Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 358

Four huge categories of change after the pandemic

In 1930, 1,028 economists signed a letter to Herbert Hoover urging the US president to veto a bill that would raise tariffs once it became law. Hoover refused and the US raised taxes on about 20,000 imports and intensified a trade war that caused world trade to plunge nearly 70% from 1929 to 1934.

The uniform complaint of the economists was that higher tariffs clashed with a key tenet of classical economics, the law of comparative advantage. The theory from the 19th century postulates that everyone is better off when, first, people and countries specialise in what they are most efficient at and, second, they engage in trade to acquire the rest.

The trade war of the 1930s, in effect, reaffirmed the law’s validity. The global order post-World War II was designed so the law could operate unimpeded. It’s not a stretch to say the prosperity flowing from the globalisation of the past four decades is thanks to how this law in practice meant efficiency was prized above all.

Not anymore. The coronavirus showed the law overlooked national security. The theory ignores trade’s role in influencing the balance of power between countries and made no allowance for protecting populations during disruptions to trade from, say, pandemics.

Westerners confronting their mortality were alarmed to discover that vital health supplies depend on a rival; namely, China. They were surprised that just-in-time global logistical networks producing essentials failed. They now expect governments to ensure self-sufficiency in key items. Companies know they need to hold more inventory and strengthen supply lines.

Steps against globalisation are just some of the changes heralded by coronavirus’s psychological effects, when mood shifts change human behaviour. If the virus did anything, it created a mass anxiety that has upended the complacency, even arrogance, that progress is society’s default condition. Now a gloomy, wounded and cautious public, grieving over what has been lost, peers into a poorer, less secure and probably harsher future.

Four major categories of change

The deteriorating mood will bring changes that can be grouped into four categories.

The first is new trends. This includes the partial retreat of globalisation. It covers higher personal sanitation standards, the rise of telemedicine, improved health facilities and wider health coverage. ‘Social distancing’ will endure. Essential workers have won new-found respect and the definition has widened to include service labour. Remote working will be more popular (but not remote schooling). Populations might save a higher percentage of their (shrinking) income. Business might be less confident about investing. Investors might worry more about preserving capital. Governments will relook at biosecurity, cybersecurity and the safeguards around utilities.

The second category is the hastening of trends. This group features the shift to the safer online world, notably the boost to virtual communications, cashless payments and online food delivery, shopping, entertainment and gambling. It covers the psychological shifts damaging the relationship between Beijing and Washington that is moving from rivalry towards hostility.

The third grouping covers the ebbing of old ways. The US’s view that it is the world’s proper hegemon appears to have cracked. So too has frictionless international travel, cheap flights, the popularity of cruise ships, and business models dependent on spontaneous and close human contact such as bars, cinemas and professional sports.

The fourth category gathers possible transformations. A greater role for government in society, the rise of the surveillance state and renewed status for experts are included here. Other possible outcomes are demands to address inequality stirring politics, reduced legal immigration and a lower priority for climate change. An uptick in intergenerational resentment appears likely as the young will bear most of the costs in fighting covid-19. Respect for global bodies is under question. Even if only some of these changes endure, covid-19’s psychological legacy is likely to drive profound and durable changes, especially if the virus lingers.

Many things won’t change

The likely effects of covid-19 look tame compared with history’s greatest pandemics. It’s hard to categorise things neatly into four groupings and to distinguish between anxiety over covid-19’s health and economic effects because they are intermingled. Many changes stemming from covid-19 will meet resistance. Some psychological effects, such as the effect on family life, mental health and religious belief, are too intangible to be discussed here.

The biggest disclaimer in analysing the psychological effects of covid-19 is the trap of thinking that initial reactions will prove lasting. Many might not. But enough surely will. People are likely to recall for a while yet the shock at how vulnerable the coronavirus made them feel emotionally, intellectually, economically, financially and politically. Consider that we have entered an age of vincibility – as was the case in the 1930s.

 

Michael Collins is an Investment Specialist at Magellan Asset Management, a sponsor of Firstlinks. This article is for general information purposes only, not investment advice. For the full version of this article and to view sources, go to: https://www.magellangroup.com.au/insights/.

For more articles and papers from Magellan, please click here.

 

  •   13 May 2020
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Australia's baby boom filling some of the immigration losses

Most Australians live better than the Rockefellers

Four steps to resurrecting Australia

banner

Most viewed in recent weeks

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Latest Updates

SMSF strategies

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

The ageing ‘crisis’ has not and will not happen

Rising age dependency is frequently treated as a warning sign for economies. But when actual workforce participation is examined, a strikingly different picture emerges about ageing, productivity and economic sustainability.

Retirement

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Shares

Four charts that expose market concentration risk

Investors have recently been rewarded for backing market leaders, but history suggests this eventually comes at a cost. Now may be the time to review whether your portfolio is carrying unintended risks beneath the surface.

Investment strategies

The case for gearing beyond property

Most Australians gear into property but ignore shares. That may be a mistake. Used carefully, geared equity strategies can enhance long-term returns, reduce cash tied up in growth assets and support retirement income goals.

Economy

Australia's $1 trillion debt pile

The headlines exclaiming that Australian government debt has hit A$1 trillion and US government debt has hit $40 trillion has turned heads, but how serious are they really? Will Australia's mix of debt create challenges?

Economy

Has 100 years of growth made us any happier?

For decades, GDP has been the benchmark for economic success, but has it made us materially happier? If happiness does not rise in lockstep with prosperity, are we overlooking what constitutes a successful society?

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.