"With a sudden stop in economic activity, global output will contract in 2020."
That's the word from the managing director of the International Monetary Fund, Kristalina Georgieva. The IMF was created in 1945 and now has 189 member countries. The IMF's goal is to improve economic conditions and reduce poverty throughout the world by stabilizing the international monetary system.
But if everything stops, the result will be devastating to every part of society. That is happening as the corona virus attacks every segment of every society around the world. Rank is no exception. From the homeless in crowded cities to members of Congress to United Kingdom Prime Minister Boris Johnson and Prince Charles, heir to the British throne, people have tested positive for the virus.
In just eight weeks, the death toll in America from corona virus infections has gone over a thousand.
Meanwhile, cities and states in the U.S. have ordered people to stay home, except for essential needs or if they are essential workers. The same is true for entire nations in several parts of the world.
Result: The economy stops. Already, ten times as many Americans filed for unemployment benefits in a single week compared to the week before as businesses ranging from retail stores to theaters to entertainment arenas to corporations close up shop.
It's not hard to figure. If people stop going to work and stay home, they stop spending money (except for essentials). And if they stop spending money, the economy grinds to a halt.
Only this time, it didn't slowly grind to a halt. It was sudden stop.
Crash.
So the IMF announced that it is ready to use its $1 trillion financial capacity to support its member countries. But will that be enough? In America alone, Congress approved a $2 trillion rescue package for its citizens and companies.
If the worldwide shutdown lasts more than a couple of months, the crisis will make the Great Depression of the 1930s seem like a walk in the park as the economy takes an afternoon off.
When demand rises and supply does not, competition dictates that prices increase.
During the present crisis, states are competing with other states and the federal government for the short supply of medical equipment essential for the care and treatment of the soaring number of people infected by the corona virus.
Yet despite having signed a law enabling the federal government to take charge of the manufacturing and distribution of necessary medical gear, the president refuses to order it into action.
Result: The economic law of supply and demand takes effect and prices soar.
Meanwhile, people die.
Inevitable, say conservatives. The government cannot, should not and must not step in and control the marketplace. That's socialism, they argue, and socialism is evil. It goes against all the principles of the free market system that America was founded on.
Similar arguments were made in the 1930s, when President Franklin D. Roosevelt sponsored a wide range of government actions to rescue the nation from the Great Depression.
Programs such as unemployment insurance, Social Security retirement plans and others were widely condemned as "socialist," and government had no responsibility for the welfare of workers in a free market society.
In the long run, they argued, things will return to balance.
But as economist John Maynard Keynes said at the time, "In the long run we are all dead."
Today, the death rate in America is soaring as the corona virus pandemic continues to rage around the world.
More than 1,000 Americans have died of the disease in just eight weeks.
"You don't make the time line. The virus makes the time line," said Dr. Anthony Fauci, director of the National Institute of Allergy and Infection Diseases.
There is no long run for this viral pandemic.
In the short run, doctors and nurses are dying, even as they are forced to decide who gets what little care they are able to give.
That was then but this is now, the saying goes.
The same day one government agency reported solid economic growth as the year ended, another agency said more than 3 million people filed for unemployment benefits, 10 times more than in the previous week.
The economy may well have been on a good growth path, as indicated by a 2 percent quarterly growth rate in the total output of goods and services (GDP) in the fourth quarter of 2019. But then the corona virus hit America, and in about a month's time millions of Americans became sick and many hundreds died, including physicians and nurses who cared for them.
The economy was already nearing the end of its years-long growth path, so a correction was expected. The sudden attack of the virus pandemic hastened what economists saw as inevitable, but not catastrophic.
For those who follow the stock market and believe that its performance is a barometer of national economic success, the Dow Jones average of 30 industrial stocks crashed from its high of some 30,000 to below 19,000 in a matter of days. Then, after Congress worked on a $2 trillion aid package to rescue companies and workers, Wall Street investors responded by boosting the Dow back above 20,000 almost as quickly.
