As the world shelters in place from the coronavirus pandemic, an economic crisis is growing. This week, Nick and Goldy pull the curtain back on why trickle-down has made us extra vulnerable to disasters like COVID-19. Our focus always, but especially now, should be on building a more resilient and inclusive economy that can actively protect people from ruin and tragedy. The only limit to our ability to address this crisis is our imagination and our willingness to act.
Further reading:
Hurricanes hit the poor the hardest: https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/
Insult to Injury: Natural Disasters and Residents’ Financial Health: https://www.urban.org/research/publication/insult-injury-natural-disasters-and-residents-financial-health
How natural disasters can increase inequality: https://www.pbs.org/newshour/economy/making-sense/how-natural-disasters-can-increase-inequality
Poverty and Death: Disaster and Mortality 1996-2015: https://reliefweb.int/report/world/poverty-death-disaster-and-mortality-1996-2015
Poll: Nearly 1 in 5 Households Have Lost Work Because of Pandemic: https://www.npr.org/2020/03/17/817158521/poll-nearly-1-in-5-households-have-lost-work-because-of-pandemic
Mnuchin warns senators of 20% US unemployment without coronavirus rescue, source says: https://www.cnbc.com/2020/03/18/mnuchin-warns-senators-of-20percent-us-unemployment-without-coronavirus-rescue-source-says.html
Coronavirus shock will likely claim 3 million jobs by summer: https://www.epi.org/blog/coronavirus-shock-will-likely-claim-3-million-jobs-by-summer/
News clips from CBS News and ABC News
Website: https://pitchforkeconomics.com/
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Nick Hanauer:
Hey, gang. We are continuing to try to do weekly podcasts. It’s work economics. Despite the Coronavirus crisis. You should know that the quality will be varying as we try to sort out how to do all of this remotely, so thank you so much for sticking with us. Also know that some of the podcasts that you’ll be hearing in the future were recorded before the Coronavirus, so you won’t get any of that context. And some of it will be recorded during the coronavirus crisis, so it will be reflected. But in any case, thank you so much for sticking with us. Wash your hands, be safe and take care of one another.
Speaker 2:
The Coronavirus has not only attacked the health of thousands, but also threatened the livelihoods of millions.
Speaker 3:
Stocks on wall street plummeted again this morning because of Coronavirus concerns.
Speaker 7:
The economic ramifications of the Coronavirus are also far reaching. Businesses large and small are suffering.
Speaker 3:
We are not facing Armageddon, but we are facing very challenging, possibly, years ahead.
Speaker 8:
From the offices of Civic Ventures in downtown Seattle. This is Pitchfork Economics with Nick Hanauer.
Speaker 8:
One American capitalist’s take on how he got into this mess and how we can get out.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
Nick Hanauer:
So Goldie, are we having fun yet?
David Goldstein:
No, I’m not having any fun whatsoever. In case you couldn’t tell from the poor sound quality, nick and I are recording this remotely from our own secure locations.
Nick Hanauer:
Exactly.
David Goldstein:
Nick’s, no doubt, more secure than mine.
Nick Hanauer:
Although you do sound like you’re in a deep, deep hole. Goldie, so there is that.
David Goldstein:
I’m in a deep hole both figuratively and literally, Nick.
Nick Hanauer:
Yeah, exactly. And so not to start out the podcast by gloating, but when you’re right, you’re right. And I think one of the things that a crisis like this makes so clear and vivid is what a terrible toll 40 years of neoliberal governance has taken on our society. And the purpose of this podcast is to pour salt into the wound or whatever. I don’t know what the metaphor is. But to explain to people who probably at this point don’t need much explaining why this set of ideas has been so corrosive. There are a few beats that we want to hit.
David Goldstein:
Yeah. I think one thing to start out with is to make clear that at one level this is natural disaster, like a hurricane or an earthquake. It’s an epidemic, right? This deadly virus evolved and the separate issue of how to contain it. But this is not something… The people who are being affected by this, it’s not something that people did. As much as I want to blame Trump for everything, he didn’t actually create the virus. We’ll get into the response later. So it is a natural disaster. But like with all natural disasters, Nick, how we respond to them is what really determines how many lives are lost or dislocated or impoverished.
