The Covid Economy

[John Camp]

The economy has been a side-subject in the Covid-19 posts, but it's obviously important. An interesting analysis from Vox:

https://www.vox.com/policy-and-politics/2020/4/9/21212743/coronavirus-economic-crash-2020-recovery-stock-market-covid-19

[Alan Klein]

It's dire.   We were ready for a recession before the virus. High debt, too credit and printing created bubbles in the stock market, real estate,  tuition, credit card etc.  The virus just sped up the breaking of the bubbles. 

Unfortunately the government is doubling down by raising more debt and printing to save us from the recession.   That just exacerbates it because recessions are really helping to straighten out the mess created by government the first time.   So they kick the can down the road again making it worse later on adding more debt and inflation.

There are too many businesses.  The recession will get rid of the marginal and failing ones.   Trying to save them just allocates resources poorly. 

High unemployment will bring some manufacturing back to America.   Lower wages wil make that possible.  I read reading that Japan government is paying their companies to relocate back to Japan.   That's not the way to do ir but it's interesting how countries don't want to be overseas making products for their own use.  Let's hope we defeat the virus.  Or we're really in for worse times.

[Alan Klein]

Canada is doing the same wasteful thing as America.  Subsidizing losing companies with precious resources.  They're picking winners and losers instead of allowing market forces pick them.   That delays recovery.   If the government would stay out of it, the better companies would expand quicker hiring away the employees from less productive and failing companies helping the overall economy quicker and better.
https://www.canada.ca/en/department-finance/economic-response-plan/wage-subsidy.html

[Manoli]

One more from The Economist:
https://www.economist.com/leaders/2020/04/08/the-coronavirus-crisis-will-change-the-world-of-commerce

The last long-term shift is less certain and more unwelcome: a further rise in corporate concentration and cronyism, as government cash floods the private sector and big firms grow even more dominant. Already, two-thirds of American industries have become more concentrated since the 1990s, sapping the economy’s vitality. Now some powerful bosses are heralding a new era of co-operation between politicians and big businesses—especially those on the ever-expanding list of firms that are considered “strategic”. Voters, consumers and investors should fight this idea since it will mean more graft, less competition and slower economic growth. Like all crises the covid-19 calamity will pass and in time a fresh wave of business energy will be unleashed. Far better if this is not muffled by permanently supersized government and a new oligarchy of well-connected firms.■

[Rob C]

In the UK the govt. has promised financial support to small/medium companies and also, belatedly, the self-employed, but in today's Sophie Ridge on Sunday spot, the reality seems to be that weeks later, pitifully few have seen a cent.

Health officials in the front line are shouting that they lack adequate PPE, and in the very same show this morning the politicos refuse to answer directly but dodge the questioning by doing as some people do here on LuLa: they lapse into catechism and the replaying of the stuck record of good intentions. How these mothers can appear on a show knowing they are going to be quizzed, but think that appearing and dodging is better than staying off and saying nothing, boggles my mind. Oh the ego, the inability to see beyond their own assumed greatness, as if that somehow was enough to excuse everything.

[Robert Roaldi]

Right now it's a mess, but people adapt. Retired people and people on salaries working from home, although inconvenienced and bored, are nowhere near as affected as others in precarious or non-essential sectors. I guess life is unfair but I think we should support safety nets to help those folks. I am happy to pay taxes to help them. What's the other option? Does this add to deficits, sure but so what, would you prefer that one third of society starve?

In the medium term, structurally I don't see that there is such a big problem. Farm fields haven't turned to dust, the factories haven't been bombed, all the infrastructure that was there before is still there. People have only been out of work for a month, the "economy" could not possibly have collapsed already. One thing that I find incredibly stupid is the rolling back of environmental regulations. It's unbelievably short-sighted and bad accounting. People only count the cost of implementing regulations but never count the benefits. I thought we had moved past that simple-minded mindset. It's like wanting all those crappy cars from the 1970s back because we're nostalgic about having gotten laid in one.

