You know, one of the big takeaways about why we did so much better at rescuing the economy in 2019 versus 2008 is that there was so much less concern over who "deserved" aid or a bailout. Progressives (including me) need to be less concerned with whether companies that don't need money are getting it, and more concerned with whether companies that DO need the money are getting it.
This was insufferable around the PPP loans. Every week, there was a new story about some large business that "didn't deserve it" taking those loans, when they were available for everyone.
I understand that there was concern that smaller businesses were having a hard time taking advantage of the program, but the solution is more money and easier access, not shaming those who did get the money!
Back in 2008 it seemed like there was going to be real traction from a sort of techno-wonkish "make markets work" segment -- but now over a decade later we all get itchy if something isn't sufficiently socialist. (That's a slight exaggeration, but I think the PPP gnashing from the pandemic vs the response to the banks in 2008 shows how much the left has moved.)
Sorry to reply to a days-old post, but this reminds me how my company's pretty progressive leadership told us they had looked into PPP loans and were eligible, but that we could survive without it so we didn't apply. I think it was in large part due to the optics of "undeserving" companies getting it that were all over the news. It really feels like that shouldn't be how people decided whether to avail themselves of benefits they're entitled to. Make as many things as possible universal, and if you need to, you can tax back the value of the benefits on the most well-off.
As someone responsible for much of the airline industry relief package, this is a great post. A few quick thoughts: The program is bit more specific to Matt's point. It was borne of labor's experience with previous "bailouts" that restructured union collective bargaining agreements, including the Bush Administration's use of the post 9/11 airline loan programs to change union benefits, most specifically at America West. So this program was (1) an employee pass through program, (2) prohibition on governmental interference in contracts, and a prohibition on furloughs.
Crucially, the furlough prohibition enabled continuity of employment. If not for this, there would be a large mismatch between available pilots and demand. Pilot labor is incredibly complicated by a few factors: (1) how "current" a pilot is in training, (2) pilot seniority, and (3) the allocation of pilots between different types of aircraft. If there had been mass furloughs, you would have not had enough pilots and we would be struggling to get pilots who wanted to fly to actually operate airplanes. Instead, we would be looking at massive interest in air travel and very little ability to meet demand, with attendant price affects and capacity. The program was specific to protect the employees and reduce the large cost of employees for airlines.
Importantly, the view put forward by Chamath and many in red rose Twitter that bankruptcy is an orderly and fair process for employees is simply insanely wrong. The bankruptcy code allows businesses to seek permission to dismiss union contracts and create dictated, inferior terms in their place (11 USC 1113). Simply put, airline bankruptcies are horrible, disproportionate, and unstable for both workers and companies.
Finally, I think the airline program provides a very interesting window into the debate of employee subsidy vs UI. Putting aside the pedantic (and wrong) view that there is no meaningful difference, I'm biased in favor of the former. Because of the employee pass through "bailout" airline employees did not sever their employment bonds, can continue their careers, are able to respond to demand, and can keep health care and retirement savings. "Scrambling the egg" by disemploying workers and hoping they reattach to the labor market creates a lot of uncertainty for all parties and is quite miserable and precarious for the actual employees. In many circumstances it may be desirable to reallocate labor, but an exogenous shock like a pandemic seems like a cruel time to do that.
This article tries to answer an empirical question without much data. Rather than digging for numbers, Matt uses three restaurants in his urban bubble as proxies for the entire industry. There is no effort to measure the cost of reopening restaurants after a hiatus, which appears to be the main “evil” Matt is arguing against. Nor is there any effort to measure the cost of the proposed bailout or the economic or political effect of borrowing that amount of additional money. Finally, there is no attempt to quantify the amount of fraud in PPP loans or the proportion of bailout funds that would have been swindled into the pockets of owners.
As to the post, I don’t know. Hindsight is 20/20 and with perfect knowledge of the course of the pandemic, effectiveness of demand-side stimulus, and consumer behavior in the face of those, there is certainly more we could have done on the supply side. But every crisis is different so hard to know where the key pressure points are ahead of time (e.g. restaurants are straightforward but who would have thought about used cars or lumber?). And I remain skeptical it will take long for new restaurants to emerge to fill the demand. Startup costs are not that high, private credit easily available, and labor will increasingly be returning along with customer demand.
I couldn't imagine how psychologically difficult it would be as a small business owner to lose your business and then have to go through the local approval process to reopen (and front all the opening costs again).
Not sure what it's like in DC (pretty sure it's similar) but in my little town the average time to open up a new restaurant that doesn't require a zoning variance is over a year. And if you need a variance? Well despite having over 30 restaurants in a town smaller than a square mile we don't have any indian restaurants for this reason.
