Covid paranoia will lead to inflation

Franklin Templeton manages about $700 billion in assets. What does their Chief Investment Officer for Fixed Income think Covid-19 will lead to? Inflation!

An article by Sonal Desai:

Americans still misperceive the risks of death from COVID-19 for different age cohorts—to a shocking extent;

The misperception is greater for those who identify as Democrats, and for those who rely more on social media for information; partisanship and misinformation, to misquote Thomas Dolby, are blinding us from science; and

We find a sizable “safety premium” that could become a significant driver of inflation as the recovery gets underway.

How can a virus drive inflation? I think that her argument is that Americans with money will spend like crazy to protect themselves from the virus, e.g., buying first class airline seats or choosing airlines with blocked middle seats. Meanwhile there will be contraction in supply. We’ve already seen this in real estate. The rich are spending even more for country estates and for fixing up country estates. It is impossible to get a contractor because they’re already hired and the additional workers they might want to hire are relaxing on $600/week (but maybe that will change soon?).

These misperceptions are destroying our economy:

This misinformation has a very concrete adverse impact. Our study results show that those who overstate deaths among young people are more cautious about making purchases, more reluctant to travel, and favor keeping businesses and schools shut.

I.e., the Swedes who gave the finger to the virus are likely to do relatively better than Americans (but we stole a bigger piece of land from the Native Americans than they did, so we might still be richer).

What does the cower-in-place nation look like, emotionally?

How did the misperceptions arise? Facebook Shutdown and Mask Karens: “People who get their information predominantly from social media have the most erroneous and distorted perception of risk.” Traditional media was also responsible, says Desai:

Fear and anger are the most reliable drivers of engagement; scary tales of young victims of the pandemic, intimating that we are all at risk of dying, quickly go viral; so do stories that blame everything on your political adversaries. Both social and traditional media have been churning out both types of narratives in order to generate more clicks and increase their audience.

Stories that emphasize the dangers of the pandemic to all age cohorts and tie the risk to the Administration’s handling of the crisis likely tend to resonate much more with Democrats than Republicans. This might be a contributing factor to why, in our survey results, Democrats tend to overestimate the risk of dying from COVID-19 for different age cohorts to a greater extent than Republicans do.


6 thoughts on “Covid paranoia will lead to inflation

  1. Blaming the rona for what monetary policy causes?


    The stimulus package that just passed is the biggest wealth transfer from common folks to the super-rich (Wall Street and bankers) in the history of mankind. Done in the name of a virus with $1200 checks as the cheese in the trap.This will be obvious in short order.— Thomas Massie (@RepThomasMassie) March 29, 2020

    Sweden banned large gatherings, closed high schools and Unis, had large # ppl work from home, bars and restaurants move to table service, shops installed screens, there were equivalent decreases in mobility to states in the US. Mitigation efforts were undertaken.— Viral Fapsid (@fapsid) August 23, 2020

    • js290: Yes, of course Sweden with its never-closed schools, never-shut restaurants, and never-masked citizens is simply practicing a variant of our true Religion of Shutdown. I made that point in an April post:

      For True Believers in the Church of Shutdown, what Sweden is doing is merely a variant form of their own religion, just as Hinduism was for the Portuguese who spent an entire summer on the west coast of India in the late 15th century. So strong was their belief in Christianity that they believed Hindu temples to be churches (and Ganesha was Jesus with a big Jewish nose?). They attended Hindu religious rituals and believed that they were observing Christian practices.

  2. I’ll bet if you asked most of the commentators on NPR – the hosts and the guests (or any other major news program, for that matter) what the age breakdowns are, they would perform similarly, or worse. And those that know the actual numbers would say: “But that’s immaterial, because of the risk of serious complications for anyone, because children can transmit it to their parents and grandparents, because Trump caused the virus to get out of control, because one person catching the virus or dying from it is too many when we can control it…” etc., etc.

    >“People who get their information predominantly from social media have the most erroneous and distorted perception of risk.”

    Another way to put it is that they have an accurate perception of the risk *as it is being portrayed and reported*. They’re listening to what they’re hearing. That’s why the numbers were pulled from the MA COVID dashboard, as soon as people started debating reopening schools, and all of the studies about how kids have 100x the viral load of adults suddenly emerged.

    What we’ve learned is that any public policy can be manipulated this way. It works! It works with the coronavirus, it works with gun laws, etc.

  3. And a corollary is that if you are selling a product or service that capitalizes on the risk premium people are willing to pay, you have a shot at riding that wave until the pandemic ends, if it ever does. I can’t wait to see their analysis of companies riding that wave! We know the government is riding the heck out of it.

  4. Interesting post because of the CDC statistic re fear and age & the points about people getting their news from social media, though mainstream media like the NYT, CNN and Washington Post have certainly done their share to encourage the corona hysteria. IMO there will likely be an increase in inflation because of the rapid growth of the money supply. The speculation about new homes, contractors, airline seats causing inflation is less convincing since the other side of the equation is the fall in value of residential and commercial property in places like NYC and the decline in travel, hotel occupancy, and so on. This would seem to substantially outweigh the handful of rich people who are buying second homes, etc.

  5. I don’t understand how it could not create inflation, with the government sluicing out trillions of dollars never to be recouped by taxes. (It’s going to be printed instead)

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