7 ms·

I've heard economic forecasters predict that the economy will spring back once the crisis is over. Their reasoning is that the crisis is an external issue, not

by jawns 7y ago

I've heard economic forecasters predict that the economy will spring back once the crisis is over. Their reasoning is that the crisis is an external issue, not a problem with the economy itself, as with the housing crisis. Once it becomes more contained and controlled, there will be work for people to do, and people available to do that work, and the economy will just start humming along again. I'm more pessimistic. The extent of the layoffs, even if temporary, is just too large to not have a lasting impact. What happens when people with inadequate emergency savings get laid off and can't pay their bills? There's a cascading effect. Maybe they owe a landlord with inadequate emergency savings who now can't pay his mortgage. Maybe they owe a bill to a small business operating on small margins that can't stay afloat. Maybe they owe a corporate behemoth that has aggressively taken on debt and now needs to lay off a bunch more people to be able to pay off that debt. The federal government's mortgage deferral solution might help homeowners, but it's not going to solve the problem that people are going to continue to need to buy things and not have the money to buy them. Even those of us who are fortunate to have some emergency savings will see those savings dwindle down if we're laid off. And keep in mind that in a lot of cases, when people lose their jobs in the U.S., they also lose their health insurance. Not a great position to be in during a public-health crisis.

rntksi 7y ago
What you are saying, basically, is that due to money flow halting, we will enter a deflationary period?
- User23 7y ago
  This is why fiscal stimulus in the form of checks to every citizen is a brilliant idea. It doesn’t matter if they “need the money” it matters if they spend it and productive capacity can meet the demand.
  - jawns 7y ago
    In that case, it seems like they should be debit cards with a 6-month expiration date rather than checks. Granted, it's still possible to cash those out and save the money, but there's a little more friction involved.
  - nathanaldensr 7y ago
    The Fed could drop a bag with a million freshly-printed FRNs in it on my doorstep, and I'd simply take the bag and put it in my bedroom. A significant number of people aren't going to spend the money no matter how much it is.
    - mooreds 7y ago
      Hmm. I am not sure one can have it both ways. Either most people will save a government handout, or most people live paycheck to paycheck and will be severely affected by losing their job/an economic slowdown. Of course there will be some people who will immediately save any check from the government, but that's a disjoint set from the people who are in dire need (laid off or reduced hours).
    - danaris 7y ago
      Just due to being on HN, you're statistically likely to be someone who has plenty of savings already. Most of America does not. If people are getting laid off en-masse, the majority of those people will, within a few weeks, not have enough money to afford basic necessities. Giving each of them $1k/month would soften the blow considerably. Giving them $3k/month would, for most of them, get them back close to where they were before the layoff, and keep the economy functioning.
yulaow 7y ago
I would add that even after the crisis is more under control, people will still avoid any not necessary spending for a very long time and this will keep the economy to restart. Also most of them will have depleated all savings at that point and will want to rebuild them aggressively, further reducing spending
- toomuchtodo 7y ago
  Sentiment momentum. No one is as confident about the economy as they were two months ago, and forward spending will reflect that.
- Tepix 7y ago
  On the other hand i predict there will be a huge surge in tourism and partying. Also, not everyone has insufficient savings.
  - yulaow 7y ago
    I am willing to bet more than 50% of people have not enough saving for a crisis long 8-12 months
    - rdthree 7y ago
      That’s an easy prediction I think nearly half of Americans don’t have 500 in savings. That number is 80-90%
    - jawns 7y ago
      More than 50% of Americans making less than $50K say they can't afford to miss a single paycheck. About 30% say they have absolutely zero emergency savings. I would expect that the number of working Americans with emergency savings to cover even six months of expenses is fewer than 1 in 10. Granted, there are options such as HELOC, tapping 401k, etc. But most of us are grasshoppers, not ants. Granted,
  - rocketpastsix 7y ago
    68% of Americans dont have enough to cover a $500 surprise bill [0]. A lot will rely on credit availability which will worse that impending crisis. 0: https://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-dont-have-enough-savings-to-cover-a-500-emergency/#46f9aabf4e0d https://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-...
Mountain_Skies 7y ago
During the Great Recession my employer at the time laid off a large percentage of our staff that they had wanted to layoff for a long time. Due to the nature of their industry, the appearance of stability was very important so they never did layoffs before. Any accumulated excess workforce had to be reduced through attrition or gross misconduct excessive enough for warrant being fired for cause. During the recession though, banks were failing left and right, unemployment was going up, mass layoffs were happening every day, and total economic collapse didn't seem out of the question. While the layoff did make the newspaper that day, it was considered a minor story with no follow up. During good times it would have been the top news story of the week and scared many of our clients. I wonder if this current crisis will allow for similar workforce reductions by companies seeing it as a good opportunity to reduce labor expenses without eroding public confidence in their company.
- alexpetralia 7y ago
