The only thing worse than bad news is news that’s not clear. Once bad news is understood, problem-solving begins.
But this week we have been confronting uncertainty and it is freezing our ability to make decisions.
The sooner we get this period of uncertainty behind us, the better.
There is a lot of bad news this week in the economy. More is coming when the formal measures of consumer spending, jobs and the like start getting reported for March.
“Bad news, we react to that, no doubt,” said Jim Paulsen, the chief investment strategist for the Minneapolis-based Leuthold Group. “But we know how to react to it. The total uncertainty, that’s just devastating for the financial markets. And for companies, too.”
Things like travel and tourism, entertainment and dining out have basically collapsed, of course, either because customers adopted social-distancing practices to slow COVID-19 or because of the order of government authorities.
Even business managers who have nothing to do with these industries have to be wondering what the effect of the pandemic will be, on demand for what they sell and their ability to continue working with their customers.
Even in good days people are not exactly rational about the risks they might face or how to assess them, as has long been observed. There’s something called the zero-risk bias, for example, that might explain at least one reason why people have been stocking up on a year’s supply of toilet paper these last few weeks when it offers no protection from the COVID-19 illness.
It’s because people will feel better if they eliminate some risk altogether, even if it’s not much of a real risk at all.
One big reason why decisionmaking slows down in times of very high uncertainty, best I can tell, is that our brains are set up to process information that looks familiar, on the way to making decisions like the ones we have made before. Mental ruts and routines save brain capacity to wrestle with what really might be new.
Then there’s the problem of what seems impossible to find out.
“If you just think about an insurance company or a bank, even if something is risky, they know what the odds are,” said Stephen Polasky, economist at the University of Minnesota’s Department of Applied Economics. “They can do the calculation and they can figure out like ‘What’s our exposure, how much safety margin do we have to have.’”
Now the business community is confronting a situation he described as “true uncertainty,” a much different thing than just risky.
“You roll the dice and you know there’s a one-sixth chance of anything,” he continued. “But right now we’re rolling the dice where we do not even know what’s on each side, or we don’t even know how many sides the dice have.”
The biggest unknown, at least to Paulsen, is how long the broader economic downturn lasts, or even how long it is before the number of COVID-19 cases starts slowing, easing the strain on the healthcare system.
“For example,” he said, “you’ve had relatively tight labor markets. And if companies knew this is a short-term event and then they’d be back at it, they would probably hold onto most of their workers through it. Then you wouldn’t have a cascading effect of unemployment.”
“If we get some clarity on timetable, and duration, and that might be tough to come by, but if we do that, it would help the [financial] markets immensely,” Paulsen said. “It would also help companies.”
Like others steeped in American economic history, Paulsen knows there’s a lot of ingenuity and problem-solving capability in the country.
With a better handle on what’s happening, mom-and-pop business owners, independent solopreneurs and executives at companies will adapt to survive now and thrive later.
The most obvious way adaptation is already happening is by having people work from home if they can. And in just days, retailers like independent bookstores have already come up with curbside pickup and home delivery.
We can’t adapt to a new normal because we don’t know what that is yet. For now, as Paulsen said, it’s “something in between” for businesses: getting work done and safely serving customers.