Postcards from the Frontline

By John Mauldin

Unprecedented events are happening so fast, I barely know where to start.

But let’s begin with a small one, noticeable perhaps only to me.

Over the years I’ve received thousands of reader emails responding to my letters. I read and appreciate them all, even the critical ones. Often the readers mention where they were when reading my letter. They read me on planes, trains, golf courses, beaches, campgrounds, limos, offices, hotels, and everywhere else you can imagine.

But today, I can confidently predict almost all of you will read this letter… at home.

At least, I hope you are home. And I hope your home is comfortable because you may be there awhile. I’m in the same position, at home in Puerto Rico. We’re safe and well stocked for now.

With the economic and market situation changing by the day, I decided to approach this letter a little differently. Rather than go deep on one topic, I’ll share brief bullets on the many points swirling in my mind.

Think of it as Postcards from the Frontline. These will be in no particular order and may generate even more questions.

But that’s the world as it is now: many questions, few answers.

Before we begin, here’s a way to find some answers, at least. We at Mauldin Economics have decided to give every one of our readers a complimentary three-month subscription to our healthcare investment advisory Healthy Returns. Just click this link and enter your best email address – no strings attached and no credit card required.

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Federal Reserve: $5 Trillion Heading to $10 Trillion

With recent activities, the Federal Reserve’s balance sheet has exploded to $5 trillion plus. My friend Peter Boockvar thinks assets could easily reach $10 trillion, and problems will develop when they try to wind it down. I’m not so sure they will do that. I think this time they may take a page from the Great Depression playbook and simply not worry about winding it down.

Let me go one step further.

The 2020s will be the decade of “Whatever It Takes.” I’ve said that before the decade ends, the Fed balance sheet will be $20 trillion and probably approach $30 trillion. I still think that is the case.

While those are staggering numbers, percentage-wise they are no more than Japan has today. We will have to explore later what this will do to the dollar’s value.

I can hear the Austrian-school economists screaming it has to be worth less. But that hasn’t been the case in Japan, and only slightly so in Europe and for different reasons.

Each country will have its own characteristics when it comes to expanding its monetary base.

The Problem with Models and Assumptions

The uncertainty we all feel is actually a great deal of the problem.
Challenges come and go, but we are all accustomed to having data about them. The data may be wrong or unclear, but we at least have something to focus on and debate. Now we don’t. That leaves us deeply unsettled.

The new coronavirus is what it is. Scientists are studying it but they need data to evaluate its effects. How does it spread, who is susceptible, what percentage of them will become seriously ill or die—we don’t have good answers. Thus, our minds fear the worst.

It’s not that the data doesn’t exist. We (and I mean humans collectively) just don’t collect, analyze, and share it very well. And, to be fair, this is a complex problem.

People get sick and die for all kinds of reasons, and sometimes multiple reasons. Whether to attribute them to this virus is often a judgment call.

I have long criticized financial modeling. The financial “planners” who say that you can safely withdraw 5% of your retirement savings every year based on a 100-year model of market performance are guilty of malpractice.

There are 20-year periods when you would have run out of money 17 years into retirement (or less). It’s data manipulation of the worst kind.

The coronavirus pandemic has its own kind of modeling mania. I get why we need models. I use them in my own business. But I understand their limits.

Trying to project coronavirus infection and death rates in one country using data from another country can be useful in proper context. But trying to claim as some do (I’m thinking of two Stanford professors) that COVID-19 probably has a death rate no higher than the standard flu, based on layers of assumptions, is just not helpful.

On the flipside, we are not all going to die. Some of the curves we see may reflect the spread of testing capacity more than the spread of the virus. Now if you are New York’s Governor Cuomo, who from all appearances has a handle on the crisis there (as have many other governors), you have to assume the worst and plan for it.

Some governors simply have their heads in the sand, and that endangers the whole United States. Not to mention their own states.

The Cavalry Is on the Way

I know a gentleman who is responsible for coronavirus testing in several states. He called me yesterday and says he now has access to 40,000 test kits per week, up from almost nothing a few weeks ago.

The new test kits can give results in 15 minutes. You walk into the testing tent (they are setting up in Walmart parking lots), take the test and in a short time know your next step.

I assume that other states are likewise getting tests and that production is ramping up. That is clearly happening with masks and other critical items as well. Not as fast as we would’ve liked, but it is happening.

As an aside, in one truly odd sense, humanity is lucky. Unlike many viruses, this one spreads while the patient is asymptomatic. What if it had a (God forbid) 10% or more mortality rate?

I believe we must start planning for the next, potentially far worse virus and be better prepared than we were for this one.

Human trials are starting on various medicines to treat the virus. I’m personally aware of several so my guess is that there must be dozens of different medicines being tried. If, as seems likely, some prove effective, it will reduce the mortality rate and the severity of the illness.

That will mean shorter hospital stays, freeing up more beds. We may be only a few weeks away from beginning to bend the curve on treatment.

God bless the doctors and healthcare workers who are aggressively working to help mitigate this disease, often risking their own lives. Three cheers for the medical entrepreneurs, too.
Speaking of Mortality Rates

This morning I saw an estimate of mortality rates in multilingual Switzerland. An inexplicable (so far) pattern has arisen in the case fatality rate there.

  • German speaking cantons: 0.6% CFR

  • French speaking cantons: 1.4% CFR

  • Italian speaking cantons: 4.4% CFR

Mortality rates seem to be lower in Germany as well.

I have no explanation for that, and maybe later some scientists will figure it out. Did the virus travel up with Italians into the Italian speaking cantons? Which are closer to the French speaking cantons? About the only thing I can safely predict is that language won’t be the variable.

