The Long-Term Coronavirus Effect on the Economy

Here’s what surprises no one: I like history. I also have a degree in international relations, which taught me about several theories about why the world operates in the way it does. The one I personally adhere to is called constructivism; without getting too in the weeds, it says that the traditions and beliefs of people are what make-or-break each nation’s connection with the rest. In other words, it’s history that matters most, not power struggles or relationships.

It’s looking at history that I can best plan for the future, since history shows you patterns you can’t quite see in the present. “History repeats itself” packs some massive meaning into those three words, and it’s also the phrase that made me rich. The history of the stock market showed me the buy-and-hold strategy would serve me the best, even if that means volatility along the way. Going back further than the 1880s (which was when the Dow first appeared) showed me the history of human innovation and behaviors, with the effects of both literally spelled out for me in the history books.

Whenever I’m faced with a choice and I’m unsure of the outcome, I consult those that have come before me for their expertise. Today, when I wanted to know how COVID-19 might impact the world, my approach didn’t change. To the history tomes I went, and the history tomes did not disappoint.

Historically, Viruses Are No Anomaly

Anyone shouting “this time it’s different!!” about a pandemic-caused recession just aren’t that well-informed. Modern-day understanding of viruses – and how they spread – is built upon knowledge it’s taken us centuries to amass and curate. You can see it’s already served us for the better, stemming the spread of COVID-19 and ensuring the public can prepare for impact.

It’s also history that can give us an idea of the long-term effects. Our medical advances in recent decades has kept global pandemics to a minimum, so we don’t have contemporary examples of what’ll happen. However, we can definitely look farther back to times where we didn’t have these advances; we have the documentation of other internationally-spread diseases and what that did to wealth.

Let’s take that history to get a idea of how coronavirus will affect the economy and, therefore, your investments. In the short term it’s already ushered in an end to the longest bull market run ever and decimated the travel and tourism industries. But long term? That remains to be seen for a certainty.

But if you do want to know what will likely happen, you’ll have to go a bit medieval.

The Effects of the Prior Terrifying Pandemics

Note that coronavirus, compared to the plagues of the past, is leagues more milder and much less deadly. This post is NOT meant to fearmonger, and I am in no way suggesting coronavirus has any similarity to past plagues on a biological level. I’m focusing solely on the financial and economic aspects of both pandemics; discussing their molecular makeup or whatever is way out of the scope of We Want Guac.

Now that that’s clear, on we go.

Enough has been said comparing coronavirus to the Spanish Flu in 1918 so I’d like to look at another period that’s not discussed. There have been several deadly outbreaks of diseases we can learn from. The various flu epidemics, cholera, previous coronavirus strains like SARS, and HIV/AIDS come to mind, although none have approached the economic impact of today’s coronavirus. The one that has was the one that actually surpassed it and became the most devastating pandemic in human history: the Black Plague in the fourteenth century.

Keep in mind I don’t have fancy Ivy League credentials or anything, but I do have enough brains to see some similarities already.

First, both pandemics took (and are taking) place during a time of rampant wealth inequality.

This isn’t me being political, this is me being factual. The wealth of the 1% today is almost inconceivable while their countrymen starve for lack of a livable wage. Same thing for medieval society, but on an even more extreme scale. Democracy wouldn’t be a thing for another three, four hundred years; feudalism kept everyone in very rigid roles and barely any room for a better living.

You might have more in common with a medieval peasant than you originally thought; they also has to deal with low wages and high rent prices.

Second, both pandemics spread far and wide thanks to frequent travelers.

In the Middle Ages this came from sailors who carried the disease in and out of seaports all over. There were several businesses that catered specifically to these sailors, where other clients would unknowingly catch the disease and further spread it in their cities.

Today, travel is so common that almost anybody can purchase a plane ticket or ride a bus, and they do even when it poses a risk to the rest of us. Coronavirus spread all over the globe so quickly because our ease of travel came to bite us in the butt.

Lastly, both pandemics limited the amount of available workers.

Albeit for different reasons. The Black Plague’s worker shortage came from millions of people passing away. Thanks to today’s widespread educational initiatives and technological innovation, we don’t have to face that macabre reality. However, coronavirus is definitely leaving several businesses with empty offices and slowed productivity. Already there’s reports of how bad self-quarantining is in the healthcare field, exactly where you don’t want a limited amount of workers.

