Tag Archive for: COVID 19 pandemic

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 while California’s real estate industry has been in a bubble for years, the state’s irresistible weather and scenery guarantee it will remain a favored destination, as will its population emerging from the pandemic relatively healthy compared to other major states.

California’s state and local governments, however, face unprecedented financial hardship. Only a light breeze was necessary to disrupt their finances, and what’s happening today is a hurricane. And even after the economic weather stabilizes, the state government’s financial house of cards will remain scattered.

Only two months ago, Governor Newsom proudly released his 2020-21 budget, calling for record spending of $222 billion and projecting a $5.6 billion surplus. That was then. On May 7, the California state Department of Finance projected that between now and the end of the 2020-21 fiscal year, i.e., over the period ending just over one year from now, instead of a $5.6 billion surplus, they expect a $54 billion deficit. What about a federal bailout?

Governor Newsom has joined other governors, mostly from states controlled by Democrats, in criticizing Senate Majority Leader Mitch McConnell, who stated “states dealing with budget issues resulting from the coronavirus pandemic should seek bankruptcy protections instead of receiving federal aid.” It’s going to be a tough negotiation.

If a Republican controlled U.S. Senate and a Republican occupying the White House cannot use this opportunity to demand reforms from financially mismanaged states controlled by Democrats, then they never will. The financial challenges facing California’s state government began well before the pandemic. And they weren’t limited to California’s state government, almost without exception, they also afflicted California’s local governments and agencies.

A revealing article published by CalMatters last month explains in lurid detail what’s coming next for California’s cities. From north to south, it’s a dismal portrait.

San Francisco’s controller “recently estimated the pandemic will push the city between $1.1 and $1.7 billion into the red over the next two years — wiping out the city’s $800 million in reserves.” The pandemic is expected have at least a $100 million impact on San Jose’s budget. Los Angeles expects tax revenues to drop by $600 million; San Diego, $250 million. It’s the same story everywhere, from Eureka to El Centro.

California’s Three Financial Policy Failures

When it comes to civic finance in California, however, it is the long history leading into this immediate crisis that should be the real story. For the last several decades, policy decisions made by California’s elected democrats have had a cumulative impact and delivered accumulating consequences in three broad areas:

First, they have over-regulated literally everything, from retail and restaurant operations to manufacturing and resource industries, to home construction, and this has driven up the cost-of-living. A high cost-of-living has driven out the middle class and much of the tax base, exiled to friendlier states in America. It has also affected the second big category of policy mistakes, which is out-of-control public sector compensation.

Instead of paying attention to the impact their policies were having on California’s cost-of-living, and doing something about that, California’s elected officials instead compensated their public employees with wage and benefit packages that were far in excess of private sector norms. This helped mitigate public employees from the consequences of the policies that were making California unlivable for the citizens they served.

It’s important to view California’s third big policy blunder in the context of the first two. If California were an inviting place to retire on a limited fixed income, higher pension benefits would not have been such a priority for government union negotiators. And if the high cost-of-living hadn’t fueled demands for higher wages, governments wouldn’t have had to trade higher pension benefits in exchange for less expenditures in the present for higher wages. As it is, pensions were eating California’s government budgets. Before the pandemic struck.

Good Bailouts vs Bad Bailouts

Writing for Forbes last month, author Kathryn Judge expressed a common and valid warning usually heard from libertarians and conservatives, that there is a “moral hazard” in government bailouts of huge corporations that get into financial trouble. She correctly cites the corporate borrowing binge of the past decade, the useless channeling of that debt into stock buybacks, and makes the logical conclusion that these corporations did this because they knew that if they ever needed to, they’d get another bailout.

This is true enough, but there is a hierarchy of moral hazards, and the highest one, topping even corporate bailouts, is government bailouts. Corporations that cannot compete in a market economy, even those that get bailouts, eventually get their comeuppance. Governments, on the other hand, especially state and local governments, are not held accountable by the market, they are monopolies. And in California, they are barely accountable to voters.

Governments in states like California are controlled by public employee unions, who collect and spend over $800 million per year in member dues, and use that financial power to campaign and lobby for politicians who will do their bidding.

In these times, no serious observer is denying that federal stimulus money is necessary. But a good bailout might look like this: First, send money to individual households. Next, send money to small businesses. After that, and with extreme caution, send money to large businesses. And finally, with strings attached, send money to state governments. And make those strings tight indeed.

For example, before any federal money gets into Gavin Newsom’s hands, demand he convene the state legislature, and pass a pension reform act that adjusts all pension benefits to PEPRA‘s terms (the Public Employees’ Pension Reform Act of 2013) for ALL state and local employees regardless of hire date, effective retroactively to January 1, 2020. Heck, maybe he can even do this via an emergency executive order. Do that one, simple thing, something everyone can understand, and something that would save hundreds of billions over the next few decades.

There’s much more that could be done. Moving back through the three policy blunders – lower public employee wages, along with lowering their pensions. Lower the cost-of-living through deregulation, so not only public employees can cope today, and thrive tomorrow, but everybody living in this still wonderful state.

This article originally appeared on the website California Globe.

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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 conflict that is gradually building in scope and intensity. And in both of these superpower spheres, populist insurgencies are themselves also building in scope and intensity.

