Posted by: Doug Henwood | March 20, 2020

A few ambitious points on fighting the crisis

We are facing two crises at once, health and economic, that are related in very important ways. The covid-19 epidemic has done major damage around the world, but it’s highlighting some serious structural problems with the US social model that better-run countries are not so afflicted by. We are plagued by a deep economic polarization complicated by minimal social protections; severely diminished state capacity, with eroded institutional structures and extremely debased quality of personnel at the highest levels; years of underinvestment in basic infrastructure, both broadly and in health care particularly; and decades of neoliberal policies that have shaped a common sense based on competitive individualism, with little sense of social solidarity. That’s the longer-term context in which we face the acute crisis of this disease—which is almost certainly a portent of what we’ll face as the climate crisis worsens.

To recover from this, we need to do many things, both short- and long-term. To deal with the health crisis, we obviously need testing kits and a rapid mobilization to build hospitals, ICUs, and ventilators. It will take state action to do that properly; The Market will never do it on its own. It may not be socialism, but if we do it well, it will legitimate a public sector badly in need of legitimation. If China can build hospitals in ten days, there’s no reason we can’t. It’s nice Trump is deploying a couple of navy hospital ships but that’s barely a start.

But I’ll leave more detailed plans for the health emergency to people who know the field. My expertise is in politics, economics, and finance, and I want to make several points about that.

The financial crisis is real and potentially devastating. There are some people on the left who doubt the wisdom of saving the banking system, but to let it collapse would be to repeat the mistakes of 1929–1932, when a cascade of thousands of bank failures magnified a downturn into a Great Depression. Actions like the Federal Reserve’s repos and securities purchases are a bare minimum to prevent a replay of the slide into depression 90 years ago. It’s important to point out that all these trillions are not taxpayer money—it’s money created out of thin air by the Fed. That’s not a financing strategy for all time—it can’t fund Medicare for All or a Green New Deal. That will take real resources. But it’s essential in this moment of crisis.

But I share the frustration with how the Fed is spending trillions in an effort to restore the status quo before this latest crisis. That’s what happened in the 2008–2009 crisis: extraordinary measures were undertaken, but that left the long-term causes of that crisis, like income polarization and unregulated financial buccaneering, unaddressed. Stronger measures are called for this time, for example. Here are some ideas.

• Nationalize several of the largest banks—and unlike the nationalizations in Sweden in the 1990s and the UK a decade ago, they should not be undertaken with the idea of returning them to private ownership as quickly as possible, after the government eats the losses. They should be run on entirely different principles. Shareholders will whine, but without a state-led rescue, the value of their stock would fall close to 0 anyway.

• At the same time, severely rein in with an eye to abolishing, the shadow banking sector of private equity (PE) and hedge funds. PE has saddled companies with crippling levels of debt, which enrich their investors but put them at great risk of failure even in relatively good times. (A subset of PE, venture capital, can play a more constructive economic role, but it’s quite small: there was less than $10 billion in early-stage financing from the sector last year.) And hedge funds do little but destabilize markets. The goal should be to turn finance into something like a utility.

• There’s no reason the nationalized banks couldn’t be run to finance, for example, the Green New Deal (GND). Some of the GND will have to be financed with traditional tax- and bond-financed public spending, but there’s no reason these socialized banks couldn’t participate.

• Along with the nationalized banks, we should create something on the model of the Reconstruction Finance Corporation, to finance the GND. It would be a publicly capitalized bank that would evaluate and fund projects like clean energy generation and new models of food production.

• This would be a propitious time to nationalize the oil and gas sector, undertaken with the idea of putting them out of business. We must move as quickly as possible to stop the use of fossil fuels, and as long as these entities exist, the political and economic obstacles to that necessity are nearly impossible to overcome. Because the price of oil has fallen so dramatically, the value of the major carbon producers has cratered. The five biggest US-based oil companies (Exxon Mobil, Chevron, ConocoPhillips, Phillips 66, and Valero) have a combined market capitalization of under $350 billion, which is equal to about an eighth of JPMorgan Chase’s total assets and less than 2% of GDP. Again, shareholders will whine, but as the financial world wakes up to the inevitability of carbon’s obsolescence, the value of their investments will tend towards 0 anyway.

• Unlike earlier crises from the last few decades, this one is not centered in the financial sector. It’s in what Wall Street like to call the “real sector,” the world of production and labor most people live in. While finance will suffer serious losses in a sharp downturn, the goal of policy should be to prevent catastrophic failure. It will be unable to provide even the modest stimulus quantitative easing did during and just after the 2008 crisis. A real sector crisis requires a much more fiscally centered approach.

• The federal government must provide people with income support as they lose their jobs. It’s distressing that Republicans like Trump and Romney are talking about sending every American a check for $1,000 while House Speaker Nancy Pelosi shot down a similar suggestion from former Obama economic adviser Jason Furman days earlier. This is a bare minimum. Why not $2,000? Unemployment insurance must be expanded (and a lot, as I show here), as must Medicaid, to take care of people who are about to lose their employer-provided health insurance.

• We also need to invest in the physical and social infrastructure of this country. For decades, civilian public investment net of depreciation has hovered just above 0, meaning that we’re doing little better than replacing things as they decay. This economic statistic can easily be confirmed just by walking around anywhere in the US outside our richest neighborhoods. We need massive investment in public infrastructure on the model of the New Deal, both to fight the slump and to make this country habitable for the bottom 80–90% of the population. That infrastructure investment must not simply be more of the same. It needs to be part of a conversion of an economy based on exploitation of workers and nature into something humane and sustainable.

• We also need to get now-unemployed auto workers back to work but building vehicles that don’t threaten life on earth. A model to think about was the proposal to transform a plant in Ontario GM closed into something more earth- and worker-friendly.

• Longer term, never has the need for Medicare for All been so clear. And the reason for that isn’t only the need of freeing people from the anxiety of not being able to pay for essential care, but also because there is little in the way of planning for the distribution of health care resources beyond what The Market demands. A major part of the reason the US is so unprepared to handle the coronavirus crisis is that hospitals are built and outfitted according to where the money is, not where the needs are. Hospitals in rural areas are broke and closing, and recently a hospital in Philadelphia that served a largely poor clientele was closed because it stood on land that developers would prefer to turn into condos. The pharmaceutical industry, which has for decades been turning publicly funded basic research into private profit based on its own priorities and not human need, must be wrestled to the ground.

This is a terrifying moment, with sickness, death, and imminent destitution haunting all of us. Things could get very ugly. But it’s also an opportunity to emerge from this crisis a better country. The ideas I’ve listed here are fanciful under the current political order. But we have to think big to challenge that order. Over the last few decades, neoliberalism has encouraged a consciousness of self-reliance. We need to articulate a vision of solidarity and mutual care. Millions of lives depend on that.

Thanks to Jerry Epstein, Leo Panitch, Bob Pollin, and especially Sam Gindin for helpful comments on this little effort.


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