If this action fails, it will be because the Fed is not designed to perform it. The Fed is a central bank. A central bank is designed to defeat a liquidity crisis. The economic impact of the novel coronavirus is a solvency crisis.

If you’re like most people, even most investors, maybe even some economists, you don’t quite understand the difference between illiquidity and insolvency. That’s cool, dog. In fact, it’s a great excuse to explain these concepts— through a vaguely post-Austrian framework.

What follows is unlicensed, uncredentialed, and approved by no authority at all. Nor is it financial advice (see disclaimer at end). Sorry for all the words.

Mr. Bagehot and postmodern capitalism

The fundamental rule of Anglo-American central banking, given 150 years ago by Walter Bagehot (pronounced “badge-it”), is to “lend freely, at high rates, against good credit.”

Postmodern capitalism has already ditched a third of the Bagehot rule. Interest is finished. Nontrivial risk-free interest rates, at any duration, will never return to the Western world. This is fine! At least, anyone who equated zero interest rates with consumer-price hyperinflation was just wrong.

Now, in the coronavirus crisis, the Fed has just announced its willingness to ditch another third of the Bagehot rule — buying first investment-grade corporate debt, then high-yield (“junk”) bonds. This is fine! Or is it? (It may not even be legal; but these days there’s little reason to worry about that.)

We see two popular theories of these actions. First: the Fed is doing the right thing; it will work. Second: the Fed is doing the wrong thing; it will lead to “corporate Marxism,” the end of free markets, and a nationalized economy.

Today we’ll explore a third hypothesis: that, by rerunning its successful 2008 playbook, the Fed is doing the wrong thing (though it has no real alternative); and its bailout (specifically, of corporate bonds) may well fail.

The Fed has not (yet) gone communist — or even Japanese

In theory, it’s certainly not impossible for a central bank to achieve “corporate Marxism” — or more optimistically, Japanese corporate socialism.

Japanese socialism works well enough — in the world’s largest creditor nation. It might even work in a debtor nation with the world’s reserve currency. But as we’ll see, this is not where the Fed is actually trying to go.

The Fed could change its mind. Its mind is quite well-settled. It would have to fail dramatically, then reconsider its deepest principles. If this happens, it will not be a pretty process. It also seems unlikely to happen soon. It would also be illegal, but no one gets a speeding ticket at the Indy 500. But…

“Corporate Marxism” is contrary to the nature, purpose, habit, and history of Anglo-American central banking. Capitalism with zero interest rates is weird enough. It only bends the Bagehot rule. In an unprecedented crisis, in a tight political and bureaucratic corner, the Fed is now trying to break that rule — without turning Japanese. Everyone needs to know whether this will work.

It’s not just about moral hazard

For readers with a basic grasp of finance, a simple way to understand the difference is that central banks following the Bagehot rule stabilize the yield curve (liquidity). They do not intervene in risk spreads (solvency).

Why should a central bank lend only against good credit? It’s easy to see this as an issue of moral hazard. It seems morally wrong for the government to support insolvent zombie companies — as in Japan or the Soviet Union. (Even hyper-capitalist China still has its “iron rice bowl” state enterprises.)

Perhaps it is morally wrong — though less so in a crisis that’s no one’s fault. But Mr. Bagehot had a more practical concern — that the intervention not fail. To understand how this bailout could fail, let’s look past the dumb “money printer” memes and review its actual financial plumbing.

Special-purpose vehicles, risk backstops, and solvent entities

The 19th-century Bank of England and the 21st-century Fed have a feature in common: a limited appetite for risk. “Lombard Street” was a gold standard diluted by paper debt; the limit was imposed by the Bank’s physical gold.

The Fed has a risk limit as well — imposed by Treasury and the Congress. The latter appropriated $454 billion for the former’s Exchange Stabilization Fund, to “backstop” any potential losses of the Fed’s bailout programs. This mighty Fund already had $93 bil in the kitty — let’s just call it a round $500 billion.

A half trillion is a lot of money. It’s not infinite, though. If its finite equity is exceeded, the Fed needs to go back to Treasury and ask for more. Treasury cannot appropriate its own funds; it has to ask the Congress. This complicated bureaucratic plumbing is the fundamental reason why the bailout could fail.

As Chairman Powell has said: “[the Fed’s powers] are lending powers, not spending powers… The Fed can only make secured loans to solvent entities with the expectation that the loans will be fully repaid.”

Treasury, of course, has spending powers. The way the bailout facilities work: Treasury invests equity, from said Exchange Stabilization Fund, in a new special-purpose corporation, or SPV. The Fed then lends to this solvent entity.

This SPV is just a company. It does not have any magic powers. It does not have any kind of “money printer.” Nor does Treasury. Treasury can ask the Congress for more money, of course. Then again, so can you.

Leverage for beginners

You’ve probably heard much bigger numbers than this — like, $6 trillion. Like, how does $500 billion turn into $6 trillion?

Through the magic of margin, aka leverage. You too, dear reader, can buy on margin. Drop $2000 in your humble Robinhood account, and you can buy $4000 worth of hot stocks. If they go up 50%, you double your money. If they go down 50% — you lose all your money. That’s the power of 2-to-1 leverage.

Now imagine you are the Treasury, your account is the SPV, and Robinhood is the Fed. From the Fed’s term sheet for the Secondary Market Corporate Credit Facility (“SMCCF”), which buys corporate bonds on the open market:

The Department of the Treasury will make a $75 billion equity investment in the SPV to support both the SMCCF and the Primary Market Corporate Credit Facility (“PMCCF”). The initial allocation of the equity will be $50 billion toward the PMCCF [which buys bonds directly from the issuer] and $25 billion toward the SMCCF. The combined size of the Facility and the PMCCF will be up to $750 billion.

The SMCCF will leverage the Treasury equity at 10 to 1 when acquiring corporate bonds from issuers that are investment grade at the time of purchase and when acquiring ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds. The SMCCF will leverage its equity at 7 to 1 when acquiring corporate bonds from issuers that are rated below investment grade at the time of purchase and in a range between 3 to 1 and 7 to 1, depending on risk, when acquiring any other type of eligible asset.

10 to 1 is plenty of leverage. $75 billion is plenty of scratch. But there are Americans who have $75 billion. They don’t trade on Robinhood. They can get just as much leverage — which suggests a thought-experiment.

Suppose Warren Buffett, personally, behaving like J.P. Morgan in 1907 before there was a Fed, decides to bail out the $8 trillion corporate bond market with $75 billion, levered up to $750 billion. What would happen? Would it work?

(Berkshire Hathaway has almost twice this much cash. Buffett could even borrow just as much money from the Fed — using something called “repo,” which has nothing to do with Emilio Estevez.)

Now, 10x leverage is a hell of a drug. With 10x leverage, if your portfolio drops by 10%, you’re done. Your equity is zero. Your Robinhood account is worthless. You are in fact insolvent.

And until Chairman Powell’s words become, as Nixon’s press secretary Ron Ziegler once put it, “no longer operative,” the Fed can no longer lend to you.

The SPV can call Treasury. Treasury can borrow as many dollars as it likes — at zero interest, thanks to postmodern capitalism.

But Treasury, once it burns through its mighty Exchange Stabilization Fund, needs Congressional approval to borrow that money. Imagine you need your spouse’s approval to wire more money to Robinhood.

