Here is how I think about economic prospects for the next few years.
One driver will be fear of the virus. Fear will be short-lived if the virus goes away this summer and does not come back, or if there is a vaccine, or if a treatment protocol makes it much less lethal in vulnerable populations. But if the virus comes back in the fall and still threatens lives, then fear of the virus will affect activities for a long time.
Another driver will be what we might call business shakeout. Some industries have been ripe for transformation by the Internet since before the virus: brick-and-mortar retail; higher education; high-cost health care. To what extent will the virus accelerate this shakeout?
Put these possibilities into a matrix.
light shakeout | heavy shakeout | |
---|---|---|
fear fades | Europe’s hope | stock market’s hope |
fear lasts | stagnation | unrest |
Europe has a low tolerance for shakeouts. Its policies are geared toward that. European governments tend to channel transfer payments through employers. So you have zombie companies paying zombie workers.
The stock market is expecting a lot of shakeout. The tech leaders are worth more now than they were before the virus. But if virus fears persist, economic activity overall will take a long time to recover, and the tech giants will be getting a larger share of a small pie. The stock market must be expecting the fear to fade even as the big shakeout takes place.
I think that there is at least a 25 percent chance that virus fears persist and continue to curtail economic activity. In that case, the European approach, which the U.S. also may attempt, will be to try to freeze the economy in place by subsidizing legacy businesses. The result will be stagnation. But if governments do not have the money or the capability to keep zombie businesses going in a high-fear environment, then the shakeout will destroy the way of life for many households. That is a recipe for a lot of social turmoil.
Sam Altman is Not a Blithering Idiot is worth rereading in this light. What is better – have zombie companies keep paying zombie employees for zombie labor, or start implementing technology restrictions (and some judicious trust-busting) so that instead of zombie companies paying zombie employees for zombie labor there will be real companies paying real employees for real labor, and we all have wooden toys instead of cheap plastic crap and pay more for food that not only looks like food but actually tastes like it too.
What virus?
“Fear will be short-lived if the virus goes away this summer and does not come back…”
Absolutely
“…or if there is a vaccine, or if a treatment protocol makes it much less lethal in vulnerable populations.”
Even if everything falls in place perfectly, we will go through the fall and much of the winter before any such interventions are in place to protect us.
And let’s not forget we are throwing a US presidential election into the mix which further increases uncertainty.
Some industries have been ripe for transformation by the Internet since before the virus: … high-cost health care.
I’m not sure if this has any significance. Since the pandemic began, my wife has been having nutrition appointments via phone from our health plan. She was told today that they would no longer pay for phone consults; she must now download their video app for her phone. We’re not sure why. Maybe it has to do with tracking the consults. Maybe a simple phone call seems too cheap.
One of the elephants in the room is the huge hospitality industry, including bars, restaurants, hotels, airlines, and all travel-tourist souvenir shops and Uber-like services.
I believe this is the largest portion of American unemployment. I believe that hospitality overall is the largest employer in the world.
This sector has “sopped up” unskilled labor for the last several decades. If social distancing kills off this sector, I think that increases the chance for turmoil.
This is just as dramatic as the shrinkage of agricultural workers in the Depression. I hope there is some way to make the transition less brutal this time.
China invading Taiwan will overshadow all that.