The Covid-19 pandemic reached the US last month, bringing with it a public health crisis and immense economic uncertainty. During the final two weeks of March, 9,955,000 people filed for unemployment benefits — the result of low consumer demand and disrupted global supply chains.
On top of financial harm, the virus itself remains a very real threat to large subsets of the population. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, announced that Covid-19 could kill up to 240,000 Americans even if social distancing guidelines are properly followed.
This global health crisis has many people wisely prioritizing immediate concerns like health and finances over the years ahead. And yet, a future will form out of the Covid-19 pandemic.
What will the post-pandemic economy look like? How will business change? Will certain policies become more likely? These are some questions that we need to think about when we finally start planning for the years after Covid-19.
Let’s see how the pandemic will impact the economy.
The Retail Sector
Large brick-and-mortar retailers like Gap and Macy’s are experiencing a massive decline in sales as customers avoid malls and refrain from going out for non-essential shopping. Meanwhile, major online retail stores like Walmart and Amazon are doing just fine. Social distancing is practically built into the online business model, so Covid-19 may actually be increasing Amazon’s sales figures.
Hirings and Furloughs
We do not have direct access to these companies’ sales data, but their employment patterns are a good enough proxy. As expected, brick-and-mortar retailers are furloughing workers due to falling consumer demand:
- Macy’s: Furloughing most of its 125,000 employees
- Gap: Furloughing 80,000 employees
- Kohl’s: Furloughing most of its 122,000 associate employees.
- J.C. Penny: Furloughing about 95,000 employees.
And online retailers are expanding:
- Amazon: Hiring 100,000 workers at $2 higher than the regular wage.
- Walmart: Hiring 150,000 workers and offering bonus payments.
Since large online retailers are not struggling, this pandemic will give Amazon and Walmart plenty of time to fill the void left by shuttered shops in malls across the country.
- Amazon and Walmart will capture a lot of the market share previously owned by brick-and-mortar retailers.
Small businesses are being hit at least as hard as brick-and-mortar retailers. Social distancing measures, fear of infection, and stay-at-home orders have greatly diminished sales for restaurants, coffee shops, and bars. Service businesses, such as home-cleaning and catering, have also suffered.
The Paycheck Protection Program
The federal government has offered some hope to small businesses in Phase 3 of the CARES Act. The policy’s Payment Protection Program offers loans of up to $10 million for companies with fewer than 500 employees. Loans used for payroll and other operating costs from February 15 until June 30 will be forgiven. That basically means free cash for critical business functions until July.
Still, some small businesses may have already failed due to the lag between falling economic activity and the government response. Many Americans started to see Covid-19 as a real threat during the week beginning on March 16. The CARES Act was not passed until March 27. It is plausible that restaurants and other businesses with tight margins were unable to apply for and receive emergency funding in time.
It is also possible that many small businesses failed before the CARES Act was passed. More may fail before the policy can be effective. We could see a spike in small business failures in July if Congress fails to extend the Paycheck Protection Program.
It is worth noting that red tape and the way the SBA system is structured may create significant delays for businesses seeking loans. There is also the possibility that areas across the US will not have access to direly needed funds due to banks’ refusal to participate in the emergency lending plan. It seems likely that a significant number of small businesses will fail.
These failures would be a response to pandemic rather than some permanent change in demand, so small businesses could return during the recovery. Though, a more dismal possibility also exists. Some small businesses (particularly those that do not fill a unique local niche — like a grocery store or barbershop) may be replaced by national companies with the capital to quickly mobilize and expand.
- If large companies rehire furloughed workers, consumer demand will quickly return during the recovery.
- Small businesses will have an opportunity to be reestablished in recovering markets, but national companies may beat them to it.
The United States has seen an uptick in demand for social safety nets since at least the Obama Administration. But the Affordable Care Act was just the start. During the campaign for the 2020 Presidential Election, we witnessed nearly every Democratic presidential hopeful suggesting social policies like debt forgiveness, universal healthcare, job guarantees, and universal basic income.
Now that the US is in the midst of a crisis, social safety nets have been demanded by a constituency that is much wider than any single candidate’s base. On March 27, the US federal government delivered some of these social policies, if only to stimulate the economy during the crisis.
The CARES Act includes a $1200 stimulus check offered to Americans making under $75,000. This stimulus comes at a time when at least 10 million Americans have lost jobs and are filing for unemployment insurance. The number of weekly jobless claims are still climbing rapidly, so people will probably need more cash transfers in May and perhaps every month that follows until the pandemic ends.