Federal Budget Deficits: To $30 Trillion and Beyond

In my decade forecast, I projected that in the next recession the deficit would climb to over $2 trillion.

Clearly, that demonstrates I am an optimist. Here’s a chart I shared back in January.

Between reduced tax revenues and increased spending, I now expect this year’s deficit will be at least $4 trillion. I will bet you a dollar to 40 doughnuts that we will see at least another $1 trillion emergency spending bill to be spent in the third quarter.

We could have 2020 and 2021 deficits of a combined $6+ trillion. Add off-budget spending and we should see $30 trillion total national debt by the end of 2021. I naïvely projected total national debt to be $39 trillion by 2030. See, I keep telling you I’m an optimist. We will be in that $40 trillion range somewhere around 2026–27.

We are experiencing a practice round for The Great Reset. Sometime late this year or early next year we need to look at what happened and then think what it will look like in the late 2020s.

A number of factors will all converge to give us a true Fourth Turning generational crisis, part of which will be The Great Reset.

The Unintended Consequences of Doing Good

The Federal Reserve is buying mortgage-backed securities with the best of intentions. But there are unintended consequences. This week I had a truly horrifying phone call with good friend and real estate expert, Barry Habib. He knows the mortgage business inside and out and he’s very concerned right now.

Briefly (this is complex so forgive me, Barry, if I miss some nuance), the Federal Reserve and other bank regulators have relaxed some rules so lenders can be more patient with people who fall behind on their loan payments. It’s called “forbearance.” I think we all agree that’s necessary under the circumstances.

The problem is they didn’t grant forbearance to mortgage servicers, the companies who collect payments, handle tax escrows, etc. They also take risk as mortgages wind through the system from origination to the investors who actually own them. The servicer must make payments to Fannie Mae, Freddie Mac, and especially Ginnie Mae, even if the mortgage is delinquent. Normally the risk is small. Suddenly it is not.

The problem is that the mortgage service providers are the fan belt of the economic engine. It is a $3 part (or was when I was a kid and installed them myself) but the entire engine freezes up if it breaks.

The mortgage belt has snapped and we are weeks away from the entire housing engine collapsing. This morning we learned that Treasury Secretary Mnuchin is aware of this “minor issue” and is trying to decide what to do. He needs to decide quickly.

(You can read Barry and Dan Habib’s longer explanation of the problem here.)

Tens of Millions of Unemployed

Speaking of data, Thursday morning brought the sobering but unsurprising news that US initial jobless claims had jumped to a mind-boggling 3.3 million from just 211,000 two weeks ago. If there were any doubt whether recession is here, this should dispel it. We are in a crisis worse than 2008.

Some are already calling it a “Depression” and they may be right.

Let me put the number in an even scarier light. Many who lost jobs either aren’t eligible for benefits, or haven’t applied because they think they aren’t eligible, or tried to apply and couldn’t. I suspect the real number of newly unemployed is well north of 10 million and will climb over the next few weeks. Having 20 million unemployed is possible if these lockdowns persist.

Whatever you call it, the economic downturn will damage us on top of the virus damage, which is already bad enough. The stimulus programs may cushion the blow but they won’t eliminate it. This is going to hurt.

It’s already hurting investors, who face massive revaluation. As my friend Mish Shedlock put it,

We woke up in February and the market said, "Oops, everything is at the wrong price and I will correct that immediately."

Mish has a fascinating blog post you should read in which he documents a conference call with Jim Bianco of Bianco Research. He explains why the bond market’s locked up and what is coming next. Hint: None of us are going to like it. His summary of Jim’s work is must Reading.

Keeping Track

The news media is keeping us all well-informed (perhaps overly so) on the number of coronavirus cases and deaths in each country. That’s good to know but viruses do not carry passports or respect national borders. So that framework doesn’t really tell us much.

Financial Times has an interesting tracker page (free to view) with this graphic and lots of other interesting data. They update it daily. Instead of nations, it shows subnational regions with notable outbreaks, scaled to the number of days since the 10th death.

Basically, the steeper the line, the faster the number of deaths is growing.

What it shows is disturbing. New York, Paris (labeled “Ile-de-France”) and both Madrid and Catalonia in Spain all have as many or more deaths than either Wuhan or northern Italy (Lombardia) did at the same point.

The New York line is disturbingly close to vertical.

Louisiana is fast becoming a hotspot, too.

The Post-Virus New Normal

When I say we lack data, I don’t mean we lack information. We have plenty and the hard part is sorting through it. On that part, I’m finding Twitter pretty useful. You can filter out most of the noise by being careful who you follow. You can start by following me, @JohnFMauldin.

I don’t think anyone believes we will go back to anything like January 2020 normalcy anytime soon. We have no idea, even if restaurants and everything open, what shopping patterns will look like.

Are we learning to live on less in our isolation? Seeing your 401(k) become a 201(k) may postpone a car buying decision or two.

My daughter (see below) works for a cheerleading gymnastics company. Nationwide this is a multi-hundred-million-dollar industry. Will they just open back up and expect all the girls to go back on day one? Will their parents be able to afford it? We’re talking many tens of thousands of jobs. Personal trainers? Many jobs will be under pressure.

There are 47,000 retail stores just in the US. We already knew there were too many as closings were becoming more frequent. My friend professor Michael Pettis in Beijing (who has lived there for 20+ years) has been documenting the return of life in Beijing. He sees people on the streets but not many in the shops, except where the young go to hang out rather than buy. Will that be the case in America and Europe?

