2020/02/26 — we ran out of facemasks
Don’t Fear The Coronavirus, Fear The Fear Of It.
The economy of fear and what we can learn from it
Last week I had a friend visiting me from Italy. We spend some quality time, and on Tuesday, with not a care in the world, he flew back to Italy. Less than one week later I get a text saying: “I should have stayed at your place. They closed my uni. Italy is in quarantine”.
I don’t particularly follow the news, nor watch TV, thus the fact that the coronavirus is rapidly spreading (itself or the fear of it) in Italy knocked my socks off. It wasn’t the news that got me but rather the reaction to it. News outlets, TV channels, social media, it all started there. And then it escalated.
One day before.
A student told me that she wasn’t able to find facemasks anywhere. Shops ran out of them as people are buying boxes and sending them to China. We had a good laugh about how people are making money and that those facemasks supposedly don’t even protect from the virus. We had our lesson and there was that.
The day of the text
I got the text and there was more information to it. It turned out that not only public institutions were closed but most shops were out of food. Besides, the army was patrolling the streets. Well — Italians are emotional and it’s probably blown out of proportion by the media. I didn’t think about it too much and went back to work.
Later that day, I found out that another friend of mine had to fly back from Italy and cancel her studies there (at least for now). The craziest part was that they held her for 7 hours, just to be sure she wasn’t contaminated. Fortunately, she wasn’t, but it got me thinking that fear is closer than I thought.
Today (Wednesday)
Rumors are spreading that the virus might have already crossed our border. I tried not to follow the fear, but it started feeling more and more imminent.
In the afternoon, I meet with my Italian friends for lunch and we just laughed the entire bubble off with a few bottles of Corona. Facts speak for themselves and we as young and healthy guys are on the positive spectrum of survivability. Yet I started feeling pain in my throat.
After my evening lessons, I was driving back home with a tiny fever and got another piece of information. People were buying out pasta in huge amounts. Not in Italy or somewhere far, but in my city. Without even thinking, I was already standing in the supermarket choosing pasta. A couple stopped near me with the biggest possible shopping cart. We shared a look and started laughing about this entire situation — what a stupid thing. Yet after wishing each other a great panic, they left with a substantial amount of pasta and so did I.
Now
This entire situation, although far from over, already brought me a lot of interesting findings both about myself and society in general. In this article, I’ll describe the fascinating phenomena of fear, what could be the impact on the global economy and what lessons we can learn from this entire situation.
fear /fɪə/ — an unpleasant emotion caused by the threat of danger, pain, or harm.
Fear fear
In the events I described above, nothing truly sensational happened. If we’d look at it from a very rational point of view — no tragedy happened. But all the incidents led to a shift within my mind — the shift of perspective.
We often talk about being optimistic or pessimistic, about seeing a half-empty or half-full glass of wine. This is perspective — in other words how we perceive certain events. It has no effect on the events themselves (the glass couldn’t care less about your opinion), yet changes something else. It changes our reaction to those events and how we see the future.
While driving my car, I realized that my point of view slowly changed and instead of seeing a clear bright future I started seeing dozens of possible apocalyptic scenarios. This changed my perception of the world around me and most importantly my reactions. Before, I wouldn’t have even considered buying pasta because I was going to eat out tomorrow anyway. Now, on the other hand, I wasn’t so certain of that sushi lunch. Actually, I wasn’t certain I’ll go out the next day. My perspective changed.
This would be minor if it only happened to me, but the change of narrative can be seen all across the media and it blossoms at the decisions people make.
“Nothing to fear but fear itself “ — Franklin D. Roosevelt
To sustain a positive narrative is fundamental for our economy as everything is based on people believing that tomorrow will come and it will come in better shape than it is today. Of course, the media is always full of fearsome headlines and people have fears, but overall there is a fundamental belief that the future will work out better. Maybe not tomorrow, maybe not this week, but sooner or later it will. If it wouldn’t be the case nobody would take loans or invest in stocks (invest not speculate), it just wouldn’t make sense. This belief is very well explained by David Graeber in his book Debt: The First 5000 Years .
