The Normal Economy Is Never Coming Back
foreignpolicy.com
foreignpolicy.com
There's disruption in supply chains and business formation and whatnot, but I think it would be better to think about the economy in terms of actual resources and human capital rather than stock market figures, the former isn't vanishing into thin air.
There's this tendency to dramatically overrate the impact of contemporary events. People said the same thing after 9/11 when it came to other aspects of life, and apart from increased airport security and a few costly wars there indeed was nothing new under the sun.
The CDC estimated that the swine flu in 2009 may have killed up to half a million people globally. We'll see what the death toll of this is at the end but this isn't humanity's first pandemic and it isn't its worst, not by a significant margin.
Agreed. This is why I don't get all the doom and gloom, and all the people saying the bailouts/stimulus/low interest rates are going to further wreck things.
All of the actual value and technology that we've built up as a society is still there, ready and waiting to kick back into gear. I don't see how moving some numbers around in the meantime is going to create a long lasting deleterious effect. I feel pretty confident that, once the engine starts back up again, things are gonna boom.
Would love to understand why I'm wrong, but this article just pointed out a bunch of statistics that are bad right now but didn't really seem to make an argument to back up its headline which I'm going to call BS clickbait.
While everyone is acting fiscally wild, we should call up the Japanese and do a financing and technology deal with them, to build regional high-speed rail across the US and complete it this decade. It's a worthy infrastructure project that can produce a lot of jobs and economic floatation action (the airlines won't appreciate it). Make it a federal project, and aggressively swat away regulatory, environmental and NIMBYism delays. The Federal Reserve has crossed the rubicon (they've fully breached old lines in the sand that quasi kept them a layer or two removed from putting their hands on the real economy), we might as well do the things now that we should have done previously. They can snap their fingers and finance this project in the coming years.
We should probably also go ahead and stop pretending the Federal Reserve isn't now a big corner of our Treasury and merge the two (won't happen officially, but it has happened de facto). There's no going back, not with the pile of debt we'll have coming out of this. It's perma QE all the way for the next 20-30 years.
1). large percentage of small businesses were running month to month after 2-3 months of no revenue many of them won't start back up again.
2). Over the lockdown period people have lost jobs, run through their savings or run up large credit card debt. Once it opens they will be frugal to either save up or pay of the debt.
3). Bankruptcies and repossessions are going to create a glut of supply at the same time demand will be less so industries won't be able to start back up much even after the lock down is removed.
These are just some of things happening that I see going forward. Maybe I am wrong and that's not how economies work. All this is just the current situation we are not even sure how long these lockdowns will last. But as economy shrinks it will effect every industry.
You are correct - in a world where production was organized on a rational level, to serve certain needs or desires, the coronavirus outbreak would not have been as big of an issue. However we live in a world where profit and markets regulate production, and these are far from rational. Hence, unless massive changes come to how production is organized, the article has a very good point and you are the one who is looking at matters much too sober I think.
Err, you mean this is worse than the world wars? I have my sincere doubts.
Let's be serious here for a second. We had the collapse of the Soviet Union, the creation of the internet, the emancipation of women, the civil rights era, The Great Leap Foward etc. Everyone can name two dozen things over the last few decades that changed the world more than this.
Currently everyone is behaving like their college aged selves, sitting in their apartment playing Animal Crossing and ordering pizza for a few months. Humanity has endured greater change. I think some people need to turn the news off for a hot second and evaluate if they've gotten a little too soft over the years. Ask people in Africa if the world has changed, a continent with 25% of the world's disease burden and 1% of healthcare spending, this is just background noise over there
Our current situation is bad, but the underlying structure of the economy was fine before the virus hit. That gives us a much better starting point for rebuilding the economy than we had after previous disasters or recessions.
> There's disruption in supply chains and business formation and whatnot, but I think it would be better to think about the economy in terms of actual resources and human capital rather than stock market figures, the former isn't vanishing into thin air.
