On Wednesday, I talked a bit about the extent to which some decisions made during the pandemic are “final” or at least semi-permanent.
A common refrain among market participants is that once an effective vaccine is discovered and supply / demand hurdles to vaccination are cleared (supply issues include the challenges associated with large-scale production and distribution, while demand concerns center around convincing the public that a shot is safe), society will be on the road to “normal”.
I’m not sure that’s the case. And neither is SocGen’s Solomon Tadesse. “To return to pre-pandemic modes of behavior, it also takes time for people to change the psychological imprints left by the pandemic”, he remarked over the summer. “These include altered behavior related to in-person communications, public transportation, and social interactions in general, which are the springboard of economic activity”.
Read more: When Is A Silver Bullet Not A Silver Bullet?
Somewhat disconcertingly, it feels like many Americans (and I count some politicians in this group) don’t care too much about this because work-from-home arrangements are actually quite agreeable, assuming you enjoy the company of any significant other who’s also working from home.
While it’s doubtlessly true that there are deleterious side effects (some of them very bad) to prolonged stay-at-home orders, being compelled by the state to stay in your home is something entirely different from being allowed by your employer to work from your home. The former could be conducive to all sorts of bad things including depression (and worse), while the latter might just mean not doing much of anything until you have to conduct a Zoom meeting, at which point you rearrange the home office to make sure a bookcase and flowers are visible in the background, throw on an collared shirt, and pretend like you’re wearing pants (you’re not, though, and neither is anyone else on the call).
It goes without saying that these kinds of arrangements aren’t available to many middle- and lower-income workers. Depending on what kind of “services” job you may have had, “work from home” has no meaning. If you’re a bartender or a cook, for example, you can’t “work from home”. “Working from home” for a bartender is just called “getting drunk with your friends”. That’s not an occupation that usually pays well.
The thousands of people who are on the verge of losing their jobs in the airline industry can’t “work from home” either. And neither can the hordes of Goofys and Minnies (“cast members”, as the company described them) who were laid off by Disney this week.
It was evident very early on in the pandemic that this was going to exacerbate inequality. Note the date for the survey visualized in the figure below.
This is what’s driving the so-called “K-shaped” recovery, which Bloomberg helpfully defines as a “wildly uneven” conjuncture, in which “more than 13 million Americans are unemployed [while] many others have been able to work from home and some are actually richer thanks to a surging stock market and housing boom”.
“The evidence for a K-shaped recovery is still compelling. Those who are able to flee to the countryside and buy those lovely new homes and work remotely have never had it so good, in a way”, Rabobank’s Michael Every wrote Thursday. “Those who have lost their jobs don’t know how they will get a new job, and remain stranded, have rarely ever had it so bad”, he added.
Of course, because that latter category includes traditionally marginalized groups and those who were already struggling prior to the pandemic, there’s a pernicious tendency in a society that has learned to tolerate (even celebrate) wealth inequality to simply move on. After all, “the rich get richer and the poor get poorer” has been a defining feature of the American economy for decades. So, the “new” normal is really just the old normal, except that with social distancing, you can only spit at the poor not directly on them.
Headed into the pandemic, inequality in America was already trending to levels last witnessed during the Belle Époque. This trend isn’t likely to reverse no matter who wins the November election.
There is some evidence that white collar jobs are starting to go too. Goldman is poised to resume firing people after a prolonged pause, for example, and JPMorgan will shed hundreds of positions. Allstate is slashing 3,800 jobs, the company said this week.
Still, total, gross bank job cuts don’t appear set to approach anything that looks anomalous. Bloomberg did the math on this. Announced bank job cuts in 2020 amount to 67,844. That compares to nearly 80,000 in 2019 and more than 90,000 in 2015. The vast majority of the cuts are in Europe. As for Allstate, the position reductions are actually tied to a corporate revamp announced last year.
