The Economy After the Pandemic

The Economy After the Pandemic
Published on January 16, 2021

What is the state of the economy after the pandemic? This is a question that is in the minds of many people, and this article tries to answer it. This opinion article looks at the aggregate effects of the pandemic across different industries. This article is just an opinion and not financial advice.

Although there is widespread speculation that the pandemic will have negative effects on the economy, the opposite may happen. The lockdown may not be as devastating for the economy as predicted, because capital goods and knowledge have been produced, and the total production capacity in society has been growing. 

 

Lockdown vs. Wartime

The pandemic created a situation somewhat opposite to wartime. During wartime, the economy looks misleadingly good. People are hired and resources are consumed, so jobs and prices increase. However, because most of the wartime industry is for destruction or reconstruction of what has been destroyed, the total wealth and production capacity usually decline. Sometimes, there is a recession because all the resources that could build capital goods like factories and buildings were spent on destruction. 

On the other hand, the lockdown reduced the demand for many nonessential consumptions, and some jobs have been reduced or eliminated, creating the appearance of economic decline. Although certain individuals and industries are struggling, there may not be a negative aggregated effect on total wealth. The resources that would have been spent on short-term consumption have not been lost. They are preserved or distributed differently. Those holding the preserved wealth will use it eventually. The money may pay for future consumption or perhaps is invested in creating long-term wealth. Even though in the short-term, certain industries and jobs are suffering, over time, there will be transactions, and people will get paid and hired eventually. 

 

Resource Preservation

Resource preservation can be seen across many industries.  In the service industry, for example, when a haircut is canceled, the barber does not cut hair and does not get paid. The clients keep their money and the barbers keep their time. Therefore, the total amount of money is the same, but less time has been consumed in total. In effect, the clients have paid themselves to tolerate their messy hair for a few months. In any case, the aggregated effect on total wealth is not negative. The money still exists; it is just distributed differently. 

In the entertainment industry, people are effectively paying themselves not to attend sporting events and concerts, saving the time and money that would have been spent on gas, lodging, and football tickets. As a result, the millionaire entertainers and football players are paid a little less than before. What a disaster!

In manufacturing, as the lockdown causes a decline in demand for certain goods, factories decrease production proportionally. The net effect is zero when both consumption and production decrease the same amount. Actually, in many cases, the production capacity has increased due to the improvements made during the pandemic. 

In the transportation industry, as non-essential travel decreased due to lockdown, there have been business losses. Airline industry revenues fell by 60%. Oil consumption has fallen. Many people whose jobs depended on oil production, airlines, cars, and transportation have become unemployed. 

However, we consumed less of our natural resources (e.g. oil) and capital resources (e.g. aircraft). Some revenue losses reflect savings by consumers. People who weren’t commuting as much saved gas money and time. The unused gas isn’t lost and can be used later. Every long-distance business meeting taking place online (rather than in-person) saves companies money that can be invested elsewhere. 

Nevertheless, understandably some companies have reported losses or even filed for bankruptcy. But when a company goes bankrupt, its assets and resources are not going to burn down to ashes. They are acquired by new investors and are managed by new managers with fresh ideas. Such companies usually retain most of their competitive employees. No wealth is lost here. Actually, natural bankruptcy is the key to economic prosperity as natural extinction is to evolution. 

 

Macroeconomic Indices

During the pandemic, the GDP has declined, but it is mostly due to the particular operationalization of its measurement, and the significance of this decline is just an illusion. Government accountants cannot measure production and calculate GDP based on the volume of transactions, not the volume of production. So it is actually Gross Domestic Transactions. Admittedly, the government revenues have declined because taxes are on transactions and we do not have as many transactions as before. 

On the other hand, the high inflation that we experience after the pandemic is real. The federal government has increased the money supply during the pandemic, but due to the lower velocity of circulation, we did not experience much inflation then. But, now that large supply has started to circulate. 

In fact, rather than causing a recession or depression, the pandemic may spur the fastest economic growth in history. The lockdown has caused mass immigration to cyberspace, marking an inflection point in the history of mankind. 

 

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2021, Daniel Armani, "The Economy After the Pandemic," PaperScore.

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