The forced economic shutdown has decimated the entrepreneurial class in the US, particularly small businesses, I anecdotally know of many (non-tech) examples in my own circle of friends.
The jobs they created will not come back for the foreseeable future in many cases. It isn’t like they can just reboot with a clean slate, much of their capital was destroyed in the process. For a lot of businesses, “pausing” them is a death sentence, and there won’t be nearly as many people stepping up to replace them.
I think it will be worst for small businesses that have a strong component of physical "means of production" ownership: the means won't go away but they'll be owned by whoever happens to have access to cash at the massively parallel firesale.
Business that have been based on rented property anyways are much easier to restart and landlords of otherwise healthy businesses might lose less long term if they allow skipped rent in the crisis instead of enforcing it now and then go through a lot of idle months from fluctuation due țo a series of failing new tenants.
In the first days of the Italian lockdown I picked up some mentions on international news that they were intending to pause mortgages and rents for the time of the lockdown, shifting some of the economic burden on banks (who'd be far more practical to bail out) and the rentier class. Anyone able to chime in with more details about that? Was it just an announcement that was quickly subdued by well connected landlords? This approach sounds incredibly helpful and practical to me, but I could easily imagine attempts to put it in concrete legal terms to fail miserably.
> there won’t be nearly as many people stepping up to replace them.
Strongly disagree with the last point. If there is one lesson that I remember from the history of US -- entrepreneurial spirit is the reason this country exists in the first place. My only worry is that Google, Amazon and Facebook will use this time for huge land grabs in all niches.
Many stores that closed have already been on their last legs. And in the digital realm there can only be one winner (try beating Amazon at online sales or Google in search...) So you are right in the sense that it will be even harder for many people to step up against the tech giants - but this is a whole different issue.
Sorry, but that is a naive view. If you destroy the life savings of half the people that had the courage and interest to start a business, you’ve removed them from the game. You can’t start a business with no money. Do you really believe in this environment that millions of people will suddenly have the newfound urge to invest all of their (depleted) life savings in a small business? Many of the businesses that closed were profitable businesses in every sense. The government essentially outlawed most small businesses but left the business owners holding all the liabilities of their business. Few small business owners are wealthy enough to eat that kind of loss.
Imagine if the government unilaterally destroyed your house but left you with the mortgage. What are the odds that you can buy another house at that point? Pretty slim I’d say.
You want to keep kicking the can down the road, so that someone that isn't you will hold the bag. Because someone will hold the bag for all this, and it isn't fair. So? Life isn't fair. Pandemics happen, and the government can't possibly bail out everyone.
He's right. Add a UBI and nationalize healthcare. It's not complicated; the elites just don't want it. The ones like you.
Perhaps you can translate for me too, because I read the reply and agreed that the risk appetite for new small business owners might not be as robust given the current set of rules, which is what the commenter was saying. At least that's my interpretation. You seem to see something else in this comment.
As a result I have some clarification questions...
How do they want to "keep kicking the can down the road" exactly? Your comment about the government not being able to bail out everyone only serves to reinforce the point about the risk of starting a small business.
What do you mean by "He's right"? He's right that people will line up to start new businesses and put their diminished life savings on the line after what's transpired?
Then you flippantly say "Add UBI and nationalized healthcare", as if it's just something you add to a shopping cart and "it's not complicated". So it sounds like you assume these features as part of the assumption that people will flock to starting businesses. That's not part of the discussion at all, but it's an interesting point to discuss whether that would spur the activity. It very well might as it's the "social safety net" one would need to have more confidence.
About the only thing you said that resonated with me is "the elites just don't want it". Given the growing wealth disparity and the relative flat to down real income of the average American in the last 40 years I'd say that's a fair statement.
Your final statement comes out of nowhere as you lump the commenter into this group of elites when all they were saying is "hey man, I'm not so sure people will be lining up to risk their life savings to start a small business".
