By Andy Peterson
Pandemics and wars change everything. Sometimes those changes eventually work out for the better. Sometimes not. What many people, however, are likely wondering is what will become of our economy once the pandemic has receded to the point that things seem similar to February 2020. Currently, many economists – employed by retailers, banks, governments, and NGOs – are working to predict what our near-term economic future might be. This isn’t an aberration. Economists have long been employed as seers to the future. Sometimes their suppositions are dead on, and at other times they wildly miss the mark.
Academics have long studied the “science” of prediction and have concluded those who predict the weather to be more accurate than many others prognosticators, including those who model economics, at predicting what might come next. This is due, in large part, to the advancement of science. We now have a good grasp of things like humidity, weather patterns, and so forth. These types of things accompanied by the advancement of radar have led weather forecasters to be amongst the most accurate predictors of things to come.
Yet, as the Economist Magazine recently pointed out, many governments recognize they need to get better at prediction for reasons of national security. Many have formed clubs which allow participants to compete in predicting economics, pandemics, and any number of things which might have an impact on stability. Participants in these clubs are learning to separate the signal (a real item that influences events), from the noise (a false positive which skews the prediction). Governments have learned much as a result of these clubs. As a result, it is hoped they can better predict future events.
When thinking about the current pandemic, it is helpful to look back at a similar pandemics which may provide an idea to what might we may be facing economically. Fortunately for all of us, the National Bureau of Economic Research has already been studying the similarities of pandemic of 1918 to the one in which we have lived through, and, in a working paper, has identified some similarities and conclusions. Aside from the newly developed vaccine, quarantine, social distancing and face coverings were the main weapons to slow or stop a deadly virus in both pandemics. This included shuttering of schools, businesses, and banning large gatherings. Similarly, some areas of the country had better compliance and suffered less disease and death. Of most interest, however, was the economic impacts to business. Unfortunately, the authors could only identify similarities due to different world events which included the first world war. That said, some parts of the U.S. did better than others due to the transmission of the virus, while others flourished due to a lessened threat from the virus and the economic demands of supplying the war. Further complicating the differences included a demand for human resources as many young men had been sent to war. The most hopeful similarity identified in 1918 and in 2021 was the underlying pent-up demand of consumers who wanted to get back to living their lives as had prior to the emergence of the pandemic.
If March’s retail numbers are any indications (see Retail Sales Posted Double-Digit Gains and Dunnhumby Study: Consumer Confidence Rebounding articles in National Notes for more information), we are likely in for an extended period of consumer spending. Even if we some might not separate the signal from the noise, its fairly easy to understand retail is likely to have a banner year as consumers emerge from pandemic self-isolation. People are tired of staying home, most have money to spend, we want to see our friends and family, and shopping is on the agenda. Stock the shelves, get ready, it’s going to be good.