Harley Bassman: ‘The Pandemic Has Pulled Back The Curtain On The Downside Of Xenophobic Nationalism’

[Editor’s note: The following is from the latest commentary by Harley Bassman. If you’re not familiar with Bassman, he (literally) created the MOVE — more here.]

Excerpted from “Peeking out from the Foxhole”, by Harley Bassman

With textbook precision, the S&P 500 plunged almost 16% from its all-time high before executing a near perfect pirouette after kissing some highly technical chart points; including the geeky 61.8% Fibonacci level (from the 2016 election) and the more common 50% retracement level (from December 2018).

As such, a well-deserved interregnum offers a fine time to poke my head out from the foxhole and assess the investment landscape.

Unlike most other financial nattering nabobs, I will not pretend to offer any valuable insights into the spread or mortality of the COVID-19 virus. And truth be told, I do not believe this novel coronavirus is the true root cause of our financial and social turmoil (with all due sympathy to those who have suffered).

Rather, I believe this pandemic is the event that has finally pulled back the curtain on the downside of xenophobic nationalism, across the globe, where political leaders care only for their parochial interests as they scramble to slam the door shut on modern civilization. Such a pity that a passport is not required for this virus to travel across borders.

While there are obvious parallels to the populist nationalism of the 1930s (see Father Coughlin), this is clearly a different time. In late 1941 Japan could sail its armada to within 136 miles of Pearl Harbor without detection; in contrast, the iPhone in your pocket is accurate to within a meter.

The notion that sealing a nation’s borders can advance its general welfare is more than foolishness; it can be downright dangerous. To be clear, I am not advocating an “open border” policy, but a ‘pox on both houses’ is deserved by our political class who has not been able to construct a comprehensive immigration policy despite bipartisan support for well-known compromises.

While D.C. experts can quickly tabulate the impact of Tax and Trade policies, projecting the economic path from changes in our Immigration laws will be more nuanced.

The bottom line is:

GDP = Workers * Hours * Productivity

To the extent we reduce the flow of immigrants (legal or otherwise), or even more extreme, reverse the flow of immigration (a.k.a. deportation), the GDP growth rate will decline without the offset of more hours worked or greater productivity. I appreciate the public policy arguments on both sides, and I will not try to sway your views; I will only state that the economic consequences to these decisions can be significant.

While I suppose Modern Monetary Theory (MMT) could be a local balm, the only fundamental way to offset the Mandatory demands of the retiring Baby Boomer demographic is to grow GDP (and tax revenues) at a speedier rate.

In concert with restrictive immigration is the notion that policies should be promoted that are seemingly ‘best for our country’; “seemingly” being the operative word.

Does the United States pay more than our per capita share to support NATO, the United Nations, and other international organizations — yes. Is our defense budget larger than the next eleven countries combined — yes. Do we keep troops on the ground in nations that can well afford to protect themselves — yes.

Our benefit: We are allowed to play the game by our rules with our currency.

Imagine a game of Monopoly where you are both a player and the bank.

Circling back to the original premise, to the degree that the U.S. relinquishes its roll as ‘Ma and Pa’ of the Global economy, the greater the risk of a tail event that destabilizes the entire system. This was not news to many market participants; the only surprise was when a bright light would finally reveal the folly of this philosophy.

Let me repeat, I am not pointing a finger at any particular person or political party; nor are these policies unique to the U.S. as many countries are pulling up their drawbridges.

Specifically to current events, why was it thought to be reasonable that an extremely contagious virus with no vaccine could be contained in a well-traveled city of eleven million ? Why were there not CDC and NIH boots on the ground in January ? You say this is China’s fault for not allowing us to help, fine, that only proves my point that a disconnected world is more dangerous.

At the height of the Cold War in the 1960s, when the Russians were sneaking nuclear bombs into Cuba, the U.S. worked hand in glove with the USSR via the World Health Organization (WHO) to eradicate smallpox. In fact, it was the Russians who initiated the project in 1958 by contributing 25 million doses of the vaccine to the WHO.

The political class has finally taken actions that will likely contain COVID-19 via the happy coincidence of warmer weather and a vaccine ready by next year.

I will note that naming the second highest ranking member of our political system to lead the response acknowledges the seriousness of the problem and sends the proper message to the world. (Of course, I suspect some in the scientific community may be disheartened that their new manager does not believe in evolution — oops, I promised no politics).