Economic and political lessons from a global pandemic

 

 

 

The world is entering into strange, uncertain times.  As COVID-19 spreads across the planet, bringing modern civilization to a sudden halt, people are beginning to wonder what will be the long term consequences of this viral outbreak, and how society will  recover from the damage. Many are bracing themselves for the worst, and anxiety is permeating entire populations, who seem paralyzed in disbelief and paranoia.  Perhaps what we’re really witnessing is a slow collapse of an entire system which, for far too long, we collectively refused to acknowledge was structurally vulnerable and liable to come apart. We built sand castles too close to the shore, and had little regard for the rising tide. Perhaps we’re preparing for extreme social unrest, disorder and distrust, and political projects that will quickly aim to capitalize on the chaos. Perhaps we’re preparing for a transformation of society itself, where we are forced to cast out the old perceptions of our institutions and ways of living, and look towards the future in a radically new way.  No one is capable of knowing what the future holds, or exactly how all of this is going to play out in the coming months, and years. Political pundits in the mainstream media lost their credibility years ago. The wizards of wall st, the policy makers at think tanks, and the monetary scientists at central banks are blinded by their arrogance, just as they were leading up to the great recession.  Nevertheless, there are many important economic and political lessons from the ongoing crisis. Examining them now might better give us the knowledge needed to survive the storm.

 

In alternative media, two emerging theories are being pushed forward, and it’s hard to predict which one will ultimately unfold.  One is that the coronavirus will mark the beginning of the end for globalism.  There is some merit to this belief, and it’s hard to argue with it’s premise. For decades, imperial powers like the United States outsourced a significant amount of labor to countries such as China, India,the Philippines, and Mexico. For large corporations, the benefits of cheap labor, without the hindrances of minimum wages, expensive regulatory compliance, and organized unions reaped lucrative rewards. Establishing their factories or corporate head quarters in foreign countries also enabled them to circumvent other financial burdens, such as high taxes, and government required worker compensations. Cutting costs and maximizing profits under these Neo-liberal economic policies created unfathomable amounts of  wealth. But this couldn’t last forever. While the dividends were good, and the bonuses better, underneath it all, there were major problems brewing, and they couldn’t be wished away. Economic laws are immutable, a natural part of the world we all inhabit. The U.S. was growing increasingly dependent on foreign countries, such as China, for valuable commodities, ones that modern life can’t function without. Agricultural products, pharmaceuticals, medical equipment, electronics, building materials such as steel, and cheap plastic goods were flowing in one direction. State brokered “Free trade agreements” (a contradictory term), the bedrock of neo liberalism and globalism, kept these arrangements in place, while hollowing out the domestic manufacturing bases in western nations that cut the checks.  Skyrocketing liabilities on the balance books were raising red flags, no matter how much academic Keynesian economists tried to downplay it. The United States trade deficit is growing, and it isn’t going to disappear under the status quo. The U.S. government, and the Federal Reserve, are under the delusion it can somehow manage it’s 23 trillion dollar debt, which now exceeds the nations GDP. Other countries, like Japan, have an even greater debt to GDP ratio, putting them on the pathway to default, and finally collapse. The inherent fragility of globalism, that is to say, how supply chains can be jeopardized for a myriad of reasons, is now on full display. If your nation grows entirely dependent on foreign imports, and they abruptly come crashing down, your economy is going to get burned. Maybe it’s geopolitical, as new politicians take to office and lay out unexpected regulations (or even nationalization of entire industries) threatening your operations and in turn, your companies bottom line. Maybe it’s civil unrest, protests, a new labor movement, boycotts, or war. Or perhaps, it’s an extremely contagious virus. It doesn’t require supernatural vision to see the potential hazards. But under the current world order, that is to say, within the conditions of globalism, these disruptions can be devastating. Banks must keep credit rolling, loans, with accumulating interest, must be repaid. Large shipments of products are guaranteed under elaborate contracts, drafted long in advance, long before they reach their destinations, long before they are put on semi-trucks, and planes, and trains, and long before they are unloaded and finally put on store shelves. The machine keeps chugging along, and it relies on cheap, easy credit (central banks keep interest rates artificially low), stable petroleum prices, and honored contracts from buyers and sellers. What happens when this entire intricate system, this global network, is faced with an pandemic that crosses borders, and freezes everything in motion? The systemic vulnerabilities of globalism are now out in the open, and there’s no turning back. This is a fundamentally unsustainable economic model, and we’re going to see exactly why in the coming days. It won’t be theoretical anymore, it’s coming to the real world, with all of its painful consequences.

 

The second theory, is that globalism will be more deeply entrenched, and empowered, by COVID-19. After all,  who could ask for a better opportunity? The most influential, capitalized corporations, can take advantage of emergency responses in the market. For smaller competitors, their fate looks dismal. If you thought the $700 billion dollar bailouts from 2008 was insane, then you’re in for a shock. In response to the carnage being unleashed on equity markets, the Federal Reserve has slashed interest rates to zero, and announced more than $700 billion in quantitative easing, claiming that it will increase to $1.5 trillion (with a T) as needed. For perspective, this is the largest, single day rate cut in the Federal Reserve’s 107 years. These historic actions reveal the money managers increasing desperation, and their attempts to regain control. The stock markets triggered it’s fourth circuit breaker in trading over the past two weeks. On March 12th, the Dow Jones recorded it’s worse plunge since the notorious 1987 stock crash. Do central bankers truly believe they can rescue the economy by merely printing billions of dollars out of thin air and injecting it into the financial system? The fact that U.S. corporations (especially those on the S&P 500) are massively over-leveraged (somewhere in the range of $10 trillion, assuming the accounting numbers are clean) is enough to raise serious doubts about the prudence, and effectiveness, of further bailouts. Compound this slow moving avalanche of corporate debt, with billions of dollars in stock-buy backs, which was done to juice up the companies share prices, and you have a recipe for total mayhem unlike anything the world has seen in decades.  And yet, despite all of this, U.S. Treasury Secretary Steven Mnuchin makes the astonishing claim, despite the overwhelming evidence to the contrary, that there will be no recession at all! What sort of alternative universe is the secretary living in, to believe in such preposterous, illogical, magical thinking? Is it a career politician trying to save his skin, telling the public a bald faced lie, or could he really be so ignorant?  In any case, the worlds most powerful corporations have played this game before, they know the rules, and they understand the loopholes.  The economy can be crushed, or more specifically, small to medium size businesses, the middle class, etc, but the system of globalism might stay intact (if not a little bruised) so long as it has central banks to fall back on. The financialization of the economy has produced a strange realm of distorted, fake values, debt instruments, inflated assets, and complex trading algorithms which exist only to boost investor portfolios and share prices. Meanwhile, we’ve witnessed the slow decay of traditional capitalism which derived it’s value (and stability) from the creation of real goods and services. The future of globalism can go either way at this critical crossroads, but the establishment already has designs for it’s continuation. Whether or not they succeed is yet to be determined.

Other major developments from the ongoing COVID-19 crisis deserve equal attention,  because they could potentially be a greater threat to society than economic recession, or perhaps even the disease itself…

 

Part 2 of this article will be published next week. Stay tuned..

 

To contact the author, email Quinctius1991@protonmail.com