Closed Due to Illness – Pandemic Economics 101

  • National Newswatch

It's a simple concept, fundamental to any business plan. Revenue must exceed expenses. In order to generate revenue, you have to be open for business. Float a proforma showing zero revenue past your banker and you will be laughed out of the office onto Bay Street. Zero revenue - operating expense = bankruptcy. Ask any of the quarter-million homeless in Canada and they will likely confirm that they would prefer a suite at the St. Regis, but cash-flow constraints instead dictate lining up for a cot at the Good Shepherd. When negative cash-flow exceeds positive cash-flow, you are destined for the poor-house.

Canada, like many developed countries, is currently closed for business. Prime Minister Trudeau's $82 billion COVID-19 Economic Response Plan to “help stabilize the economy”, representing more than 3% of national GDP, includes $55 billion in tax deferrals for businesses. The Trudeau government however, has failed to explain where the money will be coming from. While taxpayers will obviously be expected to pony up, taxes are derived from income. Unemployment is rapidly soaring as businesses are forced to close. Hundreds of thousands of Canadians are losing their jobs. According to a report by The Conference Board of Canada, more than 330,000 taxpayers could lose their jobs during the second and third quarters this year, hiking unemployment to 7.7%. GDP is expected to decrease by 1.1% in 2020, further inflating the aid package.Tax deferrals implies profits, which require revenue. No revenue = no profits = no taxes. Without revenue, tax deferrals will not keep businesses solvent. Businesses are going out of business, now.In the US, Morgan Stanley is advising clients to expect the “U.S. gross domestic product (GDP) to plummet over 30 percent between April and June, which will trigger an increase in unemployment to an estimated 12.8 percent.”

Globally the picture is similarly grim. The OECD predicts that COVID-19 will lower global GDP growth by one-half a percentage point for 2020 (from 2.9 to 2.4 percent), while Bloomberg Economics warns that full-year GDP growth could fall to zero. On March 6, the G20 finance ministers and central bank governors pledged to take “appropriate” fiscal and monetary measures but made no specific commitments. According to the Centre for Strategic and International Studies, “...the United Nations projects that foreign direct investment flows could fall between 5 and 15 percent to their lowest levels since the 2008-2009 global financial crisis.” Some speculate that a new world economic order may emerge.

As the Director General of the World Health Organization, Tedros Adhanom, has stated; “Most people will have mild disease and get better without needing any special care.” Several studies have found that about 80% of all the COVID-19 cases are unreported due to mild symptoms.[caption id="attachment_479602" align="alignnone" width="300"] Source: Imperial College London[/caption]A headline in The Independent read “Coronavirus will bankrupt more people than it kills — and that's the real global emergency.” It went on to say “Coronavirus's economic danger is exponentially greater than its health risks to the public.” Trillions of dollars are disappearing weekly from global financial markets as the world shuts down in fear...over a virus similar in mortality to influenza.  The graph below shows CDC 2018 flu burden estimates for the US:

To provide some perspective to the current CODID-19 crisis; Infection Prevention and Control Canada reported 43,355 confirmed cases of influenza in Canada as of April 9th, with an annual death rate of 500 to 1,500 per year. No panic, no isolations, business as usual. Compare this to the 20,748 confirmed cases of COVID-19 as of March 22nd, with 509 deaths. Mass hysteria, government mandated isolations, schools closed, stores closed, restaurants closed, businesses closed, border closed, assembly prohibited, financial markets crashing, and an $82 billion bailout bill hanging over unemployed taxpayers. All over a disease which is having less impact than influenza, according to Johns Hopkins.

Lending some objectivity to the magnitude of cost involved, the Liberal $82B bailout package exceeds the total value of Canada's crude oil exports ($80.56B) in 2018. Mr. Trudeau will have to sell a lot of non-environmentally-friendly fossil fuels to pay for all this, not to mention the yet-to-be-tabulated economic devastation which looms currently just over the pandemic horizon beyond Parliament Hill.

A recent poll conducted by Campaign Research found that 93% of Canadians are justly worried about the economy, an astounding national consensus of opinion, while only 82% are concerned that they will contract COVID-19.

Canadians are evidently ahead of the Government on this. It is time for a wakeup call at Rideau Cottage. We need a sound fiscal plan.

Canada is headed for the Good Shepherd.

Officially Launched: Click here to see Canada’s newest hub, for wine news, insights and responsible consumption information: winewatch.ca