COVID-19 Will Wipe Out Some Old Business Models And Require Focus On New Enterprises

Illustration on the U.S. economic recovery after COVID19 by Alexander Hunter/The Washington Times

Illustration on the U.S. economic recovery after COVID19 by Alexander Hunter/The Washington Times

America’s economy is not a string of holiday lights — Washington can’t throw a switch to bring back the radiance of the 10-year expansion. Public health requires gradually increasing the lumens but even at full power, some businesses will not shine as brightly and others are permanently broken.

Crowded theaters, schools and airplanes risk re-igniting the epidemic, especially in states where governors imposed work-at-home orders early and residents have not acquired broad immunity.

Even in New York, New Orleans and other hotspots, folks who managed to go unexposed to COVID-19 are vulnerable to asymptomatic neighbors and coworkers — unless authorities can roll out reasonably comprehensive testing to determine immunity, quarantining for asymptomatic individuals carrying the virus and personal surveillance.

Cellphones with bluetooth-enabled apps could log our movements and personal contacts to enable quick identification and testing or quarantining those exposed as new infections are detected. Only electronically tracking personal interactions will permit us to ride buses and elevators, work in offices and factories and visit restaurants without risking a second wave of infections. Without it, the economy remains in low gear.

Americans may balk but should accept these intrusions, because Google (GOOG, GOOGL), Facebook (FB), Twitter (TWTR) and cellphone companies like Sprint (S), Verizon (VZ) and T-Mobile (TMUS) already collect data to place ads for tires and tights on the web searches and in emails of bikers and exercisers.

I trust politicians a lot more with that kind of private information than CEOs — they are less insular and subject to better oversight and removal.

We can’t afford not to trust the government. If the economy stays closed through May, unemployment — measured and hidden — will likely jump well above 20 percent and that implies a $5 trillion-plus drop in wages and productivity. Enhanced unemployment benefits, federal loans and grants to businesses and private borrowing are creating a mountain of debt similar to the financial crisis.

All that will radically limit consumer spending, businesses’ investment and state and local government budgets for the next five years. And if we wait until we have reliable, widely available effective coronavirus treatments and a vaccine, Americans will be reliving “The Grapes of Wrath.”

The shutdown is radically changing consumer and business spending habits — permanently. More folks who visited restaurants after tough days on the job have discovered delivered meals from virtual restaurants industrial kitchens — 25 percent of the sit-down eateries now closed may never reopen.

Zoom (ZM) is hardly perfect but overloaded servers and security vulnerabilities can be fixed — or Zoom will be replaced by something better. And businesses have discovered they can get along subjecting employees to fewer crowded, tawdry and unhealthy experiences on airplanes.

This whole episode has accelerated the growth of Amazon (AMZN), Walmart (WMT) and Target (TGT) at the expense of conventional brick-and-mortar stores, the advent of machine and software robots, widespread tele-medicine and education, watching movies and working at home, and the retreat of automobiles.

Unfortunately, the Coronavirus Aid, Relief and Economic Security Act (CARES) might have better been labeled Project Brigadoon, because it emphasizes subsidizing businesses to maintain pre-existing payrolls, union contracts and the like, and assumes the economy can be reawakened to its condition in February.

Unemployment benefits that exceed weekly pay encourages larger companies to lay off employees and for those workers to wait for old jobs to return, but many businesses are permanently closed or scaled back. Many loans the Treasury, Small Business Administration and Federal Reserve have underwritten will fail, and grants to keep workers in place will prove absolutely wasted.

Expanded unemployment benefits are set to end in July but in an election year, the pressures to continue holding the economy in suspended animation will be intense and mistaken.

As businesses will be terribly burdened by debt, workers in need of retraining and the economy requiring vast new investments to accommodate new patterns of consumer and business spending, it would be better to focus more on expanding and building new enterprises.

Starting in August, the federal government should simply give each American $1,200 a month — no questions asked — and each business — new, old or in the planning stages $1,200 per month per employee and permit 10 percent additional, refundable tax credits on investment — for 18 months.

By then, we will have a vaccine and effective therapies in wide use. The economy won’t be as good as new, but it would be better refurbished than by pursuing policies premised on nostalgia for an economy long gone. 

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.