COVID Archives - Page 2 of 2 - Bankers Anonymous

July 3, 2020July 3, 2020

The Great Economic Leap Forward Experiment

While medical researchers race against time to find effective treatments for COVID-19, we have launched ourselves headlong into an economic experiment in federal policy on effectively treating a recession.

The experimental treatment so far is the recently signed $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. Money for big businesses. Money for small businesses. Money for individuals. Is it too much? Is it not enough? Will it prove to be – in a phrase now used in many contexts – “a cure that’s worse than the disease?”

A primary mission of mine – as a writer – is provide language and categories around which we can discuss financial matters, as citizens. In vastly simplified terms, we could identify 3 theoretical approaches to fiscal and monetary policy in response to a COVID-induced recession, from the right, the middle, and the left.

On the right, the Austrian School and its most famous 20th Century theoretician, the Nobel Prize-winning Freiderich Hayek, would encourage limited government spending and a cautious central bank, in favor of freedom, individual action, efficiency, and ever-vigilance around inflation. Writing in the middle part of the 20th Century, Hayek warned against creeping Socialism and the centralization of economic power as threats to humanity. Bank lending of fiat currency – rather than relying on the solidity of an anchor-currency like gold – tends to artificially lower interest rates and overly expand the money supply.

The policy implications of the Austrian school is to interfere the least in business cycles, as they will work themselves out over time.

In the middle, policy makers advocate along themes established by John Maynard Keynes, who argued for a combination of robust government spending and easy money from the Central Bank, originally in response to the Great Depression of the 1930s. Fed Chairman Ben Bernanke, a careful researcher of the Great Depression, followed that playbook in the 2008 Great Recession. And I would say – from a monetary policy standpoint when all was said and done – very successfully.

The left has recently coalesced around something known as Modern Monetary Theory (MMT).

Just as the Austrian school of thought and Keynesianism have variations, so too does MMT. But simplifying a bit, the big unifying idea of MMT is that governments that print their own currency like the United States do not have to worry tremendously about the problem of paying back debt. Controlling an unlimited supply of money can free policy makers from worries about a finite source of capital, or the classical economists’ worry of “crowding out” private borrowing and private enterprise. Both fiscal policy (taxing and spending) and monetary policy (the supply of money and interest-rate setting) should respond to problems by making money much more available, aggressively where needed. In stark contrast to the Austrian school, MMT points to a massive intervention of the government in the economy.

A key point of MMT – a point in which I am in agreement – is that debt owed by a government is not exactly like debt owed by a household or a business. Households and businesses do not create their own currency, so must always have a reasonable plan for repayment, or risk being shut down or punished by having assets seized by creditors. Governments that create their own currency, by contrast, need not fear creditors in quite the same way as households and businesses.

MMT theorists, accused of disregarding inflation, have argued that in periods of low inflation – like we’ve seen in recent decades, and like we usually see in recessions – policy can focus on more immediate threats, like underinvestment and unemployment.

I’ve been thinking about some of this in part because a conservative friend and reader handed me a copy of Freiderich Hayek’s The Road To Serfdom on March 18th, during what might be the last sit-down meal at a restaurant we will enjoy for months. Hayek’s worldview (or permit me to smoothly roll ‘Weltanschauung’ off my tongue) in simplest terms, is that the biggest enemy confronting society is government control of economic activity.

So where are we currently on the spectrum of policies – from the Austrian right, the Keynesian center, or the MMT left? As of this month we’re neck deep in a massive MMT experiment. That’s not what Congress and President Trump said out loud as they passed the CARES act. They would all deny it, if asked. But just to be clear: that’s what we’re all doing. The CARES Act was the most MMT experiment our country has ever tried. And it’s still early days yet in the COVID recession. As a betting man, I’d say more is coming.

And the weird thing was the near-unanimity of it all. Which also makes me nervous.

One reliable indicator of problematic policy in a democracy is unanimity, or near-unanimity of votes. Problematic because unanimity generally indicates votes forcibly taken, votes taken in fear, or votes taken under emergency conditions.

Like elections in the old Soviet times, in which the winner would earn 99% of the vote. Or like the Patriot Act of 2001, which passed the Senate by a vote of 98-1 in October 2001, following the attacks of September 11th.

