Enhancing Trade Supply Responses to the COVID-19 Pandemic [feedly]

The self-sufficiency, nationalist strategies will fail: 
...find the trade High Road will require MORE internationalism, not less.

Enhancing Trade Supply Responses to the COVID-19 Pandemic
https://www.globalpolicyjournal.com/blog/30/04/2020/enhancing-trade-supply-responses-covid-19-pandemic

Bernard Hoekman, Matteo Fiorini, and Aydin Yildirim look at some of the counterproductive trade policy responses to COVID-19 pandemic and suggest ways to expand production of essential supplies.

As part of the response to the COVID-19 pandemic governments are greatly increasing their procurement of medical supplies and personal protective equipment (1). The global spike in demand far outstrips existing emergency stocks and short-term supply capacity. In early January 2020, China, the world's largest producer of surgical masks and respirators, reserved supply for domestic use and greatly increased imports from foreign suppliers. Following the spread of the virus internationally, other countries followed suit in putting in place export bans and/or requisitioning available supplies for domestic use. According to the Global Trade Alert, an independent trade policy monitoring initiative, as of early April 2020, some 75 governments have implemented some type of export curbs on medical supplies and medicines needed to fight the pandemic. In parallel, a similar number of countries have reduced or removed import tariffs on essential supplies to lower the cost of sourcing products and many are engaging in direct contracting and purchasing supplies from foreign providers.

Firm-specific cases such as the French seizure of surgical masks owned by Mölnlycke, a Swedish company, and the dispute between 3M and the Trump administration (discussed in our working paper) illustrate that while export restrictions and requisitions of domestic supplies of essential goods may seem an obvious and justifiable measure, they give rise to unintended consequences. The result may be to reduce access to critical supplies, increase average prices significantly, augment market volatility, and generate negative spillover effects on other countries. Potential adverse effects go beyond public health and economic consequences and extend to the foreign policy domain, eroding trust among trading partners.

Robust government intervention is critical in emergencies like the current COVID-19 pandemic. Regulation is needed to ensure that scarce critical supplies are allocated to priority uses, notably health care providers and to control speculation. This cannot and certainly should not be "left to the market." But export restrictions are second-best responses. Reasons include retaliation (emulation) by other nations, reallocation of supplies by companies away from the country imposing restrictions, promotion of panic buying, hoarding and speculation, and negative reputational effects that impact on investor risk perceptions once the crisis has passed.

In the short run many of the downside effects are associated with price spikes and volatility resulting from constraining access to imported inputs needed for domestic plants to ramp up local production rapidly and reducing the availability of final goods. Many firms have organized production in international production networks and need to be able to source parts and components in order to produce, let alone scale up output.

Allowing international supply chains to work is critical to ramp up supply. Arguments that the current crisis points to the need for greater self-sufficiency are misconceived. Serious short-term supply constraints would exist at national level as well following a pandemic. Having to cross a border is not the issue given that it only takes 48 hours or so to get anything from anywhere in the world. Autarky will not make it any faster to get whatever is critical in a crisis to those who need it. What is needed is for governments ensure that stocks of essential supplies are built up before crises hit and diversification of production capacity across different regions that permit supply to ramped when needed without risk of being blocked or impounded. The focus needs to be on encouraging and supporting business responses as opposed to disrupting supply chains and engaging in negative sum competition for existing supplies and production capacity.

There has already been a massive supply response to the sharp increase in demand for personal protective equipment (PPE). All established suppliers have greatly expanded production but cannot ramp up fast enough. Many firms in other sectors have also demonstrated a capacity to produce essential protective gear. To do so firms need information on demand, applicable product and production standards, be able to obtain rapid certification and to source requisite inputs – including from foreign suppliers. Effective two-way communication channels are needed for firms to identify specific bottlenecks that impede ramping up of supply.

Information is critical – for governments and for firms

Firms need to have systems to monitor market conditions and identify slack and chokepoints in their global network to enable adjustments in production to respond to changes in demand. Governments need information systems that allow them to determine where supply capacity exists and that helps to understand the relevant supply chains. Firms generally will have information on supply options, but governments often will not have such information readily to hand. Both sets of actors need to be able to identify bottlenecks in the supply chain in real time and cooperate in addressing them.

This calls for information systems that permit identification of weak links in supply chains and sources of friction impeding production expansion that are due to – or can be overcome – through policy action. Such information systems were not in place in many if not most countries. Authorities did not have a good understanding of the prevailing supply chains and production capacity. Individual lead firms of course know their supply chains but do not share this information as it is a source of competitive advantage. There are exceptions, such as the New Zealand Medicines and Medical Safety Authority, which requires firms to disclose their supply chain, including where active ingredients for medicines are made and where they are packaged. However, most authorities and jurisdictions seem to have been largely in the dark regarding the nature and composition of the relevant supply chains. There is a notable contrast here with other policy areas such as food products, where traceability throughout the supply chain has become a common feature of the production and distribution process.

Standards and certification of products/plants/suppliers are critical for safety, but the associated regulatory enforcement processes can be a constraint in responding rapidly to an emergency. One good practice here is for governments to accept foreign standards during the emergency as was done by the US Centers for Disease Control approving use of respirators that satisfied equivalent foreign standards, including China's GB 2626-2006 and GB 2626-2019 standards as well as the European EN 149-2001 standards. The existence of common product standards and mutual recognition of standards facilitates supply responses and cross-border production arrangements. This reinforces the value of international regulatory cooperation, mutual recognition arrangements and efforts to determine whether and where regulatory regimes across countries/systems have the same goals – and in such instances work towards establishing equivalence regimes.

The opportunity cost of not having equivalence and recognition regimes in place was illustrated by the decision by China to impose new export license requirements in early April 2020. The government was responding to rejections by several European countries of PPE shipments sourced from Chinese companies on quality grounds. The Chinese authorities feared a reputational backlash and sought to ensure that exported products meet quality and safety standards by limiting exports to firms certified to sell in domestic market (i.e., firms having been accredited as meeting Chinese technical regulations). Companies accredited by buyers in the US or EU – e.g., firms with CE certification – were blocked from exporting by the new regulation until they had obtained certification in China. Cooperation between governments (regulators) to establish recognition and equivalence arrangements for certification and acceptance of foreign standards would help prevent the application of rigid enforcement of national standards with their associated detrimental trade restricting effects, especially in a time of crisis where unilateral action can have very high humanitarian costs.

Beyond unilateralism: international cooperation in the G20 and WTO

The focus of trade policy responses has been on unilateral action to facilitate imports of products that are most salient to combat COVID-19, direct available supplies to domestic use, and to control or prohibit exports. Trade agreements have not been much of a factor in either constraining beggar-thy-neighbor policies or fostering cooperative responses. Experience has made clear that seeking to agree to binding disciplines for export restrictions is doomed to failure. Instead, cooperation should center on improving crisis response coordination by generating and sharing information on supply-demand trends, improving policymakers and public understanding of the organization and operation of relevant supply chains and joint action to minimize supply chain production and distribution bottlenecks and frictions.

The post-financial crisis period has made clear that G20 countries are unwilling to live up to strong trade policy commitments. The attenuation in support for multilateral cooperation that has been evident over the past decade and the electoral success of political parties that oppose globalization and an open world economy makes any effort to agree to disciplines on export restrictions very unlikely to succeed. However, cooperation centered on information exchange, dialogue and peer review may be more feasible. Such efforts should encompass the private sector given that the latter has a much better grasp of the relevant supply chains. Public-private policy partnerships to generate and share up-to-date information on supply conditions and supply chain capacity around the globe would help governments and industry understand the state of play and coordinate policy responses, address supply chain bottlenecks and strengthen supply responses (similar to ideas suggested in the trade facilitation literature).

Following the 2007-08 global food price shocks, which led to a third of global wheat production and over half of world rice output becoming subject to export restrictions, the G20 created the Agricultural Market Information System (AMIS), This has helped countries to generate information on supply-demand balances, stocks, and policies, supported by a network of international expertise. A similar system for the medical and protective product markets that are critical for effective responses to public health emergencies could help promote transparency and provide a platform for governments and relevant international organizations to coordinate crisis responses.

Like-minded WTO members are currently pursuing several potential plurilateral agreements that would apply only to signatories, including on e-commerce, investment facilitation, regulation of services and supporting micro, small and medium-sized enterprises. As part of their COVID-19 response, New Zealand and Singapore have agreed to eliminate applied tariffs for essential medical and protective products, medicines and agricultural products; refrain from export restrictions on such goods and to expedite their movement through their ports. They have indicated they would welcome other countries joining them.

