the Blog Papers of Dr. Michael Sakbani; Economics, Finance and Politics

Dr. Michael Sakbani is a professor of economics and Finance at the Geneva campus of Webster-Europe. He is a senior international consultant to the UN system, European Union and Swiss banks. His career began at the State university of NY at Stoney Brook,then the Federal Reserve Bank of New York followed by UNCTAD where he was Director of the divisions of Economic Cooperation, Poverty Alleviation, and UNCTAD`s Special Programs. Published over 100 professional papers.

Thursday, April 16, 2020

the World Economic and Political Order After the Pandemic


The World Economic and Political Order After the Pandemic            
                              By
               Dr. Michael Sakbani
The  Pandemic is a manifestation of the good and mal in an interconnected world. In a world we can fly from one end to the other in one day, everybody can be a victim and everybody can be a healer.  The  pandemic teaches us that a virus is a common ill, just as is  a climate catastrophe, or an agricultural crop failure as was the disappearance of anchovies in the south American coast in 1970.  Dealing with global problems requires global solutions.
The abilities of countries, however, are not even. There were ones which have the infrastructure of health and social maintenance and ones that do not. There are countries that were well prepared and others that were not. Yet, they all were hit by the same virus and are affected by the same climate problems, almost at the same time. Ad none of them is protected unless they all are.
An epidemic per se does not change the political or economic order. It presents the society with a mirror picture of its problems and incapacities juxtaposed to its needs. It forces societies and their leaders to undertake changes or reforms which were not on the agenda before. In old Russia WWI produced Communism. In Germany and Italy, it produced  Nazism and Fascism. In more pragmatic societies like the US, it produced the New Deal and the reforms of FDR. So, let us see what the mirror has shown.
How Did the Liberal Democracies Do

The US, and other liberal democracies, were caught unprepared. That is because public investment was not made in what people essentially need, such as health preparedness, basic societal support, research and knowledge to cope with emergencies. Instead, public investments were in the military and in pork-barrel appropriations which aid in reelections of politicians and assures the continuation of the support of the military industrial complex. According to the investigations of the New York Times, the Trump Administration wasted critical 6 weeks in wishing the epidemic away, making false public announcements about the short disappearance of the virus and the availability of tests for everyone who wants them(New York Times)[1]
There is no question that the US Administration ignored the warnings by many highly placed officials, including the Secretary of Public Health, Alex Azar, the Director of the  National Institute of Allergies and Infectious Diseases Dr. Antony Fauci, the economic adviser Dr. Peter Navarro and the national security officials as well as the Pentagon. The  President simply  was concerned that taking drastic isolation measures would impact badly the economy which in turn would jeopardize his re-election. Many state Governors, followed on  partisan lines, the cues set  by the President.
The crisis revealed that of all parts of the US Federal Government, the military was the only branch well prepared to meet crisis. The military had a long experience in logistic preparedness and the resources to simulate crisis and deal with  them, while its civilian counterpart had scarcely the wherewithal’s to deal with an epidemic..
The question then arises as to  what power does the citizenry have in in influencing decisions regarding the distribution of public funds, and what control they can express regarding critical decisions by elected Governments. It should be recalled that Prime Minister Blair went to war in Iraq when 75% of the British public was against the war. In other words, what is the power of the public outside election times to control government actions in liberal democracies? I know of only Switzerland which has popular participation by the citizenry. In other liberal Democracies, popular movements which have a continuous public opinion mobilization might be the way to control state action.

