The Social Responsibility of Business During the Coronavirus (Stay Open!)

I am working from home. My college students, home. The rest of my family, home. The bar, stocked. The meat locker, filled. The smoker, burning. The limes trees, growing. The toilet paper roll, empty. This is a #backyard #staycation: family, cocktails, BBQ… Sounds great, right? WRONG.

I recently wrote about the social responsibility of business during the energy transition. I am going to add a new criterion. The social responsibility of business during the coronavirus is to STAY OPEN. And the government has no right to stop you!

In Texas, the larger cities have been locked down. Businesses have been “forced” to close their doors. The grocery stores have limited their hours and limited the number of people allowed to shop. Also, most products that we take for granted are out of stock. On Monday, the local grocery store did not open on time, reserved the first hour for elderly citizens, and had a line of over 100 people waiting to go in. According to my wife, many — like her — decided to go home and try again later.

What is going on here?

After watching Outbreak with Dustin Hoffman to get my bearings, I wanted to offer a few thoughts about how we are witnessing a massive constitutional injustice against our friends, families, neighbors, and colleagues that own and/or work for small businesses. Based upon irrational fear, skewed data, and a herd mentality, the U.S. governments (federal, state, and local) have completely taken away our constitutional rights to life, liberty, and property.

Do NOT Trust the Data Blindly

People trust data. Numbers seem real. Charts have charismatic power. People believe what can be quantified. But data do not always accurately reflect the state of the world… Sometimes quantification actually obscures as much as it reveals.

I agree with the author. And anecdotally, the actual number of cases of the coronavirus is probably a lot larger than can be reported. In Houston alone, most of the testing facilities were not open for the first few weeks and did not test all willing participants. In other words, the death rate on both an actual and percentage basis may be equivalent to other illnesses, like Influenza, that do not require a global shut down of the economy. Do not crucify me — let’s actually be data-driven.

My Coronavirus data source, as of Monday, March 23 at 18:30, can be found here. Regardless of whether you believe this source or another, the CDC estimates that Influenza has killed more than 16,000 people this season. This matches the total coronavirus death rate across the globe at the time I wrote this. The CDC estimates that more than 59,000 died in the U.S. from the flu last season.

Wait, wait, wait… Without social distancing and flattening the curve, the death rate could have been much higher. Right?

In an actual review of the numbers, it seems that the coronavirus is not (and will not be) as dangerous as other more serious illnesses that kill many more people: eating a Big Mac (heart disease killed over 655,000 Americans in 2018), cancer (which killed almost 600,000), accidents (drug overdoses, car wrecks, etc.), chronic lower respiratory diseases, strokes, Alzheimer’s, diabetes, and so on. Is it intellectually dishonest to compare?

I am not here to challenge the danger of the coronavirus nor how you, as a citizen/employer/friend/family, decide to respond to it. I am challenging how this crisis was highjacked by people elected by us, paid for by us, and work for us.

I make investment decisions based upon expected risk-adjusted returns. The coronavirus is a risk. The risk was blown way out of proportion. The actions taken by the myriad governments in which we pay taxes have already drastically harmed more people than those suffering through flu-like symptoms. (In full disclosure, it is my belief that I already had the virus (or something similar) and recovered from it after returning from a trip to China in late December. My symptoms? A bad cough that was unlike anything I had prior, even as an ultra runner that suffered from frequent runner’s cough, a fever, lethargy, and, in a few cases, difficulty breathing). And yes, I have also suffered from runner’s pneumonia. This thing I carried into the US and could not shake until late January was different and not fun. But should I be forced to stay home and/or close my business?

(On Monday) The fallout from the coronavirus outbreak is expected to have a significant negative impact on U.S. economic prospects, with predictions emerging for losses of millions of jobs this year and a drop in economic output of as much as $1.5 trillion. A recession is now all but certain, according to a Wall Street Journal survey of 34 economists, which projects a downturn that would last months at least, and would in some ways rival—and possibly even surpass—the severity of the 2007-09 slump triggered by the housing collapse and subprime loan debacle, Josh Mitchell and Josh Zumbrun report.

(Today) A Record 3.28 Million File for U.S. Jobless Benefits…

Does the current reaction of our government(s) justify the total disruption of our nation’s and the global economy? As a “free society”, it is my right to keep a social distance and stay home (my current strategy). If I am well and am not infringing upon your rights, I should be free to open my business and/or visit a business. And it is your right to stay away. While we all have to answer to our own moral compass, we are currently not free to exercise our right to life, liberty, and property.

