New coronavirus infections in the U.S. have leveled off at about 30,000 per day and we are beginning to turn our focus to the reopening the American economy.

As China increasingly becomes the main challenger to U.S. world leadership, how has the coronavirus pandemic affected the relative standing of these two largest world powers?  (see here, here, and here)

Pertinent to this question, Ruchir Sharma, the Chief Global Strategist at Moran Stanley Investment, has a very informative article in the latest edition of Foreign Affairs, “The Comeback Nation.”

Mr. Sharma points out that:

• The U.S. share of world-wide nominal GDP was 25% in 1980 and remained at 25% in 2020. During the same time period, China’s share grew from 2% to 16% and the EU’s share dropped from 35% to 21%.
• 90% of global financial transactions use the dollar. The share of countries which use the dollar as their anchor currency (including China) has risen from 30% in 1950 to 60% today.  Because the U.S. Federal Reserve controls the supply of dollars, it is now, more than ever, the world’s central bank.  Whether or not global elites trust the current U.S. president, they do trust U.S. institutions, which is why the U.S. is now a financial empire without rivals.

  

• Signs are that the coronavirus pandemic will even further entrench the dollar at the center of the global financial system.
• Ever since Gallup started asking Americans, in 1979, whether they were satisfied with how their lives were going, the vast majority have said yes. In January 2020, that share hit a record 90%.
• The median household income in 2018, adjusted for inflation, was $63,000, an increase of $15,000 from the early 1970s, and of $7000 since 2013.
• For all the talk of decline and despair, the bigger risk for the future is complacency in the face of growing threats from debt, deficits and demographics.
• U.S. productivity has gotten a boost from investment in technology in recent years, but the most important U.S. advantage has been a relatively high population growth rate, babies and immigrants, not Stanford and Google.
• Unfortunately, major voices in both parties are now making the case that deficits no longer pose a threat to growth – Republicans to defend low taxes and Democrats to defend higher public spending.
• If, into the future, China and the U.S. each maintained their officially reported nominal GDP growth rates, 6% for China and 4% for the U.S., China would not catch up with the U.S. until 2050. If its growth rate slows by one percentage point, China will not catch up with the U.S. until 2090.
• The most important driver of any economy is the working-age population, which is still growing in the U.S. but started shrinking in China five years ago.

Conclusion.  Perhaps “the experts may be correct to argue that the United States should modernize its global strategy, restore ties to traditional allies and critical trade partners, rejoin international agreements, and help rebuild the international pillars of the postwar order.”  But such moves would be icing on the cake.  They are not needed to preserve U.S. leadership because the United States is not in decline.

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As the coronavirus continues to spread around the world and deaths from Covid-19 continue to grow, experts are debating how the pandemic will affect world leadership (see here and here) in the future.

The U.S. has had by far the largest number of infections compared to other countries.  Other countries with high numbers of infections (Spain, Italy, France Germany and the UK) are in Western Europe. Western Europe and the U.S. represent the most advanced countries of the world in terms of economic growth and personal freedom.  These countries have wide open societies and attract the greatest number of visitors.  This makes them more vulnerable to contagion from outside.

As the number of daily new infections in the U.S. begins to stabilize, at about 30,000, and should soon start to decrease, the most urgent question facing U.S. leadership is when to reopen the economy.  Too soon could lead to a relapse and too slowly will simply prolong the economic misery. General guidelines for reopening the economy have been proposed by experts. 

The U.S. has far and away the world’s strongest economy and very strong political institutions as well.  Although there certainly are pessimists about U.S. leadership going forward, I think that such pessimism is unfounded.

But we are now faced with a critical new test for U.S. leadership.  The most valuable contribution the U.S. can make to the well being of the entire world right now is to revive its own economy as quickly as possible without suffering a Covid-19 relapse.  In other words, the best thing we can do not only for ourselves, but also for the rest of the world, is to return our own economy back to the high level (with only 3.5% unemployment) at which it was performing as recently as February of this year.  Just by focusing primarily on our own recovery, the U.S. has the economic and financial clout to pull the whole world out of a prolonged coronavirus recession.