In addition to such trade policy-centric actions, plurilateral initiatives should also be considered to increase the resilience of international supply chains and coordinate responses to global collective action problems, including crisis situations like the current pandemic. A public-private policy partnership to identify and address supply chain bottlenecks and frictions could help support efficient and rapid responses to international emergencies. Another policy area where open plurilateral agreements could add value pertains to mutual recognition and equivalence regimes for technical regulation and certification of protective equipment and medical supplies. Such agreements entail positive and pro-active cooperation to address supply side constraints, complementing desirable unilateral actions to facilitate trade.

 

 

Bernard Hoekman is Professor, Robert Schuman Centre for Advanced Studies and Dean, External Relations, European University Institute.

Matteo Fiorini is a Research Fellow in Global Economics at the Global Governance Programme of the European University Institute.

Aydin B. Yildirim is a Marie Curie Fellow at the World Trade Institute, University of Bern.

Photo by EVG photos from Pexels

Note:

(1) This column draws on Hoekman, Fiorini and Yildirim. 2020. "Export Restrictions: A Negative-Sum Policy Response to the COVID-19 Crisis", supported by the EU Horizon 2020 research and innovation program under grant agreement

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Brad DeLong: Worthy reads on equitable growth, April 19–25, 2020 [feedly]

DeLong's team is full of innovative ideas, on addressing the depression recovery strategy and tactics. Be interesting to see where Biden is going with these challenges.

Brad DeLong: Worthy reads on equitable growth, April 19–25, 2020
https://equitablegrowth.org/brad-delong-worthy-reads-on-equitable-growth-april-19-25-2020/

1. This is, I think, not a call for a Works Progress Administration as such, but rather a call for a very large-scale Public Health Tracking Administration. Read Heather Boushey, "A Modern-Day Works Progress Administration Could Prevent a Coronavirus Depression in the United States," in which she writes: "To be effective in containing the virus in the United States, track and trace must be implemented in a coordinated way and done so across the nation. Experts at the Center for Health Security at Johns Hopkins University's Bloomberg School of Public Health estimate that just to start an effective national track and trace system will require hiring 100,000 individuals alongside more investment in the state and local public health workforce. Depending on how the pandemic plays out over the course of 2020 and into 2021, public health officials easily could discover they need even more people power to track and trace. Robert Redfield, the director of the Centers for Disease Control and Prevention, says a significant increase in public health officials engaged in track and trace will be necessary if the coronavirus returns in force this coming winter. And former CDC Director Tom Frieden believes hundreds of thousands of new trackers and tracers are needed to do the job now. Where can the federal government find such an army of workers? The answer is among the tens of millions of workers idled amid the current recession."
2. This is a major institutional design failure. If I were designing this, then small businesses (and large businesses, too) would have had a right to take out loans to the amount of two years' past receipts, and the Federal Reserve would have promptly discounted such loans at par. To find out what actually happened, read Amanda Fischer, "Early Lessons Learned from the U.S. Small Business Administration's First Round of Lending from Its Payroll Protection Program," in which she writes: "Policymakers have wide latitude to shape how our economy looks coming out of the economic downturn and into the recovery. This second round of funding by the Small Business Administration through the Payroll Protection Program is an important next step, and hopefully businesses in the hardest-hit sectors, in previously neglected states, and among those smallest of small businesses seeking small-value loans will be assisted. Banking industry insiders are predicting that the next round of small business funding could evaporate in just two days. Congress should consider massively scaling these investments, ideally making the funds guaranteed for all eligible small businesses … Beyond the too-small funding amount, the biggest disappointment of the small business loan program so far is the lack of data collection on applications received and loans funded. Without a view into this, policymakers, law enforcement, advocates, and researchers will find it hard to determine patterns of who did and who did not receive rescue money. Finally, even as Congress works remotely, oversight will be essential."
3. Supply chains as cost-minimizers appears to have been a trend of the past. Or, at least, it ought to have been a trend of the past. The very sharp Case Western University professor Susan Helper, who has been writing about supply chains recently for Equitable Growth, is, I think, correct here: the future will be how firms can use value chains to mobilize productive resources. Read her "How COVID-19 Makes the Case for 'High-Road' Supply Chains," in which she writes: "Supply chains have been fragile for some time, dating back to before the COVID-19 outbreak. Within the last two decades, there have been major disruptions caused by the Fukushima Daiichi tsunami in Japan in 2011, the floods in Thailand that same year, and the SARS epidemic in China and Hong Kong from 2002 into 2003. Though long supply chains are known to increase disruption risk, the typical methods firms use to make global sourcing decisions do not sufficiently consider this risk to individual businesses. Furthermore, these methods rarely consider the societal risks at both ends of the supply chain … Global supply chains should not become 100 percent domestic. But both public- and private-sector leaders need to fully take into account the risks that far-flung supply chains pose … One small step to encourage high-road, versus low-road, supply chains is to develop a new approach to global sourcing decision-making, otherwise known as "total value contribution (TVC)," a term I and my two co-authors, John Gray and Beverly Osborn at The Ohio State University's Fisher College of Business, propose in a forthcoming working paper. TVC encourages supply-chain managers to first consider how decisions affect value drivers, before they even consider costs."
4. Once again, without rapid expansions in testing, nothing prudent is possible. All policy shifts away from a frozen crouch have a substantial risk of producing a true mortality disaster. And we are not having rapid expansions in testing. The Trump administration's handling of coronavirus truly does look like the worst in the world. Read my "The United States Has Been Treading Water on Coronavirus since Early April,: in which I write: "Other countries have managed to get R[0] well below 1—have begun substantially shrinking the daily number of new cases. The United States has not. Our current level of social distancing and lockdown appears to be producing about 30,000 new confirmed cases a day. We are no longer—and have not for two weeks been—ramping up and utilizing our testing capabilities. On our current trajectory we look to be incurring about 2,000 reported coronavirus deaths a day. Our medical system is handling the current run of cases. But it would be nice to get the number of cases down and the number of tests up so that we could begin implementing test-and-trace. But that requires a lot more tests—which are not there. And that required more effective social distancing to get R[0] substantially below one—which is not there, certainly not at a nationwide level."