But will it hold, and is the Dow really a reliable barometer of the national economy, or mainly a reflection of investor confidence? Not to say greed.
A high administration official today blamed the news media for "sensationalizing" the corona virus story.
Consider: The first confirmed case was recorded in Seattle Jan. 29, and a few days later the president said there were only five cases nationally and the total would be down to zero "very soon." Today, exactly eight weeks later, there are 75,000 confirmed cases nationwide, and 1,100 deaths. America now ranks second worldwide in the number of corona virus fatalities, after surpassing Italy.
Separately, the president blamed news media reporting of the pandemic a conspiracy by journalists to prevent his re-election.
So have the news media "sensationalized" the story?
No need. This is by any measure a sensational story, and straight reporting alone sensationalizes the story. The rocketing curve of infections and deaths, which at this writing remains on a sharp upward slant, makes it sensational. And yes, slant is another word that is often used by politicians who don't like the coverage and attack news media.
Remember also that the term "media" is only the plural form of "medium," that which in the middle, and carries a message from one person or place to another.
Blaming the news media for straight reporting of information that is detrimental to a politician's statements, policies and strategies, loading the word "sensational" with negative connotations in order to shift guilt is a form of hypocrisy.
The president botched an excellent opportunity during a press conference on the corona virus status when NBC correspondent Peter Alexander asked, "What would you say to the American people who are scared?"
But instead of reassuring the public during the nationally televised session that there is no need to panic, but there is a need to work together toward dealing with the crisis, the president resorted to a personal attack:
"I would say you're a terrible reporter," the president said. And went downhill from there.
It was a fair and legitimate question, since many people are frightened because of the mounting infections and deaths. Clearly, however, the president has taken a personal dislike to this particular reporter, and took this opportunity to attack the journalist rather than answer the question. Perhaps because he does not have an answer, which in itself speaks volumes about his own abilities and knowledge.
Now that the president has called a national emergency because of the corona virus, and states have delayed primary elections for the same reason, is it likely that the president will also call off the national election scheduled for November?
And if he does, will he refuse to leave office when his term expires in January, on the premise that elections were not held as the Constitution specifies?
In turn, does this mean he has suspended the Constitution?
We live in interesting times.
The president acknowledged today that the American economy "may be heading for a recession."
This after the leading Wall Street index, the Dow Jones Industrial Average, dropped by nearly 3,000 points today, its largest point drop ever and the greatest daily percentage drop (12.93 percent) since October 1987, the start of the Great Recession.
The evidence of a coming recession is clear, and the strongest indicator is what economists know as an "inverted yield curve," where long-term bond interest rates are lower then short-term rates. This happens when investors pull their money out of stocks and buy long-term bonds instead because it's safer.
This indicator has predicted every recession for the past 85 years. The problem in the past, however, has been timing. There was no sure way of knowing the time lapse between a yield curve inversion and the start of an economic downturn. Now, however, it's clear that a recession is on the way, and part of the blame goes to the corona virus stalling so much activity in America and around the world.
Even so, at his news conference today, the president gave himself a score of 10 out of 10 for his handling of the crisis brought on by the virus outbreak, which he said could well last through the summer.
Economic cycles are like ocean tides -- they come and go. But unlike tides, economic cycles cannot be accurately predicted. There is on concept, however, which historically has a good record of anticipating a downturn, and that is the inverted yield curve.
It's an arcane concept to many, but is basic in Economics 101. While it may be a useful concept for policy makers to have in mind when advising government leaders, the variable time lapse can limit its usefulness.
Now, however, its usefulness is clear. The American economy is on the verge of a downturn. Another strong signal is that the Federal Reserve Board, after an emergency Sunday meeting, cut its major interest rate to near zero -- its way of encouraging businesses to borrow for regular operations and for expansion.
