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Have you seen the miles-long lines for American food banks? The sight is disorienting. When I think of bread lines I don’t imagine people sitting in long queues of Japanese cars and Korean pick-up trucks. Images of skinny men in cloth caps come to mind. Yet the scale of American want during coronavirus is nevertheless crushing. The same cannot be said for the denizens of high capital, a fair number of whom are regular Swampians. I request the latter not to take what follows in the wrong spirit. I am a fan of democratic capitalism. Moreover, I am aware of which side my bread is buttered, as they say in the UK. FT subscribers keep me employed. I have no wish to denigrate your skills or profession.
My concern is about the legitimacy of the democratic capitalist model to which most of us subscribe. This week Jay Powell, the Federal Reserve chairman, said 40 per cent of Americans earning below $40,000 a year had lost their jobs. He pointed this out as part of a plea for Congress to step up its fiscal support (something that looks decreasingly likely). What he did not emphasise is how well America’s biggest private equity groups are doing. As ProPublica points out in this great piece, Blackstone’s shares are up 50 per cent since the crisis began. Apollo Group’s shares are up 80 per cent. To judge from their performance — or indeed the Dow Jones’ relatively sanguine pricing — you would never have guessed America was suffering a recession “without modern precedent”, as Powell put it.
It is as though we are on one of those Zoom split screens. One side is deprivation. The other is a kind of postmodern Great Gatsby. Credit for the latter should go to the Fed. Much like in 2008, the Fed has done “whatever it takes”, in David Wessel’s words, to keep the economy afloat. Alas, that creates a lot of collateral benefit to actors who might not be quite so deserving. Top of that list would be the highly leveraged corporates, who spent the bounty years borrowing on the cheap then spending their capital on share buybacks. They are now relying on Mother Washington to keep them afloat during the pandemic. The Fed has little choice in its largesse because the alternative is devastating. But there will be a political reckoning with the perceived unfairness of it all. Just ask a small business that has tried to get a Small Business Administration-approved loan — through the so-called Paycheck Protection Program — only to be turned down for one reason or another. One infuriating piece of bureaucratese is that PPP recipients must spend 75 per cent of their loans on employee costs, which is the kind of nit-picking reserved for the small players. What if your business’s rent is bigger than your payroll? Who invented these rules?
By contrast, the Fed has turned on the spigots, no questions asked, to any big player who can avail of its credit. This includes junk bond issuers, municipals and a whole galaxy of borrowers who have never received direct Fed help before. Alas, Powell’s remit does not extend to most small businesses, let alone America’s essential workers, who have to live under a very different moral code, which tells them that subsidies make you work-shy and public handouts are for losers. The rest must live in an unforgiving Old Testament world. Wall Street remains a perpetual beneficiary of the Good News gospel, which miraculously wipes out past sins.
Rana, as you can tell I’m frustrated by the looming political fallout that is likely to come of this. I can’t predict how or when it will happen. But water will find a channel. Is that your take as well?
Recommended reading
My main piece this week is a long FT Magazine read about Donald Trump’s coronavirus meltdown. If you have the time, I’d appreciate your thoughts. Advising Trump, one administration official says, is like “bringing fruits to the volcano . . . You’re trying to appease a great force that’s impervious to reason.” My column this week is on the racial dimension to America’s pandemic.
Elsewhere, I strongly recommend this passionate Washington Post opinion article by the novelist Jonathan Safran Foer, about the White House decision to invoke the Defense Production Act for big meat processors such as Tyson, Sanderson Farms and Pilgrim’s Pride. What is it about the big meat producers that makes them more essential than, say, manufacturers of N95 masks or ventilators?
Finally, do take the time to watch as many sessions as you can in this week’s marathon FT webinar — the FT Global Boardroom. Highlights include Tony Blair, Michael O’Leary, the World Health Organization’s Soumya Swaminathan, Sheila Bair, McKinsey’s Kevin Sneader, Al Gore, Kristalina Georgieva and David Rubenstein. Apart from the intellectual content, I was amused to see a couple of unmade beds among the backdrops, in addition to a cat wandering into one colleague’s session. No names. (But since you insist: Gideon Rachman.)
Rana Foroohar response
But of course, Ed. As I wrote early on, we should have bailed out the little guy first, and in not doing, we have completely recreated the moral hazard problem of 2008, and then some. The problem is only going to get worse as we move from a consumer liquidity crisis to a corporate solvency crisis, which will create a longer line of corporations in Washington hoping to get their share of the next bailout package (that is, of course, becoming a politicised topic which won’t help things either).
My biggest worry, though, is what happens after we have put out the immediate fire. The worst-affected industries contribute 12 per cent of US gross domestic product, but employ 25 per cent of workers, according to a recent Gavekal report on the topic. And a good chunk of the jobs that are being lost aren’t coming back — see here a very alarming National Bureau of Economic Research paper estimating that 42 per cent of recent dismissals will result in permanent job losses.
My short take is that assuming a Democratic win in November, this is going to speed up the move to wealth redistribution, debt jubilees and so on. The more interesting question is how they’ll be paid for — printing more money, taxes on the rich, or both — a topic I’ll take on myself in a future column.
Behind the Money podcast
Hi there, I’m audio producer Oluwakemi Aladesuyi. Our latest episode of the Behind the Money podcast is out and I wanted to share it with you. The episode goes behind the scenes of the US food supply chain during the pandemic. Our host Aimee Keane interviewed Greg Meyer, who shared the challenges facing meat suppliers right now, and why the difficult choices they need to make could result in more empty shelves at the supermarket. You can listen to the full episode here.
From the episode: “I don’t think that the country will need to go vegetarian, but plentiful supply, the expectation that anything you want will always be available anytime you want it, might be challenged, at least in the short term.” — Greg Meyer, FT’s natural resource correspondent
Your feedback
And now a word from our Swampians…
In response to It’s the end of globalism as we know it (and I feel fine):
“You’re exactly right that there has been a shift under way for nearly 15 years on the international landscape from the era of peak globalisation, post-cold war triumphalism and singular American dominance to some new and as yet unformed order. Like most transitions or transformative moments, this one is bound to be uncertain and risky — especially when the main driver of the previous order, the US, is drunk at the wheel. Both Trump and the pandemic (and especially the two forces combined) are accelerants of that transformation, not its inventors . . . I’m by nature an optimist, but at the rate we’re going today I fear that this transition will be especially fraught.” — William J Burns, president, Carnegie Endowment for International Peace, Washington, DC
“I realised once I stopped bemoaning everything Trump that there are some valid points in his programme despite he being so repugnant. Bear with me. The global community should be looking to rest, adjust or trim the ways things are, on a regular basis otherwise there will be imbalances allowing Trumps et al to garner support to deal with greater accrued imbalances . . . As for the China trade game — and it is a game — the Chinese did need to be pulled into line harder and faster but we don’t need all the nonsensical posturing from Trump and untold business damage through lack of finesse, ego-driven nuttiness and insecurity to trade and markets. Nato, Opec and other similar institutions needed discussion if not adjustment. Large American and multinational businesses and G20 generally needed a kick up the pants. A crisis reveals true leadership and true characteristics. I am seeing that in all the companies I deal with from smallest to largest, even NGOs.” — Michael Wadley, Wadley Business Consulting, Shanghai, China
We’d love to hear from you. You can email the team on [email protected], contact Ed on [email protected] and Rana on [email protected], and follow them on Twitter at @RanaForoohar and @EdwardGLuce. We may feature an excerpt of your response in the next newsletter.
