Are we doomed to live through these boom-bust cycles over and over again?
Let's take a restaurant. Few people dining, so minimal labor costs, reduced deliveries, so minimal cost of goods/foods. But they still have enormous rent costs.
My guess is that 90% of businesses could have gone on outside, easily weathered this storm, and picked right back up where they left off if we had simply paused rent payments. This would have meant property owners wouldve been short money to pay mortgages, so we simply hold off on mortgage payments. Banks can weather that without issue, or receive govt loans to tide them over and structure of the economy is ready to pick up where it left off.
A similar solution in residential housing could've also worked well.
What do you tell the property owner who paid off mortgage, and uses the rent as primary income? Should the govt pay these people? I suppose they could get the banks to loan the money interest free...
wouldn't it be nice if I didn't have to do anything at all for a living but wait for my tenants to pay up?
It's not exactly free money -- landlords do have to deal with the maintenance of the property, fixing/replacing broken appliances, and so forth. Before a landlord goes bankrupt they will cut back on maintenance that is not absolutely essential (something I lived through in my younger years, seeing benches fall apart, trash not being removed, and weeds taking over the front and back yards of the building), and eventually would not be able to pay for maintenance that actually is essential (good luck getting your plumbing fixed when your landlord cannot pay the plumber). There is also the matter of cascading bankruptcies when large numbers of landlords are not being paid, resulting in their loans no longer paying (likely dinging retirement accounts and pension funds).
The fact is that a major shake-up in how we organize housing e.g. getting rid of rent-seeking landlords would be difficult in normal times. Doing such a thing during a deepening economic crisis would make everything worse for everyone, including people not directly involved.
There ain't no such thing as a free lunch. In a market with units for sale and for rent, prices tend to reach an equilibrium. The only difference is that rent includes a premium for the relative ease with which one can move.
Another way of looking at it is that traditionally it was considered reasonable for annual rent to be 1/20th of the purchase price of a property. Likewise, 5% annual maintenance was considered reasonable. Unsurprisingly … 1/20th == 5%.
> Many landlords probably spend more time sending out bills than they do on maintaining the property.
That was certainly not my experience when renting. My most recent apartment had multiple full-time employees maintaining it and had an annual improvements budget. I won't claim that it had all the amenities I would have liked, but the landlord was definitely not just letting the cash roll in.
The classic example is someone who puts a chain across a path and then charges to move the chain out of the way.
WRT landlords, you can still describe some of their behavior as “rent-seeking” if they are perpetuating a social or political environment where they get greater returns for doing nothing (e.g. NIMBY/BANANA)
Rent seeking is collecting “rents” (which is different than rent for a home) from either a public good (like land) or through lobbying for legal changes that prevent competition and increase earnings.
A house built on a piece of land is an improvement and doesn’t fall under “rent seeking”.
You could make the argument that the land the house is on is rent seeking, sure, but that would mean only a part of the income would be considered rent seeking.
So the rent seeking would remain constant. If the home+land is value at $500k, but the land is worth $200k, then 40% of the income could be regarded as "rent seeking".
But who and how much -- that is a very tough decision.
The whole point of money is that it is fungible so it would just go elsewhere. Not a very good outcome. Imperative "shoulds" don't mean a thing in emergent systems and problem solving. Parents should love and nurture their children but we still have child abuse unfortunately.
but really there should be some minimum UBI so that nobody starves or lives on the streets.
No they wouldn't, because of rent control. Once they accept a lower rent, they're stuck with it for the long haul. In most cases, rent control makes you significantly better off going without rent for long periods of time than lowering rent.
This here is one of the most important things anyone who wants to open a restaurant needs to consider. With Restaurants location is incredibly important and being in a great location carries significant costs.
Unless you own your space, you will have a difficult time making it a in the Restaurant business. you have to sell a lot of food to pay 5k-15k of rent every month leaving little in profit and savings.
The Restaurant business is brutal, even if your semi successful.
A closure ripples through the economy. Salaries/ suppliers and rent. Crazy high rents are going to be a casualty of this virus I suspect.
https://www.nytimes.com/2020/04/23/magazine/closing-prune-re...
I though paying everyone unemployed $600 dollars in unemployment while not a perfect system, was pretty good as that money was going right back into the economy, keeping it from collapsing completely.
