Episode 7: What Makes This Economic Crisis So Unprecedented?
In this episode of Bold Dominion: the economy has run full speed into a brick wall. And that wall is called COVID-19.
We’re still in a public health crisis that has yet to peak. And while we’re all practicing social distancing as best we can, this pandemic has created an immediate economic crisis no matter how you slice it. More than 300,000 Virginians are newly out of work. More than 16 million nationwide.
We talk with Virginia journalist Peter Galuszka and UVA Professor David Leblang about how this pandemic will pan out in Virginia’s economy.
Read the Transcript:
Nathan Moore 0:00
This is Bold Dominion: an explainer for state politics in a changing Virginia. I'm Nathan Moore. In this episode of Bold Dominion, our economy has run full speed into a brick wall, and that wall is called COVID-19. We're still in a public health crisis that has yet to peak. Nationwide, tens of thousands of people are being diagnosed with the novel Coronavirus every day. And as of this taping, 15,000 have died. We're all practicing social distancing as best we can, but this pandemic has created an immediate economic crisis, no matter how you slice it.
Peter Galaska 0:34
I think the state will eventually come through and obviously, you know, it's not the end of the world, but it's just gonna take a long time and it was so shocking.
David LeBlang 0:43
If we go back three weeks ago, it was still a supply shock. Now you have a combination of both things. So there's a lack of supply and a lack of demand, right? And that we're social distancing, and even if people are still employed, they're not going out to buy anything, right? And that's a dimension of this that we haven't seen before.
Nathan Moore 1:02
That's UVA Professor David LeBlang and journalist Peter Galaska before him. In the second half of today's show, we'll hear more from Professor LeBlang, he has closely studied the 2008 Great Recession and its recovery. The scale of this economic seizure is unprecedented in American history. In the last three weeks, more than 300,000 people in Virginia have filed new unemployment claims. Nationwide, that figure is more than 16 million. It's hitting Virginia unevenly. Relative to other parts of the state, Northern Virginia, with its large federal workforce, hasn't been hit quite as badly. On the other hand, Danville saw a huge spike in unemployment claims with the temporary closure of the Goodyear manufacturing plant down there, and areas of the state that rely on tourism -- like Virginia Beach and Bath County -- they're hurting. Today we're talking with Peter Galaska. He's a journalist based in the Richmond area who has covered Virginia business, politics and news for four decades. Across the state, things are looking bleak for a lot of workers, especially people working in the restaurant, entertainment and hospitality industries.
Peter Galaska 2:05
They're really in trouble because a lot of them have no benefits and the General Assembly had considered some kind of sick pay thing, and they just didn't do it. And so that is, you know, showing up and if you're a waitstaff or a bartender or something like a cook, you're out of luck.
Nathan Moore 2:20
How much is that gonna be helped now by unemployment benefits by the new federal stimulus that just passed a couple weeks ago?
Peter Galaska 2:27
Well, I think what's going to happen is that most people are going to get like a 1200 dollar check and that's not going to go very far. And as far as some other things, there is support to the state's 1.5 billion+, but that can't be used in the state's general fund that can go to help pay for certain unemployment benefits. But another problem is that in Virginia and other states, a lot of the Employment Commissions, which distribute the unemployment, aren't really geared up very well for this big onslaught. And that's going to be a bottleneck. That will delay things.
Nathan Moore 2:59
What's that mean for people on the ground?
Peter Galaska 3:02
They're going to get 1200 dollars and maybe not much else for a while. You know, as they say, it's, you know, a lot of these offices are closed. So if you're applying for employment, you have to do it online. But then there are cases where people try to enter their Social Security Number, they do it correctly, and the program says they didn't enter it correctly. And you know, what can they do? They can try to call and they'll be put on hold for half an hour. No one's ready for this. This is happening so incredibly quickly, and no one prepared for it that it just really feeling your way, you know?
