(PatrioticPost.com)- Even when the coronavirus pandemic ends, people’s fear may drive a down economy for years to come.
Robert Shiller, a Yale University professor and an economist who has won a Nobel prize, said there could be a rather large and long-lasting psychological and economic toll after the pandemic ends, especially if states continue to abandon re-openings due to spikes in the virus.
As he said on Tuesday:
“Looks like we might be entering a second phase. There might have to be closures again. It might have a worse psychological response the second time.”
The biggest risk, Shiller said, is people believing this setback will not go away, which could impact their willingness to take any risks. But that type of thinking could then turn into a “self-fulfilling prophecy,” which could significantly affect demand and compromise the health of many businesses.
“We don’t have to keep up with the Joneses anymore. That might create a different kind of culture that would last for years that you don’t have to show the latest fashions and drive a spanking new car. We just learn that you can relax. But that is bad for the economy.”
Shiller specializes in emotions and how they drive people’s financial decisions. Stock market investors, for example, normally are comfortable with familiar patterns. These patterns then help them get through economic downturns, which are inevitable over time.
At the same time, Shiller pointed out that the stock market isn’t always in line with overall economic activity. That’s why the reason why economic stimulus measures that have been initiated have been working like a backstop to the economy.
“People remember recent price movements, and they expect them to repeat themselves. They tell a story,” Shiller said. “People could easily think that it’s not essential to the economy, and it will soon be over. But I think there’s more at work to it than that.”
The story of the stock market now is that, despite strong performance of late, there’s still a lot of uncertainty. Just because investors are showing signs of confidence in the economic outlook doesn’t mean they will remain that way for good. In fact, with so much changing with the coronavirus pandemic on a seemingly daily basis, anything could happen at any time.
“One thing that’s quite striking is the lack of interest in the whole thing until suddenly after the market peaked in February,” he said. “For a while, it looked like people were suddenly scared, and then it came right back up. I think that has something to do with how stories evolve, and the initial story was a Great Depression again.”
Unemployment numbers have rivaled those of the Great Depression, although the overall unemployment rate has not risen to the levels that the country saw during that time. Still, millions of Americans continue to file for first-time unemployment benefits every week, even if those overall numbers are going down from their peak in late March.