At this point — your financial problem has become political.

The politics of leverage

Imagine a world in which the Fed has bailed out Wall Street and the bailout has failed. The line zagged where it should have zigged. The SPVs are broke — hot rolled and steeled.The optics: the Fed has poured half a trillion dollars down a hole with hungry fat cats at the bottom. Your tax dollars at work!

The money is gone. The hole is still a hole. The hedge funds are still hungry. Mansion prices in the Hamptons are crashing. Now, Nancy Pelosi is being asked to bail out Wall Street, again, before the election — to make President Trump look good? When the same money could send fat checks straight to suffering Americans? Such are the political dynamics of Treasury’s risk limits.

These same bailout facilities worked so well in 2008 that not only did they reinflate the bubble, they booked a profit. Treasury lost nothing. If both law and theory had not convinced the Fed that it can, should and must win without taking on risk of its own, and convinced Treasury that it can win and turn a profit by taking limited risk, these experiences would have. Then again — 2008 was a liquidity crisis, but 2020 is a solvency crisis.

Is there any historical precedent for a failed central-bank intervention? Sure — look at the failure of the European Exchange Rate Mechanism in 1992, or the collapse of the London Gold Pool in 1971.

In both cases, a central bank had a risk limit; the market saw this limit, and speculated against it; the bank lost and the market won. George Soros made most of his money off the failure of the ERM; he was far from the only player.

The deadly finite martingale; Treasury is just a big fish

An intervention of this kind is a betting strategy called a martingale. A martingale always wins. Yeah, really. The strategy is simple: play roulette and bet a dollar on red. If the ball lands on black, double the bet. Repeat. Eventually it will land on red, and you’ll win. Wow!

But a martingale only works if you come to the casino with infinite money — or at least, more money than the house. Half a trillion is a lot of money. It is not infinite money. It is not more money than the market has.

A variant of the martingale, beloved by “Wolf of Wall Street” penny-stock operators everywhere, is the “Texas hedge.” You buy a stock. It goes down. So you buy more — and, of course, buying a stock makes it go up. If you bring enough capital that you can overpower the market, you profit — on paper. You have cornered the market. Of course, you still need to get out by selling…

Texas hedges and finite martingales are not beloved by serious financiers. If said financiers wanted to fund these kinds of SPVs, they would. Since they don’t, the role of Treasury is by definition “dumb money” — what professional poker players call a “fish.”

Smart money eats fish. Short-term traders can profit by front-running dumb money, and selling first; medium-term traders can profit by betting on its failure. Timing is essential in the first strategy, just important in the second.

But we’ve sunk from economics to finance to mere gambling. Now that we have a clear and specific picture of how the Fed’s SPVs could fail, let’s step back and look at the whole system of postmodern capitalism. What the hell is going on here, anyway? And didn’t this same playbook work perfectly in ‘08?

The practical purpose of the Bagehot rule

We see that the core of Bagehot’s rule — that central banks should lend only against “good credit,” not rescue “bad business” — has a sound bureaucratic basis for the practical central banker. It prevents a situation in which the central bank keeps dumping money down an endless hole until someone grabs it and pulls it away from the printer (now), or it runs out of gold (then).

The yield (interest rate) of a corporate bond is set by two factors: the risk-free interest rate at the bond’s term, and the risk spread. The risk spread measures the market’s prediction of the chance that the bond will default. So the market for risk spreads is a prediction market — in Wall Street terms, a derivative.

When money with an ulterior motive (even if that motive is saving America) enters a prediction market, by definition it is trying to move that market, which means it is trying to make that market mispredict — like a rich 49ers fan making a huge bet to try and shift the Vegas point spread in the Super Bowl.

This can work if the prediction market has a reflexive effect on the game itself. Perhaps the 49ers themselves know the point spread. Perhaps if Vegas tells them they are more likely to win, they become more confident, which makes them more likely to win.

In the bond market, in the last two weeks, the mere announcement of Fed intervention worked just like this — it gave investors an excuse to start buying newly issued bonds. Unfreezing the bond market makes existing bonds less likely to fail — it lets companies sell new bonds to pay off their old bonds. (This is actually a liquidity effect, not a solvency effect — because it involves rollovers; companies that roll over their debt are maturity transformers).

But if these psychological interventions seem fragile, they are. Quite a piece of chewing gum to hold America’s engine in place.

The problem is that the virus crisis is a true solvency crisis, not a liquidity crisis. As Bagehot wrote: “The amount of bad business in commercial countries is an infinitesimally small fraction of the whole business.” This was true enough in his day; it has become somewhat suspect in our permabubble age; but thanks to SARS-CoV-2, there is now no good credit.

No one can reliably predict the outcome of the epidemic, or the progress of any therapy. The probability that the virus will become endemic seems high. The economic consequences of the virus are not due to lost widget production from dead widgetmakers — they are due to mere human fear. This fear is rational — and even after it stops being rational, it may remain as irrational.

Solvency and liquidity

But if it’s so easy for the Fed to lose, why is it still undefeated?

To understand the difference between a solvency crisis and a liquidity crisis, we have to understand why central banks can solve a liquidity crisis, by cornering the market for duration — which is not a derivative.

As a disciple of Mises I am very far from endorsing the Bagehot system — we might even call it a “Bagehot scheme.” Although it creates constant instability and frequent calamity, it does work. Its expansionary bias may even be appropriate for a nation in the process of an expanding industrial and commercial revolution, like 19th-century England or 20th-century America.

Let’s enumerate the stages of systemic decline from a free-market hard-money economy to a full command economy. Facilis descensus Averno — it is easy to walk down this staircase, hard to climb. Heaven is the top of the stairs; hell is the bottom. But most doubts about heaven are the consequence of ugly failures to ascend — usually involving epic liquidation and depression.

Level 1: hard metal and strong accounting

The top step is a hard-metal central bank like the 17th-century Bank of Amsterdam, which does not lend or expand the money supply — it’s just a gold warehouse with tradable receipts. Like Coinbase for gold. It is difficult to claim that hard money is incompatible with capitalism, when modern capitalism was born in the Dutch Golden Age.

An ideal hard-money economy uses cashflow accounting for any financial intermediaries — meaning an entity must plan to pay off all its debts without borrowing money or selling assets. Every promise of payment must be matched by expected revenue. Crazy as that sounds!

In this hyper-Austrian financial system (which has never quite existed, though some periods have come close), the market for duration is stable and unmanipulated. The yield curve — the price of money available at a time in the future — is set by supply and demand at every maturity. To offer a 30-year mortgage to one customer, a bank needs another willing to buy a 30-year CD.

At least from our less heavenly perspective, this system would seem very different. Long-term interest rates are high; asset prices are low. Houses, for instance, are cheaper; rents are lower. Perhaps this horrifies you.

If the money supply is fixed (gold is not a perfect currency, because new gold is mined), markets are flat except in the case of real events that affect everyone. Unrelated assets are uncorrelated; the efficient market hypothesis holds true; there is no “financial weather” or “business cycle.”

If this isn’t heaven, what is? But getting to heaven is never easy.

Level 2: soft metal and weak accounting

The next step down is the Bagehot (again, pronounced “badge-it”) scheme, which has two variants: protected and unprotected.

