I understand that it is hypothetical, but I am looking for actual answers rather than opinions. (Is that even possible with this question?) But I would like to understand the concern/worry that people are expressing if the epidemic goes on for months. What does it actually mean to “destroy the economy”? Is this a bit of “the sky is falling”? I know that a lot of jobs will disappear, but won’t many of them return when health begins to return? Money? The government seems to print money when it needs money. Banks have money. I mean, I know I’m ignorant of all this, but that’s why I come here. Any relatively simple answers?
“The economy” isn’t about money. Money is just one way of keeping track of what the economy does. The economy is about the exchange of goods and services. All of those people who are out of work right now, produce some good or provide some service that other people want or need. Right now, those goods and services are not being produced or provided, and that has consequences. It’s not as simple as putting more money into the economy, because it was never about the money. The way to fix an economy is by producing more goods and providing more services.
Since as you recognize there is no clearly defined meaning to the term, let’s move this to Great Debates.
Colibri
General Questions Moderator
A lot of the jobs that have been temporarily shut down are in the service economy. The money that would have been earned by them is permanently gone to the people who had those jobs. You can’t eat the restaurant meal that you would have gone out for this week two weeks from now. The restaurant owner, cooks, waiters, and so on will earn less this year no matter what happens.
Worse, that reduction in income has effects on the rest of the economy. When a lot of people are out of work and have reduced income they won’t buy the goods and services they might have otherwise, particularly goods and services that aren’t strict necessities.
Just look at professional sports.
As far as necessities go, they are close to the bottom of the list, and yet it’s a multi-billion dollar business - that is being shut down by this.
When people are worried about having a job, they aren’t going to be spending money on going to sporting events, even if they were being held.
So, that’s an enormous amount of the economy that is being hurt, and not likely to recover very quickly.
There’s three different questions here:
- Loss of money,
- Loss of jobs, and
- Destruction of the economy.
As Chronos has said, the ecopnomy isn’t about money. Money is a way to facilitate the exchange of goods and services, but fundamentally it’s the goods and services the economy is about. You cannot eat money, live in it, or drive it around, but you can buy food, housing and transportation.
Printing or creating new money can help an economy a bit, by encouraging people to borrow and invest in new business, but only to a point. Money represents the total value of the goods and services it represents so beyond a certain point if you are creating new money you’re just causing massive inflation, which is very bad.
Loss of jobs is VERY bad. You are right in that eventually that problem will go away; it went away after the 2009 recession. It’s very bad while it happens, though, and the extreme possibilities of this disaster would cause misery and hardship for years. Sicne World War II, the US unemployment rate has topped ten percent for an annual average only once, in 1982. 10-11 percent is really, really bad, but this could go to 15 percent or worse. That would cause at least several years of real hardship and poverty.
beowulff uses the example of pro sports, which are pretty much shut down. No one feels bad for millionaire athletes, but for the countless working class athletes and support staff this is a disaster, and pro sports is actually not that big a business; the National Football League, the richest pro sports league there ever was, between all its teams makes less money in a year than HUNDREDS of American corporations. The impact of a serious slowdown to a company like DuPont, General Motors or Procter and Gamble, all of which are as big or bigger than the entire professional team sport industry in the USA, is obviously way worse.
What people are very afraid of is total economic collapse - that is to say that the economy ceases to function at a basic level. The economy was bad in 1982 and 2009, but it still worked. Most people had jobs, stores had goods, people had food. The supply chain functioned. The tax base kept the apparatus of state working. If we try to all stay home for the rest of the year, or if COVID-19 was even worse than we thought and killed millions of people every month for a year, the economy would literally stop functioning; you would not be able to buy food, or utilities would stop working, or some ill-advised effort to print money would result in hyperinflation. Governments would fall and wars would break out.
But it almost didn’t. “Destroy the economy” usually means creating a vicious cycle or feedback loop where businesses close, jobs are lost, demand for products drop because no one can afford to buy them, causing more businesses to close, so on and so forth. If it gets bad enough, there simply won’t be goods or services available.
Keep in mind, we also need the economy running so that companies can continue to perform research and manufacture critical medical supplies. So it’s not simply an “either / or” choice.
I like analogies, here is an analogy that might help.
I grew up in a northern state that had winters. After I finished school, I moved to a southern climate. Once, one of my co-workers, who grew up in the southern climate, asked me, “So, what happens when it snows really bad there? Does everything just shut down?” I thought for a bit, and then answered, “Not really. See, there are still fires to fight, and people still need to get to the hospital. So, we need to get the roads cleared so the fire trucks and ambulances can get through. Then, once the roads are cleared, everyone else can get through too, so life goes on pretty much as normal.”
