The rapidity with which the pandemic has cratered the global and the US economies is truly unnerving. In response, and with atypically great speed, it would appear as if central banks around the world are working together to pull out all stops to loosen monetary policy. Meanwhile congress and the administration have pushed forward a $2.2 trillion bail out. As huge as these measures are, however, they only buy time for our wonderful medical professionals, hospitals and research scientists to treat us and ultimately to shield us with vaccinations.
As is the norm with these Black Swan events, the gaping holes in our system are revealed, presenting huge problems that must be solved before we can return to better times. The area that is most concerning to me is the continued erosion of good jobs and the fragility of the economy, as demonstrated by:
- The unprecedented speed in which people are being thrown out of work, as evidenced in the 10 million new jobless claims in the last two weeks
- The potential for new, more efficient consumer behaviors to become entrenched, displacing many workers for the longer term in the process
- The lack of the sturdy and stable corporate giants in the US to absorb the shock of Black Swan GM and Chrysler were bailed out in 2009, with Boeing and undoubtedly many others needing life support this time.
The average life of an S&P corporation is now 20 years – down from the 60 years that was enjoyed in the 1950’s.
Are We All in the Gig Economy Now?
Treasury Secretary Mnuchin has warned that unemployment could reach 20% in the second quarter – a number which is double that of the Financial Crisis and just short of the Great Depression. The two biggest industry sectors in terms of employment are Retail Sales (15.6 million jobs) and food and beverage (14.3 million jobs). Because all non-essential areas of the economy have or are being shut down, stores and restaurants suffered almost immediately and have laid off hundreds of thousands of workers.
The Financial Crisis saw the elimination of 8,700,000 jobs over a two year period. The recovery was slow and drawn out with non-farm payrolls finally catching up to 2008 six years later – much longer than any post-war recession. Labor participation rates remain low at 63.3%, on a par with Ukraine and Chile. In the same timeframe, high wage manufacturing jobs have also shrunk primarily due to the rise of automation, global competitors and global supply chains.
More lasting damage could be done to job creation by the forced immersion we are getting in the robustness of internet services. The Internet bubble swelled 20nyears ago based on the notion that companies like Amazon would disintermediate expensive “brick and mortar” establishments. Amazon has clearly won as it was the most disruptive engine of the “Retail Armageddon” and as further evidenced by a recent announcement that it is hiring 100,000 employees to aid us in the search for hand sanitizers and everything else. Given its efficiency ratios are triple the productivity of traditional retail, this will mean that 300,000 laid-off workers won’t be hired back.
Other examples of disruptive Internet based services that will negatively impact job formation include:
Home Delivery of Food, including groceries and prepared meals through services such as Grub Hub. Also the hybrid solution of custom meal kits such as Blue Apron. These were formidable competition to restaurateurs before the edicts to close, including the advent of Ghost Kitchens, which have risen quickly to serve cost conscious millennials by efficiently providing dinners home delivered without the need to open dining rooms and to hire waiters
- TeleMedicine, in which doctors, nurses and physician assistants can work from safer locations and, like those in their waiting rooms, can avoid infection from the sick. Buried in the bail-out package is legislation which will relieve doctors from some of the legacy state and local regulations which prevented this very needed advance. It will however reduce the need for receptionists (about the last place where these jobs exist) and administrators.
- Live Entertainment and Movie Theaters supplanted by Netflix et al. Theatre ticket sales peaked in 2002 and then declined by 20% before we learned about social distancing.
- On-line Curricula: the need to shelter in place will demonstrate the efficacy of computer based courses at both the K-12 level and post-secondary. The potential to bend the curve in tuition costs exists if the educational establishment chooses to leverage these tools. Colleges are keeping the education of stranded students going and rebating some tuition.
The Internet is just more efficient as it off-loads all the customer interaction work on the customer, including the ability to learn about offered products, select, price, pay, organize delivery options and, even promote/advertise through volunteered recommendations.
Customer support is limited if available at all and technical support consists of Frequently Asked Questions. Disintermediation is virtually complete.
What this means is that the deterioration of job quality will accelerate. Artificial Intelligence, robotics, autonomous vehicles and eCommerce will each and together continue to marginalize the jobs that humans do. This will leave humans to bid their services through internet platforms that enable the “Gig Economy” of which Uber is the prime example. Uber drivers are thought to average only $9.21 per hour and will be hit harder economically by the virus as we all self quarantine. They are being encouraged to shift to UberEats to deliver meals to homes but that will only absorb a fraction of the estimated 900,000 drivers in the US.
