Economy Will Take Time To Reopen; 'Like Turning On A Water Faucet Rather Than A Light Switch'

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates. 

Yogi Berra's famous piece of advice was if you come to a fork in the road, take it. Making decisions, whether comical or serious, are much easier when they affect only the decision-maker. But what happens when person A's decision affects person B's and that, in turn, makes person A reconsider? In this case, we have gone from a fork in the road to an endless roundabout.

Re-opening the economy will be like turning on a water faucet rather than turning on a light switch. Some jurisdictions will open in drips and some will open in steady streams. But since people are mobile across jurisdictions – and certainly production and transportation take place across them – uncertainty will remain. How will consumers, suppliers, and their upstream vendors react? This uncertainty is not conducive to a steady flow of sales revenue for re-opened businesses. In turn, that makes employment and investment in plant and equipment erratic. Massive government assistance was enacted to manage the COVID-19 lock-down across millions of employers and employees. Now it is time for businesses to find their feet again.

(Photo credit: Jim Allen/FreightWaves)

This will not be easy or pretty. Everyone understands that the strategic goal is to return to economic growth. Such growth is easy to define but not so easy to mandate. Why? Gross domestic product (GDP) is an accounting term. It is the sum of the values of private consumption, private investment, and net exports. The other piece to GDP is government expenditure. Those who studied macroeconomics in college may remember, GDP = C+I+G+(X-M). So, if the private sector is loath to spend money (i.e., C, I, and/or (X-M) falter) then only government (G) can fill the void with even more financial assistance. But this keeps society on the endless roundabout of subsidizing workers to stay home, paying farmers not to grow crops, etc. Worse, since some companies receive relatively more aid than others the government is, in effect, picking winners and losers. Some of these "winners" might have thrived without assistance while others might become "zombie companies" because they and their workforce can only survive through government subsidies or loans.

Problems arise when one person sees value in cooperation yet sees even greater value pretending to cooperate just to induce it from another. Simply put this is cheating in order to gain more at the expense of someone else. This is the famous game called the prisoner's dilemma. In an open-ended situation with common goals, cooperation is good for all. It certainly pays off in the long run. But in the short run, there may be an incentive to go for extra gains in reneging on cooperation. Of course, when both sides renege, they both end up worse off than if they each held to their word and cooperated. 

(Photo credit: Jim Allen/FreightWaves)

Prisoner's dilemma situations crop up when the decision-makers' environment is not stable. By environment we mean the state of the economy, accepted social conventions, etc. Are we at an inflection point in the economy and in the social practices (forced or otherwise) brought on by COVID-19? We are if the majority feels that it is time to change course and re-open the economy beyond what is essential. We are not if they feel it is too early to consider a change in the status quo. The problem is that at this point there are enough people on each side of the fence in enough jurisdictions across the country to bring on this sense of instability. 

For-hire transportation is a public-facing activity. But the degrees are different across modes. Railroads and pipelines own and control their entire infrastructure while airlines and ocean vessels use public airports and water ports. Motor carriers share the roadways with the general public. Some conveyances carry dedicated freight, meaning that only one consignor is involved, while others carry multiple shipments at the same time. More person-to-person contact means more risk – especially when it is over jurisdictions in different stages of re-opening.

On the consumer side, hoarding is a form of non-cooperative gain-seeking at the expense of others because these surges make the supply chain harder for suppliers to calibrate and that affects all vendors upstream and all other consumers downstream. This is the reason why cleaning supplies were in such short supply early in the pandemic. Hoarding spreads like a contagion and all suffer.

(Photo credit: Jim Allen/FreightWaves)

On the supplier side, failures in ensuring worker distancing, protective equipment, and testing are forms of non-cooperative gain-seeking because maintaining the operational status quo jeopardizes the health and productivity of the entire workforce. This is the reason why U.S. meat and poultry supplies are under stress right now. Shortages of processed food arose from the 15 plant closures in April 2020 across the properties of Tyson Foods, JBS USA, and Smithfield Foods. This may spur hoarding and exacerbate the problem for all, though it more directly affects those workers who are ill and/or furloughed at locales that are shut down or slowed down. About 30 plants, mostly in the Midwest, have suffered from COVID-19 outbreaks. As parts of the food processing supply chain close, farmers and meatpackers end up culling millions of healthy chickens and pigs in order to cut down on their associated cost for feed and pens.  

Even governments are not immune to self-interest and non-cooperation. This is the reason why some jurisdictions held on to excess medical supplies, thereby making it tougher on others that needed them. Both Germany and France accused the U.S. of "redirecting" medical supplies ordered from Shanghai. For its part, the U.S. outbid the other two countries in a normal market transaction. But the problem is that the pandemic is not a normal societal situation. When another shipment from 3M's subsidiary in Thailand was diverted, the German government called it "piracy."

Governments will set the example through their policies showing that everyone is in it together or it is everyone for themselves. The problem with parochialism is that any feelings of distrust in other jurisdictions can be reciprocated. This is self-defeating in a global pandemic. Furthermore, this will not be helpful if the world experiences a second wave of COVID-19 later this year.

Cover photo provided by FreightWaves.