Can Trump Avoid a Post-Coronavirus Great Depression?
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Dorothy Wickenden
This is the Political Scene, a weekly conversation with New Yorker writers and guests about Politics. It's Thursday, April 9th. I'm Dorothy Wickenden, executive editor of the New Yorker. Two weeks ago, Congress passed the biggest stimulus bill in American history to address the devastation the coronavirus is bringing to workers and the economy. It will send $2 trillion to the unemployed, businesses and medical providers. Despite the size of the bill, economists and infectious disease specialists mostly agree that it is not enough. And members of Congress are discussing a second bill that would authorize another $250 billion in aid to small business. The administration, though, continues to push to reopen the economy as soon as possible. Larry Kudlow, Trump's most publicly accessible economic adviser, told Politico this week that it could be as soon as the next four to eight weeks. On Fox News, he said that once the economy does reopen, it'll be in great shape.
Larry Kudlow
Don't forget, Brian, we had a roaring economy coming into this new year 2020. In January and February, we were growing at better than 3% at an annual. And please don't also forget Even though it seems a long time ago, President Trump's policies to rebuild the economy on lower taxes and regulations and better trade deals and energy independence, all that stuff was working beautifully. I think we can pick up where we left off. I am hoping, as I say, praying, that we're only a few weeks away from a reopening. We'll see.
Dorothy Wickenden
John Cassidy, a staff writer at the New Yorker, joins me to talk about how the pandemic is exposing the fault lines in Trumponomics and the lessons from history and from other nations now about how best to respond to pandemics and how to stave off a Great Depression. John, welcome back.
John Cassidy
Thanks, Dorothy. Thanks for inviting me on.
Dorothy Wickenden
Most of us, except for the most elderly of us haven't ever experienced an economic crisis of this scale. Public officials have been calling it a war to convey the need to address it as aggressively as possible. But it's really a public health crisis and an economic catastrophe. Health authorities compare it to the flu pandemic of 1918, and economists, you among them, invoke the Great Depression. Could you talk a little bit about those analogies and how they hold up?
John Cassidy
Yeah, well, it's shaping up as a sort of combination, really, of the great flu of 1918 and sometimes referred to as the Spanish flu and the Great Depression. Although, as you say, it's really Sue Generis. We've never before had a pandemic like this which has produced a policy to. Basically, we've taken a policy decision to put the economy into a deep recession, a very necessary decision because we want to save people's lives, obviously. So the policy of sort of locking down people inevitably involves locking down large sections of the economy. So in the last few weeks, we've seen 17 million people apply for unemployment benefits. If you look at that on its face, it looks a lot worse than the Great Depression. The Great Depression took three or four years to reach its height. This thing's only taken three or four weeks. So if you just look at it on its face, that looks like an absolute catastrophe. And all the policy reactions, everybody talks about a stimulus, but really what we're trying to do here is keep the economy and keep people and keep businesses on some form of sort of financial life support until we get a grip on the, on the virus. Usually a Great Depression, very severe recession is basically an economic collapse where the policymakers have completely lost control of the situation. So far here, that hasn't happened. As I say, what we're seeing is basically a result of a sort of political and social decision of how to deal with the virus.
Dorothy Wickenden
And what about the pandemic of 1918? As I understand it, there wasn't a recession afterward. Although retail sales of course went down.
John Cassidy
Yes. I mean, it was a different example because although individual cities like St. Louis and Philadelphia and New York did at various stages introduce sort of social distancing measures and closing public meetings down, etc. There was no effort to basically tell the entire workforce or large swaths of it to stay at home and not go to work anymore. We've reacted much more aggressively to this virus than we did to that one. We knew what we're dealing with and we've reacted in a more economically anyway, a more comprehensive way. Obviously the public health reaction has been pretty atrocious in lots of ways.
Dorothy Wickenden
And in the Great Depression, Hoover didn't handle it particularly well. FDR brought a completely different approach when he came into office and using both fiscal and monetary policies as well as strategic interventions in specific industries to restart the whole economy.
