Sid Mittra
Ph.D., Economics
Emeritus Professor, Michigan

If you are overwhelmed by what’s happening in this crazy world, you are certainly not alone.

In this country we have fought many battles before and have always succeeded in the end.  But the current battle is significantly different in two ways. First, unlike World War II and the Vietnam Wars, this battle is unfolding in our own backyard. Second, this battle is predicted to last a long time, perhaps two years or more.

Okay, you say, all this is well known, so why are you wasting my time by repeating them? To that I say, patience, my friend, patience.

I believe the best way to stay above the crisis is to construct our solutions on a tripod with three strong pillars; namely, financial, emotional & physical, and inspirational. 

A. Financial Pillar

This is the most controversial and slippery pillar to put your arms around. Insofar as personal finances are concerned, financial plans managed by certified financial planners or are self-managed need no further assistance. For the rest looking for guidance, it is best to remember that “one size does not fit all.”  What is appropriate advice for an affluent person with a sizeable investment portfolio is inappropriate for another operating at a subsistence level. And of course the vast majority who fall in between need financial advice that specifically relate to their unique status. If that is the reality, then where does that leave us?

Here’s my answer. Overriding these conflicting issues, I can add value by presenting general guidelines that would help everyone, regardless of their individual financial status.  

       1. Ignore short-term market fluctuations. Even the stock market experts are confounded by the erratic behavior of the market. The day 30 million people filed for unemployment benefits the stock market skyrocketed. But on the day the number of coronavirus infections showed a sustained drop, the market tanked. So, to use a metaphor, it is best for you to ignore the ripples on the ocean’s surface and keep your eyes glued to the waves.

      2. Security first. Before worrying about anything else,  set aside liquid funds which you believe you’d need for general use in the next three to six months.  If in the near future you run short of cash and are forced to liquidate your investments when the market is substantially down, it would prove to be very expensive.

      3. Qualified (401k) Investments. If you constantly agonize over the dramatic drop in the value of your retirement account, you have lots of company. But it would be unwise for you to make a short-term decision to “fix the problem” by, say, converting everything into cash or significantly changing the account’s asset allocation. Since by definition it is your long-term plan, unless warranted, it is best to stay the course. That includes making your routine monthly contributions even when you believe the market is ready for a major downward correction. The reason is that this market is unpredictable, and to dream of correctly predicting the market is a fool’s paradise.

      4. Balanced approach. An established recommendation is to split your investments between stocks and bonds, the relative percentages of each based on a number of factors: age, objective, risk taking ability, tax issues and more. Starting with a base line of 60-40 (60% stocks and 40% bonds), an investor’s percentages should be a function of the factors just cited. Regardless of where your percentages are at the present time, it is best not to arbitrarily change them during this crisis period.

      5. Ignore Market Timers. It is tempting to try to figure out what Warren Buffet or other successful market timers are doing now so that you can follow their lead and make quick money. Please don’t, because you will never succeed. Very few people in this world are known to be consistently successful market timers, and it is best not to get entangle in that loser’s game.

      6. Be Generous. If your situation permits, please consider making a contribution to one of several charitable funds created for helping the needy during this coronavirus crisis. People are hurting badly and your generous contribution would go a long way toward helping them.  I have made such a commitment myself and feel good about it.

B. Emotional-Physical Pillar

Noted psychiatrist Elisabeth Kübler-Ross defines five stages of grief: denial, anger, bargaining, depression, and acceptance. Since I have no expertise in psychiatry, I will stay clear of that field. Instead, I will describe in layman’s language what we can do to emotionally and physically prepare ourselves for handling the COVID-19 crisis.

      Let me begin by reviewing our collective experience since the crisis began. We have already gone through the first phase of denial and anger by ignoring the virus signs for months, and then criticizing the government for not acting sooner. But once it became clear that the pandemic was for not going away, we panicked. Hoarding of toilet paper, hand sanitizers, N95 masks and canned soups while leaving our health care workers with personal protective equipment clearly exposed our terrified nation’s panic.

Next, we entered phase two when COVID 19 was finally accepted as a long-term menace, and daily headlines began reporting that the number of infected people exceeded 1.5 million and predicting that the deaths would exceed 100,000 by June 1. Unrealistic suggestions that a vaccine would be available by 2020 filled the airwaves. And the ominous signs of 40 million people becoming unemployed in the near future were splashed everywhere.

Finally, we entered the currently prevailing phase three which was ushered in by publicizing the conflicts between the proponents offer opening the economy and those opposing such action to save lives. While neither side seems to be winning at the moment, the push to open the economy on all fronts is too powerful to be contained by sound logic for an appeal to adopt a cautious approach.

Against this background I will suggest a number of steps we can take to achieve good results.   

        1. Safety first. By all means follow the safety rules: Stay indoors except for making essential trips, wear masks when leaving home, keep social distancing in mind at all times, disinfect all packages before opening them, avoid touching your face, and frequently wash your hands. These acts will dramatically reduce the risk of infection.

        2. Keep physically fit. You can keep yourself physically fit even when you are confined to your home or apartment. A variety of exercise equipment is readily available for home use, and exercise videos available on line. Even walking frequently inside your home can do wonders. It is best to remember that your physical wellbeing is directly related to your emotional wellbeing.

        3. Emotional fitness. It works wonders for your emotional well-being when you meet with your family, friends, and neighbors. You can do so now through Zoom without ever leaving your home. This technology can connect you with  simultaneously with a large number of people living anywhere in the world.. It is a paradise that is now within our easy reach.  

C. Inspirational Pillar

This is the most important of the three pillars, for it demonstrates our resolve, our ability to endure, and our intense desire to embrace the values we adore. At present, everything looks bleak, with armed demonstrations against lock-down orders, best scientists warning against the Administration’s decision to quickly open the economy, sending 40 million school children to send the harm’s way by arbitrarily opening our schools this fall, and scores of small businesses declaring bankruptcy, all sending the economy into a tail spin.  And as if that is not enough, the upcoming Presidential election is already beginning to raise its ugly head, thereby exacerbating the existing nightmare.

This is precisely the time when our inspirational pillar must take the front seat, and as it has done in the past, perform a miracle. One clear alternative is for this pillar to adopt the posture of teaching us how to look inward and find that elusive tranquility. Assuming this is agreeable, I conclude this blog by quoting Pablo Neruda’s “Keeping Quiet”:

If we were not so single-minded about keeping our lives moving,
and for once could do nothing,
perhaps a huge silence might interrupt this sadness of never understanding ourselves
and of threatening ourselves with death.
Perhaps the earth can teach us as when everything seems dead
and later proves to be alive.”

   _________________________________________________________________________

Travis Smith provided technical support for this article. Also, Charles Gauck provided editorial services. However, the author takes full responsibility for the contents of this blog.

Sid Mittra
Ph.D., Economics
Emeritus Professor, Michigan

NATURE OF THE BEAST 

Of all the bizarre ways COVID-19 has affected this country, none is as complex or controversial as the one that especially impacts 4,000 institutions of higher learning. 

Oh really? And why is that?

Let me answer that question by using a simple illustration. 

On Monday, September 7, 2020, after a complete shut down for six long months, a noted public university in Michigan enthusiastically welcomes back to campus its faculty, staff and 30,000 students. Following a few ceremonial welcoming events, fall classes begin as the morning sun brilliantly shines on its breathtaking campus covering 1,800 acres of lush green landscape. 

