The response to the virus has added a new mechanism of capital consumption to the many we have documented over the years. Businesses are shut down, yet they continue to incur expenses. There is a popular misconception out there that this is merely a paper loss. One can almost picture a neutron bomb that somehow wipes out only paper, leaving all the physical assets and plant unscathed. It’s a pleasant fantasy. And it’s quite a popular one—not only amongst all the usual suspects, but even an Austrian school economist of our acquaintance asserted it.
As an aside, this illustrates that, too often, economists are unfamiliar with business. The economist looks at a closed restaurant and thinks there’s no reason why this restaurant can’t be mothballed for a day, a week, a month, or a year. The owner of the restaurant would object that he’s still paying certain expenses, even if he’s laid off all of his staff. And the economist retorts, “That’s just paper!”