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8.1 Lost Jobs… Harm to Small Businesses, Workers and Families

We are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century – or possibly several centuries.” Jan Vlieghe Bank of England

In this section, we will examine the harm that extreme social isolation policies, including shutting down nearly all local businesses, will have on the small businesses, workers and families in Washington state.

Let’s start with some national unemployment numbers from the Bureau of Labor Statistics. The previous all time record weekly unemployment claims total was much less than one million. The last two weeks of March saw claims set new all time records of 3.3 million and then 6.9 million. The first week in April was 6.5 million, the second week was 5.2 million, the third week was 4.4 million and the fourth and fifth weeks were 3.5 million for a shocking total of 34 million jobs lost in only 7 weeks. Here is a Federal Reserve chart comparing this to job claims going back 50 years to 1967:

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But the real scale of the problem is much worse than the above graph indicates for at least four reasons.

First, in the early 1990’s, the BLS redefined unemployment to artificially hide the number of unemployed workers. The real unemployment rate is at least three times what is reported by the BLS. https://www.globalresearch.ca/us-unemployment-exceed-40-end-april/5708594

Second, at least half of all workers are temporary workers on contracts thanks to the new “gig” economy. These temp workers often can not even apply for unemployment benefits. They are also more likely to be let go in a downturn.

According to a poll by the Economic Policy Institute, millions of Americans who have been thrown out of work due to the economic shutdown have been unable to register for unemployment benefits. The poll found that for every 10 people who have successfully filed unemployment claims, three or four people have been unable to register and another two people have not tried to apply at a time of acute economic crisis. https://www.epi.org/blog/unemployment-filing-failures-new-survey-confirms-that-millions-of-jobless-were-unable-to-file-an-unemployment-insurance-claim/

Thus, the true number of lost jobs is nearly double the number reported by the BLS – which brings real job losses up to to least 50 million – and counting.

Third, many workers are still on payrolls of businesses that will be shutting down in the coming weeks. Expect unemployment claims to continue to climb. This is why on March 31, 2020, the St. Louis Federal Reserve estimated that a total of 47 million jobs could be lost in the next 3 months:

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https://www.bizjournals.com/stlouis/news/2020/03/31/st-louis-fed-economist-47-million-could-lose-their.html

There is a mistake in the above headline. It is not the corona virus that will cause 47 million jobs to be lost. It is the needless extreme social isolation policies that will lead to these job losses.

My own rough estimate is that it is going to be 50 million jobs lost. But the only reason I use this number is because it is easy to divide by 50 and it means that 1 million of our 4 million jobs here in Washington state will be lost in the next month.

Update: On Thursday April 23, the Washington State Employment Security Department admitted that while the official unemployment was 605,514, actual claims could be as high as one million by April 26 – three times higher than the peak of the Great Recession. https://esd.wa.gov/unemployment/help

The reason for this was that up to this point, people in the gig economy were not able to file a claim. But due to a change in the law, some (not all) of these people will be able to file a claim starting on Sunday. Because this still does not include about 20% of people who lost their jobs due to the shutdown, I am raising my estimate to 1..2 million in Washington state. Because Washington is an average size state, you can convert any state numbers into national numbers by multiplying by 50. You can also convert any national numbers into Washington state numbers by dividing the national numbers by 50. Therefore, I now predict that 60 million people will be unemployed due to the shutdown.

“The best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis. But given the flailing policy response so far, the chances of a far worse outcome are increasing by the day.”
Economist Nouriel Roubini

Job losses will be made much worse by the fact that our Senior citizens lost about 30% of their retirement savings when the stock market collapsed a couple of weeks ago. This means that they will be spending 30% less money in the future than they would have spent had their retirement savings not been wiped out.

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“We’re in the Great Depression and that in a sense, the news can’t get much worse.” Mellon Bank chief strategist Alicia Levine

A healthy economy promotes a healthy immune system. A sick economy leads to a weak immune system. A sick economy is more dangerous to our long term health and well being than any virus. This is especially true once you understand why social isolation does not stop the corona virus. Therefore, as we discussed earlier, it is likely that shutting down the economy cost lives instead of saving lives.