Capitalism; the Climb of Corporations onto Power
In 1989, the American political scientist  Francis Fukuyama predicted the end of history. The triumph of Capitalism over collective Socialism was, to him, final and without appeal.
The triumph of capitalism had two aspects: market competition and the rise of the new regulatory state shaped by the libertarian right. Up to roughly the early eighties, corporate business leadership and government power control were interchangeable; corporate leaders, like James Forestall , Alfred Sloan, Charles Erwin Wilson, Douglas Dillon, Robert McNamara and George Schultz slid into and out of government almost in -noticeably. This is best expressed by Wilson`s  aphorism” for years I have thought what is in the interest of our country is in the interest of General Motors and vice versa " This paternalistic mesh underwent a radical change during the Reagan-Thatcher era. The rise of the ideological right led by William F. Buckley jr, William Rusher, Russel Kirk and many academicians like Milton Friedman , James Buchanan and Frederich Hayek together with the multiplication of right- wing  think tanks like the Heritage, Cato, American Enterprise and Hoover Foundations,  all led to a determined climb by business corporate advocates into the power centers in Washington. The late Justice Lewis F. Powell was hired in the early seventies by the US Chamber of Commerce to write a policy memorandum on what business should do and advocate to further its interests in the US capital. His recommendations were gradually fulfilled in the 1980`s as business lobbyists numbers increased dramatically in Washington. DC. From modest budgets of few millions, in the early 1970`s, lobbying was financed to the tune of $3.5 billion  in the late 1990`s. according to Professor Robert Reich. ( Reich, Netflix , 2019.)[2].  Reich documents that close to 40% of former House Representatives became lobbyists after retirement and 48% of former Senators entered this business.(Ibid.)[3]. Washington lobbyists exert pressure on elected officials because their campaigns are largely financed by private businesses. The financed elected legislatures  pay back in skewing legislation in favor of business. The plum is in granting business tax exemption and subsidies and favorable regulations. Examples are exempting bonuses of top executive from tax, barring default on student debt or on mortgages while business is free to do so, barring the Federal government from using its enormous bargaining power in negotiating drug prices. Reich put such subsidies at the order of $ 100 billion.
President Reagan pioneered the practice of appointing to regulatory bodies people who do not believe in and are active adversaries of the mandates of these bodies. This was crowned by the decision of the US Supreme Court “Citizens United” in 2010, in which corporate businesses were given under the first amendment pertaining to free speech the right to spend their monies on financing election campaigns.
  The paradigm of Capitalism unhinged and free of regulations ruled the landscape after the collapse of Communism. As Thatcher and Reagan put it : there are no alternatives. This applied not merely to companies, but also individuals, as they scrambled for employment and advancement, investing in their own ‘human capital’so that they can be picked up by the new globalized businesses.  Public services were increasingly privatized and subjected to market competition with everything from healthcare to higher education to even servicing the military subjected to the criteria of profit in the name of ‘choice’ and ‘efficiency’[4]. This is how Bechtel, Black Water and Charter schools came into the news in Iraq and New orleans. Unions were crushed while social democrats shifted inexorably to the right. In the US the drift towards the right made states like Florida advertise that they are  union- free  states.
The functions of state also changed. Early in the post war era, the state took on the goals  of trying to narrow the gap in income distribution and finance social services. But this came to end in the mid 1980`s
The capitalist system that ruled thereafter, has allowed wealth to be concentrated in the hands of a few individuals, the envied 1 % . The Nobel laureate Professor Joseph Stiglitz` research shows that from 2008 till 2015, 90 % of the growth in the US `GDP went to the top 1 %. (Stiglitz, 2015 ),[5] Global businesses which have no roots and no loyalties except to their own profit line, moved their industrial  plants and headquarters to locations where they used their labor -saving technologies on the cheap and where they paid least taxes. Such countries are also outside the norms of the ILO and practically free of environmental restrictions. The situation has evolved so badly that the six heirs of the Walton family who own Wall-Mart in the US, have a combined wealth exceeding 140 million Americans. ( J. Harkinson, 2015, W. Domhoff, 2015 )[6]
And the trend for skewed distribution of income gathered momentum after 1985 with the spread of globalization; the share of capital in the GDP increased by 5 to 10 percent over the trend set for close to 80 years in the USA. Naturally, capital owns the new technology which turned out to be labor saving (Sakbani, 2020) [7]. Thomas Piketty corroborates this in the  European countries by the rise of the ratio of profit growth to income growth.( Piketty,2014 )[8]