  I also wonder whether this obscured and now accelerated "structural unemployment" - combined with a greater acceptance of remote work - will further shift domestic jobs overseas.
  - Rebles 7y ago
    I actually wonder if the pandemic will discourage globalization. The NYT Podcast last week had a great segment on pandemic’s negative effects on globalization, specifically, the global supply chain. It postulates that the longer the supply chain is negatively impacted, the more likely corporations will try to localize. That being said, 60+ days of lockdown, and Wuhan is only now starting to consider easing restrictions. Other countries’ responses have been half measured compared to China, so we might have a longer period social distancing. CDC estimates will need the current measures through July. Other articles I read say we’ll need on-again off-again social distancing for the next 15 months as the virus surges and wanes.
  - istorical 7y ago
    This is my greatest fear as an American engineer. When corporations finally realize remote work is just as valuable as in office work they'll start to wonder why they are employing US developers for $XX,XXX to $XXX,XXX when they could pay a European developer a low five figure salary in a weaker currency and get the same results.
jeremyjh 7y ago
I agree. There is substantial economic damage being done and it won't just undo itself. Lots of businesses are going to fail, those people will not find work so easily as they would have before the crisis. Also, I think this is going to last longer than most people realize. Countries that use this time to get their act together so that they can use South Korea style controls maybe will get their economies restarted sooner. Places where the only strategy is to shelter-in-place until there is a vaccine will see economic disruption for 9-12 months. The damage from that will be staggering.
tyingq 7y ago
I believe in a bounce back also, but I don't think we will bounce back to the same state. A couple of examples... Many companies will have figured out how to run leaner. So post recovery, they may not bring back everyone that was laid off. Lean is good, of course, but unemployment isn't. Competition will go down. Not every company in every space will survive. So things will consolidate down to the survivors. This probably hits small businesses especially hard. Again, Darwinism isn't inherently bad, but it could, for example, drive wages down. In short, whatever emerges will not be what we had, and will take some time to adjust to.
- tarsinge 7y ago
  That’ll look like a good case for UBI if we go down that route of leaner businesses. Also given that a reduction in consumption was needed short term for climate it might have indirect middle long term positive effects.
  - ccajas 7y ago
    A situation like this one may actually speed up the need for many business to digitize their business models.
axegon_ 7y ago
> I've heard economic forecasters predict that the economy will spring back once the crisis is over. Their reasoning is that the crisis is an external issue, not a problem with the economy itself, as with the housing crisis. Once it becomes more contained and controlled, there will be work for people to do, and people available to do that work, and the economy will just start humming along again. Though I'm by no means an economist, I'm with this. What's more I have the feeling the economy might come out even stronger here is my reasoning: A lot of young people are confined to their homes at the moment. I'm talking about anyone in the 25-36-7-8-9 range(being a representative myself). Fair enough, take away the people who have families and children out of that group and you have a substantial number of people. And in that group are the most active members of society, which in normal circumstances, have plenty of entertainment in their lives outside their homes and work environment(contrary to popular belief). Yes, many spend too much time on social media, but plenty do not. In the additional spare time we have (at the expense of time spent at bars, restaurants, cinemas, shopping centers, etc.), many are occupying themselves however they can. Myself including - I'm almost out of books to read. I've enrolled at several online courses, I'm working on personal projects, including writing a book(which I intend to open source once complete). My point is that in that additional time, plenty of people will have time to work on current and potentially future problems and open markets that currently do not exist. Sure, many will fail, as usual, but some will succeed. The truth is that multi-billion corporations started as black swans. Stephen King has a brilliant essay called "On being 19". I don't remember the exact quote but it went something along the lines of "When you are 19, you believe that the whole world is at your mercy and no one should mess with you". Which is rarely the case. Companies and entire industries around them(Facebook, Google) might have been started by 19 year olds but they are the Black Swans. The truth is when you are 19, regardless of how smart you are, you lack experience and by implications, adequate amounts of knowledge. Most people have tried multiple times when they were in that age group and 99.99999% have failed. Now people with experience have the time and nothing better to do then use it to the maximum. I'm not looking at it as a Black Swan phenomenon but the next step: Antifragility. If anything, I believe that now is the time to pay close attention and use your resources, knowledge and experience to capitalize on it.
- zzzzzzzza 7y ago
lonelappde 7y ago
Every noncash nonmanufacturing problem can be solved simply by running up debt and sorting it out later. Remember, debt is imaginary! The real part is doing somproductive work for someone else who owes you back. The worst you lose is what you got by working for someone else instead no yourself, not the essentials of life. Debt doesn't hurt anyone. Only forcibly collecting debt payments hurts people. Debt is the buffer against external shocks. That's why it exists and why it was invented even before money was.

