Don’t Confuse The Steering Wheel For The Rear View Mirror

Fishkind talks to WMFE’s Matthew Peddie about what’s steering the economy and where it might be headed in 2021.

Matthew Peddie: Hank Fishkind, talking about the steering wheel and the rearview mirror sounds a little bit more like driver’s education than economics to me. So just explain this analogy, if you could.

Hank Fishkind: Sure, Matthew, this is part of the new field of behavioral economics, which recognizes that people aren’t always 100% rational, and instead were predictably irrational.

MP: Okay, so what about this steering wheel and mirror then how does that fit into this?

HF: So we all make decisions every day governing future actions, based on our past experience data, or knowledge and training in our beliefs. Although the future rarely repeats the past, it typically rhymes. So we essentially look backwards to make forward decisions. And generally, this works out pretty well. It’s like driving down the road for the last decade. And if that road has always been completely straight, we would expect the road to continue to be straight as we drive ahead. But if a curve is coming, and we’re not looking ahead, there’ll be trouble. And it’s as if most of us drive in the car with the rearview mirror, instead of with the steering wheel, when we make economic decisions. And when we get to economic turning points, like the one we’re experiencing now, it becomes problematic, Matthew.

MP:  Sure. I mean, it does make sense to kind of look at the way we’ve acted in the past, or look at the past to inform our decisions for the future. But 2020 has been a bit strange. So I wonder if you could factor in some examples of how this steering wheel- rearview mirror analogy plays out now, with what we’re seeing now.

HF: Many of us believe that once the vaccine is widely administered, our world will return back to normal. But that’s unlikely, because the pandemic has accelerated a variety of structural changes that were already underway. So for example, many of us will continue to work from home for some or even most of each work week going forward. Many people like working from home and many employers are very supportive since it reduces their costs. But there will be much lower demand at restaurants, coffee shops, bars, parking lots and facilities with fewer people working from their offices. And this also means that there’ll be a huge excess supply of offices and parking, that’s no longer going to be needed. And more working from home has already resulted in a surge in the demand for housing and bigger homes. And this will transfer some restaurant and coffee shop demand to where the new homes are. But on net, Matthew will likely to lose 25% or more of all the restaurants.

MP: What about other potential impacts for individuals and households?

HF: Sure, for instance, interest rates have been very low for the last decade by historical standards. And the Fed announced plans to keep those rates low for the next year. But with the vaccine likely to be widely distributed soon, most economists including me expect a big economic boom in the second half of 2021 as pent up demand is unleashed. And that’s going to cause pressure on financial markets and probably push rates up in 2022, and beyond, Matthew.

MP: When you look at the state of Florida itself, policy makers here in the Sunshine state have a bit of a problem on their hands. For one thing, they’re facing a $2.7 Billion budget deficit. How are they going to handle that?

HF: Well, it’s a big challenge. But it looks like many of them are confusng the rearview mirror for the steering wheel.

MP: And what do you mean by that?

HF: Well, historically, a large majority of Florida policymakers, including many now in power, hew to the outmoded notion that any increase in taxes, or often, any policy that would even increase revenues, is antithetical to economic growth and job creation. So as a result, Florida’s only one of two states that doesn’t tax internet sales, that would be worth more than $500 million for the balance of this year. And 50 million to a billion dollars going forward. And this rear view mirror driving is going to miss the big turn in revenues on the revenue road.

MP: I wonder though, just thinking about taxes, I mean, even if the state of Florida holds fast to that notion of no new taxes, we probably are going to see something happening at the county and local level, right?

HF: Yeah, there’s a lot of pressure there. And hopefully, you know, people will understand that we’re at a big turn in the revenue road and revenues are going to be much higher next year.

MP: What do you see coming in the second half of next year, then?

HF: Well, with this economic boom, what we’re going to see is very high revenue growth. And and so you know, driving with the rearview mirror is going to miss it. And so the state government is likely to slash spending unnecessarily and it’s going to hurt the economy.

MP: Okay, so what what’s your economic prescription for the listeners, then?

HF: Well, stay positive and test negative. This is all going to be over soon, but we have to protect ourselves till we get there. Matthew.

MP: Hank Fishkind is president of Fishkind Litigation Services. Thank you so much, Dr. Fishkind, appreciate it.

HF: Thank you, Matthew.