The Twenty Trillion Dollar Flywheel

(This story begins at some point in the future)

The Flywheel 

I did not have a strange dream last night like I did during the pandemic.  I had a rich, deep sleep.  I have to tell you it was wonderful.  Work had returned to normal and the company was starting to make money again.  I was not the usual stress ball.  Life was indeed good again.  For lunch, I jumped in the car and went to Avalon, a local posh outdoor mall that was eerily abandoned during the pandemic.  It was a sunny summer weekend day and the parking was tight.  I love to complain about the scarce parking, but it oddly did not bother me now.  Full parking lots meant happy people shopping and economic growth returning.  May all your parking lots be full.

The restaurants had filled up again and people were out with friends eating outside engaged in long overdue conversations.  It felt good to talk about sports and whatnot with friends you had not seen in two or three months.  There was a general level of happiness you don’t often see.  The waiters were really happy too.  Sure, they missed work but they also missed their regular customers.  My friend Jimmy and I finally went yesterday to Clay’s for some of the best wings in Atlanta.  Jimmy caught me up on the Memphis sports scene and we talked about cool new audio gear we were eyeing.

Beloved businesses were now fully open.  My favorite record store on the corner was back in full swing and I was spending too much money on records again.  They had survived via their digital online store with mail or curbside delivery to the locals.  

Movie theaters were selling tickets again.  Buzz was building about the new James Bond movie and the Top Gun sequel.

We started seeing full lots at the local car dealers too.  Cars can be essential items and getting that paycheck back led to strong demand.

Even luxury goods sellers were getting back on their feet.  Much like past recessions, the luxury buyer had been the first to show up and start buying again.  Our local hifibuys audio store was selling amplifiers and loudspeakers again.   Mayor’s was back to selling Rolex watches that you had to wait to take delivery of.  Porsche was selling out of the new 911 and my friend’s overdue GT4 was being finished up at the production line in Germany.  Asian economies recovered faster and started spending sooner.  For global firms, that helped greatly early-on.

Big events were happening again.  People were talking about baseball again since it was still summer.  Even better, people were attending baseball games.  There were concerts and events back on again.  Ticket sales were brisk.

The interstates of Atlanta were filling up to capacity again with the return of people to work.  Atlantans were complaining again about traffic and the traffic choppers were out making a glorious noise again.  It was weirdly satisfying to be stuck in traffic on Georgia 400 again.

The whole key to this was arguably the world’s most unstoppable force: The Consumer.  After being in lockdown for months, consumers had gigantic pent-up demand for products and services.  After living for three months like a monk, it was time to treat oneself.  Live a little.  Enjoy a normal lifestyle again.

In the United States, 2/3 of our gross domestic product is consumer spending.  All in all, it adds up to a whopping $20 trillion of goods and services produced by the United States every single year.  Once you get that economic “flywheel” going it has a lot of mass and is very hard to stop.  

The flywheel was spinning again.  But how exactly did this happen?

The Flywheel starts to turn…

Some people point to there being toilet paper back on the shelves at the local Publix.  Some say it was the Dow Jones hitting 26,000 making people feel good about their wealth and future prospects again.  Some say it was the steep drop in new coronavirus cases.  Some say it was the new small business loan program.  I tend to think it was all of the above.

No doubt it had been a turning point when the government leveraged the tax refund system to send out the payroll protection checks directly to small business owners.  The banks prescribed under the original plan had just not been up to the task.  Small businesses make up 50% of employment and keeping people on payroll was just too important.  For the economy to open on May 1, there would need to be employees.  All of them. Okay the service industry was still down but it would recover in short order.  Ironically, checks from the IRS really primed the system.  Firms finally got their full two-and-a-half-month payroll, and most employees were brought off furlough.  Those funds bridged millions of other small business until the economy returned in full glory.  People were actually excited to be at work again.  There was a palpable enthusiasm from folks returning.  The mood at the office, at trade shows, and on conference calls was upbeat.   Employees genuinely missed the action.

The country’s employees started to spend money again.  They bought that washer and dryer combo that had been put off.  The went ahead with the much-needed new car.  They paid down debt too.  They even built up reserves.  Nobody wanted to be caught again without cash reserves.  For some it had been a very harsh lesson.  Indeed, some had months of bills to catch up on before serious purchases were even a possibility.  But there was enough spending to start the flywheel moving again.

People had been cooking at home so long that all of a sudden you couldn’t get a restaurant reservation anywhere as almost everyone went out to eat at night.  Restaurants were struggling to fulfill demand and hiring back let-go employees was happening at a fast clip.  Single people were going on dates.  Married couples were going on dates.  Business dinners were back.  That was fueling the service industry.  The new business meal deduction helped things along.  

Retail was just starting to recover.  The state governors had opened the stores initially with a limit on the number of consumers at any one time.  People still were wearing masks for safety.

Then a miraculous collaboration occurred.  With input from Drs.  Birx and Fauci, and the arrival more precise testing, Microsoft and Apple had built a global smartphone app that carried a digital medical certificate.  Those who tested positive for the coronavirus antibody had Green status which was the lowest risk profile and this group could go anywhere.  The Greens were the first to return to work.  Yellow was the second risk profile and they also could return to work as they had tested negative for the virus.  Some firms set up temperature checks for the Yellow group.  The Red group was still an at-risk group and needed to pass a 14-day quarantine and also be tested for temperature before returning to work.  This was a bit crude but it worked.  Business ramped up at large enterprises and people felt more comfortable about flying and just being around other people in general.  One by one, the offices of big corporations opened up again and commerce flowed.  Small businesses started to see demand again.  Dry cleaners were suddenly pressing business attire again as in-person meetings returned. 