The euphoria, however, is short lived.  The campus is densely populated, and inter-connectedness, as opposed to maintaining safe social distances, is the university’s prevailing culture. Consequently, a coronavirus outbreak occurs, resulting in a large number of students and faculty members contracting COVID-19. The infected are quickly transported to the nearby hospital for intensive treatment. Fortunately, most of them recover, albeit for many the recovery period extends to eight long weeks and then some.  Regrettably, however, several never make it, as the heroic efforts to cure them turn out to be too little, and sadly, too late. The news of these deaths makes national headlines, increasing the pressure on colleges to shut down the campuses all over again.

If you think this is a figment of my imagination, please think again. In fact, the illustration I have just shared is the most likely scenario we should expect from fall openings if the administrators are not extremely careful and proactive. 

BOUNDARIES OF OUR COVERAGE

Let me spell out here two major limitations that impact on the presentation that follows.

First, we recognize that no single solution that we might come up will fit all institutions of higher learning. For universities located in densely populated states like New York, California, and New Jersey, because of serious physical space limitations, a culture of togetherness and social distancing rules cannot coexist, leaving them with little choice but to invent unconventional means of handling their intractable problem. For this reason, we will consider these institutions to be beyond the scope of our study.  That is, our study will cover only the rest of the colleges and universities in America that have considerably more wiggle room for finding a tenuous balance between maintaining social distancing and promoting a culture of togetherness. 

Second, it is widely reported that the majority of the institutions of higher learning have set up, or are in the process of setting up, advisory boards that would develop ideas for the best ways of opening the campuses this fall, keenly aware of the serious financial strains these institutions currently face. I am neither qualified nor positioned to supplement or enhance the advice offered by these high-powered boards. Instead, my objective is merely to lay the foundation for colleges and universities to take appropriate steps as and when severe financial conditions begin to ease off and additional resources start trickling in. In making my case I will continue to believe in the American dream that can be summed up by four momentous words: THIS, TOO, SHALL PASS.  

Now that the boundaries of our study have been established, we can specify the major task on hand. The issues impacting on the decision to open university campuses for classes affect either life or livelihood issues, which renders making a rational decision virtually impossible. The “life” based logic argues that even one death on campus due to coronavirus is too many. So the safest decision is to keep the campuses closed until a vaccine can be found to prevent the disease. And that could be 18 months from now, if we are lucky.  In sharp contrast, the “livelihood” argument claims that the cost of keeping the universities closed far outweighs any possible negative consequences. In fact, the proponents of opening of fall classes forcefully argue that even if every student, faculty member and employee associated with all colleges and universities were to be tested for coronavirus, the $20 per test cost would be minuscule as compared to the cost of treating multiple coronavirus patients in hospitals, not counting those who ultimately lose their lives. 

Against this backdrop, in this article I will present a third option – the practicality of opening university campuses this fall without losing unacceptable levels of lives and livelihood. In Part One I will examine the critical issues involved with the daunting task of opening university classes this fall. Then, in Part Two, I will present my plan for adopting the most efficient ways of handling the task of opening college and university campuses this fall and beyond.     

PART ONE 

Sharing Culture of Universities

Our universities provide the unique experience of “togetherness,” which happens to literally fly in the face of the COVID-19 social distancing requirements. Says Dr. William Schaffner, a professor of preventive medicine at Vanderbilt: “Students live very close together in dorms, students travel in packs. That’s part of the collegiality of collegiate life.” That implies that students encounter new ideas as they meet new people, so they can transform themselves into something different from who they were when they first came to the university. That goal is accomplished by regularly socializing with new people – American and foreign students with different backgrounds and cultural orientation, faculty, and guest speakers. According to Dr. Kim Weeden, “over a typical week, the average student will share classes with more than 500 students.” For this reason one can say without equivocation that in the wake of the coronavirus pandemic this social mixing culture prevailing in all universities can quickly become a social distancing nightmare.  That’s why one could logically argue that by practicing this “togetherness” philosophy on campus, our universities appear to have created their own Achilles’ heel. If that is the case, then one might ask does a plausible remedy exist for that condition.

Anyway, given that togetherness is the life blood of the university experience, the only preventive measure available is to shut down colleges and universities until everyone’s safety can be guaranteed. That might mean postponing the opening of university campuses until, say, the fall of 2021. Unfortunately, that “safe alternative” will simultaneously turn out to be a financial death warrant for a large number of universities, not to mention the devastation it would cause among all the businesses associated with educational institutions. 

Financial Challenges

It is no secret that even before the current virus hit, our institutions of higher learning were in dire financial straits. Because of rising administrative costs, declining enrollments, budgetary constraints, and loss of significant revenues due to a sharp drop in the number of foreign students attending our universities, most universities were already struggling to survive. And now, with COVID-19 costing them in excess of $1 billion, for many the struggle to survive is magnified. In fact, as early as 2017, Professor Clayton Christensen predicted that, in 10 to 15 years, half of America’s 4,000 colleges and universities were bound for bankruptcy. And that dire prediction was made long before the onslaught of the current virus, sending ominous signals all across the educational world.  

And there is more. In addition to a possible drop in education quality, closing universities for such a long period would also mean that students will miss out on the college experience. And even that is not all. Widespread shut downs would mean closing of numerous businesses associated with campuses as well as cancellation of sports and extracurricular programs. The impact of all of this could very well threaten the survival of a vast majority of these institutions

So, in a nutshell, currently our universities find themselves virtually paralyzed between a rock and a hard place: Maintain safety of the university population and succumb to money woes, or, alternatively, survive financially by opening up the doors and risk losing precious human lives.   

Administrative Challenges

Administrators of colleges and universities must get busy executing all the steps necessary to safely open their institutions this fall. However, in addition to considering administrative and financial matters, Christina Paxson, President of Brown University, has advised that COVID 19 should force universities to get ready to “test, trace, and separate,” following the lead of successful countries like South Korea, Taiwan, Singapore and Germany. This constitutes the “new normal,” and it is best to acknowledge it as such. 

In this context the most prescient administrator appears to be James E. Ryan, President of the University of Virginia.  He offers three broad choices for university administrators to choose from.  First, begin classes this fall as scheduled, but under the social distancing guidelines. Second, postpone the start of fall classes by several weeks, hoping that the restrictions could be considerably eased by then. Third, do not allow students to arrive on campus until later in the semester. In the meantime, students can continue online course routine established in the spring and summer of 2020. Obviously, all of these choices (and their variations) carry varying degrees of risk, with the first two choices creating the ever-present risk of having to deal with likely coronavirus infections.   

With so much uncertainty surrounding the issue of class openings this fall, as the saying goes, about the only thing administrators can look forward to now is gaming it out. On the one hand are the safety concerns of students, faculty, staff and administrators present on campus. On the other hand are the huge fiscal challenges resulting from a drastic reduction in student room-and-board fees and tuition, bulging administrative costs, and expected health costs due to any coronavirus outbreak.  In addition, state budgets are already showing massive deficits and the federal government is unable or unwilling to bail them out at this time. That leaves the universities where they wish they never had to be. However, it appears that now these institutions have no other choice but to use Walter Cronkite’s famous closing statement at the end of each CBS news broadcast:  And that’s the way it is.

I disagree with that conclusion, because I believe there is a better choice. In Part Two, which follows, I will explore the pros and cons of offering a better choice for our institutions of higher learning.

