Capitalism fails the Covid-19 Crisis

We have shut down large parts of our economy and our social lives to cope with the Covid-19 crisis. This experience might teach us a lot about ourselves and about our economic system. Here are some things that seem important to me.

1. The point of capitalism is to protect capitalists. We see this fact after every financial crisis. The bailouts go to capitalists and their corporations, and therefore indirectly to the shareholders, who are largely in the top 10% in wealth. That was so after the Great Crash of 2008 when the financial institutions that caused the disaster were bailed out with massive help from Congress and the Fed. Other massive aid went to the automobile industry and airlines. There was next to nothing for any of the millions of us damaged by the cheats and frauds of the financial sector.

This time the money cannon was first aimed at the financial institutions. Fed programs to save the financial system include the following:
a. Cutting bank capital requirements.
b. A quantitative easing program, under which the Fed will purchase an unlimited amount of Treasuries and Agent debt, commercial real estate backed by Fannie and Freddie, and pretty much anything else as needed to preserve liquidity and insure orderly markets. Whatever that means.
c. A program, called a facility, to buy newly-issued long term corporate debt.
d. A similar facility to buy existing corporate debt.
e. A facility to buy asset-backed securities, like packages of student loans. and collateralized business loans.
f. Money Market Mutual Fund Liquidity Facility that we hope will stabilize the money market funds so many people use.
g. A facility to buy certain tax-free commercial paper, so states and localities an continue to fund certain public and private projects.
h. The Fed is also considering a plan to lend directly to small businesses.

Congress quickly got in on the act and fired its money cannon at the corporate sector. The bill enabled the Fed to make cheap loans totaling up to $4.5 trillion, as the lobbyists for the rich patted them on the wallet. Another truck-load of money is going to hospitals, including the hundreds owned by private equity and publicly-held corporations.

Oh, and a few extra dollars for the unemployed for a few weeks eventually unless the repulsive spawn of Antonin Scalia can stop it; and small checks to some families, distributed whenever Treasury Secretary Mnuchin gets around to it.

The details behind this are equally astounding, as you can see from Dave Dayen’s newsletter, Unsanitized, which you should read every day.

2. Capitalism doesn’t fix problems. If it wasn’t already obvious, this crisis proves that capitalism makes crises like the pandemic worse. Our supply chains broke down. We are unable to produce the needed medical supplies and equipment. We failed to produce tests for this virus.

Our hospital system was driven by the profit motive to minimize surge capacity in beds, supplies and equipment; it was easily overwhelmed. What we actually mean by “flattening the curve” is that we spread out the cases requiring medical intervention so we don’t exceed our capacity to provide care. After the Great Crash we called it “foaming the runway”.

Flattening the curve should have bought time to restock our medical supplies and equipment, and get a decent testing program up and running. That didn’t happen. Trump insisted that markets driven by the profit motive allocate half of the available supplies, and he distributed the rest following what looks like political logic for his own benefit. As Josh Marshall explains, it makes sense to use the existing distribution chains, but it makes no sense whatsoever to allow the private sector to set up auctions where states and the federal government bid against each other for the necessary equipment. The “market” didn’t supply the needed supplies and equipment. There aren’t enough test kits, and there is no testing program. Following neoliberal theory, government cannot or will not solve these problems.

Capitalism didn’t fix anything. Instead, capitalists demanded government bailouts.

3. What Rugged Individual? Our economy runs on the exploitation of millions of people whose work, according to the “market”, is worth little more income than necessary to keep them alive. Suddenly even the most aggressive neoliberals are forced to acknowledge that all of us depend on these people, who feed us, provide us with deliveries, pick up our garbage, clean our streets, cook for us, clean our houses, pick our produce, kill animals and cut them up for our dinners, haul the trailers that bring us our food, and tend to our elderly. Not to mention the RNs, the LPNs, the LPAs, the medical technicians who operate ventilators and testing equipment, the phlebotomists, the lab techs, the pharmacy assistants, the all-important janitors and cleaners, the EMTs; and the clerks who manage the insurance businesses that pay the medical people.

