That Americans want life to “return to normal” is without dispute. The social distancing measures and lockdowns needed to confront the COVID-19 pandemic require significant sacrifices of the economic and social dynamism that make America a prosperous and powerful country. The debate however, about how soon Americans can return to normalcy is growing increasingly contentious. Business leaders would do well to understand the economic and reputational risks that premature reopening could entail, as well as the broader political danger at a time when the reputation of capitalism grows ever precarious.
While we see signs of hope that the social distancing measures are working, business leaders will do well to remember that the projections of those models are a lagging indicator. As epidemiologists and experts, notably Dr. Deborah Birx and Dr. Anthony Fauci in the United States, repeatedly point out, the time from infection to severe symptoms means that the current data reflects the pandemic of a fortnight ago. The coming weeks will be among the worst this country has experienced in the course of the epidemic, but hot spots across the country will continue to be of concern.
Economists agree that the course of the virus will be the driver behind the economic picture, not any measures or timing to reopen. Absent a vaccine or effective, safe therapeutic, the only way to stop the virus is to stop its spread, and also ensure that the health-care system can meet the surge in the severely ill. If social distancing measures end too soon, and even worse hot spots emerge, then there is an even greater economic impact from repeated lockdowns and a public collapse in confidence in their political and economic leaders.
During the 2008-2009 financial crisis, short-term liquidity evaporated among banks and other financial institutions. As the banking system struggled, the value of pledged collateral fell and led to capital calls and indeed institutional failure. A historical root cause analysis uncovered a number of systemic faults along with egregious amounts of leverage. More mysterious was why the crisis ended when it did. Understanding this part of the history is crucial to today’s decision-makers.
When asked why the financial crisis ended and markets turned on March 9, 2009, and not before, a Federal Reserve president answered, “You believed us.” He said that the Fed announced stress tests for the nation’s largest banks in early March. The testing criteria and the responses and the audit details were never released. Instead, the Federal Reserve announced in early April that the U.S. banking system was liquid and healthy enough to endure future stresses. He posited that it was this assertion by the Federal Reserve that served to transfer the good faith of the Federal Reserve back into the banking system. Trust was restored, and the economy and markets recovered. Faith and trust in both government and corporate leaders is critical to the human and economic recovery ahead.
As China attempts to return to normal, the data demonstrates interesting trends. In Beijing and Shanghai, while outside the worst-hit areas, traffic data, for example, continues to lag behind the pre-pandemic norms. While weekday traffic appears to be recovering, weekend and evening traffic remains far below normal levels. This means no traffic for malls, restaurants and theaters — the roughly 40% of the Chinese economy that is consumer spending. Even as the Chinese regime wants its people, and the world as a whole, to believe that the disease is under control, life is hardly returning to normal.
For the U.S. economy, even more reliant on the consumer for 70% of the economy, establishing trust and confidence that the disease is under control is paramount to true economic recovery. A recent Gallup poll demonstrated that, as only 14% of Americans would consider returning to life as normal right now, with 42% waiting for the number of cases to decline significantly and 38% wanting no new cases for some period of time.
Finally, business leaders should consider their own precarious position in today’s politics. Further polling, albeit from 2019, tells us that young adults now view capitalism and socialism in equal stead, and while supportive of free enterprise, big business is viewed with increasing skepticism. More timely polling during the pandemic has 81% of Americans favoring social distancing, even if it means economic damage. If business leaders hew to an economy-first, political orthodoxy in a time of crisis, they do so at significant risk to damaging their reputation and that of their firms. Who wants to be the CEO that the public points to as caring more about his market cap and compensation than the lives of his employees and customers?
The pandemic and the resulting economic emergency require us to check our political and economic orthodoxy for now. During the Civil War, some thought that the introduction of paper money would mean the end of the American economy as it was known at the time. Yet history also tells us of Republican corporate executive Wendell Willkie, who worked with New Deal Democrat Franklin Roosevelt to provide the needed government coordination to ensure that the American economy became World War II’s arsenal of democracy.
Bold measures are needed to support the economy today. Health experts should be driving the timeline while corporate America and government work together to get the economy through the induced coma that is needed to halt this pandemic. This will require continued direct support to individuals and businesses. Leaders who talk about such measures “encouraging dependency on government” should consider their own tax breaks and subsidies, as well as the disdain towards their employees or constituents that those comments reveal. If debt is the concern, then hope for consistencies’ sake that they also raised those same concerns about previous tax cuts.
As badly as Americans want life to return to normal, the numerous narratives about when the virus will peak, when restaurants will reopen and employment numbers begin to turn are not useful. The course of the disease, depth and breadth, remain to be seen. Time will tell how long it takes for small businesses to recover and return to profitability. Too much reliance on “hopium,” sets artificial expectations, that if unmet, undermine credibility and exacerbate volatility.
Times of crisis remind us that the American experiment is founded on the principles of a commonwealth, not just the goals of the uncommonly wealthy. Mark Cuban said to listen to doctors and “ignore anything someone like me might say.” Similarly, bold corporate leaders who care about the economy, their firms, and their people will understand that now is the time where, no matter what, people come first. The marketplace, and history, will reward that. America will prevail and emerge stronger and wiser. Future generations will judge us by the choices we make today. They will understand our values as a nation by the priorities we set. It is incumbent on all of us to create a legacy that is ethically, humanely, and economically sensitive and responsible.
Michael Farr is the founder, president, and CEO of Farr, Miller & Washington Investment Council. Dan Mahaffee is the senior vice president & director of policy at the Center for the Study of the Presidency & Congress.