Effect of economic crisis on America’s small businesses [slides]
docs.google.com
docs.google.com
The solution is aggressive, continuous testing so that people can feel safe going back out.
1. Make hundreds and millions of the rapid tests available. 2. Deploy them to every business, every institution. 3. Test everybody coming into work every morning. 4. Isolate and quarantine the positive ones. 5. Elderly and immunocompromised self-quarantine.
Lets find the actual contours of this infection within the population. And then squeeze it down.
- Want to get into a theme park? You need a negative test result on your phone from this morning.
- You got tested at one of the thousands of mobile test stations. You received a code with your test.
- 15 minutes later, you get a test result on your phone - also sent to a national database in real time.
- The theme park worker scans your phone and validates the result.
This is not a fool-proof system. But it or something like it will instantly reduce anxiety of people trying to work.
If you knew that everyone at your coffee house, at your gym, in your lecture hall, etc. tested negative in the morning. You'd feel safer and we'd all be able to move forward.
It all comes to what part of the curve the country is now, the choice being total lockdown incl. economic shutdown vs aggressive testing.
Considering US lapsed on aggressive measures in the beginning and that proper test kits are just being flown in from Italy[2]; total economic shutdown seems to be the only option left.
P.S. There are still high-risk countries which hasn't gone into lockdown neither doing aggressive testing as of now, claiming the number of cases are low although the day-to-day delta is increasing exponentially.
[1]Italy correspondent of Aljazeera gave this information multiple times on live, couldn't find static link to it as of writing.
[2]https://www.msn.com/en-us/news/us/air-force-flew-500000-coro...
That's quite the overreaction.
Italy found that among fatalities the median age is over 80 (older than the average lifespan of an Italian man).
99% of fatalities were among people with a prior illness. About 50% of the deaths were people suffering from at least three other illnesses.
https://www.bloomberg.com/news/articles/2020-03-18/99-of-tho...
To put it another way: most of the folks dying from COVID-19 were already dying. This disease is the straw that broke the camel's back.
Should we just give up on them? No! But instead of quarantining everyone, and sending us back to the stone age, we should work to quarantine these folks while the rest of us return to normalcy and build up our antibodies and herd immunity.
It's not just fatalities, hospitalisation i.e. exhausting healthcare facilities is the primary concern with COVID-19.
There is no guarantee that young people wouldn't make up high mortality list in a poor country with high younger population, rich countries should get their acts together to stop that from happening in vulnerable countries.
The narrative that this disease only affects the economically unproductive is dangerous at best, and inhumane at worst.
My feeling is that I'd rather be chronically sick in a good economy than in a depression. What happens when medicine becomes unavailable due to supply chains being cut off?
Also...
You make the error of assuming that (A) high blood pressure, diabetes, and heart disease mean that a person is "already dying," and (B) people who survive don't become debilitatingly sick.
The virus is just a convenient excuse; a crisis would have hit at the first sign of trouble.
This thing has evolved three strains with only a couple hundred thousand cases. A couple billion turns it into a shit show.
Selection bias. They're so overwhelmed they're using age as a primary factor to triage patients. Clearly, if you put your medical resources towards saving the younger patients, the younger people are going to have a better survival rate. Lack of a ventilator, when you have a severe lung disease, is a massive risk factor at any age.
> 99% of fatalities were among people with a prior illness. About 50% of the deaths were people suffering from at least three other illnesses.
Again, if you look at the oldest people, you're probably going to find more diseases there. This could easily be just another consequence of age-based triage.
Here is why you'll get tarred and feathered, because right now the media is covering the health costs of the virus extensively, but it's not covering the economic costs, which are already unfolding now in the form of businesses dropping vendors and announcing layoffs because their anticipated revenue until further notice is zero.
I've seen so many bros on my feeds who puffed out their chests a month or two ago and said, this virus is not a big deal. Then there were cases in their state and the media was reporting the deluge of new cases in the US and they said oh I was wrong, we need to be on total lockdown, and they're hiding in their apartments.
What will happen next is the jobless claims will come in, which we can clearly predict based on current business activity, and they will break records. I saw one estimate of around 1.5 million jobless claims this week, which is a record. I guess the bros will start squawking about the economic damage in 2-3 weeks once the media has covered this widely and people they know are out of work.
Small businesses (and some large ones too) typically don't have large cash reserves like Google. They also don't know whether this will last for one month or six. So they are in the process today of shutting down and telling everyone to go home without pay, they have to do this until they know what the long-term outlook is.
Nothing changes, most people are sheep, they parrot whatever's in their feed, they are poor at prognostication and self-examination, their attention is occupied by whatever narrative is being shouted most loudly. Nothing you can do.
> 99% of fatalities were among people with a prior illness. About 50% of the deaths were people suffering from at least three other illnesses.
This is true, but what about the overcrowded hospitals this causes? People who weren't gonna die will now die. And what do we do about the doctors and nurses who are pleading with everyone to act?
Perhaps something along the lines of strict contact tracing could have been done, but now it seems like it's out of hand.
So far... wait until you get the number of critical cases above the number of ICU beds and you'll see 18 year olds dying from this
”As of March 17, 17 people under 50 had died from the disease. All of Italy’s victims under 40 have been males with serious existing medical conditions.”
They reached maxed capacity of beds or ventilators right? We read stories of doctors having to make life & death decisions. Where are the dead 18 year olds?
Spreading info like that on a hunch, or an exaggeration, is counterproductive if not damaging.
Maybe the no-contact thermometers could be a scalable approach. Go to the bank? Forehead scan to get in. Go to the grocery store? Same. At least until--and maybe even after--we can scale the RNA testing.
This is the reality in China. Literally every single public place have a remote thermometer they scan on your forehead. supermarket? scanned. subway? scanned. restaurant? scanned. If you have a fever you'll go into quarantine in no time.
And think about it, I'm only talking about getting up to 10 mil or so here. We'd need a lot more than that to implement the plans being proposed on this thread. Logistics really does demand that medical personnel, and emergency responders be tested regularly to ensure their continued fitness for purpose under such schemes. Consider, there are right around 12,000 law enforcement officers alone in Washington state. Not counting doctors, nurses, EMT's and firemen. (And lest we forget the most important emergency worker of all right now, the Walmart stock boys.)
