The world economy has been slowing at least since the 2007-09 financial crisis. The virus shut down has reduced unemployment to 1930 levels. Let’s take a quick look.
In the USA, some 33 million have filed for unemployment. But that does not count those who are out of work and not filing. The number is likely higher. State unemployment funds are already running low. The effect of this dislocation in two months has yet to be felt. It will be difficult to jump start the economy with that many sidelined out of it.
In Europe, the PIGS (Portugal, Italy, Greece and Spain) never really recovered from their 2009 problems. Summer tourism in the Mediterranean looks bleak making it a tough slog for a recovery.
The Tigers of the Far East assumed manufacturing expansion from the West would continue.
The U.S. stock market has bounced as it did from 1929-1930. This time it was led by five stocks comprising 38 percent of the NASD. But volume among those five is decreasing, signaling a probable short-term top this next week. The ripple effect rolls across multiple industries. With no airline travel, Las Vegas will struggle to re-open. How many diners want go to restaurants wearing masks?
Oversupply and lack of demand is also hindering any energy recovery. Crude oil is trading about $24, but at that level the industry simply cannot make money. Like the stock market, that number looks toppy already.
Multiple industries, cruise, airline, hotels, have bet big on their futures. Now with small demand that future is uncertain, which brings us to higher education.
Higher education has been an unsustainable model for years. “Free money” in the form of loans and Pell Grants have insulated higher education from any responsibility for the outcome of $1.5 trillion in student debt.
As one law student recently put it, the virus has ripped asunder the façade of higher education. I suspect the social mood on top of the higher education mania occurred with the now famous six figure bribes (College Gate?). Well-to-do parents bribed officials to admit their darlings to universities for which they were otherwise unqualified. They should have waited a year. The parents could have avoided the cost and the jail sentences.
Now students are considering a gap year, dropping out rather than pay for online “education.” Betting big snared large universities with 80,000 empty seats in stadiums this fall. Suddenly the demand for higher ed is not inelastic, but very elastic. Schools are extending deadlines for deposits. Some 38 percent of business students are considering delaying their MBA programs. And really, do those professors know any more than the businesses that would hire those graduates? The libraries are full of business books which could be read while working.
There is a hard storm coming. Higher ed will likely be reshaped along with other industries.
