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The EU is back – the US is not

By Shlomo Maital

The Brexit fiasco generated enormous pessimism about the future of the European Union. There was talk about Italy leaving the EU, after extreme elements there broached the idea, or even Netherlands, which resents handouts to spendthrift EU nations.

   Well, the EU is back. Here is what the Financial Times reported on the bailout deal struck yesterday, after four long days of meetings, wrangling and compromise:

     “EU leaders have struck a deal on a landmark coronavirus recovery package that will involve the European Commission undertaking massive borrowing on the capital markets for the first time.   After days of sometimes bitter debate, the bloc’s heads of government agreed on a €750bn package aimed at funding post-pandemic relief efforts across the EU. The deal was announced in a tweet from Charles Michel, the European Council president at 05.31am (CET) on Tuesday and was hailed by Emmanuel Macron, the French president, as a “historic day for Europe”.   The recovery fund centers on a €390bn programme of grants to economically weakened member states — a significantly smaller sum than the €500bn package originally proposed by Berlin and Paris in May. Leaders also signed off on the EU’s next seven-year budget, which will be worth €1.074tn.   The deal, orchestrated by Angela Merkel, the German chancellor, and Mr Michel, is the fruit of marathon negotiations under way in Brussels since Friday morning. The summit was the second longest in the bloc’s history, falling just shy of the record set at a meeting in Nice in 2000.”

  Once again, Angela Merkel, the lame-duck Chancellor of Germany, long after she announced her retirement, has returned to bring together disparate EU elements – from the autocratic Hungarian leader Viktor Orban, to the frugal four northern nations.

   Smaller frugal nations won an agreement to increase their rebates from the EU — Austria’s annual reduction will be doubled to €565m a year ($644 m.) compared with previous proposals, while the Netherlands’ rebate will jump to €1.92bn ($2.2 b.) from €1.57bn ($1.78 b.) .

   Contrast the ability of the fraught wrangling 27-nation European Union, moving to help the poor nations among it, with the hopeless helpless United States, where a) President Trump dumped responsibility for battling the pandemic on the 50 state governments and their governors, and saw as a result a horrendous second wave emerge, and b) led Republican opposition to provide financial help to state governments, while pressing them to re-open schools on Sept. 1, without the money it would take to do so safely.

  A New York Tmes Op-Ed asks, which major nation will emerge strongest from the pandemic? Not the US. And no, not China. Answer: Germany, the enlightened leader of sanity and compromise in the European Union.

University Labs – to the Rescue! Paul Romer’s Plan

By Shlomo Maital

Nobel Laureate Paul Romer, NYU

   I am collecting material on “emergence strategies” – how nations will release citizens from lockdown and isolation, and my sense of doom is growing. In the 1918 influenza pandemic, the second wave killed far far more people than the first, after the first wave subsided and everyone went back to business as usual.

   Muddying the picture further are politicians, who pander to the ignorant and think doing so will get them re-elected. If they are, they will mount the victory podium by stepping on the bodies of hapless victims – a lot of them.

   This is why I believe we should all listen carefully to Nobel Laureate in Economics Paul Romer, NYU, and his plan. (See “Roadmap to Responsibly Reopen America” available at )  The bottom line: Employ university labs to produce COVID-19 tests, at scale — millions of them. It IS do-able!

    Romer writes, in the introduction to his Roadmap: “America is confronting two crises: an economic crisis laying waste to our livelihoods and a health crisis threatening our lives. The twin crises are deeply intertwined: our economy cannot be re-opened without credibly addressing fears of infection and resurgence.   The immediate reaction, a national lockdown, was successful in slowing the virus. We must now shift to a plan that balances the need to protect our health and reopen our economy by locking down only those who are infectious. This paper presents a simple, scalable, and credible solution: introduce a comprehensive “test and isolate” policy, making it safe for Americans to return to work and keeping the infection rate below 5% of the population. Until a vaccine is developed and deployed, the simplest and safest path to this outcome is a national testing strategy that marshals our existing resources to test everyone in the U.S. once every two weeks and isolates all those who test positive. It does not rely on any new technologies, is far less disruptive and costly than our current policy, and will work even in a worst-case scenario. Below is a roadmap to a future in which the American people are confident that their health and our economy’s future are protected against this virus.”

   Here are the main elements of his plan:   1. Expand the pool of testing capacity, mainly by establishing a network of university labs, which DO have the capacity to scale up and test effectively; 2. Find a revenue stream that can be used to find those who are spreading the disease; 3. Starting testing essential workers (e.g. healthcare), and expand to, e.g. grocery clerks; 4. Expand to those who need urgently to return to work. 5. Finally, offer tests to everyone…EVERYone!

    The plan calls for testing every person in the U.S., with essential workers taking priority. Anyone who tested positive would be isolated. Tests would be administered “regularly,” with every two weeks the recommendation. That would mean 25 million tests per day.

In order to get testing to those levels, Romer advocates for removing regulatory barriers and establishing a network of university and national labs.   It would also require substantial funding – about $100 billion altogether, including the costs of infrastructure and training.  Those funds would be issued in block grants to the states. $100 b. is a lot – but a drop in the bucket, compared to the trillions the US is spending now on emergency bailouts.

   Romer notes there are hidden costs in NOT testing widely. Under lockdown, Romer says,”the U.S. economy loses $500 billion per month. Lifting the lockdown without mass testing to ease that fear may only reduce losses by about $100 billion.”

   The US has many Nobel Laureates in Economics. Why not bring them to Washington, put their heads together, and work out a well-considered strategic long-range plan for emergence? Including Romer’s?   The economists now serving in the Trump administration are either Wall St. rapacious capitalists (Mnuchin) or low-level cranks (Kudlow). This does not bode well for the US.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital