The baffling contradictions of the Covid-era economy
The Covid-stricken economy is full of dizzying paradoxes and ironies. More than 400 Guam businesses have blinked out of existence. Yet, more than a thousand new ventures have sprouted. The killer crisis has turned out to be a godsend to many.
Unemployment is widespread. Yet, consumers leave the store shelves empty, keep the take-out phonelines busy and stand in line to get seated for al fresco dining. Home and gardening shops have to keep the shipments coming because a number of Guam residents are in the mood to renovate their homes.
Thanks to half a billion dollars in federal unemployment relief assistance that flooded the island, the one-day millionaires are keeping the local economy alive. The oddly amplified consumerism negates the scenario of apocalyptic desolation painted by economists at the onset of the Covid-19 outbreak.
On the other end of the spectrum, however, are those who did not see drizzle of the windfall from the CARES Act. Not eligible for any of the programs — for whatever reason — they have to double or triple their jobs to make ends meet. To them, the much-touted federal aid is a myth.
The coronavirus pandemic has left tourism high and dry. Yet, the government of Guam is swimming in wealth it has never seen before. “Rainy day” assumes a new meaning when it’s raining money. Spending is GovGuam’s priority and austerity is not in its vocabulary. (What for? There’s a glut of money.) Rather than payless paydays, GovGuam employees relished their paid vacations during the lockdown months.
GovGuam has received approximately $1.6 billion — accounting for 32 percent of the island’s economy— through various forms of Covid-aid grants the CARES Act. Guam is “milking it,” to quote Gov Lou Leon Guerrero, “milking it very hard.”
And more “milk” will flow in 2021. The new coronavirus relief and spending package includes $900 billion in fresh Covid-19 aid funding through September 2021. The unemployed and underemployed will continue receiving PUA and LWA through March 31. GovGuam, of course, anticipates more “milk” as well.
We welcome 2021 with a small dose of optimism now that vaccines are available. But no one can predict how the new year will turn out. Economists are too coy to guess. We are likely to be in this mending episode for a while, hence our reckoning must be tempered.
At any rate, Guam leaders are expected to shift their focus from rescue and recovery to sustainable growth. “Milking” the feds is not an economic strategy; it smacks of shameless complacence. Although it provides economic salvation for Guam, federal relief is not a real industry.
Tourism is not likely to bounce back anytime soon. But the pause provides an opportunity for Guam to reflect and decide what it wants to be as a destination. Incidentally, the Guam Visitors Bureau laments “the estimated net loss of visitor expenditures of $486.2 million and a job loss of over 4,000,” based on its economic impact assessment of the recreational marijuana on Guam’s tourism industry.” It is not clear how the loss estimate was calculated.
The more important question is, how do industry stakeholders really want to rebrand the island when tourists begin planning their trips again? A family and cultural destination? A haven for big spenders? A paradise to get high?
In the meantime, now is the time to materialize “economic diversification,” a phrase so often mouthed off whenever tourism is in trouble but always put away in the drawer of buzzwords till the next crisis comes.
The first step to get Guam moving, according to Republican senators, is to create opportunities for businesses to bring back their employees and allow the spurring of the economy. They started with proposals to help reduce busines overhead expenditures, particularly government obligations. To this end, the 35th Guam Legislature overrode the governor’s veto of Sen. James Moylan’s bill to cut the LLC filing fee by 75 percent— from $1,000 to $250. This is a good start.
And with overflowing funds in its coffer, it is time for the administration to revisit the recurring proposal to cut the business privilege tax from 5 percent to 4 percent, and consider the Republicans’ soon-to-be filed proposal to raise the gross threshold of the limited BPT exemptions from $250,000 to whatever may be reasonable.
Economic recovery requires creative and bold economic policy for years ahead. When the federal relief funds run out, we will see our economic realities more clearly— the way we normally understand economics, without ironies and paradoxes. Without jobs, we have no money. Without consumer spending, businesses won’t thrive. Without domestic revenue, GovGuam operates on a deficit.
It’s difficult to predict how the pandemic will end and we can only guess what people in power will do. But we will remember those who rise to the occasion and those who fail us. History will be the judge.