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New CBO Projections Suggest Even Bigger State Shortfalls [feedly]

New CBO Projections Suggest Even Bigger State Shortfalls
https://www.cbpp.org/blog/new-cbo-projections-suggest-even-bigger-state-shortfalls

State budget shortfalls from COVID-19's economic fallout could total $650 billion over three years, we estimate based on new economic projections from the nonpartisan Congressional Budget Office (CBO) and updated projections from Goldman Sachs. The new figures — significantly higher than estimates we recently issued based on economic projections of a month ago — increase the urgency that policymakers enact additional federal fiscal relief and continue it as long as economic conditions warrant.

CBO now projects that unemployment will average 15 percent for the next six months and then fall only slowly. It will still be 9.5 percent — just short of its 10 percent peak in the Great Recession — at the end of 2021. These CBO estimates take into account the federal aid already enacted for businesses, individuals, and state and local governments.

That's considerably more pessimistic than CBO's April 2 projections and Goldman Sachs' projections of March 31 and April 15. A paper we recently issued on state fiscal conditions used Goldman's March 31 projections and the historical relationship between unemployment and state revenues to estimate that states would face $500 billion in state shortfalls in fiscal years 2020 through 2022. Averaging CBO's new projections with the latest Goldman estimates produces shortfalls totaling $650 billion, substantially deeper than during the Great Recession. (See chart.) This estimate is for state budget shortfalls only; it does not reflect the additional shortfalls that local governments, territories, and tribes face.

Federal aid provided to date will help cover some of these shortfalls but it is not nearly enough. Only about $65 billion of the aid provided in earlier COVID-19 packages is readily available to narrow these shortfalls. Using that aid and the $75 billion that states have in rainy day funds would leave states with about $510 billion in unaddressed shortfalls.

States must balance their budgets every year, even in recessions. Without substantial federal help, they very likely will deeply cut areas such as education and health care, lay off teachers and other workers, and cancel contracts with businesses. That would worsen the recession, delay recovery, and hurt families and communities. The health care cuts could also shortchange coronavirus response efforts. The large budget shortfalls could lead states and localities to raise taxes and fees, as well.

No one knows precisely how this unprecedented crisis will affect the economy, but underestimating its effects would have grave consequences for state budgets and thus for families, businesses, and communities. If federal aid ends too soon, states will have to depend much more heavily on spending cuts and tax increases to balance their budgets. Accordingly, the next relief package should include a large new round of fiscal relief, using "triggers" based on job market conditions to determine when assistance phases up or phases out.

A national trigger would ensure that relief measures continue nationwide as long as needed but no longer. Since the recovery may occur at different rates across the country, additional state-specific triggers could provide longer-lasting help in states facing greater challenges after nationwide relief triggers off.

