Covid-19 Recessions: This Time It’s Really Different

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Yves here. This post by Jomo Kwame Sundaram and Vladimir Popov invokes a notion that is near and dear to MMT advocates but is often given short shrift in conventional economic analyses: long-term growth depends on the productive capacity of an economy. So when a sovereign currency issuers falls for the balanced budget fallacy and engages in austerity, it slows long-term growth via underinvestment and curtailing demand.

The related point the authors make is that Covid-19 will do far deeper damage than most experts anticipate because it is reducing productive capacity on a lasting basis in many sectors: restaurants, hotels, entertainment, air transportation, conferences, and conceivably higher education. In the days of the Spanish Flu or even the Great Depression, there were far fewer highly skilled and specialized roles, so it was easier for men to find work in new fields when jobs opened up, and for machinery to be retooled. What do sous chefs, bartenders, university administrators, and pilots, to name a few, do for their next act? Remember how malls have become white elephants? What happens to Class A office space in big cities now that WeWork is a thing of the past, and white collar employers are seeking to keep as many staffers as possible working remotely?

By Jomo Kwame Sundaram, a former economics professor, who was Assistant Director-General for Economic and Social Development, Food and Agriculture Organization, and who received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007 and Vladimir Popov, Research Director in the Dialogue of Civilizations Research Institute in Berlin and author of How to Deal with a Coronavirus Economic Recession? Originally published by the InterPress Service

The world economic contraction so far this year is largely due to measures, especially at the national or local level, to contain or prevent Covid-19 contagion, particularly those restricting business operations, thus reducing economic activity, output, incomes and spending.

Lower business and worker incomes have reduced spending, for both consumption and investment, and thus overall or aggregate demand. While there has indeed been much novel ‘financial folly’ in the last decade, responsible for its dreary ‘recovery’, and financial circumstances will retard recovery, the cruel public health dilemma posed by the viral pandemic is surely its immediate cause.

To be sure, recent economic performance in much of the world had been quite lacklustre, with no strong recovery since the 2008-09 global financial crisis and Great Recession despite the unexpected impact of ‘unconventional monetary measures’, especially in the north Atlantic economies.

Recessions and Recessions

The recessions have been quite uneven, due to different circumstances and responses. Various aspects may bear some resemblance to other supply-side recessions, e.g., those caused or worsened by post-war conversion of armaments industries, oil price shocks (e.g., in 1973, 1979, 2007) and ‘shock therapy’-induced ‘transformational recessions’ in ‘post-communist’ and other economies in the 1990s.

A general recession typically involves declines in many, if not most industries, sectors and regions. Such output contraction typically implies underutilized production capacities, raising unemployment unevenly during a general recession.

In contrast, a structural recession refers to falling output in one or a few related industries, sectors or regions, not sufficiently offset by other rises. However, not all supply side recessions necessarily involve structural transformation, especially if not deliberately induced by government.

Really Different This Time?

A structural transformation – with unviable activities declining as more ‘competitive’ alternatives grow – may not involve overall economic contraction if resource transfers – from declining activities to rising ones – are easy, rapid and low cost.

Such resource transfers typically require ‘repurposing’ labour as well as plant, equipment and other ‘fixed capital’ stock. Typically, unplanned structural transformations result in supply-side recessions as resources are withdrawn without being redeployed for alternative productive ends.

Some examples include post-war recessions when converting military industries to peacetime non-military purposes after wars end. After the Second World War, US output declined for three years, and was 13% lower in 1947 compared to 1944.

The 1990s’ recessions in many post-communist economies were similarly due to poor management of structural transformations with declining agriculture and manufacturing, often despite more resource extraction, with some contractions deeper than the 1930s’ Great Depression.

In market economies, such adjustments typically increase unemployment as industries become unprofitable – e.g., due to cost spikes – and lay off workers. Growing unemployment lowers wages, while the conventional wisdom claims that cheaper labour costs will induce new investments.

Market resolution of such unexpected, massive disruptions is likely to be poorly coordinated, slow and painful, with high unemployment for years. Alternatively, governments can guide, facilitate and accelerate desired changes with appropriate relief and industrial policy measures.

Keynes Needed, but Not Sufficient

Slumps in travel, tourism, mass entertainment, public events, sit-down eateries, hotels, hospitality, catering, classrooms, personal services and other such activities have been due to physical distancing and other containment requirements.

