The Just-in-Time Economy

As I write this, the numbers of new coronavirus cases are approaching a new peak in the United States. How exactly did we go from declining numbers to what appears will be new highs in a handful of weeks?

Citing a slogan from another time and another context, “It’s the economy, stupid.”

Almost everything in our economy is designed for the short-run. Profits are tabulated quarterly, if not weekly. Companies maintain little inventory, partly because inventory not sold by year-end is considered taxable income, and rely on just-in-time deliveries. Retailers and service industries have high percentages of employees working variable hours depending on demand, and more “professional” services are being outsourced.

According to numerous studies over the last several years, 75-80% of U.S. workers are living paycheck-to-paycheck, and 40% of all Americans can’t pay an unexpected expense of $400 without selling something or going into debt. Add to that the fact that roughly 60% of healthcare insurance is paid by employers.

So what happened when the U.S. shut down much of the economy to keep the coronavirus from spreading?

Unemployment jumped to the 13%-14% level, and government had to create massive amounts of money for unemployment, stimulus, payroll protection, and other worker and business support programs… and the funds supporting those programs are running out. State budgets are being savaged by lack of revenue and ongoing expenses, and, unlike the federal government, states can’t run long-term deficits or print money.

Over the past century, the U.S. economy has become, like business, a just-in-time operation, and with already massive government deficits…there’s just not enough money in the coffers of either governments or businesses to keep paying workers and the other bills. Almost all workers have no cash reserves to speak of, and many are already desperate. Tens of thousands of businesses will close… and stay closed… as a result of the shutdown.

So… there’s enormous economic and political pressure to “re-open” the economy, despite the fact that models show doing so will result in more than 60,000 additional deaths.

No choice is good in this situation, but the dollar cost or death toll cost wouldn’t be nearly so high if the U.S. weren’t so deeply tied to a short-term profit-maximizing just-in-time economy.

This situation reminds me, bizarrely, of an old time commercial for automotive oil filters where a mechanic explains that without good oil filters and maintenance, car engines fail. Then he says, “You can pay me now… or pay me later [to rebuild your engine].”

We haven’t even begun the long process of paying for an underfunded, over-leveraged, just-in-time economy… and we’ll be paying in both dollars and deaths, most likely for several generations.

2 thoughts on “The Just-in-Time Economy”

  1. R. Hamilton says:

    For essential goods and their supply chains, it might not be impossible to forego inventory tax in exchange for requiring a certain amount of inventory and/or domestic production. This would be a good idea, esp. with current over-dependence on China, which has demonstrated a willingness to engage in extremes of duplicitous behavior, withholding information, manipulating supplies, etc. Certainly no prior administration has even paid significant attention to that possibility. The current one hasn’t done enough, but they’ve done more than previous ones. At the very least, foreign production should always be diversified among enough countries that no one of them has substantial control over our supply chains; and (as with the federal ban on Huawei), IT infrastructure should not be trusted to production in hostile countries, except under the auspices of American companies applying extraordinary oversight.

    (I’ve overheard enough conversations to get the impression that firms that manufacture in China need to spend a significant fraction of their labor savings on quality control too, unless they’re ok with marketing cheap products that will be sometimes defective initially, and frequently replaced, give or take stainless steel work, which the Chinese seem to do reasonably well for the most part.)

    But I doubt that any amount of resilience would be sufficient to deal with months of partial to near complete shutdowns. People will die, and it can’t be prevented except at a cost that might end up taking as many lives as not shutting down.

  2. Postagoras says:

    It’s interesting that this entry follows one about hidden costs, since this one is actually about hidden value.

    The profit motive is powerful, but at this point, the percentage of profits going to a small number of people is nuts.

    To me this is where the profit motive goes haywire. Profits are being maximized, yes. But not because the profiteers need the money, it’s just because profits are easily measured.

    You can’t measure the cost or value of a sad versus happy life, a clean versus polluted environment. Well, you can try, but measuring dollar amounts beats all other measures.

    I don’t actually need to tell you this, Mr. Modesitt. You’ve made this point over and over about the behavior of factors. Or folks buying “slack cooperage instead of tight cooperage”.

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