“I’m recovering from a cold. I’m so full of penicillin that, if I sneeze, I’ll cure someone.”
Tommy Cooper
Maybe you have heard the expression “the cure is worse than the disease.” This is a way of describing a situation when the proposed solution to a problem produces a worse result than the problem itself. You can think of swatting a fly with a sledge hammer. Sure, you might kill the fly, but the hole in your wall will cost a pretty penny to repair.
Only time will tell whether the measures we are taking, as a society, to combat or otherwise contain the coronavirus COVID-19 are (or were) effective. To be sure, we will undoubtedly stem the spread of the virus, but at what cost to society? What cost to the economy? Essentially, we will probably have to conduct a massive cost/benefit analysis of ‘our’ response to this crisis to determine whether it was ‘worth it.’ Put another way, was ‘the cure worse than the disease,’ both literally and figuratively?
As I type this, I don’t know the answer. To be sure, I certainly understand COVID-19 will ultimately cause the deaths of thousands of Americans, if not exponentially more (if you are a fan of worst-case scenarios). However, I also understand how the mandated closure of so-called non-essential businesses will wreak havoc on small business owners and the economy as a whole.
Clearly, first things first: let’s protect the health of as many Americans as is possible, right? The less interaction we have with one another, the less likely COVID-19 will spread between people. Duh, huh? So, it makes sense to shutter as many public places as is possible, in order to limit interpersonal interactions. By public I mean open to the general public, not necessary government buildings, etc.
So, what stays open and what closes? What is essential and what isn’t? Who makes that determination? What gives them the authority? Great questions.
I seriously doubt anyone would argue grocery stores and the supply chains which provide them with products are essential industries. After all, we need food to live. You could undoubtedly argue pharmacies are also essential for the public good, as are electric, water & sewer, and natural gas utilities and/or companies. We need these things. Shoot, we have to have them.
But what of the local pizzeria? The fast food joint(s)? The local pub? The dress shop? The nail place? The barber shop or salon? Are they essential? At least in terms of survival, both as individuals and as a species?
If actual physical survival is the test for what is essential, there aren’t too many truly essential industries. For the overall health of the economy, there are more. For the health of a local economy, there even more than that. For the health of a household, well, just about every industry, economic sector, employer, and job is essential.
Consider some small Southern town. For people in prosperous population centers, the local fast food restaurant is just another option for lunch, that is if you eat fast food. They are the proverbial dime a dozen, and you don’t think twice when one opens and another one closes. In essence, they are fungible. However, to that small Southern town, they are a meeting place. They pay meaningful taxes. They provide jobs. They support local charities. They sponsor little league teams. They are, as strange as it might seem to some, a source of pride…that “we are big and important enough to have a thus & so in town.” They are, in no uncertain terms, a vital part of the local economy and community. The locally owned pizzeria is arguably even more so.
To that end, a few years ago, the Pizza Hut in Evergreen, Alabama, closed its doors. I have no idea if it has reopened, but I would see no reason why it should. I noticed it had when I got off at Exit 96 on I-65 to get gas, and I asked the person at the counter of the gas station when it happened. Let’s just say she was borderline despondent about it, as she had friends who worked there and they hadn’t seen it coming. Then she said: “it really [stinks] for the community as a whole.”
You see, what is almost regular happenstance where I live, one restaurant closing and another opening, is a big deal in a poor, small town. Those restaurant jobs, as an example, are more essential than you might imagine, and I am not being terribly hyperbolic.
So, what happens to the small businesses that will fail during this crisis? While perhaps none them is what anyone would call essential to the overall US economy, in aggregate, they represent a lot of jobs, taxes, and even civic pride. To be sure, Washington has already singled out the airline industry for potential economic lifelines, and they employ a lot of people and are vital to the economy. But, again, what of these small businesses? Are there or will there be economic lifelines for them? If so, when can they get them, because they are starting to fail now. $50+ billion for airlines is great, but what about the untold billions of dollars for everyone else.
This then takes us back to the original paragraph. While no one is currently debating the need or necessity of stopping or retarding the spread of COVID-19, I would be surprised if ‘we’ don’t reassess the economic dislocation and distress our supposed cures and treatments will have caused and are currently causing. There will be those of us who will argue: “if we saved even one life, it will have been worth it!” Then, there will be those who will have to pick up the pieces of their economically shattered lives who will question that logic.
In the end, I am not necessarily arguing one way or the other. However, I will say this: whether the cure for the spread of COVID-19 is worse than the disease will be a topic of much conversation and debate after we finally put this crisis in the proverbial rear-view mirror.
I hope this finds you and your family safe and as happy as you can be. Also, I would be very interested in knowing if anyone can tell me the name AND location of the closed restaurant in the above picture.
John Norris
Chief Economist
As always, nothing in this letter should be considered to be an offer to buy or sell financial services and/or products of any time. Any and all opinions expressed here are mine, and mine alone. They don’t necessarily reflect the opinions of any other associate or shareholder of Oakworth Capital Inc., and I am subject to change them at any time without prior notice.