Wednesday, June 10, 2020

Colin Powell: I’m Voting For Biden. Big Deal

Despite the fact the he hasn’t voted for a Republican presidential candidate since 2004, retired General Colin Powell, who served as Secretary of State under President George W. Bush, made headlines in the mainstream media when he stated on CNN’s “State of the Union” Sunday that he would vote for former Vice President Joe Biden, the presumptive Democratic nominee for president, in November.

Arkansas GOP Senator Tom Cotton quickly fired back, stating, “I respect Colin Powell’s service and he’s entitled to his opinion, like every other American. But he hasn’t voted Republican for sixteen years. Apparently John McCain and Mitt Romney were ‘too extreme’ for Secretary Powell.”



Could the key to covid be found in the Russian pandemic?

The killer came from the east in winter: fever, cough, sore throat, aching muscles, headache and sometimes death. It spread quickly to all parts of the globe, from city to city, using new transport networks. In many cities, the streets were empty and shops and schools deserted. A million died. The Russian influenza pandemic of 1889-90 may hold clues to what happens next — not least because the latest thinking is that it, too, may have been caused by a new coronavirus.

In addition to the new diseases of Sars, Mers and Covid-19, there are four other coronaviruses that infect people. They all cause common colds and are responsible for about one in five such sniffles, the rest being rhinoviruses and adenoviruses. As far as we can tell from their genes, two of these coronaviruses came from African bats (one of them bizarrely via alpacas or camels), and two from Asian rodents, one of them via cattle.

This last one, known as OC43, is the commonest of the cold coronaviruses. It comes around every winter and apparently sometimes reinfects people who have had it before. Unlike the other three, its origin is not lost in the mists of time but is known to be comparatively recent. Comparing its genetic sequence with that of its close bovine cousin, Dr Marc van Ranst at Leuven University in Belgium and his colleagues calculated in 2005 that they shared a common ancestor around the year 1890. (There is also a version of the same virus that infects pigs but it is slightly less close to the human and cattle versions than they are to each other.) That date was therefore probably when the virus jumped into the human species for the first time.

The date is intriguing because 1889-90, as previously stated, saw a terrible pandemic, the worst of the 19th century, caused by a respiratory infection. Moreover, it was preceded by a global outbreak of what was thought at the time to be pleuro-pneumonia in cattle. It has always been assumed that the 1889-90 Russian or Asiatic flu was indeed a form of influenza. But direct evidence of this is lacking, and some of the symptoms do not seem quite right for flu. Given how many people fell ill, implying little pre--existing immunity, it seems probable that it was a virus new to the human species, and the dating coincidence with OC43’s species jump is highly suggestive.

The first case is thought to have been in Bukhara, in central Asia in the spring of 1889, but by October, Constantinople and St Petersburg were affected. In December, military hospitals in the Russian capital were overcrowded, factories and workshops closed for lack of workers and ‘whole districts of the city were abandoned by the population’, according to one report. The symptoms were said to include headache, fever, aching bones, facial rash and swollen hands. The illness lasted for five or six days but sometimes left the patient exhausted for weeks.

The virus reached Paris in November. By the turn of the year, with hospitals full, patients were housed in military barracks and tents in the city’s parks. Many schools were closed. In Vienna the schools closed early for Christmas and stayed closed till late January. In Berlin, it was reported that many post-office staff were affected. In London so many lawyers fell ill that the courts were closed for a while. One day in January at St Bartholomew’s Hospital in the City of London, Dr Samuel West found more than 1,000 people crowded into the casualty ward, most of them men.

In every country, capitals and port cities were hit first and hardest because they had the busiest rail and ship connections. Celebrities were not immune. The Russian tsar, the young king of Spain, the president of France, the queen of Sweden and Lord Salisbury all fell ill. In Turin, the Duke of Aosta, who had briefly been king of Spain, died, as did Empress Augusta of Germany and Lord Napier. Mass-circulation newspapers engendered widespread alarm.

According to a modern analysis, the death rate peaked in the week ending 1 December 1889 in St Petersburg, 22 December in Germany, 5 January 1890 in Paris, and 12 January in the US. R0 has been estimated at 2.1 and the case fatality rate was somewhere between 0.1 per cent and 0.28 per cent: similar figures to today’s pandemic.

Contemporary newspaper reports say that like today’s epidemic, the Russian flu appeared to attack adults more than children, and in some schools the teachers were all affected but not the pupils. Like today’s virus, it was, intriguingly, reported to affect men much more badly than women. Newspapers were filled with statistics of mortality, anecdotes and reassuring editorials.

