Hello readers! I’m going to start this post with a bit of a disclaimer. Two, actually.
First, I know Covid-19 has been bad for a lot of people. It’s caused a lot of deaths, and a lot of disruption. There are people who have lost family members and friends because of this, or jobs and livelihoods. At the time of this writing, the global death toll was about 140,000. The goal of this post isn’t to say that Covid-19 (AKA Coronavirus) is good, it’s unmistakably a situation which we should take very seriously. But the impact it’s left on the other claw, could be good. Much in the way an early architectural disaster arising due to unknown elements can lead to a greater understanding of building stresses and safer buildings overall (this has indeed happened).
Second, this post is really only concerned with the United States of America. Because it’s where I happen to live, and where therefore I’m both most familiar with the structure of things as well as the effects Covid-19 has had on that structure. If you’re one of my many readers from outside the US (shoutout to Europe, including Sweden, Norway, Spain, and Finland, New Zealand, Brazil, and even Africa!) then this post may not be quite as relevant except maybe as a curious thought exercise or puzzlement or another opinion piece on how the US functions (or in this case, doesn’t function, as we’re about to discuss).
So, with both those things said, then, let’s move on to today’s post, and how Covid-19’s impact could be good for the US … if we’re aware enough to make it happen.
It’s no secret right now that the US economy has been decimated by the impact of Covid-19. That’s not an exaggeration in the slightest, by the way. Decimated is defined as “to destroy or remove a large percentage of” with the actual term coming from an old command to eliminate one-in-ten of the thing being decimated.
The US economy employees 158 million people according to Statsitica. Normally. However, due to the impact of Covid-19, over 22 million people have been put out of work from that force, according to the US Department of Labor.
So yes, the US economy has been decimated. And that’s just the start, because while 14% of the US working population has been furloughed or laid off, many more are working vastly reduced hours as business struggle to stay open. There aren’t numbers for that bit that I have, so I won’t make gross estimations. However, with 22 million out of work, and another percentage that is at least large enough to be statistically significant on reduced hours, the financial impact on the United States has already been dire enough that our government passed a two trillion dollar stimulus package. Within a week of this impact rolling out.
That period of time is significant: The US government even held emergency meetings working over a weekend (the horror) to make it happen ASAP. Or as soon as possible. Why? What made this so bad that they needed to pass the bill immediately?
Because the US economy was already collapsing. In fact, a number of companies (and entire industries) had already approached the government to declare that after just the start of the response to Covid-19, they were going to be bankrupt and out of business (the airlines here really harped this one). They needed money, and they needed it now.
Entire industries declaring their doom in just a few short weeks or days. And here’s where it gets interesting: Many of these industries, like the airline industry, had been seeing record-shattering profits the years before. How record shattering? The net profit of the airline industry in 2019—not gross, but net, ie pure profit—was 25.9 billion dollars. 27.3 billion the year before. 37.6 billion the year before that.
That’s a pure profit of 90.8 billion dollars. And before those people who are already determined to disprove this post start crying “But they have costs and maintenance!” that would be if this were gross profit. Not net. Net is after they’ve taken care of all their costs for the year and everything is paid for.
To put it differently, in just the past three years airlines had made enough pure profit to give every single person in the United States a check for $275 (and I mean every person, from newborn babes to the elderly) and still have money left over.
But with all this profit, they went to the US government in less than a week and declared ‘You need to give us at least 50 billion dollars right now or we’re going under.’
One might ask why they needed 50 billion dollars right now if they’d made that much money in profit in just the two prior years. Hadn’t they stored it for a rainy day? Made allowances or plans for a rough year?
No. They hadn’t. They admitted it up front. Instead, all of that money had gone into stock buybacks to inflate their companies’ stock price, and then bonuses to board members and CEOs for raising those values. They had no cash on hand for any sort of disaster. Well, the board members and CEO sure did, as those buying and selling the stocks, but that was their money now, not the company’s. The company had zero assets with which to operate for more than a month under the reduced travel Covid-19 had brought.
And they weren’t the only company to have this “problem.” A lot of US companies lined up for a government handout—sorry, bailout, because that sounds less like the large US companies are playing the part of a professional panhandler, but who are we kidding—because they’d engaged in exactly this same kind of behavior. Because as the US has decided, the only point of a company in the US, the only thing it has fiduciary responsibility to do, is generate money for its investors and owners. Saving? That’s money that, as the US has decided, should go to the board members. Because they have a right and responsibility to get as rich as possible.
