In Texas we are essentially starting week three of the shutdowns/closures of most businesses. The economic costs nationwide are in the trillions of dollars and unemployment has exploded with new jobless claims last week exceeding 3.3 million!
So the question this week is, how long can this go on before our economy is in a depression and our people are destitute?
Let's put COVID-19 in context. This flu season caused around 23,000 deaths and yet we didn't hear much about it from the now panicked mainstream media. So far, we have suffered over 3,000 Coronavirus deaths.
There are tradeoffs in any monumental decision like the stay-home requests and in some areas orders, the closure of restaurants except for to-go orders, among other things. Researchers have found an increase in suicide with rising unemployment, rising illegal drug use, and increased heart attacks (Archives of Internal Medicine). Economic disruptions in the supply chain can also disrupt delivery. There will undoubtedly be an increase in bankruptcies, and all of these things take a human toll.
So yes, we should take COVID-19 seriously. We need more specific, focused solutions and to avoid the shotgun approach being used currently. We need more testing, more critical equipment and of course to follow doctor's recommendations. A total closure of our economy is not smart unless your goal is a depression.
If we listen to the paranoid media, we may never reopen our country as the virus spreads and more people die. If we are not proactive, our economy will be in free fall. This will make the virus to look minor in comparison to the economic devastation at hand.
Amateur Hour At Harris County Government
It's important to remember that regardless of party label, qualifications and experience do matter.
Exhibit One is the first-time job holder Harris County Judge Lina Hidalgo, elected over seasoned, experienced and highly respected Ed Emmett.
Those voters saddled us with an inexperienced leftist from New York. She never knew much about governing and leadership so it's not fair to say she forgot how to! Harris County is in the center politically and she has been leading the county into reckless decisions like the free bail bond program, free lawyers for illegals, tax funds to subsidize businesses and essentially closing our courts. Now her latest dumb idea is releasing inmates from the Harris County Jail.
The Democratic Harris County, Texas (Houston) District Attorney Kim Ogg correctly says that releases should only be considered. Sounds fair, but this reasonable alternative is not even mentioned in the one-sided article in the Houston Chronicle on March 27, 2020 and that's what the county needs to do.
Responsible public officials like Governor Greg Abbott, Lt. Governor Dan Patrick, Attorney General Ken Paxton, State Senator Paul Bettencourt and County Commissioner Jack Cagle have called for a halt to this rushed action to clear out the jails. The left-wing county leaders led by Hidalgo and Rodney Ellis are eagerly rushing a deal with the radical jail release activists without considering the consequences via a quick deal in Federal Court. Let's hope clearer heads prevail.
Gimme a V, Gimme a U,
Please Don't Give Me an L
By Neland Nobel, Contributing Editor
Any scenario promulgated by either the press or the Administration, must be taken with a gigantic grain of salt. The recession the nation is lurching into was caused by an immediate shutdown of economic activity ordered by the government itself. We have never seen anything like this before. Predictions will be difficult and hazardous to make.
The US lost about 675,000 to the Spanish flu epidemic of 1918. Given that today the population is about 3.17 times larger, it would suggest an equivalent loss of about 2.1 million people. No doubt fear of this has led to extreme actions.
However, health conditions are much better today. So, no one really knows what the losses would be, but apparently officials think they would be unacceptably large. The action to shut down the economy however is so disproportionate and indiscriminate, the violations of civil liberties so egregious, that either they felt the medical infrastructure would collapse, or we do not know the full story about China's role in all of this.
It remains to be seen if the shutdown, much of which was ordered by state and local officials, was an overreaction to the data, or perhaps was based on bad data and bad computer models. Or perhaps, it will be proven to be completely justified.
This is an argument we must have later. The fact remains though; the economy has been shut down.
As such, we have a sharp slowdown in economic activity that will cause some degree of credit failure in an economy already significantly over leveraged with debt. The question we must all grapple with is: how bad will this get?
Economists now must make assumptions about the health of the economy when this disaster struck and the efficacy and effectiveness, of government intervention. And the progress battling Covid-19 remains both a real, and psychological wild card.
