The Covid-19 Economy: We won't recover until 2022(chimerais.com)
chimerais.com
The Covid-19 Economy: We won't recover until 2022
https://chimerais.com/covid19-may13-prospects
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We need a new economy. The ability to work and survive does not need to be so precarious. If households could make everything themselves, no abstract shock or "job market" would disturb them. But that is not reality. The key challenges... dependency coordination, natural resource control, and circular negotiation. Answer these to clarify the transition.
An autarcic approach was left behind for a reason. Specialization and economies of scale provide far more with better efficiency.
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.
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.
I'm not in favor of every household going fully self-sufficient, but I think it's time we evaluate if we really need extreme efficiency in many aspects of our lives. I believe there are many services that would be less damaging and less polluting to the world if implemented at the community level. Growing and delivering food is a great example.
> We won't recover until 2022
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.
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.
I feel like this time is different (at least I hope it is!). The downturn is so pervasive that everyone is screwed. As a landlord, if my renters can't pay, and I can't find new renters, my best option is to forgive the rent and hope things get better -- of course now I probably can't pay my mortgage so I have to ask the bank for forgiveness. Basically, the buck (or lack-thereof) gets passed up the chain to someone who CAN absorb it (probably the government via bailouts).
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.
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.
This is bad, but you are being way too dramatic.
If it takes two generations to recover from this, then this is worse than WW2's impact on Germany.
If it takes two generations to recover from this, then this is worse than WW2's impact on Germany.
Have you checked how long it took for Germany to actually recover, and what was involved in the recovery (e.g. direct foreign help)?
Germany's recovery from World War II involved splitting into two countries, military occupation, de-Nazification of governance, and the Marshall Plan.
Overly dramatic? The US financial system never recovered from the 2008 recession - that was 12 years ago, and the Fed is still propping things up.
Please don't compare the virus with a world war.
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.
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.
I feel like you're missing a basic sanity check here. If your position commits you to believing that having a bunch of infrastructure blown up is good for the economy, that it stimulates growth when a bunch of people die and most businesses disappear, you need to back up and think about where your train of thought got lost.
It's certainly true that the rate of profit on new investments goes up when you destroy existing capital stock. In normal times, continuous expansions make bad money chase after good, and you need downturns to wipe out the malinvestments. War wipes out both good and bad money alike, so that, very temporarily afterwards, almost all investments are "good money": pick a rebuilding project and invest in it, and it'll probably turn a healthy profit.
https://en.wikipedia.org/wiki/Parable_of_the_broken_window
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.
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.
> It doesn't make more homes available
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.
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.
Kinda working off a small sample size there, aren’t you?
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.
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.
The debt forgiveness can happen here too. That's the critical piece now.
A month ago, a debt freeze would have done it.
A month ago, a debt freeze would have done it.
> When you throw a wrench into their cash flow, those owners decide maybe the time is right for retirement.
Apparently 100,000 small business owners decided on some version of this already. (From the article.)
Apparently 100,000 small business owners decided on some version of this already. (From the article.)
I’ve been thinking a lot about whether the correct way to think about it is more of a “reset” than a “recovery”. So much about what we are doing with the economy right now seems theoretical that it’s hard for me to think about it any other way.
Interesting idea! How would you differentiate between the two? I guess with a reset, you stop everything, turn it all off, and turn it back on. Is that what you mean?
I don't think "reset" was meant in the computer sense of "turn it off and on again".
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.
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.
Oh, that's a much more eloquent interpretation. Also a bit scary, but I think you're right.
Well, the goal of an economy is to (1) Keep people working productively (2) To distributes the fruits of production equitably.
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.
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.
Well a reset means offline for some extent. People sure are taking advantage of opportunities that only arise when things are nearly offline. Lots of (needed) road work on high traffic roads where I live, for instance.
What was that about exponential growth and nature? I'm sure the 0.1% can rest on their billion-dollar laurels for the next decade, but at some point the next batch of $100-millionaires will become restless and steer they system toward their desires. I'm hopeful: greed always wins, and as a flea on the back of the big dogs, I don't need much to be happy.
This is where it's very important for chartsmiths to acknowledge the extremely chaotic nature of the economy right now and its high degree of uncertainty. The IMF is just making stuff up right now. Nobody knows what the hell happens when you shut down the whole world for 2-6 months. One thing is apparent, is that our debt is growing faster than our economy. We may be approaching the limit of how much debt can be produced and still get returns on growth. This current situation has a lot in common with the Great Depression, but we weren't as over-leveraged in the 30s. Based on the world's total debt levels of $250 trillion with a pre-Covid economy of roughly $80 trillion...I'd say we're in for a world of hurt over the next decade or so.
While I strongly disagree with MMT, supports would argue that the central bank can manipulate the currency to the degree that basically any debt is not a problem.
This is true as long as your currency is a reserve currency and people are willing to access it, buy bonds denominated in it, etc. The central bank can print money and inflate debt away as long as it's seen as the asset of last resort.
The credibility of the US government becomes critical in maintaining this.
The credibility of the US government becomes critical in maintaining this.
Maybe we need an universal partial debt pardon.
We could burst the planet also and damage nature much faster than before, would be a lot of fun (for a short time).
We could burst the planet also and damage nature much faster than before, would be a lot of fun (for a short time).
The debt is a non-issue.
I generally agree with you, but there are two counterpoints that I think we should keep in mind:
* "The passage of time is really all it takes to turn a liquidity problem into a solvency problem." - Powell
* This is true as long as you inflate the debt away or have strong policies to pay the debt off. The US had this after WW2 and it took 30-40 years to pay off/inflate its debts way[1]. This is also good to keep in mind for corporations.
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...
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...
I agree with you. Anyone talking about a recovery this year is delusional -- the IMF chart is really meant to show that... Even if things open up this quarter, it'll take until 2022 to get back to where we were before this all happened... And that's the best case scenario according to them.
$3T in stimulus coming again (potentially); so much debt.
$3T in stimulus coming again (potentially); so much debt.