In an unprotected Bagehot scheme, weak accounting standards let companies fund long-term loans with current money. Like your bank account. Which is no longer a Bank of Amsterdam vault receipt for cash. Now, it’s a revolving zero-term loan to the bank. (Your loan comes due every instant, and you renew it every instant that you don’t hit the ATM.)

This artificial source of demand for duration reduces the price of duration, flattening the yield curve. Flattening the yield curve means lower long-term interest rates and higher asset prices, benefiting the rich at the expense of the poor. Stocks go up, factories go up, houses go up, rents go up, line go up.

But the artificial demand isn’t real. All these zero-term loans cannot be repaid at the same time. A bank run is the collapse of a Bagehot scheme.

Everyone with no demand for duration calls their zero-term loans. The banks must sell duration to compensate. The small real demand for 30-year CDs is dwarfed by the huge artificial supply of 30-year mortgages that the Bagehot scheme has created. The yield curve skyrockets, with long-term rates higher than the hard-money rate. Asset prices crash and a “recession” strikes.

This calamity must be sold to the peasants as a causeless, inexplicable natural disaster, like a hurricane or an epidemic. A banker’s neck is soft and delicate. Anything tighter than a tie might chafe it.

But in a protected Bagehot scheme, the calamity never happens. A central bank or other cash-rich player (the first Anglo-American artists in this medium were Charles II’s goldsmiths) realizes that, by maintaining a cash buffer which can replace even a small fraction of this duration demand, it can not only stop the bank run but profit from it.

If the protector steps into the bank run and “lends freely” — by buying high-quality long-term assets — it can stably corner the market for duration. If it can “restore confidence” by bailing out the banks, it pulls off a successful Texas hedge. Buying these assets makes their price go up — and when “confidence” returns, the market can easily reabsorb them. And the central bank shows a profit. Just like in 2008!

In modern financial parlance, fake duration demand is called “liquidity.” This Orwellian confusion with the literal definition of the word (which literally refers to transaction costs; your house is an “illiquid asset” because it’s difficult and expensive to sell) is essential to the Bagehot scheme.

The fundamental nature and purpose of a Bagehot scheme is what today’s professors call financial repression. Its goal is to prevent free-market price discovery in the market for duration — that is, the interest-rate market. It works by jamming a natural price signal.

It’s essential to understand that Bagehot bailouts work because they stabilize a multiple equilibrium. The Bagehot “confidence” is an unstable equilibrium — a bubble that wants to pop. But it does not need to pop. Any shock may pop it; the protector is right there with the buffer, “lending freely.” Nice protector!

And since the unstable equilibrium is far more pleasant for all than the stable equilibrium, in which everything liquidates down to hard money and free-market interest rates, the peasants come to look on the Bagehot scheme — despite these occasional weird glitches — as good. The protector is their patron and savior. The banker unbuttons his collar and lets his neck breathe freely.

Level 3: fiat currency and the infinite martingale

But exactly how big does the protector’s buffer have to be?

The 19th-century Anglo-American financial system defined the stability of a metallic Bagehot scheme in terms of “coverage.” How much debt could a certain buffer of gold protect? Was it 2 to 1, 4 to 1, 10 to 1? Much ink was spilled on derivations of the true and proper expansion ratio.

With our modern understanding of game theory, we know that there is no mathematical formula for coverage. How much of a buffer do you need to win the finite martingale? It… depends.

The solution is to merge the protector with the state. As late as 1907, the House of Morgan acted as a private protector for a gold-based American financial system. Even the Fed, today our most important government agency (and arguably our most competent), still shows traces of its nominally quasi-private origin; its weird regional branch structure was a political device to pretend that it was not a central bank on the then-hated British pattern.

When the finite martingale goes bankrupt, the protector fails upward, and becomes a government agency. Its gold liabilities, which it cannot cover, become sovereign equity. Bankruptcy is a conversion of debt to equity; fiat currency is stock in the government.

Since the government can issue infinite equity (“money printer go brr”), the new system is protected by an infinite martingale. Much safer. Financial expansion is not limited by any silly old pile of metal or “coverage ratio.”

The country shifts seamlessly to this new monetary standard. Government stock pays no dividend and is useless — just like Bitcoin. Or even gold, for anyone who doesn’t wear tacky jewelry. The price of the old metallic standard may even fall. The banker loosens his tie, to fit his jowly new jowls.

Level 4: pushing on a rope, QE, and yield curve control

But as the debt bubble grows, new problems emerge. It turns out that fiat currency has not abolished the business cycle at all. The yield curve can still wiggle; asset prices can still crash.

Reasonably choosing to ride the rising escalator of asset prices, the peasants stop holding mere bank accounts. They buy stocks and bonds and houses and anything that goes up. Their jowls grow as well. Everything is nice. Rather than just making bankers richer, the financial system is making everyone richer — everyone with assets, that is. “Buy and hold” becomes the mantra; or “passive investing” in “index funds,” an idea as strange as “passive gambling.”

In the classic 20th-century system, the central bank — now a government agency — cannot set long-term interest rates and asset prices directly. It can only make short-term loans to private actors which buy and sell these assets. But when everyone is a bank — or at least, everyone is a financial speculator — everyone is unprotected again.

When the bubble pops, everyone is selling duration again. No one wants to lose money, so no one wants to borrow money to buy assets whose price is falling. The central bank is “pushing on a rope.” It can “lend freely” as much as it wants — it will find no borrowers.

Once private actors participate directly in the market for duration, a crash in the yield curve — which affects both stocks and bonds, since stock dividends compete with bond yields, and stocks are priced as a function of the interest rate — cannot be bailed out by lending to banks.

The solution is for the central bank to define a certain set of borrowers as “risk-free,” and effectively pull them onto its balance sheet.

Treasuries, for instance, are risk-free not because of the famous financial prudence of the US Government, but because the Fed will always buy them. And the Fed, which does not take risks, can and will always buy them — because they are risk-free. Isn’t this just beautiful? Like a diamond?

This informal guarantee is then extended by the Fed, itself a quasi-governmental corporation, to other such quasi-agencies. Nominally the Fed is not even the protector of banks; this role is performed by FDIC, which cannot issue dollars and has only a tiny and inadequate buffer.

But FDIC is risk-free, because… because its name is an acronym… because everyone knows the Fed will bail it out. So at the heart of our 21st-century First World financial system is an informal financial instrument. Dang, yo.

In 2008 this protection was extended to the strange cluster of 1930s “agencies” with weird, homey names, like “Ginnie Mae” and “Freddie Mac,” created by FDR to reward his faithful voters with cheap long-term mortgages. Before 2008 these quasi-private companies actually had shareholders, who in a rare spasm of rectitude were actually wiped out; my grandmother’s estate had a bit of preferred agency stock, which became worthless.

But their debts were guaranteed. And any finance professor will tell you that if you guarantee an entity’s debts, it belongs on your balance sheet. From a forensic accounting perspective, there is just one entity— Fed, Treasury, FDIC, GNMA and FNMA and FHLMC, even USG itself — just call it Fedland, Inc. And a dollar (“Federal Reserve Note”) is a Fedland share. If only you knew how simple things really are!

Level 5: universal speculation and the everything bubble

The inevitable outcome of direct Fed purchases and guarantees of long-term risk-free debt is, as we say, “flattening the curve” — full postmodern finance, with zero interest rates at every term. The US was the last to adopt postmodern finance, or “yield curve management” — an admission it is still rhetorically fighting. Europe and Japan were already there; Japan was first.