Such collapses will not be overcome with support, relief and stimulus measures as most such activities cannot fully resume soon, even in the medium term. Expansionary Keynesian fiscal and monetary policies to address collapses in aggregate demand have limited relevance in addressing government-mandated restrictions intended to contain contagion.

Furthermore, as Nobel economics laureate Paul Romer and Alan Garber note, “loan guarantees and direct cash transfers will stave off bankruptcy and default on debt, but these measures cannot restore the output that is lost when social distancing keeps people from producing goods and services”.

Of course, relief measures for those losing incomes can help mitigate the effects of the adverse supply and demand shocks involved, but much depends not only on direct, but also indirect, second or even third order effects, partly reflected in Keynes’ ‘multiplier’ muted by other government measures.

A necessary precondition for the multiplier to accelerate broader economic recovery is the prior existence of underutilized productive capacities. Otherwise, increasing demand will simply raise prices when output and efficiency cannot be quickly increased profitably.

One Size Does Not Fit All

Newly restructured economies will inevitably emerge from the pandemic, but some will do better than others. There is and will be greater need and demand for new as well as modified goods and services such as medical supplies, health facilities, care services, distance learning and web entertainment.

Economies trying to adjust to the new post-contagion context should use industrial policy or selective investment and technology promotion to expedite restructuring by directing scare resources from unviable, declining, sunset industries to more feasible, emerging, sunrise activities.

Enabling, incentivizing or even requiring needed resource reallocations can help overcome supply bottlenecks. China and other East Asian countries have already had some early successes in thus addressing their Covid-19 downturns.

All workplaces adversely affected by precautionary requirements will need to be safely reconfigured or repurposed accordingly. Structural unemployment problems, due to skill shortages not coinciding with available labour skill supplies, can be better addressed by appropriate government-employer coordination to appropriately identify and meet skill requirements.

Government policies, e.g., using official incentives, can thus encourage or induce adoption of desirable new practices, such as ‘clean investments’ for ‘green’ restructuring, e.g., by using renewable energy and energy saving technologies. Without such inducements, stimuli and support for desirable new investments, desired structural shifts may be much more difficult, painful and costly.

Thus, the ongoing Covid-19 crisis should be seen as an opportunity to make much needed, if not long overdue investments in desirable sunrise industries, services and enterprises, including personnel retraining and capability enhancement as well as workplace repurposing.

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65 comments

  1. eg

    I’ve said it before — expect a return to a steady diet of credit guidance. Possible with a side order of credit controls.

    Reply
      1. Colonel Smithers

        Thank you, both.

        These measures were considered by the Bank of England a decade ago, but were not, as it turned out, required, especially as the Eurozone managed to kick the can down the road.

        Paul Tucker, who discussed it then and is now Sir Paul, hinted at such measures in an interview a few days ago.

        One hopes the former Bank of England and Treasury officials will chime. Current ones, too.

        Reply
  2. PlutoniumKun

    Hard to argue with this. I think there is still a certain amount of cognative dissonance (as seen in market prices) between how markets and individuals are acting and what is happening in the real economy. The one off impact on output worldwide is unprecedented. Entire industries (most notably business travel) have been wiped out, but the businesses themselves are still standing, a little like Wile E. Cayote, legs spinning over the edge of a cliff. Everyone is running around, trying to pretend that they can pick up where they left off and (as yet), there is an unwillingness to pull the plug on the many businesses on one form of life support or another. Ironically, lifting lockdowns might be the worst thing for the economy, because then people will have to make decisions, and that may well include shuttering up entire businesses.

    All over the world, we see old playbooks being taken out and used, without any real thought. Trump is busy goosing asset prices, as if they really matter for the real economy. Europe is pretending that there hasn’t been an enormous demand shock, and somehow hoping that if we all made BMW’s, everyone would be happy. China is gearing up to cover yet more of its land in low grade concrete and steel and gearing up for a few more record breaking bridges to knowhere. Japan is… well, Japan is still doing its own thing.

    Of course, in a sensible world, the necessary reconfiguring of the economy would in itself be designed to provide the ‘real’ productivity increases necessary to give everyone a decent quality of life. Plenty of local governments seem to recognise this – there has been a lot of very positive change happening in many cities in particular, as they take the opportunity to reclaim car space for use by people, to generate local businesses in a sustainable manner. But I’ve seen no evidence that this type of thinking has percolated upwards.