One camp believes the economy was in good shape and will therefore recover quickly once restrictions are lifted. The problems of the virus will be contained. They also believe the massive support being provided by fiscal and monetary policy will cushion the blow. There will be failures, and the economy will stumble, but we could see rapid recovery by the end of the year. This could be called the V shaped recovery scenario. That would be the best-case outcome.
Others contend that we went into this crisis with credit excess both in the US and around the world. The virus will be hard to contain and could make a secondary run at the population. A complete reorientation of our trade relationships with China must be undertaken, and new supply chains are likely to be more expensive.
This would argue for a U-shaped recovery. It won't be quick but take a number of years, such as after 2008. What you have seen government throw at the problem is likely just the down payment in a series of maneuvers. The legacy will be one of huge debt and deficits.
The really ugly scenario would be the L shaped. That would be further downside action in most markets and the economy that would take us to much lower levels and require many years of sideways action to repair. The virus proves hard to contain and takes many lives. We would be lucky to get out of this scenario with a fraction of our wealth intact and avoid the political and social radicalism that historically has followed in the wake of such economic disaster.
While we don't know everything about this crisis, it is not as if we know nothing.
Essentially, the country (and the world at large) has quickly moved to wartime financing. This we have seen before, multiple times. It means inflation, and then another recession.
Many of the 19th century panics were associated with dislocations because of war, and some were just caused by credit excesses reaching a natural inflection point. In the current case, we have elements of both.
Most of the 19th century was deflationary, as productivity and innovation was driving down prices. Yet wartime financing during the 19th was inflationary, that is, able to overcome natural deflationary forces.
In the modern period, inflation that followed WWI caused a very sharp depression in 1920, which is rarely studied. This one is interesting because it was world wide and also associated with a pandemic. It was also the last depression that the government treated by NOT intervening. It was short, and violent but recovery was swift.
World War II is a bit more difficult because it was preceded by a depression and inflation was held somewhat in check by rationing. The New Deal shackled the recovery, lengthened the depression, and left a lasting legacy of big government and economic interventionism.
A secondary stock market crash and economic contraction in 1937 followed on the heels of rampant anti-business activity and administrative overreach as in the court packing scandal. Thus, we had a secondary depression running up to the beginning of the war in 1939.
The Korean War saw inflation advance at about 11% per year, until mandatory price freezes took place. This of course, simply created shortages. The economy recovered and prices modulated to a degree. But inflation was still too high after the war and the FED tightened credit, causing the recession of 1958, the worst of the post war recessions until we get all the way to the 1970s. It was sharp and short, lasting about nine months.
Certainly, the Viet Nam War and the financing of that war is of interest because not only was the war expensive, Lyndon Johnson was launching the Great Society, and the nation had to bear the burden of both. That has strong parallels to today. That ended in wrecking the post war monetary arrangements (ending the tie to gold in 1971), double-digit inflation, and the Crash of 1973-74. Inflation and high interest rates raged until Reagan and Volker brought inflation to heel with crushingly high interest rates in 1980.
In the aftermath of most of America's wars, the Federal budget would tend to swing back into balance. The Viet Nam War ushered in the regrettable pattern of perpetual deficit spending.
We don't have space for granular detail on each cycle, other than to say, wartime finance has proven to be reliably inflationary, and later lead to recession. We also know we must finance this War against the virus AND finance a welfare state with an aging population that was driving deficits higher organically.
In addition, we know that anti-capitalistic rhetoric and action such as demonstrated by FDR, can prolong depressions. People forget that stock values and unemployment were almost back to 1932 levels after the crash of 1937. We need a political party that will facilitate recovery.
The 2008 experience remains an outlier or perhaps or we are still too close to it because many elements of the rescue effort continued to be used well into the recovery, which until Trump, was very weak. Inflation in the price level did not follow massive doses of Quantitative Easing. However, there was massive inflation of asset prices that are not counted in the CPI such as stock prices, real estate prices, and bond prices.