We similarly saw the passage of the $2 trillion CARES Act by a 96-0 vote in the Senate, and the absence of anything other than a voice vote among a quorum in the House of Representatives, without a recording of who voted how. Friday March 27 was a weird day in Washington.

So Tea Party folks, just to clearly review. Your party – with a unified Republican Congress and Presidency – passed the 2017 Tax Cuts and Jobs Act, expected to increase the federal deficit by $1.4 trillion, according to the Congressional Budget Office. The CARES act just passed – by a divided Congress and Republican President – will cost $2 trillion. What we should all agree on right now is that there is no fiscal and monetary conservative party in the United States. It does not exist. We’re all unified MMT leftists right now. I guess we’ll find out in a few years how we like it.

Not that we necessarily had a choice.

Would I have voted yes for the CARES Act, were I in Congress that day? Yes.

Do I think we’ll be instituting a form of Universal Basic Income within 6 months? Yes.

Do I think our fiscal and monetary policy might be a ticking time bomb – both because of our debt levels and inflation – for the United States? Also yes. [LINK to column on government debt spending:

Please see related posts:

We’re getting UBI and we’re never going back, after 2020

Government Debt – Ways to Think About it.

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May 18, 2020May 18, 2020

How’s Your Small Business Going Lately?

What do you do when your business is forcibly shut down from one week to the next, as has happened to first every bar and restaurant owner, and then every other so-called “non-essential” business?

I gathered anecdotal data from Bryan Potts, a San Antonio-based CPA and the owner of CFO2Go, who primarily serves restaurants with consulting and accounting services. It’s been rough. Potts says he lost 75% of his client base in March.

With doors forcibly shut, many of his clients simply can’t pay him. Of his restaurant clients, Potts estimates that 10% are hanging on to their employees in the shutdown, while 40% have cut back as much as possible to just a few essential employees. About 50% of his clients have simply laid off all of their employees.

To begin to get a sense for the scale of the hit to employment numbers this month: The Texas Restaurant Association counts 50,000 restaurants in the state, and counts 1.4 million Texans in the restaurant industry.

In a related story, US weekly jobless claims have hit catastrophic levels every week since late March.

Back in the good old days, in December 2019 – which feels like a decade and a half ago – I sat down with Ryan Salts of the small-business resource center Launch SA.

Salts’ passion and profession is to support entrepreneurs and would-be entrepreneurs as they launch, survive, and then hopefully thrive as business owners.

This Spring, however, is not at all like the good old days. Salts invited me to listen in, as he gathered together entrepreneurs online on Zoom in a part advice-giving session, part therapy session. Potts was not on this call, although he is part of Salts’ mentoring network.

A different mentor on the call – who asked not be named – described the process of filing with the Texas Workforce Commission for a “full company” claim of unemployment. This would streamline the process for her employees, all of whom she assumed would need to apply for unemployment benefits.

A question among the group arose: Is it time – as the classic entrepreneurial wisdom says – to “pivot” your business model? Not necessarily.

Many restaurant owners, for example, have opened up grocery stores, or boosted their take-out and delivery businesses. Customers want this and encourage this, and employees may feel grateful for the ongoing work. But this could be – in fact it probably is – a money loser for restaurant owners. And the result of operating a money-losing pivot over the next few months could be further debt for the owner down the line when normalcy returns.

One of the Zoom participants was Jeni Spring, from The Center For Barefoot Massage. She said a widely suggested pivot runs counter to her business. She runs a San Antonio-based continuing education center to train massage therapists in deep tissue technique. In this lockdown, she’s received advice and pressure to move to an online training model for massage therapists nationwide. But that, fundamentally, is not something she believes in.

“We can’t become something we are not. It doesn’t work to move to online training, since our entire reason for being is that you have to learn massage in person. You simply can’t learn the sense of touch needed to give professional massages online.”

So, the “pivot” is a mixed bag.

What about the other solutions business owners bandied about following the lockdown – such as offering gift cards, as a kind of down-payment on future business that would help finance the present?

Salts offered a cautionary tale.

“I have a downtown friend. He won’t make it through this. His normal traffic is foot traffic. of the first things I thought last week was “’why don’t you do gift cards?’”

“But everything is changing so fast that recommendations from earlier in the week change day to day.” His friend didn’t feel gift cards were ethical, Salts explained, “given that he was of the mindset that he had a 70% chance of not surviving the downturn.”

