Thoughts on the Economic Consequences of COVID-19

Article Author:
Michael N. Bergman, Lawyer and Principle, Bergman & Associates.

This is the second installment of my comments on the impact and consequences of the COVID-19 crisis. In this installment I consider the economic consequences of the quarantine and self-isolation decrees.

For the businesses closed and employees laid off the consequences are likely short term although painful. I will consider these consequences towards the end of this piece.

The most obvious and notable long term economic consequence of COVID-19 is the exponential increase in sovereign (government) debt. Since the 1960s the notion of governments having no debt has been theoretical but never a practical or real application. The growing and necessary involvement of government and government programs in the public space has meant that government budgets, more often than not, exceed tax revenue, meaning that government must borrow to make up the difference. With the COVID-19 economic programs the governments of the world, and notably the United States, Canada and the European countries, will increase debt by trillions of dollars. Already in the United States these programs are approaching an estimated $3 trillion U.S dollars in costs. In Canada these programs are approaching an estimated $145 billion Canadian dollars, not including provincial program costs. The cost of the COVID-19 programs cannot be made up in tax increases or future economic expansion. Governments are obligated to borrow, increasing government debt load, or to print money. The choice is between the substantial and sudden increase in government debt or run-away inflation. In either event the notion of reducing government debt in any substantial manner is finished. We must live with enormous government debt on a permanent basis, a debt which may only grow further in the future as funding for new needs requires more spending. The conservative idea of reducing or restraining government spending, a cornerstone of most conservative political and economic ideologies, is simply unattainable. Society in crisis requires government spending and in any event in more normal times society is too complex and intricate to avoid the need for government regulation and consequential spending. Unlike balancing the family budget, balancing the modern government budget in the face of crises like COVID-19 is forlorn. Like a credit card holder who only pays the minimum balance, interest will accrue perpetually and form a growing part of government spending.

Another long term economic consequence of COVID-19 is the change in the notion of consumerism and the bricks and mortar store. The idea of shopping in a physical location, the store, was already in decline thanks to internet e-commerce. The quarantine and self-isolation of COVID-19 further calls into question the need for the stores and the means of shopping, particularly for department stores and small street-accessible stores. I believe that COVID-19 has speeded up the decline of the need to shop at bricks and mortar facilities. It’s not simply about extra shopping online. Video conference techniques and virtual reality technology can allow people to visit virtual stores, examine products on virtual shelves, and deal with virtual sales people or human sales people online remotely. The decline of the store will produce a complete adjustment in western consumerism. While many objects will remain luxury, most common place consumer products will be deemed essentials. Consequently, it is expected that every household will include necessities deemed essential, but not directly related to the traditional food, shelter, basic toiletries and transportation. Rather, I believe that COVID-19 will exacerbate the idea of services as the cornerstone of society, replacing consumerism with a service-oriented society, whatever service that may be.

Finally, the mass shut-down of businesses and the layoffs of employees and the consequential government programs to help them through a time of zero income reinforces the concept that everyone has a right to a guaranteed minimum income, regardless of their circumstances. The COVID-19 programs and the diverse social safety net systems cumulatively amount to an ad hoc guaranteed minimum income. The idea of a guaranteed minimum income has been floating around for quite some time. It is rejected by most political parties in most western countries. However, COVID-19 proves that the era in which everybody is expected to earn their own way or otherwise starve and be homeless is morally unacceptable and economically harmful. Whether or not assuring a minimum amount of money for every human being is called a guaranteed minimum income is not the point. Whether or not this type of social safety net is a moral or economic imperative does not matter. COVID-19 will adjust the relationship between capitalism and the social safety net as being a reciprocal necessity for both.  

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