Stopping the motor of the world

Stopping the motor of the world

“What a crazy day,” Kim said yesterday after she got home from work.

“Coronavirus?” I asked.

“Yeah,” she said. “My schedule fell apart, which I figured it would. But I did see three patients in the morning. All three were doctors. Obviously, they thought it was safe to see the dentist. A lot of others stayed home though. Staff too. Meanwhile, people are pissed.”

“What do you mean?” I asked.

“Well, it looks like our practice is going to have to shut down for a while. The Oregon Dental Association sent everyone a letter today that explained we're in high-risk professions. They recommended shutting down except for emergency procedures, except for cases that involve pain. So, our office is probably going to close for a while, and that means nobody's going to get paid.”

“That makes sense,” I said.

“It does,” Kim agreed, “but people aren't happy about it. Some of the people in the office need each paycheck. They can't pay their bills if they don't get paid. They think the dentist should keep paying them — out of his own pocket, if necessary.”

“Whoa!” I said.

“I know,” Kim said. “They don't understand that if we don't see patients, the practice doesn't make money. And if the practice doesn't make money, it can't pay employees. They just figure dentists are rich, so he should be able to pay us anyhow.”

Naturally, this will have a ripple effect.

  • Fewer people are going to the dentist (and the O.D.A. has recommended closing anyhow), so the practice isn't making money.
  • The practice isn't making money, so it can't pay employees.
  • Employees aren't being paid, so they can't buy things. Some can't even pay their bills.
  • And, of course, the businesses that rely on payment from the employees then lose revenue — and cannot pay their employees.

This morning in The New York Times, Neil Irwin calls this the one simple idea that explains why the economy is in great danger. “One person’s spending is another person’s income,” he writes. “That, in a single sentence, is what the $87 trillion global economy is.”

It's as if the global economy is a perpetual motion machine. It's a virtuous cycle. I buy from you. You buy from Jim. Jim buys from Jane. Jane buys from me. In a very real way, money makes the world go round.

When money stops changing hands, the world stops spinning. Markets crash. People panic. It's as if we've stopped the motor of the world.

What If We Lose Our Incomes?

“What would we do if we both lost our incomes?” Kim asked last night as we were getting ready for bed. “What would we cut first?”

I thought about it for a moment. For the most part, we live a comfortable but frugal existence. Most of our indulgences are obvious. Many are annual expenses. I don't feel like there's a lot left to be cut from day-to-day life. Besides, I don't really have an income right now. Any revenue generated by this site (which isn't much at the moment) simply gets pumped back into the business.

“Nothing?” I said.

“Come on,” Kim said. “I'm serious. What would we cut? Restaurants?”

“Sure,” I said. “But we've already cut back on restaurant spending quite a bit this year. And now we won't be eating out for at least a month.” Yesterday, the governor of Oregon ordered that all restaurants and bars to close for the next four weeks.

“Seriously,” I said, “I think that if we had to cut costs, I'd start with our big annual purchases like Portland Timbers tickets. Or our Broadway shows.”

“Oh, I forgot about those,” Kim said. “Those are good cuts. Those are luxuries.”

“Yes they are,” I said. “So are the restaurants. So are our subscription TV services. Plus, don't forget that we're spending much less on alcohol this year. Alcohol is definitely something we could cut completely. That'd probably improve our quality of life rather than hurting it.”

As I was falling asleep, I got to thinking. If I were to cut expenses to bare bones, what would that look like? How bare bones is “bare bones”?

  • If needed, I know that I could live without a car. I'm perfectly capable of surviving with foot power alone. Sure, it's a long walk (or short bike ride) to the office, but it's doable. Groceries are absolutely walkable — about half an hour each direction.
  • If we cut our streaming services (or if we even cut internet completely), we have hundreds of movies and TV shows already downloaded. We have plenty of music. More than that, we have each other — and our aminals.
  • Plus, we own our home free and clear…and we have a lot of money in savings. (Although that savings has dropped by 30% in the past week!)