Travis Smith provided technical support for this article. Also, Charles Gauck provided editorial services. However, the author takes full responsibility for the contents of this blog.

Sid Mittra
Ph.D., Economics
Emeritus Professor, Michigan

PART TWO

GRAND PLAN FOR UNIVERSITY OPENINGS THIS FALL

We are now in a position to systematically explore the various steps universities can take to “safely” open their campuses for the fall semester. By doing so they will inevitably expose some students, faculty and staff to the coronavirus. However, by taking all the necessary precautions, these cases will hopefully remain limited and under control, which will minimize the adverse financial impact on the universities.

That said, I now turn to an analysis of the grand plan university administrators can adopt to efficiently manage the current crisis. For convenience, I will use the acronym, G-R-A-N-D, in presenting my plan. 

G: Give Students Reason for Hope

At present, there appears to exist an adversarial relationship between university administrators and students. Oblivious to their university’s dire fiscal challenges, students are demanding refunds for classroom instructions they did not receive, dorms they did not occupy, and university services they could not use. A hefty refund of tuition and other charges at this point will most likely cripple many universities. But that seems to be of little concern to students deeply mired in their own desperate situations.  

One practical solution to this problem is to invite the students to move to the administrators’ side of the table. This can be done by tactfully sharing with students the financial crisis universities so they appreciate the nature of the problem. Simultaneously, if they learn that as and when financial constrains begin to ease up, administrators would seriously consider offering many attractive choices for the students (specified below), they might be willing to temper their demands. 

In addition to building this unified team, a creative option would be to offer students a few attractive options presented below.   

1. Return to campus on a full-time basis and enjoy all the facilities being offered along with the guarantee of a tuition freeze and offering a few additional accoutrements. 
2. Continue receiving online instruction instead of returning to campus and get a partial tuition refund.
3. Return to campus but take only a few courses offered on campus and the rest on line to limit the degree of exposure.
4. Find off campus accommodations for students eager to avoid the risk of living in the dorms. 
5. Create an emergency student fund from which grants can be made to deserving students with dire financial needs. Also, provide counseling for students who need help during these trying times. 
6. Reduce each class size so students can sit apart from each other. Also, schedule additional classes to accommodate the smaller class sizes and students unable to enroll in classes that are full. 
7.  Take appropriate safety precautions in public places like the library and cafeteria. Also, cancel all sporting events and extracurricular organizations.      

An approach of this nature will go a long way toward convincing the students that the administrators do care about them and that they are in this fight together.  

R: Reach Out to all Faculty and Staff

1. These people constitute the backbone of the services offered by the universities and hence deserve special treatment during this crisis. Here again, the administrators would do well to invite these people to come to the same side of the table so they become convinced that they are fighting together for the survival of the universities.  
2. By voluntarily taking a pay cut, the administrators can convince the faculty and staff to take a pay cut or forego a promised increase in salary. This approach will succeed only if everyone realizes the importance of pulling together. 
3. Encourage faculty members to be flexible in offering courses and professor hours both in-person and online.
4. Guarantee strict testing for faculty and staff since they are often among the older, most vulnerable demographic. 
5. Encourage faculty members to be flexible in offering courses both in classrooms and on line to create the best balance. 

A: Alumni and Other University Supporters

University alumni and supporters can play a significant role in helping the universities weather the storm. But for that to happen, they need to explain to the alumni the nature of the current shortfall and the inability of the federal government to help in a meaningful way. If these people are convinced that the financial needs of universities are both dire and temporary, they might be willing to extend their generous helping hand. 

Here are a few examples of the ways alumni and supporters can help the students: 

1. Sponsor a few merit scholarships for outstanding students who are deserving but are unable to attend the university without financial assistance. 
2. Establish a few research programs so the student recipients can prepare research papers on the economic and financial impact of COVID-19 under the guidance of their faculty advisors. These papers can be included as part of the curriculum.
3. Ask their respective companies to offer internships and jobs to students before or after they graduate.  
4. Teach without compensation courses in their field of expertise. 

N: New and Innovative Options

To fight the current crisis, administrators must come up with new and innovative options that will go a long way toward helping the situation. Since at this point these options exist only in the minds of the creators, it is best to leave the task of creating them to the university faculties with skills for developing new ideas.  An example would be to create a four-credit course dealing with the issues related to COVID-19 and find a corporate sponsor to meet the cost. 

D. Develop Regular Reporting System

In situations like the ones universities face today, good communication is the key to overall success. If people are informed on a regular basis that the administration is winning the battle partly because of the assistance it is receiving from a variety of sources, that news is bound to get people excited. Over time, even people sitting on the sidelines are disposed to offer a helping hand to the winning team. 

BOTTOM LINE

In Part 2, by using the acronym, GRAND, I have suggest a number of unconventional steps universities can take to help the students and faculty in a number of ways as and when stringent financial conditions begin to lighten up. I realize that none of this is going to happen in the short run. But as I said before, with total resolve and faith in America’s ways to turn desperate situations around, we will certainly succeed even if it would take some time to get there.

And if that destination is reached in a meaningful way, I will have accomplished my modest goal of presenting my thoughts for reflection.

Travis Smith provided technical support for this article. Also, Charles Gauck provided editorial services. However, the author takes full responsibility for the contents of this blog.

Sid Mittra
Ph.D., Economics
Emeritus Professor, Michigan

Claiming that a central bank is acting as the savior of a nation is like saying, the lonely crowd, or darkness at noon. But that is precisely what recently happened in America while we were still waking up to digest the latest coronavirus cases reported in the media. 

On Monday, April 27, precisely at 9:13 a.m., as Sam Ro put it: “Bare-knuckle Fed fires nuclear kitchen sink named ‘Big Bertha’ out of its bazooka.” Ian Shepherdson then summed it up in simple English: “This is an all-out effort to ensure that the business sector can continue to exist even as economic activity temporarily collapses. The Fed is now effectively the direct lender of last resort to the real economy, not just the financial system.” [Italics added.].

Wow! In 1914 the Federal Reserve Act carefully created an independent Federal Reserve System (Fed) to manage the nation’s financial system by controlling the money supply while always remaining non-political and behind the scene. They would not recognize the institution as it stands today. The fact to recall that, only a few weeks ago, President Trump threatened to fire Jerome Powell, the Fed Chairman, for not doing enough to help the economy now seems like a bad dream.   

FEDERAL RESERVE’S BAZOOKAS

Let’s see if we can make some sense out of this confusing situation. 

BASIC TOOLS.Initially, the Fed was assigned three basic monetary policy instruments to manage the financial system:

1. DISCOUNT RATE.Even though the Fed sets only the interest it charges on loans to member banks, this rate indirectly influences key interest rates prevailing in the economy. At present, the discount rate is set at the near-zero percent level. 

2. RESERVE REQUIREMENTS.This requirement specifies the percentage of deposits member banks must hold back against liabilities before granting loans to their customers. At present, the percentage is fixed at a puny 10 percent. 

3. OPEN MARKET OPERATIONS.When the Fed wishes to increase liquidity in the economy, it buys government securities through securities dealers in the bond market. The sellers then uses the proceeds for making loans to their customers. Simultaneously, to attract borrowers, banks reduce overnight interest rates (federal funds rate) so money becomes cheaper and plentiful. The opposite steps are taken when the Fed wishes to reduce liquidity. At present, open market operations are heavily skewed in favor of net purchases. 

ADDITIONAL TOOLS. Over the years more creative uses of these basic instruments were devised and pressed into action with much success. A few of these additional tools are discussed next. 

