COVID-19 and a Reeling Economy

COVID-19 is illuminating the underlying rot of the American economy. The suffering will extend beyond the short supply of hospital beds and leave a lasting impression in the wallets and minds of millions of people.

A “moderate” COVID-19 scenario could force 200,000 Americans into intensive care, more than double the number of total available ICU hospital beds. In a “severe” scenario, nearly 3 million Americans may need intensive care. Essential supplies like ventilators are either running low or already depleted. Washington and New York are two of the hardest-hit states; as of March 23, New York State has more confirmed cases than the entire country of France.

The Center for Disease Control and Prevention (CDC) utilized virus spread models to project between 200,000 and 1.7 million American deaths from the novel coronavirus over the next several months to a year down the road. Decisions made now by both governments and people will determine how the rate of transmission — and thereby death — changes in the coming weeks and months.

On March 5th, there were 518 confirmed cases reported in the United States. Just two weeks later, there were 33,000. As more Americans are tested at drive-thru testing centers and eventually with an influx of new test kits, the United States will continue to see an exponential increase in officially confirmed cases.

Total Number of Confirmed US Cases. Chart taken from Johns Hopkins University

This immediate strain on the healthcare system requires a concerted, society-wide effort to “flatten the curve.” To slow down the spread of the virus, President Donald Trump has suggested against gatherings of more than ten people. As communities, cities, and states alike shut down schools and impose “shelter in place” quarantines — Italy, having the highest reported number of COVID-19 deaths in the world, has begun utilizing the military to enforce its national quarantine — small and large businesses alike are simply unable to continue business as usual. For these businesses, COVID-19 has forced governments to order their shutdown or simply stunted consumer demand. The virus has exposed an underlying economic rot that now threatens to ravage the economy.

The ensuing widespread job loss, lack of resources, lack of opportunity, and the onset of despair that the COVID-19 pandemic creates will leave a lasting impression on the shape of the American economy and its people.

The Pitfalls of America’s Gig Economy

According to an NPR/PBS NewsHour/Marist poll conducted March 13–14, 18% of Americans have already lost their job or had their work hours cut due to COVID-19 related business closures and decreased consumer demand. United States Treasury Secretary Steve Mnuchin suggested that unemployment might hit 20% (unemployment during the Great Depression surpassed 20% at its peak). U-6 unemployment, an unemployment measure that factors in those who are underemployed and those who have given up looking for a job, sat at 7.4% as of February 2020.

In the age of America’s rising gig economy, accelerating unemployment due to the COVID-19 pandemic poses a serious threat both to the economy as a whole and to the livelihoods of individuals struggling to make ends meet in uncertain times. Based on the current United States labor force, 32 million Americans may soon lose their jobs.

Recent US labor force participation rate data from February 2020 was roughly 63.4%, placing us right between Cyprus and Ukraine.

Chart taken from unemploymentdata.com

Recent protests at Uber headquarters throughout California highlight the pitfalls of America’s gig economy. Contract employees generally do not receive benefits like paid sick leave, a vital shortcoming during the COVID-19 pandemic. Bank of America says the economic recession is already here, and these rideshare independent contractors may simply be without a job, without a preset daily routine, and without a paycheck during the downturn. The same situation may become reality for:

(1) waiters and cooks

(2) gym, movie theater, park, and cruise ship attendants

(3) spa, nail, and hair salon workers

(4) sports arena, hotel, and mall workers

The broad reach of the pandemic affects many industries and the rate at which unemployment ramps up has bogged down state unemployment offices. These offices are now either overworked, underfunded, or both. A recent Washington Post article highlights stories of several newly-unemployed or underemployed people struggling to receive help in their collective time of need.

“I was on hold with the Oregon Department of Labor for over an hour. They were inundated,” said McGuire, a 30-year-old Army veteran who served in Iraq a decade ago. “When I finally spoke to a person, they told me I don’t qualify.”

For the week ending March 14, Americans made 281,000 unemployment insurance claims. Economist Ian Shepherdson estimates that the next jobs report for the week ending March 21 will see a nearly tenfold increase to 2 million unemployment insurance claims. This will only further inundate these already strained offices.