While Trump has deregulated the economy, he has not acted as a fiscal conservative, the FED backed off allowing interest rates to return to more normal levels. We moved to almost a permanent state of stimulus, which will hamper the current efforts.
The current rescue has elements of 2008, but also new elements of sending money directly to individuals and business, making an end run around what has been a constipated banking system. This has been dubbed as QE for the people. This does look more like paper money inflations of the past to pay for wars.
But even that road to inflation is not without complications. Population shrinkage, population aging, technology, globalization, and debt failure in an over indebted society; all are forces of deflation. That is why central banks goals of a 2% inflation rate have been so hard to achieve.
So, we have both forces of inflationary war finance, and deflationary forces colliding together. However, the war inflations of the 19th century also had to battle natural deflationary forces and the restrictions of the gold standard.
We have the further complication of severe political division and an opposition party, which is now openly socialist in its orientation.
We need at all cost to avoid an L shaped recovery. To avoid this, we must not elect socialists that will cripple recovery efforts. We will need limited government Conservatives that recognize that these emergency measures violate both the rules of fiscal prudence and have trampled on civil liberties.
Emergency measures were likely necessary. But we cannot go down the road of this kind of extreme intervention just for a normal business cycle.
If forced to state an opinion, the U-shaped recovery looks more probable. The world economy was already weakening going into this crisis. Equity valuation was too high and has still not reached truly depressed levels. However, the US economy is very resilient, and the capacity of our people to bounce back is tremendous. Our human and physical capital has not been destroyed as in war. If largely left alone to deal with this crisis, with government primarily acting a credit backstop, the free market will guide us to recovery in a few years.
This current rescue effort needs to be treated as a necessary one-off event, not a prescription for normal politics. If we want to avoid going to L, we need to avoid socialism, which will cripple the recovery effort and permanently damage the economy.
Neland D. Nobel is an Arizona based free market economist and a contributing editor for TCR.
Things People Don't Want to Say About COVID-19
By Bruce Bialosky, Contributing Editor
You might already be sick of reading and hearing about the coronavirus (CV). Since this column rarely writes on matters about which others have flooded us with their thoughts, there must be a good reason to write about this subject. Here goes.
While reading a piece from the WSJ's James Freeman, my head was knocked back. He stated that in the prior four days 2,700 people had died of CV worldwide, while 600,000 total had died. I checked his math. He was wrong.
Bear with me here as I run through some calculations. Let's say there are 7.7 billion people alive today which is a low side estimate. Let's say that they all live to age 75, which is a generous estimate. That means 281,279 people die every "typical" day. That means over those four days, 1,125,114 people died of which 2,700 were from CV. Just a little perspective.
Saturday's New York Times headline cited 14 people had died from the CV in the last day. New York has 9,000,000 people. Statistically speaking 329 people there in a "typical" day. Yet everyone in New York is alarmed.
One can point to 1918 when an estimated 50,000,000 people died (675,000 in the U.S.) of an H1N1 virus (multiple sources including CDC) and say that is a guide. I tend to believe that we have advanced as a society medically and scientifically since then.
And you can believe that the CV numbers we are seeing now are just the tip of the iceberg which is true. Separate of that there are some who are a little skeptical of the reaction our governments have taken.
In 2005, life changed in America after Hurricane Katrina. Elected officials want zero blame for any deaths caused by a weather event (or any other crisis for that matter). They make decisions that are largely for the protection of their political status without concern for the dislocation of their constituency. Certainly every life is precious but there are risks in life and we cannot protect everyone from everything. Hurricanes, earthquakes and tornadoes often kill people. We want to minimize it as much as possible, but life brings risks.
If you doubt what I say, here are some facts from 2009 regarding the H1N1 (swine flu). Fifty-nine million Americans contracted the flu. Of those, 283,000 were hospitalized and 12,000 died over roughly 15 months. We didn't go crazy, shut down commerce, cancel the NCAA tournament. As for testing, there were 5,000 initial tests in the early period and one million were sent out in the first five months (source: CNN). That means possibly 1.7% were tested. That means .47% were hospitalized. That means .02% of victims died. No blame placed on President Obama - just facts. We are now 59 days into this. This reaction now is the full onset of the "Katrina effect."
