Month: June 2020

Strategy and the COVID-19 pandemic

Posted on by j.giglio

Residents and workers at U.S. nursing homes and long-term care facilities have accounted for a staggering proportion of COVID-19 deaths. The prognosis is particularly poor for elderly individuals who contract the virus. Around 80 percent of U.S. COVID-19 deaths have been among people 65 and older, according to the Centers for Disease Control and Prevention. These numbers highlight the failure of government officials to think strategically.

The disease is particularly lethal to older adults with underlying health conditions and can spread easily through facilities where many people live in a confined environment and workers move from room to room. Because of residents’ close proximity, these places are alike petri dishes for the coronavirus. At least 50,000 residents and workers have died from the virus at U.S. nursing homes and other long-term care facilities for older adults.

This figure may be understated because states differ in how they report deaths of residents in long-term facilities. For example, some do not include incidents of a resident dying in a hospital.

The lack of a national strategy to ramp up COVID-19 testing in congregate care facilities and to provide protective equipment to staff made it easier for the virus to spread in these densely populated settings. State decisions to transfer recently recovered COVID-19 patients back into long-term care facilities also increased the risk to this population. New York State, for example, mandated that nursing home facilities admit actively ill COVID-19 patients.

Despite early warnings based on fatality rates in China and Italy that people over 65 were the most vulnerable to the novel coronavirus, the national and various state strategies for dealing with the pandemic had major shortcomings.

Successful business people understand that strategy is about making choices, such as who is the target customer they wish to serve. Additionally, they understand that a firm’s resources represent the critical building blocks of a successful strategy. They determine not what an enterprise wants to do but what it can do.

Equally important, they recognize that resources are finite. Resources don’t spring full-blown out of Zeus’ forehead. Put simply, a key responsibility of leadership is to identify, build, and deploy resources in pursuit of business goals to provide value to the target customer and adjust as market conditions change.

Brand-obsessed leaders at every level of government have to be honest about clearly defining at-risk populations and allocating scarce resources to protect those people. In the case of COVID-19, that means the elderly and those with underlying conditions. For example, knowing that nursing home and long-term care residents and workers are most at risk, a targeted strategy would have allocated finite resources such as testing, protective equipment and other medical supplies to this vulnerable population.

Strategy is about making hard choices with imperfect information. Anyone running a successful enterprise understands that trade-offs matter. Leaders have to make choices about what they will do and what they will not do based on facts and the reality of limited resources. This requires them to choose carefully among available resources and sensibly allocate them to the problem at hand.

Another challenge when it comes to developing a successful strategy in a competitive environment is not to confuse means with ends. You can’t have everything at once, so your goals should be realistic and feasible, not pipe dreams. Words to live by.

You would be right to conclude that U.S. political leaders could have done a better job of protecting the seniors who are most vulnerable to the coronavirus. They were left exposed by the failure to develop an intelligent strategy. Americans can only hope those leaders have developed a realistic strategy to protect seniors if a second wave of the virus comes in the fall. It’s better to go too far than not far enough when it comes to protecting the most vulnerable in society.

President’s proposal for a payroll tax holiday

Posted on by j.giglio

President Trump has proposed to eliminate payroll taxes that fund Social Security and Medicare through the end of the year to provide the economy with a shot of adrenaline. The idea is to put after-tax take-home pay in the hands of people who are likely to spend it right away to help staunch the economic pain caused by the COVID-19 pandemic, but in practice it wouldn’t make much sense.

Payroll taxes include the Social Security tax, which is 12.4 percent of earned income up to a maximum of $137,700 for 2020. Employers and employees each pay half. The Medicare tax, also evenly split between employers and employees is 2.9 percent of earned income with no maximum. Married couples filing jointly who make $250,000 or more and individuals who make over $200,000, pay an additional 0.9 percent.

The payroll tax cut idea is not new. In 2011 and 2012, the Congress and President Obama reduced the employee share of the tax from 6.2 percent to 4.2 percent and filled the resulting gap in the Social Security Trust Fund with general revenues.

While Trump has fixed his sights on getting the payroll tax holiday into the next coronavirus stimulus bill, it is unclear whether he can get Republicans, much less Democrats, to go along with such a proposal. Democrats argue instead for expanded unemployment insurance and aid to state and local governments.

Congressional Republicans have also been slow to endorse the payroll tax rollback, claiming it is too early to argue what should go into the next stimulus bill. They are also concerned with adding to a budget deficit that is forecast to balloon to $3.7 trillion this fiscal year.

Cutting payroll taxes does not make sense because it would do little for the more than 40 million Americans who have applied for unemployment in the last three months, especially lower income people in industries like tourism and hospitality. If you don’t have a job, a payroll tax cut does you not good at all. Even among those who are working, such a tax cut would be highly regressive. High-income people would get far more than low-wage workers.

