Many workers will drift into different jobs and for other reasons not return to their former employers. All of their institutional knowledge is gone. Supply lines are broken and will not all turn back on at the same time. Many businesses will not recover from that.
Plenty of economic activity will not be covered by the bailouts and those parts of the economy are now dead forever.
Until there is a vaccine that has proven effective ... wherever there was business where people gather is either cut 50 to possibly 100%.
Personally, I've stopped getting any carry out (food not prepared by me in which I wash hands many times throughout) and do not go into the grocery store rather pick it up, put it away and wash my hands afterwards. Hopefully I'm going overboard but at this point who knows.
When we get takeout, I unload it outside into our own containers, using one hand to open the takeout and the other hand to handle my own container. For things I can't transfer, I wipe them with a Clorox wipe.
Then everything gets wiped down again inside, just in case.
It's a bit much, but it's been nice supporting our favorite local restaurants in the hopes that they still exist when this is over.
Link? I've seen several things saying that there's no evidence it's transmitted via food [1] but nothing that rules it out.
[1] "Currently there is no evidence of food, food containers, or food packaging being associated with transmission of COVID-19. Like other viruses, it is possible that the virus that causes COVID-19 can survive on surfaces or objects." https://www.fda.gov/emergency-preparedness-and-response/coro...
Not good for those businesses/the industries surrounding it for sure but this is unprecedented times that I believe changes how we use to live and things enjoyed until there's a proven vaccine.
We’ll be lucky if people goto NYC for the holidays this year, visit Rockefeller Center and the tree, Broadway, etc. The biggest tourist spot in the nation is also the epicenter of the virus now.
I guess the same is true for most other shops too.
https://www.businessinsider.com/retail-apocalypse-is-still-i...
1. We can't just shut off the economy we need enough to keep running build up medical supply production, keep farms and grocery stores running, etc. This isn't a shutdown but also a reshaping. Those amazon warehouse workers will probably stay their instead of going back to their retail jobs, which were already in jeopardy because of market factors against retail.
2. Independently, the financial system needs to keep cash flowing so businesses can afford the essentials. Being in cryo-stasis isn't free.
3. We may have already acted too slow businesses are already firing people and shutting down. Reopening and rehiring may be too expensive for many low-margin business already. Any delays in restarting one sector of the economy will ripple to others.
4. How long can government rack up the debt propping up the economy? How long will the surpluses last in the economy before we start seeing shortages of non-essential goods that aren't being manufactured right now.
5. Uncertainty. How soon after we get the all clear are people going to leave their houses and carry out their normal business? Even counties with no confirmed corona cases and no lock down orders are seeing decreased economic activity from people staying homes. The airline industry started its death spiral well before the rest of the economy. When do we hit the tipping point for enough people to leave their houses that a restaurant is profitable again? Will we have another wave of corona after we complete this round of lockdowns?
Imagine a company that makes small plastic bits (like straws). Despite a crisis, they still have to pay their rent, and their loans. Because no restaurants are buying straws, revenue drops effectively to zero. The company can't stay afloat, and they have to shut down.
Why aren't loans/rent/mortgages just put on pause? Well then the lenders suffer. Why doesn't the government reimburse the lenders? Well then the taxpayers suffer. It's all interconnected, and somewhere along the way someone is going to suffer somewhat.
Back to the plastics company. Their machines are sold off at half price. Money is spent to remove equipment from the store. Employees who have been trained move on to unemployment or other jobs. All of those things represent an overall loss of capital that has been built up (it's not that black and white, but I'm hand-waving it). Once the economy gets going again, the economy is that much smaller. Those jobs don't exist anymore, and it will take a lot more capital to again build up a similar plastics company. If the owner decides to reopen that plastics company, he'll need new equipment, to train new staff etc etc.
On the other hand, an enormous amount of capital is being built up in other ways. Many people are learning how to work remotely. Many processes are being made more efficient (unnecessary meetings).
Of course this isn't what will happen, the value of the wealthy will be protected at the cost of others sufferring.
