When you go to the grocery store, and there’s no toilet paper on the shelves, you think the problem is your neighbor down there stockpiling rolls in his basement, but in fact, you just got your first lesson in virus economics.
There’s never been a change this fast in a single month. We lost more jobs in the economy than the economy created in the last 20 years combined, and it’s only getting worse.
Virus economics is really all about fear people are afraid they’re going to get sick, and when you’re afraid you withdraw, you physically stay home, and you start pulling your money out of the stock market. You stop buying things.
Our economy is so dominated by service sector industries and face-to-face interactions with people, and if everyone’s afraid and will not interact, then the economy is going to cascade into problems.
The number-one rule of virus economics is that the best thing you can do for the economy is to slow the spread rate of the virus. Ultimately, public health equals economic health.
The key lesson of virus economics is that when everybody makes the same small behavioral change to their lifestyle simultaneously, that can actually have a huge ripple effect on the economy. So, think about how hyper-specialized we are.
One example of that is toilet paper, and lots of grocery stores are sold out of toilet paper. We’ve had a meltdown of two completely different industries. There’s a retail toilet paper industry, but there’s a whole second set of toilet paper makers who make big industrial toilet paper rolls.
So, when tens of millions of people in a two-week period decide they’re not going to work and they’re all going to stay home the demand for residential toilet paper skyrocketed and the great depression of the bathroom is taking place on the commercial side of toilet paper because nobody wants to buy what they have.
Another lesson in virus economics is it can break key connections in our supply chain. If you look at the United States, so much of it is interconnected with each other, it’s like interlocking dominoes.
And when the virus hits even if it only hits one part that spills on to the next one which knocks over the next one, it knocks over the next one, and we’re kind of dealing with those cascades again and again.
A great example is our food supply, and a very short period of time, people stopped going to restaurants, and when they stopped going to restaurants, the wholesale food suppliers to the restaurant industry shut down.
When they shut down the truckers who bring all of that food to have far fewer cargoes to bring and then you back up to the farmers themselves and they can’t get the crops to the trucks who can’t get it to wholesale, can’t get it to restaurants so their crops are actually rotting and they’re plowing them under.
So, you’re going to the grocery store saying why is there a shortage, and the farmers are saying why do we have all this food, and we can’t get it to anybody.
The road to economic recovery depends on how well you get control of the spread of the virus. That’s certainly what other countries have shown us if you look at places like Korea, Germany, Iceland, or Taiwan – countries where they’ve done enough testing that the only people that are coming out of commission are the people who have the disease.
Ultimately, public health equals economic health, and at the end of the day, the virus is the boss.