Power & Market

June begins and we are now two months past the dark days of the Great Lockdown, when the Dow closed at 18,592 points on March 23. Despite having no duty to protect the stock market, investor’s prayers were answered when the Fed announced one of the greatest anticapitalist interventions the nation has ever seen. The extensive new measures to support the economy promised a vast array of credit facilities to “support households and businesses” by supporting “the flow of credit” in times of crisis.

Let’s see how the central bankers have saved the economy since:

The Fed now has $106.9 billion in loans (assets) on its balance sheet, a number that was only $1 million, or virtually nil for a central bank as of March 1. Of this $106 billion, $49.2 billion is from the Paycheck Protection Program (PPP) Liquid Facility and $34.9 billion from the Corporate Credit Facility LLC (CCF LLC) used to buy corporate bonds and exchange-traded funds (ETFs).

The remaining loans on the balance are for other expensive anti–free market facilities, but they are lesser known, because “Main Street” doesn’t directly partake in them (i.e., Primary Credit, Primary Dealer Credit Facility, Money Market Mutual Fund Liquid Facility, and the Commercial Paper Funding Facility II LLC).

Also recall that the Main Street Lending Program, the Municipal Lending Facility, and the Term Asset-Backed Securities Loan programs still have yet to open. The Financial Times cited a calculation made by TD Securities regarding the lending facilities:

That is still less than 4 per cent of the at least $2.6tn the central bank has said it would make available across an unprecedented range of asset classes.

So despite the small uptake of Fed loan programs, the balance sheet has nearly doubled over the last two months reaching a new high of $7.097 trillion. This is due to the Fed’s near doubling of Treasury holdings since March, currently at $4.110 trillion and an increase in mortgage-backed securities (MBS) purchases by approximately $500 billion, currently at $1.835 trillion.

The numbers are so large that they become difficult to fathom. However, we can try to predict what the Fed will say at the conclusion of next week’s committee meeting. Keep in mind that we don’t have many “good outcomes” to hope for so much as less painful ones.

Starting with the good: maybe the Fed calls the crisis over and it begins to curtail or even stop making loans and asset purchases. If the economy is reopening, consumers are feeling confident, and liquidity concerns have been met, then perhaps there will be little need to keep expanding the balance sheet.

The bad: the Fed could say the crisis is nearing an end and may choose to keep providing stimulus until it maxes out its trillion-dollar facilities. In order to do this, they will need to convince us that the crisis is not yet over but that it will be if only a little more liquidity is injected into the economy.

The ugly: This would be the worst of all scenarios. It’s possible that regardless of whether the crisis is over or not the Fed will find reasons to continually make Treasury and MBS purchases, and even extend the loan programs into perpetuity, justifying it using nothing more than fear tactics and Fedspeak.

If this is the case, and we hope it’s not, then the March 23 announcement may have started a new era of central banking for developed economies—one in which the balance sheet and money supply become set on a parabolic trajectory with no chance of ever coming down. Some may say it’s a crisis due to the virus, liquidity, solvency, consumer confidence, or consumer spending, but does it really make a difference?

No matter the crisis, we could bet the answer will always be the same and that perpetual quantitative easing was always on the agenda. Maybe this isn’t anything terribly new after all? Perhaps it was nothing but the natural progression of a “central plan” that advances whenever the next crisis appears? If the last crisis was mortgages, this one is loans and bonds. When the next one is stocks, will anyone be surprised?

Donald Trump's executive order issued earlier this week purports to prevent online censorship by effectively instructing federal agencies to reinterpret the Communications Decency Act of 1996 (CDA). In particular, Trump has a well-founded complaint with the infamous section 230 of the CDA, which grants tech companies a certain level of immunity from various civil lawsuits, including defamation lawsuits. By doing so, section 230 not only attempts to preempt state law to the contrary—federal preemption is almost always bad— but also creates a class of actors that enjoys the status of a neutral platform or common carrier but exercises editorial discretion.

