As I write this in late April, the most probable course of the coronavirus (a.k.a. Flu Manchu) is that it is at or past its peak medically and case numbers, hospitalizations, and deaths will decline steadily hereafter. Economically, the country will have one bad quarter and come back quickly.
But there is another possibility. The country will not recover economically, or at least will take a long time to do so. While the medical threat from the virus will diminish, the public’s fear will not. Restaurants, bars, stores, hotels, etc. will reopen, but people won’t come in adequate numbers so that anyone can make a profit. Instead of businesses rebounding, business failures will become more numerous. That in turn will create growing unemployment. At the same time that demands on state services increase, state revenues will plunge further. All over the country, individuals, businesses, cities, and states will be screaming for more federal help as other sources of money dry up.
The federal government will oblige, adding many trillions more to the four-plus trillion dollars the Treasury and the Fed have already committed. But that will make other lenders increasingly uncomfortable, so private lending will dry up. As the sea of freshly printed money deepens, more and more people around the world will begin to question the safety of the dollar. Inflationary pressures will rise.
As the economy worsens, we will have accumulated evidence that we over-reacted to the threat the coronavirus posed. Because 50% to 80% of people who caught it had few or no symptoms, we greatly overestimated the death rate. Outside a few dense urban areas, the country as a whole was in a position to manage the epidemic without extraordinary measures. We will know countries that remained open, including Sweden, did not suffer an apocalypse. We did not need to shut everything down.
The combination of an economic depression and wide public awareness that it did not have to happen will be socially and politically explosive. The public will be enraged at the medical professionals who, sub-optimizing as all professionals do, thought only about people’s health and not their need to earn a living when they issued their dire predictions. It will be even angrier at the mainstream social media that did its utmost to generate panic–successfully. No current politician or political party will be credible. Politics will move beyond parties and elections in new, uncharted directions. In a country where Left and Right were already so far apart that it was difficult to accommodate both in one political system, the split will widen further, as it did worldwide during the last great depression.
This storm is already gathering. We see it in the demonstrations in more and more state capitals where people who have lost their incomes and have so far received no government aid are demanding businesses be allowed to reopen. We see it in poor urban areas where rent strikes are brewing. We see open rebellion against rules that make sense in cities being applied in rural areas.
As I have written many times, no conservative can want disorder. I hope this scenario does not unfold. I still think it likely the economy will rebound, so long as most states move quickly in May to reopen all businesses and do so without rules that prevent those businesses from being profitable. At that point, just as we all had a duty to stay home in March and April, I hope we will all do our duty by resuming our normal lives: eating in restaurants, shopping in person rather than on-line, and going to church.
But if we do find that, in the end, we were swindled into a great depression, all bets are off. As I wrote in my last column, I think what emerges will be a politics that is culturally Right but economically Left. How we get to that new politics may be messy.