'Annus Horribilis'

For many people this has been one of the worst years of their lives. Some people have suffered the loss of a family member or close friend well ahead of time. All families have been tried and tested by the lockdowns, even if most have come out stronger. Senior citizens have suffered from loneliness and anguish. Millions of children, bewildered by these changes, may grow up with long lasting scars and disadvantages. Children in particular worry us because socialization deprivation will have unforeseen consequences, and because in spite of all the hype, Zoom classrooms are no substitute for the real thing. In any case, remote learning does not work very well when there is no Internet connection or only one shared computer at home, if any. It is always interesting to see how the sanctimonious progressive intelligentsia remains so far removed from working class realities in spite of four years of Donald Trump.

While financial markets have performed splendidly thanks to the combined impact of a massive manipulation of risk preferences exerted by synchronised QEs and wartime like fiscal expansions, the average citizen benefits very little from this asset price inflation. In fact, in some areas where real estate prices have gone up, younger people will be suffering yet another COVID slight. Needless to say that should policy makers achieve their inflation target, it will be once again the average citizen who will suffer most from inflation. Inflation may be the sole consolation for those families, companies, and governments laden by the highest debt burdens in history, but only as long as they have jobs, remain in business, or enjoy the benefits of monetary sovereignty; for all others there is a very trying period ahead.

As necessity is the mother of invention, some businesses adapted to the new circumstances well. So well indeed, that conspiracy theorists already circulate the idea that some of these platforms are coming out of the pandemic too well-off to the detriment of millions of small business owners. The public has found the carpetbaggers of 2020 and politicians are going after them at a time when politicians are ready to fleece anything in sight. Welcome to the Matrix! Other businesses, cannot adapt because their business model requires physical presence and management had not anticipated what a great disadvantage the virtual world presents to economic activity. So much for scenario planning!

Restaurants are among the worst offenders in this new normal. They have become the repeated targets of policy makers around the world, as politicians need to do something dramatic urgently whenever case rates go up. Thus, they have become both the scapegoats and the whipping boys of the crisis. This in spite of weak evidence that restaurants are major foci of infection. Studies suggest what common sense has shown us during the lockdowns, i.e. that most contagions take place at home. Some may think that the platforms prefer a business model where restaurants cannot serve patrons in their premises and they become ateliers for the preparation of delivery orders which the platforms will happily fulfil for a 30% cut of the bill. We shall see soon enough what the paying patrons prefer. However, at some point, publicans will get better organized and fight back with the argument that they employ millions of people. In the interim, if the ECB is looking for inflation they may do well to look no further than Madrid’s restaurants, which have reacted to capacity reductions by increasing menu prices significantly, this in spite of the loss of most corporate business. Indeed, companies have decided to lower costs by eliminating all T&E expenditures with the excuse that mingling with customers may give rise to litigation if there is contagion.

As for new evidence on the rate of contagion, it is still early to say. Nevertheless, please note that in Germany, both restaurants and bars have been closed for a just over a month and yet cases keep ratcheting up relentlessly. Alternatively, take Paris, where restaurants are closed and cases still stubbornly keep rising even in the secure confines of the Élysée Palace. Whereas in Madrid cases have been coming down as restaurants remain open. Facts and reason were the first victims of this crisis supplanted by opinions and visceral decision-making. Soon enough poor government may be replaced by corruption in a scale not seen before in most Western democracies, for nothing invites corruption more so than large government industrial policy programs or directed lending with Government guarantees. Why is it that EU leaders do not trust citizens to be the wisest users of the recovery funds as is the case in the US, since they will pay for that upfront payment anyways? Perhaps because they will gain far more from corporate welfare programs that will ensure them cosy retirements with board appointments.

