March 26, 2020
There have been a number of pieces in major news outlets telling us what the recovery will look like from this recession. Most have been pretty negative. The important thing to know about these forecasts is that the people making these forecasts don’t have a clue what they are talking about.
The shape of recovery will depend first and foremost on the extent to which the coronavirus is contained or is treatable, areas in which most of our prognosticators have zero expertise. I can think of a scenario in which we have a very robust recovery.
Suppose that in three months we have developed treatments to the point that the disease is not much more deadly than the standard flu. In that case, we would look to restart the economy while trying to protect the most vulnerable segments of the population.
If this happens, there will be lots of people with money to spend (many are getting full paychecks, plus $1,200 from the government). They have gone three months without going to a restaurant, seeing a movie, or any other form of recreation. There will also be lots of pent-up demand for cars, houses, and many other things. This could lead to quite a burst of spending that could keep the economy going strong for some time. (Look for some inflation, insofar as a poorly designed economic survival package didn’t focus on keeping workers tied to their firms, so that businesses could restart quickly without having to hire and train workers.)
Will this happen? Ask someone who knows something about the virus, not me.
The point is that the course of the recovery will depend on what happens with the progress in containing and/or treating the coronavirus, and anyone who cannot speak authoritatively on that point has no clue what the recovery will look like.