This is Democracy – Episode 83: Economic Effects of the Coronavirus

FEMALE 1: This.

MALE 1: Is Democracy.

FEMALE 2: A podcast that exploits the interracial, intergenerational, and intersectional unheard voices living in the world’s-

MALE 2: – most influential democracy.

Zachary: Hello, and welcome to this special episode of This is Democracy. We’re recording once again from our dining room table, as our usual studio at UT is still inaccessible due to the COVID-19 pandemic, which now grips the world. In fact, we’ll probably be recording from here for quite a long time.

Dr. Jeremi Suri: Well, at least for a few weeks.

Zachary: Yeah. Today, we’re going to talk with Professor Jeremi Suri, our usual host, about the economic fallout and political implications of COVID-19, and really what lessons we can draw from similar instances in our history. First, of course, though, I will read my scene setting poem entitled “The Pestilence Depression”. “The pestilence depression, when does it hit you? This recessive parade, the charging bull, bull market of Wall Street. Palms clasped in prayer to some uniquely American idol, knee fallen to the ancient mother, pestilence. I was not capable of economic thought last Nader, last slip into the slick remorseful suds of seemingly invincible bubbles. I have grown with the Dow, reached five feet tall with the Nasdaq, and learn to soar from West Texas Intermediate old Irish dance teacher. It’s eerie, coming home on an overheated school bus to a city of the boom times, city of the uncertain future, aware of something novel, something flapping on broken wings, and to wake the next morning to 3:00 AM school cancellations, like I woke to a new decade. We, children of the recovery, what are we? The generation’s slipping into the cracks, ignorant, promised to prophesiers of pension doom. Taylor one Americans, fool this on the streets that slip into the highway, and we’re also trust fund Americans. Hungerless on the streets locked behind iron gates. Whatever everyone else, the listless 30-year-olds with student debt, mortgages, and $30,000 worth of car loans on a Hyundai. What will become of them, the children of 9/11? What of the sick, the tired, the poor, those ever-present huddled masses yearning to breathe clean air. When does it hit you? The beginning of a beginning, the fork in the yellow brick road. When do you begin to sense the leafless trees, or find the sapling beneath the ever brown brush? When does it hit you? The beginning of a pestilence depression.” This poem is really a very personal one for me. It’s about what it’s like to have grown up with this bull market that has dominated the American Economic Forum for so long. Now to see it collapse in this oldest of pestilences virus. It’s really a very unique, surreal moment for our society.

Dr. Jeremi Suri: Quite sudden, it seems.

Zachary: Yeah.

Dr. Jeremi Suri: Your poem, I think, captures the suddenness and it also captures the dislocation that this create. It’s not just an economic issue, it’s a social and emotional issue as well. Well done, Zachary.

Zachary: Thank you. Jerry, what are the basic economic implications of this outbreak? Do you think we’re on the verge of a major economic depression?

Dr. Jeremi Suri: Well, I’m an optimist by nature, as you and our listeners know, but I have to say, I see a very bleak economic prognosis for our country now. I see us approaching a very deep recession and perhaps a depression of sorts for three reasons. First, our economy has largely grown in the last decade or so based on consumer spending. The coronavirus hits directly at consumer spending, and social distancing and not going to restaurants, and bars, and movie theaters, and festivals, things like South by Southwest that are canceled, we are basically undercutting. More than knee capping, really chopping off the legs of consumer spending in our society. What we know about the history of consumer spending is when it dips, it often doesn’t rebound very quickly. Even if the external conditions change and we feel healthy again and safe in the midsummer, people will be worried about what will happen next, and so we’re likely to see a long-term dip in consumer spending. That’s problem number one.

Problem number two, is that the growth of the global economy over the last hundred years, certainly the last 30-40 years has been deeply connected to the growth of international trade, and our borders are closed. Our international trade was already coming upon major barriers, political and economic, with new tariffs and new trade wars in the last few years, but now we’re in a world of closed trade and that’s going to undermine the growth of our markets. It’s going to make it more difficult to produce the things we produced and to generate the wealth to purchase those things. Then the third, I think perhaps most important element of this, is that fundamentally, people don’t trust their leaders. The decline of trust in the United States, and Western Europe, and Asia in leadership makes it very difficult to convince people to make long-term investments.

