Barbershop in Logan, Ohio, closed due to COVID-19. Photo by Dan Keck.It is a fact of economic life that when official action disrupts the supply of in-demand goods or services, a black market will arise to meet the demand.
We see this every day in the marketplaces for sex, weapons, drugs and untaxed cigarettes. In places where there are foreign exchange controls, we see it in underground currency exchanges.
And now, thanks to COVID-19, providers of such personal services as haircuts, manicures, tattoo art and personal training in this country (and undoubtedly others) have moved into darkened rooms behind locked doors.
POLITICO took readers behind some of those locked doors in a recent feature by photographer and educator Todd Bigelow of Los Angeles. The piece is a poignant look at some of the pain and desperation – and creativity – resulting from this spring’s pandemic-fighting lockdown of “nonessential” businesses.
It made me realize that there is actually no such thing as a nonessential business. Every business is essential to somebody.
The owner-operators of these businesses are a significant part of the service sector that makes up more than two-thirds of the U.S. economy. Along with some bigger industries such as travel, hospitality and (ironically) health care, service sector businesses were decimated when most of the country was ordered to stay home except for activities deemed essential. These activities often did not include the livelihoods of service workers.
Consumer spending shrank by a record 13.6% in April. Meanwhile household income – thanks to economic stimulus payments and unemployment benefits – actually rose by more than 10%, the Commerce Department reported last week. If you dig deeper into the numbers, you find that in the hardest-hit industries, spending was down by well over half from figures just before the pandemic. But for self-employed providers whose work was effectively outlawed, and who could not collect benefits until federal relief made its way through the pipeline, cash flow dried up as completely as a desert arroyo between thunderstorms.
So, in desperation, honest people became outlaws.
We usually think of underground businesses from the demand side. We picture speak-easies and backroom gambling joints as places where customers go to slake their thirst for whatever it is they can’t get in public. By word of mouth, they find their way to a door with a peephole and whisper “Joe sent me.” We tend to think of the providers on the other side of that door as shady characters: drug dealers, grifters, pimps and goons. Occasionally we imbue them with a touch of glamour, like Rick Blaine in “Casablanca,” or with evil but efficient business logic, like drug lord Omar Navarro in the Netflix series “Ozark.”
Bigelow’s work is a reminder that if you legislate anyone’s livelihood out of existence, there is a good chance they will keep doing whatever it was they were doing, or whatever it is they can do, to make ends meet. This holds for moonshiners in Appalachia, for “gypsy cab” drivers in New York City (the city created a whole category of limited-license cabs to accommodate them), and for dog groomers in a pandemic.
These entrepreneurs, past and present, are not merely protecting their immediate cash flow by keeping their businesses open but under the radar. A big part of the value of any ongoing business is what accountants call “goodwill.” Goodwill is the collection of relationships with customers, employees and vendors that a company can count on. It keeps every business, even a small business, from becoming a perpetual startup.
If a tattoo parlor loses its lease because it can’t pay the rent, it may also lose a lot of the neighborhood customers who patronize it due to its proximity. The same is true for a nail salon. Customers who find that they can color their own hair or have a partner cut it at home may reduce their spending at the barbershop or salon. Lost business can be replaced, of course. But that takes time – time that financially stressed businesses may not have before their owners have to shut down and seek employment elsewhere.
The activity Bigelow documented in Los Angeles undoubtedly reflects similar stories in other parts of the country. It may be part of the reason why the number of new infections in the U.S. has remained relatively constant over the past month, even as the number of COVID-19 fatalities gradually declines. The statistics are still a noisy jumble of inconsistent testing and reporting practices. But it may be that, by trial and error, we are adapting to life with the virus by allowing a certain level of new infections to continue in less vulnerable populations as business activity increases. If the lockdowns we experienced were less extensive than we assumed, it is not surprising that the resulting decline in infections was not as rapid or dramatic as we hoped.
Life finds a way. Jeff Goldblum’s scientist character, Ian Malcolm, utters this phrase in a very different context in Steven Spielberg’s “Jurassic Park.” But the principle holds true in economic life as well. Even in a once-in-a-century pandemic with an unprecedented shutdown of most daily activity, business, like life, finds a way.