 The sins of unfettered capitalism should not however, obscure the role of the markets in the allocation of resources. There is simply no other and better mechanism. But by markets it is meant competitive markets free of monopoly and government favoritism. At any rate, the State should play a compensating role to market outcomes when social goals are at stake, because the market does not account for social returns and does not charge social costs.  
Wealth and income are not in our era always earned by developing industries or exploiting land or introducing new technologies to old methods of production, but quite often, by the stock-market valuation of newly enlisted enterprises in the Tech. industries which produce information services out of  small enterprising beginnings. Millions are created overnight just as millions can be destroyed overnight. This casino capitalism has to be regulated, subjected to social purposefulness and taxed fairly but fully. The EU commission reported that Apple made millions of Euros in various countries but did not pay taxes in these counties where it had its businesses. Similarly, Amazon, the giant mass distributor, pays little US federal taxes. So did most of the cruise liners)[9]
In the period after the 2008 crisis, Europe in particular, shifted to drastic austerity in the name of correcting the so called” Problem of Public Finances”. In a bloc of highly interdependent economies, the fiscal austerity of the UK, Germany, the Netherlands and Finish Governments hit the Southern EU  states with full force. Greece, Portugal, Spain, Italy and even France, were dragged down and forced into austerity, born essentially by the poor and working poor.
This strange and economically unjustified fiscal conservatism took place when interest rates were at historical lows and investing in building up the economies and in clean technology were definitely going to bring higher net rates of return (Sakbani, 2020 ).[10]
The Covid 19 crisis even stripped these contentious stands of their fig-leaves. Today, the Republican Party in the US and the British Conservatives under the politically itinerant Boris Johnson, have jettisoned off the fear of public finance deficit and the ideological taboo of small government to protect their business constituents and secure their own re-elections.  Fox News editorials are now touting the old leftist planks of deficit spending.
The left however, has not weened itself off asking for more and more public spending. Jeremy Corbyn defeat and the failed campaign of Elizabeth Warren in the US., showed the limits of this old adage; the public has no appetite for it. The left has to reinvent itself,  for its advocacies have been taken over by the right  Its hope lies in emphasizing Democracy and its civic participatory core.as well as social safety nets.  
 The Role and Perception of the  Public Sector
The advent of the Covid 19 virus, like the HIV, has some origin in man`s intrusion and encroachment upon the  animal and the jungle kingdoms. It is reported that bats transmitted the  Covid -19  to other animals eaten by humans. For long, science has not provided a proof or counter proof on cross-species transmission. If this hypothesis is true, then at the bottom of such epidemics is man`s multiplying demography. The world as we still remember it was a planet of 5 billion people in the 1950`s Today, we are about 7.5 billion, polluting and consuming .
 In all  countries, when the crisis struck, people looked to Governments and public bodies for dealing with their problem. Indeed, it was the Government that took command of the situation albeit with various degrees of success. Businesses and voluntary civilian bodies were only organs of help to the Governments in charge.
For at least four decades, the public, especially in the USA, has been skeptical of the role of Government outside law and order and national defense. President Reagan famously said the Government is the problem and not the solution. So many people find the public sector lacking in a  bottom line. Its bureaucracies are thought  of as heavy, cumbersome and lacking in efficiency. This widespread belief is based on stereotype that does not stand to careful examination. To be sure, the public sector tolerates failure and needs periodic calling into account. But the record of business is not always better. It is precisely the lack of bottom line that exposes government to such criticisms, because what they do does not have a market price.
In the USA, the size of Government in 1952 was 5% of the active labor -force serving less than 180 million residents  Today, it is only 2% of the employed serving about 330 million residents. The public sector might have incompetents but it is rich with devoted public servants whose best elements are as good as the very best in the private sector.
The public distrust of the Government finds support in the concocted rational justifications offered  by the new Macroeconomics taught in the academe over the last forty years. This macroeconomics postulates the rationality of the homo economicus, the rational expectations of the individual, the efficient working of the markets and the multiple lags of fiscal policies and the  biased self- interested political calculus of politicians in election cycles.( Sakbani, 2009, and 2019.) [11] In the crisis of 2008, all of these postulates proved empirically invalid. Government saved the economies and the financial systems by following the old stuff carrying the insights of John Maynard Keynes. This time again, the macroeconomic policy responses are in the same vein. In a public lecture in 2017 at the graduate institute in Geneva, the eminent economist and public intellectual Paul  Krugman called this “the old stuff”. Another adjective richly  deserved is ”the largely valid stuff”.