None of that is to downplay the plight of anyone who loses a white collar job (or whatever we’re calling a “white collar” job in 2020), it’s just to say that the economic burden of the pandemic has been disproportionately shouldered by the poor, the lower-middle class, and small business owners, all of whom were hit early, hard, and, in many cases, suffered irreparable financial damage in the process.
Importantly — and I don’t think this has registered with most people quite yet — the more entrenched the new reality becomes, the harder it will be to go back. Job cuts at airlines, Disney, and restaurants, are all indicative of the old economy being dismantled in real time.
I’ve mentioned this before, and I’ll reiterate it here: De-urbanization, if it accelerates, will mean entire downtown ecosystems in large cities simply die as clientele disappear forever. Many of those businesses operate on razor thin margins with almost no capital cushion, to speak of. That’s not always the fault of the business owner — it’s just the economics of certain types of businesses.
“It’s the first day of the rest of the year… (and the fourth quarter). The market is now seven months into the work-from-home epidemic with apparently limited urgency to return to any pre-pandemic norms”, BMO’s Ian Lyngen, Ben Jeffery, and Jon Hill wrote Thursday. “Setting aside the lost commuting opportunities, the novel normal which the economy has settled into is beginning to reveal one of the major downsides: A fresh round of layoff announcements including Disney, American Airlines, United, and Shell — just to name a few”.
That echoes the discussion from the “Silver Bullet” piece linked above, right down to the “commuting opportunities” reference. Lyngen goes on to note that it’s not just the expiration of bailout programs that are prompting the job cuts. He also mentions “the implied permanency of the shifts in consumption patterns both domestically and abroad”.
And even it was just the expiration of the pandemic assistance programs, what does it say about industries when they need to be propped up by the government beyond, say, a six-month period? It suggests they are no longer viable for whatever reason.
Regular readers know I am avowedly in favor of additional financial help for pandemic-hit industries and sectors of the economy. The problem is this: Even if a pandemic is nobody’s “fault”, it’s impossible to lean against a permanent shift in economic behavior forever.
If people are reluctant to revert to pre-pandemic behavior, and the economy begins to cater to consumers’ new preferences (which it will), then propping up airlines, restaurants, small businesses, energy companies, and theme parks will just be throwing good money after bad. And that doesn’t change through an MMT lens, by the way. Just because you realize that government spending isn’t constrained by arbitrary “thresholds” for debt and deficits doesn’t mean that watering a dead tree is going to produce any results.
This is all rather grim, I realize. I sketched out one possible future last month. I’m not satisfied that enough people read “Collapse Art“, so I’ll reprint a few passages here:
Ghostly, deserted business districts (where the best graffiti on plywood shopfronts is cut from its “canvas”, harvested monthly by opportunistic curators hoping to create a new genre of “collapse” art) are ring-fenced by high-density, low-income, “left-behind” communities, where the population lacks the wherewithal to flee the city.
Asphalt veins and arteries, once heavily-trafficked, are used twice per day: Once in the morning, when commuters employed by firms with operations in the cities begrudgingly enter the bleak, urban abyss, then again in the afternoon, when the same workers flee promptly, stopping only for the mandatory, 15-second COVID screenings set up at what, in better times, were toll plazas.
An outer-rim of Walmarts, Targets, home improvement stores, and strip malls retooled to cater to the now teeming suburbs serves as a buffer zone between dead metropolises and an endless sea of cookie-cutter, “Truman Show” communities, hastily built to accommodate the exodus.
Meanwhile, tech companies will continue to accumulate data and thereby power. Their founders will become supermen — autonomous global actors accountable to no one.
As far as public discourse and polarized politics go, the future seems particularly bleak. “You thought we had a polarized society before COVID? Now we won’t even have to physically interact with each other so much”, Rabobank’s Every remarked, in the same Thursday note mentioned above.