Disempower local fiefdoms and veto tyrants. Let people do productive things. If I follow the rules someone should come by and certify that I followed the rules, that's it. No committee approval process that ends up voting me down because they don't like spicy food and think it will make parking more difficult.
The retail food shortages we all remember from spring of last year didn’t come from a lack of supply, they came from the necessary re-plumbing of the food supply system that nobody ever thought we’d have to do. That impacted restaurant owners because they just couldn’t get a Sysco truck even if they wanted a delivery because WalMart overnight needed food for their stores. Prepandemic, half of all food was eaten away from home. That’s an entirely different logistics. The good news for restaurants now is that this system has been slowly reversing itself and can follow the 2020 blueprints in reverse. But don’t expect your local coffee shop to have the same blends just yet. Actually, weird niche stuff will be ok, I should say, don’t expect your chain restaurant to have all the pasta dishes back to pre-pandemic proportions for a couple months. But, just to add to what Matt is saying, don’t fall in to the pessimism. I am truly amazed at how the plumbing from farm to fork eventually got re-routed to consumer retail when you realize how much of that system was geared toward institutional and restaurant deliveries.
While it's narcissistic to reply to one's own comment, I do wonder when NYT will write an op-ed about how many of us learned during the pandemic to make dishes better than the restaurants we used to love. If your house is like mine, a positive externality of the pandemic is that the meals we now make, while always good, are today excellent. I would go as far as to call them restaurant quality. I have new pots and cookware I never thought I'd own. I wonder how many restaurants get opened by people who discovered they could be chefs and how many foodies discover that restaurants they believed were necessities pre-pandemic now seem kinda "meh".
After easily over 100 attempts I have legit perfected the egg white whiskey sour cocktail. So much so that I can no longer order one when out. I can't help but judge the dry shake time or amount ice used or the sweet / lemon balance.
Great question. It is quite mood dependent but I think I've gotten my best results with rye, probably High West Yippee Ki-Yay would be my cocktail apex but Sazerac Rye has also been great lately and easier to find.
I extremely have not had this experience. I already cooked most of the time pre-pandemic and learned much more during the pandemic, but the better I get at cooking, the higher my standards for myself are, the more effort I put into it, the more I notice when things go wrong, and the more I appreciate outsourcing that whole mess to a team of professionals with economies of scale, none of whom are me...
>>>This is especially important because I don’t see a lot of Schumpeterian reallocation happening in this space.<<<
It’s early yet. I suspect we will see a great deal of new restaurant opening activity as the months go by. And perhaps these new establishments will be in a better position to meet the needs of the new normal, in terms of greater labor saving technology, more relevant menu choices, a greater emphasis on takeout and delivery, etc. And if the sector as a whole does not quite reach its pre-pandemic size, that might be OK too, as it will free up valuable human resources for other, more productive sectors. It would certainly appear a lot of restaurant workers are reluctant to return to poor working conditions and substandard wages. I’ve personally been something of a skeptic of the “everything is different now” line of thinking with respect to the aftermath of this pandemic, but the restaurant sector strikes me as very likely being the real deal in terms of substantive, long-term change.
I'm glad that everywhere seems to have adopted the QR code menu, but I'm surprised at how few places allow you to order from your phone. It'll be interesting to see if the new places do allow that.
I'm happy that, in Austin at least, the restaurants that have opened in April and May seem to be even more outdoor-friendly than the existing ones.
This happened at one of my favorite restaurants! Sit, scan a QR code to order. Food arrives. Eat. Want another drink? Use the phone again. Scan to pay, leave.
I like interacting with people to place my order - especially in new restaurants. Recommendations, etc could have been better. I like to be upsold, especially on the good stuff. Maybe it'll get better?
But I *hate* waiting for a check. When I'm ready to go, I'm ready to go. Scan and pay on my own schedule? Amazing.
I think your comment highlights where Matt's piece, at least re: the restaurant industry, falls apart a bit. It's VERY early to say that we're not going to have a lot of reallocation - we almost certainly will. Yes, that takes some time, but he makes no attempt to quantify the benefit of eliminating that time vs. the cost of bailing out the industry. What you really would want to preserve in a situation like this is organizational capital - the processes and methods of doing business that would be lost in bankruptcy. For most independent restaurants, there is very little organizational capital. There is a chef (hopefully talented), one or two key sous-chefs, and then a largely fungible cast of waiters, manager, line cooks, etc. If the restaurant goes bankrupt, said chef can very, very easily replicate the function of that restaurant by opening a brand new one.
