In the bleak 2020s

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As the calendar turned to a new decade in 2019, plenty of people were posting memes about how we were going to enjoy the roaring 20s all over again. Everyone was ready to dance and party. Little did we know that 3 months later we would all be locked in our homes fearing a virus. The pandemic has pretty well torpedoed any chance for a roaring 2020s. Instead, we’re going to be having yet another difficult decade with plenty of struggles ahead.

Boom Times

There will be no boom after COVID-19. The post-war boom that powered the 1920s was built on post-war prosperity and credit expansion. There will be no such financial incentives this time. The federal government has spent 5 trillion dollars on the pandemic. It isn’t a wonder that Democrats and Biden want to raise taxes. The federal government could use a cash injection. Although there is 2.9 trillion in pent-up demand from people paying off their credit cards and saving money during the pandemic, that demand will dissipate quickly. Consumer spending for those that have money will pick up slightly as that money begins to move through the system. This is especially true as people buy houses with home working spaces or survive yet another lay off or insecure job situation. The situation for the working post, already suffering before the pandemic, will get worse.

The working poor, the hardest hit, face huge rental debts from which they are unlikely to recover. This will mean that up to a million people will be joining the ranks of the homeless with nowhere to go and nowhere to rent. Eviction moratoriums were nice, but the built-up rental debt is going to come down hard on many. Landlords have had no mortgage relief, and they won’t be patient with tenants. Landlords may be in foreclosure on properties or have cut their spending to cover the bills. This is a crisis that will hit every city throughout the country.

The job market is in a state of flux right now as well. Rather than a huge demand for labor, as happened after WWI that triggered the roaring 1920s, the job market is having an upheaval not seen since the Great Depression. Wages are finally rising somewhat and companies are having to compete for workers. Many people who were working service jobs found themselves and they either changed jobs or went back to school. The economy did create 600k jobs in March, but that’s a fraction of the jobs needed to put Americans back to work. The job numbers since then have been anemic as the delta variant continues to ravage the country. Those jobs aren’t new jobs, either, it’s people going back to work as the economy slowly reopens. These conditions are not the conditions that create any sort of boom economy.

Empty Office buildings

Companies and their work-from-home policies are going to jeopardize the entire foundation of commercial real estate. Commercial real estate will be slow to recover, if ever. The commercial bond market is likely to implode as companies are unable to make mortgage payments as they try to woo tenants into these spaces. While it might be a nice idea to convert all those buildings into housing, that is expensive and many city’s zoning laws wouldn’t allow it anyway. Companies that own and run these buildings may be going under over the next few years. Companies are more willing to let workers stay home and reduce their commercial real estate footprint. What will happen to all those buildings? What will happen to the companies that own them? What will cities and counties do with the losses from property tax revenue as their owners try to sell them or lose them to the banks? What services will have to be reduced to accommodate the losses in revenue?

This will have a profound effect on downtown areas and associated businesses. Many businesses that rely on office workers may need to close or move locations. City centers could empty in a way that hasn’t been seen in 40 years. Suburbs will find themselves with more urban problems as their populations swell with new residents. There are already stories about suburban poverty blossoming. Regional transit will become important as people move around different and roads are sure to be clogged as traffic patterns change with more people working from home or only going into the office a few days a week. Much like how the service sector has been rocked by rising wages and shifting jobs, the white-collar sector will also be changed by new hybrid forms of working or permanent remote work. Suburbs are already revitalizing their downtown areas or building them to create city-like atmospheres for people used to living in more urban environs. The pandemic is not just a shift in politics or attitudes. It is a physical shift in where we live our lives.

The effectiveness of the vaccine

Much of the re-opening of society is predicated on high vaccination rates and that the vaccine remains effective for at least some time. Data on how long the vaccine is effective is still pending. The FDA only recently approved booster shots for front-line workers, the elderly, and vulnerable people. For younger people, with better immune systems, it appears that boosters aren’t needed for now. Breakthrough infections still occur, but their incidence is very low. Given that the Europeans are basically giving up on the pandemic and trusting in their high vaccine rates. Life is slowly getting back to normal over in Europe. They are taking a hard line on the vaccine. Italy, for example, has restricted most public places from the non-vaccinated.