But before we go any further, this is only one-half of the equation that led to this stimulus package. The other half of it was the working class of the United States.
See, according to a study by Careerbuilder in 2019, 79% of working Americans live paycheck to paycheck. So if we do the math, that means out of 158 million working Americans (before Covid-19), 124 million only make enough in a week to pay for that week, and are unable to put any more aside.
In other words, once the economy furloughed or fired 22 million-plus of them, and put another uncounted amount on reduced hours (or wages, as a lot of companies have also done) suddenly a good portion of the US found itself in a situation where they were suddenly left with an income of one week to pay for two … or worse.
Hence why part of the US stimulus package gave its citizens $1200 apiece, along with cutting deals for banks and landlords to forgive rent and mortgage payments for the summer: Because US citizens couldn’t pay for any of those things.
Now, I can absolutely guarantee that there are some readers saying “Well, that’s just because people are living beyond their means,” often using statistical outliers to make their point (or even proving it with their own financial practices). But the truth of the matter is that for most working Americans, that isn’t the full story, nor the case.
No, the full story and case is that wages in the US have been stagnant for almost three decades while costs have continued to rise. Rent has risen like clockwork, even in years where everything else has slumped. Same goes for insurance and healthcare (in fact, one report notes that healthcare costs and profits have risen year over year at a rate and regularity completely divested from the actual economy). Food costs have increased as well (think you paid more for fast food in 1972? Think again, you paid 33-50% less).
Sands, some companies in the US account for their workforce being on welfare in order to function. Wal-Mart, for example, as well as McDonalds have both noted that an employee cannot work there full-time (40 hours a week) and live above the poverty line, and therefore you are expected to either hold a second, full-time job or apply for government aid.
Couldn’t employers, from Starbucks to McDonalds, pay these employees more? Sure they could. But that would interfere with their fiduciary responsibility to make the owners and investors as much money as feasibly possible, remember?
**An aside: I know that there are a lot of arguments in favor of keeping employees poorly paid. Some argue that these jobs are supposed to be “for high schoolers” completely ignoring that if they were, places like McDonalds and Starbucks would only be open from 3;30 PM to 11 PM each day due to the fact that those students have school and are restricted by labor laws. Others argue that “people will just waste money if they’re given more” which is inexcusably bigoted and classist, as well as a fact that economists have proven incorrect with studies for decades now. A minor portion, yes, but a large majority of people when given a bit of lifeline use their money wisely. Probably more wisely than the person making such an accusation would. And finally, some argue that these jobs are “unskilled,” for “lazy people” and should therefore be kept low-paying. For one, arguing for that means that these “lazy people” are forced to be on government assistance even if they aren’t lazy. And if it’s such non-vital labor, why have it at all? Let the managers do it.**
Basically, the US economy has become increasingly stratified. For example, in the state I reside in, the average manager makes four times what the average employees under them do. Companies in the US, in pursuit of making as much money as possible flow upwards, have choked the modern employee.
For comparison’s sake, do you know what the difference was according to a 1972 report (PDF warning for mobile users) of the same numbers? Average managers in 1972 made $600-4000 more than their employees. 5-25% more.
Today, it’s 300-400% more. Think on that for a moment. Either way you make that scale happen (paying managers way more, employees far less, or both) that’s simply an incredible difference and change over the last 50 years.
All of these things add up, and add up in ways dangerous to an economy. So while companies needed bailouts because they couldn’t run for a month with any sort of reduced income, neither could a large portion of America’s workers. They couldn’t even go a week without being behind or failing to be able to pay for something like rent because the margin for error has become so thin.
All in the theme of funneling as much money as possible upwards.
Okay, so that’s the why behind the largest stimulus package the US has ever signed. But why could any of this be good? Well, I’ll tell you. Here’s why all this financial disaster and reckoning could be, in the long term, good for the United States.
Because it showed us how flimsy things have become. How precarious our entire economy is. It’s become so stratified, so thin in margins, that a single week of quarantine was enough to decimate it so badly that the US needed to pass the largest stimulus package in the history of the States to keep entire industries from collapsing.
That is not stability. That is a house made of cards. The big bad wolf didn’t even have to blow. He just inhaled. Covid-19, for all it’s dangers, is far less deadly than something like the Spanish Flu. Can you imagine what would have happened if Covid-19 had been as deadly as Spanish Flu?