If the stocks in your portfolio before the crash were actually worth what the market said they were worth, they will return to those values. They did after 2008. They do after every downturn. The people who most hate market downturns are the financial industry because they are a transaction-based industry and volumes are down. I can live with their pain.

One real problem coming up real soon is the difficulty of importing foreign (mostly Mexican I think) farm workers. North American farms rely on that labour. I believe Canada is looking for ways to expedite the work Visas for those essential workers.

My guess is that all industries will have to find ways of coping with distancing requirements temporarily while we figure out who is newly immune and who isn't. There are probably going to be high levels of illness and absenteeism for a while. Jurisdictions with more generous sick leave arrangements will probably do better than those without. Long-term corporate growth and health depends on a workforce that is trying to work hard. If industry throws sick people to the dogs, why would they ever work hard for you again.

[Robert Roaldi]

One more from The Economist:
https://www.economist.com/leaders/2020/04/08/the-coronavirus-crisis-will-change-the-world-of-commerce

I find this all too believable but we've been going down that road for a while now. The US Supreme Court has for decades been giving corporations all kinds of new rights but no new responsibilities of true citizenship. But this is just a follow-on from the generally accepted notion that society is a support system for commerce, when really it is the other way round. In the long term that is a mistake.

[Alan Klein]

One more from The Economist:
https://www.economist.com/leaders/2020/04/08/the-coronavirus-crisis-will-change-the-world-of-commerce

The same thing is happening again as happened in 2008.  The large banks and companies will get the bulk of the handouts.  Beside the direct $2 trillion, the Federal Reserve in America has the authority to issue and given out another 4$ trillion as Secretary of the Treasury Mnuchin decides.  So when the big fellers get into trouble, and they will, that's when the big bucks will be given in the forms of big loans, stock purchases, payoffs of debt, and the rest of the BS that happened after 2008.  All that will water down the average schnook's savings account and pay check.  The only difference this time is the first socialism for the unrich then followed bu socialism for the rich.  The entire body politic has forgotten about fiscal responsibility.  The Chinese might be the only ones left holding all the marbles. 

[LesPalenik]

The same thing is happening again as happened in 2008.  The large banks and companies will get the bulk of the handouts.  Beside the direct $2 trillion, the Federal Reserve in America has the authority to issue and given out another 4$ trillion as Secretary of the Treasury Mnuchin decides.  So when the big fellers get into trouble, and they will, that's when the big bucks will be given in the forms of big loans, stock purchases, payoffs of debt, and the rest of the BS that happened after 2008.  All that will water down the average schnook's savings account and pay check.  The only difference this time is the first socialism for the unrich then followed bu socialism for the rich.  The entire body politic has forgotten about fiscal responsibility.  The Chinese might be the only ones left holding all the marbles.

And they are, as Robert showed in the Macleans article:
https://www.macleans.ca/opinion/the-coronavirus-pandemic-is-the-breakthrough-xi-jinping-has-been-waiting-for-and-hes-making-his-move/

[Robert Roaldi]

High unemployment will bring some manufacturing back to America.   Lower wages wil make that possible.  I read reading that Japan government is paying their companies to relocate back to Japan.   That's not the way to do ir but it's interesting how countries don't want to be overseas making products for their own use.  Let's hope we defeat the virus.  Or we're really in for worse times.

Isn't that self-contradictory. First you want manufacturing to return to the US (although it never actually left, the US is still the world's 2nd largest manufacturer) but then criticize Japan for trying to do the same thing.

But I think your notion that low salaries will bring manufacturing back to the US and that that is a good thing is a bit off. Bringing low-paying wages back doesn't help the US, it just makes it one of those third world countries that others outsource to. And it's not clear to me how those people with lower wages will be able to live in a high cost society unless everything else gets depressed to, real estate rent, etc. That's pretty bleak. Why do you want to transform your country into a developing nation? Doesn't make sense to me.