Here in the US, vaccine requirements are popping up, but it is a piecemeal effort. Federal employees and contractors are required to get vaccinated and some states and governments are requiring it for indoor dining, sports events etc. LA County is leading the way with such a requirement. Masks may not be going away anytime soon, either way, especially as the hospital system remains overwhelmed. We will have to learn to live with Covid-19, and the sad reality is that going to make life very difficult for some time. Partying and gathering in large groups is going to come with some risk. Everyone is going to have to make a risk assessment. The reality is that many people will avoid those events or only go to them rarely. Habits have changed and this will have massive economic impact well into the future. The economy won’t truly recover until it is safe for folks to go outside again, and they have confidence in their ability to navigate the world with the risk of COVID-19.

Everything Shortage

In last week’s news podcast, I talked about the shortage of everything. In an Atlantic article, they analyzed the problem with the global supply chain. There are a variety of factors in why store shelves are bare, but all the roads lead back to the pandemic. Ports closed to stop the spread, and ships and their cargoes were left stranded. Crews were unable to leave ships to even go home. Ships could not be unloaded. The big lesson about the globalized economy is that when there is a crisis, it is difficult to live in a country where everything is imported. Even things that are made in the US aren’t moving very fast. Meat packing plants that were shut down remain behind, causing food shortages. Moving agricultural goods is difficult right now as well, and many crops have suffered storm damage from the past summer as well. The entire food supply chain is in peril, and more grocery shortages could follow throughout the winter. America’s economy and crisis management would be more resilient if we had more domestic manufacturing.

However, those factories were shut to save money 20 years ago. In the Build Back Better plan, the Biden administration wants to spend billions re-shoring manufacturing. This is a positive trend. It does not solve the present problem of ships sitting in ports from L.A. to Seattle. It does not solve the terrible inflation that is hitting everyone. The price of shipping anything has gone up. Containers to ship products between Asia and the rest of the world have gone up multiple times from $2,500 to $25,000.

In Chicago, there is a 25-mile-long railway back up of trains that railroad companies are trying to clear. There is a shortage of truckers and a shortage of trucks. There is a shortage of warehouse space to store goods leaving the US for export. The “just in time” supply chain management pioneered by the Japanese for both its efficient and cost-saving is now costly, inefficient, and not resilient to a crisis. Unwinding the supply chains issues could take months or even a year. Welcome to our new normal.

Post-Covid Life

I predict depressing malaise in the post COVID-19 world. Many bars and hangouts have closed. Folks will be searching for new places to meet and may prefer to just stay home instead. We have a litter problem from masks being dropped everywhere, we are overweight (more than before). We are tired, wired, and depressed. It is no easy thing to keep people in a state of crisis for nearly two years and not have consequences of it. People are going to be trying to find ways to break out, have fun, and get back to some sort of normalcy. The world will not snap back to normal. Recovery from this virus will take years. Economic recovery will take some time for all the reasons I’ve listed above.

I feel worst for people my age. Millennials were just beginning to catch up after a long recovery from the Great Recession, and then the pandemic hit and sent many millennials back to their parents houses once again. Many millennials were working in those service jobs that were ended by the lockdowns. People have had to shift careers yet again. People have had savings and any economic progress absolutely destroyed by the loss of business and income over the past couple years. That is meagre progress that won’t be easily won back.

I don’t look for a post-covid boom. I am hoping that we can find new normal, and we can survive after Covid-19. I don’t know when or how another boom will come. I don’t know when or how people will recover, but I do not think we are facing a bright economic future. Growth will be held back by supply chain issues, and capital will go to investing new factories closer to where goods and services are being consumed. I’ve already written the death of globalization, but the new normal is going to further reinforce that the old way of doing things is over. We cannot go back to the normal of October 2019. Whatever the future holds, it will be different that what we have grown accustomed to over the past decades. This will make for a bleak and difficult decade. It will take time to adjust to the new normal. It will take time for the economy to readjust to new ways of working, shipping, and manufacturing. It will require companies and individuals to re-think everything. There will be no boom or grand party. Once we have control over the virus, we will still have some tough days ahead. Perhaps we can plan a party for 2030?