The current equilibrium of physical separation, reduction in large gatherings, human interactions, and indoor activity is not going to go away soon. As of right now (end of May 2020) states have put in varying levels of restrictions from the most severe lockdown rules (currently SF Bay Area, California) to the laxest (currently Georgia).
Lockdowns will eventually get lifted in the next few months, but I don’t believe that will matter much. The main driver of the economy is not government restrictions but human behavior – and more specifically the tradeoff of the risk of catching the virus vs the reward of the activity. People in lockdown areas were already breaking the law – having parties and getting together, in-person church gatherings, sunbathing on beaches, etc… And people in states and countries with fewer regulations were still seeing a reduction in activity. In early March, Opentable reservations were down 73% across the country and this was before lockdowns. In Sweden, which has not had a lockdown, restaurant reservations are down 70%.
In democracies, individuals are going to be making their own decisions and those are going to be driven by their incentives – what is the added risk if someone I love is going to get sick? What is the benefit I get from doing this activity?
As Covid becomes less prevalent in someone’s area, people will start becoming bolder in their actions and as Covid starts picking up, people will start becoming much more fearful and conservative.
We, therefore, are not going to get back to a pre-covid normal until the fear of getting Covid is super low. There are a few ways I believe this can happen:
- Distribute an effective vaccine – Finding and distributing an effective vaccine is the most obvious way to get rid of the fear of COVID – get an effective vaccine approved and distributed to billions of people. Unfortunately, the fastest the world has ever done this is 4 years, and most scientists believe we won’t be at a scaled effective vaccine for another 16-18 months at the earliest.
- Find a game-changing new treatment. Another way to remove fear is to find a treatment that renders Covid much less deadly. One very promising outcome of this current environment is the massive shift of biopharmaceutical companies to focus on Covid treatments and vaccines. We are in the midst of what I have been calling a world-wide “Manhattan Project” to find a cure. Hundreds of treatments are currently being tested simultaneously. While there certainly is a chance we will find a magical treatment, it currently (as of May 2020) seems unlikely.
- Herd Immunity – At the time of writing this, some people have spoken about herd immunity and it does fit here. If everyone gets covid and it passes through we might be able to get enough people to get covid (70-80%) to get to herd immunity. The theory is that once we reach that level and “let it pass through us”, the virus no longer exponentially grows and therefore people can return to normal. Unfortunately, there are a lot of negative side effects. a) the net result would be 80-90% of our population getting infected (since just getting herd immunity does not make it immediately go away – it just reduces virality to below 1. b) to get to 70%, we may need to compel people to get the virus (i.e. forcibly inject them) – especially people with more disposable income who might try to hide and wait it out. And at 80-90% infected we likely will not be able to protect our most vulnerable as well. Based on a current Infection Fatality Rate of 0.7% this would result in a total of 1.5M-2M dead in the US. Finally and most relevant, herd immunity also takes at least 12 months to get through the population and to make it work. Also, herd mentality does not take into account the fact that immunity may not be long-lasting, in which case people who previously got Covid may get it again.
- Reduce/Test/Trace. California and some other states are following the playbook used by Singapore, Taiwan, South Korea, and some other countries – Shelter in place until the numbers are drastically reduced and then ramp up testing and tracing. If California can control every case, they may be able to slowly open the economy, closing down certain sections when there are new outbreaks. Right now most states are feeling so much pressure to re-open the economy that this is likely not going to happen.
- Covid magically disappears – there is a chance Covid magically disappears. While possible, it is probably unlikely at this point.
In short, it is looking very likely that things are not going to go back to normal in the next 12 months. People are going to go about in stages of fear/less fear depending on the current outbreak. This means behaviors are going to change, new habits are going to form and new types of companies are going to emerge.