Getty
“The most pessimistic forecasts are for the recession to last three to four years.”
That’s an actual quote. Have you heard it? Does it scare you?
If the first quote didn’t shake you, how about this one: “…the bottom of the recession may not even have been reached; and unemployment, which usually lags behind recovery, may well rise…”
The first quote claiming the recession will last “three to four years” came from the Sunday, February 14, 1982 edition of The Miami Herald. The second quote suggesting the recession may not have hit bottom appeared in the Friday, December 31, 1982 copy of The Lincoln Star.
Both articles overstated their gloom. By the time the Thursday, December 30, 1982 edition of The Palm Beach Post wrote “Nationally, economists are almost universally pessimistic,” the recession of 1980-1982 had been officially over for more than a month and the great expansion of the 1980s was well on its way.
You may have seen or may be seeing similar dire predictions about the national economy today.
“While this crisis already feels endless, we are still in the early days of the pandemic,” says Keith Weissglass, Co-Founder of HospitalHero in Oakland. “Experts are telling us that the public health and economic consequences will be measured in years, not months. At the same time, if we learn our lesson and invest in critical infrastructure, some good could come of all this suffering.”
The truth is uncertainty exists. And where there is uncertainty, almost any doomsday predication can quickly capture attention and fill the void.
But where there is uncertainty, there is also opportunity.
What clues might the recovery from one of the nation’s worst recessions in the early 1980s offer you with regard to how the markets can emerge from the current economic calamity caused by the COVID crisis? Who is likely to lead this charge? What companies and industries stand poised to grow rapidly?
For example, Lee Iacocca (and a certain White House resident) rose to prominence during the 1980s recovery by pivoting existing franchises to catch the coming wave. Similarly, an entire cohort of entrepreneurial second phase Baby Boomers, whether from their garage or their dorm rooms, created an entirely new industry out of mere bits and bytes.
Resourceful thinking has long been in the lifeblood of every American from the patriots of the Colonial Era to the pathfinders of the western frontier to the pioneers of space. Do you think today will be any different?
“I’m not an economist, but I’ve lived through multiple recessions while working in the broader financial services space,” says Kendrick Nguyen, CEO of Republic in New York City. “We don’t know how long this pandemic will be around, so it can feel like we’ll be in the current lockdown for a similarly long amount of time. I’m nonetheless confident we’ll see a similar resurgence because I’m a believer in American ingenuity and the strength of international systems in solving global crises.”
If you only look at econometrics, you’ll no doubt see familiar patterns between now and 40 years ago. Just as the earlier recession brought changes to the markets and people’s lifestyles (hint: watch an old episode of Miami Vice), so too should you anticipate comparable adjustments resulting from the economic lockdown.
“In the 1980-1982 recession, rapid decline in GDP coincided with a sharp increase in unemployment,” says Aaron Polkoski, Founder & CEO of Intero Health in Phoenix. “We are seeing a similar impact on economic activity as a result of the lockdown measures. While the immediate results are sharp and devastating, intellectual capital and entrepreneurial spirit remains intact. The process will be slow in some sectors, whether by government intervention or public fear, but the resulting emergence of new and advancing technologies will propel recovery efforts.”
Some things may be similar when you compare the two periods. But don’t ignore the differences. They can be just as instructive.
“The current economic situation is unique,” says Brett Gould, Chief Marketing Officer of The Intelligence Factory in St. Louis. “While in the midst of previous recessions, much of the decline came from perceptions and opinions on the health of the market itself. Prior to COVID-19, economies were strong and consumers felt confident. Once the realization of the breadth and seriousness of the pandemic became clear, economies shrank—not from fear, but from closure. Employed consumers are still spending and those who are unemployed are also spending and will likely find their job returning quickly, once companies find ways to get back to work.”
Something odd did occur in the 1980s following the recession. Odd in the sense that the 1970s had been stuck in the doldrums of bare existence. The 1980s expansion grew on the foundation of the “Material Girl” and everyone else living in a material world. It was demand driven fed by innovative products in existing industries (e.g., the Chrysler Minivan) and creative products in new industries (e.g., almost anything technology based).
The end of the 1980-82 recession unleashed a thirst to spend. And spend America did.
“The thing that makes the early 80s remarkable is that the recession was a complete market pullback,” says Lucas Root, Founder at SGIC Consulting in La Jolla, California. “The people who had money kept it. The people who wanted work languished. Everyone wanted to get back to ‘normal’ and the result was that pent-up demand became a significant market force coming out of the recession. While we have no idea how long the COVID pullback will last, we can be sure that the results will be similar: significant pent-up demand. And the businesses best prepared to facilitate that demand on the other side will be well rewarded for it.”
If the spending spree coming out of the 1980-82 recession impressed you, the coming bounce back might just knock your socks off. There was no precedent for the splurge in the 1980s. Today, with a vibrant economy hitting an unexpected brick wall in March, consumers will be itching to return to their not-so-old ways. More so, they will be delighted to partake in the new ways to spend they’ve never before imagined.