Now, what we see is that this fear is leading to a slow change in perspective and even if it’ll be a temporary one — it can have major consequences.
Is it rational? Of course not — it’s human.
Humans are not rational
Nudge theory by Cass Sunstein and Richard Thaler lays out perfectly how people are not rational beings and we don’t always make the decisions that will be in our best interest. Actually, we often don’t, especially when talking about long-term benefits. We are emotional and often impulsive beings that act first and rationalize later. This is perfectly described by one of my favorite quotes:
“Man is not a rational animal; he is a rationalizing animal. “ — Robert A. Heinlein
We can rationalize any decision we made and because of that having the “right” perspective is crucial. And the right one, at least in the economic sense, is to believe in the future.
Emotions spread faster than facts
During this entire media circus, one thing came out certain — emotions spread faster than facts. People often shape their opinion based on the headline and the more emotion-rich it will be, the faster it will spread.
With the coronavirus, people share fear and fear spreads quickly, extremely quickly. And it makes absolute sense — nobody wants to get sick and die. Yet if we’d look at the numbers you’re way more likely to survive from it than die, most people were treated and the Iranian deputy health minister is doing better. Sure there are a lot of question marks and things could go south, but if we trust numbers — we’ll be just fine.
Unfortunately, we’re far from the fear waving good-bye and will most likely have more
The click-business
Another key lesson from this entire cacophony is how influential is the media and how most of it is made of vultures. Juicy rumors, mixed with fear and a pinch of handpicked facts make a perfect cocktail that spreads better than wildfire news. Literally.
Is it good or bad — hard to say, but I strongly believe that anyone should at least understand how this business works, to avoid getting caught on the wrong side of it.
Shortly — most news sites live from ads and the KPI are clicks. The more clicks — the more money an article generates.Problem number one arises when there are not enough actual events to talk about or they ain’t spicy enough. You’ve got to blow events out of proportion, add doubtful testimonials or simply fabricate news. This happens more often than we’d like to believe.
Problem number two, and the most dangerous one, is that to get a substantial amount of clicks you’ve got to be first. People want information quickly and whoever delivers it gets the jackpot. This leads to a lot of websites not fact-checking their references.
Most of the time this business model is harmless, but as it’s so widespread it could lead to terrible disasters.
Just while researching information for this article I’ve got stuck in a reference loop, where articles about a certain study were just pointing at each other without having any verifiable reference or link to the actual study.
A terrific book about this phenomenon, which is unfortunately still relevant — Trust Me, I’m Lying by Ryan Holiday
Now all taking all this info into account — what could go south?
Impact on the economy, possible recession
One of my students canceled his skiing holiday to Italy, another got a fair rescheduled, one of my student’s sister had to go on vacation because all business with China is suspended, I’m canceling my trip to Berlin. Now, this is only my direct orbit and I’m small potatoes, so let’s check the possible economic impact.
Right now we can see that my beloved Italy (which already had a shacky economy) doesn’t have a great forecast ahead. It’s estimated that this crisis could take over 4 Billion USD from consumer demand and lead to the closure of 15'000 small companies. The entire world could potentially lose 1.1 Trillion USD in lost out income.
All these numbers are estimates and nobody knows what will really happen. But if fear keeps spreading, it could have a terrible effect on the economy, even if the virus doesn’t interfere too much.
What we can do
Don’t buy into the fear. It’s hard to keep a clear mind when the world goes bananas, but on the other hand, it’s a great opportunity to analyze how we behave in times when uncertainty hits and see how much influence fear has. I’m curious to hear what did you notice and what’s your take.
Hope this time will bring you a ton of lessons and interesting perspectives. Hopefully, my fever will be over soon and my next article won’t be called “How I got the coronavirus and what it taught me.”