The Freest Country in the World Has Reverted to Socialism

First of all, look out the window and then take a look at these photos that were taken at the tail end of the failed socialist state known as the U.S.S.R. Does it ring a bell? Most of us are waiting in long lines, whether in person or virtually (Amazon Prime suspended their guaranteed delivery times), to get essentials to live. I did, in fact, go to the grocery store yesterday…police were there to ensure compliance of the social distancing orders, I was unable to grab my own cart and was directed by an employee to take hers, there were empty shelves everywhere and limited inventory, I was instructed that I could only purchase up to 2 milk containers, and I was told where to stand in order to checkout. This is extreme and unnecessary.

The government(s) representing these United States — including local, state, and federal — have unilaterally chosen to ignore the freedoms outlined in the constitution to protect its citizens… from themselves. The Netherlands has just banned gathering of more than three people until June 1. Also, it will give mayors the power to fine people who break the rules – including those who do not keep 1.5 meters from one another. Are we far behind?

On a federal level, the President issued guidelines on a ’15 days to slow the spread’ idea. His follow-up was a recommendation to “listen and follow the directions of your state and local authorities.” Okay, not an order, but influential.

Treading on…

• In my home away from home state of Massachusetts, Governor Charlie Baker ordered all non-essential businesses to cease in-person operations. At the same time, he directed the Department of Public Health to issue a two-week ‘stay at home’ advisory.
• In Texas, Governor Greg Abbott issued an executive order, closing bars, restaurants, and schools… and depriving businesses of the ability to conduct critical commerce to keep people employed and to stay afloat.
  • On a local level, Dallas has ordered a shelter-in-place order.
  • And in H-town, Harris County has issued a “Stay Home, Work Safe” ORDER.
  • And League City just passed an ordinance that allows police to fine residents who violate stay-at-home order.

Unlike you and me, the government entities mentioned above have no penalty for limiting and removing your life, liberty, and property. Our government has no Skin in the Game. Nor do they have an incentive to change the rules (unless you “stay open”). In fact, they now have an incentive to bail you out so that you thank them for both saving you from a virus that is less dangerous than eating another enchilada AND bailing you out using your own money to try to get you back on your feet. Let me explain…

The government does not have immediate accountability. We can vote individuals out of office during the election cycle. However, we cannot unwind these proclamations as a whole since the damage is already done and irreversible: lost jobs (a record 3.28M people in the U.S. applied for unemployment benefits last week), businesses closed, and the government just became more powerful. And there are no corrective provisions that small businesses nor citizens can take to reverse all damage. These government bodies decided to make two large decisions that will have a dramatic impact on most of our lives in the short and long-term. There is nothing we can do about it except… STAY OPEN.

First, many state and local governments have shut down commerce heterogeneously. Article 1, Section 8 of the Constitution states that, “The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;”

“Shall be uniform” is the key phrase here.

Many small businesses (retail businesses like restaurants + hotels, especially) have been unable to conduct regular business and have been asked to close their doors. This, in effect, is an unfair tax against businesses that rely upon consumers for in-person transactions. And these small businesses are too small and allowed to fail. It seems that you really have to be large in order to be bailed out (and is this a good idea anyway?). However, ponder this: “Over 99 percent of America’s 28.7 million firms are small businesses. The vast majority (88 percent) of employer firms have fewer than 20 employees. And small businesses accounted for over half of net job creation in 2014”.  Over 50% of net job creation (in other words, they create a majority of the new jobs in this country)! And this has been the trend for over 50 years. Small businesses are important; unfortunately, they are too small to have a voice and thus easy to pick on and punish.

Yes, this is a big deal for the largest and most unprotected business class that is responsible for our livelihood and economy. The government just created the largest tax on small businesses unfairly.

Second, these same governments have already taxed you since you need myriad permits to operate AND still require you and me to pay our taxes ON TIME.

Since writing this blog, a few things have happened regarding tax deadlines: federal partnership tax returns have all been extended to 9/15. So far there has been no word from the Texas comptroller on any type of Covid-19 tax relief or automatic extension of the 5/15 deadline. In other words, sales taxes are still due on the 20th of the following month. For individuals and corporations the IRS has automatically extended the due dates from 4/15 to 7/15. No federal individual or corporation income tax returns are required to be filed until 7/15. In addition all federal income tax payments that were due 4/15 have now been deferred to 7/15. This includes both 2019 taxes due and 2020 Q1 estimated tax payment. We don’t know about 2020 Q2 estimated tax payments for individuals and corporations which are due 6/15. There is a bill in the Senate that if passed into law will defer the Q2 tax payment as well as Q1 and Q3 payments to 10/15…unfortunately, on a federal level, payroll taxes are due every quarter (no exceptions).