    Reply
    1. vlade

      Actually, a lot of the businesses will have work now, because they will be finishing the orders they could not finish (and that can’t be cancelled) in March/April. The problem is that most of them may not get any new orders in the next three months, excerbated in the Northern Hemisphere by the summer hols which is a pretty quiet time to start with. So expect some pickup in Q2 followed by a bloodbath in Q3.

      Reply
      1. Adam1

        Yeah I don’t think the real effects have started to show up. A coworker of mine is also a Rochester city councilman and he was telling me the city is reporting a $10M shortfall in Q1 sales tax revenue. The lockdown didn’t really kick in here until mid-March so that $10M shortfall only represents 2-3 weeks or sales declines. Q2 is going to be a financial disaster for the city or any smaller municipality relying on sales tax revenue. Unless the Feds step up and open the taps we’ve got massive local municipal layoffs coming down the pike and the states are seeing the same sales tax losses so they can’t fill that gap – and actually the city is anticipating cuts from the state anyhow.

        Reply
        1. rd

          NYS has a major structural issue with local revenue. Much of the county budget raised by property taxes and sales tax goes to paying the county share of Medicaid costs. So a reduction in revenue at the local and county level means a massive reduction in operating budgets because much of the money is already spoken for by the state for Medicaid. That in turn makes the local governments reliant on revenue sharing from the state in down times for operating budgets.

          Hoepfully this crisis will push the Medicaid funding back to where it belongs, which is the state, and local taxes can be used for local operating funds.

          Reply
          1. GF

            I’m not in NYS. I was wondering, if you have the numbers, what is the percentage of the local operating funds that go to “law enforcement” in all its assorted categories, including the court system, as compared to Medicaid?

            Reply
            1. rd

              For Onondaga County (includes Syracuse), “Public Safety” which includes the Sherriff department is about 10% of the total county budget. See p. 63 of the pdf. http://www.ongov.net/finance/documents/2020ExecutiveBudgetBook.pdf

              However, outside of NYC, each county has cities, towns, and vilalges that each have their own governments and services. So City of Syracuse has a police force and many fo the towns do as well. fire Departments are twon and village level.

              Reply
          2. JTMcPhee

            Why does Medicaid funding ‘belong with the state’ and not with the federal government? here in FL, “conservative” pols dominate, and they have pulled one privatizing and screw-the-poors “reform” and “revision” and “re-imagining” after another, to the point that only a tiny fraction of need is served and there are practically no “providers” who will even entertain taking on a person whose “funding” is Medicaid.

            Concrete material benefits, universally available. Health care, should be no cost to the person at the point of service. Good luck, of course, getting this past the bribers and bribe-takers who have to put it into “the law…”

            Reply
        2. NotTimothyGeithner

          Two, now three months of major dislocation, along with no expectation of how things will go and now a mass movement. Don’t worry Congress is on vacation.

          Localities are about to get hammered. If my memory serves, Virginia’s summer time gas tax funds the fall infrastructure projects. If vacation and traffic is down, all those projects stop. To fix this, they need to call the part legislature into session. Then of course, the gas tax supplements teacher salaries in rural counties. Colleges dipping into emergency funds, and there is the prospect of another shutdown.

          Reply
          1. L

            Its that last note which is also having a big impact. Quite a few talking heads were amazed last week that Americans saved so much. Unlike Wall St. most people know how challenging times are and they do see more chaos coming, not less.

            Reply
            1. ambrit

              That describes us. We are ramping up our meagre “cash in the mattress” fund as cheques come in. That and our second rate ‘prepping’ activities.
              Around here, we are seeing, and hearing, the first stirrings of the realization that this might be just the beginning of the disruptions ensuing from the coronavirus, which is, after all, just the trigger for a slew of ‘evils’ that have been building up since the 1980’s in America.

              Reply
            2. rd

              I think much of the savings was actually people using the windfall money to pay credit card and medical debts. Paying debt shows up as savings.

              Reply
        3. Dirk77

          Because of loss of revenue from state lottery and use fees, our state parks service is reducing their staff by over 50% for the year.

