COVID-19 recession exposes the cracks
We looked the other way when business was good
America’s economic tide has gone out, traditionally an occasion when, as Warren Buffett is fond of saying, we find out who’s been swimming au naturel.
Buffett was referring to businesses that took on too much debt or that banked on a continuation of boom times to fudge a financial vulnerability, legal or otherwise. When the Great Recession cratered stock prices in 2008, Bernard Madoff could no longer find enough Peters to pay-off his Pauls. A speculative ethos and lax regulation during the dotcom bubble years helped to conceal Enron’s funny money.
We shouldn’t be surprised if the COVID-19 recession exposes existing frauds, and creates fertile ground for new ones.
Of course, the unprecedented nature of the current downturn also threatens the solvency of millions of prudently managed local businesses that have played fair. You can only feel the deepest sympathy for those entrepreneurs whose life dreams are wrapped up in work that now faces an existential threat.
But the pandemic recession also exposed cracks in the nation’s economic foundation that were ignored as long as growth was decent and jobs abundant.
Two economies
There is something disconcerting about an equity market trading just 10% below its all-time high amid a stilluncontained pandemic and the deepest economic slump since the 1930s. Yes, markets are forward-looking and, as we’re often told, stock prices don’t necessarily reflect the real economy.
Still, if the profits of publicly traded companies absorb only a modest hit during a downturn of historic proportions, what does that say about the balance between capital and labor? With 20 million Americans out of work and thousands of small businesses at risk, the chasm between Wall Street and Main Street seems wider than ever.
The injustices and inequities run deep. Recently, two Federal Reserve Board presidents called systemic racism an impediment to economic growth. Nationwide, workers deemed essential make about 18% less than their nonessential counterparts, according to business.org.
Doublethink
Longer-term, the most dangerous vulnerability the COVID recession exposed might be America’s troubled relationship with facts — and with the experts who dare speak them.
As the science writer Frank Swain noted in a recent tweet: “Study 4 years for degree; Study 8 more for PhD; Join lab, start working; Spend years studying problem; Form hypothesis, gather evidence; Test hypothesis, form conclusions; Report findings, clear peer review; Findings published, reported in press. Guy on internet: ‘BS.’”
A disregard for informed opinion likely contributed to the U.S. government’s delayed recognition of the scope of the COVID-19 dangers. According to a study by Columbia University researchers, if social distancing measures had been implemented two weeks earlier, about 54,000 lives would have been saved and almost one million infections prevented. An earlier start also would have spared many jobs and shortened the economy’s recovery time.
According to data from the World Health Organization and Johns Hopkins University published in The New York Times, new COVID-19 infections per 100,000 population in large countries over the seven-day period through May 28 were highest in Brazil, the United States, Russia and Britain — all nations with populist male leaders. Tellingly perhaps, two countries widely praised for their mitigation strategies — Germany and New Zealand — are led by women.
New Zealand’s prime minister, Jacinda Ardern, often spoke of her country as a single unified “team” and delivered a consistently inspiring message: “Be strong, be kind.” Empathy, it seems, makes for good policy.
In coming years, a fact-optional approach to addressing climate change could prove disastrous, as might ignoring the ethical and health consequences of humankind’s exploitative relationship with nonhuman animals.
Though 2020 has rightly been likened to 1968, the dystopian world of George Orwell’s “1984” is a more apt comparison.
Orwell wrote of an authoritarian government’s daily “Two Minutes Hate,” its perversely named Ministry of Truth (with its very own fiction department), of “Victory Coffee,” of the revised “newspeak” dictionary that deleted verbs from the lexicon, of the “memory hole” into which facts were discarded, and of “doublethink, the mutability of the past and the denial of objective reality.”
American life is at low tide. The moral compromises required to deny truth become harder to justify as objective reality is laid bare. Disturbing or not, it’s best we stopped averting our eyes.
Note: The education-related numbers contained in the Frank Swain tweet have been “Americanized,” per his permission. (Swain writes for a mostly European audience.)
Tom Saler is an author and freelance journalist in Madison. He can be reached at tomsaler.com