The Catch-22 of Debt, Youth Supports Lockdown, & China's New Beef with Aussies

Demography Unplugged with Neil Howe

In this latest issue of my weekly podcast, we talk about the "no-win" argument against containment. In Sweden and some parts of the US (including the White House), politicians are arguing that containment as a strategy offers no advantage. They say that the same number of people will die with containment as they would pursuing herd immunity, but meanwhile containment destroys the economy. This argument misses success stories like Taiwan, South Korea, New Zealand, and Australia--all countries that have embraced "suppress and lift." They have suppressed. And now they are lifting.

The young favor stay-at-home orders. Last week, we saw that a large majority of Americans support lockdown. This week we have the data by age, thanks to a Yahoo/YouGov poll. Of those under 30, 69% would favor a national stay-at-home order, while only 48% of those over 65 say it should be up to state discretion. In general, Millennials are more supportive of strict lockdown measures. Which may seem paradoxical, since the young are much less at risk of dying and much more at risk of unemployment.

Skyrocketing debt is a catch-22 situation. The CBO now projects that the federal budget deficit in FY2020 will clock in at 17.9% of GDP. Is this an issue? If interest rates remain close to zero, even massive debt is painless. But interest rates can only stay at zero indefinitely in an economy that never grows again.Yes, servicing or paying back this massive new indebtedness at positive interest rates will be a challenge. But my biggest fear is the possibility that the long-term new normal means zero interest forever. In which case, we may not have to worry about debt... but we will certainly have to worry about the survival of capitalism.

Economic indicators were again negative. The Non Farm Payroll for April was -20.5 million jobs, its biggest drop on record. The unemployment rate came in at 14.7% for April, while the U6 rate was closer to 23%. The employed share of the population fell further, from 61% to 51%. (The lowest it got in 2010 was 58%.) The NFIB Small Business Optimism Index came in at 90.9 for April, above expectations of 80. In China, the Caixin Services PMI came in at 44.4 for April, marking three straight months of contraction.

Around the world, political tensions are high. In France, Macron faces a possible break up of his en Marche party. 58 members in parliament have threatened to break away to create a new party. In El Salvador, Nayib Bukele, the 38-year-old president, is using COVID to become the new face of authoritarianism. He is ignoring courts and storming the legislative assembly with armed soldiers. And China has banned Australian beef imports in retaliation against Australia's push for a WHO investigation into COVID19's origin. The west and China are now facing deteriorating relations over the spread of the virus.
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