John Cassidy
Yeah, well, what happened basically in the early 30s was we had a stock market crash in 1929 and then that was succeeded by a banking crisis. Consumer spending collapsed and businesses defaulted on a lot of their bank loans. A lot of the banks got into serious trouble. Then people started trying to take their money out of the banks because there was no deposit insurance in those days. And then we had a full blown financial panic and collapse with banks closing all over the country. Hoover, who was a sort of pro business Republican, took the attitude that we could only really rely on voluntarism and sort of, he did scale up government spending to a small extent on public works, but he was also still dedicated to balancing the budgets and that businesses could get us out of this. So there was no comprehensive use of what's now called fiscal policy, government spending and monetary policy, the Federal Reserve, to pull us through. Until Roosevelt came into office in 1932 and the first thing he did was shut down the banking system and the financial markets for a couple of weeks, declared a bank holiday, and during that period he put together a sort of comprehensive financial rescue package which included deposit insurance so people would stop trying to get their money out of the bank. He also introduced various sort of new agencies to try and get the economy going, including when I wrote about the Reconstruction Finance Corporation, which was basically a big government lending agency which took stakes in trouble banks and trouble railroads. Bit like what we're doing now, but it had never been done before then. And that did restore. It didn't turn the economy around instantly, but it restored confidence in the financial markets. It stopped the downward spiral and things gradually got better from there on.
Dorothy Wickenden
So all of this does help to explain how Trumponomics has been failing, which is really a form of Reaganomics, which really a form of what Hoover originally attempted to do.
John Cassidy
Yeah, I mean, I would say Trumponomics or Reaganomics really applies to the first three years of the Trump administration when they were using tax cuts and relying on deregulation to produce a sort of economic boom. The economic boom was largely in Trump's head. Of course. The rate of growth has basically been pretty steady since 2009 as the rate of employment growth. Now that's all gone to hell, obviously, with the pandemic. And we've had this enormous economic shock, health shock, public health shock, and actually the Trump administration and Congress, as Republicans always do when they're in charge and there's a crisis, they suddenly discover Keynesianism and big government spending. And they've introduced, along with The Democrats, this $2.2 trillion fiscal stimulus, which is probably only the beginning. As you said in the introduction, there's probably going to be another round, at least one round, possibly two more rounds of st, where the treasury is just going to be issuing huge amounts of treasury bonds to finance all this stuff and the Federal Reserve is backstopping it all. It's a classic sort of Keynesian stimulus policy. Although as I said, in this case, it shouldn't really be thought of as a stimulus policy. It should be thought of as a life support operation.
Dorothy Wickenden
So economists seem to agree that there should not be a trade off between saving the economy and saving people's lives, and that significant intervention by the government is absolutely necessary. But there are disagreements about how best to go about it. Grants versus loans, keeping workers on the payroll rather than increasing unemployment benefits. Could you talk a little bit about that?
John Cassidy
Yeah, I mean, there's basically been a transatlantic divide on this one. The basic fact is a lot of people are going to be sent home. A lot of businesses are going to be closing down, at least temporarily. We saw that initially in the retail sector and airlines and hotels, etc. Now we're starting to see it rolling through the rest of the economy. You know, auto manufacturers, other firms, which you wouldn't automatically think would be hit, are starting to furlough tens of thousands, hundreds of thousands of their workers. So it's starting to ripple through the economy. What do you do about that? One option is just to give them unemployment. Say, okay, you can fire anybody you want and we'll give you generous unemployment Insurance benefits for the duration of the, of the crisis, and then you can go back to work. That's basically the initial attitude in this country. The first stimulus package included quite generous expansion of unemployment benefits. So that was a humane and the right thing to do because the only reason to keep unemployment benefits under the prevailing wage rate is to encourage people to go back to work. And in this case, we want to encourage them to stay at home. The problem with that is economists wouldn't worry that when the economy eventually starts back up again, a lot of these firms and employees will have lost the sort of employee firm relationship and they might never take them back on. And a lot of the individual firms themselves might have gone bust. You're damaging the long term productive potential of the economy by degrading firms and workers, the basic building blocks of the economy. So what they've done in Europe, they started in Denmark and then Britain followed. They basically just said, okay, firms, you can send your workers home, but the government will pay 80, 90% of their wages. So they'll still be employed, but the government will effectively be paying them. Now, the Trump administration is going some way down that track in how it deals with small businesses. Firms with under 500 workers. They've launched this business loan plan where banks will extend loans to businesses of under 500 employees. And as long as the firms keep the workers on the payroll, they don't have to repay the loans. So actually, they're not really loans, they're government grants. Question is, is it better to work with a banking system like that, or would it have been better to do it directly through the government?