Nathan Moore 3:31
There was a- there was a minimum wage bill that passed to increase the minimum wage, but now with the Coronavirus spread, you've got advocates for that saying actually, "Hey, we need to go even further, Governor Northam," and then the business sector Republicans saying "No, no, no, let's actually pause the entire thing." Take me through some of the contours of this; the people who are working right now.
Peter Galaska 3:49
There's several aspects to it. The idea of the plan is just to raise the state minimum wage to $12 an hour in three years. And that's still is conservative because many of the other states already have it at $15 per hour. And they're lucky to get anything passed because it was a dead letter for the last several years that the GOP controlled the General Assembly. Now, there are different reasons for this. People are saying "Yes, we do need this. We need to accelerate it. We need more because of the Coronavirus and the job cuts." But on the other hand, I know the Virginia Municipal League, which is like 38 cities, they want a slow down. And they are saying "We can't afford to pay you an accelerated per hour basis. We just can't do it. And because we're facing too many pressures ourselves." I know in my county, Chesterfield County's laid off 450 or 500 county employees and other counties are doing the same and cities as well. So I mean, if they can't afford it, and if businesses in it can't afford it. I mean, if you're out of- if you're a bartender and you're out of a job, this is not really a, you know, this argument does- is pretty irrelevant, you know, because if you don't have a job at all, well, how can you like go in and insist on more money? That's the big conundrum here. So I really have no idea how this is gonna play out. If anything, I would say it's probably going to be delayed. And I personally think it should be accelerated. But you know, the reality is something else.
Nathan Moore 5:15
What does this all expose about Virginia and our resilience?
Peter Galaska 5:19
I think the state will- will eventually come through and obviously, you know, this is not the end of the world. But it's just going to take a long time. And it was so shocking how back in January, you- people may have seen little bits and pieces of news out of China about the Coronavirus from Wuhan, but no one really knew what was going to happen and wham, it came really quickly. The Trump administration, in my opinion, has done a terrible, awful incompetent job, because Trump was trying to pretend this really wasn't an issue. And that is thrown the onus of the work to the states. And Ralph Northam, I think, was slow, so were the many other governors in- in really responding to this, although he has more recently. You know, even though people were warning about pandemics, no one took it seriously. Not many people took it seriously. And I think that's showing, and it's going to be with us for a very long time.
Nathan Moore 6:06
Economically speaking, the economic philosophy in the US has been a very sort of neoliberal model for the last 35-40 years. Before that we had sort of a what's been called the Keynesian Consensus, where sort of investing in people, investing in working people, helping make sure people's basic needs are met, investing in getting people back to work. Do you think we'll see a return to some of that?
Peter Galaska 6:25
I think so. I wrote about it this week in Bacon's Rebellion [non-partison Virginia politics blog], quoted Milton Friedman and Richard Nixon saying "We're all Keynesians now." And the idea was that it's perfectly okay for the public money to be used to support the economy. The idea though, is that you don't really worry about deficits. Then you had this idea later, with Reagan and the rest, that you have to really worry about deficits, although he was a big spender, and on it goes. Under Trump we've blown out our deficit spending, and no one seems to notice that. But it is going to change the ideals, especially in Virginia, among the Republicans, there's always this mantra that the public sector is bad and the private sector is great. Well, we're seeing, I think a lot of times, it's the public sector that's really bailing us out. And the private sector really hasn't done that much.
Nathan Moore 7:09
Not to get too heavy on the prognostication business, but come next election cycles, you know, are people gonna respond and say, "You know, we don't really need that party of free market orthodoxy if this is the case."
