Because of our newfound fear of dangerous microbes, we are meant to believe that people will now think twice about boarding an airplane, checking into a hotel, attending a concert or taking their kids to Disney World.
And having discovered that they can work just as well from home, the betting is that white-collar workers will no longer be willing to make those daily commutes to downtown office buildings, forever changing the nature of work and triggering a mass exodus from New York, Seattle, San Francisco and other expensive and densely populated cities.
The sudden shift to online shopping will bring on the demise of the department store while wiping out the majority of independent retailers and restaurants.
Meanwhile, hundreds of colleges and universities will be forced to close their doors, while those that survive will finally embrace the pedagogical and economic logic of teaching most of their courses online.
More ominously, inequality of income and wealth will accelerate, racial disparities will widen and government at all levels will be constrained by crippling levels of debt. In a particularly breathless bit of front-page hysteria, the New York Times warned that those now graduating from high school and college will be consigned to a lifetime of economic disappointment.
There is, of course, a germ of truth and a measure of logic behind many of these prognostications, alongside the rampant myopia and overreach. But if history is any guide, once a vaccine has been found and the economic storm has passed, life will return pretty much to the way it was before.
People will once again flock to bars and restaurants, cram into rock concerts, board airplanes and cruise ships, and browse the latest fashions in stylish boutiques.
If anything, students will have developed an even greater appreciation of the pleasures of campus life and the value of face-to-face interactions with teachers and classmates.
Most white-collar workers will resume working and collaborating in downtown offices, doing business over lunch at downtown restaurants, and attending conferences and conventions in crowded, energized and innovative cities.
And rather than abandoning global supply chains, companies will find ways to make them more robust by maintaining deeper inventory and arranging for greater diversity of suppliers.
That said, the pandemic will certainly accelerate some structural changes in the economy that were already underway.
The department store, for example, has long been on a glide path to extinction. Having over-consolidated and over-expanded during the 1990s, the only way big chains could make their sales targets was to constantly mark down their merchandise, eroding profits and forcing cutbacks in customer service and store modernization, which wore down their market share even further. Falling share prices invited takeovers by hedge funds and private equity firms, which were ruthless in cutting costs, closing stores and taking on debt to pay themselves dividends, but even more clueless about delivering value and excitement to customers. The pandemic has finally exposed the bankruptcy of their business model.
The demise of the department store, in turn, will probably prove to be the final nail in the coffin of the shopping malls that were developed around them. The mall’s demise will hasten the shift not only to online sellers, but to those independent local retailers and regional chains that offer unique merchandise, creative formats and knowledgeable salespeople operating from storefronts located in town centers and walkable urban commercial districts. The most successful retail developers will be those who create the right combinations of distinctive retail offerings and learn to partner with tenants rather than squeeze them for every last dollar of guaranteed rent.
Even before the pandemic, there were encouraging signs that American capitalism was beginning to shed its single-minded focus with maximizing shareholder value. Companies that offered shoddy products and services began to find themselves at the receiving end of nasty social media campaigns, while those whose business models depend on squeezing employees, despoiling the environment and ignoring their responsibility to the rest of society were finding it increasingly hard to attract the most sought-after talent.
The pandemic has given fresh impetus to that shift. Going forward, any nursing home or cruise ship operator who even thinks about putting profits over customer health and safety won’t make it to the next quarter. And as Amazon and Smithfield have discovered, companies that don’t respond to their workers’ grievances can suffer long-lasting damage to their brands. In recent weeks, big companies normally immune to public pressure or unfavorable media coverage were forced to retreat when it was revealed that they had taken favorable government loans meant for struggling small businesses. Banks and other lenders slow to offer forbearance to cash-strapped borrowers have been pressured to do so. And top executives who have become inured to criticism of their outsize compensation have stepped forward to announce voluntary cuts in their pay.
Those paying attention know that a slow-motion train wreck is playing out on the corporate debt market as ratings agencies rush to downgrade the debt of other highly leveraged companies in the energy, retail, hospitality and real estate sectors. Many of those downgrades involve loans and bonds that started out at the lower ranges of investment grade but are now rated as junk, which will lead to forced selling by insurance companies, pension funds and banks. The Federal Reserve is doing its best to slow this unwinding and keep it as orderly as possible, but there is still lots of nervousness and uncertainty about how things will play out. Three things, however, seem certain.
The first is that over the next year, there will be a surge in corporate bankruptcies and restructurings, creating a bonanza for Wall Street law firms and investment banks.
The second is that many of those distressed companies will be sold off to competitors, further consolidating an economy that has already lost some of its vitality and dynamism because too many industries have come to be dominated by a handful of big players. That would be a bad outcome that antitrust regulators should resist by insisting that failing firms not be sold to companies that already dominate the market.
Finally, businesses that survive this shakeout can be expected to shore up their balance sheets by using whatever profits they earn to pay down debt rather than to buy back shares or increase dividends.
Here’s another prediction you’re unlikely to read elsewhere: Everything is about to get a little more expensive. Going forward, the instinct of every almost business will be to take out some sort of insurance against a future pandemic. That could come in the form of expanded business-interruption insurance that, unlike current policies, would cover pandemics and other natural disasters. Or it could come in the form of self-insurance as companies shore up their finances by building larger cash reserves and reducing other fixed costs, securing a greater share of what they need — workers, supplies, capital — on spot markets rather than through more permanent arrangements. Either strategy involves higher costs, which in time would be passed on to customers in the form of higher prices.
One danger in making such forecasts is the tendency to confuse what you expect to happen with what you hope will happen. For me, that may be the case in anticipating that Americans will emerge from the pandemic with a greater appreciation for strong, competent government.
We’ve now seen what happens when a know-nothing president ignores facts and expertise to pursue self-aggrandizing and divisive policies driven by political expediency. Yet, despite President Trump’s failure, Americans have been remarkably responsive to competent leadership from others and remarkably willing to come together and sacrifice individual interests for the common good. Although angry and embarrassed by the lack of protective gear, the botched rollout of testing and the inability to process unemployment claims, Americans have taken enormous pride in government workers who have delivered medical care, small-business loans and tax rebates, and who continue to pick up their trash and protect their safety. They have also gained a heightened appreciation of the government’s vital role in regulating the marketplace.
For decades now, Republican politicians have begun speeches to rotary clubs and chambers of commerce with what Ronald Reagan famously dubbed the nine most scary words in the English language: “I’m from the government and I’m here to help.” It should tell you how much the political winds have shifted in the wake of the pandemic that this old chestnut no longer sounds like a reliable laugh line.