Are we resilient or emotionally fragile? Our society wrestles endlessly with this question. A new government has assumed power and our economic future will be determined by whether the Biden administration and investors view us as psychologically damaged, or able to withstand the suffering of the Covid period.
Human fragility underlies the bleak view of the post-covid world provided by “Scarring Body and Mind: The Long-Term Belief-Scarring Effects of COVID-19”, a paper delivered in August at the Jackson Hole annual economic policy symposium. Julian Kozlowski and his co-authors argue the pandemic will psychologically scar the populace and the negative economic consequences post-shock will far outweigh the direct losses suffered during the pandemic.
The authors are correct that economic performance depends upon whether people are regarded as fragile. Sources of capital that anticipate emotional scarring will defer investment or will pursue recession-proof opportunities. As there are too few recession-proof opportunities, multiples for “safe” investments will rise and other sectors will lack capital. Alternatively, if an energetic rebound is anticipated, capital will flow more vigorously and the economy will recover quickly.
Governments that regard citizens as psychologically fragile and traumatized will hunker down and adopt cautious policies. These policies – even when necessary like the 9/11 protections – are costly and reduce efficiency. By contrast, if people are viewed as resilient, governments will facilitate robust economic growth.
So, are we resilient or emotionally fragile? Will people be permanently scarred by the Covid period or will they bounce back?
Among the entrepreneurs and private equity leaders with whom I discussed psychological scarring, there was no consensus as to whether it is correct. Similarly, economists divide as to whether the economy will recover quickly as after the Spanish Flu.
However, I suggest we can find the answer by examining human nature. When I asked mental health professionals, they unanimously disagreed with the scarring thesis. People are resilient, they responded. Human beings are affected by disaster, such as the Spanish Flu, but they adapt.
I raised these issues with a friend who embodies resilience, Joseph Szlezinger. Hidden during the Holocaust as a Jewish child in a Belgian convent, Joseph later built a successful real estate business in England. His memoir, “Shattered Dreams to New Beginnings”, recounts how the Church saved his life and how he overcame this trauma.
On our call, Joseph said “Survivors bounced back unbelievably.” They succeeded financially because “they had enough of misery and wanted to make sure it would never happen again.” He, like many others, pointed out that while many individual Holocaust survivors were unable to operate, as a group they rebuilt their lives. They married and achieved statistically disproportionate success in business. Based on his experience, this hardy individual is sure that the world will change but “will come back.”
The greatest insight into the essence of human nature may well be provided by the wisest of all men. In Ecclesiastes, King Solomon writes “He puts eternity in their mind, but without man ever guessing, from first to last, all the things that God brings to pass.” The great medieval exegete, Rashi (Rabbi Shlomo Yitzchaki), explains that, in God’s mercy, the time of our death is concealed from us and, therefore, “a person optimistically says ‘Perhaps my death is far off’ and he builds a house and plants a vineyard.”
We live in a time of fear of psychological frailty, threatened by “triggers” and protected in “safe spaces.” But human beings are actually resilient by nature. As Robert Louis Stevenson, the Scottish novelist, writes, “we do not, properly speaking, love life at all, but living.” We take risks all the time – in sport, business and in everyday life. If we were truly risk averse, little would be achieved in the world and enjoyments would be few.
We live vibrantly because we do not know our time of death and love living more than we love life. Thus, despite the serious concerns about scarring effects, human nature suggests we will bounce back after the pandemic. Investors and entrepreneurs, I believe, will adjust to changed circumstances and seek profit in market dislocation. Human beings will emerge from the fog of suffering, adapt and thrive. We will build houses and plant vineyards.