[Rob C]

Right now it's a mess, but people adapt. Retired people and people on salaries working from home, although inconvenienced and bored, are nowhere near as affected as others in precarious or non-essential sectors. I guess life is unfair but I think we should support safety nets to help those folks. I am happy to pay taxes to help them. What's the other option? Does this add to deficits, sure but so what, would you prefer that one third of society starve?

In the medium term, structurally I don't see that there is such a big problem. Farm fields haven't turned to dust, the factories haven't been bombed, all the infrastructure that was there before is still there. People have only been out of work for a month, the "economy" could not possibly have collapsed already. One thing that I find incredibly stupid is the rolling back of environmental regulations. It's unbelievably short-sighted and bad accounting. People only count the cost of implementing regulations but never count the benefits. I thought we had moved past that simple-minded mindset. It's like wanting all those crappy cars from the 1970s back because we're nostalgic about having gotten laid in one.

If the stocks in your portfolio before the crash were actually worth what the market said they were worth, they will return to those values. They did after 2008. They do after every downturn. The people who most hate market downturns are the financial industry because they are a transaction-based industry and volumes are down. I can live with their pain.

One real problem coming up real soon is the difficulty of importing foreign (mostly Mexican I think) farm workers. North American farms rely on that labour. I believe Canada is looking for ways to expedite the work Visas for those essential workers.

My guess is that all industries will have to find ways of coping with distancing requirements temporarily while we figure out who is newly immune and who isn't. There are probably going to be high levels of illness and absenteeism for a while. Jurisdictions with more generous sick leave arrangements will probably do better than those without. Long-term corporate growth and health depends on a workforce that is trying to work hard. If industry throws sick people to the dogs, why would they ever work hard for you again.

Yes, and that seems always to be overlooked: the structures still exist and people are going to be very keen to get back into them and working.

Earlier, I posted a halk-joking post to the effect that the way to beat this is to pretend that time just stood still for a month - whatever it turns out to be - and simply start up again as if nothing had happened. The money is basically just an exchange device: as with anything, countries can come to an arrangement as to what that value will be. Instead of a fight, an agreement - for a change - could work wonders.

[Alan Klein]

Right now it's a mess, but people adapt. Retired people and people on salaries working from home, although inconvenienced and bored, are nowhere near as affected as others in precarious or non-essential sectors. I guess life is unfair but I think we should support safety nets to help those folks. I am happy to pay taxes to help them. What's the other option? Does this add to deficits, sure but so what, would you prefer that one third of society starve?

Nothing wrong with helping people eat.  But printing money to every business and picking winners and losers will just delay the return of a good economy.  It wastes precious financial resources and inflation diminishes the purchasing power of those least able to afford it.

In the medium term, structurally I don't see that there is such a big problem. Farm fields haven't turned to dust, the factories haven't been bombed, all the infrastructure that was there before is still there. People have only been out of work for a month, the "economy" could not possibly have collapsed already. One thing that I find incredibly stupid is the rolling back of environmental regulations. It's unbelievably short-sighted and bad accounting. People only count the cost of implementing regulations but never count the benefits. I thought we had moved past that simple-minded mindset. It's like wanting all those crappy cars from the 1970s back because we're nostalgic about having gotten laid in one.



If the stocks in your portfolio before the crash were actually worth what the market said they were worth, they will return to those values. They did after 2008. They do after every downturn. The people who most hate market downturns are the financial industry because they are a transaction-based industry and volumes are down. I can live with their pain. 

The country has been living on debt.  The stock market is a bubble because everyone's dumping money into it because it was the only place to gain value as interest rates were near zero.  Now the bubble has been popped.  Also, as the economy shrinks, all those falsely high valuations will drop back to more accurate assessments. All this spending may hold off a worse drop until the election, the main purpose Trump and the other politicians are doing this.  But then in 2021, all hell will break lose especially if the virus is still around.

