The Economy (Dec 2)

TurtleSoft was born near the end of the Reagan presidency. Those were the days of “trickle-down” economics, with a top income tax rate of 28%. It had fallen steadily from 91% in 1963, to 70% during the 1970s, then to 50% and down during the Reagan years.

I read an article back then predicting that the new tax policy would shrink the US middle class. They expected good fortune for Walmart (more poor people) and for Tiffany’s and Neiman-Marcus (richer rich people), but problems for Sears (bye-bye middle class).

At the time it seemed like a bold prediction. But 30+ years later, the writer turned out to be spot on. Sears is almost dead. Walmart is thriving. Aside from Amazon, their biggest competition these days is the dollar stores, which cater to even poorer people. Tiffany’s and Neiman-Marcus are in trouble right now, but that’s mostly because the Internet and Covid-19 zapped walk-in retail. Or maybe it’s because the moderately rich are also shrinking. The ultra-rich can buy islands and politicians (thank you Citizens United vs FEC). They don’t need to show off with jewelry or designer clothes.

The divide keeps growing, with fewer in the middle.

Covid-19 is definitely impacting the economy very unequally. It’s accelerating a trend that was already moving at decent speed. This is a very bad time to own a restaurant, or any type of walk-in retail. It’s difficult for most service professionals. AirBnBs. Much of the gig economy. Even hospitals and medical workers are worse off: higher expenses, layoffs, and less profitable work.

Construction seems to be a mixed bag. One of my neighbors is a contractor who has kept busy since May. However, the biggest construction project in town finished last month after many delays, and it is still completely empty. Nobody wants to rent offices or apartments in a building with shared hallways. The second-biggest project shut down in April, and it is still just a partly-finished foundation and elevator towers. That’s got to be hard on owner cash flow.

I’m no economist. But as a small business owner and a developer of accounting software, I do know how to track money. As the pandemic slithers into its scariest phase, I think the US is at a crossroads.

The conservative viewpoint is that the deficit is huge, and it’s time to cut back. Based on past history, that usually leads to austerity, layoffs, bankruptcies, deflation. Money stops flowing, so it becomes more valuable. Recessions are a good chance for people with money to pick up assets cheap.

The liberal viewpoint is that people are hurting and need financial help. The US can borrow at close to 0% interest. The economy needs stimulating. Stimulus makes things better in the short run, but the debt eventually needs to be paid to those who provided the money. Mostly rich people & foreign governments.

Hopefully there is some middle ground, to keep things stable until vaccines are widely available. Then life can get back to something close to normal. If the money goes into things that create wealth in the long run, then it’s an even better investment.

Unfortunately, this year a lot of money is shifting from places suffering from pandemic (US, Europe, India, Africa) to countries that contained the disease (China and East Asia). It’s too late to do anything about that. Wealth is also shifting upwards to rich people, since they are relatively less affected.

Meanwhile, I’m keeping busy, trying to stay middle class. Goldenseal Pro is inching along. I think progress will speed up soon.

Dennis Kolva
Programming Director

Author: Dennis Kolva

Programming Director for Turtle Creek Software. Design & planning of accounting and estimating software.