Thursday, April 30, 2020

The Economy Will Surprise

I am really wondering about the economy. The assumption is that this is like the Great Depression and it will take forever for us to get out of it. The more I think about it, the more likely it is that the economy is going to rebound surprisingly fast. Here's why.

Let's start with this: political "experts" are predicting the end of the world. Unemployment will last forever. After all we just shut down 40% of the economy. Unemployment has never been so high... not since the Obama years! Most unemployed people can do better on unemployment! The money the government is pouring out will cause Weimar Germany-like hyperinflation. There are breadlines. Shortages! We must accept that we will all be poor from now on.

But is any of that true? Not really.

(1) I've told you before there will be no inflation. The reason is the extra money the government is pumping out just fills in missing demand, i.e. we do not have more money suddenly chasing too few goods. Hence, no inflation. The dollar won't fall either because all governments are doing this, so everyone falls equally, meaning no one falls. I had been worried about deflation as too many good chase too few dollars, but demand hasn't fallen much and merchants are being incredibly stubborn about maintaining their prices. Even all the fire sales you see are pure marketing. So forget those ideas. Condition normal.

(2) But unemployment, right? Actually, I don't think so. The jobs that have been lost haven't been "lost" in the traditional sense. Normally, jobs vanish because demand vanishes or substitutes appear. That means they are gone forever because the economy no longer wants them. What's happened here is different. Those jobs have been put on hold. But the economy still wants those services. So once we lift the hold, I suspect most of these companies bounce right back and the jobs with them.

(3) Further, this may sound cruel but it's true: these companies and their jobs have never been stable companies, so this isn't something our economy has never digested before. Indeed, these companies exist largely in the tourism and food services industry. Companies in those industries implode in the mid-90% rate. So even if 100% of them failed now -- which they won't -- I suspect they will be replaced by the natural business cycle as they normally would have been. In other words, their failure and replacement is a natural process and would have happened anyways. So while this sounds like a disaster, it is a natural process that goes on normally, we just don't see it.

Also, I'm seeing some interesting ideas out of the strong players, i.e. the companies that have proven to survive over time already. For example, there's an Italian restaurant downtown which has survived for years. They are now selling home-cook kits and they are showing you online every Wednesday how to cook the kit. Clever. Ideas like that will make these people stronger when they do open again. Curbside service will too... more customers using the same resources.

(4) But the jobs are gone, right? No. They come back instantly when the companies come back. It's like someone pressed pause and then pressed start. If this thing lasts a year, that won't be true, but lasting only two months, without the economy reshuffling leaves everything in place for things to go right back to where they were, i.e. leases weren't lost, equipment wasn't sold, employees didn't disperse. That strongly suggests that things may largely go right back to the way they were. Moreover, there should even be new jobs as the "new normal" (I hate that idiotic phrase) will be more labor intensive because of safety precautions. That means people whose jobs do not come back may be able to find new jobs more easily.

(5) But they can do better on unemployment? Hardly. Unemployment sucks, and no one is getting it. Moreover, these people work in industries with massive turn over. They are used to job hopping. These are not engineers who freak out about getting laid off and in their depression won't take anything but an equivalent job. Most of these people will likely go right back to the way things were without missing a beat.

There will be more bankruptcies, that is true. But the companies who lose in bankruptcy are not particularly sympathetic. These tend to be bottom-feeder credit card companies who know they are taking a risk and payday loan people who are despicable thieves. Neither is unprepared for this and neither really contributes to the economy. Landlords might get hit too, but again, that is not the most stable of income producing businesses (as rental space has high non-occupancy rates) and they should be able to withstand some unpaid rent. And again, they are not an economic producer, nor is the property lost to the economy... it will be rented out again.

There are some industries that will be hurt. Airlines, hotels, and tourist attractions will hurt in the short term. Buffets will need to get creative. Nursing homes seem doomed. But at the same time, consumers seem happy to redirect their dollars to other industries which means no overall economic loss, which is how the economy has always functioned from caveman days to the present. There will be some shifting and the media will play up ever lost job, just as they did under Reagan, but the overall result should be a wash. Said differently, I'm not seeing a depression or even a recession.



AndrewPrice said...

Here's a bizarrely fair and rather damning story on the Biden sexual assault: LINK

AndrewPrice said...

I must live in a different world than the media. They are reporting empty meat shelves "across the country" and, as proof, they show photos from the usual suspects - NY, California, Florida and (guest start) Massachussettes.

Well, I just got back from the grocery store, where I bought about 10 pounds of hamburger. Boneless chicken is rare, but everything was stocked.

To be clear, I think shortages are likely coming, but they are not here yet and the media lies.

tryanmax said...

It looks like there is widespread participation in the "pause." That alone spells good news for a vertical takeoff once the pause is lifted. Add to that, there's going to be a lot of incentive to avoid China.

The framing of that story is all against Biden. The headline gives merit to the allegations and the last word of the story bolsters the accuser's timeline. I'm having a hard time getting a sense of how his month-late denial landed. The usual suspects are declaring it case closed, but it seems rather wishful to my ear.

AndrewPrice said...

tryanmax, I really suspect we are looking at a vertical take off... an unpause. This just not something we've experienced before. This isn't about a change in demand or economic inputs. It's really just a pause.

I'll be curious to see how that plays out.

On Biden, the plan seems to have been to (1) claim it was already investigated by the NYT, and (2) ignore it. But the PR has been so bad and building that they were forced to start talking about it. Now the problem becomes that this flies in the face of everything they've been saying for three years and there is no immediate level of coordination so the left isn't sure what to say.

What I wonder is if they will use this rid themselves of him and replace him with Cuomo? (Bernie will freak out.)

AndrewPrice said...

Here's a good word of advice. They are saying that putting Covid patients on their stomachs is helping prevent them from getting into that second, really dangerous phase where they develop all the lung problems and end up on ventilators: LINK

This is actually no surprise. I saw a pulmonary doctor once who explained in detail to me why lying on your back is bad for your lungs and your oxygen level. You can lose around 5% oxygen just from doing that. So this makes a lot of sense.

I am not a doctor, but let me recommend that if you do come down with any sort of cold or flu or anything that might be Covid or similar, get a lot of rest, take a LOT of vitamin C (good idea even if you aren't sick -- it actually fights allergies, which seem to make it easier for Covid to attach), and lay on your stomach until it's gone.

AndrewPrice said...

Also, women's soccer got destroyed in court yesterday. Their equal pay crap just got exposed. I'll talk about that in an upcoming article.

tryanmax said...

I’ve been a stomach sleeper my whole life so this is excellent news.

More observations on grocery stores. The run-down, not sure how it’s hanging on grocery store on the corner is better for social distancing than the swanky, upscale, impulse buy tables cluttering the aisles store down the road. But what’s even better is that the corner store is half-assing it while the swanky store is really trying. It’s pure comedy.

AndrewPrice said...

tryanmax, We have two King Soopers (Krogers) in the 'hood. One is in a poorer part, on is pure yuppy. Both actually try really hard and I'm very pleased with them. That said, I go to the poor one now because they are fully stocked. The yuppy one is always missing things. I think the difference is that there is too much money at the one, so they sell out faster.

All that said, if you want true social distancing, go to Safeway. There aren't enough customers to do anything but social distance and the surly staff doesn't want to get near you either.

Kings actually has put a manager at the front now and limits traffic during busy periods.

tryanmax said...

I called Costco to inquire about their mask policy and the manger told me he doesn’t intend to turn anyone away.

Critch said...

My middle son works at Lowes in a nearby town...he said they $1.5 million in 2 days recently....I think the economy will be doing just fine...

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