However, if we accept the government’s claim that the corona virus has or will kill about 100,000 people, then we can do a simple comparison of those killed by the virus to the 60 million who have or will lose their jobs as a result of the economic shutdown.
60 million divided by 100,000 = 600.

In other words, for every person the government claims was killed by the corona virus, 600 people have lost their jobs because of the shutdown.

Since we know most of the people the government claims were killed by the corona virus were actually killed by the seasonal flu or some terminal pre-existing condition, the actual number killed by the virus was about 50,000. Using this for the denominator puts the ratio of lost jobs to corona deaths at 1200 to 1. All it takes is one on 1200 people killing themselves through suicide or drug abuse for economic shutdown fatalities to exceed corona fatalities. But in fact, as we discussed earlier, the number of people who will die from the economic shutdown is likely to be about 10 times greater than the number of people who will die from the corona virus. Some day, people will wake up and realize that shutting down the economy over this virus was the worst blunder in human history.

Stimulus Program Problems
The stimulus program passed by the government gave us all checks for $1200.

The stimulus program passed by the government gave us all checks for $1200.But this was just a distraction as the big money went to Wall Street banks, drug companies, oil companies and airlines. Many people did not get a stimulus check at all. For example, if you were a student going to college and living at home, and therefore listed as a dependent, you did not get a check – and parents get not a check for you because only dependents under the age of 16 counted.

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If you had a small business, things were even worse. The SBA which runs the loan program had a glitch in the application process which exposed the personal information of thousands of small business owners to hackers. The SBA was given funds to provide 100,000 $10,000 loans. But they got 3 million applicants – meaning 2.9 million did not get the loan. A survey of 2,200 small business owners found that less that half even bothered to apply for the $10,000 loan. Of those who applied, less than 3% received the loan. Finally, less than half of small business owners applied for the Paycheck Protection Program. Of those who applied, only 13% were approved – meaning only 6% of all small businesses got any help from the federal government. Nearly half of all small businesses were on the edge of closing down – after only being closed for a few weeks.

Why the 2020 Crash will be Worse than any other Economic Crisis in US History
It is commonly thought that the Great Depression in the 1930s was the worst economic disaster in US history. But there were many redeeming factors in the 1930s that are no longer present today.

First, the population is much greater than it was in the 1930s.
For an example, we will use King County, Washington. It now has a population of 2.4 million. There are about 1000 people in every square mile of King County. The median age is 37 years. The population of King County has grown by 500 percent since 1930. This makes the 1930 population of King County 2.4 divided by 5 equals 0.48 million or a King County population of 480,000 in 1930. It will be much harder to help 2.5 million people than to help a half million people.

Second, the majority of Americans now live in large cities rather than on small self sustaining farms.
In the 1930s over half of all Americans still lived on self sustaining farms. Many of these farmers sent food to relatives living in the cities. Many left the cities and went to work on farms in trade for the food they needed to stay alive. Today, in much of the country, less than 10% of people live on farms. In densely populated counties such as King County, Washington, less than 5 percent of the people live in farms.

Put another way, there were 240,000 people living on farms in 1930 versus 120,000 people living on farms in King County today. In particular, nearly all of East King County used to be farms. There was literally several major farms where the City of Bellevue now stands today.

At the same time the farm population of King County was cut in half (along with the farm acreage in King County being cut in half), the urban population has exploded by 1000 percent from 240,000 people in 1930 to about 2,300,000 people today.

Why the Ratio of Urban to Farm Population Matters
During the Economic Crash in the 1930’s, it was common for each farm family to take in one city family and or send boxes of food to one or more city families as all farms had an excess of food but no one to sell the food to while people living in cities had no income to pay for food. Therefore, there were only a few thousand people who starved to death in King County in the 1930s.

