The Economic Consequences of the Pandemic

That’s the title of a book I’ve agreed to write for Yale University Press (their editorial director) Seth Ditchik commissioned my previous two books, Zombie Economics and Economics in Two Lessons when he was at Princeton UP.

When we first discussed the book, I took the view that most of the writing would have to be done after November, since the outcome of the US presidential election would be crucial to developments in the US and globally. I’m now working on the assumptions that
(a) Biden will be the next president
(b) he will have a workable majority in Congress.
(c) mainstream Democrats recognise the need for radical change, and Biden will align with the mainstream position as he always has done

The first of these assumptions was problematic until recently, but seems safe enough to work on now. The third, I’ll leave for comments.
That leaves the question of a workable majority. Roughly speaking, I mean that the Dems have enough votes in the Senate to abolish or restrict the filibuster and pass the kind of program I’ll be advocating (allowing for a couple of defections, that would be 52 or more). Winning that many seats is still a stretch on current polling, but not out of reach.

The immediate question is that of how to get rid of the filibuster. Doing so pre-emptively would be problematic in all sorts of ways. Biden needs to start with the 2008 Obama playbook of reaching out across the aisle in the spirit of bipartisanship. But unlike in Obama’s case, once the proffered hand (or perhaps elbow bump) of friendship is slapped down, as it surely will be, Biden needs to point to his electoral mandate and whip up the necessary votes. Obama realised this, to some extent, in his second term, but by then he had a hostile Congress.

More concretely, I’d suggest starting with health care. Biden should call on the Repubs to drop their endless campaign against Obamacare, and work together on fixing the health systme. He should start with a proposal to expand Medicaid to all states, with incentives redesigned to get around (at least arguably) the Supreme Court’s 2012 ruling that States had to have a “genuine choice”. Biden should offer the Repubs a chance to have a say in the framing of the legislation with the aim of bringing the country together.

Politically, this ought to be a no-brainer for the Repubs. The fact that Oklahoma voters just passed a referendum to expand Medicaid over the opposition of the governor, ought to make it clear that this is a fight they can’t win. But given that they are still fighting to abolish Obamacare, it seems unlikely that they will see this.

Even if Congress passes the legislation, it could still be invalidated by the Supreme Court. But, unlike 2012, this would be a fight that Roberts couldn’t win, since Congress could keep tweaking the law and sending it up again. Repeated rulings in favor of the Republicans on an issue where they have almost no public support would provide the ideal case for expanding the Court so as to nullify the Gorsuch and Kavanagh appointments.

This isn’t the only test case Biden could use. But it seems like an obvious place to start.

12 thoughts on “The Economic Consequences of the Pandemic

  1. That Trump loses is a big assumption. Very few presidents only get one term.

    The other reality is that Americans have a high degree of tolerance for carnage (see gun violence). It also seems republicans are happy to go out and expose themselves to viral exposure – that may affect voter turnout. Indeed, core democrat constituencies are hardest hit by the virus, they may well stay home come time to head to the polls.

    There are four months between now and election day. The UK has recently reported you are four times less likely to die via covid now than a few months ago. This is probably partly due to younger people being hospitalised on average, but also improved treatments and standard of care.

  2. I look forward to your book. Joshua Gans is writing on the same topic for MIT Press but I expect the two of you will bring different perspectives.

  3. Two presidents have got single terms since 1976. Of you count Ford, despite his never being acted, that would be three. Bush II went very close in 2004. The last one-term president before 1980 was Hoover who lost to FDR in circumstances remarkably similar to now.

    Carter was the last gasp of the FDR coalition established in 1932. Bush I showed that the Reagan coalition established in 1980 was not nearly s stable as the FDR coalition. The Reagan Democrats, mainly blue-collar workers, were just not very reliable Republican voters, They bolted the coalition in 1992 and again in 2008.

