Second COVID-19 Wave and the U.S. Economy

Photo by Bryan Regan/


Evidence keeps growing that the U.S. has entered a second wave of the Coronavirus pandemic. More than 117,000 Americans thus far have died in just the past 3 months and more than 2.1 million have been infected. That compares to roughly 460,000 and 7.6 million worldwide. With roughly 5 percent of the world’s population, the U.S. has about 25 percent of the world’s virus cases—a testimony to the abject failure of the U.S. to manage the virus.

That failure is perhaps most evident in Trump’s virtual withdrawal from the “war” on the virus and what appears to be his new strategy of letting states deal with it on their own. Trump’s government is clearly in retreat, concerned only with one thing: to get Trump re-elected no matter what the cost in lives or economic well-being of American citizens.

Trump’s policy boils down to this: totally re-open the economy now, blame the states, World Health Organization and the Chinese for the crisis, declare the rising numbers of infections, hospitalizations, etc. as “fake news,” blame a second wave on increased testing, and hold daily mass political rallies from now until November.

Trump’s only concern is to hold rallies with his conservative red state base that will exacerbate the contagion effect of the virus. As President of only the 30 percent (his base), he is little concerned about the country at large or the virus “war” that has already killed more Americans than every U.S. war together since 1945. Trump’s only actual order after he announced the activation of the war production act months ago has been to force meatpacking workers back to work or else forfeit their unemployment benefits. Work or die, will be the legacy of Trump as a “war president.”
Trump’s economic legacy, history will also eventually show, is to have pushed for a premature reopening of the U.S. economy in the middle of the pandemic and a resurgance of virus infections.

Indicators of a second wave in the U.S. are now rising in no fewer than 18 states, most of which are located in the South and Southwest.

Key indicators of a virus re-surge in the U.S.—like hospitalization rates, death rates, and the test positivity rate—are all on the increase throughout those 18 states. In some states, like Arizona, the availability of ICU beds is fast approaching maximum capacity. Texas is now experiencing more than 2,247 new hospitalizations per day, after re-opening its economy on May 1—that’s 7 straight days of rising hospitalizations per day for the state. Florida also experienced a new one day record of more than 1,900 cases. Alabama, Arkansas and South Carolina are all witnessing surging hospitalizations as well, approaching max capacity in ICU beds.

But it’s not just the deep South. West coast states—Nevada, Oregon, Alaska, and others—are recording a new rise in cases, reversing a prior downward trend. That fact suggests what’s going on now is more than just a first wave. What we may now have is a simultaneous extension of the first wave into the red states, as well as an emergence of a second wave congruent with that extension.

Meanwhile, scientists have recently confirmed that the coronavirus has indeed now mutated, and is potentially five times more contagious.


Congruent Developments Fanning The Second Wave

It is in this general environment that the U.S. is now rushing toward re-opening its economy, especially in the South, Southwest and Mid-west, where a more or less full re-opening is entering its fifth week in some cases. Added to the premature re-opening are public demonstrations against policy brutality that have grown and continue to grow, overlaid on the economic re-opening. Perhaps the biggest factor contributing to the emergence of a second wave, however, has been the lack of public self-discipline in many states, especially the “red” ones where Trump’s political base is concentrated. A rising disregard of social distancing has been the growing norm in many states. It’s not just that many people don’t believe they can catch the virus; it’s also that they just don’t care if they spread it if they do get sick.

Add to all this the example of President Trump, who has announced he now plans to begin holding mass election rallies—thus sending the message to the public it’s okay to engage in mass gatherings. And if they follow Trump’s example, they’ll do so without wearing face masks. As the moronic right wing blogosphere has been saying—and Trump has again picked up—the rising rates of infection are because we’re testing too much. Social distancing may have “flattened the curve” in places like New York City and big urban centers of the Northeast. But the general economic re-opening now underway, the widespread protests and demonstrations against police brutality, Trump’s personal behavior example to his political base and, probably and most important, the general lack of social discipline by the populace in many regions like the country, have ensured the effects of COVID-19 in the U.S. are now on the rise once again.

And it does not appear any of these sources driving a second wave are about to abate any time soon.

Trump administration key spokespersons, like economic advisor Larry Kudlow and Treasury Secretary Steve Mnuchin, have both declared publicly that the U.S. economy will not shut down and shelter in place again a second time. Trump thus has decided to trade tens of thousands of more U.S. lives for the right of business to return to producing revenues and profits.

Nor does it appear Black Lives Matters protestors, mobilizing against decades of intensifying police brutality, will relent in their public demonstrations.

Nor that a majority of residents of the “red” states will finally acknowledge the need for social discipline and social distancing soon by all indicators when the trend is actually opposite.

Nor does it appear Trump is about to reconsider holding mass election rallies, an action that sends a clear message to the rest of the country that it’s okay to gather in large groups, to abandon social distancing, and mask wearing.

Protesting at the White House

Photo by bgrocker/

A second Wave Means W-Shape Economic Stagnation…Or Worse

In short, it is increasingly likely that things are about to get worse in terms of U.S. public health. And as that happens, so too will the U.S. economy experience a further negative impact from the virus. A second wave now emerging means not just a further decline in public health, but an eventual second wave of problems for the U.S. economy as well.

What a second wave all but ensures is that the U.S. economic recovery will not be V-Shape but a W-Shape; that is, a W-shape recovery characterized by periods of short and shallow GDP growth, followed by brief periodic economic relapses thereafter. These short, shallow recoveries and relapses may repeat and continue for years to come.