One real problem coming up real soon is the difficulty of importing foreign (mostly Mexican I think) farm workers. North American farms rely on that labour. I believe Canada is looking for ways to expedite the work Visas for those essential workers.

Newly poor Americans will be willing to take those jobs including manufacturing jobs lost to overseas, so they can eat.  Of course, if the government keeps giving them money, they'll stay at home delaying recovery.  Illegal immigration will stop as Americans become willing do stuff they hadn't before.

My guess is that all industries will have to find ways of coping with distancing requirements temporarily while we figure out who is newly immune and who isn't. There are probably going to be high levels of illness and absenteeism for a while. Jurisdictions with more generous sick leave arrangements will probably do better than those without. Long-term corporate growth and health depends on a workforce that is trying to work hard. If industry throws sick people to the dogs, why would they ever work hard for you again.

When people have to eat, they'll take a lot of crap and thank employers willing to give them jobs. 

[LesPalenik]

Why do you want to transform your country into a developing nation? Doesn't make sense to me.

Nobody wants to transform USA and Canada to a developing nation status, but the reality is that in the past many unionized employees were overpaid, and that won't be sustainable in the future.

[Alan Klein]

I find this all too believable but we've been going down that road for a while now. The US Supreme Court has for decades been giving corporations all kinds of new rights but no new responsibilities of true citizenship. But this is just a follow-on from the generally accepted notion that society is a support system for commerce, when really it is the other way round. In the long term that is a mistake.

The Constitution gives people and companies rights, not the Supreme Court. Of course, what we argue about is whether the court is misinterpreting the constitution.  But you can't on one hand say that the constitution is a living document open to modern interpretation.  Then complain that you don't like the interpretations the court is making. 

Arguing that corporations don't have true citizenship isn't true.  Boeing for example has 143,000 employees in all 50 states.  They pay salaries which feed those families and provide social security and medicare payments to the government including their matching taxes paid.  In good years they pay income taxes as well.  They're one of the major exporters adding foreign wealth to the country.  Their military products help protect America.  A small wedding photographer with a few employees does the same thing, only on a smaller scale.  Without companies, there would be no jobs. Arguing they do nothing for the country is just wrong.  It's an old socialist or Marxist myth.

[Alan Klein]

Isn't that self-contradictory. First you want manufacturing to return to the US (although it never actually left, the US is still the world's 2nd largest manufacturer) but then criticize Japan for trying to do the same thing.

But I think your notion that low salaries will bring manufacturing back to the US and that that is a good thing is a bit off. Bringing low-paying wages back doesn't help the US, it just makes it one of those third world countries that others outsource to. And it's not clear to me how those people with lower wages will be able to live in a high cost society unless everything else gets depressed to, real estate rent, etc. That's pretty bleak. Why do you want to transform your country into a developing nation? Doesn't make sense to me.

Governments like Japan or any other shouldn't pay for companies to bring manufacturing back to their countries.  That's government picking winners and losers.  If government wants to help, they should lower taxes and spending and leave more money and resources in private hands.  Then let the free market decide.

I don't want a poor America but government is causing that with high taxes, debt and inflation.  People will take lower paying jobs to eat.  So some manufacturing lost to cheaper labor overseas will return to this country.  Our standard of living will decline mostly due to our own greediness of wanting so much stuff for "free".   There's no such thing as a free lunch.   Europe and Canada are not immune to these difficulties.  No one is.

[Alan Klein]

Nobody wants to transform USA and Canada to a developing nation status, but the reality is that in the past many unionized employees were overpaid, and that won't be sustainable in the future.

Climate control spending will decrease as government drops expensive support programs.  With fossil fuel energy getting even cheaper, oil's below $30, there will be less incentive to move to renewables.  Interestingly, the air and CO2 will get better because economies are contracting.  I've driven maybe 30 miles in three weeks.  Allstate Insurance is giving rebates on their car insurance because there's been so many less accidents.  It seems Covid is saving lives on the road.  Go figure.

