Recovery? Not so fast!
We are already hearing about economic and social “recovery” and we’ll probably keep on hearing about it until we settle into a comfortable routine.
But the economy will never “recover”. Not really. Things will change into something new, but they will never return to what they were pre-C19.
Entire sectors of the economy are gone.
In aviation, Airbus is cutting 15,000 jobs. Boeing is cutting 12,000 jobs. Experts are predicting a return to normal passenger demand in 2023.
Malls are finished.
Sears and JC Penny is gone. Mall staples like Victoria’s Secret and Bath & Body Works, and Tuesday Morning are closing hundreds of stores, many of them in malls.
Credit Suisse published a report that 25% of malls would close by 2022. That report came out in 2017, long before C19.
Clearly, malls are relics of a bygone era. And so are the retail jobs they supplied. Twenty million people are on unemployment. Seven hundred thousand have been collecting unemployment checks for 37 weeks. That’s nine months!
The future will be very different from the past, and it will take much longer than anyone thinks to reach widespread prosperity.
The Re-birth of the Cottage Economy
According to a recent Fast Company article more than half of US workers have jobs that lend themselves to working from home, and it’s estimated that 25% of current jobs will be done remotely by 2021. Businesses are already counting the savings the diminished need for office space will bring.
Gig jobs and working from home look a lot like the pre-industrial age of America. Before the Industrial Economy got up to full steam in the second half of the 19th century much of the economy was dominated by “cottage industries”. These were craftwork performed at home or in small shops. It’s the way harnesses, furniture, cookery, fabric and clothes were made in the days before factory mass production.
The huge factories that emerged following the Civil War presented a significant management problem. Never before had such large production facilities existed employing vast numbers of people operating all day, every day.
Fredrick Taylor published The Principles of Scientific Management in in 1911. It was the first how-to book on operating huge factories. Shortly after that a German sociologist named Max Weber took Taylors ideas and applied them to management, which he called bureaucracy. That’s why we now have skyscrapers full of people shuffling a lot of paper, but producing nothing tangible.
This is our modern-day service or knowledge economy. Insurance companies, government agencies and banking centers are examples.
The huge buildings housing knowledge and service workers are a holdover from the industrial age. The shift to working from home will upend the model of huge numbers of people sitting in front of computers under one roof.
Leading urban economist Richard Florida says this about the trend towards working from home, and the effect it will have on traditional office work:
“In fact, the rise of work from home shows that this acute separation of work from living is an increasingly outmoded, expensive and unproductive legacy of the industrial age. The modern central business district with its giant office towers stacking knowledge workers and service support workers is one of the last holdovers of the from this era—a relic of a time when office workers needed to be massed together and skyscrapers stood as the physical manifestation of the all-powerful mega-corporation.”
We may very well be witnessing the nascent formation of a 21st century version of a cottage industry economy. Large organizations will be around for some time – government, finance and technology industries aren’t going anywhere – but the Work From Home (WFH) movement is quickly picking up momentum.
Commercial real estate developers are already thinking of ways to repurpose all the empty space vacated by businesses.
Alderwood Mall in Lynnwood Washington is one of the first to replace retail space with living space.
From Bloomberg CityLab:
“This project is a great example of evolution in the shopping center industry,” says a spokesperson for Brookfield Properties, which owns the property and is collaborating with AvalonBay Communities, Inc. on the residential component. (Brookfield declined to offer a cost estimate for the project.) “Today, people prefer to live in smaller spaces and want walkable developments rather than relying on vehicular transit. This project caters to these needs.”
While there might be an emerging preference for “walkable developments”, there is already a demand for online ordering and delivery of local products. Even the most well-designed residential housing can’t ensure that everything is within walking distance.
7-Eleven is expanding the online ordering and delivery option introduced in 2015 with a proprietary app and partnerships with Postmates, DoorDash and Google. These delivery services are aggressively seeking partnerships with local businesses in every town, city and metropolis. Very soon the need to drive to a store will be limited to personalized items such as clothes, personal services like hairstyling, routine medical procedures beyond the capabilities of telemedicine and related goods and services.