Nick Hanauer:
Yeah. But Goldie, I think that’s not quite right. In fact, let me push back and just say, I think you’re actually dead wrong. Certainly matters how we respond to this crisis or any other natural disaster, but what makes a bigger difference, honestly, is how the society was prepared in the first place. Because, let me analogize to a hurricane, if everyone lives in a concrete house, built to hurricane standards, and has hurricane shutters and has a good plumbing system and there’s a ton of high quality infrastructure around, a hurricane can come through and, honestly, damage the society and have in a very minor way. If everybody’s living in a tin hut, then when a hurricane comes, it has a cataclysmic effect on the society. And what we are learning in America is that we have essentially been living in tin huts when the hurricane came.
Nick Hanauer:
And that’s what 40 years of trickle down economics, 40 years of neoliberalism wrought. So when the hurricane in the form of this epidemic came, we found ourselves all in wreckage. And when you live in a society where the bottom 40% of Americans can’t withstand even a $400 expense, that certainly means the bottom 60% can’t probably afford to withstand a $1,000 expense. It turns out that the entire society is fragile as a consequence of that. So if you think about the society as a pyramid, if the people at the bottom of the pyramid, the bottom two thirds of people are incredibly fragile, when then something happens, the whole thing comes crashing down. Even the people at the very top. And so 40 years of wage suppression have wrought this circumstance that is just really, really bad and really, really scary. And again, nothing makes it more vivid than a deadly pandemic.
David Goldstein:
Right? And to be this fragility not only impacts our ability to survive this intact, I know at the individual level, it’s not only a problem just for people who won’t be able to pay their rent and pay their bills, et cetera, because they’re suddenly out of the job and have no cushion, but it also impairs our ability to contain this pandemic through the social distancing that’s required to slow its transmission. Because if you can’t survive a $400 emergency, then you’re going to go to work regardless.
Nick Hanauer:
Correct.
David Goldstein:
If you’re a gig economy worker who does not qualify for unemployment benefits, well, you have no backup there under the traditional system. And if you are an hourly worker who gets your hours slashed in half or by two thirds, you know what? You still don’t qualify or qualify for unemployment because you’re still employed. If you’re an Uber driver, you’re still out there picking up passengers. If you’re working in retail and they call you in, you’re still taking all the hours you can get because you really have no choice because how else are you going to make ends meet?
Nick Hanauer:
And to have, again, built a society where over the last 30 years, the richest 1% got $21 trillion richer while the bottom 50% got $900 billion poorer, this is when you find out why that doesn’t work out for anybody. And if there was ever a moment where you’re like, Oh, maybe that $7.25 cent minimum wage that kept everybody poor didn’t make sense, where it was vivid, this is it.
David Goldstein:
Right? So let’s talk for a moment, Nick, about the horrible numbers that are facing us. How bad this economic contraction really is so that people have a sense of what we’re facing here. This is not just a couple of weeks of working from home and maybe running at a grocery store or running low on toilet paper. There’s data out there already that says by March 14th as many as 18% of us workers, some have either lost their jobs or are now working reduced hours due to the Coronavirus epidemic. And this is disproportionately on lower income households. People earning less than $50,000 a year, 25% have lost their jobs or seeing their hours reduced. And it’s actually higher in a small cities, suburban areas than it is in big cities like Seattle.
David Goldstein:
And I can tell you, you’ve had us working from home for almost two weeks now. I’m still getting my paycheck direct deposited every two weeks. So it doesn’t affect people like me, the work from home crowd. It’s affecting the folks in the service economy. The people we rely on every day for the routine products and services that keep us going.
Nick Hanauer:
Right.