The peasants, long since used to the bizarre requirement that they all become financial speculators, can no longer earn any kind of risk-free yield from mere duration. Undeterred, they all pile into risk. Since all the peasants are buying, risk goes up. Fortunately, asset prices are a function of interest rates — and when interest rates are zero, that function yields — infinity.

The bankers, too, are buying. Everyone gets rich! Buy stocks, and retire at 40! And since everyone has more and more money every year, and money is made to be spent, business booms; and stocks go up. (These levels are obviously not chronological; the 2010s rhyme quite well with the 1920s.)

But when the risk market collapses — sometimes on its own, sometimes because of some external shock — the central bank is now in the position of manipulating a prediction market.

The duration market is a primary market. The bank need merely add infinite demand. Anyone looking at the Fed’s balance sheet, now stuffed with as many risk-free Treasuries and agencies as infinity can eat, can see that it will never fail in yield curve management.

A prediction market is a derivative market — one betting on something else. The Fed, bailing out risk spreads, is in the position of the rich 49ers fan.

Can big bets move the Vegas spread? Maybe a little — but big dumb bets attract big smart bets. Can moving the spread change the game? Maybe — but the fundamental solvency problem is the virus, not some postmodern shadow-bank run. The Fed lends; it does not spend; nor can it cure.

It seems unlikely to win with a finite martingale the size of the current ESF. But who knows. But if it can get the Congress, or Treasury, or its own sheer illegal gall, to let it bet infinite money, the Fed will win. Then it goes to level 6.

Level 6: Japanese corporate socialism — at best

The only further step is the end of anything that can be called capitalism. What if the Fed can manipulate risk spreads? Japan has been doing it for ages. The answer is simple: it will drive them to zero, and they will stay there.

In Japan, there are no bond risk spreads. Corporate bonds pay zero interest. All corporate bonds are rated investment-grade. What about high-yield (“junk”) bonds? Doh! There are no high-yield bonds in Japan.

And of course, the BOJ buys equities too. Has this sent Japanese stocks to the moon? Think again — the Japanese stock market peaked in the 1980s.

It is a mistake to think that a risk-asset market under the direct control of the central bank will go to the moon. The central bank entered the market as an anesthetic; animal spirits had driven Japanese assets (especially real estate) to the moon; “lending freely” is a strong drug, too; but no bureaucrat ever set out to get the world high — just to make everybody feel okay.

A deflating bubble wants to suck the money out of everything. Every bond needs to default, or be paid off. Even if the Fed buys it — the Fed does not forgive it. The US has 8 trillion dollars in corporate bonds — and 4 trillion actual dollars (M0, narrow money). That bond wants to suck all its dollars out of the world, and give them to the Fed — which does not need them.

As the everything bubble deflates, it becomes the everything run. Fiat rex! In a depression, cash is king. Everything wants to turn itself into cash, as fast as possible. And there is no cash, so nothing can turn a profit. Bummer, dude.

But if the Fed can pull FNMA and GNMA onto its balance sheet, and make their debts risk-free, why not Ford and GM and Boeing? And all other listed public companies, of course. Or at least, all of them that have issued bonds…And that’s how we would turn Japanese. And why not equities, too?

Japan has survived this phenomenon — first, by being amazing and unique and Japanese; second, by remaining the world’s leading creditor nation; third, by nationalizing its whole economy in objective financial reality, but retaining the structures, incentives, and efficiencies of capitalism; Japan is — Japan.

But if this final abandonment of free-market finance is poorly handled, the result is the Soviet Union. Or Venezuela. Or some compromise between them. But this is America, so I’m sure it will be executed well.

Getting back to level 1

Is it possible to climb the stairs? Yes — but not easy. Though far beyond our state capacity today, it is not impossible — a conversation for another time. It’s enough to say that mass liquidation, Austrian style, is definitely not the way.

Disclaimer

The author holds small put positions on various equity and bond indexes.

This test — which the US is failing — is already a tragedy. It has barely begun. In the next few months, you or someone you love will drown of a cough.

Since some of us are still not sure Covid-19 is a thing, how that’ll go down:

It first struck me how different it was when I saw my first coronavirus patient go bad. I was like, Holy shit, this is not the flu. Watching this relatively young guy, gasping for air, pink frothy secretions coming out of his tube and out of his mouth. The ventilator should have been doing the work of breathing but he was still gasping for air, moving his mouth, moving his body, struggling.

We had to restrain him. With all the coronavirus patients, we’ve had to restrain them. They really hyperventilate, really struggle to breathe. When you’re in that mindstate of struggling to breathe and delirious with fever, you don’t know when someone is trying to help you, so you’ll try to rip the breathing tube out because you feel it is choking you, but you are drowning.

When someone has an infection, I’m used to seeing the normal colors you’d associate with it: greens and yellows. The coronavirus patients with ARDS have been having a lot of secretions that are actually pink because they’re filled with blood cells that are leaking into their airways. They are essentially drowning in their own blood and fluids because their lungs are so full. So we’re constantly having to suction out the secretions every time we go into their rooms.

Yet most of us will live. It would be more than a shame if we chose not to learn from this test. It would be a crime. Though the guilty will not be punished, and should not be punished — it is already a crime.

If we fail to act on what we learn — this too is a crime. If we act weakly, or erroneously, or worst of all slowly — a crime. In an exponential epidemic, all experts agree, the virus has to be hit as hard, accurately, and fast as possible.

The good news: the measures taken already should be enough to keep the fire from sweeping quickly through the American population. The bad news: they are nowhere near sufficient to put the fire out. And there is no realistic way to end the lockdown while the epidemic is still burning — at all. Ten sparks in the whole country are ten sparks too many.

And while the fire burns, our financial system — never made to be paused — is now melting into the water table. So is our economy, for finance and commerce are now inseparable. So is our society, now just an economy.

The terrible truth the virus has revealed is that the US and UK — as opposed to post-Communist Asia and post-Napoleonic Europe — are not even countries. They are free-trade zones. Our governments are not governments. They are bureaucratic anarchies with ceremonial elected monarchs. Pitting them against this ruthlessly objective virus is sending Don Quixote to Vietnam.

We thought we had the best government in the world. It is quite a shock to find we have the worst — outside the Third World, of course.

(Or do you think it’s doing great? While official authorities must be filtered no less skeptically than fringe sources, many still do excellent work. As of April 1, status of the epidemic, by the consistently reliable Marc Lipsitch, of Harvard; status of the response, from Science.)

Plan A

Welcome to war. This essay outlines a broad strategy — “Plan A” — for winning World War V. Plan A is as strong and hard and fast as I can make it. And it thinks completely outside the box.

You probably think this is just a cliche. In fact, Plan A is so extreme that you are probably not ready for it. This is a pity. You can always change your mind and come back.

You will still find Plan A interesting as a thought-experiment. You are welcome to borrow it, or parts of it, without credit. If you want the whole thing, you’ll have to accept a couple of truths — one simple and one hard.

The simple truth is that the virus has tested our government and it has failed. France has fallen. It’s done. This is America’s Chernobyl — we can never again go back to believing that the government we have is wise and capable.

And it is neither the Republican politicians nor the Democratic civil servants who are to blame. It is both red and blue teams. It is not that one side of the government has failed. The whole machine has failed.

