Economy Needs to be Allowed to Recover

All the headlines and policy responses from government indicate they aren’t ready to allow the economy to settle and recover so they are keeping the wound open.

February 22, 2021

By: Bobby Casey, Managing Director GWP

recover Remember being a kid and scraping your knee? What kid could resist picking at the scabs? Whether out of morbid curiosity or to gross out your friends, it happened. Inevitably your parents tell you to stop it or it won’t get better.

Little did I know that would be a metaphor for what comes later in life. Picking at scabs delays if not ruins the healing process. And that is exactly what politicians are doing with the recent pandemic.

The headlines are flying to keep the pandemic relevant for much longer than it ever needed to.

There’s stories on how a single inoculation won’t suffice, but rather three rounds of vaccines would be needed for proper efficacy.

Another one about how an even worse strain has been discovered in Japan.

And yet another story about the H5N8 avian flu strain being found in Russia.

There was even stories of wearing multiple masks! As it turns out the less you breathe the less likely you are to spread COVID-19.

Two weeks to flatten the curve has officially become a lifetime of freaking out over cold and flu seasons.

I’m sure once everyone has been jabbed and shrink wraps their faces, we can go back to normal? Is that it?

I’m a digital nomad and entrepreneur. I don’t rely on going into work or being any particular place. If I have electricity and a cell tower, I’m good to go. But how can anywhere get back to the levels of employment and economic activity the world was seeing just before COVID-19 striking if everything is operating at a fraction of the capacity?

It’s not only restaurants and salons, but shipping fulfillment facilities, and factories. I think people look at online commerce the way they look at electric cars. It’s an alternative, but that’s as much as they care to know. They don’t think about the coal that goes into making the electricity that charges electric cars… or how the huge batteries are disposed of. Just that it doesn’t take gasoline.

Likewise, people don’t want to look at what’s behind e-commcerce. There’s still a fulfillment center. You’re not going to it. In order to send you things, someone has to get it, package it, process it, and send it. A delivery service still has to sort it, and deliver it to various destination points. You staying home means more people are needed to fulfill orders.

I’m still hopeful that businesses that can, will expand their talent pool to anywhere in the world… or at least anywhere in their neighboring time zones. This is how small town small businesses can get large city talent to help them grow to the next level.

Physical work still needs to be done, however. We still need people in fulfillment and factories. This ignores the entire leisure side of things such as hospitality and travel, which in many cases is the life’s blood of smaller economies.

In some locations in Washington and California mandated a sort of hazard pay for “essential workers”, like those in grocery stores. Stores are closing down because of it. Between the reduced capacity and the wage hikes they would be operating at a loss to stay open, so they closed their doors. (A foreshadowing of what is to come with a nation-wide minimum wage hike, I might add.)

There’s been two rounds of “stimulus” out of the US. A third round is on its way. $1.9 trillion in spending, and not even 10% of that is directed toward immediate pandemic related relief. While the calls for immediate action ring through the press, billions of these dollars don’t even take effect in this fiscal year but rather rolled out over the years ahead.

According to analysis from the Committee for a Responsible Budget:

The goal of COVID relief is to end the pandemic, protect incomes, and support the economic recovery. The House bill not only spends far more than is needed to achieve these goals, but also puts too many of these plentiful dollars in the wrong places.

Some examples of where the money is going is to bail out pension funds, subsidize the Affordible Care Act, providing funding for states and schools. The states that have not demonstrated any need for further funding are still getting it, and schools that aren’t opening up still won’t see the funding until the next fiscal year. Still, Florida and private schools have demonstrated that school reopening won’t incur some insurmountable cost.

Stimulus is like a bump of cocaine: it’s stimulating and highly addictive. The hangover afterwards is rough, and withdrawals are even more painful. The corrections waiting on the other side of this kickstand will have the US reeling for decades to come.

The austerity measures, the reckoning with the balance sheets for all the moratoriums on lending and collecting, and allowing the failed businesses to cleanse out of the market place are all looming.

Keep in mind there were three possible places the stimulus checks went:

1. Immediate bills. Of course if you are operating on lower or no income, immediate financial obligations were the first and only thing those funds went to.

2. Spending. We saw bumps in economic spending when checks rolled out, but in the end, it just brought the spending forward and took from future months’ spending.

3. Saving. This includes investments. And the stock market is booming, which is a bit out of sorts with unemployment levels being where they are hovering just under 7%.

It’s that third category I’m looking at. The bubbles created by the investing comes dangerously close to hyper-speculation, or a speculation bubble. Couple that with the economic inevitable economic downturn after the dust settles on these packages, and the world could be looking down the barrel of a global depression.

That’s assuming, of course, we are ever allowed to let this wound heal and governments can stop picking at the scab long enough to do exactly that.

It’s going to get worse before it gets better. That much is certain.

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