UVA Darden Professor Frames 3 Myths of Economic Crises as Global Downturn Lurks

By Dave Hendrick


While the economic fallout from the global coronavirus outbreak remains nearly impossible to quantify at present given the growing nature of the pandemic, University of Virginia Darden School of Business Professor and Dean Emeritus Bob Bruner suggested historical antecedents may serve as useful guideposts in the months and years ahead.

Bruner, author of a book on the Panic of 1907 and multiple papers and cases on economic crashes and crises, offered his assessment on the unusual moment in time and possible paths forward during a presentation sponsored by the University of Virginia Alumni Association in early April.

Bruner made clear at the outset of the presentation what questions he could not answer: those pertaining to investment advice or the likely duration of the crisis.

On the former, Bruner said that he is not a registered investment adviser and does not tout stocks. But, he did summarize the investing advice he has given to his children: Hold a broadly diversified pool of securities, don’t try to time the markets, hold six months of “rainy day” money in a safe and liquid account, and mix stocks and fixed income securities appropriately as you age. As to duration, Bruner said the length was entirely dependent on factors of an epidemiological nature and he could not hazard a projection.

”We have a moment of very, very high uncertainty,” Bruner said. “That’s the long and the short of it.”

For those inclined to look to the past for a foundation to understand current events, Bruner offered what he described as three myths of economic crises.

Myth No. 1: Financial Crises Are Rare

In reality, there is typically a crisis of some sort — a category that could encompass a banking crisis, a currency crisis or a sovereign debt crisis — occurring on the globe at any given time in recent history, Bruner said.

“We must be vigilant that crises are virtually always present,” said Bruner. “Crises are not exceptions. Crises are common features.”

Myth No. 2: Crises Are Fairly Self-Contained Events

In fact, said Bruner, financial crises tend to begin before and last longer than popularly realized. By the time a crisis spreads into the collective consciousness, it may have been cascading downward for more than a year. Too, the tremors after the peak of the crisis can be significant.

“Gradually, institutions and markets and economies settle down, and then commences a range of civic reactions,” Bruner said, citing electoral changes and protest movements among the events sometimes spawned by economic crises.

Myth No. 3: Crises Begin Out of Thin Air

We must end the notion that crises are “invisible demons that come out of nowhere,” Bruner said, noting the importance of being able to identify the origin of economic crises if there is any hope of developing policies to mitigate future crises.

Bruner, a self-described optimist about financial recovery in the long-term, said those looking for a silver lining in the current economic environment may be heartened to the degree to which policymakers appear intent on swiftly addressing the economic fallout.

“We’ve never seen a response to an economic crisis by the federal government on this order of magnitude,” Bruner said, specifically citing the $2.2 trillion emergency spending bill signed into law in the United States on March 27.

Bruner encouraged observers to take particular note of the “helicopter money” distributed to citizens across the country. Providing cash assistance directly to U.S. citizens in a time of emergency has typically been outside of the mainstream political thinking, Bruner said, but now the precedent has been set.

Moreover, given the depths of the crisis and unknown duration, Bruner said there appeared to be strong probability that another relief program may be mounted.

“I think the horse is out of the barn and [the U.S.] Congress has indicated willingness to provide relief,” Bruner said. “Once that is expressed, the question is under what circumstances do you stop?”

About the University of Virginia Darden School of Business

The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.

 

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