Everyone and his dog is making predictions about the shape of the economy, post corona, a state that is seemingly moving out of our grasp currently with the resurgence of the bug. The reality is that the cards have all been thrown in the air, never has the immediate future looked so uncertain. Therefore, why should I miss out on pontificating?
Friedrich Nietzsche seems to have got it right when he wrote: ‘What does not kill me makes me stronger’. I suspect he will be again proven correct, just bad luck for the dead.
The tone of the predictions made is usually reflective of the mouth from which it came, and the interest they have. However, the almost unanimous view is that we are in for a really tough time. Whether the recovery is ‘V’ shaped, ‘U’ shaped, or more like an ongoing ‘L’ only time will tell.
However, my money is on the ‘L’, with a few upticks in specific areas.
- Demand will be constrained, which will filter through the economy, resulting in sustained unemployment and underemployment, cycling back to lower demand.
- Supply will be constrained, as businesses disappear, their supply chains are disrupted, and manufacturing sovereignty takes front and centre, but is unable to fill the void. Therefore the gap between the rhetoric and the reality might be wider than we think at this point.
- Government policy changes will occur, but will they be the right ones and be sufficiently effective to make a real difference more than the immediate triage. Policies are fairly flexible, subject to quick change; entrenched modes of behaviour and belief are not so flexible. Therefore it may be that the short term measures do not stick after the initial pressure is removed, and policy drifts back to the pre-existing status quo. This would be an opportunity lost.
- The systemic shock to the financial system will be substantial. I am not an economist, but the butchers bill from this response to the virus will have to be paid. That payment will come through a reorientation of financial markets and tax regimes. With very low interest rates, there will be money looking for a home, but the system might be in some sort of semi catatonic state driven by uncertainty, and the chances of further rounds of infections that lead to subsequent close-downs. Household balance sheets will have been severely impacted as people have reached into reserves of all kinds to pay living expenses. The Australian house is the super fund of many older Australians, it is likely that the values will drop substantially in the face of low demand. This is concurrent, with their super balances from super fund investments, which have tanked. Older Australians will simply have to work longer to be able to retire, but there are no jobs for older workers.
- Tax relief except in specific cases such as the usurious payroll tax, will probably not be forthcoming, but fundamental changes in the tax system to reorient it towards greater equity and to plug the gaping holes is essential. The decade old Henry tax review should be dusted off and rethought for a start. Some real political backbone is required, but I suspect will remain missing.
- For a considerable time, it seems likely that the stock market will undervalue performance, reversing the trend of the last 20 years, where markets have overvalued stocks. This feeds into the social problems of how we look after in increasingly large and unhealthy cohort of ageing baby boomers and their parents, as their investment incomes are reduced.
- Business models will be transformed. Working remotely will become far more accepted as we simply do not revert to the commute mentality of pre-corona. This has all sorts of implications for CBD property, infrastructure development, and the way communities are run.
- Supply chains will become more transparent and collaborative, even amongst competitors, as it becomes obvious that agility above all else is necessary to maintain the flow through the whole system.
- Technology will get a shot in the arm, as innovation and tech always does in times of crisis. However, it will be technology emerging from the current pool of scientific knowledge, some of which may have been hiding on the shelf for some time. Original science that will deliver solutions to problems we may not yet have seen, will have to wait longer for the necessary funding. Meanwhile, our stocks of really smart, trained and funded scientists, capable of creating the science that will deliver the future will continue to diminish to close to extinction levels. This is despite government rhetoric, and some current reallocation of funds from humanities to STEM. It is a systemic challenge ignored for at least the last 30 years because it extends well beyond any election cycle.
What have I missed?