Posted by Larry M. Elkin, CPA, CFP®
Barbershop in Logan, Ohio, closed due to COVID-19. Photo by Dan Keck.
It is a fact of economic life that when official action disrupts the supply of in-demand goods or services, a black market will arise to meet the demand.
We see this every day in the marketplaces for sex, weapons, drugs and untaxed cigarettes. In places where there are foreign exchange controls, we see it in underground currency exchanges.
And now, thanks to COVID-19, providers of such personal services as haircuts, manicures, tattoo art and personal training in this country (and undoubtedly others) have moved into darkened rooms behind locked doors.
POLITICO took readers behind some of those locked doors in a recent feature by photographer and educator Todd Bigelow of Los Angeles. The piece is a poignant look at some of the pain and desperation – and creativity – resulting from this spring’s pandemic-fighting lockdown of “nonessential” businesses.
It made me realize that there is actually no such thing as a nonessential business. Every business is essential to somebody.
The owner-operators of these businesses are a significant part of the service sector that makes up more than two-thirds of the U.S. economy. Along with some bigger industries such as travel, hospitality and (ironically) health care, service sector businesses were decimated when most of the country was ordered to stay home except for activities deemed essential. These activities often did not include the livelihoods of service workers.
Consumer spending shrank by a record 13.6% in April. Meanwhile household income – thanks to economic stimulus payments and unemployment benefits – actually rose by more than 10%, the Commerce Department reported last week. If you dig deeper into the numbers, you find that in the hardest-hit industries, spending was down by well over half from figures just before the pandemic. But for self-employed providers whose work was effectively outlawed, and who could not collect benefits until federal relief made its way through the pipeline, cash flow dried up as completely as a desert arroyo between thunderstorms.
So, in desperation, honest people became outlaws.
We usually think of underground businesses from the demand side. We picture speak-easies and backroom gambling joints as places where customers go to slake their thirst for whatever it is they can’t get in public. By word of mouth, they find their way to a door with a peephole and whisper “Joe sent me.” We tend to think of the providers on the other side of that door as shady characters: drug dealers, grifters, pimps and goons. Occasionally we imbue them with a touch of glamour, like Rick Blaine in “Casablanca,” or with evil but efficient business logic, like drug lord Omar Navarro in the Netflix series “Ozark.”
Bigelow’s work is a reminder that if you legislate anyone’s livelihood out of existence, there is a good chance they will keep doing whatever it was they were doing, or whatever it is they can do, to make ends meet. This holds for moonshiners in Appalachia, for “gypsy cab” drivers in New York City (the city created a whole category of limited-license cabs to accommodate them), and for dog groomers in a pandemic.
These entrepreneurs, past and present, are not merely protecting their immediate cash flow by keeping their businesses open but under the radar. A big part of the value of any ongoing business is what accountants call “goodwill.” Goodwill is the collection of relationships with customers, employees and vendors that a company can count on. It keeps every business, even a small business, from becoming a perpetual startup.
If a tattoo parlor loses its lease because it can’t pay the rent, it may also lose a lot of the neighborhood customers who patronize it due to its proximity. The same is true for a nail salon. Customers who find that they can color their own hair or have a partner cut it at home may reduce their spending at the barbershop or salon. Lost business can be replaced, of course. But that takes time – time that financially stressed businesses may not have before their owners have to shut down and seek employment elsewhere.
The activity Bigelow documented in Los Angeles undoubtedly reflects similar stories in other parts of the country. It may be part of the reason why the number of new infections in the U.S. has remained relatively constant over the past month, even as the number of COVID-19 fatalities gradually declines. The statistics are still a noisy jumble of inconsistent testing and reporting practices. But it may be that, by trial and error, we are adapting to life with the virus by allowing a certain level of new infections to continue in less vulnerable populations as business activity increases. If the lockdowns we experienced were less extensive than we assumed, it is not surprising that the resulting decline in infections was not as rapid or dramatic as we hoped.
Life finds a way. Jeff Goldblum’s scientist character, Ian Malcolm, utters this phrase in a very different context in Steven Spielberg’s “Jurassic Park.” But the principle holds true in economic life as well. Even in a once-in-a-century pandemic with an unprecedented shutdown of most daily activity, business, like life, finds a way.
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