("But what about my grandma who's CDs aren't going to be able to cover her retirement expenses, aren't they suffering?" Societal safety nets should cover her living expenses. The rest she's saved should go to luxuries, and yes those luxuries will go down, like everyone else's with excess wealth.)
Cash in the short term is probably a fine idea. But low interest rates are meant to encourage deploying capital into risk investments or consumption with the promise of inflation eating your buying power if you hold cash.
Better than holding dollars in that scenario, though.
Government money does not come from taxes. It's distressing how few people understand that governments with sovereign currencies literally have a license to print the money they need. There is absolutely no need to borrow money, or even to collect it in taxes before spending it.
The ritual of borrowing is a political choice - which, incidentally, undermines democracy by giving a casting vote on policy to lenders, not voters.
It is not an economic necessity.
The proof is the way that bailouts tends to happen whenever the banking system or a critical strategic industry is on the line. For some reason this only applies to selected industries, and not others.
But inflation! No. The government can set up price controls on profiteering. But besides that, this fresh money is there to keep the economy at a steady state - specifically to avoid a black-hole depression.
Sitting by idly while most of your business base is lost on the far side of that event horizon is far more dangerous than any other risk. Especially in this case, when the lockdown is likely to be fairly short - more than three months, but certainly less than a year.
And it's not as if there are no unexplored options for other productive activity, especially in healthcare.
The real danger is the moral hazard - the political realisation that financial scarcity has always been a deliberate systemic political choice, not an inherent property of an objective financial system.
This is flat wrong and deeply ignorant of historical economic reality. A government that simply prints (or digitally creates) more money instead of gaining as much as it can of it from reasonable taxes or borrowing will indeed absolutely create an inflationary spiral that can only be stopeed by stopping these activities. Price controls against "profiteering" will do nothing against this except get a large number of people in legal trouble simply for the "crime" of adjusting their prices to reflect wider economic reality (prices for every single one of their won costs and inputs going up for the same inflationary reasons). Black markets would simply explode and any such price controls would simply be ignored under heavy inflation, and especially under the fantastically destructive conditions of hyper inflation. You have no idea what you're talking about with this statement in particular.
Restaurants are suffering from lack of customers? Flooding the market with cheap cash doesn't result in people rushing to the restaurants because they are still at home and the restaurants are closed. Only when that inflated money is actually being spent on scarce goods do we get to see inflation.
Someone gets great machines for half price.
Someone gets paid to remove the equipment from the store.
This is why it's an economic problem - it's easy enough to determine which physical activities need to stop to reduce disease spread. It's much much much harder to untangle the interrelated economic activity and decide where pauses should be made. There isn't a clear delineation between people whose economic activities are unaffected, and those who have been brought to a sudden stop.
Someone's going to end up getting left holding the bag, and it's going to suck for them, and it's not going to be fair. Life isn't fair. There's going to be edge cases, and those edge cases won't be dealt with correctly, but we can't let the perfect be the enemy of the good.
I think the ROI on letting shuttered businesses keep existing in limbo is better than the ROI on making sure lenders and landlord-owners get paid... Because the businesses, not the lenders are the engines of the economy.
The current approach to bailouts/economic aid does little but funnel government money directly from taxpayers into the pockets of landlords and lenders. It's miles better than letting everyone starve to death, but it's the least good of the options that we have.
I think you underestimate how big the edge case of "landlord" is and exactly how that would play out. There are more than 50 million commercial properties in the United States and most of the owners have loans against those properties. If we don't bail them out, those loans don't get paid, and then the bank doesn't get paid, if the banks don't get paid, they gain a bunch of assets that no one can afford and go belly up, which we already decided in 2008 is not an outcome the system can tolerate.
There's no "buck stops here" that doesn't end with lenders because our system is built in such a way that debt is the leverage we use to build wealth. As long as that is the case, we either have to choose between unwinding the system and a hitting rock bottom that may not be recoverable or bailing people out and spreading the cost via taxes and inflation.
Trying to target the pain to a specific class of people is nearly impossible in our system, it is giant and interconnected and someone will profit off of that, and it will almost never be the "little guy."
Lenders charge interest on these loans. This interest is earned, because not all loans are expected to pay back in full.