Suddenly we hear about these people. Suddenly they are our frontline troops, our new heroes. Suddenly we hear stories about medical workers being applauded on their way to work. We notice the people putting toilet paper on the shelves. We think about the people putting food on our tables, delivery people, Lyft drivers, UPS drivers. It suddenly seems perfectly obvious that we are dependent of these people in a way that we are not dependent on the financial thugs at Goldman Sachs and JPMorgan Chase and Private Equity firms.

And for a light touch, get a load of this short CNBC clip.

The crisis exposes the lie of the American myth of the rugged individual, amplified into the neoliberal foolishness of Homo Economicus. No one stands alone. The Don’t Tread On Me crowd insisting on making their semi-annual trip to church for Easter worship whinge on about liberty, ignoring the risk to others. They won’t all get Covid-19, but some will, and they contribute to the surge at hospitals, the depletion of medical supplies and equipment, and the exposure to health care workers.

In fact it’s the people who keep us going as a nation who follow the real American Dream: they cooperate to solve problems. In this case cooperative problem-solving is undermined by leaders put into office by allegedly Conservative Rugged Individuals; not just the elected officials, but Senators, Representatives, political appointees, and judges. If the sickening SCOTUS Chief Justice catches Covid-19 in Wisconsin, the health care workers there will work together to take care of him even though he made them choose between dangerous exposure at the polls and losing their right to vote.

All of us depend on each other for the things we cannot provide for ourselves. We also depend on each other for creating and enriching our humanity. We lose a critical piece of ourselves when we can’t hang out with other humans, chat with the check-out lady at the drug store, get advice on TVs from the guy at Best Buy, argue about the NBA championship series at work, discuss the meaning of the Parable of the Laborers In The Vineyard with our Bible Study groups, share a meal or a laugh or a hug.

I hope we remember this dependence when the lockdowns end.

39 replies
    • Geoguy says:

      Yes indeed. Sheldon Wolin wrote an article in the Nation magazine, 5/1/2003 titled same. It could describe today.

  1. ThomasH says:

    I would like to see Hollywood step up and start to undo their century long propaganda campaign to promote the myth of the rugged individual. Make movies that show successful cooperation as “sexy,” average people triumphing together. Workers organizing a successful union, etc. No more gunslinger, man with no name shootem-ups.

  2. BobCon says:

    This punch in the gut article from the NY Times on Trump’s refusal to accept the warnings is relevant:

    One of the main drivers of Trump’s denial was his wish to undo all of the damage of his trade war with China, and get a major election year bump in the stick market. He ended up courting Xi by downplaying the risks of the pandemic.

    Likewise, Trump raged in February when Dr. Messonnier’s honesty about the threat drove a huge drop in the market. But what is also crazy is that the market wasn’t getting any surprise info from the announcement — if markets had been rational, they would have priced in developments already. Markets were only reacting to the illusion being pierced, not to reality.

    On and on it goes, with more relevant pieces throughout. I’ve bashed NY Times political coverage in the past, but this piece does much better. A key reason, I think, is the absence of most of the court whisperers on the byline, although Haberman gets the third spot.

    I will add, however, that the thinnest piece of the reporting covers Trump’s thought processes and influences. We don’t get much of anything about who was pushing Trump to ignore the urgent warnings.

    And this underlines the disaster of NY Times White House reporting. For four years they have been publishing fluff, supposedly to be able to trade for access when it matters most. The Times was totally stiffed on the deal. The only thing we can get is idiocy like Peter Baker insisting that Trump is torn and contemplative, in the face of what tody’s article states explicitly — Trump cannot think about anything.

    • Vicks says:

      IMHO it’s pretty easy to get inside of Trump’ head.
      He latches on to whatever voice/message makes him feel the best and does whatever it takes to drown the others out.

      • BobCon says:

        The missing piece from that article was who were the voices Trump was listening to.

        One of the useful bits to come out of the Parnas reporting was the specific key he used to unlock Trump’s vendetta against Yovanovitch. There are people in his orbit who know what keys to use to lock or unlock certain behaviors.

        What we didn’t get from the Times story was who had Trump’s ear and what keys they were using to unlock certain behaviors and shut down others.

