I recently read an article on ForeignPolicy.com entitled The Normal Economy Is Never Coming Back. The author Adam Tooze basically predicted an economic collapse like nothing world had ever seen, even exceeding the Great Depression. The article was shared by Patrick Wyman, who is an excellent historian and podcaster. I highly recommend his show Tides of History.
I agree that the “normal economy” is never coming back, but not in a catastrophic way.
My degree is in economics, and I work directly with small businesses as a publisher of community publications, so I am speaking directly with about 6-10 different business owners every day.
My initial take on this article is that the author is finding himself looking at a situation that is so wildly different from anything he’s ever seen before that his usual tools of analysis and understanding are useless. Thus, he is going to the default solution that it will be a disaster.
I believe there are two seemingly contradictory outcomes which will shape the post quarantine economy. Some verticals will spring back due to latent demand. Other parts of our society, culture, and economy will be forever changed.
Looking at the first part, this is a very different crash from any previously for two reasons. First, it was exogenous to the economy. The government hit the pause button on activity. A normal recession is like turning off the faucet and letting the remaining water trickle out of the hose. This is more like kinking the hose. When unkinked, the pressure will have built up causing the water to burst forth.
The second difference is that the government is responding as it never has before. The Great Depression became so serious because Hoover believed that government had no place in people’s lives and didn’t engage in direct stimulus. In this case, the government is injecting an amount of liquidity directly into the economy equal to 6-8 weeks of ordinary economic activity. With the GDP down 25%, this means that the actual economic activity will be 175% of normal with government assistance.
On the other hand, many things will be different, and some of them positive. We have lived with a lot of myths for quite some time. The myth of continuous growth. The myth that everyone should be doing wage work. These myths are causing exponential use of limited resources and damage to the environment.
Things like universal basic income are not only being considered but actually implemented for the first time in American history. Once the seal is broken on the bottle, the possibility of using it again or even as an ongoing policy is very real.
Businesses that “couldn’t possibly” work remotely will have the experience of doing so for months, and that genie certainly doesn’t go back in the bottle. The full potential of video conferencing, virtual work spaces, and remote teams are being explored at scale like never before.
Conversely, the limitations of virtual and remote work and meetings are also being exposed. The trend of avoiding conferences and physical gatherings will reverse as business leaders realize just how much business really was happening at booths, hospitality suites, and in the hotel bar (spoiler: a lot!)
Finally, let’s talk about forced innovation. Many people work at jobs that are not taking full advantage of their skills and underpaying them because they do not believe that there is anything better, and they have been afraid to take the risk inherent in seeking better opportunities. Once stripped of these worthless jobs there is no risk in seeking something better. The worst case has already occurred. People are, out of desperation, finally doing what they should have been doing all along: looking for better opportunities that will pay better and better use their skills for the world.
I am speaking to people every day who are starting new businesses. Right now. Starting new businesses. They are finding better jobs. They are seizing new opportunities. While some categories are shrinking, others are growing to accommodate this new reality.
There are so many variables at play right now that you’d need a PhD in Chaos Theory to begin to predict how it will all play out, but I see so many bright spots in what is happening from speaking to real business owners and real workers, right here, 120 miles from New York City, that I have great confidence that 2021 will find us in a good place.