Add all that up. Multiply it by 50 states, some much larger than Washington. Under the plans you guys are proposing, we'd need multiple tests as the crisis goes on for each of these workers to make sure they aren't out infecting citizens when they interact with them. (Or when they put food on shelves that a customer picks up 4 hours later.)
Please, try to be reasonable. Maybe the current approach is not tenable, but the ideas being proposed on this thread are problematic as well.
On the other hand, we cannot pause the economy for too long. The damages are already done but what is going to happen if we wait too much?
I cannot imagine the level of stress the people working at the government must be under now... Whatever solution they come up with could be the collapse of the US as we know of now.
Pretty sure that ship already sailed.
Why not? This is a matter of survival. If the economic system breaks because of one pandemic that will last less than a year maybe that economic system needs to die and be replaced by something more solid and useful for most.
Let me put it in simple word: you'll loose your job. Your friends and family will loose their jobs.
As a result, when your savings run out, you'll loose your appartement. And so will your friends and family.
You won't be able to afford food without government assistance.
And even if shutdown lasts only 30 days, it'll wreck the economy for a long time. Once a restaurant defaults and closes, it won't just re-open. Those jobs will be lost for a long time.
Now, maybe you're one of the lucky ones with enough savings to ride this out and this won't affect you. But it'll affect millions of others.
Even without this pandemic, we live in a World where there is enough shelter, food and drugs for everyone but we still have homeless people, people starving or at the least malnourished and people dying in a rich country because they have to ration fucking insulin.
This economic system is not working at all. People die every die directly because of this system[0]. This pandemic just brings it to light.
Of course socialism is a failed economic model but hey maybe this time it will work /s
If humanity can't react appropriately to pandemics like this, then how can we expect to survive in the eventuality that something even worse comes along? And any economic system that gets crushed by this proves that it simply wasn't prepared and needs to be replaced, lest it cause even more damage to individuals.
Out of curiosity, why do you think it's likely that something more solid and useful to most is likely to come out of an economic collapse? Economic collapses have happened before - are there any instances of a solid and useful system coming out of them (maybe the new deal after the great depression? That one is arguable though).
We all work in the system, some would make more than others but even those who work the least or not at all would not be left behind. So if you make more you can enjoy more "stuff" and gadgets and if you make less you are still stress free about life.
Would we have $1000 phones or shopping shelves filled with hundred of fake choices? Most likely not but at least we won't have people rationing insulin or people living in the street of the richest city in the richest country.
We live in a world with so much production and people spend their time worrying about surviving and getting ahead instead of relaxing and making the world a better place.
Are there reasons you see why a more robust cannot be developed? I suspect HN could easily come up with a substantial list of improvements. Limiting stock buybacks seems like a good place to start.
Didn't even last a decade until they got themselves an emperor.
> Arguably the Russian Revolution if you accept the USSR as a step up from feudalism.
Considering that the USSR killed orders of magnitude more of its own people than feudalism under the Czars ever did, I'm going to vote "no" on this one.
No, this is people breaking. Peoples lives and livelihoods break due to this kind of economic and social strain.
And the quarantine effects everyone severely, not just 14% of people.
The Swiss Federal Council is setting aside billions of CHF (I think the total is currently at 32 billion) for exactly this: some relief for small and medium sized businesses. They've recently announced a process to have 80% of your salary insured up to a certain high cap, between 150k and 200k CHF.
There might be vastly different political and scale differences between the USA and Switzerland that make this infeasible for the USA. But Switzerland is showing that in principle it can be done. Making your blanket statement for the whole world, false.
And yes with these measures essentially any income is now assured: Salaries, salaries of SMB owners (normally excluded from unemployement benefits for obvious reasons), hourly workers, limited contracts, internships/apprenticeships, self-employed (i.e. without being employed by an LLC or something else like that) business like artists. Also daily stop-gap money if you have to stay home for more than a few days to figure out how to take care of your homeschooled kids.
Plus like 20 billions in credit guarantees for small businesses to avoid a cash flow squeeze.
All measures use existing infrastructure for paymenet (commandeering the banks for the cash flow squeeze credits) to guarantee the money has arrived by end of the month, latest. And that it will continue to flow, like regular pay check.
I disagree, and strongly.
This would be a knee-jerk, hyberbolic, and woefully ineffective over-response.
Typical for the times.
The only thing this might achieve is creating an even greater climate of fear and loathing.
There will be false positives. And false negatives.
There are with every medical test.
Back-of-the-envelope calculation: Assuming we "test everybody", and assuming both a 5% rate for both false positives and false negatives -- which is better than we currently do with influenza testing![1] -- we would needlessly quarantine 12.5 million people, and fail to quarantine an equal number of infected carriers.
Not to mention, the data about COVID-19 is all over the map. We still know very, very little about this disease. Understanding it well enough to calculate the appropriate response will take time.
Testing is part of the solution, yes. But the economic and social impact of "test everybody, every day" would be catastrophic.
Until then, in the short term, there are things we can, and should, be doing, as individuals:
(1) Limit your physical contact with others.
(1a) Especially at-risk individuals. The elderly, young children, etc.
(2) Support your local businesses through delivery, online ordering, and gift certificates.
(3) DON'T HOARD SUPPLIES! You do not need a decade's worth of toilet paper. Three months' worth is fine.
(4) Related to the above, maybe use this as an opportunity to live a bit more sustainably.
I'm down to four sheets per wipe -- certainly fascinating, relevant, and not at all disgusting to all of our readers -- which means that a single CostCo-sized pack of TP might keep my household going for well over six months.
On that note, I'm learning to garden. Let's see if I can manage to actually grow a fucking potato this year, all I got last year was a big leafy plant with zero tubers.
A discussion on government policy in response to this is a big ball of... things that require four sheets of Kirkland Signature, so I'm so not going there.
[1] https://www.cdc.gov/flu/professionals/diagnosis/rapidlab.htm
There is a massive gap between "test everybody!" and "test nobody!"
We have a finite capacity to test. Tests have accuracy limitations. We can work within both of those limits to mitigate risk as much as possible.
Drastic times require effective measures.
As opposed to needlessly quarantining 300 million people?
