March 13, 2019
Our policy makers in Washington are unable to stem the tide. But corporations as well as state and local governments are making changes that are sure to bring this virus under control in a relatively short period of time. We continue to believe that the corona virus will have a sharp but relatively short-lived impact on the economy.
The president’s response has been inept. Different people in the administration say different things. Trump has contradicted his medical advisers. While he has suggested things that could provide some economic stimulus, he has had little to say about ways to contain the virus other than his 30-day ban on travel by Europeans to the United States. His action has not restored confidence. The Dow fell 2,300 points the day after his speech.
The Fed did not fare much better. In a surprise move it cut rates by 0.5% point between meetings. It tried to send a message that it stood ready to do whatever it takes to ensure that the economy would not go into a prolonged tailspin. But the markets quickly concluded that lower interest rates would not halt a rapidly spreading virus and the Dow fell 800 points that day. The Fed meets again next week. It will probably cut rates by another 0.5%. But that move seems unlikely to fare any better.
This is all very disquieting. People are fearful about the virus, but they are even more concerned that our leaders in Washington are not up to the task of devising a coherent strategy to solve the problem. Republicans and Democrats should suspend their differences and, for the good of the country, find ways to restore confidence. That is not happening.
Compare what is happening in Washington with how China handled the problem. The corona virus got started in that country in late December and it will almost certainly be hit harder than any other country in the world. President Xi Jinping sealed off Wuhan and other cities in the region. Nobody got in. Nobody got out. It seemed to be a draconian response — but it worked. In mid-February the number of active cases of the virus in China peaked at 58,000. It has since fallen to 15,000. While the Chinese economy will take a big hit in the short-term, the reality is that it was able to bring the virus under control in two months.
U.S. health officials say they do not know how long this virus might last and that it might not necessarily stop at the end of the flu season. They are being disingenuous. In two months China got the virus under control by adopting aggressive containment measures. Is the rest of the world incapable of learning from that experience? Of course not. But are other countries willing to do what is required to make that happen? We think they are — whether they want to or not. The markets are demanding a vigorous response.
The good news is that while Washington bumbles, corporate America as well as state and local governments are acting quickly to contain the virus. Where possible, companies are encouraging their employees to work from home. Non-essential corporate travel has been halted.
The NBA, the NHL and Major League baseball have postponed their seasons. The Indian Wells Tennis Tournament has been canceled. Ditto for the Volvo Car Open in Charleston, S.C. Every upcoming sporting event in America is likely to be postponed or canceled
Ohio and Maryland schools are closed for two weeks. The large urban school districts of Seattle and San Francisco are also closed. More cities and states are sure to follow.
Many of these companies, organizations, and state and local governments are doing so because they are genuinely concerned about the health of their employees and their customers. We applaud them. But there is another, unsaid reason for action. The threat of lawsuits.
For any event organizer there is a significant risk that if they hold the event and somebody contracts the virus, they are going to get sued — which is exactly what happened to Princess Cruises over its alleged “lackadaisical” response to the corona virus aboard its Grand Princess cruise ship.
The threat of litigation must send shudders through every business in America. The travel, hotel and restaurant industries are particularly exposed as are shop owners. Every school district and organization is equally vulnerable.
Washington has fumbled its opportunity to lead a coordinated response. But the business community as well as state and local governments throughout the country are doing things that are going to help. They may have been forced to act, but by doing so they are going to short-circuit the spread of this virus.
While the markets are still in disarray do not despair, the end is not too far distant. We remain convinced that this will be a sharp, but relatively short-lived event with a vigorous recovery in the cards once the virus has run its course. We know that because the Chinese have shown us how to do it.
Because this virus started in China it is easy to cast blame. Let’s not go there. Fix the health care issues in China later. Right now let’s be thankful that they have found a way to control the spread of this virus which can be a role model for other countries to follow.
Continue to breathe! This, too, shall pass.