https://www.wsj.com/articles/what-shape-will-the-rebound-take-11587930592
For all us former at-home meteorologists turned self-appointed epidemiologists, predicting everything from barely a flu to an epidemic apocalypse of infection rates and ventilator shortages, I’ve got some good news. As the corona clampdown is (please) coming to an end, there’s a new parlor game sweeping the nation. Now, as newly minted armchair economists, we all get to predict the shape and span of the economic recovery. You’re in luck: I’ve got your buzzword-compliant cheat sheet and a few tips, sure to impress your isolation circle and both flatter and flatten their curves.
OK, we’ve clearly fallen off a cliff. There have been 26 million new unemployment claims in the past five weeks. The jobs chart looks like someone dropped a fishing line in the water with a dead whale attached. Same for oil prices. This means the drop in second-quarter gross domestic product will be . . . well, nobody knows exactly. Estimates are still in flux. Sixty economists surveyed by The Wall Street Journal predicted an annualized decline of 25% on average, which works out to about 7% for the quarter alone.
But a fishing line down should mean a Polaris missile right back up, right? President Trump has even said the post-virus economy will take off “like a rocket ship.” That’s the essence of a V-shaped recovery. If we’d had a two-week house arrest—three, at max—maybe a V it would be. The unemployed return to work, stores open, new cars crank out and voilà, just like old times. Unfortunately, that ship has sailed. Sad, because a short lockdown could have been enough to scare the corona out of us, instilling enough fear that we self-enforce social distancing, wear masks, distrust strangers. Mission accomplished weeks ago.
Now there’s no going back. With airplanes idle, hotels empty, theaters going bust, stores like Neiman Marcus threatening chapter 11 and oil going subzero last week, all signs suggest serious damage to the economy.
So many economists now think we’re in for a U-shaped recovery. It’s the next one down the list, though not a bad bet. But there are lots of different types of U shapes. The letter U. Then there’s the Miami Hurricanes’ “The U” hand signal with a little more time in the basement. And for true pessimists, there’s the bathtub with a long time underwater before emerging. Short sellers like to talk about L-shaped recoveries, meaning things will never come back—but ignore them. Still, any of these U’s are possible.
But economies often don’t recover symmetrically.
That’s why some talk about a hockey stick: short down slope, long up slope that keeps going and going. For those who like to brand their recoveries, there’s always the Nike swoosh. Just do it. I say get air like Michael Jordan before it really is the last dance.
Even if lockdowns ease, few shoppers will show up, then stores stop paying rent and reordering goods, mortgage payments are missed, banks start writing down bad loans or even go under, holders of collateralized debt start to fail, and the Fed stays in bailout mode. Dominoes fall and lots of people and businesses get hurt. Call it pandemic pandemonium. A financial system on the verge of collapse means a W-shaped, as in Wuhan, recovery—one that grows in fits and starts, two steps forward, one step back. Actually, if we’re locked down until June we could see, to borrow an acronym, a WWW-shaped recovery.
And what do I think? U? V? W? X, as in none? I’m glad you asked. Forget letters—the engineer in me thinks we’ll see a square root recovery: up, down, up and then flat. In other words, after hurling the economy off a cliff, we may see a short, sharp rebound comeback, the proverbial dead-cat bounce, and then basically a flatline, with zero to 2% GDP growth until the damage is assessed and the debt dominoes start to clear.
Policy matters. The yo-yo stock market just performed the double feat of an insta-bear 37% drop followed by an up-26% insta-bull. It’s confused. Provide some clarity by ending the work disincentive of unemployment benefits that exceed pay. Don’t shovel stimulus money like manure on a garden, but instead encourage businesses to hire and expand with targeted tax breaks that last a few years. We don’t have a bottomless well of stimulus funds. Deregulate by default.
It’s time to ease the economic suicide of lockdowns. Open stores, even if it means no shirt, no mask, no service. Fear and loathing are already the norm, so social distancing is here to stay. The faster we get back to an uptrend, the faster we make up for lost time. Wealth and well-being compound, and any time we’re not growing—no matter what shape—hurts society from bottom to top.