The 35-day federal government shutdown that began on December 22, 2018, caused over 420,000 federal employees to work without pay while roughly 380,000 federal employees became furloughed. Federal workers ultimately received back pay for their work, but the month-long paycheck suspension highlighted two jarring economic statistics: 78% of American workers live paycheck to paycheck and nearly half cannot afford an unexpected $400 bill.

Generally, the younger you are, the smaller your savings account. The discrepancy in 401(k) participation, contribution, and balance also varies greatly based on race. Additionally, expenditures on housing, transportation, and education demand a large chunk of workers’ paychecks — paychecks that they will not receive due to COVID-19 layoffs. The people most vulnerable to job loss during this time are also the most likely to be financially unprepared for the aftermath.

Chart taken from CNBC

President Trump has signed into law H.R. 6201 which aims to support Americans who are struggling financially due to the pandemic. However, the bill’s aim to provide paid sick leave falls short because it does not require companies with more than 500 employees — companies like Amazon and McDonald’s — to participate.

As the economic stimulus discussion continues, California, New York, and Illinois are entering “shelter in place” protocols, and non-essential businesses from the tri-state area and beyond continue to close.

Many employees are left out from paid sick leave benefits and many others are left with no choice but to go to work if their employer remains open. The need for a paycheck is simply too great. An average savings account is unprepared for an extended period operating in the red. Going without a paycheck could lead many to hunger, homelessness, hopelessness, and despair.

Looking to the Opioid Crisis: Job Loss Drives Despair

The Opioid Crisis displays how economic misfortune and despair can destroy local economies, lives, and families. Suboptimal response to the COVID-19 pandemic could result in similar devastation arising throughout the United States.

The pandemic is a stressful time for many people, especially those who have auto-immune deficiencies and those who have loved ones at higher risks of exposure. The CDC suggests that common responses to stress — like the stress that the COVID-19 outbreak has induced for many — are increased usage rates of alcohol, tobacco, or other drugs.

A December 2019 study in JAMA Internal Medicine discovered a statistically significant correlation between the closure of automotive assembly plants and an increase in county-level opioid overdoses. The implication is that the stressful situation of diminishing local economic opportunity and increasing unemployment drives individuals toward drug use. A 2017 National Bureau of Economic Research (NBER) study showed that for every 1% increase in unemployment, there was a 3.6% rise in the opioid death rate.

In 2017, President Trump declared the Opioid Crisis a national emergency. From 2017 to 2018, opioid deaths in the United States dropped 4.1%. 67,000 people still died from opioid-related overdoses in 2018 alone. By 2025, nearly 82,000 people are expected to die from opioid overdoses. The recent rise of synthetic opioids is heavily fueling this expected increase.

Chart taken from CDC

While the rise of synthetic opioids will continue to play a major role in opioid-related deaths, over-prescribed opioids have also exacerbated the problem. In 2010, the state of Ohio had more opioid prescriptions than people. By 2017, Ohio had 39.2 deaths per 100,000 persons, nearly three times the national average of 14.6 deaths per 100,000 persons.

Chart taken from drugabuse.gov

As COVID-19 continues to threaten the jobs of millions of Americans, and as these same Americans are generally unable to weather the financial storm coming their way, many may lose hope. Bleak prospects associated with a prolonged economic downturn could invite an extended wave of despair over the country.

From a business perspective, the opioid crisis has been a boon to pharmaceutical companies.

From 2006 to 2015, pharmaceutical and biotechnology revenue increased from $534 billion to $775 billion. 67% of drug companies increased their annual profit margins during the same period — with margins up to 20% for some companies in certain years. In these nine years, national drug overdose deaths reliably increased.

Chart taken from drugabuse.gov

According to the 2005 Harvard Business School case study “Merck: Conflict and Change,” the Food and Drug Administration (FDA) began allowing direct-to-consumer (DTC) advertising in 1990 for prescription drugs. These advertisements could be communicated through print, television, or other forms of media. By 1999, “50 pharmaceutical companies had spent $1.7 billion, or 10% of all promotion costs, to advertise 81 prescription drugs in 53 therapeutic classes directly to the consumer.” Adjusted for 2019 inflation, those advertisements equaled $2.8 billion. Furthermore, “studies showed that of patients who discussed an advertised drug with their doctor, 60% received a prescription for it.” [emphasis added]

If you feel like you have noticed a seemingly never-ending onslaught of prescription drug advertisements on television, your hunch is correct. From 2012 to 2016, there was a 65% increase in prescription drug advertisements on television. Pharmaceutical companies are plugging the money they make back into advertising to further boost sales. Simply put, it works. Pharmaceutical companies will continue to follow this formula until they are either no longer allowed or the cash flows stop.

