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| One Simple Idea That Explains Why the Economy Is in Great Danger | One Simple Idea That Explains Why the Economy Is in Great Danger |
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| To understand why the world economy is in grave peril because of the spread of coronavirus, it helps to grasp one idea that is at once blindingly obvious and sneakily profound. | To understand why the world economy is in grave peril because of the spread of coronavirus, it helps to grasp one idea that is at once blindingly obvious and sneakily profound. |
| One person’s spending is another person’s income. That, in a single sentence, is what the $87 trillion global economy is. | One person’s spending is another person’s income. That, in a single sentence, is what the $87 trillion global economy is. |
| That relationship, between spending and income, consumption and production, is at the core of how a capitalist economy works. It is the basis of a perpetual motion machine. We buy the things we want and need, and in exchange give money to the people who produced those things, who in turn use that money to buy the things they want and need, and so on, forever. | That relationship, between spending and income, consumption and production, is at the core of how a capitalist economy works. It is the basis of a perpetual motion machine. We buy the things we want and need, and in exchange give money to the people who produced those things, who in turn use that money to buy the things they want and need, and so on, forever. |
| What is so deeply worrying about the potential economic ripple effects of the virus is that it requires this perpetual motion machine to come to a near-complete stop across large chunks of the economy, for an indeterminate period of time. | What is so deeply worrying about the potential economic ripple effects of the virus is that it requires this perpetual motion machine to come to a near-complete stop across large chunks of the economy, for an indeterminate period of time. |
| No modern economy has experienced anything quite like this. We simply don’t know how the economic machine will respond to the damage that is starting to occur, nor how hard or easy it will be to turn it back on again. | No modern economy has experienced anything quite like this. We simply don’t know how the economic machine will respond to the damage that is starting to occur, nor how hard or easy it will be to turn it back on again. |
| Thanks to government statistical tables, we can understand the sheer size of the economic sectors that appear to be entering a near shutdown. The United States and much of the world are on the verge of a tremendous shrinkage in consumption spending, which in turn will mean less economic output and lower incomes among the people who provide those services. | Thanks to government statistical tables, we can understand the sheer size of the economic sectors that appear to be entering a near shutdown. The United States and much of the world are on the verge of a tremendous shrinkage in consumption spending, which in turn will mean less economic output and lower incomes among the people who provide those services. |
| The Bureau of Economic Analysis tables of personal consumption expenditures include three categories likely to see very sharp declines in the weeks ahead. Americans spent $478 billion on transportation services in 2019 (which includes things like airfare and train fare but not the purchase of personal automobiles). | The Bureau of Economic Analysis tables of personal consumption expenditures include three categories likely to see very sharp declines in the weeks ahead. Americans spent $478 billion on transportation services in 2019 (which includes things like airfare and train fare but not the purchase of personal automobiles). |
| They spent $586 billion on recreation services (think tickets to sports events or gambling losses in a casino). And they spent $1.02 trillion on food services and accommodation (restaurant meals and hotel stays, but not grocery store food brought home). | They spent $586 billion on recreation services (think tickets to sports events or gambling losses in a casino). And they spent $1.02 trillion on food services and accommodation (restaurant meals and hotel stays, but not grocery store food brought home). |
| That adds up to $2.1 trillion a year, 14 percent of total consumption spending — which appears likely to dry up for at least a few weeks and maybe longer. We don’t know how much those consumption numbers will drop, and for how long, just that it will be by a lot. | That adds up to $2.1 trillion a year, 14 percent of total consumption spending — which appears likely to dry up for at least a few weeks and maybe longer. We don’t know how much those consumption numbers will drop, and for how long, just that it will be by a lot. |
| So what might such a collapse in spending in those major categories mean for the other side of the ledger, incomes? | So what might such a collapse in spending in those major categories mean for the other side of the ledger, incomes? |
| That revenue from those sectors goes a lot of places. It pays employees for their labor directly. It goes to suppliers. It pays taxes that finance the police and schoolteachers, rent that rewards property owners, and profits that accrue to investors. All of those flows of cash are in danger as consumption spending plunges. | That revenue from those sectors goes a lot of places. It pays employees for their labor directly. It goes to suppliers. It pays taxes that finance the police and schoolteachers, rent that rewards property owners, and profits that accrue to investors. All of those flows of cash are in danger as consumption spending plunges. |
| The five sectors experiencing the most direct and immediate collapse in demand or facing government-mandated shutdowns because of coronavirus are air transportation; performing arts and sports; gambling and recreation; hotels and other lodging; and restaurants and bars. | The five sectors experiencing the most direct and immediate collapse in demand or facing government-mandated shutdowns because of coronavirus are air transportation; performing arts and sports; gambling and recreation; hotels and other lodging; and restaurants and bars. |
| Together, they accounted for $574 billion in total employee compensation in 2018, about 10 percent of the total. It was spread among 13.8 million full-time equivalent employees. | Together, they accounted for $574 billion in total employee compensation in 2018, about 10 percent of the total. It was spread among 13.8 million full-time equivalent employees. |
| Those numbers represent the share of the economy at most direct risk. These are the industries and workers where revenue is likely to plummet; they will simply not have enough revenue to fulfill their usual obligations. In danger is the $11 billion a week they normally pay their employees, not to mention all those payments for rent, debt service and property taxes. | Those numbers represent the share of the economy at most direct risk. These are the industries and workers where revenue is likely to plummet; they will simply not have enough revenue to fulfill their usual obligations. In danger is the $11 billion a week they normally pay their employees, not to mention all those payments for rent, debt service and property taxes. |