The economy is the roads.
When you talk loss of jobs, you have to distinguish jobs lost temporarily, like in the car or airline industry, and jobs lost permanently, when the company goes bust. The research I saw from an investment company seemed to assume job loss was temporary, and workers would be swiftly reemployed when the virus subsides. I think a lot of job loss will be in the latter category - that restaurant that closes, that company that goes bankrupt.
Keep in mind you can start a recession purely on the fear of a recession. If people think financial hardship is coming, they pull back, they don’t plan that vacation, they eat out less, they order fewer things on Amazon. When millions of people do that, then a percentage of people lose their jobs and they really pull back on spending because they don’t have a job. Then millions of people here that jobs are being lost, so they spend even less. Its a cycle. And that didn’t’ even have a nasty epidemic to start it.
It is not hard to believe that this could be a blow that could replicate the great recession (2008) again. Different event, similar end result. High unemployment, companies that were already deep in debt go down, fear of deflation, etc.
It is easy for the country’s leadership (with or without reelection concerns) to look at this and say, for every week we put a pause on the economy, the worse and worse the economy will be.
You can’t ignore COVID and say everything back to normal because that would be terrible on one side. However, you can’t pause the largest economy of the world until every last COVID case is cleared up, because that would make the great depression look like child’s play. In between those extremes is the best answer and that is not an easy call.
Which highlights the need for debt relief, loan guarantees, eviction abatement, and unemployment and basic living subsidies to people in need or economic crisis in addition to subsidized or free medical treatment to encourage people not to try to wait out a critical case of illness. Nearly all of the losses we are experiencing now can be recovered because there is no real loss of infrastructure or essential goods (although there will definitely be a long term effect on many service jobs) but this works only if people feel secure right now. When you see news stories of people having utilities shut off or being evicted, it is a symptom of the desperate fragility of our current systems, and homeless shelters and food banks can’t even begin to make up the difference.
This is not a time to stand on some kind of ideological principle about how people should just take care of themselves, or the market will work it out, or whatever self-serving bullshit you got from an Ayn Rand novel. This is a collective problem for the entire world, and it needs broad, expansive, and practicable solutions that can be affected right now.
Stranger
We weren’t anywhere near that point in 1982 or 2009. This crisis, if sufficiently screwed up, could bring us there. Normally I’d say there’s no chance of it getting that bad, but the world’s largest economy has a moron as its head of state and a gang of criminals running the Senate.
During the great recession we lost millions of jobs, and it took almost ten years to get them all back. The unemployment rate didn’t go back to 2007 levels until around 2018 or so.
I mean, we’d have to create a million jobs a month for us to be back on track within a short period of time. I don’t know if that kind of job growth is realistic.
Also I agree, a lot of businesses will close permanently. A lot of restaurants and things like that are going to go under and stay under.
The data would eventually show a recovery; it would also show widening inequality. But what that data would be less likely to show is how some people essentially get pushed from having a chance to stay in the middle class to being in poverty for the rest of their lives. Bootstrapping is kinda overrated bullshit. Makes for a great TV documentary on A&E, but for most of us, it’s not reality.
I would say that it was worse in 2009 because there was a fundamental problem with the way our banking system worked. Left unchecked, you had the risk of other financial services companies like AIG going the way of Bear Sterns and Lehman Brothers. Unable to obtain financing, you would then have companies large and small suddenly unable to make payroll. There was a real concern about a cascading failure of not just banks but all kinds of companies.
There isn’t anything structurally wrong with our economy now (at least, not any more than usual). Things are just on hold while we figure out how long we want to try to wait this virus thing out.
And it’s been a week and a half. Companies don’t just go out of business in two weeks.
There are many jobs that need doing. Always have been. When people lose their jobs because a factory, business or part of the economy no longer needs those goods or services or not enough of them to keep so many people employed, they will have to look to other positions. What did buggy-whip manufacturers do when those companies went out of business? Did the people just stop working? I doubt it. They found other lines of work. Many new positions will require training. At some point, then, new jobs or positions will open up and newly trained people will be able to fill those positions. One example, we do not have anywhere near enough immigration workers of all types - from judges to court workers to clerical workers to social workers to security workers. The government should hire people to train people to do those jobs. Two problems solved: jobs for people who needed one and improvement in our immigration system. Another example: everyone hates calling a company and getting those damned menus: If you want xyz dial 1, if you want abc, dial 2, etc. Companies have automated the job of operator because it saved them money. It’s harder for customers, but they don’t care because it’s cheaper. The company needs to hire people for those jobs. Maybe they get a government boost of some sort for hiring new people. It’s the way things worked after WWII. The government spent money to get people trained and back to work. The GI bill, etc. The economy is going to change. Society is going to change. Here’s a chance to guide those changes. I bet most people can name a zillion jobs they think should be manned by someone. De-automate society and put people to work.
