Preview

The economic outcome from the coronavirus crisis hinges on a big if about vaccine distribution. But let’s think positive for a moment and play out the best-case scenario. We passed bridge funding for the unemployed and low-value checks (maybe they’ll be larger if Democrats win in Georgia today), along with small business support. That should lead to a stronger economic outlook, even if it doesn’t fully bridge to normalcy. Maybe the billions for vaccine distribution and new presidential leadership kick in and we’re in a pretty good situation by mid-year. In particular if you get the very elderly vaccinated, you reduce hospitalizations and deaths pretty sharply and you can start to tentatively reopen things that have really been closed since last March.

Combine that with positive aggregate household savings—in equal measure from CARES Act transfers and, less remarked-upon, lack of spending because there’s not a whole lot to do with travel and leisure dollars—and you have a lot of money burning holes in pockets. This is often called pent-up demand, and in practice it means that hotels and restaurants and movie theaters and other discretionary activities will see a lot of customers once activities can be assuredly done safely. The post-pandemic will be a big party, under this theory: there’s even a lot of loose talk about a Second Roaring Twenties.

Matt Yglesias has been one of the primary outliners of this scenario, and you should read his take. But I would say that it really only makes sense if you believe we live in a plutonomy, where the lives and fortunes of the rich matter almost exclusively. For them, rushing out after the crisis has lifted and going on trips and to the movies is quite probable. For everyone else, not so much. But inequality has soared to such a degree, especially in the pandemic, that under the plutonomy theory, all you need are rich people to support the entire economy. Let’s look at how this works, and why the particular circumstances of the pandemic cut against it.

If you believe in trickle-down, the burst of spending will trigger hiring for those in the service sector that cater to this wealthy clientele. That’s how a plutonomy functions to support low-wage workers and build a recovery.

This can also create competition. Yglesias notes how three coffee shops in his neighborhood have closed, and as herd immunity nears, the remaining one will see a surge of demand and therefore raise prices. This will lead to some other budding coffee shop owner to open a store and undercut the incumbent on price. This new business formation will eventually lead to a full recovery.

There’s only one thing: how will this new entrepreneur get the working capital to open up? Because smaller businesses simply cannot access credit, a trend that started after the financial crisis and has only worsened. Right now small business lending is at the same level as 2008, which was a far more pronounced recession. There’s been a parallel boom in cheap lending to bigger businesses, and again this predates the uncertain economic circumstances of the pandemic. The disappearance of community banks and the lack of profit margin in small business loans are among the causes.

Big banks themselves, meanwhile, have just been allowed to engage in share buybacks and dividends again, making it even less likely they will search for profit in small business lending. This leakage to shareholders isn’t enough for the capital class yet, but the trendlines are clear. The financial sector is supporting the big guys. The small business support in the new relief bill, which really only lasts two to three months, is not seen as enough to prevent more carnage. There are hundreds of thousands of firms barely hanging on that aren’t likely to make it, and the system makes it difficult for upstart replacements.

Meanwhile, we’re seeing record profits at the large incumbents. There are 56 new billionaires in America since March. Mergers hit $3.6 trillion for the year. “These are times when the strong can get stronger,” the CEO of Nike fittingly put it this fall. There’s just no question that the pandemic recovery so far has been massively unequal, and that’s poised to continue.

I have written previously that the disruption in the economy’s changing patterns—more working from home, less business travel, a taste for home cooking and comfortable frugality—will “strand assets” throughout the economy, making it hard for the dry cleaner catering to commuters or the business lunch spot to stay in business. But you have to add to that disruption the severe difference in economic outcomes between rich and poor, young and old, big business and small business. To a certain extent, these two Americas don’t even encounter one another anymore thanks to the pandemic; shared experience already went out the window long ago, but there’s not even much hope for a twinge of solidarity with one’s fellow man.

Plus, with a Federal Reserve also bought into the plutonomy theory and conflating propping up corporate assets with propping up the economy, there’s no real risk at the top. The fact that Congress canceled the corporate credit facilities except for the one, known as TALF, reserved for financiers wanting to dump bad securities suggests that an escape hatch has already been created if the corporate debt market tanks.

What does this mean in practice? The rich, and the lucky poor able to snatch up the jobs catering to their needs, may be fine. But we’ll be living under such unique circumstances that you might call it the Third Gilded Age: the first in the 19th century, the second over the past 20 years, and the third from the pandemic onward. A concentrated economy that stubbornly resists wage growth, a sclerotic economy robbed of startup dynamism, a disrupted economy that scrambles to reapply business models to new habits; that’s where we could be headed. And it may look superficially robust, but with dark spots lurking underneath.

I was on the Nicole Sandler Show yesterday discussing various matters. Watch here. (Nicole Sandler Show)
The Biden team’s plan to fix the vaccine rollout is a little too focused on supply and not enough on distribution, but it’s a start. (Washington Post)
Then again, Israel has been so efficient at distribution that it’s running out of vaccine, so any plan has to include both elements. (Washington Post)
How much should Moderna and Pfizer be able to profit off the vaccines, which were created with public money? (Los Angeles Times)
Biden’s appearance in Georgia yesterday was all about $2,000 checks if the Democrats win. (Daily Poster)
Meanwhile, Georgia is the only place in America that’s had weeks of in-person early voting, and it’s in the middle of its worst surge of the crisis. (Vox)
Britain is running a vast experiment on its citizens, prioritizing one shot and allowing “mix and match” doses of different vaccines, depending on availability. (Stat News)
The RESTAURANTS Act, which is gaining momentum in Congress, is a bailout without worker guarantees. (Jacobin)
When the freezer broke at a hospital in Ukiah, California, officials had two hours to distribute 600 doses. And they got it done. Um, why not always do that? (Los Angeles Times)