1. QUANTITATIVE EASING. Of these, quantitative easing (QE) deserves special mention. QE is a form of monetary policy that allows the Fed to expand its balance sheet by adding liquidity to the composition of the private sector’s balance sheet.  This means that by engaging in QE the Fed creates new money by buying private sector assets like mortgage-backed securities or T-bonds.
   Initially, to counter the devastating effects of the coronavirus, the Fed decided to purchase at least $500 billion of U.S. Treasuries and $200 billion of agency mortgage-backed securities. However, on March 23, the Fed made the unprecedented announcement that it would buy assets in the amounts needed to support the economy.  In its 106 years of existence, this is the first time the Fed has made such a commitment which, taken literally, would appear to cross its mandated financial management boundaries. And the end is nowhere in sight. 

2. REPURCHASE AGREEMENT (REPO). An extension of its open market operations, this policy is designed to influence short-term liquidity in the market. A repo is short-term borrowing (mostly overnight) for dealers in government securities. A dealer sells government securities to investors and buys them back at a slightly higher price.
   Another big surprise hides inside this policy. As part of its policy to help the economy during this crisis, the Fed has offered—note this—to buy over $5 trillion in total repo agreements as short as overnight and as long as three months. This, too, is unprecedented.  

3. DOLLAR SWAPS. And just when you think you have seen the end of the Fed’s efforts to help the sagging U.S. economy, other esoteric measures prop up. Consider, for instance, the never- heard-of measure known as the U.S. dollar swap lines. To address the coronavirus issue, on March 15, the Fed announced U.S. dollar swap lines with five other major central banks (including the European central banks and the Bank of Japan) to ensure the availability of the worlds’ reserve currency.  

BOTTOM LINE 

Clearly, the Fed appears to have reached a crossroads and needs to decide which role it should play in the future. If the Fed becomes the direct lender of last resortto both the financial system and the real economy, then it is best to change the Federal Reserve Act without delay. If not, then, as mandated, the Fed should continue to act as the manager of only the financial system and leave the rest to the government and other agencies.  

Assuming you are now convinced that henceforth the Fed will perform only the duties the Act allows, what better way to celebrate this special moment than to sit on the beach with a glass of daiquiri in hand and enjoy the sound of the waves crashing down on the beach!!  

Travis Smith provided technical support for this article. Also, Charles Gauck provided editorial services. However, the author takes full responsibility for the contents of this blog.

Sid Mittra
Emeritus Professor

Today’s title is very similar to Jack Benny’s famous quip: Your Money or Your Life. Funny, how the more things change, the more they remain the same.   

My Unique Perspective

After arriving in America in 1957, I experienced a number of special incidents that demonstrated how this country values both life and livelihood. 

One day while returning from downtown to the University of Florida campus, I noticed a group of people standing around a hole in the ground. Soon I learned that a cat had accidentally fallen into the hole and was unable to crawl out of it. People tried to rescue the cat but failed. They then called the Fire Department. Soon a fire truck arrived and the firemen used their heavy equipment to get down into the deep hole and rescue the cat. That incident taught me the supreme value America places on life, even if it is the life of a pet. 

Another incident borders on being bizarre. During the summer of 1998 I was informed that my student scholarship covered only the Fall and the Winter but not the Summer Semester. I further learned that my student visa did not allow me to work off of the campus, but the only job available on campus was so bad that nobody wanted it. So I was left with only two choices: accept this unwanted job or starve.

Well, guess what! For a measly 50 cents an hour my job required me to work at the Agricultural Experimentation Station, shooting squirrels that were destroying the citrus fruits being grown for scientific experiments. I was petrified to use a gun. I also thought it was demeaning for a graduate student to perform such menial work. Nothing mattered, however, and I worked on that job for the entire Summer term merely to survive. The experience I gained that summer taught me the value Americans place on earning a livelihood, even under the most preposterous circumstances. 

For the next seven decades I admired the coexistence of these two aspects of the American culture – life and livelihood. Then suddenly, in 2020, the emergence of coronavirus challenged the old belief and created a twisted version: your life or your livelihood. 

Hmmmmm. That is indeed a switch.

American Lives vs. American Way of Life

We are deluged with articles and blogs published on coronavirus, and more are surely on their way. Rather than repeating the obvious, my task today is to discuss in simple language only the most critical issues associated with this controversial topic. While by adopting this posture I will undoubtedly miss many important details and nuances, I hope I will succeed in placing the key elements into focus. 

A. Financial Implications.

One critical question related to the problem is this: How many lives can be justifiably sacrificed in exchange for providing economic benefits to the country? A simple response of one life is too many is emotionally satisfying but is of little value. So, let’s try a different approach.

As noted by Peter Baker, the government estimated that in 2015 the cost of 41,000 deaths due to the opioid crisis was $431.7 billion, which translated into an average cost of $10.5 million per person. Since the opioid and coronavirus crises are similar in nature, we can safely estimate that the cost of 60,000 coronavirus-related deaths is around $630 billion.  

Just think for a minute what that means in overall financial terms. The U.S. government has spent $2.2 trillion on the stimulus relief package, no doubt an astronomical figure by any standard. But by adopting drastic safety measures we have managed to save an estimated two million lives. Using the $10.5 million figure estimated for the opioid crisis, that translates into a mind boggling saving of $21 trillion (2 millionX$10.5 million).  And that is not all. You can also estimate how much more we would have saved had we started taking these drastic measures just four weeks earlier. According to one estimate, that would have reduced the death toll from 60,000 to a puny 6,000. The financial implications of that missed opportunity are simply staggering.     

 B. Non-financial Implications.

The world of course does not run only on financial statistics, since there is more to life than money. Here, I can do no better than quote James Stock on this issue: “We really have to be talking not just about our reduction in consumption in the short run but what this is going to be doing to the economy and the republic in the long run. It’s those big issues that we’ve been afraid to talk about. A year of this and we would just see an unrecognizable transformation of what America would look like coming out of it.”

Okay, where do we go from here?

Life and Livelihood: A Constructive Approach

Americans accept risk as an integral part of living. It is easy to find examples of risks we deliberately take to achieve higher goals. These include climbing the highest mountain of Himalaya, diving to the depth of the Atlantic Ocean for exploration, starting a new business that has little chance of success, reaching for the moon, and so on. It is therefore safe to assume that we are ready to face the coronavirus squarely by opening our economy, knowing full well that such an action would entail assuming higher levels of risk.  

A general agreement to open the economy brings to the forefront the next challenging issue: When should we begin to open the economy, and more importantly, which businesses should have precedence over the others. These are loaded questions and can be answered satisfactorily only if the structure is built on a solid foundation with four strong pillars. To this task we now turn. 

Pillar One.

Our testing capacity, which should expand significantly, should  require all business employees to be tested before they are permitted to serve the public. An enhanced testing capacity would also make it possible for scores of people to be tested before they expose themselves to the public. 

At this point a caveat is in order. Currently, testing everyone is being presented as a precondition for opening up the economy. That sounds promising and reassuring. But does it really offer all that it currently promises? Many who seriously question the value of testing everyone present their arguments in the following manner.

Unless a person has an active infection, test for the coronavirus will turn out negative even in those cases where infection is imminent. So, the only sure way to benefit from testing is to test each person every few days. That is totally impractical.

