◼ ECONOMICS Bloomberg Businessweek May 4, 2020
29and other income by lifting limits on the deduc-
tion of business losses in 2020 and the previous
two years—even those that had nothing to do with
the coronavirus. “They’re moving taxpayer money
to companies who weren’t making money before
the crisis,” says Reed College economics professor
Kimberly Clausing. “That seems very odd.”
The Paycheck Protection Program for small
businesses is also facing criticism. Besides the
well-chronicled bottlenecks in disbursing the
funds, Bloomberg along with other media have
documentedinstancesofhedgefundsandpri-
vateequityfirmsseekingtotapthefunds.“I’ma
little bemused, puzzled, and somewhat outraged, I
guess, that private equity would be pushing to the
front of the line to try to get taxpayer assistance,”
hedge fund investor Jim Chanos said in an April 9
interview on Bloomberg Television.
Even if bailouts are administered in ways that
don’t do the wealthy and powerful special favors,
smallbusinessesandindividualworkersareinev-
itablymorevulnerabletoanextendedshutdown
thanlargecompanies,whichcankeepoperating by
turning to the capital markets, refinancing loans, or
declaring bankruptcy. “We’re going to see house-
holds going into debt very fast,” University of
California at Berkeley sociologist Neil Fligstein says.
So far it sounds like a replay of the 2008 finan-
cial crisis, right? It doesn’t have to be. Governments
could make choices that might prevent the income
gap from widening even more—and indeed could
cause it to narrow.
Even before the pandemic, Americans had
been engaged in a conversation about whether the
wealthy and giant corporations pay their fair share
of taxes. Democrats running for president largely
agreed on the need to close loopholes and raise
rates on millionaires. Bernie Sanders and Elizabeth
Warren went further with plans to directly tax bil-
lionaires’ wealth. These soak-the-rich proposals
may find new impetus once the nation begins to
grapple with the trillions of dollars in government
debt created fighting the coronavirus.
If policy moves in that direction, the pandemic
may play out less like a financial crisis and more
like a war. It’s generally bad news for the super-
wealthy when an entire economy mobilizes for
war: The U.S.’s first income tax was imposed in the
Civil War, and the top tax rate hit 77% during World
War I and 94% in World War II.
If higher taxes don’t dent inequality, something
less predictable might. What some have chris-
tened the Lockdown Recession has highlighted
the risks inherent in today’s world-spanning sup-
ply chains. Globalization has given the upper hand
THE BOTTOM LINE Inequality in the U.S. was already at a record
before the outbreak. If this is a replay of the financial crisis, it will
get worse. But if America stays on a war footing, it could improve.tocorporatemanagersanderodedthebargaining
power of workers. What happens to labor dynam-
ics if companies, prodded by governments, begin
reversing decades of offshoring and start moving
production closer to home?
It may take years if not decades to discern
whether the virus started a new chapter in our
economic history. University of California at Davis
researchers recently studied 12 pandemics that
each killed more than 100,000 people since the
14th century. They found that the economic effects
linger about 40 years after the last victim dies.
One pathogen hitting two different places can
have very different long-term effects, according to
research by Guido Alfani, an economic historian
at Bocconi University in Milan. A determining fac-
tor is how leaders react. In places where the 1918
flu pandemic was mishandled and death rates
soared, Alfani found evidence of “permanent neg-
ative effects on interpersonal trust” that plagued
those societies for decades. That’s why “national
governments should make every possible effort
to contain the pandemic,” he says, “and also why
national politicians should seek cooperation instead
of confrontation.”
A lot depends on the outcome of the 2020 elec-
tion, says Reed College’s Clausing. “It all comes
down to how the polity responds to this crisis,”
she says. “If they change course, I think the policy
changes will be really dramatic. But I also could
imagine things don’t go that way, and we limp
along and things get worse and more polarizing.”
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