David Goldstein:
To compound this, this is not only going to be one of the biggest economic contractions we’ve ever seen. The estimates are we could be seeing 20% unemployment. We can see the economy contract by 18% in the first two quarters alone. It’s going to be one of the fastest. Not “one of”. The fastest. It’s historical how quickly this economy has gone from boom to bust overnight. Literally overnight as we shut down the economy to try to slow the spread of the virus.
Nick Hanauer:
Yeah. The other side of that coin, I realize you love to come from a dark place, Goldie, is-
David Goldstein:
I don’t love. I just naturally go there.
Nick Hanauer:
… is that because of the way in which we are globally interconnected and technologically interconnected, how quickly it can slow down with the right policy agenda, it can start back up much faster than than it would have in other times and places, too. So I remain cautiously optimistic that we are not facing Armageddon, but we are facing a set of very, very challenging months and possibly years ahead.
David Goldstein:
That’s a big “if”, Nick. That requires passing the right policy agenda from a DC establishment that even on the democratic side has just been totally steeped in neo-liberalism.
Nick Hanauer:
Correct. Although, hasn’t it been interesting to watch how in a deadly global pandemic, all of the things that we’ve been arguing for a suddenly seem like smart ideas.
David Goldstein:
Yeah. Everybody’s a-
Nick Hanauer:
Every everybody’s a Democrat in a crisis.
David Goldstein:
I’ve seen elsewhere. Everyone’s a Keynesian in a foxhole.
Nick Hanauer:
Exactly. But let’s just talk a little bit about the other way in which, the sort of more macro ways, in which neoliberalism has damaged our society. And there’s no better way to characterize the hardcore neoliberal Republican position than to quote that ass clown, what’s his name?
David Goldstein:
Grover Norquist.
Nick Hanauer:
Yeah. Then to quote that ass clown, Grover Norquist, who has been arguing for decades that he wants government to be small enough so that he can drown it in a bathtub. Well, Americans, you now have a government that you can basically drown in a bathtub. A government which is unprepared to deal with a crisis like this. A government that has underfunded all of the collective capacities that we have to deal with these kinds of things. And a government that has sought to, at the expense of all public interest, just make rich people richer by allowing, among other things, like this massive hospital consolidation, which has left us without healthcare capacity around the country. But it sure has made a bunch of private equity guys rich.
David Goldstein:
Yeah. And let’s be clear. You look at those numbers, that the U S has one of the lowest percentages of hospital beds per capita in the developed world. That Italy, which is a disaster where people are dying at an extraordinary rate, Italy has significant more capacity in their hospital system than we do. And this is, you know, it was efficient. It’s more efficient to run a hospital when 70-80% of your beds are filled at any one time. But when a crisis happens and you suddenly need to care for a lot more people, Oh, well, now you’re doing triage and choosing who gets treatment and who doesn’t. People who would otherwise survive are going to die because they’re hospital’s efficient and to bump up the pay of CEOs and the returns for shareholders.
Nick Hanauer:
Correct. It just comes down to this notion that, what we do collectively, that government is the problem, not the answer. This is when you find out that all of that is bullshit. Can government be inefficient? Of course it can be. Can it be too bureaucratic? Of course. But there is no alternative to collective capacity. Right? People cannot buy their own ventilators. They just can’t. People cannot prepare for pandemics individually. You just can’t. People cannot prepare for a global pandemic on their own. You can’t have your own CDC. You can’t develop your own vaccines. You can’t develop your own cures for this sort of disease. We need collective capacity and the private sector can play a role in that. But collective action in government plays the indispensable role when it comes to dealing with these crises. And you see in countries around the world, South Korea and China, where they have huge amounts of collective capacity, how quickly they have gotten this situation under control. Right?
David Goldstein:
Whereas we’re still not testing. You have to be pretty sick to get tested here. Meanwhile, the only way to control this at this time is to test everybody and you have it isolate you. Quarantine the people who are sick. But if we don’t know who’s sick, we can’t quarantine. Yes. And we can’t test because our government wasn’t prepared to do that.
