Leadership is a Responsibility We All Bear
May 26, 2020
As we begin to wrap our minds around living in a world that exists with COVID-19, a return to a “normal” way of life for Americans will come at a gradual, methodical pace. Opening retail, restaurants and similar establishments, according to guidelines directed by state and federal governments, will dictate the pace to recovery. Establishments such as restaurants, bars and retail cannot endure restrictions of 25% or 50% capacity for an extended period; simply because fixed costs of every business—rent, utilities, insurance, etc.—do not run at 25% or 50%. The fixed costs are 100%, no change, month-to-month. The simple math tells us that extended time restrictions of reduced capacity in establishments will lead to permanent shut-down of many small businesses; a number of which operate on a fine line, with respect to solvency, on a month-to-month basis – even in good times.
Additionally, some employees may be hesitant to return to work for two reasons:
- Fear of contracting COVID-19
- The very generous unemployment benefits extended in the government’s earliest fiscal stimulus legislation
For example: if you are laid-off, but prior were making, say, $15.00/hour; based on a 40-hour week, your gross pay is $600.00, fewer taxes, social security, etc. Contrast this to the new legislative stimulus directive which adds $600.00 on top of the normal unemployment compensation calculations. So, if your normal weekly unemployment calculation is $175.00, the check you receive will be $775.00—compared to the employed salary of $600.00/week for 40 hours, fewer taxes. It’s an indication of what some unemployed people might choose. The choice to remain among the unemployment ranks comes with at least two consequences:
- An unemployment rate which will remain higher than it should
- Owners are forced to attract, hire and train new employees to replace the former, experienced employees, who have chosen to remain with the generous unemployment benefits. This cost of training new employees results in further negative economic impact on owners
With respect to the consumer, especially related to in-house dining establishments, airlines, public transportation, leisure/cruise and other entertainment businesses, those formerly consistent patrons will be hesitant to immediately “dive in” and start flying again, eating at restaurants and going to movie theaters. This gradual return to “normal” life and undertakings by consumers will also contribute to a slow recovery.
Large retailers and related business—names like Macy’s, Nordstrom, Neiman Marcus, JCPenney—were experiencing varying degrees of difficulty with the traditional retail business model before the pandemic. And since the pandemic has shut down the US for several months, Neiman Marcus and JCPenny have already declared bankruptcy. And as these large retailers, hotel chains and even hospitals battle to regain strength, there will most certainly be less construction and renovation projects, which negatively affects the construction industry.
As to the notion of waiting on a COVID-19 vaccine to open the country and economy, we do not have the luxury to wait 18 months for development, and the additional time for deployment of the vaccine. Frankly, while there is no vaccine for coronavirus, neither is there a vaccine for the SARS virus, which was seen as a great threat several years ago and remains a threat for a future outbreak.
Fiscal conservatives may be repelled by extensive government intervention in America’s economy in response to COVID-19. However, it will take these bold measures by Congress and the Federal Reserve to stabilize the economy and begin to get it back on its feet. And, just like there are risks associated with virtually every aspect of everyday life, elected officials must accept that bold leadership will come with taking some chances. Even the consumer will have to take a leadership role by working hard and contributing their share to help our country return to a more “normal” way of life. Consumers must overcome fear and step out of their homes, into the sunlight and begin to endorse business establishments that work to earn their trust.
Strong, bold leadership by the government, healthcare, industries, and consumers, will win the day.