The human mind likes shapes. They seem to be an easy shorthand for certain kinds of things.
A square peg in a round hole is one example; the shape of someone’s nose may be a point of reference. The shape of a new model car is often an important factor in consumer choice, despite having little to do with the purpose of the vehicle.
Today the issue of shape is primarily a shorthand way to describe how coronavirus-inspired economic collapse will look in retrospect.
Trump is trumpeting the V-shaped recovery – an upside roughly proportional to the steep decline we are currently experiencing. A lot of people believe that — and virtually all of us hope for it.
Would it be so!
Some small pieces of our economy may bounce nicely. But, the real world is like Humpty Dumpty. It takes one rumble to knock it down, and forever to rebuild it (or in poor Humpty’s case, not). Those old-fashioned wisdoms did not take on eternal validity by accident.
So –if we must have a shape in mind, what might it look like?
It might be a W, swinging wildly up and down, and reacting violently to changes in market or public health conditions. It might be a U with a v_e_r_y wide bottom. It might look and feel like a never-ending L, with a very long bottom and only incremental growth for years.
It is not really necessary to name the right shape — whatever it turns out to be, it will surely have most of the following realities we’ll be forced to contend with in the meanwhile:
- It will take quite a long time as all the competing forces in the economy will be struggling for their new place in line.
- The inevitable stagflation (stagnant growth combined with high inflation) will take its toll as the contraction slowly rolls into dealing with repaying the massive debt taken on to keep the country alive.
- The after-effects will take a serious toll on different parts of our population and safety nets will be stretched to the breaking point for already-broke state and local governments.
- Because the United States is well situated globally, as we are rich in resources and have, in the main, a well-educated population, we will recover.
Thus, looking at the future, it is fair to say that we will ultimately emerge again strong, healthy and in a leadership position, if we do everything right.
But, as happened about 100 years ago, this economic catastrophe (though for different reasons) has unleashed forces we do not yet have a firm grip on and which will take time to sort out.
So, we should put aside shapes of recovery and put all our attention on the right political and economic processes needed to get the next phase right and as soon as possible.
Wild dreams, wishes and fantasies will only slow and deflect the goal of recovery.