I don’t want to downplay the seriousness of the coronavirus know as COVID-19, nor suggest that the economic impact won’t be severe. However, there is plenty of negative and sensational media you can consume around the virus and instead, I choose to write about some of the positives.
They say that conflict breeds innovation, that adversity creates change. As humans, we adapt and overcome problems and for far too long – our society had remained unchallenged and has become complacent as a result. But upon being challenged, it is my firm belief that we will make positive changes to the benefit of all humans.
First of these changes will be working from home. For a long time, skeptical bosses believed that working from home practically equated to a day-off for employees. Now many employers will be shown that forcing staff to commute to the office each day may not be necessary. This could have a number of benefits: congestion on roads and transport networks will likely drop, businesses may not need to rent as large and expensive offices as they currently do, and employees will enjoy more usable time in their days by regaining the time spent commuting.
Public health and crisis planning should also improve as a result of this virus, which has highlighted our under-preparedness for such an outbreak. There will hopefully be more plans and resources in place for the next public health crisis as a result. Part of this will hopefully be more funding for things like anti-viral treatments. As an example, around 2014/15 MIT researchers developed a broad-spectrum treatment that was effective against many infectious viruses; named DRACO, the development of the promising treatment failed to secure funding. Such a treatment would likely be extremely helpful at a time like this and following the current viral outbreak, DRACO or other promising viral treatments will hopefully find funding more readily available.
There will also be other profound economic consequences from the virus. The virus will once again illustrate the value of labour capital and the importance of high employment, low wealth inequality, and strong consumption spending, while also highlighting the issues of high corporate leverage. Some have described the modern labour market as the gig-economy, with highly casualised workforces, low job security, and anaemic wage growth. Make no mistake that this is largely by design, with large corporations and complicit governments conspiring to create conditions that favour asset holders over wage earners. The flaws of such conditions will be highlighted by the virus, with unemployment likely to skyrocket, causing asset prices to drop and public finances to become strained.
What we choose to do with this information is the important thing, but Governments and voters will now have the evidence of the importance of the working public, the importance of them staying employed, and the importance of them getting paid.
The virus should also bring some rationality back to equity markets. At the end of a 10-year bull run stretching back since the GFC, it seemed that all stock prices ever did was rise. Negative news was an opportunity to buy more, record valuations were justified not by strong forward outlooks, but because that was ‘the new normal’. Markets had started to believe their own spin. Now valuations will hopefully matter once more. Markets will hopefully be less likely to buy certain stocks at such unreasonable extrapolated growth ratios. And hopefully a bit more common sense will be shown in capitalisations.
The COVID-19 virus isn’t over by a long stretch, and the market selling likely has more to come. There are tough times ahead for many people on earth and this crisis will be recorded in the history books. It sucks for those who will be caught up in it, but it also means that this period will be studied, lessons will be learned, and next time we face a similar crisis, we will hopefully handle it better.