    Trump may well be the last gasp of the Reagan coalition. It is just possible Trump will attempt to postpone the election or remain in power after losing. If that happens the Republican Party will go the way of the Federalist Party in 1800 — they will cease to exist.

  4. I agree that saying that Trump will lose in November 2020 is a huge assumption to make. These days elections are so volatile and in the USA there are simply way too many variables to make any predictions. Contemplating removal of the filibuster is very much putting the horse before the cart (apologies for using that trope). I suspect that, regardless of what happens to the economy and with the pandemic, polls will tighten during the next 4 months. Don’t forget that due to the vagaries of the electoral college, Biden needs millions more votes than Trump and he needs those votes to fall in the right places. He also needs to knit together a complex coalition consisting of working class voters, people of colour, liberals, etc. People of colour and liberals are rightly sceptical of Biden and he can’t depend on their turnout (Trump’s appallingness wasn’t enough to get them out at the last election, but this may have changed now that the full extent of Trump’s appallingness has been revealed). Trump’s choice for VP is going to be very important, especially given his age. Will he go with Kamala Harris or Elizabeth Warren or somebody different altogether (Hillary’s choice of VP was as underwhelming as her own flawed candidacy). Don’t forget that voter suppression will also play a huge role in the election, as well as foreign interference. If the USA were the Stawell Gift, Biden is starting with the maximum handicap.

  5. Very few presidents only get one term.

    Do you think ‘more than a quarter’ is ‘very few’?

    (I remember distinctly that the first time I was told that Presidents running for re-election are normally successful was in 1980. I am more cautious in my estimates now.)

    Don’t forget that due to the vagaries of the electoral college, Biden needs millions more votes than Trump and he needs those votes to fall in the right places.

    It’s true that the electoral college means that in order to win a candidate needs votes in the right places, but this is true for both Biden and Trump.

    If the USA were the Stawell Gift, Biden is starting with the maximum handicap.

    I don’t know enough about the Stawell Gift to know whether this is supposed to mean that Biden is likely to win or unlikely to win.

    The polls are an unreliable indicator of election outcomes (and the further away the election is the less reliable they are), but all other indicators are even more unreliable: therefore, the only possible estimate now is that either Biden or Trump could win, but at the moment Biden’s chances are better than Trump’s.

  6. Trump’s choice for VP is going to be very important, especially given his age. Will he go with Kamala Harris or Elizabeth Warren or somebody different altogether

    I predict that Trump will stick with Mike Pence

  7. This reads like “The Political Consequences of the Pandemic.” Where is the economics?

    I would expect you to discuss:
    * increase in national debt (even if unimportant)
    * recession/depression
    * inequality
    * changes to international trade
    and so much more!

    So why are you letting this thread be hijacked by politics, at least here and at CT?

  8. The outline strikes me as rather US-centric, though that’s the main market for English language books and, well, everybody has to make a buck, right? Who cares about the economic consequences of COVID-19 on Indian migrant workers, or Greek hotel cleaners, etc.

  9. Politics cannot be ignored. Economics is conditioned by politics. Economics is not like physics. The fundamental physical processes of the cosmos are not altered by human politics. The “fundamental” socioeconomic processes of economics are instigated and altered by human politics. Physics is descriptive. Conventional economics is prescriptive. Physics discovers or uncovers fundamental, dependable universal laws. Political economy invents legal laws, regulations and so on; meaning rules for agents as rules for humans, firms, and institutions.

    The above means that the financial economy (the arena of operations of the numéraire) is not a fundamental law-bound system. There are no laws of economics in the sense there are laws of physics. The arena of operations of the numéraire is a formal system, not a real system. Hence it is an axiomatic system (in the sense of being a system based on humanly invented axioms).

    The ontological and analytical problems of economics (more properly of political economy) commence with the fact that the financial economy is formal system based on axioms and the real economy is a real system embedded in a larger real system (the biosphere) where fundamental laws apply. The unresolved problem of economics, both theoretically and in praxis, is the attempt to marry formal prescriptive systems with real world objective systems. More precisely the problem lies in the attempt to use quantities of a social-fictive dimension (money) to measure and equate quantities of the real plus (supposed) quantities of other social-fictive dimensions like “utility”.

