Anticipation

Remember the Carly Simon song "Anticipation"? The lyrics — "Anticipation, Anticipation, is making me late. Is keeping me waiting" — seem to say a lot about the coronavirus.

Everyone else is weighing in on the coronavirus, why shouldn’t I?

My focus today is the economy, and some hurdles we have to pass. I think I have two points that have not been sufficiently appreciated.

But first, what do we know? Or better said, what do we not know?

We don’t know how much the virus is going to spread and for how long. If we knew that the virus has already peaked and that the spread of it is going to diminish, then that might affect our economic behaviors. But we don’t know that. So anything is possible and gloom and doom are within the scope of “anything.” Inasmuch, anticipation is everything. Clearly, anticipation means all sorts of economic transactions are on hold. 

But let’s hold that thought a minute and focus on a couple of other things that have not been emphasized.

First is the unfolding of economic news. Economic activity has clearly been affected by the virus. While the demand for face masks has risen dramatically, that cannot possibly overturn all the declines in spending and production that have already occurred due to quarantines and uncertainty’s impact on activity. One of the world’s largest countries, China, has been on a basic shutdown and that has had impacts on the the global supply chains for everything from tires to toys.

We read about all that, but the truth is, reporting of national data takes time. Statistics like personal income and industrial production come out monthly. The major summaries of activity, including the GDP numbers, are published quarterly. As a result, we won’t actually see the data measuring the declines in economic activity for a couple of months and only then will we see more vividly and completely how the virus has impacted economic activity. That information will be hitting us like the mosquitos in summer and maybe even through the fall.

Second is the reactions of those folks who are hoping to run against Trump on the Democratic ticket. When Obama was in office, it was clear that many politicians used that recession to criticize capitalism. It was not just that the economy was in a recession, but that the recession seemed to be the proof that capitalism had become a relic – worse, it had become a detriment to us all. We could not trust business, we had to trust government. 

We are getting very close to another major election and the economic rug has been pulled out from under President Trump. He will not be able to brag about the economy. Whether or not Bernie Sanders is a socialist is not paramount. Liberal progressives can use this weak economy as another example of the failures of business. Okay – this downturn might be a fluke, but there’s no reason to stop there. Could this recession fuel a long-burning desire to add even more layers of government regulation on business and even more taxes on the rich?

Aside from the actual evolution of the virus, these two factors could have significant long-run impacts on the economy. And like the virus itself, we can ponder these two points but we cannot easily make guesses about how important they will be.

Will the actual economic data announced in the next three to six months be worse than what we now expect? If so, will that realization create even more uncertainty and negative impacts on growth?

Will the Bern or others running for office take this opportunity to put the last stake into the heart of capitalism? Will that not impact economic growth for a long time to come?

Or maybe not. Maybe the data will not be taken as negative. Maybe Bernie and his friends will not want to dismantle capitalism in the near future.

Exciting times we live in. Eh?