Economist’s View: Rise to the Challenge

In highly uncertain conditions, maintaining a “core of humble open-mindedness” is the way to go, according to economist Hugh Kelly.

Perhaps there’s no more politically incorrect author to cite than Rudyard Kipling, the Anglo-Indian writer whose oeuvre includes “The Jungle Book” and “The White Man’s Burden.” George Orwell, the author of the prescient novel “1984,” called Kipling a “jingo imperialist.” Yet in 2007, India made his birth home in Mumbai a museum—a project still awaiting completion.


Image by marsjo via
Image by marsjo via

Let controversy be what it may, Kipling’s poem “If” bears remembering, and even memorization, if that skill should ever return to our educational toolkit. In 1995, almost six decades after Kipling’s death, “If” was voted in a BBC poll to be the U.K.’s favorite poem, a high honor given the rich tradition of English literature.

Why consider a poem like “If” as we transition from the Trump era to a Biden presidency, and the economy’s shift in 2021 and beyond?

What now?

Start with the opening challenge: “If you can keep your head when all about you are losing theirs…” What more pertinent reminder to sober judgment could we have in our hyper-partisan era? Within 24 hours of the “call” of the presidential election in Joe Biden’s favor, battle lines were already being drawn and punditry set out on issues like stimulus, taxation, debt and infrastructure, all in the context of an escalation of the public health crisis of COVID-19 and its strains on U.S. health care.

In all those issues, we are faced with “if” conditions. Economically, we should be clear-eyed about where we are now and where we need to head. Even after the third quarter’s rebound, the U.S. economy is fragile and true recovery will be a long haul. Here are some numbers—sobering numbers—to consider.

Long-haul work ahead

Hugh Kelly. Image courtesy of IRR
Hugh Kelly. Image courtesy of IRR

Compared with the final quarter of 2019, GDP is still $670 billion off the peak. Even anticipating some stimulus plan during the fourth quarter of 2020, a plan on which negotiations are still far apart, the impact will come with a lag that delays traction into 2021. If no deal is struck, I see the result as being a “W-shaped” or “double-dip” recession.

But even with a late 2020 deal in Congress and approval by the outgoing administration, we need to consider the magnitude of the task ahead.

The best three-year average real GDP gain in the past decade was $115 billion per quarter. The worst three-year average was $70 billion per quarter. With this range as a guide, a return to the prior real GDP peak would be in the first quarter of 2022 at the earliest, the second quarter of 2023 at the latest. Note there is an optimistic assumption that the past decade sets the norm. But the trajectory of potential GDP was already flatter for this coming decade in pre-COVID-19 projections. Business planning in real estate should prudently expect a recovery in final demand to be slow and unevenly distributed.

Lagging employment recovery

Moreover, we should anticipate a significantly slower jobs recovery. February 2020 set the pre-pandemic peak at 152.5 million jobs. Even with the bounce-back through October, the U.S. is still down 10.1 million jobs. Again, our best three-year average monthly job gain between 2010-2019 was 226,000 and the worst three-year average was 147,000 jobs. Within such a range, the jobs recovery to prior peak is September 2024 at best and October 2026 at worst.

The trend is likely to skew toward the later date due to permanent job losses owing to COVID-19, a figure now estimated to be 3.8 million. The most severely affected industries are airlines, hotels, restaurants and other leisure activities. Of course, each of these is linked to dozens of supporting sectors.

Not the least of the knock-on effects is in state and local government employment, which will be hammered by shortfalls in tax revenue in the economic slowdown already experienced. There are approximately 16 million state and local government workers. Since February 2020, there has already been a loss of about 365,000 state and local jobs. Jobs at future risk include many essential workers in public safety, education and the administration of vital services including transportation and health.

The real estate community should plan for “full” employment recovery no earlier than mid-decade. Consequently, the level of final demand for commercial property utilization should be considered attenuated for several years.

A timely reminder

“If” reminds us of acting under conditions of uncertainty, while maintaining a core of humble open-mindedness. But the poem also calls for us to brace with inner strength, a fortitude that will be key to our economic revival:

“If you can bear to … watch the things you gave your life to, broken,

And stoop and build ’em up with worn-out tools;

If you can force your heart and nerve and sinew

To serve your turn long after they are gone,  

And so hold on…

Yours is the Earth and everything that’s in it.”

That spirit is almost Churchillian or Rooseveltian. That—and not mere technocratic tweaking—is what the economy and the real estate industry will need in order to sustain the long-haul work of emerging from the crisis and its serious economic ramifications. We will not succeed by underestimating the challenge ahead but rising to it.

Hugh F. Kelly is director of graduate programs & chair of the executive advisory council curriculum committee at the Fordham University Real Estate Institute, and chair of the institute’s executive advisory council curriculum committee. He is a principal at Hugh F. Kelly Real Estate Economics, a consultancy. Kelly is the author, most recently, of “24-Hour Cities: Real Investment Performance, Not Just Promises” (Routledge/Taylor & Francis).

Read the December 2020 issue of CPE.

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