Well, the failure the quarantine would be the false negative rate times the infection prevalence. A significantly smaller number than the false quarantine rate, until the whole gadonkun no longer matters.
I assume in your system that everyone would need to be tested before going to work every day, because that's the most common in-person gathering for most people. The USA has run fewer than 50,000 tests in the months since this began. Your plan would require 100,000,000 tests in the USA every day.
No need to make the test stations "mobile". You could put 1,000 in every city, and they'd never have time to be moved. Every sidewalk downtown would be lines of people waiting for a test -- which itself would be a bigger gathering for me than just going to work.
If everyone is tested, the disease can be controlled:
https://www.theguardian.com/world/2020/mar/18/scientists-say...
In their panic, people want "something" to be done. In a couple years, we will be talking about how 90% of policies enacted during this crisis were a net negative, and 50% of them directly made the problem worse. Not to mention the ethical concerns of legal overreach.
* Disclaimer: It's a serious situation and I do not endorse a hands-off approach. That doesn't mean we can't have a civil debate about the complexities of trying to mitigate it, though.
Well in my country (Poland) with all the noise and confusion some rational procedures get implemented. Supermarkets limit strictly the number of customers inside. Cashiers get physical protection from customers. Contactless payment limits have been doubled. Etc.
So we are getting time for implementing changes and the life can start returning to 'new normal'.
Compared to what? An exponential explosion, like what we saw in Italy, prior to the measures, but ten times worse, because you don't even do anything to check it?
They are shutting down many businesses, and more or less forcing people in to situation where the virus will spread further.
the Panic in society currently right now will do more to spread this virus than anything.
But hey lets destroy our economy as well, that will do wonders to stop the panic
By the time you're done developing the app, deploying "thousands of mobile test stations", figuring out a way to get test results in 15 minutes (!!!) and implementing security checkpoints at each establishment from gyms to workplaces, we'll all be infected.
> Want to get into a theme park?
Nobody cares about theme parks right now. We care about getting infected at the supermarket, or bringing infected bags home. You're missing the forest for the trees.
Is that actually true though? What resource are we low on? Do we not have enough nonperishable goods or public funds to pay for utilities and basic infrastructure?
Debt has metastasized and spawned many industries, so its retraction is unlikely to be a peaceful event. But it is a cancer that will kill our society some time. The only question is if now is that time, or if some patching will get the system through this and we can go back to pumping the stock market as a false idol of productivity.
We have:
* work to be done
* people willing and able to do the work
* resources with which to do the work
So what exactly is stopping us from putting those three together?
The worst case on such a scenario is that an economy sits on rationing for a period of time, followed by a strong and possibly inflationary demand spike, but businesses and people's balance sheets could be partially paused.
We need to develop that capability. Imagine the next pandemic was worse, spread more asymptomatically and/or required a longer isolation time to get over without spreading combined with higher fatality rate, or fatalities in a younger demographic.
This could also help us learn how to deal with more tangentially related things like grid disruptions (hopefully we don't eliminate cash in response though as that might hurt in that scenario).
Thinking abstractly, why not? If the businesses are open, the money is there to pay everyone. If you send everyone in the economy home, where has that money that would have been used for salary gone?
Someone is holding it rather than distributing it, that's the only reason. So, take a look at who is hoarding money like a dragon sleeping on a pile of gold, tax it, and pay everyone else enough for a roof and food.
I am voluntarily (10% family-preservation, 90% community service) staying in my house. I’m now “hoarding” (to use your hyperbolic term) all the money that would normally go to fuel, eating out, and entertainment.
The restaurant, movie theater, and gas station owner would, circumstances permitting, surely prefer to be able to serve me and I likewise.
Why don’t I just mail checks to people that I’d normally buy from? Because I don’t know what my own economic future looks like. Will I have a job in 6 months? What will my retirement savings look like then? Plus, I can’t just send the money where it would have gone and also send it to the people who are now selling me more at-home food or new goods/services that I need to be productive at home.
I’m fortunate to work as a W-2 office worker/spreadsheet miner, at least for now. If I were a bar, movie theater, or auto repair shop owner or worker, I’d be in a lot worse shape.
This is not a Bezos, Gates, Musk driven problem. This is driven by the inability of the consumer to consume normally.
The economy is a circular river system. If it stops one day, there is going to be areas of drought in places, as well as huge reservoirs protected by dams. Money does not disappear, it only moves. You lose money on stocks, someone else on the other side of the world made money with their short position.
Perhaps that dollar is held up in some whale's cash account after they closed their positions. You would tax that whale for that cash, and redistribute it to the working class to afford food and shelter.
In any recession, the big stall is capital being too skiddish to pay for labor, resulting in lowered consumer spending, justifying less demand for labor, and creating a worsened financial crisis due to even lower consumer spending levels. If you are able to keep the working class afloat, you can conceivably keep consumer spending afloat, and therefore keep the economy afloat, even if capital is fearful.
The economy is the collective action of people producing the goods and services that you and I consume - food, haircuts, medicine, video games. Money is a claim on some portion of that stuff that has been or will be produced. Redistributing money is not going to suddenly make us productive again when most people are only leaving their house once a week to stock up on groceries.
Example: I go to a clothing store and give them an amount of money that I value less than the clothes they give me in exchange. We are both better off because we have made that mutually-beneficial exchange. If the exchange doesn't happen because the store is closed, then there is no revenue (let alone profit) to divvy up.
The only way to simulate that transaction in a way that gives money to employees is to literally take it from customers who receive nothing in return.
There are two sides of our society; production and consumption. If we aren't producing, how are we continuing to consume?
That's what happened in South Korea, as far as I understand. They missed just one guy out of 31, and he started a massive infection.
Yes, massive testing is indeed better than what we do now, but if you let people to just walk around, it will do absolutely nothing.
Also HIPPA laws prevent what you propose.
And most importantly, those with immunity can go on to lead a normal life and participate in the economy.
So there’s a middle ground here somewhere.
China’s approach (lots of temperature taking, testing everyone with a fever) might not eradicate the disease here, but it could keep it manageable until a vaccine is deployed.
The issue really isn't the virus but the fact that people who end up spreading it, don't know they have it. Shutting down the economy is a backwards way of solving this...it is assuming that everyone has it.
