Transformed utterly:

(First, a heartfelt thanks to the brave workers staffing our essential global and local economy, across medicine, food, shelter, and beyond. 

Second, apologies in advance if this note is too long. This global crisis seems to be calling us to reflect on our daily purpose. This note is my meager meandering attempt to make sense of this moment in time.)

Four risk factors, as discussed: 

1. the Virus

2. to combat the Virus, we have shut GDP  

3. as GDP shuts, the Debt and Credit markets move naturally towards illiquidity and insolvency

4. as the three factors above flow through our daily lives, we are all called upon to provide Leadership

With belief in our collective plan to address these risks, we can move forward. 

Without belief in our collective plan to address these risks, the risks all feed one other. Nothing good results. 

Is this where we are now? With limited collective belief? Without a coherent US or Global plan to address the fact that, with GDP shut, Debt and Credit markets have no choice but to grind down. Triggering margin calls? With defaults and unemployment to follow?  

Perhaps. We have no “GDP Production Board,” modeled after the US WWII “War Production Board." To shepherd a temporary GDP hiatus. Perhaps even with a temporary currency. We have no “New Brady Commission,” modeled after the 1980s Brady Bond plan. To shepherd creditors and debtors through the inevitable cascade of restructurings to come. Global markets are still completely open. Without shortened hours. And melting down. As if GDP was not shut.  

But the reality is, none of this matters. The policy ideas above are just tactical points. There are many other, better proposed tactics. The specifics of whatever tactics we decide are crucial. But only to a point. What matters much more is a collective belief in our overall plan. In the strategy to address the key risks.

Through this current crisis, we have a unique opportunity. To re-establish belief in our collective long-term plan. For how we spend our time and direct our energy. To define a purpose for our global economy. 

Before we go forward, let’s move back. How did our global economy get to this point? Let’s return to the beginning. 

It’s next to impossible to assign a "start date” for our current global economic system. But if we had to pick a year, 1776 is as good as any.

In 1776, Adam Smith, a Scottish professor of moral philosophy, published his observations of a new style of human activity taking shape across England in the wake of the enclosure movement. An Inquiry into the Nature and Causes of the Wealth of Nations has been more debated that read over the years. But what is non-debatable is Smith’s description of human beings making independent business decisions, free from the legacy of servitude and dependency. 

In 1776, Thomas Jefferson, Benjamin Franklin, John Adams and others published the United States Declaration of Independence. The legacy of the Founding Fathers continues to be debated, appropriately, over the years. But each of the 56 signatories of the Declaration publicly put his name on an act of treason against the most powerful government the world had ever seen. The penalty for treason? To be hung, drawn and quartered. Hung, but not killed. Entrails, drawn out. Body parts, cut in four. So what is non-debatable? The courage of the Founding Fathers. Their commitment to their cause. 

Is there a the common motive force behind Wealth of Nations and the Declaration of Independence? One that defines the origin, from 1776, of our current global economic system? If you had to put it into words, perhaps it’s a belief in “freedom for the individual person.” Many caveats here have been appropriately pointed out over the years, across gender, skin color, ethnicities, etc. in terms of who was (and is) included in this belief. But this was 1776. A different time and place. We in 2020 can only hope to be judged mercifully ourselves. 

“Freedom for the individual person”. What do the words mean? We can look to etymology:

- “freedom": an ancient English word, derived from “not in bondage” 

- “individual”: from the Latin, “not dividable,” perhaps not only within ourselves, but also as each one of us non-dividable from the other? 

- “person”: from the Latin per sonare, “to sound through”, as in words heard through the mask worn by a stage actor in a drama

“Freedom for the individual person.” If the words are take inappropriately to an illogical extreme, you could infer a selfish desire to break away from others, from any constraint whatsoever, to only follow self-interest, as being at the root of our current system. To get whatever material result is coming to you. Get yours. However you can. Time to get paid.

But if we look at the roots of the words, we can envision unique people, each of us, actors on a stage, linked with each other, thankful to be apart from bondage. Trying to do the right thing. All of us. Across all genders, skin colors, ethnicities, etc. If we choose to believe. We are all linked. All invited. To share in our common humanity as actors on the socio-economic stage. Applying innovation and creativity. Competing, together. Working, together. 

This is the vision from 1776 that I choose to believe. 

Should we assign an “end date” to our current economic system? Like it or not, those are the stakes of our current crisis-era debate. Will the virus end this era? We’ll answer this with another question: Is our current economic system worth defending? 

What would a simple material human scoreboard say? 

In 1776:

- world population: 800MM

- world life expectancy: < 40 years 

- world literacy rates: 10%, so 80MM humans could read

- world connectivity: 0% online, so 80MM people are connected via slow-moving personal speech and handwritten letters 

- world extreme poverty rates: 80%, meaning 640MM of the 800MM humans lived under extreme poverty

In 2020:

- world population: 7.7B

- world life expectancy: > 70 years

- world literacy rates: 85%, so 6.5B humans can read

- world connectivity: 50% online, so 3.85B people are connected instantaneously via high-speed Internet

- world extreme poverty rates: 10%, meaning 770MM of the 7.7B humans live under extreme poverty

From a material perspective, this looks like success. Literally billions of us connect with each other today through words and images, sharing ideas such as this one. Comparing notes. Trying to make the world a better place. Again, there are dozens of caveats, appropriately. Much more work to be done to share the bounty of our current economic system with a broader audience. No doubt. But the raw numbers certainly tell the story of a system worth saving,. And adapting. 

