Tag Archives: markets

Simplified So What

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Oversimplified, really, and beginning with the time frames I use below.

Let’s say the Wuhan Virus situation and the associated stay-at-home moves the several States apply—particularly the latter—lead to a drop in our GDP of 30% (a drop I pulled out of rectal storage and that is a drop being bandied about as the economic cost of Germany’s and the EU’s moves in response to their Wuhan Virus situation).

Let’s say further, that the stay-at-home response lasts for one month and for two months. What’s the so what for these alternatives?

A 30% drop in GDP means that our total national output of goods and services—the aggregation of us individual citizens’ spending and earning along with those of our businesses—would drop by 30%.  Keep in mind, too, that private spending accounts for roughly 70% of our GDP.

Were the stay-at-home policy to last one month, and then we’re back on the streets and at work, that 30% drop—the vacation trips we didn’t take; the cars we didn’t buy; the groceries we didn’t buy; the rent or mortgage payments we didn’t make; the jobs we didn’t work, the products our employers didn’t produce; the income the banks, dealerships, and travel facilities didn’t take in—all of these would hurt, a lot, but these are things all of us can last through.  That includes the businesses that employ us so we have jobs to go back to, earning income to spend and save, and the businesses can start getting their own income stream going again.

This won’t happen all at once; the recovery will ripple. We spend and businesses reemploy so we have income to spend. That initial pairing is the key; both have to happen roughly together at the outset, and so they will happen only with what I’ll call the primary pairing: goods and services that we as individuals must have to survive: groceries, fuel for our transportation to get to the stores and our jobs; and that our “primary” businesses need: our rent/mortgage payments, income from our necessities buying.

As those get going again (grocers, for instance, are on bare bones manning during the present situation), farmers and other food producers can produce, food processors can process, other necessities producers and processors can get going again and so hire again—and reemployment and income production, and spending, expands.  Probably pretty quickly, too, as actual income won’t be needed universally to feed this growth: we’re a debt-driven economy, and (nearly) everyone’s credit will still be good.

The problem arises if the broad-based stay-at-home reaction lasts for two months. Aside from that resulting in an additional 30% drop in GDP—in our spending and earning along with those of our businesses—it would result in a more critical outcome: bankruptcy and businesses disappearing.

The most vulnerable are tiny-margin businesses—grocers, for instance—and the mom-and-pop and other small businesses, entities that have the bulk of our nation’s jobs. These businesses, aside from the thin profit margins on which they inherently operate, also operate on thin lines of credit. And us individuals operate on thin savings.

Two months may be longer than we—especially those businesses—can last. The businesses, in widespread fashion, are likely to go bankrupt and associated jobs disappear.  That breaks that essential first-step pairing of our spending and our returning to our jobs to earn income to spend (and save).

That’s a much harder state from which to restart our economy, and that likely would take much vaster Government intervention to effect. And that’s something we don’t want to have happen.

Some Perspective

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Keeping in mind that we’re early; the stock market isn’t the underlying economy, just linked to it; and there’s room to fall further.

And keeping in mind that the Wuhan Virus situation will abate in the not too distant future, and the economy will rebound strongly, and so will that linked stock market.

A buying opportunity is developing, but paraphrasing Rothschild, there’s no blood in the streets yet.

What Are They Going to Do?

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Cut us off?

The chairman of Huawei Technologies Co warned the US to expect countermeasures from the Chinese government if it further restricts the technology giant’s access to suppliers….
Eric Xu, Huawei’s chairman, said he believes Beijing would respond with restrictions of its own on American companies operating in China if the US.

In addition to the draconian restrictions already inflicted on American companies—and other nations’ companies—operating in the People’s Republic of China. These restrictions include demands for government-controlled backdoors into companies’ operating software and transfer of companies’ technologies to domestic partner companies—which are required for most foreign companies in order to operate in the PRC.

With the PRC’s threat to cut us off from needed medicines, intermediate medical chemicals, and medical equipment, and the PRC’s recent attempt to restrict access to rare earth elements, it’s become clear that our manufacturers—and Europe’s, come to that—need to revamp their supply chains to vastly reduce their dependence on PRC intermediaries and suppliers, if not eliminate that dependency altogether.

Xu’s threat only emphasizes that need.

Progressive-Democrats and the Law

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And contracts.  Since the SARS epidemic of some years ago, insurers have declined to cover losses related to virus or bacteria damage, and they wrote their policies to that effect. State regulators—who controlled and still control the structure of insurance policies and the premiums allowed to be charged for those policies outside Obamacare—agreed.

However.

New Jersey Assemblyman Roy Freiman, a Democrat, introduced a bill that would retroactively rewrite interruption coverage contracts and force insurers to foot some losses for any policyholder with fewer than 100 full-time employees.

Contracts be damned. They don’t fit the Progressive-Democrat agenda, so by Progressive-Democrat-run Government fiat, they must be tossed.

Here’s the kicker, though.

Mr Freiman says he doesn’t know if he has the legal authority to do this, but he says he doesn’t care.

The law be damned too—it’s in the Progressive-Democrat’s way. Don’t get enough of his fellows in the legislature to agree with him and change the law. Don’t get actual voters to agree with him and so get legislators to stand with him to change the law.

No. The Progressive-Democrat already Knows Better; everyone should just get out of his way so he can toss the law without any silly delays from the ignorant unwashed.

FDA’s Drug Approvals

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Charles Hooper and David Henderson are on the right track.

The Federal government requires pharmaceutical companies to prove that their drugs are both safe and effective before putting them on the market. Before 1962, companies needed to prove only safety. While there is some appeal to this two-hurdle approach, evidence suggests that there is only a slight benefit and a tremendous cost. With the COVID-19 pandemic sweeping the world, there has never been a better time to revoke the Food and Drug Administration’s efficacy requirement.

I suggest the FDA move to a two-stage approval process. The first stage should focus on safety: does the drug do no harm, at least compared with the condition it’s aimed at treating (because all drugs have side effects).  Once it’s determined the drug is safe, it should be released to the market, limited strictly to on-label use. Let prescribing doctors and patients determine whether the drug is useful, let market forces do their trick. The FDA’s imprimatur for this stage, should be limited to “safe as prescribed, not determined to be effective.”

The second stage should proceed without delay, overlapping the first stage to the extent feasible; in this stage, investigative focus should be on efficacy—does the drug actually have the effect on its target condition that’s intended. Only after the trials associated with this stage have been successfully completed could the drug receive its full-up FDA stamp of approval—and authorization for use, under prescription, off-label.

This modification to the pre-1962 requirement would cheapen development, and it would provide more drugs of greater utility faster to market and to the doctors and patients who use them.