In 1890 the germ theory of disease was far from universally accepted, and viruses had yet to be distinguished from bacteria. The ‘miasma’ hypothesis that blamed such pandemics on the air remained popular, and the speed with which the illness had spread around the world seemed to indicate something other than person-to-person contact, though rail travel was in fact the cause. In an echo of today’s 5G fantasies, an editorial in the Lancet noted that there had been earthquakes recently: ‘Why should not this troublesome complaint have been produced by injurious emanations from the earth?’

By March 1890 the pandemic was fading in most places, just as common colds and flu do in spring today. The seasonal pattern displayed by colds and flus is so striking that it cannot be a coincidence that today’s pandemic was also in retreat by May all around the world, irrespective of the policies in place. By the northern summer of 1890 the virus was ensconced in the southern hemisphere, having reached Australia in March. It returned to Europe the following winter and for several years after.

If OC43 was the cause of the 1889-90 pandemic — far from proven, of course — and given that it is the cause of perhaps one in ten colds today, then it has evolved towards lower virulence. It is easy to see how this occurs with respiratory viruses, which are transmitted by people chatting and shaking hands. Mutations that affect the severity of the virus also tend to have an impact on whether people pass it on: if it sends you to bed feeling rotten, you will not give it to so many people. In the inevitable struggle for survival, the milder strains will gradually displace their nastier ones. This is why so many cold viruses affect us but so few kill us, except maybe when new to our species.

Perhaps, too, a degree of immune response in the population helps moderate the effects of the virus, even if not achieving full and permanent immunity. Some cross--immunity seems to exist today, whereby those who have had coronavirus colds do not catch, or do not suffer severely from, Covid-19.

Here is a disturbing thought: is lockdown preventing this evolutionary process, by confining the disease to settings where it can still thrive while being fatal, such as hospitals? Our fate is clear: without a vaccine or a cure, Covid-19 will fade, will be back, but will become less lethal till it is eventually indistinguishable from every other cold.



Knee-jerk government actions prolong recessions

By Martin Hutchinson, an economic historian

Governments and central banks worldwide have responded to the Covid-19 epidemic by massive doses of monetary and fiscal stimulus. Little of the money thrown at the problem has done any good. However, the further economic distortions governments have caused will have one long-term effect: they will delay and enfeeble recovery. Ever since 1929, government actions have prolonged depressions; you would think by now they would have learned better.

When the coronavirus hit, governments worldwide resorted to the same playbook they used in 2008 and in every recession back to 1929. They dropped interest rates and resorted to more deficit spending. In the United States, they sent $1,200 checks to every taxpayer and invented a program of debt support for small business that appears to have been used by everyone but actual small businesses. They also trebled unemployment pay, adding $600 per week to it until July, thus making it unattractive for many unemployed to return to work as the economy re-opened. Meanwhile, the Fed not only reduced interest rates to zero, but began to buy bonds of “fallen angel” corporations whose debts had recently been pushed into junk status by the rating agencies.

This collection of policies follows the instincts of John Maynard Keynes, but it has one huge flaw: it delays the “creative destruction” of Joseph Schumpeter that is the only way to emerge from recession and restore a healthy economy.

Take for example the Fed’s determination to buy the bonds of “fallen angels”. These are companies that used to be considered investment grade, but have borrowed so much money or whose operations have declined in profitability so much that their capacity to service debt is now questionable. If you wanted to devise a formula for selecting companies most likely to fail in the next recession, looking for “fallen angels” would satisfy that criterion. By allocating capital to them, the Fed is deliberately pushing investment towards the least profitable and least forward-looking sectors in the economy. By this action, it is reducing the amount of capital (and other resources, most notably skilled labor and management) available for the companies of the future. Thereby it hobbles innovation, productivity and new business formation.

To give one example, Hertz Global Holdings Inc. (NYSE:HTZ) on May 22 filed for Chapter 11 bankruptcy with debts of $20.6 billion on its March 31, 2020 balance sheet. Commentators blamed its demise on the Covid-19 pandemic. Yet I looked at Hertz in early 2017, at which time it had just lost $1 billion in the previous year and concluded that its bankruptcy was unavoidable. Its business had been cannibalized by competition from Uber and Lyft, which were subsidized through endless free money from the private equity industry and no need ever to make a profit. It had indulged in over-aggressive accounting, was over-leveraged and far too exposed to the weak second-hand automobile market.

My analysis was not extreme and led me to recommend a modestly profitable purchase of the company’s put options. Yet the company lasted another three years, during which its management and staff resources were employed in an enterprise that failed to make a profit and had no long-term purpose, though we are told it paid out some juicy bonuses to management. Most important, during the same period the company’s long-term debt increased from $13.5 billion at the end of 2016 to $20.6 billion. In other words, Hertz in its death throes absorbed another $7.1 billion of other people’s money that could much more usefully have been devoted to some other purpose, ideally to funding the growing companies of tomorrow.