        That’s the kind of detail the Times White House beat should have gotten if they were any good at their jobs. After all of their years of horse trading they don’t even have a bridle to show for it.

        • Vicks says:

          Good point about Parnas finding Trumps buttons so easily (it’s hard to believe all this shit has happened during a single term)
          I think part of the problem is the limited skillset and single mindedness of Trump’s advisors, I can’t think of anyone around him except for some of the medical folks that can see both the economic and health issues in the same frame.
          I have also been mulling around Trump’s need to be relevant.
          He has nothing of value to add to these briefings so he just steps in front of the experts and makes shit up.
          The more interested people are in what the experts have to say the more Trump will act out in order to make the story about him.

    • Geoff says:

      Oh, clearly Maggie was in there. I mean, somehow THIS sentence got into the article : “…and six long weeks before President Trump finally took aggressive action to confront the danger the nation was facing …”

      Aggressive action! He’s our hero!!! (Idiots.) This is the same kind of junk reporting I’m sick of and it always seems like Maggie is in the mix when this garbage is rolled out. It’s like somehow she has to keep some sort of fair and balanced thing going on wrt Trump. Quite frankly, if Trump slept through this entire crisis, we would be far better off. He’s done nothing but lie repeatedly, damage legitimate media credibility, and try to take advantage of his new daily virtual campaign rallies.

      • Vicks says:

        I know many of the popular kids on this site share a mutual disrespect for Haberman’s reporting.
        I usually skip over that kind of input because I know how it can influence me.
        Now an example of her “junk reporting” has caught my attention because It’s being used as an example in a conversation I am interested in.
        I have to say, I don’t get it.
        Are you saying her quote “six long weeks before President Trump finally took aggressive action to confront the danger….” is an example of her pandering to Trump?
        Is that not what happened?

        • Bruce Olsen says:

          Exactly which of Trump’s actions would you consider aggressive?

          Aggressive against the danger, that is… he’s aggressively refused to do virtually anything that needs to be done.

          His aggression has been directed toward anyone doing the right thing. And by failing to control the bidding wars for medical equipment it seems to me he’s exhibiting aggression toward everyone in the US, and even the world.

  3. Jim White says:

    Thanks, Ed. I smiled through your references to the rugged individual. For several weeks now, I’ve been mentally framing the post I want to write that will be John Galt’s obituary. I’ll need some more help from Congress, though, because we will have to get much bigger actual cash payments directly to workers before we can pronounce Galt dead.

    Right now he’s merely circling the drain.

    As you point out, capitalism is still doing what is needed to see that large amounts of direct assistance eventually will be the only way out of this.

      • Bruce Olsen says:

        Yes, but only by causing a single economic calamity that personally impacts all classes in all parts of the country.

        Anything else leaves too much room for “othering”

  4. harpie says:

    wrt: that CNBC clip:
    7:51 PM · Apr 9, 2020

    I have watched the first 12 seconds of this at least 100 times, its better than porn
    I’ve seriously never seen anyone so dumbfounded at such a kick ass response, its so good [CNBC VIDEO]

    Chamath Palihapitiya on the U.S. coronavirus response
    Chamath Palihapitiya, founder and CEO of investment firm Social Capital, said that the U.S. shouldn’t be bailing out billionaires and hedge funds during the coronavirus pandemic.

    Q: But are you suggesting,
    you keep saying propping up zombie companies.
    Are you arguing to let, airlines for example,

    A: [:09] Yes.
    Q: [:10] Why?

    I mean, how… [:12]

    how does that make sense in the broader scheme of the economy? [:15] […]

    • orionATL says:

      wow! thanks.

      “who’s getting wiped out? blackrock.”

      “they deserve to get wiped out.”

      and indeed they do. they are not investors; they are speculators, pure and simple!

      when americans get around to focusing on the excessive influence of major corporations on the political system, at that point they can change the fate of their society. fussing about abstractions like “capitalism” will not change the american political system or its maldistribution of political and economic power one iota in any reasonable amount of time.

      insisting on a REGULATED SOCIETY, which is what got the corporate bigwigs riled in the first place in the early 1970’s (cf, business roundtable), will change american society for the more just and for the richer.