And speaking of stores, many are not paying their rent. Cheesecake Factory, for one. Ryanair, EasyJet, and British Airways have stopped paying most rents and vendors. Group 1 Automotive reports a 50% to 70% decline in March sales across its 428 dealerships in the US and the UK. The company has laid off 3,000 US employees and 2,800 UK employees.

How fast do we start traveling and vacationing again? That matters to hotels, airlines, and their employees. I believe this experience will emotionally scar a generation. It is going to make the political divide even worse, especially along wealth and income lines. Ugh.

The US and other governments can artificially prop up GDP, but for how long? At some point, it really does start affecting the currency’s buying power. We just don’t know what that point is in the developed world.

The Federal Reserve has properly opened swap lines with many emerging markets as they need dollars in order to pay bills and buy necessary supplies. But many of their citizens are going to want a “safer” fiat currency.

I think many emerging markets will enact capital controls sooner rather than later. That will really screw with their markets. But what else can they do?

Next month’s earnings season will be truly abysmal. Close to half of S&P 500 profits come from outside the US. Every business is going to have a new valuation. It is just my guess, but I doubt we have seen the stock market bottom yet.

Let me close with some good news. Even though the number of deaths is rising in the US and the developed markets every day, the rate of increase is slowing in many places. I think we will see a giant collective sigh of relief when the infection and death rates are not only dropping but the drop is accelerating.

That will be the time to think about gradually getting back into the markets.

Meanwhile, maintain your watchlist of things you want to buy at cheaper prices.

In closing, let me leave you with this link to an apocryphal letter from F. Scott Fitzgerald on his supposed quarantine during the Spanish flu virus:

The officials have alerted us to ensure we have a month’s worth of necessities. Zelda and I have stocked up on red wine, whiskey, rum, vermouth, absinthe, white wine, sherry, gin, and lord, if we need it, brandy. Please pray for us.

Staying in Puerto Rico and Amanda

Thanks for all the letters of support and well wishes for my daughter Amanda. She had a full-blown stroke last week, losing all control of her right side. She is recovering in fits and starts, and is now scheduled for two weeks in the rehab center. The therapist is hopeful since she was a college athlete (All-American cheerleader) and has stayed in good shape.

In a truly scary way, the lockdown was a godsend. Her husband Allen would otherwise have been away at pilot school. As it happened, he found Amanda within a few minutes and had her at the emergency room where they were able to treat her quickly. Every neurologist will tell you that’s of utmost importance with a stroke. If he had been at school? It could have been hours. She was about to drive to the store with one of my granddaughters. What if she had the stroke in the car?

The reality of this quarantine is brought home to me through the eyes and experiences of my children. It is so very real and some are rightfully very worried for their future. Will their jobs even exist? Others are seeing their work hours rise due to the “essential” nature of their jobs, but how long will that last?

I do know that we will adjust and that we will all Muddle Through. I will be here with you.

As I was about to hit the send button, I got a plea from an old friend (nurse and her emergency room doctor husband) for ventilators and tests.

They work in a midsize hospital in Chicago. The academic hospitals are getting what they need, but the outlying hospitals aren’t and it is a life-and-death situation. I put them in touch with a friend who has excess 15-minute tests. We are all just doing what we can to get through.

Final thought: Millions of entrepreneurs are trying to figure out what to do when the world is turned on again. They will figure it out. I can tell you that in my businesses we intend to move forward and grow. Forget about retreating or retrenching.

That is what entrepreneurs and business people do. And it is why, even though it will be a Post-Virus New Normal, we will find our own new normality. And it will be one where friends and family will be as important as ever. So let me close this letter to my best friends, and wish you a great week.

Your lord, I may need some brandy analyst,

John Mauldin
Co-Founder, Mauldin Economics

The future of socialism in America

Bernie Sanders seems certain to lose the Democratic nomination. But his movement has changed the party

Edward Luce

© Reuters

“The old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”

- Antonio Gramsci, in his prison notebooks, on how societies in flux embrace all kinds of radicalism

Just over a century ago, American socialism hit its high-water mark.

Some might consider that combination of words — “American socialism” — to be an oxymoron. But the US allergy to socialism can be exaggerated. In the local elections of 1917, the Socialist Party of America took a third of the council seats in Chicago, a quarter in New York and large chunks across the industrial Midwest. Millions subscribed to socialist newspapers.

The movement then all but vanished from the American landscape. The scissor effect of Russia’s Bolshevik revolution later that year, and the Socialist party’s opposition to America’s entry into the Great War, cut it to shreds.

Most of its leaders, including the legendary orator Eugene Debs, who had contested five presidential elections, were imprisoned under the hurriedly passed Espionage Act. Neither the party nor its creed recovered in the 20th century. The very word carried a hint of anti-Americanism during the height of the cold war.

It took 99 years for “socialism” to re-enter mainstream America’s lexicon. In the bitterly contested Democratic primaries of 2016, the self-declared socialist Bernie Sanders came close to wresting the nomination from Hillary Clinton. Their differences poisoned the party. Roughly one in eight of Sanders’ supporters voted for Donald Trump that year. Others went for Jill Stein, the Green party candidate. That leakage alone accounts for Clinton’s defeat.

Older generations may recoil at the younger Sanders’ flirtation with the Soviet Union, which has surfaced in his second attempt at the nomination. But the Berlin Wall has now been down for as long as it was up.
Bernie Sanders yesterday told the press he was staying in the race despite setbacks in the latest primaries and was looking forward to Sunday’s debate with rival Joe Biden
Bernie Sanders yesterday told the press he was staying in the race despite setbacks in the latest primaries and was looking forward to Sunday’s debate with rival Joe Biden © Getty Images

Just under half of Americans under the age of 39 have a positive view of socialism, according to Gallup. If, as now seems certain, Sanders fails again to take the crown in 2020, his supporters will be a decisive factor in the contest against Trump.

