Welcome to the Capital Note, a newsletter about business, finance and economics. On the menu today: lockdown update, razors cut, two German shambles, and digitizing trust.
There was some decent economic news today (under the circumstances).
The Wall Street Journal (my emphasis added):
Initial claims for jobless benefits, a proxy for layoffs, declined to 709,000 last week from 757,000 a week earlier, the Labor Department said Thursday. While weekly claims have fallen from a peak of near 7 million at the end of March, they remain well above levels of about 200,000 seen before the coronavirus hit this spring.
The number of people collecting unemployment benefits through regular state programs, which cover most workers, dropped to 6.8 million for the week ended Oct. 31 from 7.2 million a week earlier. Continuing claims are down significantly from their spring levels, reflecting that many laid-off workers have been recalled to jobs or hired elsewhere. Others, though, have exhausted state benefits, a sign many are facing long periods of joblessness.
The Journal notes that the economy is recovering faster than once expected and also cites further encouraging data on the jobs front:
But we are still a long way from the V-shaped recovery that was once touted (although not by me). I’ll stick with my view that a K is the best we can expect for now. And the growing resurgence in COVID-19 on both sides of the Atlantic, together with the clear possibility of a bungled government reaction to it, could easily turn the K (which was bad enough) into a W – and that is if we’re lucky. If the economy turns down again, I doubt that the recovery from that will be able to boast anything resembling that last positive stroke of the W. One reason for that: A wave of lockdowns will be the final blow to many businesses that have somehow managed to cling on for now.
My local online newspaper had this to say today:
Dreary weather never helps, but it was the announcement by Governor Cuomo that there would be a 10pm curfew for restaurants, bars, and gyms that started the downward spiral. When I reached out to local businesses there was a sense of resignation and dismay.
“It’s going to be a long, bleak winter,” said Steve Olsen from West Bank Cafe. “We are just trying to survive but are not seeing any light at the end of this terrible COVID tunnel,” Bruce Horowytz from 44 & X told me.
Just as I was heading to bed last night, I read the pronouncement of the New York Times Editorial Board that all indoor dining should cease and that schools should remain open.
For a long while, I’ve felt that the New York Times has lost touch with the city on its masthead. This seems like the view of a group of journalists working from home with their young kids in Brooklyn.
One Times reader (and business owner) reacted: “A writer here blithely says — gyms gone, restaurants gone. The ivory tower editors — working from home, receiving paychecks, health insured, food secure and unfettered by threats of foreclosure, suggest that we just shut down again.”
I’d suggest they get back to their 8th Avenue headquarters and walk a couple of blocks to talk to local business owners who are hurting. Small business folk who have just installed (with money they cannot afford) new air filters, temperature checks, contact tracing, etc.
Wearily, I turned to the Times to check for myself. This caught my eye:
Mr. Cuomo has said New York was “ambushed” by the virus earlier this year. That’s true, but many months later, there is no such excuse.
Indeed, but nor is there any excuse for repeating the mistakes that the city and state have made for much of this year. The quote referred to in the heading of today’s Capital Note is apocryphal yet appropriate. No less appropriate is this quotation from Blackadder’s General Melchett, a somewhat (but only somewhat) unfair caricature of a First World War general:
If nothing else works, a total pig-headed unwillingness to look facts in the face will see us through.
Yes, the latter is a quote I have used in the Capital Note before and I expect to use it again, not least because of this.
Shutting down businesses and paying people for lost wages for four to six weeks could help keep the coronavirus pandemic in check and get the economy on track until a vaccine is approved and distributed, said Dr. Michael Osterholm, a coronavirus advisor to President-elect Joe Biden.
Osterholm, who serves as director of the Center of Infectious Disease Research and Policy at the University of Minnesota, said earlier this week that the country is headed toward “Covid hell.” Cases are rising as more people grow tired of wearing masks and social distancing, suffering from so-called “pandemic fatigue,” he said Wednesday. Colder weather is also driving people indoors, where the virus can spread more easily.
After their initial (and necessary) success, the foolish prolongation of many lockdowns did little other than postpone the inevitable second wave to a more dangerous time of year, while doing immense damage to the economy in the meantime.
To be clear, COVID-19 is a disease that must be taken seriously both at the governmental and the individual level (I own an oximeter, wear a mask outside the home, try to maintain social distance, swallow zinc tablets, vitamin D and various other substances that might help stave off my demise, and so on) but the response to the coronavirus must include a reasoned acceptance of trade-offs. In the real world with all its conflicting demands, #Science alone cannot tell us what to do.
Back to Osterholm:
“The problem with the March-to-May lockdown was that it was not uniformly stringent across the country. For example, Minnesota deemed 78 percent of its workers essential,” they wrote in The New York Times. “To be effective, the lockdown has to be as comprehensive and strict as possible.”