What Happened to International Cooperation
The international system of cooperation, symbolized by the UN and its specialized agencies are critical for collective action on global problems but do not have the means, because the leading members do not have the political will to act collectively. The UN Security Council could not pass a resolution during the corona crisis  because the US and China could not agree on an adjective for the pertinence of  the virus: is it a Chinese virus or just a virus. Quit baffling was the refusal of the United States to use the WHO diagnostic testing offered to it when its testing preparedness was woeful. There were countries like South Korea, New Zealand, Australia, Germany, Denmark, Finland and other Democracies in Asia who were successful in combating the Covid-19 and reducing the death toll. Yet, the US and the UK, as examples, were unwilling to draw on this comparative experiences 

The Covid 19 has demonstrated the gaps in the WHO mandate, where it could not have asked China to allow the Organization to send investigative missions early on when the Chinese were not revealing the truth about the epidemic. Similar gaps can be ascertained in various other international bodies. In a world threatened by pandemics, by climate change, by regional water shortages and crop disasters on massive scales, the international cooperation system must be strengthened and given the mandates and resources to carry out their missions.

Regional bodies like the EU. Have not passed the effective cooperation test. Europe was hit by the virus at roughly the same time. When the agonies of Italy and Spain required help, other countries concentrated on meeting their national needs. Protective apparels, medical equipment like ventilators and medical supplies were sequestered and denied to exportation. That means the nation states prioritized first their needs. Furthermore, the idea of issuing EU collective bonds was shut down by Germany, the Netherlands and Austria and others.

Dangers and Opportunities
Looking at collective systems and authoritarian governments, it is clear that China  after a month and a half of lies and dissimulation, took drastic mitigation measures practically impossible in open societies. China was able to stem the tide and stop the epidemic. The cost it  paid will never be known and China hid the epidemic for a month and a half. The great story is not Chinese, rather that of the Asian Democracies: South Korea, Taiwan , Japan and may be Singapore , Australia and New Zealand, who  were the real champions. South Korea, tested up to mid -April, ,40 times per capita more than the US has done and moved to relax the isolation measure a week ago.
Authoritarians like Victor Orban of Hungry, availed of the crisis to take unlimited powers from the Parliament. There are measures of electronic surveillance and tracing people applied to fight the epidemic, especially in South Korea, which can in authoritarian hands really threaten freedom, privacy and human rights and the authoritarians are not hesitant to exploit.

Where Is All the Money Going and What is the Shape of the Recovery
The  Covid -19 crisis has turned on the money printing machine. The money tree, now called QE., will leave the US economy with more than $ 3 trillion new dollars. Similar relative amounts will also feed into the European economies. Until the Covid -19 crisis, China and others in the low- wage international supply chain, have been able to ramp up the aggregate supply with cheap goods. Now, avoiding inflation requires turning this liquidity into new investments. The crisis affords the chance to invest in infrastructure and clean technology. It also provides the opportunity to diversify the international supply chain by bringing some such industries to The US and Europe.
Looking at the shape of the economic recovery, its recovery curve will depend on how the economies open up. That means when and where various Governments think they have seen the back of the epidemic. Five  conditions must be fulfilled before re-opening becomes possible. First, having large scale diagnostic testing to know in instant real time the size of the epidemic spread and therefore the scope of the necessary social distancing to implement . Second, having  wide scale anti -bodies testing of recovered people to know what immunity they have acquired. Third, attaining the capacity to trace infected individuals in order to isolate them . Fourth, for each state or locality, the capacity of the health services should be the constraint. Fifth, eventually, discovering effective remedies and ultimately a vaccine. Any reopening before attaining the first three conditions would risk reigniting the virus and costing more deaths. From what can be known now, we are far from such a state; several months might be needed.
The recovery will depends on the depth of the recession. Morgan -Stanley has estimated the rise in unemployment in the US  at 13 % . Goldman Sachs estimation is 15% and Morgan- Chace is little higher ( David Kelly, 4/13/2020, J.Fox, 4/14/2020).[12] . Our guess-estimate  informed by the available data places unemployment in the US at a range between 16 % and 19%.

On 114/4/2020, the IMF predicted a loss of global GDP of $9 trillion in their moderate scenario. That is about 12% of the global GDP. The IMF is forecasting growth in  emerging economies at 1 percent and a decline of growth of developed economies of 6 percent. ( IMF, Update,4/14/2020 )[13] . In their view, it will be the  deepest  recession since the great depression of the 1930`s.; we might have up to 20 % decline in the GDP of many countries.Two important new press reports are that China will have through the second quarter, a negative income growth for the first time in three decades. the second is that the US `GDP will have a decline of 6.8 percent in the second quarter of 2020. Recent reports of unemployment place the number of workers applying for unemployment benefits at 26 million. 
In all countries, the important indicator is the ratio of dismissed workers to those retained. The higher is this ratio, the more difficult and harder will be the recovery. Many businesses will use the crisis to restructure their work -force, and in big business who owns the new labor saving technologies, they might opt for the robotics if suitable. Furthermore, many small businesses might disappear altogether. 
In the USA there is the  problem of the ballooning since 2008 of private debt which has accumulated over the years. This includes a huge corporate debt, the heart attack of the $16 trillion mortgage market which has to be reopened given that the majority of small and medium -size enterprises are involved in a big way in the construction industry, and finding an orderly resolution to the  student debt of $1.6 trillion, which otherwise could  bankrupt many financial institutions.

