The COVID-19 crisis and resulting recession will strain state government budgets. Unlike the federal government, the states are required to balance their general fund budgets each year. As the economy shrinks, state income and sales tax revenues will fall and budget gaps will rise.

One way to fill budget gaps is to use state rainy day funds, which are also called budget stabilization funds. All states have such funds, but the mechanisms vary. The rules for fund deposits, withdrawals, and maximum fund sizes differ between the states. Some funds are constitutional and others are statutory. Reports by NCSL, Tax Foundation, and Pew provide details.

After the deep recession a decade ago, many states learned the lesson and have since grown their rainy day funds. NASBO reported in December that rainy day funds were projected to be an average 8.4 percent of annual general fund spending for fiscal year 2020, which compares to 4.8 percent going into the last recession in 2008. Today’s larger rainy funds will help the states weather the COVID-19 storm.

However, the size of state rainy day funds varies widely. The chart below shows NASBO data for projected fund sizes in 2020 before the crisis hit. News reports indicate that some states are already tapping these funds.

The chart indicates that some states have been such spendthrifts that, after a decade of economic growth, they have saved little or nothing. Illinois and Kansas have completely empty cupboards, while Pennsylvania and New Jersey have rainy day funds of just 1 percent of their budgets. The largest funds are in energy producing states, which build war chests to handle the strong cyclical ups and downs in their economies.

State leaders and economists did not foresee the COVID-19 crisis of 2020, nor they did not foresee the deep recession of a decade ago. That is why rainy day funds make a lot of sense. It is also why state governments should pay down debt during strong growth years, because downturns eventually arrive. Of course, the same is true of the federal government.

When growth resumes after the current crisis, the states should spend the next few years beefing up their rainy day funds to high levels. A few states—such as Illinois—need a radical overhaul of their budgeting processes because they can’t seem to save any money, even after years of growth. Aside from helping states weather storms, large rainy day funds make states less reliant on federal bailouts, they improve state credit ratings, and they strengthen the overall U.S. macroeconomy.

Notes: Data for 2020 was not available from NASBO for Georgia, Michigan, North Carolina, Oklahoma, and Wisconsin, so earlier data was used. I capped the chart at 30 percent. North Dakota was 30 percent, Alaska was 53 percent, and Wyoming was 109 percent.

Sarah Rapier assisted with this blog.

War is the health of the state, Randolph Bourne famously said, and President Trump is hardly alone in describing the fight against COVID-19 as a “war.” However inapposite that metaphor might be, public officials at all levels of government are now exercising emergency powers rarely seen outside the context of total war.

Wars—metaphorical and literal—have also been the health of the presidency. In his first inaugural, along with the famous lines about “fear itself,” FDR announced his desire for “broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.” Given a serious enough crisis, that gambit usually works. 

What’s surprising—and I should probably type this with my fingers crossed—is that so far, the COVID-19 crisis hasn’t yet led to massive new presidential power grabs. Trump’s performance has been appalling in myriad other ways—from his just-the-flu denialism of a month ago to the Chavezian, “Hello President!” tenor of his daily Coronavirus briefings. But in terms of exploiting the pandemic to radically expand executive power—again, so far—Trump has been a piker next to FDR, George W. Bush, or even Barack Obama.

Harvard Law’s Noah Feldman recently had a provocative piece in Bloomberg making that case: “Coronavirus Response Shows Trump Isn’t a Dictator.” Feldman, you may recall, was a key Democratic witness making the constitutional case for Trump’s impeachment: he’s emphatically not a fan of this president. Still, Feldman argues, during the COVID-19 outbreak, Trump has “pretty consistently done the opposite” of what the would-be autocrat’s playbook would call for in terms of amassing power.

There’s something to this: as Feldman points out, Trump has dragged his heels about making more than nominal use of the staggering powers delegated to the president by the Defense Production Act. (It is somewhat strange to hear Democrats urge this president to wield “semi-dictatorial powers.”)

And, despite Trump’s flagrant abuses of national emergency powers earlier in his presidency, it’s hard to get too worked up about the Coronavirus emergency declaration he issued on March 13th. For one thing—unlike, say, Mexican-Border crossing—a once-a-century global pandemic can fairly be described as a “national emergency.” For another, the statutory powers unlocked by the decree were hardly terrifying; some, like the loosening of federal restrictions on telemedicine and in-state medical licensing, were entirely sensible.