Our President, who should do the decent thing and resign, spent a month playing the Mayor in Jaws. Most conservative media followed him like a dog. Most progressive media spent the previous month talking about racism and the flu — though their private opinions seem to have varied. And if you still believe in the wisdom of our public-health experts, read this expose of how FDA slow-rolled high-speed RT-PCR testing for two and a half months — ostensibly because ethics, clearly to protect the sanctity of its hallowed turf. (Protip: if you know what you’re talking about, it’s “FDA,” not “the FDA.”)

Anyone repeating lines like “the Trump administration has failed” is spreading an Orwellian lie. There is no “Trump administration.” There is an elected showman and his cronies, fronting for an unaccountable permanent government. The celebrities are neither in charge of the bureaucrats, nor deserve to be. Anyone can be excused for thinking either team is worse than the other. No one can be excused for confusing the two.

The hard truth is that the virus is not just a test of our government. It is a test of our form of government.

The ultimate implications of this failure are irrelevant. Its proximate implication is that the strongest possible attack on the virus cannot use the organization, personnel, policies, or principles of the existing government. It is not any one of these aspects that has failed. It is all of them together.

Plan A will not happen. You are not ready for it. In fact, I’m posting it on Medium because no one else will publish it. My point is: if you lived here, you’d be home by now.

Conventional plans and existing structures

All kinds of conventional plans are being proposed. Let me link you to some of the best — like this one from former FDA commissioner Scott Gottlieb, or this one from Harvey Fineberg of Harvard via NEJM, or even this one from leading “rationalist” Roko Mijic. Read them all.

These inside-the-box plans — which do assume the organizations, personnel, policies and principles that got us here — are generally in the right direction. But they all suffer from two defects.

First: they are too weak and passive to succeed. Second: they are too strong and aggressive for the actual systems that would have to execute them.

They demand more state capacity than America has. They demand less than the problem needs. They are off by an order of magnitude in both directions.

For the essential step of tracking, testing and isolating needed to control and eradicate the virus, these plans all propose measures which are (a) voluntary, and (b) rely on scaling up and/or coordinating existing agencies.

These agencies have already shown themselves dysfunctional. A broken organization cannot expand or succeed. The American culture of civic responsibility, trust in government, and voluntary compliance with worthy suggestions and unenforced laws appears, in these plans, to be impeccable. And their 1950s process for developing biological protection remains identical to the creation of a new vaccine for acne, baldness, or toenail fungus.

Since their authors are not scientific idiots, they know that their weak plans for escaping from lockdowns will not be perfect. Since they are not political scientists, they seem unaware that they live in the most safety-conscious, risk-averse country on earth or in history.

The idea that any American decision-maker will approve a contagious activity, while it still creates the risk of drowning of a cough, is not worth taking seriously. Hyper-autistic plans for cyclic lockdowns — in which the epidemic is periodically allowed to restart, then promptly suppressed, then lather, rinse, repeat — will, when we can laugh again, seem grimly hilarious.

Macaulay observed that the amateur in political science designs constitutions for an ideal country — like a tailor who cuts all his clothes for the Apollo Belvedere. The real America needs a plan that works for the real America.

The real America does not want a plan that works for the real America. Most writers fudge this problem and split the difference.

Actually, the real America has an unprecedented opportunity to get over itself. It will not take that chance. It is the role of the writer to give it that chance — not to help it fail — not to tell it what it wants to hear.

Come with us if you want to live

The strongest possible response will come from a new agency, built as a startup. This Coronavirus Authority will scale up faster than any existing organization can execute. It will use the old agencies only where it finds them useful. And it will dissolve itself once the virus is beaten.

And all the CVA needs to do its job is plenary (unconditional) authority over all federal, state, local and private actors. In theoretical terms, its sovereignty is absolute — but both temporary (limited in time, to the end of the war) and partial (applied only to its specific mission or scope). A small thing!

(Or as Harvard’s Fineberg puts it, in JAMA: “This commander carries the full power […] and authority to mobilize every civilian and military asset needed to win the war.” Alas, the ellipses hide “of the American President.” A British Dr. Fineberg might have said: “of the Queen of England.” Political science, like epidemiology, is hard. Fineberg also says: “This is not a coordinator across agencies.” He then proposes… coordinating existing agencies.)

The CVA has zero time for any problem not related to the virus. Since plenary power must bound itself, over years or decades its scope would tend to creep. But before scope decay sets in, the CVA will die by succeeding (or be canceled for failing). Its absolute powers are no threat to our sacred Constitution.

Most Americans remember when Washington couldn’t build a website and Palo Alto bailed it out. They still think what Palo Alto brought to the table was computer science.

Actually, plenty of people in DC can code just fine. What Palo Alto brought was the ability to execute at scale. Back then, some website seemed important. Now we know what important means.

Do you want to start today? Or keep screwing around with the same clowns who got us here? Come with us if you want to live.

What will this CVA do? That’ll be up to it. But, just to illustrate what the right structure could do, let’s put forward a concrete plan.

Economic interventions

There is no reason to have a financial or economic crisis at the same time as a pandemic. Putting both Wall Street and Main Street into suspended animation is a matter of paperwork — and maybe a bit of code.

Wall Street

The way to suspend Wall Street is not to suspend the stock market (which might end capitalism in America). Capitalism does not need to be ended. It does need a reset. The Fed can reset it by closing the whole market out for cash.

In this reset, the Fed monetizes all financial assets — trading them for new dollars at the last quoted price. If you had stocks or bonds, you sold them all to the Fed. Your portfolio is all cash. The number has not changed.

The Fed owns all public companies. Debts between them are debts to itself; they cancel. The companies operate as normal, not worrying about their P/L.

This state of affairs — literally the state capitalism of the Soviet Union — will, like the Soviet Union, slowly decay. But the epidemic is measured in months; the command-economy rot, in decades.

Once the virus is beaten, the whole economy goes public again and is again priced by the public, in essentially a giant IPO. The Fed receives the cash and cancels it. This is essentially a national bankruptcy and restructuring.

But wouldn’t it create inflation? Inflation is an increase in the general price level. Prices are set by supply and demand.

Your propensity to spend — to exchange dollars for goods — is a function of your personal net worth. It is not a function of the allocation of your portfolio between stocks, bonds, and cash.

If net worth does not change, the price level is not affected. Everyone keeps the chips they had when the casino was closed. Nothing else seems fair.

Main Street

Most Americans have no stocks. They have jobs. Those jobs are burning down, right now.

Sending everyone random checks is lazy and ineffective. “Loans” (actually designed to be forgiven) to small businesses are already turning into a nightmare of paperwork and fraud.

Most Americans are paid through payroll processors, like ADP. The Fed has all the dollars it needs. The payroll companies have all the records they need. Just keep everyone’s check flowing.

Some people are self-employed. IRS knows how much they claimed to make last year. These claims are seldom overstated! It’s easy to continue their income on the same basis. There is no moral hazard, unless there is another pandemic next year.

Nor need these payments create debt. The deflationary impact of the crisis is already more than adequate.

Understanding “money printing”

These measures involve creating a lot of dollars. Intuitively, this seems both wrong and right. It is both wrong and right. Let’s relate it to your current theories of economics.

The three leading heterodox schools of economics today are Asian neo-mercantilism, “modern monetary theory” (MMT), and praxeology (Austrian economics). Each thinks little of the others, if it thinks of them at all. Each is right in its own way — as is post-Keynesian neoclassical macro, currently on the throne.