I don't know precisely what my “squeak by” number is. I spent $3212.24 in January this year (and something similar last month), but that included restaurant dining and some entertainment. I'm certain that I could get by on less than $2500 per month — possible less than $2000.

Cutting Back

Yesterday after work, Kim started her personal process of cutting back. She called to cancel her therapy appointment. She cancelled an upcoming massage. She and some girlfriends have a getaway weekend planned for the end of April; they haven't decided what to do about that. Today after work, she'll see if there are other things she can cut.

Kim and I are fortunate. We have cash reserves. Many Americans aren't in this position. They're in for a rough few weeks. Or months. Or years.

According to the Federal Reserve's annual Report on the Economic Well-Being of U.S. Households:

Seventeen percent of adults are not able to pay all of their current month’s bills in full. Another 12 percent of adults would be unable to pay their current month’s bills if they also had an unexpected $400 expense that they had to pay.

What happens to these folks when the economy grinds to a halt? If you're not able to meet your obligations when the economy is booming, what will you do when there's no economic engine to speak of?

Yesterday, for the first time, my Facebook feed contained posts from people worried about how they're going to make ends meet. Meanwhile, I'm concerned for friends who aren't taking this seriously.

When you post photos of how you're out partying with a large group until two in the morning, you scare me. It's great that you're not afraid of the coronavirus — so brave! /s — but you're not just putting your own health at risk. You're putting the health of others at risk. And more relevant to this blog, you're putting your financial livelihood at risk.

Look into the future. Forget about the health factor for a moment. Focus only on finances. If things stop for a month or two or three, can you get by? Forget about whether this situation is rational or if it's panic. Accept it as the reality we are going to face, regardless whether you think it's a justified response. Based on what you see, does it make any sense at all to continue spending as if everything is normal?

Back to Basics

The next few weeks (and months) are going to be rough. Financially, we (as a society) aren't prepared for the world to stop spinning. We don't have a contingency plan for when everything comes to a halt.

Sure, many individuals are prepared. I'm willing to wager that most GRS readers have substantial emergency savings, for instance, and that many of us have built lifestyles that don't cost much to maintain.

But we, as a group, aren't typical. We're not normal.

More typical is my good friend who quit her job in January. Because she reads GRS, she's built some savings (and invests for retirement). But she quit without having another job lined up. Then she took a vacation to Mexico. All of this sounded fine (and fun) at the time, but now I worry for her.

Her plan was to look for work when she got home. Now she's home, but what work is she going to find? How long will her savings last? How long til she has to dip into that retirement account to pay her bills?

Then there are Kim's co-workers. Some are desperate because they cannot miss a single paycheck. Doing so will send them into a personal financial crisis.

I have high hopes that the coronavirus situation will make it very clear to Americans just how important it is to be prepared for problems. In normal life, it's easy to put off saving, especially if you're young and healthy. “It won't happen to me,” people think, and they buy big homes and new cars and upgrade their smartphones. Most of the time, it doesn't happen to them, so they're able to skate by. Whew!

But when the entire world stops spinning? When everyone takes a hit at once? Well, that's trouble. You can't say, “It won't happen to me” when it's happening to everybody at the same time.

Only time will tell the lasting impact of this crisis on the world economy — and your personal economy. I think one thing is certain. When this all blows over, a lot of folks will want (and need) to get back to basics. If you're one of these, here are a few articles from the GRS archives that you might find useful.

For now, I hope that you and your family are doing well. Remember to get your coronavirus info from reliable medical sources (such as the Centers for Disease Control and Prevention or the World Health Organization). Don't trust what you read on Facebook, even if you believe the advice is well-meaning. Most of all, keep an eye on your friends and neighbors. Let's practice caremongering rather than scaremongering!