          Reply
      2. PlutoniumKun

        I was just discussing that with a colleague – lots of people are completing contracts and orders, the key point will be at the stage funders/clients can reasonably pull the plug. I’ve been looking at the skyline to see which cranes are active and which are not – having lived through two major construction collapses I find that watching construction sites closely is a good way to tell where money is being directed (or diverted). So far, things are still going strong, but I’ve noticed a few development sites that are moving suspiciously slowly. Given the usual momentum, I suspect it won’t be well into the autumn when we’ll see for sure what direction the economy is taking (or to be precise, how steep the downward slope will be).

        Reply
        1. The Rev Kev

          Funny you should mention cranes. My State once had an fabulously corrupt Premier (sort of like a Governor) named Joh Bjelke-Petersen who ran the place like a police state and most business got done through brown, paper bags while the rest of the country regarded him as a very bad joke. Point is, he judged the economy by how many cranes he saw from his window and the more cranes he saw, the better he thought the economy was going-

          https://en.wikipedia.org/wiki/Joh_Bjelke-Petersen

          Reply
          1. L

            Chicago Mayor Daley (the first one) had the same calculus. He was famously corrupt but could look out over the skyline and estimate the number of jobs by the buildings he saw going up. He used to call people into his mayoral office and count the numbers to them so the story goes.

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        2. L

          Where I live, a much more suburban area, construction is still going, though not at the same pace it did before. But now that you mention it I haven’t seen the same pace of new starts. The builders who already have skin in the game are completing their projects but I guess they are content to sit on sites they have and not continue flipping.

          Right now I suspect everyone is wondering whether we will be one of the areas that loses people from this, or one of the ones that gains new “regional hubs” as companies spread out. My bet is on a mixture of both.

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        3. vlade

          Here the problem is different. A lot of the building workforce was Ukrainians, who in March left in droves (probably hundreds of thousands total, I’ve heard that number of returning Ukrainians in March was 5 mil total from all the various countries they worked).

          They are still not back, so the building industry is extremely understaffed. I heard that builders are desperate and paying top money (cca USD8/hour, which, I’d point out, is more than US minimal wages, in a county with much lower cost of living) to even unskilled labour, because it’s either that or even bigger contractual penalties.

          Reply
          1. ambrit

            Any soundings from the “official” types about “modifying” those contractual completion penalty clauses yet? (I made some good money by just hanging around on big job crews for the “end run” phase of the job. Lots of overtime at the very end of a big job as the contractors rush to fix the f— ups before penalty time kicks in.)

            Reply
      3. vlade

        Just to clarify – pickup in Q2 versus Q1 (or a very small drop). Q3 is where the lack of new orders will show.

        Reply
    2. jef

      “…provide the ‘real’ productivity increases necessary to give everyone a decent quality of life.”

      This is exactly the problem. All discussions and efforts are focused on something that isn’t even remotely possible nor desirable. There is simply not enough resources to “give everyone a decent quality of life” unless I am being naive and you are only talking about first worlders. If everyone on the planet had all the trappings of a decent quality of life the planet would be left a smoldering cinder.

      A lot of people don’t want to climb back on the treadmill and are fine with much less. Half the population are fine with the imposed power-down if only they can socialize more. We need to be talking how to do much less without causing more suffering and death not how to ramp up and get back to where we were which was ever incresing suffering and death.

      Reply
      1. ambrit

        I echo your sentiments but fear that the “Elites” have ‘agreed’ among themselves that the Jackpot is their optimal outcome. (Such ‘agreement’ does not have to be overt. Just the similarities in thinking that membership in a singular and allied group imparts can do the trick “organically.”)

        Reply
      2. Aumua

        It is simply a matter of how you define “decent quality of life” then. For many that would probably just be some guaranteed form of food and shelter.

        Reply
  3. RabidGandhi

    You really should put up a trigger warning if an article is going to mention phrases like “industrial policy measures”. Now all my Democrat and Berniecrat contacts got hives.

    Reply
  4. Amfortas the hippie

    because of where I’ve been, I can’t help thinking about things like this in terms of restaurants.
    it’s been part of the Plan for my little Hermit Kingdom to have a Prix Fixe “Supper Club” out here on the Farm…on Saturday and/or Sunday evenings.
    I have most of the Commercial Kitchen already, and have considered converting “The Barn” into a dining room, with a pavilion of sorts extending out into what is now Mom’s driveway.
    Open air, with ceiling fans, my vision would already accomplish “social distancing”…at least between strangers.(the original version of this Vision was for very large, rugged tables, like a mead hall, or something, essentially throwing disparate people together to break bread).
    this would necessarily be seasonal, and likely with much more limited capacity that what restaurateurs are used to(pack ’em in like sardines)
    barring PE swallowing it all, one might think that there’s fixing to be a lot of real estate to be had for real cheap…so that reconfiguring the layout of what we think of as “restaurants”, would be at least affordable.
    Sadly, I reckon it’s pretty much a given that Blackrock, et alia will eat the world and try to extract rent from it.

