The coronavirus isn’t changing any trends – it’s accelerating existing ones
Covid-19 will bring many welcome changes – and many unwelcome ones. But it won't fundamentally alter the course of human existence, says John Stepek. These changes were all already underway. They have merely been speeded up.
We’ve heard a lot of talk about how Covid-19 will change our lives. I don’t have a strong view on this. I’m not convinced that this is epoch-defining – I’m hoping that one hundred years from now, 2020 is not noted as an especially important year. But nor do I think that we’ll go back to “business as usual”.
However, there is one point I’d like to emphasise. Covid-19 isn’t a turning point. It isn’t forcing us to change tack on anything huge. Instead, it’s just giving a big shove to the trends that were already in motion.
How Covid-19 will change the way we work
There were lots of political, technological and financial trends in place before the coronavirus outbreak. In politics, a new Cold War between the US and China, as well as a move away from globalisation and Pax Americana (both of which saw their peaks well before Donald Trump came to power).
In technology, a move to ever-increasing digitisation and virtualisation, remote working, and flattening hierarchies. In finance, the triumph of growth over value, tech over old-school, and a never-ending bond bull market taking us ever closer to worldwide negative interest rates.
Covid-19 has acted as an accelerant to these trends. It’s not so much changing our direction as sending us down the same track, but a lot faster.
On the “future of work” side, for example, we have sped up a process that was already happening – more people working remotely. Again, I’ll emphasise that this doesn’t mean every single office will shut down and I’m also aware that lots of people cannot work from home.
But a significant number of people can, more of them will, and the business case for doing so has now been made very clearly at the decision-maker level.
That means changes will now happen, and it means that a lot of the things that futurists have been blue-sky blethering about for ages are going to become realities.
More people leaving the city for the country as remote working becomes practical (Dominic had a good piece on this earlier this week). The corresponding effect on house prices and commuter numbers; the genuinely paperless office (we’re already quite far down that road but digital documents become even more important when they’re otherwise cluttering up your house); the rise of the video conference call plus the drop in international business flights.
Heck, maybe more remote working might finally lead to the mainstream adoption of virtual reality technologies, though that might still be a step too far.
A lot of this will be welcome to a lot of people. Working from home – assuming you’ve got the freedom to gather centrally when you really need to or want to – is a big step up in convenience for many. Commuting less (assuming that cars don’t replace trains in a lot of cases, which is possible) is probably good for both our mental health and the environment, not to mention our wallets.
How Covid-19 could end today's biggest financial trends
However, the other trends that Covid-19 is accelerating are arguably less benign. The monetary backdrop is the one I’m thinking about right now.
We sometimes hear that investors are losing faith in central banks. Indeed I’ve mistakenly made that argument occasionally in the more distant past. I absolutely do not think it is the case now.
I think the only real mask that’s slipped is that people increasingly understand that central banks are a wing of the government and that independence was always a convenient fig leaf and a somewhat silly one at that (if your independence is contingent on you always doing what someone else wants you to do, then you’re not independent).
You could even argue that the decision to shut down the economy was only deemed feasible because we’ve already grown used to the idea that money can be printed to plaster over any problem.
To be clear, this isn’t a comment on whether lockdown was the right decision or not (I’m not sure that we’ll ever really know that – the true picture of the costs versus the benefits will never be 100% clear, and even in a year’s time taking a strong view either way will be highly contentious, not that this will stop anyone).
I’m just making the point that lockdown might not even have been considered an option, if it wasn’t for the fact that we’re now in an economic environment where cost is viewed as no obstacle.
If you accelerate that trend, then you can end up in a few places. Bridgewater’s Ray Dalio has been writing some interesting material on this recently which I’m planning to digest and share with you in a future Money Morning (although you can go straight to his pieces on LinkedIn if you’ve the time).
But to cut a long story short, these roads all lead to inflation, currency debasement, and debt being repaid with money that’s been printed by central banks. It's just a question of how long it takes.
That’s where the next few months, maybe years, really matter. We’ve seen extremely radical policies already. How much more radical will they get once governments realise that, like it or not, they’re going to have to step in to prevent mass furloughs from turning into mass redundancies?
The actions taken then – well, they’ll be the epoch-shaping ones. They’ll be the ones that finally put the nail in the coffin of the long-term bond bull market, that spark the return of inflation, and that kick off a scrabble for geopolitical influence as the position of global reserve currency comes up for grabs again.
So maybe in a hundred years’ time we will look at 2020 as a hugely significant year. But I suspect that it’ll be closer to 2021.
Anyway – there’s a lot to unpack there. And we’ll be doing a lot of it over the coming weeks and months in MoneyWeek magazine. Subscribe now – first six issues free, plus a free ebook that will give you some perspective on how past booms and busts have brought us to this point.