Economic Armageddon: The COVID Collapsed Economy

Rebuilding the Economy Will Require Joe Biden to Think Very Differently Than 2009
James K. Galbraith, September 1 2020 [The Intercept]

Galbraith succinctly describes how the epidemic has fundamentally altered economic reality — and why a national economy based on consumer spending will not, can not, recover.

THE COVID-19 PANDEMIC has changed our economy for the long term… The decision, by millions of anxious Americans each acting in their own best interest — to eat and play at home, to save more and spend less, to protect their health and to hang on for as long as possible — creates an economic problem that cannot be palliated by money alone. This is not the postwar America of competitive consumerism and pent-up demand on which the magic of Maynard Keynes worked so well….

The outlines of that something else are only just coming into view. Some of the basic elements are the following:
 

1. The sectors producing advanced capital goods for world markets, energy for domestic use, weapons, and the construction sector must be mobilized, as if in a wartime effort, to a new set of purposes. These should aim at sustainable energy, mitigation of climate change, public health, and the reconstruction of life itself around safe and sustainable patterns of activity. Renewed infrastructure of all types, new transportation systems, new amenities, natural conservation, and cultural investments are all parts of this challenge. The Green New Deal is now doubly necessary, not only to transform the energy basis of the economy, but also to ensure that there is an economy to be transformed.
 

2. For the many millions who cannot find jobs in the private sector, there must be a job guarantee for all seeking to work, at a modest living wage, in the public sector. The pandemic has cut not only services jobs, but also office jobs and construction, so that nearly 40 million American workers have been displaced. Many will not be called back even if their employers survive. Yet there is work enough for everyone: in teaching, in caring, in public health, in parks and libraries, in art and culture, in maintaining our communities, and in providing food and housing and other basic services to those in need, and if the jobs are made available, people will sign up for them by the millions.
 

3. Service providers must be restructured so they can be sustained at reduced volumes. They must get loans on easy terms to reconfigure their physical layout to protect both customers and workers. But they also need assistance in meeting their costs. Cooperative private-public ownership and partial municipalization of service firms, with local government getting support from the federal government, is one promising path. In Germany, small businesses got a share of their costs covered by their localities, and so can survive, whereas in the U.S. they are failing.
 

4. Manufacturing capacity sufficient to meet the basic requirements of public health and sustenance must be rebuilt on domestic soil, so as to be immune from the disruptions to trade associated with the pandemic or other threats to global supply chains. We cannot be caught again, as we were this spring and summer, unable to provide basic protective equipment to health care workers and indeed to the whole population. For this purpose, a new structure of financing will be required, a Health Finance Corporation along the lines of the Reconstruction Finance Corporation that operated from 1932 to 1956.
 

5. Public health must be reconstructed, accessible to all at no out-of-pocket cost. This call goes beyond the conventional discussion of public options and single-payer schemes to recognize that Covid-19 has created a financial crisis for America’s health care sector. Like everything else in America, health care is a business. And as the economy has fallen, reducing accidents and other infectious diseases, and as elective procedures have been postponed, providers are seeing fewer people, so that — like every other form of business — many hospitals and clinics cannot cover their costs. The solution is to make the health care sector cooperative, to assure that appropriate services are available to all. Indeed Spain and Ireland nationalized all health care services in the pandemic….

7. Ultimately, since these debts are also the assets of those who lent the money, the reality is that a successful economy after Covid-19 requires a redistribution of financial wealth. If the pandemic is to be defeated, and if a viable social order is to emerge in the aftermath, the balance sheets of American households will have to be rewritten to carry a burden of debt that is manageable, given less market activity and lower market incomes. This means that the assets of the wealthy, as well as the debts of the overburdened, will have to be written down. There must be a general redistribution from creditors to debtors, reversing the trend of the past 40 years. The redistribution, by the way, will occur. It can be done through a decade of depression, as in the 1930s, or two decades of inflation, as in the 1960s, or it can be done by sensible restructuring and debt relief, as was done in the immediate aftermath of World War II.
 

8. Finally, with a widespread write-down of debts and assets, the financial sector must be restructured, since that sector holds many of the assets that will lose value. The ultimate financial consequences of this pandemic are not yet clear, and where the weak points of the financial system will emerge is still somewhat obscure. But it is certain that those weak points exist and when they are exposed, they will prove profound. The big banks that cannot make it can be taken over and run as public utilities….

From Ian Welsh's blog:

It is therefore a delusion to think that markets will restore us to well-being on their own. It is a delusion to think that the mere injection of money, however great and generous and however needed for the short run, will bring back the happy mix of jobs and incomes we’ve just lost. It is a delusion to think that the easy methods of the postwar economists, whose ideas have dominated liberal thought and response to economic crises for 70 years now, will work in the face of the Covid-19 challenge. The path forward requires planning and action on a far larger scale. It requires skills, imagination, local knowledge, commitment, and mobilization that resemble — but actually surpass — those brought to bear in the New Deal.

Unless the Biden Team changes its personnel and /or thinking soon, Biden will be unable to reverse the accelerating collapse of the USA economy. Biden says he recognizes the pandemic requires a response as transformative as Franklin Roosevelt’s response to the First Great Depression, but NOTHING coming out of Biden’s campaign — and certainly not his campaign’s staffing with aged members of the Obama Alumnus Club and their tired, old ideas — yet indicates that transformative thinking is actually taking place