State relief can include these triggers whether it takes the form of a higher federal Medicaid matching rate to cover Medicaid's costs — a particularly efficient method — grants to states, or (as is most likely and most efficacious) a combination of the two. Policymakers should also link measures such as expanded jobless benefits and increased SNAP (food stamp) benefits to job market indicators, so such measures continue as long as they're needed.

The Great Recession shows the potential problems from not tying relief measures to economic conditions — and letting them end too early. Although unemployment remained quite high in the years after the economy hit bottom and the recession technically ended, policymakers let critical relief measures expire prematurely, which slowed the recovery materially and increased hardship.

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3.8 million Americans sought jobless benefits last week, extending pandemic’s grip on the national workforce [feedly]

3.8 million Americans sought jobless benefits last week, extending pandemic's grip on the national workforce
https://www.washingtonpost.com/business/2020/04/30/weekly-jobless-claims-unemployment/?utm_source=feedly&utm_medium=referral&utm_campaign=wp_business

More than 3.8 million people filed for unemployment benefits last week, according to the Labor Department, as the coronavirus pandemic's economic toll burrowed deeper into the American workforce.

The outbreak and subsequent recession have wiped away all jobs created since the 2008 financial crisis. Economists estimate the national unemployment rate sits between 15 and 20 percent, compared to about 25 percent at the peak of the Great Depression.

For comparison, 4.4 million people applied for benefits for the week ending April 18., and 30.3 million have sought benefits in the past six weeks alone. That figure represents roughly 1 in 5 American workers.

There is no precedent for figures like this in modern American history.

How the pandemic consumed the labor market

At first, national attention focused on the unprecedented wave of layoffs tied to restaurant and other non-essential businesses, said Tara Sinclair, an economist at the George Washington University and senior fellow of the Indeed Hiring Lab. But it quickly became clear that many more industries were going to be hit by the downturn. Even in the midst of a global pandemic, Sinclair pointed to recent job losses in the health care industry, as surgeries and other elective procedures are cancelled in large numbers.

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"No job is safe," Sinclair said.

Sign up for our Coronavirus Updates newsletter to track the outbreak. All stories linked in the newsletter are free to access.

During normal times, a few hundred thousand people might seek unemployment benefits on any given week, but millions of Americans have filed claims each week for more than a month. This has overwhelmed state processing centers and expedited the debate in Washington about how to respond to the economic turmoil. Many Americans have stopped paying their rent and other bills, and economists are predicting any recovery will stretch well into 2021, and possibly beyond.

During normal times, the economy will add a few million jobs each year. It could take many years for the economy to add back the 30 million jobs lost in the past six weeks.

Thursday's figures offer the latest snapshot at how badly - and quickly - the economy has suffered from the pandemic as people stay home and avoid travel, dining out, shopping and entertainment. Data released by the Commerce Department on Wednesday showed the U.S. economy shrank 4.8 percent from January through March, marking the biggest decline since the Great Recession. As global air travel dries up, Boeing said Wednesday it plans a 10 percent staff reduction — more than 14,000 jobs.

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At the same time, a growing number of states are pushing to reopen malls, factories, restaurants and other businesses, even amid worker and consumer concerns for public health.

Unemployed workers on facing an uncertain future | Voices from the Pandemic

Over 10 million Americans filed for unemployment in March. Here are some of their stories. (Monica Rodman/The Washington Post)

Republican-led states signal they could strip workers' unemployment benefits if they don't return to work, sparking fresh safety fears

On Tuesday, President Trump signed an executive order giving the federal government broad powers to ensure that meat and poultry processing plants stay open. Simon Property Group, the nation's largest mall owner, plans to reopen more than four dozen properties in 10 states. Florida's Gov. Ron DeSantis (R) joined Georgia Gov. Brian Kemp (R) and Texas Gov. Greg Abbott (R) in rolling back statewide restrictions.

Sinclair said it's too soon to tell whether, or how soon, jobs will return to states vying to reopen. Data from the next few weeks could spell out whether businesses are rehiring — or if the virus and declining economy keep weekly unemployment claims in the millions.

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"Do people feel safer going back to work? Are they getting jobs back with their old employers?" Sinclair asked. "That will help evaluate what the economy is going to look like the rest of the year."

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The U.S Needs Way More Than a Bailout to Recover From Covid-19 [feedly]

An interesting take on a WW II like economic mobilization to meet the depression threat in the current COVID crisis. From Barry Ritholtz, a liberal investment analyst, with a better than average forecasting record.