Peter Galaska 7:21
Well, that's exactly what happened in the Depression. I mean, that's why you had real, real moves to socialism, and even communism in this country and elsewhere, because people around the world were really upset with what they saw as the failure of communism. Unfortunately, as a reaction to that you had real fascism, ie. Hitler, ie. Franco in Spain, Mussolini in Italy, and all that kind of stuff. I hope we don't go through that again. And that's something to really watch carefully. On the other side, you know, I think the Coronavirus will unify people and we'll cross the partisan lines a bit. I think that you see among some of the conservatives and some of the Republicans, I have really seen a change in them over the last month or so. Because a lot of them really were doubting this and saying, "Oh, this is just another way to get rid of Trump and they tried impeachment, they tried this, they tried that." But now they're, they're saying, "Hey, this is really real." I mean, they look at the numbers, and they're just as stunned as anybody else is. And you still have that sector of people like the Jerry Falwells [Jr., President of Liberty University] at Liberty University, who are, you know, just really mindlessly reopening school, and now you've got a bunch of sick kids, and he's just, you know, they're gonna be there, but they're always there. And so, I don't know, I see more movement towards a togetherness on this. I mean, I might be naive about this. And I'd be the first to admit it. But I just don't- I don't see this as becoming a divisive issue. It's not something like abortion or gay rights or something like that, that really has a social base. You know, over the last few years, we've been really polarized, especially with Trump. His populist policies are- are really exacerbating that. And maybe this will bring us together, I don't know. You might be able to get a really good consensus out of people because this- this disease transcends everything. What I'm hoping for is that once this peaks, and that'll probably be in May, that things will start slowly coming back. The big danger is what apparently happening in China now, although I don't think you can trust any of those figures, is that there's a second round of COVID-19 coming. It seemed that after a big spike in numbers and deaths that it peaked and slowed down. Now in Hong Kong, you're seeing another wave of infection. So I don't know. I mean, you know, maybe with the warmer weather that will help. And maybe by June, July, you'll see some strings in the economy. But a lot of people worried that when the cold returns, and come October, November, you'll see a second wave.
Nathan Moore 9:42
All right, Peter, thanks so much.
Peter Galaska 9:43
Thank you.
Nathan Moore 9:44
Peter Galaska is a journalist based in the Richmond area. He's been covering Virginia business, politics and news for four decades. We're taking a really short break and when we come back, we'll be with UVA Professor David LeBlang. He has studied and published on major economic downturns in the past and he has some thoughts about where this is all going. Stay with us.
Nathan Moore 10:07
You're listening to Bold Dominion: state politics explainer for a changing Virginia. Visit us online at bolddominion.org. Have a friend who's trying to figure out Virginia state politics? Tell them about this show, and then subscribe in Spotify, Apple Podcasts and wherever find podcasts are served up. Bold Dominion is a member of the Virginia Audio Collective online at virginiaaudio.org. Whether you're into science and society, or Virginia history, or jazz, or local news for Charlottesville, we've got something you'll like. More than a dozen podcasts in production right now. That's virginiaaudio.org. Well, this podcast sets out to be an explainer for a changing Virginia, and there's certainly a lot changing right now, almost by the day. We've already seen whole industries collapse both here in Virginia and around the world. Restaurants, travel, tourism. How will this pandemic pan out in Virginia's economy? David LeBlang is a professor of politics at the University of Virginia, as well as a professor of public policy at UVA's Batten School of Leadership and Public Policy. He's also a professor of public affairs at the Miller Center of Public Affairs, and he's on the steering committee for UVA's Pan-University Institute on Global Infectious Diseases. We talked a few days ago by Skype. In terms of economics here in Virginia, how- how are things going to go in our own state?