But will it be enough? Already, airlines, resorts, cruise lines and other major industries serving the tourist industry are hurting as entire nations go on lockdown because of corona virus fears. Cities and states throughout America have closed schools and businesses, and now the federal government has stepped in to ban gatherings of more than ten people.
How long will these measure be in force? Hard to predict, but even the president, with health experts at his side, said it may well last until July or August.
All things considered, however, it may well be that America is sliding toward its worst economic crisis since the 1930s.
And here's a curiosity for history buffs to consider: Every major downturn since then has happened when a Republican occupied the Oval Office.
"I don't take responsibility for that at all ." -- Donald Trump
"The buck stops here." -- Harry Truman
The president was asked at a news conference about the delay in preparing for the corona virus invasion and his breakup more than a year ago of the pandemic response team at the National Institutes of Health.
His response, heard by millions during a nationally televised Q&A session: "I don't take responsibility for that at all."
This may be the last straw for American voters.
It's now official. Corona virus infections have reached the level of a pandemic, according to the World Health Organization (WHO), despite efforts by some government officials to talk down the intensity or the importance of the health dangers. The upper respiratory infection caused by the virus has now reached every continent (except Antarctica) and continues to grow.
But what is a pandemic, anyway, and how does it differ from an epidemic? Mostly in area and the number of victims. Severity plays a part, but many victims suffer no more than if they had a severe cold or a form of influenza. In fact, more people die of the flu than currently are victimized by the corona virus.
That may change, of course, since so little is known about this particular viral strain. And that, moreover, is a major part of the problem, which is rising to near panic levels in many parts of the world. Some governors in America have declared a state of emergency in their jurisdictions, airlines and resorts are suffering revenue declines as tourists and vacationers cancel plans because of virus fears, the National Guard has been called out to minimize activity in a suburb of New York City, and Italy has sharply limited travel in the entire nation.
But at its root, a pandemic is called that simply because of its name: Pan- means all, or everywhere, and -dem refers to people. The prefix epi- implies a surge, as in the top of something. So while an epidemic is similar to the top of a curve, a pandemic implies that the problem will reach a high and stay there.
The current problem, however, is how to establish the top of the surge and how long infections will remain at a high.
Meanwhile, efforts to find a vaccine have ramped up. A bit late, considering that experts warned of the potential dangers some months ago. Their warnings, however, were dismissed by some government leaders as unimportant, that the infection is no worse than the common cold.
Then people started dying.
Politics and economics are often a poor mix. Some say we should not try to mix the two at all. But in the real world they interact every day.
Historically, the academic study of what people do with what's available was known as political economics when considering a large community -- city, state, or nation, based on the Greek term polis, (many), and on a family level it was called home economics.
Those of a certain age may remember that girls in secondary school studied home economics (cooking, sewing, etc.), while boys took shop classes (carpentry, auto repair, machine shop). Also, at that time, only girls were allowed to learn how to use a typewriter, on the assumption that they would become secretaries to the boys who would be company executives.
Those days are long gone. The advent of computers meant knowing how to use a keyboard was essential, so boys learned that. It would still be many years, however, before women attained equal status as computer programmers.
Are we there yet?
Women have made great strides in business, economics and politics, even as many claim that, too, is a poor mix. Realists, however, insist they can and do mix, and any problems that arise are because of a clash of ideas and principles.
At one time -- the 19th Century -- before the study of economics became a widespread academic discipline, business leaders maintained that just as women had no role in company management, government likewise had no role in managing a national or even a regional economy, and government should stay out and things would find their own way to prosperity.
Some still hold to that guideline. Or, to use the French phrase popular at the time, it was laissez faire economics (let it work alone).
That changed, however, when it because obvious that government was a major component in any nation's activity, and to ignore it was silly. Moreover, when the private sector hit a snag, government could step in to help.
To them, government spending -- even when it outpaced tax revenue -- was an essential tool for economic recovery. Later, when the private sector was doing well again, government should step back and get out of the way -- to stop competing for access to resources.
