The coronavirus pandemic, also known as Covid-19 and SARS-CoV-2, is sweeping around the world. There are epicenters like New York City, Milan, and Wuhan.
Yet the biggest impacts will be on the rich, both in economic terms and health terms. Why is this?
The Rich are Social Distancing
Studies have shown that the wealthy are staying at home. Some are working from home. Some are leaving town. People of means are self-isolating by staying indoors, ordering grocery delivery, and thinking that’ll keep them safe. But if anything, this is the reason they’re at higher risk.
Essential workers, people delivering the groceries, working the bus systems, and manning the grocery stores, tend to be lower income folks.
Which makes intuitive sense, since not many hedge fund millionaires are working at the H Mart during the pandemic.
The Curve and Impacts to Health
Everyone has seen charts of the curve.
The people getting sick earlier tend to be the lower income folks who are still working. Bus drivers, food delivery people, gas station attendants. At the earlier parts of the curve, the medical system isn’t overwhelmed. Those who need ventilators, have ventilators. Those who need intubation experts at the hospital still have them. Those who need ICU beds, still have them available. However as the disease spreads, when rich people get ill later there will be no beds left. The doctors who were able to treat patients are overwhelmed or sick themselves (due to the lag time). The rich won’t be able to get medical care because their sickness is delayed to the higher parts of the curve.
The poor are getting sick at the early parts of the curve, under the critical capacity constraint. The rich are getting sick later, when hospitals are already overwhelmed and therefore many may not able to get treatment. This increases the mortality rate for the rich.
The Wealth Impact
The impact from Covid-19 will be felt all over the economy. There are some sectors harder hit than others like hospitality and travel, but most sectors of the economy are affected. However, the final impact will be very different on the rich vs the poor.
The stock markets are down 30%. Someone with an investment portfolio of $1 million just lost $300k within a month. White collar workers who lose their jobs lose $180k per year, while also hurting their career trajectory. The government isn’t stepping in to cover those stock market losses, and unemployment benefits won’t begin the cover the $180k/year loss in salary.
Yet the government is stepping in for poorer workers. With the coronavirus stimulus bill, unemployment benefits received a flat boost of $600/week. Workers under a certain income bracket get $1200 gift. This mitigates the impact from job losses for the poor, and in some cases pay them more than they would have earned had they kept their jobs. As an example, two workers who lost their jobs. One of them is poor, the other one is rich.
In Alabama, the poor person is making minimum wage at $7/hour or $280/week. They get $275/week regular unemployment benefits plus the $600/week bonus, which translates to $875/week or $22/hour of not working. The rich person making $1000/hour now effectively get $875/week or $22/hour of not working. Notice the difference in impact… the poor worker gets a +200% change in income ($280/week increasing to $875/week due to stimulus bill), while the rich worker gets a -98% decrease in income ($40000/week decreasing to $875/week).
This is before taking the $1200 which only one of them get into account.
Even if everyone got a flat benefit, the rich would still be relatively more negatively affected. If rich people pay $500k in taxes and poor people pay $10k in taxes, everyone getting a cheque for $2k costs the rich more, since they’re financing the bulk of the $2k for all.