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Tuesday, July 28, 2020

How will COVID-19 change the United States?

Here we are, creating more predictions -- more chances to be wrong.

What are some trends that we will see, either created or accelerated by the pandemic?

1. More outsourcing

If you can do your job from home for 5 months, maybe you can do your job from home forever. Or maybe you can move that home out of some expensive real estate market like the Bay Area, New York, or Chicago to some cheaper place with fast internet.

Or, maybe they can move your job  -- but not you -- abroad, and save money.

The last big wave of outsourcing was spurred on in tech by the Y2K need for lots of re-engineering.  But communication was always a problem. Understanding each others' accents over cheap VOIP lines was, and is, a problem. I hate calling my company's IT Support line, because it's going to be a mutual game of "could you repeat that?" -- or worse, with IT Support thinking they understand what you are saying, while they really don't.

But now we have Zoom, and Microsoft Teams.  The company uses both -- but oddly enough, when you call IT Support you still call over the phone, can't see them or share a screen, and the VOIP quality is still shit.

But I digress. If I'm not coming into the office anyway (and my own company just announced the office is now closed at least through January 2, 2021) what's the difference if I'm in the close-in suburbs, or in Fargo, North Dakota, or in Bangalore, India?  Labor costs -- that's the difference.

2. Disappearance of independent restaurants

Unless you do a LOT of takeout, your small restaurant is probably doomed. There will be months ahead where you can't get the inside seating density to make a profit -- if you have a max of 50% seating on Friday and Saturday nights, how can you make it?

Chains have several advantages.

(a) As the Wall Street Journal noted (July 28, 2020): "Big chains have generally performed better than independent restaurants during the pandemic due to their drive-throughs and established takeout operations"

(b) Chains can feed at the relief fund trough more easily. They have established relationships with the banks administering the federal loan programs. They have lawyers, and lobbyists.  So, they will proportionately take less of a financial hit -- and because of their size they are more likely to be able to weather the storm.

(c) We'll eat fewer meals out. If you're working from home, you are much less likely to eat breakfast or lunch at a restaurant. Grocery store sales are way up during the pandemic. As we get used to cooking for ourselves again (and consider the cost savings), we'll likely go out to eat less, even if we can afford it -- and fewer of us will be able to afford it.

So, be prepared for the local restaurant scene to look like a suburban street, with chain restaurant next to chain restaurant.

3. Department stores decline further

OK, so now we're opening up department stores, with all the clothes they had in inventory last March, for the summer season, just as we're heading into back-to-school. Do they save these clothes for next spring (sitting on financing costs)? 

And what does back-to-school mean if the first quarter (or more) is mostly remote learning?

The further decline in department stores will take many malls with them.

4. Ventilation systems will be the new advertised amenity

What we know now is that being inside next to people who are talking or singing is infectious. Of course, that's also true of the common cold and the flu -- that's why these are more common in the winter.  So, since we have to be inside part of the time, there will be a premium on getting good ventilation and filtering systems to lower the viral load, even after the pandemic is over.

5.Another pandemic

Having seen what chaos can be caused in America by this pandemic, what are the odds the North Koreans aren't trying to manufacture another one? Or the Iranians? Or ...?

6. Real estate weakness

A huge number of people are in danger of eviction as I write this.One estimate is 23 million families by October. https://thehill.com/policy/finance/507161-as-many-as-23-million-families-could-face-eviction-by-october-due-to-pandemic  That's out of about 125 million households.

Consider this from a landlord's point of view. You evict them, but who do you put in those units? You don't want another family with bad credit. So maybe you have to lower the rent so you can get a client with acceptable credit.  If rents are lower, there's less incentive to build more units, so supply doesn't increase.

Consider this from a renter's point of view. You're evicted because you can't pay rent. There's a good chance you'll end up homeless, or moving in with relatives or friends (or, homeless). That also creates empty units, and a downward pressure on rents. [good news for the home remodeling industry, bad news for new home construction]

That's residential real estate. Commercial real estate is going to be weak, because if there are more people working from home, there's less office space needed. If there are fewer department stores, and fewer restaurants, there's less retail space needed. And what about those movie theaters in the age of streaming?

One area that's likely to boom is real estate taxes. More unemployment? Less income tax revenue. Fewer restaurant meals and clothing sales? Less sales tax revenue. People driving less? Less gas tax revenue, and fewer new car sales taxes.  So, what's a struggling local government to do? Increase the property tax.

7. Peak sports?

The phrase "peak oil" means the theorized point in time when the maximum rate of extraction of petroleum is reached, after which it is expected to enter terminal decline. (Wikipedia)

Have we reached peak sports

It's key to remember that the huge fascination with professional sports is recent. The National League is the oldest big league, and that's 1876, not 1876 B.C.  Pro football didn't get big until the late 1950s; ditto for basketball.  

The big money is even more recent.  Bob Gibson had one of the greatest pitching seasons of all time in 1968. What was that worth? "The $125,000 salary Gibson requested for 1969 was agreed to by team owner Gussie Busch and the Cardinals, setting a new franchise record for the highest single-season salary". (Wikipedia). Now we see top baseball players getting long term contracts worth over $300 million.

In 2020, a lot of events were cancelled, or the seasons distorted beyond recognition. Will we care again the way we did before? Maybe not.

I stopped watching football several years ago, because I felt I was supporting an activity that causes brain injury. I don't remember the exact year, but Lovie Smith still coached the Bears, and he was fired in 2012.  To my surprise, instead of watching other sports more, I watch them less. I'll watch a big game now and them (like the Cubs in the World Series), but otherwise I'm not that interested.

Will the same thing happen to professional sports when they return to a normal schedule? Will enough people have found other things more interesting, so that overall interest in sports declines?

It's certainly happened to other individual sports before. Remember how big boxing used to be in the 1950s and 1960s? The Friday Night Fights on TV?  Remember when professional bowling was big?

It may already have begun pre-pandemic for some other sports: 

So, perhaps 2019 was the year of "peak sports", and the vast overblown part of the economy that is professional (and major college) sports will be in for a decay. Or maybe not.

8. Stuff I don't know

For sure, this is a partial list. I don't know:

  • Who will win the election in November
  • Whether there will be any meaningful police reform, and, if there is, what form it will take.
  • Will we reimpose some or all of the environmental restrictions undone by Trump

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