Dorothy Wickenden
So, and was that largely a political decision?
John Cassidy
I think that was, I think, as you, you know, going back to your earlier question, that was largely an ideological decision. This plan originated from Glenn Hubbard, an economist who worked in the George W. Bush administration, and Michael Strain, an economist at the American Enterprise Institute, Conservative Institute in Washington. I spoke to both of them about the plan and they both argued that it wasn't really ideological. They said it would work quicker through the banking system because there is no existing government department of, you know, to pay workers. How would we set that up? It would have to be, would it be done through the Federal Reserve? Would it be done through the Treasury Department? Would you have to set up an entire new agency? So that was their argument, that it would actually be quicker to work through the banking system. Counter argument to that is that, you know, the banking system, it seems to be having a lot of trouble getting this up and running too. And I think Even though, as I say, they say was practical. It also feeds into the Republican preference to work through private markets and private industries like the banks, rather than setting up a new government department or government bureaucracy or using the IRS to directly support people. Because that might establish a dangerous precedent if you're a Republican. Right. If the IRS can just start sending people checks, that sounds a bit like a UBI Universal Basic Income. And I think it's a road Republicans don't want to go down if they can avoid it.
Dorothy Wickenden
But in the meantime, with 17 million people who have filed for unemployment, it's unfolding as a disaster because the unemployment websites in individual states, including New York, Pennsylvania, Michigan and Florida, have all crashed. And we've seen these scenes in Florida where there have been lines around the blocks as people wait to file for their benefits in person or. Which is a huge health hazard to all of them.
John Cassidy
No, I mean, that's a big problem. The states administer the unemployment insurance system. They're just not set up to deal with this level of claims. I'm told from people who are trying to do it that it's virtually impossible to get through on the phone or on the website to the state unemployment office and file a claim. So what do you do you have the option of basically sitting at home for a few weeks with no money, which a lot of people obviously can't afford, they've got rents due to, et cetera, or do you venture out and take your life in your hands and go stand in line down at the local unemployment office and trying to do it that way? So it is a terrible situation. That's another reason why it may have been better in the first instance to try and set up a government direct payment system rather than throwing people out of work. They just inevitably, when you get a shock of this nature, there's going to be a lot of chaos and a lot of human suffering because of it. So Democrats are reacting to this in two or three ways. As you say, there's probably going to be a second stimulus bill. They're talking about pumping a lot more money into the states so they can build up these systems quickly and try and help people quicker. There's also a talk of having a sort of halt on rent payments if you're in trouble. Anything we can do along those lines is essential and it really needs to be done yesterday rather than waiting for another few weeks, as some of the Republicans are talking about.
Dorothy Wickenden
And I see that some of the left wing groups are already highly critical. They don't think the Democratic efforts go far enough. So they've been tough on Pelosi and others who are trying to deal with some of this.
John Cassidy
I mean, I think any pressure that can be exerted on the political leadership to get things done quicker is positive. So I'd support that. At the same time, I think you have to realize just the enormous sort of logistical task which we're handing either to a government agency or the banks or whoever. I'm sure the people who are working in local unemployment offices are trying their best to get these claims. I mean, again, it goes back to, you know, the sort of larger question of how well prepared were we in a public health way, in an economic way, in an administrative way, for a crisis of this magnitude.
Katie Drummond
What the hell is going on right now and why is it happening like this? At Wired, we're obsessed with getting to the bottom of those questions on a daily basis, and maybe you are, too. I'm Katie Drummond, the global editorial director of Wired, and I'm hosting our new podcast series, the Big Interview. Each week, I'll sit down with some of the most interesting, provocative, and influential people who are shaping our right now. Big Interview conversations are fun.
John Cassidy
I want a shark that.
Katie Drummond
That eats the Internet, that turns it all off, unfiltered and unafraid.
Larry Kudlow
So in a lot of ways, I.
John Cassidy
Try to be an antidote to the unimaginable faucet of reactionary content that you see online. To the best of my ability, every.
Katie Drummond
Week, we're going to offer you the ultimate luxury of our times. Meaning and context. True or false. You, Brian Johnson, the man sitting across from me, one day, at some point, as of yet undefined, in the future, you will die. False. Tell me more. Listen to the Big Interview right now in the same place you find WIRED's Uncanny Valley podcast. Subscribe or follow wherever you get your podcasts.
