A 19th century style president has created a good old fashioned 19th century-style financial panic.
I’m reminded of the Panic of 1893 which plunged the economy into a depression/recession for about four years. If my recollection serves me, the panic was a function of corporate overexpansion (railroads) which lead to a bank crash because of overstretched financing.
This Panic! At the Mir-A-Lago is somewhat similar – companies have taken on a lot of cheap debt and banks have basically lent all they can – but modern America is awfully different. Besides the obvious, banks at this point are constrained in their lending in some part because of regulations that simply didn’t exist in the 1890s. To the extent this isn’t a full on crash we can kindly say, “Thanks, Obama”.
At the same time, while the events of 1893 and other 19th century panics might have been a function of a weak central government, the United States of today has at least the veneer of a mighty bureaucracy. In addition, the Federal Reserve was created in the wake of these Panics to bring some sanity to financial markets.
Now, instead of a real bureaucracy, we largely have an acting bureaucracy. Where Trump claimed he would drain a swamp, he instead drained the deep state (and arguably used the water to make a bigger swamp). The financial response to COVID-19 is certainly a function of supply chain disruption as well as a (final) reckoning that the current economic expansions is built on brittle debt financing in the form of cheap monetary policy as well as fiscal policy in the form of corporate tax expenditures (this is often referred to as “relief”). The economy hummed along on cruise control during the Obama administration; Trump embraced his inner Jeremy Clarkson (Top Gear/Grand Tour reference) and decided he needed more power. Trump knows about as much about how the economy works as Clarkson knows about how cars work – which is to say that he understands enough to push the gas pedal. He’s never bothered to learn that driving at 70 uses 40% less gas than driving at 85 because it feels rad to have that wind rush through your hair. Trump put the pedal to the floor with corporate tax cuts, redlined, and now the engine’s blown.
We’ve all seen the specific places where the Trump administration has failed with regard to public health. Trump cut funding to the CDC pandemic team. The acting director of OMB defended further cuts to the CDC on Tuesday. Trump diverted funding from DHS designated for pandemics to pay for the border wall. But, it’s the general lack of confidence in the Trump administration to do anything remotely well that is finally catching up with the “administration” (I keep using scare quotes here because, as someone who studies public administration, I can’t see a whole lot of administering going on here). I’m struggling with a person who would be worse in this situation; George W. Bush was certainly the village idiot, but Cheney would have taken the reigns while Bush-43 played Operation.
Americans, despite receiving a modest tax cut, are set to finally pay for Trump’s incompetence. The market is down to levels that predate the Tax Cut and Jobs Act of 2017. The debt financed tax cuts have, thus, resulted in a worse market and perhaps a recession. No doubt we’ll have to bail out a number of industries including airlines, cruise ships, and, apparently oil companies. The irony here is that the TCJA of 2017 opened drilling in ANWR, so, at least that “stimulus” is off the table. At these prices, don’t expect anything to happen up there soon.
If Trump does somehow bail out the oil industry, I wonder how Americans will reward him: using taxpayer dollars to…raise gas prices. Of course, these industries have already received a significant subsidy in the form of a corporate tax cut. So, we’ll bail out industries twice – in yet another parallel to the Bluth family’s business acumen, this is reminiscent Maeby’s banana stand math.
The other solutions of monetary ($1.5 trillion injection into the market) and fiscal policy were shrugged off by the market and Congress (payroll tax holiday). Somehow Trump is convinced that cutting the payroll tax, which will not only not matter when people stop losing their jobs but will also hurt the very funds designed to help the most vulnerable populations (old people) to COVID-19, is the only fiscal solution to this problem. McConnell has balked at other “ideological wish list” items such as unemployment and food security funding. Despite the general intransigence on Capitol Hill, I’ll bet an actual bill passed by Congress will have a more positive effect on markets than Trump issuing yet another travel ban.
The Democrats’ decision to nominate one of two ancient men (and nearly nominate one close-to-ancient woman) somewhat lesson their comparative advantage in this fight. Every one of them is at a higher risk of infection and death from COVID-19. The fact that the Ds are still going to have a public debate on Saturday borders on the absurd given that they’ll no doubt criticize the President for failing to act decisively to limit public gatherings. Which candidate first goes after the moderators for hosting a debate that they are attending with their supporters deserves a gold syringe for hypocritical acting. [Edit: I wrote this yesterday AM and see that this has now changed].
Still, Biden is very well positioned to take advantage of this moment. While we might all hate it, the President has won the war of defining the economy in terms of the stock market – fortunately, this has come to be a negative. Of the two candidates left in the race, one has little interest in the market returning to full strength while the other has a great interest in doing so. But, more than that, Biden can legitimately claim that he’s been here before and, unlike some of his other grandiose claims about the Biden-Obama – I mean, Obama-Biden – Administration, he can legitimately claim to have had a significant role in the economic response to the 2008 recession. Obama officially selected Biden to oversee the implementation of the American Recovery and Reinvestment Act. And, while “No Country For Old Men” remains a work of fiction in modern American presidential politics, at least Biden can say that he’s released his full medical records.
God, they’re all so damn old.
Yes, Biden might be President Milquetoast; but, the Financial Panic of 1893 eventually created a political movement that elected McKinley, a brother Milquetoast whose legacy includes a face on bill that no one uses ($500) and a Mountain that no longer is named for him. (Okay, he also had an island fetish.) McKinley’s greatest achievement, however, might have been to choose Teddy Roosevelt as a running mate for his second term who would quickly replace him and reshape American environmental, social, and foreign policy.
This guy named Debs also ran that year.
So, maybe, just maybe the bungled response to COVID-19 will yield a good president for the next four years who will make way for a great one.
Or maeby I’m just doing my own banana stand math.