The party’s likelier nominee, former vice-president Joe Biden, would have one big advantage over Hillary Clinton; knowing which mistakes to avoid. Chief of these is winning the support of the anti-establishment left in November, even if that means adopting part of Sanders’ agenda. Backing a wealth tax on America’s super-rich and embracing a “green new deal” are now very much on the cards.

Most Europeans would use the term “social democrat” rather than socialist to describe policies such as paid sick leave, parental rights and basic universal healthcare. Since the cold war, American opponents of such protections have sought to discredit them with the socialist label.

Under Trump, almost any Democratic policy, however modest, has been demonised as Venezuelan socialism.

As a result, Sanders embraces the word to a fault. Like an itinerant preacher, he has criss-crossed America saying over and over that billionaires and corporations have rigged the system against ordinary people. In spite of Sanders’ crankiness — and partly because of it — he strikes a deep chord with the young, even if many believe elections are also rigged.

Bernie Sanders at a campaign rally last month with Alexandria Ocasio-Cortez. The 30-year-old congresswoman from New York may now pick up the Vermont senator’s torch
Bernie Sanders at a campaign rally last month with Alexandria Ocasio-Cortez. The 30-year-old congresswoman from New York may now pick up the Vermont senator’s torch © Reuters

Other less stubborn — and perhaps more appealing — characters, such as Alexandria Ocasio-Cortez, the 30-year-old congresswoman from New York, may now pick up Sanders’ torch. On whatever terms the senator exits his primary battle with Biden, America’s left is in the throes of an unexpected golden age.

Should we discount this rebirth of US socialism as a “morbid symptom” — a cry of pain from a society entering a new technological age? Or is Sanders the harbinger of a lasting change — a John the Baptist to a future presidential Jesus?


I probe that question in one of the least likely places — Marin County in northern California. Nestled between San Francisco and the vineyards of Sonoma and Napa Valley, Marin is one of the most abundant places on earth. At $93,000, the median household income is America’s fifth highest. Hollywood producer George Lucas has a gated ranch here.

You cannot keep count of the Zen retreats, yoga farms and meditation centres dotted throughout its Pacific coast landscape. Yet what happens in California often predicts the future of America. And what happens in Marin — home to the organic food movement as well as the 1960s cult band, the Grateful Dead — often sets the tone for California.

Sanders won the state on Super Tuesday by a margin of seven percentage points. Biden just beat him in Marin, but only because most of its increasingly Hispanic workforce cannot afford to live there. Most of Marin’s nearby counties, including Sonoma, Alameda and even Silicon Valley’s San Mateo, chose Sanders.

Here within San Francisco’s gilded radius lives the soul of liberal America. Perhaps its dirtiest secret is that it is home to the country’s sharpest inequalities. San Francisco boasts more billionaires and more homeless people per capita than any other city in the US.

Marin County, which is just a short drive across the Golden Gate Bridge, is San Francisco’s arcadian backyard. The median home price is $1.2m, which is almost quadruple the national average. Yet the county’s “affordable housing” endowment is only $6.3m, from which it has to leverage an annual budget.

“It’s not even small change,” says Leelee Thomas, Marin County’s elected officer, who has the Sisyphean role of creating rentable accommodation for its less plutocratic residents.

“Currently, our economic system is set up to benefit the wealthy at the top of our system, and crumbs are left for those who are struggling.”

The county hosts far more economically squeezed people than initially meets the eye. Set apart from the roads, you start to glimpse numerous trailer parks, which are mostly manufactured houses. Some of the smaller conventional homes have three or four pick-up trucks outside, an indication that several families are crammed inside.

Soaring housing costs are a constant headache for Marin’s larger employers. One of its biggest is Good Earth Natural Foods, an organic superstore that is the county’s main competitor to Whole Foods. Elsewhere in America, Whole Foods is dubbed “Whole Pay Check” by some, because it is so expensive. Much of it is cheap compared with Good Earth. “People walk out of here with $400 of produce in their carts,” says Al Baylacq, a partner in Good Earth. “If you’re shopping at Good Earth, budget is not your primary concern.”

Baylacq is an avowed Sanders supporter, as are many of his store’s 550 employees, almost half of whom are Hispanic. In contrast to Whole Foods, which is owned by Amazon, the online behemoth, every one of its products is organic. Good Earth believes in sustaining local small businesses.

Al Baylacq, a partner in Good Earth Natural Foods, an organic superstore business, and a Sanders supporter: ‘I have been blessed with some very lucky breaks’
Al Baylacq, a partner in Good Earth Natural Foods, an organic superstore business, and a Sanders supporter: ‘I have been blessed with some very lucky breaks’ © Janet Delaney

There is a hint of the 1960s psychedelic to Baylacq. He sees his business as a soulful alternative to Amazon’s corporate philosophy. As a self-declared “Dead Head” — an ardent fan of the Grateful Dead, and now of Phish, its closest contemporary — Baylacq’s stakeholder values should come as little surprise.

He takes pride in the fact that Phish come from Sanders’ home state of Vermont. “Amazon sucks up business and destroys independent producers in the most ruthless way,” Baylacq says. “If your product is not listed on Amazon — on their terms — then you may as well declare bankruptcy. I am happy to own my support for Bernie as my resistance to that America.”