What Coronavirus Might Actually Cause

So with all of these similarities, we can expect to see more connection between the two in the coming months. Economically-speaking, the Black Plague brought about several huge changes. I’m only going to focus on how it affected the medieval European economy and see which elements may repeat themselves with coronavirus. Using the economic impact of the Black Death as my guide, here’s what I will expect to see:

1. Companies will offer more fringe benefits and higher wages

If you were a skilled worker before the Black Plague arrived, you were SOL in finding a better-paying gig. There were too many equally qualified people doing the same thing you were and it was hard to get ahead. Post-Black Plague, the smaller labor pool meant you could demand a higher price for your services… and get it. This is exactly what laborers did, and their feudal lords had little choice but to grant it.

With more and more people afraid to come into offices and work, there could be a similar effect of employers offering more in exchange for risking your health. Or, y’know, risking it more than you already do with work-related stress.

2. … but not before trying to change the law to screw you over

Nowadays, the rich have hired enough lobbyists to make the law of the land more favorable to them. The rich people of the past were no different. While millions of laborers died off from the plague, European rulers were upset because their profit margins were going poof. To try and get back to their previous decadence, they passed laws like the Statute of Labourers, which is one that England passed in 1351 prohibiting people from getting better wages. In other words, setting a maximum wage for everyone beneath a lord; legally speaking, there was a hard limit to how much money you could actually earn.

In 2020 we have much better laws that wouldn’t try forcing us down to such shitty levels. But that doesn’t mean upset billionaires won’t try and manipulate it some other way. Being an election year will keep the most outlandish proposals to a minimum, but with the current state of politics who knows what that looks like?

3. Demand for talent will go up, as will wages

In most bear markets and recessions, unemployment grows higher. When it’s a bear market or recession caused by plague, that rule doesn’t apply. 1350s urbanites had fewer skilled laborers to go to for their needs, eventually depending on more folks moving in from the countryside to satisfy demand. But this flight to the cities left rural elites in even more of a pinch, forcing them to try and hold onto what talent they could. And how do you attract or retain these precious skilled laborers? With COLD, HARD CASH, BABY.

Yep, coronavirus might end up putting more money in your pocket if it doesn’t knock you down first. Less and less people will be willing to put up with business travel and working in close proximity with others of questionable hygenic standards. This is even more relevant for the older generations or those with autoimmune deficiencies, who would be harder-hit by COVID-19. Those that will actually take on the trips and shake gross hands could be highly sought after, with compensation rising accordingly.

4. Working conditions will improve, with more remote work opportunity and other flexible options

This was another necessity from the smaller medieval labor pool, as laborers had the luxury to demand improvements to their working environment (Ye Olde Labor Unions at work!) If a lord refused to accommodate the demands, laborers just went elsewhere to someone who would. Within a couple of years working conditions improved across the board, as lords realized they had no choice if they wanted to have laborers on hand.

As of today we’re already seeing news articles detailing workers angry about poor working conditions and demanding improvements. This anger is found across the spectrum of warehouses and factories, from the smallest business to giants like Amazon, notorious for “consider[ing] the lives of its workers to be expendable”. With the aforementioned higher wages being offered by other companies, I’m expecting these companies will either have to buck up and actually make things better for their workers or lose them – and their productivity – over misplaced stubbornness.

For white collar roles, the rules can change even further.

We live in the electronic era, where it’s now possible to go your entire adult life without ever actually leaving your house. With the worst of coronavirus yet to come, why leave at all? Especially when virtual meetings and emails make physically going into an office unnecessary? I think several companies will realize that having their workers work from home more is doable, even profitable without so much need for office real estate. This won’t work for all companies (such as service-based or retail ones, which require someone being in a particular area) but it will for those who work primarily from a computer.

5. Businesses will either permanently readjust, or fail

While aristocracy ruled in medieval times, some of these families morphed into big companies that expanded beyond any one country’s borders. Medieval Italy’s got the best examples with the Compagnia dei Bardi and Peruzzi, who walked so the House of Medici (in the 1500s) could run. Without going on a tangent here, I want to highlight that these organizations knew they risked utter failure if they didn’t change the way they conducted business. The labor shortages, consequent rising wages, and the shifting demographics with disposable income required some monumental shifts in their traditions and way of thinking. Both aforementioned companies couldn’t deal and went bankrupt right when the Black Plague was first spreading, despite commanding massive influence throughout the continent.

A lot of industries today are facing the same thing; mainly, those unwittingly dependent on people being in close proximity to each other. The most immediately-hit industries are the travel and tourism ones, which you can see from airlines imploding and resort towns becoming ghost towns. Some of their new issues are due to mismanagement and not properly preparing for down times like these; this only furthers my argument, that they must change their strategy or perish.

Big seasonal events will also be hard-hit. In my neck of the woods we’re already postponing the Boston Marathon, which has always brought a tsunami of springtime cash into the city. Other cities that depend on large events for revenue could see that dry up fast, and local businesses with it. Several are going to have to start preparing now to deal with the coronavirus disrupting their business projections and finding ways to recoup the upcoming loss, or else risk folding completely.

