There's one truth insurance and finance professionals know about economic health: It is rarely stagnant. But the question lingering during the COVID-19 pandemic is whether its initial effects will become long term? The U.S. has experienced shocks to the economy before, and a recent analysis by Morningstar, "What History Can Teach Us About the Post-COVID Economy," looks at how those events can help foretell what's possible to come post-COVID-19. To determine the likelihood of permanent shifts in long-term behavior after the current pandemic, Morningstar equity analyst and study author Preston Calwell used three factors — habits, fear and sunk cost — to study five previous global shocks. In his analysis, Caldwell looked at how habits evolve and may cause lasting changes to consumer behavior. For example, he says, when Earth Day in 1970 was introduced, recycling grew considerably. Fear certainly can make consumers reluctant to engage in certain activities. For example, when in the 1960s, health risks in smoking were illustrated, and the number of smokers dropped from 42% of the U.S. adults in 1964 to 19% in 2011. Finally, sunk costs, or those that have been incurred and cannot be recouped, could change — or not — long-term plans of consumers and firms, Caldwell notes. One example is the Concorde, which its joint manufacturers spent large amounts of money to build and market, but the jet remained unprofitable despite decades of commercial use. Caldwell reviews five events. He then examines how behavioral and economic factors changed in the short term and long term in an effort to forecast the impact of the coronavirus on today's and tomorrow's economy. For example, short-term behavior might mean wearing masks and avoiding eating out. Long-term consequences could include less in-store shopping, more firms allowing staff to work from home, and even less going to restaurants. His conclusion is that any resulting changes should "be modest at best" and that that "consumer habits eventually revert, and fear eventually dissipates. It's sunk costs that have the largest — yet still a modest — impact on long-term consumer behaviors," Caldwell states. Click through the slideshow to see how five past economic events impacted the U.S. economy. Related: |

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