Every continued: “Never the Twains shall meet. Literally. Sorry, Mr. Twain, but you can’t go and visit the other Mr. Twain, because he’s on lockdown. This will do wonders for our politics. All over”.
Thanks as always….
The Scandanavian countries have it right. The emphasis needs to be propping up individuals rather than industries. That allows people in a country to be more willing to let the market and competition function to retire industries that are no longer viable without creating as much of the social angst and populism we see in America now. That said, there are still justifications for propping up certain industries which have been knee capped by the pandemic but which the country needs after the pandemic becomes a headache rather than an existential crisis. Airlines are one industry that falls into this category. But should we be propping up restaurants and gyms? Probably not. But we should be helping workers in those industries out while they figure out what to do next. We need a better safety net in the USA for people for the instances such as a pandemic take place- war- bank runs- pandemics-9/11-other major events. It will happen again.
Great comment.
“I’’ve mentioned this before, and I’ll reiterate it here: De-urbanization, if it accelerates, will mean entire downtown ecosystems in large cities simply die as clientele disappear forever.”
I believe this conclusion is probably realistic. One of the things I worry about the most is the effect that trend will have on cities. Here in KC, where the city itself makes up only about 25% of the population of the official metro area, the city infrastructure creates a large burden for the city which is getting harder to support, given the outward flight. Add to that the problems raised by COVID and a growing major crime problem, yesterday’s announcement of a large cut in the policing budget, deteriorating prison facilities and other infrastructure priorities and the future does not look too bright. Add to that a near constant attempt by the city to promote development — hotels, apartments, commercial business, etc — through the use of bonding and huge tax-subsidies, leaves the city in the unenviable position of having a huge economic overhang and falling revenue to bail out city hall. Vacancies on new properties are not rising and city revenues are falling. Finally, a bigger issue is that nearly half the SMSA resides in Kansas and has no interest in paying for KC development, even though they are glad for use of the facilities when they choose. I can’t imagine this scenario is not going to play out in NY, Chicago, and other large cities, especially those straddling state borders.
Insightful comment. Good to hear how this is playing out in the KC metro.
Great post. The recent couple of days have been deeply philosophical and dark. Love it.
Yeah. It’s bleak. To re-iterate the reader from KC, the downtown of the metro I live in is filled with the wind, empty potato chip bags, and unfortunate souls hooked on dope, wrapped in dirty blankets. Not too long ago, downtown punched like a contender for alpha status, a tier beyond its weight. I live near downtown. Banks have closed, closed. FeDex, closed. Amazon Go stores, closed. Grocery stores have boarded up windows and boards on their doors. Sure, it gets better as you go out (just like as written above). It’s going to be a grim winter.
I’m in the “everything has changed” camp. We are only now starting to sink into the gloom of what it’s going to mean when industries end and people are permanently unemployed. It will take a while to adjust. If my metro is lucky, it’ll suck up spoils and other metro cities will suffer more. Or, it could lose and sink into a depression.
I’m not going to say that this crash is going to be an opportunity, that someone will decide what to do with all the empty 12-screen theatres in the core, and the thousands of parking spots in the basements of 40-story towers. Sure, Millenials and younger will have a chance to start new businesses; but, they will need capital and will have to wait for things to get sorted out. Bigger picture, a way forward is industrial policy that funds the top-10, e.g., grid, AI, genetics, robotics, batteries, etc. We are going to need new industries. These will take time, and they do not in any way help the inequality problem and all the failed businesses now. We need to start. For the people living in the city park a 10-minute walk from my neighorhood, I don’t know. It’s bleak. I don’t know if our nation has the wherewithal right now to do anything except cope.
Life will go on, a lot of people will suffer, many, unfortunately, will be lost to deaths of despair, and it will take a generation. Grim. We will go on. I do understand that my advocacy of industrial policy is naive, naive because there is no way our elected representatives are even thinking about thinking about this. Our priorities will be more to navigate the epoch decline of our nation and avoid internecine struggles. Blowing apart rather than coming together. It’s grim.