And yet, Covid-19 sent the US economy reeling in a way that we’ll likely feel for decades, because it wasn’t a stable economy. It was a house of cards. Margins were razor thin. Workers living check to check. But despite all of that being done in the name of “profit” all of that profit, rather than being sunk back into the companies that made it to secure them against any sort of trouble, was instead funneled into pockets of owners and investors.
Why? Because we decided in the mid-70s, in the US, that a company didn’t have a fiduciary responsibility to care for itself. It didn’t have the responsibility to plan for rainy days. Or pay its workers enough to live above the poverty line.
We decided that was the government’s job. And that all a company had to worry about was making sure its investors and board members got as much money as possible all the time. “Damn the torpedoes, full speed ahead!”
Obviously, that is not good. Having an economy so shaky that a week of inconvenience can send entire sections of it into a tailspin and put 14% of it out of work? That’s not an economy I want to live under. That’s like buying a house where you have to pump out the basement every single day, all day, and if the pump ever malfunctions or slows in any way shape or possible for more than a few hours 15% of the house will collapse in on itself.
Who would buy that house? Well, in the US, we did. All of us. All the government representatives. All the workers. All the courts. We looked at this house, said “Yeah, but the pump won’t ever have issues, and if it does, someone else will pay for it, surely!” Then we put our signature on the line and moved in.
And surprise surprise, it’s a terrible idea. But we did it anyway. Though in fairness, hindsight is 20/20.
So then, to get back to the initial title of this post, how could any of this be a good thing?
Because there’s a chance it will get people to step back and ask “How? How did this happen? Why did this happen?” People are upset. Unhappy. They want answers.
And, by some strange coincidence, a lot of them have a lot of free time to go digging, too. Time to read. Time to learn. Time to think and decide “You know, maybe I don’t want to live in that house. If 15% of it can collapse, what’s keeping the rest of it up?” Or they read a book (or listen to a podcast) on the Fall of Rome, hit the part about the financial choices that gutted the empire, and realize how closely they mirror America’s in the last 30 years.
This is my hope. That we take what’s happened to the US economy as a result of something like Covid-19 as a warning, and decide to do something about it.
Now, before I go any further, I have one more, very important disclaimer. Maybe I should have led with it, but whatever.
I am a capitalist. I am for capitalism. Of all the various kinds of economic patterns the world has tried over the years, capitalism has the most upsides with the least amount of downsides. But with that said, those reading this post should be aware that there are kinds of capitalism. The US economy in the 50s, 60s, and 70s, for example, was called “Welfare Capitalism” because the companies and businesses operating under it had a fiduciary responsibility to look out for the welfare of their workers. In the mid-70s, the US transitioned to our current brand of capitalism, “Corporate Capitalism,” where the money the company brings in for its upper bounds is all that matters.
We can still be capitalists while not following “Corporate Capitalism.” I’ve heard a lot of talk about “Humanist Capitalism” perhaps being our next step, but I leave that for you to decide. My point is I’m not arguing that “capitalism is bad, and we should throw it all out.” Far from it. I’m arguing that we’ve switched to an unstable variant of capitalism, one that’s adopted financial practices that have in centuries past proven disastrous if allowed to persist (see the Fall of Rome), and that we really should get away from those and back to a more stable version of capitalism so that when the next disaster hits, we don’t all turn once more to the government and ask for money because we’ve made a system that can’t function without it.
That’s doable. We can switch to another form of capitalism. One that doesn’t stratify heavily. One that makes it a fiduciary responsibility of a company to see to the needs of the company first, not the wallets of the board members.
So that’s why I believe Covid-19’s impact could be a good thing. Millions upon millions of Americans wondering “Why?” might find answers and decide “No, I don’t want it to be like this anymore.”
I hope it does. Stability is key to survival, even for a government. And in this case, I think two trillion dollars (to start, I may, add, as the government is already talking about needing to pass another bailout), combined with the absolute decimation of the US economy, is proof enough that things need to change.
Companies need a fiduciary responsibility to their own welfare, and not to the wallets of their board and CEO.
Employees need to be paid enough that “They’ll be on welfare too” is no longer part of a company’s financial plan. In fact, I think any company that’s doing this should have its CEO and board jailed for welfare fraud.
