I have not been writing much about COVID and its consequences simply because, day to day, very little changes.
I am very lucky. I live in British Columbia which has had among the lowest per capita case rate and death rate in the developed world. There are a variety of reasons for this first among them the provincial government’s decision to treat its citizens like grown ups. The government has shared its statistics, its models and its recommendations. It has issued very few “orders” nor has it locked down the economy. Social distancing, the ubiquitous plexi glass barriers at the cash tills, maximum occupancy to prevent over crowding are pretty much it in terms of required measures. No sit down dining in restaurants and bars closed. We are encouraged, but not required, to “stay at home”.
Yesterday there were only 15 new cases in the province. The curve has been decisively flattened. On Vancouver Island, where I actually live, there have been only 126 cases overall. There were no new cases yesterday.
The rest of Canada ranges from New York City levels of illness in Montreal to very little illness on the prairies and in most of the Maritimes. Ontario, particularly Toronto, has been hit pretty hard and has reacted with broad lock downs and fines for illicit dog walking or hoops shooting.
Right now, BC is coming back online in a phased way and I suspect most businesses will be operating with capacity restrictions by mid June.
Now the question is how much economic damage has the virus done.
While it is convenient for politicians and economists to think of the economy at the macro level with unemployment rates and money supply and such like, the actual economy is a vast set of tiny transactions and the habits which power those transactions. Before we can really talk about the effect of the virus on such lofty things as aggregate demand, we have to think about the very small scale exchanges of daily life.
To give one example: if a person who, before the virus, went to an office everyday is now working from home their web of tiny transactions will have changed shape – gas bought once a month rather than once a week, no dry cleaning, no Starbucks, no lunch in the food court. The question is whether, even if they keep their job, they will be going back to the office. Increasingly, the answer seems to be no as everyone from the Bank of Montreal to Facebook have announced that they are looking at leaving their workforce at home.
These sorts of choices – whether made by the individual, companies or governments radically and unpredictably change the economic balance in ways we will not fully understand for years. There is no way to model this sort of change because there is no way to predict what a shift to working at home will actually mean economically. Nor do we really have much ability to work through the ramifications of extremely limited air travel or fanless sporting events.
Now, add to these and countless other shifts in behaviour, there is also the uncertainty as to the rate of change in that behaviour. Air travel is, at the moment, very, very limited. Flights are cancelled, air crew furloughed, smaller planes deployed where possible. That happened at the beginning of April and is ongoing. It is not, directly, the result of government saying “reduce air travel” but rather a consequence of lockdowns and “stay at home” edicts. It is also a very rational response to the virus itself – who wants to sit in close quarters with someone who is asymptomatically infected? Will that change and if so how fast?
A lot of the day to day transactions of life require a background of general trust, a sense of confidence. You can flatten the curve, lift the lock downs and generally stimulate the economy with helicopter money but until trust and confidence are restored you are essentially pushing on a rope.
I suspect we are coming to the end of the first wave of the virus. A good, hot summer, may see the end of it. However, the possibility of a second wave, potentially worse than the first, cannot be dismissed. Which is just one more worry to pile on top of the profoundly out of kilter economy.
In many ways the biggest obstacle to economic progress is the very idea that we will somehow “get back to normal”. The fact is that there is no longer a “normal” to return to which means we will be going forward into a economy which we will be inventing as we go. Which might sound scary but, realistically, market economies have always invented their own futures.
Jay Currie 