The big question is whether or not this brutal upheaval is an inevitable result of our new circumstances, or if it is the result of temporary virus control measures sending otherwise viable businesses to the wall. This question is important because if you think the change is temporary, it makes economic sense to preserve it as much as you can. Why lose jobs and production unnecessarily? Supporting them can be costly, but it’s a lot cheaper than suffering unnecessary economic damage, leaving us with a hangover of unemployment and depressed consumption for years to come.Certainly, the logical answer to this question is that the damage is indeed temporary. It is not the result of long-term, technological or market-related changes. This is the result of an outbreak that will be nearly over by the middle of next year, combined with a government decision to adopt a very low risk appetite during the winter. This is unlikely to substantially change the job market, as the Black Death did. I very much doubt that this will change the way we want to live and socialize.
Aside from leaving us with a hangover, the most that can be said about Covid’s continuing effect on businesses is that it could accelerate some pre-existing trends, like the decline of retail and the rise of the remote work. Otherwise, its main effect will be to lower demand now and unleash a surge in demand later. For proof of this temporary effect, we need only look to Asia. Chinese industrial production is already 98% of what it was six months ago.
Unfortunately, on this very important issue, the government seems the most confused. Some of Mr. Sunak’s plans seem to assume this is a temporary mistake. He gives loans to businesses and gives them plenty of time to pay them back. It offers temporary tax relief. It has also significantly limited its support to only small companies or large companies with declining revenues and low immediate desire to pay dividends. And he told us it was a six-month ordeal – longer than we would like, admittedly, but not what is generally considered “permanent” within government time frames.