A Pragmatic Look at the COVID-19 Economic Downturn
By Dale Schlundt, M.A., M.A.
Regardless of the context in which it is sought, truth unites us all, because we all seek it. The Coronavirus has revealed many truths and will continue to do so, especially in a medical context. Yet, what overarching truths has it revealed, or rather reminded us of, about the economy? One could suggest that there are many and we all would certainly be wise to acknowledge them. In doing so, we will be more apt to make sound financial decisions.
For instance, one remarkably simple truth is that this will happen again, and the reasons are irrelevant. Economic downturns, at some point, are always inevitable. If one is cognizant of that fact, they should strive to accumulate a savings during the good times, when everyone else is spending, in preparation for the bad. Of course, no one knows when economic downturns, recessions, or depressions will occur. The majority of the time, very few may accurately predict what will cause them, as the Covid-19 crisis has revealed. Consequently, the reasons are irrelevant if one is prepared at any given point.
Another unfortunate truth is that government aid has limitations, as one may see with the recently passed CARES Act, an admirable bipartisan effort that exhibits the humanity in government. The comprehensive stimulus is aimed at tiding over the broader economy, to hasten the recovery when social distancing is discontinued. It includes a $1,200 per person stimulus payment, for those who qualify, which is indeed important. Yet, considering the perpetual expenses of an average American family, the payment obviously leaves much to be desired. For instance, Sarah Foster stated, “it won’t sustain their financial well-being for even a month”, when describing 31 percent of individuals surveyed in March who are counting on receiving that stimulus payment. Unemployment for those who are approved would certainly play a pivotal role for individuals and families in the short term as well. Still, the uncertainties underscore the first point, which is that being financially prepared, to the greatest extent possible, is always the most reliable asset.
Such times reveal the inherent complexities of the capitalist system, or what may be more accurately described as the mixed economy, in which we live. For instance, government regulation of the economy is imperative. Setting interest rates to slow or grow the economy, trade agreements, and a multitude of other strategies are always at work to create stability and growth. Additionally, intervention in times of crisis is obviously critical, as the CARES Act illustrates. Although, a stimulus such as this is only possible primarily because of taxation, which is facilitated by consumer spending.
The truth is that spending is good in moderation, as consumption is the foundation of any economy. Consider how important discretionary spending is to such large industries as restaurants, hotels, and many others. The double-edged sword is apparent, however. The economy thrives on overspending, at least for a time. The problem is that an excess of spending, especially incurring debt for overpriced or discretionary items, does not lend itself to being prepared for unforeseen crises. With that said, there are countless simple strategies for saving and spending that may be employed.
Warren Buffet’s 1986 letter to shareholders asserted, “Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” It is one of the most often cited quotes employed in stock market analysis and is certainly applicable to this topic. Yet, another sentence from that same document is just as wise, where Buffet explained that, “When conditions are right that is, when companies with good economics and good management sell well below intrinsic business value – stocks sometimes provide grand-slam home runs.” One could suggest Buffet was not necessarily referring to attempts to time the stock market, as the letter asserts that no one knows which direction the market will move. Rather, Buffet was presenting a strategy that was based on investing in stocks when there was ample room for the value of the stock held to grow, regardless of the time. This simple lesson may be applied to more than just one’s investment strategy. Whether it is on investments, goods, or services, let us not overspend, but rather make logical purchases. This means that there may be times we should forgo certain purchases that are overpriced, when others are buying. While it is something for which to strive, there is no denying that it certainly can be challenging. What is bought in society is frequently based on both ideological and emotional factors. The unfortunate weight society places on what one can purchase, relative to what another can, leads to spending that is commonly devoid of rational. It is why high-end restaurants, new car dealerships, and a multitude of similar contexts of commerce will continue to proliferate.
Ultimately, there are two invaluable truths that may derived from this discussion. The first is that this will certainly occur again. One hopes it will not be due to another pandemic. Nonetheless, there will be another unforeseen catalyst that will lead to a downturn in the economy. The second is that with this knowledge, the most reliable safety net will always be you, and the pragmatic financial decisions made in the months and years prior.
Dale Schlundt holds two masters degrees, in Adult Education and History. Dale has taught at Northwest Vista College and Our Lady of the Lake University. He is currently a faculty member at Palo Alto College and served as co-chair for the Texas Regional Alignment Network from 2017-2019.
 Sarah Foster, “Survey, 31% of American Expecting a Stimulus Check Say It Won’t Keep Them Going a Month” Bankrate, April 8, 2020. (Accessed April 11, 2020). https://www.bankrate.com/surveys/coronavirus-and-stimulus-checks/
 Warrant Buffet to the Shareholders of Berkshire Hathaway Inc (Letter) 1986, Berkshire Hathaway, Inc, (Accessed April 11, 2020) https://www.berkshirehathaway.com/letters/1986.html