Tipping Point

Death Trap

Big changes are set in motion. 

In 1972 Chinese Premier Zhoe Enlai was asked about the effects of the French Revolution. "Too early to tell," he answered.

The story got around quickly. So wise, people agreed. In fact, it was a misunderstanding. He thought the question was about the student riots in Paris in 1968. Four years, not two hundred years, were not enough time, he meant. 

His original response is the one that is remembered and enjoyed for its profundity. Human events are path dependent. One things leads to another to another to another.

So these predictions are two hundred years early.

1. Downtown urban real estate will be re-priced downward, now, then forever.

High prestige tall buildings are temporarily understood to be pools of infection. Ten, fifty, seventy story buildings were previously desirable places for professionals, a corner office on a high floor proof of success. Now their offices, lobbies, common areas, and especially their elevators are understood to be virus traps. Dangerous for the senior partners, a lawsuit liability as it involves employees told to come in to work. Now the lowliest of spaces, an empty one story vacant store front in a nondescript strip mall outside the central city would be more usable as office space. This is a reversal of fortune that will never quite end, because it led to something: increased and normalization of telecommuting.

2. Telecommuting for professionals.  The shutdown accelerated immersion into virtual meetings, and people have coped. It works pretty well. Much of the in-office interaction and communication had already migrated to electronic notes, and instant messages replaced slips of paper, but this was showtime.  It saves a commute and public transportation is another danger. People will still meet physically.  New and junior employees need the proximity and interaction of group settings to establish culture, and supervision is easier when people are nearby, but the leadership of organizations, and much of its prior paperwork, can move off site much of the time. Telecommuting has gone from exception to rule,

3. Electronic public meetings. The technology has improved. Video conferencing has become easy enough to do that novices and the general public can have satisfactory experiences through virtual meetings. Americans experienced sudden immersion. Political meetings, service club meetings, church meetings, non-profit and civic meetings are taking place electronically. As organizers learn new presentation skills, like how to integrate power point slides into presentations, people will see them as viable, sometimes much better, alternatives to getting together. 

4. Universal health care. The virus presents a confluence of multiple forces: People are sick; it is a contagious disease, so there is public interest in the health of others; people are made jobless by government order; health care is connected to employment; the pandemic is described as a war against an invader against us all, calling for a time of unity and sacrifice. This pushes reset. The political system is allowed to change dug-in positions.

Trump just announced that uninsured people with COVID-19 would have their expenses paid directly to health care providers by the government at Medicare rates. This is Medicare for All, at least for this disease, announced by a Republican. It isn't universal health care, but it is a start, and it comes at a time when Americans are re-defining more and more jobs as essential for public safety: health care workers, food growers and distributors, delivery people, and more. People realized that we count on the system that delivers toilet paper to our stores. We count on others being healthy to show up for work. That re-defines the debate. 

5. Public utility socialism. Billionaire investor Leon Cooperman put it this way, quoted on CNBC: "When government is called upon to protect you on the downside, they have every right to regulate you on the upside. So capitalism is changed."  In the financial crisis of 2008-2009 both presidents Bush and Obama protected the financial system, which meant bailing out banks, which left their structures intact. It may have been good policy, but it was terrible politics.

The result was populist uprising, the Tea Party which evolved into Trump on the right, and Occupy Wall Street and Bernie Sanders on the left.  Politicians learned, and will insist of visible prices to be exacted from companies experiencing a bailout. Airlines may be re-defined as transportation utilities. it won't stop there.

The public is barely aware of the extraordinary support the Fed has given to corporations by buying corporate debt in the secondary market to support prices and provide liquidity. This included high yield debt, now put on the Fed's balance sheet. In time the consequences of this will be understood. The public will want to be repaid.

Meanwhile, the oil industry has shrunk to less than 3% of the SP500. The world has cheap oil. The government, and eventually the public, will realize that regular and reliable flow of oil and natural gas from producers to utilities and refineries for motor fuel are essential to the well being of the economy. Exxon and Chevron will survive, but possibly as public utilities, coddled and regulated.

This is just a start. If the future were imaginable we would have all bought Microsoft, Amazon, and Apple when they were tiny. Who knew?