Building a New Normal Post COVID-19
By Melissa M. Stewart
Leading Researcher and Lecturer in the William & Mary Economics Department Says Confidence is Key to Economic Recovery
Economist Peter Atwater asserts that for many Americans, the COVID-19 crisis seems like they were pushed down a flight of stairs and robbed at gun point. It’s a difficult trauma, for certain, but healing is not impossible, he says.
When it comes to the long-term effects of COVID-19 on businesses and the economy, Atwater believes that confidence will be key. People act how they feel, he says, and even though we may still be dealing with pandemic panic, historic precedents prove it isn’t likely to prevail in the long run.
Atwater, an adjunct professor in the economics department at William & Mary, teaches confidence-driven decision making and has been providing perspective on financial markets and the economy through his company, Financial Insyghts, for more than a decade. He has offered expert advice on Bloomberg Television and in The Financial Times, the Wall Street Journal and Time Magazine.
Below, he shares his wisdom in an interview with CoVa Biz on our economy’s recovery post COVID-19, how we will adapt and why feelings play a vital role in our willingness to go “back to normal.”
We understand you study how factors like confidence and fear affect consumer decision-making and the economy. Can you tell us briefly more about this and your background?
Peter Atwater: Confidence is a universal perception and, while clearly different at different socioeconomic levels, there are many other inputs to confidence beyond economic conditions. My interest is in how changes in confidence—irrespective of cause—changes our preferences, decisions and actions.
I have found that almost universally people with low confidence exhibit ‘me-here-now’ thinking. Things that are psychologically far away matter less to us. And because confidence is inherently a cognitive condition, we need simplicity, too. When confidence is low and our perceptions of uncertainty and powerlessness are high, we are cognitively overwhelmed trying to make sense of it all.
Alternatively, when confidence is high, our minds are open to “us-everywhere-forever” thinking. Highly confident, we have little that we need to focus our brains on. We have the cognitive bandwidth to consider abstract concepts. We plan, for example, far out into the future and believe that the world around us is extremely safe.
You have equated people’s perception of and reaction to COVID-19 to recovering from a trauma. Based on your studies and expertise, is the COVID-19 crisis the biggest blow to consumer confidence in recent history?
Atwater: I believe it is. Behaviorally it appears to unite the physical vulnerability many Americans experienced after 9/11—where our fundamental security felt threatened—with the financial vulnerability of the housing/banking crisis of 2008. As in the prior two cases, we felt moved suddenly and involuntarily from an environment of extremely high certainty and control into an environment of extreme uncertainty and powerlessness.
Why this matters is that we don’t recover from trauma, we are forced to adapt to it. There is no going back to before. We need to find a new path.
What other historical precedents—9/11 and the housing crisis, perhaps—compare? What is similar and what is different with COVID-19?
Atwater: Some have suggested that war environments feel similar—with extreme perceptions of uncertainty and powerlessness. For others the experience brings back memories of major illnesses, such as cancer. All of these environments are conditions of extreme vulnerability and that, at its core, is what many Americans are feeling today.
One thing to consider, too, is that confidence is entirely perception-driven, and it is feeling-based. There are no truths driving how we feel. I raise this, because in my work, past historical events aren’t nearly as relevant to our perceptions as past experiences. When it comes to vulnerability, we are much more likely to compare our experience today to something we have lived through in our past.
Are there any other models we can look at to predict how our economy will recover in the future?
Atwater: Yes. First, we are likely to reopen/return first to those things that we closed last. Initially we are likely to expand outward to only those organizations and individuals we trust most and who we feel respect and appreciate our vulnerability.
I have analogized the experience to those who first left the fort at Jamestown. They didn’t go far, and they trusted only a very few. Over time, however, their range and networks grew. We will do the same. Activities like international travel, which were canceled first, will be the final activities we return to.
I would also offer that like every traumatic experience, there will be a period of adaptation that involves grief, a sense of loss, anger, learning, struggling and failing, etc. What is ahead is likely to be highly emotional.
We know you get this question a lot, but it’s one everyone is asking. Where do we go from here?
Atwater: I wouldn’t underestimate our ability to adapt. In fact, you can see it already where those at the front lines of outbreak are having to develop innovative solutions in real-time. What is at the center of these innovations, though, is addressing vulnerability.
As I look ahead, I expect that addressing vulnerability will be a major focus of individuals, businesses and governments ahead. With many feeling unprepared for what is now unfolding, there will be a great deal of attention aimed at addressing the lingering perceptions of vulnerability.
How are our confidence levels and feelings of fear going to affect our willingness to go “back to normal”—whatever that looks like—even when we are able?
Atwater: Even if encouraged by policymakers, the economy won’t reopen all at once. We are all going to need to find our way from here. I think people need to move beyond the notion that we will go “back to normal.” We will move forward, initially with fear, but with experience more and more confidently. With that confidence will come new norms which will define what we see as normal ahead.
What does this mean for the economy in the next few months, the next few years and beyond?
Atwater: I expect very low economic growth initially. Given our financial vulnerability, we should expect dramatically changed priorities. Repair, for example, will replace new purchasing. We will find ways to do without.
We are also likely to stockpile those products where we experienced shortages amid the crisis. Not only will we keep more on hand, but we will expect businesses to stock more on their shelves, too. I call what is ahead the “Just-In-Case Economy.” We will need to first address our lingering vulnerability before we take more risks.