Dorothy Wickenden
The American people are getting insanely mixed messages from the Trump administration. Trump said only two weeks ago that he wanted the economy opened up and just raring to go by Easter. Easter's, of course, on Sunday, and many states, including red states, are just beginning to feel the effects of the pandemic. So Trump has backed off that deadline. But as we heard from Kudlow, they still want to reopen the economy as quickly as possible and as Trump says, with a big bang. But at the same time this morning, we heard Anthony Fauci, the President's chief scientific and health advisor and a welcome voice of sanity, speak on Today.
Anthony Fauci
As you can see, the deaths, the number of deaths, and the cases that we're seeing right now are really validating what we said, that this is going to be a very bad week on the way, one hand. But on the other hand, as you can see, there are some glimmers of hope, particularly when you look at the situation in New York, where the number of hospitalizations, requirements for intensive care and intubation over the last few days have actually stabilized and starting to come down. So even though.
Dorothy Wickenden
So, John, how should the government begin preparing to reopen the economy? What's the best way to do this?
John Cassidy
But it's obviously an enormous question. And when you watch the Trump administration, there's always a sort of doubt as to whether Trump is just cheerleading. I mean, he said the other day that my job is basically cheerlead, which would suggest that we should take much of what he says with a pinch of salt, or whether they are really thinking about reopening as soon as possible. I mean, for the moment, which is a good thing. I think the public health experts ultimately seem to be winning out. The question is, if the curves all do start to flatten or start to flatten in places like New York, they've already flattened, obviously, in California and Washington. So there are some encouraging signs, as you said, and as Fauci said, how do you go about reopening, even in a limited way? Germany, which has handled this better than almost anywhere else, there's a big new study out of there about how to do this. And they laid down a series of conditions which you needed. One was national, comprehensive and very effective testing. So you know, in particular neighbour areas and neighborhoods, what the infection rate is, and you can follow it very closely if it starts to track back up again. Number two, fully comprehensive health insurance system for everybody, so that if there's a big flare up in some place, you can quickly go in, provide effective full care for everybody. Number three, you need effective coordination between the local and the national level. How do you move medical equipment around, how do you surge doctors or whatever into a certain neighborhood? And number four, you need credible and effective leadership, which the public trust, because obviously it's going to be a very dangerous experiment and you can tell people to come back out of home and go to work, but if they think they're going to get the coronavirus once they step out of home, they're not going to do it. So you need all those things. You need testing, you need a comprehensive health system, you need effective coordination between a local and national level and you need credible leadership. And I think most people, if you're honest, would say, well, we don't have any of those things. So what's the outlook? Well, I think we have to hope that the public health experts stay in control and they give it a veto effectively on any sort of economic plan. But as time goes on, as the economy gets worse, as maybe the stock market starts going down again, the political, this is obviously an election on the horizon. The political pressure to get the economy up and going and get the stock market back up is going to get more intense. It's going to be dangerous times. I think throughout the summer, he's going.
Dorothy Wickenden
To have a hard time using Make America Great again as his campaign slogan, I would think. But, you know, there's still more.
John Cassidy
Well, I mean, he's already declaring victory, right? I mean, you know, he's already setting up the WHO and China as the fall guys here. It was their fault, you know.
Dorothy Wickenden
Well, at the same time as his voters begin to feel the effect effects of this.
John Cassidy
Well, that's a very good. I mean, obviously that's a very good question. As you were saying, it's starting to spread to rural areas. Now, will the voters in these rural areas blame Trump? I mean, I think in terms of economics, it's very hard for me to see how he's going to be able to spin a positive story by the fall. What often happens in an economic catastrophe is you have a first round big economic shock and that feeds through the system and everybody starts laying people off, etc. And then you have a second round which financial crisis develops because firms and people all start defaulting on their loans and then you get a financial spiral down. Now, the question is, can the Federal Reserve, which basically is in charge of the financial side of the economy, is what the Fed is doing in terms of basically printing money hand over fist and lending it to anybody in the financial industrial sector who needs it. Is that going to be enough to prevent this sort of financial crisis? On top of the immediate public health and economic crisis, they're pumping trillions and trillions of dollars into the financial system, much bigger than they did in 2008, 2009, to try and keep things afloat until the public health crisis abates. And they probably can do that if the public health crisis abates in reasonable time. But that's why I say everything comes back to the path of the virus. If we get a proper grip on it and it starts to go down in substantial terms, you know, if, if the ultimate outcome looks more like Asia than what seemed to be an utter catastrophe a couple of weeks ago, we might be able to get through with just a very deep recession. If the public health crisis goes on and on, and which maybe we try to reopen the economy somewhere and we get a whole second wave of a mass infection in the fall or whatever, then you're really talking about an economic catastrophe, which of the sort we haven't seen before.