It seems to me that what most Very Serious People mean when they say “We may destroy the economy” is really “The economy in its current configuration advantages me greatly and to have it change substantially means it’s terrible FOR ME and is therefore globally terrible for all.” That’s not strictly true, though. We have a really bad virus to wait out and the smart thing to do is to continue the form of the current economic system in a reduced scope in order to facilitate that. If we do things like global debt jubilee (for humans, not corporations) and a rent freeze (for humans AND corporations) and a mortgage freeze (for humans and corporations) and a stipend for necessary living expenditures (for humans only) then we do indeed just slow it all down to a crawl in order to let us hunker down and get better–pretty much the way an individual organism behaves when it’s direly ill. When you have a bad case of flu you no longer care about perfectly folded laundry, whether or not your car is clean or the TPS reports from work because your focus has drawn inward and your processing capabillity is being used solely to survive. When you feel better, you expand your ability to do the things.
Corporations squawk that this means they won’t survive–well, no, they’ll just be operating on a lower and slower scale for a while. Transportation will drop significantly but manufacturing and health care will be booming. Once things level out and we can all think about something over and above bare survival then we’ll add back in the businesses and activities we find essential and desirable. Even if Company A goes under, if Company A’s functions are necessary then Companies B, C, D, and so on will spring up to take over those functions. If Company E goes under and nobody in the post pandemic world sees a need for its functions then it will stay dead–too bad for those who own it, but it’s just a necessary market adjustment. I’d guess that all the businesses that need subsidies to remain afloat might actually be functions society doesn’t really need or want any more but that are being kept alive by artificial means–like a lung patient on a ventilator, really.
They say the banks are too big to fail but if that’s true then they can’t fail. They’ll fail if they’re badly managed, or do things that nobody wants or needs done and don’t do what people do need done. The ones who’ll be disadvantaged by that are the ones taking advantage of all of us right now with their very existence.
People need to eat, they need clean water to drink, they need a place to live, and power to facilitate their lives and to be healed when they’re sick. They need their kids to be educated, and a way to keep track of who owes who what and public safety and entertainment. Maybe we just need to adjust our ideas of what those things mean and how we want them to be to suit the majority of actual humans, rather than continue to prop up a system that obviously benefits the very few at the vast cost to the many. Maybe it’s time to fix that.
Because this virus is going to disrupt the holy fuck out of basically everything, it’s naive to think it won’t, and once the Lego castle has been reduced to rubble is it actually a requirement that you rebuild that exact castle the way it was? Maybe something else would be better, I think it’s worthwhile to think about that and push for systems that work for more people than just a few elites. Because fuck those people, seriously.
We still don’t have a ‘Like’ button on these boards, do we.
We really need a 'Like button
Yes, there are times when ideologies and normal expectations have to be put aside to deal with emergency situations.
One would be seen as nuts if all of the sudden they grabbed the garden hose, walked inside and started dousing everything with water.
One would also be seen as nuts if the house was on fire and they stopped the firemen from coming in and dousing everything with water.
At a time of crisis it’s a waste of time and a dangerous distraction to squabble whether abnormal situations should be taken as benchmark for policies to be applied during normal conditions.
2009 was worse because there was so much bad debt that we had a genuine crisis in confidence. Modern markets depend a lot on lending, and they can’t work when people have no confidence in getting paid back. In 2009, all of the big houses were exposed. Confidence totally collapsed. Credit froze. Liquidity was zapped. The only thing people still had confidence in was the public sector’s ability to pump liquidity back into the markets.
In 2020, we don’t have a confidence problem so much in the private sector; however, we increasingly have one in the public sector. People are less confident that governments can work together to coordinate a global response to a global problem. People are less confident now that political factions can put aside differences to craft stimulus packages that work effectively. More to the point, in this particular situation, we may end up having a loss of confidence in the ability of officials to put aside politics to stop a once in a century contagion - and that would be disastrous.
The longer the the health crisis continues, the greater the health toll will be. And the greater the health toll, the greater the economic toll. People will end up losing faith in their government’s ability to deal with both the health and economic crisis. That’s how political unrest starts.