Unsanitized: A Few Weeks to Stop a Depression

Plus, pandemic profiteering from meatpackers. This is The COVID-19 Daily Report for May 26, 2020.

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First Response

We’re back from a holiday weekend but the Senate is still out of session, having left Washington without acting on more economic aid. The official line from Republicans is that it’s time to see how previous efforts work before considering more. And anyway, the economy’s opening back up, maybe it won’t need federal support.

This is a dangerously wrong attitude, especially because of the realities of the political calendar. Decisions will be made in the next few weeks that will put the nation on a direct path to depression without Congressional intervention.

That’s because the fiscal year for many states begins on July 1, and budgets must be adopted between now and then. California has a June 15 deadline for how to fill its giant budget hole, which could be as much as $54 billion. Other states scheduled to adopt a budget within this period include Colorado, Delaware, Georgia, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Wisconsin.

Read all of our Unsanitized reports

Nevada, like many states, has a biennial budget process, will need a special session to cover shortfalls for this and the next fiscal years. The hole is about $1 billion for this year, and more starting July 1. Ohio has a similar-sized problem. Oregon expects a $3 billion dip in revenues for its two-year budget. New Jersey moved its budget deadline from July 1 to September 1, but has already planned on $1.3 billion in cuts, just a down payment on dealing with revenue losses of $10 billion. The budget just to get to September “includes potentially laying off educators, firefighters, police, EMS, health care workers,” Governor Phil Murphy told CNN.

Similar carnage is everywhere. North Carolina expects a $4.2 billion shortfall. There are $3 to $4 billion in cuts needed in Georgia. It could be more than $10 billion in Florida. Indiana has asked for a 15 percent cut for most agencies for the next fiscal year, which also begins July 1. Texas has started with a proposed 5 percent cut. Pennsylvania is concerned that an extension to tax filing delays revenue from 2019 filers until after the budget deadline, making forecasting impossible.

There will be gimmicks that attempt to make things more palatable. Over the weekend, Illinois approved a budget that requires $5 billion in borrowing from the Federal Reserve’s Municipal Liquidity Facility, something the Fed doesn’t even have up and running yet, to make it work. But the only way that gets paid back is with federal aid. Not all states will rely on this hope, though many could have a trigger where federal assistance could fill in some of the blanks.

Once July 1 rolls around many of the worst-case scenarios will have to roll out, and decisions have to be made before that. Nearly all state and local cuts translate into job losses, reductions in income from furlough days, or loss of services and financial aid to residents. And of course, this is just the state spending; local cuts are already upon us, with more to come.

This could create a spiraling effect, where less revenue means more cuts and then reduced purchasing power, leading to less revenue. This dynamic creates as much as $2 in economic losses for every dollar in cuts. And these decisions will be mostly locked in by July 1. Illinois’ machinations notwithstanding, in general states and cities cannot leave budget deficits. Maybe every state figures out how to borrow and paper over the enormous hole. It’s unlikely all of them will rely on wishes and hopes; either Congress comes in with funding or the cuts go through.

As the Wall Street Journal reports today, cuts from the Great Recession at the state and local level, which were callously neglected by Congress, led to drops in spending and employment that just got fully reversed last fall. State and local government spending alone is 11 percent of GDP, responsible for over 12 percent of the U.S. workforce. These aren’t far-off cuts to this sector; the decisions will be made in the next month or so. There’s no question that allowing them to go forward will lead to something approaching a depression, combined with other losses.

Therefore Congress doesn’t have time to see what will happen with the economy. If they don’t backstop state and local spending we will have a depression. Period. Maybe it’ll be a short depression, or a protracted one where the lead weight of government spending cutbacks prevents recovery. But we will have one. And we have a few weeks to avert it.

Odds and Sods

Next Tuesday I am moderating a panel in conjunction with the Open Markets Institute, United for Respect, and Change to Win about the assembly of a pro-worker, anti-monopoly movement. The pandemic has created a path to more domination of the economy by a handful of firms—just look at the winners and losers in retail—making this discussion more important than ever. We will have Sandeep Vaheesan of the Open Markets Institute, Andrea Dehlendorf from United for Respect, Brian Callaci with Data & Society, and Emma Rebhorn from Change to Win. Should be a great event. It’s Tuesday, June 2 at 3pm ET, and you can RSVP here.

Today on the site, we have Brittany Gibson’s feature from the magazine on voting rights and the pandemic, and how the decentralized election system will now have to incorporate, in its usual unbalanced way, the threats to a safe and secure balloting system with full participation.

All of our coronavirus coverage can be found at prospect.org/coronavirus. And email me with tips, comments, and experiences.

Farmers and Consumers Have a Beef

In my backyard here in Los Angeles, nine more meatpacking plants have experienced outbreaks from the COVID-19 crisis, including the plant that makes Dodger Dogs. The current system of meatpacking, and the current plant ownership, simply does not produce food in a way that’s safe to its workers. (The Dodger Dog plant still isn’t shut down, despite 153 known infections.) The latest numbers show more than 7,000 cases throughout the industry; the Food and Environment Reporting Network statistics show double that.

This creates an interesting market phenomenon. There’s too much livestock for the remaining open plants to handle, driving down prices for cattle and hogs. But with less meat on store shelves, prices paid by consumers are higher than ever. It’s natural to wonder whether the meatpacker middlemen getting animals at a discount and selling meat at a premium are enjoying windfall profits. And the Department of Agriculture is investigating that too.

Four large companies (Tyson, JBS, National Beef, and Cargill) control 85 percent of the beef market, and their plants are sufficiently spread out that cattle ranchers frequently have only one choice. This in itself is market manipulation. The dynamic of ranchers wanting to unload beef and yet reduced product on store shelves may be perfectly consistent market outcomes, but they only exist because of the concentrated bottlenecks at the meatpacking level.

Forty years ago we didn’t have this kind of concentration; now the industry is more consolidated than it was during the time of Upton Sinclair’s The Jungle. The pandemic is responsible for this extreme anomaly, but the dynamic of low prices for cattle and high prices for beef predates any virus; ranchers filed a price fixing lawsuit against the Big Four last year. Most of the industry has virtually eliminated the cash market, giving the packers significant leverage over ranchers. It opens the system up to deception, and the Big Four took the opportunity, the suit alleges, colluding with one another to withdraw from cash markets and drive down the price.

If you break up the industry, there’s more incentive to capture supply, and more incentive to create more plants with safer conditions that can produce that supply. Agriculture since the pandemic and even before has provided the clearest example of our broken, corporate-dominated markets and the need to restore them.

Today I Learned

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