The latest coronavirus measures are inconvenient for everyone, but a complete disaster for the hospitality sector, events, and the performing arts. Naturally, emotions are running high. Within the government, because making policy during a crisis like this is no easy task. You can never get it completely right. And among restaurant owners, event organizers, and venues, actors, musicians, and related freelancers, because no visitors means no revenue. At Stoic, however, we prefer not to be guided too much by emotions. In fact, a stoic perspective can help us find a solution for those affected by the coronavirus pandemic.
The hospitality sector (€23.5 billion), events (€7.5 billion), and performing arts (€5 billion) together generated €36 billion in revenue last year. Suppose our government takes a strict measure and imposes a total lockdown on all these sectors for three months. That would be a disaster for the businesses and employees involved. But imagine the government fully compensates the lost revenue, based on 2019 figures. That would amount to €9 billion (3/12 × €36 billion). We may be overlooking some facts, or there may be other sectors that also deserve compensation, so for simplicity let’s set the compensation amount at €18 billion. Such a massive figure may sound unrealistic and therefore unachievable. But if we look at the facts, it may actually be possible.
The current economy is in a situation that may actually make such a compensation scheme feasible. For years, savers who want to park their money without too much risk of price fluctuations have been buying loans from highly creditworthy governments, in other words, government bonds. That’s considered a safe place for your money. The interest they receive on these bonds is currently, somewhat strangely, 0% or even negative. The reasons for this are complex and we will leave them aside for now. Still, people continue to invest in these bonds, because they are seen as much safer than leaving money in a savings account or literally keeping it under the mattress. As we wrote in an earlier blog about bonds, they are about return of the money rather than return on the money. In other words, bonds ensure that your money will still be there in a number of years, which is why they remain attractive, even when interest rates are extremely low.
This low or even negative interest rate on government bonds offers governments a unique opportunity to borrow money now at very low cost and use it to prevent victims of the current coronavirus crisis from going bankrupt. The government can then, under the motto “together against corona,” spread the repayment of this loan over the next 30 years across both the current and future generations.
Why would the Dutch government take on such debt? As mentioned, because it is cheaper than ever to borrow. Moreover, part of the debt flows back into the treasury, since taxes can still be collected on this “artificial revenue.” As a result, the actual damage will likely be lower than €18 billion. In the current situation, it is even questionable whether businesses and individuals in the affected sectors are able to meet their tax obligations at all.
But more importantly, this approach simply creates clarity for businesses in the affected sectors. They no longer have to twist themselves into knots and can simply close. Full stop. For the rest of the population, it also becomes clear: if we collectively comply with the coronavirus measures, the affected sectors can reopen and we can once again enjoy going to a café, the theater, and so on. The sense of calm this creates for many people will likely save a significant amount in future healthcare costs, as medical science shows that stress is a major factor in the development of various illnesses.
And as a final thought, we could appeal to people who are forced to stay at home by asking them to volunteer, for example in contact tracing. People from the hospitality, events, and performing arts sectors are generally above average when it comes to human interaction and are therefore well suited for this. This way, they have the opportunity to spend their available time in a meaningful way, while also supporting healthcare institutions.
What do you think?
