In the months and years ahead, you’ll do fine and maybe even get rich if you sell weed edibles or become a video game star. If you own a mall, your golden days have passed. And no matter what, get ready for higher prices for the stuff you buy.
Welcome to the post-COVID-19 economy. We’re not there yet, but it’s only a matter of time before vaccines against the virus are widely deployed, we achieve herd immunity, or a combination of both.
When do get there, America will have changed into a very different place.
Take big cities like New York, for instance. Only a few months ago – pre-COVID-19 – the Big Apple was enjoying an economic boom. Today, the streets are a dystopian nightmare of shuttered businesses and mounting piles of trash. Murders have increased 50% and even the toniest neighborhoods have seen steep increases in crime. Business leaders warn that up to one-third of city businesses – more than 75,000 in all – may never reopen.
In an increasingly interconnected world, these developments will have unwelcome secondary consequences. The wealthiest residents of New York have already fled to the suburbs. That will decimate the city’s tax base. Those residents who can’t afford to leave will find themselves in an increasingly depopulated city marked by crumbling infrastructure and supported only by meager handouts from the government and aid agencies.
At the same time, city revenues are plunging while facing a $8.3 billion budget deficit, with even greater shortfalls anticipated in the years ahead.
And it’s not just New York City that’s at risk. Chicago, Los Angeles, and many other cities and states are facing budget crises. If you want to see the future of American cities, look no further than Detroit.
As well, millions of Americans who thought they were immune from layoffs or furloughs will learn their occupations aren’t exempt from the new economic reality. Ironically, health care workers face some of the highest risks of losing their jobs. Nurses, physicians, and pharmacists are examples of highly-trained professionals who are discovering their skills are no longer in as high demand as they once were.
COVID-19 has also accelerated the demise of in-person shopping. The most visible symbol of this decline is in the once-mighty mall sector. In the mid-1990s, the US was home to about 1,500 major malls. Thanks to online shopping’s growing popularity, only about 1,000 survive today. In 2017 alone, 105 million square feet of retail space closed – enough to hold around 400 Walmart superstores. The best use for these massive structures may be to house the tens of millions of Americans who will become homeless as federal, state and local eviction moratoriums expire.
But it’s not all doom and gloom.
Take the marijuana business, for instance. It’s booming in the COVID era. Weed-based edibles are especially popular as America’s appetite for the War on Drugs continues to cool. A Democratic sweep in the November election could lead to a federal decriminalization of pot and its removal as a Schedule 1 narcotic (classified as unsuitable for any therapeutic purpose).
You can also prosper if you become a video game celebrity. The online gaming industry generates revenues of more than $150 billion. Top players of games like Call of Duty and Fortnite can earn millions of dollars annually.
Next, consider the American auto industry. While vehicle sales in the US fell nearly 50% during the height of the pandemic, they’ve now recovered to pre-COVID levels. And longer term, sales of private vehicles are likely to rebound. One reason is that once lockdowns ease, the reluctance to congregate in large groups will result in much lower demand for public transportation. Many people who once travelled by bus, train, or subway will instead want to drive private vehicles. If they don’t already own one, they’ll need to buy one. And as people abandon densely populated cities for the suburbs, they’ll be more dependent on their own private vehicles to get around.
The pandemic also signals the nail in the coffin for globalization. International trade has plummeted in the pandemic, and it may never recover. Globalization made it possible for multinational companies to design their supply chains for sourcing at the lowest total costs, even if their manufacturing and processing facilities were located thousands of miles from where products would eventually be needed. The assumption was that raw, finished, or partially finished supplies would always be available.
COVID-19 made it obvious this assumption isn’t always true. For instance, while supplies are now coming back online, in March and April there was a dramatic decline in imports from China of telecommunications equipment, motor vehicles bodies, and electronics.
That fact wasn’t lost on US manufacturers. As the economy recovers, we’ll see supply chains contract as companies look to localize production and sourcing. And that will generate huge opportunities for those able to take advantage of the de-globalization trend.
But we’ll all be paying more for the goods and services we consume. Retail prices are now surging at an annual rate of more than 7%. And those are the official numbers – the actual rate of inflation is far higher, as I explained in this essay.
The government loves inflation because it means the real value of the gargantuan debts its run up will decrease. And we’ll see even more of it as the pernicious idea called “modern monetary theory” takes root in Washington, D.C.
Inflation is your best friend if you’re in debt and are paying off a fixed-rate mortgage or have a job in which your compensation increases as prices rise. But if you’re on a fixed income, watch out. Cost of living adjustments for Social Security recipients, for instance, will be further decoupled from the real rate of inflation. The Consumer Price Index, which has repeatedly been amended to minimize inflation, will be amended again.
Many of the same tactics that worked in the 1970s to hedge against inflation are just as relevant today. Precious metals, of course, are a screaming buy, although prices have risen sharply in recent months. But you can also hedge against inflation by purchasing “real stuff”– starting with a place to live that you own.
It’s a brave new world of depopulated cities and shuttered malls, but also one of opportunity for some sectors of the economy – and much higher prices. Make sure you’re prepared for it.