CFR: America is "Uniquely" FUBAR, and the Elites Know It
As most of us struggle to make rent and get unemployment applications into overloaded State jobs service portals, it may help to know that the Powers That Be have already concluded that America has run out of options to deal with the Coronavirus crisis.
This country's growth model -- reliance on bailouts to sustain financial sector growth with a lack of an effective social services net to sustain consumer spending -- makes it "uniquely vulnerable" to the sort of paralyzing system shock and social conflict that are likely be triggered by the pandemic. Of all possible systems, America is the worst equipped to deal effectively with this crisis and most at risk of civil conflict and economic collapse, so says the worthies at FOREIGN AFFAIRS, the house journal of the Council on Foreign Relations (CFR):
The U.S. Economy is Uniquely Vulnerableto the Coronavirus: Why America’s Growth Model Suggests It Has Few Good Options
By Mark Blyth (March 30, 2020)
[. . .]
During a global economic crisis, the United States has one major advantage over other countries: it prints the global reserve currency. Other countries need U.S. dollars because their banking systems lend in dollars even though they can’t print them. During previous crises such as the 2008 financial crisis, sharp falls in global financial markets have been put right by Federal Reserve actions such as rate cuts and bond-buying programs. But this time, Federal Reserve action has not had its usual calming effect: financial markets have continued to fall, and the dollar’s dominance has failed to prevent a flight into cash. Although Congress finally passed a $2 trillion economic stabilization package, its continuing inability to agree on whom to bail out—companies or consumers—reflects tensions in the underlying growth model. The United States typically opts to protect capital and to simply let labor adjust through unemployment. But this instinct—to protect the big players and let workers take the hit—is also a key reason why the coronavirus pandemic is a disaster amplifier for the U.S. growth model in a way that is not true for Germany or even the United Kingdom.
American policymakers’ instinct to protect the big players and let workers take the hit is a key reason why the coronavirus pandemic is a disaster amplifier for the United States.
The U.S. growth model works well as long as there is little unemployment, wages are being earned and spent, and credit is being recycled to cover the difference between wages and costs by consumers and companies. But when markets freeze and cannot price assets correctly (no one knows how much United Airlines stock is worth because they don’t know when Americans will be flying again), the growth model collapses. Once that happens, it is hard to find a bottom. The Federal Reserve and Congress can try to put a floor on asset prices by bailing out companies, but there is no bottom for the broader crisis of consumption that occurs when a third of the labor market is laid off and the other two-thirds are locked at home for an extended period of time. In this world, bailing out capital and expecting labor to adjust through wage cuts and unemployment is simply impossible given the scale of the shutdown.
In other words, folks, we are all fucked, according to the Powers That Be. They are fully aware that the American system of social austerity and massive government subsidies to Big Business has reached a dead end. The Federal Reserve cannot both continue to bailout Wall Street and effectively keep American families spending enough under conditions of prolonged nationwide lockdown and massive unemployment. Something has to give, and it's not going to be stockbrokers in Scarsdale who have to do without hamburgers and Tylenol.
The American "growth model" relies upon a workforce that continues to willingly absorb the costs of periodic economic downturn -- joblessness, loss of homes, reduced wages, staggering personal debt loads, and a declining real standard of living to cover the costs of bailouts of the banks and business -- as occurred in 2009. This time, however, there are less real middle class economic reserves and tolerance for one-sided sustained sacrifice.
For structural reasons, America truly is exceptional, and that does not really bode well for the status quo of elite rule and inequality:
Trade-dependent growth models, such as those found in northern and western Europe, tend to have large welfare states that act as “shock absorbers,” helping to mitigate the effects of economic shocks. In general, the more open a European country’s economy is to international trade, the bigger the welfare state it constructs to act as a buffer in case trade shuts off. Large welfare states also allow their citizens to carry large amounts of debt, since they effectively insure them against periods of unemployment; the most indebted people in the world are not Americans but the Danes and the Dutch.
In contrast, countries with growth models of the Anglo-American variety, especially the United States, tend to have weaker states, lower taxes, and large financial sectors. They have highly flexible labor markets rather than large welfare states, which means they ultimately depend on wages to drive growth. Since those wages have been buying less and less over time, credit cards, student loans, and medical debts have become a standard part of U.S. household budgeting. When those household budgets shrink sharply, their debts are not compensated by the shock absorbers that countries such as the United Kingdom and Germany have in place.
This lack of shock absorbers is integral to the U.S. growth model, and under normal circumstances, it is a feature, not a bug. When systems such as the American one are hit by shocks, they tend to bail out their financial systems to keep credit flowing and let the real economy absorb the blow through unemployment and austerity policies. The assumption is that with no shock absorbers in place, prices and wages will adjust quickly, capital will be redeployed, and growth will return without the need for state intervention. But these are not normal circumstances. And as U.S. policymakers are quickly realizing, the usual playbook is of limited use in the face of the coronavirus pandemic.
Bottom-line, according to the CFR house organ:
The United States, with its 330 million people, 270 million handguns, 80 million hourly workers with no statutory sick pay, and 28 million medically uninsured, faces challenges quite unlike those in other countries. Putting the economy in a freezer for six months or longer would destroy what’s left of its social fabric along with its growth model. But restarting it could turn the pandemic into a plague that could cause as much damage as the freezer.