Data collected from https://www.dol.gov/ui/data.pdf
Stimulus checks may remind people of Andrew Yang’s universal basic income proposal, a.k.a. the Freedom Dividend. While the stimulus check is not quite universal, it may tempt policymakers into considering more unconditional cash transfers to the public during both crisis and normal times. It is doubtful that a basic income policy will be seriously considered in Congress any time soon, but UBI fans will be much more common after the pandemic.
Unemployment Insurance for Contractors
Federal funding is now being allocated to states to offer up to $600 per week to freelancers who are without work during the pandemic. It is currently unclear exactly how one qualifies for these benefits due to lack of guidance from the Federal government, but unemployment insurance for 1099 filers is brand new. Perhaps UI benefits for contract workers will stick around when this pandemic is finally over.
- In general, demand for social policy will be higher since Americans will have had a taste of government relief efforts.
- The stimulus checks offered by the CARES Act will increase demand for a universal basic income.
- The unemployment insurance system will be permanently updated to cover all types of workers.
During times of crisis, we realize that we simply cannot afford inefficiencies that slow down the supply chain. This is especially true in healthcare, a sector that is struggling to come up with enough ventilators, personal protective equipment, and trained medical professionals.
In response to these shortages, many regulations are being temporarily eliminated. For example, the governor of New Jersey signed an executive order that would allow recently retired and foreign-licensed doctors to practice medicine. Across the country, medical schools are offering early graduation options to allow students to work as medical professionals during the pandemic. The FDA has also reversed its ban on imports of the KN95 mask — the Chinese equivalent of the N95 mask.
Discussions of regulations during the crisis may segue into lasting changes when the pandemic blows over. All of the Covid-19 deregulations that we have seen so far are incremental changes that free up valuable resources rather than ideological crusades about the reach of government. If this pragmatism lingers, perhaps we will have a chance to reform some unnecessary or inefficient restrictions.
Wise policymakers might also create emergency deregulation protocols. During a crisis, these protocols would automatically suspend a set of pre-selected regulations that make sense during peacetime but are too costly during crises.
- Regulations will be re-evaluated to determine if they are necessary.
- Emergency deregulation protocols will be established to quickly boost the efficiency of supply chains during times of crisis.
The pandemic has pushed a large segment of society to adopt technologies that have been used by remote workers for a few years. Video conferencing tools, such as Zoom and GoToMeeting, are being used for things like project briefings and online classes. Some people are even using these platforms to enjoy happy hours with their colleagues.
Along with video conferencing, people in many industries are trying out scheduling software (Calendly), searchable chat platforms (Slack), and other fairly new tools. With this new tech, companies can also decide whether remote work is something they can adopt on a permanent basis. Educators have a similar opportunity to find ways to deliver online lessons in ways that are insightful and engaging.
If we forget about all the gloom of this pandemic for just a moment, we can think of Covid-19 as the digital upgrade for many analog professions across the economy.
- In general, industries will become more tech-savvy.
- Many professionals and educators will continue to use new communication and collaboration tools.
- More distance learning options will be offered, especially for high school and college students.
- More companies will offer remote work options.
Quarantine orders and a halt to manufacturing in East Asia caused international production and trade to fall drastically in February and March.
Data collected from https://www.census.gov/foreign-trade/balance/c5700.html#2020
Trade from producers in China and other key East Asian countries has since continued, but the disruption in trade made Americans realize that many US supplies — some of which are vital during a crisis — come from foreign markets. The US experienced at least one drug shortage in March due to virus-related production delays in China and India.
Policymakers will certainly address the United States’ dependence on foreign production. It is likely that they will suggest some degree of economic self-reliance, or autarky.
Moderates looking for a simple solution without departing from the norm may suggest a permanent stockpile of critical supplies like ventilators and certain pharmaceuticals. Others are likely to call for all emergency supplies to be manufactured and stockpiled in the US. Some politicians may even take this several steps further by demanding total domestic production and an end to imports.
- Policymakers will attempt to reduce the United States’ reliance on international markets during times of crisis.
- Peacetime stockpiling or economic autarky will be suggested as counters to disruptions in trade.
- Import-reduction tools like tariffs and quotas could be on the horizon.
While the Covid-19 pandemic has already brought many changes to several areas of our economy, it seems likely that the situation will grow more desperate.
Long-lasting declines in consumer demand will obliterate small businesses while spurring calls for relief from the government. Meanwhile, companies with vast resources and online infrastructure will provide the essentials to households across America. Educators, workers, and employers will be forced to adapt to a life where social distance is the status quo. And once the dust settles, “never again” will be the motto of policymakers determined to improve the government’s capacity to respond to crisis.
The predictions laid out here will only become more likely the longer this pandemic and its economic fallout ravage communities across the country. A time of great change is coming.