Bronner: Could mean economic ‘death spiral,’ but you’ve got to do it

This is the first in a series of commentaries by Alabama business leaders on the coronavirus crisis. Below we hear from David Bronner, CEO of the Retirement Systems of Alabama, from his responses in an interview on March 20.

David Bronner, CEO of the Retirement Systems of Alabama // Photo by Steve Gates

The economy was fine until this happened. The problem is that we have a national leader who dropped the ball by talking about it not being a big deal, and it turned into something much bigger and more damaging.

When the Wall Street Journal is mad at the government for not being prepared, imagine what the average person in Alabama thinks. They knew about this in January, and, instead of stocking up and preparing, they said it was ok, and it was clearly not ok.

My big concern is making sure you really protect the small businesses that don’t have the ability to send people home and continue to pay them.

The government worker is in one situation, but the worker with the construction company, the insect repellant guy or the plumber, those guys, if they become infected, they’re facing a different deal. If they have to be sent home, it’s terrible for them.

The most destitute group are the service workers who are hourly. They are desperately afraid, so many of them operate paycheck to paycheck. Workers doing day-to-day stuff, if they get hit and don’t have the savings, that’s the real problem. It’s going to take weeks to get help to them, and that’s the scary part.

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The whole key is getting money to the people in time. The only way to make it work is you have to spend a ridiculous amount of money on a bailout, like in ’08, but this time what you’ve got to do is get it to the businesses with 50 to 25 workers, or the restaurant with 10 people. The only way to make it immediately effective is you’ve got to get it to them quickly, whether it $1,000 or $2,000.

It’ll work for the businesses with eight to 10 to 30 workers, if you put the money into the company. One of the latest ideas was to have them borrow the money at zero interest rate, so they can keep people on the payroll until they can function again. Then you have a methodology for them to pay over time or to forgive the loan. We’ll see what comes. In any case, it will be extremely difficult.

Then you have another category of businesses that will need help, such as Boeing, one of the largest employers in the country. They were in a mess before, and now they’re in a real mess. You reach a point at which you can’t afford not to bail them out, just as most people felt we couldn’t afford to lose the auto industry, which is why GM took the loan from the government. If you lose a company like Boeing, you’ve got a real problem, it’s not easily replaced.

But now you get more problems if you do the bailout. When Trump took office, the deficit had increased to $483 billion. Now you’re talking $1 trillion. The deficits were already going the wrong way when the tax cuts came in, and the cuts haven’t helped the average person at all. But we’ve got to do something now, no doubt. It’s something that might put the whole economy into a real death spiral, but right now you’ve got to do something.

The thing that bothers me, why this is different than other crises, is this: You were dependent on yourself. You did what you could at the time to care of yourself to survive. Then in the late ’80s through the ’90s, the supply chains of all these companies became so extended that, if you’re producing something that depends on one component and it comes from someone else in the world, you can’t depend on yourself.

One of the scariest statistics that emerged when we started a trade war with China is that 76 to 80 percent of the necessary components of drugs, like antibiotics, come from China. If you were a bad guy in the old days and wanted to conquer someone, you started a war. But if they’re allowed to become so dominant, they can literally take care of you without shooting a gun. We’ve put ourselves at a huge risk.

Because of that interconnectivity in the ’80s and ’90s you’re no longer just the U.S. but a part of the world, and, for a lot of companies, when you’re part of that world, you need one heck of an inventory to make that whole machine or drug work. And you’re dependent when something happens that stops that supply of necessary components.

For most companies, you don’t panic in these times unless you have leveraged yourself up. A lot of companies have leveraged themselves so much they now don’t have the revenue remaining to cover that. If you have a debt problem now, it’s not a lot different from the mortgage problem in the ’08 era.

As to an individual’s investments, I tell people if you did what you should have and put your investments in two to three different piles, with stocks one third of the total, you’re in good shape to ride it out. Basically, if you used common sense. But there seems to be a lack of that today. People put everything into the stock market. If the market goes up, it can go down.

Without talking directly about medicine, what we most need is an anecdote for this particular virus. I hope there is a scientist who finds the solution to this thing. Is the solution hoping for hot weather? It will just move to the southern hemisphere and come back on us. We’ve got to get rid of it, and if we don’t, it’s total chaos.

David Bronner was interviewed by Chris McFadyen, editorial director of Business Alabama.

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