Blackcap Blog

Published at 09:00 on 22 April 2020

There is much debate among pundits as to whether we are now in a “V-shaped recession” or a “U-shaped recession.” The answer is neither, but particularly not the wished-for (short duration, quick recovery) V-shaped recession.

The reason is that this is not a typical recession. It was instigated by a pandemic, not by the more typical operations of the business cycle. There is no cure for the coronavirus, nor will there be for twelve to eighteen months at least.

The initial lockdowns will end, but that will not prompt a return to the old normal. The disease will still be out there, and it will keep flaring up from time to time, in various places. Each time that happens there will be a cycle of negative, confidence-sapping news stories followed by spate of necessary but costly social-distancing measures. Those measures won’t be so widespread as the present ones, but they will still be disruptive. There will be some recovery in the next six months (so, not U-shaped), but it will be only partial; the economic downturn will be far from over (not V-shaped, either).

There are whole categories of businesses whose models depend on large numbers of people congregating in one place that are not by any stretch of the imagination essential: sports stadiums, movie theatres, music venues, and so on. These are the last businesses that will be allowed to reopen; odds are that many of them won’t be allowed to do so until a vaccine is available.

By that time, the damage will have been done. Most of those businesses in the previous paragraph won’t be able to survive their prolonged shutdowns. They will fail, and after they fail, most will not come back. Cinemas, for instance, may become as unusual as coffeehouses once were in the USA: a cultural attraction that larger cities may have a few of, but which are absent from the vast majority of the country.

This is not a normal crisis that we are living through; this is a major crisis, on the scale of the two world wars. When you have a crisis this big, you don’t get the old normal back, ever. You get a new, different, post-crisis normal.

It’s not all gloom-and-doom, either. Two more likely victims of the coming permanent changes are urban gentrification and the decline of many small towns. Many of the professional class whose demand is responsible for skyrocketing urban real estate values don’t particularly even like the big cities their careers compel them to reside in. Widespread telework has been possible for well over a decade; the only thing stopping it was management inertia, and that inertia has now been dislodged. We’re unlikely to get the old normal of mandatory in-person office work back.

This will likely both take the pressure off urban real estate prices and act as an economic shot in the arm to many struggling rural areas, as formerly urban professionals relocate to them. (But not all of them, and not equally. Rural areas with abundant scenic and recreational opportunities will disproportionately benefit; Wyoming will fare better than Kansas. West Virginia, a scenic state not far from the Boston/Washington megalopolis, may be the biggest winner of all.)

Not just local economies will change in these states: politics likely will, as well. Those newcomers will take their politics with them, and will help their new home states become less right-wing over time. It’s already happened in Nevada, which used to be a reliably conservative state, and which now leans Democrat, thanks to millions of Californians moving to Las Vegas. (And if you think it far-fetched it might happen in Wyoming, check out how the county there most affected by people moving in for scenic and recreational opportunities, Teton, votes right now.)

The big cities, by contrast, will probably become affordable to many of those who have long been in danger of being priced out of them. This will happen at the expense of many real-estate speculators, who will find out that speculating in real estate is not a sure thing. Many of today’s upscale apartment buildings will become tomorrow’s downscale and affordable ones. It may become as much of a cultural trope for urban artists to reside in battered apartments that were once luxurious (possibly large funky ones created by knocking down walls from adjoining units) as it once was for them to reside in lofts converted from industrial spaces.

But, whether the changes are for the better or for the worse, they are coming. What is not coming back is the old, pre-COVID normal (and it is certainly not coming back quickly).