CORONAVIRUS AND COMMERCE
By Leo Thomas
Economist Austin Goolsbee recently spoke on NPR, easing fears of a looming recession. He said “Virus economics” are different from regular economics.
He explained, for example, how the 2008 crisis was a direct result of an off-balance economy – not a virus. To-day, by most measures, our economy is well balanced and strong. When a non-economic event – the Coronavirus – causes economic disruption,the long-term outlook depends on how well underlying economic conditions can enable us to weather the storm. Right now, many industries are well-capitalized, homeowners have equity, employment is high, and interest rates are low. The deck is stacked in our favor to pull through relatively well.
Even so, the Coronavirus, coupled with an oil dispute at just the wrong time, sent investors into a tailspin around mid-March. The ups and downs may continue, but once investors are no longer able to resist the low prices, the trajectory will change.
When other investors see that prices are rising, they’ll follow suit. The money people and companies pulled out of the market is right now
sitting in bonds or bank accounts, waiting for the virus to blow over. For
some, a portion of those funds may be needed to cover expenses during reduced company revenue or personal paychecks, but the majority will be available for re-investment when the time comes. Major closures, cancellations, and travel restrictions will have a big short-
term impact on industries like pro sports, tourism, hospitality, travel, and
brick and mortar businesses both large and small. The federal government is stepping in with two weeks of paid leave for qualified workers, as well
as $50 Billion in SBA loans to patch hard-hit businesses through. Loans are
no substitute for business revenue, but they may at least help keep the lights on – and folks employed – until business resumes. The good news is that customers for these businesses will be there after the virus tapers down; all the airline tickets, basketball game seats, and concert tickets that people won’t buy in the short term has nothing to do with the economy. This is what Goolsbee means by Virus Economics. While no one can predict exactly how our economy will play out, underlying conditions are the best predictor we have about any long-term impact. We will no doubt experience a month or two of slowdown, but we are well positioned for recovery once the virus is no longer perceived as a national threat.