Only the hard-hearted can quarrel with the idea that the government should do all possible to ease the plight of the innocents laid low by Covid-19. Rather than debating details of policy, get the cash out there, print the money, save the drowning, live with the glitches. Especially, the cynical might add, with an election looming and voting about to start in around 60 days. The time for policy tweaks will come, maybe, some day.
When the collapse of Lehman Brothers in 2008 brought down the financial system, the Treasury and the Fed rushed in to save the important banks, auto companies, and other large economic players so they could resume operations when the crisis passed. And more or less succeeded. The post-crisis economy was not much changed by the crisis itself.
That was then, this is now. The economy circa March 2020 is not the economy that will exist when Covid-19 is contained. It is fashionable to deride those who say this time is different, but it is. Yet those newly printed trillions, with more still to come, are primarily aimed not only at relieving the suffering of the innocent bystanders laid low by the virus, but at returning workers to their pre-pandemic jobs, and saving firms that were viable players in the economy as it existed at the beginning of 2020.
Unfortunately, many of those players will find no sustainable place in the post-Covid economy. Even the Fed, deploying all the tools at its disposal, and acting as lender of last resort to both Wall and Main streets, cannot put many of the pre-virus Humpty Dumpties together again. Many of the businesses that are being kept alive will be the walking dead, zombies, sopping up resources better reserved for the businesses of the future.
No one doubts that the shift to online grocery shopping is a permanent feature of that industry’s landscape. Retailers dependent on person-to-person contact will never recover from the accelerated growth of Amazon and firms that have mastered package delivery, no personal relationship necessary. Some 25,000 stores are likely to close this year, more than double the number last year according to Coresight Research. Tens of thousands of clerks, cashiers, cleaners will not have jobs waiting for them when the virus is brought under control. The Wall Street Journal reports that many of these spaces are being converted to fulfillment centers to serve e-commerce retailers, who require different skill sets than the staffs they supersede.
Multiplexes will struggle for eyeballs that are now the possession of streamers and other new claimants on consumers’ time. Supply chains have been disrupted, unlikely to return to the China-centric nature that dominated before the communist regime blotted its copy book by concealing the onset of the virus. The demand for commercial space – stores and office – and for urban housing will be permanently reduced, witness the exodus from New York City of families seeking greener pastures.
Proof of the permanence of the end of the US economy as we have known it comes in many guises.
- Airlines are laying off tens of thousands, many of whom are opting for early retirement rather than wait for traffic, especially profitable business bookings, to return to pre-pandemic, pre-ZOOM levels.
- JPMorgan Chase, Citigroup and Wells Fargo last week brought to $83 billion their reserves to cover an expected tsunami of defaults on the record amount of outstanding corporate and consumer debt. “This is not a normal recession” announced JPMorgan Chase CEO Jamie Dimon, who predicts 10% unemployment at year end. The bank’s CFO, Jennifer Piepszak, says May and June were easy months but “Now we’re really hitting the moment of truth in the months ahead.” That moment of truth will wipe out many companies who provided jobs in the good old day that ended in March.
- Rating agencies are expanding their list of “fallen angels”, once top-rated companies that have fallen on hard times. Ford, Britain’s iconic Marks & Spencer, Kraft Heinz (in which Warren Buffett bought a big stake in 2013 and later admitted “I made a big mistake…”.) are now among the companies with bonds rated as “junk”, all unlikely to contribute significantly to the post-pandemic economy by recalling laid-off staff.
- Bankruptcies so far this year exceed those in all of 2008, when Lehman collapsed. Familiar names such as Hertz, JC Penny, Neiman Marcus, Barney’s and several frackers lead the parade into Chapter 11. If you don’t fly to a meeting, you have no need to rent a car. If you aren’t out and about in New York, you don’t need Barney’s or Brooks Brothers to clothe you: the stuff available on the internet, deliverable and returnable via Amazon at virtually no cost, will more than suffice. If you are an oil-field worker, Joe Biden is about to make your skills valueless in a post-pandemic economy.
In short, we are bailing out dinosaurs, large and small, and supporting workers headed back to dead-end jobs or hoping to do so, rather than training them for future opportunities. It is unlikely that congress will change that policy when it reconvenes tomorrow.
In 1920 William Harding won the presidency by promising “a return to normalcy”, by which he meant life as it was before WW1. In 2020 Donald Trump also hopes to win re-election by promising a return to normalcy, by which he means the full employment, rapid economic growth he claims to have engineered before Covid-19 changed so much of the economy’s structure. Joe Biden also promises a return to normalcy, by which he means the good old days of high-paying trade union jobs, despite the fact that only 6.2% of private-sector workers have chosen to belong to unions, with unionization rates in growth sectors such as finance (1.1%) and professional and technical services (1.4%) even lower.
Both men are looking to the past for normalcy. But resources spent to preserve jobs of the past “will do nothing to help funnel capital into the businesses that have the opportunity to expand in a virus-conscious environment.” … The economy is going to reshape itself,” writes economist-blogger Arnold Kling of the Cato Institute. Meanwhile, both candidates march briskly forward into their yesteryears.
 Attributed to several authors, including Abraham Lincoln, Peter Drucker, Alan Kay and Nobelist Ilya Prigogine per David Sivak, Fact Check Editor. It has not been found in any of Lincoln’s papers.