I am not sure how exactly we get to that point and you are kind of hoping that people who have it isolate...but testing really should be priority. My govt is ramping up but the numbers they are talking about are still ludicrously small...total tested is 0.1% of population, and they are saying it is a resource issue (whilst they are spending literally hundreds of billions on stuff that is being caused by their testing strategy).
Unfortunately, this virus is highly contagious (to the point that the vast majority of countries won’t contain it) and fairly lethal. We don’t actually know how lethal, but it appears 1%-3%, but without widespread testing we wouldn’t know.
At the moment, we just reduced our GDP by 30%-50% in regions under quarantine. Think about that for a second...
Now consider the fact that the supply chain is also all kinds of messed up and with the loss of jobs people have less money.
Finally, save this, but I don’t think the US quarantine is going to do much to lower the curve. Simply put, the west is not prepared. Our checkouts are run by people without masks or gloves. People still are closer than 2 meters (or 6 feet).
To lower the curve we’d need strict quarantine (no leaving the house) for a month or two. Even then we won’t have enough masks, hopefully we’d have enough ventilators and tests by then...
Point is, we are tanking our economy and mark my words — it won’t work. People voted, had spring break, celebrated st. Patrick’s day went out shopping in droves. It’s likely too late, one sick per household and they infect the whole house.
All this to say: we are losing our economy and probably this isn’t effective.
Last week my brother suggested instead of working from home I work from a Starbucks.
I feel like people don’t understand how serious this is and it’s really bothering me.
People should cooperate and keep distance, but it's not a big deal to just be outside a reasonable distance from small numbers of other people.
Doing my part (I have asthma), I haven't left the apartment since Sunday :^)
Generally, clusters are OK for people that live together anyway.
Shibuya Crossing: https://www.youtube.com/watch?v=0vishEDtgdw Times Square: https://www.youtube.com/watch?v=mRe-514tGMg
You’ve seen the critical, largely elderly population get tested and from that you get that number that’s freaking people out.
Stop spreading panic. With those kinds of numbers China alone would have 10M+ dead. In Japan, Singapore, surrounding nations more millions dead.
Use a bit more common sense. We know we haven’t tested enough in the US, yet we don’t have bodies piling up on the street. You don’t have families of 4 where 2 suddenly die. This has been going on for greater than 3 months now.
Stop spreading fear. The only thing to fear is the terrible consequences of those stuck inside the fear bubble
26 dead at the washington nursing home, 50 tested positive: https://www.businessinsider.com/coronavirus-deaths-washingto...
Death rates by preexisting condition: https://img.buzzfeed.com/buzzfeed-static/static/2020-03/13/2...
America has 42% obesity rate and a huge population with diabetes and heart issues, the numbers for 30-60 year olds might end up looking a lot worse than in Asia and Europe.
Obviously when this matures that rate will go lower because the denominator will grow but the denominator that people care about is the one we have now: who is sick enough to need a test because if I get sick, and thus become part of that denominator, the current rate gives me a good picture of my chances. Was the parent comment slightly hyperbolic, maybe. But you are way underselling the seriousness of this disease and the rationality of being scared of it.
They may still have those numbers after they lift the quarantine.
As governor Pritzker said: "I fully recognize I am choosing between saving people's lives and saving people's livelihoods, but ultimately you can't have a livelihood if you don't have a life."
This the the doctors delima, that does not factor in quality of life in to the "life" equation, life with no quality is not much of a life.
Further I have big problems with the Governer or the government making that choice, it should not be the government choice of my livelihood over my life, in either direction. No only is it shocking how fast people willing toss the economy aside and expect government checks to save them, it is also shocking how fast people simply toss aside all civil liberties.
This only ends with a vaccine and enough people recovered after infection we arrive near enough herd immunity. Until then this will have to burn through populations. Regardless, I can appreciate and support Pritzker’s response, and efforts to “flatten the curve”. It’s an unfortunate situation with no clear path to success.
If hospitals can get the supplies they need, and testing and health department capacity is there to do contact tracing, the lockdowns can loosen, and our economy can start back up. Bonus points if the warmer weather in the coming months helps fight the virus.
Is this true though? I'm not trying to be insensitive, but according to reports, ~15% of the infected need hospitalization, and the distribution of those people are mostly over 60[0]. Is having these people hospitalized on a large scale more detrimental to the economy than shutting everything down? Serious question.
This happened repeatedly in China; in fact, the nature of a lockdown sort of encourages this. But an infected household of 5 ppl is significantly easier to contain than 1 infected person going on to infect 4 people from 4 different walks of life.
I got my groceries from people wearing masks. Everybody in the store kept 6 feet distance.
I've been working from home for 2 weeks and will continue to do so for at least 3 more. Company wide mandate.
Almost every business other than groceries/other essentials (where some are surprisingly "essential", granted) are closed so people have no reason to break quarantine except to perform essential tasks. So overall, I'd say we are doing exactly what we need to be doing. Hopefully the rest of the country follows suit
Of course better compliance from larger numbers of people has even more impact, but it's not a binary condition.
That said, we probably aren't doing enough to prevent hospitals from being overwhelmed, or to even push that very far into the future.
Projections are 500k dead by June. Maybe with the precautions we can slow the millions dead by the end of the year. It remains to be seen.
We'll come around, once it's too late. "Americans will always do the right thing — after exhausting all the alternatives."
Sounds a lot like Philly' Spanish flu parade,[1] as compared to St. Louis' lockdown during the same.[2]
[1] https://finance.yahoo.com/news/chart-1918-spanish-flu-shows-...
[2] https://media.zenfs.com/en-US/quartz.com/df26ee36f79f85f57ad...
That’s the fatality rate within a functioning medical system. It’s safe to assume that if the virus is uncontrolled the rate will be substantially higher.
The most vulnerable groups, the working class that pack like sardines in public transit every day, either continue work or are laid off. Tenement conditions still exist in Los Angeles, with multiple families cramming into a 1br apartment.
Quarantine is really only affecting the knowledge workers who make up a minority of the population, and who interact with a sliver of the population to begin with. Effective quarantine would include protections for the working class, but there isn't any political will.
I'm legitimately fearful of hitting the breaking point. Maybe some would call it overblown, or hysteria, but this is a city that endured three days of looting after a verdict, requiring the national guard to stabilize the situation. Men with rifles used to take positions on the roof of my grocery store. This isn't ancient history, unfortunately, it's who we are when pushed past our limits with nothing left to lose.
