Examines a list of historical episodes (world ware 2 and rationing, world war 2 and female labor force participation, 1970s oil sock, 9/11 air travel, hong kong/asian/spanish flus) to try to figure out how important habits, fear vs sunk costs are for shocks translating into permanent behavior changes. Concludes that sunk costs > habits > fear. Concludes covid trends like wfh, online shopping and not going to restaurants won't be permanent
There is considerable debate about what we can expect for the long-term economic impact of COVID-19. Perhaps the pandemic will dramatically accelerate ongoing shifts in the economy (such as the shift from brick-and-mortar retail to e-commerce), or perhaps it will create new trends entirely (such as permanent shifts away from dine-in restaurants or air travel). Equity markets are implying a major reshaping of the U.S. economy compared with how it looked before the pandemic.
While we believe that the long-term economic calculus of consumers and firms may be impacted by shifting consumer habits, lingering fear, and sunk costs incurred, our analysis of five similar historical episodes suggests that these resulting changes will be modest at best. Our analysis indicates 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.