Gig workers are independent contractors who have no company benefits and therefore no safety net for threats such as COVID-19. Contract programmers used by Wall Street firms may make upwards of $400,000 per year but that is Unicorn-like status. As companies hollow out and there is a surplus of people striving to make a living, sub-minimum wage jobs with no benefits will become the norm. According to Forbes, 57 million people participate in the Gig economy – a number that is sure to grow.
On a Hopeful Note
Having presented a very depressing case – self-quarantine can be a depressing business – I would like to turn the page to a more hopeful outcome. The shutdown of the economy may well accelerate major productivity gains which could – and should – be devoted to the broad populace. This is in distinction to the “Winner-take-all” approach that dominates society today. At a very desperate time in 1930, just as the Depression was taking hold in the industrialized world, John Maynard Keynes wrote this, most likely to buck up the spirits of his fellow Brits:
Thus for the first time since his creation man will be faced with his real, his permanent problem-how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest have won for him, to live wisely and agreeably and well. Economic Possibilities for Our Grandchildren
He forecast a gradual but meaningful compounding of 2% annual advances in the standard of living that would result in an abundance of wealth per household. He further projected “technological unemployment” – technology would be created that would meet all of our needs with a mere quarter of the labor required at that time.
He also wrote that to satisfy humanity’s need to work that the remaining labor could be spread thinly into 3 hour shifts or a 15 hour work week. And to still live wisely and agreeably and well!
While most of the industrialized world eventually recovered from the Great Depression, what Keynes may have missed in his projection of the yet-to-happen 3 hour shift was the spectacular rise of economies in Asia, South America and Eastern Europe. Extreme poverty in Asia has fallen from 80% to 4% in four decades. The question for us in the United States becomes how we can harness technology to live “wisely, agreeably and well” on a much shorter work week.
My colleague, Joseph Smialowski, and I have researched and written about technology disruption for the last five years on our website, a World without Enough Work, or AWWEW.com. Experts at Oxford University and McKinsey among others forecast the potential of automation to eliminate half of all jobs. This sounds grim but in fact could be seen as a huge benefit to society. New ways of thinking are required however to turn this into the pleasant future that Keynes envisioned.
Andrew Yang, recent candidate for President, has some of the best ideas. His book, The War on Normal People, is an unblinking assessment of the problem. For the 68% of the population that lack college degrees, he foresees a very grim future, citing the continued disappearance of jobs that pay high wages – with the median compensation for individuals today only $31,000. And automation will continue to eliminate jobs at a rate faster than they can be replaced, leaving many Americans subject to deaths of despair, including suicide and drug overdoses.
Written before the crisis exacerbated the situation, Yang proposed a “freedom dividend” that would pay every adult $12,000 annually, something termed a universal basic income. Given the $2.2 trillion bailout, we are about to begin a very real trial of UBI, with enhanced and extended unemployment insurance as well as a $1200 one-time payment. Hopefully this will permit families to ride out the crisis and get back to normal fairly quickly.
The notion of a universal basic income may deeply offend many of us, particularly those who see hard work as a virtue and the potential evils that come from idle hands. As someone who spent my twenties working countless hours of overtime to program recalcitrant computers and then my thirties contending for company leadership in billable hours as a management consultant (a prize won with 60 to 70 hour workweeks), I understand those views. However, with work disappearing we may have to create the Depression era jobs of the WPA, where we dig holes in the morning and fill them in during the afternoon. Hopefully we can do better than that.
Yang advocates scrapping traditional measures of national health such as the Gross Domestic Product and the Dow which focus on wealth creation to more broad-based measures such as life expectancy. He also talks about a system to encourage community involvement in which individuals could offer to do a task for others and be repaid in kind to put some of the spare hours to good use.
More importantly he emphasizes the ability of a parent to stay home to raise children, the country’s most important and strategic resource. Something that is made very difficult in today’s economy and more so going forward.
During the Great Depression, the collapse of the economy led to 25% unemployment and the emergence of both native Communist and Fascist parties. It took a global war to finally recover. Hopefully we will be over the worst of this crisis in a matter of months and with only minor long-term damage. We will however continue to see the erosion of jobs accompanied by a high human cost and will need to think very differently to succeed. It remains to be seen if we are up to the challenge.