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The Era of New Economics

The sudden plunge in investment accounts, mandatory quarantines, and empty grocery store aisles have struck terror in the hearts and minds of people across the world. Local and international news networks are now laden with the latest updates about the coronavirus, ranging from the rising death toll to its effects on global economies.

This sudden global emergency has caused the evaluation of conventional economics systems, whilst policymakers are scrambling to mitigate the damaging effects of interruption. This unforeseen pause has inevitably given birth to the new era of economics. The previously trusted methods of managing the economy are slowly becoming obsolete because of the volatile variable of technology. In this new age of uncertainty, the time has come to assess the impact of the break-down of the manufacturing, supply, and labor chain.

The Labor Chain

To slow the spread of the coronavirus, social distancing has been recommended by public health officials. Although these precautions are necessary to stop the spread of respiratory disease, many people are not afforded the privilege to follow this precaution. During this pandemic, many workers are either working from home, have been laid-off, or are on the frontlines working through the crisis. The frontline workers include doctors, couriers, farmers, caregivers, grocery store workers, and the fulfillment workers. In either situation, workers are possibly being exposed to the virus or left without health insurance, which has trickle-down-effect on the demand side of economies. This is because as people get sick, consumption shrinks, and this cycle has contributed to a halt in production possibilities.

According to the World Bank, human capital is the most important component of wealth globally. Diseases tend to have harmful ramifications on human capital, which ultimately decreases labor force participation and GDP. Humans have always been thought to be the foundation of the supply chain for progression to occur in economies, labor force participation must increase. However, with the advent of technology, specifically artificial intelligence, it is time for decision-makers to rethink optimal labor deployment. To reduce the negative externalities of diseases in the future, automation will begin to replace human labor. Although lessening the effects of the “bullwhip” could reduce panic and shortages, the real question is, will artificial technology be a total substitute or just a complement to human capital?

The Manufacturing Chain

The world’s manufacturers are presently in a somewhat complicated situation because they rely on both the labor force and raw materials to produce products. But surprisingly in some industries, such as food, National Public Radio, describes the situation as, “food producers, though, are operating almost as normal — at least for now.” However, manufacturers are dealing with the beginning of the “bullwhip effect”, which is defined as inventory fluctuations due to lack of information, which causes volatility in demand.

Although food suppliers are not currently dealing with the issue of shortages, they are concerned with the burdens of being stuck with differentiated homogenous products. Due to office closures, and schools being shut down, a lot of product orders are either being canceled or sent back. Because offices prefer loose bananas, whereas grocery stores prefer bunches. Along with the problems of inventory, there are also concerns about the labor force. A great majority of agricultural workers in the United States are immigrants on temporary H2-A visas, but the United States has suspended these visas indefinitely. Lastly, these workers risk their health coming to work because of the shared buses, shared housing, and lines for visas. National Public Radio further explains that “losing an entire 30-person work crew overnight will be extremely disruptive.” In these dire times, collapses in trade could result in catastrophic circumstances from closed borders.

The Supply Chain

Most modern supply chains curated by well-established companies are built to counter the effects of supply shocks, such as factory fires or bad crop yields. The goal of supply chains is to meet consumer demands in a timely fashion through the strategic execution of logistics, management, and processes. However, the healthcare supply chain can be seen being broken down as the coronavirus patients exceed the maximum capacity of hospitals. According to BusinessWeek, the United States has over 95,000 intensive care unit beds, but equipment to treat patents all face potential for shortages.

This is not only impacting healthcare, but automobile production companies such as Tesla have completely halted their output. This is primarily due to their dependence on China for steel and aluminum. Logistics consists of transportation and operations, and all of these are experiencing interruptions because the core of manufacturing most products in the Western world is dependent upon them. Suppliers and distributors are currently in the dilemma of not wanting to be stuck with lots of supply and ensuring they will cash in on major profits. The time is now to put retailers on allocation to prevent panic buying and minimizing the bullwhip effect

Some may call it “New World Order”, but the fact remains that the plug on the previous era of economics has been drastically pulled by the global pandemic, the coronavirus. This has caused us to assess the way we live, work, play, and overall structure of our lives. As the world continues to watch the new era of economics unfold before their eyes, it is now time to acknowledge that in these times now is what separates the good from the great. Every tragedy brings upon new industries and businesses to flourish. Every new crisis comes with a new mission. Now, is the time we all must ask ourselves, “How can I do my part, as a citizen of the world, to prevent this from happening again?”, “What will be my impact in this new era of economics?”, and “Can a robot replace me?”

Guyesha Blackshear
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