I have not, but what's your point? We should bail out every business that might fail because it can be difficult to finance a new one? The argument there would have to be we have some major investment constraint - i.e. there's not nearly enough capital available for new businesses. Make that argument if you'd like, but I would posit that the record VC fundraising and record low interest rates would say otherwise. Or your argument would be that in the current time there is some new, unique constraint on financing new businesses that didn't exist in past recessions (during and after which we had similar Schumpeterian creative destruction).
I was thinking along similar lines. So, maybe unemployment is marginally higher than it might have been otherwise for ten months. But we emerge on the other end with more efficient capital allocation (and better, newer restaurants!). I do think the case for a restaurant bailout gets stronger if the money came with a requirement to shut down indoor dining for a longish period. But in any event that's not what happened.
Happy 40th Birthday -- it's a milestone that forces you to accept that you are in fact middle aged and wonder if you will now just start celebrating as you turn new decades. But all in all I thought my forties were a lot more chill than my thirties and it was a relief to be past that stage of constant uncertainty about the future...Hope you support a local restaurant and have a great meal.
There is a restaurant bailout currently underway. It’s the Restaurant Revitalization Fund. It’s a $28 billion dollar bailout that is doling out money to struggling restaurants right now. President Biden gave the first restaurant it’s grant personally a few weeks ago.
The strange thing is Congress made it a racial/veteran/woman empowerment bill. As it currently stands, the only restaurants who will get funding are owned by veterans, women or minorities. These groups were given priority and the funds ran out before the end of the priority period.
I expect Congress to increase the funding of the RRF, but as it currently stands, the government made this bailout into a form of reparations and veterans’ benefits.
The used car stuff is confusing. Demand spiked last year as consumers sat at home with extra cash, but supply also increased as rental companies liquidated their fleets? Now the rental companies want to rebuild their fleets, so there's more demand than supply of both brand new cars and good condition, newer used cars because they were all bought up by consumers last year? Is that it? Did a lot of older used cars get crushed and taken out of circulation? Not that rental companies would buy banged up older cars. It does sound like a temporary weirdness though.
I've shared way more detail on the used-car market in the last inflation thread but the rental car de-fleeting last spring and now attempted re-fleeting is only incremental pressure (i.e., just look the relative volumes) -- not at all the core driver of used-car prices. The core driver is the two rounds of stimulus increasing demand on low-end vehicles ... which created a demand-induced supply shock according to Barron's ... which then rippled up vehicle pricing tiers. There's was then a second supply-shock in the off-lease segment which cut-off the wholesale "funnel" of inventory further constraining supply.
The 4th chart in the below link (Retail Used Vehicle Inventory by Age Indexed) shows that total US used-car inventory levels for 1-3 year old model is up 30% YoY, 4-5 year olds is flat, and older models inventory levels are down ~30%.
To your question about more vehicles getting crushed ... Volume at both salvage auctions: Copart and IAA are down YoY ~ 15%.
That makes sense. My nephew who's college aged already had a truck so he used his covid money to buy a dirt bike. Not surprising all those anecdotes had a noticable aggregate impact.
Yes. Definitely many of those 1x checks went for auto down payments. Similar to tax refunds (i.e., seasonal auto demand peaks in April). But it's also the $600 / week UI benefit last year ... 76% had benefits above replacement rates. Used-car prices didn't stabilize from that round until Sept.
No people who lived in cities where you can uber and take public transportation moved to the suburbs. Like San Francisco has a drop in population rents etc. But all the suburbs had a boom. So people who did drive 2 years ago now drive.
You're saying demand for cars has increased permanently? Or at least until those people who moved to the suburbs decide they were right the first time and move back to the city?
Yea. You cant live in a suburb without a car. It is made worse by the chip shortage so we really do have a new car shortage. I think the lack of new cars is the biggest issue but you asked why demand is up that is why.
I had a conversation not too long before the pandemic with an Uber driver in Silicon Valley who told me many people in that part of the country were eschewing car ownership and simply plowing what would otherwise be a monthly automobile expenditure into Uber and Lyft fares, Caltrain, etc. I’m not suggesting such a model would be particularly practical in most American suburbs, but I think he was describing a pretty plausible scenario in that part of the country, at least, given its density, its relatively robust public transport, and its high levels of remote-friendly jobs. Nice weather can’t hurt, either, as it makes cycling and walking more practical, as well as waiting for the bus/train.
I live in the Bay the last BART station and I considered it. I had to take BART to work in SF and spending $5 a day on Uber to the BART station sounded better than a $3 a day in parking + a car payment insurance and Gas. But I switched jobs and then needed a car. Pluss my social life was in places where having a car was a must.