    Reply
    1. The Rev Kev

      The way that the Republicans and Democrats are running the country, don’t be surprised if that supper club evolves eventually into a soup kitchen. However much your neighbours disagree with your views, they must also see that what you do works and you may find people eventually gravitating to you for advice – and soup.

      Reply
      1. ambrit

        Considering the social dynamics of American rural areas, Amfortas had better also prepare to fend off “hostile takeover” tenders from groups of local bully boys. Keep that lever action handy!

        Reply
        1. MLTPB

          Prepare to fend off.

          By becoming a black belt in karate or learning Yip Man’s Wing Chun style of self defense?

          Reply
    2. Ezequiel

      Do you mean, something like this? https://en.wikipedia.org/wiki/Txoko

      It is a great idea, specially now. Several in my family are members of some, even ran their wedding on their txoko!

      It is perfectly compatible with a healthy restaurant sector (just go to San Sebastian), but if it is seen as a replacement for health reasons, it could spell it’s doom…

      Reply
  5. Ignacio

    This would indeed be the time for MMTers to command economic policies and austerians retire to their coves, forever if possible. Some timid MMT-like policies have already been put in place.

    Reply
    1. MLTPB

      A slight v variation of MMT.

      That one time $1,200 check did some work. Monthly would do even more.

      More broadly, perhaps we let the people universally spend money into existence.

      Reply
  6. Jesper

    Yep, this time it is different. However, I do believe that the governments in many countries will continue as before – the remedies will be continue to direct support through the regular channels. Might be time to look at the different channels to possibly see what can be expected:
    1. Routing aid through banks.
    2. Routing aid through educational and training companies.
    3. Routing aid through industries known for widespread abuse of workers. Quoting from the article: travel, tourism, mass entertainment, public events, sit-down eateries, hotels, hospitality, catering, classrooms, personal services
    Which of those channels (or other channel that I might have missed) is most likely to work well?

    Most of the essential is still going on and sadly some of the non-essential is still going on. Still it should be possible to use this crisis to identify what is essential and reduce some non-essential activities even when the COVID is under control.

    My preference would be to increase the paid time off. Doing that would reduce the amount of hours available to buy and that would put the sellers at an advantage which hopefully pushes up wages and also price some of the non-essential activities out of the market.
    The skill shortages is undefined and in my opinion a myth spread by employers. If Zuckerberg can dictate the terms of employment (as he said he would do relating to engineers working remotely from cheaper locations) then I interpret that as there is no shortage of available tech-workers. If there was a skills shortage then ‘talent’ could at least bargain but ‘talent’ has no bargaining power so there is no skills shortage. In the fields where there actually is a skill shortage then lets the almighty market sort out the pricing, the whining welfare queens known as corporations will just have to accept that in a market economy then they’ll just have to pay market-price.

    But my fear is that the people in government want well-paying jobs for themselves and that means to keep corporations happy at the expense of the people. So, routing of money through preferred channels and if possible through crony companies is in my opinion the likely outcome for the foreseeable future.

    Reply
    1. rd

      I work in engineering. The biggest skills shortage I have seen is because employers are not structuring and providing on the job training. They want people to magically appear with full and complete skill sets. As somebody who learned the science, art, and business from the ground up, it just doesn’t work that way. It takes years of mentoring in an somewhat organized framework to develop good skill sets that include how to learn in the future so you are always relevant. However, the early push for people to become “managers” means that many of them never learned the technical side and have no idea what it takes to get good technically. Then they complain they can’t find good technical talent as they refuse to participate in developing it. I do my mentoring of junior staff almost under the table.

      We have lots of smart people out there. With some education and training, we could have an over-supply of world class talent. Brown vs. Board of Education and Title IX means you can theoretically draw from the best and brightest across the country instead of just focusing on white males like the first two centuries of the country’s existence. We don’t have the talent available to work because of locked in 19th century thinking. Changing that would open up a new era of prosperity for the US. The past couple of weeks show this is going to be difficult to accomplish because the US is so firmly rooted in the 1800s.