Care to try again with a gentler, more constructive tone and explain how the commenter, and by extension myself, are naive with the summarized viewpoint I stated at the outset?
It's not an opinion. I'm an engineer who also trained as an economist, and I know the answers to these questions. It's just math.
It's all about the money supply. The elite want to bail out because it inflates the money supply.
You can bail in instead of bail out. Bankruptcies happen and equity holders lose, but the problem is that bankruptices reduce the money supply. Money effectively disappears when debt is restructured.
The problem we now face is that equity holders today have decided that bail outs are necessary politically. Equity is the most speculative ownership of productive capacity, but you wouldn't guess it with the way it's discussed. Wouldn't you expect that that kind of security to lose value in an unforeseen circumstance like this? The system eventually doesn't function if the government hamfistedly tries to alter price discovery to such an extent that markets stop working. That's where we are today.
So bail in. Give everyone free money. I give you an ID number and a bank account number, and I receive cash every month. That's a hell of lot simpler. Nationalize healthcare. Wouldn't a nationalized system be simpler? The lines of code per person have to be higher in a country with fifty different systems. It will cause inflation, but we don't really have a choice.
Sorry if my tone is a bit flippant, but someone has to argue for sanity here. The United States is going down a dark path in nationalizing so many USD assets. Somebody has to try to explain why.
> It's not an opinion. I'm an engineer who also trained as an economist, and I know the answers to these questions. It's just math.
Considering how many economists seem to disagree on what the proper response here is, I highly doubt it's just math.
And regarding nationalizing healthcare... That's a whole truck full of worms, and seems unrelated to an economic recovery. Couldn't you also argue that seeing the government nationalize an entire industry would decrease entrepreneurial spirit in other industries in fear of the same thing happening there?
> In a time where economists have a lot of soul searching to do
This might be true, but I don't know that there's been an obviously wrong set of recommendations yet during the coronavirus crisis. Do you have an example?
> the realists are a good place to start
This is almost certainly false - at least if you're including yourself in "realists". Personally, I'd look at the heretical economists first.
You seem to be missing a lot of other points from your analysis.
> The elite want to bail out because it inflates the money supply...The problem we now face is that equity holders today have decided that bail outs are necessary politically.
Let's check the numbers. Collective wealth of all the billionaires in the entire world is 8.6-8.7T USD [1]. Collective retirement and pension assets in just the US is 19.1T USD [2]. So it seems that commoners, relying on the retirement and pension assets, would benefit much more from a stock market recovery than the elites.
> Nationalize healthcare. Wouldn't a nationalized system be simpler?
Maybe yes, maybe not? UK / France / Italy / Germany / Spain all have public healthcare and have ~320M people between them, roughly the same as the US. And yet, their COVID-19 deaths are ~100K vs ~55K for the US when both the continents had fairly similar advanced warnings. Why is this simpler (and presumably better, from your tone) system producing a far worse outcome?
> Let's check the numbers. Collective wealth of all the billionaires in the entire world is 8.6-8.7T USD [1]. Collective retirement and pension assets in just the US is 19.1T USD [2]. So it seems that commoners, relying on the retirement and pension assets, would benefit much more from a stock market recovery than the elites.
Pensions are not equity. Pensions also usually fall very high on the cap table, saving them from restructuring in bankruptcy.
> Maybe yes, maybe not? UK / France / Italy / Germany / Spain all have public healthcare and have ~320M people between them, roughly the same as the US. And yet, their COVID-19 deaths are ~100K vs ~55K for the US when both the continents had fairly similar advanced warnings. Why is this simpler (and presumably better, from your tone) system producing a far worse outcome?
That's not really how pandemics work for one; the Milan fashion show arguably killed tens of thousands of people as a superspreading event. The US healthcare system is terrible, whichever way you slice it (cost, infant mortality, outcomes).
I'm not sure what you are going on about, you read far more into my post than I actually wrote. No policy action was promoted or implied.