Read: The Cashless Economy is Delivering the End of Retail Right to Your Door
People won’t have much use for cars if they’re working from home and living in an apartment in a mall that also houses traditional shops and stores. That means big changes for the automotive industry. Autonomous vehicles will prowl surface streets in cities, and robots will deliver goods to our doors in the same way they deliver meals and drugs in hospitals now.
Millions of jobs have disappeared. And they will not be coming back.
People who worked in retail outlets, gyms, the aviation industry and other sectors will be out of work until new industries can be created. A recent Forbes article put the number of unemployed Americans at 40 million, but only about half are eligible for unemployment benefits.
The Congressional Budget Office figures it will take about ten years to put all those people back to work. That doesn’t sound like much of a recovery, but rather the evolution of a new economy. We won’t simply wake up to find it’s 2019 again.
What is the 2008 Great Recession telling us?
Remember the phrase “jobless recovery”? It was everywhere. This wasn’t a new development. The aftermath of all recessions since 2000 have been characterized as jobless.
That’s because the traditional good paying jobs with benefits that were wiped out by economic upheaval never came back.
New kinds of work emerged…
This is how the gig economy expands. Industrial economies create a lot of wealth and last hundreds of years. So long that people forget how efficient and productive they can be, and what happens when they run their course and disappear.
Detroit was the Motor City because following World War II it produced enough cars for every family in the United States, as well as large portions of the rest of the world. Detroit was a cultural center, Motown, generating much of the rhythm and blues, soul music and a good portion of rock and roll of the 1950’s and 60’s. The music covered by modern artists and the original versions we still celebrate. XXXX
Now Detroit is a shadow of what it once was. Population is down by half; poverty is a huge city challenge and entire residential areas have been abandoned and are now bulldozed into parks and pastures.
Read: Nine Reasons Why Detroit Failed
That is a small-scale version of what happens when economies end and wealth creation takes a nose dive.
In a word, poverty…
Columbia University’s’ Center on Poverty & Social Policy released a report last April projecting that 19% of Americans could soon find themselves officially impoverished. That’s 21 million people, the highest rate since 1967 at the height of Lyndon Johnsons anti-poverty Great Society project.
Sure, workers displaced by the C19 crisis will eventually find jobs, or retire or get on disability, but the jobs created to replace traditional employment are nothing like the jobs that ended.
Lets look to the 2008 Great Recession to get an idea of what “recovery” looks like.
It wasn’t until 2018 that the jobs of 2008 were replaced.
Here is how the Bureau of Labor Statistics (BLS) summarized it in the October 2018 Monthly Labor Review:
“Ten years after reaching a peak, total nonfarm employment has not only recovered from its pronounced downturn, but expanded by an additional 9.2 million jobs. Several industries—manufacturing, information, construction, mining and logging, and government—have yet to recover. Other industries—financial activities, retail trade, other services, transportation and warehousing, professional and business services, and leisure and hospitality—have recovered and expanded.”
But here are two important facts they ignore…
First, nothing is said about the expansion of the labor market.
People are still having babies, and eventually those babies grow up and enter the labor market looking for jobs. On average the labor market expands by about a million people a year. (In case you wonder, yes that accounts for people leaving the labor market, too.)
The fact that 9.2 million jobs were added over ten years isn’t really significant – it’s nothing more than keeping up with the normal number of additional job seekers added to the labor supply every year.
Here is a graph from the St. Louis Fed showing the dramatic increase of the Civilian Labor force from 2008 to 2020:
U.S. Bureau of Labor Statistics, Civilian Labor Force Level [CLF16OV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CLF16OV, July 4, 2020.
The sudden drop on the extreme right side of the chart are the workers who disappeared from the labor force when the economy shut down in response to C19.
On the first Friday of every month the BLS releases their Employment Situation report for the previous month. Officials brag about the number of jobs created.