by jawns 7y ago

rntksi 7y ago

What you are saying, basically, is that due to money flow halting, we will enter a deflationary period?

User23 7y ago
This is why fiscal stimulus in the form of checks to every citizen is a brilliant idea. It doesn’t matter if they “need the money” it matters if they spend it and productive capacity can meet the demand.
- jawns 7y ago
  In that case, it seems like they should be debit cards with a 6-month expiration date rather than checks. Granted, it's still possible to cash those out and save the money, but there's a little more friction involved.
- nathanaldensr 7y ago
  The Fed could drop a bag with a million freshly-printed FRNs in it on my doorstep, and I'd simply take the bag and put it in my bedroom. A significant number of people aren't going to spend the money no matter how much it is.
  - mooreds 7y ago
    Hmm. I am not sure one can have it both ways. Either most people will save a government handout, or most people live paycheck to paycheck and will be severely affected by losing their job/an economic slowdown. Of course there will be some people who will immediately save any check from the government, but that's a disjoint set from the people who are in dire need (laid off or reduced hours).
  - danaris 7y ago
    Just due to being on HN, you're statistically likely to be someone who has plenty of savings already. Most of America does not. If people are getting laid off en-masse, the majority of those people will, within a few weeks, not have enough money to afford basic necessities. Giving each of them $1k/month would soften the blow considerably. Giving them $3k/month would, for most of them, get them back close to where they were before the layoff, and keep the economy functioning.

yulaow 7y ago

I would add that even after the crisis is more under control, people will still avoid any not necessary spending for a very long time and this will keep the economy to restart. Also most of them will have depleated all savings at that point and will want to rebuild them aggressively, further reducing spending

toomuchtodo 7y ago
Sentiment momentum. No one is as confident about the economy as they were two months ago, and forward spending will reflect that.
Tepix 7y ago
On the other hand i predict there will be a huge surge in tourism and partying. Also, not everyone has insufficient savings.
- yulaow 7y ago
  I am willing to bet more than 50% of people have not enough saving for a crisis long 8-12 months
  - rdthree 7y ago
    That’s an easy prediction I think nearly half of Americans don’t have 500 in savings. That number is 80-90%
  - jawns 7y ago
    More than 50% of Americans making less than $50K say they can't afford to miss a single paycheck. About 30% say they have absolutely zero emergency savings. I would expect that the number of working Americans with emergency savings to cover even six months of expenses is fewer than 1 in 10. Granted, there are options such as HELOC, tapping 401k, etc. But most of us are grasshoppers, not ants. Granted,
- rocketpastsix 7y ago
  68% of Americans dont have enough to cover a $500 surprise bill [0]. A lot will rely on credit availability which will worse that impending crisis. 0: https://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-americans-dont-have-enough-savings-to-cover-a-500-emergency/#46f9aabf4e0d https://www.forbes.com/sites/maggiemcgrath/2016/01/06/63-of-...

Mountain_Skies 7y ago

During the Great Recession my employer at the time laid off a large percentage of our staff that they had wanted to layoff for a long time. Due to the nature of their industry, the appearance of stability was very important so they never did layoffs before. Any accumulated excess workforce had to be reduced through attrition or gross misconduct excessive enough for warrant being fired for cause. During the recession though, banks were failing left and right, unemployment was going up, mass layoffs were happening every day, and total economic collapse didn't seem out of the question. While the layoff did make the newspaper that day, it was considered a minor story with no follow up. During good times it would have been the top news story of the week and scared many of our clients. I wonder if this current crisis will allow for similar workforce reductions by companies seeing it as a good opportunity to reduce labor expenses without eroding public confidence in their company.