Watch as governors and mayors ratchet up their reactions. A governor says I am going to "full lockdown" and the next one has to follow in kind because they think if they don't they will be abused by the press akin to what President Trump experiences for every decision he makes.
I did speak to a medical expert about this who has been affected by interacting with other doctors, etc., who are seeing patients with negative reactions from the virus. Here are some thoughts you should keep in mind:
1. This is not a normal flu. It seems to spread easier and can be more deadly. People who get the virus have had serious lung problems which are the principal reaction caused by the virus.
2. The idea that this virus was started in a lab in Wuhan does not meet scientific analysis. Scientists believe there is no way this virus with its elements could have been developed in a lab.
3. Though the virus spreads mainly through someone coughing or sneezing, you must be cautious about surfaces where the virus can live. Make sure to clean doorknobs, etc., to assure the virus is not breeding there.
4. Even though the shutdown is negatively impacting him financially, he believes it is worth it with this virus. The sooner we abate the spread the fewer people will be severely impacted. That includes millennials.
5. The policies the President has put in place are excellent. He should go off script a little less.
The question that must be raised is whether the threat of the virus is worth devastating our economy. And do not doubt it is doing so. The people advising on this don't think of that. They consult and show political leaders the computer models that allow for the most extreme outcomes. When asked by Fox Business Channel's Stuart Varney whether she had considered the economic impact of her decisions, an infectious disease expert stated "We don't take that into consideration." If the medical expert tells a governor or the President that possibly millions will die, they shudder and lurch toward extreme measures like shutting down all "non-essential" businesses.
It may sound silly but the Feds shoveling out a trillion dollars to help people and businesses is just a trickle. We have a $21 trillion economy. That means we generate as an economy a trillion dollars every 18 days. How many trillions of dollars can Washington shovel out?
And that may help some, but getting a $1,200 payment from the Feds is only going to carry a restaurant server so long when their income is shut down and they have $1,900 in rent. We are going to devastate our restaurant industry. Art's Deli, an institution of more than 60 years in Studio City, CA, typically has 40% of their business in take-out. Most restaurants would kill for that today as a base. But they cannot sustain themselves even if they raise their numbers to 50% during this crisis. And the workers they had to lay off can only last so long.
Then there is the privately owned clothing store that lost 100% of their business, or the drycleaner or the fitness center. The businesses will be crushed and the workers unemployed. The building owners will be unable to make their mortgages as hordes of their tenants will be unable to pay their rent. We will go into full financial crisis mode. We have to consider that. Even large companies who have been carrying their employees will start waves of layoffs.
A headline in the Washington Post on March 21st stated "Economy Deteriorating Faster Than Anticipated as 80 Million Americans Stay at Home." Really, what did you expect? Maybe journalism schools should require a basic class in economics. A sophisticated high school student could tell you our economy would immediately go directly in the toilet.
Unless we make some decisions to allow greater freedom for people's movement and get back to normalcy, it will not take long for severe and prolonged economic damage. Maybe the governors and our president should heed that warning. If they don't then how many people will die from that?
Can somebody get me some 80-degree weather?
Can someone get me a basketball game to watch that isn't 20 years old?
Attributing the start of CV on China is not racist. It is blaming a country and their government. No one is blaming Singapore or Taiwan, two countries I love, which are almost all of Chinese heritage. No one is blaming Japan or Korea or Thailand or Vietnam, all of whom are the same race as the Chinese. China is a horrid country with a despotic government. They practice backwards eating habits that helped lead to this current virus. Instead of accepting blame and courting international help, their government denied reality — largely causing the international spread of the virus.
Whether or not you like President Trump, he was very clear about a challenge to China in 2016. While his political opponents focus on Russia as our primary challenge worldwide, this crisis has potentially woken people up to reality. When Mr. Trump banned Chinese travel to America, he was called racist by some because anything Mr. Trump does must be wrong. He wasn't wrong and his call was not racist.
