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Musings Report 2020-12 3-21-20 The World Has Changed More Than We Know
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For those who are new to the Musings reports: they're a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
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An additional fifty-seven extremely generous souls responded to my rattling of the begging bowl this week. Thank you very much!
The World Has Changed More Than We Know
While the mainstream media understandably focuses on the here and now of the pandemic, some commentators are looking at the long-term consequences. Here is a small sampling:
Coronavirus, synchronous failure and the global phase-shift
Florence Hit by the Coronavirus: The Curse of Hyperspecialization
All that is solid melts into air
The Upsides of a Global Pandemic: Five Ways Coronavirus is Finally Forcing Us to Make the (Radical) Socioeconomic Transformations We Should Have Made Long Ago
Coronavirus Will Require Us to Completely Reshape the Economy
How will coronavirus change the world?: As coronavirus spreads, the possibility that it will have a severe and lasting impact on our world increases. But how will it impact the different facets of our existence?
How Coronavirus may change society as we know it
We're not going back to normal: Social distancing is here to stay for much more than a few weeks. It will upend our way of life, in some ways forever. (MIT Technology Review)
While each of these essays offers a different perspective, I'd like to start with two: Ugo Bardi's essay on Hyperspecialization and the technological responses described in the MIT Technology Review essay.
As readers of the blog know, I've been differentiating between first-order and second-order effects: First order effects: every action has a consequence. Second order effects: every consequence has its own consequences.
We can think of these as direct (first order) and indirect (second order) effects.
The MIT Technology Review article focuses on direct effects, i.e. how to deploy technology to identify people with the virus, track their recent movements and who they might have exposed to the disease, tech-driven regulations that would limit the movements of infected people (such as we see in China now), etc.
Bardi's first-hand account from Northern Italy touches on an indirect effect: the profoundly negative impact of a hyperspecialized economy that is suddenly disrupted. In this case, the specialization is tourism, but there are other examples, many driven by hyper-globalization.
Specialization has long been central to capitalism's relentless drive to increase efficiencies and thus profits, and globalization has pushed specialization to extremes as few local enterprises can compete with globally dominant corporations.
The net result is increasing reliance on one globally competitive specialized industry for jobs, tax revenues, etc.--in essence, the modern-day equivalent of a monoculture plantation or single-industry factory town.
When the plantation or factory closes, there's no economically diverse ecosystem to pick up the slack.
If tourism doesn't rebound very quickly, all the local economies that became hyperspecialized to serve global tourism (enabled by low-cost airfares and credit cards) will be gutted.
The second order effect of the pandemic will be the wrenching transformation of these local economies into a much broader economic ecosystem that will have to be moated from globalized competition. For example, grapes flown in from locales 3,000 miles away will be banned or heavily taxed so local grapes can compete.
A great many inefficiencies have been sustained by hidebound, self-serving institutions and cartels which have moated their industries from competition by government regulations and monopolies. These include higher education, healthcare, the defense sector and the recent crop of Big Tech monopolies (Facebook, Google, et al.).
A number of people have already noted that remote online classes have become the norm out of necessity, and this has revealed the incredible inefficiency of maintaining enormously costly campuses and bureaucracies for coursework that can be completed anywhere.
I wrote an entire book outlining how a superior education could be delivered for 10% of the current cost ($120,000 for a four-year state college diploma). (The Nearly Free University)
While the large research universities need students to physically be present to operate the machinery of experiments and research, the vast majority of undergraduate coursework does not require physical presence. In many lab settings, whatever physical presence is required could be drastically compressed in time or shifted to remote control of lab tools.
The same transition will occur in Corporate America as managers accept that there are few absolutely essential reasons to demand workers squander huge amounts of time and money transporting themselves to centralized workplaces.
The trend to remote work is not new, but it is now being accelerated past the point that hidebound managers will be able to demand a return to the inefficiencies of the former status quo.
This shift to decentralized, networked remote work will have a devastating impact on the commercial office sector. A very large percentage of the already-excessive supply of office space will be surplus, and it won't be cheap or easy to transform offices into residential living spaces.