So what’s the problem? 

“Freedom for the individual person” was originally defined materially. Perhaps too narrowly. For a narrow subset of people in a world without perceived limits. Without any notion of externalities. Without any notion of the macro effects caused by a series of separate micro decisions. 

The economic problem today is within our global "Debt and Credit" system. Created not by any top-down conspiracy, but by the collective, unintended and aggregate action of each of us. Every single one. We all own this. A gigantic macro outcome resulting from generations of separate unwitting micro decisions. A world of unmeasured externalities. 

How large is this problem? 

If you study aggregate numbers from the institute of International Finance or the McKinsey Global Institute, you’ll find a > $250T stock of outstanding debt. This includes only formal debt outstanding. The approximate breakdown: 

- Corporates (Non-Financial): $75T

- Corporates (Financial): $60T

- Government: $70T

- Households: $50T

The size of this debt has grown dramatically in the past few decades. To be fair, belief in the material value of this debt has allowed human energy to be directed to productive economic activities. To create meaningful jobs. To create opportunity. But is there a point beyond which excess economic energy makes no sense? 

In the aftermath of the 2008 crisis, the global “Government” sector cut interest rates and various Government central banks purchased debt through Quantitative Easing. Since then, the global debt outstanding of “Corporates (Non-Financial)” and “Government” debt has surged dramatically. “Corporates (Financial)” and “Households” have lagged. So the composition of this debt changed. But the overall quantities have continued to expand. 

And this all stands versus $90T in aggregate pre-crisis global GDP. Entering the current crisis, global debt was at an all-time high both in aggregate and relative to GDP. So our collective material over-leveraging has exacerbated the current virus-led downturn. We did not enter this current crisis in any position of global strength. 

(FYI, this analysis includes only formal debt outstanding. It does not include any off-balance sheet liabilities. From a US perspective, this would include the net present value of unfunded Social Security, Medicare, Medicaid, government and private sector pensions, etc. You can study these numbers and easily add hundreds of trillions of deferred unfunded liabilities to the formal debt aggregates, making the current problem larger by a factor.) 

With GDP shut, why are the markets down? Because the unwind of > $250T in debt is rippling through the global economic system. And will continue to do so until GDP is no longer shut. This is the economic problem we collectively face. 

We have decided to NOT establish a GDP hiatus or any facility for debt restructuring. Instead, the global short-term fixes currently proposed all shift our debt burden onto the “Government” sector. This is a "least bad” tactic. It hopefully avoids massive unemployment. It hopefully keeps crucial supply lines open for food, medicine and shelter. So these ideas deserve some support. 

However, these ideas are risky. In an era of decreased trust in both institutions and political leaders, this series of proposals hoists an undue amount of responsibility onto belief in an economic system that many no longer trust. In an era, very different from 1776, when everyone has access to information. This series of proposals shifts a burden onto not just “Government” debt, but onto the currency that governments can print. The fiat currency system. Another source of leverage. Money. Such a blunt instrument. 

Our fiat currency. “Fiat.” From Latin, meaning, “let it be done.” As it is decreed, today with the stroke of a keyboard. As with the $250T of global debt in the first place, fiat currency is an embodiment of shared belief. In hope for a better future. In trust. That it can, in fact, "be done." What if belief falls short?   

If our response to this crisis simply shifts our leverage problem from one sector of the economy to another, we lose so much. We lose an opportunity to redefine economic “freedom for the individual person.” An opportunity to build on our collective legacy while learning lessons from our shared past. An opportunity to move away from a narrow, selfish view of “the economy.” To incorporate externalities. To incorporate our connection to others. To move beyond blunt instruments. To acknowledge the macro effects established through each of our independent micro decisions. 

The proposed global short-term fixes are fine, perhaps, as tactics. What matters much more is that we establish a collective belief in the overall strategy to deal not only with the current crisis, but the economy beyond. This is our opportunity. To establish a strategy we can believe in. Data-driven, bottoms-up. To, in fact, define a purpose for our global economy. To create the next phase of capitalism. 

This is perhaps where the crisis is calling us. To creativity. Imagination. Unconstrained thinking. Building upon the past. While acknowledging the human flaws of our shared legacy. 

As we have hit “pause” on our GDP system to combat the virus, let us also hit “pause” on the powerful societal forces centralizing the economic power of leverage during this time of crisis. Each of us can serve as leaders in this effort. Let’s not panic. There is clearly massive enterprise value remaining in our global system. Just look at the sacrifices of our workers staffing our essential economy, across medicine, food, shelter, and beyond. Look at how we’re all connecting right now. 

As a species, in building this enterprise value, we have made massive material strides in the 244 years since 1776. Let’s use 2020 to move our economy beyond the “material." To make sure that our limited time and our boundless energy are directed towards a higher purpose. To the dignity of our work. To something we can believe in.

We can do better. The time is now.