Having identified the potential factors shaping the Long Pandemic Economy in Part 1, it’s time to discuss the various challenges we’ll face because of it.
The Supply Pseudocrisis
Even before the pandemic, capitalism was suffering a decades-long crisis of failing to make long-term investments. We underwent a quiet revolution in logistics towards “just-in-time” provision, allowing companies to streamline capacity investments to only satisfy their short-term needs.
Now, with pandemic demand going in such wildly different directions, and so rapidly, it’s difficult for businesses to justify investing in capacity to address shortages. They even stand to benefit from this short-sightedness, by reaping windfall profits from demand spikes — although a more realistic assessment admits that many underproducers are still leaving money on the table.
Look no further than the semiconductor industry. Pre-pandemic, we already had a supply crisis due to cryptocurrency mining demand. The manufacturers were slow to react. Under pandemic-level demand, the auto industry screwed up its ordering, while remote-work-related chip demand spiked, and now the crisis won’t be resolved until at least next year - but probably more like the year after.
Like with vaccine and mask production, in between the ongoing outbreaks there will simply be little reason to invest in capacity to permanently address the demand spikes. And we’ve already seen government reluctant to make any big moves to solve this issue in these pandemic-critical sectors. Anyone hoping for a broader response than even that, is chasing unicorns. Non-critical sectors won’t get anything more than the usual token gestures — some White House effort where the President drags a handful of executives into a “task force” that lacks any force of law, and they all agree on bland, marginal, voluntary efforts that don’t solve any real supply problems.
Gradual Demand, Not Spike-y
Of course, on the other end of the Supply Pseudocrisis is demand. Demand has been pretty spike-y during this pandemic - for toilet paper, for the vaccine, for durable goods like appliances, cars, and furniture, and so on. But that’s about it! There’s really no new horizons of demand spikes out there. We’re mostly just left with the same enduring structural demand changes as before.
This isn’t a very interesting conclusion, but it’s a necessary one. If we could predict a COVID-related long-term milk crisis, we’d want to know about that. And who knows, maybe Wisconsin will see a Delta outbreak that hurts dairy production! Same could be said for Vermont and Concorde grapes, or Maine and blueberries. But those probably aren’t going to happen, and ruling them out at least kind of lessens the case for drastic government action to shore up the Supply Pseudocrisis.
Kicking The Eviction Can Down The Road, and The Non-Imaginary Component Of Impact On Landlords
Look, I’m as sympathetic as anyone else towards the moral case for eviction moratoria. And I think most landlord-sob-stories you’ll see out there (like this one in my local rag) are journalistically irresponsible, because instead of giving people a realistic picture of what’s going on, they give your average local-rag-reader the false impression that landlords everywhere are in trouble, not just a handful here and there.
The reality is, most landlords and tenants who are in trouble are getting helped by state and federal programs from the pandemic stimulus plans. Pro-moratorium headlines pretend that millions of Americans are at risk of getting evicted, when in reality the political will most certainly will exist as long as the Long Pandemic Economy keeps seeing pandemic-related unemployment. As discussed, anti-moratorium headlines pretend that millions of landlords are losing their shirts. The real threat posed is that once the structural unemployment gets wound down, we’re going to have two baskets of cases: (1) those that fell through the aforementioned cracks, and (2) those where the root problem either wasn’t pandemic unemployment, or where that unemployment created a more permanent problem (loss of job skills, disability, etc.) that can’t simply be wound down.
The human cost no one seems to care about is that regardless of who wins on either side on any given case in either basket - tenant or landlord alike - someone’s life is going to be ruined in the legal result. Which means more bad journalism; more societal attention wasted on, and more political division arising from what are essentially corner cases. What a sane and sensible society would do is simply wave our hands and say, “Something obviously went wrong here, and we didn’t mean for that to happen, so let’s just make both sides whole”. Instead, the corner cases will get used to argue against future moratoria when they’re genuinely needed, and they’ll get endlessly scoured for spurious details that prove whether some landlord or tenant “deserved it”.
The arguable conclusion is that this is more of a political economy thing than most of the rest of these issues. Expect to see a lot of dumb state legislative fights where conservatives gin up sympathy for landlords and antipathy for the renter class, which at the end of the day probably means more NIMBY. On the other end, big liberal cities will add planks to their already-bloated rafts of tenant protections to make it look like they Did Something About It.
The Remote Work Compromise
A lot of executives and managers seem locked in on an axiomatic way of thinking about in-office work. In some key ways, they’re not even wrong on the specifics! For instance, it really is more efficient to have face-to-face meetings sometimes. But execs mandating all employees return to the office “or else”, are plainly just wrong about the macro direction, and we’re already seeing them suffer the costs of their decisions.