President Trump is agitating for reopening even beginning of May. That would likely be a premature date. The US president is very worried about his re-election. and he sees in the economy his best vehicle of approval. In Europe, Austria, Denmark and Spain are easing closures by opening selected parts of the economy while keeping social distancing. In all probability, the reopening will be rolled out gradually and selectively. Governments are advised to draw lists of priorities of their economic sectors and another list of how various sectors can implement protective measures and social distancing. This would map out matrixes where on the horizontal, one would have the priorities and on the vertical the capacity to protect and cope. The result is sequential  combinations of possibilities which would assure intelligent reopening .

 Unemployment, according to the above  forecasts, will be high when the economy reopens. Historically, unemployment is a cyclically lagging indicator. Therefore, the pace of recovery is likely to be slow. If we add to that the slowness of administrative procedures to put the massive loans and aid in the hands of enterprises, one has to conclude that the number of dismissed workers will relatively increase before reopening. Consequently, the curve might be an extended U-shaped which rises gently upward in 2021. In the 2008 crisis, it took the economy 5 years to re-establish growth and bring down unemployment meaningfully. Since reopening will be rather sequential in time for various countries, the overall U might have several smaller U`s and V`s  within it. This holds hope that the recovery will not be as slow as the one in 2008.

Geneva, 23/4/2020.


                                                                      NOTES

[i]  .. The New York Times, Sunday, 4/12/2020.
[ii] . Robert Reich, Saving Capitalism, in Netflix, 2017.

[iii] Reich ,Ibid.

[iv]  Examples are found In Bechtel, and Black Water subcontracting for the military during th Iraq war, and the rise of Chartered schools after Katrina in New Orleans.

  [v]Joseph Stiglithz, Inequality and Economic Growth, in Sementic Scholar, No.15, 2014.        .,


Vi  . J. Harkinson, Mother Jones, October, 2015, also, William Domhoff, Who Rules America;  Power, Politics, and Social Change , University of California Santa Cruz, 015.

[viii]Michael  Sakbani, Trump the President That Was not To Be, in michaelsakbani.blogspot.com, 2017

VIII . Thomas Pikietty, Capital in the Twenty Ffirst Centuary (20/4) Cambridge, Massachusetts, 2014.. 

IX . Tax Avoidance,” The Apple Tax Ruling-What This Means for Irland,Tax and multinationals” , the Guardian, 2018.,

X . Michael Sakbani, Reflections on Karl Marx and the Neo-Classisists  in, michaelsakbani.blogspot.com, 2019.                                              
[xi]Michael sakbani, Trade Wars with the World; Can Mr. Trump Approach Work, in michaelsakbani.blogspot.com, 2019, also, Michael Sakbani, the Global Financial Crfisis , Central Bankingand the Reform of the International monetary and Financial Systems, in michaelsakbami.blogspot.com, January 2009.

[xi. i]Jeff Fox, “Goldman Sachs Says Downturn Will Be 4 Tmes Worse Than the Housing Crisis , then Unprecedented Recovery”, CNBC, April 14, 2020.

[xiii].   Dr. David Kelly, J.B.Morgan, Economic Update , April 13,2020   
                                                   
Xiii  IMF, Transcript of the Press Conferenceon the Release of  the World Economic Outlook, 14/4/2020.






Saturday, April 04, 2020

Analysis of the Macroeconomic Crisis of the Pandemic: lessons Learned


 Analysis of the Macroeconomic Crisis of the Pandemic; Lessons Learned
                   By
        Dr. Michael Sakbani

Confusion and Opaqueness at the Top
The first lesson is that a global epidemic cannot be fought in one country or one region at a time. The virus respects no border and spares nobody.  Although the timeline might be different for various regions, and countries, the epidemic will come everywhere. The time to lessen its impact is before it arrives. Thus, the country that has not yet gotten the virus must prepare for what is coming. Belittling the crisis to come for political calculations courts a major catastrophe.

