Blog Post

By: James Wood

Note: The opinions expressed are those of the author alone and do not reflect an institutional position of the Gardner Institute. We hope the opinions shared contribute to the marketplace of ideas and help people as they formulate their own INFORMED DECISIONS™.

Mar 13, 2020 – The financial market turmoil and daily life disruptions caused by the COVID-19 virus seem extraordinary.  Other flu pandemics, at least to my memory, did not involve empty grocery store shelves, cancellation of an NBA season, travel bans, and quarantines of cities and, in some cases, country lock-downs.  That’s to name a few of the disruptions.

In no way do I mean to minimize the threat of the virus or precautions set out by the Centers for Disease Control.  Social distancing seems like a wise strategy.  But I question stocking-up on bottled water.  It reminds me of a phrase from one of the 20^th Century’s most celebrated economist, John Maynard Keynes.  In his monumental work, The General Theory of Employment, Interest, and Money Keynes notes, “there is the instability (economic) due to the characteristic of human nature…a result of animal spirits”.  Keynes’ use of the phrase referred to the gloom of the Great Depression, the negative feedback loop forcing lower and lower levels of economic activity.  In Keynes’ view, animal spirits—greed, corruption, speculation, fear, and confidence—are the main causes of economic fluctuations. Indeed, today, fear and loss of confidence are powerful forces governing economic behavior.  In a recent Washington Post Op-Ed, former U.S. Treasury Secretary, Henry M. Paulson Jr. stated: “Fear is as big an enemy as the virus itself”.  And of course, the famous FDR quote from his 1933 inaugural address is apropos today: “The only thing we have to fear is fear itself.”

The public health crisis from COVID-19 has shaken consumer and business confidence, much like the onset of the financial crisis in 2008. But, then the global financial system was collapsing, and financial markets were freezing-up; the financial foundations of capitalist countries were at grave risk.  Today, the U.S. economy has solid fundamentals; employment growth, increasing wages, and low rates of inflation and unemployment.  The public health crisis will likely run its course within a year or so as a vaccine is deployed by mid-2021.  However, the consumer and market reaction to the COVID-19 pandemic will temporarily dampen employment and wage growth; solid economic fundamentals, however, will still be in place to support the recovery.  Remember: it took five years for the job market to recover from the Great Recession and seven years for housing prices to recover.  The negative economic consequences from the COVID-19 Pandemic will be much smaller and the economic recovery much quicker.

Utah’s job growth, one year after an influenza pandemic, shows little lingering negative economic impacts.  Job growth, the year after the Asian Flu Pandemic of 1957-1958, was a strong 4.6%.  Following the Hong Kung Flu Pandemic of 1968-1969, job growth resumed at 2.5%, and after the Swine Flu Pandemic of 2009-2010, job growth hit 2.3%. A similar outcome is very likely for the COVID-19 Pandemic.

James Wood is the Ivory-Boyer Senior Fellow at the Kem C. Gardner Policy Institute.