If there is any lesson from all of this, avoid the sin of procrastination in terms of advance preparation. It is rarely beneficial.
I finally received a benefit from being a senior. The Beautiful Wife and I went to our local supermarket plus Smart & Final and got in both before the rest of the younger folk. Still a shock to see how decimated the shelves were.
If there is any benefit of this crisis it may be that we will now have telehealth. Two years ago I contacted my long-time doctor about a medical issue. He was insisting that I have to come in. I told him I did not want to come in, "Just bill me." His answer "I cannot do that; it is against the law." He did not say he needed to see me to diagnose the situation. Rather, he was restricted by insurance rules made by the federal government that stopped him from billing. Telehealth would be the biggest advance for this country. Doctors don't go around to people's homes anymore. Their practices should be allowed to enter the 21st century.
You may have heard that some U.S. Senators are being accused of insider trading of stocks. The media almost never includes the name of California Senator Dianne Feinstein. They focus on the new senator from Georgia and particularly Richard Burr (R) from North Carolina. The calls for Burr's resignation have a smell of politics to them because his replacement would be appointed by a Democrat Governor.
There have been missteps. We are dealing with uncharted territory. We've never dealt with a medical emergency like this. Mr. Trump and his team are making necessary adjustments. As an example, people are complaining about not having enough ventilators. These machines cost money. Hospitals prepare for a crisis and then have a few extras. They aren't going to stockpile for an outbreak that might affect millions. They would be investing in machines gathering dust most days as opposed to equipment they need every day to take care of people. We seemed to get through the swine flu with the number of ventilators on hand and we will likewise survive this one. Thankfully the federal government is moving to remedy the need with government stockpiles and encouraging businesses to manufacture new ventilators quickly.
I have had a saying for a long time: In periods of adversity there is opportunity. We are not talking about businesses or people price gauging. That is unconscionable. But there are investment opportunities and new business ideas that come from a crisis like this. While some people are in a panic, that is the time to step up and take advantage. We are already seeing that. Honest market moneymaking opportunities.
We have a country with disbursed power and millions of entrepreneurs with a spirit of wanting to conquer a problem. We are relying on capitalism with our business leaders stepping up to help resolve the situation. Waving fees, helping to check people's health, developing new tests in record time, donating millions of pills and our government is slashing through the red tape to enable this to happen. We are seeing capitalism at its best, just like we did after 9/11. You should pray every day and be thankful you live in a beacon of freedom where we will always confront a crisis together and come out better on the other side.
Let us continue to focus on our elderly. This disease is not a threat to children. It is a minor threat to 20- or 30-year-olds. They will almost all be fine. The people who are dying are elderly and others with compromised health. It is nice to see our society pulling together to extend their lives in a healthy manner. It is a sign of our civility.
Let's keep it that way.
Bruce Bialosky is the founder of the Republican Jewish Coalition of California and a former Presidential appointee. You can follow Bruce on Twitter @brucebialosky.
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About Your Editor
Gary Polland is a long-time conservative and Republican spokesman, fund-raiser, and leader who completed three terms as the Harris County Republican Chairman. During his three terms, Gary was described as the most successful county Chairman in America by Human Events - The National Conservative Weekly. He is in his twenty-second year of editing a newsletter dealing with key conservative and Republican issues. The last eighteen years he has edited Texas Conservative Review. As a public service for the last 16 years, Gary has published election guides for the GOP primary, general elections and city elections, all with the purpose of assisting conservative candidates. Gary is also in his 18th year of co-hosting Red, White and Blue on Houston Public Media TV 8 PBS Houston, longest running political talk show in Texas history. Gary serves on the Board of Directors of American Values, a national pro-family, pro-faith, conservative organization supporting the unity of the American people around the vision of our founding fathers and dedicated to reminding the public of the conservative principles fundamental to the survival of our nation. Gary is a practicing attorney and strategic consultant. He can be reached at (713) 621-6335.