If this were applied across the board, lenders would probably find it far preferable to a complete collapse, where instead of loans that missed/deferred some payments, they found themselves owning a pile of distressed assets, all at once, in the middle of an economic catastrophe.
Because it won't be a few monthly payments, it will be a lot of them, and where are the buyers going to borrow the money from? The banks that have no money because of the defaults?
> The lenders get interest on these loans. This interest is earned, because not all loans are expected to pay back in full.
Sure, but it is also not expected that so many will not be paid back either. You can make an argument that the system needs more buffers for black swan events (which have their own costs), and that is totally fair, but we don't have them and now we have to decide what to do.
I say all of this as someone that was "laid off" last week as part of a contingent workforce for a travel industry business that is likely to get a significant bailout from the federal government. Despite that, they will be unlikely to bring back contract labor for a year or more until their feet are under them again. The whole system is connected and is currently failing, the notion that we're going to come back to anything close to normal in the short term is absurd.
- People haven't eaten out for weeks. Will they now make up all those missed restuarant meals?
- Expenses might be made up by intervention, might not. Does everyone get a rent break? What will landlords do? Production has got to be lost somewhere. Who eats the loss?
- Will people and businesses change their minds about what they want to buy after the quarantine? For instance, how many people will decide that remote working is a good idea?
Now, if that was all there is, then it wouldn't matter much except maybe a few toilet paper factories would got from operating 16 hours a day to 15 hours a day. But this is applying everywhere. People are having to stretch food. People are having to learn how to cook. People are learning the importance of having a bit more saved up and a bit more non-perishables stockpiled. These factors will result in less restaurant eating and more bulk buying (not even counting continued virus fears).
People are learning how to socialize from within their homes without leaving. This is pushing more people into electronic conversations. People are having to get more indoors, or at least socially distanced, hobbies. More people are reading, playing games, and watching streaming tv. This will lead to long term changes in consuming patterns.
People who have never ordered off amazon or the like are now doing so for the first time, and some of them will continue to do so. People are buying games digitally who would prefer physical, and in turn this will lead to more digital purchases even once physical purchases become an option again (well, more of an option, since you can still purchase and have delivered).
Each and every one of these changes the economy. And yes, over time people should reorganize and we should continue to be on our merry way. But until that reorganization occurs, there will be people being let go and the equivalent reorganized position may not be open for a few months. Or it may require a different skill set and people aren't going to be able to adjust as easily.
This is after you get over any initial caution of going back to crowded places.
No in reality. Because of debt. Those forgone revenue cashflows were going to service debt. So a quarter of no business is existential.
Now, could we try to plug that gap with printed money? Yes! Hence the SBA.
Now whether it's possible to actually get than money with less than 30hrs of work filling out forms, I have yet to hear.
I think we'd need to nationalise every single essential good, and the entire supply chain behind it, and then just .. turn off capitalism for a few months. Just go full on communism for a fixed term. Have the weirdest Christmas party ever, and then just start 2021 like 2020 never happened.
I don't want to call it actually impossible. But I rate our chances of forming a single planetary republic - Star Trek style - in time to actually act against this infection, as more likely. And you can be as naive as you like, but I'm sure you can imagine how minuscule a number that is too.
What do you propose that the parties who are due rent/mortgage payments do? Those payments aren’t simply ‘return on capital’ they pay taxes, utilities, insurance, employees.
Lots of places have approached this model very closely; there is almost always some little bit that falls through the cracks, but it's doable.
The payment holiday concept is such a poor solution and mainly seems be proposed by people aiming to ‘punish’ those that they perceive as having more than themselves (landlords, banks, etc.) or by ultra liberal governments trying to appease their constituents. I don’t think you really fathom how much damage this would cause in practice. Our whole economy only works if people/companies meet their obligations.
The much, much simpler solution is bottom-up vs some never ending crazy patchwork of bailouts and payment forgiveness. Give the people money via direct payments and generous unemployment so they can meet their obligations.
If you give income to a coffee shop that sells no coffee anymore you are spending your coffee money without getting coffee.