alexpetralia 7y ago
I also wonder whether this obscured and now accelerated "structural unemployment" - combined with a greater acceptance of remote work - will further shift domestic jobs overseas.
- Rebles 7y ago
  I actually wonder if the pandemic will discourage globalization. The NYT Podcast last week had a great segment on pandemic’s negative effects on globalization, specifically, the global supply chain. It postulates that the longer the supply chain is negatively impacted, the more likely corporations will try to localize. That being said, 60+ days of lockdown, and Wuhan is only now starting to consider easing restrictions. Other countries’ responses have been half measured compared to China, so we might have a longer period social distancing. CDC estimates will need the current measures through July. Other articles I read say we’ll need on-again off-again social distancing for the next 15 months as the virus surges and wanes.
- istorical 7y ago
  This is my greatest fear as an American engineer. When corporations finally realize remote work is just as valuable as in office work they'll start to wonder why they are employing US developers for $XX,XXX to $XXX,XXX when they could pay a European developer a low five figure salary in a weaker currency and get the same results.

jeremyjh 7y ago

I agree. There is substantial economic damage being done and it won't just undo itself. Lots of businesses are going to fail, those people will not find work so easily as they would have before the crisis. Also, I think this is going to last longer than most people realize. Countries that use this time to get their act together so that they can use South Korea style controls maybe will get their economies restarted sooner. Places where the only strategy is to shelter-in-place until there is a vaccine will see economic disruption for 9-12 months. The damage from that will be staggering.

tyingq 7y ago

I believe in a bounce back also, but I don't think we will bounce back to the same state. A couple of examples... Many companies will have figured out how to run leaner. So post recovery, they may not bring back everyone that was laid off. Lean is good, of course, but unemployment isn't. Competition will go down. Not every company in every space will survive. So things will consolidate down to the survivors. This probably hits small businesses especially hard. Again, Darwinism isn't inherently bad, but it could, for example, drive wages down. In short, whatever emerges will not be what we had, and will take some time to adjust to.

tarsinge 7y ago
That’ll look like a good case for UBI if we go down that route of leaner businesses. Also given that a reduction in consumption was needed short term for climate it might have indirect middle long term positive effects.
- ccajas 7y ago
  A situation like this one may actually speed up the need for many business to digitize their business models.

axegon_ 7y ago

> I've heard economic forecasters predict that the economy will spring back once the crisis is over. Their reasoning is that the crisis is an external issue, not a problem with the economy itself, as with the housing crisis. Once it becomes more contained and controlled, there will be work for people to do, and people available to do that work, and the economy will just start humming along again. Though I'm by no means an economist, I'm with this. What's more I have the feeling the economy might come out even stronger here is my reasoning: A lot of young people are confined to their homes at the moment. I'm talking about anyone in the 25-36-7-8-9 range(being a representative myself). Fair enough, take away the people who have families and children out of that group and you have a substantial number of people. And in that group are the most active members of society, which in normal circumstances, have plenty of entertainment in their lives outside their homes and work environment(contrary to popular belief). Yes, many spend too much time on social media, but plenty do not. In the additional spare time we have (at the expense of time spent at bars, restaurants, cinemas, shopping centers, etc.), many are occupying themselves however they can. Myself including - I'm almost out of books to read. I've enrolled at several online courses, I'm working on personal projects, including writing a book(which I intend to open source once complete). My point is that in that additional time, plenty of people will have time to work on current and potentially future problems and open markets that currently do not exist. Sure, many will fail, as usual, but some will succeed. The truth is that multi-billion corporations started as black swans. Stephen King has a brilliant essay called "On being 19". I don't remember the exact quote but it went something along the lines of "When you are 19, you believe that the whole world is at your mercy and no one should mess with you". Which is rarely the case. Companies and entire industries around them(Facebook, Google) might have been started by 19 year olds but they are the Black Swans. The truth is when you are 19, regardless of how smart you are, you lack experience and by implications, adequate amounts of knowledge. Most people have tried multiple times when they were in that age group and 99.99999% have failed. Now people with experience have the time and nothing better to do then use it to the maximum. I'm not looking at it as a Black Swan phenomenon but the next step: Antifragility. If anything, I believe that now is the time to pay close attention and use your resources, knowledge and experience to capitalize on it.

zzzzzzzza 7y ago

lonelappde 7y ago

Every noncash nonmanufacturing problem can be solved simply by running up debt and sorting it out later. Remember, debt is imaginary! The real part is doing somproductive work for someone else who owes you back. The worst you lose is what you got by working for someone else instead no yourself, not the essentials of life. Debt doesn't hurt anyone. Only forcibly collecting debt payments hurts people. Debt is the buffer against external shocks. That's why it exists and why it was invented even before money was.