What Osterholm wants is what has come to be known in the UK as a circuit-breaker. That’s reasonable enough, but it is only reasonable to the extent that it is necessary to prevent health-care systems from being overwhelmed. And it is, of course, effectively what was promised before, before mission creep took over. “Flattening the curve” (reasonable) mutated into something more ambitious, but almost entirely detached from reality, with devastating effects on livelihoods and, yes, lives.
If Osterholm’s advice is followed by an incoming President Biden, no one will believe that the lockdown will “only” last four to six weeks. After the experience of earlier this year people would be as foolish to believe it as they were (to return to 1914) to believe that the war would “be over by Christmas.” And people are not that foolish: If a stringent Osterholm-style lockdown is introduced, many badly battered businesses will assume that it will drag on for much longer than four to six weeks and will, finally, throw in the towel.
There are no easy answers to the problem posed by the pandemic. The news out of Sweden, once not without promise, has recently turned ugly, something that will need careful watching. Local “circuit-breakers” to protect local health-care systems will undoubtedly be needed, although the orders imposing them must be accompanied by measurable criteria for their lifting.
To be sure, the news that a vaccine is on the way is immensely encouraging, but telling locked-down businesses that all they have to do is wait for its arrival is akin to telling a drowning man to hold off on his drowning until the lifeguard eventually arrives.
“We could really watch ourselves cruising into the vaccine availability in the first and second quarter of next year while bringing back the economy long before that,” he said Wednesday.
Cruising? I hope that I am wrong, but I don’t think that’s how it’s going to be.
As it always has been, the least bad option is to try to “live with” the virus until a vaccine becomes widely available, improving the treatment of the disease (an area where considerable progress has been made), protecting the most vulnerable, and attempting to find a balance between sensible precautions and maintaining a reasonably open economy.
This, by Alex Tabarrok over at Marginal Revolution is well worth reading in full (not least so far as the timing of vaccine delivery is concerned), but I’d also pay attention to this:
Biden won’t be president until late January but there are things he can do now. In particular, Congress already allocated $25 billion to testing in April—that was far too little. We spent trillions on relief and comparatively little fighting the virus. But here is the real shocker, most of the $25 billion allocated in April hasn’t been spent. Let me say that again, most of the money allocated for testing in April has not been spent. Biden can signal today that that money and more will be spent. He can also signal, as in fact he has, that he wants rapid antigen tests approved.
Rapid antigen tests are cheap, paper strip tests that can check for infectiousness and are ideal to getting things like the schools running again.
Even if we start vaccinating this year, we won’t vaccinate a majority of the US population until well into 2021. That’s true but what’s underappreciated is that testing, masks, social distancing and vaccines are complementary. The more people are vaccinated, for example, the greater our testing capacity rises relative to the population at risk.
Stocks fell on Thursday as an increasing number of U.S. coronavirus cases raised concerns over the health of the economy heading into year-end.
The Dow Jones Industrial Average traded 456 points lower, or 1.6%. The S&P 500 slid 1.5%, and the Nasdaq Composite dropped 1.0%. Thursday’s decline left the S&P 500 just 0.3% above its Friday closing level of 3,509.44, close to wiping out the index’s vaccine rally.
The major averages hit their lows of the day after Federal Reserve Chairman Jerome Powell said the U.S. economic outlook remained uncertain even after positive vaccine news from earlier this week.
That looks like an understandable response by investors, and I suspect that the sell-off reflects anxiety not only over a resurgent virus, but also over what the government may do to deal with it.
I’m repeating myself again, but I do hope that those in charge of our response to COVID-19 remember some words quoted by Tacitus some two thousand years ago: “ubi solitudinem faciunt, pacem appellant” (They make a desert and call it peace).
Osterholm might care to think about that as he considers what this country’s retailers and industries would look like during a “4 to 6 weeks” lockdown, particularly as it stretches into its third (I’d guess) month, and, for that matter, what they will look like thereafter.
Around the Web
I never cease to be surprised at the unexpected consequences of technological or other shocks. Who would have thought that mobile phones would prove so disruptive to camera manufacturers or, for that matter, the makers of alarm clocks or, even, wrist watches (the latter first widely popularized, of course, by the needs of soldiers during another shock, the First World War).
And so, via The Financial Times:
Men’s tendency to shave less often when working from home and a declining use of suncare products due to fewer overseas holidays have continued to weigh on sales at Edgewell Personal Care, although business picked up from a slump in the previous quarter.
Sales at the US maker of Wilkinson Sword razors and Hawaiian Tropic sunscreen dipped in the three months to the end of September by 3.5 per cent year on year on an organic basis, as higher demand for Wet Ones cleaning wipes were offset by a 5.1 per cent decline at Edgewell’s wet shave business and a 65 per cent slump at its smaller international suncare division.
The pandemic has led to a sharp decline in shaving frequency as men stay home for work and do not go out to socialise as often.