Conclusion.  The U.S. is hardly in a state of decline.  But it does now have an urgent new challenge, to get past the pandemic crisis as soon as possible, by reviving the economy to its previous high level.

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The coronavirus pandemic is a major human tragedy which will kill many thousands around the world and cause huge economic disruption. Big mistakes were made in China, the U.S. and other countries which delayed the world-wide response.

Nevertheless, the U.S. has now adopted an effective social distancing strategy which is slowing down the spread of the virus in most parts of the country except for a number of unfortunate hot spots such as New York City.

A sensible plan of action for national recovery has been proposed by Scott Gottlieb and colleagues at the American Enterprise Institute.  They have a four part plan:

• Slow the Spread in Phase I. This is the social distancing phase we are already in.  Now the emphasis should be on increasing testing capacity to accommodate the ability to test everyone with symptoms and their close contacts.  Also issuing stay-at-home advisories in hot spots where transmission is particularly intense, as when case counts are doubling every three to five days.
• State-by-State Reopening in Phase II. This begins when there is a sustained reduction in new cases for at least 14 days, hospitals are able to treat all patients without resorting to crisis standards of care and the state is able to conduct active monitoring of confirmed cases and their contacts.  When these conditions are met, the vast majority of businesses and schools can reopen.
• Establish Immune Protection and Lift Social Distancing in Phase III. This means that infections can be prevented either with a vaccine or therapeutics which can mitigate the risk of spread or reduce serious outcomes in those with infections.  When these conditions are met, then all social distancing measures can be lifted.
• Prepare for the Next Pandemic in Phase IV. This can be achieved by expansion of public-health and health care infrastructure and workforce as well as government structures to execute strong preparedness plans.

Conclusion.  The coronavirus pandemic has caught the world off guard and done much damage.  But there are sensible means, as suggested above, for responding forcefully but in a measured way.  We want to be very sure that neither the U.S. nor any other country need go through such a traumatic pandemic again in the future.

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The incidence of new coronavirus infections in the U.S. appears to be slowing down to about 20,000 new cases per day (see chart).  This number should start to drop soon.

I have long considered myself fortunate to live in Omaha NE, and all the more so in the midst of the coronavirus crisis.  In Douglas County we have now had just 57 reported cases of infections and one death.  We are isolated from the country’s hot spots but still taking social distancing very seriously.

So I have the luxury to begin speculating about what will be coming down the pike when we get beyond the pandemic.  Here are some of the major changes which are likely to occur in the way we conduct our lives:

• The coronavirus will permanently change how we work.  Many companies and employees will decide that working remotely from the office has its advantages.  More and more people will discover that Zoom is a great way to convene groups electronically.

  

• Online education will expand dramatically, at least beyond high school. College faculties are now all learning how to teach online, many will like it, and it has the advantage of greatly increasing access to post-secondary education.
• Biotechnology will have a growth spurt.  Editing our genes could eventually make us immune to viruses.  Need more be said?

  

• China’s influence in the world will shrink.  Not only did China’s backward public health procedures let the coronavirus pandemic break out in Wuhan, all businesses can now see how dangerous it is to let supply chains become concentrated in one country.

Conclusion.  That’s it for now.  I (and my sources!) are certainly not clairvoyant.  But already these changes alone will have a major impact on American society.  As technology becomes more important, so does the technical knowledge which supports it, and the consequent demand for more knowledge workers.  Our entire educational system will have to be upgraded.  More on this later.

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The economy has been doing very well lately and I would prefer to be talking about this.  But, of course, we now have a more immediate problem to deal with.

The atmosphere in the U.S. about the coronavirus threat is almost panicky but consider:

• There are currently 3115 confirmed cases of the virus in the U.S. and 60 deaths.
• There have been 81,000 cases in China (with four times our population) so far and 3199 deaths.
• China now reports that there are fewer and fewer new cases reported every day.
• Since China, with a late start, has been able to get the virus under control in a ten week period, the U.S. with a sensible strategy, should be able to do the same.
• Just in the last few days a very sensible strategy has sprung up spontaneously around the country: social distancing. Isolate yourself from other people to minimize your infection risk.
• Also, the federal government has declared a national emergency and has set up a flu testing strategy with major businesses such as Walmart, CVS and Walgreens.

