Eugene Linden
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Imagining a Post Pandemic World

How might a post-pandemic world look and feel? Let’s imagine a creative team at a New York City advertising agency pitching a campaign in 2050 for a new perfume (more than most products, perfumes are sold by attaching to the dreams and aspirations of their times).  The Big Apple, ...

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Deep Past
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Winds of Change
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Afterword to the softbound edition.


The Octopus and the Orangutan
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The Future In Plain Sight
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The Parrot's Lament
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Silent Partners
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Affluence and Discontent
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The Alms Race
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Apes, Men, & Language
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How to Reconcile July’s Rising Markets with July’s Dismal Economic News


Thursday July 29, 2010

-Eugene Linden The question has been posed many times recently: Why are the markets rising when the economy seems to be heading back into the tank. Simple, the markets have been going up in part because the economy is going back into the tank. One major factor that has stalled the recovery – job losses – earlier provided a temporary boon for companies. Unit labor costs have been falling rapidly, roughly 5% since the fourth quarter of 2009. This has boosted productivity and earnings, but what is a cost for employers is livelihood for households. Yes, over 80% of reporting companies are beating earnings estimates, only 68% have been beating top-line estimates, which, notes David Rosenberg of Gluskin Sheff, is less than when the economy was free-falling in 2008. Companies have been making their numbers by cutting costs, not increasing sales. Martin Feldstein, President Emeritus of the National Bureau of Economic Research, the organization that officially calls recessions, pointed out during a Bloomberg interview that the group has not called the end of the recession in part because final sales have been lame at best: if first quarter GDP had been based on final sales, it would have risen 1.2% not the revised 3.7% (and Feldstein points out that the 1.2% is an annualized figure so that the final sales contribution to GDP in the quarter was negligible). This is not good news either for future S&P earnings or the future of the economy. Those laid off employees are going to be consuming less in the coming years. Jacob Hacker of Yale made news recently with a study sponsored by the Rockefeller Foundation and Yale University on economic security that argued that in the past year, one in five American households suffered income losses greater than 25%. After suffering this type of shock, it usually takes several years to get back to even, and during those years a household’s budget will be stretched to the breaking point, particularly since the typical American household has very little savings and diminishing access to credit. So while the market, or at least the infernal robots that now seem to constitute the market, embraced the earnings, these nice results are coming to some degree at the cost of future consumption which constitutes more than 70% of GDP. Question: how many times can that card be played?

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Short Take

Relaxing COVID-19 Restrictions will Kill, not Save, the Economy


 

[This is a more developed version of the previous Short Take}

Those who want to relax mandates on self-isolation and social distancing to save the economy have got it exactly backwards. Reopen society too soon, and we risk destroying the economy as well as public order and our shaky democratic institutions. The reason comes down to two words: supply lines.

 Supply lines for necessities such as food are already under stress. Those going to grocery stories encounter random instances of empty shelves and vegetable bins. Smithfield Farms shut down a South Dakota plant that supplies roughly 4% of the pork in the nation after over 500 of its workers tested positive for the coronavirus. Other giant meat processors such as Tyson have also shut down plants for similar reasons. Farmers in the West are having trouble finding workers to harvest the crops now reaching maturity in the fields. And even if they manage to get the crops picked, farmers are out of luck if the truckers fail to show up, or the flow of packaging for their products get interrupted. 

Right now, these disruptions are episodic, but that should be concerning because we haven’t even seen the end of the first wave. What we have seen is that vital front-line workers such as nurses, doctors, EMT’s, and other first responders have had trouble finding protective equipment and maintaining morale. Some have staged walkouts over the dangerous conditions, and these are workers with a sense of mission.

By contrast, for most of the hourly-paid workers who keep supplies made, distributed, and sold, their work is a job that pays the bills. It would be appropriate if society recognized that they played a vital role, but mostly these workers encounter demanding bosses, monotony, and surly customers. If sick, they are not going to work – nor would we want them too. And they are not likely to risk their lives if going to work exposes them to contagion.

Disruption of one link, e.g. the trucker that delivers food the last mile, could halt a supply chain. COVID-19 is a threat to every link. Should a second wave hit before there is a readily available, cheap and effective treatment, it’s a very high probability that many supply lines will be disrupted and filling the gaps could easily overwhelm the nation’s businesses. 

Even today, on the evening news, we see images of vast caravans of cars lined up to get supplies from food banks. Imagine two weeks of empty shelves in the stores that feed our cities. How likely is it that civil order could be maintained in that situation? Will people suffer in silence if they realize that they can’t buy food for their kids because our leaders reopened the economy before a treatment was available because they wanted to prop up the stock market (which is how it will be portrayed)? If we want to look analogues for what life is like once supply chains break down, they’re readily available today in cities like Mogadishu, Kinshasa, and Port au Prince. 

 Thus far, the Trump administration’s response to the pandemic seems to be a mélange of Boss Tweed, Don Corleone and Inspector Clouseau. For the next act, the administration has a choice: Churchill, who bolstered British morale during the London Blitz, or Pol Pot, who sacrificed millions of his countrymen for a bad idea. Let’s hope those around Trump can convince him that the cure for the disease is the cure for the economy.
 



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