The Corner

The Economy

K Not Okay

Hundreds of people line up outside a Kentucky Career Center hoping to find assistance with their unemployment claim in Frankfort, Ky. June 18, 2020. (Bryan Woolston/Reuters)

V? W? U? L? As economists try to forecast what the economic recovery might look like after the lockdowns finally draw to a close, a more recent contender has been the K.

And the K is not okay.

Writing a couple of weeks ago in the Financial Times, Peter Atwater looked at the K in two main ways.

First, he looked at companies:

For many large, global businesses, the Covid-19 pandemic seems like nothing more than a bump in the road towards greater dominance. Thanks to unprecedented central bank liquidity measures and investor enthusiasm, their stock prices haven’t just bounced; in some cases — especially in tech — they have gone on to new all-time highs. In addition, their access to the credit markets has never been better. Last week, for example, Amazon broke the record for the lowest interest rate for any bond in US corporate history.

For overleveraged, bricks-and-mortar retailers, though, the pandemic has brought the end. Neiman Marcus, JC Penney, Pier 1 and J Crew have all filed for bankruptcy this year. But they are hardly alone. With each new day more and more high street shops and restaurants are closing. Reeling from the lockdowns, they now recognise that, even with government support, customers will not return in time to save them.

And then, Atwater tells a not dissimilar story, but from a different perspective, that of the workers:

For the wealthy and those able to work from home, the pandemic has represented an inconvenience. Life has gone on, albeit challenged by new technologies and new routines. Their lives have not been upended by the outbreak.

That has not been the case for those outside the work-from-home bubble. Service workers have been laid off en masse, while many essential workers have had little choice but to work even as their employers have awkwardly and inconsistently adapted workplaces to a pandemic environment. That the outbreak has hit working-class communities hardest is hardly a surprise.

While I think that may well paint too rosy a picture (at least by implication) of the position in which many white-collar workers have found (and will find) themselves, the basic argument is, I think, sound.

I have never believed in a V-shaped recovery (and I don’t think — different discussion — that’s what the stock markets are “predicting” either). The idea that something as complex as the U.S. economy can simply be switched off and then on was, and is, an absurdity.

As I wrote back in March (my emphasis added):

It’s a statement of the obvious, but the longer the shutdowns last, the greater the structural damage. The V-shaped recovery is, I suspect, already an illusion, but even something that resembles a very poorly drawn U is quickly disappearing beyond reach. This is not (necessarily) an argument for trying to drive the economy, however cautiously, back to the outskirts of normality (that’s a debate for another time) in the next few weeks, but it is a reminder that the destruction caused by this pause is going to take a long time to put right. To take an architectural metaphor further, conceivably, than it should go, a massive stimulus package may stop the roof caving in for now, but it won’t do much to shore up foundations that were not very strong in the first place.

To believe that the country can go through this sort of economic turmoil (and the effect it will have on so many lives), let alone the fear and the pain that any pandemic will generate, without profound psychological and thus political consequences is, I think, delusional. And the longer that turmoil lasts, the greater those consequences will be. They are not just going to be confined to November. Indeed, they may be amplified by it. The increased possibility of victory by a Democratic Party that, even if fronted by Biden, is driven to the left by events as much as (or more than) the need to retain his party’s Sanders wing, is unlikely to give business reasons to invest in recovery. And if the Democrats win . . .

The lockdowns have lasted longer than could reasonably have been expected in mid-March, and, while there were, tragically, other proximate causes, they have at least contributed to the extent of the turmoil that we have seen in the last few weeks.

If we are looking at some type of K-shaped recovery — it seems plausible enough to me — the continuing misery that it entails for large numbers of Americans will be reflected in the politics of the next few months and, I suspect, for quite some time beyond that.


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