A financial market crash would seal the animus for a generation. The Fed is in part responsible for where we are at (inequality, zombies, etc.). That said, thank goodness we have them now. We have a decent probability that we’ll avoid a financial depression.
FED policy for the past few decades is the biggest reason Millennials don’t have any capital to start new businesses. Doubly so, or triply so, as it enabled Congress to abdicate all responsibility for economic policy, and insulated the donor class from all political repercussion. In addition to a class war, this has also been a generational war, and the old have already won.
I think the causation is backwards here. Congress not doing what’s necessary on the fiscal front is what’s forced the Fed to keep monetary policy in financial repression mode. I don’t know a single Millennial with enough savings that they would have accumulated large sums of “capital” if only rates on MM funds and savings accounts had been 4% instead of 0-1%. Most Millennials (and cut me some slack on “most” here, I don’t have an exact figure) likely couldn’t come up with $20,000 in unencumbered cash if their life depended on it. Given that, the difference between 0-1% on cash savings and, say, 4-6% depending on the instrument, is pretty immaterial.
Yes, noted. To flesh it out more, I do think the causation works both ways, in a mutually-reinforcing manner. If the FED were not there to backstop every single market temper tantrum, Congress would be forced to do a better job. The FED has become Pavlov in a general sense; they’ve trained Congress and its donors just as much as they’ve trained investors. Also, more than basic interest rate policy, I was referring to their explicit strategy of inflating asset bubbles in the hopes of creating a trickle down wealth effect that might stimulating real economic growth. I think we agree that this transmission mechanism simply has not worked, because of a decades-long slack in aggregate demand. This policy doesn’t create jobs for the young (and thus doesn’t support creditworthiness, or access to levered returns, e.g. mortgages), but it has worked beautifully to pull forward what would have been their future asset appreciation to the present. It’s a question of timing and access to leverage, as much as interest rates.
Saving account are old school. Robin hoodster millennials can buy BXMT at a low end cell phone plan monthly tithe equivalent and soak up 11.29% yield (per today’s close price). Opportunity of a lifetime or value trap due to structural disruption??
Very unsettling future outlook.
I am guessing at the time of the Spanish Flu most believed that the world was changing permanently for the worse – and then….
Seems like developed nations might be entering a paradigm shift, where not as many domestic and global workers will be required- which will require creativity to solve and to set the course for a productive future for all of mankind. This will not be easy with a world population of 7.8B, but history has proved mankind to be very resilient.
I do believe that another fallout from Covid-19 and all of resulting social and economic problems and changes will be a continuation of lower birth rates, especially in developed nations. Kind of sad, as I can not image my life would have been nearly as joyful had I not had my children.
The easy answer is fiscal policy based on MMT full employment with a rethink on what a workweek is.
The consumer based economy has changed now without vibrant urban economies on the horizon. Velocity of money thrives in the urban setting. Many will be unemployable as things stood. Student loan restructure. Basic income and healthcare. Why have modern efficiencies without a modern rethink.
Trickle down has gotten us here. Trickle up is the best hope.
Free trade is a good concept- and it works as long as you provide a safety net for the dislocations it causes from time to time. If you do not protect people from the ravages of unbridled capitalism you get to this place. An oligarchy with a winner take all outcome, and a cruel racist fascist who is not really a populist in charge. It is wrong, cruel and unstable for all – including the 1%.
Do people really want WFH on a permanent, all the time basis? Is productivity the same? Do employers want the ability to visually see their employees?
I think this goes one of two ways: 1) a temporary blip, more WFH arrangements (once / twice a week) but at some point people get back into the office on some regular basis or 2) if this is permanent, then employees (especially younger ones) begin to travel and work together (spend 2 months in NY, then 2 in London, etc.). In other words, it creates a new lifestyle where “home” as we know it doesn’t really exist for some people.