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Arlington, VA 22207

Economic impacts of Covid: Individuals and the System

May 15, 2020

Everyone is trying to figure out what the full impact of the Covid pandemic will be and there is no doubt life will change in ways we cannot fully predict right now.  We know there will be permanent changes; for example, how businesses balance office space and telecommuting might shift as folks have made the transition to virtual work.  But most of the economy will likely go “back to normal” over some period of time.

Every disruption to an economy will create individual pain.  According to a 2018 Federal Reserve survey, 40% of our neighbors do not have $400 cash to cover an emergency.  There is likely a significant overlap between this population and those experiencing unemployment during this crisis.  Even with government stimulus checks and programs, we are likely to see an increase in personal and business bankruptcy filings.  We’ve already seen several major retailers initiate bankruptcy proceedings.  There will be restaurants and small businesses that are not able to reopen.  These have very real effects in the lives of those directly affected.

Even with all the disruption and individual pain, which will cause the short-term measures of the economy to constrict, the long-term risks to the economy are low.  One of the great strengths of our economy is our collective entrepreneurial spirit and drive.  Businesses are actively pivoting their operations to adapt to this new environment.  Some with appropriate resources are finding opportunities to expand and grow in both planned and innovative ways.

Regardless of the cause of the disruption, this process of evolution and renewal is central to the American system that has created one of the most dynamic economies in the world.  The internet allowed a tiny startup called Netflix to pivot from mailing DVDs to streaming and put a long-standing leader, Blockbuster, out of business.  While the cause of the current disruption is different and external to us all, the same evolutionary process is happening all around us.

For many of us, the memories of the economic downturn 2008-09 are still fresh and can cause concern of a repeat.  For me, this is entirely different for two key reasons.  That crisis was self-imposed and centered on a key pillar of our system – the financial sector.  Right when we needed a robust financial sector, that sector had essentially leveraged itself to a point it was a threat to the system itself.  Today, banks are well capitalized and lending money vigorously to support the system and economy.

If the system itself is not at risk, the entrepreneurial DNA of that system will naturally take hold.  We need to be supportive of our neighbors and local businesses who might be experiencing individual pain during this crisis.  But, we also should feel comfortable that the system is not at risk and we will all get back to a new normal sometime soon.