    Science does not have this problem. The standard approach, in science, is that mathematics is used with real dimensions (as per the SI table) to describe real world equivalences and dynamic processes via mathematical and dimensional analysis. Dimensions (length, time, mass, moles of atoms etc.) must equate on both sides of the equation. In the real economy, these objective laws are obeyed. You can be sure that a successful industrial chemist in a paint factory or an oil refinery is using scientific dimensional analysis.

    Conventional economics forgoes the consistency of real world dimensional analysis by introducing the numéraire (the money denomination). For want of a better definition, the numéraire is a social-fictive dimension, not a real dimension. It is a social construct. It arises in the attempt to equate the “inequateable” or the incommensurable. Physically, oranges are not equatable, not commensurable, with life insurance. Yet via the numéraire oranges and life insurance become (formally) equatable.

    While money and markets facilitate trades, they do little to nothing else that is claimed for them and their operations. They do not for example guarantee the most efficient use of resources, even though this claim is often made. Nor do they guarantee, or even approximately deliver, just rewards (whatever those are claimed to be) or even in some cases survivable rewards. “Just rewards” is another fallacious (ideological) claim made about the results of money and market operations.

    What am I saying? At one level I am saying that the “political” in “political economy” is much more important the “economy”. In the socioeconomic “dimension”, politics determines the economy you can and will get within natural world limits, as extended by technologies. In the real dimensions, in the real world, the biosphere (physics, chemistry and biology) determines the limits of any particular economy you can get. Technology can stretch these limits but not infinitely and we must be aware of unforeseen consequences; of the complexities of sustainability or lack thereof, of overshoot, “snap-back” and even collapse.

  10. I have been wondering what is stopping countries like us doing a proper hard lockdown for long enough to effectively eradicate the virus. I think it is culturally and physically possible ,but the suffering of the vulnerable is used as evidence that it is not economically possible .Is the legal imperative of maintaining timely debt/rent repayments the biggest reason it is not possible economically ? To me it looks like the capitalist class wont agree to pause or lower the rate of wealth extraction for long enough and our system is not designed to support the helpless if anything goes wrong (again because of that excessive rate of extraction). Henceforth the possibility of pauses and of bigger disasters should be written into contracts and built into expectations, we can run on a skeleton staff of essential workers. It shouldnt be too hard to hibernate for a short time ,this isnt WW3. I know there are people in genuine distress through no fault of their own ,but there seem to be alot of simply frustrated whingers too.

  11. My assumption about the pandemic is that it has indeed ended things for Trump.

    But not the end of Trumpism. Even if Trump loses bigly, some things that Trump has tweeted will remain popular. The USA-China spat will continue, probably also USA versus Iran and USA versus North Korea. USA will continue to support Israel’s expansion into West Bank Palestine with no end to Middle East conflicts. USA is not out of Afghanistan yet. Wasteful military spending will continue. No relief is in sight for refugees.

    Perhaps the pandemic has something to do with hurrying things up, but the US is always looking for enemies and it was the Republicans who were supposed to be keen on free trade. So, expect more trade wars, patent violation disputes and sanctions. Maybe a Democratic Congress, Senate and President will try to patch things up with Canada, Mexico, Brazil, Europe, UK, and South Korea, but I assume that a lot of damage has been done and trade (and military relationships) will never be quite the same.

    Neo-liberal inspired austerity (tea parties, stinginess and mean-ness) in providing for unemployment relief, public health and other social programs seems comatose everywhere. The pandemic has something to do with helping to end this. One can hope that a lefty swing in the USA will inspire similar moves in UK, Australia, Europe, Brazil, Turkey and elsewhere, and that this will lead to a new Keynesian-style New Deal movement throughout the world. But this is by no means a done deal with the un-doing of Trump.