The combination of the increasing frequency of prescription drug advertisements, high conversion rates on the advertisements, and the incoming wave of widespread economic misfortune caused by COVID-19 could spell disaster and despair for families and communities across the country. A distinctly stratified hierarchy of winners (the pharmaceutical manufacturers in the Opioid Crisis and the short sellers profiting $344 billion from the COVID-19 related recession) and losers (basically everyone else) will emerge, only serving to further societal divide.

With the potential explosion of persistent hopelessness, the American economy and the American people may feel the sting for years to come.

The Robots are Coming, but COVID-19 is Here Now

The COVID-19 pandemic demonstrates how unequipped the United States economy and its people are for such a surge in job loss and economic inactivity. The Opioid Crisis portrays how job loss and economic inactivity drive despair, and the ramifications of COVID-19 will soon become apparent. Many people will be left out to dry.

A wave of workplace automation will also soon bring on massive levels of job displacement, and such a shift will force us to reevaluate what our future society and economy should look like.

It is expected that the United States will enjoy long-term future economic growth. However, automation is likely to play a significant part in this economic expansion as it threatens up to 25% of jobs. McKinsey estimates that up to 33% of the 2030 United States workforce will need to learn new skills to adapt to the demands of the new economy.

Truck drivers and rest stop workers will lose their jobs as self-driving technology continues to progress. Call center workers will lose their jobs as virtual assistant software can soon do the same job for no salary. Fast food workers like drive thru attendants, food preparers, and cashiers will lose their jobs as companies invest in automation to realize long-term savings. Automation threatens many industries, and as technological capabilities continue to progress, more people will be at risk of displacement.

Chart taken from The Economist

The economy of the Digital Age will leave many behind and force society to both individually and collective create value in the face of few restraints. Japan calls this economic and societal shift “Society 5.0.” During this transformation, displaced workers can strive to obtain higher education to meet the demands of “Society 5.0” — as long as the opportunities to pursue these skill sets are both easily accessible and affordable. Without the opportunity, however, droves of under-skilled and unemployed individuals will comprise a “class of hopelessness” in the United States.

The COVID-19 associated job loss is coming on earlier and more instantaneously than a full-fledged robot labor takeover. With next to no time to react, displaced workers are generally unable to hunker down for an extended time with no job, no paycheck, and little in savings. Because of this, the “class of hopelessness” may emerge sooner rather than later.

When the major sports leagues suspended their seasons due to fears surrounding the spread of COVID-19, our situation of emergency began to feel more “real.” It is hard to fight against or even worry about something you cannot see, but once a major part of social life is disrupted — watching Yankees spring training games or catching the first half of a Knicks loss — you begin to wonder what life will be like during a global pandemic and mandatory quarantine.

Everyone is affected differently by the COVID-19 pandemic. Maybe you have a loved one who is at higher risk of death should they catch the virus. Maybe you have an autoimmune disorder that puts you at greater risk. You may even simply have increased levels of stress and anxiety in such an uncertain time.

One thing is for sure: economically, people will struggle. A lot of people will struggle. Efforts to inject money directly into the wallets of those most affected — efforts like ex-Presidential candidate Andrew Yang’s coronavirus relief fund and the White House’s consideration of a pseudo-Univeral Basic Income (UBI) — seem like great starts to help ease the pain.

A long-term vision for society and the economy alike is required to build a sustainable version of a future in which everyone has the opportunity to succeed. Without swift action, more people will unnecessarily suffer. Governments and individuals alike need to come together now to better understand and quickly respond to the pandemic and the economic fallout that follows.

Exploring how technology affects people, business, and politics. Runner | Guitar Player | Fan of the Yankees, Giants, & the Knicks

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