America's coronavirus complacency
The long-feared autumn spike in coronavirus cases has arrived, both in Europe and in the U.S. — and there's a huge difference in how the two regions are reacting. Europe is on an emergency footing, while America ... isn't.
Why it matters: We've seen this movie before, and we've seen the need for coordinated government action, from public-health agencies to fiscal policy to monetary policy. That's happening in Europe. It's not happening here.
The big picture: Europe has strict lockdowns in Ireland, the U.K., France, Spain, Poland, Austria, and the Czech Republic; the U.S. has strict lockdowns nowhere.
- Europe is also taking unprecedented fiscal measures, collectively underwriting an $850 billion relief package for the bloc's poorest members.
- The European Central Bank is redoubling its efforts to maximize economic growth both now and in the future, and is working closely with fiscal authorities. Effectively, the ECB can rely on member-state governments to provide good public-sector jobs and unemployment benefits, clearing the way for the central bank to support the private sector.
In America, there's much less urgency and almost zero coordination. Lockdowns are limited to a handful of 10pm restaurant curfews, while economic policy has become irredeemably politicized along left-right lines.
- A new Brookings report shows that Democrats and Republicans "represent radically different swaths of the economy" — and that the Republican Party "sees no reason to consider the priorities and needs of the nation's metropolitan centers," where most of service industries hit the hardest by the pandemic are based. (New York's theaters, for instance, will have been dark for well over a year when they finally reopen.)
- American policymakers, especially on the right, are also much more likely to look to the stock market as an indicator of the health of the economy. The March plunge in stock prices helped catalyze the CARES Act; now that stocks are back near record highs, appetite for further stimulus has diminished considerably.
- The bond market has also weakened to the point at which bond yields have effectively made monetary conditions significantly tighter. The benchmark 10-year U.S. Treasury yield has risen from as low as 0.51% in August to 0.98% now. That's the equivalent of two full rate hikes, and it's not obvious what the Fed can do about it, or whether they're willing to do it.
The bottom line: Lockdowns can't last indefinitely. But the news that Pfizer has developed a successful vaccine means that the end of the beginning is in sight.
- Aggressive government action can no longer be disparaged as merely delaying the inevitable; rather, it's a way of avoiding the worst until the vaccine arrives. But I still wouldn't bet on it happening.