The models show the number of deaths due to COVID-19 in the United States reaching their apex. We may have successfully flattened the curve, and fewer people may die in the United States than anticipated. (I’m still deeply concerned about the developing world, but that’s another story.)
President Donald Trump says that he’ll restart the economy quickly, and he’d like to restart it all at once. Once again, he’s smoking something. But perhaps slowly, after we get widespread testing in place, we can restart parts of the economy, maybe in late May or June. There may then be a second wave of disease, of course, but perhaps something resembling an end (or at least a pause, until COVID-19 resurfaces in the winter) will soon appear on the horizon.
So today I’m asking: What about pent-up demand? Will that help the law? Affect public health? Fundamentally change the economy?
In the law, I’m not sure that you’ll see too much pent-up demand. For the past couple of months, COVID-19 has raised lots of questions about employment law, landlord-tenant issues, and defaults on loan covenants. But that’s not where Biglaw’s bread is buttered. Litigation has fallen off, and mergers and acquisitions have died as corporations (and private equity firms) conserved capital.
Litigation will be able to start up again, perhaps in June or July, as courts reopen and folks can travel. But we lost the months from March through (maybe) June. That’s a big chunk of the year, and I doubt that pent-up demand will offset the loss. Litigators won’t be taking two depositions simultaneously; hours lost in March and April won’t be worked in July and August.
Transactional work will begin only very slowly. Corporations and private equity firms will continue to hoard their cash as we wait to see how the disease unfolds. No one is going on a spending spree.
Pent-up demand won’t help the law very much.
What about fields of which I’m ignorant? (Ignorance has never stopped me from making predictions before, and I’m not going to let it stop me now.)
How about pent-up demand in medicine?
No one with any sense has visited the doctor for routine medical issues in the past six weeks. That’s an awful lot of untreated high blood pressure, diabetes, asthma, and all the other routine ills that have been displaced by the virus. People who have lost their jobs may not have had money to pay for medications. I hope we don’t see an increase in routine morbidity as we see a decrease in the extraordinary mortality caused by COVID-19.
How about the economy as a whole?
Many people who have lost their jobs will take a while to get back to work. You won’t find your quick spending there.
Even those who kept their jobs will not replace all of the lost spending: When you’re allowed to go out to eat again, many people may choose to do so. But I don’t think they’ll be eating extra meals out to replace the uneaten restaurant meals of the past few weeks. People who have been working from home in their pajamas probably won’t be giving unspent cash to the local dry cleaner. The cruise ship industry could be slow for a long, long time. People who deferred buying an appliance won’t now buy two to make up for the loss. There’s an awful lot of deadweight loss to the economy that will never be made up.
And what, I wonder, about the massive national debt that we’ve incurred?
Half of me says that we’re due for deflation: Unemployment is way up; spending is way down; this is a recipe for prices to decline.
But the other half of me says that the federal government is spending money like there’s no tomorrow. We’ve now incurred an extra couple of trillion in national debt. We’ve heaped that debt onto a federal government that already couldn’t afford to pay its bills. How the heck is the federal government (and the state governments) going to cope with that burden?
If you were thinking practically, one word would answer the question: Inflation.
One way to pay back trillions in debt is to inflate the currency so that the trillions you pay back tomorrow are worth only millions in today’s dollars.
If so, that’s dangerous news for folks on fixed incomes or approaching retirement: A fixed income will be worth less as inflation eats away at purchasing power, and the millions one saved for retirement will be worth only pennies in today’s dollars after the inflation is through.
Maybe we get deflation in the short term and inflation in the long term?
I’m not sure about any of this, of course. I’m not even qualified to speculate about it.
But I’m allowed to scratch my head. And unusual times, coupled with ample time to think, trigger some unusual thoughts.
Mark Herrmann spent 17 years as a partner at a leading international law firm and is now deputy general counsel at a large international company. He is the author of The Curmudgeon’s Guide to Practicing Law and Drug and Device Product Liability Litigation Strategy (affiliate links). You can reach him by email at inhouse@abovethelaw.com.