Pre-COVID19 "normality" is not returning
COVID-19 has reshaped our world - forever. There are very many reasons why the world will not be returning to the pre-COVID-19 "normality" that we used to know. Here are some of the reasons why:
Martin Wolf 14/5/20:
The thing we most definitely know is that we will emerge from this crisis with much more debt in the public sector, very large fiscal deficits, a lot more debt in the private sector as well, and almost certainly we will already have experienced a great many defaults, particularly in the private sector, and particularly in emerging economies.
Taxes will rise. Taxes on the relatively well-off will rise, I think almost inevitably. We are not going to be able to repeat in the Western world, at least not in Europe, and I think not in America either, the sort of austerity policies that followed the last crisis. This will then be a new social contract, if you like. It might be as profound as what happened after the Second World War, which was a period of relatively high Equality.
George Soros 11/5/20
Even before the pandemic hit, I realized that we were in a revolutionary moment
We will not go back to where we were when the pandemic started. That is pretty certain. But that is the only thing that is certain
Why the Australian economy will not return to "normality" any time soon
"Getting people back to work” (https://www.ifs.org.uk/publications/14829 ), an excellent study from the Institute for Fiscal Studies, brings out the many obstacles to any such early return to normality.
First, uncertainty will not disappear
Second, the impact of the virus on supply and demand for goods and services will be highly heterogeneous.
Third, the impact on the labour supply and on would-be purchasers is also going to be heterogeneous, with the young able to operate much as before and the older and those with health conditions far less so.
Fourth, even this ignores the complex impact from the world economy.
Martin Wolf's 8/5/20 ongoing comments:
People cannot just be ordered back to work and to spend.
The UK is only at the end of the beginning. It was not a good start either. It seems foolish to imagine the country will swiftly return to life as it was before Covid-19. Things will remain different.
Our least bad future seems to be one in which the disease is suppressed until a vaccine arrives.
Bruce Baker comment: These same comments are equally true of Australia and also many other countries.
Jon Pain 12/5/20
I am increasingly of the view that we could see a more frugal future as people with low levels of savings have experienced a wakeup call to build up a ‘rainy day’ precautionary amount of savings. Consumer confidence surveys are suggesting that as we come out of lockdown consumers will be more careful with their money. It goes without saying that if you have lost your job then there will be a significant drop in spending amongst the unemployed. However, even those that keep their jobs could start being more cautious in their spending habits. In this vital regard COVID-19 has been like a sledgehammer reminding people to curb their profligate and wasteful consumerism.
In addition, and coming into this crisis, companies, particularly in America and China, had very significant debt burdens, and many of them will not survive the recession that we are in. Even the businesses that survive will have seen a material decline in cash flow, unless you’re Amazon, Netflix or a supermarket.
Magellan May 2020.
The deteriorating mood from such a sudden loss of security will bring changes that can be grouped into four categories.
This includes the partial retreat of globalisation – or its flipside, the reassertion of the nation state. It covers higher personal sanitation standards, the rise of telemedicine, improved health facilities and wider health coverage. ‘Social distancing’ will endure as fear of viruses will keep people in a ‘voluntary lockdown’ mindset. Essential workers have won newfound respect and the definition has widened to include service labour. Remote working will be more popular but not online schooling because that, by most reports, flopped. Populations, having reflected on their priorities, might save a higher percentage of their (shrinking) income. Business, having discovered new risks, might be less confident about investing. Investors might worry more about preserving capital. Governments will relook at biosecurity, cybersecurity and the safeguards around utilities.
Hastening of trends
The group features the shift to the safer online world, notably the boost to virtual communications, cashless payments and online food delivery, shopping, entertainment and gambling. It covers the psychological shifts damaging the relationship between Beijing and Washington that is moving from rivalry towards hostility.
Ebbing of old ways
US exceptionalism – the US’s view it is the world’s proper hegemon – appears to have cracked. So too has frictionless international travel, cheap flights, the popularity of cruise ships, and business models dependent on spontaneous and close human contact such as bars, cinemas, concert halls, eateries, gyms and professional sports.
A greater role for government in society, the rise of the surveillance state and renewed status for experts are included here. Other possible outcomes are demands to address inequality stirring politics, reduced legal immigration and a lower priority for climate change. An uptick in intergenerational resentment appears likely as the young will bear most of the costs in fighting covid-19.
The COVID-19 crisis almost certainly will burst the long-term debt bubble, almost certainly leading to an event vaguely similar to the 1930s - the Great Depression era.
A picture of the Long-term Debt Cycle
In the reference above, where George Soros said "Even before the pandemic hit, I realized that we were in a revolutionary moment", where Soros says "BEFORE", i am sure what Soros is referring to awareness of the economic damage that the bursting of this debt bubble would do, when it burst .... and COVID-19, seems to have created the trigger event to burst that long-term debt bubble, which already was a crisis waiting to happen.
Ludwig von Mises (Austrian School of Economics)
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
So, the world is not going back to pre-2020 "normality" any time soon - definitely not in the new few years, probably not in the next 10 years