I ask whether Baylacq’s employees can afford to shop in the store where they work. He laughs.

“Nowhere close,” he says. Many of them have to commute at least an hour from the endless residential tracts and dormitory towns that serve Marin County and San Francisco. I remind him that Henry Ford famously pledged to pay his workers enough to buy the Model T Fords they were making. That pledge turned into the informal social contract of America’s postwar middle class.

Baylacq started work at 13 as a butcher’s assistant. Now 54, he sits on philanthropic boards. Isn’t his success proof that the American dream is alive and well? “Not really,” he says. “I have been blessed with some very lucky breaks.” He sketches the adult lives of his childhood peers, which do not sound too rosy.

Later I go to Paper Mills, which must be the most blue-collar bar in Marin. There is a crooner twanging his tunes. The women wear their hair long. Many of the men are wearing some kind of hat, most of them cowboy.

Here I meet Andy Giddens, 68, who, by his own definition, falls between hippie and redneck. Marin born and bred, Giddens made his living painting houses. The wealthier the person, the likelier they were to shortchange him, he says.

“Like Trump, they wait till you’ve done the work, then they tell you, ‘There’s something wrong with your work; we’re going to pay you $5,000 less than agreed.’”

Andy Giddens, wearing his ‘Make Siberia Warm Again’ cap, says a lot of his friends in Marin County will only consider voting for Sanders as other Democrats are ‘too establishment’
Andy Giddens, wearing his ‘Make Siberia Warm Again’ cap, says a lot of his friends in Marin County will only consider voting for Sanders as other Democrats are ‘too establishment’ © Edward Luce

Giddens is wearing what looks at first glance like a Trumpian “Make America Great Again” baseball cap. In fact, it says: “Make Siberia Warm Again.” A lot of Trump supporters, including some of Giddens’ relatives, make the same mistake and greet him as a fellow Trumpian. “Some of them are so goddam dumb,” he says laughing. “I had 200 of these caps made.”

I am swigging a bottle of Corona beer, which prompts dark jokes about the coronavirus. Giddens told me that most of his friends were Bernie supporters. Some voted Trump in 2016, but they have now seen enough.

“I mean, Trump didn’t even know that normal influenza can kill,” he says. “And he calls himself an expert.” A lot of his friends would only consider voting for Bernie, he says. Other Democrats are “too establishment”.


Across the Bay Bridge to Berkeley, home to the US’s most liberal campus — and former seat of one of the country’s turn-of-the-century socialist mayors — I visit Robert Reich, who is among America’s leading progressives (“socialism” is not a term he uses). I want to see Reich for two reasons. First, he is an influential supporter of Bernie Sanders. Second, he is one of Bill Clinton’s oldest friends. Almost nobody fits both those descriptions.

When I first lived in the US in the late 1990s, I read Reich’s memoir, Locked in the Cabinet, about his frustrations as Clinton’s first-term Labor secretary. They got to know each other as young Rhodes scholars on a transatlantic passage to Britain in 1968. Reich once went on a date with Hillary Rodham when they were at Yale law school.

Robert Reich, who was Labor secretary under Bill Clinton, is a Sanders backer. ‘I don’t dislike the rich at all,’ he says. ‘But as a group they hang out too much together’Robert Reich, who was Labor secretary under Bill Clinton, is a Sanders backer. ‘I don’t dislike the rich at all,’ he says. ‘But as a group they hang out too much together’ © Getty Images

As a leading “FOB” (friend of Bill), Reich was a chief architect of Clinton’s 1992 campaign, which promised blue-collar Americans a bridge across the “information superhighway” to the 21st century.

He quickly grew disenchanted with the Clinton White House. People such as Robert Rubin, a former Goldman Sachs partner, and Harvard scholar Lawrence Summers took the administration in a “neoliberal” direction. Alan Greenspan, chair of the Federal Reserve, held far more sway in Clinton’s Washington than the labour unions.

Clinton cut US welfare spending, deregulated finance and expanded tax subsidies for business. “I once said something about ‘corporate welfare’ [a phrase Reich coined] and Rubin said, ‘We can’t denigrate captains of industry,’” recalls Reich. “I realised we had gone from being a party of the working class to a party of the college class. They were in thrall to Wall Street.”

That shift is often personalised as a victory of the Rubin wing over the Reich one. It was dubbed Rubinomics and marked the end of the party that Franklin D Roosevelt had created in the 1930s. Clinton’s third way Democrats paid lip service to FDR and his New Deal, which created America’s modern safety net. But they danced to a very different tune composed by Ronald Reagan in the 1980s.

The Clinton era came amid rapid changes in the US labour market. Median household income had begun to stagnate in the late 1970s. Some of that was cushioned by the rise of two-earner households as women increasingly started work to make up for their husband’s job loss or declining wages.

In contrast to Europe and Canada, America’s female labour force participation rate reached a plateau in the early 2000s. In addition to hiring others to care for their children and working ever-longer hours, blue-collar America’s third “coping mechanism” was to use their homes as piggy banks, by taking out home equity loans from the banks. All that came crashing to a halt with the 2008 financial crisis.

“People woke up to the fact that all their coping mechanisms were exhausted,” says Reich. “Wages weren’t rising, your contractual relationship with your employer was now totally one-sided and bankruptcy protections existed only for the rich. Is it any surprise people have been turning to anti-establishment politicians?”