      Reply
      1. Susan the other

        But there is one delightful spot. Mitch McConnell’s stubborn heart is where nostalgia for the 1800s goes to die. The look on his face says it all.

        Reply
    2. L

      As I believe Yves once noted here, any time you see an employer say “I can’t find anyone who can do the job” you should always fill it out with “… at the rate I want to pay.”

      Reply
  7. Merf56

    Spouse works in management for a large P and C insurer based partially in Philadelphia ( three guesses). They are apparently going to reduce their office space in the city (very high end real estate location) to near zero ASAP. My firm is doing the same ( I have always worked from home). I see abandoned wastelands of former office space all across the NE….

    Reply
    1. rd

      PE will pick them up for 20 cents on the dollar and convert them to apartments and condos. When coronavirus is done 2 years from now, they will have lots of prime space for people to move into near the party scene as we move into the Roaring ’20s. Treasury and the Fed will provide them with 0% financing to do this. They will make a killing.

      Reply
      1. Yves Smith Post author

        Class A offices blocks have the wrong footprint to convert to residential. Not enough windows to interior space. Too few “brown waste” (toilet) lines.

        For instance:

        A legal bedroom in NYC must be a minimum of 80 square feet, have a minimum width of 8 feet in any dimension, have a minimum ceiling height of 8 feet and have a window, among other guidelines. Having a closet is not a requirement for a legal bedroom in NYC.

        https://medium.com/@Hauseit/what-is-a-legal-bedroom-in-nyc-15acd1fcb1ab

        The window is a very big problem in your scenario.

        Reply
        1. rd

          I have done work in NYC. The building code is something that Kafka developed. An elevator permit was needed for a one story slab on grade building not much bigger than a garden shed. The cost of the building permit “expeditor” was more than the cost of the structure.

          In our area, one bedroom apartments are usually at least 600 sf and 2 bedroom are at least 750 sf so it would be pretty easy to lay them out in an office building like what I work in with a fair amount of window space. They redevelop 1800s industrial buildings into apartments and condos around here. Installing waste lines and water lines in the space above a suspended ceiling in a class A office building like the one I work in would be quite doable. It all depends on the price you get the building for.

          I saw something this week that said that half the commercial real estate leases did not pay rent in April and May. That can’t go on for too much longer, or the building owners will not be able to cover their mortgages and taxes. Will Congress and the Fed step in to address this?

          Reply
          1. Yves Smith Post author

            You need to have a better look at Class A office buildings in midtown Manhattan and get back to me. Lower Manhattan has had some successful (in commercial if not aesthetic term) conversions because the buildings were older with small footprints. Even so, the layouts were awkward and the apartments had little light. Worse than lofts, which are often terrible in how little natural light they let in. Midtown office buildings are monsters.

            And who exactly will pay for these apartments? People were leaving the city before Covid-19. If the jobs aren’t in Manhattan, why would anyone live there? And there was a lot of new apartment construction in the city, witness falling rents in several years recently.

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    2. Colonel Smithers

      Thank you.

      It won’t be the north east of the US, but globally.

      Since the Brexit referendum, some of the skyscraper owners in the City of London and Canary Wharf have obtained permission to change their building permits from office to mixed use, i.e. commercial and residential.

      The first is Exchange Square, just behind Liverpool Street station.

      The boroughs surrounding the City of London and Canary Wharf have tried to get pieces of that action, including social and ethnic cleansing by the Blairite councillors in Haringey and Tower Hamlets.

      Reply
      1. Synoia

        As we discovered in the first wave of high rise residential towers in the UK, the killer problem with high rise living is Elevator (Lift in the UK) maintenance.

        Closely followed by adherence to the fire codes.

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      1. L

        I’m not so sure about that. The fact is that Zoom is awful for collaboration and even in the high tech industry there is still no substitute for meeting with other humans, particularly people who are new to a job or new to a team. I doubt that the office is going away entirely.