Remember, in 1996 social media did not exist. Search engines like Alta Vista and Netscape were rudimentary; most people still typed site addresses into their browsers. The CDA was aimed primarily at internet service providers such as AOL, which Congress ostensibly wanted to shield from any liability for the actions, communications, or content of users. After all, when two individuals engage in a criminal conspiracy by phone prosecutors don't indict the cellular network provider. The CDA made sense in an era when the internet was in its infancy.

But fast-forward twenty-five years, and social media companies have been thrust into the role of "community standards" police. Search engines, particularly Google, are the gatekeepers and curators of the information we consume. These tech companies now appoint themselves arbiters of truth and propriety, and not only with regard to politics and campaigns. Hate speech and harassment, both ambiguous and ever shifting, are grounds for removal or suspension from platforms. Unorthodox or politically incorrect views on scientific issues surrounding global warming, vaccines, and COVID-19 are regulated by invisible algorithms or unaccountable employees of tech companies. "Bad" websites and blogs disappear from search results, or are buried so deep as to become invisible. 

By any measure, these actions by technology companies—banning, suspending, shadow banning, and demonetizing—are based on the content involved or the identity of the user. In both cases, editorial judgment is applied. This is inescapable. So to the extent that the CDA immunizes editorial decision-makers or their tech company employers against liability for damages from lawsuits otherwise recognized by state law or common law, libertarians have every reason to object. But as with most cases of favoritism in law, the answer is repeal of special privileges rather than more legislation. 

A few additional summary comments:

• Executive orders are inherently suspect and generally bad, not simply because of (at this point laughable) constitutional concerns, but because they establish another layer of de facto "laws" for which you and I have little legal recourse. If the CDA needs amending, let Congress do it. Better yet, scrap it.
• Yes, Facebook, Google, Twitter, Amazon et al. are private companies, despite their deep entanglements (including contracts) with the federal government. Virtually every industry and every large company is in bed with Uncle Sam, from subsidies and lobbying to protectionist legislation. If we allow such entanglements to justify even deeper levels of regulation, we only further erode what ought to be a bright-line distinction between private sector and state.
• Yes, these companies have deeply illiberal biases, and even outright illiberal agendas, from a libertarian perspective.  
• No, private companies are not required to give you or anyone else access to their platforms.
• No, the First Amendment does not apply to private companies.
• "Fact checking" is inherently and inescapably political. Who are the disinterested angels charged with performing  these checks? Which facts are checked, and whose facts are checked? What about half-truths and distortions, as opposed to outright falsehoods? 
• We are all "media" in an age of instantaneous social sharing platforms and camera phones. The First Amendment did not create or contemplate a special class of institutional press that enjoys enhanced protections from government. Kids on bikes have as much right to "cover" the situation in Minneapolis as CNN, and your Facebook posts deserve the same protections as Wolf Blizter's nightly show.

What to do, then? Peter Klein lays out one path forward:

• Repeal the CDA. 
• Enforce contractual agreements between platforms and users.
• Avoid all attempts at viewpoint neutrality regulation.
• Remove government-created entry barriers for new entrants (including the CDA). 
• Don't treat information as property (e.g., don't act as if users "own" "their data" and enforce regulations on portability).
• Finally, Trump simply should move to Gab or a similar platform. Many of his 85 million followers would follow, and this would do more to "punish" Twitter (and encourage new competitors) than any legal action.

The cost of destroying the economy in the name of saving lives from COVID-19 is becoming increasingly apparent, and the details of just how costly the "lockdown" strategy will be for countless human beings continue to emerge.

In the past, we've examined the long-term cost of unemployment on mental health, physical health, and long-term earnings. In short: unemployment kills.

Stay-at-home orders and other sorts of police-enforced social distancing create conditions that lead to more child abuse, domestic abuse, suicide, drug abuse, and even stress-related death through ailments like heart disease.

