Separating Good Bailouts From Bad Bailouts

The pandemic shutdown is about to enter its third month, and economic repercussions have just begun. Too much has been shut down for too long. In California, the initial reopen is not going to include huge business sectors – theaters, concerts, conventions, sports, travel, hotels – and other sectors such as restaurants and retail establishments are going to be at half-capacity. Business revenue and profits have crashed, with proportional hits to tax receipts. The cascading economic damage is likely to far outlast the spread of the virus.

The federal response so far has been the COVID-19 CARES Act Relief Bill, which allocates $1.8 trillion in emergency spending to stimulate the shut down economy. This dwarfs the $831 stimulus package passed in 2009, and is equal to more than half of 2019 federal revenue which was $3.5 trillion. In terms of spending, it represents a 40 percent increase to the 2019 federal spending of $4.4 trillion. Using these numbers, a reasonable estimate of the federal deficit in 2020 would be $2.7 trillion, before any additional relief bills are passed, which is likely.

California’s economy, huge and diverse, may confound its critics and weather the coming deep recession better than other states. The tech sector benefits by providing enabling technologies for distance learning and telecommuting, and it will also benefit from likely new infusions of cash into defense R&D as tensions with China deepen. California’s agricultural sector may slow down but it won’t crash, because people have to eat. And […] Read More

The Opportunity of the Emergency

How the global COVID-19 pandemic began is incidental to how it has instantly transformed the entire political landscape of the planet. And whether this pandemic was planned or accidental in no way changes the manner in which it suits the agenda of two mega-adversaries. One searing example from history offers dramatic evidence of how these sorts of arrangements work.

In the summer of 1944, Nazi Germany was down but not out. In Eastern Europe, Russian forces were massed on the banks of the Vistula, prepared to liberate Warsaw. In anticipation of promised aid from the Russians, the Polish resistance struck hard against the German occupation forces. But the Russians stayed on the other side of the river as the battle raged. For over two months they went toe-to-toe with the Germans, as the Russians did nothing to prevent the Germans from reinforcing their troops and liquidating the rebels. Only once the Polish resistance was crushed did the Germans withdraw, and the Russians moved in.

In this case, the mega-adversaries were German Nazis, fighting a war of mutual annihilation against Russian communists. But neither of them were willing to allow a democratic government to take control of post-war Poland.

The mega-adversaries today have different labels and employ different tactics, but the same basic dynamic applies. On one side there are ruling elites, and on the other side there are populist insurgencies. The elites rule a pair of superpowers, the USA and its Western allies versus China, that are locked in […] Read More