Hold on! The CARES Act — $2T of aid and loans to keep Americans on economic life support during the social distancing and economic slowdown necessitated by covid-19, was enacted only three weeks ago. There’s talk this funding was deficient with respect to both amount and coverage; we hear a follow-on bill is being crafted, but progress has been snarled. Each day we anxiously look for and cling to any signs of progress. Isn’t it premature to be talking about a third?
In a word, “no.”
To see this, consider Sunday’s print edition of the Washington Post, which carried a story entitled: Record debt load poses risk of fiscal “tipping point.” You can find the online version of the article here.
The main premise is simple, yet ominous. The story begins this way:
The United States is embarking on a rapid-fire experiment in borrowing without precedent, as the government and corporations take on trillions of dollars of debt to offset the economic damage from the coronavirus pandemic.
The federal government is on its way this year to spending nearly $4 trillion more than it collects in revenue, analysts say, a budget deficit roughly twice as large relative to the economy as in any year since 1945.
Business borrowing also is setting records. Giant corporations such as ExxonMobil and Walgreens, which binged on debt over the past decade, now are exhausting their credit lines and tapping bondholders for even more cash.
To support such borrowing, the Federal Reserve has dropped interest rates to zero and added more than $2 trillion of loans to its portfolio in the past six weeks — as much as in the four years following the Great Recession.
After a bit of elaboration, the author, David Lynch, goes on:
…The reliance on so much debt also will leave scars after the pandemic passes, economists say, making it difficult for policymakers to withdraw support and leaving the economy more vulnerable than before this crisis began…
The full article puts flesh on these bones, and amply rewards the read. The fear is that as a result of enforced social distancing, Americans are falling out of the habit of work, and into a trap of government dependency, just as the Nation is amassing an unmanageable mountain of debt.
So why on earth might even more debt be a good thing?
The answer lies not in the expenditure of another $2T or so per se. Instead it depends on the sources for funds of a notional third tranche and on how and where they might be allocated. Economists and central bankers have argued ever since 2008 that monetary policy alone can’t sustainably rescue ailing economies (the 2019 link provided here is just one example of many reaching the same conclusion, though harking back to a calmer time). Politicians need to step up with fiscal measures – government outlays that stimulate the economy, that have the direct effect of putting people to work, and ultimately getting them to spend – rather than simply maintaining people, banks, and companies on life support.
In this respect, infrastructure investment has long looked attractive. It’s needed in the trillion-dollar amounts big enough to make a difference to economies. And perhaps more importantly, targeted correctly – that is, aimed at the infrastructure needs of the future rather than those of the past – it can propel innovation and the economic growth needed to rebuild the tax base and balance budgets over the long run.
Say “infrastructure,” and most minds immediately turn to roads and bridges, the electrical grid, water supply, and such like. In the United States, after years of neglect, the need for upgrade is very real. But the global experience with the pandemic has helpfully spotlighted additional areas of major future demand.
Several of these cluster in what, for want of a better word, might be called intelligence infrastructure. Here are three components.
A more robust and resilient system of public K-12 and higher education that raises the Nation’s intelligence. The rapidity with which the pandemic brought education to a halt, at all levels, has forcefully exposed years of underinvestment in our educational system. Children and their parents agonize as they struggle to stand up home schooling and connect to jerry-rigged, intermittent remote learning as school districts contend with decades-old technology . Young adults in higher education, on the cusp of entering the job force, have found themselves immobilized and their future prospects compromised in a similar way. The infrastructure in question here is most fundamentally human capital. America needs larger numbers of better-equipped teachers; incentives and investment are in order. In addition, it’s clear that we’ve failed to make IT available to all students, in the same way that we’ve subsidized school lunches, for example. We need to rebuild our educational system at national, state, and local levels, in ways that not only prepare our people for tomorrow’s economies and tomorrow’s jobs, but also are resilient with respect to risks of every type. We need to harness teachers, IT, and, yes, parents, to revolutionize teaching of subject matter, to foster creativity and critical thinking; and most fundamentally to set the new generation on course to work through what it means to be responsible and independent, as well as interdependent, in modern society, to value diversity, and to grasp the true meaning and implications of “we’re all in it together.”
Epidemiological intelligence. At the same time, we’ve discovered that pandemics are the world’s Achilles’ heel,a blind spot in our global and national risk management strategies. Surely one outcome of our present woes should be improved public-health infrastructure, at all levels of government, and worldwide. We should increase investment in disease surveillance, aimed at accelerating the development and deployment of new, more capable tools for testing and identification of novel public health threats. We should go further, buttressing the infrastructure for identifying needed therapies, fabricating and administering effective vaccines, and more. While, we’re at it, we could modernize the infrastructure for dealing with the non-infectious health threats (heart disease, cancer, obesity, etc.) responsible for the widespread pre-existing vulnerability to pandemic.
Before moving on the next topic, here’s a question. Suppose ten years or so ago we’d known what we do now about covid-19’s coming impact on our world. (After all, we sort of did.) For purposes of illustration, set a figure of something like 1,000,000 deaths and a $20 trillion dollar hit to the world economy. Suppose further, for the sake of argument, that with early detection of emergent viral diseases, faster development of diagnostic testing individuals for infection with those new diseases, or (following recovery) antibodies for those diseases, and faster development of vaccines, we could have forestalled virtually all of the economic disruption and reduced deaths by 70% or more. How much would we have been willing to invest each year over the ten-years to achieve that result? $200B/year (that would have produced a nearly ten-fold return)? That’s 0.3% of global GDP. Seen in life’s rearview mirror, seems like a small price to pay.
Environmental intelligence more broadly. Building capacity in the world’s public health system at all levels is clearly needed. But to focus on this infrastructure and this threat alone risks creating another Maginot line,fighting the last war. The real question is: what is the Earth we live on and utterly depend upon fixing to do next? How will it impact us? What measures can we take to mitigate damage or seize special opportunity? Again, one challenge, among several, that we can see already is global change – not just a change in climate but also a challenge to our ability to meet the food, water, and energy needs of some eight billion people. And here, as we’ve been told over and over again, the dollar sums of the needed investment are staggeringly large; we can’t simply throw money at the problem. We need to sharpen our understanding of the probable impacts, and the value and efficacy of alternative courses of mitigation and adaptation in response.
A concluding note. Readers may recall that following the global financial crisis of 2007-2008, there was a similar enthusiasm for fiscal stimulus, accompanied by the requirement that infrastructure initiatives to be funded should be shovel-ready. The same criterion will no doubt – and should – be applied here. There’s texture in the shovel-readiness of specific projects embedded in these three general areas. But these three areas represent a point of departure for further, even more substantial future investments. And investments should be made in intelligence early on, before the human race once again falls into complacent comfort of the flying blind and ignorant into an uncertain, highly problematic future.
Bottom line? As the world and its people come off life support following our covid-19 nightmare, let’s not content ourselves with a collective sigh of relief. Let’s stimulate the economy in ways that can make us smarter and more capable, healthier, and wealthier, not just in the near term but for years to come.