[LesPalenik]

Climate control spending will decrease as government drops expensive support programs.  With fossil fuel energy getting even cheaper, oil's below $30, there will be less incentive to move to renewables.  Interestingly, the air and CO2 will get better because economies are contracting.  I've driven maybe 30 miles in three weeks.  Allstate Insurance is giving rebates on their car insurance because there's been so many less accidents.  It seems Covid is saving lives on the road.  Go figure.

Warren Buffet (and other insurance companies) noticed that already a month ago. Several US insurance companies are giving to the drivers back part of their premiums.
Unfortunately, Canadian insurance companies use this windfall only to grow their profits without sharing it with their customers.

The outbreak is also hitting the highways, with Berkshire Hathaway-owned insurance company GEICO seeing fewer accidents.

"I can tell you one thing that's kind of interesting. We have seen in the last two weeks, for example, fewer accidents reported," he said, noting that they usually get about 20,000 reports per day. Buffett added, "So we know when people are driving, yeah, that's the one that's got a lot of reporting being done. And in the last ten days, people just haven't been driving as much. And it's noticeable that — now, you have to make that weather adjusted and all kinds of other things, but people have changed their behavior."

https://ca.finance.yahoo.com/news/warren-buffett-says-geico-sees-fewer-drivers-on-road-125809697.html

[chez]

One real problem coming up real soon is the difficulty of importing foreign (mostly Mexican I think) farm workers. North American farms rely on that labour. I believe Canada is looking for ways to expedite the work Visas for those essential workers.

That's one thing I don't understand why with so many unemployed today, why do we have to rely on foreign labour? Can't we get some of those unemployed back working?

[Robert Roaldi]

Nobody wants to transform USA and Canada to a developing nation status, but the reality is that in the past many unionized employees were overpaid, and that won't be sustainable in the future.

I don't want to make a big thing out of this, especially because there have been many cases where union actions were beyond the pale, and I'm thinking primarily about ties to organized crime.

But I have a problem with blaming high union wages for everything. How come greed is good, but suddenly bad when an hourly worker wants more? In the approximately 30 years it took for General Motors to go from No. 1 to oblivion, the bonus-receiving management continued to build cars that no one wanted. But when the end came, the business press blamed the high cost of union pension and health benefits. I never heard one voice suggest that the bonuses paid to the management over that time should be paid back though. Funny, isn't it?

So when things go well, people take the credit and pay themselves well, when things go bad, it's someone else's fault? I don't think so. At every step of the way, that management agreed to all those union demands.

Then Honda and Toyota moved into North America, hired those same people, paid as well as they earned before, and everyone did quite well, not because there were no unions but because people wanted to buy those cars.

Every time a union gets a wage demand that people don't like, just remember that a management team agreed to it. Somehow this gets forgotten for some reason.

I am certain that you can find many egregious examples of union greed. And every time you come up with one, I'm going to point to the 2008 bank bailout. And the handouts to Bombardier. And subsidies to other industries in bad times, as if they weren't supposed to be making their own disaster plans. I'm sorry but blaming the unions is an order of magnitude too facile.

[Robert Roaldi]

That's one thing I don't understand why with so many unemployed today, why do we have to rely on foreign labour? Can't we get some of those unemployed back working?

Because people probably don't analyze numbers very well. We all quote high unemployment but is it real. Why is it that every labour market study in the last 20 years have all repeatedly pointed to a growing labour shortage in Canada in all sectors and that we had better plan our immigration better because otherwise there won't be enough people working.

There may be some Uber drivers and waiters unemployed right now but is it really feasible that they suddenly all move to farm country and start working in the fields? My guess is that the farmers don't want them anyway because they already have a large well-trained workforce waiting to fly into town that they already know and trust.