Mike Hosking talks to Finance Minister Grant Robertson about 'shovel-ready' projects and economic recovery after COVID-19 - 31st March.
Opinion
COMMENT
The lockdown is similar to the Canterbury earthquake, where damage and power losses shut most businesses. In common with an end to the lockdown, most businesses restarted as soon as power returned.
Paymark daily transactions were 70-90 per cent of the usual a few days after power returned.
Of course, there was unemployment after the earthquake too, often the recall unemployment that follows a temporary layoff. These workers often wait to be recalled to their old jobs. Good employees will be always called back by their employers as soon as they have work for them.
With 250 working days in the year, the maximum effect is a 0.4% reduction in GDP per public holiday or day of lockdown. Essential services continue every day of the year as do continuous production industries, but retail and tourist sales get a boost during public holidays.
The European Central Bank estimated that another public holiday reduces GDP by about 0.05 per cent to 0.1 per cent per day. Retail and tourist sales are way down in a lock-down but US estimates drawing on detail job design surveys suggest that one-third of the workforce can work from home. Netting these out hints that GDP will reduce by at most ½ per cent per week of the lockdown and 2 per cent per month.
Data from the Homebase payroll and scheduling service shows the hours worked per day by wage employees in the US is now down 60 per cent compared to the same day in January. These figures do not include salaried workers, who are often better paid and more able to work from home.
The Federal Reserve Bank of St Louis expects the unemployment rate to reach 30 per cent by adding up the industries and jobs that involve in-person interaction. But that does not include the 700,000 people to be hired by Amazon, Walmart and others. These others include a home delivery service hiring 300,000.
But the rapid recovery in Canterbury after the earthquake suggests we should be expecting a recession, not a depression. The majority of unemployment is recall unemployment, but the rest is search unemployment - unemployed who must look for jobs in other industries and occupations.
The Canterbury earthquake recovery offers insight here too. The export sector recovered quickly, as did most of domestic industry. But travel and tourism and international education fared badly.
Fewer students and tourists were attracted to an after-shock prone region.
Many will be reluctant to travel or study abroad for some time to come even after borders are slowly reopened. The travel and tourism and international education sectors will be much smaller than in the past for a year or two to come.
These long-term declines in overseas demand will require some businesses to close. Long-term wage subsidies are no answer because we will end up like the zombie firms in Japan in the 1990s after the Japanese economy stopped growing for at least a decade.
These zombie firms, propped up by government lending, took away sales from more solvent competitors, who then started to fail.
Jim Rose. Photo / supplied
How quickly we reopen our border will be the big issue in the election. Sweden and the Netherlands haven't locked down much beyond our Alert level 2, but are doing little worse than locked-down neighbours regarding new virus cases. Their international travel and tourism sectors collapsed too but their government finances will come out of this crisis in far better shape.
If the lockdown lasts beyond four weeks, and the border is not reopened quickly, we can at least save on having a Minister of Finance? Just hang a sign on his locked door saying "There is no money. No extra money for schools, hospitals, Pharmac, the poor or the old people. There is no money".
Another challenge is that the net worth of many businesses has taken a big hit. Their ability to borrow will be frustrated by the inability of banks to tell which cash-strapped businesses are a good risk and which are a case of throwing good money after bad. The rise of Japan's zombie firms shows that governments are no better at spotting who will come out the other side, and who are beyond help.