Protesters calling for more workers’ rights at a May Day rally in New York in 2018. Just under half of Americans aged under 39 have a positive view of socialism, according to Gallup
Protesters calling for more workers’ rights at a May Day rally in New York in 2018. Just under half of Americans aged under 39 have a positive view of socialism, according to Gallup © Getty

Reich’s friendship with the Clintons has cooled somewhat after he endorsed Barack Obama over Hillary in 2008. When Obama was president, the populist backlash erupted in the form of the Tea Party movement on the right, which captured the Republican party, and the Occupy Wall Street movement on the left, which stayed on the margins. Sanders picked up the spirit of the Occupy movement a few years later.

Reich spent a lot of time with voter focus groups during the 2016 election in Midwestern cities such as Toledo, Dayton and Cleveland, which helped make Trump president. What struck him most was the ubiquity of “crossover voters” — people who would vote for Trump or for Sanders, but would never contemplate voting for Clinton. This is how Giddens describes himself, using the term “tweener”. “What tied them was a rejection of the usual faces,” Reich says. “If anything, that sentiment has grown since 2016.”

His old friends the Clintons spent a lot of their summers in the Hamptons with the same old crowds of hedge-fund titans and media moguls. “I don’t dislike the rich at all — this isn’t personal,” he says. “But as a group they hang out too much together.” He calls today’s era the “second gilded age”. The first, in the late-19th century, was also a time of great disruption — railways, electricity and the internal combustion engine. Like today, it was a period of mass immigration.

The legendary orator Eugene Debs, leader of the Socialist Party of America, in 1918. Debs contested five presidential elections but was jailed in 1919 under the Espionage Act
The legendary orator Eugene Debs, leader of the Socialist Party of America, in 1918. Debs contested five presidential elections but was jailed in 1919 under the Espionage Act © Bettmann Archive

Today’s version of the Carnegies and Rockefellers mostly live 30 or so miles south of Reich’s office in Silicon Valley — and up the west coast in Seattle, home to Microsoft and Amazon. “Monopoly power is less visible today than in the first gilded age but it is just as real,” says Reich. “People know they are being shafted but not always exactly by who.”

It came as little surprise that Sanders did relatively well this week in Washington State, home to Seattle. Much like in the first gilded age, American socialism is largely a creature of the cities. Immigrants also play a starring role. In the early 20th century, it was largely New York Jewish refugees from Russia, who shared the Bolsheviks’ hatred of the tsar. The other wing was German-speaking incomers to the Midwest, particularly Wisconsin.

One of today’s faces of US socialism is Kshama Sawant, leader of the Socialist Alternative, who is the longest-serving member of Seattle’s city council. It was Sawant, 46, a self-declared Marxist, who started the movement for a $15-an-hour minimum wage. After she pushed it through the Seattle council in 2017, it quickly went national. All Democrats, including Biden and Sanders, now back it as a federal law. Sawant’s main cause today is to pass a tax on Seattle’s big companies, which she has called the Amazon Tax.

Kshama Sawant, a self-described Marxist and long-serving Seattle city councillor, hopes Sanders will run as an independent if he fails to secure the nomination
Kshama Sawant, a self-described Marxist and long-serving Seattle city councillor, hopes Sanders will run as an independent if he fails to secure the nomination © Cody Cobb

I join Sawant on a chilly day in the large tract of downtown Seattle that has been overtaken by Amazon, which long since dwarfed Microsoft as the city’s largest employer. In a tribute to its huge influence, Amazon is exempt from state and city taxes. In 2019, it paid virtually zero federal taxes either.

Depending on the ups and downs of the equity markets, Amazon is valued at more than a trillion dollars. Jeff Bezos, its founder and chief executive, is personally worth upwards of $120bn.

Sawant is leading a rally next to the Amazon biosphere, an indoor hothouse that serves as an incongruous backdrop to the wintry protest. In the previous 72 hours, Seattle had suddenly emerged as America’s first venue of home-grown coronavirus infections. In spite of unease over the risk of contagion, Sawant’s “Tax Amazon” rally was well attended.

The mood could not be described as conciliatory. “Bezos makes $8.9m an hour. Amazon warehouse workers make $16.75 an hour,” says one relatively informative sign. “No one needs that much f**king money,” says another.

“The rich hate you,” says a third. The most common are “Tax Amazon” and “Housing is a human right.” The banner “Normalize shoplifting” hints at an anarchist element.

Protesters at a ‘Tax Amazon’ march this month in Seattle. In a tribute to Amazon’s huge influence, the company is exempt from state and city taxes
Protesters at a ‘Tax Amazon’ march this month in Seattle. In a tribute to Amazon’s huge influence, the company is exempt from state and city taxes © Cody Cobb

Sawant, who has been a warm-up speaker at Sanders’ rallies, sets out the case for taxing Amazon, a company that spent millions of dollars fruitlessly trying to defeat her in her last election two years ago. Washington’s state government, in nearby Olympia, is trying to pass a pre-emption law that would ban Seattle from imposing the tax. The Democrats are the party of billionaires, Sawant says. Socialists are the opposition.

Much like in San Francisco, New York and other Democratic strongholds, the cost of housing in Seattle is prohibitive. A poll of unions showed that rent took up 70 per cent of most members’ income — about twice the level considered to be rent-poor. Proceeds from the Amazon Tax would go on social housing.

Sawant has tried without success to persuade Bezos to hold a public debate with her. “We are always David fighting Goliath,” she tells me after the rally in a nearby Starbucks — another of Seattle’s corporate champions.

The coffee chain’s billionaire founder Howard Schultz briefly flirted last year with running as a self-funded independent for the White House. A fourth corporate native, Boeing, has received $8.7bn in direct subsidies from Washington State. It pays no state tax either. I am reminded of Reich’s talk about corporate welfare.