Whether it is representative of the average scheme I have no idea. Anecdotally, my grandfather received a 100% of wage pension from the government after 10 years of service started in his mid 30's (Australia). The expected value of that would far exceed any self contribution scheme, even with tax advantages.
This is why defined benefit pension plans are just too risky for most people. We should shift all retirement plans to defined contribution with individual named accounts. Those are much safer.
That's the lenders' (and regulators') responsibility.
Fixed-income investors are still granted emergency income. Their previous lifestyles may no longer be sustainable, but they'll be able to afford food, clothing, shelter, and other true necessities.
This isn't about lifestyle. If CRE crashes, this is 2008 all over again and probably an order of magnitude worse. Commercial real estate has been a very active asset class over the past decade and it's huge.
http://www.global-catastrophic-risks.com/docs/2008-1.pdf
Includes discussion of a "biggest natural pandemic".
Posted to HN, if not discussed, on Oct 2, 2016.
https://news.ycombinator.com/item?id=12623582
The question of GCR has been raised numerous other times on HN, though admittedly more recently of late:
https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
Infectious disease features prominantly among discussions of GCR:
https://web.archive.org/web/20120912020526/http://gcrinstitu...
Even software executives have suggested concern, this example from 5 years ago:
https://youtube.com/watch?v=6Af6b_wyiwI
As has the US military, from 2017:
https://www.darpa.mil/program/pandemic-prevention-platform
Economic impacts of pandemic have seen significant scholarly treatment, here looking at 1990-2018:
https://scholar.google.com/scholar?as_ylo=1990&as_yhi=2018&q...
Less black swan than head-buried ostrich, it might appear.
No disrespect to poets.
citation definitely needed on that. I don't think the banking system is set up to see Billions of dollars in monthly revenue disappear every night. This could take ALL of the slack out of the system and would almost certainly prompt a run on the banks
Messing with the banking system to this extent is one of few conceivable ways you could see the USA have a total economic collapse
What you cant do :pay your own rent!
More people than you think are unable to... Because, well, most people spent there money instead of saving..
But if you look at like this : resturant barely passing bye (or freelancers or whatever) go out of business.
The rest can weather the storm with the help of the government.
Central banks are the originators of money, itself a socially and legally recognised measure and transactor of debts. There is no resource constraint on supply.
Trust may fall, inflation may occur, there may be too much money chasing too few goods and services. But it's largely axiomatic that a central bank cannot run out of money.
Regionally, some preferred currency may emerge, but given that a pandemic is literally everywhere, there are no regional banks which are entirely unaffected by the situation. (Some may be to a greater or lesser extent, and regional trust shifts might occur.)
But addressing your hypothetical; that's definitionally impossible:
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a state or formal monetary union,[1] and oversees their commercial banking system. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in a financial crisis.
When the end comes (for example a vaccine) yes, than things can get worse. And i suspect America will be hit really hard.
Why? All those small businesses will be gone.
Germany: the healthy ones will just reopen there doors.
Also, a bank run is probably the earliest, and most completely solved problem of financial problems. In the US with FDIC insurance, and the fact that the Fed has stepped in to bail banks out time and again, there is absolutely no reason to believe there would be a bank run.
Also, banks saw trillions of dollars of revenue disappear in the 2008 financial crisis. The disappearance of revenue wasn’t the issue. The suddenness with which it happened and the unexpected impact of non banking financial institutions was what caused damage.
Suddenness wouldn’t be an issue because it would have been something mandated by the government. And the non banking institutions are smaller, better understood and would have been far less of a problem this time.
You can't go home again, though. Meaning that the world pre-Covid is gone and it's not something we can return to. We will always need dentists and daycares and so on, but much of the retail was already on its way out. And then if Covid marks a shift to WFH then lots of restaurants that depended on office workers are no longer viable. The world is changing and creative destruction, while painful, is needed.
Risk is ultimately assumed by states / CBs.
For me, my mortgage on the property is my biggest expense and my bank offered my no forebearance. So, no, most couldn't have minimal costs unless you can address lease/mortgage payments.
Edit: If you disagree that mortgage/lease is the biggest expense for many businesses and doesn't need to be addressed, I'm really interested in your point of view. I may be using anecdotal evidence for me that doesn't translate to other businesses.