More about...Economics

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
31 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Honey Smith
Honey Smith
7 months ago

Who is John Galt? Nice reference

Fred
Fred
7 months ago
Reply to  Honey Smith

John Galt= Atlas Shrugged by Ayn Rand

El Nerdo
El Nerdo
7 months ago
Reply to  Fred

Ayn Rand = objectively the worst writer ever xD

El Nerdo
El Nerdo
7 months ago
Reply to  J.D. Roth

When it comes to individualism, Nietzsche is the real deal, and worth grappling with, unlike this shadow of a shadow of a shadow… Highly recommended whether you agree with him or not. For someone more accessible, we already got Emerson. And unrelated, but wow, glad to see emojis working here. ? Anyway, re: stopping the motor of the world, experience is showing us right now that it’s all of us working who are the motor, not some grandiose Master of the Universe character from adolescent fiction. In other words: “ I am Spartacus.” ? (I don’t like that movie btw,… Read more »

El Nerdo
El Nerdo
7 months ago
Reply to  J.D. Roth

I think that’s the “black pill” you’re talking about.

For metaphors, you can always go back to Plato’s Cave, like Jacob did… The Wachowskis got all their ideas from philosophers too—I love their postmodern mishmash, though the sequels disappointed.

TL
TL
7 months ago

“Forget about whether this situation is rational or if it’s panic. Accept it as the reality we are going to face, regardless whether you think it’s a justified response.” This is the heart of it. The speed at which the world has changed in the past 2 weeks has been surreal. People (including myself) still haven’t had time to wrap their heads around how profoundly things have changed. This is a rolling disaster, unlike what the US normally faces. More typical is a singular event lasting less than a week. The danger or crisis then passes and the American psyche… Read more »

Eileen
Eileen
7 months ago

There’s a lot of talk about the businesses (arenas for example) cutting their hourly folks since they don’t have customers and what plans they have to help. I understand the idea of no money coming in and thus no way to pay employees, but isn’t there some middle ground in some cases? Couldn’t/Shouldn’t a dentist or a successful business person with resources plan for something like this? What about their emergency fund? Could they extend small loans to their employees? Is there some sort of task that’s normally done at a different time of year to be done now? Could… Read more »

KW
KW
7 months ago
Reply to  Eileen

My husband and I own a small business with several employees. The cost of paying our employees and their healthcare is almost 70% of the entire cost of running our business. People are expensive (rightfully so). If they don’t work, we cannot pay them. It would bankrupt the business, and us personally, in short order. There are tons of small businesses in this country. I’d wager that most of us small business owners can’t afford to pay people to be idle.

El Nerdo
El Nerdo
7 months ago
Reply to  Eileen

Employers already pay unemployment insurance via payroll taxes.

Jenzer
Jenzer
7 months ago
Reply to  El Nerdo

… and employees can collect unemployment benefits. Not all business owners can.

Terri T
Terri T
7 months ago

You really got to the heart of it. We actually went through the “what can we cut” question in 2015 when we lost 2/3 of our income. We were slow to adjust so we racked up a ton of debt before then. We sold our house. We left private school to homeschool. We cut restaurants, tv, alcohol, entertainment and vacations. Five years later we had our 6-month review with our financial adviser today (online of course). And we’re changing nothing. We’re all hunkered down in our house, working and schooling. Maybe my husband’s businesses will see some decline this year.… Read more »

Teng
Teng
7 months ago

To add to the point of doing groceries without a car — I used to live on college campus and the groceries were 30-minute walk away, or about 6 minutes by bike. When I bought my bike I always hiked to the store and it genuinely felt great. I made more frequent visits as a result of the pleasant ride, bought less stuff with each run, and I ended up with more flexibility of my diet (hello 30% off meat on Tuesdays), and fresher food. I also noticed how much I missed it when it started raining throughout the winter… Read more »

Tricia
Tricia
7 months ago

My husband and I are Americans who work at a school in Hong Kong, which has not been in session since January 22 and probably will not go back before fall. Thankfully, we are getting paid, but we don’t know if that will continue. (But we are frugal, and have plenty of savings.) One thing I’ve noticed though, as we have been living this reality for 2 months already while it is just starting in the US, is that Asians tend to have different habits. As a whole, even those who do not make a lot of money save a… Read more »

