“Today’s program looks at the impact of fear on the recovery. Mike, as some states begin opening up their economies from the required shutdowns during the coronavirus there are questions about how fast the recovery will be. Some say the answer lies as much in psychology as in economics. Please explain.”
“Well economics and psychology have always been linked together. Obviously, people have to go through a thought process in order to engage in the commercial activities. And the concern here of course with psychology is the psychology of fear that’s been built up around the coronavirus.”
“So the point here is even when we get to the point where a lot of businesses are opening, and a lot of businesses are able to take our business inside their shops and stores and restaurants, many people will say, ‘I just don’t want to do that. I’m going to still avoid it even though I can legally do it. Even though there are no restrictions. I’m going to avoid doing that for some period of time because I’m still concerned about the virus.’”
“So I think there are two implications here. I think, one, businesses, even when they’re allowed to open are going to have to take a lot of steps, many many steps, in order to assure customers that it’s safe for them to come in. The other implication, I think, has to do with the pace at which we open. And I think there’s something to be said for starting small, and then gradually opening the economy because if you start small and people can go to a few businesses, not all but a few businesses, that I think will build up confidence. Again, especially if it’s done right. And the fear will gradually dissipate as we open up more of the economy.”
“So really dealing with the coronavirus, defeating the coronavirus, getting the economy back to business is a lot about psychology as much as it is about economics.”
Mike Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.