  

• Our economy is being hurt by the coronavirus outbreak, especially for transportation and entertainment. Cruise ships, airplanes and restaurants will all be badly affected.  In Omaha NE, where I live, both  the College World Series (each June) and the Berkshire Hathaway annual convention (each May) have been cancelled for 2020.  Omaha will thus take a big financial hit.
• Performance theaters and art galleries in Omaha are suspending operations but not yet movie theaters and restaurants. This will also hurt the economy.
• Economists are mixed on whether or not the U.S. is likely to go into recession  which requires two successive quarters of negative growth. We won’t know officially until October of this year, after the third quarter ends.
• In the meantime, watch the monthly unemployment rate which activates the Sahm Signal indicator of recession. I will be watching this carefully and reporting on it.

  

Summary.  The coronavirus is very serious.  The federal government is now responding forcefully even if it did delay initially.  Practice social distancing but without overreacting.  My wife and I (both retired) will continue most of our normal daily and weekly activities such as working out, meeting with others in small groups, going to movies and eating out at our favorite restaurants.

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The U.S. economy has been doing very well lately.  The unemployment rate, under 4% for the last two years, has just been reported to be a continued low of 3.5% for February 2020 and, moreover, 273,000 jobs were added last month.

There’s other good news to report about the economy as well (coming soon!) but, of course, we also have the coronavirus to contend with at the present time.  How should we evaluate the coronavirus threat?  Consider:

• During the 2019-2020 flu season so far there have already been about 14,000 deaths in the U.S. Typically there are from 12,000 – 61,000 flu deaths in the U.S. each year.
• So far there have been 17 coronavirus deaths in the U.S., including 14 in Washington State 1 in California and 2 in Florida.

The most likely course of a coronavirus recession is steep but very short:

• The DJIA has plunged 3500 points since February 19 or 12% of its value. This represents good buying opportunities for savvy investors like Warren Buffett.
• The price of oil has dropped 33% in the past two months, from $63 per barrel to $42. This is great for consumers even though it is not so good for producers.
• Ten year Treasury bonds are now yielding less than 1% annual interest, a very low rate. Investors are unlikely to continue to tie up money for 10 years at such a low rate.
• 30 year home mortgages are now available for 3.29%, again very low but good for home buyers.

Conclusion: Most reactions to the coronavirus threat have been quick and dramatic.  Very soon, within a few months or less, the long term threat is likely to fade and the U.S. economy will bounce back to its previous growth mode, by continuing to exhibit strong consumer spending.

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Income inequality is a hot topic these days, especially in the Democratic presidential primary race.  The New York Times writer, Nelson Schwartz, says it is so bad that he asks the question “Is America on the Way to a Caste System?”

But consider:

• The top four Democratic presidential candidates, Sanders (Vermont), Biden (Delaware), Bloomberg (New York) and Warren (Massachusetts) are all east coast residents.
• Los Angeles has by far the largest homeless population, 44,000, in the whole country.
• The average monthly rent for a one BR apartment in San Francisco is $3438, the highest in the country.
• In fact, the scholar, Richard Florida, has a book, “The New Urban Crisis” pointing out that it is our biggest cities, especially coastal, which are increasing inequality and failing the middle class.

In contrast with the message from the Democratic presidential candidates and the stark figures above, consider that, throughout the country as a whole, Life in America is continually getting better:

• The middle class is not shrinking. The number of middle income ($35,000 – $100,000) plus higher income (> $100,000) households together is expanding rapidly (see chart).  The number of low income households (< $35,000) is shrinking significantly and the middle class is actually thriving.
• Many developed countries have more billionaires per capita than the U.S.!  Warren Buffett, who lives in Omaha NE where I also live, is the third wealthiest American at $80 billion. His wealth and prestige are of enormous value to Omaha.
• So what if the wealthy have more and more special privileges?  As a retired math professor from the University of Nebraska Omaha, an average university, and with no extra financial resources, my wife and I are in the group of high income households (see above). We live somewhat frugally by choice but are not restricted in any way from doing what we want to do, from generously supporting our favorite charities to traveling anywhere we want to go.