Those bonds in turn are people's retirement income. It doesn't just end at a bank.
That seems to apply only in places with minimal protection. In most of the EU they're simply employees so all the standard rules about firing would apply.
There are an infinity of answers why, mine:
There is no "pause" when it comes to financial relationships.
One org's liability is another one's asset. Your rent payment goes to your building owner's mortgage, the payments from which are received by an SPV, which is an asset in the fixed income portion of your investment portfolio, which is itself an asset in which you have shares, the value of which determines the value to you.
So like the proverbial butterfly, you not paying your rent hits you on the other side.
These are all contractual relationships, usually private, and bespoke. There are legal consequences to you not paying your rent. Consequences to your owner not paying his mortgage. Consequences to the absence of delivery to the SPV. Consequences so the SPV not returning its contractual interest rate. Consequences to loss in value of your shares. All of these consequences are encoded into myriad unique contracts- your lease agreement, the mortgage agreement, etc.
There fundamentally is no standardization across these agreements. There is no central registry of all of these relationships and dependencies.
There can't be, operationally, as they change in real time, and there can't be theoretically, as maintaining one would violate so many principles of privacy and autonomy and freedom and so forth.
Finally, we also live in a world where flows are dependent on work, of various kinds- underpaid and -valued work often performed by women and POC, overpaid and overvalued often performed by high status white men. All, nevertheless, work.
When work stops, but flows must continue, what do we do?
Pay people to keep these flows going, like all other countries did?
Or we can destroy our economy. I suspect there will be a short delay between widespread rent payment failures and contamination of the banks. By then, we're all gonna be on the ride for the duration.
Not feeling so optimistic today.
This buffer is substantial, but finite.
If you don’t want to destroy the economy, the trick is to not throw a giant wrench into it by prohibiting people from working.
Collapse? Militarise?
Trying to think of examples in what one would recognise as the modern era, outside of the obvious wholesale destruction of WW2. It looks like the war itself was bad for small business in the US: https://library.cqpress.com/cqresearcher/document.php?id=cqr...
> The total number of business enterprises in operation in the United States has declined from a peak of nearly 3.4 million in 1941 to the present [1945] low point of perhaps 2.8 million. Certain persons have seen in this decline an alarming tendency toward concentration of economic power in the hands of large corporations, accompanied by a continuous freezing out of small enterprises.
Yes, for a few reasons:
1. The probability of a catastrophic event is low but non-trivial, so every so often society has to deal with some form of destruction on a scale that is larger than what the economy can absorb. In the ancient world the threshold was lower because economies were smaller, but even the largest economies today still have limits that will be exceeded periodically.
2. Debt is a necessary part of the economy, but we are generally bad at determining how much debt we should carry, and so we periodically overshoot. The result of overshooting is a financial crisis, in which many bad debts and unsustainable businesses will be destroyed (resulting in undershooting the optimal debt level, and thus allowing the cycle to start again). Ray Dalio wrote a free book about the debt cycle that is worth reading.
And, they may have decided that covering e.g. rent was actually more important, since unfortunately without a location there's no business either. As I said, the program was not expansive enough.
With what money?
https://www.forbes.com/sites/sarahhansen/2020/03/12/fed-inje...
Completely disrupt the working of society to gather resources for either combat the problem or run away and have a comfortable life elsewhere.
History is not a good guide here. If you insist on using it as a standard, we are doing really, really well on this crisis. We are much better discussing what can improve than what we did wrong.
Are we doomed to live through these boom-bust cycles over and over again?
Are we doomed to cycles during (our lifetimes)? No, it could be all downhill for centuries. (Which I think has been the case when empires collapse, be they Roman, Dynastic Chinese, from the steppes, Mayan, etc.
A debt jubilee would not fly so well now when all of our pensions, retirements and endowments are tied up as … someone else's debt.
It's still not enough. I'm thinking service providers all need a new "bare essentials" tier, whereby delinquent customers can keep the service relationship on minimalist when they are desperate.
This is preferable to cutting the service and restarting later with bad credit.
Infectivity rate will INCREASE up until 50% and will only slow at 70% when herd immunity kicks in... things will be getting WORSE not better.