    • Fran of the North says:

      Awesome work Harpie. Thanks for the link. BTW: who is the clown interviewing him? He deserves serious scorn for being such a wanker.

      Chamath is right on point here. Risk is what investors do. And why WE are bailing out those who made bad bets is the key question. There is no reason that hedge funds need to be made whole.

    • Ed Walker says:

      Wow, that must have been written by a Business Consultant working with a Political Consultant. Nothing about pricing, nothing about the part distributed in accordance with Trump’s whims or political desires, nothing about costs, and nothing about hijacking supplies destined for other nations or individual states.

      • ernesto1581 says:

        or as my dear uncle Gus used to say, “And whattaya got — ya got shit in a handbag.”

    • earlofhuntingdon says:

      These guys must think all Americans are as savvy as Gomer Pyle.

      “Stabilizing” – subsidizing private corporations with taxpayer dollars – the supply chain isn’t the problem. Not having customers buying stuff is the problem. There won’t be much of that until Covid-19 works its way through the population, its effects ameliorated by extensive preventive and palliative care, drug therapies, vaccines, and testing, testing, testing. Little of which this administration is helping to provide.

      FEMA – on Kushner and Trump’s orders (Pence limits himself to being a puppet) – is just paying off K&T’s debts and expanding their future patronage. Gotta have more juice if Ivanka is to take her rightful place as #46.

      • ernesto1581 says:

        I think she is very serious about getting into shape for it — she’s going to give up her guitar lessons in order to save the world economy very soon.
        Too bad, she was working on Walk, Don’t Run, people tell me.

      • P J Evans says:

        There are parts of the supply chain that need help – there’s a surplus of commercial toilet paper, for example – but it’s not a money problem, but a distribution problem.

  5. Krisy Gosney says:

    Thanks for this article. I’ve been thinking about the subject ever since hearing Elizabeth Warren lay out all the ways corporation owners depend on the state and federal government and the little people to make and buy their products. I think now one of the reasons, possibly the biggest reason, for Trump and friend’s push to hurriedly make people go back to work is that they do not want the little people to fully grasp how much the economy depends on them and how much power the little people actually have and when/where they want to wield it.

    • Ed Walker says:

      I think this may be the case. I can’t understand why a retail shop would reopen, or restaurants, where the workers are exposed to whoever waltzes in with whatever viruses they might have, and where the customers are exposed to whatever the workers and other customers might have. I won’t be going shopping, or out to eat or to movies or operas just because of some Trumpian proclamation. I can’t be the only one with these concerns.

      And if there is another flare-up it’s over for Trump. Why else take the risk?

  6. Tom says:

    I’ve been reading “The Comanche Empire” by Pekka Hamalainen, Professor of American History at the University of Oxford. His 2008 work describes how the Spanish and the Comanche Indians of the Southwest first began trading with each other in the early decades of the 18th century and how each party found the other’s trading practices and expectations “incomprehensible”.

    The Spaniards “believed that bargaining and fluid exchange rates were an essential part of trade for they helped determine the balance between supply and demand, whereas Comanches saw trade as a form of sharing between kinspeople who took care of each other’s needs …” For the Comanches, “[t]rade was not a mechanism to create wealth but a means to seal attachments and a way to build social and political networks that protected their members against poverty and need.”

    Can’t help but think that the Comanches would have handled the response to the COVID-19 pandemic a whole lot better than the Trump team..

  7. greengiant says:

    Anyone else would use the DPA to order companies to give up patent protection and trade secrets so that the US manufacturing can take over strategic production. Instead we get the kickback air bridge, assembling PPE in who knows what conditions in Vietnam and China.

  8. Pete T says:

    Thanks Ed. Do you happen to know SPVs work between the FED and US Treasury like TAPR and TALF from the 2008 crisis which may still be in play today.

    I understand there are laws that prevent the FED from directly throwing money at certain entities and thus they enter into SPVs with the Treasury.

    This has the effect of socializing the losses to the taxpayer that would otherwise be felt where they belong: the risk taking 1-10%ers and Corps that did stock buyback instead of saving for a rainy day or investing in themselves.


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