I see a lot of people who are viewing the economic impacts of the SARS-COV-2 outbreak as an opportunity for change. Across the political spectrum activists for various causes are practically salivating over the opportunity to use the crisis to implement their favorite agendas.
- Climate change? Great! The crashing oil markets are the perfect time to act!
- Social Justice? Great! The economic and health system disparities made clear by the virus are the perfect time to act!
- Iran? Great! Their weakened state, internal unrest, along with the insulation of a down oil market, make this the perfect time to act!
- China? Great! Their weakened state, internal unrest, anger over their handling of the the crisis make this the perfect time to act!
The list seems endless. And all of those forces are interacting in the political process, slowing down economic interventions in the real economy (the Fed and other reserve banks are propping up the markets, but I hope most people realize that the stock and bond markets are no longer much related to the real economy). There’s just one problem: all of the potential for change is potentially delusional.
It seems pretty obvious that the global political and economic system is on the verge of a cascading collapse, probably merely weeks or at best months away. I have discussed this with several colleagues, and while we are coming at it from different directions (some from economics, some from geopolitics) we end up in the same place. And that should give everyone some pause. What will be the trigger? There so many to choose from it’s hard to say. In the US, tens of thousands of small businesses are on the verge of failure. Those businesses all have mortgages, pay rents, pay taxes, buy stuff from other businesses – as do their employees. Once those go, the domino effect (zipper effect, whatever you want to call it) will rapidly lock up or even collapse the entire financial system, especially state and local governments dependent on tax revenues. Consider one small, often overlooked aspect: that welfare benefits are distributed using the Electronic Benefit Transfer (EBT) system. That uses debit cards to provide benefits to recipients. What happens if banks stop extending credit and the electronic money system becomes restrictive or locks up? What happens if grocery stores can’t accept EBTdue to their own credit issues or delays in state payments? Millions of people in the US would suddenly be cut off. In areas where the EBT has been disrupted for even 24-48 hours, social unrest (rioting, looting, etc) has rapidly ensued. That these happened in isolated, urban high crime areas means they didn’t capture the public attention, but if that happens nationally … well, it will be ugly. I could terrify you with various geopolitical scenarios as well. Most of these are of “low” probability (some 1 in 5, some 1 in 10), but when you have a bunch of “low” probability events, the chances of one of them happening start to approach 1.0. And they all end up in the same place: something happens that causes the fragile, overly interconnected and over leveraged credit and financial system to go into a death spiral. Once it happens, it will be hard or impossible to stop, given that if any one “trigger” happens, like a string of firecrackers it will set the others off. So that brings us to this:
There isn’t time to use this crisis to craft some wonderful transition to a brave new (Marxist, Progressive, Green, NeoCapitalist, ‘Murican!, Libertarian, whatever) world. We have to stop the collapse at all costs and buy time. Or none of those things will mean anything. The Congress is set to pass a boost in funding to the Paycheck Protection Program and some other tweaks today. It is woefully inadequate by an order of magnitude (trillions are needed, not hundreds of billions). Even re-opening is not likely to help at this stage (even assuming there are not repercussions or fall “second wave”).
If the system collapses, no matter what the trigger, there won’t be any opportunities for change. Yes, we need to move to something more sustainable. If we get past this crisis that will take on even more urgency because it is doubtful we will get another chance. To use a medical analogy, the patient is in about to go into cardiac arrest; we can worry about diet and exercise when we get the heart beating again. But for now, we need to stop pushing for the next thing until we can have some confidence there will even be a next thing …