Tricia
Tricia
7 months ago
Reply to  Tricia

*sorry….up to 167 cases and 4 deaths….*

Amanda
Amanda
7 months ago

Fair points as always. You asked if it made sense to continue spending as if everything was normal. I agree that thinking twice about non-essential spending is wise (it often is…), but for those of us who are in a position to do, supporting local businesses is probably crucial right now. Whether it’s ordering take-out from your favorite restaurant, stocking up on coffee bags from local roasters, or buying gift cards to use at a later time… These are small things that we can do now and that do not pose a huge risk to our health or our bank… Read more »

Dan
Dan
7 months ago
Reply to  Amanda

I think about this quite a bit. I have a “government adjacent” job, where my biggest risks are generally political games on the Hill. Put it this way, I was a heck of a lot more worried about my economic security during the month long shut down last year than I am right now. While I avoided trouble, I did know people in my professional sphere who went without paychecks as a result of that mess. Somewhat ironically I suppose, if I *did* have to find a new job back then, the otherwise roaring economy would give me plenty of… Read more »

Flip
Flip
7 months ago

A few months I read a book that JD recommended “Hard Times.” The book details fascinating first hand accounts on how people survived thru the 1920’s when the economy as a whole came to a halt. We are not even remotely close to what people 100 years ago had to live thru but there are interesting lessons and things people had to do to survive. It would be interesting if JD would dust off his copy and give us an an updated review with 2020 perspective as things continue to deteriorate.

Lisa
Lisa
6 months ago
Reply to  J.D. Roth

who wrote this book?

Fred
Fred
7 months ago

It has always amazed me how many employees and tenants think their employer or landlord have some sort of license to print money. They really and truly do not understand money. As far as budgeting. I read an article in the 1990’s about a man who’s weekly food bill was $7.00 He basically had lived on bread, jam, tea, and tap water, for several years. Ever since then I look at how cheap I COULD live, then add in expenses for things I want/need. I spend less than I earn. I have most of the common comforts in life. I’m… Read more »

Anthony
Anthony
7 months ago

View from Oz: My wife and expect our 21 and 20 y.o’s to move back home (great while it lasted) within the next month. Both are casual workers in the food industry. From next week I will be working from home, my wife (Deputy Principal at a state school) has one more week before school holidays. So okay for the moment, and looking to cut everything to the bone. Two Biggest quandaries the charities we support – extremely reluctant to pull support, and maintaining the environment first purchasing choices. Other two children have a week left at school before holidays.… Read more »

mary w
mary w
7 months ago

DH and I are long retired with pensions and social security to cover expenses so our cash flow is fine even though our investments are way down. What I struggle with is that the easiest way to cut back financially and ensure social distancing hurts very directly personal service workers. In some these people may not be “Americans” or on the government radar to get that promised $1000. from Fed or eligible for unemployment. I’m talking my manicurist, house cleaner, hair cutter, and massage therapist. I’ve used the services of one of individuals for more than 30 years and the… Read more »

Anne Husk
Anne Husk
7 months ago

I am certainly not hinting that Kim is wrong in any respect, but I would like to point that she has a point of view that is possibly a very different perspective from others in her work place. First of all she is living with a loved one who would never let her miss a meal or be evicted. Secondly, and I don’t know this, but she may have parents/family who would second that view and take her in in a heartbeat. Thirdly, and this is HUGE, she has no children for which she is responsible, which means that, fourthly,… Read more »

Anne
Anne
7 months ago
Reply to  J.D. Roth

My point is that terror is terror and when you have more terror on your plate than your co-worker you don’t think as reasonably.

Papa Foxtrot
Papa Foxtrot
6 months ago

The engine will still roll, but on a lower amount of cylinders at first and new ones later. Every recession results in the closure of businesses and changes in the loaning system. Tourism will be the hardest hit for a while, but it will come back. They always do. As for other businesses, many have transformed to accommodate for the massive changes. Do not get me wrong they will not have nearly as large of a revenue this year, but the fact that many have changed to survive this semi-apocalypse shows that they will do what is necessary to survive… Read more »

Max
Max
5 months ago

Thanks JD. This really hit home. Been a while since I’ve read your stuff but will dig through what I have missed.

shares