Dorothy Wickenden
Thank you so much, John.
John Cassidy
Thank you, Dorothy.
Dorothy Wickenden
John Cassidy is a staff writer at the New Yorker. He writes a column about politics and economics for new yorker.com, and is the author of How Markets the Logic of Economic Calamities. This has been the political scene. You can subscribe to this and other New Yorker podcasts by searching for the New Yorker in your podcast app and find more political analysis and commentary on new yorker.com Feel free to rate and review us on Apple Podcasts. Our theme music is by Russell Gillespie. This program was produced by Alex Barron and Kylie Warner. For New Yorker.com I'm Dorothy Wickenden.
David Remnick
Right now we are living through some of the most tumultuous political times our country has ever known. I'm David Remnick, and each week on the New Yorker Radio Hour, I'll try to make sense of what's happening alongside politicians and thinkers like Cory Booker, Nancy Pelosi, Liz Cheney, Tim Wallace Waltz, Katanji Brown Jackson, Newt Gingrich, Robert F. Kennedy jr. Charlemagne, the God, and so many more. That's all on the New Yorker Radio Hour. Wherever you listen to podcasts.
John Cassidy
From PRX.
Episode: Can Trump Avoid a Post-Coronavirus Great Depression?
Date: April 9, 2020
Host: Dorothy Wickenden
Guest: John Cassidy (Staff Writer, The New Yorker)
Duration for content: [01:16–23:27]
This episode examines the economic crisis triggered by the COVID-19 pandemic, comparing it to the Great Depression and the 1918 flu, and evaluates the government’s response—particularly the Trump administration’s economic strategies (“Trumponomics”). Host Dorothy Wickenden and guest John Cassidy discuss whether historic stimulus actions can stave off a new Great Depression, the potential consequences for American workers and businesses, and the ideological battles shaping policy decisions as the U.S. faces unprecedented unemployment and economic shutdowns.
“Don’t forget, Brian, we had a roaring economy coming into this new year 2020… I think we can pick up where we left off.” — Larry Kudlow [02:20]
“It’s a classic sort of Keynesian stimulus policy. Although as I said, in this case, it shouldn’t really be thought of as a stimulus policy. It should be thought of as a life support operation.” — John Cassidy [09:09]
“...there are some glimmers of hope, particularly when you look at the situation in New York… hospitalizations… have actually stabilized and starting to come down.” — Anthony Fauci [17:49]
On unprecedented scale:
“If you look at it on its face, it looks a lot worse than the Great Depression. The Great Depression took three or four years to reach its height. This thing’s only taken three or four weeks.” – John Cassidy [04:12]
On government’s ideological leanings:
“It also feeds into the Republican preference to work through private markets and private industries like the banks, rather than setting up a new government department or government bureaucracy… Because that might establish a dangerous precedent if you’re a Republican. Right? If the IRS can just start sending people checks, that sounds a bit like a UBI, Universal Basic Income.” — John Cassidy [12:53]
On administrative chaos:
“I’m told from people who are trying to do it that it’s virtually impossible to get through on the phone or on the website to the state unemployment office and file a claim…” — John Cassidy [13:50]
On required conditions for reopening:
"You need testing, you need a comprehensive health system, you need effective coordination between a local and national level, and you need credible leadership. And I think most people, if you’re honest, would say, well, we don’t have any of those things.” — John Cassidy [20:15]
On potential disaster:
“If the public health crisis goes on and on, and… we get a whole second wave of a mass infection in the fall or whatever, then you’re really talking about an economic catastrophe... we haven’t seen before.” — John Cassidy [23:19]
For listeners and readers, this episode provides a clear-eyed, historically informed diagnosis of the current crisis, spotlighting the ideological, logistical, and health-related complexities of America’s economic response to COVID-19.