| It is true that there will be some offsetting effects — more food bought from grocery stores rather than restaurants, for example, and greater health care spending. But the economy can’t adjust on a dime, and the fact that doctors, nurses and grocery store clerks may end up working longer hours won’t make up for millions of waiters, flight attendants and hotel housekeepers who are likely to see their incomes plunge. | It is true that there will be some offsetting effects — more food bought from grocery stores rather than restaurants, for example, and greater health care spending. But the economy can’t adjust on a dime, and the fact that doctors, nurses and grocery store clerks may end up working longer hours won’t make up for millions of waiters, flight attendants and hotel housekeepers who are likely to see their incomes plunge. |
| Just the potential initial effects from all those restaurant meals not eaten, hotel rooms sitting empty and aircraft temporarily mothballed are potentially huge. And that’s before accounting for the ways those could ripple into second- and third-order effects. | Just the potential initial effects from all those restaurant meals not eaten, hotel rooms sitting empty and aircraft temporarily mothballed are potentially huge. And that’s before accounting for the ways those could ripple into second- and third-order effects. |
| What happens if widespread bankruptcies were to cause losses in the banking system and cause a tightening of credit across the economy? In that situation, companies with perfectly sound finances today — which should be able to ride out the crisis — could find themselves unable to carry on simply because of a cash crunch. (That, incidentally, is the kind of ripple effect that the Federal Reserve and the Trump administration are desperately trying to head off). | What happens if widespread bankruptcies were to cause losses in the banking system and cause a tightening of credit across the economy? In that situation, companies with perfectly sound finances today — which should be able to ride out the crisis — could find themselves unable to carry on simply because of a cash crunch. (That, incidentally, is the kind of ripple effect that the Federal Reserve and the Trump administration are desperately trying to head off). |
| Updated June 16, 2020 | |
| The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. | Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. |
| States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. | States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. | Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. |
| The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. | The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. | If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. |
| Or what if the plunging price of oil (caused by both geopolitical machinations and the global collapse of demand resulting from coronavirus effects) leads to widespread job losses and bankruptcies in energy-producing areas? | Or what if the plunging price of oil (caused by both geopolitical machinations and the global collapse of demand resulting from coronavirus effects) leads to widespread job losses and bankruptcies in energy-producing areas? |
| These are hardly fanciful scenarios; the financial markets are signaling that they are quite plausible. But they show that, even as consequential as the initial economic hit from everyone staying at home may be, it might only be the beginning of economic troubles. | These are hardly fanciful scenarios; the financial markets are signaling that they are quite plausible. But they show that, even as consequential as the initial economic hit from everyone staying at home may be, it might only be the beginning of economic troubles. |
| It’s tempting to look at another recent event when much of the economy, especially tied to travel, seemed to dry up overnight. But the more you look at the actual numbers of what happened to key industries after the Sept. 11, 2001, terrorist attacks, the milder it looks compared with what is happening now. | It’s tempting to look at another recent event when much of the economy, especially tied to travel, seemed to dry up overnight. But the more you look at the actual numbers of what happened to key industries after the Sept. 11, 2001, terrorist attacks, the milder it looks compared with what is happening now. |
| Consider restaurants. Americans spent $26.9 billion at restaurants and bars in August 2001, and $26.2 billion in September 2001, a mere 2.3 percent drop. By December of that year, sales were back above August levels (numbers adjusted for ordinary seasonal variations). | Consider restaurants. Americans spent $26.9 billion at restaurants and bars in August 2001, and $26.2 billion in September 2001, a mere 2.3 percent drop. By December of that year, sales were back above August levels (numbers adjusted for ordinary seasonal variations). |
| The cumulative shortfall of restaurant sales that autumn compared with a world where they had held steady at August levels was about $1.2 billion, a trivial amount in what was then a $10.6 trillion economy. Employment in the food service sector reached a trough of 8.4 million jobs in October 2001, only about 16,000 below its August level. | The cumulative shortfall of restaurant sales that autumn compared with a world where they had held steady at August levels was about $1.2 billion, a trivial amount in what was then a $10.6 trillion economy. Employment in the food service sector reached a trough of 8.4 million jobs in October 2001, only about 16,000 below its August level. |
| It seems improbable that the coronavirus shutdown will have such mild effects on that industry. There is a big difference between a slump in business because people are not in the mood to celebrate, and one mandated by citywide shutdowns or other restrictions on business activity. | It seems improbable that the coronavirus shutdown will have such mild effects on that industry. There is a big difference between a slump in business because people are not in the mood to celebrate, and one mandated by citywide shutdowns or other restrictions on business activity. |
| For weeks, as the novel coronavirus spread, a common line among economists was that it would cause a “supply shock,” limiting the availability of certain manufactured goods made in China. | For weeks, as the novel coronavirus spread, a common line among economists was that it would cause a “supply shock,” limiting the availability of certain manufactured goods made in China. |
| But huge swaths of the economy are starting to experience the biggest demand shock any of us have ever seen. And we’ll soon find out what happens once a mighty economic machine gets a microscopic, yet potent, virus in its gears. | But huge swaths of the economy are starting to experience the biggest demand shock any of us have ever seen. And we’ll soon find out what happens once a mighty economic machine gets a microscopic, yet potent, virus in its gears. |