The most obvious example of this is the ongoing momentum of Donald Trump’s populist movement in the United States, but throughout the West, there are other rising challenges to the elites. In France, the Yellow Vest Movement, united only by their opposition to globalization, had gripped that nation for over a year. In Germany, the new political party Alternativ fur Deutschland, committed to immigration reform, is now the second largest political party in that nation. In October 2019, Brexit was reaffirmed by voters in Great Britain in a stunning landside victory for the conservative party.

The list goes on; populist nationalism is on the rise in almost every nation in Europe. But in China, insurgencies pose equal challenges to the elites. The obvious example in China is their brutal repression of the Muslims living in the vast Xinjiang province to their northwest. The Chinese are also engaged in a decades-long project to repress the Tibetans, and less publicized but just as bad, they are erasing the indigenous culture of Inner Mongolia.

If that was all that China was doing, that would be quite enough, but China’s treatment of its own citizens has provoked insurgencies that have proven increasingly difficult to contain. For over a year, the Chinese were unable to stem the violent protests in Hong Kong. And across China, despite their brutal police state tactics, mass protests were escalating against the state’s blithe indifference to environmental protection. During the summer of 2019, one of the biggest protests rampaged across Wuhan, of all places, as tens of thousands opposed the proposed construction of a waste incinerator in that city.

There is no doubt that Western elites are on a collision course with China’s regime. But in the short run, they share a common interest: Suppressing populist uprisings, and making a few more bucks before a cold war (hopefully cold, not hot) descends again on the world.

In the effort to suppress populist uprisings, it is hard to imagine a better crisis than a pandemic. Travel, everywhere, is banned. Even small gatherings of individuals are prohibited. Elections everywhere, the U.S. presidential election in particular, are severely disrupted. Across America, Freedom of Information Act requests are stopped in their tracks, and background checks for firearm purchases are delayed.

And with the impact of the pandemic and the response to the pandemic dominating the news cycle – as it should – there is no room for any political agenda that challenges the status-quo.

How long will this last? Trump’s legendary mass rallies are now a thing of the past. Expect zero mass demonstrations from far-left activists at the Democratic convention; it’s unlikely they’ll even physically convene. Around the world, God given human rights are suspended. Was it necessary? For the most part, most would say yes. But for elites from the Beltway to Beijing, it’s also mighty convenient.

Follow the Money to See the Full Opportunity of the Emergency

If human rights are a casualty of the pandemic, everywhere, for central planners and multinational monopolists, they’re the opportunity of the century. At the global level, America’s central bank is set to pour something like six trillion dollars into the economy. That money will bail out banks and big corporations; it will also bail out small businesses and, in the form of actual direct payments, it will provide assistance to individual American households. But that’s not all.

In a process that calls to mind Gollum’s first, ill-fated journey south into Morder, hundreds of billions of these magically materialized dollars, if not literally trillions, will find their way into China. Because unless America’s roughly $400 billion dollar annual trade deficit with China disappears overnight, that’s where our currency ends up. And then what happens?

Here’s where the identity of interests between American elites and the Chinese regime becomes explicit. Because China has used the dollars earned via years of trade surplus with the U.S., which cumulatively now amounts(not plural) to over $5 trillion, to come over here and buy everything in sight. That not only includes whatever intellectual property they can’t just steal, but the hard assets of corporations, along with prime real estate which drives prices out of reach for ordinary Americans.

China not only buys up America’s tangible and intangible assets from American citizens who are only too happy to accept boatloads of cash, it induces companies to relocate to China. This mutually profitable enterprise allows wealthy American business owners to take advantage of a cowed workforce, enslaved by Western standards, to push out products at a fraction of what it costs in America to hire free workers. Worse yet, China is buying influence in America.

There’s a reason that the American press isn’t calling for sanctions or worse against China, when every time Vladmir Putin so much as sneezes, they have a conniption. It’s because with notable but rare exceptions, China has bought the American media, and Russia has not. It ought to shock American sensibilities that our media could be so crass, so for sale, but they are, and it isn’t just because the Chinese buy ads in American newspapers and air on American television networks. It’s because American companies that are doing business with China – at the expense of the American worker – are also buying ads in the American newspapers and air on American television networks. In other words, there are plenty of American companies whose interests align with China’s.

What’s happening next shouldn’t be hard to imagine. America will continue to log catastrophic deficits with China, and China will turn around and buy American assets at prices depressed by the recession. This will go on until China, and the American sellouts who cater to China, have wrung all profit out of this game.

China has been engaged in hybrid war with the United States for a very long time. They have bought or stolen our critical assets and bribed our elites. They have flooded the nation with fentanyl to wipe out hundreds of thousands of American lives. They have repeatedly bought diseases of increasing severity to our shores. As this latest economic cataclysm plays out, expect them to use their massive stockpiles of gold to attack America’s weakened currency. In that, they may not succeed, but they will further their ongoing goal of disrupting and dividing us.

Like the Nazis and the Communists in WW2, America’s elites and China’s elites are locked in a clash of civilizations. But it suits their common purpose today to displace the populist uprisings in their respective nations. In America, government at all levels will become more expansive and more authoritarian than ever before. From an accelerated transition to energy micromanagement (think Green New Deal) to mandated medicine (think mass vaccinations and immunization passports), things are never going to be the same again.

At least for now, we still may bellyache to our heart’s content, confined, Matrix-like, within our socially distant cocoons of cyberspace.

This article originally appeared on the website American Greatness.

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