Thus blared an 8 April headline from Reuters, apparently intended to sow as much panic as possible.
A Brief History of GDP and Unemployment Measures
What’s different this time?
The Policy Response
Unemployment: Why the Numbers Are Real But Meaningless
Living like the Germans
What Keeps Us Up at Night
- A recession transfers ownership of businesses, real estate, etc., from weak hands to strong hands. This is the engine behind the magic of creative destruction, productivity growth, and the bounty of long-term economic progress. But in a depression, there are no strong hands. The current situation is obviously, at minimum, a short, sharp depression. But if it stretches out in time, few people will have the capital to take over failed businesses and get the economy moving quickly.
- People who are unemployed for a long time become demoralized and lose their skillsets.
- It will be hard for governments to pay back massive new debts, as necessary as they seem to be. (It would have helped to go into this crisis with much less accumulated debt from the past.) This means higher taxes and consequently lower after-tax income growth in the future, especially for the young.
- We — even most economists — do not fully understand all the linkages in our economy. Because of the transportation collapse, oil has become absurdly cheap, putting another 150,000 people out of work in the United States. They are (or were) highly paid, so whoever was selling them stuff may be out of work too. This is how a recession turns into a depression: The self-correcting mechanisms, such as bargain shoppers buying airline tickets and taking driving vacations when prices are low, have been taken off the table. As a result, downward price spirals feed on themselves and spread more widely instead of being self-limiting.
- We face some financial infrastructure problems. For example, if people don’t pay their mortgages, the mortgage system will break down. That will make it harder to obtain a mortgage for years to come, inhibiting the real estate recovery that we’ll desperately need.
- We also face physical infrastructure problems. An electrical engineer writes that the power grid has been massively disrupted by people working from home instead of in offices and factories. The grid operators whose job it is to manage these shifts are sequestered on site. They are eating and sleeping at the control centers (at least in New York State). They are at their wit’s end. A coronavirus outbreak among these operators could mean power outages for millions.
Concluding Thoughts
Stephen C. Sexauer