I think we’re going to see a lot of people who have access to capital, sitting on their capital. We’re going to see people spending less money, buying fewer cars, buying fewer homes, and that’s going to create a deflationary spiral. Deflation, the inability to raise prices, is what has been at the root of all major economic downturns in the 20th century. The deflation, that we might experience, that we experienced in the 1930s, meant that there was no incentive for companies to produce more, to hire more people, and that led to long-term joblessness. I think we’re in that space now. I think we are going to see very high unemployment numbers very soon. I don’t think we’re going to work our way out of this quickly.

Zachary: Who will be most greatly impacted by this economic fallout of the virus? Will there be people who will actually benefit from it?

Dr. Jeremi Suri: Well, there always are some isolated sectors that benefit from a downturn like this, especially the contours of the downturn that we’re dealing with right now. Those who do online delivery might do a little better. Amazon looks like they will, at least in the short run, be hiring more employees. People will be buying more from Amazon and trying to go to stores less. Obviously, the biotech field, those who are doing the work with regard to testing respirators, ventilators, different vaccines, and medications, they will do well. They will get a lot of government funding as well. Hand sanitizer producers as well. But these are really isolated sectors of the economy. They’re very small in relationship to what are the main sectors of the economy, which remain consumer spending, and tech and industrial production that’s outside of pharmaceuticals and health. Cars. All American automobile factories have shut down right now, and they are still a major part of our economy, automobile production.

There will be some sectors that will benefit, a lot of sectors won’t. As always happens, during these periods of economic hardship, those who are most vulnerable are hit hardest first. Hourly workers who don’t have insurance, homeless individuals, poor individuals, they get hit hardest. We do have the choice, and I’m sure this is where you’re going with your next question though, to turn the hardship into an opportunity to create a more egalitarian benefits if we wish or not. We’ve both sets of experiences in our history, and I think that’s probably where we want to turn in the conversation.

Zachary: Yeah. Really, to that point, historically, what have governments done with similar situations? What are some similar situations honestly?

Dr. Jeremi Suri: Right. The 19th century, particularly the second half of the 19th century, the United States did many major downturns. Eighteen ninety three, for instance, is considered by many a depression, not just a recession, and it happened in part because of the collapse of railroad and other major investments at the time. We of course had the 2007-2008 recession, and then of course, there’s the Great Depression of the 1930s. The US government pursued different policies in different periods. We have a very wide and rich historical record to draw upon. In the 1890s, the federal government did very little to try to address the suffering of individuals. Most of government aid went toward the businesses, the railroads and others that had fallen under, and to some extent are trying to shore up the capital markets, the banking industry and others. But what we saw in the late 1890s was actually widespread starvation in parts of the United States and major violence as different groups of workers and others who felt they were not being well-served by government policy rose up and demanded more action, and you had a variation of responses across different states in the United States. It was that ugly moment that motivated people like Theodore Roosevelt and others to move toward creating a more vibrant federal government to deal with these kinds of issues and address consumer needs. It’s out of that moment that we get many of the first efforts at eliminating child labor, anti-slum efforts by the federal government, and the creation of the Federal Reserve and various other federal agencies to try to regulate the economy more.

The Great Depression was very different. Franklin Roosevelt learned important lessons from the failures of American responses earlier, and the Great Depression produced the New Deal, and the New Deal’s extension through World War II. Those policies were designed not to benefit corporations and businesses fundamentally, although they were part of it, but to actually provide jobs and basic needs to those who were most vulnerable across society. The best example of this being Social Security, which is the first federal pension for elderly citizens who at the time were the poorest sector of American society. The New Deal in World War II, the spending during World War II that created jobs for African Americans and others who had not been provided with our economic opportunities before, The New Deal created greater equality in the United States, and it aimed the benefits at the individual rather than businesses. Two thousand seven, 2008, during the end of George W. Bush’s presidency and beginning of Obama’s, there was a lot of government intervention in the economy to try to alleviate the suffering during this major economic downturn. Most of the efforts, however, went toward firming up, creating more stability in the financial sector and benefiting, bailing out large businesses like the automobile industry. The policies of 2007 and 2008 did not address inequality. In fact, they furthered the inequality in American society. Those who were hurt at the bottom quartile of the American economy, by the recession of 2007-2008 still have not recovered to this day. We have very different sets of policies we’ve pursued at different times aimed at benefiting different groups, primarily during periods of suffering.

