America The Day After The Pandemic

The challenges and disruptions the coronavirus pandemic has thrown at people around the world has caused a lot of introspection and reevaluation of realities and priorities.  I have written about some of them in previous posts.  As the pandemic appears to be receding, at least in this wave, thinking must turn forward to the next phase, that is, what societies ought to do in the post-pandemic era.

The experience has certainly been different across countries.  Each country has discovered different vulnerabilities that call for different solutions.  Hopefully, what worked and what didn’t in different countries will help us draw lessons how to prepare for the next crisis.   The experience has been especially sobering and humbling for the United States.  The much vaunted “American Exceptionalism” did not prove enough to protect hundreds of thousands of Americans from being infected and tens of thousands from dying.  A dysfunctional co-ordination of administrative, scientific and medical resources led to a much-delayed response and left Americans vulnerable and confused.

Beyond the medical and government response to the pandemic, this country has to reckon with additional issues which, though present prior to the pandemic, have come into sharper relief since and must be addressed with a high degree of urgency.

Rethink fiscal policy.  The fiscal cost of this pandemic is already being counted in the trillions of dollars of new debt on top of the trillions added by the ill-designed tax law of 2017.   Does this enormous debt matter?  And who will pay?

There is a new economic school of thought that looks at deficits and debt as practically harmless, as long as a country can use its own currency to pay for them.  I am wary of this new thinking for several reasons.  First, debts must eventually be repaid.  The post-2017 tax reform period showed that fiscal stimuli do not always generate enough bang in economic growth to reduce public deficits and debt.  Neither productivity or population growth (the drivers of economic growth) is expected to rise fast enough to boost growth in GDP.

My second worry is that under the shadow of an enormous debt and its rising servicing cost, conservative voices will predictably call for review of our commitment to Social Security, Medicare, Medicaid, education, and other public support programs in order to restore fiscal soundness.  Under the current tax law and income distribution policies, this would mean a terrible exacerbation of economic inequality.  The only socially fair solution is to call to task those who can afford to bear the cost and who, after all, have been the principal beneficiaries of the tax system, that is, the high income-earners.

How we will reorder our fiscal policies in terms of allocation priorities and funding sources will be, I believe, one of the defining choices of the post-pandemic era.  It remains to be seen how the money elites of this country will respond to this challenge.

Reestablish international American presence and cooperation.  Without enough medical supplies for its own needs, it goes without saying that America was in no position to take a leading role in the fight against the pandemic.  But we didn’t have to wait for the pandemic to realize our diminishing role and standing in global affairs.  By abandoning international agreements and dispensing with international organizations, we made it clear that we alone knew best how to manage our interests and challenges.  Why then do we accuse the World Health Organization and China for not giving us enough forewarning and advice?  Didn’t we declare we are self-reliant?

The great lesson we have learned is that country heft and effectiveness do not necessarily coincide when it comes to fighting a health crisis.  Relatively small countries, South Korea, Taiwan, New Zealand, and Greece among others, proved to be surprisingly efficient in limiting the impact of the pandemic.  They relied on the experts and scientists and ignored political calculations.  South Korea and Taiwan applied some of the most innovative uses of technology to take control.  Furthermore, finding effective vaccines and drugs will be the culmination of extraordinary collaboration of scientists and private and public labs from around the world. All that means lessons and solutions can come from anywhere in the world, that cooperation can amplify their efficacy, and America’s role as problem solver and facilitator is in its national interest.

Rebuild and expand social capital.  America’s social capital has been dramatically depleted in recent years.  That’s why rebuilding America’s social capital is where a new president can make the most important contribution.  We have a natural propensity to develop a sense of Us and Them.  It is the Us vs Them that erodes the pillars of social capital, trust and cooperation.  In recent years, not only have the divisions hardened but the gaps have also widened.

There is no denying that there are legitimate reasons why groups of Americans have coalesced around various Us and look at others as Them.  The problem lies in our inability to have a good faith dialogue.  In the past, I have referred to the paradigm of the Elephant and the Rider.  The Elephant is the set of instincts and emotions that sets our conservative or liberal leanings, while the Rider is the reasoning faculties that can help us critically evaluate our choices.  Unfortunately, as the sense of Us vs Them intensifies, we use reason to validate our instincts and emotions (the confirmation bias) rather than check their coherence and correctness.

One way we learn to coexist with others is to develop a Theory of Mind.  It means we have some sense how another person feels in a set of circumstances.  This allows us to be empathetic and understanding and, thus, adjust our behavior.  In our present state, it looks like our different groups’ Theory of Mind has diminished.  Wealthy Americans understand less of the financial insecurity of working-class Americans.  Intellectual and urban elites are on a different page from rural Americans.  White Americans don’t seem to understand the grievances of black Americans.  And so on.

Fairness in fiscal policies, collaborative international presence, and rebuilding social capital will be sorely needed if America is to emerge better from this pandemic.

Author: George Papaioannou

Distinguished Professor Emeritus (Finance), Hofstra University, USA. Author of Underwriting and the New Issues Market. Former Vice Dean, Zarb School of Business, Hofstra University. Board Director, Jovia Financial Federal Credit Union. View all posts by George Papaioannou