Still, I think Feldman lets the president off too easy when it comes to Trump’s abortive proposal for a Tristate lockdown, in the form of an “enforceable quarantine” surrounding New York, New Jersey, and Connecticut. Since CDC doesn’t have a police force capable of erecting a cordon sanitaire around some 30 million Americans, an “enforceable quarantine” would require US military “boots on the ground” and guns turned on American citizens. It’s good that Trump quickly abandoned the idea, but maybe he shouldn’t float his dystopian brainwaves over Twitter in the first place.

And we need to add a major qualifier to Feldman’s assessment that Trump’s “fairly consistent choice thus far in the Covid-19 crisis [has been] to reject the impulse to grab power.” It’s true Trump hasn’t pushed for major expansions of presidential power to fight the virus; but he has used the crisis as cover for a power-grab of a different sort.

Where past presidents have pushed against constitutional limits in service of policy goals or ideological commitment to the strong presidency, Trump’s interest in executive power has always been overwhelmingly personal. He believes in his “absolute right” to wield it as a weapon for settling scores, “screw[ing] his political enemies,” and shielding himself and his allies from unwelcome scrutiny.

That probably explains his boldest presidential-power move since the COVID-19 pandemic began: what even the Trump-friendly NY Post’s editorial board calls a “war” on inspectors general.

A week ago, Trump fired Michael Atkinson, the Intelligence Community’s Inspector General, in a transparent act of payback for his role in the events that led to Trump’s impeachment (Atkinson, as he was legally bound to do, notified Congress of the whistleblower complaint about his July 25 call with the president of Ukraine). On Tuesday, Trump ousted the Pentagon IG appointed as head watchdog over the disbursement of more than $2 trillion of pandemic relief funds. (For good measure, the same day, he slammed a third IG, HHS’s Christi Grimm, for issuing an accurate report on COVID-19 test shortages and lack of protective equipment for front-line health care workers: “Another Fake Dossier!”)

The war on IGs isn’t a presidential power grab in the usual sense of torturing noncompliant laws into submission. The relevant statutes give the president the power to fire the officials in question. But the governing expectation has always been that it would be shameful and inappropriate to remove an IG for exposing misbehavior, corruption, and incompetence. Trump’s attack on that norm, in the midst of a crisis, will likely succeed, making it easier for future presidents to get away with similar moves. That prospect isn’t as immediately alarming as military lockdowns or dictatorial economic powers. Even so, while we’re planning for the eventual return to “normalcy,” we should take care that the new normal doesn’t include an executive branch even more susceptible to corruption and abuse of power.

The economics news is dismal with reports every day of shutdowns, layoffs, and furloughs. More than 16 million Americans have been thrown out of work so far, and we have entered the worst downturn since the Great Depression of the 1930s.

Yet amid the gloom there are frequent reports of businesses and entrepreneurs making advances in the battle against Covid-19. The private sector is racing to produce vaccines, treatments, tests, and medical supplies to defeat the pandemic.

Here are some recent developments:

• Formlabs is churning out COVID-19 test swabs with 3‑D printing, going from prototype to production in weeks. Meanwhile, Prisma Health and Johnson & Johnson are using 3‑D printing to produce ventilator splitters, allowing one machine to be used by two patients.
• Walgreens is expanding drive-thru virus testing in seven states this week.
• Abbott Labs invented a COVID-19 test kit that produces results in 5 to 13 minutes. The company has shipped 190,000 kits so far. Cepheid and Mesa Biotech have also developed tests that produce fairly rapid results.
• Robotics companies have created machines that drive around hospitals and other facilities spraying ultraviolet light (UVC) to kill viruses in the air and on surfaces.
• Gilead Sciences has increased production of its experimental coronavirus drug remdesivir, and currently has 1.5 million doses that it is providing free of charge.
• Brooks Brothers is making surgical masks and ramping up production to 150,000 masks per day from factories in three states.
• Georgia Tech has teamed with Coca Cola and other companies to produce more than 50,000 plastic face shields.
• Eli Lilly has teamed with AbCellera to isolate antibodies from COVID-19 survivors and develop a therapy.
• Regeneron Pharmaceuticals is developing an antibody cocktail to treat COVID-19.
• Johnson & Johnson is planning to start clinical trials for a possible vaccine by September.
• Moderna began human trials in March and is hoping to develop a vaccine based on its cutting edge messenger RNA methodology.
• Entos Pharmaceuticals is working to develop a DNA-based vaccine. Such a vaccine would be cheaper and easier to scale than typical vaccines.
• OyaGen is conducting studies on the safety and efficacy of an antiviral drug that may be effective against COVID-19.
• Airways Therapeutics, a startup specializing in lung diseases, is working to repurpose a therapy that reduces lung inflammation to treat COVID-19.
• General Motors is building 30,000 ventilators, while Tesla and Ford are also aiming to produce the machines.
• Rice University students developed a ventilator alternative to help patients when regular ventilators are unavailable. The devices are cheap to build and the plans are free online.
• Telemedicine is booming in recent weeks after government deregulation. Stand-alone companies, such as Teladoc and Doctor on Demand, are adding doctors, and big technology firms, such as Apple, Google, and Microsoft, are entering the business. Hospitals, urgent care centers, and health networks have moved quickly into telemedicine. Mental health providers are going online. AT&T is partnering with VitalCare to offer free telemedicine to hospitals.

