The United States economy is
in a medically induced coma.
Can we revive the patient when
we want to and need to?
The U.S. economy has taken a huge
hit in the midst of the Covid-19
pandemic. President Trump says
that the U.S.
may be heading into a
recession because of the coronavirus.
Economists have implied that a
recession may be looming.
Some have even made comparisons
to the Great Depression.
Based on this week's just absolutely
hideous jobless claims number, we
could expect a real doozy.
See, this park has become a tug of
war between the bears bracing for a
possible depression if we
can't stop Covid.
Is this hyperbole or is the U.S.
economy truly in deep trouble?
First, let's define a recession.
We typically define a recession as
two quarters of negative GDP growth.
The National Bureau of Economic Research
will look back at GDP growth,
they'll look at gross domestic income,
they'll look at employment numbers
and they will put it together to try
to identify the start and end of the
recession.
In terms of why we use the word
recession, we use it because the economy
is not behaving normally.
We are in a recession.
Whether you call it a technical recession
in the sense of two quarters, we
are in a deep, deep downturn.
Numbers can be revised later on.
So a recession is typically
declared after the fact.
That said, there are signals we could
be entering a recession right now.
To put it in the
single word, it's been disaster.
We're going to be looking at one
quarter at least of negative economic
growth, if not two. It's almost
impossible to imagine that we're not
already in a recession.
Almost certainly the recession started
in the month of March.
But Dr. Rouse notes that this
recession isn't like the others we've
experienced. Typically, our recessions have
been induced because of an
issue in the financial
market and oil prices.
It's usually induced from some
sector in the economy.
This is from a public health
scare and a public health crisis.
Economists are using different models to
attempt to predict how the economy
will respond to
the coronavirus pandemic.
There's two models. One is a natural
disaster, and when a hurricane passes,
everyone returns to work and an
economy snaps right back to normal.
Another model is a financial crisis.
And after a financial crisis, it often
takes five to 10 years for the
economy to return to normal.
I think that financial crisis scenario of a
five to 10 year slog back to
normality is more likely than
the natural disaster one.
But either is possible.
How easy is it going to be
to get the economy going again?
Will it be V-shaped, the recovery as
strong as the decline was steep, or
will it be U-shaped, where
we had a precipitous decline?
And that's going to make it
difficult for us to recover quickly?
Because of the ongoing health crisis, it's
harder to tell how this will pan
out. So if it's still too soon to
call this a recession, why have some
economists started talking
about a depression?
A depression is a long recession.
So, it's the length of
time and also the depth.
So there are some forecasts that unemployment
could get up to 25%, 30%.
Those are very large numbers.
The Great Depression,
unemployment reached 25%.
Most people think that we are likely
to reach those levels of unemployment.
If in December of 2021, the
unemployment rate is above 15
%, then we're in
something like a depression.
So it's not how high the unemployment
rate reaches, it just needs to stay
high for some time.
So a depression is possible,
but not necessarily imminent.
The Great Depression happened in part
because of a dramatic failure of
policy. The policymakers then were not
taking the types of steps that
policymakers are taking now.
I think it is unlikely that we have
anything like a repeat of the Great
Depression. Two months of high unemployment
is terrible, but we can
protect families against that.
A decade of high unemployment would
represent a really epic failure of
economic policy of a type that I
think is very unlikely to happen now.
All of this speculation begs
the question: What happens next?
Typically, when the private sector is
not fully functioning, the public
sector steps in. And so this is a
typical role for government and for the
federal government and
state governments.
The federal government's got more capacity
here and that would typically
be where the the federal government
would be trying to support incomes.
What's unusual here is we actually
don't necessarily even want people out
doing the kinds of things that the
federal government could have them do.
We don't want people in groups
of more than 10 people together.
It's important that policymakers continue
to do really big things.
So don't be complacent and
assume everything's gonna be fine.
Do put pressure to make
sure big things keep happening.
And if they do, I think we can
prevent the very worst from happening here.
The more we step back from our
economic activity, the faster we'll actually
recover and emerge from this.
The fact is the pandemic
is likely to continue.
How long it continues will depend
on how strongly we maintain social
distancing. I remain optimistic that we
will get through this and that
there will be another side.
But it will require some patience
and some cooperation and some generosity
towards our neighbors right now.