Fixed this for you.
(Additional comment: I will counter with I'm really amazed how quickly people threw away the economy in an effort to reduce lost lives. Normally, I expect people to be much more mercurial)
The economy will recover, especially since EVERY country is taking a hit, I don't think it will take very long for the capitalist engine to roar back to life. That's the beauty about capitalism -- you're turning the ingenuity of humans loose to be productive. As humans we're great at figuring out how to be productive.
1.) Hedge funds levered up their capital 5 - 15x to make more money, then got caught with their pants down. So they all panic sold at once, crashing the market.
2.) CEOs of large corporations used cash to buy back their stock, inflating the stock price, and depleting their cash reserves. So now those same companies are on the brink of collapse, causing the credit markets to collapse, the stock market to collapse, and the rest with it. They can buy 50B worth of their own stock, but cant pay employees for a month without revenue.
This whole mess is in part due to financial engineering taken down by a black swan event. CEOs should be in jail and so should finance professionals. Laws need to be passed so that finance individuals cannot ruin the market for their own financial gain.
If your competitors are all borrowing money at low interest, you do the same or you're not competitive.
The problem is we lowered interest rates in response to the housing crisis and then left them there. Because doing so inflated (really reinflated) such a ginormous credit bubble that it would take more than an entire market cycle for real economic growth to catch up to it, and (absent printing money) you can only raise interest rates to the extent that borrowing demand from real economic growth exceeds the reduction in credit caused by the higher interest rates, or you cause deflation and an economic downturn.
This is also why the rate of inflation has been below historic norms since the housing crisis -- reduced to that level just by raising rates the tiny bit that they did. And now even that's gone and interest rates are at zero.
This is what the fallout of long-term low interest rates looks like. The only way out of it within our lifetimes would be mass defaults (which would cause a depression) or enough inflation to devalue the outstanding debts.
Considering that we're also now facing deflationary forces from these quarantines, maybe it's time to start printing some money. Certainly countering the deflation by encouraging even more borrowing would just be trying to dig our way out of a hole.
I'm gonna go with:
0) A pandemic has caused the government to shut down a double-digit percentage of the economy.
You need to have enough saved to survive 6 months w/o income is preached a lot in personal finance and somehow this is not practiced for businesses.It is understandable that cash-strapped startups can't afford to do this but the companies buying back shares to increase their stock price certainly could.
Uncertainty and desire to cash out alone was enough. The stock market is based on opinions and emotion.
But even if they were banned, these companies wouldn't just have piles of cash reserves sitting around. To remain competitive, they would've had it invested in resources like additional personnel that would've gotten the axe either way when the belt has to be tightened.
There needs to be better financial planning and regulations - a lot of them.
But the best thing that could've helped here is better planning for national emergencies like a pandemic. Bill Gates and others have been clamoring for a long time about these dangers and we should've taken them more seriously.
People who invested in index funds fared better than hedge funds. And there was no real price discovery thanks to Fed put; even many small hedge funds closed their shops when they couldn't beat ETFs based on indices like SPY, VOO, QQQ, etc.
Now both bonds and stocks are crashing, as the commercial paper becomes junk.
The core of the current financial crisis is that demand has evaporated over the course of a week or two and / or businesses can't operate; both due to COVID-19. As a result many small business won't survive. By extension many people are impacted, won't make rent, won't make lease payments, won't make credit card payments.
The stock market dropping is reflecting the above reality unwinding. And yes prices were inflated, and still are (QE is trying to hold them, we'll see how long that lasts...).
Unlike the 2008 crises that had synthetic derivatives, and shitty rating agencies to blame - this isn't the case here.
Though don't get me wrong I still think there are many sketchy things that go on, and many people who need to answer for them. Let's starts with the politicians that sold their shares given insider information, followed by others who curry favor with wall st.
Not only that, but they also use borrowed money with corporate debt to buy back stocks.
https://www.bloomberg.com/news/articles/2019-08-08/companies...
Companies dropping 50% because they miss 3 months of revenue?
Will. Never. Happen.
Banks committed outright fraud in 2009, by the dozens, by the hundreds. Thousands of people should have gone to jail. Not a single. Goddamn. One. Did.
Generally speaking, Boeing and others should not be bailed out. Capital should flow to the small businesses to keep their doors open, their people employed.
I'd also argue strongly against bailing out companies that shifted their work overseas. There needs to be a price to their actions. This is a just price IMO.
The stock market is reflecting that the damage this will do on the economy is real, and currently unknown but expected to be pretty bad.
So in this case, the cash ends up with the stock owner, isn't it? What are the differences between cash in the hand of company vs cash in the hand of stock owners?
Black swan events are unpredictable and outside of what is normally expected.
There were also 3 other localized outbreaks (SARS in 2003, Swine Flu in 2009, MERS in 2012) so that to me sounds like we were 3 viral mutations away from this being the 4th global pandemic in 20 years.
If we're structuring business and our economies such that they fall over or require ~1 trillion dollars for bailouts, every 4-7 years on average, then something is vastly, massively, completely, extremely wrong with our approach.
I don't care how many economics nobel prizes are racked up by theorists; or about efficient market theory and blah blah blah. These systems are failing in the real world and that's the only existence proof needed.
Running a just-in-time razor-thin-margins all-profits-reinvested-no-savings business is great in theory but apparently the wind blowing from the wrong direction destroys it all. It has the feeling of the economics/finance version of a physicist assuming a spherical car in a perfect vacuum with a point source of gravity when designing a system that has to survive actual usage.
Those who prepare well (3-6 months of reserves) will be ok, other businesses will need to perish to teach others a lesson.
You are literally advocating "Privatize the gains, socialize the losses", no?
'It's ok that the (public) government bails them out, because the (private) companies made even more money'
A recession is not.
From https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...:
1969, 1973, 1981, 1990, 2000, 2007 - a recession of US economy at least every 10 years, like a clockwork.
So, if you're a CEO of an airline and you're giving away 90% of your cash to shareholders instead of saving it to last few months when business declines, then it's an obvious failure of planning.