Nick Hanauer:
That’s right. Because we wanted it to be the size that we could drown in a bathtub.
David Goldstein:
Yeah. Thank you, Grover Norquist for grounding us all-
Nick Hanauer:
Thank you.
David Goldstein:
… with the government.
Nick Hanauer:
But it’s not just Grover Norquist, it’s Mitch McCollins. It’s the whole gang of libertarian, right-leaning idiots who really believed that we would all be better off if we were all on our own. It’s just stupid and ridiculous and now we are going to pay a price.
David Goldstein:
You’re going to pay that price, Nick, because neo-liberalism, this trickled down era has not just left the American people less resilient. It’s left the broader, at the macro level level, the whole American economy, corporate America… Great example, the airlines are asking for $60 billion in bailouts from the government after a decade of their highest profits ever because instead of preparing for a rainy day, they were using those profits for share buybacks and now they need to bail out.
Nick Hanauer:
Yeah, exactly. And I think… What was it? Last year corporate America spent $800 billion on share buybacks. That’s all money that either could have been spent on paying workers more so they would be resilient in the face of this crisis, or you could have just stuck that money in the bank and use it to invest or to defend against-
David Goldstein:
Cushion [crosstalk 00:17:08].
Nick Hanauer:
… cushion the blow that inevitably would come.
David Goldstein:
It’s not like, Nick, like the airlines, it’s not like they’ve never had tough times before.
Nick Hanauer:
Exactly. Exactly.
David Goldstein:
Pretty much the entire history of the airline industry since deregulation up until 10 years ago was tough times.
Nick Hanauer:
Right.
David Goldstein:
This past 10 year period was the only period that has been profitable. But I guess they thought it was going to go on forever. And then and then, Nick, in our own backyard there’s Boeing. Boeing needs a special call out here because Boeing’s asking for a bailout, too. Boeing who has had it’s 737 MAX grounded for a year due to its own incompetence, do you know what it’s been doing during that crisis over the past year? It’s been borrowing money to buy back stock and pay dividends. It’s literally been going into debt to return value, in air quotes, to share holders, at a time when it was facing its biggest internal management crisis in the company’s history. And then Coronavirus hits and the airline industry collapses and grounds all these planes and cancels orders, and now it needs a bailout. Shame on them. The shareholders should be wiped out.
Nick Hanauer:
I agree. Speaking of wiping out shareholders, there will absolutely, undeniably be the need to bail out a whole bunch of companies in the next six months to a year. And I think the American people need to resolve one thing: That no company, not one company, gets a bailout that isn’t in the form of preferred stock.
David Goldstein:
You need to explain what preferred stock is as opposed to the normal stock.
Nick Hanauer:
Yeah. So here’s what we should do: The federal government should create a joint stock company where every single a social security card holder in the country is a co-equal shareholder.
David Goldstein:
Kind of like a sovereign wealth fund.
Nick Hanauer:
Correct. But the country doesn’t own it. You own it as a social security card holder individually. And any money we use to bail out companies, the federal government won’t bail them out, won’t loan the money, will buy preferred shares. Which is to say shares which have a preference above all of the other shareholders. Which means you get paid first if there’s a liquidation. And so what that means is that the American people individually will now own stock, preferred stock, in any company requiring a bailout.
Nick Hanauer:
And here’s the good news, is that we’re going to bail all these companies out. The vast majority of them are going to survive and thrive, but instead of the old shareholders being bailed out by ordinary, middle-class Americans, now ordinary middle-class Americans would own shares with those old shareholders. And a lot of it because these companies valuations are way, way, way, way, way, way, way lower than they once were. And that’s the fair way to recapitalize these companies and to make sure that every American who is now taking the risk to bail these companies out gets part of the reward. Right? Directly. And when you retire, you get your share.
David Goldstein:
So, let’s use this as an example. Again, let’s take Boeing, our neighborhood bad boy here, it’s stock was recently trading at about $400 a share in the midst of the 737 MAX crisis. Crazy. But it was trading at $400 a share. Recently, it’s been trading down to about a $100 a share. So shareholders have lost about 75% of their value over the past couple months. Good. They deserve it.
