… in his weekly New Yorker newsletter via email. Here it is (with block quotes suppressed).
In medical and economic terms, the country is battling against time to gain some control over the coronavirus and its effects.
The coronavirus pandemic is giving Americans a wrenching lesson in what exponential growth looks and feels like. Two weeks ago, most people, including the President, were downplaying the potential impact of the virus in the U.S. By the end of this weekend, there will likely be more than thirty thousand confirmed cases within our borders, roughly a fifth of Americans will be largely confined to their homes, and great swaths of the economy will have closed down temporarily. On both the medical front and the economic front, the country is engaged in a battle against time to gain some control over covid–19 and its effects. Despite the dramatic steps that some cities and states have taken this past week, it is far from clear that we are winning this battle. More Draconian measures may well be needed, at both the national and state levels.
As of Saturday afternoon, the number of confirmed cases in the U.S. was 23,480, and the number of confirmed deaths was two hundred and eighty-five. There were 10,356 confirmed cases in New York State alone, Governor Andrew Cuomo said at his Saturday briefing. New York is now at the center of the pandemic in this country, but it is also the state doing the most testing—more than forty-five thousand, according to Cuomo—which probably explains much of its rapid growth in case numbers. “We are taking more tests per capita than China or South Korea,” Cuomo said. That is encouraging, but in many states the number of tests is still less than a thousand. To have so little testing on a national basis this far into the pandemic is a failure of historic dimensions.
A number of people have asked me about the best way to track the numbers for testing, infections, and deaths as they come in. Each day at noon, the Centers for Disease Control and Prevention updates the figures, based on numbers from the previous day, and many individual states are providing updates, too. It’s hard to keep up with all of these announcements, but the COVID Tracking Project, an independent Web site founded by a data scientist and two journalists, is doing the job for all of us. In addition to providing links to a wealth of raw data on its home page, the project maintains a separate page with all the latest figures for testing, infections, and fatalities.
Of course, the United States is only one country. To see how the U.S. experience compares to that of other countries, I check the data on the Web site of the Financial Times, Europe’s business newspaper. The first two charts on the data page, which show the time path of infections and deaths in a number of major countries, demonstrate why America’s current trajectory is so alarming. “No other country has been this far into the pandemic and still had the number of cases growing at the rates the U.S. is seeing,” Justin Wolfers, an economist who is a senior fellow at the Brookings Institution, pointed out on Twitter on Friday.
As the virus rages, policymakers in Washington are racing to stabilize the economy and the financial markets. On Saturday, Republicans and Democrats on Capitol Hill resumed negotiations about a coronavirus spending bill that would provide more than a trillion dollars in financial assistance to households, workers, businesses, and states and municipalities. Negotiations between the two sides began in earnest on Friday, a day after Mitch McConnell, the Senate Majority Leader, released a Republican bill. In a post analyzing the Republican proposal, I noted that it had several big holes in it, including failures to provide adequate support for the millions of gig workers and self-employed people who have seen their businesses devastated. According to reports on Saturday afternoon, the two sides had made some progress, but there were still a number of unresolved issues, one of which related to Democratic demands to expand the unemployment-insurance system to cover more workers.
An agreement would be a positive development, especially when you consider that just a week ago the two parties were struggling to agree on a much smaller covid–19 spending bill that provided for free testing and somewhat expanded paid sick leave. (Trump signed this legislation on Wednesday.) Despite its enormity, however, the bill almost certainly won’t be sufficient to offset the coronavirus-related slump in the economy, which is rapidly intensifying as more and more businesses announce closures. (Starbucks announced plans to rely on delivery and drive-through locations and shut most of its café-only stores.) A report at the Washington Post summed up the economic situation thus: “Next week, the Labor Department will likely report that roughly 3 million Americans have filed first-time claims for unemployment assistance, more than four times the record high set in the depths of the 1982 recession, according to Bank of America Merrill Lynch. That is just the start of a surge that could send the jobless rate spiking to 20 percent from today’s 3.5 percent, a JPMorgan Chase economist told clients on a conference call Friday.”
Clearly, the hit is going to be enormous, at least in the short term, and many economists think that Congress will have to pass at least one more stimulus package as we move into the spring and summer. Referring to the package that is currently being negotiated, Torsten Slok, the chief international economist at Deutsche Bank Securities, told Politico’s Ben White, “It’s only a down payment.”
The Trump Administration, along with anyone who has money in stocks, will be hoping that an agreement on the stimulus bill settles the financial markets, at least somewhat. On Friday, the Dow Jones Industrial Average fell another 913.21 points, or slightly over four per cent. For the week, the Dow was off about fourteen per cent. Compared to the February peak, it is down about thirty per cent.
The dive in the Dow is obviously disconcerting news for people who have their retirement savings in the stock market, but on Wall Street many professional investors are just as concerned about how the bond market has been behaving. The bond market can sometimes herald a looming financial crisis, and this week “long-term Treasury securities have suffered significant price declines alongside large stock-market retreats, an unusual dual downturn that has raised alarm among traders,” the Wall Street Journal reported on Friday evening. Normally, bonds rally when stocks decline, but this week investors have been dumping both asset classes, which could signify distress selling and worries about the future of the economy. On the Street, there are rumors of margin calls and big losses among hedge funds, even though the published figures for how funds are performing aren’t overly dramatic.
The Federal Reserve, which has introduced a whole series of emergency lending measures during the past week, won’t be too concerned about the fate of overpaid hedge-fund managers, but it is clearly very concerned about how the credit markets are performing over all. “Credit is the blood flow of the body economic,” Barry Eichengreen, an economic historian at the University of California, Berkeley, reminded me when I spoke to him earlier this week. “Without credit still flowing through the system, parts of the economy that are still operating will no longer have the means to get the inputs they need to produce and distribute things.” In its latest intervention, which came on Friday, the Fed said it would expand its emergency asset-purchase program to include municipal bonds. In normal times, these bonds—which states, cities, and other municipalities issue to finance various types of spending—are considered relatively safe investments. But the “market for munis this week has all but collapsed, with few willing to step in and buy the government debt in the uncertainty of the current climate,” CNBC reported on Friday. As in other credit markets, the threat of a seize-up prompted the Fed to step in.
Economic turmoil driven by covid–19 and chaos in the markets isn’t confined to the United States, of course: it is a worldwide phenomenon. So how far will governments have to go in order to stabilize things? Some analysts believe policymakers may eventually have to consider an option that has long been regarded as verboten: explicit monetization of stimulus spending by the central bank, sometimes referred to as “the helicopter drop.” In 2016, Ben Bernanke, the former Fed chairman, discussed this as the ultimate fallback policy during an economic downturn at a time of low interest rates, and Adair Turner, a former head of the British Financial Services Authority, also discussed it in a 2015 book that I wrote about for The New Yorker. Now it’s back on the table. “I do think the time is right for monetary finance,” Turner told Martin Sandbu, who wrote a big piece on this topic for the Financial Times. “There would be a clarity of assuring people that there is no limit on the money available.”
Not everybody agrees with Turner. Right now, the ultra-low level of bond yields suggests that the U.S. Treasury wouldn’t have any trouble issuing trillions of dollars’ worth of paper to finance an enormous stimulus package, or several very large ones, so it wouldn’t need the backing of the Fed. But history suggests that as economic crises proceed, and things get more desperate, policy ideas that were previously considered out of the question sometimes come to appear more reasonable.