Or, more accurately, it's yet another case of "It Is Difficult to Get a Man to Understand Something When His Salary Depends Upon His Not Understanding It."
CEO salaries and bonuses are tied to performance of the stock (because they are set by board of directors, who are there to represent shareholders). So they spend the money to buy back the shares which increases the share price and their bonuses.
It's really simple if you know the incentives.
The big problem is that companies are focused on the quarter rather than the decade. Imagine the innovation we would have in technology if companies were willing to take a loss for years on worthy inventions, rather than only putting forward readily profitable projects.
The point is, unprepared leaders will see their firms go out of business, but based on the number of firms that seem to never be prepared, it seems the standard incentive isn’t enough. Thus it warrants discussion on how to align leadership incentives to prepare in advance. If we had businesses that could weather 3 months of crisis, whatever the crisis without triggering a depression the entire economy would be better off. Yet here we are.
Company leadership should focus on returning capital when appropriate. They should not be repurchasing shares at obviously inflated prices as a last-ditch effort to further raise share prices so they can cash out their bonuses. They should be using that money to improve the business.
Basically, leadership needs to think about long-term health, instead of making poor business decisions to improve executive bonuses.
2) Stock buybacks are simply a more tax-efficient way of distributing profits to shareholders. Redistribution of profit to shareholders is a fundamental trait of capitalism, so you can't really blame the CEO for doing this. You seem to be blaming CEO's for not preparing for a black swan event. If CEO's are forced to prepare for every possible black swan event, their companies would go nowhere.
So my question is, when do we learn?
What other events are you referring to?
I think the general sentiment is that we cannot just organically let most companies fail, so we are forced to bail out. But if we are breaking capitalism by bailing companies out, we should at least try to incetivize them to learn from mistakes rather than learn that they can do whatever when the times are good and get bailed out when the times are bad.
This is:
1. irresponsible, due to so called black swan events
2. price manipulation, don't forget this
2) Businesses exist to make a profit for their shareholders. Yes, they should have some retained earnings as a rainy day fund, but some of these companies are losing 75-100% of their revenue (airlines, cruises) and it doesn’t make sense to try and self-insure for the most extreme tail risk ever. So they return profit to shareholders. And for various reasons, buybacks are often preferred to dividends.
Would you be this up in arms if they had never done a buyback but had been paying a regular dividend to return those profits?
What mistakes? Is it a mistake to not keep a rainy day fund that will allow a company to weather a once-in-a-hundred-years shutdown of the entire economy? If this turns out to last a year, will you think it's a mistake that companies didn't keep a year's worth of reserves?
Especially since we're talking about SMBs here. Your local electrician, who has a staff of 3, should keep enough money saved up to pay all staff for the next year just in case?
You're saying a bunch of buzzwordy slogans kind of like "limited liability is bad" or "obligation to shareholders was invented by Friedman", but not dealing with the actual facts on the ground or the current catastrophe.
Who is this guy? Also where can I learn more about this and related topics. I’ve taken an interest to learning about our economic system in my free time and would love it if someone could point me to some good resources/podcasts/whatever.
It is an insidious and morally bankrupt myth that this is the only purpose of a company.
If that return is at the cost of the stability and welfare of society at large then sorry, but no. No-one "deserves" a return and nothing happens in a vacuum. Larger society comes first, full stop. Seems this is a lesson we humans forget, and need to collectively and painfully relearn, every few decades.
Clearly the past year has proven why it should have stayed banned.
Or maybe you’re suggesting we should have liquidity requirements for all businesses like we do for banks? That’s actually not the worst idea in a world where we’re going to be bailing companies out. If you want a bailout, you have to have a rainy day fund to make it less likely you’ll need one.
Yes, liquidity requirements and add personal liability for executives if their firm goes through bankruptcy, or restructuring. Goldman Sachs was a partnership until the 90s with each banker personally liable for the firms debts. They took risk much more seriously then.
Give everyone money, no criteria. If we do impose income limits, and since viable proposals do -- we ought to discuss it. Give them a check now anyways. We cannot be worried people will be "annoyed" if they owe their check back come next tax season. Future annoyance is a small price to pay if these businesses can't stay afloat. We will be feeling the effects for far longer than a quarter. The helicopter money needs to be distributed as soon as possible.
In the situation today the physical basis of wealth is not under attack, the "human capital" is.
As long as the food and water keep coming we'll eventually be all right, keep your head, and keep your eye on the fundamentals: In approximate rank order from most important to lesser-but-still-very important, the base of Maslow's Hierarchy of Human Needs:
+Water (also soap!)
+Food Production & Distribution & Waste Management.
+Communications (under which I include governance)
+Electric Power
Pervading and fundamental to all these are keeping a level head and a civil society.
"It may seem a ridiculous idea, but the only way to fight the plague is with decency." ~Camus
We can shelter-in-place as long as needed. And no businesses go under, and no one loses their home.
Totally agree, it is insane that some families are under the threat of eviction because they live paycheck to paycheck and cannot afford to pay rent now. Same for small businesses who cannot afford to pay rent.
I'm sure some landlords will do the right thing, but we can't trust all landlords to do the right thing. Something has to be done at the federal level, and it's now or never.
UBI would be another way to get around this BTW.
This sounds like a very interesting solution. Although from a technical point of view, it seems impossible to implement.
That's what this month has felt like. The grave error, in my opinion, was refusing to take dramatic action early on. We couldn't tolerate any economic slowdown, so dice were rolled, and here we are. Add in the (criminal) failure of testing in the United States...
It's been a week and you see plenty of calls to 'think of the economy', and put an end to the shelter-in-place. One week. But like I keep saying, this isn't a binary choice. It's not clear that we could just 'chose the economy' at this point, because of the path that was chosen weeks ago – which is a narrower, far more dangerous path, to both the global health, and the economy. Short-term thinking at its worst.
But this is not a literal plane crash. The majority of us will live. It's about the kind of world we want on the other side of this. What we need now is global cooperation to share knowledge and resources. We need people to come to their senses so we can make smart decisions and make sure we don't throw out our constitutional rights in the process. We need as much urgency in bailing out the millions of people who are already losing their jobs, as there is for the airlines that spent the vast majority of profits on buying back their stock.