        Indeed while Marissa Mayer was a terrible CEO for Yahoo (to be fair they were in a terrible state and her remit was wrong), she had a point about making people actually come in to meet. I suspect that what will happen is that companies will adopt two strategies first they will increase flexibility to keep office density low, something that people in China are doing now even as they come back into work. And second they will invest more in regional offices and suburban spaces to distribute the risk out. The latter happened in a big way after 9/11 and the California blackouts prompted many companies to ask just how many people they needed in New York and it was other cities that benefited from it. I suspect this time it will be the first and second ring suburbs who win out at least for back-office functions.

        Companies like Apple and Google already have offices in a number of cities (e.g. Pittsburgh, Denver, Raleigh, Austin). I expect those will only grow and that they will have space set aside for the executives to work when they need to escape the next lockdown.

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        1. Yves Smith Post author

          The idea that smaller cities are safer is fallacious. Far and away the highest Covid-19 infection rate in Alabama is in Lowndes County, which has all of 11,000 people, nearly 10 times the rate of Jefferson County (which is full of medical facilities and personnel, and thus can’t be assumed to look better by virtue of a lower rate of testing).

          Reply
  8. David

    As obvious as it may seem to us, much mainstream thinking doesn’t seem to have assimilated the fact that we’re in a demand crisis, brought about by the fact that there are things that people won’t be able to do, or won’t want to do, any more. No amount of price-cutting and easy credit can change that. Who industries are going to disappear, and the question is what to replace them with, not how to somehow keep them going in ghost form.

    Reply
  9. DHG

    We are living in the last of the last of the “last days”, this system is passing away and this is another example of it. The Kingdom of God will be taking rulership of this planet in the very very near future and all this pain and suffering will be wiped away forever along with all who support this wicked system of things. I look forward to that day.

    Reply
    1. periol

      If the Kingdom of God is anything like John Calvin’s Geneva I doubt the social unrest will go away…

      Ever since reading Walter Rauschenbusch’s A Theology for the Social Gospel in college I stopped waiting for God to do all the work and started looking at how we as humans can get busy creating heaven on earth. If you really pay attention to the Bible, the Lord really likes to work through people. I say it’s better to get busy living in the here and now rather than sitting around waiting for justice after death. It’s my version of Pascal’s Wager…

      Reply
  10. rd

    An example of the problem of disposable workers. Here is a man 66 years old, reliant on the federal unemployment insurance finishing in July. his wife is 53. https://www.marketwatch.com/story/we-are-saving-every-penny-we-can-what-life-could-look-like-for-this-66-year-old-man-when-he-loses-all-his-unemployment-benefits-next-month-2020-06-03?mod=home-page

    At 66, he is at full retirement age for Social Security. My best guess is that his current Spocial Security benefit available would be about $26k/year. He is also eligible (might be on it now) for Medicare. If he doesn’t make a lot of money, he would eligible for Medicaid. The job he started in January was $70k/year at a hotel. He is currently furloughed.

    His employers have probably not offered much in the way of 401ks over the years and he may have some IRA savings, but probably not a lot. Social Security is structured to provide 40% of working income for middle-class workers. Reductions in taxes etc. make that probably 50% of disposable income, more if people have been saving a lot in retirement plans.

    They are living in a place that is costing them $2,000/month because of where they are in Florida. In our area, a decent one-bedroom apartment would be about $1,000/month.

    So this is a general problem for American society. A huge percentage of people in their 60s don’t see the prospect of retiring soon due to finances. Social Security is a decent backstop, but a lack of society focus on pay and retirement plans prior to retirement means many people cannot get close to their working incomes in retirement.

    Reply
    1. flora

      Also, SS payments are taxed.
      It’s not ‘tax free’ income.

      Adding: the sooner an old person can retire, the sooner a job opens up for a younger worker.

      Reply
      1. rd

        Up to 85% is taxed by federal income tax depending on how much extra income you have (formula not indexed, so in a while almost everybody will pay income tax on SS). Many states that have income tax, don’t apply their income tax to SS. Also, FICA is not taken out of SS. As a result, NYS, even if you are taxed on all 85% of SS, your tax bill still typically drops by over 12% on those SS dollars.

        Reply
    2. Anarcissie

      I think one of the general problems for American society is represented by that $2000 rent. Real estate rents and prices are inflated because of the practice of producing a lot of funny money and giving it to rich people, who make it vanish into banks and brokerage houses and asset inflation. The asset inflation comes to bear upon the not-so-rich in the form of elevated rents and mortgage payments. In effect, the renter or buyer must pay rich people for being rich. Somewhere upstream there is a sort of rentier black hole that makes all this money disappear without producing anything.