The US Federal response to the crisis has been anything but competent. The Pentagon in early march offered masques and ventilators but no civilian Federal official took that up. Furthermore, the ventilators in the national stock have maintenance and repair problems. There are Press reports (NBC, MSNBC, ABC, CNN) that business has exported abroad thousands of medical supply items needed in the US. the Secretary of the Public Health  Alex Azard raised the epidemic issue with the President to no result. the director of the US National Institution of Allergies and Infectious Diseases, Dr. A. Fauci as well as national security officials and two memos by Dr. Peter Navarro did not succeed in convincing the President of the seriousness of the epidemic. The task force set up by the President promised millions of masques, protective apparels and tests. But state officials report having gotten little of all that. The VP`s  task force over-promised and under-delivered
The Federal government did not coordinate purchases of medical supplies and instruments. The result has been that states are outbidding each other, thereby jacking up prices. Regardless of party affiliation, Governors complain about this price competition. Many businesses are practicing price gouging; a masque price is now 10 times higher than before the crisis. On top of that, FEMA is competing against the states and increasing this mess.
Half of the states still do not have strict measures of social isolation because the Federal government has not set common standards. The FDA and the Center for Disease Control had very outdated protocols evidently not suitable for such a large scale epidemic. They hampered testing and froze the use of national stocks for a long period. To add to this cascade of ill steps, they refused to use the WHO test for unknown reasons. Furthermore, they dissimulated their failures and took no responsibility therein.

Why is the USA trapped in this dysfunctionality?
The President's main concerns seem to be having a prosperous economy which assures his re-election. Given this preoccupation, he first dismissed the virus as a Chinese remote happening, then he called it a democrats hoax, then on February 27, he declared the US is in no danger of being affected. By the time he took the matter seriously, the virus had spread communally in various parts of the land.
Quite astonishing, the President refused to take responsibility for the shortages of Federal preparations, and the patchwork of state responses. Predictably, he blamed his predecessors for the Administration's poor performance. He has been in charge for three years and his security and intelligence agencies signaled the shortages early in February, but he has done nothing. Conveniently, he forgot that his Administration cut off the budgetary allocations to the Office of Epidemics Prevention, which was a part of the National Security Council. 
The result has been confusion and lack of credibility regarding the highest levels of leadership.

The Federal government has been very unwilling to impose common standards of purchasing, procurement and distribution by enforcing its authority under the Defense Production Act. The press reports that the President has been lobbied by the US Chamber of Commerce not to do so. Only late in March, he did use his authority to force production of the needed supplies. And to add to his hesitant stands, he voiced out at mid-March his wish to reopen the economy for business at Easter in areas that are not largely affected by the virus, a truly uninformed and dangerous idea.
The behavior of the President is not unique among US politicians. Many Governors who support the President: Florida, Mississippi, Missouri, Alabama, just to name a few, have decided matters without due regard to science and Data. In a partisan political atmosphere where there is no respect for the truth, for data, for knowledge, the US finds itself at least partially, in the dangerous culture of “alternative facts” and science denial.


As a historical incident, lying about an epidemic, dissimulating its spread and fear-ridden state behavior goes way back in history. Examples abound: the Bubonic plague,  the Spanish flu, and the repeated Cholera epidemics are cases in point.
The US has to chart out a strategy for dealing with the epidemic. There are only three scenarios: let the virus run and have people go back to work; close up the economy for months; and finally, reduce the spread of the epidemic by flattening out the curve to not overwhelms the hospitals and eventually find a treatment and a vaccine. The first scenario means at least two million dead, and so far to far as we know, there is no long-term immunity The second a collapsed economy, while the third is the only feasible strategy. The US  has made no choice because the President filters everything through his election perspective.

The Role and Perception of the Public Sector
The advent of the Coronavirus, like the HIV has some origin in man`s intrusion and encroachment upon the animal and the jungle kingdoms. It is reported that a bat has transmitted the  Covid -19  to another animal eaten by humans. For long science has not provided proof or counter proof on cross-species transmission. If this hypothesis is true, then at the bottom of such epidemics is man`s multiplying demography. The world as we still remember it was a planet of 5 billion people in the 1950`s Today, we are about 7.5 billion, polluting and consuming.

