Coronavirus may well become a disaster of historic proportions, but probably not in the way you imagine...

Today, on the 6^th of April, 2020 the national death toll from Coronavirus is sitting at approximately 10,500.  My guess is that we're probably less than a week away from the oft discussed apex of the curve and whenever the end of this virus pandemic is eventually declared, the country will have suffered fewer than 50,000 deaths, possibly far fewer.  I could be wrong on both counts of course, and perhaps by a lot… but we’ll have to wait and see.

There are two questions that are resonating in my head about when this unprecedented overreaction is finally over.  The first is the economy.  How long will the economy take to rebound?  On the one hand, 60% of the economy is still functioning…  Supermarkets, hospitals, police stations, restaurants – of the take out or delivery variety – Facebook, Google, Amazon, Netflix, UPS, the military, gas stations, lawn maintenance, construction and many more pieces.  Nonetheless, a lot things are idled:  Gyms, movie theaters, schools, churches, dine in restaurants, countless small businesses, everything wedding related, the NBA, MLB, Golf, NASCAR and many other pieces.  Every one of those shuttered businesses, and many of those still functioning have a long list of suppliers - of both the service and goods variety - who have been impacted by this shutdown. Some of the businesses who have found themselves shuttered will never reopen.  Those that reopen will likely find challenges getting back on their game, not only from the perspective of the ramp up in demand from customers, but simple logistics and figuring out how to get their supplier pipelines moving as well. 

Whatever is the case, the economy will come back, and given the combination of government largesse and pent up demand, there could be a short term surge in many areas as people leap out of their homes and dash into coffee shops, restaurants and possibly stores.  The question is however, how long will it take to ramp back up to the point where we return to the trajectory we were on the end of 2019 and a $22 trillion economy, and what will that economy look like?

That last point brings me to the second of my questions… and the far more important one.  What will the economy and the country look like?  After Uncle Sam injects $2.2 trillion into the economy and the Fed greases the wheels to the tune of twice that, what will come of the free market?

Assuming that the economy doesn’t do a complete face plant, which I don’t expect but is a realistic possibility, Keynesians and progressives of all stripes are going to assert that if stimulus works during an emergency, we should use it – including guaranteed universal income – all the time.  Taxes could easily be raised on millionaires and billionaires to cover any outlays and the stimulated spending by the working class would help drive the economy.

Those faulty economics and their inflation and stagnation inducing polices are not even the biggest concern for the nation!  The real concern is that this staggering overreaction will have set a precedent.  Without a serious, demonstrated threat to the wellbeing of the nation as a whole, going only with models that predicted millions of dead, governments across the country have essentially quarantined more than 80% of the American population and 100% in the largest metro areas. 

Months or years from now, when history shows us that the Americans were basically quarantined, $10 trillion of stock market value was wiped out and trillions of dollars of economic activity evaporated almost overnight because of a virus that ended up taking fewer than 50,000 lives, what will politicians, activists and the media do for something like global warming, which we’re told for certain will cost the lives of tens of millions of people around the world?  Or how about the next Chinese virus?  I can hear the argument now:  “Covid 19 only killed 50,000 people BECAUSE of the lockdowns… This new XYZ virus is even more virulent and we need to do the same thing otherwise tens of millions of Americans will be dead within a month.”  Lockdown!  Shut down the economy.  Close schools, theaters and every other meeting place!  Churches too!  And churches that refuse refuse to comply with service cessation orders? Close them!  First Amendment be damned! 

Nor will it necessarily be a virus that causes the next lockdown(s).  How many times have we heard that the carnage from murder in cities like Baltimore or Chicago is an emergency or a crisis?  How much resistance would there be to mayors or governors deciding that they have the power to supersede the Constitution to deal with their “crisis”?  And pointing to the Covid 19 precedent as proof that they have the authority.  Second Amendment be damned! 

No longer will science have to prove that something is an actual threat to humanity or Americans or even a city or town in order for the government to mandate anything.  From forcing employers to hire certain workers, to compelling companies to make these or those products, from seizing assets to  coercing citizens to curtail activities protected by the Constitution… where does the line get drawn?  Make no mistake, precedent can be a bear, particularly in the hands of progressives who seek to use the power of government to undermine the individual rights of virtually every American, except of course, criminals.

Coronavirus may well turn out to be a disaster of epic proportions, but probably not in the way you imagine.  It very well may be the nose that allows the progressive camel of tyranny into the tent under which the American experiment flourished for so long.  And once the likes of Nancy Pelosi, Ralph Northam, Bill de Blasio and the rest of the progressive fascists on the left take control freedom as we understand it and the Constitution as a functioning document will be but mere memories.  “Constitution? Federalism? Individual liberty? Free markets?  Sorry, we’re temporarily suspending them… We’ve got a crisis to deal with!” 

Economic Armageddon: How Many Lives is $10 Trillion Worth?