David LeBlang 11:31
I think part of it depends on- on two factors. One is when and if the curve flattens and if that gives universities for example, confidence that they can reopen in the fall. Running into the summer, you know, there's a lot of businesses that make all of their income based on summer tourism, you know, we can think about amusement parks, we can think of all the tourism that occurs over the summer, whether it's in Richmond, whether it's in the mountains, the District of Columbia, and then all the tourism that hits Northern Virginia. If people aren't comfortable traveling, all of those businesses take that that second hit. And that second hit is where they make their annual income. So that's, that's something that we need to keep our eyes on. I think the other piece has to do with the extent to which the federal government invests in the kinds of things that keep the Virginia economy going, especially in Northern Virginia. You know, when we look at 9/11, or we- we look at the financial crisis, we can see a tale of two different experiences in Northern Virginia. After 9/11 there was a lot of money that was pushed into the defense sector. And that really stimulated the economy in Northern Virginia in the Beltway. After the financial crisis, those sectors were not hit as hard. They weren't hit in the same way and so those sectors suffered greatly. My guess is that the pandemic is going to look much more like the financial crisis. But we always keep our eye on where the federal dollars are going. You know, Virginia is influenced greatly by where those dollars go. And so, you know, again, I'm not trying to skirt your answer. I just don't have an answer for you.
Nathan Moore 13:19
For sure, and we're definitely still in early days. So I don't mean to make you out to be a prognosticator, but at the same time, what was the response with federal dollars after the 2008 crash or Great Recession?
David LeBlang 13:31
If you recall, the- the first tranche of federal dollars went to go shore up financial institutions that were either failing or that were at the risk of failing. And the reason why those institutions needed to be bailed out was because if they went under then the small businesses, the large businesses and the homeowners that they lend to, would likewise be affected. This bailout is different in that a lot of funds are being allocated for small businesses. And I think this is right. I think this is- this is a down payment on what needs to happen, that these dollars are going to small businesses in the hopes that the small businesses will keep their employees employed, will not furlough them. And that will keep the unemployment numbers down, and will help ease the recovery, which is what, I think, we need to keep our eye on. Once a business shuts down, it's shut down. Once people are unemployed, they're unemployed. And the cost and the time it takes to reopen the business and for people to re-enter the labor market. That's significant. That's one of the reasons why we saw the Great Recession. Really, a full recovery didn't happen for 8-10 years. It's because we weren't shoring up small businesses and people who were, you know, who were unemployed. Remember, we didn't see unemployment numbers go below 5% until about a year and a half ago.
Nathan Moore 15:00
So I want to talk about the state of Virginia. For a while now, a couple decades, really, we've seen a real divide growing between the rural parts of the state and the more urban areas. Northern Virginia, Richmond, Hampton Roads, college towns, that divide has an economic basis as well, what will this pandemic do to that divide?
David LeBlang 15:20
I mean, I think- I think ,economically, what we're going to see, especially in areas that have a heavy federal influence, I think those areas are going to make out okay, I don't mean well, but I mean, okay, relative to everybody else. So the places that have military facilities, where there's army personnel, I think, you know, that those dollars are going to keep rolling in. And so I think what's nice, what's good about that is that that's distributed across the state in ways that we wouldn't have expected money to flow if we just think about this in terms of an urban/rural divide. I think rural areas, you know, the economically they're going to do less well than the urban areas simply based on the size of their economy for all intensive purposes, right? You know, I drive down to North Carolina to visit my mom. And I drive through South Boston, you know, in South Boston is only supporting handfuls of mom and pop shops. And if people aren't leaving their houses to go into these shops or go into these restaurants, I just don't see how they're going to survive. And I think what's going to happen is we're going to see in those small areas, we're going to see the same sort of phenomena that we saw when Walmarts moved in. Chain restaurants that can afford a loss in an area are going to survive because they will have corporate support, and the local, the mom and pop shops, they're going to have nothing, you know, nothing to rely on. And in the more urban areas again, just because of population density, you're going to see more small businesses, small restaurants, small shops survive just because there's more people who are going to be able to and willing to be customers and consumers of the things that they support. And I think that also speaks to what's going to happen socially. Is what concerns me about rural areas is access to internet. And we see this in Charlottesville, when we see the struggle that the city schools have, are experiencing and trying to make sure that all the students have access to online information. And it's because there's a lack not just of broadband access, but because of the technology that's necessary to engage in Zoom or Google Classroom. Right? And I think if we look at the data, the rural school districts are even more affected by that- this kind of inequality and inequality of access in terms of broadband.
