Introduction
There has been a lot written about America being “at war” with COVID-19. Not only our country, but the entire world, is engaged and taking steps to fight this invisible enemy. Because of this, Randy and I thought it helpful to compare/contrast America’s response to WWII and the response thus far to COVID-19.
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Timeline of WWII vs. COVID-19
Historians have the advantage of being emotionally detached from the topic that they write about. This is because there is usually a multi-year delay before “history books” are written about an event. Without this emotional detachment, it is very easy to lack an accurate perspective on an event’s timeline when looking back at history. For example, the last few months have felt like an eternity for most of us even though this virus scare has only been around for a few months. WWII was no different.
Wars have been around since the beginning of time, and unfortunately, will continue to be a part of human history. It is worth noting that our country has entered most every war unprepared. Looking specifically at WWII, it became obvious that we would enter the war in 1938. The war officially started in 1939. After repeated pleas from our allies to enter the war, we did not “join” WWII until the attack on Pearl Harbor in 1941. D-Day did not take place until 1944. It is easy for me to look back at history and say that victory happened swiftly. To the contrary, our country did not mobilize overnight – it took us six years to prepare for war and storm the beaches of Normandy for final victory against Germany (the war in the Pacific took a bit longer).
While no administration is perfect, the swiftness of the government’s attention and response during this pandemic has been impressive. Ventilators are now being produced by automobile factories. The Federal Reserve distributed business loans at warp speed. Monetary easing (reduction of interest rates and programs to stabilize the bond markets) was implemented quickly (in weeks) where it took six months for similar activity to occur during the 2008 financial crisis. As previously stated, it will be years until historians can analyze the decisions made in response to COVID-19 in an unbiased manner because we are still too close to this event to be completely objective.
Bottom line… America moved more quickly in the fight against COVID-19 when compared to WWII.
The Federal Reserve
A name that some history buffs will recognize is Marriner Eccles. He was the Federal Reserve chair preceding and during WWII and is also known as the “Father of the Modern Federal Reserve.” For those of you that are interested to learn more about Marriner Eccles, PBS recently published a very well done one-hour documentary on his life. Eccles fought to reduce (and peg) short-term interest rates during WWII. This enabled the government to finance the war at lower interest rates. He also believed in spending during the end of the Great Depression and during WWII to promote economic activity – a drastically different approach from that which was taken at the beginning of the Great Depression in 1929. In a similar fashion, current Fed Chairman, Jay Powell, has brought short-term interest rates back to zero, stabilized the bond market with massive amounts of spending and proactively supported businesses through government loans.
Bottom line… Jay Powell has risen to the occasion to defend his country just as Marriner Eccles did. Has he made the “right” decisions? Time will tell.
A Self Sufficient Nation
Prior to WWII, America was essentially a self-sufficient nation. We did not rely on other countries for making and distributing goods. Obviously, globalization has played a great part in the world’s story since the 1940’s, and in ways, has contributed to America’s continued prosperity. However, while the self-sufficiency of the U.S. was a positive factor entering WWII, the current globalized nature of our nation has proven to be disadvantageous as we fight COVID-19. Unfortunately, we are at the mercy of other countries for many vitally important items such as medicine, technological components, etc.
President Trump has been saying that we rely too heavily on China and that he wants to bring jobs back to the U.S. While his statements are partially political in nature, he was right. One of the things that will drastically change in the coming months and years is how U.S. companies reorganize their supply chains. Many companies are going to be less willing to trust the manufacturing of their product to one country. We expect companies to diversify their supply chains and repatriate jobs back to the U.S. In theory, this will increase the cost of some goods and services which will in turn lead to inflation.
Bottom line… This virus scare has proven to be a “wake-up call” for a lot of companies in America. Globalization will always play a part in the economy, but we expect the narrative to change.
Conclusion
The outcome of WWII was a shining moment for our country, and we have no reason to believe that this virus war will be any different. Winston Churchill very eloquently described his country’s facing of possible defeat, the glory of supreme resistance, and the eventual triumph as Their Finest Hour. We are now watching the history of the Fed’s finest hour unfold.
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About The Author
Matt Price serves as a Partner and Senior Vice President for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their two daughters and the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 9 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes that everyone needs a wealth coach!
Any opinions are those of the author and not necessarily those of Raymond James.