Hertz’s unnecessarily prolonged and expensive decline illustrates the problem: if creative destruction takes years longer than it should and absorbs billions more in outside resources than it should, then economic recovery will be correspondingly delayed and made more expensive. Low interest rates and easy money are not the key to economic recovery, they are the greatest barrier to it.

As Walter Bagehot said in 1873, in a financial crisis the central bank should make money freely available, but only at a very high rate of interest. By lending at a high rate, the central bank ensures that only those borrowers that truly have a viable plan for long-term survival will borrow more money; the others will simply fold, liberating their assets and people. By making money cheap, the central bank is destroying the discipline by which markets function properly and recessions are brought to a swift end.

You can see Begehot’s principle at work in the history of past financial crises. In 1825, a major banking crisis was met with no additional lending by Lord Liverpool’s government, and the British economy recovered within a year. In 1921, neither the U.S. Federal Reserve nor Treasury Secretary Andrew Mellon indulged in Keynesian “stimulus” remedies and so that exceptionally deep recession was over within eighteen months.

Horrible mistakes were made in the next recession, that following the Wall Street Crash of 1929. Once recession hit, President Hoover arm-twisted major corporations not to reduce the wages they paid. By doing so he eliminated their profitability and forced them to lay off additional workers rather than balancing their books through pay cuts, at a time when consumer prices had sharply declined. Then he increased government spending through Reconstruction Finance Corporation loans to politically favored projects, putting the government in the business of “picking winners” and increasing the pressure on small businesses that lacked government connections. Then he made matters worse through two tax increases: the Smoot-Hawley Tariff, which collapsed international trade and the Revenue Act of 1932, increasing the top income tax rate from 25% to 63%, which collapsed the domestic economy.

Hoover rightly lost the 1932 election, after which FDR by increased regulation and meddling made matters worse, so that the U.S. economy did not recover until after the mid-term elections of 1938, which produced a conservative majority in Congress and stopped the New Deal in its tracks. By the combined efforts of Hoover and FDR, the U.S. Great Depression lasted a decade. In Britain, where the free-market Neville Chamberlain became Chancellor of the Exchequer in September 1931, cut government spending and ended Britain’s unilateral free trade policy, the quinquennium 1932-37 saw the fastest growth Britain has ever seen.

In the recession of 2008, the same mistakes were made. When Lehman Brothers declared bankruptcy, the authorities panicked and bailed everybody out, from the moribund General Motors through the ineffably foolish Citigroup to the utterly underserving Goldman Sachs’s AIG positions. Then money remained cheap for most of the next decade, while the U.S. budget was pushed into permanent deficit through pointless “stimulus.” As a result, unemployment remained very high far longer than it should have, while productivity growth disappeared altogether (a blizzard of new pointless regulations by the Obama administration did not help here). Only after January 2017 did deregulation by the new Trump administration combine with a much-delayed ultra-hesitant rise in interest rates by the Fed to produce a robust rise in productivity growth and living standards. Internationally, even worse monetary policies had produced the same productivity malaise and the same interminable delay in economic recovery.

In this recession, which differs from past ones in having been produced by the global supply-side shock of the COVID-19 epidemic and the shut-down of most world economies, policymakers have resorted once again to the tired Keynesian monetary and fiscal remedies, throwing public money at the problem. To be fair, some of the problem did warrant money-throwing; modestly-waged people who lost their jobs through the shutdown did indeed deserve help, economically as well as morally. Yet the restraints on policy from fiscal and monetary norms have been even weaker this time around than in previous recessions. There is thus no reason to expect that the results will be any better, as international bankruptcy and debt default approach ever closer.

If policymakers do the right thing now, economic recovery can be swift. The COVID-19 pandemic has destroyed few productive resources, so only the over-borrowing that existed before the pandemic needs to be written off. Unfortunately, the correct policy, pushing interest rates above the level of inflation and cutting back public expenditure sharply, is very unlikely to be pursued. It worked well for Neville Chamberlain in 1930s Britain, and for Poland and Latvia in the 2008-10 downturn, but it is very unlikely indeed to be tried now. Which is an enormous pity, because it would work, producing a rapid recovery followed by solid growth.

As it is, we are likely to get a “square-root-shaped” recession – a quick but partial recovery from the pit, as economies are reopened, followed by stagnation as governments throw unnecessary money at the remaining problem, making debt and mal-investment malignancies worse. Thus, the recovery-quelling influence of Maynard Keynes’ false doctrines will blight the futures of yet another young generation.



For more blog postings from me, see  TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCHPOLITICAL CORRECTNESS WATCH, AUSTRALIAN POLITICS, and Paralipomena (Occasionally updated), A Coral reef compendium and an IQ compendium. (Both updated as news items come in).  GUN WATCH is now mainly put together by Dean Weingarten. I also put up occasional updates on my Personal blog and each day I gather together my most substantial current writings on THE PSYCHOLOGIST.

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