$6 trillion isn't enough.
Self interest costs more
The big item in the news this morning is the CARES Act, passed in the Senate last night. It features a $2 trillion of fiscal programs including:
$1200 of direct payments to people making $75k and under
An extra $600/week for furloughed workers (thanks Bernie!)
$500 billion in loans for loans to “industry, cities, and states”
$350 billion in small business loans
But this couple trillion dollars follows three weeks of monetary and fiscal action. Here’s a handy timeline:
March 6: $8.3 billion emergency measure
March 12: $1.5 trillion pump from the Fed
March 13: $50 billion ‘national emergency’ money
March 15: $700 billion in quantitative easing
March 18: $100 billion aid package
March 25: CARES act
Combined with other stuff, I’m pretty sure this is what economic advisor Larry Kudlow was talking about when he said the government was spending $6 trillion.
So, the total package here comes to roughly $6 trillion: $2 trillion direct assistance, roughly $4 trillion in Federal Reserve lending power. Again, it’ll be the largest Main Street financial package in the history the United States. Liquidity and cash for families, small business, individuals, unemployed, to keep this thing going.
Apparently the federal government spent about $4.5 trillion last year. Total. It’s spending 35% more than that just on this crisis.
I don’t think it’s a coincidence that they got this bill done last night. Unemployment numbers are coming out today and it’s scary. They’re expected to jump 1,000%. No wonder Trump was trying to say we’ll be ‘open for business’ by Easter: he’s looking for a resurrection.
Is any of this enough?
Remember the current crisis is a production crisis. Specifically, it stems from the fact that people staying at home means many firms— if not most firms— become ‘deficit agents’: they can’t produce, they can’t make money, but they still have costs like rent, labor costs, infrastructure.
The $6 trillion dollars of spending is supposed to meet that cost pressure. People and firms have to pay what’s due, but they can’t because they’re out of work and all work has basically stopped.
All that money is supposed to shore up the deficit agent problem. But my prediction for whether $6 trillion will be enough: probably not.
Why? I’ve heard a clue on some finance podcasts I’ve been listening to.
The rot of self interest
Capitalists have a weird mystical faith: they believe that the way to get what's best for everyone is if everyone acts in their own self interest. By ‘self interest’ they mean something very specific: do stuff until it costs you too much to keep doing it. That belief holds for both individuals and firms. If you look out for yourself, then everyone benefits.
On SupplyChainBrain's podcast, two lawyers who advise supply chain managers and distributers literally said "don't just watch Netflix" during the shutdown when asked what supply chains could do. They also recommended that businesspeople--capitalist businesspeople, mind you-- not treat each other as competitors and not be so self-interested.
On a Financial Times news briefing last week, the guy who was in charge of Britain's response to the 2008 crisis and founded the Systemic Risk Council likened the situation to war, and said private bankers shouldn't be greedy, and made a funny plea to capitalists not to think only of their own profits.
The reason why there’s a cost pressure in the first place is because we have a structure based on self-interest. The capitalist’s mystical faith permeates the structure. Most people are just trying to get theirs.
Contracts throughout the mode of production are guaranteeing it. In fact, it’s the whole coding of the structure, basic lesson everyone learns. But this is a situation where self-interest has to break down or else the structure itself founders. You have to forgive the debt, cancel the rent, literally give people stuff so that the anti-gift economy can survive.
But we don’t have a population that’s willing to do that. In fact, they’d rather die. The cost of maintaining self interest is higher than $6 trillion.
I think the pipes of the structure are rotted through with capitalist mysticism. Even if you pump $6 trillion into it, our populace will try to get the best price, collect their rent, and get what’s theirs.
A perfect example of this is happening in my backyard. A real estate developer bought Hahnemann Hospital in Philadelphia and closed. The City wants to open it back up for obvious reasons, but the developer wants a prohibitively high price for it.
We’ll see an entire economy act like that. How can fiscal stimulus fix the principle concept behind the economy?
It’s funny, but in an existential way: the mode of production has to choose between its existence and its essence. Either give up self interest or crumble.
I’m thinking it’s going to crumble.