However, if we assume the same ratio today with each farm person being able to take in and or support one city person during the next major economic crisis, the current 120,000 farmers in King County would only be able to help 120,000 city people. This would mean that about 2 million people in King County or 90% of the population would face mass starvation.

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This problem will be made much worse by the change in transportation of food supply chains and concentration of food supply chains in the past 90 years. While food used to be broadly distributed from farmers to the urban population using a variety of methods in the 1930s, today the food distribution network is concentrated in the hands of a few major corporations who use a “just in time” trucking system to maximize short term profits. This just in time trucking system only distributes a few days supply of food at a time to major chains of national super markets.

The next economic crash will shut down the banking system which will shut down the trucking businesses and their fuel supply which will shut down the national food distribution corporations which will shut down the national super market corporations. Food will be left to rot in massive warehouses even as people in Seattle are starving. Therefore the estimate of 2 million people starving in King County may actually be low.

But won’t the Government Step in to Save the People?
If we had a government that was not corrupt and not controlled by a few billionaires, the government might be able and willing to help distribute food. However, it appears as if the current corrupt government in the US is preparing to do exactly the opposite of helping the people. They are creating a Police State whose job appears to be to control the people in the event of a crisis rather than helping the people.

I therefore think the government might pretend to want to help the people while at the same time be fully occupied trying to control rioters and looters as the population quickly starves to death.

Here are a few more reasons the 2020 Economic Crash will be Worse than any previous crash

#1 The concentration of wealth and power is more unequal than at any time in history – including the Great Depression.

#2 Families have never had as much debt as they have today.

#3 For the first time in US history, real earnings of middle class and poor working families have not risen in the past 30 years.

#4 Corporations have also never been so for in debt.

#5 Elections have never been so rigged in favor of corrupt incumbents.

#6 Tax breaks for wealthy corporations have never been so large thanks to what amounts to a bribery and kick back scheme where corporations pay millions of dollars to elect corrupt incumbents – who then grant the corporations billions of dollars in tax breaks.

#7 Monopolies have never been so prevalent with Microsoft owning the computer market, Google owning the search engine and video sharing market, Facebook owning the Social Networking market, Amazon owning the online retailing market and a small number of corporations owning the entire news media in the US.

#8 Never before has so much of the wealth in the US been devoted to the national security police state with a host of agencies from Homeland Security to the NSA using high tech tools to spy on everything you do. What to organize a protest? Count on at least a dozen federal Fusion agents attending your rally and writing a report about it.

There is no question we are at the beginning of the worst economic crash in history. But thanks to the monopoly of the corporate media, it will be a while before the American people ever find out about it.

Problems that will make Economic Devastation Much Worse in Washington State
Washington state has suffers from several problems that will make the impact of extreme social isolation policies much worse in our state than in almost any other state. Here are just a few of them:

#1 Washington State is More Dependent on Foreign Trade than almost any other state

#2 Washington State is More Dependent on the Airline Travel industry than almost any other state

#3 Washington State Taxes are More Dependent on the Sales Tax (purchases made by the poor and middle class) than any other state

#4 Washington State Business and Occupation tax punishes successful small businesses by charging them more than any other state.

#5 Washington State gives away more tax revenue to Billionaires and Multi-National Corporations than any other state

Let’s take a brief look at each of these before looking at the effect these factors will have on skyrocketing unemployment in our state.

#1 Washington State is More Dependent on Foreign Trade than almost any other state
Washington state not only exports airplanes and computer programs, it also exports a huge amount of agricultural products from apples to wheat to berries. The total shutdown of trade all over the world is going to bring all of these exports to a nearly complete halt. So job losses will not only be in King county. They will be all over the state. This is one of many reasons we the Unemployment claims in Washington State have been among the highest in the nation with more than 20% of workers applying for benefits by May 1:

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#2 Washington State is More Dependent on the Airline Travel industry than almost any other state
Boeing was already in serious trouble after producing perhaps the most deadly plane ever made – the 737 Max – an extremely unstable design that can not be fixed with any software program. But the halting of the entire travel industry is likely to be the death blow – which could cost the loss of nearly 100,000 jobs in Washington state when you add in all of the downstream suppliers for Boeing.