> There's this tendency to dramatically overrate the impact of contemporary events. People said the same thing after 9/11 when it came to other aspects of life, and apart from increased airport security and a few costly wars there indeed was nothing new under the sun.
> The CDC estimated that the swine flu in 2009 may have killed up to half a million people globally. We'll see what the death toll of this is at the end but this isn't humanity's first pandemic and it isn't its worst, not by a significant margin.
The issue is not the available resources, but the government activities. The government initiated the crash, they are sustaining and making the crash deeper, the length of the crash will be based on their actions, and the recovery will be based on what they decide.
In previous recent events, people were free to operate their businesses largely the same as before the crash.
3 years later it was the "swinging 60's" and the economy boomed.
I think the difference between then and now is the "sophistication" of the financial markets, and how intertwined they are with government. "Too big to fail" didn't work last time, will some heads actually roll this time?
Foreign Policy is the main outlet for the Council on Foreign Relations (CFR), which is one of the main organizations of the establishment. It is useful to read to see what the establishment is thinking, although of course one should not expect too much honesty.
This article is academically hysterical in tone and doesn't say very much, other than things are unprecedented and central banks are trying things on a scale never tried before. Of course the problems with globalization (which the CFR championed) will never be discussed.
It does mention a Debt Jubilee, which is the best option we have right now, but doesn't drill down on it. It says something about how dire the situation is that they will even mention it without completely dismissing the idea.
For those of you interested at home, Steve Keen is the economist who has done the most work on what a fair modern debt jubilee would look like:
http://www.debtdeflation.com/blogs/manifesto/
It makes sense to call instead for a more active, more visionary government to lead the way out of the crisis. But the question, of course, is what form that will take and which political forces will control it.
The CFR has consistently advocated for global government, and you can expect this to be their solution to this crisis.
There’s no such thing as an option to “choose the economy”, the Spanish Flu shows us this. Aside from the millions of deaths this could lead to, and completely crushing the health care system, there would also be many tens of millions of people sick and unable to work, plus many tens of millions of people stuck caring for them. A lot of people would choose to stay at home anyway, especially as the carnage reached its peak. There’s just no way for the economy not to take an existentially threatening impact.
This article is shocking, and I believe it’s right, but we need to buckle down and make some really hard choices about how to tackle this thing. However long term I am an optimist. The work force should largely survive and our capital investments still exist. We’ve got used to historically very low inflation, but a dose of inflation over the next 5 to 10 years could actually give use the the flexibility to spread out and absorb the costs across the economy and society. As a fiscal conservative I can’t believe I’m saying this, but there it is.
[0] https://www.weforum.org/agenda/2020/04/pandemic-economy-less...
The kind of planning and communication necessary to pull that off was not possible 100 years ago, not to mention the scientifically-informed guidelines for preventing transmission.
The linked article does not say that the cities locked down, only that they implemented what they call Non-pharmaceutical interventions (NPIs). They didn't say that they locked everyone inside.
The evidence offered shows that the west wasn't has hard hit as the east. I can think of all sorts of confounding variables in that situation, particularly back then when the east was much more heavily industrialized.
It is possible that if we had quarantined the at risk population and focused our efforts on reasonable NPIs such as masks and social distancing, we could have kept the economy open, leading to far less suffering and death in the long run. Hysterical black-and-white choices like we are being given are their own form of gas-lighting.
https://www.history.com/news/spanish-flu-pandemic-response-c...
Are there other variables involved? Were those different times? Grand Rapids had the lowest mortality rate and, if I'm reading the chart right, had no NPIs. Why?
People pushing these hysterical false dichotomies (coupled with a hefty amount virtue signalling) are going to be responsible for a huge amount of human suffering in the coming months and years.