The Flywheel gathers speed…

In a blink of an eye, 30% unemployment declined to 10% as the economy gathered speed.  A few regular paychecks had given confidence to the American consumer.  People hit by financial stress began to work out of it.  Small business loans were forgiven by the Treasury as promised. 

The hardest hit industries were slowly getting back on their feet.  The President had reached a rare bipartisan consensus on the heroism of the front-line workers who got us through this horrific pandemic.  Congress had approved a sizeable bailout package for the airlines, hotel, and cruise line companies.  But for once there were tightly enforced conditions.  These firms had to provide to all medical workers a free flight, hotel, or cruise for the length of one week occurring within the next six months.  If anyone in America deserved a vacation, it was this group of front line heroes.  These firms were also not allowed to buy back stock.  The proceeds had to go to real expenses.  Recognizing the genuine acts of these medical workers, not a single person in Congress voted against the program.  Front line workers were the new American rock stars.  It was not uncommon for people to pay for their meals.  It became a cultural phenomenon to give gifts to these folks.  Medical and nursing school applications soared.  Even hospital janitors were recipients of random acts of kindness.

The Flywheel achieves a steady state…

The Atlanta Hartsfield airport was soon as busy as the small city it genuinely is.  People were slowly flying again, and fares were going up.  Delta employees were taken off furlough and soon 95% of the fleet was flying as consultants and other heavy fliers returned in droves to help large enterprises continue their work on becoming more digital and improving the overall customer experience.

Trade shows returned.  Even business had pent-up demand!  Luxury products like watches and audio held rescheduled trade shows.  Deals got done.  Opened retail shops created profits for the brand which in turn created marketing spend.  Business spending returned and firms geared up to normal manufacturing and services levels.  B2B flourished.

At this point, the V-shaped recovery had taken hold.  

The financial markets were the first to recognize the giant engine that the American economy is.  They were investing again in venture capital.  The lockdown had shown what digital businesses were needed.  People returning to technology work created early-stage investment opportunities.  Research universities like MIT and Georgia Tech started their chains of innovation leading to “liquidity events” for lucky investors.  These investors then bought houses and cars, further helping the economy along.

The President recognized the opportune timing for a Grand Compromise on infrastructure.  The House and Senate created a blockbuster bill for infrastructure which would kick-start the public construction business and renew our nation’s major roads.  The housing market returned as well, with low interest rates providing opportunity for residential construction.  Office construction resumed as businesses saw the future need for additional space.  Small businesses were serving all of the above with things from supplying building materials to legal work to employment agencies to building signage.

The Flywheel once it achieves speed becomes damn hard to stop.  The roaring economy of the pre-crisis months returned faster than anyone expected.  It was if people really missed working.  For all the moaning about jobs, people greatly missed having this purpose in life.   And for all the failings of capitalism, many people realized no economy was the most -evil thing of all.  As Calvin Coolidge famously said, “the business of America is business.”

Lessons Learned 

It was certainly a difficult few months, but dare I suggest that there were a few valuable lessons?  I think whenever we go through challenging times, we learn something.  I know of at least three things we learned:

1.     Sovereignty matters.  Globalism failed us here as the global health organizations did not adequately warn us.  It proved quite valuable to be able to close borders as a nation.  That saved many lives.  The pandemic rearranged our thinking on how connected we are and the limits of globalism.  An early warning system was put in place to identify emerging threats using artificial intelligence coupled with on-the-ground personnel.

2.     Strategic medical reserves.  No nation ever again should be beholden to a foreign country for strategic medical supplies.  After coronavirus, the United States, the United Kingdom, and others put in place huge reserves of PPE, ventilators, medicine, and a well-planned approach for dealing with the next pandemic.  Under threat of targeted military strikes, China closed all of its wet markets.  Nations began a soft decoupling from China, a new pariah on the international stage.

3.     On-shoring of production.  The United States, Japan and other nations quickly provided incentives for manufacturers to move strategic supply chain capability back to their native country.  Coronavirus brutally highlighted some grave inter-dependencies with other countries.  Never again would nations be beholden to dangerous Chinese or other foreign leadership. 

Alas, I am missing the most important thing: our relearning of the importance of family.  We get so wrapped up in material things that we forgot that these things pale in comparison to the value of our relationships with loved ones.  The flywheel magically set off a renewed sense of togetherness.  In the ensuing months, we saw a strong consumer shift to purchasing experiences, not physical things.  That, in turn, is leading to higher levels of happiness.  Among my spiritual friends, we also got closer to God in the quiet times of the crisis.  We relearned the lessons of the Bible.  We also realized that God had placed his hand on that flywheel and gave it a strong push.  Church attendance returned with record numbers.

Now my memory hasn’t been serving quite as well in my older age so I may have gotten few details in the retelling wrong.  But it did happen.  We got through it.  We recovered.  We also sadly lost some great people far too early.  But we endured.  We got to the other side.  And we learned that friends and family are so incredibly valuable.

I am a student of economic cycles from my work in risk consulting.  One consistent theme we observe is that when times are good, we tend to be too exuberant and overestimate how long the party will last.  We rarely set aside money for the rainy day.  And when times are bad, we underestimate the long-term strength that we have.  During the crisis we underestimated how strong a nation we are.  The V-shaped recovery confirmed our strength.

If only I could time travel back to the time of the crisis and tell people, it’s going to be alright.  If only I could tell them that we are all just going to be fine.  I think many of them know this in their hearts.  In America and globally, that free market flywheel is an unstoppable force.

Tonight, I am looking forward to having drinks with friends at Marlowe’s.  My friend Don makes the best martini in Atlanta.  I have a good feeling it’s going to be more delicious than usual.