(An entire floor of office space might have one set of bathrooms and a single utility kitchen; every living unit will of course require its own bathroom and kitchen.)
The financial fragilities and vulnerabilities that are now becoming apparent are not limited to hyperspecialization and globalized monoculture economies. The cost structure of many (and very likely most) small enterprises was burdensome even in the best of times: rent, utilities, fees, taxes, regulatory compliance, insurance, labor overhead and so on are now crushingly costly, and once revenues decline by even 10%-20%, the small businesses are no longer viable.
Costs such as rent, healthcare insurance, local fees and taxes are notoriously "sticky," meaning the default is to ratchet ever higher. These costs don't drop unless there is a full-blown crisis such as mass bankruptcies of commercial landlords and cities.
Thus we can anticipate a culling of all the marginal, struggling small businesses in the pandemic recession, and a weak or non-existent emergence of new businesses in the future to replace those lost, as revenues will remain weak while costs will only increase.
Few observers are pondering the psychological changes that the pandemic have unleashed. To take an obvious example, consumers will no longer be able to maintain confidence in their incomes or the market value of their labor and assets. This uncertainty will naturally encourage savings rather than frivolous spending and debt, and this tidal shift will depress consumption.
Status quo policies such as lowering interest rates will not change this psychological shift in the tides.
Lowering interest rates to zero won't mean credit cards, auto loans and mortgages will be interest free, and lower rates won't change the reality that incomes and asset prices may decline or remain uncertain for years to come.
The world has changed, and the longer-term consequences are far from clear. But we already know there will be no return to the "normal" of December 2019.
Highlights of the Blog
CORONA Carnage - Helicopter Money On the Way (37 min) with Gordon Long
Why Are Things Falling Apart? (22 minutes) with Jay Taylor
Charles Hugh Smith on the Global Economy (28 minutes) with Lior Gantz
The System Will Not Return to "Normal," and That's Good; We Can Do Better 3/21/20
The Global Repricing of Assets Can't Be Stopped 3/18/20
Covid-19 Helicopter Money: Go Big Now or Go Home 3/17/20
The Covid-19 Dominoes Fall: The World Is Insolvent 3/16/20
Best Thing That Happened To Me This Week
I would have been pleased if 11 readers responded to my rattling the begging bowl last weekend, and I am humbled and astounded that ten times that number responded-- 115. Thank you for your vote of confidence and generosity!
From Left Field
In normal times, universal basic income is a bad idea. But it’s the wisest solution for COVID-19 economic strain (via Jill K.)
Coronavirus: The Hammer and the Dance: What the Next 18 Months Can Look Like, if Leaders Buy Us Time
Gougers 'R' Us: How Private Equity Is Gobbling Up Medical Care
Covid-19 has exposed our financial fragility: An orgy of borrowing, speculation and euphoria has left the markets on the verge of catastrophe (Jonathan Tepper is the co-author of The Myth of Capitalism: Monopolies and the Death of Competition, Endgame: The End of the Debt Supercycle)
Beijing's Claim Of No New Infections Contradicts Reality On The Ground
Italians over 80 'will be left to die' as country overwhelmed by coronavirus: Hardest-hit region drafts new proposals saying who will live and who will die
Pakistan coronavirus camp: ‘No facilities, no humanity’
Why Telling People They Don’t Need Masks Backfired: To help manage the shortage, the authorities sent a message that made them untrustworthy.
‘Hell is coming’ — Bill Ackman has dire warning for Trump, CEOs if drastic measures aren’t taken now
Coronavirus: France President Macron suspends rent, taxes and utilities
As China's coronavirus outbreak eases, a wary return to shops for consumers
Life in China Has Not Returned to Normal, Despite What the Government Says
Heartwarming Moments Quarantined Italians Sing Together from Balconies (via Tom D.)
THE BEATLES | You Can't Do That! | Making Of A HARD DAY'S NIGHT (1 hr documentary)
"We are more often treacherous through weakness than through calculation." Francois de La Rochefoucauld
Thanks for reading--
charles |
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