"I always avoid prophesying beforehand because it is much better to prophesy after the event has already taken place." - Winston Churchill
One of the more fascinating aspects of the pre-COVID 19 world was this phrase I often heard in the news, the “next financial crisis” as if all crises were somehow financial in nature and the next economic meltdown would necessarily be as bad as the Global Financial Crisis (GFC) of 2007-2009.
Pre-COVID 19, I speculated that in all likelihood there would be many recessions in my lifetime but that probably, on average, they wouldn’t be as bad as the GFC, which many at the time dubbed the worst economic crisis since the Great Depression. In essence, for me, as perhaps for many millennials, the GFC became the benchmark for what a really crappy economic situation looked like…it really couldn’t get any worse…
… or so I believed until COVID-19 came along and we now stare down the barrel of the steepest economic contraction in, well, history. To be clear here, I realise other crises may have had longer, or deeper economic contractions, the Black Death probably did, but in terms of sheer suddenness and speed, COVID-19 must be the winner.
Humanity are excellent hindsight warriors
Financiers and economists have dozens, if not hundreds, of recession warning indicators. Some were flashing warning lights in 2019 and some weren’t. I’m sure none predicted what hit us in 2020. Accordingly we can look back now at the wise words of people such as Bill Gates and Barack Obama (who sounded alarm as to our pandemic preparedness), in the same way we look back at the words of Nouriel Roubini (who warned about a looming credit/housing crisis in 2006). We wonder why their views weren’t acted on, even as many probably agreed with the sentiments they expressed.
Perhaps it’s because as a rule, humanity are excellent hindsight warriors. We’re experts at battling the last crisis but not so good at imagining, let alone preparing for, what the catalyst for the next crisis will be, and then what that crisis will look like. I think one thing we can be grateful to COVID-19 for is the fact that it is just so incredibly different to the GFC. One, a US-originated, financial bubble playing out over the course of years. The other, a China-sourced pathogen wrecking the global economy in months. After this, we’ll always be able to call bullshit on anyone who pretends to know what comes next…
If COVID-19 forces us to properly confront how much is outside our control, as well as the role of luck/randomness in our good fortune (or misfortune as the case may be), some good may yet come out of the situation. I expect the experts won’t get any better at predicting what the next crisis will be, but perhaps if collectively we spent more time preparing for crises in whatever form they may take - environmental, social, or economic, we may yet truly appreciate that an ounce of prevention is worth a pound of cure.
Recognising that we don’t know what’s coming next is a powerful stance. It gives us license to freely think about risk, who bares it, and what we can do about it. Bit of a wake up call from coronavirus; it’s not just banks, shareholders and financial institutions who are at risk. Supermarkets, food producers and hospitals are too. Keeping Main St strong is much more important than propping up Wall St. When our necessities of life are compromised, that’s when we are in trouble.
But what does resilience look like? And what does this look like at a societal and individual level?
I have written previously about the importance of a social safety net. That is a clear example of enabling resilience. When the going gets tough, people have something to fall back on financially. But money is only one side of the equation. If the shit really hits the fan you can’t eat money. Coronavirus has compromised utilities and supply chains for food, hospital equipment and medicine. For events of this magnitude, where global trade is compromised, a nation may at least in part need to fall back on its own resources. Governments need a forward view on how to sustain local industries that support national resilience.
We can speculate that for individuals, and especially younger generations in the workforce, the psychological scars associated with not one but two severe economic crises early in their careers (and let’s not forget the looming catastrophe which is climate change) could lead to permanently higher savings rates. This could occur as individuals place greater value on the psychological buffer savings provide. We could also see greater entrepreneurship and more “side gigs” as younger workers, having seen friends and family laid off from work, become less likely to take the stability of employment for granted?
COVID-19 will be seen as watershed moment in-terms of government involvement in the economy. The GFC / COVID-19, as well as issues such as inequality and climate change, all highlight problems that are best addressed collectively. Could individuals therefore become more willing to hand over economic and social power to governments to better protect their well-being against an uncertain world?
Wait 10 years to find out…
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