May 15, 2020
We are going to see a record-breaking drop in second-quarter GDP. Fiscal stimulus is going to produce an equally astonishing rebound in the third quarter. But this is not the typical recession/recovery scenario. The government caused the recession by shutting down the economy. Fiscal stimulus will help get it back on track fairly quickly. But what happens in the fourth quarter and beyond? We anticipate GDP growth of 5.3% next year in part because of our belief that technology will grease the wheels for an economic makeover. This will be a technological revolution at warp speed.
Consider the medical industry. The development of a vaccine typically takes 10 years. But epidemiologists think we could have a vaccine ready for widespread distribution by January. We have compressed the normal 10-year development process into a single year.
The same is true for therapies to assist the seriously ill. Almost 300 are in some stage of development. We have convalescent blood plasma donations, Remdesivir, and hydroxychloroquine. We also have blood plasma tests to determine immunity, and tests to determine if we have been exposed to the virus. All of this in two months.
Then there is telemedicine. It is going to be a permanent part of the economic landscape. No need to drive to the doctor’s office, sit in the waiting room for an hour with other sick people, see the doctor for 10 minutes, and go home. It is far more efficient for the patient, and perhaps more cost effective for the physician. Two months. And it will continue to improve
We have quickly gotten used to working from home. Everybody has become relatively familiar with video conferencing and will become more comfortable with it in the months ahead. The software will continue to improve. Tech companies recognize that their employees may be working from home permanently. We may lose some face time with co-workers, but we can eliminate that grueling two-hour commute. There is no need to rent or buy an expensive property in the city. Buy something outside and save both time and money. Companies may not need that glitzy expensive corporate headquarters building in the city. While they will need to figure out how to measure the productivity of those employees working from home, they can already track every keystroke we make so surely they can easily determine our productivity. Some city dwellers might move to a rural area. If enough of them do so they will help that rural community migrate into the 21st century. Companies could save money by adjusting downward worker compensation to reflect the lower cost of living. We may not want to work from home five days a week, but suppose we go into the office twice a week?. Less traffic. Less pollution. Working from home is here to stay.
Higher education has taken a huge hit during the shutdown. This virus may be the wake-up call that college and universities need to make fundamental changes. For years people have questioned whether a college education was worth its rapidly rising costs. Now, higher education is in trouble. As the stock market has declined, college endowment funds have shrunk commensurately. Every type of expenditure is being scrutinized – including sports. Integral parts of the campus environment like dorm living, huge student unions, large lecture halls, and football stadiums appear to be petri dishes that allow the virus to spread. Are students sufficiently worried about the virus that they choose to take a year off before returning to school? Given that so many parents have at least temporarily lost their jobs and blown through their savings, can parents even afford to pay for a college education? These types of questions have college administrators re-thinking everything. Some colleges and universities were able to teach classes and have students get and complete their assignments online. The effort may not have been seamless but it managed to work. Online learning will become a permanent part of the college experience. And it is not just higher education. K-12 classes can also benefit.
Nobody expected a virus to upend the global economy but it did. We chose to adopt drastic measures to halt its spread and the economy collapsed. But technology helped make an awful situation less unbearable. We began to shop on-line. As a result, Amazon and Walmart have hired more than 200,000 workers. Technology helped us all see a doctor when necessary. It allowed companies to conduct at least some business. It helped teachers to teach and students to learn. It gave us things to do while we were quarantined at home. We are in the midst of a technological revolution which is occurring at warp speed.
Economists tend to be a pretty pessimistic group. But their models rarely adjust for the fact that science, business, and finance are all working together to find solutions. We have heard the doomsday forecasts. But somebody in the tech world is already be working on the problem. Keep the faith.
Stephen Slifer
NumberNomics
Charleston, S.C.
Thanks again Steve. As usual, you capture the essence of an issue and project forward with considerable insight. Here at SC Economics, we are implementing professional development for K12 teachers in economics and personal finance. We were already part way there but this bump forced us over top. We are working from office and home, situation dependent. My wife is a doctor and the sole proprietor of her business. She too, is running an entirely different business. Telemedicine, Bo-to Go (that’s Botox), at home billing, drive by testing…. its a whole new ball game. I see a lot of positive things coming out of this. Hopefully, we can reset the balance between government intervention, risk, rewards, and our new global reality. I’m excited!
Regards,
Jim Morris
Stephen, as usual you see through the issues facing us with clarity. I really appreciate your analysis. Higher Education may make some serious changes in its operation. As a university professor, I am directly affected and going along for the ride. Keep up your good work.
Hi,
A great article – leads one to be highly optimistic of the future as the crisis in this must pass.
One aspect of life seems to be missing – The effect the shutdown has had on the environment and the likelihood of this being put into permanent effect somehow after the crisis is over! Environmental matters were a major part of pre-Covid19 times, now they appear not to be, but they are! The air is cleaner, therefore expect much more electric vehicles, and the waterways are cleaner which will make people think twice about using them as they were!
Great article Steve. You have hit the nail squarely on the head. If I were a younger man still in the market place I would wrap my arms around this and form a new company that helped companies manage these changes. It would succeed and be ahead of the times. Clear vision is key to successful companies and those born in times of change with a clear mission and vision rise to be great companies. Thanks for the wisdom. I always enjoy your weekly comments. Boy did we not see this coming just 6 months ago at your breakfast conference.
Hello to Mary and you both take care and stay safe. For me. I think I will go paddle boarding. I am sitting on my dock at sunrise now. Retirement is not that bad!
Thanks Gordon. The benefits in the form of reduced traffic and less congestion that we have experienced the last couple of months are easily visible. I suspect that those factors will take a back seat to just getting businesses to open and getting people back to work. But, if we truly will work from home at least some of the time going forward, we will see environmental improvement even if that was not the primary focus of what we are likely to do. I guess we will see how all this falls out. Thanks for taking the time to write.
Steve
Hi Jim. Nice to hear from you as always.
Bo-to-go? Wow! That is a new one for me. Clearly, cutting edge technology in the medical field.
A former colleague at Lehman recommended a TED talk given by a lady named Kate Raworth. British economist. Seems big on the link between economics and technology. I found it interesting. You might as well.
https://www.ted.com/talks/kate_raworth_a_healthy_economy_should_be_designed_to_thrive_not_grow?language=en
Hi Darrel. Your world is definitely going to see some changes. As this develops I would love your spin on how it is evolving. This is your field and you know more about it than anybody.
All the best.
Steve