I discuss other business advances against COVID-19 here. Business Roundtable lists ways that its members are contributing here. BIO discusses medicines that its members are developing here. The Chamber of Commerce describes small business efforts to combat the virus here. PhRMA tallies the dozens of COVID-19 therapies and vaccines in development in the chart below and sourced here.

David Kemp helped research this blog.

Second in a series (first is here):

* For me, the week’s high and low morale-wise came on the same day in contrasting stories from stricken New York City. The high came with reports of how an estimated 500 EMS crew members from around the country and their vehicles have converged on Gotham from points including Kalamazoo, Mich., Fergus Falls, Minn., and Florida to help the city handle an emergency medical call volume running far above normal. As one who’s lived much of my life in the greater New York area and remembers similar help in the days after 9/11, it means a lot to me to see these heroes taking real risks to come to the aid of the city, not because they have to but because they want to.

The low point came the same day when I read that New York City Mayor Bill de Blasio in an official statement had “called on the federal government to institute an essential draft of all private medical personnel to help in the fight against COVID-19.” The mayor’s office later confirmed to J.D. Tuccille of Reason that he had conscription in mind. Happily, de Blasio’s call for the use of coercion found few echoes, perhaps because it would be such a brutal assault on individual liberty, perhaps because the mayor’s own reputation for handling the virus stands so very low that hardly anyone is looking to take advice from him. (De Blasio also figured in last week’s notebook when he threatened to close down rule-breaking synagogues “permanently.”)

* Chris Edwards wrote Wednesday about the battles in which the federal government (as well as some state governments, like those of New Jersey and New York) have stepped in to intercept and requisition supplies of key medical supplies needed in the crisis, from ventilators to personal protective equipment (PPE) to testing supplies. The phenomenon here — local hospitals, businesses, and communities trying to do the right thing for their patients and employees, then finding their carefully developed lines of supply commandeered — reminds me of a famous passage from Ludwig von Mises’s Human Action, about how central planning is inconsistent with the capacity of smaller entities and individuals to plan out their own futures. “The alternative is not plan or no plan. The question is whose planning? Should each member of society plan for himself, or should a benevolent government alone plan for them all?”

* Last week I mentioned a seemingly wacky idea about using the crisis as an excuse to ban tobacco and vape devices. Now the New York Times is promoting that idea, in a discussion that makes zero mention of the implications of creating a gigantic new covert black market as well as, of course, zero mention of the concept of freedom.

* I’ll end on a more positive note with an anecdote from the serious 1957 Asian flu outbreak about vaccinologist Maurice Hilleman, who per his compelling Wikipedia biography “is credited with saving more lives than any other medical scientist of the 20th century.” Per a Tyler Cowen commenter, “Hilleman took a step that seems unbelievable in the bureaucratically hardened, litigious society of today. He bypassed [the federal department that is now HHS] and contacted the heads of the 6 U.S. vaccine manufacturers directly. His message was simple. ‘Don’t kill your roosters.’” Why were the roosters important? Follow the link and see.

In a new article at Responsible Statecraft, I ponder the possible implications of the COVID-19 outbreak on the future of U.S. foreign policy. U.S. government officials are responsible for identifying and prioritizing among many national security threats, and generally trusted with finding the most appropriate tools for addressing those threats. There are obvious tradeoffs. For example, the U.S. military – that mostly deals with problems “over there” – competes for resources with those institutions responsible for defeating threats to public safety here in the United States.

Pentagon spending advocates – hawks in the usual parlance – are likely to argue that we shouldn’t cut the military in order to free up more resources for public health. We’ll soon go back to normal, they’ll say. COVID-19 was a black swan event. From their perspective, it would be unwise to reorient our national security strategy and spending to deal with one type of threat at the expense of all others.

