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Economy in Brief

KABOOM! The Lockdown Strikes
by Robert Brusca  April 15, 2020

French retail sales fall 24%
Record fall in Aussie consumer confidence
Canada's GDP falls 9% in March
U.S. data plunge: retail sales -8.7%, Empire State index -78.2, IP -5.4%
The global rout is on! Tally… HALT!

I can write about weakness anywhere, but it is all collateral damage to the coronavirus. The main topic is the virus and what it has done or what has been done in trying to deal with it. The manifestation of the analysis is the particular report du jour. France's retail sales survey by the Bank of France shows such a deep and sudden decline that it dwarfs any other move on the chart this month. Everything else is suppressed to allow the graphic to get down to the depths of the current survey reading. We saw this in an earlier graph with release of the China PMI and we are going to see a lot more charts that look indistinguishable from the one above. The scale will be different, the heading will be different, the past history may be different, but it will all look much the same… a time series of data sort ploughing along in pace then the bottom falls out. KABOOM!


I wish I had something clever or really insightful to say about this, but the result is simply too shocking and distressing to absorb. I'm afraid that the numbers speak for themselves as well as anything that could be said.

France like other nations has mitigation programs in gear. But mitigation can never fill all the cracks. In Germany, for example, a zoo has seen its revenues plunge and it is desperate. It has said it may need to resort to feeding the animals to each other to survive (Source here).

There is no context for the kind of weakness or policy actions or for the needs that are going to be experienced. Opinions on 'what to do' are flashing across the board ranging from wanting government and central banks to do even more to those who want companies that did not build 'rainy day funds' to be allowed to fail. (So much for maximizing shareholder value and putting very penny to work...)

The economics, the morals and ethics and health care approaches all clash in an ugly display of disunity and accusations. Donald Trump has ordered the U.S. to stop funding WHO because of this terrible performance and advice in the crisis and also because of its relationship to China. For this, he is having scorn heaped upon him from virtually all quarters including from China and Russia.

As ire builds toward Trump, it should be remembered that funding WHO is a burden that the U.S. has carried for some time. China, with an economy close in size to the U.S., contributes about 10% of what the U.S. does. The German finance minister claims it is one of the best values for the money. If that is true, why isn't Germany and others putting in more? When Russia calls the U.S. action an act of 'selfishness' that really gets your attention doesn't it? I guess it must be, because who would know better? And China asks for the U.S. to step up to its responsibility! That is a good one too. Has China been responsible by any definition? I am not defending what Trump did at all. This is the worst possible time for this to happen, but it is impossible to not point out the hypocrisy among the critics. China after all manipulated WHO and continues to hold back information about the virus it incubated and released on the world.

In the wake of this virus, the world has never looked smaller. The Trump message of 'America First' never looked timelier! The globalists are on the run. Who knows where the aftermath of this crisis will take us. Let me offer one observation here...not about France or about retail sales or even narrowly about economics. But about failure, policy failure.

Few of us have thought about pandemics. Asia has had several bouts with them and in each case they were stoppered before becoming issues in the U.S. So it is not surprising that the U.S. authorities became desensitized to the risks. It is hard in any event to be fully prepared for an emergency the likes of this one, year-in and year-out. However, Trump gets the criticism. Had this thing struck four years earlier, I doubt we would see much difference with Mr. Obama as President. The messaging would be clearer and the speeches would be better, but the actions are what they are… They are on the CDC plan. There is only so much a president can do. And on this Trump has not distinguished himself by saying all the right things at the right times. And in this he is not alone – not by any stretch of the imagination. The IMF did not see this coming or as being this bad. The U.K. did not either. Italy was decimated and China misled us all. Trump did close the US borders quickly and did so against the advice of the CDC in America… and here I am perplexed. As a virus non-expert, I was stunned that the THE PLAN (Plan A, Plan B and Plan C) was to lockdown the economy. I watched China do it and thought, well, they can do that in a totalitarian economy but what will WE DO? The disease was reported to kill 1.3% or so of the population mostly the old and or people with debilitating conditions. That's a lot, but 1% is still a low percentage. So I was surprised when a lockdown of everyone was ordered in the U.S. It seemed disproportional to me- and it still does. We did not try to shelter the most at-risk. Instead, from the start, we tried to immobilize 'Social Distancing' everyone. Why? Moreover, why if you were an epidemiologist KNOWING that PLAN A, B and C were/was so draconian would you not advise the President to shut all borders immediately and quarantine any incoming from abroad? Why did CDC encourage him to keep the borders open? Does that make any sense to anyone?

Why was there no Plan A to create a buffer? No country did this. Some EU nations violated Schengen for a while and for good reason. Florida and another state tried to turn back incoming New Yorkers at the border as well!

Trust science...really?
Rather than blaming politicians for a bad response I want to blame the scientists. This is their plan including when and how to trigger it. If they did not think it through, it is their fault. People say trust science. Well what did it do? In the U.S., science was wrong. It did not want to test broadly, fearing it might cause panic. It would not use the test kits it might have gotten from others. It developed its own tests and stumbled putting the U.S. behind the curve. And Trump haters blame Trump for these missteps, but these are the missteps of science. Now we need to use more scientists (more disciplines) to see what is the best path ahead because when the economy is shut down all sorts of adverse things are set in train as the German zoo has discovered.

Collateral damage
Far from all being Keynesians now, we are all collateral damage. And despite that as we see in the U.K. and in the U.S., there is still politics. South Korea conducted an election in the middle of all this. The State of Wisconsin in the U.S. had a primary. Boris Johnson, barely out of intensive care, is being criticized for acting too late by the Labor party leader. Donald Trump is being criticized by Democrats and blamed for something he has little impact on by design and circumstance.

My apologies to the epidemiologists for this analysis but I stick by it: To me, the worst prepared for this were the epidemiologists who apparently have never thought through what it means to have a lockdown. They appear to not have consulted anyone in any other science to see what others think of the viability of such a plan or even how to implement it. Not only was global preparedness caught out, the global plan to deal with such a thing was half thought-out by a group that gave no consideration to the collateral damage of their own solution. Containment never had a chance.

Some day we will look this in the eye and assess blame. For now, everyone calls the epidemiologists our leaders (Trust Science!) and heroes. I see them much less in that light. The medical professions and low-wage heath care workers and essential grocery and transit workers are bearing the brunt of this policy. When does protecting the old and infirmed at the cost of life and livelihood of the young and healthy stop making sense? Isn't there a better way to protect those who are at risk than shutting down everything? (Yes, there is!) These are ethical questions that may be very uncomfortable, but that soon will have to be addressed.

A 24% drop in French retail sales is the least of our problems, with all due respect to France- Viva La France.

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