I want to know what drove Sawant to become America’s most visible elected Marxist. Born in Pune, India, and raised in Mumbai, Sawant studied economics in North Carolina before becoming a software engineer at Nortel, the Canadian telecoms company.

Then she moved to Seattle where she found religion in the form of Karl Marx. One to one, Sawant is polite and gently spoken in contrast to her tone from the podium. I am told her ubiquitous gallery of supporters often helps cajole Seattle’s nine-person council into doing her bidding.

Apart from the minimum wage, she has passed paid and sick leave rights, structured work hours and other rights that in the past would have been negotiated by unions. Amazon, like almost all of America’s tech economy, is a union-free company. “As a socialist I find it quite difficult to talk about my history,” says Sawant. “We don’t like to dwell too much on personal stuff.” She retains $40,000 of her $140,000 councillor’s salary and gives the rest to a strike fund.

Sawant becomes animated when I raise Sanders’ battle with Biden. In 2016, she refused to vote for Clinton. Would she do the same this year if Sanders failed to take the nomination? “I would hope Bernie would run as an independent,” she replies. Either way, Sawant is planning to lead a big demonstration in Milwaukee, where the Democratic convention will be held in July. Regardless of circumstance, they will agitate for Sanders to be the nominee. She calls it “#million2milwaukee”.

After New York, Milwaukee was the leading hotbed of American socialism in the early 1900s. I find it hard to believe she could attract anywhere near a million. What, I ask, if you called a revolution and nobody showed up, in paraphrase of the 1960s anti-war slogan? “We have to take the fight to them,” she says. “If we thought like that we would never have passed the minimum wage.” Sawant puts great faith in the role of young voters, who are not “burdened with the baggage of history”.

Joe Biden, who is now the clear favourite to win the Democratic nomination, on the campaign trail in Los Angeles this month
Joe Biden, who is now the clear favourite to win the Democratic nomination, on the campaign trail in Los Angeles this month © Getty

A few days after I met Sawant, Sanders hit what in retrospect was clearly his Waterloo in the Super Tuesday primary. Biden won 10 of the 14 states and took what could quite rapidly turn into a prohibitive lead in the delegate count. Sanders has argued that he, and he alone, can bring out the young in droves to defeat Trump in November.

In addition, only he can appeal to Reich’s crossover Trump voters. His first theory was badly dented by the voter surge in states that Biden won heavily, such as Virginia, and the anaemic millennial showing in Sanders strongholds, including his own state of Vermont.

I had caught a foretaste of this in Seattle when I spoke to Stephen Nicholson, a student at Evergreen State College in Washington State. Nicholson is a strong Bernie supporter. Most of his student peers are too. Are they all planning to vote? “A lot of my friends are cynical and probably won’t bother,” he admits. “They think the system is rigged whatever they do.” That mindset is rife among “Bernie bros” in the days after Super Tuesday. “The fix is in” trended on Twitter.

So, too, is the idea that the Democratic elites had somehow finagled the Biden campaign’s recovery from the near dead. In reality, it was African-American voters who turned the tide in South Carolina on the weekend before Super Tuesday. The establishment did not choose Biden — though it rushed to join his bandwagon; he was saved by the southern black voter.


The hip Berkeley restaurant Chez Panisse, which gave birth to the “slow-food” movement in 1971, is not an obvious place to shoot the breeze about the future of American socialism. The venue is not my idea. Jerry Brown, the sprightly 81-year-old former four-time governor of California, thought it was an ideal location to discuss the subject.

We are briefly joined by Alice Waters, who founded Chez Panisse and is feted as the inventor of modern American cuisine. Brown and Waters — two legends of 20th-century California — embrace like siblings.

I ask Waters, now 75, whether a new social revolution is afoot. This is shortly before Sanders’ California win. “America is suffering from two great problems,” says Waters. “The first is the meaninglessness of work. So many people have soul-destroying jobs. The other is loneliness. You see it everywhere you look. Communities have broken down.” Brown nods in agreement. “Didn’t you promise me a communal housing experiment for old people when you were governor?” Waters asks Brown. “Something like that,” he replies. “We’re still waiting,” she says.

Former four-time California governor Jerry Brown: ‘In much less disruptive times than today, politics is hard to predict’
Former four-time California governor Jerry Brown: ‘In much less disruptive times than today, politics is hard to predict’ © Janet Delaney

In an interview many years ago, Brown was the first American politician I have met — and so far the last — to have quoted Antonio Gramsci, the Italian Marxist. Having talked bleakly about America’s future, California’s then governor said he followed the Italian’s dictum:

“Pessimism of the intellect: optimism of the will.”

Gramsci wrote the line about morbid symptoms surfacing when a society is in flux. It struck me that the combination of Trump and a coronavirus epidemic would be a fairly compelling sign of that. Brown agrees.

But he hesitates to pronounce a verdict on Sanders.

The two are about the same age. Brown’s views have evolved over the decades. He made the time-honoured journey from idealism to pragmatism. Sanders’ views have barely shifted. Has history caught up with Sanders? Or is it passing him by?

Brown, who in his younger days was known as Governor Moonbeam — a hippie-era term — hedges his bets. Socialism is not his thing. “In much less disruptive times than today, politics is hard to predict,” Brown says. “Very unusual things can happen.” His pessimism is hard to miss.

Given his very different style of politics, Brown’s reluctance to predict is striking. I think about what Reich had told me. He said centrist Democrats were panicking that their party was drifting into “another 1972” — the year George McGovern, the leftwing Democratic nominee, lost in a landslide to Richard Nixon. Sanders was the new McGovern, in their view.