The U.S Needs Way More Than a Bailout to Recover From Covid-19
https://www.bloomberg.com/news/features/2020-04-30/bailout-isn-t-enough-for-economy-to-recover-from-coronavirus

The economic crisis created by Covid-19 is unlike any other in modern American history. Thousands are dead, and the economic fallout has been devastating. More people lost their jobs over four weeks in March and April than did so during the entire 2008-09 financial crisis. In fact, since mid-March, all of the employment gains since the last crisis ended have been lost. Of the 156 million people the U.S. Bureau of Labor Statistics measured as working full time then, more than 26 million—about 16.7%—were no longer receiving a paycheck as of April 23. If you add in gig workers and those who were unable to file unemployment claims because state offices were too overwhelmed, the tally was more than 20%. At this pace, we will eclipse the peak of unemployment during the Great Depression, 25%, in a matter of weeks.

This sudden collapse in economic activity, hitting every sector except for food, health care, and Netflix, is why Congress moved quickly to pass the $2 trillion CARES Act on March 27. In late April, lawmakers added $320 billion to replenish the U.S. Small Business Administration's Paycheck Protection Program. That sounds like a lot, until you learn that the first allotment, $349 billion, lasted barely a week. CARES2, another trillion-dollar stimulus, is already under congressional consideration. CARES3 won't be too far behind.

But these are all temporary salves, not long-term solutions. The current rescues only treat the symptoms of economic distress; they do nothing to address structural issues that have been a drag on middle-class household income since the 1980s. If we want to restart the engine that made this nation a superpower, we need to do something big. I mean really, really big: defeat-the-Nazis, land-a-man-on-the-moon, invent-the-internet big.

There's no small amount of irony in this coming from me. I'm the guy who wrote an entire book, Bailout Nation, arguing against bailouts for, among others, Chrysler in 1980, Long-Term Capital Management in 1998, and the failing banks of 2008-09.

But I'm not talking about a bailout. For generations, and most successfully in the Depression's aftermath, the U.S. has used public-private partnerships to drive the country's economic expansion, allowing entrepreneurs and innovative companies to take advantage of the long-term planning and financial strength of Uncle Sam. This strategy led to new industries and technologies, creating millions of good middle-class jobs in the process. This is the solution that must no longer be overlooked. What we need right now are public-private partnerships on a scale not attempted since the Depression.

When the stock market crashed in 1929, the Federal Reserve was a young institution with limited authority. Reviving the economy was the job of the White House and Congress. Programs such as the Works Progress Administration, in which the federal government hired workers to build more than half a million miles of streets and 10,000 bridges, along with airports, dams, highways, and sanitation systems, helped alleviate mass unemployment. However, the lasting economic gains came not from temporary work programs, but rather from the Reconstruction Finance Corp., a public-private entity better known as the RFC.

Louis Hyman, an economic historian and director of the Institute for Workplace Studies at Cornell, recently described RFC in the Atlantic as "an independent agency within the federal government that set up lending systems to channel private capital into publicly desirable investments. It innovated new systems of insurance to guarantee those loans, and delivered profits to businesses in peril during the Depression." Most impressive, as Hyman has noted, these programs cost taxpayers nothing.

The Rural Electrification Administration helped finance thousands of miles of electrical wires to benefit farms and ranches.

SOURCE: LIBRARY OF CONGRESS

The RFC was an enormous economic multiplier. Start with the Depression-era breakdown of the banking system. That institutional collapse wasn't caused by a lack of capital; larger national banks such as National City Bank and Bank of America had idle cash. But low potential returns, combined with post-traumatic stress lingering from the stock crash, made bankers so risk-averse they wouldn't even lend to each other.

The RFC's solution in 1934 was for private bank employees to work with its subsidiary, the Federal Housing Administration, to create insurance for pools of mortgages. This led to a resurgence of financing for home purchases. Another RFC subsidiary, the Rural Electrification Administration, worked with farm cooperatives and banks to issue low-interest 20-year loans to run thousands of miles of electrical wires to rural farms and ranches—something the private sector had said would be too expensive.

During the years before World War II, the RFC created the Defense Plant Corp., offering loans and tax benefits for the manufacture of tanks, planes, and other weapons used by the Allies to fight the Nazis. The DPC helped add 50% to the country's manufacturing capacity by the war's end, according to Hyman. In 1940 it was responsible for 25% of the nation's entire gross domestic product. Hyman noted that it remade the U.S. aerospace and electronics industries, turning them into some of the largest sectors in the economy.