Should the economic stress building from weak, short and shallow recoveries—i.e. an extended deep economic stagnation for years to come—result in an inevitable flood of business, local government, and household debt defaults and bankruptcies, it will eventually overwhelm the financial system, and could usher in an economic depression perhaps even worse than the 1930s.

Great Depressions are always the result of mutually amplifying crises in the real and financial sectors of the economy. The current deep contraction of the U.S. economy has yet to experience a subsequent banking-financial system crash. However, the longer the current seriously wounded U.S. economy continues to stagnate, slipping in and out of recessions for years, the more likely it becomes that a wave of business and consumer defaults (i.e. failure to pay interest and principal) on record levels of business-household-local government debt will wash over the economy.

When that happens, banks will have to assume the bad debt of failed companies, households, and local governments on their own bank balance sheets. That freezes up lending to business and households in general. Further mass layoffs then follow. Following the bank lending freeze, the real economy contracts still further as the banking system crashes. A financial crisis converges with the real, deep economic contraction and stagnation already underway. As the two systems—financial and real economy—mutually interact and amplify each other, the outcome is a descent into a bona fide economic depression.


2008-09 Great Recession & 2020 Briefly Compared

In 2008-09 it was the financial side that crashed first, subsequently dragging down the real economy 5-10 percent for several quarters and producing unemployment rates of 15-20 percent. Thereafter it took six years just to recover the jobs lost in 2008-09 and return to 2007 employment levels. Wages for most working families stagnated or fell for the next decade. Working class family debt ballooned in lieu of real wage gains across all categories—credit cards, autos, mortgage, student debt, installment debt, etc.—to almost $15 trillion today. In the first three months of the virus, household debt has risen 16 percent more, according to the New York Federal Reserve. Federal Reserve policies of 2008-09 quickly bailed out investors and the banks, but did little for jobs, wage and income levels for workers, and working class living standards in general.

At the same time, corporate profits nearly tripled from 2009 to 2019. Corporate America, in turn, awarded its shareholders nicely. Stock buybacks and dividend payouts under Obama averaged more than $800 billion a year from 2009 through 2016. Trump added a further $3.4 trillion in just 3 years. That’s a total of more than $10 trillion of income and wealth distributed to shareholders in a decade. In contrast to wage stagnation and decline for the bottom 80 percent of U.S. households.

This time, in 2020, the causal relationships between the two sectors—real and financial—are reversed. This time it’s a crash of the real side of the economy, at least four times worse than that which occurred in 2008-09.

In 2008-09 it was the financial crash that precipitated, accelerated and deepened the real economic contraction. Today in 2020, the causal relation is reversed, and may prove worse. The real economy contraction and extended stagnation may precipitate a financial crisis which, in turn, could feedback further on the real economy and cause an even deeper and longer contraction. Mutual feedback historically always leads to a great depression. It doesn’t matter which precipitates which. The mutual negative interaction is the key determinant that drives the depression.

In just the first wave of COVID-19, from late February through May 2020, working class households lost more than $1 trillion net in wage income—even after $500 billion in expanded unemployment benefits and government stimulus checks are factored in. In contrast, corporations were provided since March with $1.7 trillion in loans and grants plus another $650 billion in further business tax cuts under the March 2020 CARES Act. And the Federal Reserve has provided another $3.3 trillion in loans to banks, to corporations, and to investors as well. That’s a 10 to 1 ratio: more than $5.5 trillion to business and only $500 billion to the rest. Most of the subsidy to business is being hoarded, moreover; whereas, most of the $500 billion has been already spent. Neither provide any further real stimulus to the economy in the second half of 2020.

In the second wave on the horizon, moreover, more of the same is yet to come, as it appears likely Congress, in its forthcoming HEROES Act, will discontinue the March 2020 unemployment benefits extension that expires the end of July; will refuse to provide further income supplement checks; and will instead use the “savings” from such programs to provide direct wage subsidies to business. By some estimates, the government (and thus the taxpayer) plans to subsidize business further by providing a wage subsidy of up to 85 percent of wages that were previously paid by businesses to their employees. In short, instead of unemployment benefits to workers, it will be wage payment subsidies to businesses.

The Great Capitalist Experiment: Pre-Bail Out the System

So far the Fed has staved off a banking crash by pumping $3.3 trillion into bankers and investors, in effect preemptively bailing them out before a crash actually occurs. Congress has provided another $1.7 trillion so far to pre bailout the non-banking side of the business economy with loans and free grants, plus another $650 billion business-investor tax cuts. The Fed has promised even more “free money” to banks and businesses. And Congress has signaled it is prepared to provide still more to business—if not to workers, consumers, and state and local governments.
Capitalism in the U.S. today is engaged in a massive subsidization of capitalism itself on a grand scale never experienced or even envisioned before. It is flooding the system with free money and liquidity (loans, grants, tax cuts, QE, corporate bond purchases, etc.) in an attempt to prevent another “great recession” of 2008-09 that would prove to be an even “greater recession of 2020-21”—or perhaps morph into the first Great Depression of the 21st century.
The COVID-19 effect, whether first or second wave, is not the sole factor driving the economy and the current economic crisis. Forces have now set in motion a continuing economic crisis, virus or no virus. It’s just a matter of time and place before the economic crisis enters a new and even more unstable phase.

It’s not a COVID-19 economy. It’s a capitalist economy, the instability of which has been rendered even more unstable by the current COVID-19 health crisis. And that instability is not going away should the virus disappear which, of course, is not about to happen either. Z


Dr. Jack Rasmus is author of the recently published book, The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump, Clarity Press, January 2020. He blogs at and hosts the weekly radio show, Alternative Visions. His twitter handle is @drjackrasmus.