Pay disparity and the stratification of US employees needs to end. No more managers making 300-400% of the people right below them.
I hope that Covid-19 wakes people up. that they take a stand and move for changes. So that the next time this happens—and it will—the majority of both people and companies will be able to shake their heads at the government and say “No thanks, we’re prepared.”
That’s the stability I’d like to see.
One can only hope.
4 thoughts on “Op-Ed: How Covid-19’s Impact Might Be Good for the United States”
The only thing I have to add is that I seriously question if this bailout from the government is a good thing. In fact, I’d say it’s spectacularly bad. What does this bailout teach us? That it doesn’t matter if we aren’t fiscally responsible. Why should we or the businesses be fiscally responsible when we know Uncle Sam with his infinite bank account will pay us to stay afloat?
Granted, these companies folding would be nothing short of devastating for all involved. But if you’re just going to pick them up every single time they fall, how in God’s name can we ever expect anyone to learn not to fall in the first place? If we’re going to bail businesses out, it should be conditional to them cleaning up their financial act rather than just “Here, free money!”
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I agree. Especially the airlines, who were flagrantly dismissive about why they didn’t have any money and fully expected that they’d just be given a handout with no questions asked.
Let them fail! Does anyone really think that within minutes of them announcing that they were going out of business, someone else wouldn’t show up to buy it all and prove they could run it better? It’d be disruptive, yes, but it’d be truer to the idea of “capitalism” than the bailout we gave them was.
If you’re going to adopt a system, you have to take the good with the bad.
Now, in fairness, corporations have worked their hardest to build a system whereby they’re insulated from that. Making everyone’s retirement based on stock prices, rather than a pension, for example, makes them “too big to fail” as if they do, everyone loses their retirement. They’ve leveraged that as a tool to insulate themselves from their behavior and mistakes, and that needs to change.
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Or, the lesson to draw from covid-19 might be that a radical cure can be worse than the disease.
“The US economy in the 50s, 60s, and 70s, for example, was called “Welfare Capitalism” because the companies and businesses operating under it had a fiduciary responsibility to look out for the welfare of their workers. In the mid-70s, the US transitioned to our current brand of capitalism, “Corporate Capitalism,” where the money the company brings in for its upper bounds is all that matters.”
What made the difference? Were there laws requiring companies to look out more for the welfare of their workers? Or was it a cultural shift? I would really like to know.
I agree the “too big to fail” mentality is a scam, perpetuated by many of the same people who otherwise claim to believe in letting people fail.
Another issue is the advent of mutual funds. Mutual fund investors rarely vote, leaving the boards of companies free to give profits to themselves. The failure might not be so much that companies are acting in the interests of the stockholders, as that they are no longer acting in the interests of the stockholders.
It would be in the interest of most stockholders not to go bankrupt, but the people running the company might make more money by going bankrupt than by making a profit, depending on what rules exist to prevent short sales based on inside information.
Re. Rome, Rome didn’t fall because of capitalism. I think more historians of economics would blame Diocletian’s economic “reforms”: building a strong, expensive central government, a huge army, and a huge bureaucracy, and abolishing free markets in both goods and labor. Today history departments at the “best” universities teach that Diocletian’s reforms “saved” or “revitalized” Rome, but that’s just because most of them are Marxist (or “Marxian”).
The economy will be more than decimated. A planned command economy is a machine–designed and dictated from the top down, able to do what it was designed to do, but inflexible, unable to grow, unable to learn. A free market economy is a living thing, which grew bit by bit from humble origins as individuals devised and created new components, new mechanisms, new business practices that could find a niche in their environment. Free markets are more flexible in every way but one: You can’t turn them off and then turn them back on again like a machine. If you turn them off for more than a short time–probably measured in months, not years–they die, and you have to grow a new one.
The network of interdependencies is complex, and not written down in any one place, and breaks in the supply chain cause exponentially-increasing disruptions the farther you go downstream. One company in China that makes screws has to stop shipping, and the operations of a hundred countries all over the world are thrown into chaos, because they need machines that depend on parts that depend on screws. Then half of those hundred companies shut down, and another thousand companies have their business disrupted, and many of them go out of business. I’m making up the numbers, but the point holds: sickness and death among companies grows exponentially, just like covid-19 did–but more dramatically, since there’s no immunity, and the curve stays exponential.
The change from Welfare Capitalism to Corporate Capitalism very likely began with changes in federal tax laws.