Hysteresis means we will have scars after Covid-19

Tim Harford in The Financial Times 

In the middle of a crisis, it is not always easy to work out what has changed forever, and what will soon fade into history. Has the coronavirus pandemic ushered in the end of the office, the end of the city, the end of air travel, the end of retail and the end of theatre? Or has it merely ruined a lovely spring? 

Stretch a rubber band, and you can expect it to snap back when released. Stretch a sheet of plastic wrapping and it will stay stretched. In economics, we borrow the term “hysteresis” to refer to systems that, like the plastic wrap, do not automatically return to the status quo. 

The effects can be grim. A recession can leave scars that last, even once growth resumes. Good businesses disappear; people who lose jobs can then lose skills, contacts and confidence. But it is surprising how often, for better or worse, things snap back to normal, like the rubber band. 

The murderous destruction of the World Trade Center in 2001, for example, had a lasting impact on airport security screening, but Manhattan is widely regarded to have bounced back quickly. There was a fear, at the time, that people would shun dense cities and tall buildings, but little evidence that they really did. 

What, then, will the virus change permanently? Start with the most obvious impact: the people who have died will not be coming back. Most were elderly but not necessarily at death’s door, and some were young. More than one study has estimated that, on average, victims of Covid-19 could have expected to live for more than a decade. 

But some of the economic damage will also be irreversible. The safest prediction is that activities which were already marginal will struggle to return. 

After the devastating Kobe earthquake in Japan in 1995, economic recovery was impressive but partial. For a cluster of businesses making plastic shoes, already under pressure from Chinese competition, the earthquake turned a slow decline into an abrupt one. 

Ask, “If we were starting from scratch, would we do it like this again?” If the answer is No, do not expect a post-coronavirus rebound. Drab high streets are in trouble. 

But there is not necessarily a correlation between the hardest blow and the most lingering bruise. 

Consider live music: it is devastated right now — it is hard to conceive of a packed concert hall or dance floor any time soon. 

Yet live music is much loved and hard to replace. When Covid-19 has been tamed — whether by a vaccine, better treatments or familiarity breeding indifference — the demand will be back. Musicians and music businesses will have suffered hardship, but many of the venues will be untouched. The live experience has survived decades of competition from vinyl to Spotify. It will return. 

Air travel is another example. We’ve had phone calls for a very long time, and they have always been much easier than getting on an aeroplane. They can replace face-to-face meetings, but they can also spark demand for further meetings. Alas for the planet, much of the travel that felt indispensable before the pandemic will feel indispensable again. 

And for all the costs and indignities of a modern aeroplane, tourism depends on travel. It is hard to imagine people submitting to a swab test in order to go to the cinema, but if that becomes part of the rigmarole of flying, many people will comply. 

No, the lingering changes may be more subtle. Richard Baldwin, author of The Globotics Upheaval, argues that the world has just run a massive set of experiments in telecommuting. Some have been failures, but the landscape of possibilities has changed. 

If people can successfully work from home in the suburbs, how long before companies decide they can work from low-wage economies in another timezone? 

The crisis will also spur automation. Robots do not catch coronavirus and are unlikely to spread it; the pandemic will not conjure robot barbers from thin air, but it has pushed companies into automating where they can. Once automated, those jobs will not be coming back. 

Some changes will be welcome — a shock can jolt us out of a rut. I hope that we will strive to retain the pleasures of quiet streets, clean air and communities looking out for each other. 

But there will be scars that last, especially for the young. People who graduate during a recession are at a measurable disadvantage relative to those who are slightly older or younger. The harm is larger for those in disadvantaged groups, such as racial minorities, and it persists for many years. 

And children can suffer long-term harm when they miss school. Those who lack computers, books, quiet space and parents with the time and confidence to help them study are most vulnerable. Good-quality schooling is supposed to last a lifetime; its absence may be felt for a lifetime, too. 

This crisis will not last for decades, but some of its effects will.