What If We’re Watering A Dead Tree?

What If We’re Watering A Dead Tree?

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"
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14 thoughts on “What If We’re Watering A Dead Tree?

  1. 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.

  2. “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.

  3. 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.

    1. 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.

      1. 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.

        1. 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.

        2. 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??

  4. 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.

  5. 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.

  6. 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%.

  7. 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.

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