The COVID Economic Shadow Part 2

It isn’t just about labor though. Companies face the same problem of finding it harder to get back into business the longer they stay out of it due to Covid lockdowns. This could happen for a variety of reasons, like cash levels being depleted for having to continue paying fixed costs while revenues are depressed (or in the case of many businesses during Covid, 0).
Also, supply chains might have changed drastically, possibly leaving businesses unable to supply the same kind of products, or at the same consistency/prices. A good example of this would be manufacturers who are currently adversely affected by the global chip shortage. Not forgetting the demand side, a business might also reopen to find that previous customers simply no longer have the same kind of demand for their products/services. In short, the longer a business is shuttered, the less it is able to respond to changes in the marketplace, simply because it is closed.
Compounding matters, the uncertainty inherent in businesses reopening, or failing to reopen, feeds back into the labor market. If fewer businesses reopen (for whatever combination of reasons), or reopen at reduced capacity, fewer of the currently unemployed can become re-employed.
From a broader perspective, workers who, after the Covid shock, cannot go back to work, or give up looking for work, are workers who are no longer contributing to future economic growth. Likewise, businesses that fail to reopen, or reopen but cannot produce at pre-Covid levels are businesses that are not contributing as much to the economy as they used to.
This is permanent damage, and is what the “fix the virus = fix the economy” narrative fails to consider. While this narrative is intuitively easy to grasp, and optimistic, which helps a lot in times like these, it is also too simple and reductive.
There are second (and third) order effects to consider, not to mention the complexity and feedback loops inherent within economies. Again, it is reasonable to expect a spike in consumer spending, employment, production, and general economic performance when lockdowns are finally lifted all around the globe. However, the real question lies beyond the spike – how much of the economic damage is permanent?
Unfortunately for us, there is no way to answer that question in advance; all we can do is wait for time to reveal it.
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