      As the real estate assets inflate, eventually it becomes impossible for participants in the real economy, i.e. the working class, to pay for them, whereupon real estate prices start to collapse. (As happened in 2005-2008.) I am not sure what will happen then, but I can envision large corporations buying up all the distressed housing and then demanding government bailouts. But since it’s mostly still funny money, not based on labor or the goods and services produced by labor, it’s hard to predict. Last time around a lot of the financial world seized up because of all the tricky derivative products they’d invented which were suddenly indeterminate or definitely worthless. Since they put everything back the way it had been before under the reign of Mr. O, I imagine something similar will take place in the near future. The fact that the abominable Larry Summers promptly popped up in Mr. Biden’s entourage when his campaign floated to the surface suggests such an outcome.

      Reply
  11. Jeremy Grimm

    After reading one of today’s links: “The American Virus”, this post has an unreal quality of fantasy:
    “A necessary precondition for the multiplier to accelerate broader economic recovery is the prior existence of underutilized productive capacities.”
    “industrial policy or selective investment and technology promotion”
    I can’t imagine industrial policy in the US. What “underutilized productive capacities” exist in the US economy?

    “long overdue investments in desirable sunrise industries, services and enterprises, including personnel retraining and capability enhancement as well as workplace repurposing.” What desirable sunrise industries do the authors have in mind? The “personnel retraining and capability enhancement as well as workplace repurposing” sounds like happy-talk we’ve heard before. Retraining personnel to do what? The US trade policies, high costs of living, and Monopoly tolerance put a damper on any reasonable plans to invest or start sunrise industries here.

    Maybe this post is for European economies?

    “What do sous chefs, bartenders, university administrators, and pilots, to name a few, do for their next act?” — Good question this post doesn’t answer for me. What kind of “workplace repurposing” do the authors envision for malls, restaurants, small retail space, large retail space, and Class A office space?

    “Covid-19 Recessions: This Time It’s Really Different” … it sure is and the CARES Act promises a lot of changes that hardly suggest investments in sunrise industries are in the US future.

    Reply
  12. k teh

    Unfortuneately, the rule of law in America now is destroy your competition first and vye for MMT second. It’s the high school mentality you want to avoid. MMT falls exponentially as it trickles down. Turn all your excess income into physical cash. Look at that monetary supply chart. You are the bank now, and grandma didn’t hide $10 bills all over the house by accident.

    Half the small businesses are going out, the ones that got cut off the ladder and older people that find the nonsense no longer worth the effort. Work with other new businesses that have recurring income and low overhead. Only accept non-recurring business if you have a non-recurring expense coming up. Stay away from business with more than a few employees and retail sales. If you have employees, government owns the business and you are just the steward following orders.

    Your office is also a university, part of your 10 year plan. If you simply accomplish something every day and avoid being on the ladder when it gets cut out, you will end up far ahead of everyone else. Deglobalization will automatically provide demand if you are correctly positioned. Watch out for the techies though, pretending to be real people. They are being distributed across the economy, to make electronic money ubiquitous.

    If you are correctly positioned, you don’t have to compete. Don’t let the experts build a ghetto around you. Get out and get some exercise, fresh air and sun.

    Reply
  13. K teh

    Elevator mechanics are the only trade left with bargaining power on par with the landlord’s. If you can deal with tribalism, I highly recommend it. Really good work, all trades, engineering and computer control.

    Careful not to judge a book by its cover though. It has the highest injury and death rate, and not by accident.

    Reply
  14. Steven

    A question for Ignacio… If one wanted to preserve the illusion it is possible to restore the status quo ante COVID-19, wouldn’t from a professional perspective a SERIOUS 5-week lockdown be the quickest, most effective method – especially given the repeated failure to come clean about the reasons the US and other Western nations have little choice, given the ravages inflicted on their economies by the money-hunger-driven financialization and globalization of their elites?
    IIRC there is only one factory in the US still producing the cotton swabs necessary for the kind of wide-spread testing China has used so effectively to contain the virus. I assume the same holds true for the chemicals and instruments required to implement that testing? Your recent post suggests the West’s political leadership at least realizes its past policies have left few choices beyond ‘flattening the curve’ and scapegoating.

    And then there are the ‘death squads’ of accountants running the US public health system.

    Reply

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