Zachary: How can we begin to develop a policy similar to the New Deal for the 21st century, and where do we begin?

Dr. Jeremi Suri: Well, it’s, I think, a really important point you raise. This is not a political statement. It is a historical statement that if we want to find a model for what to do in a period of long-term economic downturn created by a shock, like a collapse in the stock market in 1929, or a collapse in the stock market now precipitated by a major pandemic, the New Deal is our best model. It’s our best model for two reasons. Because as I just said and we just discussed, it alleviated some of the problems of inequality that were at the core of the difficulties and instabilities within the American economy. Second, by providing assets to those in the bottom of the economy and making them more productive, educating them, giving them jobs in factories and skills, it allowed for a much more productive American economy as a whole. That’s how we won World War II. What would that mean today? I think it’s a little different from the way politicians have been talking about it. A New Deal for today would mean, first of all, the federal government, federal agencies, and Congress, and the presidency taking it very seriously that inequality in our society is deeply related to the problems we face today. Really focusing on inequality. Second, focusing on basic institutions that provide access and opportunity for those who suffer, and Healthcare would have to be at the top of the list.

One of the problems we’re facing now is not simply inadequate testing and inadequate hospital beds, but this is already beginning to be reported upon certain people get access to tests before others; why is that? Why do certain communities get better health benefits than others? So investing in the institutions that provide the common benefits to raise up those at the bottom while also helping those at the top. Addressing inequality, not just of income, but inequality of access. Then third, we need a major set of government investments. Major investments that are more than sending checks to individuals, but investing in the institutions, the schools, the infrastructure, the health activities, and health opportunities that people need across the sector. It’s much easier to throw money at the problem by putting money in checks to people than it is to actually invest in institutions that are more significant.

The legacy of the New Deal was not the dollars, nor was it the rhetoric, it was the institutions that were built, Social Security Administration, the G.I. Bill, the creation of federal support for mortgages, and the creation of the WPA and all of the institutions that grew out of that, the Civilian Conservation Corps, planting trees, building pathways, building our infrastructure, rural electrification, Tennessee Valley Authority. Quite literally, the New Deal built the institutions to turn the lights on, to create schools, and to build opportunity in places like Central Texas where we live. Opportunities that for a very young Lyndon Johnson, were inconceivable before that. It was not the money, it was those institutions that made the difference. A New Deal today would be an investment in institutions like that, and the problem is very few people on the left or the right are talking about that. This is not a Democratic or Republican issue. This should be an issue about building real capitalism, which is based on real opportunity for all citizens.

Zachary: Well, first of all, why is this inequality that you speak of specifically economically so dangerous? But also how do we make sure that these institutions that we create don’t further inequality?

Dr. Jeremi Suri: Great question. Many criticize even the New Deal for sometimes doing that. The New Deal certainly reaffirmed racial segregation and inequality in the United States in all of its dimensions. So we have to be careful what kind of institutions we build. Why is inequality so harmful? Well, first, it contributes to political instability. But second, inequality is harmful because it creates an enormous drag on the US economy. When you have inequality, those at the bottom end of the economy are not doing the things that they would want to do and that they could do to become more productive members of the economy. They are instead stuck in circumstances where they might be doing things that make others wealthy, but are not making them any wealthier and are not providing them the incentives to be more productive. A more productive economy is a more egalitarian economy. The times when the American economy has become least unequal have also been the most productive periods in our economy. The most significant being the mid 20th century.

As inequality grows in our economy from the 1970s to the present, economic production and GNP, the growth in those things declines. So inequality correlates with slow growth. Equality, the movement toward more equal opportunity in a capitalist system, equates with more production and more growth, growing the pie for everyone. So it’s political instability and the overall economic prosperity that we are most concerned with. Now, arguing for inequality is not arguing for everyone having exactly the same thing. You can believe in a system of merit, incentives, and markets, and still believe that there should be some basic relationship between those at the top and those at the bottom.

