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CCP Virus, CNBC, Congress, coronavirus, COVID 19, Federal Reserve, Joseph Stiglitz, lockdown, Patricia Cohen, Paul M. Krugman, safety net, shutdown, social insurance, The New York Times, Trump, Wuhan virus, {What's Left of) Our Economy
Thanks to a late start, just a quickie, today – but still important because it demonstrates the dodgy nature of two increasingly widespread claims during this CCP Virus emergency: first, that the suffering of so many Americans due to the health and economic damage done by the virus demonstrates how lousy the country’s social safety net is; and second, that its impact on employment in particular and the resulting damage to the finances of so many individuals and families shows how fragile – and even phony – much pre-virus national well-being actually was.
The first claim was made notably by Nobel Prize-winning economist and New York Times columnist Paul M. Krugman. Now I know that I’ve labeled him a reflexive Never Trumper, I know I’ve taken him to task for many major blunders (at least as I see them), and I know we’ve crossed swords – angrily – in print. But I really do believe this contention about a major lesson being taught by the pandemic, made in a CNBC interview on Friday, was way off-base:
“…what we’re seeing is that our safety net has big, big holes in it.”
No one can reasonably believe that all the actual virus damage done will be healed or the potential damage done prevented even by the historically unprecedented (by a mile) sums of various kinds of virus relief approved by Congress and President Trump. Ditto for the comparably huge, unprecedented economy backstops provided by the Federal Reserve.
But think of it this way: If, after he asteroid strike that wiped out the dinosaurs, would it have been reasonable for someone or something to observe, “What we’re seeing is that those species really had some major defects”? Of course not. Especially since the dinosaurs had been the planet’s dominant life form for literally hundreds of millions of years.
So they couldn’t survive a literal out-of-the-blue (though over incredibly long time-frames precedented and predictable) natural disaster. Does this mean – and I realize this is a weird concept outside an “argument’s sake” framework – that evolution did a lousy job? Of course not.
The rest of Krugman’s statement is much less absurd:
“[N]ormally we think of this as being a problem of protecting people or redistributing to people who are persistently disadvantaged, which is very important. But right now what we’re seeing is something that is more sort of, even within classes, is very uneven. If you happen to be working in the restaurant industry, if you happen to be working in the travel industry, your entire basis of sustenance is gone, whereas if you happen to be employed in a sector which is not affected by this, this is annoying but not really all the bad. So what we need is basically – social insurance is what we talk about, and we’re seeing a real demonstration how important it is that we have a system for dealing with really disaster relief where the disaster is on a scale that we’ve never seen before.”rk
Specifically, it makes perfect sense to want to insure against a wider range of potential calamities than currently planned for by America’s current system. It makes just as much sense to support more insurance for the economic and natural disasters already planned for. But creating enough insurance to shield the entire economy against what Krugman himself has likened to an “induced coma”? Because “We’ve deliberately shut down a large part of the economy”? And which Krugman calls “like nothing we’ve seen before”? That’s a qualitatively different challenge, and the case for the kinds of spending that would be required – and the kind of combination of taxes and debt creation needed to pay for it – is anything but obvious.
The argument about the virus showing the economy to have been surprisingly, and unacceptably, weak before this biological invasion suffers the same kinds of problems. Its best example has been this New York Times article, whose theme is described by the subhead: “The coronavirus pandemic has shown how close to the edge many Americans were living, with pay and benefits eroding even as corporate profits surged.”
For good measure, reporter Patricia Cohen (who’s a distant personal acquaintance) threw in a Krugman-like safety net observation from another Nobel Prize-winning liberal economist, Joseph Stiglitz: “We built an economy with no shock absorbers. We made a system that looked like it was maximizing profits but had higher risks and lower resiliency.”
But Cohen’s main point was the (related) contention that the crisis “has revealed [a series of additional] profound, longstanding vulnerabilities in the economic system
The same “asteroid” question, however, needs to be asked? Close to the edge of something legitimately qualifying as an Act of God? Or maybe more prosaically, the kind of “force majeure” event that can lead to the cancellation of legal contracts because circumstances beyond anyone’s control render the deal unenforceable in any real-world sense?
Sure, too many Americans spend too much and save too little – sometimes because they need to to get by, and sometimes because they’re irresponsible. (And as with much of life, often it’s a little of both. Moreover, let’s not let off the hook an easy money-addicted political and economic policy system, which has so powerfully encouraged over-spending at least since the dangerously bubbly economic expansion that preceded the 2007-08 financial crisis.)
But the virus damage so far has been so severe and widespread that it’s clearly – as Krugman noted above – caught short many Americans who had been handling their finances with admirable prudence
As for Cohen’s finding that the crisis has thrown into sharp relief the vulnerabilities of “even middle-class Americans, once snugly secure, [who] have become increasingly anxious in recent decades about their own fragile finances and their children’s prospects,” that sounds like a line from a Bernie Sanders or Elizabeth Warren campaign ad. The problem, of course, is that poll after poll has told us that before the virus struck, large majorities of Americans were feeling just fine about their personal finances and prospects.
I have no doubt that the virus is going to wind up teaching Americans and their leaders many valuable lessons. But as the two above examples should make clear, not all supposed lessons are created equal. And be doubly wary of supposed lessons that, at least in the case of Krugman and Stiglitz, ostensibly validate ideas the teachers have held since long before anyone ever heard of a coronavirus.