Mythos has defeated Logos, when Logos was most needed. Why is the second wave in Germany far fiercer than the first wave, now that facemasks are mandatory, when they were not in the spring? Aren’t facemasks supposed to be effective barriers to contagion? Moreover, why doesn’t anybody raise questions about these paradoxical outcomes? For those who find solace in the misery of others, there are some good news. No matter how bad you may think you have it at home, nobody will come out worse from this crisis than the people of Spain. The United Kingdom is vying very hard to win this race to the bottom as well. It has a shot at winning in the event of a hard Brexit, in the interim placing the Southeast in Tier 4 almost ensures victory. The management of the health crisis in Spain is second only to Italy for now in fatalities per population and the economic impact is the largest drop in GDP for the 2020-21 period in the OCDE. Interestingly enough, at 101 deaths per 100.000 population, Spain tops the United States at 96.6 in this macabre list, but you would never know this if your news came from Spanish media. (The UK is also becoming very good at propaganda, the latest example of which is the Government promoted panic around the surge of a Mutant Virus run amok, while as far as we are told the current vaccines are said to be effective for this new strain).

In fact, a lot of what you have been reading on this crisis in the Spanish media for months is not far from propaganda willingly reported by insolvent media groups that allegedly rely on Government handouts for their survival. Some of the headlines in Spain will make any liberal minded citizen cringe. Just last week, newspapers reported that the PM’s office would decide who should be the next Chair of Prisa, a public media and textbooks company listed on the Spanish Bourse. Nobody seems to think this is odd. Albert Einstein famously said that you cannot have a democracy as long as the press is in private hands, well, he couldn’t be right on everything, could he? Surely, this lassitude stems from the constant assault on individual freedoms and property rights, which has turned the curtailment of civil rights in to a banal affair.

In the spring, Spain’s Single Unified Crisis Command led by the PM, the deputy PM, and the philosopher Minister for Health shut down not just restaurants and bars, but the entire country and cases kept spiralling out of control, not for a few days, but for five weeks. In the UK, the Government shut down restaurants again last week, while gyms remain open and Christmas social distancing rules remained unchanged until today’s new rules in some areas. In any case, restaurant and bar owners have received compensation from their Governments in the UK, Germany, and France. In Spain, the Government has decided instead to expropriate large landlords by imposing a 50% haircut on the rents of bars and restaurants for the months they were closed by law. Large landlords, which include some of the largest Private Equity managers in the world, are the target of the Communist deputy PM. New laws make it nearly impossible to evict residential tenants or squatters, a normal enforcement of property rights that s has been impossible in Catalonia for months now. No Spanish Governments since Franco has been able to rule by decree quite like the current administration. The State of Alarm in combination with a twenty-year-old unwritten doctrine whereby challenges to new laws brought before the Constitutional Court do not prevent their enforcement until a firm ruling is forthcoming typically six or seven years later, make it possible to rule outside the rule of law.

In the interim, all the usual suspects are salivating at the prospects of the €140 billion bonanza in EU funds coming their way. The PM has set up a single authority under his direct supervision outside the cabinet to manage these funds. Domestically the message is that Sánchez will be the allocator of life changing largesse. In reality, the EU bureaucracy signs off on these grants and loans ultimately, but why not confuse the issue a little bits more. Private companies have been engaged to draft petitions for worthy projects. The executive Chair of Telefonica is a good example of the Zeitgeist. He proposes a private public partnership (PPP) to roll out fibre from 75% of homes currently to 100%. This is such a good idea! Surely, the ROI of that marginal line connection will be commensurate with the new myriad and wondrous initiatives that this new connectivity will foster. As for the 5G mobile network, Telefonica needs to roll it out anyways; or else it loses its operator license.

For some people this may sound like a reasonable use of EU funds. They may agree with Telefonica’s Chair’s claim that this infrastructure roll out will be the key to attracting billions in Foreign Direct Investment to new digital industries. He is either a cynic or uninformed. The UK has the creaking infrastructures that befits a former World Power in permanent decline, and yet it attracts more FDI than Germany, France, Italy, or Spain. This is because of a combination of time tested legal security, a well-oiled court system, and very importantly a well-educated labour force. These three goals are ever further away for Spain. Every new decree undermines the former two while the new National Education Law ensures that Spaniards will continue to rank at the bottom of the list on academic achievement among OCDE countries for a long time.