Nathan Moore 17:49
So what I'm almost hearing is that the the resilience of an economy, the resilience of a technological infrastructure going into this is really going to make a big difference for communities.
David LeBlang 17:59
I think that's right. I mean, I think you- you always have a situation where those that are able to provide some sort of social safety net are going to come out of this stronger than those that are not able to.
Nathan Moore 18:12
So you've studied past economic crises, including the the 2008-2009 Great Recession. We're already seeing this to be a whole different scale, but how do we eventually, you know, come out of this, economically?
David LeBlang 18:23
Yeah, that's, well, that's- that's the I was gonna say the billion dollar question, but at this point, that's like the $10 trillion question. I've taught a class with Bob Bruner of the Darden School [of Business] and David Smith of the McIntire School [of Commerce]. We taught a course a year and a half ago called the Great Recession Ten Years Later and this semester, we're teaching it again, with a broader frame called Democracy and Capitalism. And we're organizing that class around crises. One of the things that we didn't realize what we wrote the class was that we would be in real time experiencing a crisis. We try to tell the students that is a unique learning opportunity, they don't seem as excited about that as we are. But it's a fascinating crisis in that it has elements of the Great Recession and elements of the Great Depression, yet are different from both of those. So in both of those cases, it's a financial crisis in that you've got a failure, you've got banks failing, right, which makes it ultimately a demand driven crisis. That is to say banks fail, people have less income, they can't get loans, whether they're individuals or small businesses, and consequently they cannot consume. Right? So that's a- that's a demand shock. This crisis is fascinating in that it began as a supply shock. This was a supply shock, and it was because supply chains coming out of China had been disrupted. That shock and the hit to the economy occurred because goods were not available to consume. The environment that we're in now, if we go back three weeks ago, it was still a supply shock. Right? People had money in their pockets, we weren't under quarantine yet, we couldn't buy masks, we couldn't buy disposable wipes, right? So there's a lack of supply, but not a lack of demand. And certainly there was money. Now you have a combination of both things, right? So restaurants are shut down, people aren't going to work. So there's a lack of supply and a lack of demand. And I should say that the critical difference also between the Great Recession and the Great Depression, and now is it we have a pandemic, right, and that we're social distancing, and shops are closed. Right? And it's because even if people are still employed, they're not going out to buy anything. Right? And that's a dimension of this that we haven't seen before.
Nathan Moore 20:53
Right. It is a unique times for sure and all the sort of normal economic assumptions from the last, you know, century just- just aren't applicable in the same way. I mean, when when you've got a supply shock and a demand shock, sort of simultaneously, and we're still stuck for at least two more months here, possibly longer. I mean, how, how do you grow out of that?
David LeBlang 21:18
I mean, we grow out of all kinds of things. You know, there is, there isn't I'm not saying this to to "rah, rah" the United States. I mean, this happens across the world. I mean, you know, populations are resilient, and populations innovate. And we're going to see new advances in, you know, the delivery of groceries to one's house or the way in which you can do, you know, athletic training and gym training at home to innovations in the kinds of ways in which technology and information are delivered via the internet. So I think we, you know, with every crisis, we do see innovation and I think we'll come out of this crisis, socially and economically, looking very different than we go into it. You know, and I think and I and and don't ask me what that's gonna look like, I don't know.
Nathan Moore 22:08
That was literally my next question.