In December, Salts and I had talked about how hard it is, even in the best of times, for food service businesses to survive. I was curious about a spate of high profile restaurant closures in my neighborhood at the end of last year.

Salts was philosophical and realistic, based on his work with Launch SA: “Are food people good business people? On average? No,” he’d said then. “They’re really good at what they do. They’re creative. They can put together a good menu. But can they run their accounting? Can they cost things out?” That was December.

Now, of course, none of that matters. The best restaurant owner in the world cannot stay open against the COVID-19 lockdown orders.

About the restaurant businesses now shuttered, Salts has an extremely dire prediction.

“Probably 50% of the places that close their doors right now are not going to reopen when this thing is over. Every single person I work with is in a dire situation of triage.”

And with those shut-downs, we are learning, painfully, how essential these small businesses are. Everything is interconnected. As Potts explained: “It shows how far small business employers contribute to the economy. It’s everything from people who clean out the grease traps to lawyers and accountants. I don’t think there’s anybody that’s not been affected by restaurants shutting down.”

Disclosure: I do occasional consulting projects for the non-profit small business lender LiftFund, which partners with the City of San Antonio to run Launch SA.

A version of this post ran in the San Antonio Express-News.

Please see related post:

The Entrepreneurial Mindset

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May 15, 2020June 14, 2023

Meditations On The 100 Year View

Something was very different this Spring. A once-in-a-century type of event.

Did you notice it? Many centuries ago, the Mayans could have told us.

The vernal equinox came early – March 19^th. The earliest in more than a century. Don’t blame carbon emitters or the COVID-19 virus. The earth’s natural rotation means that an equal amount of night and day hit all US time zones earlier in the year than at any time since 1896.

I understand: the early vernal equinox was not on the top of your mind. But I’m trying to zoom out our short-term focus to ponder a bit on the big picture here. The one-hundred-year view.

During this first week of Spring, can we talk a little bit about stock market gyrations? And then meditate on interest rates as well?

In the spirit of meditation, the Judeo-Christian tradition provides a metaphor for stock performance. By contrast, the path of interest rates and bonds, metaphorically, follows the Hindu-Buddhist tradition. I’ll explain what I mean by those metaphors later on, as I understand I’m saying something that sounds a little kooky.

What’s happening in the stock market these past two months is not new. It’s a hundred-year flood that periodically recurs, well, about every ten years. Let’s try to see the larger pattern.

What’s happening in interest rates, by contrast, is totally wild. Uncharted territory. There is no past precedent for these moves.

In an interview with the BBC in 2009, Charlie Munger – the Vice Chairman of Berkshire Hathaway and famously Robin to Warren Buffett’s Batman – laid out a concise version of the correct hundred-year view of stocks.

“I think it’s in the nature of long-term shareholding, of the normal vicissitudes of world outcomes, of markets, that the long-term holder has his quoted value of his stocks go down by say 50%,”

said Munger during the interview.

Even beyond the utter normalcy of this kind of volatility, Munger says the periodic 50% drops determine who will be rewarded.

As Munger continued, “In fact you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.” Munger has 96 years and $1.7 billion to back up his wisdom right there.

So, stock market fluctuations like this past week are normal. Carry on as you were. Do nothing different. If you can, maintain regular automatic contributions to your portfolio.

Incidentally, this recent volatility is a reminder of why owning individual stocks could generate bad investor behavior (trading frequently) whereas owning broad indexes of stocks could generate good investor behavior (doing nothing in the face of volatility). Heading into a recession, we can easily see why any particular business will get crushed. We can’t help but have an emotional reaction to a particular story of a particular company. But a broad index of stocks, heading into a recession, maybe inspires us to remember that over the next few decades a few thousand of the best-run and most innovative companies in the world will figure out ways to generate profits, and therefore a return on investment. Indexes help us worry less about any particular story and to focus on the longest time horizon possible.

The stock market, understand as a whole, follows a linear path through the medium term. It sure doesn’t seem that way, especially this past month. We humans with our hominid brains want to take note of a every single up and down movement, like baboons tracking a particularly delicious, but peripatetic, insect on a tree branch. Up, down, up, up, up, down.

The up and down is an illusion, however, as the stock market, again as a whole, goes upward with each decade. In the long run, over a century, the stock market understood as a whole, follows first a linear, and then an exponential upward, path. In the longest run, a basket of stocks is unidirectional. Birth, life, and then an ascent into the infinite. That’s what I mean by the metaphor of the Judeo-Christian tradition.