David Goldstein:
But if we were to give them a fail out, they would issue new preferred shares and it wouldn’t be at $100 a share because we’d be diluting the value of the company by issuing more shares. So let’s say we issue equal to 50%. Whatever. So now we’d be buying that at $50 a share, which would drive down the price of the common stock as well. And we would own that. The American people would own that through this account, through our social security account, sovereign wealth fund or whatever the device is that we put this into. And if Boeing recovers and their stock goes up, we make money.
Nick Hanauer:
A lot of money.
David Goldstein:
And by owning a big company, a big chunk of that company, we would have seats on the board.
Nick Hanauer:
Correct.
David Goldstein:
So I agree, Nick. I think that’s the way bail out should be structured. I think obviously there will have to be some bail outs if only to save jobs.
Nick Hanauer:
Yeah. This is a circumstance where you can turn lemons into lemonade. We have a terrible circumstance where almost all of the stock in the country, the vast majority of wealth in the country is held by a very few people.
David Goldstein:
Right.
Nick Hanauer:
Right? Well, this crisis may be a way to rearrange that.
David Goldstein:
Think of it as the new disaster capitalism.
Nick Hanauer:
Correct.
David Goldstein:
For the last 40 years, capitalists have been using disasters, economic and otherwise, to disempower people and to disenfranchise and impoverish them. Now the people have an opportunity to use a disaster to re-empower themselves. And I would say, Nick, in addition to an omen ownership state, we need to use this as an opportunity to change the rules.
Nick Hanauer:
Correct.
David Goldstein:
You get that bail out, you know what? If you’re not unionized, you need to have a union vote. If you are unionized, labor representatives need to sit on your board. As is done in many other countries. Perhaps the bailouts come with a promise that you have to use it to keep your workers employed or at least keep them paid. So that you don’t just take it and lay off all your workers anyway. We’re not bailing you out so you downsize and layoff. We’re bailing you out so that we can keep good paying jobs in America.
Nick Hanauer:
Exactly.
David Goldstein:
Perhaps it comes with a restriction that you have to offer paid sick leave, that you have to offer a $15 minimum wage, that you have to provide health insurance to all your employees. There’s a lot of restrictions that we can put on this bailout and if they really, really need the money, they’ll have to take it.
Nick Hanauer:
Correct.
David Goldstein:
Otherwise, then, they don’t really need-
Nick Hanauer:
They’ll be fine.
David Goldstein:
Yeah. That’s their choice.
Nick Hanauer:
That’s right. But in the meantime, I mean, again, this crisis makes vivid all sorts of other policy failures like the fact that we do not have a national policy on paid sick leave.
David Goldstein:
Right.
Nick Hanauer:
It’s absolutely nuts.
David Goldstein:
So, Nick, when we have guests, I sometimes like to ask them the benevolent dictator question. If you were running the country and you had no political restrictions whatsoever, what would you do? Benevolent dictator, Nick Hanauer, what would you do?
Nick Hanauer:
The first thing I would do is I would change the tax structure and make it significantly more progressive. I would raise the tax on capital gains and dividends to the same levels as ordinary income, and I would increase the highest level tax rate on ordinary income above a million dollars a year to 50% or something in that range. There’s an insane amount of money available in our country that would be available to meet these challenges. That’s first.
Nick Hanauer:
Second, I would reform our healthcare system. I would absolutely enact some kind of health care system that modeled either on the English system or the Canadian system or the Singaporean system.
David Goldstein:
Any system but ours.
Nick Hanauer:
Any system but ours that dis intermediates private insurers from the vast majority of transactions. Some form of Medicare, some kind of healthcare system which dis intermediates private insurers from most of the healthcare transactions and is, in some some measure, a single payer system or a Medicare for all system. Or in any case, Medicare for anyone who wants it. But some kind of healthcare system other than what we have today to radically expand access to healthcare and also reduce the cost of healthcare in our country.
