Future's So Bright!

To recover from Coronavirus, the U.S. economy is going to need a debt jubilee. (Or so argues James Galbraith in this interview I recently conducted, which also touches on MMT, the CBO, and the influence of ancient Chinese thought on neoclassical economics)https://t.co/iJmpZ8NXjY

— Eric Levitz (@EricLevitz) May 28, 2020

The Law of Moses had the same insight (though, as far as I know, the Israelites never really did it.  The love of property, and power, is the root of all...something.).  The whole idea of "jubilee" connected to debt forgiveness is irrecovably Hebraic, in fact.  The article implies they got the idea from Babylon, which I don't doubt for a minute.  But we remember the Hebrews; without them, who remembers Babylon at all?

And I'm gonna shift gears and quote a bit of the interview, because I've been having the same thoughts myself:

Whereas previously, you were working in an office. As a result, there’s a lot of empty office space. Who would build a new office building? And you’re probably driving less than you were. So your car, like mine, is getting much less depreciation on it than it otherwise would. So chances are it’s going to last longer. Cars obviously aren’t going away. But the producers are dependent on the flow of new demand. And that’s going down.

So start there. And then think about basically any service establishment you want to name, all of which depend upon customer flow, and many of which depend upon packing them in because they’ve got very thin margins. This is true of almost all restaurants and bars. Now, these businesses have accumulated debts. If you cut their order flow in half, there’s no way for them to pay their debts and make their tiny margins. How can you make them viable? Only by eliminating the nonproductive factor that keeps piling up as debt, which is rent.

You can flood the system with cash on a short-term basis, but that doesn’t solve the investment problem or the consumer-demand problem. So, inevitably, there’s going to be a big reconfiguration. Exactly what form it takes, I don’t know. One thing you could do is buy the capital assets of firms that are in principle viable, or that could be viable at a lower rate of return; basically, buy off the landlords and then set up some kind of a cooperative model with the operators. That way, you get some of the community life back. That way, the downtowns come back.

My daughter works for a company that is letting employees work from home, and she finds it quite easy to do (her work is on a computer, so....).  She's also high risk because of underlying conditions, so even getting in an elevator with one other person to get to her office is a non-starter right now.  Google and Facebook are talking about letting people work from home, and the primary question is, would they get the same pay for living in Indiana as for living in San Francisco?  But I have a nephew in commercial real estate, and I'm already thinking:  if people can stay home, who needs all that office space?  Business can cut overhead there, even if they don't reduce salaries, and still add a great deal back to the bottom line.  But what of the building owners and developers?  As Galbraith points out, what of that debt load?  Shit, that could bring more than walls tumbling down, huh?

Oh, and my daughter has a one hour one-way commute, because of where she lives relative to the office, and the traffic.  She'd give that up, too, in a heartbeat.  But what of the restaurants that depend on office workers to buy lunch, not to mention the oil companies that expect to sell the gas for all those cars no longer on the road?  The mechanics expecting to repair all the wear and tear on those cars?  Texas has a gasoline tax to pay for roads; what happens when gas sales decline precipitously? Some of these changes won't be because of concern over contagion, but because people will be asking "Why do we go back to that?"

And then there are the people who clean and service those buildings.  What do they do?  And the people who sell services (Maintenance, climate control, control systems, to name a few) to those building owners.  What of them?

This is going to go beyond a debt jubilee, even if you get some of the downtowns to come back (or the office nodes, as we have here in Houston).  The Galbraith interview is worth reading, even as it wanders off into the weeds of economic theory and "rational man" type stuff (bunkum and fiction, most of that).  I'm not sure how many restaurants recover, for example, if they can't pack the place at lunch and dinner.  Reducing their capacity is like cancelling Christmas for retail stores.  Cancelling their debts won't really start them over.  If businesses start re-opening but realize many employees don't want to return to the office, and those buildings start looking ghostly, it won't be ripples in a pond from a tossed stone.

It'll be bricks through plate glass; perhaps literally.  We probably don't face apocalypse; but we face changed times ahead, and we need to start seeing that.