That isn’t exactly how politics responded after 9/11, also a black swan event – but, in that case, the military eventually came out on top. In fact, anyone arguing against the militarized approach (i.e. so-called doves), and who saw counterterrorism as chiefly an intelligence and law enforcement problem, was attacked by the hawks for not taking the threat seriously enough. Only a war would do. Anything less was naïve — or even callous, a sign of indifference to the inevitable suffering of those future victims of certain terrorist attacks.

That perspective, fixed within days or weeks of September 11, 2001, has persisted. Even today, proposals to remove U.S. forces from Afghanistan, for example, are met with dire warnings that this will increase the risk of future terrorist incidents here in the United States. Only an ongoing and open-ended U.S. military presence, we’re told, can manage this risk. And nothing will eliminate it. The best we can do is manage the danger.

Will such arguments survive the current crisis here at home? What politician will make the argument that Americans might have to die of COVID-19 today in order to ensure that other Americans are not killed by a terrorist in the future? And might those military personnel so active in helping to build foreign countries be needed to save this one?

The suggestion seemed absurd for generations. There was no such danger nearby, or even on the horizon.

The danger is now here.

So, whereas it was once considered naïve to doubt that terrorism posed a very grave threat to public safety, will pandemic skeptics in the future be panned as dangerously out of touch with reality? Will the claims of traditional defense hawks, who could be counted on to make a full-throated case for every ship, tank, or missile that the Pentagon wanted (and even a few that it didn’t), now be subjected to greater scrutiny? At a minimum, it seems likely that some senator or congressman will ask, for example, how that ship, tank, or missile, might perform against a killer pandemic.

In the post‑9/​11 era, a few dared to question whether the massive costs we had incurred (not merely in our wallets but also to our liberties) amounted to a needless overreaction. But most Americans fell meekly into line – literally. The lines manned by TSA agents. Or at sporting events. Or public buildings. Will a similar pattern play out post COVID-19? The early signs are troubling.

On the other hand, the disease and its aftermath should prompt a robust debate over how best to preserve U.S. national security. In a peculiar twist, those calling for more spending to defeat diseases could be called the pandemic hawks, while those arguing against (and preferring that most resources remain with the military) become the doves. The suggestion might seem bizarre, and the terms hawk and dove pertain to more than spending priorities. But, as I conclude at Responsible Statecraft, “while the coronavirus won’t change everything, it will change many things.”

Finding the proper balance between public safety and personal freedom post-COVID-19 “will require us to revisit all of the things that we say we need to do to keep us safe. And it should entail finally shifting resources away from the military, and dropping a militarized approach to global problems, in favor of the many other instruments of American power and influence.”

You can read the whole thing here.

The Institute for Health Metrics and Evaluation at the University of Washington provides a forecasting model respected and used by the White House Coronavirus Task Force to plan the response to the COVID-19 pandemic. Last Sunday it revised its fatality projections downward to 81,766 deaths (range 49,431 to 136,401) by early August, with the peak day occurring on April 16. It now projects 60,401 deaths (range 31,221 to 126,703) by August 4, with a peak day of April 11.

This is very encouraging news. As Dr. Anthony Fauci of the task force previously stated, “Models are as good as the assumptions you put into them.” And as more data come in and we develop more knowledge about the virus’ impact, the assumptions put into the models change and the projections change with them.

These improved projections are little comfort to the people living in the New York/​New Jersey metropolitan areas, as well other highly impacted areas such as New Orleans or Detroit, whose health systems are overwhelmed and whose fatality rates are striking, But it is important to bear in mind that different portions of the country are experiencing different case rates and fatality rates.

As the Wall Street Journal pointed out in its April 8 editorial, demographic and geographical differences probably explain a lot about these variations. That’s why I have argued that policies implemented in response to the public health emergency should not be one-size-fits-all, but should be customized to fit the facts on the ground in various regions of the country based upon local knowledge. California, which began its statewide lockdown on March 22, just three days before New York, had 485 fatalities reported on April 8, compared to New York which had 6,268 fatalities. It is reasonable to ask if the same policies that are appropriate in New York are completely necessary in California. It is also reasonable to ask if perhaps Californians were exposed to COVID-19 months ago, and herd immunity may have already developed there, slowing the virus’ spread. (More on that later.)

Speaking of local knowledge, on March 16 the Food and Drug Administration responded to criticisms that its cumbersome regulatory process is slowing the development and release of COVID-19 tests by delegating authority to the states to approve tests within their borders.

