What will the post-Coronavirus economy be like?
Two friends recently asked me about how this “recession” would compare to the Great Recession. Prior to my retirement, I worked on Wall Street for twenty years, in various capacities — as investment banker, quant, trader and risk manager. Perhaps this is a good occasion to wear my old hat and do some economic thinking. The comparison of our current economic crisis to previous ones is certainly interesting topic. It is also worthwhile to ponder what the economy will be like when the dust settles.
I expect this Coronavirus-driven crisis to be worse than previous ones. The Great Recession of 2008 and the Great Depression of 1929 were financial in nature. They originated from a crash in the financial market. This one is not — it is natural and biological in nature. As such, it will have much more impact on Main Street than on Wall Street, quite the opposite of the earlier recessions. During the Great Recession of 2008, for example, the small businesses suffered but were not decimated. Even thought many big banks went belly up, many corporate offices stayed open. People are still eating out at restaurants and going to theaters and sports events. Also, many financial institutions were bailed out by the government. Even if a financial institution was not bailed out, the Chapter 11 protection means that the business could reorganize and re-emerge in another form and another name. The Coronavirus meltdown is different. It empties cities and grinds street traffic and travel to a halt. The ones hurt the most today are the smaller businesses and workers in the service sector — those who depend on foot traffic for their livelihood. Financial institutions can merge or be bought out and come back in another form. But when a small restaurant goes out of business due to lack of customers, how likely will it come back? There is much less resilience in small businesses and in the low-wage service sector.
Now, let’s consider the situation from an individual’s perspective. Unlike big corporations, individual workers typically don’t get bailed out by the government. Further, the middle class has hollowed out in the last two decades. Our recent society is bifurcated into the rich and the poor. Only a very small percentage of the population is well-off and comfortable. Recent surveys (Forbes 2016) found that 63% of Americans do not have a…
