Christopher Westley is the dean of the Lutgert College of Business.
Earlier this year, the national economy was going into lockdown mode, and the economics media commentariat began wrapping their minds around its implications. Some expected a quick, V-shaped recovery occurring sometime in the summer, fueled by pent-up demand and a weakened coronavirus during warmer summer months. Others thought the economy wouldn’t bounce back as easily and predicted a recovery more akin to a U-shape, with disagreement regarding the depth of that U.
Verboten among these prognosticators was talk of a W-shaped recovery with a prolonged up-and-down growth that was still a deviation or two below the mean. Also off-limits was talk of the dreaded L-shape, which implied a recovery that would never happen at all.
It reminded me of why I don’t like to make predictions and hold macroeconomic models claiming this ability in low regard. Even the most sophisticated models must, by definition, withhold important variables that are assumed away because they just don’t fit. Practically all mainstream economists missed the Crash of ’08 because they excluded a variable as important as capital from their models because of its heterogeneity— which is another way of saying it’s hard to model something that can be both simple as a screwdriver and as complex as a 757.
You’d think such economists would be discredited, but science doesn’t work that way in our politicized world. Scientists, including social scientists, are often not paid so much to be right but to support a given narrative, often defined by their benefactors. Still, any economist who thought the largest economy in the world could be turned off by one lever and turned on later by another should at least have trouble finding a date to the next Econometricians’ Ball.
Regardless, when recessions hit, there is no need for them to last long. They are simply a time when the economy corrects the malinvestments that occurred during the preceding boom. While their severity is related to the extent of the boom’s excesses, their length is related to the degree of interventions in the correction process. The 2008 recession was dragged on by monetary and fiscal policies that slowed the reallocation of capital and labor, especially in the form of quantitative easing and industry bailouts, hindering natural adjustments of market forces. This time is not different.
The pandemic adds another layer of trouble. It throws sand in the gears of recovery by harming investor and consumer confidence. Businesses hold back investment and expansion when they aren’t sure which direction the pandemic will take or what policy response will be imposed next. Economists call this regime uncertainty, and it is one of the reasons recessions can persist.
At the same time, consumers are less confident when they are concerned about catching the virus. In Southwest Florida, the primary demographic at risk from the coronavirus also is the one with the most purchasing power. This is a problem.
There’s not much we can do as a region in response to the national recovery duration. But we can work to reverse adverse economic effects associated with the pandemic. RESTART SWFL is such an effort. Created by experts at FGCU’s Lutgert College of Business and Marieb College of Health & Human Services, RESTART provides a way businesses can cheaply and accurately communicate to the market they are meeting and exceeding health guidelines while pledging to hold to exemplary business and ethical standards. Completing the program is free and does not take long.
I encourage readers to learn more at fgcu.edu/RESTART about how to encourage consumers to reenter the marketplace. Because good health and good business are not mutually exclusive, even during a recession.