Managing the Aftermath

Nearly everyone expects COVID-19 to produce a worldwide recession, possibly a worldwide depression. Just as a reminder there is no generally accepted definition of a depression. The National Bureau of Economic Research, the official scorekeeper for economic contractions and expansions, does not call out depressions. One proposed definition is an economic contraction of two or more years in duration that results in a 10% or greater decline in GDP.

There’s exactly one factor that will determine whether there is a COVID-19 recession or a COVID-19 depression and it’s how quickly the U. S. consumer springs back into action. One of the things that managing the aftermath of COVID-19 means is managing the direction in which the U. S. consumer springs. I will go so far as to predict that, if the U. S. consumer does not recover at all or does so phlegmatically, there will be a global depression.

At RealClearPolitics Charles Lipson has his own plan for managing the aftermath of COVID-19:

The WHO is probably beyond repair. China won’t give up its authority there, and the U.S. shouldn’t give China more weight by withdrawing. But it should cut back sharply on funding, and so should other advanced democracies. Together, they should form a parallel organization, a NATO/Health entity that includes not only America, Canada, the U.K. and EU but also Israel, Ireland, Japan, South Korea, Australia, and Taiwan. All are established democracies with developed, high-tech economies and sophisticated medical research and public health systems. Their data can be trusted, and they are transparent enough to share it. They need an easy, institutionalized way to cooperate, outside the politicized, corrupted WHO.

The next big change will be to repatriate production of vital medicines and equipment to the United States. Since the U.S. refused to share some masks and other equipment with Canada and other close allies, you can also expect those countries to seek more self-sufficiency, or at least bigger stockpiles of medicines and devices made abroad.

Self-sufficiency has always been important to military planners. For a century, they have focused on heavy industries, essential for building tanks and planes. Over the past two decades, as modern warfare changed, they realized that several other economic sectors are equally important to national security and require their own indigenous research and production capabilities. That is obviously true of super-computing, artificial intelligence, chip fabrication, and cybersecurity. What was less clear, until now, is that medicine and health equipment also fall into that “essential” category.

This pandemic has shown that the United States not only needs sophisticated research in biotechnology and bioengineering, it needs more manufacturing capability. It cannot depend on the People’s Republic of China, simply because it is the low-cost supplier.

Another change, likely to come soon, is authorizing the Food and Drug Administration to find out where our medicines and supplies are produced. We need to know. The FDA and White House can then decide which medicines, precursor ingredients, and medical devices ought to be made solely (or mainly) in the United States. That production will be brought back with subsidies and restrictions, such as “Buy American” provisions for government purchases.

International corporations will act on their own to reevaluate where they produce key products and component parts. They will reevaluate any supply chains that pass through China on their way to sales in the U.S. and Europe. They will also face political pressure, not just from Washington but from London, Brussels, Berlin, and elsewhere. If President Trump is going to tell 3M not to sell masks to Canada during an emergency, then Ottawa will have to decide whether to manufacture those locally, build a stockpile of essential supplies, or perhaps strike a bilateral deal not to restrict supplies in emergencies.

He goes on to focus on the EU in which I have no particular interest.

If there is an ounce of justice one of the outcomes of the outbreak will be that, as long as China is governed by the Chinese Communist Party, the country will be ostracized from the community of nations up to and including a blockade. That won’t happen. As an alternative what we might do is revive the idea, articulated more than 15 years ago, of a League of Democracies. It isn’t just the WHO that is beyond saving. The entire United Nations is past redemption. World government is impossible in the absence of a consensus among nations and that simply does not exist. That majority Muslim countries do not subscribe to the Universal Declaration of Human Rights while nearly every country that does not have a Muslim majority does points to a fundamental problem with even the most rudimentary of world governments. The corruption of the World Health Organization by China and the membership on the United Nations Human Rights Council of some of the countries most abusive of human rights are further indications.

NATO is a mutual defense pact. It shouldn’t be expanded to include functions beyond that for the simple reason that it’s hard enough to get its present membership to shoulder their responsibilities for mutual defense. We do, however, need a forum beyond NATO and beyond the impossible United Nations for group action and a League of Democracies, unburdened by the “attack on one” clause of the NATO charter, would be one possible such forum.

Something else that we absolutely must do is to ensure that companies and countries understand that they will not be indemnified against the consequences of the risks that they take. IMO doing business with China is just too risky as long as the CCP is in charge.