Covid Economic Reset Due to Technology and New Businesses : The Indicator from Planet Money Is an economic reset on the way? Economist Constance Hunter explains how technology and businesses have changed during Covid, and how these trends offer some hope for long-term recovery.

The Covid Reset: A Chat With Constance Hunter

  • Download
  • <iframe src="https://www.npr.org/player/embed/977874379/977990693" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. Cardiff here. This is THE INDICATOR FROM PLANET MONEY. Today's show is about something I've been wondering about for a long time, and it starts with the ways that the U.S. economy has adapted to the COVID pandemic since it started. For example, businesses and workers have had to radically change how they do things in many cases; embracing new technologies and trying to remain safe while still getting things done. Consumers have changed the way they shop. And the U.S. government, of course, is spending a historically massive amount of money to fight the recession, about $5 trillion.

And what I've wondered is whether these adaptations aren't just going to help people get through the pandemic now but might also have big effects on the economy in the years after the pandemic ends. So today on the show, I'm speaking with Constance Hunter. She's the chief economist at the accounting and advisory firm KPMG. And Constance recently gave a great speech titled "COVID's Economic Reset" that's all about the ways in which these adaptations forced on us by tragic and terrible circumstances might also contain a silver lining for the economic future.

(SOUNDBITE OF MUSIC)

GARCIA: Constance Hunter, welcome to THE INDICATOR.

CONSTANCE HUNTER: Oh, thank you so much. It's great to be here.

GARCIA: I really enjoyed this speech you gave a couple of months ago about the COVID reset. And there was this one line that's kind of stuck with me, which was that the quixotic might become quotidian. I'm paraphrasing a little bit. What did you mean by that?

HUNTER: So first of all, I am a sucker for alliteration.

GARCIA: (Laughter).

HUNTER: And so I was thinking about, how do I frame this with sort of a title that will catch people a little off guard and maybe even use words that they don't use in their daily life? And it just so happens that quotidienne means daily in French, and quixotic, of course, is from "Don Quixote," sort of the fanciful or the big sort of great idea that may be too big to actually come to fruition or realize and is a little almost whimsical. And I think that's really where we are when we're talking about this level of fiscal support. Almost $5 trillion so far has been provided to help cushion the blow from COVID. That's sort of quixotic, in my view, that we could spend this much money and have it be OK. And then, of course, we've had our daily lives very much changed by the pandemic and obviously, in many cases, for the worse. And there's been a great deal of suffering that has come out of this.

But like in other times in history when we've had immense stress, we have discovered that there is a certain anti-fragility to our organisms, to our ecosystems. And so that - sometimes, out of great stress and out of terrible shocks can come innovation and change that is sort of the silver lining for the future. So I was saying, can the quixotic become quotidian, in the sense that, can we get a productivity boost from this that lasts for years to come? Is the fact that firms have been forced to operate under duress causing them to operate more efficiently and learn new ways of doing things? That's really what I meant by this.

GARCIA: Yeah. And the most obvious example might be that workers are using video conferencing way more now instead of flying halfway around the country for face-to-face business meetings. But it's also things like online shopping. People are buying groceries and even things like cars online. And these just seem like clear examples of where behavioral shifts in response to the pandemic have accelerated preexisting technological shifts.

HUNTER: And in economics, we call that diffusion.

GARCIA: Yeah. And, like, say something about this idea of diffusion, that you had this technology. It was there. It needed to become better a little more quickly. But you also needed people willing to try to adapt it, which would then also feed back into the technology itself getting better because now it has more investment. It has more future customers.

HUNTER: Well, very often, we need to be shocked into making changes. And this pandemic was the shock that caused greater diffusion of a number of technologies. And even let's think about the vaccines, right? So this RNA technology is something that has been being worked on for a long time. It's been being worked on in in the cancer realm especially. And so this technology diffusion is across a number of different realms. And I think the one we can all relate to is this simple technology example of the video conference. But imagine that this is across multiple dimensions, like the shift to online to in person. And, of course, customers want the option to do both. And trying to get that mix right requires a fair amount of investment so that it remains profitable and so the customers are still satisfied.

GARCIA: Yeah. And, Constance, let me turn now to something that has shocked a lot of people, given how terrible the economy has been, which is that the pace of new businesses being started during the pandemic has actually gone way up. What do you think is going on here?

HUNTER: So a few things - the pace of increase is faster than during the global financial crisis. It's faster than the two years prior to the pandemic, and it takes us to levels that we didn't see since before the global financial crisis. But I think it speaks to the shock of COVID and how much different products and services were demanded. So some of it could be for PPE manufacturing. Some of it could be for other services that people wanted and demanded while being at home and just the different types of - whether it's meal-kit services, those types of things, we've seen growth in those areas. And so the question then becomes, what does this say? Or what could it say about the diffusion of technology? We know that new firms are much more likely to adopt the latest technology. They don't have legacy systems they're trying to overcome. And so, generally speaking, when we see high business formation, it tends to correlate with higher diffusion of technology. And, of course, that produces higher productivity.

GARCIA: It seems possible also that economic policy is playing a role because with, like, the stimulus checks, plus the bigger unemployment benefits, plus a lot of people have saved money this past year because the things that they would have spent the money on, like restaurants or movies, are closed. And so there's just a lot more money out there that can be used as capital to start a new business. What do you think?

HUNTER: I think that's excellent. And you've reminded me that two of the factors I forgot to include are the combination of a high savings rate and low interest rates, which is a really fertile environment for creating new businesses.

GARCIA: So you've got businesses and workers having to adapt quickly to new technologies, coming up with new innovations sometimes, lots of new businesses starting up. These are all things that, again, have been forced on us by this horrific pandemic but also things that are associated with better economic growth in the future.

HUNTER: Yeah, absolutely. I mean, it's sort of like necessity is the mother of invention, right? So some of this is out of necessity. Some of it is out of the shock, pushing people to do things that they would not have ordinarily done previously and wouldn't have done with the same speed. So while certainly, this is a terrible situation, I think much like in the aftermath of World War II, we have a number of conditions that are ripe for possibly having a surge in productivity as we continue to come out of this crisis.

(SOUNDBITE OF MUSIC)

GARCIA: Constance Hunter, thank you so much.

HUNTER: Thank you.

GARCIA: This episode of THE INDICATOR was produced by Brittany Cronin with help from Gilly Moon. It was fact-checked by Sam Caiand edited by Jolie Myers. THE INDICATOR is a production of NPR.

(SOUNDBITE OF MUSIC)

Copyright © 2021 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.