In New York City, there are not too many words a parent of a teenage boy fears more than, “No basketball”. Few here can afford spacious quarters, so sending frisky kids like my 13-year-old out to play ball with friends is crucial for familial bonhomie. But state governor Andrew Cuomo has banned this, as part of New York’s social distancing protocol. Hoops and spirits are down.
Much has been written about how US President Donald Trump is mishandling national efforts to stem the spread of Covid-19, and rightly so. The country now has more cases than any other, overtaking China and Italy, and numbers are unlikely to peak before May.
But what I see in my own neighbourhood underscores how Mr Trump’s fumbling response to coronavirus is part of a bigger national problem. Policy choices, made over decades, have relentlessly favoured the interests of the private sector in general, and large corporations in particular, over both the state and labour, in ways that are proving costly to our health and our economy.
Case in point: many people who do not have full-time jobs with benefits are still trying to work, despite the “shelter-in-place” mandate that allows only critical workers to be on the job these days.
Aside from the people who live near me, those I see on the streets are nannies, cleaners, contractors and others who work by the hour, for cash. Surely some are becoming viral vectors, but who can blame them for trying to make a buck? The $1,200 per adult benefit being handed out as part of the $2tn federal stimulus package which aims to cushion the financial blow from the virus won’t go far. In fact, in NYC, it will pay only a little over one-third of a single month’s median rent of $3,000.
Uber drivers, who are playing what I consider to be an emergency role in New York (fewer people per head own cars here than in other parts of the US) will fare a bit better. The federal government will end up shouldering the cost of unemployment insurance for these contract labourers, because companies such as Uber have successfully avoided having to admit that they are, indeed, real employees who should receive real benefits during normal times.
If I were a chief executive in a company that has to shoulder those burdens directly, I would be furious about this. While I’m all for the emergency stimulus package, it’s ridiculous that a company with a valuation of $46bn has managed to push that burden on to taxpayers by leveraging the free-market fantasy that there is an equal power dynamic between America’s gig workers and its biggest corporations.
This brings us to an important truth. While private market systems are great at allocating resources in many areas, some markets — not only labour but also healthcare — require more public intervention and investment to function properly.
America’s fragmented and costly healthcare system is Byzantine in the best of times, and needless to say these aren’t the best of times. As I write this line, the third ambulance I have seen today is rolling down my block. I’m glad that I’m not in it, given that Mr Cuomo has stated that while New York needs 30,000 ventilators, it has only 4,000. Mayors and local governments all over the country have been left to fight for available supply with each other in a free market frenzy.
The federal stimulus package does provide $150bn in funding for hospitals, healthcare workers, equipment and services, most of which will be provided by state and local municipalities. But that is a fraction of the $500bn that large businesses will receive, in the hope that they will use some of it to continue to keep as many workers as possible on their payrolls.
Frankly, I wish that the US corporations had chosen to make job protection a more core part of their business models, as many Germany companies have. The German kurzarbeit model of using economic downtime to retrain workers and upgrade factories is an important reason that many German exporters gained market share in Asia at the expense of American companies after the 2008 financial crisis. Then, US businesses were disadvantaged by the extra time and money it took to rehire and retrain the labour they had let go after the crash.
Instead, we have a “just in time” business model, and a very large corporate slush fund that the Treasury secretary, Steven Mnuchin, has far too much control over. Anyone who thinks that the oversight provisions in the bailout will put sufficient limits on corporate handouts is being overly optimistic.
It is local and state governments, not public companies, that will bear most of the burden for Covid-19 efforts. Yet this comes at a time when investors looking to raise cash in the midst of the pandemic have dumped municipal bonds. That raises debt servicing costs in places such as Suffolk County, home to the Hamptons, New York’s favourite summer spot.
Plenty of people I know have already decamped there, fleeing the New York City crowds, but this may prove to be folly, since hospitals there are even less well-resourced than those in the city.
In an ideal world, we’d have a Reconstruction Finance Corporation of the sort deployed during the second world war, and a president who had a coherent plan about how to organise public and private sector efforts to fight the virus. We’d also have basketball.
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Fifty years of US policy come home to roost - Financial Times
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