All four theories have the same relationship to reality as Newtonian physics or Ptolemaic astronomy. They are mostly true. Ptolemy had no trouble predicting eclipses. They work within a limited envelope. Outside this envelope, they are just wrong — and their advice can even be dangerous. There is no room here to reconcile them — just to present a plan which draws from all.

Issuing paper money is the 20th-century version of an old trick: debasing the coin (mixing base with precious metals). In the past, we see two kinds of regimes debasing their currency, for two different reasons: acutely by capable regimes (even Frederick the Great once diluted his money in a war), and chronically by incapable regimes (like most of the bad Roman emperors).

To an Asian neo-mercantilist, a government is a corporation; its balance of trade is its P/L. Financially, paper money is government stock. Just as the Fed can print as many dollars as it wants, Microsoft can print as many shares as it wants. These are worth more than a hundred dollars each! Free money! What’s the catch?

When Microsoft prints Microsoft shares, it’s the exact equivalent of confiscating a corresponding percentage of shares from all shareholders. It’s a tax — but easier to implement. And it is perfectly within Microsoft’s rights — very legal and very cool.

But Microsoft does not do this chronically. Only dying companies with mortal financial wounds try to fund themselves by continuously selling equity. A healthy company creates new shares for specific events — like mergers and acquisitions — in which the new shares are balanced by new assets.

Free money is financial fentanyl. It’s essential for surgery. It’s suicidal for recreation. It is both good and evil.

What happens to nations addicted to this fentanyl? No human endeavor can be free from discipline. The discipline of money forces any agent — person or company or government — to produce more than they consume.

When we relax this discipline chronically, everything goes slack and rots. Price inflation is the least of the problems. The real problem is that everything stops working — simply because it doesn’t have to work. MMT economists do not seem to understand this deadly power of the free lunch.

Yet the acute use of monetary dilution is as legitimate as any medical use of opiates. Undertaken in a controlled way, for a controlled and limited reason, debasement is a critical tool of sovereignty — for precisely these emergencies. Austrian economists do not seem to understand this at all.

One pathology of libertarian thinkers is their tendency to equate power with its abuses. We are coming out of a century of spectacularly bad and abusive government. The existence of child abuse is not a refutation of parenting.

Nonmedical interventions

Never in history has it been technically easier to control a communicable disease — even one without a vaccine or a cure.

Yet this technology does not work on its own. Here too we see a test not only of our government, but of our form of government. Nonmedical interventions have to work uniformly and perfectly. Our system of government is incapable of achieving this.

Here’s an analogy. Suppose you manage a wildlife reserve in Montana — stocked with ten thousand elk. Suddenly this herd is attacked by mad elk disease, for which there is no vaccine or cure. What can you do? Nothing.

So let’s change the rules. Every elk on your ranch is tagged. It has a number and a tracking chip. There is no vaccine or cure for mad elk disease — but there is a test. You also have a fleet of small, birdlike drones which can land on an elk, and test it — and big ones which can capture and transport live elk.

So your ranch has have four kinds of elk. Let’s label them by colors. You have naive elk (green); infected elk (red); possibly infected elk (yellow); and immune elk (gray). Any green elk that approaches a red or yellow elk becomes yellow.

You separate the red and green elk into two herds. You isolate yellow elk from all other colored elk until they resolve to either red or green. Gray elk can graze as they please. All you need is enough testing and transport drones, and stalls to isolate your yellow elk.

Elk are big and feisty. You can’t tell them anything. The physical barriers to testing and transportation of these large ungulates are considerable. Fortunately, we don’t care about elk — only humans, an intelligent, social and governable species.

China, Singapore, South Korea and Taiwan have used variants of this obvious design to contain the virus. Every adult in these countries is tagged and tracked by phone, and required to isolate if needed; kids just stay inside.

It is important to understand that lockdowns cannot end until the virus is either eradicated, or has passed through most people (creating herd immunity). An imperfect lockdown will reduce the death toll, but not eradicate the virus — or restart the economy.

While epidemiological models which portray humans as identical data points suggest that an infection ratio (R0) under 1 leads to exponential extinction, humans are not identical data points. Irregular and incomplete patterns of eradication — geographic or social — are not a path to zero.

In retrospect, population control should have begun as soon as the virus was discovered. Taiwan did this. In Taiwan, nominally a province of China, the virus has been little more than an inconvenience. Five people have died.

In America, at the start of February, there were probably only tens of cases in the country. A total lockdown was still necessary. The time a weak lockdown will take to get back to numbers this low might as well be infinite.

Our American values

Americans all have phones too. If they don’t, one costs $50. Why can’t we use this effective solution? Why haven’t we started full population control — with involuntary tracking, testing, and isolation — yesterday?

Because America is a democracy — or at least, has elections that its citizens still care about? Not so. The same is true of Taiwan and South Korea.

Here is the answer, without sugar. Americans are children. They are puerile, spoiled and arrogant. When they look in the mirror, all they see is a king or a queen. Can kings be managed? Like wildlife? A king is not an elk.

No king is he who bends the knee. To ask a king to wear a mask, so that a fountain of germs will not erupt from his mouth every time he breathes, coughs or sneezes — what an insult! A king’s breath is always sweet.

And if he can be ordered — he is no king at all. What king has another king to rule him? It’s nonsense. Any king would rather drown in his own pink juice. And he will. Who says there is no God? That pride goeth not before a fall?

I live in California. California is under “lockdown.” Leaving my house for “nonessential reasons” — including, but not limited to, scoring weed — is a misdemeanor, as serious as shoplifting.

But not to fear! Our governor, a custom suit with a snappy hairdo, reassures us that “social pressure” will “encourage people to do the right thing.” “I don’t believe the people of California need to be told through law enforcement.”

Indeed this order has succeeded in shutting down most businesses. Staying well away from anyone, I took a walk on the beach today. There were fewer people than usual — fifty, where I would have expected a hundred. Traffic, too, seems down. But this is a “nice area.” It is definitely true that California’s ruling class is civic-minded and responsible and likes to do the right thing, so long as that’s not too inconvenient.

But in general, this “lockdown” is to Wuhan — which was locked down at roughly the same point in its epidemic — as a tricycle to a Harley. Our suit-in-chief, perhaps extrapolating from his chic friends, seems to actually think California is a society. Like the rest of America but even more so, California is not a society. It is an economy.

Here and there across California and America are old, rotting pieces of our grandparents’ country. But Humpty Dumpty is done. We have no country; we have no society; we have no government.

We have a thing we call a government. It is big, officious, and expensive. When it needs money, it cannot be ignored. Some of its territory is controlled by informal armed groups, with about 300,000 members in California alone. They too cannot be ignored when they need money. Many pay both.

This official “government” does not even have a list of its residents. The United States does not even know, to within 8 figures, even the number of people within its borders.

South Korea has fought hard to control the virus. They have not quite won. But they started at their own 20. We are not even at the goal line. We are not even in the stadium. Of course South Korea has a list of who’s in the country. It even has full military control of its own territory!

All our pundits have ideas about what the government should do. My idea is: first, why not try having a government?

When we look at the responses to the virus around the world, they fall into four tiers. The first tier is Asia; the second tier is continental Europe; the third tier is the US and the UK; the fourth tier is the Third World.