Meanwhile, interest rates typically act more like the Hindu-Buddhist tradition of a circular path. Sure, rates change a little bit over time, but they always tend to loop back upon themselves. Unlike stocks, interest rates resemble a wheel. A cycle of birth, death, rebirth and reincarnation. We don’t ascend or decline too much over a century. We don’t depart from the wheel. Except this month, we did.

Holy Cow! ¹

Anyway, rates recently have been anything but normal. We’ve never in US history seen interest rates this low.

As Covid-19 panic set in mid-March, thirty-year US government bonds hit 1% mid-day, while 10-year government bonds hit 0.5%, albeit briefly. We’ve seen 0% overnight Fed Funds rates before, but even in the 2008 Great Recession, long-term US bonds didn’t hit these low rates. This all indicates panic in the financial system. For what it’s worth, the Fed’s move to carpet bomb financial institutions with liquidity following unprecedented interest-rate lows seems appropriate to me. We do not want the wheel to break.

Finally, the vernal equinox again. Few of us alive today will live to see another March 21 vernal equinox, which will not happen until the year 2101. What else will be never-before-seen between now and then?

A link for those who don’t follow the Old Farmer’s Almanac assiduously.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

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Thanks very much, folks, I’ll be here all week with even more Hindu-tradition jokes. ↩

March 23, 2020January 26, 2021

UBI is Coming This Year – Permanently

As of this week we have the results from the Democratic primaries, and we have a surprise winner. I didn’t expect to say this, but tech entrepreneur Andrew Yang has run away with the 2020 Presidential election.

No, I don’t mean literally Yang becomes President next year, obviously. But his central, formerly kooky-sounding idea of Universal Basic Income (UBI) is about to become reality. With bi-partisan support. And more than that – I think it becomes permanent.

What the Trump administration and key Republicans Senators propose to pass in the next week or so – as a response to the COVID-19 crash – is an unconditional cash transfer to American adults. As of this writing, they are still debating the amounts and timing, but it all seems likely. Maybe $1,000 per adult on April 6 and May 18th, according to a Bloomberg news report.

This cash transfer represents a previously-untried-in-the-US solution to alleviating the effects of a recession. For what it’s worth, it feels to me like exactly the right thing to do right now. The traditional “lower interest rates and let it trickle down” is insufficiently targeted to the people for example who face imminent poverty because their bar, restaurant, retail store, theater, or gymnasium where they work is either forcibly closed, or effectively closed, until the virus stops passing around.

As Americans, we think we’re opposed to transfers like this. We tend to think in shorthand like “bootstraps” and “no work, no pay.” But just as there are no atheists in foxholes, there are fewer libertarians in a pandemic-induced recession. Nobody is to blame when their restaurant-employer shuts indefinitely, by order of the city. People want to work, but they can’t. The only humane response is a bit of cash to cushion the blow until normalcy returns.

So why do I think this one- or two-time cash transfer becomes permanent? For a bunch of virulogic, economic, and political reasons.

I’m not an infectious disease expert (although I am married to one!) but I can imagine scenarios where we do not have the “all clear” signal to return to public places 3 months from now. Which means severe economic pain among households continues 3 months from now.

So, now follow my train of thought. Let’s say the COVID lockdown and recession continues for not just 3 months but 6 months to 12 months. Restaurants, bars, theaters, gymnasiums, stadiums, concert halls, and retail stores have to remain basically empty, either by law or by prudent health practice, to prevent the continued spread of the virus. Every shuttered business represents people who can’t afford to pay rent, pay the mortgage, or buy groceries. The pesky thing about food and shelter is that we all have to pay for it every single month. The federal government is going to have to make another unconditional cash transfer 3 months from now.

And then, if the virus continues to circulate among the population, another month after that. Pretty soon we’re looking at a monthly, universal basic income.

Why will it become permanent? Let’s look at the example of Alaska. And then Social Security.

For Alaska residents, a basic income check known as the Alaska Permanent Fund Dividend – recently around $1,600 per year – sure is popular. Even though oil revenue has plummeted, and the state can’t necessarily afford it, Alaskan politicians would not dare eliminate the dividend. It turns out – and you’re going to have to just trust me on this one – people tend to like free money.

