APPEL: When The Virus Threat Is Gone, What Then?

The virus threat will soon fade away; the economic assault on our people will not.

A few of us in this state have for years warned that we must change our ways and create a new political/economic model if our people are to have a reasonable shot at the American Dream. Unfortunately, few have been willing to accept the reality that our hundred-year-old model has become more and more irrelevant in the 21st century. The re-election of our Huey Long style, populist governor speaks to us that there is at least a narrow majority that don’t understand the fallacy of what a poor performing state means to them.

The proof of my words was made justified this week when Fox Business published a list of states whose economies were expected to be most negatively affected by the coronavirus crisis. Ranked number one was Louisiana. This chilling red flag is probably even worse than Fox assumed because we have also been visited by a devastating blow to our energy sector. This powerful repudiation of our social populist philosophy has been generally ignored by the liberal in-state media. And because the media ignores it the people never hear of the implications, a sustained intra-state recession and potential massive job losses.

So, here’s the basis of this bad news. The energy sector may never return to anything approaching what it was even a year ago. With it goes hundreds of millions of dollars of state revenue from severance and personal and corporate income taxes along with thousands of jobs and small businesses. The tourism sector is in the same bad way. Even when the virus scare has abated, national corporations whose revenues have declined are unlikely to schedule conventions in New Orleans (it’s worth questioning whether the convention business itself won’t permanently change). And there is a probability that it may be years before people, with images of contagion burned into their psyche, overcome a fear of being cooped up in an airplane and return to flying. So, as the tourism sector declines along with it goes more state and local tax revenues and more thousands of jobs and small businesses.

And exacerbating all this, we can’t ignore that as business activity in these two major sectors goes away, more and more people have less to spend, so retail, construction, real estate, etc. all spiral downward.

Other states will feel pain too. Major sectors of their economies will take time to recover, but that time is measured in months. If history is accurate, the time for Louisiana to return to a pre-virus economy may be years or even a decade away.

Why is that? First, we do not have a diverse economic engine, we have ignored the danger of depending too heavily on two business sectors that are highly susceptible to external forces.

In Louisiana we have paid for our love affair with social populism through abundant petro-dollars derived from the energy sector. As citizens of our state we didn’t have to focus on education or economic development because we could depend on the energy sector for so much. Even as we became so dependent, we became complacent; jobs would never run out, why get a strong education you can always make plenty working in the oil patch, why have a good business climate we will always have substantial revenues and jobs from the energy business, we can sue the oil companies because they have to be here. Sound familiar? In defense of the status quo I have heard every one of these and more.

The same types of points can be made about the tourism sector, particularly in New Orleans. Why put demands on the people when business must be in New Orleans? Why worry that so many business sectors deserted the city for other, more favorable places, we have tourism. All of this is folly, nothing is free, nothing lasts forever, and business never “must” be somewhere.

So now our own House of Cards may come tumbling down. Most politicians and the in-state media are focused almost exclusively on the virus, that’s not a bad thing as health is the top priority. But at the same time, they ignore the impending economic disaster. That is a bad thing because when the virus is gone people still need to eat and have a place to live, and that takes income.

The other reason that Louisiana will suffer more than most other states is there is a good chance that our leaders’ lack of focus comes because they really have no clue how to manage an economic crisis. They claim to feel the pain of the unemployed and lost businesses but use that as the excuse to grow government dependency instead of changing that hundred-year-old Louisiana Way.

Now it appears that the sole weapon in the arsenal of government is to make available loans so that business can heal itself of the damage done by government. That’s it, persuade business to borrow money until things return to normal. Except this time things may not return to normal. There is no suggestion to fix what makes Louisiana unattractive to business, no suggestion to create a growth economy. Just tell business to suck it up, borrow money, and hope for the best.

This is the expected form of response from people who have never actually been in business. Loans are great if a business has revenue, has customers, and has an expectation that things will return to normal. The problem is that under this historic shutdown of the national economy, business has no revenue, has no customers and has no expectation that things will ever be normal.

A similar event happened to New Orleans in 1979. That Middle East oil upheaval sent domestic oil companies into a tailspin. In order to survive they consolidated operations away from New Orleans to places that had a business climate that allowed them to do what they were intended to do, make a profit and keep as much as possible for their shareholders. Large numbers of businesses not related to the energy sector folded, real estate collapsed, and people moved away. It took ten full years to recover, but only as a much smaller city, a much smaller economy. And the politicians did nothing.

Over time New Orleans’ lack of attraction for business became even worse through misguided government action and even more companies voted with their feet and left. As the economy sank, leadership ignored the basic benefits of a diversified economy and refused to address the broken economic fundamentals. So up to until this epidemic, the city has become almost wholly dependent on tourism and government services, no economic diversity. It has had no attraction to business relocation or growth, and now that the tourism sector is on life support, who knows where folks will find decent employment.

What Fox’s study made clear, as the rest of the nation responds to economic stimulus, it is highly unlikely that Louisiana will. If history is prologue, state leaders will, under the pressure of declining revenues, do everything possible to resist changing the social populism of the Louisiana Way. Instead they will find creative ways to avoid making substantive, but controversial decisions by shifting funds around within the budget, and maybe by even increasing taxes. The $1.8 billion Federal grant to Louisiana will be a juicy target for those imaginative politicians in Baton Rouge.

“Never let a good crisis go to waste.”

I am sure that the governor is committed to this maxim and will use it whenever possible. I too agree with it exactly as written, but not in the sense that our liberal governor would have us believe.

The coronavirus epidemic and energy sector disaster is the opportunity to undertake fundamental changes that will increase citizen prosperity, not government dependency. The whole nation is down, our competition is devastated. Now is the time to strike. Now is the time to make the needed changes that the people will willing accept if someone will only demonstrate to them that it is in their own interest. And never has there been a time when substantive change was more in the people’s best interest.

Yes, a few of us have been warning about our sick economy for some time. I pray that our warnings will be unnecessary soon after the end of this terrible epidemic.

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