Half a century later, most Americans have forgotten all that these public-private partnerships accomplished—to such an extent that there is political hay to be made by demonizing government programs of any kind. We've lived off their fruits while failing to establish new programs. This void has led to a list of structural issues: underemployment, an increasing wage gap, a lack of household savings, and a looming retirement crisis.

By the time the Great Recession arrived in the late aughts, Congress resisted the idea of a big stimulus plan. That was, until Federal Reserve Chairman Ben Bernanke informed them the nation was "days away from a complete meltdown of our financial system," as then-Senator Christopher Dodd later recounted. Even then, lawmakers didn't do all that much, passing the $700 billion Troubled Asset Relief Program, which was later reduced to $431 billion, and the American Recovery and Reinvestment Act of 2009, a $787 billion plan that included short-term benefit extensions and tax cuts.

While Congress dithered, the response of the U.S. central bank was unprecedented. The Fed fashioned dozens of programs to put $4 trillion into credit markets. This helped to unfreeze credit markets and allowed bank lending to occur. The Great Depression had FDR; the Great Recession had Ben Bernanke.

His actions were effective in a narrow sense: He saved the finance sector. The Fed's zero-interest-rate policy stopped 2/28 adjustable-rate mortgages—loans with teaser rates that shot higher after 24 months—from resetting, which prevented defaults. This gave banks time to gradually improve their balance sheets, but it planted seeds that led to a variety of unintended consequences.

Saving the banks turned out to be a boon to property owners, homebuilders, and the private equity funds that were investing in distressed real estate, who saw their holdings quickly recover their value. But those who didn't own homes, including many people who'd lost them to foreclosure, were turned into renters.

An FHA poster from the early 1940s. The Federal Housing Administration created insurance for pools of mortgages, which led to a resurgence of financing for home purchases after the Great Depression.

SOURCE: NARA

Investors did well, of course. If you still owned stock in March 2009, when the market hit its lowest point—or better yet, if you had enough capital to buy more stock—your risk-taking was richly rewarded. From those lows, the S&P 500 tripled over the next few years. Even with the recent post-Covid correction, the index is still worth four times what it was in 2009.

Most Americans don't own much in stocks. In a 2017 study, Edward Wolff, a professor at New York University and researcher at the National Bureau of Economic Research, found that the wealthiest 10% of U.S. households owned 84% of all stocks. During the recovery, the wealthiest segments of society got wealthier. I should disclose that I benefited from it personally, too. My firm, Ritholtz Wealth Management, manages more than a billion dollars in stocks and bonds. Our clients did well in part because their portfolios have benefited dramatically from rising prices. The Fed deserves credit for some of that increase in asset values.

Another enormous windfall went to those employees who had lots of company stock options. From October 2007 to March 2009, the S&P 500 fell 56%. Many companies, including Apple, Starbucks, and Google, allowed their employees to trade in worthless stock options for new ones with much lower strike prices in 2009. The biggest beneficiaries were the executives who held the lion's share of issued options. As the market and the economy recovered thanks in part to the Fed's monetary efforts, these options became deep in the money. Tens of millions of dollars in risk-free profit were created for some already wealthy people.

While the financial sector recovered, Congress did little to help the rest of the economy. In the past, when household and private-sector demand collapsed, the government stepped in to replace it by spending more and cutting taxes. For reasons people still debate—ideology? deficit concerns? partisanship?—the fiscal response in 2009 was sorely lacking.

As people began to find new jobs, they were often worse than the ones they'd lost during the crisis—with lower wages and fewer (if any) benefits. Without a substantial fiscal stimulus, the good middle-class jobs associated with large public works projects or civil service employment never materialized. Gains from the economic recovery never "trickled down" to the working classes.

The 2020 economic rescue has skimmed from the responses to both the Great Depression and the Great Recession. But so far it's been heavily slanted toward the latter approach, as the Fed has slashed interest rates to zero and committed more than $2 trillion to keep rates low and credit markets liquid. The $2 trillion CARES Act aims to replace income and spending for those 92% of Americans under shelter-in-place orders until the crisis passes. Most of that CARES money will replace lost wages for employees of small and midsize businesses for a short while; the rest will cover lost revenue for a few larger businesses. There's also money going to states, cities, and hospitals.

The response has been more substantial than what the government did during the 2008-09 crisis. But it's still nowhere near enough.