I have been cautiously supportive of the lock downs, but I'm greatly concerned that policy makers are simply not playing the long game. I hear far too many speeches in the "think of the children" category of emotional appeals, talk of sacrifice, and very little else other than wait it out. Really? I want to hear the plan about ramping up testing so we can actual get a sense of the real level of danger of the disease. I want to understand how that testing can inform who can go back to work and under what conditions. I want to hear the plans related to scaling up how we deal with the sick. Or, I want a clear expression of why locking down and just waiting it out doesn't lead to civil breakdown.
But indefinite lock-downs are not a plan. They aren't insightful nor are the particularly clever, though they are more clever than just ignoring the situation. That we needed to buy time I get. I am increasingly thinking that the time we're buying is being squandered by policy makers that simply aren't up to the task.
I found the study you linked interesting, though I wish it discussed more the differences in what they called NPI (non-pharma interventions) between then and now. Also, I'm not sure how far the economic comparisons hold; we have much longer and substantially more integrated supply chains than we did back then. Information flows are also significantly faster now and this allows for much less inventory keeping (think just in time manufacture), so I would expect higher resiliency in some sense to disruptions in the past than we have today. I'm armchair quarterbacking this a bit, I work with companies that make or distribute stuff so I can make some educated guesses, so I'm less convinced how far the previous pandemic can inform our economic actions for the current one.
I would throw my support behind literally any candidate that laid out any of these things clearly. Any candidate at any level. Because not one of them, nationally, at the state level, or locally, are even attempting this. It's like they're just hoping a month long lock-down will cure the problem. Poof, magic.
> I am increasingly thinking that the time we're buying is being squandered by policy makers that simply aren't up to the task
I 100% agree with this. The lock down for my state has been in effect for a while now. And it seems like not one thing has changed, except for the rhetoric is becoming more and more wishful, instead of hopeful. There seems to be zero plan about how to come out of this without another massive spike in cases.
No talk of testing. No talk of what services will open with priority. No talk of anything but 'stay home'. That's well and good (and I do love it), but what about next month?
What happens when we have done nothing and have another spike in cases because we wished ourselves into doing nothing?
1. The shutdown has put a lot of people out of work and closed many businesses permanently. 73% of Americans have experienced at least some loss in income as a result.
2. Most government aid is too little too late to prevent 1.
3. World economies were stagnating before the corona virus started, even in the developing world. Now consumers are going to get even more fiscally conservative, possibly exacerbating the stagnation.
4. Unprecedented levels of national debt kicks a much larger can down the road, and we have no idea what that means.
5. A long, halting recovery is more likely than a sharp V-shaped recovery.
Yes all of that is a problem. Will it result in systemic changes to how we do things? To a point. Is it going to have killed the global economy 10 years from now? I doubt it. The only lasting difference might be a cultural surge in individual savings and drop in discretionary spending, but perhaps a more secure, slower growing economy is a good thing. It certainly wouldn't be the end of the world.
I feel like the author needs to acknowledge that not making a choice is still making a choice. Yes, the current situation is the result of a deliberate policy choice.
The alternative, BAU because a government chooses not to shelter in place, could also result in a similar economic situation, plus healthcare being overwhelmed and an order of magnitude (base 10) or more increase in death rate.
I wouldn't be surprised if the overall economic harm from choosing to do nothing is greater than the overall economic harm from choosing to shelter in place. The worst part is, the governments that choose to do nothing can actually make the economic situation worse for everyone else because they aren't doing anything to slow the spread of the virus.
> ... In a crisis, it is easy to agree to spend money. But that fight is coming. We are engaged in the largest-ever surge in public debt in peacetime. Right now we are parking that debt on the balance sheet of central banks. Those central banks can also hold the interest rate low, which means that the debt service will not be exorbitant. But that defers the question of what to do with them. To the conventional mind debt must be eventually repaid through surpluses generated through tax increases or spending cuts.
The most likely outcome is that the debt from the many fiscal stimulus packages to come (infrastructure, direct payments to taxpayers, tax holidays) will just stay parked on the Fed's balance sheet.
The US can afford to do this, but only if the Fed commits to pegging the yield curve through unlimited treasury purchases. The dollar will head much lower, making US goods more competitive abroad. Nominally, the economy should start looking better pretty quickly.
