Last week’s mixed bag of economic data confirmed again that the United States is caught in an eddy-current economy where it is hard to determine if the tide is going out (more recession) or coming in (a welcomed recovery).
Last Thursday’s report on unemployment benefits claims showed higher numbers than the recent running average, indicating perhaps that more furloughs are being converted to layoffs and that the coronavirus’ reshuffling of the economic deck is still taking its toll.
On the other side of the ledger, a strong reading on retail sales and consumer confidence offered solid signs of improving prosperity. Indeed, some economy watchers go so far as to predict that third-quarter GDP growth could be almost strong enough to get us back to the prosperity level that prevailed before the virus struck.
When we look closer at the economy, we can be thankful that it is not simply being put back together exactly as it was. Countless never-say-die individuals and organizations are doing more than re-gluing the broken pieces of a fractured economic mosaic and hoping that Humpty Dumpty will function again. No, some are managing to re-plant themselves and their businesses in more promising fertile soil.
Evidence of this effort arrived when the Department of Commerce released powerful new data on new business applications. Eyeing the data is much like checking the lawn after broadcasting seed for winter grass to see if it is germinating. I am glad to tell you that a beautiful lawn is part of the forecast.
In the Federal Reserve chart below, I report the explosive new business applications data for the last 12 months. There is no doubt about it: Those September seeds have germinated. There’s nothing like it in the data series, which first started being maintained in 2005. We should look for a more vibrant economy in the year ahead.
But what might be driving this sudden birth of entrepreneurship? Does it have anything to do with the pandemic?
Unfortunately, the data do not tell us this. That said, introspection and common sense may help. We know that the coronavirus has redefined the timing and location of work. Millions of people who previously “went to work” every day are now stationed at home or in alternate workspaces. Along these lines, it could well be the case that children in the future will not ask, “When will Mommy be home from work?” For many families, the question will no longer make sense.
The commonsense story goes like this: Once off the commuting treadmill and having an organized workspace at home, some newly deployed workers decide to contract with their former employers and with others as well. They decide to open a business or to become a one-person firm. It may have been a part of background discussions for a long time. The virus’s shattering of our work habits fueled a fire that was already burning at a low level.
The high level of new business startups also suggests there is something special about our highly decentralized market economy in which people are free to pursue happiness by determining what they will do to earn a living, as well as how and where they do it. This feature of our economy means that when hit by a severe shock, as we have faced in 2020, the economy doesn’t shatter like a stained-glass window might and then require reassembly.
Instead, the market economy stumbles, absorbs the blows, readjusts, changes shape, and evolves in a new form. In many cases, workers must make very painful adjustments. However, we should not forget that an economy can, in the long term, be refreshed and strengthened by a shock.
Does this mean that we should celebrate the coronavirus shock? Of course not. But we should celebrate economic freedom that allows us to make the most of a tough situation.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
