Present Day Economic Shocks and Historic Parallels

The shocks due to the impact of Coronavirus are still being felt around the world.

They will be for some time.

The shocks are myriad. They are health, of course, and the resultant death of many people. There is the effect on the economy and then how that plays out on the wider society.

The biggest shock already across the United States is not so much the levels of infection or even of death as sad as that is – it is the rising levels of unemployment.

Just last week an unprecedented 3.3 million people declared themselves jobless and signed on to the welfare system. This is an incredible number over any period of time, say a year or even two years, but over just one week it is unheard of. To give that figure some historical perspective only three weeks previously, barely 200,000 people in the US applied for jobless benefits. That was an historic number too – but an historically low number. In the half-century that the government has tracked welfare applications, the worst week ever, with 695,000 initial claims, has been in 1982.

These latest unemployment figures have sent shock waves not just to the State and Federal governments but, also, to the financial markets and thus ever further into the economy both nationally and internationally. The fact is that the Markets and governments around the world, all of us, are expecting things to get a whole lot worse before they get better. So, these unemployment numbers provide only the first hint of the economic cataclysm in progress. Even the most optimistic economic forecasters doe not expect the US economy to escape without having shed many millions more jobs. Then on top of that we will have the inevitable foreclosures, evictions and bankruptcies all following hard on the heels of the economic brakes being applied by the response to a virus few had heard of less than a month ago.

Already, across the US thousands of businesses have closed in response to the pandemic – many will never reopen, no matter how much fiscal stimulus is thrown at this by governments unable to fix something few leaders ever envisaged would hit in this way. Some say we are looking at something as bad if not worse than the Great Depression. Just for the record unemployment during the Great Depression hit an all time high of 25% in the US. Is that what we are looking at again?

The coronavirus-induced shutdowns are expected to lead to a year-on-year GDP decline of about 10% in the second quarter of this year. This would be roughly in line with the peak reached during the financial crisis of 2007-09. Some of us can remember those days. They weren’t fun and the prospects ahead whether doing business in Europe or the US appear bleak.

Many reading this are entrepreneurs, or aspiring to be entrepreneurs. They are also entrepreneurs who are looking to America to advance their entrepreneurial dreams. So what next?

Well, first off, as in any business venture at any time, it is always a good time for cool heads and cold hard facts. There is a lot of speculation out there. Much of it may well be accurate, although some of it is enjoying – if that’s the right word – the predictions that we are all “doomed” and that “the end is nigh”.

Just like the Great Depression of the 1930s and the recessions of the late 2000s there will be many businesses that go under. There are always business failures. There are some perhaps many too that will survive during this coming period. And there are a few that will prosper, thrive even.

Don’t believe me? It’s already happening. The panic buying at supermarkets in the run up to the current pandemic has produced healthy – very healthy – profits for most supermarkets be the multi-nationals or those run for and by a local community. Supermarkets in the United Kingdom reported a rise in sales by 75% per cent compared to the same period last year. These same supermarkets have all started to employ people – 40,000 are needed in the UK alone. Those delivering these groceries are also doing very well out of the current crisis too.

The economy is configuring rapidly into a shape that is different from how it looked one month ago. The challenge for you and me is a simple one, namely, how do we reconfigure our businesses and our latent business ideas to this new reality? There is no point in trading as if things have not changed – they have. So we need to change as well – and quickly.

In August 2005 Hurricane Katrina hit Louisiana. The unemployment rate doubled over night from an all time low. Whole communities were devastated by it; many businesses went bust. Louisiana offers an encouraging precedent, however, as after a few rough months in late 2005, the state’s unemployment rate dropped almost as sharply as it had risen, soon falling into line with the rest of the country. This may not be much consolation for many at this time, but I suggest that the comparison is a better one than the economic woes of the 1930s.

Coronavirus is not about the economy. It is bigger than that and odder too. It is the equivalent of a freak circumstance like a hurricane or a volcano. It tells us nothing about the economy, which operates well in any normal circumstances. This moment in history is not normal, however, in fact it is very abnormal. That should give us hope. It should also make us think hard about the new future now emerging, and start to plan for it.