There's cognitive dissonance at play. "This can't really be the situation we're in?" Well, it is. This path was chosen. Now we need to buckle-up and learn rapidly from the mistakes we've made.
Previous commenter has nailed it directly: opportunists see a mountain of money heading out from government to the public and they want to insert themselves in the middle and grab a big chunk of it.
I mean, these businesses file tax returns and the government has an address and even a bank account on file for them. Government could... write them a check. I've just provided all the value Womply provides in getting money to small businesses, pay me.
There was a major flu epidemic that killed 100K+ in the Soviet Union in 1977-78 (long after gulags and all the scary Soviet stuff, when living standards were among the world's top, comparable to poorer Western European countries like Italy and Spain). None of my older relatives ever heard of it. just some old people died, that's it. Absolute zero of economic or social consequences. I think kids didn't go to school for some weeks and maybe streets were cleaned bit better than usual, nothing worse.
I'm _not_ saying we shouldn't help the rest of the world. That's the very next thing. I'm saying, let's make sure we're not drowning before trying to help others not drown.
This is a really weird line of reasoning because I don't think it even holds in the case of a broader unity.
I see the immediate health layer as subject to physical limitation, the economic layer subject to informational limitation. If by resources you mean money, then yes, I very much agree.
Sure, I have no gripe with the author(s) of the article, but reading it makes me feel like they just don't get the big picture.
1. Freeze mortgages, rents and interest for 90 days.
2. Send everyone checks for around $2,000 a month, let people choose to cash them if they need to, correct for it on 2021 tax returns based on your income.
Avoid having small businesses shut down and lay everyone off, call it a vacation and give people homework for the next 2-3 months while we focus on fighting this pandemic.
Plan B: https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs...
Other countries, and developing countries, may.. Will not be so lucky.
A similar situation is happening to Louis Rossmann who doesn't have business interruption insurance because they require flood insurance and weasel out of covering disasters.
Another situation is Michael Moore's nonprofit movie theaters won't be reimbursed to pay or govt pay their employees' salaries, and building lease/rent.
Also, tip-based workers are screwed too.
Only 20% of workers are getting some money, with a little promise of temporary UBI to some people.
And then the government has the gall to offer interest-bearing loans instead of no interest loans and grants? WTF!
The situation is there will be people working to put food on the table sick or not, and riots if people aren't made whole. The US economy will crash and burn for decades if this isn't handled correctly by clawing back some of the tens of trillions the MIC, corporations, and the rich stole from the little guys and regular folks.
Commercial landlords are likely thinking about it. the solution is to figure out who else rents from the same landlord/other small businesses in proximity, team up in solidarity and demand a rent freeze. The alternative is owning capital in either a ghost town or Bartertown (https://en.wikipedia.org/wiki/Mad_Max_Beyond_Thunderdome).
For the skeptical, think back to the Occupy movement of around 2011, which mostly took over public space. With so much private space sitting empty, the outcome would be very very different this time.
Waive late fees as in, expect to be paid for all months back rent in the first place?
Gosh, that’s cute. Small businesses forced to shut down aren’t going to be gritting their teeth and paying back rent when the government decides they’re allowed to re-open.
I would guess most businesses forced to close at least 6 weeks will be write-offs. Walk away from the debt and start again if you can / dare. Unless someone else (govt) is picking up the tab.
IME if you needed capital, you weren’t approved for capital. If you were cash flow positive with solid income and 2 years of operating history and tax returns, you could put up collateral and refinance at a lower rate.
Over ~5 years I was denied ~5 times, discouraged from applying ~3 times. I was approved once after several years of track record with a co-signer pledging a property with 100% collateral.
That small business (exited 2019) would have really struggled to survive right now. It would also be a difficult time to ask friends, family or spouse to help.
I wish I had a better policy suggestion to offer; it's a hard problem. Good luck to all small businesses out there, I’m pulling for you.
They look for essentially a business plan that has been thoroughly thought out. It sucked for us because we had to report EVERY DAY someone missed their payment until it was paid. The SBA gives a decent rate for what it risks, but they are an unmovable force. You cannot explain to the the situation or what. Follow the terms to a t or get yanked.
But this can mostly be fixed by law, with a law that retroactively changes all rent, leasing, mortgage, employment contracts and in general any contract that involves periodic or future payments to be stopped at will, subject to no longer enjoying the service or product.
Then they can just stop paying rent and paying employees and cancel all supply deliveries, since they no longer need those, and they will not lose any money.
Then add a temporary UBI and a ban on actually evicting from rented spaces (since the economy is shut down, and thus there would be no other tenants) so that people can still have a home and food.
People of low means do not like getting told that they must go back to work and accept the risk of losing their parents and getting permanent lung injury. They will also not like getting told to stay at home and default on their rent and mortgage.
People in a situation like that can take desperate measures, especially when there’s many millions of them.
You guys really need to step up the political measures to take care of these folks. Emergency bailout style. The time has never been more ripe to test out basic income.
Many sport studios quickly moved to online classes. Not everyone can of course. The climbing gym near my house is closed and who knows if they ever reopen. I'm not saying that we're not in a middle of a small businesses catastrophe, just that many small businesses find ways to survive. But obv they won't be able to for too long.
That is, that after 3 months of strict lockdown and 9 months of pervasive social distancing, the only virus you will be able to catch is the covid-19 virus, until new viruses coming from animals appear.
* large businesses not being able to pay for maintenance of tools.
* small businesses not being able to pay employees, rent, services, etc.
* people not being able to pay for rent and food.
What are possible solutions for a long-term lockdown?
* for large businesses: bail out.
* for small businesses: rent should be free.
* for people: rent should be free, food should be distributed like in times of war.
What about property maintenance?
The usual reason against shutdown is because people have mouths to feed, mortgages to pay. But seriously, most of the products and services people are selling not really important or even any useful - that's why people have to advertise them so hard - it's not as straightforward as advertising cars, houses, and Coke. But those jobs are very important to those individual employees because it's their only source of income if their business were shut down, they wouldn't have roofs over their heads.
So the capital is the way to let people claim their part of the economy. It's so vulnerable that it's not even doomsday yet and people start to lose their source of income, and even without shutting down things. If we're going to shut down non-mandatory industries, people from those industries would get broke immediately - it's so deeply coupled so effective measures could not be taken.