On a related matter: The antibody test is positive roughly two weeks after infection has cleared. Currently antibody tests showing both negative and positive results are highly unreliable. Additionally, according to WHO, even if a patient tests positive for antibodies, that does not guarantee immunity. If so, what is the real value of testing as a precondition for opening the economy?

Unfortunately, the controversial testing issue raised here is beyond the scope of this blog. I therefore urge you to undertake additional research on your own if you are so disposed. A convenient place to start is the following link:

https://www.healio.com/infectious-disease/emerging-diseases/news/online/%7Bc444fd81-89a4-4a09-a4fe-e71fadcdc9cd%7D/many-unknowns-remain-about-protective-role-of-covid-19-antibodies

Pillar Two

The President should use the Defense Production Act to take control of the supply chain needed for testing to be produced for each and every state to access and manage. Additionally, safety equipment and lifesaving machines like ventilators should be available to health care workers and seriously ill patients without cities having to procure them by unscrupulous means. 

Pillar Three

Sufficient hospital and nursing care capacity must be created to ensure the systematic handling of new coronavirus patients as the economy opens up. 

Pillar Four

All businesses serving the public must require that their employees and customers have their temperatures checked and wear face masks at all times before services are rendered. These are necessary, but not sufficient conditions for long-term success. David Katz beautifully sums up these sufficient conditions: “That means sheltering the vulnerable, while allowing those who can return to the world most safely to do so – thereby restoring the economy, supply chains, and services, while cultivating the collective protection of herd immunity [not universally proven effective] that leads to the ‘all clear.’ That’s how we get our lives back without waiting on the long and uncertain timeline of vaccine development.”

Now that we have established the foundation with four strong pillars, we can move forward to achieve our ultimate goal. My confidence rests on the fact that the state of coronavirus in this country is not quite as bad as it has been presented. According to Bret Stephens, Long Island’s Nassau Count with a population of only 1.4 million has recorded more Covid-19 deaths than 40 million in California. Stevens further suggests that if we remove New York from the map and create a separate nation with a population of a little over 300 million, the death toll in the U.S. would amount to about 7.5 per 100,000, slightly above Germany’s levels. And when we recall that that Germany is reportedly the safest coronavirus-related country in the world, our hopes are swayed in the right direction.

Opening up the Economy

Having established a solid foundation with four strong pillars, we will now present the A-B-C of the structural plan designed to open the U.S. economy in a systematic manner. 

All essential businesses, companies with low-risk operations, certain sporting events, selected offices and construction industries should be opened first, following Allison Graham’s recommendation: “If we concluded that an identified group of a quarter of the population face an unacceptable risk of death from coronavirus, but that for the other 75 percent, with appropriate precautions like social distancing and masks, face no greater risk than other risks of death we accepted before coronavirus, would it be possible to design a response that protected the most vulnerable while simultaneously reopening most of the economy for others?”

Begin opening other industries and businesses that have adopted sufficient safety measures, public parks and beaches, and transportation services with safety measures in place.

Concentrate on finding a vaccine for coronavirus ASAP. In the meantime, use provisionally FDA-approved medicines to treat seriously ill patients.   

Bottom Line

Americans have never expected life to be without risks. But we do not wish to assume unwarranted risk, either. At this point the mission is straightforward. The road to recovery is long, slippery and elusive. But the destination is crystal clear. 

It is my firm conviction that as devastating as this crisis has been, it has also presented an opportunity for Americans to create a stronger, fairer, healthier, and more resilient nation. Once there, we will again be recognized as the undisputed leader of the world. But that will remain an elusive goal until we build ourselves a

                                                     Nation united.

Won’t you please join me in seizing this unique opportunity?

[Special note: I would love to have your views and critical comments on this controversial subject].

Travis Smith provided technical support for this article. Also, Charles Gauck generously provided editorial services. However, only the author takes full responsibility for the contents of this blog. 

Sid Mittra
Emeritus Professor

I just received this e-mail: “ Sid, a lot has been written about the prevalence of cases in nursing homes, even including independent living facilities like ours. Some have even suggested that we should consider moving in with our adult children.  What   are your thoughts about that?”

Oops! Never saw this one coming, from a distinguished resident no less. But since a shocking number of nursing home deaths are being constantly reported in the media, it is best to address this issue for ourselves in a forthright manner. 

 I will begin by presenting details about the TW operation, especially during the current COVID-19 crisis. In this article, I will present only the facts (please feel free to fact-check them), and will carefully avoid reflecting my personal feelings or emotions. Also, for effective communication, I will use the acronym,    S-A-F-E to organize these facts. 

S:    Superb Communication 

One of the hallmarks of efficient operation of any well-run organization is superior communication. TW officials have devised a comprehensive plan to keep us up-to- date on all aspects of the current situation. This has taken the form of continuous memos and updates from the Executive Director and other management personnel in charge of various activities. For instance, these communications regularly bring to our attention the many activities we can still engage in while being confined to our apartments, and advise us whenever there is an important message to share. 

The very thorough reporting by way of a recent memo, however, deserves special mention. It consisted of three essential parts: 1) The latest information about the status of the virus affecting our residents. 2) Meticulously planned steps taken by TW to follow the rules, with special emphasis on the actions they are taking to keep us perfectly safe. 3) The last section answers residents’ questions candidly and with a sense of deep feeling. Anyone reading these reports and updates will come away with the conclusion that TW does not leave any stone unturned.

A: All-Inclusive Service Plans

Clearly, all of our residents are on the higher end of the age spectrum and hence are more vulnerable to the virus than the general population. Recognizing this important feature, TW has taken three major steps to keep us safe and protected. 

1. Residents have been reminded to stay at home (except for essential trips). This direction comes with a hefty price tag—the price being the challenge of supplying of all the services we need to carry on with our daily living. It appears that nearly all services we need are being efficiently and methodically provided. These include: i) Three meals per day; ii) Groceries ordered through TW; iii) Mail and package delivery; iv) Weekly cleaning of towels and bed sheets; v) Weekly trash collection; vi)Transportation for doctor’s visits; vii) Supply of special material such as cleaning supplies requested; viii) Delivery of library books.; and ix) Loaning of physical exercise equipment so we can continue exercising in our apartments. The list still goes on and on. 

2. About the only service that is excluded is weekly housekeeping. This service is temporarily discontinued, as I learned, only because of the safety advantages of minimizing face to face contact, as per the direction from the Minnesota Department of Health. However, as noted above, cleaning supplies are available for personal use. 

3. Closing of all the various rooms including the dining room, cafe, and pub, so residents can’t gather there and potentially be exposed to the virus. Even the front desk has been separated by a large table so the person attending the front desk will still remain far away from persons approaching the desk. 

4. All the corridors and elevators are being cleaned and sprayed on a regular schedule to make them as safe as possible. They have even taken the extra step of requesting that residents refrain from using the hallways (especially during busy hours) because of the difficulty of maintaining a safe distance while passing other residents.

F.    FUNDAMENTAL DEVOTION TO RESIDENTS’ WELFARE 

Let me begin by referring to the conditions prevailing at TW after the virus broke out. Everyone realizes that no amount of advanced preparation can cover all the unanticipated developments, and this was no exception. However, the TW executive team realized early on that it needed to be fully prepared to handle all the emergencies that crop up during the day or night. 