I imagine that a lot of people were working from home and eating at home, so they had a lot less need to go anywhere car-dependently than they would have in non-pandemic times.
I live in a Bay Area Suburb and it is hard to do social things without a car. like grocery shopping. To go for a hike drive I have to drive to the park and hike. So a car is needed. Also people who loved trains in 2019 are like I am not going on a Train ever again after Covid.
I've heard this said a lot, but do we have any good numbers as to how many people actually did this? There was a bogus report about millions of people moving into and out of NYC, but most actual reports show fewer people moving last year.
It is not millions. But it is hundreds of thousands. The only places losing people are the supper dense. So not even all of NYC but Manhattan folks moving to Staten Island is a thing. In San Francisco people are leaving down town and going to Bay View or west San Francisco where you need a car. It is not millions of people because we only have like 10 super dense cities in the whole country. But is enough to impact the car and housing markets. Matt had thread a few days ago with mapps.
One of my law school professors used to say, if your dream is to save up enough money to stop practicing law and start a restaurant, spare yourself some trouble and just put the money in a pile and light it on fire.
The airlines should have been forced to give up some equity in exchange for the bailout. They invited trouble by operating with too little risk-adjusted capital (largely due to stock buybacks) in order to maximize profits and margins. Future bailouts (which will occur) should come with a hit to equity, or a "capital adequacy" rule along the basic lines of what banks have, and for some of the same reasons.
I'm not sure how the airline bailouts are fundamentally different than payouts to people in a pandemic? Should people have had to provide equity to the government because they didn't have sufficient risk adjusted capital?
Taxes sure - but in theory the companies that are profitable will as well. Both companies and individuals pay taxes to the government. Equity doesn't just pay dividends, its usually refers to ownership/control.
Further, I would not that that the House tried to require the airlines to have a specific rainy day fund to manage moral hazard and prevent a future bailout. But the Republicans nixed it.
I kinda think there was also a missed opportunity to get the airlines to reduce their carbon footprint in exchange for a bailout especially since climate change is going to contribute to the spread of some infectious diseases, though not this one.
So the House Democrats did include provisions to do this! There were specific carbon offset targets by 2025. But Pelosi kind of messed up because she couldnt get the Democrats to show up in town to vote, so they had no leverage and the House position was marginalized.
Just a minor note about airline bailouts. Congressman and senators are amenable to airline bailouts as they are traveling back to their districts so often.
To me the issue with airline bailouts is the terms. In other words, you want to emerge from the pandemic with a working airline sector for obvious reasons. The US, which is both spread out and lacking in dependable passenger rail service, is especially dependent on this sector. So, I think plowing public money into the air travel business is defensible, and indeed necessary. But no consideration whatsoever should be given to shareholders. I have no idea what the terms were for the US airline bailout, I should add.
Anecdotally, restaurants in NYC are fine. I have been talking to friends who own restaurants and bars and they've told me they're flooded with bailout money. One interesting tidbit is that since they can only use the money for operating expenses and not growth and have to give the leftover money back in March 2022, they're cutting deals with contractors to pay them for 5 or 10 years.
The underestimation of how quickly and well the government could respond to the pandemic was, at least for me, entirely due to Trump (and Fauci, and the WHO) running the show, telling people obviously incorrect things about how the virus spreads and what mitigation steps to take. It's crazy that I, a random dude who read a few papers about the virus, knew the virus was airborne in April 2020, something the CDC just admitted more than a year later.
And Trump was acting in a way that fet like he was on the coronavirus's side. So I think it was pretty fair to assume that we wouldn't have things under control for years. The vaccines being developed so quickly and working so well are a miracle that no one expected.
What I take away from this is that the airline bailout prevented me from getting some sweet, sweet deals on used Boeings last year.
No point crying, though. I may still be able to get good prices on the 737-max. Guy told me those are falling fast.
There were still awesome deals to be had on Boeing shares, next best thing I guess
You're far safer buying the planes than the shares.
I mean, if the stock price crashes, you could be facing decades of poverty.
You know, one of the big takeaways about why we did so much better at rescuing the economy in 2019 versus 2008 is that there was so much less concern over who "deserved" aid or a bailout. Progressives (including me) need to be less concerned with whether companies that don't need money are getting it, and more concerned with whether companies that DO need the money are getting it.
This was insufferable around the PPP loans. Every week, there was a new story about some large business that "didn't deserve it" taking those loans, when they were available for everyone.
I understand that there was concern that smaller businesses were having a hard time taking advantage of the program, but the solution is more money and easier access, not shaming those who did get the money!