So in the short term, it seems plausible that the economy can return to normal outward appearances pretty quickly.
In the long term, however, the Fed will be left with a balance sheet approaching or even exceeding GDP. Where that ends up going is anybody's guess. But historical precedents don't paint a pretty picture.
The joker in the deck is how long the virus crisis lasts. Nobody knows the answer, so the degree of departure from normal will be a riddle for some time.
My wife is a marketing director at large mall, and honestly I am trying to get her to switch either to digital marketing, or programming. Retail is going to suffer for a long time, and it has been suffering for years. When we start going back to normal, I expect retail traffic to be down or government may enforce rules limiting number of customers. People will have less money, less confidence and retail will be the last place where people spend money.
Plus, our world is very complex, air traffic is down, fuel usage is down, plane orders are down, manufacturing is down, freight deliveries are down then cuts are going to be made to non-essential departments across different sectors. I am a dev in manufacturing, and so far I think I'm safe. However, I have a friend in IT, they service large retailers.....he thought he was safe, his company just announced a hiring freeze as some clients are looking to get out of contracts as they are 100% not operating.
My comp sells products directly to larger manufacturers our orders March were down 25%, and April could be as much as 30-40%.
"Pretty soon, as the country begins to figure out how we “open back up” and move forward, very powerful forces will try to convince us all to get back to normal. (That never happened. What are you talking about?) Billions of dollars will be spent on advertising, messaging, and television and media content to make you feel comfortable again. It will come in the traditional forms — a billboard here, a hundred commercials there — and in new-media forms: a 2020–2021 generation of memes to remind you that what you want again is normalcy."
https://forge.medium.com/prepare-for-the-ultimate-gaslightin...
Surely this pandemic is far from ideal, but can't we stop and think about a few things we perhaps need not return to?
Off the top of my head: Formula 1, Eurovision, auto shows, most spectator sports. I wish they all took a slightly longer hiatus.
I found this quote note-worthy.
and the solutions are known, but the political landscape is too fragmented for the required corrective actions
Taking that group of previously employed people out of the labor market just doesn’t have a big side-effect. The spending they otherwise would have engaged in had they kept getting paychecks would is just not a significant amount of spending except in a few cases here or there, it’s not systemic, just a downward adjustment. Lots and lots of small shops, restaurants, pet groomers, or freelancers might not get jobs back, and things become a bit inconvenient for everyone else but life moves on, the general backbone of the economy is pretty much unchanged. Just about the same volume of food & staples, energy, rent, repairs, education, and entertainment will be purchased as before, set back by ~6 months of lost revenue.
Obviously for the actual people laid off, it’s a disaster and they personally deserve economic help to sustain to find new work and have medical care throughout.
But the experience of this group of people isn’t the experience of the overall economy.
I have no idea if this is even remotely correct or what, but just feel like nobody is playing devil’s advocate and analyzing the economy this way just to investigate.
What if it’s just true that there’s a pretty large layer of the workforce and employers that could disappear overnight and the economic response from everyone else is just that it’s sad but fine? We’d love the luxury of lots of coffee shops, start-ups, self-employed fringe service gigs, but at a moment’s notice you can take all that away and it’s fine. Those weren’t ever really real jobs, just floating “good times” jobs already not factored in much to stock market speculation or core economic growth and productivity.
If I were the devil, I wouldn't want you for an advocate.
I'm also pretty sure you don't mean to sound like a fool or a wretch, but here it is: in the UK, SME's (under 50 employees, ie the businesses most likely to die during the lockdown/ consequent upfuckery) make up fully three fifths of the employment base, and around half of turnover in the private sector. Not real jobs? Not core? FFS.
Despite this, what about your comment is supposed to change my mind? The raw % of job headcount impacted says nothing without weighting it by some measure of productivity.
Maybe 3/5 of workers contribute 1/100 of economic activity?