COVID-19 exposes national fault lines
Let us be frank: New York was always a city held together by staples and duct tape; the markets crash too frequently to be fully trusted; the health care system appears to be legalized extortion; and our political system only is best suited for satire. How did we get to this point? To be fair, it was predicted on many occasions, and we can only blame ourselves.
Forty years of squeezing redundancies out of a health care system left it impotent to deal with any large-scale crisis. Forty years of extracting value from highly leveraged companies left them without financial reserves to deal with any demand shock. Forty years of efficient capital allocation gave us markets that implode once every 10 years, taking down retirement funds and sending people rushing for jobless claims. Forty years of preaching government bad, private sector good was sufficient; osmosis did its magic on our minds.
Indulge me for a moment and allow me to turn back the clock. Some 60 years ago, Milton Friedman, in a flippant exchange with an audience member, argued that hygiene checks for restaurants are an unnecessary burden; customers should decide a venue’s fate. The simplicity of his reasoning proved potent, and this nation was quickly seduced.
But you can’t be lucky all the time.
We were lucky on many occasions. In 1963, three of four safety mechanisms failed when a B-52 Stratofortress crashed with two hydrogen bombs in North Carolina. What if financial engineers had designed this detonator? The Golden Gate Bridge endured storms, crashes and earthquakes. How many redundancies does it take to deliver such longevity?
By comparison, how many market crashes did financial engineers produce since then? Even in our private lives, we learned that a rainy day fund has value, backup for child care is required to assure stability, insurance and wills are prudent precautions.
Yet business leaders, Democrats and Republicans alike, mainstream media, TV scholars, all the cheerleaders keep dancing for efficient markets, shareholder value, lean supply lines, outsourcing, the gig economy, never-ending growth and eternal wealth creation. Mysteriously, the promised wealth remains stubbornly elusive for half of the population, always just around the corner. Efficient markets crash with annoying frequency, taking companies, jobs and retirement plans with them.
The best health care system on the planet is now unable to cope. With COVID-19, the chickens are truly coming home to roost. The cracks in our efficient, optimized gig economy turn into an abyss, the costs and future liabilities mount astronomically and the corpses do pile up.
We have come full circle returning to the age where beliefs trump common sense. Where is our Galileo Galilei? This time around the dogma is a different one, but like Galileo, we do observe and we see that the high priests of efficient markets are wrong; they have become cynical. Today they sacrifice thousands for a dogma. Candidates who keep reciting this stale narrative of unregulated privatization, efficient markets and forever-growing prosperity, they all need to be laughed out of town, sent home packing, because we have seen!
In his Gettysburg Address, President Abraham Lincoln asked if a nation so conceived can long endure? Circumstances have changed, but the question is timeless and needs to be asked again. I believe the verdict is out. COVID-19 pulled back the curtain and the emperor has no clothes.
Matthias Pfau lives in Eldorado.