In a perfect world, less than 10% of people working, or everyone working one day per week could feed everyone effectively. As automation goes on, the percent could keep shrinking. As a comparison, at the end of the day of a capitalist world, most of the "meaningful" jobs would done by very few persons because of the automation, and the rest of the world can only earn money at their mercy by doing "barely meaningful" jobs. Other than that, those who can't even get "barely meaningful" jobs have to working hard on futuristic versions of TikTok trying to become superstars - it's their only way of claiming their part of the economy.
Furthermore, the well-connected people get tested first as Trump suggested (or naturally happens in the US) is also a capitalist way of doing things. If we take Asian countries as an example, the testing kit is soon promoted as strategic resource mostly instructed by the government, which should eventually come from health care institutions, they have ideas to allocate those test kits in order to make maximum use of it, instead of blindly testing people back and forth.
If Karl Marx is not for you, it's always worth taking a look at Singapore where they did most things correctly most of the time. It's perfectly balanced in economics, politics and many, many other aspects (Though usually bashed by Western media as an authoritarian country). People can afford to buy houses, education is excellent and at a reasonable price, eating outside is cheap and easy, health care is affordable, and people are relatively free. Everything is carefully planned and designed by the government.
As a comparison, at a first glance, Hong Kong seems to be similar to Singapore to those people who haven't been there, but Hong Kong is a more western-style democratic society compared to its neighbors (at before 97 if you protest). But the rent is out of control, things are messier, there's no specific plan for things.
Again, I'm not evangelizing communism but those problems Karl pointed out have been overlooked largely nowadays.
Edit. Thanks to the wonders of HC I can’t reply to you so I have edited this post. The declaration of war is symbolic in one way, but it captures what needs to be done. The entire economy needs to be swung around to getting this pandemic under control as quickly as possible.
Once war is declared we can start conscripting people to do the things that need to be done like enforce curfews, do door to door testing, build hospitals, keep people fed, etc, etc.
We are going to end up at this point anyway, so we might as well do it now and save lives and the economy.
It won't be long before there's no one left alive who remembers mandatory rationing, price and wage controls, and production mandates.
Small businesses (all, businesses) will suffer quite badly, but if your company cannot continue operating because its shut/slowed down for 2 weeks then it’s likely that your business was running on a knifes edge and /any/ shock would have killed it.
Arguing that many people have done this is not just cause to bail them out (speaking from a purely logical non-empathetic position)
EDIT: ok. Our entire economy is built with no buffers in place and people here seem to have no issue with that. From a personal finance perspective I ensure that I live beneath my means and have capacity for a couple of months lost revenue. (Shit happens) and I’m not “well paid”.
Welcome to... life? This is how America or even the world works. Most people live on knife's edge. One missed paycheck? Homelessness just got its greasy hands on you. Two missed paychecks? Go pack what you have left... Most business are not any different, especially those run by regular people.
In my family we have a quite successful business in the sense that the person running it, has quite a fancy lifestyle and can afford it. But you have to realize that most business have terrible margins. Our family business has maybe a margin of 10%. That means, for every 10.000$ you take home before taxes every month, your business has running expenses of about 100.000$ per month. Now restaurants are all closed... Nobody will buy your stuff anymore, but your employess still need to get paid. So now you have those 100.000$ monthly costs and not a single dime coming in... There is no reasonable expectation to save this much buffer.
In short, even business that run extremely well, will die within A MONTH, if all expenses continue and no income is generated. This is why I think what they are doing for this petty virus is quite insane. They are destroying the middle class for some "theoretical" projection that might not even play out the way they think. What is guaranteed though is that businesses will die in troves and the economy and middle class with it.
Look at the age of the people making the decisions. If you were 60+, unhealthy, and had the option of minimising your own risk of catching the disease by stopping the economy, you sure you wouldn't take it, regardless of the long term damage it would do to the country?
Nearly all businesses in reasonably competitive markets have thin margins. You buy a widget and sell it for 30% more, but then most of that 30% goes to rent and utilities and salaries etc. Your actual net profit margin is more like 2%.
The result is that most businesses do fail if they're hit with any kind of major shock. Which happens all the time. It's supposed to. Mistakes have consequences. A business failing here and there is reasonable and expected.
But it's a completely different kind of problem when it happens to everybody all at once.
I'm not sure I care.
The world is suddenly embracing a lot of practices I've pursued for years because of my medical condition. I've spent a lot of years trying to develop alternate mental models and an alternate lifestyle to avoid germs so I can stay off all the drugs doctors think I should take.
I run r/GigWorks and r/ClothingStartups. Neither has much traction.
I have long wanted to actively foster the development of small independent business. The founding fathers of the US believed small business and entrepreneurship was critical to a healthy democracy. You can't speak your mind or vote your heart if you have to live in terror of being fired for it and unable to get a new job.
I can run my big fat mouth as much as I do in part because I work for an online writing service. If everyone absolutely hated me on every forum and in the small town where I live, I can keep earning an income anonymously online through the writing service.
I am only one person. I've long been a loser and social outcast. As such, I've been failing to get traction.
But you are all invited to check out GigWorks and ClothingStartups and try to be part of the solution.
The old guard never goes quietly. They go kicking and screaming. Things usually don't really change until a bunch of people die.
We've been here before. We survived as a species.
I think the most important question right now is "What kind of future would you like to see rise from the ashes?"
Answer that question and then actually do it. Don't just leave it as a mental exercise.
For me, that means continuing to try to find ways to foster small and micro business success via the Internet to give stability to a top heavy economy that is sucking the air out of the room politically for reasons foreseen by our founding fathers.
So in a way, it’s good for the valley if more of the economy becomes more corporate.
So, with loss of small business, we lose access to certain unique perspectives of how those kinds of businesses should be run. We lose the character that those businesses add to our cities and towns. Furthermore, there is an economic cost to the loss of those businesses for our cities and towns.
If it’s better for tech, it doesn’t mean that it’s better for humanity.
People often romanticize the "mom & pop" places, but there's a reason that most consumer-facing companies are very large, and those reasons were enumerated by the OP.
Also, there's a good deal of selection bias going on. If you had a successful business, why wouldn't you look to expand it to multiple locations? Running a single store makes your business vulnerable and usually requires a lot of time.