Vladimir Ilyich Lenin once said: “There are decades where nothing happens; and there are weeks where decades happen.” We are living through one of those weeks.
Lenin led the Bolshevik revolution of 1917 and the formation of the USSR (Union of Soviet Socialist Republics) in 1922.
When he said “there are weeks where decades happen,” Lenin meant society can exist in a certain way for a very long time — decades even — and then, all of a sudden, radical upheaval changes everything.
This is the reality now, for both the United States and the world.
Everything changes now. While some things will go back to normal, others will never be the same.
The reality of the coronavirus pandemic threatens to bankrupt entire industries. Hotels, airlines, cruise lines, restaurants, gaming, entertainment, real estate, tourism — all of these and more now stand on the brink. The total tally, interwoven throughout a $21 trillion economy, is too complex to be calculated.
In its very essence, capitalism is about money in motion. One man’s spending is another man’s paycheck. Every expense counts as someone else’s revenue.
When all of that simply stops, nobody knows what happens next. Capitalism as a system was never designed to just stop.
With “small business” defined as 500 employees or fewer, there are an estimated 30.2 million small businesses in the United States. The coronavirus pandemic means millions of these are likely to go bankrupt. How many million exactly? Nobody knows.
The typical small business does not have a big pile of cash on hand. Twelve weeks is the outer bound, four to six weeks a more realistic estimate.
If the pandemic forces business to slow or stop for months on end, let alone a year or more, capitalism may not survive that.
And yet, social distancing — and potentially more extreme measures like “shelter in place” or even national lockdown — are probably the right thing to do, in order to keep the hospital system from becoming overwhelmed. Letting the virus “run its course” would risk millions of deaths.
Medical experts on multiple continents are throwing around numbers like “18 months” in terms of how long it could take to stop the coronavirus. Their recommended response amounts to freezing citizens in place for an extended period of time.
But a capitalist system can’t handle that. If you stop the gears for that long, too many businesses die. Too many jobs disappear and never come back. Too many people wake up bankrupt and destitute.
Society would tear itself apart if everything had to stop for a year or more. Not because people would grow restless, but because tens of millions of Americans would run out of money, and hope.
So we are now in a situation where the proverbial “impossible force” has met an “immovable object.”
- The “impossible force” is the coronavirus pandemic. Dealing with the pandemic in a responsible way, and keeping the hospitals from being overrun, requires taking extreme measures for a potentially extended time period.
- The “immovable object” is the need to preserve the capitalist system, and thus to preserve the functioning of society itself. If the system breaks down, too many people go broke, and then they go hungry, and then they riot. That doesn’t work.
- If we do nothing, or a small amount refuse to do enough, we face the prospect of millions of American deaths. That is not acceptable either. On its current trajectory, the death toll is already likely to be shocking. It has to be minimized by any means available.
When you put these three realities together, you get massive societal change.
The only way to square the circle — fighting the pandemic, maintaining a capitalist system, and safeguarding lives, all at the same time — is to authorize massive government intervention of a scope and scale not seen since World War II, with further echoes of President Franklin Delano Roosevelt’s social change programs in the 1930s.
As of mid-March, Congress is negotiating a coronavirus emergency stimulus with a $1 trillion price tag.
It also looks like a foregone conclusion (though the details are still in flux) that the government will embrace “helicopter money” — sending thousands of dollars to every adult American.
We already had a trillion-dollar national deficit and a national debt above $23 trillion. Those numbers are about to go supernova. The federal government will be spending money on a scale and scope the world has never seen.
It won’t just be the United States, either. In Europe, they are caught on the horns of the same dilemma: How do you preserve some semblance of market function while properly fighting the pandemic?
China, too, will have to lift its country out of lockdown mode at a time when demand from its biggest export customers (Japan and the west) has collapsed. The same is true for Japan.
The whole world is going to be spending trillions. We are going to see the biggest flood of fiat currency spending the world has ever known, perhaps by an order of magnitude.
But we don’t know what the immediate effects will be — in terms of follow-on inflation — because all of that spending will be geared toward countering the massive deflationary forces of halted commerce and broken businesses. When countries around the world cut their commerce activities by a third or a half all at once, that is like the deflationary equivalent of an economic hydrogen bomb.
And yet, the government spending aspect is only one small part of this.
To deal with the inevitable surge in hospitalizations and demand for intensive care unit beds, the military is likely to be deployed.
We may well see MASH units — Mobile Army Surgical Hospitals — set up in multiple large American cities. We could also see hotel rooms and schools, now empty, retrofitted to handle the sick or quarantined.
When we come out of this, the federal government will be a bigger leviathan than ever before. But that won’t be the result of some bureaucratic plot. It will be because, for some problems, there is no other entity that exists with the scope and scale to handle the problem.
That is why, to get a sense of what happens next, we have to look back 70 to 90 years, to the massive social programs of the 1930s and the nationwide mobilization programs of World War II.
We have entered wartime conditions to beat a global pandemic — an invisible threat that, if left undefeated, could overturn an entire way of life.
The good news is that, with near total certainty, we know we will win this battle. One way or another, the virus will be defeated.
Pandemic conditions will recede, a vaccine will be rolled out, and some form of “herd immunity” will be established. We’ll be back to eating in restaurants again, enjoying sporting events and concerts, flying to vacation destinations.
And yet, the great unknowns loom large. We’ll be a different country on the other side of this, with a whole new set of opportunities and problems. In many ways, the structure of society will be changed.
The market is trying to make sense of this too, which partly explains why things have been so wild. Nobody hates uncertainty more than Mr. Market, and right now neither he nor anyone else has a firm grasp on what tomorrow looks like.
But day by day, we’ll pick up more clues and take the steps that need to be taken — and with persistence and patience, we’ll get through.