What haunted Reich was 1968, not 1972. That was the year Democrats nominated Hubert Humphrey, the vice-president and pillar of the establishment. He was also defeated by Nixon. In Reich’s view, Biden is the new Humphrey. It is a tribute to Brown’s ambivalence that both those years are imaginable in today’s America — and neither.

With or without Sanders, Democrats are moving steadily to the left. Even before any putative deal with Sanders to unite the party, Biden’s platform is considerably to the left of his days in the Obama administration. The party of Clinton and even Obama is fading.

Among others, Robert Rubin — the man who lent his name to Rubinomics — no longer objects to a wealth tax. Few would have predicted that. Even when Sanders is losing, he is winning.

Edward Luce is the FT’s US national editor

Is It Even Possible to Contain COVID-19?

By: Alex Berezow

Extraordinary times call for extraordinary measures. At least two different countries, China and Italy, have turned this aphorism into an official government response to the coronavirus, issuing quarantines that cover millions of people and enforcing extraordinary lifestyle changes. But these kinds of measures can’t last forever.

The public is willing to tolerate massive disruptions to daily life only when it believes the disruptions will end. When they don’t, economic and perhaps social unrest will ensue. That is why the question, “Should the coronavirus be contained at all costs?” is geopolitically relevant.

Before we can answer that question, however, we must first answer if SARS-CoV-2 (the official name of the new coronavirus) is an extraordinary virus and if it’s even possible to contain it at this point.

SARS-CoV-2, and the disease it causes called COVID-19, is in some ways extraordinary. Four strains of coronavirus are among the 200 causes of the common cold. But they aren’t typically lethal.

The other two coronaviruses, SARS (severe acute respiratory syndrome) and MERS (Middle East respiratory syndrome), had very high case-fatality rates but infected far fewer people. For these reasons, SARS-CoV-2 is like a deadly version of the common cold and, thus, unlike any other coronavirus we’ve seen.

Moreover, it’s not acting like typical respiratory viruses, which can hit young children and the elderly especially hard. Instead, SARS-CoV-2 has minimal impact on children (though it can still infect them, and children can spread it to others). Bizarrely for a respiratory virus, it has been detected in stool samples, indicating possible fecal-oral transmission. Though the entire human population should be immunologically susceptible, the virus is not spreading as quickly as influenza. Flu season lasts from October to March.

In that five-month timespan, influenza will infect anywhere from 9 million to 45 million Americans each year. COVID-19 does not appear to be on that track, especially with summer approaching. (Warm weather is often lethal to respiratory viruses.) In the roughly two months the virus has been circulating in America, the number of confirmed cases is only roughly 3,700.

Even if off by a factor of 100, the number of infections is two orders of magnitude less than the flu. The bottom line is that scientists don’t really know how the virus is spread.

Can this extraordinary virus be contained? Probably not. The biological and epidemiological features of the virus make that nearly impossible. Research indicates that the virus is most contagious at the earliest point of illness, which means that a person is already spreading it by the time symptoms first appear. Once a person feels poorly enough to stay home, it’s already too late.

Even worse, people who are infected but asymptomatic can probably spread the virus as well.

The World Health Organization estimates that 80 percent of COVID-19 cases are mild or asymptomatic, underscoring the likely futility of containment measures. The only way to stop a virus that can spread so surreptitiously is to force every person on Earth to stay home for the next 14 days, which is the length of time necessary for quarantine, based on the virus’ incubation period.

Public officials are faced with few options to protect the population. On one extreme is “do nothing.”

This would result in the virus spreading far and wide and is therefore not a politically or socially viable option. On the other extreme is “cancel everything.” This certainly would prevent new cases.

However, while health concerns and fears of a new virus might allow for this to be socially acceptable for a while, it cannot last indefinitely.

People might accept economic devastation as a necessary consequence to stop smallpox, a disease that killed 30 percent of the people it infected, but COVID-19 is not nearly so lethal. The greatest threat is to people aged 60 and over or those with underlying health conditions. The rest of us are concerned about them. But people are also rightly concerned about their wages and bank and retirement accounts and may decide that life needs to return to normal.

With that in mind, there are two general approaches that can be taken when faced with an emerging infectious disease: containment or mitigation. The former seeks to prevent the virus from spreading and to ultimately snuff out the pandemic.

It is a viable and potentially successful approach for diseases such as Ebola that are relatively difficult to transmit and create patients with unmistakable symptoms. Mitigation acknowledges that the virus cannot be stopped and seeks ways to minimize its impact on public health. This strategy is used when containment is not viable.

Mitigation countermeasures are an important component of “flattening the epidemic curve.”

The goal isn’t necessarily to reduce the number of total infections, though that would be a pleasant side effect. Instead, the goal is to buy time: slowing down the spread of the disease so that the health care system is not overloaded with patients, as it was in Wuhan. After all, a sick patient can only benefit from medical care if there are enough hospital beds and supplies.

This, in turn, lowers the case-fatality rate.

Considering the biological and epidemiological features of the virus described above, combined with more than 150,000 confirmed cases – not to mention the several hundred thousand more cases that are undiagnosed – the notion that the virus is still containable seems far-fetched. The U.S. decision to ban flights from Europe is a containment tactic that will yield few practical results because the virus is already circulating in the United States.

And there are still other international flights entering the U.S. that Europeans could use to gain entry. Given the spread of the virus to date, the economic hits incurred thus far, and all the other unknown factors regarding the nature of the virus, mitigation emerges as the most viable course of action that allows for an appropriate balance between public health and economic needs.