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A Long Time Until the Economic New Normal

sloanreview.mit.edu

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Re: A Long Time Until the Economic New Normal

#11

Post by londons_explore »

coldcode wrote: post #3

While I agree that it will take longer (and wind up different looking) to full recovery, having governments and business plan for the next pandemic will not happen. Short sighted people do not waste time on long term thinking.

> Short sighted people do not waste time on long term thinking.

... unless there is profit to be made!

What financial instruments could be made to give massive payouts in case of a future pandemic? If enough of those instruments existed, there would be financial skin-in-the-game for preventing pandemics.

Re: A Long Time Until the Economic New Normal

#12

Post by bwb »

coldcode wrote: post #3

While I agree that it will take longer (and wind up different looking) to full recovery, having governments and business plan for the next pandemic will not happen. Short sighted people do not waste time on long term thinking.

I'd also point out that planning for "high risk" events like this is not something small to medium size businesses should be doing. Government yes, but I don't expect my mexican restaurant to have a plan in case of a global pandemic :). Just like I don't expect them to hedge pork futures so my pork tamales don't go up 8 cents.

Gov is insurance and I want them to be building resilience into the system. That is done with proper unemployment systems that can help people get back to work, but also are ready to go in cases like this or recessions. The delay to pay people is crazy. The EU and Canadian unemployment systems are designed for this more than the American system and it is showing.

Re: A Long Time Until the Economic New Normal

#13

Post by bwb »

londons_explore wrote: post #11
coldcode wrote: post #3

While I agree that it will take longer (and wind up different looking) to full recovery, having governments and business plan for the next pandemic will not happen. Short sighted people do not waste time on long term thinking.

> Short sighted people do not waste time on long term thinking. ... unless there is profit to be made! What financial instruments could be made to give massive payouts in case of a future pandemic? If enough of those instruments existed, there would be financial skin-in-the-game for preventing pandemics.

Check out pandemic bonds, they aren't working :)

Re: A Long Time Until the Economic New Normal

#14

Post by csomar »

rwmj wrote: post #5
frockington1 wrote: post #2

The articles states as fact there will be negative impacts on long term consumer sentiment and spending without really providing any evidence. Most Americans are about to receive a $1200 check and unemployment benefits that pay more than their job did for the next 6 months. I don't think consumer spending is going anywhere soon.

The markets - after a welcome and long overdue correction - are up a few percent, so people seem to be buying in on the expectation of things getting back to normal. Prices seem to be back to 2016/2017 levels. This doesn't indicate to me that people with money believe we're in for a great depression.

Or the $ doesn't buy as it used to in 2016/2017.

Re: A Long Time Until the Economic New Normal

#15

Post by SpicyLemonZest »

coldcode wrote: post #4
frockington1 wrote: post #2

The articles states as fact there will be negative impacts on long term consumer sentiment and spending without really providing any evidence. Most Americans are about to receive a $1200 check and unemployment benefits that pay more than their job did for the next 6 months. I don't think consumer spending is going anywhere soon.

How many people on a single $1200 check and unemployment will go out and buy a car, a house, a washing machine or visit a Disney park?

Going out and financing a car loan is practically the canonical thing to do with a sudden windfall in the thousands of dollars.

Re: A Long Time Until the Economic New Normal

#16

Post by bwb »

frockington1 wrote: post #2

The articles states as fact there will be negative impacts on long term consumer sentiment and spending without really providing any evidence. Most Americans are about to receive a $1200 check and unemployment benefits that pay more than their job did for the next 6 months. I don't think consumer spending is going anywhere soon.

Just a note, unemployment isn't working, that $600 bucks hasn't been reported received by anyone because they are not sure how to deploy it. I am sure it will come, but it might not be for another 3 to 4 weeks. Which if you have bills and rent you might be in big trouble.

Does anyone have reports of anyone getting it?

None of my friends who were laid off are getting it yet and the states they talked to say they are waiting guidance from the labor department.

Re: A Long Time Until the Economic New Normal

#17

Post by rwmj »

csomar wrote: post #14
rwmj wrote: post #5

Earlier quoted context omitted.

The markets - after a welcome and long overdue correction - are up a few percent, so people seem to be buying in on the expectation of things getting back to normal. Prices seem to be back to 2016/2017 levels. This doesn't indicate to me that people with money believe we're in for a great depression.

Or the $ doesn't buy as it used to in 2016/2017.

Speaking as someone who is paid in £, I can tell you I'd much rather be paid in $, especially since the Brexit vote. You guys don't know how lucky you are.

Re: A Long Time Until the Economic New Normal

#18

Post by londons_explore »

vikramkr wrote: post #10
coldcode wrote: post #3

While I agree that it will take longer (and wind up different looking) to full recovery, having governments and business plan for the next pandemic will not happen. Short sighted people do not waste time on long term thinking.

I also think a lesson people might have learned on the business side is that theres almost no point planning for something like this - how is a small business supposed to have enough cash on hand to make it through something like this? This is just so bad for so many restaurants/small businesses etc that it's not really something you can overcome with some planning if you own a small margin small business

The same is true of a fire in your small restaurant.

Yet people buy insurance for that.

Pandemic insurance could exist, and a massive fund could be built up over many decades to pay out when a pandemic does occur.

It would be expensive though. If a pandemic occurs every 100 years, and cuts revenue to zero for 6 months, that means the average cost is 0.5% of revenue...

Re: A Long Time Until the Economic New Normal

#19

Post by david_w »

From the article: "The first is that it overlooks the negative impacts on consumer sentiment and spending, which are likely to persist for many months, if not years. "

Yeah, right. Citation needed. My to-buy list of pent-up demands grows longer by the hour.

Re: A Long Time Until the Economic New Normal

#20

Post by epistasis »

JackFr wrote: post #9

The points made are fine insofar as they go. At the same time, the current economic situation is, very literally, unprecedented. It has aspects of a war, a natural disaster and a secular recession. Economists should try to estimate its effects, but in this case their predictions need to be taken with an extra large grain of salt.

It's not completely without precedent, in that the 1918 flu pandemic was only a century ago. We don't have a ton of good data, but some researchers are looking at its effects in the US:

https://www.bloomberg.com/news/articles/2020-03-27/pandemic-...

But I do agree 100% with taken current economic estimates with a huge brain of salt, as our economic machine is far different from the past.

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