Standards appear to be slipping.
The legacy of Angela Merkel (the “leader of the free world”, we are told) would have been dismal enough without her energy policy (phasing out nukes, ploughing billions into renewables and all the rest), but her Energiewende is yet more ground glass on the cake.
Michael Shellenberger, writing in Forbes:
Germany didn’t just fall short of its climate targets. Its emissions have flat-lined since 2009.
Now comes a major article in the country’s largest newsweekly magazine, Der Spiegel, titled, “A Botched Job in Germany” (“Murks in Germany“). The magazine’s cover shows broken wind turbines and incomplete electrical transmission towers against a dark silhouette of Berlin.
“The Energiewende — the biggest political project since reunification — threatens to fail,” write Der Spiegel’s Frank Dohmen, Alexander Jung, Stefan Schultz, Gerald Traufetter in their a 5,700-word investigative story.
Over the past five years alone, the Energiewende has cost Germany €32 billion ($36 billion) annually, and opposition to renewables is growing in the German countryside.
Der Spiegel cites a recent estimate that it would cost Germany “€3.4 trillion ($3.8 trillion),” or seven times more than it spent from 2000 to 2025, to increase solar and wind three to five-fold by 2050.
Between 2000 and 2019, Germany grew renewables from 7% to 35% of its electricity. And as much of Germany’s renewable electricity comes from biomass, which scientists view as polluting and environmentally degrading, as from solar.
Of the 7,700 new kilometers of transmission lines needed, only 8% have been built, while large-scale electricity storage remains inefficient and expensive. “A large part of the energy used is lost,” the reporters note of a much-hyped hydrogen gas project, “and the efficiency is below 40%… No viable business model can be developed from this.”
Meanwhile, the 20-year subsidies granted to wind, solar, and biogas since 2000 will start coming to an end next year. “The wind power boom is over,” Der Spiegel concludes.
With Biden planning an American Energiewende, this does not look . . . encouraging.
And speaking of Germany, Bloomberg Businessweek reports:
It took more than a decade for Wirecard’s stock to climb above €100, but only a few days for it to plummet into penny-stock territory. Wirecard’s fall has reverberated in Berlin’s political establishment, which had seen the company as an avatar of Germany’s tech ambitions, a new-economy juggernaut to rival Silicon Valley’s giants. The country’s biggest companies specialize in automotive and engineering—sturdy and reliable but with a whiff of yesteryear. Wirecard, which appeared to be booking fat profits processing online payments for companies worldwide, heralded a bright future. Chief Executive Officer Markus Braun built close ties at the chancellery, senior politicians toured Wirecard’s offices on the outskirts of Munich, and its executives joined official government delegations abroad.
That all ended last summer, and today German lawmakers are stepping up their inquest into the affair, grilling witnesses at regular virtual hearings. Braun is in detention, his wingman Marsalek is on the run, and regulators and top auditing firms are facing questions over their failure to spot the fraud…
The conference room next to Marsalek’s office in the villa was kitted out with noise-absorbing wall coverings and an antenna directed at the Russian consulate across the street—though the purpose remains a mystery. There’s a box with a pair of dueling pistols, sturdy boots and combat pants, and artifacts such as stone temple fragments, possibly from the Syrian city of Palmyra, which Marsalek had boasted of visiting with Russian soldiers the day after it was liberated from the Islamic State group in 2016…
Do I really need to tell you to read the whole thing?
John McGinnis reviewing The Trust Revolution by M. Todd Henderson and Salen Churi for Law & Liberty.
Todd Henderson, a law professor at the University of Chicago, and Salen Churi, a venture capitalist, understand Uber’s success through the prism of regulation. In their view, Uber and similar companies face competition not from other private actors, like traditional taxis, but from regulators like the commissions that regulate taxis. The licensing systems created by these commissions were previously necessary to give riders the confidence to get into cars with complete strangers. Uber provides the same service more efficiently. Its app allows consumers to rate their rides, and Uber cuts off those drivers who are rated poorly. Uber also monitors the routes drivers take, preventing them from charging people more by taking a roundabout way.
This private regulatory regime makes for a much better experience for riders. They can be abused by traditional taxi drivers because few people have incentives to complain to public regulatory commissions and bureaucratic structures have few incentives to respond to complaints. But maintaining a good experience is Uber’s business, and that means it is the business of Uber drivers as well if they want to stay Uber divers. As a result, riders enjoy a solicitude that they would almost never experience in taxis.
Thus, the authors see Uber’s essential innovation as one of trust—providing a more efficient mechanism of trust than furnished by government regulation. This insight is not wholly original. Airbnb—the Uber equivalent for house sharing—calls itself a “Design for Trust.” Others too have noted the sharing economy’s enhancement of trust. But Trust Revolution provides the best and most comprehensive treatment of this important idea.
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