There is a bright spot in this sombre picture. Luckily, we will be spending Christmas there. The Region and the city of Madrid have taken a different tack from most of the rest of Spain, and not just on their dealings with COVID but also in Government in general. The current strategy is working well apparently as new cases are under control below one per 5,000 population, while life goes on with minimal disruption. Restaurants, gyms, and theatres are open, but not so movie houses or nightclubs. There is a curfew in place form 12 am to 6 am. Antigen testing is used with far better results for tracing than where it is not being used. We will have Christmas with some limitations in the number of people allowed to gather per household, but we will have Christmas. We may even be able to celebrate New Year’s if we are lucky.

This recent success in crisis management is the target of the ire of the once again pessimistic national government of socialists and communists. This is the case perhaps because some of the worst affected regions in the country such as Valencia and Aragon are regions run by Socialists. Long gone are the long days of June when a beaming PM Sánchez declared Victory on COVID[contexto id=»460724″] before he took off on a month long vacation and neglected setting up funding for testing and tracing. This unmistakable repugnance for effective government informs the National Government and their allies’ decision to pull Madrid down to the bottom of the barrel with everybody else in Spain. They intend on forcing a minimum national Wealth and Estate tax on a region that has been able to function very well fiscally as well as economically without recourse to either tax. Indeed, the biggest indictment on the Catalan pro-Independence Nationalists’ Government is that Madrid’s GDP is today larger than Catalonia’s even when the population is 12% smaller.

Unfortunately, we live in such times where a large swathe of the electorate derides effective Government and seems to be indifferent to gross mismanagement and corruption (as long as the high crimes and misdemeanours are perpetrated by politicians on the left). The pliant press has bombarded their readers with the tax travails of the former King that arose from a gift from a wealthy friend. The taxes due have been settled without prejudice for €678,393. Alternatively, two former Socialist Presidents of the Region of Andalusia, Manuel Chaves and José Antonio Grinán, as well as 16 other Socialist high ranking officials, are rarely ever mentioned even when they have been found guilty of gross embezzlement and corruption, both of which are felonies. These politicians siphoned off €680 million of taxpayers’ money, which they used, among other things, to consort with prostitutes and purchase cocaine.

What many well-meaning and law abiding citizens of Spain fail to see is that these frontal attacks on private property rights or morality, when Parliament choses the session just before Christmas to pass an apparently much needed Euthanasia Law, are not wanton pursuits. On the contrary, debasing the value of residential real estate a major destination of middle class savings by prohibiting evictions, insisting stubbornly against all advice from more learned colleagues in raising the minimum wage just before unemployment is set to surge as furloughs are discontinued, a minimum universal income program when the Treasury is depleted, or decriminalizing violent acts from picket lines just ahead of what promises to be a very hot year for labour unrest; are all measures taken in the direction of destroying confidence and investment, and thus the economy. In the dystopic world that these politicians are planning for us, only apparatchiks live well as they live above the fray.

Luckily, there might be a yet unseen benefit as the deterioration of the recovery is so dramatic that it is nearly inevitable that Spain should request an EU comprehensive program sometime in 2021. It is clear that the euro group and the Commission will demand pension reform (some timid steps are already been discussed by some ministers in this much divided Government) and labour market reform. We would also hope that the EU might require an administrative reform that will cut layers of fat from public spending, starting with spending on former cabinet members’ pensions and arcane sinecures such as lifetime appointments of former PMs to the Council of State. We would also add to the wish list a profound reform of the Legal System that may finally ensure not just due process, but far more importantly a speedy trial, for there is either swift justice or no justice at all. A different Government coalition may stem from the possible indictment of the deputy Prime Minister by the Supreme Court of Spain on various charges. Sánchez will be able to claim that he tried a progressive Government but that new circumstances require a pivot to the centre and propose a minority coalition with the so-called liberals while obtaining support of the PP on grave matters of State, such as borrowing hundreds of billions from the ESM. Thus, perhaps after all this Annus Horribilis may set in motion a series of positive events that may contribute to a brighter future following what promises to be a very challenging period. Sic Transit Gloria Mundi.