Will The Economy Recover Quickly?

Small businesses drive the American economy as about 47% of people are employed by them and they represent 45% of GDP. Small firms make the economy dynamic and give people the opportunity to climb up the economic ladder. They inspire people and create community. They are now on the brink of disaster because of the economic shutdown due to COVID-19.

As you can see from the chart above, 21% of small businesses would survive less than 1 month if sales stopped completely. If this is accurate, nearly 21% of small businesses are about to fail. Grocery chains and other essential services will do okay, but the others are in dire straits. Another 34% of small firms will be in trouble if this shutdown lasts 3 months. Let’s stick with the first segment though. One thesis put out by investment banks is this will be a quick slowdown that is followed by a sharp recovery. If 21% of small firms fail, it won’t be a quick recovery.

This recession is much worse than a normal one because business is being completely shuttered. It’s not as if business is down 20-40% because there are job losses and the economy is weak. This time businesses can’t open. That’s why businesses will fail much quicker than they usually do in recessions. Some firms might decide to shut down because of the uncertainty. They might not want to take the risk that the economy won’t open for an undefined period of time. People are scared. They might want to use the money hemorrhaged by their small business to spend on their family’s necessities. It sounds hard to give up on a business that has been going for years just because of a short term disruption, but no one even thought such a shutdown was possible a few months ago. The level of uncertainty has been amplified to unprecedented levels.

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Gary Anderson 2 months ago Contributor's comment

Trump thinks minimal aid is all that is necessary. The reason is that he wants business up and running in two weeks. That is only possible if NYC and other hotspots are contained. Tightwad Trump needs to empty the moneybags.

Anthony Varrell 2 months ago Member's comment

Don't see how you can contain individual states. State borders are far too porous.

Gary Anderson 2 months ago Contributor's comment

Maybe you are right. State borders may be to porous. The problem with this pandemic is that healthy people transmit the disease yet we aren't testing healthy people. We are flying blind.