Back in 2008 it seemed like there was going to be real traction from a sort of techno-wonkish "make markets work" segment -- but now over a decade later we all get itchy if something isn't sufficiently socialist. (That's a slight exaggeration, but I think the PPP gnashing from the pandemic vs the response to the banks in 2008 shows how much the left has moved.)
Sorry to reply to a days-old post, but this reminds me how my company's pretty progressive leadership told us they had looked into PPP loans and were eligible, but that we could survive without it so we didn't apply. I think it was in large part due to the optics of "undeserving" companies getting it that were all over the news. It really feels like that shouldn't be how people decided whether to avail themselves of benefits they're entitled to. Make as many things as possible universal, and if you need to, you can tax back the value of the benefits on the most well-off.
100%
As someone responsible for much of the airline industry relief package, this is a great post. A few quick thoughts: The program is bit more specific to Matt's point. It was borne of labor's experience with previous "bailouts" that restructured union collective bargaining agreements, including the Bush Administration's use of the post 9/11 airline loan programs to change union benefits, most specifically at America West. So this program was (1) an employee pass through program, (2) prohibition on governmental interference in contracts, and a prohibition on furloughs.
Crucially, the furlough prohibition enabled continuity of employment. If not for this, there would be a large mismatch between available pilots and demand. Pilot labor is incredibly complicated by a few factors: (1) how "current" a pilot is in training, (2) pilot seniority, and (3) the allocation of pilots between different types of aircraft. If there had been mass furloughs, you would have not had enough pilots and we would be struggling to get pilots who wanted to fly to actually operate airplanes. Instead, we would be looking at massive interest in air travel and very little ability to meet demand, with attendant price affects and capacity. The program was specific to protect the employees and reduce the large cost of employees for airlines.
Importantly, the view put forward by Chamath and many in red rose Twitter that bankruptcy is an orderly and fair process for employees is simply insanely wrong. The bankruptcy code allows businesses to seek permission to dismiss union contracts and create dictated, inferior terms in their place (11 USC 1113). Simply put, airline bankruptcies are horrible, disproportionate, and unstable for both workers and companies.
Finally, I think the airline program provides a very interesting window into the debate of employee subsidy vs UI. Putting aside the pedantic (and wrong) view that there is no meaningful difference, I'm biased in favor of the former. Because of the employee pass through "bailout" airline employees did not sever their employment bonds, can continue their careers, are able to respond to demand, and can keep health care and retirement savings. "Scrambling the egg" by disemploying workers and hoping they reattach to the labor market creates a lot of uncertainty for all parties and is quite miserable and precarious for the actual employees. In many circumstances it may be desirable to reallocate labor, but an exogenous shock like a pandemic seems like a cruel time to do that.
This article tries to answer an empirical question without much data. Rather than digging for numbers, Matt uses three restaurants in his urban bubble as proxies for the entire industry. There is no effort to measure the cost of reopening restaurants after a hiatus, which appears to be the main “evil” Matt is arguing against. Nor is there any effort to measure the cost of the proposed bailout or the economic or political effect of borrowing that amount of additional money. Finally, there is no attempt to quantify the amount of fraud in PPP loans or the proportion of bailout funds that would have been swindled into the pockets of owners.
Harsh, but fair.
Happy birthday Matt!
As to the post, I don’t know. Hindsight is 20/20 and with perfect knowledge of the course of the pandemic, effectiveness of demand-side stimulus, and consumer behavior in the face of those, there is certainly more we could have done on the supply side. But every crisis is different so hard to know where the key pressure points are ahead of time (e.g. restaurants are straightforward but who would have thought about used cars or lumber?). And I remain skeptical it will take long for new restaurants to emerge to fill the demand. Startup costs are not that high, private credit easily available, and labor will increasingly be returning along with customer demand.
Exactly this. I'm not sure it's obvious the response to the pandemic should've been to build lumber mills and semiconductor foundries.
Agreed, but building semiconductor foundries shouldn’t be a response to the pandemic. It should just be U.S. industrial policy.
I couldn't imagine how psychologically difficult it would be as a small business owner to lose your business and then have to go through the local approval process to reopen (and front all the opening costs again).
Not sure what it's like in DC (pretty sure it's similar) but in my little town the average time to open up a new restaurant that doesn't require a zoning variance is over a year. And if you need a variance? Well despite having over 30 restaurants in a town smaller than a square mile we don't have any indian restaurants for this reason.
All roads lead to zoning reform here at Slow Boring
Disempower local fiefdoms and veto tyrants. Let people do productive things. If I follow the rules someone should come by and certify that I followed the rules, that's it. No committee approval process that ends up voting me down because they don't like spicy food and think it will make parking more difficult.