“Sure, the coronavirus will cause a resurgence similar to the 1980s,” says Chane Steiner, CEO of Crediful in Phoenix, “however it will most likely far exceed the one we saw in the 1980s. The reason is, we are now experiencing not only an economic recession, but a worldwide quarantine to an extent that’s largely unprecedented. Not only will we see a resurgence, but many aspects of the world, the economy, and how businesses are run will likely be fundamentally changed in the near future due to COVID-19.”
In the same vein, how industries rose (or failed to rise) from the depths of the recession decades ago may also portend parallels to today.
Ben Pring, Director of the Center for the Future of Work at Cognizant in Boston, says, “As just two examples; Fidelity rose from the ashes of financial meltdown in the 80s. Amazon rose from the ashes of the ‘.com’ crash. Cheap capital, cheap buildings, and people prepared to work cheap have always been the secret sauce for innovation and the ‘new.’ Manhattan itself rose with that formula – from 1970s crime and sleaze to the capital of capital in 2020 – with artists and musicians and scenesters taking cold water lofts and making them million-dollar cribs for bankers and coders. We expect to see that formula work again in places of the future … like Portland (Maine) and Sacramento, California. In Manhattan, not so much.”
Perhaps the greatest likeness with the 1980s recession is that today’s convulsion appears to also come with an industrial transformation. Just as the 1980-82 recession sat on the cusp of the manufacturing economy’s shift to the information economy, many feel the COVID recession will usher in the next economic era.
Exactly what that is may not yet be clear, but Brisco County, Jr. doesn’t have long to wait. The “coming thing” is right around the corner.
“Just how much will change remains an unknown,” says Gould. “We are entering a new Industrial Revolution. Companies already had good reason to invest and move into Digital Transformations. Those who had gotten further along in their Digital Transformation had very little trouble shifting office workers to remote—many already had remote workers. But with the perfect storm of the post-pandemic world and the 4th Industrial Revolution, companies who do not iterate, grow, and transform will likely cease to exist. Opportunities for disruption are high, most coming by new players who have learned to harness technology, engage customers, and rely on their employees as Subject Matter Experts while using Artificial Intelligence, Machine Learning, and leveraging their data.”
One thing certainly seems poised to spur this innovation. Policy makers appear generally disposed to unleash the reins of creative invention. This comes in part to help solve the immediate problem of the pandemic.
“The recession of 1980-82 was caused by the Fed’s reaction to high inflation,” says Dr. Guy Baker, Ph.D, Founder of Wealth Teams Alliance in Irvine, California. “They imposed restrictive monetary policy. That is the opposite of what is happening today. While there are signs of inflation, the Fed is trying to keep the velocity of money high. When money slows down and becomes sticky, then economic activity declines. Ronald Reagan implemented lower taxes and cut regulations, similar to the Trump strategy. This is what brought the country out of the recession. Lower taxes result in more economic activity which produced more income which increased the gross tax revenues, even though the rate was lower.”
Additionally, there’s also the realization that we may have exhausted the levers that usually prime the economy.
“Lower tax rates and de-regulation (though it took some time to take effect) led to a fairly robust economic growth period following the 1980-1982 recession,” says Mark Vena, Senior Analyst, Moor Insights & Strategy in San Jose, California. “Having said that, I suspect that the Trump Administration will implement new policies that encourage entrepreneurs to take more risks to address some of the market opportunities that ultimately will result from the pandemic.”
It was precisely this gush in entrepreneurial activity that stimulated economic expansion in the 1980s (and beyond). You may very well see a new round of low-cost ventures solving immediate needs catapult from the garage to the penthouse. We may be on the dawn of a new entrepreneurial era.
“Multiple recessions in the 80s had similar impacts on the entrepreneurial landscape and business that we’re seeing now,” says Former Chief Executive Officer and Co-Founder of Myspace Chris DeWolfe, now Co-Founder and CEO at Jam City in Beverly Hills, California. “Then, as now, funding for start-ups became scarce and only truly differentiated companies were getting funded. We will continue to see that for some time. Middle stage companies will see a more accelerated expectation to reach profitability. And companies that can bootstrap and quickly iterate on a plan will be those that can make money last for a long time and turn it into a big business.”
Herein lies the true lesson of the 1980s. Take a look at the biggest companies in the Dow 30 today. Where were they in the 1980s? In fact, of the 30 stocks in the Dow Jones Industrial Average today, only 7 of them were there in 1980.
Change happens. Sometimes it happens faster than you expect. If you’re ready for it, though, you stand to profit.
“The change we’re about to see is going to be so much sooner because of AI and all of the innovation across the tech space and centralization of data,” says Alex Cleanthous, Co-Founder of Web Profits, one of Australia’s largest private digital consultancies. “There’s going to be a lot more opportunities out there. As long as there’s a capitalist society, in which you get rewarded for the things that you create that solve problems, everyone is going to be an entrepreneur.”
In the end, it is the marketplace that will drive the recovery. As you can see from the 1980-1982 recession, that demand can come from out of nowhere. It’s hard to predict, but it’s easy to anticipate. Why? Because people are people. And it takes a certain kind of person to recognize that, embrace it, and create solutions for it.
“The conditions may be a little different, but the needs are the same,” says Robert Lo, Founder/CEO of Alset Community in Los Angeles. “People will redefine value in another manner, if it is not in currency. People will find another way to weather this storm, but entrepreneurs will lead the charge.”