Counting the Economic Costs

Counting the Economic Costs, by Robert Gottliebsen.

Enterprises forced to shut or dramatically slow down must choose between slashing staff costs or borrowing from the bank. If the borrowing is merely to pay wages, then there must be hope that over time the business can generate the funds to repay. If the shutdown was for one or two months — as in China — then it would be possible, but six months is a long term disaster for most enterprises.

Borrowing that doesn’t result in extra production and income is a recipe for disaster. Everyone knows that. Except maybe in government, where they do it all the time.

Meanwhile, government rule changes will have unintended consequences:

It’s back to cash on delivery, because the government’s rescue package makes it impossible to enforce payments in the current way. …

The superannuation funds’ disaster scenarios rarely included a massive refund in a crisis, so many funds will not have enough cash without selling shares and further depressing the values for members. …

Unemployment coming up:

McCrann uses the example of a business with a turnover of $39m ($750,000 a week) and a wages bill of $26m ($500,000 a week).

“Only someone living in a Canberra bubble could believe that if that business’s turnover has been slashed to zero — to stress, that’s $0 per week — that a payment of $50,000 is going to keep it paying out that $500,000 a week in wages and salaries, week after week for who knows how long. …

Which is why we need to go short and sharp on the lockdown, and starve the virus of new bodies. Heck, medieval types managed to do it with the black plague, and it has a much longer incubation period (40 days, versus 14 for coronavius).

What China showed was that if you enforce the shut down — and we can do it, with huge penalties for those who leave home without permission — the pain is short and sharp. China is now returning to work.

Shame our policy makers were too complacent and dopey not to close the borders much earlier, after seeing what happened in China (and then Italy.) When is the question going to be asked in the MSM?