The dream
The retail food shortages we all remember from spring of last year didn’t come from a lack of supply, they came from the necessary re-plumbing of the food supply system that nobody ever thought we’d have to do. That impacted restaurant owners because they just couldn’t get a Sysco truck even if they wanted a delivery because WalMart overnight needed food for their stores. Prepandemic, half of all food was eaten away from home. That’s an entirely different logistics. The good news for restaurants now is that this system has been slowly reversing itself and can follow the 2020 blueprints in reverse. But don’t expect your local coffee shop to have the same blends just yet. Actually, weird niche stuff will be ok, I should say, don’t expect your chain restaurant to have all the pasta dishes back to pre-pandemic proportions for a couple months. But, just to add to what Matt is saying, don’t fall in to the pessimism. I am truly amazed at how the plumbing from farm to fork eventually got re-routed to consumer retail when you realize how much of that system was geared toward institutional and restaurant deliveries.
While it's narcissistic to reply to one's own comment, I do wonder when NYT will write an op-ed about how many of us learned during the pandemic to make dishes better than the restaurants we used to love. If your house is like mine, a positive externality of the pandemic is that the meals we now make, while always good, are today excellent. I would go as far as to call them restaurant quality. I have new pots and cookware I never thought I'd own. I wonder how many restaurants get opened by people who discovered they could be chefs and how many foodies discover that restaurants they believed were necessities pre-pandemic now seem kinda "meh".
After easily over 100 attempts I have legit perfected the egg white whiskey sour cocktail. So much so that I can no longer order one when out. I can't help but judge the dry shake time or amount ice used or the sweet / lemon balance.
Also ... I think self replying is quite useful if the thought is tangential.
Liking your own post ... now that crosses a narcissistic line.
You just saved me money on a shrink. I can cross narcissist off my list. This Slow Boring subscription is paying for itself!
Rye or bourbon?
Great question. It is quite mood dependent but I think I've gotten my best results with rye, probably High West Yippee Ki-Yay would be my cocktail apex but Sazerac Rye has also been great lately and easier to find.
I extremely have not had this experience. I already cooked most of the time pre-pandemic and learned much more during the pandemic, but the better I get at cooking, the higher my standards for myself are, the more effort I put into it, the more I notice when things go wrong, and the more I appreciate outsourcing that whole mess to a team of professionals with economies of scale, none of whom are me...
And...I don't have to do the dishes, so I, too, appreciate that outsourcing.
>>>This is especially important because I don’t see a lot of Schumpeterian reallocation happening in this space.<<<
It’s early yet. I suspect we will see a great deal of new restaurant opening activity as the months go by. And perhaps these new establishments will be in a better position to meet the needs of the new normal, in terms of greater labor saving technology, more relevant menu choices, a greater emphasis on takeout and delivery, etc. And if the sector as a whole does not quite reach its pre-pandemic size, that might be OK too, as it will free up valuable human resources for other, more productive sectors. It would certainly appear a lot of restaurant workers are reluctant to return to poor working conditions and substandard wages. I’ve personally been something of a skeptic of the “everything is different now” line of thinking with respect to the aftermath of this pandemic, but the restaurant sector strikes me as very likely being the real deal in terms of substantive, long-term change.
I'm glad that everywhere seems to have adopted the QR code menu, but I'm surprised at how few places allow you to order from your phone. It'll be interesting to see if the new places do allow that.
I'm happy that, in Austin at least, the restaurants that have opened in April and May seem to be even more outdoor-friendly than the existing ones.
This happened at one of my favorite restaurants! Sit, scan a QR code to order. Food arrives. Eat. Want another drink? Use the phone again. Scan to pay, leave.
I like interacting with people to place my order - especially in new restaurants. Recommendations, etc could have been better. I like to be upsold, especially on the good stuff. Maybe it'll get better?
But I *hate* waiting for a check. When I'm ready to go, I'm ready to go. Scan and pay on my own schedule? Amazing.
So what do you use to order if not a phone?
You still have to flap and slap your meat to produce vibrations.
You still have to wait for a human being to come by *before* you can order, instead of just having them come to bring the order once it's placed!
I think your comment highlights where Matt's piece, at least re: the restaurant industry, falls apart a bit. It's VERY early to say that we're not going to have a lot of reallocation - we almost certainly will. Yes, that takes some time, but he makes no attempt to quantify the benefit of eliminating that time vs. the cost of bailing out the industry. What you really would want to preserve in a situation like this is organizational capital - the processes and methods of doing business that would be lost in bankruptcy. For most independent restaurants, there is very little organizational capital. There is a chef (hopefully talented), one or two key sous-chefs, and then a largely fungible cast of waiters, manager, line cooks, etc. If the restaurant goes bankrupt, said chef can very, very easily replicate the function of that restaurant by opening a brand new one.
