It’s painful to pass the Groveland Tap in St. Paul and see no lights on.
It’s a neighborhood place, not the kind of restaurant listed in the guides to fancy spots. Yet it’s the best kind of neighborhood place, with great burgers, a beer for any taste and a staff of genuine pros.
The tables, chairs and bar taps are all still there, and it’s owned by one of the region’s top operators, Blue Plate Restaurant Co. There is every reason to think it comes back when the COVID-19 disease slackens, and people can go out again.
That restaurant is a perfect way to illustrate something for both business leaders and policymakers to heed as this brutal downturn related to the COVID-19 pandemic begins. Think about places like this as temporarily unused productive capacity.
The recovery really will be stronger, households and businesses better off, if productive capacity stays around.
The economist Louis Johnston, professor at the College of St. Benedict and St. John’s University, called a neighborhood restaurant a good example of the term productive capacity of the economy.
A restaurant, he explained, is a collection of capital — like the building and equipment inside, the skilled workforce, recipes and how work gets done — and raw materials, like the burgers and beer.
“That’s what the economy’s potential output is too,” he said. “We want to keep it intact so that when demand returns, it’s ready to go.”
What’s happened so far with the COVID-19 pandemic is uncharted territory, given all the jobs lost just last week. It’s breathtaking, really, what has happened so fast.
Business owners whom my colleagues interviewed said that, after a fine start to the year, business did not just slow down last week. That would be hard, but manageable. Instead, business stopped.
So while we don’t yet know the extent of this economic downturn, even the older millennials remember what can happen when the economy goes backward.
Idled equipment may not be well maintained and later ends up being scrapped. Suites and storefronts in buildings get vacated, fixtures and equipment scrapped or auctioned off.
Infrastructure spending likely declines, too. What we depend on to move people, information and goods around could start to break down, while things like a project to loosen up a freeway bottleneck get put off.
An even bigger problem is how workers get sent to the sidelines, then maybe stay there. Not only is it terrible for them and their families, it’s bad for the broader economy, too. They get by as best they can, and meanwhile their skills start to slip.
The recipes, to use Johnston’s term, might get lost.
One goal of policymakers should be to maintain as much productive capacity as we can, particularly because there’s so much we don’t know yet about the course of the COVID-19 disease and its effect on economic activity.
This idea didn’t seem to a big part of the thinking behind a promising idea, talked about last week by Neel Kashkari of the Federal Reserve Bank of Minneapolis, to provide forgivable loans to businesses. Yet it’s the kind of proposal that makes so much sense for preserving capacity.
The goal seemed to be to keep payroll dollars flowing to employees, funding a lot of consumer demand. This kind of forgivable loan would mean businesses could keep everybody on the payroll and not be saddled with a liability they will later have to repay.
Workers who keep their jobs, even on a reduced schedule, will be ready to serve customers and ship orders when demand starts to pick back up.
To some extent, keeping workers generally happens in a recession anyway, as businesses that can afford it will hang on to more of them than if they were just being ruthlessly efficient.
One reason is that it’s not easy to adjust the number of workers, but the bigger point is that workers are part of the capital of the business. Their skills and know-how are valuable and not easily replaced. Business owners know they need to try to preserve all of their capital, not just the equipment and buildings.
One aspect of capacity Johnston said he worries about is the durability of effective supply chains, those sometimes vast networks of suppliers, sub-suppliers, shippers and distributors that produce things sold here or maybe just provide some parts and materials.
“If the supply chains can just snap back into place, that would be fine, but I’m not convinced that they can or they will,” Johnston said, as they have been battered first by the trade battles of the last couple of years and then by the economic effects of the global pandemic.
Yet before our conversation last week wound down, Johnston made another point about the capacity of the economy during downturns that could be considered hopeful: innovation.
Economist Alexander Field of Santa Clara University in California, he said, has written extensively about the productivity gains of the 1930s, including how much new technology was adopted.
It was the era of the Great Depression, of course. Times were hard, money was very tight and yet people still were trying to deploy better ways to get their work done.
The productivity of individual workers grew by a lot, in industry after industry, from automotive manufacturing to power utilities.
This was the period, Johnston said, when railroads began unhooking their coal-fired train engines and adapting new diesel engines. They had less incentive to do that before the economy cratered, as business had been good and everybody was already really busy. Why change?
His point is that big disruptions bust open an opportunity for new ways of doing things, and of course often the necessity to innovate, as well. The current health crisis that’s thrown a wrench into the economy has already upset the normal way of working in a lot of industries. We can already see improvisation taking place. And, while many of these ideas being tried aren’t going to stick around, some might.
The things we invent or learn how to do during this period, to take care of ourselves and take care of our customers, might be just the kind of innovations that help pull us out of the downturn.