David LeBlang 22:09
Yeah I know. Yeah I know, I could see it. But I was like, I don't know. But I think it's, it's, we will maybe I hope, this is because I'm an optimist, I hope we begin to reconsider the nature of our social contract. That is to say, our relationships with one another, but also what do we expect from our government? You know, what's, what's fascinating is two months ago, before Super Tuesday, the Trump administration was all ready to run against socialism, right? The socialism of Bernie Sanders, right? And now the government is taking equity stake in corporations and talking about taking equity stake in airlines. And there are Republicans ,Tom Cotton of all people, said we need to come up with $20,500 per family. And so we see An interesting change in the narrative about the role of government. Right? And this is not to poopoo the Democrats or the Republicans, but I think we're seeing convergence. Maybe that's that's hopeful, but we're seeing convergence in an understanding that government can play a role for good. And that's what I mean by you know, hopefully a kind of new understanding of a social contract that government is here to serve the people. And I think we're seeing areas especially at the state level, where- where state governments and local governments are really doing a terrific job of serving residents, serving voters, serving constituents, serving people who are vulnerable, and we're seeing other areas where the federal government in parts are failing completely to do that job. Now theres areas of the federal government where they're doing a marvelous job. But I think it's an opportunity, especially in an election year, to fundamentally reconsider what is it that we expect and what we are owed by our government. This is a time when, you know, hopefully people will stand up and demand more from their governments, whether it's at the state, local or national level.
Nathan Moore 24:10
There's a there's sort of a post war consensus in America from the 1940s till, you know, maybe the early 80s or late 70s, this sort of Keynesian social democracy was- was very much kind of the order of the day where- where government did provide core basic services and made sure that people didn't starve on the streets and things. That definitely shifted toward a neoliberal model starting with- with Reagan and that that era.
David LeBlang 24:35
Yeah.
Nathan Moore 24:36
Is this going to be a "Back to the Future" kind of moment?
David LeBlang 24:40
I don't know. I mean, I work with a number of people at the Miller Center. I have- we spend a lot of time asking that question whether it's going to be a "Back to the Future" and I think we will see it in social policy with regard to the, you know, extending unemployment benefits and unemployment claims. I think we'll see it with regard to Medicare and Medicaid. I think the areas where it would be very interesting is in areas of education. The way in which we're going to see economic dislocation as a result of this crisis is one that is going to renew calls for education for- of nontraditional students here, I mean, those who either have not gone to college or- or older people who need job retraining or new sets of skills, because the economy will have fundamentally shifted away from what we- I was trained to do. This is where, you know, I think there's absolutely room for innovation. Also appreciate the fact that I work at a university. So it is in my economic interest to hope that this happens. I just want to make that clear. But I think this is an area where- where education, especially public education can and should play a vital role.
Nathan Moore 25:54
Any other sort of key takeaways you want to share about how- how Virginia is going to go and how the the rest of this is gonna go?
David LeBlang 26:02
Look, I'm, as I said a couple of times I'm an optimist. Right? So I, you know, I think it's a matter of this is where, again, this notion of us all being in it together really matters, you know, the- the whole notion of social distancing, which is so challenging for all of us. It's not about us individually, it's about how we affect and how we influence one another, the health of one another. And I think, you know, moving through two months of this is going to be a trial by any stretch. But if we don't do it, you know, people are gonna die. It's just that apparent. And I think it's just that important to be that bald in terms of making a statement that if we don't do this, people will die. Period.
Nathan Moore 26:47
David LeBlang, thank you so much for taking the time today.
David LeBlang 26:50
Thank you. I appreciate it.
Nathan Moore 26:52
David LeBlang is a professor of politics at the University of Virginia, the professor of public policy at UVA's Batten School, and a professor of public affairs at the Miller Center. He's also on the steering committee for UVA's Pan-University Institute on Global Infectious Diseases. Thanks to him and also to journalist Peter Galaska, who spoke with us via Skype. My name is Nathan Moore, and I'm the host of Bold Dominion. Huge thanks to our producers this week, Aryan Balu and Sabrina Moore. Find this show online at bolddominion.org. Go ahead and subscribe. It's just a click away. Keep socially isolating, and I'll talk with you in two weeks.