Economist John Kenneth Galbraith once said there are two types of economic forecasters: “Those who don’t know and those who don’t know they don’t know.” (source)
As I watch the news unfold about how the U.S. economy is responding to the coronavirus around the globe, it’s reminding me of the recession we had in 2008.
The big difference is that in 2008, the recession was due to the deregulation in the financial industry and the subprime mortgage crisis. This upcoming recession will be due to a pandemic. Although some of us have been through several financial crises, none of us have been through an economic crisis caused by a pandemic.
From what I’m seeing, it will be a double whammy: An economic free-fall AND a medical crisis.
We don’t know what will happen, but I’ve been doing some of my own predicting. My forecasting pertains explicitly to my personal experience of what happened in the 2008 recession, and how people typically behave when faced with a possible threat to their livelihood.
In my mind, those two things together don’t look good. It’s rather sobering if you think about it in a worst-case scenario way.
I tend to think that way anyway, and I like to be prepared. Today I went to the store and spent $250.00 that I hadn’t planned on spending to get supplies if we need to stay inside for a few weeks. Also, I was a bit concerned that if I didn’t do it now, there might not be any supplies later. Already, there are empty shelves, and the store is limiting the number of items at a time that a shopper can buy.
A prediction that’s already here: we will be limited in supplies. We are at the beginning of the pandemic, and already there are changes.
The plummeting stock market is the piece that has me more concerned. The last time I saw this happen, people lost jobs, homes, and their livelihood. It was a hard time.
The Coronavirus pandemic will change the way we spend our money.
I remember my grandparents as practical people. They were young when they went through the Depression, and it changed them.
They saved everything, including paper bags, Christmas wrap, and any nail or bolt that they kept in a glass baby jar. My grandfather loved custard pie because that’s what he ate as a child. My grandmother wrote everything down in a ledger and kept every receipt.
They saved up their money to buy their first station wagon and owned it as long as I remembered, at least twenty years.
My grandfather fished salmon out of the river, brought it home, and my grandmother made salmon patties using eggs and saltine crackers as filler. My grandmother used to take my chicken leg from me and clean it to the bone.
They didn’t waste anything. My grandparents were the impressionable youth of the Depression, and they learned how to live with close to nothing.
When experiencing a short-term crisis, we hoard things, like toilet paper, or whatever we think we might need that we don’t have enough in store.
A long-term shortage will cause our priorities to change.
Right now, we have the beginning of a shortage due to people overbuying of supplies because we don’t know how long this will last. We watch around the world as little by little; we see entire regions quarantined. We are encouraged ourselves to stay home and self-quarantine if we are sick. Enough people heed that advice, and we will run low on supplies.
How long with this last? The Great Recession lasted 18 months, but it took much longer to recover. The consequences resulted in foreclosures and long-term unemployment. The Great Depression lasted ten years, and we can only know what it was like by reading history books. What we know is that it was devastating.
What will this look like as we forecast our personal finances and our spending habits? The coronavirus will have an impact on people’s purchase decisions.
Let’s look at a simplistic scenario:
Even before the coronavirus, online shopping has become more mainstream. Quarantines might be the push for more people to buy necessities online. People will also be less likely to purchase discretionary items, or risk being in a large group of people.
Many people in the U.S. have debt, myself included. Many do not have an emergency fund or even a savings account. We live in a paycheck to paycheck existence without preparing ourselves for an emergency. Throw in coronavirus anxiety and a plummeting stock market, and we will start spending as if in a survival mode. There will be very little or no discretionary spending. We may offload debt if we can’t make ends meet.
If the crisis lasts longer, there will be a shift in our culture. We may see a rise in multigenerational households. We may even see some families who have those who work and those who care for the family. And we may even shift in the workforce, as some jobs become imperative, and others obsolete.
A financial crisis has happened before; I believe it will happen again. Will we become habitualized to use our resources as my grandparents did? Will our world change? Maybe.
Michelle Jaqua is a blogger on Medium.com. She writes about money/relationships/personal improvement. Sign up for her Cha-Ching newsletter here.