I’m becoming fascinated by the divisions of Covid-19. The virus is splitting Britain into two distinct groups – winners and losers.
My sister-in-law is due to agree to her furlough today. She was supposed to have her working hours and income reduced by 20% from next week. Instead, she’s going to accept a 20% pay-cut and 100% reduction in working hours under the government’s furlough. Which, in practice, means a holiday trip to Japan while still earning 80% of her income!
The newsletter industry is healthy too, thanks for asking. We can work from home with ease. And you can continue to read our work too.
But what of investors who have lost trillions collectively? What of those who have lost jobs completely? What of the self-employed?
A friend lives with a self-employed home baker who supplies goods to cafes in south-east London. She’s gone back to Dorset to live with her parents, her income in ruins.
Those dependent on pensions are in trouble too, I suspect. They face the choice between spending less and hoping they don’t live as long…
In the German state I used to live, the treasurer committed suicide over Covid-19’s effect on the budget.
NHS workers are being hammered with health risks and overwork.
Young investors who have funds may get the buying opportunity of their lifetime while retirees are forced to sell at the worst possible time.
Different industries and businesses are getting hit in completely different proportions. Ocado is sold out for weeks. Hairdressers are closed. How long will a return to normal take for many of these businesses? It’s not like the virus will suddenly disappear.
In Switzerland, the Covid-19 crackdown is reaching interesting extremes. Only shops selling essentials are allowed to stay open. But those shops are no longer allowed to sell non-essentials, like books. That would be taking unfair advantage of the other shops which were forced to close. At least, that’s the Swiss police’s interpretation…
For the police force here in Britain, business is booming. Fines are up and all sorts of new surveillance tech is justified.
If you focus on how unevenly Covid-19 is dishing out economic pain, let alone real pain, it’s an extraordinary divergence. A wedge driving us apart.
Now some chunk of all this is just how life ordinarily behaves. It does not dish out problems evenly. When it rains, it pours.
What worries me is that Covid-19’s hit is of a particular type of divisiveness on a scale that will lead to trouble down the line. I’m worried Covid-19 is creating groups. Groups that will soon turn to a familiar source for airing your grievances. The government.
Voltaire explained the nature of the system in 1764: “In general, the art of government consists in taking as much money as possible from one party of the citizens to give to the other.”
The economist Claude-Frédéric Bastiat followed up a lifetime later with the same conclusion: “The State is the great fiction through which everyone endeavours to live at the expense of everyone else.”
What we’re about to see is a rapid expansion of this principle, fuelled by Covid-19. The attempt to co-opt the new-found powers of government to splash cash, bailouts and cancel contractual obligations.
What’s wrong with supporting people hit disproportionately by Covid-19? That’s what welfare is for – a safety net during times of crisis. And we’re in one of those.
Well, what democracy is supposed to do and what it does are two very different things. Last time I checked, self-employed home bakers originally from Dorset do not have a powerful lobby group in government. Banks and airlines do though…
On the streets of Britain it’s already landlords versus renters – who gets the bailout, who gets to default on their obligations and who can freeride on others’ money?
With home evictions suspended, how will certain renters behave…?
Companies and their employees will face off eventually too. I doubt they’ll be able to hire back all the furloughed staff when normality resumes painfully slowly.
In financial markets, it’s bondholders versus shareholders competing for the rescues on the table. And companies between each other too.
For all these battles, what the government decides to do will be decisive. Determining who gets rescued and who doesn’t will mean huge powers in political hands.
Powers worth trying to influence.
No doubt the wealthy and those left unharmed by Covid-19 will be asked to shoulder burdens. Which is fine in principle. The question is how this is done and to what extent. Two wrongs don’t make a balanced budget.
I think the coming clash is a huge threat to investors. After the 2008 financial crisis, Spain reintroduced its wealth tax to make wealthy people pay for the financial crash. Governments around the world will be looking to similar measures as their voters demand action.
All this is just another reason to get some of your wealth off the grid. The biggest risk remains the one I detail here. But beware of the democratic aftermath of Covid-19.
Until next time,
Editor, Southbank Investment Research