Summary.  Income inequality is very real, especially in the blue states.  But poverty is a bigger problem than inequality.  There are practical ways to alleviate poverty and society is making much progress in doing this.

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In my last post “What Is Wrong with the Democrats?,” I discussed the fact that the Democratic party is moving so far to the left that it may nominate a presidential candidate who makes Trump look like the safer choice.

Here is an additional explanation of what is going on:

• In the short span of a generation, the face and focus of the Democratic Party nationally has shifted from a glorification of the working-class ethos to multi-culturist militancy pushed by the Far Left of the party.
• The narrow elite – people with national influence – coincides with the Big Four centers of cultural impact: New York, Los Angeles, San Francisco and Washington DC.
• Liberalism which seeks to spread cosmopolitan relativism to the masses, by force if necessary, instead of spreading economic equality, is destined to leave a decisive slice of the American electorate in search of a new home.
• If the people who make branding news, and political decisions, are immersed in environments hostile to a coalition that represents a governing majority of the nation, cultural schism is the most likely outcome.
• Trump’s often coarse language on the issues serves as an attractant for the kind of marginal voters who were previously unmotivated by more conventional presidential candidates such as Mitt Romney.
• For the typical voter, the speech of normal candidates has them saying “What’s going on? I just want a job.  Just get me a job.  I don’t need the rhetoric.  I want a job.”
• The question of whether Trump has remade, or can remake, the Republican Party on a less-ideological, but more strident, forge, is one that will persist past his presidency.
• A key to projecting the staying power of the Trump-made alliance between populists and conservatives is understanding not just the changing influences within this coalition but also the forces pushing Democrats further toward the multinational worldview that enabled the coalition to form.
• In the long run the Republicans have a demographic problem and the Democrats have a geographic (coastal) problem. What happened in 2016 is only the beginning. “Unchecked by the need to accommodate centrists in their own party, the Democrats are continually redefining the litmus test for acceptable liberalism.
• The 2020 election may determine whether the American electorate has altogether realigned, or merely had a hiccup.

Summary.  Did 2016 represent a great revolt or just a great surprise?  This is what the American voters will decide in 2020.  It will truly be a momentous election.

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In spite of President Trump’s post impeachment surge in popularity to 49% (Gallup Poll), he is still vulnerable for re-election.  “Millions of Americans like the results of Mr. Trump’s policies but not his divisive brand of politics and personal behavior.”

And yet the top Democratic candidate is a “socialist who wants the government to control energy production and health care, who wants nationwide rent control, and who calls America a racist society from top to bottom.”

Consider the intellectual currents Bernie Sanders is riding:

• The attack on capitalism and markets. The left blames the market for the 2008 panic and crash rather than failed government regulation, subsidies for bad housing risks and loose monetary policy.
• Inequality replacing growth as the top economic policy concern. Don’t Democrats realize that a 3.5% unemployment rate is far more beneficial to workers than demonization of billionaires and equating business success with corruption?
• The critique of America as irredeemably racist. After police shootings in 2014 and 2015, Black Lives Matter erupted and demanded that politicians bow to its concerns, neglecting 50 years of racial progress and the huge reduction in crime which has saved thousands of black lives.  For example, 200,000 African-Americans have been able to move out of Chicago in the last two decades alone to seek a better life.

  

• Climate change as religion, not science. Yes, global warming is real and serious, but the alarmists have greatly overstated the problem.  All over the country Americans are implementing practical ways of increasing the use of renewable energy and cutting back on carbon emissions.  The last thing we need is a Green New Deal to strangle the American economy.

Conclusion.  Americans “are looking for an alternative who doesn’t scare them.  The agony of the Democrats is that years of bowing to the left means they may nominate someone who makes Mr. Trump look like the safer choice.”

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