I am privy only to a few of the critical problems they have been faced with, and so cannot to do justice to all that the team handles behind the scenes. But I do know that a detailed plan is in place to manage new infected cases, both in the independent living community and in The Birches. Another fact worth mentioning is that TW is in constant touch with the Department of Health and does not hesitate to implement all of their recommendations efficiently, regardless of how disruptive the action might be. A case in point: On my apartment cleaning day I received an urgent call stating that as per the order received, they had to cancel the service. The person, however, offered all the help they could provide to ease my burden. If that is not a testament of highest integrity, I don’t know what is. 

E.    ESTEEMED RESIDENTS ARE THE PRIME FOCUS

Let me begin with three separate incidents so I can make an important point. 

1. Shortly after my arrival at TW I went shopping at Byerly’s. On my return trip on the TW van, I discovered that my phone was gone. I was petrified and decided to contact the store manager by phone in a desperate effort to locate the phone. Little did I know that without my knowledge and on his own, the TW driver went back to the store, contacted the manager, and together they succeeded in locating the phone in the store. 

2. Once I was stuck in a doctor’s office because two Lyft drivers failed to show up. While I was still waiting in the office and getting desperate, a senior TW team member showed up to give me a ride. She had heard about my predicament and sacrificed her Saturday afternoon family time to accommodate my needs. 

3. While staying in The Birches, several of my nice clothes were misplaced. I was informed that once the clothes are lost, there was no way to trace them. Here again, unexpectedly a senior TW team member offered help. We went together to the laundry room and after an hour were able to locate all of my garments. 

These were by no means random events. In fact, to me, they clearly demonstrated the deep tradition of care and concern TW has established for their valued residents.    

Let me close this discussion by sharing with you the following incident. Recently I sent an e-mail to a senior TW team member requesting help in getting my communication link in order. Although short, the response I received was most revealing: Sid I am sorry I can’t help you at this time. All of us are fully committed to the single goal of keeping our residents safe and healthy. I have no time for anything else. 

BOTTOM LINE

Having presented the facts in a forthright manner, I take the liberty of expressing my personal views on this subject. 

I sincerely believe that, given all the things TW is accomplishing as detailed by the acronym, SAFE, I can’t imagine another senior residence, nursing home, or even a family member’s home, coming close to providing the safety, security and special privileges I enjoy here. In fact, I would go so far as to say that if TW allows it, I will display the following picture on my apartment door: 

Now that I have openly expressed my personal views, I would love to hear yours, especially if they differ from mine. 

Won’t you p-l-e-a-s-e oblige?

Charles Gauck provided editorial services for this blog.

Sid Mittra
Emeritus Professor

Shhhhhh. I will tell you the reopening date only if you keep it to yourself. Promise?

Okay here we go. The magic date is: May 1, or June 1, or July 1, or August 1, or September 1, or October 1. But wait, I am not playing games. To safely reopen the economy, first we need to complete a set of clearly identified arduous and time-consuming tasks. Once we accomplish that, we can safely let our economy come to life.

Anatomy of COVID-19

Before we can discuss our tasks on hand, we need to have a clear understanding of how this virus spreads. Here is a simplistic, non-technical, description of how this virus multiplies itself and travels without boarders at lightning speed.  

1. The coronavirus (CV) can lodge itself quietly inside anyone’s body, both human and animal. And so long as the virus remains below a minimum threshold, the individual carrying the virus shows little, if any, visible signs of illness or discomfort.
2.  As soon as the virus rises above the minimum threshold, the patient starts      to show signs of sickness, and ultimately can become gravely ill, requiring immediate hospitalization (see Appendix below).
3. Often CV-affected patients are unable to breathe, requiring ventilators to perform that task for them.
4. Statistics confirm that despite heroic efforts, doctors fail to save all virus-infected patients’ lives, as evidenced by the ever-mounting death tolls around the world (rapidly crossing the 160,000 mark).

Permanent Solution

Currently there are no vaccines or other effective medicines available to tackle CV. However, based on its anatomy, the following actions seem to temporarily provide acceptable results.

a)  The virus can be transferred from one person to another standing in close proximity (see Appendix below). That’s why social distancing of 6 ft. among groups of people is recommended.      

b) The virus enters the body mostly through various openings of our face. For that reason, people are advised to avoid touching their face.          

c)  When people cannot avoid being close to one another, such as in a grocery store or a drug store, they can still avoid transmitting the virus by wearing face masks. In fact, for maximum safety, wearing a mask every time a person leaves home is the standard recommended strategy.   

d) Since the virus can remain alive for hours or days on hands, metals, clothes and shoes, for safety people are urged to take off their gloves, masks, and clothes upon returning home and put them away for 24 hours. In addition, people are requested to frequently wash their hands as a means of reducing the risk of virus exposure.

e) Since it is virtually impossible to accurately determine on a large scale how much virus is hiding in the bodies of the general population, we could certainly face the second wave of CV attack at some future date. Therefore, it is best not to let our guards down anytime soon.

f) Finally, we will soon learn about the disturbing second quarter economic data: unemployment approaching 20 million, GDP growth declining by double digits, the government struggling to find more money and ways to ease the burden, worldwide recession, and so on. That will inevitably lead to bitter political battles, each side trying to win the day by pushing for an early return to normal times. It is best to prepare our country for that contingency so we can make rational decisions when the moment arrives.  

Exact Date of Reopening

The economy will definitely reopen at some point. That is given. But to pinpoint the exact date, we need to take additional steps.

a) The authorities need to answer a slightly different question: “When can we safely reopen the economy?” The answer is simple: When we have found a quick yet effective way of testing the majority of our population, making sure that only the CV-free individuals are allowed to participate in the opening of the economy. 

b) The entire country need not be opened all at once. The authorities can set some priorities, making sure that the most essential businesses get the nod to open first. For instance, offices, shops, drug stores and other essential businesses can open before we open our sports activities, theatres, and musical performances. It is a daunting task, of course, but we have little choice in this matter.  

c) The government and the Federal Reserve System must stand ready to inject massive amounts of liquidity into the economy to help the reopening process. But even that task is further complicated by the government-ordered lock out. 

Let us recognize that it is the government that is ordering millions of people to sit on the sidelines and forego their normal earnings. Consequently, the government has both the moral and the economic responsibility of providing adequate compensation for the loss of income of these people during this unprecedented lock-out.

But that is easier said than done. For one thing, compensation on such a large scale would add trillions of dollars of expenses to the already approved and expected disastrous relief packages. For another, there is no consensus as to who really deserves to be helped and by how much. All this undoubtedly creates an untenable situation, but no one seems to have any idea of how to proceed. In the final analysis this is a challenge that would require empathy, ability to manipulate financial commitments, and the finesse to handle the political gridlocks that will inevitably surface during this crisis.

d) Being mindful that a second wave of CV attack is highly likely, the authorities must be fully prepared with adequate supply of medical equipment, hospital beds, medical personnel and ancillary facilities to face that challenge.

e) Research for finding a vaccine for CV must continue with Godspeed. In addition, clinical trials for temporary treatments should also continue, especially for those who do not have the luxury to wait for the final cure.

Bottom Line

Before addressing the 64-dollar question we posed in the beginning, it is important to recognize an important fact. Americans believe in their inalienable rights to freedom in all spheres of life. That’s why many are revolting against the loss of their freedom due to CV, and some are even defying the national restrictions imposed on them. To counter this negative reaction we must take positive steps to convince each other that these restrictions are temporary and for the good of everyone in this country. It is imperative we must convince ourselves that our freedom remains intact and in the end we shall prevail.

