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Some Predictions about Downstream Effects of COVID-19 Shutdown: 1

May 20, 2020 12 comments

Since I have been recently writing a lot of posts about the COVID-19 shutdown (link 1, link 2, link 3, link 4, link 5, link 6), I thought it might be a good idea to write down some more and specific predictions about the downstream effects of COVID-19 shutdown. So here are some of them, in no particular order of importance or significance. Just so you know, most are pretty depressing.

1] As I have mentioned many times in the past, jobs in the service sector dominate the economic landscape of post-industrial western countries. Just think about how many people you know who work in a place which makes a real physical product or processes some raw material vs all those who work at some shop, mall, hotel, restaurant or something similar. But this goes even further, as the largest employers in most towns and cities in this country are either hospitals, universities or school districts. While these more “credentialed” jobs might seem to be something other than service sector jobs- they are just that and you will see why that matters later in this post.

While jobs in the service sector might seem too heterogeneous to be hit by the shutdown and its aftermath, they share some common features that make them especially vulnerable to economic disruption. Firstly, majority of business in the service sector operate on much low margin of profit compared to some other sectors. For example, there is no service sector equivalent of Apple or Microsoft with a few hundred billion dollars stashed into overseas accounts and obscure financial instruments. In other words, consumer sector businesses and employers lack the very deep pockets of corporations in other sectors.

Secondly, as a partial consequence of the first, they are heavily dependent on highly predictable levels of businesses activity and are usually (especially in west) financially over-optimized to the point that they cease to be profitable or even viable when capacity utilization levels are not close to maximum. This is a fancy way of saying that restaurants, bars, hotels, airlines, most shops in malls etc become money pits if they are not operating at close to their maximum capacity for a good part of the year. FYI- this is less of an issue in some Asian countries where the proprietors often own the premises and are not so heavily financially leveraged.

But why does this matter? Well.. because even if they can survive a couple of months of being closed down due to helicopter money from the government, they are just not viable if forced to operate at 25% or 50% capacity for even couple of months. Sure.. restaurants which do mostly takeout (pizza joints, chinese) might survive, but the vast majority will simply close it down because there is no way a sane person would operate, for more than a couple of months, under poorly thought and uncertain regulations made up by bozos without any skin in the game.

And it gets worse.. the service sector is far less monopolized than other sectors of the economy, and the majority of business in it are either small or medium sized. Given that government largess seems to preferentially benefit the large and politically connected in every sector, it is likely.. almost certain.. that many small to medium sized businesses will go bankrupt or close forever. What makes this outcome especially problematic is that those business account for the majority of jobs in that sector. In other words, we will a large rise in long-term unemployment in the very societies which have decided (about four decades ago) to abandon their economies to the “free market” aka financialism and monopolization by choice.

To add insult to injury, the vast majority of people in this sector are under 60 years of age and therefore the least likely to die (less than 1 in 1,000 chance) from COVID-19. And here is what will happen next.. tens of millions will be unable to pay their rents, mortgages, student loans, car loans etc for a prolonged time. Of course, trying to throw so many people on the street and out of their cars will have some very nasty political repercussions- more so because the majority are young. Some of you might say.. but what about unemployment insurance? Well.. that amount paid by most western countries (but especially USA) is not adequate for covering majority of their bills- more so if you live in a medium to large city.

And it gets worse…

2] The whole “social-distancing” and “quarantine” bullshit along with dubious measures such as requiring everybody to wear mask in public perpetuates the atmosphere of a perpetual crisis. I liken these measures to the security theater we saw in USA after 9/11- but with the potential to cause infinitely more economic problems. Think about it.. would you eat out at restaurants with same frequency as before if you server was wearing a face mask and every alternate table was closed off with big stupid stickers? Would you go to a pub as often? What about a movie theater? What about shops in malls pestering you to disinfect your hands every time you walked into them? Would you buy as many clothes as before if you couldn’t try them out in fitting rooms?

What about airlines? would you take a flight as often if you had to deal with all that bullshit? What about vacations? Would you stay at hotels as often even if you still had a job? And all of this security theater for what end? To maybe slow spread of a highly infectious disease with an gross population IFR of less than 0.5% and mostly problematic in people over 70 and 80? A disease that does not cause symptoms bad enough to seek any medical attention in over 90% of those infected. A disease that is functionally asymptomatic in most people it infects? A disease that the vast majority recover from without any therapeutic intervention or long-term sequelae.

The vast majority of disease control measures deployed to stop this pandemic are closer to ritualistic virtue display than good science. Consider for example, face masks. Do they benefit people under 70 to the same extent as those over 70? And given the highly infectious nature of this disease along with very low mortality in most age cohorts, isn’t it a good idea to let non-vulnerable people get the illness and recover from it. thus conferring them immunity than wait for an effective and safe vaccine- which will likely take at least a few months. Now let me ask you another question- do you think I am the only one thinking along these lines?

It is becoming increasingly harder to maintain lock-down in many parts of the world and while those regions might suffer more death at first- it will become increasingly obvious that letting people under a certain age get infected while protecting the more vulnerable minority is the least bad option. Notice I said ‘least bad option’ because there is no realistic good option in the near future. You are really choosing between options that front-load death or those which spread far wider economic misery over a much longer time-scale. Personally, I choose the first and you can be sure that the majority will eventually choose it because the second one sucks far more.

Noe let me ask you a related question- what happens to the credibility of the people and institutions who pushed the second option. As many of you know, it is my opinion that Trump’s rise of power had a lot to the non-recovery of most people from the GFC of 2008 and continued neoliberal policies under Obummer. Imagine what such a crisis and much bigger repudiation of “credentialed” people and institutions would do for the political scene in this country. You might remember that in a previous post I made the case that rise of fascist and strong-men type leaders in continental Europe during 1920s and 1930s had everything to do with high rates of unemployment among men combined with a repudiation of the elites who led them into WW1.

You think Trump is bad? Just imagine the type of right-wing ‘populists’ that will arise in response to these stupid and ruinous lock-down policies. In future posts of this series, I intend to write about the impact of these stupid policies on schools, universities, future of “left”, effects on certain parts of manufacturing sector, municipal bonds, velocity of money, effect on rates of drug use and much more. But before I finish this post, let me say something else. If you think that a crisis of this extraordinary magnitude will make corporate-owned western governments question their faith in neoliberalism- think again.

And another thing.. this crisis will destroy whatever residual faith people in many countries still have in the WHO- but that is the topic of another post.

What do you think? Comments?