Public health officials are hoping that tests for antibodies, which indicate if a person has already had the infection and therefore developed immunity, will soon become widely available. This is key to a plan in Germany: people there who display immunity will be given “immunity certificates” and allowed to go back to work. They can’t become infected and can’t infect any contacts.

The FDA finally gave emergency use authorization for an antibody test made by the biotech company Cellex on April 4. However, it specified that the manufacturer must state on the test label that it is not formally FDA-approved, and testing is limited to FDA-certified labs. The tests are not available to private labs or for home testing. They should be available soon.

While we wait—and exercising the authority delegated to it by the FDA—California, on April 1, allowed an antibody test made by Premier Biotech to be used by ARCpoint Labs, a commercial laboratory in Monterey, CA. The test is not FDA-approved.

And on April 3 researchers at Stanford University School of Medicine began a study using that same Premier Biotech test, hoping to learn if California’s low fatality rate might be the result of herd immunity. California is the number one U.S. tourist destination for people from China. Chinese health authorities recently revised the date that they believe the COVID-19 virus came on the scene in Wuhan, from early January to early November. The Stanford researchers believe it might have developed even earlier, and was being brought to California by asymptomatic or mildly symptomatic Chinese tourists in the fall—when California doctors were reporting an earlier than usual flu season.

On April 3^rd and 4^th the Stanford researchers performed the test on 3,200 people at sites in San Jose, Los Gatos, and Mountain View. The tests just take a few minutes to run. They hope to complete the study and release their findings in the next few weeks. Meanwhile, ARCpoint Labs has already conducted 500 of the tests, with some positive results, and is sending in all of the results to the Monterey County Health Department.

If it turns out that Californians are approaching herd immunity, life there can return to normal sooner than the national models would otherwise predict.

California provides a good example here of how decentralization and deregulation, using local knowledge, can produce rapid and community-specific responses when unexpected emergencies arise.

That appears to be the case. The Los Angeles Times calls it “seizing,” but it amounts to the same thing as these are legal products that the government did not order. The White House and FEMA are swooping in to grab masks, thermometers, and other items in a secretive process with apparently little recourse.

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How much of the coming economic downturn will be driven by government shutdowns as opposed to the changing consumer and producer behavior we’d expect because of the coronavirus?

These actions are abusive from a civil liberties perspective, and such command-and-control methods make no practical sense either. As I discuss here, here, and here, central planning is the wrong way to go for disaster planning and response, as it will make the nation less safe and resilient.

Los Angeles Times reporter Noam M. Levey describes what is going on:

Although President Trump has directed states and hospitals to secure what supplies they can, the federal government is quietly seizing orders, leaving medical providers across the country in the dark about where the material is going and how they can get what they need to deal with the coronavirus pandemic.

Hospital and clinic officials in seven states described the seizures in interviews over the past week. The Federal Emergency Management Agency is not publicly reporting the acquisitions, despite the outlay of millions of dollars of taxpayer money, nor has the administration detailed how it decides which supplies to seize and where to reroute them.

Officials who’ve had materials seized also say they’ve received no guidance from the government about how or if they will get access to the supplies they ordered.

… In Florida, a large medical system saw an order for thermometers taken away. And officials at a system in Massachusetts were unable to determine where its order of masks went.

… PeaceHealth, a 10-hospital system in Washington, Oregon and Alaska, had a shipment of testing supplies seized recently. “It’s incredibly frustrating,” said Richard DeCarlo, the system’s chief operating officer.

… In response to questions from The Times, a FEMA representative said the agency, working with the Department of Health and Human Services and the Department of Defense, has developed a system for identifying needed supplies from vendors and distributing them equitably….But the agency has refused to provide any details about how these determinations are made or why it is choosing to seize some supply orders and not others.

… Hospital and health officials describe an opaque process in which federal officials sweep in without warning to expropriate supplies.

Jose Camacho, who heads the Texas Assn. of Community Health Centers, said his group was trying to purchase a small order of just 20,000 masks when his supplier reported that the order had been taken.

Camacho was flabbergasted. Several of his member clinics — which as primary care centers are supposed to alleviate pressure on overburdened hospitals — are struggling to stay open amid woeful shortages of protective equipment.

“Everyone says you are supposed to be on your own,” Camacho said, noting Trump’s repeated admonition that states and local health systems cannot rely on Washington for supplies. “Then to have this happen, you just sit there wondering what else you can do. You can’t fight the federal government.”