Have you ever tried to finance a new business? Have you ever tried to do that with a failure on your credit history?
I have not, but what's your point? We should bail out every business that might fail because it can be difficult to finance a new one? The argument there would have to be we have some major investment constraint - i.e. there's not nearly enough capital available for new businesses. Make that argument if you'd like, but I would posit that the record VC fundraising and record low interest rates would say otherwise. Or your argument would be that in the current time there is some new, unique constraint on financing new businesses that didn't exist in past recessions (during and after which we had similar Schumpeterian creative destruction).
I was thinking along similar lines. So, maybe unemployment is marginally higher than it might have been otherwise for ten months. But we emerge on the other end with more efficient capital allocation (and better, newer restaurants!). I do think the case for a restaurant bailout gets stronger if the money came with a requirement to shut down indoor dining for a longish period. But in any event that's not what happened.
Happy 40th Birthday -- it's a milestone that forces you to accept that you are in fact middle aged and wonder if you will now just start celebrating as you turn new decades. But all in all I thought my forties were a lot more chill than my thirties and it was a relief to be past that stage of constant uncertainty about the future...Hope you support a local restaurant and have a great meal.
There is a restaurant bailout currently underway. It’s the Restaurant Revitalization Fund. It’s a $28 billion dollar bailout that is doling out money to struggling restaurants right now. President Biden gave the first restaurant it’s grant personally a few weeks ago.
The strange thing is Congress made it a racial/veteran/woman empowerment bill. As it currently stands, the only restaurants who will get funding are owned by veterans, women or minorities. These groups were given priority and the funds ran out before the end of the priority period.
I expect Congress to increase the funding of the RRF, but as it currently stands, the government made this bailout into a form of reparations and veterans’ benefits.
The used car stuff is confusing. Demand spiked last year as consumers sat at home with extra cash, but supply also increased as rental companies liquidated their fleets? Now the rental companies want to rebuild their fleets, so there's more demand than supply of both brand new cars and good condition, newer used cars because they were all bought up by consumers last year? Is that it? Did a lot of older used cars get crushed and taken out of circulation? Not that rental companies would buy banged up older cars. It does sound like a temporary weirdness though.
I've shared way more detail on the used-car market in the last inflation thread but the rental car de-fleeting last spring and now attempted re-fleeting is only incremental pressure (i.e., just look the relative volumes) -- not at all the core driver of used-car prices. The core driver is the two rounds of stimulus increasing demand on low-end vehicles ... which created a demand-induced supply shock according to Barron's ... which then rippled up vehicle pricing tiers. There's was then a second supply-shock in the off-lease segment which cut-off the wholesale "funnel" of inventory further constraining supply.
The 4th chart in the below link (Retail Used Vehicle Inventory by Age Indexed) shows that total US used-car inventory levels for 1-3 year old model is up 30% YoY, 4-5 year olds is flat, and older models inventory levels are down ~30%.
To your question about more vehicles getting crushed ... Volume at both salvage auctions: Copart and IAA are down YoY ~ 15%.
https://www.karglobal.com/dashboards/
That makes sense. My nephew who's college aged already had a truck so he used his covid money to buy a dirt bike. Not surprising all those anecdotes had a noticable aggregate impact.
Yes. Definitely many of those 1x checks went for auto down payments. Similar to tax refunds (i.e., seasonal auto demand peaks in April). But it's also the $600 / week UI benefit last year ... 76% had benefits above replacement rates. Used-car prices didn't stabilize from that round until Sept.
https://bfi.uchicago.edu/working-paper/2020-62/
No people who lived in cities where you can uber and take public transportation moved to the suburbs. Like San Francisco has a drop in population rents etc. But all the suburbs had a boom. So people who did drive 2 years ago now drive.
You're saying demand for cars has increased permanently? Or at least until those people who moved to the suburbs decide they were right the first time and move back to the city?
Yea. You cant live in a suburb without a car. It is made worse by the chip shortage so we really do have a new car shortage. I think the lack of new cars is the biggest issue but you asked why demand is up that is why.
I had a conversation not too long before the pandemic with an Uber driver in Silicon Valley who told me many people in that part of the country were eschewing car ownership and simply plowing what would otherwise be a monthly automobile expenditure into Uber and Lyft fares, Caltrain, etc. I’m not suggesting such a model would be particularly practical in most American suburbs, but I think he was describing a pretty plausible scenario in that part of the country, at least, given its density, its relatively robust public transport, and its high levels of remote-friendly jobs. Nice weather can’t hurt, either, as it makes cycling and walking more practical, as well as waiting for the bus/train.