Consequently, the shortsighted efforts at locking down entire populations by biologists, epidemiologists, and other "experts"—who apparently have little or no knowledge at all about the physical, social, and psychological effects of wealth destruction on human beings—have set the stage for the impoverishment of millions in the United States alone. (The effects in the developing world will be far worse.)

On Monday, for example, physician Scott W. Atlas and economists John R. Birge, Ralph L. Keeney, and Alexander Lipton noted in The Hill that efforts to brand the downside of shutdowns as purely economic problems gravely misinterpret the reality of wealth destruction. The authors write:

The policies have created the greatest global economic disruption in history, with trillions of dollars of lost economic output. These financial losses have been falsely portrayed as purely economic. To the contrary, using numerous National Institutes of Health Public Access publications, Centers for Disease Control and Prevention (CDC) and Bureau of Labor Statistics data, and various actuarial tables, we calculate that these policies will cause devastating non-economic consequences that will total millions of accumulated years of life lost in the United States, far beyond what the virus itself has caused.

Statistically, every $10 million to $24 million lost in U.S. incomes results in one additional death. One portion of this effect is through unemployment, which leads to an average increase in mortality of at least 60 percent. That translates into 7,200 lives lost per month among the 36 million newly unemployed Americans, over 40 percent of whom are not expected to regain their jobs. In addition, many small business owners are near financial collapse, creating lost wealth that results in mortality increases of 50 percent. With an average estimate of one additional lost life per $17 million income loss, that would translate to 65,000 lives lost in the U.S. for each month because of the economic shutdown.

In addition to lives lost because of lost income, lives also are lost due to delayed or foregone health care imposed by the shutdown and the fear it creates among patients. From personal communications with neurosurgery colleagues, about half of their patients have not appeared for treatment of disease which, left untreated, risks brain hemorrhage, paralysis or death.

Similarly, the New York Post reported yesterday that chemist Michael Levitt has concluded that the lockdowns saved no lives at all:

“I think lockdown saved no lives. I think it may have cost lives,” Levitt, who is not an epidemiologist, told the publication.

“There is no doubt that you can stop an epidemic with lockdown, but it’s a very blunt and very medieval weapon and the epidemic could have been stopped just as effectively with other sensible measures (such as masks and other forms of social distancing),” he added.

Levitt attributed the additional lives lost to other dangers from the fallout of the lockdowns, such as domestic abuse and fewer people seeking health care for ailments other than the virus.

“It will have saved a few road accident lives, things like that, but social damage—domestic abuse, divorces, alcoholism—has been extreme. And then you have those who were not treated for other conditions,” Levitt told the newspaper.

Supporters of lockdowns may be quick to claim that these commentators are not epidemiologists. Yet the epidemiologists—at least the ones at the "official" government offices—have shown little insight in recent months. Their models have consistently been wrong. Nor do the epidemiologists appear to have any idea of the lethality of the COVID-19 virus. After insisting for months that the virus was perhaps more than ten times as deadly as the flu, the CDC has now slashed the fatality rate to a mere fraction of previous estimates. The epidemiologists' only tool has been to order healthy people to stay home, even as demand at food banks triples as families queue in order to avoid starvation.

Now, Anthony Fauci, who in April was insisting that it would be impossible to even relax stay-at-home orders until there is a vaccine or until there are "no new cases, no deaths for a period of time," has totally abandoned this position. Fauci now admits that his "lockdown until vaccine" position would cause irreparable damage:

We can't stay locked down for such a considerable period of time that you might do irreparable damage and have unintended consequences including consequences for health. And it's for that reason why the guidelines are being put forth so that the states and the cities can start to reenter and reopen.

Of course, anyone who deals in interacting with the real world (i.e., not lifelong bureaucrats like Fauci, who needs not exhibit any actual competence to collect his $400,000 paycheck) always understands that preserving and augmenting wealth is key in enhancing health and the quality of life.