I heard or read somewhere this week someone ask what would someone think if they had fallen asleep in December 2019 and awoke today to discover that the United States and the world had willingly shut down almost its entire economic engine and “encouraged” or demanded that their citizens stay in their houses except for buying groceries or going to the hospital.  No gatherings of 500 or 200 or 50 or 10 people were allowed.  Apple had closed all of its stores outside of China, movie theaters were vacant, Disney World was closed and air travel had fallen off a cliff. The stock markets had collapsed by 1/3, Catholic churches around the world were cancelling masses during Lent, the Olympics, the NBA, NCAA, MLB, Nascar and the PGA all cancelled or postponed their seasons.  All in less than a month, in some cases just a couple of weeks.

This Rip Van Winkle would likely have expressed disbelief and posited that other than an alien invasion or world war, only a contagion could have brought this about. 

Winkle:  “How many millions or billions of people had it killed?  25% of the world’s population, 1.5 billion people?”

You:  “No, less”.

Winkle:  “Surely it must have been 10% of the world’s population, 700 million people? “

You:  “Um… no. Less.”

Winkle:  “OK, 2%, 140 million people?  Half a percent – 35 million people.  Seriously, it has to be at least that bad to bring the world to such a standstill.  No Summer Olympics!  No Masters!  No Spring Break!”

You:  “Umm, not quite… the actual number is about 10,000, almost all of whom are in their 70’s and 80’s with underlying health issues…”

Tilting his head and squinting his eyes, Winkle starts looking around for a camera as he’s sure he’s on some modern Candid Camera reboot or is being pranked by those Russian radio shock jocks who conned Prince Harry into disparaging his own family.

When you finally convince him that he is not being pranked and that the world has indeed kneecapped its economy for a less than 10,000 deaths… less than ½ the number of people killed worldwide in car accidents every single week, Winkle thinks the world has gone crazy, recognizing that it has probably lopped off $5 trillion off of its economy, and perhaps a lot more. 

Now of course, the goal of all of that activity – or lack thereof as the case might be – is to keep that number of deaths down.  But the question is, if the world hadn’t imposed such draconian measures on itself, how bad would it get?

Estimates of course vary widely, from tens or hundreds of thousands to 50 million, a little below the total number of people who die worldwide annually from all sources.  Here in the United States the ranges are wide too, from a conservative number akin to what the flu inflicts annually, 70,000 to two million.   

Whatever ends up being the case, one has to wonder, what are the real world consequences of such measures.  Sure, there will be the trillions of dollars that governments around the world print in order to try and keep their economies from collapsing.  But what about all the businesses that fail, both big and small.  The jobs that will never return and the corresponding uptick in alcoholism and suicide induced in those who live on the financial edges of life.  Shipments or deliveries of computers or vitamins or kneebraces that arrive two months late.  The weddings that were postponed and never take place or the relationships that fracture as a result of sudden, ‘round the clock’ close proximity.  The 2-3 months of education that kids around the world didn’t get.  The movies people never see, the dates never gone on, the restaurant meals never served.  Not to mention the mental anguish that 7 billion experienced simultaneously. 

This is indeed a crass way of looking at something, but if one assumes that there is a correlation between economic activity and life & the quality of life, one has to ask, how much damage to both has this shutdown caused?  If we could, before Winkle fell off to sleep, we might ask the question a slightly different way… How many lives is it necessary to save in order for the governments of the world to find it prudent to throw the planet’s entire economy into chaos and essentially destroy between five or ten trillion dollars of economic activity and cause markets to decline by similar amounts? 

At 50 million lives saved – again, approximately the number of people who die around the world annually from all causes – the destruction of $10 trillion in economic activity and value equates to $200,000 per life saved, or approximately 20 times the average “value” of every person as measured by the dividing the world’s $88 trillion GDP by 7.7 billion people.  At 1 million lives saved the cost jumps to $5 million per life and at 250,000 lives saved the cost per saved life is $20 million. 

No doubt if you or someone in your family is one of the lives saved, that $20 million price tag is well worth it, as is the $200,000 tag.  The question is however, today, when the worldwide death toll from this virus sits at less than 10,000, is it prudent for the governments of the world to send the planet’s economy off a cliff and into freefall to arrest a virus that in even the worst case scenarios is projected to kill less than 1% of the people who actually contract it?

We all probably have our own opinion on such things, but our opinions don’t count in “emergencies”.  Governments are sometimes like lemmings, particularly in a world driven by a floundering traditional media that seeks out or creates chaos or anxiety or sensationalism as it struggles to remain relevant.  Only time will tell whether March 2020 is more akin to the launch of the Manhattan Project or the passage of Smoot Hawley.  History will, as it always does, have the last say…

Big Business + Government... Why Wall Street records don't mean happy days are here again...