The Continent has a Napoleonic tradition of government that goes well with emergency authority. In Italy you need a pass to be on the street. You really can get arrested. Wow! Is this freedom? Didn’t you think Italy was a free country? You were just wrong.

And still, a Chinese expert came to Milan and was horrified. People are still moving around; public transit is still running; not everyone is wearing a mask. “I don’t know what you’re thinking,” he said. He should check out San Francisco. Italy’s limp lockdown has not yet controlled the virus; at least it’s not a joke.

The one art Anglo-Americans must master to beat the virus is what Wyndham Lewis called “the art of being ruled.” We are as good as this art as a cat at painting — an average cat.

It is easy to read our history and see why. As Randolph Bourne said, war is the health of the state. All states are born in war. There are two kinds of wars: total wars of survival, and limited wars of choice. If your country is not seriously at risk of being subjugated, your war is a war of choice.

For America’s dominant New England core, the last total war was King Philip’s War, 350 years ago. That’s putting a lot of miles on the ol’ time machine.

A war of survival is a total war. Unless the population submits utterly to the government, unless the government can accept that submission and execute effectively enough to deserve it, that war will simply be lost — just as we are now losing World War V.

Medical interventions

There are two ways to fight this virus: offense and defense.

Defense is about treating the people who show up at hospitals with ruined lungs. Offense is about finding infected people before they infect others and/or deteriorate.

Observing the different responses to the coronavirus, it seems clear that countries which play offense (like South Korea and Germany) have much lower death rates than those (like Italy and the US) which wait for walking corpses to show up at hospitals. This may be a statistical artifact; or early treatment may work better. But the best offense is still an effective vaccine.

Medical defense: drugs and equipment

The problems of effective defense are well-known. America needs ventilators; it needs protective equipment; it needs hospital beds; it needs antiviral drugs; it needs everything, and needs it now.

Two obstacles stand between us and these goals. One is just the technical implementation. The US has no shortage of engineers, chemists, contractors, or any other human skill. We are not even short of equipment. Our problem is just old pieces of paper — and the human beings who love them.

Consider one project to make N95 masks — not even a strictly medical product — domestically. The proper agency, a bunch of beautiful humans who call themselves “NIOSH,” told the team it would take 45 to 90 days to approve the factory — making the same product, with the same machines, that are already deployed. Meanwhile, ER docs are making their own masks out of bandanas. This is utterly mental and not even slightly surprising.

The law is clear. Everything is illegal unless it’s perfect. DC slow-rolled testing for two and a half months because it wasn’t sure the tests were perfect. It had to make its own perfect tests — which did not work, adding another month.

Imagine fighting World War II this way. It is unethical to send American boys to die in an unproven fighter plane. The new F-6 Hellcat cannot be deployed until it never crashes, no one can shoot it down, its engines never wear out, and it is tested against the F-4 Wildcat, the approved standard of war, in a randomized, controlled, double-blinded trial. If even the enemy pilots can tell the difference — your “evidence” is tainted — the study must be rejected.

The same applies to antivirals. Remdesivir probably works, and chloroquine might. A foolish person, ignorant of ethics, might think it would be okay to make as much as possible of both, right now, and let doctors make their own decisions as to what they think works.

Let the docs call the shots! This idea is illegal. It might even get you banned from Twitter. It reminds the ethical observer of Dr. Mengele, the Nazi — who also failed to seek proper FDA approval of his twisted “experiments.”

And synthesizing a molecule is even more complicated than making a mask. If the process is off, there might be contaminants. The dosage might be uneven. Everything has to be checked and checked and checked and checked and checked and checked and checked and checked. Dr. Mengele was not the only evil doctor in World War II — our good guys made penicillin without any such ethical safeguards. And they used it! On human subjects! Without any trials!

Everything is illegal unless it’s perfect. Since the perfect is the enemy of the good — ethics and the law are the enemies of the good. Relax! It may not be pleasant to drown of a cough. At least you’re dying legally — and your doctor is not a Nazi.

Medical offense: vaccination

Many observers assume that a really effective antiviral could get us back to normal life. No. As anyone who’s ever had the flu and asked for oseltamivir knows, a virus is not a bacterium and antivirals are not antibiotics.

Viruses work fast. A patient who shows up at the ER with ARDS is already hard to save. An antiviral helps to kill the virus — but it is no guarantee of survival. Not to mention intact lungs. Anyone for pulmonary fibrosis?

Even in a situation where remdesivir works and docs can get all of it they want, but the virus is still on the loose, fear is still quite rational.

And irrational fear is a thing, too. SARS-CoV-2 is the enemy of humanity — but fear is the enemy of the economy.

Which is not tanking because workers are dropping dead at their widget presses, and widget production has fallen off a cliff. It is tanking because people are afraid of SARS-CoV-2. And should be. Arguably they are still not afraid enough.

To cure fear without putting Xanax in the water supply, we either need a lockdown that really works, or a vaccine that really works. Or better yet — both. But as we’ve heard, vaccine development takes 12 to 18 months. It has to be proven safe.

Medicine is an art, not a science. Science is inductive, not deductive. The deductive concept of “proof” belongs to mathematics. In science it is a fallacy; in medicine, a fallacy squared. We have finally run head-on into this fallacy.

As a piece of marketing, this noble lie has long been helpful in persuading ignorant peasants to overcome their instinctive fear of being poisoned. So long as the p-value is under 0.05 (you have tortured a spreadsheet into confessing that there is less than a 5% chance of your results being pure luck), your result is proven — like the Pythagorean theorem, or something. This number, 0.05, is a fact of nature, like pi. In fact, it’s simply 3.1914 minus pi.

What are they doing for these 12 to 18 months, anyway? What does “development” even mean? Frankly, it is rude to ask. Your interlocutor may suspect that you too are one such peasant.

But such frankness, seldom found in journalistic interactions, tends to flower on social media. Here is a simple, true explanation I found on Hacker News:

As someone who works in the industry, you pretty much covered it. If you dose people with a new vaccine, you’ll need to monitor them 6 months at a minimum. 12 months would be better.

It takes 3 months to nail down the protocol and for all the sites to be ready. Then you start recruiting and for a vaccine, you’d want a large population (reflects usage). So assume 6 months to recruit 1000 people. They don’t all start at the same time, so if you’re tracking for 6 months, it will probably take 9 months for the last person to finish the trial.

Then you need to analyze all the data you collected, so another 3 months. Then the FDA takes 3 months to review and approve.

There is a TON of work that goes into running a clinical trial.

This would be funny if it wasn’t so stupid and evil. A “TON of work” — “6 months to recruit 1000 people” — to anyone who has ever gotten anything at all done, this is simply dark comedy. “12 to 18 months” is simply the result of taking this procedure as the word of God, but trying to do it twice as fast.

And yet, for a vaccine that would make life better but doesn’t rise to the level of a global emergency — perhaps for chickenpox, or papilloma, or even seasonal flu — this sedate, careful, and meticulous process may even be right and proper.

It is certainly right and proper for a civil servant whose career will be ruined by doing the wrong thing, but who cannot be held to account for doing nothing. It is certainly right and proper for a Hellenistic thaumaturge who may be strangled for harming his royal patient, but cannot be blamed for letting nature take its course.

Again, it is not just necessary to abandon the personnel and the processes that got us here — but also the principles. It is easy to see how the Hippocratic principle, 1500 years too old to be medieval, values the expected outcome of the doctor above the expected outcome of the patient. Physician, heal thyself!

