The Next Recession
WHY YOU SHOULD CARE
Because all of a sudden, it's happening.
By Sean Culligan
It’s here, and it’s worse than we could have imagined.
Experts and laypeople alike have been speculating for years about when America’s spectacular bull run would end, and the reckoning has now arrived with a global pandemic sending the stock market and broader economy into a tailspin.
It was last August when OZY first explored the surprising consequences to expect out of the next recession — including a prediction about remote work that’s already come true in the era of social distancing. In light of the coronavirus crisis, we’ve added fresh reporting and commentary to tell the tale of where we’re headed in the coming months and years. Read on.
This week, the Dow Jones Industrial Average dropped 17 percent, its worst single week since October 2008. The moves have been swift and ferocious, leaving many Americans in a state of real pain and anxiety that comes with job loss or the threat of it. And then there are the mostly better-off but still anxious investors, perhaps fretting about a depleted retirement fund and wondering: What should I do? OZY columnist Alonso Garza gives the answers.
As Congress and the Trump administration push forward on an economic rescue package that would involve direct cash payments to American families, there remain huge questions about how to pay for it and whether it will be enough. It might be time for central banks to load up their metaphorical helicopters. Helicopter money is a consumer-focused alternative to quantitative easing (QE) by purchasing government or other financial securities. In the context of the outbreak, it would allow Americans to continue to pay rent and utilities and to keep food on the table — a bailout for the people. This could come directly from the Federal Reserve, acting independently from elected officials.
Nine out of 10 Americans and the majority worldwide rely on generic drugs. Yet the generic pharma industry is in the middle of a crisis. While the Trump administration expedites FDA approvals, boosting competition in the sector and bringing down prices, stores are banding together to buy in bulk blocks, also pushing down prices. Both of these are bad news for generic drugs — so much so that some experts fear we’re seeing the demise of the generic drug industry. But an economic downturn could be the unlikely savior of generic pharma.
Wondering how the federal government is likely to respond to the next big recession? According to OZY columnist Grover Norquist … not well! Since 1929, he says, the government reaction has been to “make it worse, deeper, longer.” But that wasn’t always the case, he points out, noting how Republican leaders managed to pull America out of the Great Recession of 1921 by not throwing money at the problem or raising taxes. President Warren G. Harding balanced the budget, unleashed no “stimulus spending” and kept interest rates at 5 percent from 1920 to 1921. The result: a turnaround within just 18 months.
Do you snub your nose when Nana suggests a trip to the dollar store? Well, you may want to adjust your thinking. Dollar stores aren’t just for lower-income neighborhoods anymore. In fact, today there are more of these just-a-buck shops in “middle-income” ZIP codes than in low- and high-income ZIP codes combined. Dollar Tree and Dollar General are opening in places where they can cater to those making between $50,000 and $75,000 per year, in addition to low-income communities that historically have comprised their consumer bedrock. With more than 30,000 locations of Dollar Tree and Dollar General, there are more dollar stores in the U.S. than the next six biggest retailers — Walmart, Kroger, Costco, Home Depot, CVS and Walgreens — combined. In the next recession, it’s not hard to guess where shoppers will flock first.
In 1991, relatively unknown restaurant owner Nui Onoue was arrested and charged in what would become the single largest investment fraud case in Japanese history. Her story is one that encapsulated the absurdity of Japan’s 1980s bubble period, when the economy boomed and money was everywhere. Through means that even today remain mysterious, Onoue rose from a lowly hostess to become a powerful figure among investors and many far less savory characters. She was known as the Dark Lady of Osaka, a stock and investment savant who, at one time, was the single largest private investor in the entire country, worth an astounding $4.4 billion. Her rise and fall carry powerful lessons for today.
The data is clear: Hiring finance talent is more difficult than ever before. A study of leaders in the industry found that most teams are 13 percent below their desired staffing level. This study also shows that it takes 75 days to fill empty roles, and that number can be closer to 150 if it’s for an executive position. Teams struggle to keep up with hiring as millennials replace boomers in the workforce. Why? Millennials crave flexible work styles, and while other industries have embraced this need, the finance industry simply hasn’t needed to. But a coming recession could shake up an industry built around money in unexpected ways and push it to finally embrace a culture of working remotely. Social distancing has already mandated that most businesses go remote — so look for this to become a permanent trend.
- Sean Culligan, OZY Author Contact Sean Culligan