 In all countries, when the crisis struck, people looked to Governments and public bodies for dealing with their problems. Indeed, it was the Government that took command of the situation albeit with various degrees of success. Businesses and voluntary civilian bodies were only organs of help to the Governments in charge.
For at least four decades, the public, especially in the USA, has been skeptical of the role of Government outside law and order and national defense. President Reagan famously said The government is the problem and not the solution. So many people find the public sector lacking in efficacy and without a bottom line. Its bureaucracies are thought of as heavy, cumbersome and lacking in qualifications. This widespread belief is based on stereotypes and does not stand for careful examination. To be sure, the public sector tolerates failure and needs periodic calling into account. But the record of business is not always better. It is precisely the lack of bottom line that exposes the government to such criticisms because what they do does not have a market price.

In the USA, the size of Government in 1952 was 5% of the labor force serving less than 180 million residents  Today, it is only 2% of the employed serving 330 million residents. The public sector might have incompetents but it is rich with devoted public servants whose best elements are as good as the very best in the private sector.
The public distrust of the Government finds support in the concocted rational justifications offered by the new Macroeconomics taught in the academe over the last forty years. This macroeconomics postulates the rationality of the homo economicus, the rational expectations of the individual, the efficient working of the markets and the multiple lags of fiscal policies and the biased self- interested political calculus of politicians.in election cycles. In the crisis of 2008, all of these postulates proved empirically invalid. The government saved the economies and the financial systems by following the old stuff carrying the insights of John Maynard Keynes. This time again, the macroeconomic policy responses are in the same vein. In a public lecture in 2017 at the graduate institute in Geneva, the eminent economist and public intellectual Paul  Krugman called this “the old stuff”. Another adjective richly deserved is ”the largely valid stuff”.

Analysis of the  Macroeconomic Crisis
The macroeconomic packages in all countries have a basic aim of putting cash in people's hands: consumers and laborers. The virus has destroyed  both Aggregate Demand and Aggregate Supply; and it did that simultaneously. Thus, it shut down  business, destroyed investment and strangulated consumption.  And it did that globally, shutting off for a while, international trade and the international supply chain. The world economy moved fast into a gaping recession perhaps more intractable than the 2008 recession.
This week (beginning April)  Goldman Sachs predicted an unemployment rate of 15% for the US. From March 19 to April 2, the number of workers applying for unemployment compensation in the USA increased by 10 million. In Europe, the same unemployment disaster seems to be taking hold. In Spain, France and the UK applications for unemployment compensations have registered unprecedented levels. A major problem with the current recession is that unlike the previous four recessions, the upper income 25% of the population in the US have bounced back, thanks to the digital economy. for the lower 25%, it is altogether a different story. people who do manual jobs, who are in health services, in the food and restaurant business and all other front line workers have lost their employment drastically; in fact, they tanked. So many small businesses are shut forever, and so many workers are let go for good.
The macroeconomic policy response in all advanced countries has been bold and encouraging. In the US, the passage of the $ 2.2 trillion package by overwhelming bipartisan Congressional support is promising. The same can be said about national European actions involving hundreds of billions of Euros and the euro 100 billion promised by the EU and further action by the EIB. As to developing countries, neither the virus has yet manifested its full impact nor are these countries going to have the financial resources and medical systems to cope with this double crisis.
What is important from a macroeconomic policy strategy is to keep workers employed in their respective enterprises. The service dominated economies in the advanced countries would be difficult to restart if massive layoffs occur. There are $350 billion appropriated for medium and small enterprises in the  US` bill. This relief will be administered by the US Small Business Administration and channeled through banks. This risks two things: that there will be long bureaucratic procedures in which small enterprises will not be the best place to get the money and another is the long delays in processing such a massive amount.  The capital danger is that small businesses will go bankrupt if the money does not get to them fast. 
Another $500 billion are allocated for large businesses. Getting all these businesses to keep their workers rather than dismissing them, will be the important challenge. There should be a stipulation that any such business that employs after the fiscal help less than what it did before the crisis should pay back the aid as a loan. A huge problem is that the bill does not appropriate specific amounts to state and local governments. Given the state of finance of these bodies, the US risks severe cuts in education, health care and other necessary expenditures. 

For the furloughed workers, it is imperative that the individual monthly appropriations reach these workers soon, i.e. in a matter of a few days and not a few weeks. In the US the bill provides unemployment compensation for 39 weeks instead of 26 weeks and tops the compensation by $600. In Europe, the unemployment compensations are more generous,80 to 85%  of previous wages and longer in duration. In both cases, reaching fast  the pockets of the workers is what matters. The Federal Government must distribute the $250 billion immediately. This reveals the weakness of the US social safety net.