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Because of these factors, it is likely that Washington state will be hit with among the highest unemployment claims in the nation. Sadly, Washington state has among the lowest Unemployment Trust Fund balances in the nation:

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When states exhaust their trust funds, they must borrow billions of dollars from the federal government, which must ultimately be paid back with interest. These payments are not made by the tax payers of the state but rather by the business owners in the state – who are charged a fee for every employee they have on their payroll. The above chart shows that, as of April 4, 2020, Washington had enough money in their trust fund to cover 15 weeks of payments. California only had enough to cover 4 weeks of unemployment checks. However, unemployment claims have skyrocketed since April 4. California has already been forced to borrow $10 billion from the federal government. This money will have to be paid back by California employers.

In the last week of April, 2020, the Washington Employment Security Department (ESD) announced that they had paid out over one billion dollars in unemployment benefits in a single week. This was more than the the one billion dollars that the ESD paid out in the entire year of fiscal 2019. In other words, payouts were 50 times per week what they were in 2019.

Here is a chart of unemployment claims in Washington state in 2020:

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Unemployment claims skyrocketed right after Inslee shut down most of our state small businesses in Mid-March. https://public.tableau.com/profile/jeff.robinson#!/vizhome/InitialClaimsapplicationsforUnempIoymentInsurance-WA_ETA539-/Story1

137,605 New claims joined 190,948 Pandemic claims and 168,165 Emergency claims and 959,190 existing claims from the previous few weeks for a grand total of 1.5 million unemployment claims:

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This is much more than 20 percent of the Washington State Workforce and converts into a national estimate of 70 million unemployed. Because of these huge numbers, ESD paid out 1 billion between April 19 to 25 and another billion in April 26 to May 2.

At the beginning of 2020, the Trust Fund had a balance of nearly $5 billion. It is likely that the trust fund is now below 3 billion and will be gone in the next three weeks (by May 23). Washington will likely have to borrow more than 5 billion of dollars from the federal government to keep the unemployment checks paid through the month of June. The entire 5 billion dollars will need to be paid back by Washington state employers – plus 5 billion more to re-establish the Trust Fund balance. This $10 billion is on top of the fact that health insurance rates for employees are expected to skyrocket in the next few months. The net result is that many employers will be forced to fire employees just because they will not be able to afford the huge increases in unemployment taxes and insurance costs – even if these employers are somehow able to survive the government shutting down their businesses for months on end.

#3 Washington State Taxes are More Dependent on Sales Tax (purchases by the poor and middle class) than any other state
Numerous studies have shown that Washington state has the most regressive tax structure in the nation. https://itep.org/wp-content/uploads/whopays-ITEP-2018.pdf

The Washington State sales tax of nearly 10% combined with numerous other hidden taxes and fees results in the poorest people in our state paying an effective tax rate of nearly 18% of their income – while the richest billionaires in our state pay state taxes at a rate of less than one percent of their income. This regressive tax system means that more money will be pulled out of our state economy than any other state. The reason is that small businesses typically generate sales from purchases by the poor and middle class. When the poor and middle class no longer have any money, small businesses no longer have any sales. A regressive tax structure does not just harm poor and middle class working families. It also harms small businesses which rely on purchases from families to stay afloat.

There is a second serious problem of relying heavily on sales taxes for state revenue. When there is a plunge in retail sales, due to a shutdown of nearly all retail businesses, the state no longer has the money to pay for public services. This leads to a loss of public sector jobs. Here is a graph showing Washington is one of only 2 states in the nation that gets more than 30% of revenue from sales tax:

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#4 Washington State Business and Occupation tax punishes successful small businesses by charging them more than any other state.
Washington state is also unique in the nation in charging small businesses a “business and occupation” tax on the gross receipts of all sales. This means every time a business sells a product, it must pay the state a percentage of that sale. Think of it as a hidden additional sales tax. The problem with this process is that it punishes efficient small businesses that carry a small inventory and turn their inventory over several times a year. For example, a business that turns over their inventory six times a year pays six times the Business and Occupation tax as a business that only turns their inventory over once a year. So think of the Washington Business and Occupation tax as a “double whammy” that will harm small businesses in our state in addition to the harm of their business being needlessly shut down by government officials for months on end.