Nick Hanauer:
The third thing I do is enact some common sense labor reforms. Absolutely some kind of national paid sick leave. I would raise the minimum wage. I would enact a set of common sense labor reforms to increase wages for the bottom 60% of Americans substantially. I would enact a paid sick leave nationally for all Americans. Two weeks of paid sick leave, for sure. I would enact a much higher minimum wage, at least $15 an hour and probably $20 an hour for big companies. I would raise the overtime threshold, something we’ve talked about repeatedly on the pod, to the 66th percentile. Largely in the range of 80 or $90,000.
Nick Hanauer:
And I would absolutely link any economic help that we gave to American corporations to shares. I wouldn’t bail anybody out on the basis of loans or any other thing. I would absolutely ensure that if the taxpayer is footing the bill for saving these companies, that the taxpayer will get the upside if the company survives.
David Goldstein:
I would add, Nick, we have like an emergency situation in terms of unemployment compensation where the federal government needs to fund and expand it. But we also need to expand it not just in terms of how long you can collect it, I think we need to increase the amount that people are getting.
Nick Hanauer:
Sure.
David Goldstein:
Because it’s just way too low for people to get by and we need to expand it to the self employed contract workers, gig economy workers. And we need to expand it to part time workers so that if you get your hours cut, you can get part of that made up with unemployment insurance. And maybe, maybe, maybe some of that money actually could go to small businesses to keep workers employed instead of laying them off. So [crosstalk 00:28:54]-
Nick Hanauer:
Correct.
David Goldstein:
… to subsidize, paid to keep these companies going.
David Goldstein:
I think the big thing is what we’re all hoping for is that, while this is going to be an incredibly deep and fast economic decline, if we do get this epidemic under control, it will be extraordinarily short, as well.
Nick Hanauer:
Correct.
David Goldstein:
That’s only if, and this is the big “if” you talked about earlier, that’s only if we do the policies that keep the economy going because if you have a small businesses closed for six months, they’re not reopening. It doesn’t matter how profitable they were before. They’re not reopening. They don’t have that type of cushion.
Nick Hanauer:
Correct.
David Goldstein:
Two months, they probably don’t have that cushion. So we need money available to small businesses as well as individuals and as well as the giant corporations like Boeing and the airline industry so that they can pick up where they left off once we give the order that you can reopen your restaurants and you no longer have to shelter in place.
Nick Hanauer:
Correct. And I mean basically, if you want to reduce it down, the wealthiest citizens in our country need to be paying to ensure that the broader economy continues to function. And we have plenty of money to do that.
David Goldstein:
Right.
Nick Hanauer:
We’ve got plenty of money to do that. We just have to go get it. And if we do, in the longterm, all will be well. And maybe, and here’s the silver lining, Goldie, is that maybe Americans will have learned a lesson about collective action and our collective responsibility to one another. And maybe some of these ridiculous trickle-down lies, they’ll never be finally put to bed, but at least people will be more sensitized to how stupid they are and how harmful they’ve become.
David Goldstein:
Right. So the silver lining in all this, if there is one, is that maybe we can remake the economy to be more resilient and more fair and a more prosperous-
Nick Hanauer:
For all.
David Goldstein:
… for all by learning lessons from this really horrible disaster.
Nick Hanauer:
Well, on that happy note, everybody wash their hands. If you feel sick, stay home.
David Goldstein:
Yep.
Nick Hanauer:
And let’s take care of one another and try to be optimistic.
David Goldstein:
We’ll try.
Ashley:
Hi, I’m Ashley. I’m one of the producers here at Pitchfork Economics and we want your questions for an upcoming AMA episode with Nick and Goldie. What do you want to know about the economic effects of the Coronavirus crisis? Tell us by calling and leaving a voicemail at 731-388-9934. That’s 731-388-9934.
Speaker 8:
Pitchfork economics is produced by Civic Ventures. If you liked the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer, follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.