My point is that the assumption that most small business owners will be able to reboot their businesses when the economic shutdown ends is almost certainly not true due to the mass destruction of their working capital. No one said anything about fairness or bailing them out, just about the unrealistic expectation that these people will be able to start new businesses, so that life will go back to normal for their customers, or that millions of people that have never run a small business will have a sudden desire to fill that gap. Many jobs will be disappearing as a result.
Another poster suggested what is likely to happen and I already see the wheels turning in my city: cash-rich investors/companies will swoop in to pick the carcasses of dead or distressed small businesses, acquiring the assets of the best ones at a steep discount to what would have been required pre-shutdown. That is a poor outcome for small business owners and will change their risk calculus going forward.
This assumes there's a choice. If there's no jobs to be had, then the choice is "sell stuff or starve".
Not all small businesses need capital to start. And a lot that did start with capital didn't really need to (I've seen so many people rent an office as their first move, for a business they could easily run from home).
To use your analogy: imagine if the government wrecked your house, but left you with the mortgage. You can't move anywhere, can't buy another place, can't rent anywhere. You'll have to rebuild from the rubble.
Nobody should be paying for COVID-19, but everyone will be. I don't think there's any amount of financial magic or government support that can rescue small businesses from an indefinite loss of all their revenue.
The odds of being able to buy another house are far higher if I had the money to pay off the first mortgage. The government literally and figuratively prints money. In trying to avoid as deep a global recession as we are headed into, it seems the government could use this ability in some fashion to help those who's houses have been destroyed, to buy another house.
Yes it costs maybe a couple hundred dollars to legally start a business. So you are correct in the most literal sense, that it does take some $ to start!
But if you have a mindset that it takes anything more than that, I'm here to tell you from firsthand experience that you're wrong :/
> My only worry is that Google, Amazon and Facebook will use this time for huge land grabs in all niches.
That is exactly what I was thinking of while reading the grandparent comment: that one of the worst things to fear from this crisis, is coming out of it into a world with further consolidation of global power into a handful of entities, and even more authoritarian governments.
The pieces are already being put into place, like contact tracing APIs, however well-intentioned they may be.
The stratification between the rulers (who can already still go anywhere and comfortably wait out a global crisis on private estates or islands) and the ruled, the monitors and the monitored, could end up being worse than any fictional dystopia.
> like contact tracing APIs, however well-intentioned they may be
I share many of the concerns you've expressed, but worrying about the contract tracing API that was recently put forward is (hopefully) unwarranted. A faithful implementation of the joint spec published by Apple and Google would preserve your anonymity until and unless you published your secret keys. Moreover, the overall design is cryptographically sound (unless I missed something recently?) and appears to be decentralized (at least in principle) so in theory you won't have to trust the behavior of any binary blobs unless you choose to do so.
Let's assume there is no technical way the contact API can be misused. You've still conditioned massive swaths of the population to be electronically tracked, boiling frog and all.
> You've still conditioned massive swaths of the population to be electronically tracked, boiling frog and all.
I don't understand what you mean by tracked here? Until and unless you release your secret keys, the numbers your phone was broadcasting are just random gibberish to anyone other than you.
If you have Bluetooth enabled in the first place, you're already broadcasting a MAC address. Many devices now rotate that specifically to prevent tracking, making it equivalent. In fact the only real differences from your device's MAC are the bit width (tracing numbers are significantly larger) and the fact that tracing numbers are cryptographically derived from an underlying secret.
As far as conditioning massive swaths of the population to be electronically tracked, I'm afraid that ship sailed quite some time ago. Cellphones inherently reveal your (coarse) location in order to operate, modern vehicles carry extensive electronics packages that phone home to the manufacturer, and a seeming majority of people voluntarily upload significant portions of their geotagged lives to various service providers.