Not surprisingly, this has already been seen in the empirical evidence. As M. Harvey Brenner has noted in the International Journal of Epidemiology,

the large and growing literature on unemployment and health is highly consistent in demonstrating elevated morbidity and mortality associated with unemployment and withdrawal from the labour force….Economic growth, cumulatively over at least a decade, is the central factor in mortality rate decline in the US over the 20th century. (emphasis added)

In other words, to reduce mortality, we need to protect the creation and preservation of wealth. Bureaucrats and social democrats may sneer that this puts GDP growth before saving lives, but the reality is that economic growth translates into saving lives. The lockdown advocates may refuse to admit this, but the evidence is abundant.

Governments throughout the world and across the US justified extreme, draconian, undemocratic, and unconstitutional (in most US states) "lockdown" and stay-at-home orders on the grounds that the COVID-19 virus was exceptionally fatal.

In March, the World Health Organization (WHO) was claiming that the fatality rate was a very high 3.4 percent.

Yet as time went on, it became increasingly clear that such high estimates were essentially meaningless because researchers had no idea how many people were actually infected with the disease. Tests were largely being conducted on those with symptoms serious enough to end up in emergency rooms or doctors' offices.

[RELATED: "The Experts Have No Idea How Many COVID-19 Cases There Are" by Ryan McMaken]

By late April, many researchers were publishing new studies showing that the number of people with the disease was actually much higher than was previously thought. Thus, it became clear that the percentage of people with the disease who died from it suddenly became much smaller.

Now, the Centers for Disease Control and Prevention (CDC) has released new estimates suggesting that the real fatality rate is around 0.26 percent.

Specifically, the report concludes that the "symptomatic case fatality ratio" is 0.4 percent. But that's just symptomatic cases. In the same report, the CDC also claims that 35 percent of all cases are asymptomatic.

Or, as the Washington Post reported this week:

The agency offered a "current best estimate" of 0.4 percent. The agency also gave a best estimate that 35 percent of people infected never develop symptoms. Those numbers when put together would produce an infection fatality rate of 0.26, which is lower than many of the estimates produced by scientists and modelers to date."

Of course, not all scientists have been wrong on this. Back in March, Stanford scientist John Ioannidis was much, much closer to the CDC's estimate than the WHO. The Wall Street Journal noted in April:

In a March article for Stat News, Dr. Ioannidis argued that Covid-19 is far less deadly than modelers were assuming. He considered the experience of the Diamond Princess cruise ship, which was quarantined Feb. 4 in Japan. Nine of 700 infected passengers and crew died. Based on the demographics of the ship’s population, Dr. Ioannidis estimated that the U.S. fatality rate could be as low as 0.025% to 0.625% and put the upper bound at 0.05% to 1%—comparable to that of seasonal flu.

Not that this will settle the matter. Proponents of destroying human rights and the rule of law in order to carry out lockdowns will continue to insist that "we didn't know" what the fatality rate was back in March. The lack of evidence, however, didn't stop proponents of lockdowns from implementing policies that destroyed the ability of families to earn a living, and which also created social conditions that caused child abuse and suicides to spike.

But for more sane people, extraordinary claims require extraordinary evidence. Those who have claimed that lockdowns are "the only option" had virtually no evidence at all to support their position. Indeed, such extreme over-the-top measures as the general lockdowns required an extreme level of high-quality, nearly irrefutable evidence that lockdowns would work and were necessary in the face of a disease with an extremely high fatality rate. But the only "data" the prolockdown people could offer was speculation and hyperbolic predictions of bodies piling up in the streets.  But that became politically unimportant. The people who wanted lockdowns had gained the obeisance of powerful people in government institutions and in the media. So actual data, science, or respect for human rights suddenly became meaningless. All that mattered was getting those lockdowns. So the lockdown crowd destroyed the lives of millions in the developed world—and more than a hundred million in the developing world—to satisfy the hunches of a tiny handful of politicians and technocrats.