And now that we are familiar with the pre-conditions for opening the economy, we can pick the exact opening date. Here again, I suggest that we pick from one of the four alternatives presented here.

We can open the economy when conditions are:

1. back to normal and we are where we were before the virus hit;
2. much improved and the authorities feel they can efficiently handle the attendant risks and also a possible second wave of attack;
3. not significantly improved but the economy is so badly hurting and people are so restless that we have little choice but to reopen the economy now and assume the attendant risks.
4. Who the heck cares so long as the baseball season starts on schedule.

I choose (b) and look at August 1 for reopening the economy. How about you?*****************

Please allow me to close my presentation with an outstanding quote:   

“We think it is going to be a virus that stalks the human race for quite a long time to come until we can all have a vaccine that will protect us and that there will be small outbreaks that will emerge sporadically and they will break through our defenses.” David Nabarro, a special envoy of the World Health Organization.

***********

APPENDIX

ALL ABOUT CORONAVIRUS IN 10 MINUTES

[Information provided by Dr. Robert Mittra, M.D.]

Viruses are genetic material (DNA or RNA) surrounded by a protein coat. They have no muscle so they cannot “jump” from one person to another. In fact, they are so small and have so little machinery for life that they cannot survive outside a host cell. They have no ability to think or decide whom and when to attack. The genetic program of a virus directs it to infect cells so it can continue to survive by using the machinery of the host cell.

Viruses are the tiniest creature known to us. Bacteria are 1/10 the size of a normal cell. By contrast, viruses are 1/100 the size of a normal human cell. The average cell is 100 microns. A micron is 1/1000 of a millimeter.

Coronavirus, or for that matter ANY Respiratory virus, is transferred from host to host in only two ways.  

First, an infected patient’s coughs or sneezes release viral particles into the air. Next, another host breathes these particles in through the mouth or nose (Aerosol or droplet transmission) of another person.

Second, an infected person coughs or sneezes on a surface or on his/her own hands and then touches a surface transferring the viral particles to that surface. If someone else touches that surface and then touches his/her nose or mouth (fomite transmission), then the virus is transmitted to this second person.  Clearly, this form of transmission is less likely because it requires a person to deposit the virus on to a surface, and then a second person to touch the infected surface before the virus dies its natural death. Also, to get infected, after touching the infected surface before the virus dies, the second person needs to touch the face to let the virus enter the body.  Additionally, one has to be around a person for some time (probably several minutes) to get enough viral load to become ill.   

Finally, it is commonly believed that without notice healthy people can become gravely ill when infected by coronavirus. True, a significant portion of Covid-infected patients are asymptomatic; however, people do not suddenly get severely sick requiring hospitalization. Most who get really sick have many days (2-11 days) of severe fever, cough, body aches, runny nose, and fatigue prior to pneumonia setting in. Current data show that approximately 10 percent of infected people suffer from a more severe illness, and only 1 percent die from that illness. And even that percent is exaggerated, since we do not yet have a national testing system in place.

In closing it should be noted that there are many kinds of viruses, and coronavirus applies only to respiratory viruses.  Blood borne viruses such as HIV are transmitted in completely different ways. Consequently, we have no choice but to invent a new vaccine for this virus.

************

Please allow me to close this presentation with an insightful quote:   

“We think it is going to be a virus that stalks the human race for quite a long time to come until we can all have a vaccine that will protect us and that there will be small outbreaks that will emerge sporadically and they will break through our defenses.” David Nabarro, a special envoy of the World Health Organization.

______________________________________________________________

Travis Smith provided technical support for this article. However, the author takes full responsibility for the contents of this blog. 

Sid Mittra
Emeritus Professor

Is Exploding Debt Catastrophic?

My friend Bill, calling the U.S. exploding debt a nothing burger, puts it this way: In 1980 our debt to GDP ratio was barely 32 percent. In 2020 it was 108 percent. And yet, during this period we enjoyed the longest expansion in U.S. history. Is this an example of a growing debt problem?

Hmmmm. Let’s see if Bill has a valid point. 

Traditional economic theory concerning government debt is based on three cardinal rules. i) In normal times government should try to balance its annual budget. ii) In times of economic boom, it is wise for government to create a budget surplus. iii) During a recession government should create a deficit, using the previously generated budget surplus in that process.  We will now critically apply this theory to the government’s debt problem.  

As a general rule, a prolonged and expanding government debt can have negative effects in four distinct areas:  a) Lower national savings and income because the private sector must complete with government demands for funds. b) Higher interest payments, possibly leading to large tax hikes and spending cuts. c) Decreased ability to respond in times of political, economic, and social upheaval. d) Greater risk of a fiscal crisis when a crisis like the current virus requires massive infusion of public funds at a short notice. 

Let’s put this issue into proper perspective. Since World War II until 2017, the ratio of government debt to GDP remained around 60 percent (during 2008 crisis jumping to over 100 percent).  Recently, in 2020, even before adding the virus-related debt, the debt ratio has surpassed 106 percent. And when we add another $5 to $10 trillion of new debt to fight  coronavirus, we can see the dark clouds quickly turning into thunder and lightning. 

By the way, what did we really get for this debt explosion? No much, I am afraid. No better infrastructure. No additional national security. No improved retirement plans. A degenerating health care system. The list goes on and on. Of course, we should not forget about the rising cost of interest payments.  By one estimate, Interest payment on national debt which was $261 billion in 2019, is expected to surpass $1 trillion mark by 2028. 

Economic Impact of Negative Psychology. 

         Basic Observations. Assume it is April 1, and you are shifting through your mounting bills: mortgage, car payment, credit card debt, loan interest payment, children’s school fees, and more. Your check from the stimulus package is, proverbially, “still in the mail.” You have no savings to fall back on. And you don’t know what to say when your family barges into the dinner room shouting, “what’s for dinner?” 

The scene I just described is actually taking place in millions of American households. And even if this scene lasts only for a few months, the psychological impact of this experience can lead shell-shocked consumers to cut down on their future spending. In economic parlance, that will lead to lower GDP in the future.  

           Fallout in economic activity. In the short run, the hardest hit are the sports and entertainment industries. While these events generally remain active throughout the year, they generate maximum revenues during the spring, summer and early fall months. And that is precisely the time frame the authorities have targeted as the complete shut-down period. Although no hard date are available, the loss of direct and indirect revenues generated by these activities during a normal season amounting to billions of dollars can indeed be colossal. 

The next item of concern is the restaurant industry and other small businesses. While only a few businesses like Amazon or Google are national chains, the rest are owned and operated by small business owners. The money set aside to help the qualified businesses for four months is insufficient to ultimately help save many of them from declaring bankruptcy.  Here again, the consequences of mass closings of restaurants and related entities can have a collective economic impact far beyond we can accurately calculate. 

From Recession to Depression

Unlike the official definition of a recession (two consecutive quarters of drop in GDP), there is none for depression. So, let us arbitrarily define depression as a period preceded by two years of recession, an unemployment rate of around 10 percent, and a significant loss of economic activity. By that definition, we have never had a depression of the Great Depression of the 1930s. For reference, from 1945 to date, we’ve had about 12 recessions, most lasting for an average of 10 months. 