I'm about as privacy conscious as you'll find these days, but my only concerns regarding the contract tracing API relate to battery life and the security implications of leaving Bluetooth on all the time (it seems like there's always another zero day being announced).
> automated electronic location tracking that is to be submitted to authorities
A minor (but absolutely essential) correction - your diagnosis keys are to be submitted to a database, not your actual location data. Only those who observed one of your previous broadcasts will be able to make the connection.
The notion of a mandatory app or device that tracks location in a centralized manner certainly does make me uneasy. Thankfully that's not (yet?) the reality, but (the same as you) I can easily imagine that an appeal to security might be made in the future to justify such a requirement being enacted.
But the current API, while correlated with that issue, isn't actually related to it in a causal manner. On it's own, the published protocol miraculously manages to yield almost no privacy whatsoever. Even better, none of this actually requires cell network connectivity. You could hypothetically manufacture a Bluetooth-only device (thus no location data leakage via the cell network) whose sole purpose was to facilitate contact tracing!
If we're able to achieve effective contact tracing without giving up our privacy, perhaps it will critically weaken any hypothetical future push for a mandatory app or device that could be used for centralized tracking?
Technically, "decimated" denotes the destruction of a minority subset, which is how I was using it. :)
My business is as good as it has ever been, and I do not work in any of the obvious verticals that would benefit from COVID-19, but all evidence suggests my case is an outlier.
There is precedent - losing a war. Economies do recover. Germany recovered from being bombed/burned/bankrupted flat in WW2 to become the economic powerhouse of Europe.
Other countries did not recover so well, mainly because they chose more socialist economic polices.
No, it wasn't because of the Marshall Plan. Most of the MP money went to other countries, not Germany.
It took from 1948 or so to the 1960s, less than one generation.
Germany also had the problem of wholesale death of its men of working age. The currency was repudiated. The government at all levels had ceased to function.
But there was also a lot of capital brought in from outside (which isn't quite the same as a money printing spree that happens everywhere at once) and what was left of pre-war financial elite was more concerned with keeping a low profile and pretending that they were on vacation or something like that for that last ten years than with leveraging their power into an even firmer grip. It's a very different situation and those differences could be very meaningful for the outcome.
After the 1st world war, Germany was paying crippling amounts of reparations to the winner countries. That wasn't so successful, lead to hyperinflation and the Nazi power grab. So after the 2nd world war you had the Marshall plan, debt forgiveness, and trade integration between the western European countries. This was the basis of the EU pacts that live till now.
Just to fill in the gaps. Countries in the Russian sphere of influence actually refused the Marshall plan because it would make the commies look bad. And they didn't have nearly as good recovery as Western Europe. So it probably had some effect.
The eastern bloc countries never caught up with any of the western countries. Their economies didn't really get into gear until after the collapse of the USSR.
The strong correlation of postwar prosperity is with how much of a free market was embraced.
It's the same with post-war Japan. They embraced the free market after being burned flat in WW2, and rose to world dominance by the 1980's.
Alternatively, one could argue that postwar prosperity was strongly correlated with friendly diplomatic relations with the US, the only major world power that didn't have its entire industrial capacity reduced to rubble during the war. Saying that the Eastern Bloc countries floundered solely because of a lack of a free market when they were militarily occupied by a disastrously incompetent foreign power sounds like an oversimplification to me.
It was more about central planning, collectivisation of private property, and lack of management (directors where assigned based on politics), than occupation by force. Austria was under soviet occupation till 1955, but they were still lucky to become a free market country afterwards. Romania was occupied till 1958, Hungary from 1956, Czechoslovakia from 1968. Poland and Bulgaria were not occupied after 2nd world war, but their economy was still in shambles.
The jobs they created will not come back for the foreseeable future in many cases. It isn’t like they can just reboot with a clean slate, much of their capital was destroyed in the process. For a lot of businesses, “pausing” them is a death sentence, and there won’t be nearly as many people stepping up to replace them.