    Paying for deficits (by printing money) is not a problem at the moment. (The pandemic didn’t cause this, there hasn’t been a problem for some time.). But there will be a day of reckoning. Expect inflation to take off eventually, maybe by 2222 ! , and then interest rates must rise. Don’t expect governments to figure out how to balance budgets over the cycle.

    Long before the pandemic, Australia’s (and other countries’) tax systems have been a mess and recent governments have made it worse. Flatter income taxes have taken away an automatic stabiliser. End of Trumpo, Smoko, Johnno, Macro, won’t end the problems.

    The pandemic and Trump and Brexit have distracted attention away from the environment. Don’t expect the Democrats to ride to the rescue. Australian major parties totally clueless about what to do. Economic forces (ever cheaper solar panels and batteries) may save us where politicians will not.

    The pandemic is a rotten time to pick a fight with China. Australia should expect some rough treatment from China and very little help from USA under either party (except encouragement to worsen relations with China even more). And no help at all from elsewhere. No amount of military spending that Australia can feasibly undertake will make the slightest bit of difference. Expect Australian minerals, agricultural, tourist and education sectors to take a long-term hit. Good luck with the moral outrage.

  12. “… the US is always looking for enemies.”

    Agreed, and now we can see that China too is looking for enemies. The marked increase in the belligerence and bellicosity of China is very notable. It has been emboldened by the COVID-19 crisis and the serious trouble the West finds itself in through its own faults.

    There are several reasons why the elites of superpowers look for enemies:

    (a) They want to take stuff by conquest (land, resources, living space, tactical and strategic space).
    (b) They want to satisfy and harness nationalism at home in order to consolidate power.
    (c) They have business interests in the weapons trade, military production and conflict in general.

    The clear result is that all superpowers behave in much the same way despite their ideological differences, real or supposed. They are revealed as belligerent and expansionist sooner or later. China for example has ceased biding its time. The guarantee that all superpowers will behave badly is the attitude of “offensive realism” which underpins all their external policies.

    “The theory is grounded on five central assumptions… These are:

    1. Great powers are the main actors in world politics and the international system is anarchical
    2. All states possess some offensive military capability
    3. States can never be certain of the intentions of other states
    4. States have survival as their primary goal
    5. States are rational actors, capable of coming up with sound strategies that maximize their prospects for survival.” – Wikipedia.

    “In international relations theory, anarchy is the idea that the world lacks any supreme authority or sovereign. In an anarchic state, there is no hierarchically superior, coercive power that can resolve disputes, enforce law, or order the system of international politics. In international relations, anarchy is widely accepted as the starting point for international relations theory.” – Wikipedia.

    I would put point 5 in a weak form rather than a strong form.

    “States are semi-rational actors, sometimes capable of coming up with sound strategies that maximize their prospects for survival.”

    In summary, this equates to a system of mutual suspicion which limits trust and cooperation. Neither party to a relationship of mutual suspicion is solely responsible for the situation. They each act on the other to generate distrustful and offensive characteristics in the other. Any theory that the situation is all the USA’s fault or all China’s fault is clearly a partisan ideological theory. Both parties bear substantial blame. Of course, moral blame in a sense means nothing other than being of propaganda value. Moral blame changes nothing in Machtpolitik (power politics) itself. Power (demographic, cultural, economic and military) is the sole currency of Machtpolitik.

    What gets forgotten in human struggles is that “Mother Nature” is, in a sense, the ultimate practitioner of Machtpolitik. The might of nature will sooner or alter annul our petty and puny human struggles. COVID-19 is mightier than neoliberal capitalism. That is plain. It is not apparently mightier than the Chinese system, at least not to date. But COVID-19 is simply nature’s first shot across our bows. There is a rolling barrage of natural catastrophes about to hit the West and China amidships. Will this teach us we need to make a political peace with each other and then a natural peace with the biosphere? Or will it sink us? Time will tell.

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