Like most small businesses, even when they cannot generate revenue (due to their doors being closed), they still have to pay expenses. Yes, they can reduce some costs like laying off its people (this is already devastating emotionally and to the US economy). But small businesses cannot stop paying costs like rent and taxes. These governments are not offering any tax relief. Instead, they are discussing rebates or loans, at least at the federal level. My state and local taxes… due. And if I do not pay them… they can seize my property. Due process?

The current proposed stimulus package being negotiated up on Capitol Hill is another tax (being paid for by you and me) to bail us out from decisions made by the same people who illegally shut us down and our ability to conduct commerce. With friends like this… who needs enemies?

The Rules of Capitalism, Growth, Profitability, and Liquidity Have Turned Into a Death Spiral

If you are an entrepreneur, you already understand the golden triangle: growth, profitability, and liquidity. You build a business or work for one that wants to grow (to generate revenue in increased frequencies and amounts). After successfully proving itself, the goal of the business is to increase profitability (by lowering costs) and liquidity (by generating more cash).

Unlike what we are hearing on our favorite financial news network, this is a growth, profitability, and liquidity nightmare.

First, small businesses are unable to grow (in fact, they are unable to actually serve customers or, in some cases, can only do so on a limited basis). As a result, growth is either going down or stopping completely. At the same time, the business still has expenses: employees, rent, taxes. And how does a small business pay its expenses? I used credit cards, but let’s assume a small business has cash. Without any new revenue coming in, cash is flying out the window. The death spiral is only accelerating. No growth, lower profitability, negative liquidity. What happens next? Dreams destroyed.

Yes, but are we healthier because of it? Does the data support people’s livelihoods being destroyed? On an actual numerical basis, absolutely not if you compare this to other diseases and problems. The Great Depression between 1929 and 1933 witnessed the largest increase in suicides, reaching an all-time high in 1932. Unarguably, we are headed for another Great Depression, and the fallout will likely far exceed any physical impacts of the coronavirus.

As a Free Society, What Is the Government’s Legal Right to Deprive Us of Life, Liberty, and Property?

There are two problems with the current status of these government decisions:

1. Stay-at-home orders deprive us of our constitutional right to life and liberty. In the U.S. Constitution Article 1, Section 9, there is an important doctrine known as the writ of Habeus Corpus: “The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.” While you may argue that a pandemic is an invasion of the public safety, let’s table that based upon the data above. In other words, the Writ of Habeas Corpus protects you and me from the government unlawfully imprisoning us. Are we not being ordered to stay home? This same argument applies to the small business owner. Did businesses get the opportunity to make their own risk-adjusted decision to stay open?
2. According to the Cato Handbook for Policymakers, “America’s Founders understood clearly that private property is the foundation not only of prosperity but of freedom itself.” And I agree. The U.S. Constitution has protected our right to property in both the 5th and 14th amendments. The government cannot take away our property. We have “sole dominion” over it. There are cases whereby the government can take away property, but the private citizen must be fairly compensated for it. In our current case, these governments have seized property (removing a business’s ability to generate revenue) without any due process or just compensation. For a good read on the topic, read Cato’s handbook. Otherwise, read the constitution directly and think for yourself. In the case of this Corona Catastrophe, the government is taking property away from small businesses AND forcing them to stay current on their taxes. What an ugly definition of double taxation.

With today’s social media and reach, the idea of a pandemic can create global panic. This panic manifested itself into an opportunity by our governments to usurp our inalienable rights as citizens and property owners. While the virus will move on…but many of us will not. I hope that you will ponder the real impacts of this “pandemic” and how many of our fellow citizens have been irreversibly harmed. The federal government is trying to save us from ourselves with a bailout package (as of 03/25/2020 at 18:27, the stimulus package is 2.5x larger than the 2008 bailout plan and is also being filled pork barrels including: $25M for the Kennedy Center, $350M for Migration and Refugee Assistance,  $100M for NASA, $75M for PBS/NPR, $75M for both the National Endowment of Arts & Humanities…What does any of this have to do with the real people impacted from this situation?). The federal government will not be able to save those that have already lost their jobs, their businesses, their pride, and their dreams.

I have a heart for entrepreneurs, small business owners, employees, families, and friends that all reply upon the great American dream…now being destroyed.

If you are a small business, stay open and let us know about it.

* For those friends and colleagues that live outside of the U.S. and/or have a good job and