I live in the Bay the last BART station and I considered it. I had to take BART to work in SF and spending $5 a day on Uber to the BART station sounded better than a $3 a day in parking + a car payment insurance and Gas. But I switched jobs and then needed a car. Pluss my social life was in places where having a car was a must.
I imagine that a lot of people were working from home and eating at home, so they had a lot less need to go anywhere car-dependently than they would have in non-pandemic times.
I live in a Bay Area Suburb and it is hard to do social things without a car. like grocery shopping. To go for a hike drive I have to drive to the park and hike. So a car is needed. Also people who loved trains in 2019 are like I am not going on a Train ever again after Covid.
I've heard this said a lot, but do we have any good numbers as to how many people actually did this? There was a bogus report about millions of people moving into and out of NYC, but most actual reports show fewer people moving last year.
It is not millions. But it is hundreds of thousands. The only places losing people are the supper dense. So not even all of NYC but Manhattan folks moving to Staten Island is a thing. In San Francisco people are leaving down town and going to Bay View or west San Francisco where you need a car. It is not millions of people because we only have like 10 super dense cities in the whole country. But is enough to impact the car and housing markets. Matt had thread a few days ago with mapps.
Lots of people dream of opening a restaurant. Until they do.
I describe the experience like this:
"Do you know what the best time is to open a new restaurant?"
- "No, when?"
"I have no idea. Do you know what is the absolute worst time is to open a new restaurant?"
- "No, when?"
"Two months before the beginning of the worst recession in the last 70 years."
One of my law school professors used to say, if your dream is to save up enough money to stop practicing law and start a restaurant, spare yourself some trouble and just put the money in a pile and light it on fire.
The airlines should have been forced to give up some equity in exchange for the bailout. They invited trouble by operating with too little risk-adjusted capital (largely due to stock buybacks) in order to maximize profits and margins. Future bailouts (which will occur) should come with a hit to equity, or a "capital adequacy" rule along the basic lines of what banks have, and for some of the same reasons.
I'm not sure how the airline bailouts are fundamentally different than payouts to people in a pandemic? Should people have had to provide equity to the government because they didn't have sufficient risk adjusted capital?
We will, most of us, be issuing dividends to the federal government in the future to pay for the bailout. So, yeah, equity.
Taxes sure - but in theory the companies that are profitable will as well. Both companies and individuals pay taxes to the government. Equity doesn't just pay dividends, its usually refers to ownership/control.
Well, I was being facetious. But giving the government control over private firms is a terrible idea.
Further, I would not that that the House tried to require the airlines to have a specific rainy day fund to manage moral hazard and prevent a future bailout. But the Republicans nixed it.
So, sure. But the government did take out warrants on the payroll grants in addition to the loan repayment terms. So its not cost free.
I kinda think there was also a missed opportunity to get the airlines to reduce their carbon footprint in exchange for a bailout especially since climate change is going to contribute to the spread of some infectious diseases, though not this one.
So the House Democrats did include provisions to do this! There were specific carbon offset targets by 2025. But Pelosi kind of messed up because she couldnt get the Democrats to show up in town to vote, so they had no leverage and the House position was marginalized.
Just a minor note about airline bailouts. Congressman and senators are amenable to airline bailouts as they are traveling back to their districts so often.
And they like to have influence over routes....which airports are served, direct flights,...that make it easier for them to travel.
To me the issue with airline bailouts is the terms. In other words, you want to emerge from the pandemic with a working airline sector for obvious reasons. The US, which is both spread out and lacking in dependable passenger rail service, is especially dependent on this sector. So, I think plowing public money into the air travel business is defensible, and indeed necessary. But no consideration whatsoever should be given to shareholders. I have no idea what the terms were for the US airline bailout, I should add.
Anecdotally, restaurants in NYC are fine. I have been talking to friends who own restaurants and bars and they've told me they're flooded with bailout money. One interesting tidbit is that since they can only use the money for operating expenses and not growth and have to give the leftover money back in March 2022, they're cutting deals with contractors to pay them for 5 or 10 years.
The underestimation of how quickly and well the government could respond to the pandemic was, at least for me, entirely due to Trump (and Fauci, and the WHO) running the show, telling people obviously incorrect things about how the virus spreads and what mitigation steps to take. It's crazy that I, a random dude who read a few papers about the virus, knew the virus was airborne in April 2020, something the CDC just admitted more than a year later.
And Trump was acting in a way that fet like he was on the coronavirus's side. So I think it was pretty fair to assume that we wouldn't have things under control for years. The vaccines being developed so quickly and working so well are a miracle that no one expected.