Human Behavior Determines The Path

How can we find the signal when there is so much noise? We don’t have an effective way to predict what will happen next, history tells us that. We do have a way to understand what happened when crisis has occurred in the past. In a piece titled A Post Pandemic Society, I explored the somewhat scary similarities between modern day and the world of a century ago. In a recent Article authored by Robert Shiller, Sterling Professor of Economics at Yale University, he takes a similar look at two events during that period.

Mr. Shiller explores our inability to foresee the pandemic’s long-term effects. In doing so, he looks at the Spanish flu of 1918 and the Great Depression. In the case of the flu, he indicates that searching the newspapers of the time, there was surprisingly little concern about its ill effects on the economy. He surmises that it may have been due to the more-dominant narrative regarding the impact of World War I, which ended on November 11, 1918. The flu began the spring of 1918 and there was a recession in the United States from August 1918 to March 1919, according to the National Bureau of Economic Research, but not a deep one. Mr. Shiller points to a recent study by Robert Barro of Harvard University and his associates, suggesting that the epidemic along with the decline in production associated with the war led to a protracted decline in G.D.P. growth in affected countries from 1918 through 1920.

He sees the Great Depression of 1929 to 1940 as perhaps more relevant. As I also found in my analysis, Mr. Shiller points to several similarities between the periods. As the biggest economic slowdown of modern history, unemployment is one of those similarities. He states that in 1929, many people expected the stock market to bounce right back; and it did climb almost half way back to its 1929 peak by April 1930. But as he indicates, it fell sharply again, and the powerful narratives that emerged resemble some of those circulating today. Global social unrest rose around the world (more similarities) with the downturn finally ending with World War II.

That brings us to human behavior. The article provides insight into how humans behaved post-crisis. The geopolitical noise that surrounds events like this makes it hard to find the signal. No amount of rhetoric will matter as much as the way humans behave post-pandemic. Will fear of long-term unemployment lead people to limit spending like they did during the Great Depression – thus prolonging the downturn? A reduction in consumption – even among the wealthy – prolonged the downturn. So the narratives that form will be on the minds of people even after the economy reopens. As the author states: “such social narratives will affect their thinking on how to spend and invest, whether to go out to eat or attend sporting events, on whom to vote for, and whether to travel: multitudes of decisions, big and small, that determine the course of the economy.”

As you read and listen to the prognosticators tell you what is likely to happen next; remember, we will determine that.

FEATUREDA Post Pandemic Society




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