The Covid-19 Economy: We won't recover until 2022
chimerais.com
chimerais.com
$3T in stimulus coming again (potentially); so much debt.
We could burst the planet also and damage nature much faster than before, would be a lot of fun (for a short time).
With that in mind, I think "debt is a non-issue" as long as we've got good policies around this after the pandemic ends.
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[1] https://www.theatlantic.com/business/archive/2012/11/the-lon...
The credibility of the US government becomes critical in maintaining this.
I think the implication is that our financial indicators have outrun the actual state of the economy. We're resetting in the sense that we're forcing the indicators to match reality again.
To recover would mean the numbers would go back to where they were before, which isn't going to happen.
What constitutes productive work is disputed, of course. Most people agree growing food and teaching kids is productive work. Most people agree selling narcotics or a crime ring is not productive. A lot of work (advertising, the financial sector, many types of legal work, some types of management, drilling for oil, prostitution, etc.) are areas where reasonable people disagree.
There is a lot of stuff to definition of equitable too: Who plays the capitalist game best? Who produces the most value? Based on need? Who works the hardest?
Capitalism and money is an accounting scheme to make that happen. It's far from optimal, but it's the best algorithm we've got.
A reset could mean:
(1) We forget all debt. We give everyone the means of production they're currently using. We start all bank accounts back at a common value. We resume from there.
(2) We put a new system in place to replace capitalism, and we pray it works better.
(3) We unwind debts and bank accounts to where they were in January 2020. We start from there. It's just bits on computers.
(4) Etc.
I don't think the recovery model ever had legs. The suspend/restart model could have worked in March, perfectly cleanly, but we're past that point now. We've gone to where we'll either have major problems for a few years, or some kind of major out-of-the-box solution like a reset.
The closest steps towards it have involved automation to effectively deskill and delabor processes usually for logistical advantages - take printing for example.
Using today's technology the best we would have is essentially a "remote compound" with a well water, and septic tank as very basics. Beyond that gets into renewable power sources like solar or wind and batteries, more extreme maybe a fully automated garden based upon indoor farming tech scaled down. All take up space and are more expensive such that it is not the cheaper option unless you are at the fringes. And it would be very far from making everything themselves. That world is gone for a reason.
Even if a housshold could be self sufficient that would be insufficient for a society - infrastructure needs support as well.
Even if the lockdowns in the US ended today, there won't be a recovery for at least 2 generations.
Although the FAANG companies can weather a lockdown, virtually no other businesses can shutdown while still paying rent without bankruptcy.
For those unfamiliar with business, here's some examples of the slim margins and huge overheads outside the FAANG bubble:
- Major grocery stores typically make 1% of gross. One percent.
- Large car dealerships typically employ 500 people and finance their "floorplan" (inventory) with short-term loans.
- Large restaurants typically have 100 staff.
When you throw a wrench into their cash flow, those owners decide maybe the time is right for retirement.
A similar thing happens in the accounting field.
Periodically the IRS makes major changes, and the older generation of accountants says "enough", and moves to Florida.
Apparently 100,000 small business owners decided on some version of this already. (From the article.)
If it takes two generations to recover from this, then this is worse than WW2's impact on Germany.
World wars are followed by a miraculous age of prosperity. Home are destroyed and can be rebuilt, tenant and landlord alike passed away. Rent is cheaper if not free in some places. All debts are forgiven and anyway the creditor is likely to be dead. Business that closed or lost their workforce can start over from scratch.
A virus is nothing like that. It gives no boost to the economy. It doesn't make more homes available or make rent cheaper. Debts continue to accrue with interest while there are no revenues coming in.
The last world war was almost 8 decades ago, and the last pandemic of equal impact was a century ago, and also overlapped a world war.
We have no idea what life looks like on the other side of this, but I’ll take pandemic over world war any day.
A month ago, a debt freeze would have done it.
In fact it does when kills elder people that lived in their own house, and some places are still unsuitable to normal human activities since WWII, but I understand the subjacent idea.
If debt (specially of the artificially inflated kind, with generations of people paying interests totalling decens of times the amount borrowed) is a menace for the recovery, at some time we eventually will need to agree to forgive it, or to make a law to enforce a limit. If copyright can't be applied for an unlimited time, maybe debt shouldn't be allowed to extend over an unlimited time.
And of course a lot of debt will dissapear itself naturally after covid killing the debtor. I assume that the models include that possibility.
OTOH, there's an Either/Or fallacy in this subthread as well. We're talking about whether a pandemic or world war is worse, but historically we tend to get both. War tends to create unsanitary, chaotic conditions where disease can thrive, while disease tends to destabilize society and break down existing social bonds so that war becomes more likely. IMHO it's likely the grandparent is correct, but only because coronavirus will lead to WW3, not because the disease itself is worse.
In prior recessions, you could kick that failing restaurant out from your commercial building and try to re-lease the space. That won't happen now, there's no one to lease to -- so there is no point in doing that. Similarly, if that restaurant can't pay its bills, the supplier has nothing to gain by foreclosing on them (and in fact needs them to continue to exist so they can count on them as a customer in better days).
I think (hope!) the whole economy is in some sort of suspended animation. That when the lockdowns ease, things will start moving again and hopefully quickly.