This damn virus, the Covid-19, has brought about a whole bunch of new thinking and responses to a crisis……even some new terms for the analysis…..Coronomics is the one that I wish to introduce to my reader.
Economics is not something that most people will want to read about….but maybe they should because this virus is playing fast and loose with their economic future.
The ugly side of the economics of the pandemic……
That extension of the Unemployment insuarnce has its dark side as well…..
It’s worth noting that UI claims do not include many workers who are out of work due to the virus, including independent contractors, those who don’t have long enough work histories, those who had to quit work to care for a child whose school closed, and more, so the actually number of people out of work is higher than today’s’ data show us. One of the most effective parts of the CARES ACT, the relief and recovery act that Congress passed last week, is a $250 billion expansion of unemployment insurance, including an increase in the level of benefits and the creation of a Pandemic Unemployment Assistance (PUA) program which will be available to many workers who are not eligible for regular unemployment insurance. These provisions are very important and will help millions. However, the broader stimulus package contains many weaknesses that reduce its effectiveness, which is regrettable because the job loss we have seen so far is just the tip of the iceberg. Based on new GDP forecasts, we project that nearly 20 million workers will be laid off or furloughed by July, with losses in every state. And importantly, the GDP forecasts these projections are based on include the impact of the CARES Act and they assume that Congress will pass another relief package focused on aid to states. That implies that far more than 20 million workers will be laid off or furloughed if there is not another meaningful relief and recovery bill.
Small businesses are suffering because of this shelter in place orders and there are those that will take advantage of the situation…..those crooks in the “pay day loan” business…..
one industry, which offers an obscure form of financing to small businesses called Merchant Cash Advances (MCA), has seemingly taken a different approach.
“There’s lots of talk about helping small businesses. But in the last few days, lawyers running lawsuit mills are suing small businesses to extract cash,” Federal Trade Commission member Rohit Chopra tweeted on March 19 about the MCA industry. “The lawyers work for lenders that offer pricey payday-style loans using sketchy contract terms to restaurants and businesses.”
MCAs are a form of financing typically leveraged by small businesses that don’t have access to traditional loan options. MCAs are not loans, rather, they’re the sale of a portion of a business’s future income at a discount. Typical MCA agreements require businesses to make payments every business day of a set dollar amount until the agreement is settled.
MCA agreements often include “confessions of judgment,” clauses that force businesses to plead liable if the MCA provider alleges that the agreement has been breached, which can occur if the business misses just one or two of their daily payments. The agreements typically grant providers the immediate right to the outstanding balance from the business in the event of a breach.
Your ordinary economic solutions will be as worthless as the promises from the White House……
We have seen crashes before, recessions and depressions, but nothing like this. Our fear of coronavirus has hindered and halted every aspect of daily life. We look out of our windows and barely recognise the country we’re in: police film dog-walkers and pour black dye into lagoons to deter swimmers. We wait in queues for empty-shelved supermarkets. The stock market collapses, surges, then collapses again. None of the old rules make sense. Welcome to the world of Coronomics.
If this were a normal recession, the remedy would be simple: encourage people to go out, spend money and boost the economy. But today’s public health concerns require the government to repress the economy, while trying to keep it afloat at the same time. Streets are quiet, hotels are empty, restaurants, pubs and high-street shops are shuttered. To tackle the virus, the economy must hibernate.
The Atlantic has offered up 4 Rules for the economics of this pandemic……
Rule 1: “Save the economy or save lives” is a false choice.
Last week, a group of economists from the Federal Reserve and MIT published a paper on the 20th century’s most murderous flu, the 1918 outbreak. Because the federal government in 1918 offered little if any economic assistance to suffering Americans, the local response from city leaders varied widely. Some places, such as New York and St. Louis, quickly ordered social distancing and other interventions, while others, such as New Haven and Buffalo, allowed public gatherings even weeks after the flu reached crisis levels. This variance gave researchers the ability to see which cities recovered the fastest after the outbreak.
These small businesses pay their taxes (or they should be) and if the government needs to step in and protect them from failing then I have NO problem with that solution.
I ask just one thing….please stop jumping down my throat when I write about socialism for this solution is socialism 101….
I Read, I Write, You Know
“lego ergo scribo”