Economics

World Won’t Be Much Different After COVID-19

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Low Income Workers Usually Get Hurt

A non-consensus viewpoint is in this cycle the lowest paid workers will get hit less badly than they usually do in relation to the rest of the labor market. As you can see from the chart below, the bottom 50% of workers by net worth had the biggest decline in real net worth. In fact, they didn’t get back to their pre-recessionary peak until 2019. That’s even though we just had the longest expansion in history with the lowest unemployment rate in decades.

That only managed to give small gains to the working class. That’s why even though the stock market was high and unemployment was low, many argued the Fed shouldn’t hike rates in the late 2010s. If there isn’t inflation, allowing the labor market to stay full and generate significant wage growth makes sense. In the short periods at the end of expansions, the working class does the best. 

Median workers make big gains then which is why extending that period even a few quarters is hugely important. Fed was just about to avoid a recession as the economy was starting to accelerate in 2020 after bottoming in 2019. 2020 would have been an amazing year for workers, but COVID-19 catalyzed a deep recession.

This recession for median workers won’t be as bad as the last one because of the extra $600 per week in unemployment insurance people got. A side effect of the bailouts in 2008 was higher stock prices. Bankers did better than they could have done. This time most workers who make less than $20 per hour got an added benefit of getting paid more to stay home then to work. This is a huge difference. 

If people can start getting their jobs back within the 4 month period this extra $600 lasts, there won’t be as deep of a loss to the bottom 50%’s net worth. The top 1% will still do better especially if stocks continue to rally quickly. Policy makers learned from the last recession. This made them more generous with helping workers. Another motivating factor in helping people is the government caused this by forcing people to stay home.

To be clear, this situation wasn’t managed perfectly. Small businesses haven’t gotten the loans that turn into grants quick enough and many people haven’t gotten their unemployment checks yet. Criticisms are valid. If the data supports this claim, then we could see more government help to workers in future recessions than we have historically seen. I

t’s a lot easier and cheaper to give people money in recessions, then to help them recover after them. It’s easier to prevent someone from breaking a bone, then helping them heal it. Buying a biker knee pads is cheaper than having to pay a hospital bill.

Will Business Change Forever?

Personally, I am a big believer in the economy getting mostly back to normal. Whenever it becomes safe to live like we did a couple months ago, we will likely act almost the same. Calls for everything to change forever are too grim. It generates attention to say everything will change because it leverages people’s fears. That being said, on the margin there will be some changes and more preparation. We’ve also seen support for some things to not shift online.  

There will be more preparation by government officials in case another pandemic occurs. As usual, the government will overcompensate for its previous failings to make sure we are better prepared for a future event. There is extreme political support for better systems to be put in place. This is similar to the few years after the 2008 financial crisis in which there were added regulations to prevent another banking crisis. 

Ultimately, some rules went too far. Human nature made it much less likely to see another housing bubble anyway because people don’t make the same mistakes right away. This situation is different because while a housing bubble wasn’t going to happen right after the last recession, it’s possible another pandemic occurs soon. These are unpredictable.

Changes at the margin could be more people working from home and increased video conferencing. There already was a trend towards more video conferencing because it’s much cheaper. This virus caused companies to rapidly improve their products to handle all the users; security was improved as well (Zoom). The chart below shows the percentage of employees that will be brought back to work once offices are reopened. 

As you can see, 34% of employees will be allowed to voluntarily come back to the office or continue to work from home. For the people who like working from home, they might be allowed to stay home more in the future. Some parents had a tough time working from home with their children also home. Once children can go back to school, it will become much easier to do so.

This brings me to my final point. Many of the changes we were forced into are far from permanent. Specifically, online schooling for children isn’t good enough. That’s nothing against home schooling. Having a teacher not present won’t work at any point in the near future. Children will be in schools with a teacher present and other students around for decades to come.

This entire shutdown was like a stress test for the internet to see what will and won’t work. Many things worked well. However, I only foresee trends that were already in place continuing. We won’t see a wholesale change in human behavior. 

For example, there was already a trend towards online shopping. That will continue. Before this shutdown, people were already predicting online shopping to make up as much as a quarter of retail sales. This shutdown will cause a bump in online sales as a percentage of total sales, but it will return to its long term trend. 

The post World Won’t Be Much Different After COVID-19 appeared first on Theo Trade.

Source: First Rebuttal

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