Gabriel Faure Requiem – In Paradiso, although I rather feel in Hell!
Over the weekend several emails came in. All with the same theme. “How can I reduce my premiums?” “Can I claim under Business Interruption?” “I am in trouble.” Lockdown is creating financial havoc!
|A historical reminder. At the beginning of lockdown I decided to journal every day. So far I have and I found it a very positive activity. What you read here is my thoughts and feelings on that particular day.|
Unless we cancel cover on some items, we cannot save money and it is not always possible to cancel cover! Business Interruption will not cover you. The insurance industry is not financially strong enough to save us from this disaster. Worst part is, I really want to help these people, and there is nothing I can do. Then I feel guilty, too!
I marvel at the idea of “essential and non-essential service.” The economy is not something up there in a big figure GDP, or a Debt-to-Income ratio. The economy is in everyday people like you and I. From the poorest of us to the wealthiest of us. We all make up the economy and we need each other to make it work. The economy is a circle. It is a flow.
Let me give you two extremely (over) simplified examples of how the economy works, so that you understand the circle-flow idea.
A rich American stopped in a small town, walked into the hotel, and asked: “How much for a room tonight.” The hotelier said $150. The traveler put the money on the counter and went upstairs to inspect the room. The hotelier ran out and paid the butcher the $150 he owed for meat. The butcher ran out and paid the mechanic the money outstanding for the repairs to the delivery vehicle. The mechanic ran to the Lady of Pleasure to pay his debt for services rendered. The Lady of Pleasure ran to the hotel to pay her bill of $150 for short-term room rentals. Just then the traveler came down the stairs and said he decided to rather move on. He took his money off the counter where the Lady of Pleasure put it down. He is now out of the story.
Nobody in our small town had $150 cash anymore, but nobody owed anybody either – with just 1 payment of $150 everybody got $150 richer! A very simplified explanation, but money flows in a continuous circle. Lockdown has stopped the flow. And everybody will suffer for that.
The next stupid, over-simplified story to explain the economy.
Have you ever wondered why factories open at 08h00 and retail stores at 09h00 and close an hour earlier and later, respectively?
Here is the story – factories must be 1 hour ahead with production. Eight ‘o clock dad starts manufacturing toilet paper (very important because of the Coronavirus). Then Mom can go to the shop at 09h00 to buy the toilet paper that dad made with the money dad earned so that the shop owner can pay the factory owner so that he can pay dad a salary so that mom …
The economy that we speak of as if it is some mysterious, vague entity somewhere “out there,” far removed from us, is not far out there separate from us. The economy is made up of millions of transactions like these, moms buying toilet paper and other household goods and more. Our transactions – whatever you buy, big or small, cheap or expensive. Every single one of our transactions makes the economy. No matter where you fall on the income scale, you contribute to the economy and because you contribute, you have an income. If you do not contribute, you cannot have a sustainable income. Naturally, we do not only buy one product, that is how the neigbour gets paid a salary. And how mom gets paid for whatever work she does.
Let’s imagine mom is a hairdresser, whom somebody decided is a “non-essential service.” Mom is not earning an income due to lockdown rules. Dad is making “essential” toilet paper. Suddenly his income must buy more goods, like food. Since mom does not have an income, she buys less toilet paper. The flow slows down and dad goes on short-time. Less income. Less toilet paper. Slower flow. More short-time. Slowly the flow grinds to a halt – because somebody thought the boy buying a piece of bubblegum is “non-essential.” Trivial as it seems, that boy and his bubblegum is shown somewhere in the unpronounceable GDP figure the Minister of Finance throws around with ease as if it is small change, while I certainly have no conception of how much money we are talking of in those figures.
Now imagine there is no dad in the story of the single parent hairdresser! (Replace hairdresser with any personal service occupation, if I have to get your imagination going.)
Nowhere have I spoken about taxes. What happens to VAT and other taxes as the flow slows down? You are right – it also slows down. What does that mean? Government workers are not exempt from the crisis! Flow decreases even more. Taxes decrease.
Nobody is exempt from the slowing circular flow, not even government employees (except politicians?)
We need to rethink Coronavirus, lockdown and economy very carefully. It is an extremely fine line between killing people with a virus or with starvation. We should be careful not to react emotionally. We should be careful to not react too rationally that we forget we are dealing with lives. Especially we should not panic. But we need to find the balance very quickly. In my small circle I know of a few people who do not have a job anymore.
That is why I am depressed today.
And the solution so far has sold my great-grandchildren to save my life. Which, after all, may not be saved!
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