But people are always entering the labor force creating constant expansion. Notice there is no mention of the 85,000 additions to the labor force. The first 85,000 jobs created are simply keeping up with new entrants in the job market. Anything more than that can be thought of as legitimate job creation.
But what kind of jobs are those?
Second, the vast majority of jobs added between 2008 and 2018 are not jobs that provide a living wage, health benefits or unemployment insurance.
We commonly call these “gig” jobs because they blink in and out of existence. Economists use the term “contingent work” because work exists only when there is demand; work is “contingent” on customer demand.
How many of the jobs created between 2008 and 2018 were gig jobs?
It’s hard to get an exact number because economists have not been able to agree on a standard definition. However, we can get a pretty good idea from some of the research done during that period.
Economists Lawrence Katz of Harvard and Alan Kruger at Princeton wrote a 2016 paper estimating that 94% of the jobs created between 2005 and 2015 were gig jobs.
That’s 94%! Or to put it another way, only 6% of jobs created during that time were what we might call “real” jobs with a living wage and benefits.
A 2015 analysis by the Government Accounting Office (GAO), put the number of gig workers at about 40% — in 2010!
How much do gig workers earn?
Again, from the 2015 GAO analysis:
“…we also found that contingent workers, on average, earn 27.5 percent less per week and 47.9 percent less per year than standard workers…”
In other words, a gig worker makes about half as much as a traditional full-time worker doing the exact same job! No wonder employers want to replace traditional jobs and workers with gig jobs and workers.
So, when you read about jobs, remember that these are not jobs in the traditional sense that might support a home and family. Most jobs might provide the next meal or a portion of the rent.
To put this in a national perspective consider this:
In 2018 the median individual annual income was $33,706 dollars. The median is the middle point of a distribution. That means that half the people making money in 2018 made less than $33,706. That works out to about $2800 a month – before taxes.
Read: A Job is No Longer Your Destiny
What the Great Recession tells us to expect:
The gig economy will continue to expand. Although more of us will be working from home, we will be paid less then when we were working in offices. Work from home jobs will tend to become gig work from home jobs.
That means a drop the standard of living. On average our cars are now 12 years old, we are wearing clothes longer than we ever have, and our birth rate is going down because we can’t afford babies.
We’re going to have to get used to a more frugal lifestyle.
But there are bright spots.
We forget what an incredibly resilient nation we are. We’ve come through Dust Bowls, Depressions, World Wars, Korea, Viet Nam, Watergate, the Cold War, the Cocaine Wars, Recessions, Terrorist Attacks, Mideast Wars, and now a Culture War.
We’ll get through this.
Maybe working from home will help us learn about raising families and being better spouses.
Living frugally might teach us about the real value of possessions. Maybe there is something to be said for lifestyle simplicity.
We can walk to store, shops and parks and eat healthy food. Goodbye obesity epidemic!
Gig work might open doors to making a living doing the things we love and are good at, instead of toeing the line in a bureaucratic hierarchy.
Maybe we’ll give up cars but in return marvel at the stars in the night sky again.
Our technology will allow us to tag along with engineers, astronauts and scientists riding spaceships and exploring new worlds — while it’s happening!
Read: Declining GDP, Skyrocketing National Debt, and a New Technology That Can Create a Robust New Economy
Read: The Incredible Opportunities Coming with the Post COVID-19 Economy
Generally, we can expect a drop in wealth. Not just the amount of money in our bank accounts, but a decrease in the overall wealth of the nation. Expect increases in the poverty rate, decreases in health and wellbeing, decreases in government social spending like unemployment and public benefits.
Diminished ability to meet sudden crises like hurricanes or earthquakes. The rest of the world is already beginning to shy away from our bonds – the way we borrow money – because the amounts we’re borrowing are so huge. Right now, we owe more than the future value of our entire economy. Not annual tax revenue – I mean everything everybody owns including the government. Everything.
Read more at VicNapier.com and my Medium.com page.
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