Learning our lessons from the last depression, however, can be misleading for three reasons.  According to Robert Samuelson, three major deficiencies consisted of the following a) the scale and havoc of human suffering. As an example, the GDP shrank 25 percent from 1929 to 1933. b)  In the 1930’s the prevailing economic theory was unable to explain why the self-correcting mechanism of the free enterprise system failed to solve the problem. c) No national social net existed that could soften the blow of the economic collapse. Since we have successfully eliminated all three deficiencies, the experience of the 1930 Great Depression is incapable of providing us the much-needed guidance for handling the future Great Depressions. And when we recognize that the current crisis is global in nature, we enter an uncharted territory.     

Bottom Line

In this article I have explained in economic terms the impact of coronavirus on the richest country of the world. It is worth repeating that since this crisis was created not by a lack of demand, it cannot be cured by applying our traditional economic tools.  The Disaster-relief Package 1, and possibly Package 2, will definitely help. So will the generosity of the American people as they help each other in numerous ways. Still, all of this may not be enough and we should brace for a long period of hardship and dislocation of normal activities. 

That said, I am confident that ultimately we will succeed in our mission. I have experienced many crisis: Civil Rights Movement, Vietnam War, President’s removal from office, international oil crisis of the 1970’s, bank failures of the 1980’s, the 911 devastation, and the worst recession of 2008-9. Each time the naysayers predicted the end of our world, and every time we proved them wrong. As Warren Buffet beautifully put it: “Since 1776, it’s always been a mistake to bet against America.” 

And so, based on my unshakeable faith in America’s future, I close my presentation with these immortal words: 

“So many of our dreams at first seem IMPOSSIBLE,
then they seem IMPROBABLE,
and then, when we summon the will, they soon become INEVITABLE.”
The Superman

Travis Smith provided technical support for this article. However, the author takes full responsibility for the contents of this blog.

Sid Mittra
Emeritus Professor

On March 29, the national media underscored the number “two” in its reporting. In New York the death toll from coronavirus is doubling every two days.  The President invited us to celebrate Easter by attending church services in two weeks. Finally, forecasters predicted that our economy will experience a V-shaped recovery in two months. Need I say more?

For many critical months our government remained unfazed by the threat of the new virus while it continued to spread in other parts of the world. But that turned out to be only half of the problem. We were simultaneously hit by the unprecedented nature of this crisis. That prompted the government to completely shut down the economy, thereby taking steps opposite to what would be expected under a normal crisis situation.     

I am not a politician and hence am totally ignorant of the political games that are being currently played. Also, I know even less about the medical science, if that is logically possible. But as an economist I feel comfortable discussing in a two-part article the short- and long-term economic impact of this virus on the American economy.

At this point, a caveat is in order. I will not attempt to predict where our country would be in four years, four months, four weeks, or even in four days from now. But I will apply the established economic theory to evaluate the impact of the deadly virus on various aspects of our economy.

Basic Economic Theory

        The concepts. Each year our nation’s wealth, or GDP, is measured by the value of newly produced goods and services. GDP is measured by adding up expenditures of consumers, investors, the government and foreigners (exports minus imports). If during the year everyone’s spending goes up, our GDP increases, and we establish a period of boom. The opposite occurs when expenditures (or GDP) declines for two consecutive quarters, signaling a recession. 

        Slowing Down of Economic Activity. Economic activity starts to slow down when various entities (the four components identified above) begin to reduce their expenditures. Depending on the factors causing this slowdown, the Federal Reserve uses the traditional monetary policy to lower the borrowing costs and buy securities to inject liquidity into the financial stream. The government can also counter a recession by following an expansionary fiscal policy. This can take the form of reducing tax rates, undertaking new infra-structure related projects, and increasing other forms of spending. Regardless of how monetary or fiscal policy instruments are used, the objective in fighting a recession (or anticipated recession) is always the same: Make money cheaper and more easily available to ward off a recession, and undertake public projects and other expenditures to help the economy gain full recovery.

Economic Theory vis-a-vis Coronavirus

If the economic theory is so well established, then why are we having so much trouble using the traditional policies to rein in on the current crisis?  The answer is both convoluted and confusing. Let me explain.

The current crisis is different from previous recessions in two critical ways.  First, this time the economy has crashed not because a lack of demand by various entities but because the demand has been chocked off due to a shutdown of the whole economy. This is precisely the reverse of what the policymakers would do to fight a normal recession.  Second, previous crises (like 911 or housing bubble) were one-time events. But the current crisis is an ever-expanding world event with no end in sight. For these reasons, we need creative measures to address this complicated problem.

 Policy Actions to Fight Crisis

         Disaster-relief Package, Round 1. This package, mistakenly called Stimulus Package, was recently signed into law. Its major objective is to quickly put $2 trillion into public’s hands. Also, the Federal Reserve has already reduced the cost of borrowing to near-zero and is promising to buy government and corporate securities to put additional cash into circulation. The government is also planning to help the economy (possibly) by reducing and delaying taxes and taking other expansionary measures. This includes offering loans to small businesses that will be forgiven if certain conditions are met. On the face of it all this indeed sounds impressive. But when you dig a little deeper, the bright lights start to disappear. Here is what I mean.

         First, for several reasons this disaster-relief package falls short of its stated goals to help small businesses. Many small businesses hurting badly are not covered by this bill. The bill provides funds to cover only for four months, whereas most businesses expect the fall out to continue until the end of the year. Finally, the monthly handout is too little to ward of widespread bankruptcies among small businesses, leading to the all-too-familiar domino effect.

         Second, the majority of the families benefitting from this package find that the monthly payments ($1,200 or $2,200 with two children) do not replace their lost earnings. That creates massive problems for these families, especially for the millions who have no savings to fall back on.

           Third, the new provision allowing tax-free withdrawal of retirement money does come in handy for economically-strapped families.  But by making the return in three years of this withdrawal this provision also creates the dangerous possibility of losing these retirement funds forever. If that happens, it would be a colossal loss both for these affected families as well as for the country.

           Fourth, there are other provisions in this bill that do not go far enough to help the needy families. Examples include: allowing more time to pay off student loans, legal advice for businesses and families contemplating declaring bankruptcy, and corporations using up funds to help themselves (for instance buying back own stock) rather than employ additional people. The list goes on and on.

            Fifth, the bill includes financial assistance for many activities that are comparatively underserving. Examples include: i) A windfall for real estate investors allowing them to use losses generated by real estate to minimize their taxes on profits from things like investments in the stock market. The estimated cost of the change over 10 years is $170 billion. ii) $17 billion in loans for “businesses critical to maintaining national security,” a provision seemingly targeted solely at Boeing. iii) Change in the tax code, retroactive to 2018, allowing certain retailers to more quickly write off expenses they incurred upgrading their properties. iv) For-profit colleges can keep loan money for students who drop out due to the coronavirus. v) An expansion of the services relating to health savings accounts, which mostly benefit wealthier people. These (and many other) items siphon off billions of dollars from the package making more legitimate recipients suffer. Overloaded hospitals running out of beds, safety equipment and medical supplies, state governments mandated to significantly cut assistance for essential services, and a host of other similar items are examples of how the stimulus bill appears lopsided. 

            Disaster-relief Package, Round 2.   A second disaster-relief package (called stimulus package) is already on the horizon. Realistically speaking, this package should extend the coverage until the end of 2020, and increase the monthly coverage amount to $1 trillion, or a total of $5 trillion for five months. That would help people a lot, both financially and psychologically.

Special Note: This is the end of Part 1. This discussion will continue in Part 2  which ends with a startling conclusion.

______________________________________________________________Travis Smith provided technical support for this article. However, the author takes full responsibility for the contents of this blog.