A second shock comes from seeing government shut down a large segment of the economy. I guess I knew that government could do such a thing but dismissed it as a meritless concept. In reality, this action should open our eyes as to who controls what in the business sector. We briefly explore the business control structure in this post.
I think most mainstream economic thinking about business is done from a micro-ownership perspective. Figure 1A represents this structure. The owner of a business takes all the factors of production into consideration and makes go/no-go decisions. Government (appearing here in the guise of taxes) is just one factor among many, albeit a factor appearing on many levels (not shown). Despite a multi-level appearance, government (to the micro-owner/decision maker) is just a cost of doing business.
|Figure 1. The perceived business control structure depends upon whether a micro-economic or macroeconomic perspective is most appropriate.|
The same thing is true of any debt structure that might be in place. To the business owner/manager, debt and debt administration becomes nothing more than a cost of doing business.
This coronavirus shock has pointed out a more serious possibility of government control (and debt)---the possibility that government could decide (for reasons important to government) to seemingly arbitrarily shut down a business abruptly. This is an ownership action completely beyond owner/management control. Government has been revealed as having more control than normally assumed.
Turning to the increased role of debt, abrupt business shutdown was probably not contemplated when a debt structure (if any) was put in place. This coronavirus response shockingly brought that oversight to forefront. Suddenly, small businesses and large were faced with massive drops in revenue, bring debt repayment into question. Small business is often tasked by lenders to have key person life insurance policies but what happened in virus response dwarfs key person losses. Entire business sectors face restructuring due to now-apparent excessive leverage.
It seems to me that our collective eyes have been opened to the real control structure that is deeply in place in our macro economy without most economist paying much attention. Figure 1B shows the control chain revealed in the wake of coronavirus response. Government is a the top of the control structure, followed by lenders (if any), followed by the nominal owner/manager.
Our eyes have just begun to open to this dual structure. Some lessons learned so far (some subtle, some suspected):
1. Lenders are taking a position in the success of the business
The banker's dilemma: Failure of a small loan is the borrower's problem. Failure of a large loan is the bank's problem.2. Owner/manager's task is to tease diverse components into a functioning system.
Macroeconomic models have been tasked with problem of modeling money behavior. The more appropriate task may be to model human behavior.3. Easy money leads to overbuilding industrial capacity.
We point to the crude oil supply industry as a prime example.4. Classic American economic models seem to have been micro economic based---with diffuse, strong ownership control. The current coronavirus response has revealed an economic model with government ownership holding concentrated (singular) control.
5. One monetary response of governments in industrialized nations world wide has been to advance 'stimulus'. This stimulus is in the form of a flood of newly created money flowing into the private sector. The effect is parallel to efforts of private business to pay employees and stimulate sales by offering gift certificates. I described the parallels between money and gift certificates previously. 
This coronavirus response event is only about five months old as this is written (5/2/2020). The macroeconomic waves are just beginning.
 "MMT Style Economic Distortions" and "Relief Money Doesn't Just Disappear!"
 As I point out the parallels of money and gift certificates to friends (few actually listen), I mostly get a blank stare. It makes sense to me but not to them. I think an easier case can be made by comparing money to stock-in-private-entities. Companies routinely pay employees with stock in special circumstances. Both gift certificates and company stock are defined entitlements to entity assets.
(c) Roger Sparks 2020
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