or
higher wages; it results in more share buybacks and higher CEO pay.
Any money to the big corporations and banks has to come with
“conditionalities” on how the money is used and how the
corporations behave.

So here are my priorities: when there is a crisis we turn to
government—as we did in 2001 and 2008. But for the past forty years,
we’ve been underfunding government—including spending that
prepares us for crises and disasters—and that’s made our economy
and our society less resilient.

Moreover, we’ve been too “short-termist,” both in the public and
private sectors. Banks were focused on their immediate profits,
creating a financial system that was systemically fragile—and it was
only through a taxpayer-funded bailout that the economy was saved. Car
companies stopped providing a spare tire, which saved money in the
short run but left drivers stranded when they got a flat. We prided
ourselves on the efficiency of our hospitals, with nary an unused bed
or ventilator—that was fine as long as we didn’t have a surge in
demand, as we now do. The Trump administration allowed the stockpile
of medical supplies to remain depleted, and the ventilators in storage
not to be serviced—leaving the country totally unprepared for
today’s pandemic. The underfunded Centers for Disease Control and
Prevention have done what they could, given their underfunding. The
scientific community has done a remarkable job, in spite
of _its_ underfunding.

So the first priority is to restore our balance: provide more funding
for the public sector, especially for those parts of it that are
designed to protect against the multitude of risks that a complex
society faces, and to fund the advances in science and higher-quality
education, on which our future prosperity depends. These are areas in
which productive jobs—researchers, teachers, and those who help run
the institutions that support them—can be created quickly. Even as
we emerge from this crisis, we should be aware that some other crisis
surely lurks around the corner. We can’t predict what the next one
will look like—other than it will look different from the last.

Many households and business will face a liquidity crisis. Big,
well-managed corporations should have no problem getting access to
credit markets. But many corporations, of course, are not
well-managed. That became even more obvious after the 2017 tax bill
gave those companies the opportunity to build up their capital buffers
in order to make themselves more resilient. Many chose instead to
engage in massive share buybacks. But that means their shareholders
have already been amply rewarded. They certainly don’t need another
gift from hard-pressed taxpayers. If some corporations don’t make
it, there is Chapter 11 of the bankruptcy code, which preserves the
corporations and their jobs, but makes shareholders and executives pay
a price. That’s the way it should be under capitalism: with high
rewards comes risk, responsibility, and accountability.

Apu Gomes/AFP via Getty ImagesFlor Hernandez, who normally works as a
dressmaker, selling face masks on the street after losing her job
because of the pandemic, Los Angeles, California, April 2, 2020

It’s the small businesses—a major source of employment—I’m
more concerned with. Even when they’re well-managed, they typically
have limited access to capital. That’s why the program in the recent
aid package is so important; it now needs to be expanded, with special
attention to widening capacities to get funds to those who need it
quickly, accompanied with stronger oversight and transparency.

A third priority is remedying the big gaps in the earlier programs,
the consequences of which will quickly come back to bite us:
assistance to state and local governments and large non-profits,
universities, research institutions, and so on. A fourth priority
should be to use this funding to help restructure the economy: we
shouldn’t be rescuing cruise ships; we should be helping small
companies that install solar panels.

And we should be trying to put the money where it’s really needed.
Even otherwise-deserving companies owned by wealthy venture capital
firms are not really in need of funds; nor are the large hotel chains.
If they have a good business model—that is, if their future
prospects are sound—they should be able to raise money on their own.
They don’t need more government help, beyond the myriad tax breaks
they have already received.

Finally, we should think about what sectors of the economy are most
important for our future. One of the themes of my recent
book, _People, Power, and Profits: Progressive Capitalism for an Age
of Discontent _(2019), is that the reason we have a much higher
standard of living than we did 250 years ago is the advance of
science. This, along with the institutions that enable it, most
importantly, our research universities, are the basis for the wealth
of nations, to borrow the title of Adam Smith’s treatise of 1776.
Countries don’t get rich from more or bigger gambling casinos, real
estate empires, or even financial sectors. They get rich from
scientific discoveries and advances in technology based on those

As catastrophic as it is, the Covid-19 pandemic offers a moment of
reflection. In medicine, pathology provides insights into how the body
usually works by showing what happens when something interferes with
normal functioning. We’re gaining some keen insights into how both
our politics and our economy have been working, or not working, and a
picture is emerging of what needs to change. Some see this as another
opportunity to throw money to big corporations. We should set our
sights higher. If we do, perhaps we can emerge from the crisis with an
economy and society that are stronger than before.

April 8, 2020, 7:00 am

_Joseph E. Stiglitz is a University Professor at Columbia, a
co-recipient of the 2001 Nobel Memorial Prize in economics, and the
former chairman of President Clinton’s Council of Economic Advisers.
His most recent book, People, Power, and Profits: Progressive
Capitalism for an Age of Discontent (2019), is now available in
paperback. (April 2020)_

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