If you have something that has never happened before, how can you honestly think the same rationale based on historic events can be used to predict what will occur going forward?
We have never shutdown the entire economy before. No one knows what will happen.
We have never shutdown the entire economy before. No one knows what will happen.
You can't use past events to predict the unpredictable. How the economy responded to previous recessions/depressions will not get you the needed information to predict how it will respond to a mandated shutdown. Demand didn't slow, it stopped. Workers weren't laid-off; they were
...ordered to stay home. Unemployment insurance isn't the same. Business loans like the PPP aren't the same. The direct deposit of stimulus checks are not the same. Businesses aren't responding to business conditions but to health conditions. The FED is acting different.
Sure, you can make some guesses. For instance, those laid-off will cut back on spending until they return to work but you can't expect that "return to work cycle" to be the same as in previous periods because the lay-offs weren't due to business conditions but government mandates
Even the terms V-shape and U-shape recoveries are pretty meaningless. Here is a thought, since the economic issues were brought about due to an illness maybe it might be better to think of the economy in terms of a health recovery instead of an economic recovery?
1. You get really sick (black swan event)
2. You are admitted into the hospital(shutdown)
3. Parts of your body still function but parts are on machine(lungs/heart)
4. You get better/get off machines (hopefully)
5. You start to go through rehab(re-opening the economy)
2. You are admitted into the hospital(shutdown)
3. Parts of your body still function but parts are on machine(lungs/heart)
4. You get better/get off machines (hopefully)
5. You start to go through rehab(re-opening the economy)
6. You gain more use of your body(phase one re-opening)
7. Your health continues to improve(hopefully)
8. You are released from hospital but still not fully healthy like before(phase 2 and 3)
9. You are fully recovered and in good health.
7. Your health continues to improve(hopefully)
8. You are released from hospital but still not fully healthy like before(phase 2 and 3)
9. You are fully recovered and in good health.
How long it takes to go through these steps will depend on several things. How healthy were you before you got sick(economy before event)? Was there secondary infections that came to visit while your body was incapacitated(deflation/inflation/unemployment/etc)?
What type of healthcare do you have(government fiscal stimulus/FED monetary stimulus)? Your diet and appetite(consumer/business spending)? Exercise(freedom of movement and engaging in economic activity) Home care(liquidity/credit)?
So, if you were healthy before your illness, had little secondary infections, weren't in intense stress for very long, have good health insurance and home care, are able to exercise and get proper nutrition your health should bounce back fairly quickly.
If on the other hand, you were in poor health before your illness, had massive secondary infections, were in a coma for a long time, had crappy insurance, live by yourself, eat nothing but fast food and sit on the couch; you will probably not recover very fast.
Now, out of those two examples which describes the economy before and during the event better? Which areas should we work on to improve the health outcome? Which areas should we change to get back to full health quickly?
In the grand scheme of things, which seems more likely a fast or slow recovery? From there you can probably start plugging in other variables to fine tune/disprove your assumptions & come up with a reasonable close approximation on what is going to happen in the next 3-6 months.
But you also could just plug in numbers and think this economic event will behave just like all the others even though those basically have nothing in common with this event. You choice. As always think as you will.