Capitalism, going back to Adam Smith, is not winner-take-all. Capitalism is about a common market where there are common obligations for people to pay into the market and to benefit from the market. A society where some are exploiting others, as was true in the late 19th century, is a society that is less productive, more prone to instability, and more prone to dislocation as we’re seeing today. We are far worse off dealing with this pandemic because of the inequality of health access than we would be, if we had more equal access in our society. If we were, in essence, a healthier society, we’d be better able to deal with this problem today. To move toward a more equal society is to move toward what we saw in the mid 20th century after the Great Depression; a society where all sectors can do better, even those at the bottom.

Zachary: Beyond just creating more stable and more equal institutions on a national level, what can all of us, ordinary citizens and influencers alike, what can we do to combat the economic effects of this devastating outbreak?

Dr. Jeremi Suri: That I think is the key question, and there’s where I am optimistic. Maybe this is a wake-up call for us. Maybe this moment that’s going to be difficult, and I don’t want to downplay the difficulties for many people, particularly those who are already vulnerable, but maybe these difficult moments will be strong coffee for us, strong morning coffee. There are about four or five things I think that we can do, each of us. These draw in the history of how our democracy has renewed itself in moments like this.

First of all, we all can get out there and pay attention to issues of equality and make sure that we care about these issues and let others know we care about them. Whether you are at the top or the bottom, or like my students, somewhere in between, you have to care about these issues. These issues have to be important to you, and you have to vote based on these issues. Don’t look for an easy savior. Don’t look for someone who has easy slogans. Look for someone who you think will address and care about these issues. What made Franklin Roosevelt a great president was not that he had simple solutions, but that he cared about these issues. He really cared about helping those at the bottom to get more opportunity. He knew that doing that would benefit people like himself who were at the very top of society.

Second thing we all can do is that all of us can devote our lives when we have privilege to helping those who aren’t in such privileged positions. That doesn’t mean that we have to become martyrs all of us, but we can personally invest in the kinds of institutions that make a difference. The kinds of local institutions we care about. The kinds of charities we care about. Many people do this through their churches, and that’s a long tradition in American history to work through your churches, and synagogues, and mosques to help those who have been left behind.

Third thing we all can do, and I think this gets even more important as we go along, we can actually try to, ourselves, encourage a set of laws and policy changes that  not just addressing inequality, but that address fairness in our society as a whole. I think we have to have more of a discussion about how large communications monopolies like Facebook operate. We need to pay attention to those issues. We need to see policy change, and we need to see real policy change around infrastructure.

Then the fourth thing that I think we all can do, and it’s what we’re doing here, is we can get involved locally in the local politics of this. Making sure that within our cities and communities, even if we can’t change national policy, we can begin to experiment. During the Great Depression, the states and the cities really were the great laboratory for democratic experimentation. They should be as well. We’re seeing that happened with the pandemic now. Different cities are experimenting with different policies for social distancing, but also different policies for providing testing, and healthcare, and medical facilities for those who need them. We need to really get involved locally along these issues.

Then finally, I want to make a pitch for the arts, what you do with your poetry Zachary. One of the legacies of the New Deal was the descriptive and artistic power to make people who didn’t before understand and care about those who were left behind. Think of the novels of Saul Bellow. Think of the art of Jacob Lawrence. Think of the music of Woody Guthrie. Some of the greatest American innovation is in the arch during periods of depression. Arts that awaken our consciousness and mobilize us as maybe nothing else ever can. That’s why your poetry is so important to our podcasts, Zachary.

Zachary: In this moment of economic instability and crisis, we all really need to rethink the choices we make, what businesses we support, what policies we advocate for, and how our actions impact others. But most importantly, we all need to think critically and ask: are we really doing our part to help those suffering around us? Thank you, Jeremi, for your insights and thank you for joining us for this 83rd episode of This Is Democracy.

MALE 3: This podcast is produced by the Liberal Arts Development Studio and the College of Liberal Arts at the University of Texas at Austin.

MALE 4: The music in this episode was written and recorded by Harrison Lemke, and you can find his music at harrisonlemke.com.

FEMALE 3: Subscribe and stay tuned for a new episode every Thursday featuring new perspectives on democracy.