There was a moment in time, in the mid-1930s, when Social Security looked to some people like a radical Socialist idea. Now, only paleo-conservatives find the idea of Social Security to be un-American.

So I bet by month 6 of this recession – just before elections – that a majority of Americans will have swung around to deciding that a universal monthly basic income is a comfortable and necessary thing.

Perhaps the biggest whiplash is happening among political leaders.

How did the Republican Party suddenly become advocates for this unconditional cash transfer?

Trump undoubtedly has an instinct for what his key supporters want and need. A strong case could be made that the Rust-Belt swing state voters of Michigan, Pennsylvania, and Ohio who delivered Trump the electoral college victory in 2016 are eager for this type of economic lifeline. When you live in a manufacturing town, and manufacturing jobs are going overseas, a little monthly help goes a long way.

Trump – nominally a Republican – has an unorthodox approach to economic policy. Certainly he’s proved willing to reject the free-trade, open borders, global market approach of the Bushes and Romneys of his own party.

But then, Utah Senator Mitt Romney himself kicked off the cash transfer idea on the Republican side on March 16th by urging $1,000 be sent to every American adult.

Arkansas Senator Tom Cotton – a Republican with deep conservative bona fides – jumped in to support $1,000 payments for every American, introducing the idea that payments should be made monthly, as needed.

Embedded in Senator Cotton’s proposal, and his critique of existing measures, is the reason why conservatives might – and should – endorse cash transfers and UBI. Cotton said on Fox News that “we worry that the [already passed rescue] bill is setting up a new and complicated system relying on businesses giving paid sick leave and then getting a refundable tax credit that won’t move quickly enough and could give pressure on those businesses to lay workers off.”

The House bill sets up a complicated relief system that relies on paid sick leave & refundable tax credits.

That won’t move quickly enough & puts undue pressure on businesses to lay off workers.

We don’t want to see layoffs—we need cash in the hands of affected families. pic.twitter.com/64hNtYhfJO
— Tom Cotton (@SenTomCotton) March 16, 2020

To Cotton, and possibly other conservatives, unconditional cash transfers and the related idea of UBI have the huge advantage of simplicity. And simple means smaller government.

Charles Murray, a staunchly conservative intellectual, wrote in his book In Our Hands, A Plan To Replace The Welfare State that UBI represents a far preferable system to the patchwork of federal programs currently in place.

It does not take a massive government infrastructure to send money transfers. Traditional welfare programs for households like SNAP and EITC require giant bureaucracies. Small business tax credits are complicated, and slow moving. UBI is easier than housing subsidies or unemployment checks. Faster than rent or mortgage freezes. If you squint your ideas a bit, the idea of trusting people to use money as they personally choose, rather than nanny-stating them around food, housing, and employment status, is a deeply conservative, small-government idea.

I’m just saying, when conservatives like Cotton, moderates like Romney, and unorthodox Republicans like Trump unite around an economic idea that feels pretty lefty, you have the makings of a permanent feature of American life.

I haven’t mentioned the Democrats yet. Senate Minority Leader Chuck Schumer has already argued that the one time cash transfer does not go far enough. “This is not a time for small thinking. A single $1,000 check would help someone pay their landlord in March. But what happens after that?” he said.

New York Congresswoman Alexandra Ocasio-Cortez has weighed in with support, but not if it comes at the expense of existing social welfare programs.

At the end of the day though, if given the chance to implement a permanent UBI, would Democrats support this idea? I don’t know, what do you think? Is the Pope Catholic? They are never going to allow Republicans to get to the left of them on this idea.

The final matchup between Vice President Joe Biden and Vermont Senator Bernie Sanders has left neither candidate with a viable economic plan. Biden, because he never had any forward-looking ideas except to replace Trump. And Sanders, because his forward-looking idea of “Medicare For All” has precisely zero chance of implementation over the next twenty years. So that leaves Yang as the ultimate winner of the Presidential race, even if he’s not the one who will occupy the Oval Office next year.

“Money for Nothing” as Dire Straits used to sing.

I bet nobody is as surprised as Yang that he won the war of ideas, far more quickly than he imagined. And further, I think he won this idea permanently. You read it here first. We’re getting UBI in the United States, starting this year, and we’re never going back.

A version of this post ran in the San Antonio Express News.

Please see related posts:

Cash is Better Than Good Intentions

UBI – That Right-Wing Idea?

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