On Friday, the stock market, driven by record profits and a better than expected jobs report, - not to be confused with a good one - closed at its all time record high. Closing at 1,614, the S&P 500 closed up 148% from the low it reached in 2009. Not bad given that the economy is up a paltry 5.5% over that same period. Already the markets are up over 10% since the beginning of the year. There are a number of reasons for this.

One is the fact that the 500 companies represented the index have been reporting strong revenue and earnings growth, particularly among technology companies like Apple, Google and Facebook. Another factor is that the Fed’s money pump. The Federal Reserve has been pumping $85 billion a month into the economy since the beginning of the year, doubling the $40 billion a month it had been pumping in since 2010. By the Fed driving bond rates to close to zero, the stock market is the natural beneficiary of the dearth of competitive returns. Where else are investors going to put their money?

Then there is the economy. Last week the government announced that the unemployment rate had dropped 7.5% in March, down from a high of 10% in October of 2009.  Those jobs numbers sound great, until you look a little closer. The primary reason the rate is down 25% in 4 years is not because of job growth, but rather because so many people have grown discouraged that they have stopped looking for a job all together. Basically, since Barack Obama became president, 9.5 million Americans have simply left the workforce and as such are simply no longer counted. Had those people still been looking for a job - U-5, the rate would be 8.9%, which might not be such good news for stocks.

The reality is that while the stock market may be going gangbusters, the country as a whole is a different story. The simple reason is the stock markets, by definition, reflect the fortunes of big businesses. Currently, for a company to be listed in the S&P 500 it must have a market capitalization of at least $4 billion. That leaves out 99.9 percent of all companies in the United States, including the jobs engine: Small businesses. Small businesses create 64% of all new jobs, employ tens of millions of people and are the places from which large successful businesses emerge.

Basically Wall Street is heading for the stars while Main Street limps along. This is no accident. Two pieces of legislation clearly demonstrate the problem. The first is Obamacare. In 2009 it was passed despite the fact that a majority of Americans never favored it. How? Collaboration between the Democrat party and big business advocacy. Companies as diverse as General Motors, Wal-Mart and Pfizer pushed for the passage of the sainted Obamacare because they understood that the legislation would create a significant benefits for them. In many cases big companies like Wal-Mart understood that they could unload some of their costs on the public, or more importantly, they could saddle small business competitors with healthcare costs they could not afford. As competition dried up, up would go their revenue and profits…

Just as expected, Obamacare has resulted in small businesses hiring fewer workers or hiring more employees on a part time basis to keep below Obamacare’s 50 employee threshold. The most recent jobs report shows this shift to part time workers. The April report showed that the average workweek per employee in the US dropped by .2 hours. That is the equivalent of firing over 700,000 people. That larger number of workers working fewer hours means that small businesses are saddled with greater accounting, training and management costs while simply seeking to maintain their current productivity levels.

The second piece of legislation that showcases the big business / government cabal is the Internet Sales Tax bill, euphemistically called “The Marketplace Fairness Act”. The legislation would force online retailers to collect sales taxes for every taxing authority in the country whether they have a presence there or not. Simply put, state and local governments cannot live within their means and seek to squeeze every dollar they can from largely defenseless small businesses. Big businesses meanwhile seek to kneecap potential competitors by foisting upon them regulatory compliance costs they simply can’t afford. A small business doing $1.5 million a year selling backpacks or tee shirts will typically not be able to keep up with the 9600 different taxing authorities that exist around the country. Although the legislation requires each state provide one clearinghouse for tax collection within its domain, it will still leave small businesses open to legal jeopardy from each of the 9600 local taxing authorities.

Here’s just one example. Have you ever looked at your grocery store receipt and noticed some items have a T beside them while others don’t? The ones with the T next to them are taxable and the others are exempt. Some jurisdictions tax staples like milk and eggs while others don’t – and each is constantly shifting the rules. Some communities exempt some forms of chocolate while exempting others. How is a small business selling gift cheese from Wisconsin supposed to understand if it’s fine cheeses count as untaxed staples or taxed luxuries in 9600 different jurisdictions with 9600 different sets of rules? If complying with that law sounds daunting, it is, and that is exactly why many big businesses, including Amazon.com are supporting it: Less competition = more profits.

At the end of the day this stock market bonanza should not be seen as a sign of a robust economic revival. Unfortunately it’s more like a pig wearing lipstick. It’s the result of governments who refuse to live within their means conspiring with big businesses who seek to eliminate competition. The hapless saps caught in the middle are the American worker, who has fewer employment opportunities, and the nascent entrepreneur who finds that maintaining or starting a business is simply becoming unsustainable or impossible. We expect that from government, but it’s a sad day in America when two shining beacons of free market success like Wal-Mart and Amazon embrace the antithesis of free markets – regulation – in order to undermine the opportunity for other entrepreneurs to enjoy that same success they achieved.