Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Historical Insanity

How Coronavirus will Transform the Economy

Coronavirus will transform the economy, possibly beyond recognition. History proves pandemics can destroy and build economies.

For instance, the Black Death destroyed the Medieval Economy and laid the groundwork for Modern Europe. To explain, 14th Century Europe was prosperous because advances in agriculture created a surplus in labor.

The surplus of labor (serfs) led to lower food prices and enabled the growth of towns and cities. A side effect of labor surplus was more workers for urban businesses and industries, especially in Italy. Thus new industries such as wool processing arose.

Further afield, the European labor surplus powered the Crusades by creating a pool of unemployed mercenary soldiers (knights). One reason the Papacy launched the Crusades was to get idle knights out of Europe where they were wreaking havoc.

How the Black Death Made the Modern Economy

The labor surplus ended when the  Black Death killed 30% to 60%of Europe’s population. That led to a labor shortage that destroyed the Medieval Economy.

Industries collapsed because businesses could not find workers. Moreover, skilled workers could charge higher wages for their work.

One result of the Black Death was the Guild System in which skilled workers and professionals formed organizations to negotiate for higher wages. The workers could demand more pay because there was nobody else to perform their work. Another was the collapse of industry in some European cities.

A long term development of the Black Death was the appearance of the first middle class since Roman times. The Middle Class were a group of free professionals and business owners were were not noble, but did own land and have some rights.

The labor shortage made the Middle Class possible by increasing its economic value. Interestingly, the term Middle Class means between rich and poor or between nobles and peasants.

Meanwhile, the Crusades ended because mercenaries found plenty of work closer to home. A military effect of the Black Death was to open mercenary work up to men of all classes.

Before the Black Death, nobles tried to restrict mercenary work to men of their class by promoting the ideals of “chivalry.” After the Black Death, European rulers were so desperate for soldiers, they were willing to give military training to peasants.

One result of the Black Death was the rise of class of professional soldiers, who roamed around Europe selling their services to the highest bidders. By the 15th Century, Chivalry was so dead many Christian soldiers fought for Islamic rulers including the Ottoman Turkish Sultan. When Sultan Mehmet II besieged the Christian city of Constantinople his army included Scotsmen and Hungarians.

How the Black Death Made Europe

Another result of the Black Death was that European war became a highly technical activity dominated by professional technicians. Artillerymen, engineers, and archers, for example.

Other changes in Europe included a greater reliance on animals and machines in agriculture because there were fewer peasants to work in the fields. That made agriculture more productive.

In the cities, industry became far more reliant on machines because of the labor shortage. For instance, Europeans began using water and wind mills to grind grain and building labor saving devices such as printing presses. The technological revolution sparked by the Black Death had far reaching effects.

The printing press led to a vast increase in literacy which sparked the Protestant Reformation, the Scientific Revolution, and the Enlightenment and overturn European society. The long-term result of Europe’s tinkering with labor-saving devices was the Industrial Revolution.

Other effects included improved sailing ships that made the Age of Discovery and intercontinental trade possible. They built better sailing ships because there were fewer people to row the ships.

How the Coronavirus could Change our Economy

The changes Coronavirus could make to our modern economy could be as great as the effects of Black Death even if the body count is far lower.

In the United States, retailers closed over 250,000 nonessential stores because of COVID-19 in March 2020, Fast Company estimates. Many of those stores will never reopen because their customers will become used to ordering everything from Amazon.

What happens to all the people who work in those stores? Yes, some of those workers will find jobs at Amazon fulfillment centers but many will not. We could see high levels of unemployment among a class of people who were already underpaid.

My prediction is demands for basic income, public works, and a jobs guarantee will grow louder if the Pandemic continues. Expect to see many “conservative” politicians embrace such radical socialist notions because they fear for their own jobs.

Importantly, US Senator Josh Hawley (R-Missouri); who is widely considered the future of American Conservatism, wants the Federal government to guarantee 80% of idled workers’ salaries, Vox reports. Meanwhile, Britain’s Conservative government is paying idled employees 80% of salaries up to £2,500 ($3,101.50) a month, the BBC reports.

Will Coronavirus Kill Jobs?

Nor is it just retail workers. What happens when business finds out it can function and make money with thousands of less workers and fewer locations.

Furthermore, what happens to commercial real estate when thousands of businesses realize they can operate with far less office space. One probable outcome of the Coronavirus pandemic is thousands of office buildings sitting empty.

A possibility is a total collapse of commercial real estate values as tens of thousands of empty stores and thousands of empty offices come on the market. Will we see realtors sleeping in their Mercedes or begging on street corners by July?

What happens to all the local and regional governments that rely on retail stores for income. To explain, retailers pay sales and property taxes, yet many chains such as Dick’s Sporting Goods, Petco, Staples, H&M, Footlocker, Nordstrom (NYSE: JWN), Barnes & Noble, the Gap, Party City, General Nutrition Centers, Fie Guys, Jamba Juice, and Victoria’s Secret are not paying rent, The Real Deal claims.

Meanwhile, Coronavirus could change America’s commercial landscape beyond recognition. Medium contributor Rob Walker thinks Coronavirus will kill the Gap and other iconic retailers. I think Coronavirus will also kill Sears, JC Penney, Neiman Marcus, and possibly Macy’s.

News reports claim Nieman Marcus and JC Penney’s management teams were discussing bankruptcy in April. One hot retailer, Hot Religion filed for Chapter 11 Bankruptcy on 13 April 2020.

The Post Coronavirus Economy

I think the greatest change of the post coronavirus economy is one that technology was already producing.

That change is an economy where a large percentage, perhaps a majority, of the population cannot rely on jobs for income or benefits. We already have an economy where investments and technology, not jobs produce the wealth.

In addition, average citizens in most countries rely on the government not jobs for benefits such as health insurance. For example, government provides all the health insurance in Canada, and free healthcare to all citizens in the United Kingdom.

Similarly, governments in France and Britain are paying salaries to many workers corovarius idles. French President Macron and UK Prime Minister Boris Johnson are not socialists. Johnson is a Conservative.

I think the US government will have to follow suit with Medicare for All and some sort of Basic Income. Under a Basic Income, such as the Freedom Dividend, pays every citizen some cash every month.

Will Coronavirus Lead to Basic Income?

Importantly, the federal government is already sending a $1,200 cash stimulus payment to most citizens. I have a feeling that “stimulus” could be permanent.

Thus we could move from an economy where most people rely on jobs to one where most people rely on government for income. That seems like a frightening prospect to me.

An economy where citizens rely on government for income is not a far fetched notion. Around 69.488 million Americans, including most senior citizens, receive cash from Social Security each month, the Social Security Administration (SSA) reports. Thus we are already half way to a permanent basic income welfare state.

History shows that Coronavirus could create a new economy. We need to ask if the new economy will be one we want.