6. Inflation will happen abruptly, but briefly

You’d think that the Middle Ages would see some deflation post-Black Plague, as the people who used to buy goods and services weren’t around anymore. You did see this, but you also saw inflation taking place thanks to the same thing on the laborer side. Without nearly as many people around to grow the food and weave the fabrics, the commodities supply dwindled and sent prices on an upswing. For a time those higher wages the peasantry secured were eaten up by inflation until it mellowed out again later on.

So far, any inflation from coronavirus is due to people panic-buying goods like hand sanitizer and toilet paper. This isn’t actually going to cause inflation as it’s caused by people being stupid, not because the supply chain is broken. In the coming months, this could change, as it did with the Black Plague. With that said, I doubt it will last that long before the federal government swoops in and ensures we won’t experience anything that devastating.

7. Rent prices might go down

That’s really what happened with the Black Plague. Rent was pretty steep on the lands of feudal lords circa the 1340s, because the landowners knew they could charge the high prices and the renters would have no choice but to pay it. When everyone either died off or left for greener pastures, however, they left behind entire villages and settlements that were, previously, paying quite a bit for the privilege of housing. The landlords realized having some rent was better than having no rent, and so made much more favorable leases. In some cases, this included fixed rates for anywhere from four years to an entire lifetime (Ye Olde RENT REGULATION at work!!)

Today, those workers might just leave entire buildings and neighborhoods for better rent. It’s a phenomenon we’re already seeing, and one coronavirus can accelerate. If companies will really expand into having more remote workers, there’s really no reason not to move elsewhere. Thousands of 2020s urbanites could secure remote work and run for the hills, living it up with a country home and a much lower housing cost. Those city landlords will have to make up the loss somehow, and I’m hoping they’ll solve it the same way they did back then.

I do recognize, though, that this might just be wishful thinking on my part. Rent is far and away my biggest expense, so any possibility of lowering that is a nice pipe dream.

Final Thoughts

I deliberately didn’t discuss the Black Plague’s staggering loss of life. For one, that’s depressing and could inspire undue fear over today’s pandemic. For another, it invalidates the very different risks coronavirus poses today.

I also recognize that solely discussing the economic impacts tends to overlook the more instinctual responses sickness brings about. Things like desperate worry for everyone’s health, and additional stress, and the visceral pain from losing a loved one. That’s something else we saw a lot of post-Black Plague: artwork showed a lot more sorrow and grief than it previously did, and joy was much harder to come by.

But guess what?

WE LIVED.

Even with all of the devastation the Black Plague caused, it couldn’t stop the breathtaking advancements we’ve reached since then. Fifty years later came about the century that guided the world into the Renaissance period and discovery of the Americas. Things have only gotten better in the years since, especially when it came to our ability to fight diseases. We have so much more than medieval people did, like proper hygienic standards, nutritional access, and worker’s rights, all WITHOUT coming at the cost of millions of lives. Economically speaking, we’re going to come out of this intact. That’s what history overwhelmingly shows you: humanity carries on.

This is why I’m not worried about the long-term effects coronavirus will force. Since the future is yet to be written, peek at what has already been. It really helps you see this also will pass – and there are good things yet to come after our darkest hours.

What else should we think about when it comes to the coronavirus economic effects in the long run?

4 thoughts on “The Long-Term Coronavirus Effect on the Economy

  • March 18, 2020 at 9:45 pm
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    I’m not sure how this virus that kills a statistically irrelevant number of people from the labor pool will create skilled job shortages? The deaths are mostly old people 70+ already out of the labor pool. Most younger working people won’t even know when they catch covid19 it will be so mild. Are you saying you think it will kill a lot of 25-60 year olds?

    • March 18, 2020 at 10:22 pm
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      Not at all – I think the job shortages will come from folks deciding against working a job that exposes them to the virus. Most offices are now empty, and the ones that aren’t are still down quite a few personnel who are quarantining themselves or otherwise practicing self-isolation. All laid out in the 16th paragraph 🙂

  • March 20, 2020 at 11:55 pm
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    I really enjoyed this article! (Although I have to say it’s missing some creepy plague doctor images). I think you’re right that this will upend the economy for a while and result in changes to the labour market regardless of the number of fatalities. In uncertain times, it helps to have a mental model of what to expect, even if that mental model turns out to be wrong. Thanks for helping me develop my own mental model of this!!

    • March 22, 2020 at 10:38 pm
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      I did consider adding some plague doctor images but didn’t want to make it too scary 😉 I’m so happy this helped you!

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