Remote work had what historians and some economists would recognize as a “leveling effect”. Because almost all white-collar workers experienced it and had to figure out how to fit it into their overall lives at the same time and for the same protracted period, this changed the fundamentals that were previously driving an agonizingly slow trend towards remote work since the 90’s internet revolution. In today’s Long Pandemic Economy, the entire white-collar labor pool knows how to do remote work, how to work with others who are working remotely, and what they like and dislike about it. They’re savvy now, and what’s unique is that even the ones who otherwise would never have cared to try remote work, got the chance to see it in their daily lives.
This is a game changer. Demand for remote work is at an all-time high. Even when workers aren’t demanding entirely-remote work, the ubiquity of the demand gives them the necessary leverage to ask for other concessions on work-life balance. And over time, we’ll reach a new equilibrium balancing dozens of forms of work arrangements across the economy, which will have predictable impacts. For one, tech will be favored by the shift. Since hiring workers is easier in the Long Pandemic Economy (more on this in the next section), and workers are the primary input to software production, software companies stand to benefit far more than any other sector.
Moving on, suburban and exurban housing1, as well as cities suffering from overheated housing markets (like SF) will get a shot in the arm. “Destination housing”, or whatever buzzword they’re calling it these days, is the extreme version of this. Living in a completely different city from where you make your money has generally been a lifestyle limited to the super-rich; now, any old middle- or upper-middle-class programmer can enjoy the same benefits.
I also expect that some of the newfound confidence will spill over into white-collar workers’ psychology. We’ll get more startups and entrepreneurship. Workers who have for the first time in a generation been shown that management can be forced to make a major concession, will start looking for more concessions. This is again one of those things that sounds and is pretty straightforward, but is also pretty profound simply because we haven’t seen it in a long time.
The National White-Collar Labor Market
The biggest effect of remote work deserves its own section.
I don’t know if you’ve seen this at your employers, but over the pandemic, my company kept up hiring. Some of these workers were already in-area or were planning to move. But several just stayed where they were! Most eventually managed to move into the region, but they were able to take their time, work things out with moving spouses and children, or just quarantine with family.
We’re witnessing the birth of a National White-Collar Labor Market. Of course white-collar employers recruited nationally before the pandemic; but today, almost all of their potential recruits are now willing to work remotely before jumping headlong into a job. And even more critically, most employers see this as a viable option too! Employers in the modern era have always loved controlling work as much as feasible. This is one of the few times we’ll see in our lifetimes where employers voluntarily relinquish said control because they actually see it in their business interests.
The effect the National White-Collar Labor Market will be pretty profound. Hiring and starting a new job are just going to be easier from now on. To me, the most trenchant, but also easy-to-miss, part is that the labor market may become even more short-term oriented than ever, as employees use remote work to “try out” jobs; but simultaneously, workers will be better-matched to their employers, which will result in those who aren’t skipping from job to job staying with employers longer than has become normal in recent decades.
One last, minor note is that for those who have never had to relocate or even contemplate it, it may be news that there are entire firms dedicated to helping businesses relocate their workers, but those businesses are going to have to adapt to this new reality. It doesn’t completely blow their business model up, but it changes the task at hand. Some of that new task will be “facilitating slower relocations, delivering higher quality than DIY”. Some of it will be “facilitating destination relocations”. At any rate, they’d better beware. Most of their business is based on white-collar workers. It’s not like they have anywhere else to turn.
The Great SALT War
Another wierd side effect of increased white-collar worker mobility is that unless cities and states can capture incomes being generated locally, they’ll start to lose out on the rewards they’d otherwise have gotten from their various comparative advantages.
Portland and the Bay Area are the starkest example. The Bay Area housing crisis got going because Silicon Valley kept attracting tech workers, who bid up suburban housing, which incentivized incumbent homeowners to refuse to densify. By contrast, Oregon famously doesn’t have income and sales taxes. A smart programmer balking at the Bay Area housing market might therefore choose to move to Portland and work remotely! Although Mountain View and Cupertino and the great state of California will still collect that worker’s income taxes, they won’t get the benefit of that worker’s local spending and property taxes anymore.
It’s unclear how this will pan out. Maybe the growth just spreads out all across the country. Maybe the lack of revenue starts finally starving out municipalities in the housing-overheated regions, and they end up having to raise property taxes - the second-generation cycle of Chuck Marohn’s Suburban Growth Ponzi Scheme.
To Be Continued In Part 2b…
One thing that worker mobility is going to do is reinforce the ongoing trend towards overall immobility. Americans used to be more willing to move cross-country for work, but in recent decades, the rate of them actually doing this has declined. If people can get jobs staying exactly where they are, then they’re going to look more at what they like in any given city.
Wierdly enough, this may eventually result in a political depolarization from the current urban-rural divide. Places where white-collar professionals already like, are going to attract more of them. Places with reputations as right-wing hellholes, won’t.
One thing that interests me is the impact on hiring across borders.
After all, no need to worry about h1-b etc. if your foreign workers can just work remotely from home. And you can pay them less too, depending on relative COL.
And with more flexible schedules that come with working at home, timezone issues become less salient, although they don't disappear.