We should be using RFC-like partnerships to build technological platforms and infrastructure for the future. The list of potential areas is long—but here are a few ideas:

① Climate remediation

Nine of the 10 warmest years in recorded history have occurred since 2005. What's been missing from the attempts to address global warming has been a comprehensive search for a huge technological solution to remove carbon dioxide from the atmosphere, or perhaps a series of smaller ones that cumulatively have a substantial impact. Accelerating this process could have implications for avoiding what might very likely be humanity's next great crisis.

② Sustainable energy

One reason for modest hope in the looming climate crisis has been incremental improvements in the efficiency of wind and solar energy, along with battery storage improvements. What we need to make this energy technology much more efficient would be a Manhattan Project of sorts, aiming for fundamental breakthroughs in both the science and the technology. The resulting cheap, abundant energy would help reduce future carbon emissions and pollution—and lower costs for energy-intensive businesses.

③ Infrastructure

The U.S. once had the world's leading roads, airports, and electrical grids. We have foolishly allowed these to fall into disrepair and decay. This lowers the quality of life, hurts economic growth, and puts America at a disadvantage to rising powers in Asia. The solution is to create a Reconstruction Infrastructure Corp. to prioritize projects for repair and rebuilding. Fund it with 50- to 100-year bonds issued at 2%. Infrastructure is more than a make-work program; it's the platform that allows businesses to operate efficiently.

④ Smart roads

Speaking of platforms, it's only a matter of time before self-driving cars are here. Greater traffic capacity, faster commutes, and reduced automobile fatalities will be the happy result. But whether this happens in a few years or, more pessimistically, a few decades is unclear. What would speed things along would be a uniform set of radio-frequency devices built into roads and vehicles to allow safe navigation regardless of weather or traffic conditions. A public-private partnership could (among other things) create a set of standards that allows different vehicle manufacturers to interact safely on the open road.

⑤ Digitized health care

How is it possible that in 2020 the flow of health-care information has yet to become seamless and universal? How is this crucial sector still operating as if it were the 19th century? Prior government attempts to address this issue have been too modest. Instead, combine the government's efforts with the health-care initiative created by Warren Buffett, Jamie Dimon, and Jeff Bezos—and create a bold, comprehensive experiment.

⑥ Asteroid mining

This isn't merely something out of science fiction. Serious technologists believe we could launch a fleet of unmanned ships to mine valuable minerals. I understand that some want to go to Mars. I say aim farther, all the way to the asteroid belt, with its vast riches of industrial metals, nickel, cobalt, and likely gold and platinum.

In all of those examples, the journey is the reward. Landing a man on the moon was a triumph of ingenuity, but the economic benefits came from the technology that the Apollo program developed. Integrated circuits, fireproof materials, water purification, freeze-dried food, polymer fabrics, cordless tools—the list is so long that we take it for granted. We need to update President Kennedy's challenge, not for the national glory, but for the societywide economic benefits.

Buzz Aldrin walks on the moon during the Apollo 11 mission in 1969.

SOURCE: NASA

Some will say what I'm arguing for here would be a departure from 21st century U.S. political and economic realities. But as entrepreneur and author Bhu Srinivasan points out in Americana: A 400-Year History of American Capitalism, Uncle Sam has successfully partnered with the private sector throughout our history, creating exclusive monopolies through patent protections and municipal bonds, among many other innovations. Or, to quote the venture capitalist William Janeway, the U.S. innovation economy has always been "sponsored by the state and funded by speculation."

It sometimes takes a crisis to get past the usual partisan wrangling in Congress. Right now there's a rare willingness to try more short-term stimulus. But the lesson of the past two centuries is that to benefit the U.S. population, the government needs to enact a long-lasting fiscal stimulus—a new NASA, not just an extra few hundred dollars to get us through the next few months.

Grover Norquist once said his goal for government was "to get it down to the size where we can drown it in the bathtub." It's a great punchline, right up until you need the government to fight the Nazis—or to control a global pandemic that threatens to kill millions and destroy the economy.

Time will tell if this White House and Congress are up to this enormous task. The public gets to grade the response and rescue plan in about six months—on Nov. 3.

This is no time for thinking small. America, confronted with the biggest crises, has always stepped up. We face yet another historic crisis. Once again it is time for America to go big.

Barry Ritholtz is a Bloomberg Opinion columnist and the author of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy. He is the founder of Ritholtz Wealth Management.

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