Even in good times, then, realist economists measure government spending as part of GDP (Gross Domestic Product), the total value of all goods and services produced in a nation.
To insist, as some still do, that government has no role in helping to guide an economy through difficult times, is not only unrealistic, it is blind to reality. Government does indeed have a role in an economy, so the issue is really this: How much of a role is appropriate?
Complete absence, as in laissez faire (leave it alone) economics, is disastrous, as has been shown numerous times in American history. Complete government control, the other extreme, also doesn't work and too often leads to a dictatorship. This extreme has also been documented several times in world history.
Somewhere in the middle, then, would be the safest and most practical place to be -- somewhere between pure capitalism and pure socialism, neither of which succeed in the real world.
The current American election season presents voters with a choice of approaches to an appropriate role of government in the national economy.
Much as conservatives might deny it, moreover, the role of government in promoting social welfare has been expanding steadily since the Great Depression of the 1930s. At that time, there was no such thing as government assistance for those out of work, who lost their source of income through no fault of their own.
There also was no government-run pension system for retired workers whose employers did not offer pensions. Coincidentally, one of the reasons to encourage retirement at age 65 was to make jobs available for young workers. Moreover, the average life span of many American workers was only about 70, which helped to minimize government responsibility. In addition, there was no government-run program to help the sick whose employers did not provide health insurance and did not pay enough for workers to buy their own.
All these were the start of government activity to help provide security to every member of society. That's why it's called Social Security.
So if the private sector cannot or will not cooperate to help build a healthy, secure society, it falls to the people themselves, through their elected government, to do so.
In America recently, all three segments of society, have been cooperating to secure the health and well being of all. And unless a demagogue succeeds in radicalizing the economy and the government in either direction, society will be secure.
Primary elections in 14 states -- including the territory of American Samoa -- a spreading corona virus, a stock market trying to recover from a near collapse, and the Federal Reserve Board slashing a key interest rate by half a point.
All combined to make for a super news day. Not that the news is super as in good, but super as in above normal. As if there ever is a "normal" news day, because if it's normal it isn't news.
The day began with an announcement by the Fed that it was cutting its target interest rate to a range of 1 to 1.5 percent. That statement came just as the Wall Street stock market was about to open. It was immediately followed by a tweet from the president that the rate cut was not enough, that it should be cut to zero or less.
Whether the fiercely independent Fed will listen to what the president says is another issue, of course, but the idea of paying people to borrow money seems highly unlikely. And that's what a negative interest rate is. Or, as Henny Youngman might say, "Take my money. Please."
The cause of the Fed's action was on the surface a reaction to the spreading corona virus, which is near pandemic level worldwide, and as tourist and trade relations retract because of fear of contracting the disease, business suffers and drags down the economy. But it can equally be said that the economy is ready for a correction anyway, and the virus is just the final straw that outweighs the growth potential.
Whatever the Fed's intention, the stock market did not pay too much attention. The Dow Jones Industrial Average fell again, by 786 points.
While the U.S. economy has been doing well -- the growth rate of total output was 2.1 percent in the fourth quarter of 2019, according to government statistics -- other national economies are not. Add to that a near collapse of travel and business contact because of virus fears, and there is the potential of a major problem. That's why the Fed stepped in.
The crowded field of Democrats hoping to become president winnowed in the past few days, with former Vice President Joe Biden and Vermont Sen. Bernie Sanders leading the pack in primary elections.
But the day's voting saw Biden pull sharply ahead of the others, and Mike Bloomberg dropped out, endorsing Biden on the way.
The president, meanwhile, has been actively campaigning, even though his renomination is virtually assured. Popular opposition, however, is growing stronger, with posting on public web sites becoming increasingly virulent in their name-calling, stressing his lack of knowledge -- not to say ignorance -- of important current events. The latest example is his comment that the flu vaccine is helpful in combating the corona virus.