Any effort to preserve employment is stupid. People don't need to work, they need to eat and live under a roof.
Small business don't need to exist, either. We might want them too, in which case we should cancel commercial rent too. Or, we might give up on small business (https://www.thebellows.org/the-double-horseshoe-theory/), and instead increase the public spaces in the city so the fabric of society and adapt.
Nah, you know what doesn't need to exist? Giant multinational corporations beholden to nobody that do whatever they want with impunity around the world, polluting, crushing local economies, lobbying governments, tracking the population like cattle and selling their data for pennies to the highest bidder.
Man the world sure would be better if they didn't exist.
Small businesses though, they're the backbone of just about every small to midsize community around the world.
(But I am also aware that the fact that large business gets so much more government assistance, directly, or via financial markets and fractional reserve banking, means it is hard to tell what is really going on.)
What I'm getting at is it may be that under capitalism consolidation is inevitable to a degree that small businesses would have to be completely propped up, in which we may consider other interventions such as workers on board or co-op requirements, UBI, etc.
Basically, if no outcome one likes is "natural" (please excuse the capitalist realism), then one should look at the full spectrum of "unnatural" solutions, as opposed to just the status-quo-adjacent "let's just attract and subsidize immigrants to work 3x hard as the rest of us so we can instagram in their restaurants and bodegas".
This is the opposite - the more modern technology, the more likely it is that small businesses can succeed. Barriers to entry are massively reduced on many fronts.
Giant corporations generally pay better and invest more into their workforce than small business, that's why developed economies, with high levels of organisation, rely on larger firms.
The romanticism of small-business is extremely misplaced. Small business is unproductive, precarious, and as can be seen in this pandemic fragile to external shocks, offering virtually no security to their workforce.
Large firms, ideally with high levels of unionisation (see France or Denmark), can absorb these shocks because unlike small business they're not scraping by from one month to the next. And they very much are accountable to society at large, that's why they need to hire lobbyists in the first place, because they're usually subject to regulation. It's small business that is effectively unmanagable.
In my experience, this is entirely not true. The only places i've ever gotten fair wages, been treated like a valuable employee, received regular raises were businesses with between 10-20 employees.
>The romanticism of small-business is extremely misplaced. Small business is unproductive, precarious, and as can be seen in this pandemic fragile to external shocks, offering virtually no security to their workforce
The last place I worked before my current job had a workforce of 13-15 people at any given time. We were extremely organized and productive. We brought in anywhere from $30000-$50000/day for that company. The company's assets were well into the millions from the bank statements I seen.
Our customers included people and businesses even hundreds of km away because of the quality of our work. Our work wasn't cheap either, even compared to our competitors, yet we regularly had so much business, we needed to turn down contracts and still constantly made money.
All of my coworkers had been there for over a decade before I left. They all supported families and lived good lives off that job. We all genuinely cared about the success of that business and wanted everything we did there to reflect well on it.
I have never felt that when working for any corporation other than when I'm forced to at mandatory 'pep meetings' or 'team building' bullshit they force you to participate in.
Your average salary at Google for the same sort of experience is higher than at a small startup, Volkswagen pays you better than most other companies in the region, working at a large Japanese multinational pays better than working at a small local company and so on, in particular if you include benefits like pensions and training and the investments those companies make in their workforce. Which is why they tend to attract a lot of talent. There's also an important aspect of specialisation, which tends to occur in large firms more than in small firms and boosts overall productivity. The firm size - wage gap is very well documented
https://blogs.lse.ac.uk/businessreview/2018/07/16/why-do-lar...
We should, for example, have giant software co-ops since it's fundamentally not a capital-intensive field.
And small businesses don't have to be run in a way that makes them fragile to external shops. There's no reason why they can't form federations specifically for that purpose - operating independently, but sharing the downturn risks across the entire pool.
Countries have tried preventing big businesses before, and favoring small ones. It never worked out very well.
What metric are you using?
Young small to medium sized businesses account for most of the job growth.
Mature large businesses are better at rent seeking, tax avoidance, and wallowing in governmental largess.
Sure, but that isn't what is driving the economy. Look instead at the number of jobs, and contribution to the GDP. Look what happens to an area when big business leaves it.