After the war
Your life has been upended by the novel coronavirus. Your quotidian routines, your relationship with your immediate family, your news consumption, your wealth, quite possibly your income — all of these have changed in ways that were unthinkable just a few weeks ago. At some point, they will change back.
Why it matters: This is not a shooting war, but in important ways it looks and feels like one. Understanding the similarities and differences is a useful way to judge the potential economic consequences of the pandemic.
"Nous sommes en guerre."— French President Emmanuel Macron
The big picture: In a war, three big things tend to happen to an economy: Private-sector employment plunges, a large proportion of the labor force is injured or killed, and a substantial part of the country's infrastructure is destroyed.
- In the fight against COVID-19, the central strategy of the war effort — social distancing — is forcing layoffs in dozens of industries. That's a big similarity.
- The other side: The labor force is — with tragic exceptions — largely untouched, willing and eager to get back to work as soon as it can. And the economy's asset base — its buildings, production plants, intellectual property, internet backbones, and the like — is not being harmed at all.
This is good news from a medium-term economic perspective, and explains why the likes of Goldman Sachs expect a sharp rebound in economic activity — and also stock prices — once America is allowed to get back to work.
- The country's infrastructure might be temporarily retooled to support the war effort — GM and Ford, and maybe even Tesla, are considering moves to start making ventilators instead of cars.
- Either way, the core ingredients of America's pre-crisis economic strength will largely be in place after the pandemic has run its course.
Caveats: There are far too many known unknowns to have any certainty about the medium-term economic prognosis. And since no major economy has experienced all-out war on its own soil since 1945, the utility of the simile is limited.
- The world is also retreating into national borders, both in terms of travel restrictions and hoarding medical supplies. That doesn't bode well for global supply chains.
The bottom line: Shooting wars are horrible, devastating things, so "better than a shooting war" is in no way reassuring. But wars are not that bad for capital markets, and capitalism has proved extremely resilient many times in the past. It's far too early to count it out this time.