Plans for Extended Unemployment Benefits, Wage Subsidies Risk Creating a Zombie Economy

“the states that have reopened have seen anemic economic recoveries at best.

Slate’s Jordan Weissman, using data from the app Open Table, notes that restaurant reservations are down as much as 92 percent from last year in those states that have allowed dining rooms to reopen.

A ranking of state jobless claims released yesterday by the personal finance website Wallethub finds that the number of people applying for unemployment is especially high in Connecticut, which had a bad COVID-19 outbreaks and a strict shutdown order, but also in Georgia and South Dakota. The former is lifting its shutdown order, and the latter never imposed one.

This matches with new research showing that economic activity declined at similar rates regardless of when states issued formal lockdown orders. Individuals, not the government, shut the economy down. They’ll also decide when, or if, it reopens.”

“if we can’t expect much of the pre-pandemic economic activity to return, that dramatically weakens the case for propping up businesses as Jayapal and Hawley want to do, or paying workers to stay jobless like the HEROES Act does. Both policies stymie markets’ ability to adjust to COVID-19 while shifting resources from those parts of the economy that can be productive during a pandemic to those that can’t. If there’s no demand for air travel, we’d be better off seeing baggage handlers shift to being warehouse workers or grocery delivery drivers. We want cooks and cashiers to move to restaurants that can figure out a way to stay profitable without dining service.

That doesn’t mean the government can’t provide relief. Even if we allow those readjustments to happen, we’ll still probably have a less productive economy for a while, and the negative effects of that will be concentrated on people who aren’t in a position to adapt. So there’s a reasonable case for cash transfers targeting the poorest Americans. But they shouldn’t be conditioned on staying at their current jobs, and—unlike unemployment benefits—they shouldn’t be conditioned on staying out of the labor force altogether.”

The Coronavirus Butterfly Effect

“When you think of the U.S. manufacturing sector, you likely think of General Motors and U.S. Steel, faceless megaliths with armies of disciplined workers. But it’s more like Yellowstone National Park, an intricate ecosystem of small and specialized players, their fates closely intertwined. “If you look at anyone who is a node in a supply chain—a manufacturer, or sub-manufacturer, or raw materials extractor—each of those entities may be partnering with many different customers, as well as many different sub-suppliers beneath them,” says Karen Donohue, an expert on supply chains at the University of Minnesota’s Carlson School of Management. “Their solvency is potentially dependent on the weakest link in both of those networks. And that’s what makes prediction difficult.” A 2018 survey by the consultancy Deloitte found that 65 percent of more than 500 procurement leaders from 39 countries had a hazy view, at best, of their supply chains beyond their most important suppliers.”

“Professional Instruments’ primary customer is a small company in New Hampshire whose ultraprecision machine tools are crucial for manufacturing in the medical device, defense, consumer electronics, and automotive fields. “It’s almost impossible for someone to anticipate the knock-on effects of some businesses being closed down because they’re deemed nonessential, because they’re suppliers for companies that are deemed essential,” says the company’s recently retired former CEO, who requested anonymity to discuss sensitive business matters. “You build a quarter-million-dollar machine, but if you can’t get one $150 component off the shelf, you can’t put it into production.””

“Zoom out further, and the pandemic’s global nature becomes palpable. The future of the New Hampshire company is also uncertain, thanks in part to closures abroad. It has representatives in several countries (including South Korea, Japan, and Taiwan, all of which have implemented lockdown measures) and customers in many more. “Representatives might need to come from the U.S. to help install the machines,” says the former CEO. “But with global travel being affected, how are you going to get that equipment installed? You still need those people to travel. These machines don’t install themselves.” In March the company opened a training center in China, but “whether that center will be utilized for some time remains to be seen.””