The Economy

MUSINGS ON THE ECONOMIC DAMAGE FROM THE VIRUS HYSTERIA

Effort is needed to maintain life. Our bodies must work constantly to replace dying cells, repair damaged tissue, fight invading microorganisms, and remodel bone for changing demands- to name a few tasks. Without this work, human beings, or for that matter any plant or animal, will soon die.

Dr Kim Henry Covid-19 economy

Likewise, to preserve human civilization, work is constantly needed. Water must be purified and sent running though pipes. Electricity must be produced and distributed, and food must be grown, processed, and brought to market. Not to mention all the items we use which must be manufactured. The sum total of all productive work determines our relative wealth, safety, and comfort. Productivity is the sum total of work of all participants in a society. Productivity can be increased by more people working, working more hours, or working more efficiently, or a combination of these three.

Caring for more people afflicted by a new virus requires additional work. Paradoxically, the afflicted sick not yet retired are removed from the workforce- just when more work is needed.

In our particular case, government has compounded the problem of lowered productivity. In order to slow the infection rate, it has made it impossible for many people to work. It has, in effect, prevented many people from doing their jobs in society! While some workers can maintain productivity from home, others, such as myself, cannot. I must have physical contact to treat my dental patients. Although my state government has declared my work “essential,” it has at the same time scared and discouraged patients from traveling to have medical and dental treatment. As a result, many non-hospital-based physicians, plus optometrists, podiatrists, and a host of other outpatient practitioners have effectively been rendered non-productive.

A worker whose employer has been temporarily closed will be idle, unless he changes jobs to work in an “essential” industry that is hiring. Time is finite in human lives. Any worker’s idle time will result in productivity being lost forever, never to be recovered. Multiply this idleness by the number of workers laid off, and society suffers a substantial and irreversible productivity decline. The standard of living MUST fall, as it is a function of productivity. Few workers will desire or be able to work 16-hour days to make up for all the 8-hour days of work they were shorted during the hysteria.

Wages constitute the reward for productive work. When workers cease earning their usual salaries, they must lower their own personal consumption. This, in turn, lowers demand for goods and services produced by workers whose jobs have been declared “essential.” The lessened demand cuts labor needed by other workers, who in turn are paid less. Thus, the effect on productivity is compounded by cascading unemployment to other sectors.

Businesses have fixed and variable costs. Some items, like supplies and electricity, increase or decrease with the volume of customer demand. Other items like rent and licensing fees are constant, independent of demand. Imagine a business having a rent of $4500 each month, plus flat annual taxes and licensing fees that must be paid regardless of business volume. It might be possible for the owner to hang on for two weeks without the owner taking any income for his own living expenses, but such losses cannot be sustained for months on end, as one famous billionaire has been so foolish to recommend. When a business is liquidated, the sum total of all the systems and employees with their knowledge disappear with it. It is a tragedy of huge proportions for municipalities to lose successful businesses solely due to overly cautious executive decisions. Potential new owners may not have cash to consummate a purchase, and the business contents may be liquidated by a lender for pennies on the dollar.

Many people mistakenly believe the government, which is partially to blame for the business crisis, can rush to the rescue with the aid of its stepsister the Central Bank. However, no entity can ever make up for production forever lost in time.

“But wait! The government will give the unemployed workers money for their idle time. It will grant business owners money to pay their bills! Everything will be alright!”

How exactly will that work? Remember that with fewer people working, wages will be decreased, and taxes with them. So, tax revenues available to governments will be less. And doling out money still does not ameliorate the production that was lost forever.

The figures being about as being needed for emergency relief has been advertised to the public as totaling two trillion dollars. How big is two trillion?

  • It is 9.3% of the economic output of the USA for an entire year.
  • To roll out a stream of two trillion $1 bills, a plane would have to fly at the speed of sound for 28 years!
  • Two trillion dollars would almost reach from the earth to the sun and back!

As incredible as the number is, remember that the side effect of any economic slowdown is that most student loans and sub-prime auto loans, as well as some mortgages, will likely default and jeopardize our banking system. Additional bailout money will be needed to “fix” this problem and prevent bank collapses. Guesses on a bailout final figure will range from 3 to 5 trillion dollars.

Previous US government debt issues were already stressing the US credit markets enough for the Federal Reserve to supply liquidity last fall. The fact of the matter is that there will not be a market for 2 to 5 trillion dollars more of US debt instruments in the entire world. Therefore, our Federal Reserve will print more money and become the sole buyer of the additional debt issues.

Remember US output has fallen because of the virus hysteria. Less stuff and less services are being produced. When 2 to 5 trillion dollars more currency is dumped in our economy of lessened GDP, price inflation MUST result. Where will it show up?

The first place it will probably appear is in asset prices. Everyone will be happier with higher stock, bond, and real estate prices. Slowly the inflation will filter down to commodity prices, then finally we will see it on a consumer level. Americans will be happy to see their 401K values rise or even exceed former valuations, but they may not realize their retirement money will not buy nearly as much as it used to! In short, it is unavoidable that our standard of living will fall as a result of this virus and the radical actions put into place because of it.

The present virus conundrum is a no-winner for any reasonable politician. Were any elected official to advocate lifting shelter-in-place laws except for vulnerable elderly, cries from demagogues would be raised in unison, “He cares more about profit than people!”

There is a huge cost to minimizing loss of life. Many times it entails gross curtailment of human liberty, as well as the destruction of livelihoods. There must be balance in everything. Lives can be saved in a variety of ways- including banning motorcycles and dangerous sports, as well as unsafe sexual activity. Yet we don’t ban them because we believe in freedom. Why are we willing to suspend our belief in personal liberties and cause an economic depression just because a new virus is the cause of death?

Dr. Kim Henry

April 12, 2020

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