Paying for sick leaves and for medical treatments is more assured in Europe than in the USA. There are evident gaps in the USA`s health care system as far as insurance coverages and benefits are concerned. What comes out of this episode, is the need to review the public health care system in the  USA as compared to Europe.

In the case of big businesses, like air transport, cruise industry, various tourism and hospitality industries, etc., there should be no repetition of what such industries did in 2008 and after the US tax cuts of 2017, where many of them spent the bulk of their aid and forgone taxes on buying their stocks and giving large bonuses to their executives. The conditionality introduced by the Democrats` amendments to the original bill should be carefully monitored by experts under the supervision of Congress. Since these big businesses have access to bank loans, the priority should be to use existing credit lines before dipping into the appropriated aid. The coverage should also involve tertiary industries like transport, food and tourism services.

An important problem is that implementing such massive guarantees to banks and disbursement of Funds involves new procedures and is at a scale never seen before. This will cause delays and force more dismissals, the very thing nobody wants.

On the monetary side, even though interest rates are no longer available, the US `Fed. has done an exemplary job in providing unlimited liquidity and even opening its facilities to lending financial institutions as well as even businesses if that becomes necessary. The Fed is also cooperating through its swap lines with other major Central Banks to provide dollars and stop the climb of its exchange rate.

The Possible Shape of the Recovery
The question arises as to what type of recovery, the economy will have after controlling the virus onslaught. Looking at the USA, the crisis has four interrelated facets. First, there is the question of what percentage of the labor force kept their jobs in the various enterprises and what percentage are furloughed. The smaller is the latter, the faster is the recovery. Historically, unemployment decline has always been a lager in the recovery. Besides, many firms will re-examine their manpower requirement in view of the new labor-saving technology and they might decide to reduce their work-force.
The second facet is the oil industry problem. Today the price of oil has come down to $ 25.00 per barrel from the usual plateau of $ 60.00.  This threatens the survival of the oil industry and for the USA, could wipe out fracking and shale extraction. The president triumphantly declared that as a return to 99 cents per gallon bonanza. One day later he took a different tack saying he is  interfering  in the oil dispute between Saudi Arabia and Russia to preserve the industry. The problem is nowhere near a solution. There have been no talks between the two quarreling producers and no Trump intermediation. Furthermore, OPEC and Russia will not negotiate production targets without the participation of other oil producers like the USA. 
The third problem is the ballooning private debt in the US economy. This problem has accumulated over the past 12 years and it involves both businesses and 45 million American individuals encumbered by student debts.  In addition, American house owners have mortgage loans of about $15 trillion. The mortgage market is now dead. And close to 70% of small and medium-sized enterprises are linked to the construction industry. This is a problem of immediate need of attention by the Central Bank. One should expect some winding down of these accumulated debts. But such a process will hit hard the financial system. 
One aspect of the current recession is its pattern of effect across the income distribution in the USA. In all the previous four recession the top 25 % of income earners and the lowest 25 % had experienced more or less synchronized declines. In this one, however, the digital economy seems to have spared the top 25 % of a great negative effect, while the lowest 25 % have tanked. People working in the travel industry, in tourism in general, in restaurants and those employed by small businesses have been hit very hard. Some research predicts that 15-20 percent of small businesses will disappear. 

Europe is not yet on the road to recovery; Spain, France Italy and Germany have yet to resume activities. China, South Korea, Singapore and Taiwan are on the mend. But the emerging market economies have yet to handle the virus onslaught and place their economies on the recovery path.
 
International trade is practically shut off; there are few imports and exports taking place. It is of paramount importance that the supply chain is reopened and exports start to flow. 

Considering all the above, an educated guess is that the recovery will not follow a V -curve but rather a protracted, slightly rising L- curve. It will take a long time to get back to normal. In the crisis of 2008, it took the Economy 5 years to recover. However, with the help of the digital economy, the economy has a higher buoyancy than before.
Certainly, President Trump will be disappointed in this season of elections.

One last lesson in the US is the pattern of effect on various groups. Black and Hispanic Americans have been hardest hit by the epidemic; their death toll is more than double the rest of the population. Part of that is due to the type of front-line services they render such as transport, health-care help, all of which expose them to the virus, and the other part is the long-standing structural problems of poverty, ill-health and discrimination. The crisis is an opportunity for the US to look at its self and start making up for these long-neglected ills.

(Geneva, 4/ 5/2020)