Cutting payroll taxes would not help business cash flow, since the CARES Act already allows many firms to defer paying payroll taxes until 2021 and 2022. Many economists say a payroll tax holiday alone isn’t enough to bolster consumer spending, a prime driver of the economy, and spur companies to begin hiring.

Supporters of Social Security and Medicare also oppose the president’s proposal. They claim any payroll tax cuts that reduce revenue flowing into the trust funds would threaten Social Security’s ability to continue paying benefits to 64 million Americans who depend on them for their economic survival. Seniors directly affected by taking their money from the trust fund will not see a dime of relief since most of them are not working.

There are alternatives to the payroll tax cut that would provide more direct economic stimulus. One way to keep workers on payrolls and help businesses stay afloat would to be expand the existing employee retention tax credit that was part of the CARES Act. This provision provides eligible employers a tax credit against employment taxes equal to half of qualified wages. There is bipartisan support to increase the credit from 50 percent to 80 percent of wages and benefits. It would be raised to cover $45,000 of wages and benefits instead of the $10,000 currently offered.

Other proposals that merit consideration, such as an infrastructure package, a tax credit to incentivize domestic manufacturing, and another round of stimulus checks to directly address the pandemic-induced economic downturn.

Hopefully the parties will overcome their ideological differences and compromise on additional injections of public resources. The downside is that acting in a fiscally responsible way may significantly affect each party’s presidential candidate. Now is not the time to prioritize election prospects over staring down a depression.

The Battle of Anacostia Flats

Posted on by j.giglio

History is a foreign country to many students and to far too many Americans as well. The call for using the military to quell protests in Washington, D.C. is not without historical parallel. The story of the bonus march on Washington has been ignored or forgotten by contemporary pundits.

In 1924, Congress rewarded veterans of the First World War with bonuses of a bit more than $1,000 per soldier, but they were not scheduled for full payment until 1945.

Unemployed veterans petitioned for immediate payment to alleviate the economic hardships of former servicemen who had lost their jobs in the early days of the Great Depression. In 1930, over President Hoover’s veto, the Democratic Congress voted to pay the veterans a little more than half of the amount promised. More than 20,000 veterans of the World War Expeditionary Force with their wives and children from all over the country descended on Washington in the spring and summer of 1932 and promised to stay until Congress approved legislation to pay the balance of the bonuses.

By June the veterans who styled themselves as the Bonus Expeditionary Force were camping in shacks and tents across the river from the capital and occupying vacant buildings in the city. In mid-June, the House of Representatives passed a bill that authorized the immediate payout of the bonus, but the Senate rejected the bill. President Hoover, concerned about balancing the budget, continued to oppose the veterans request. Most of the veterans returned home but an estimated 2,000 to 10,000 had nowhere to go and remained with their families to engage in protests.

Many in the Hoover administration saw the bonus marchers as a threat to national security. In mid-July, President Hoover ordered the police to clear the bonus marchers out of several abandoned federal buildings that they were occupying.

When the evictions began, several marchers threw rocks at the police, who then opened fire. Two veterans were killed and an ugly riot followed. The local authorities appealed to President Hoover for help. The violence provided him with the excuse he had been seeking to use force, and he ordered the United States Army to help police clear out the buildings.

Late in the afternoon of July 28, General Douglas MacArthur, the Army chief of staff, undertook the assignment with the assistance of his aide Dwight D. Eisenhower. He led the Third Cavalry under the command of George S. Patton, along with two infantry regiments with fixed bayonets, a machine-gun detachment, and six tanks that, for the first time in American history, drove down Pennsylvania Avenue in pursuit of the marchers. The troops used tear gas to drive the veterans out of the buildings and then through the crowded streets of the capital.

As the marchers retreated, General MacArthur exceeded his orders, just as he would do in Korea two decades later, to secure the building and contain the marchers at their camp. He pursued them to their Shantytown across the Anacostia River and ordered his troops to burn the tent city where the former servicemen and their families camped. Reportedly, 55 veterans were injured and 135 arrested.

When General MacArthur met with the press later he said: “That mob down there was a bad-looking mob. It was animated by the essence of revolution”. He sought to justify his actions by arguing that the bonus marchers were attempting to overthrow the government.

The Battle of Anacostia Flats outraged many Americans and marked the low point of President’s Hoover’s tenure. The bonus march contributed to his defeat to Franklin Roosevelt three months later and was a catalyst for social change.

In 1936, Congress finally passed, over President Roosevelt’s veto, a bill to disburse about $2 billion in bonuses. The march laid the foundation for the G. I. Bill of Rights in 1944, which provided Second World War veterans with funds for college, housing and other benefits.