We have our own century. We have our own problems. Suppose we abandoned the whole past — from 2400-year-old chestnuts of Hellenistic witchdoctor wisdom, to 75-year-old technocratic cathedrals of Potomac paperwork? Wow, is that even possible?

What would we do? What is the proper approach in our situation? What would be most likely to save the most lives? Note how different this results-based test is from the old principle — and how hard it would be to argue that we should not save the most lives, but instead… do the most science? Right. If this is science, science is a crime.

Making a candidate vaccine is easy. Modern molecular platforms (like those of Inovio and Moderna) produced vaccines in hours from the viral DNA. These vaccines probably work, and are probably safe. If I knew I was going to be exposed to the virus, and had no other protection, I would take one.

But this level of confidence can be considerably improved. It does take time to manufacture millions of doses. While this happens, a vaccine (this should happen in parallel for all plausible vaccines) can be tested in the most efficient trial form: the human challenge trial.

In a challenge trial, human subjects are vaccinated, then inoculated with the virus. We don’t even have to invent this: the top Google hit for “challenge trial” is this rant by a fringe group — based, like many cults, in Geneva — calling itself the “World Health Organization.”

These cowboys do acknowledge that a human challenge trial is crazy and may even be unethical. But they suggest that it may be appropriate in some cases — such as “emergency use of an investigational vaccine (e.g. in a pandemic).”

Take a vaccine that works on rhesus monkeys. Give it to a thousand humans, well distributed by age and sex and race. Spray coronavirus up their noses. See if they get sick. That’s a rough, effective human challenge trial. It could be done in a month. And if the subjects do get sick, we get to test antivirals in the best possible situation — as early as possible. (The ubiquitous Lipsitch, of Harvard, has a similar proposal.)

Who are these humans? Maybe they are altruistic volunteers. Maybe they are mercenaries, paid a million bucks each — cheap at the price. It is difficult to imagine much trouble recruiting either class. Ethicists, of course, will tell you that no one could give informed consent to this kind of dangerous Nazi-tier “experiment.” Surely the camps are just around the corner.

Go ahead and drown in your own pink juice — feeling very ethical. After all, isn’t ethics why our grandfathers invaded Germany? They were willing to die then. So we should be willing to die now. It isn’t easy to be a good person. Don’t try to pull the tube out — it won’t help.

Organization

We are at war. In a sane world, when you lose a battle, you switch generals. Sometimes you even switch armies.

Are some of the people you see at these press conferences okay? Well, some are better than others. What about Dr. Fauci? Calm, witty, wise, grandfatherly Dr. Fauci? A respected public-health leader since, get this, 1984?

On March 9, dear old Dr. Fauci said: “If you are a healthy young person, if you want to go on a cruise ship, go on a cruise ship.” In a sane world, this quote would be remembered as if he’d talked about “the blacks,” or addressed a journalist as “honey.”

In a sane world, anyone with a public record of minimizing the coronavirus would be cancelled — unfit for any further employment, let alone in this crisis. Old friends would edit their phonebooks and duck them in public, worried about being linked to a coronavirus minimizer.

If that’s going to far — benching the whole current team is not going too far. Their results speak for themselves. As Cromwell said: “you had sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go!”

“A” is for aggression. Plan A chooses the most aggressive strategies it can copy or invent. It is as economically aggressive as Denmark; as socially aggressive as Korea; more scientifically aggressive than anyone. But the right strategy is wasted on the wrong generals. Who can run this thing?

Some suggest the military. Hopkins epidemiologist Tom Inglesby, perhaps having watched too many World War II movies, recommends centralizing the response under something called the “Defense Logistics Agency.” It really is remarkable when our best idea of an effective organization in 2020 is… the Pentagon. (If you want to see the Pentagon’s competence today, look at their ability to treat patients on a hospital ship.)

Why not put NASA in charge, because Apollo? The Department of Energy, because Los Alamos? Yes, the 1940s were awesome. But it’s 2020, and the fastest, most effective organizations America has today are called startups.

We call this world “tech.” This is a lie. Most startups are users, not creators, of technology. The same principles of scaling and execution apply to all problems. The secret of Palo Alto is not engineering, but management. Management is America’s problem right now — and America has the world’s best managers. But not in the Pentagon.

The right organization for a Coronavirus Authority starts with an experienced CEO who has taken a company from the garage to three commas. We are not starting from nothing — just from incompetent. Palo Alto has no idea how to reform incompetence. No one does. All we can do is replace it — starting, literally, with one person.

One common DC pathology is to take an effective leader from the private sector and put them in front of — not in charge of, since no one is in charge of anyone they can’t fire — the usual agencies. Such a frontman, in a cruel mockery of the Romanovs, is conventionally called a “czar.”

As a “czar” — a “coordinator of agencies,” in Dr. Fineberg’s terms — even the most capable private-sector CEO would be less effective than the usual bureaucrats. There is no manual for working the levers of Washington, only experience. We might as well ask a Tour de France winner to fly a 747, since transportation is transportation.

Our bicycle champion’s best move is to delegate to his experienced copilot. Why is he in the cockpit? People keep trying this; it keeps not working.

The CVA will not work unless it can hire and fire its own staff by its own rules — which means startup rules — which means no rules. Or as close as possible.

The current generals have to go. But the existing agencies — even including the Pentagon — are nowhere near universally and uniformly useless. Where they are useful, they must be used.

But if the CVA is to be useful at all, it needs unconditional and unlimited authority over all public and private actors. No one may resist it. Everyone must obey it. The White House must not micromanage it; Congress must not regulate it; even the Supreme Court must not overrule it.

Our founders were by no means perfect. Nor is their design. Nor were they fools or children. They had seen some sh*t. And when they granted Congress the right to suspend habeas corpus, it wasn’t for nothing.

But why is this safe? Because the CVA is limited and temporary, just like the emergency. While the emergency is happening, it doesn’t have time to care about anything else, like taking away your freedums.

Confiscating all the guns — enslaving all the poors — can we Americans, red or blue, white or black or yellow or mauve, just let go of all these stupid old nightmares? Can America, even for just a month or two while we fix this damn thing, abandon what Richard Hofstadter called “the paranoid style”?

Precedent

But will it work? Is there any past precedent for something like the CVA? Sure. Just not in America.

We have a “Senate” because our founders were larpers. They were larping the Roman Republic — which, before the United States, was the most successful sovereign enterprise in history, lasting almost 500 years. It too saw some sh*t.

Yet there was one office of the Roman constitution that our founders didn’t clone: the tribune.

A tribune was a kind of temporary dictator. When danger threatened Rome — typically some war or other — she put all her powers under the command of one man, creating the most effective organization known now or then. When that danger was past — Rome went back to being a messy republic.

In the 500-year history of the Roman Republic, she appointed about a hundred tribunes. Some may have been unnecessary. Rome was so epic that she probably could have managed some of her wars by Senate debates. But… would Rome have had a 500-year history? The United States has only come half that far.

Have I made the sale? Just one little thing: I lied.

The Latin word for a temporary dictator isn’t tribune. The Latin word for a temporary dictator is… dictator. (The ancients would have called a 20th-century dictator-for-life a tyrant.)

Sorry. Are you going to let a word stop you? Come with us if you want to live.