In 2019, Washington state total tax revenue was about $23 billion. 70% of this revenue was from the sales tax and Business and Occupation tax. Thus, $16 billion in annual state revenue comes from sales and business taxes. Even a modest 20% drop in retail sales will blow a $4 billion hole in the annual state budget. It is nearly certain that retail sales will plunge by much more than 20%. But for each billion in lost state revenue, public service job losses will be between 10,000 to 20,000 for a total loss of 40,000 to 80,000 jobs in the coming months.

#5 Washington State gives away more tax revenue to Billionaires and Multi-National Corporations than any other state
Washington state is home to some of the richest billionaires and wealthiest corporations in the history of the planet. These billionaires and huge multinational corporations are not in any danger of being homeless or out of a job. But the problem with giving tax breaks to the rich is that the rich do not spend their money. The problem with giving corporate welfare to wealthy multinational corporations is that they do not do any new hiring. While small businesses account for half of all jobs, for the past 20 years, they have accounted for nearly all new jobs. So killing off local small businesses by favoring large corporations is going to have a devastating effect on our local economy. Sadly, billionaires and large corporations practically own the Washington state legislature – to the point where for every dollar spent on public schools, the Washington state legislature gives away three dollars in tax breaks to wealthy international corporations like Microsoft and Boeing.

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The net effect of all five of these problems is that working families and small local businesses are likely to be more impacted by the shutdown of local businesses than perhaps any other state in the nation.

How bad is it going to get?
Here is a quote from Business Insider: “As factories and stores are shuttered, there will likely be huge declines in manufacturing and consumer spending in the near future. Because the US consumer is a cornerstone of economic activity - spending makes up roughly 70% of US GDP - any dip could have a big impact. Goldman Sachs predicts a 24% decline in GDP.”

Let’s look at the current sales figures and then use that to estimate the eventual number of lost jobs. According to Bloomberg, 47,000 US stores closed in less than two weeks:

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While retail sales figures for March for the US are not in yet, we know that retail sales in China fell 20% after they imposed social isolation policies. https://www.businessinsider.com/retail-sales-china-coronavirus-crisis-2020-3

Car sales for March were down 37% from one year ago. https://www.globenewswire.com/news-release/2020/03/27/2007650/0/en/TrueCar-s-ALG-Forecasts-New-Car-Auto-Sales-for-March-2020-and-the-First-Quarter.html

Personal car travel declined 44% in March from a year ago. https://taxfoundation.org/gas-tax-revenue-decline-as-traffic-drops/

We will therefore estimate that 1.2 million jobs will be lost in Washington state and that retail sales will decline at least 25% and therefore that Washington state revenue will decline 25%.

$23 billion in total state revenue minus 25% is a decline of almost $6 billion per year. This is about 100,000 lost public sector jobs. This is nothing compared to private sector jobs which may be as high as 1.2 million lost jobs.

As of April 25, 2020, 723 people have been killed by the corona virus in Washington state. This is a rate of 100 fatalities per million population. Assuming that total deaths due to the corona virus do not exceed 1200 in Washington state, we will see more than one thousand people lose their jobs for every person killed by the corona virus. The only good news is that this is an election year.

April 27, 2020 Update: Some many people lost their jobs in San Diego, CA that last month over 40% of residents turned to food banks in order to feed their families. The following image shows thousands of cars in San Diego lined up to get food at a food bank. The image was taken April 9, 2020.

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What’s Next?
When people lose their jobs, there families lose their homes. This means many more kids living in the backs of cars. We will look at this issue next.