>Great Depression
Probably. Plan that way. Anything less is probably good.
I would disagree. I think long-term recession. Serious pain and hardship for many. Life changes for most, perhaps all.
But the Great Depression was truly Not Great. Honestly, I think it's like on September 11 when people were saying it was the same as Pearl Harbor (which was absurd). Or after the 2016 election when people said "We've never been so divided" (uh... we fought a
civil war once). People forget how bad the bad things in the past really were. Very, very low chance we are headed there.
MarketsFirst, there's the markets. I think it's the least important aspect, but since the 1929 crash is generally thought of as the start of the Great Depression, I figured I would start there. I think the March bottom was the bottom. I actually made my max IRA contribution right near the bottom and am up 10%. I think the markets could go down from where we are right now, but I don't think we'll find a new bottom.
Why? Because markets are not a measure of the real economy. They are a measure of people's confidence in the future of a given business and the economy more broadly. When we hit bottom, people were imagining bodies piled up like cordwood and the price was based on that. We now know it's not going to play out like that, so there's no virus-based reason to go below that.
I do think there are massive structural problems like huge government debt and gross inequality and large numbers of terrible jobs that don't pay a living wage. But those were true before the virus. I think those will be an increasing drag on our nation, but my opinion on that has not changed. What's changed is that I thought the markets were 20% overpriced and they dropped 30%.
In 1929, many of the structural issues were the same as what's mentioned above, but remember there was no Social Security income, there was no stimulus, there was no unemployment insurance. There was limited liquidity. There were fewer limits to buying on margin so people were heavily leveraged. There was no FDIC. There was no kill switch on the stock market (meaning the "pause" insituted after Black Monday in 1987). Most importantly, there was no precedent for aggressive government action.
Also, what we had in 2020 was the 1918 Pandemic + September 11 + the Arab Oil Embargo all wrapped into one. Great uncertainty. We're now seeing the range of possible outcomes to the pandemic is narrowing. We now know that our dear president was full of sh## when he said that there were 15 cases in the US and the following week there would be five. We also know that in the absence of federal leadership, at least 30 governors, even some Republicans, are willing to break with Trump and take measures to protect their populations. We also know that we are past peak hospital resource usage unless... ahem... *someone* fucks up and opens things up too fast. Barring that, we are not going to have bodies stacking up in the streets while hospitals are overloaded.
It also looks like the Russian/Saudi oil war will stabilize.
So we now see a more narrow range of possibility and those possibilities are mostly priced into the market.
One concern is that a lot of the optimism seems to be based on the government stimulus package and the actual impact of those packages is debated (I posted a link to an overview of a dozen studies on the 2008 stimulus that argued the long-term effects are between minimal and significant but smaller than advertised).
This doesn't mean that I think the virus will be NOT a long-term drag on the economy. It means that I think in the 12-18 month timeframe, that is priced in already.
It doesn't mean I think we will not see abnormal volatility for a couple of years. If earnings reports come out and they have not only dropped (no problem, that's priced in), but dropped far more than expected, we'll see another brief freefall.
It doesn't mean I think the *current* price is a low. We could fall from here. I'd just be surprised if the floor we found in March is not the long-term floor.
Businesses and Jobs and WagesFirst off, there are going to be some huge losers. Serveral airlines could disappear. Boeing might retract from the commercial sector and end up as mostly a military contractor, as happened with General Dynamics or mostly with McDonnell-Douglas before the Boeing merger. Bricks and mortar retail has taken yet another hit from which it won't come back - all sorts of people are now buying things online they never would have bought online before. The whole idea of the car dealership is in trouble.
One thing that happens in an economy though is that old companies go out with a bang and small companies come in with a slow crawl to success. So we tend to see the 10 big losses, and not the 1000 small gains.
So let's look at jobs and wages.
After 2008, it took six years to gain all those jobs back and when the job numbers came back, the job quality did not. It took another few years to see wages rise.
I think this event is going to suck for working people and will lead to ever-greater income inequality. The *wealth* inequality may be temporarily reduced because the investor class have lost a lot of their money in the market, whereas the poor have little to lose... unless they run up credit card debt, in which case this will exacerbate wealth inequality too as upper-middle class and above see their investments recover (again, optimistic scenario for the markets) while most of the middle class and below will not be able to save because they'll be paying their credit cards off for the next few years.
At the very bottom of full-time wage earners, some people may actually do better with the stimulus funds (the extra $600 in unemployment until July 31 means that many of them are earning more on unemployment than they were at their jobs).
As for unemployment, though, these numbers need to be taken with a grain of salt. Take the hotel I work for. It's actually almost a small village. We have a water treatment system, a sewage treatment plant, a fire and rescue department. So some people are always working. Those systems cost many millions of dollars and need to be managed.
But I would guess that all in, there are about 15 people working and 90% of the full-time staff is laid off. But here's the thing. If the hotel comes back to 50% of normal capacity, a large number of those people get their jobs back? Why is that? Because the full-time staff is your baseline staff that you hold onto most or all of the year to meet baseline need. To meet the high-season surge, the hotel hires J1s, temp workers and full-time workers get a lot of OT.
Compare that to the Great Depression when 80% of auto workers lost their jobs because demand wasn't there. In this crisis, a lot of the long-term job loss is in travel and tourism and that, again, is an exogenous event.
Put it this way: our community and several other tourist areas had to pass measures to keep lodging operators from continuing to welcome tourists because despite government orders to stay in place, people kept coming. That's not the same as an auto company laying off 80% of the work force because nobody can afford to buy a car. We're a long ways from that yet.
So though the job loss is staggering, in even a pessimistic scenario of a late and slow economic relaunch, a lot of those jobs come roaring back to meet up pent-up demand *unless* it goes on so long that people can't afford to buy anything for a long time. This is an exogenous event and the question is whether or not that exogenous event will last long enough to trigger endogenous events within the economy. But if we start opening the economy anytime before July, I think unemployment will start coming down fast.
It may take six years as it did in 2008, but I doubt we're going to see Great Depression levels of unemployment lasting for years as it did then.
Stimulus Timing and ExtentAs I mentioned, it's debated how much good stimulus actually does when you look at GDP. But GDP is horrible measure of the economic health of a country. Our policy decisions would be way better if we eliminated the two most useless statistics in the economy: the Dow Jones Industrial Average and GDP.
What it will do, is keep many people from starving, suffering unrecoverable financial loss, opening up the gun safe and blowing their brains out, looting and pillaging (burglaries are WAY up in NYC).
But we are about one month into the economic crisis part of this overall crisis and already stimulus checks are arriving. If you think of the Great Depression, the market tanked in late 1929. Hoover opposed government intervention into late 1931.
https://courses.lumenlearning.com/suny-ushistory2os2xmaster/chapter/president-hoovers-response/In 1929 he said, “Any lack of confidence in the economic future or the strength of business in the United States is foolish.” In 1930, he stated, “The worst is behind us.” In 1931, he pledged federal aid should he ever witness starvation in the country; but as of that date, he had yet to see such need in America.... In a 1931 radio address, he said, “The spread of government destroys initiative and thus destroys character.”
Eventually, Hoover agreed in late 1931 that unemployment relief of some kind was needed to shore up the economy and keep people from starving. Aside from a minor effort by Congress in 1931, it wasn't until 1932 that Hoover supported a Senate bill for $1.5 billion in relief. Even adjusted for inflation, that's a comparatively modest $29 billion. That's about $60 billion of you adjust for a doubling of the population. Still minuscule compared to 2009 or 2020 numbers.
Basically, for nearly three years, the government did little. It took almost four years, under Roosevelt, for the government to enact the New Deal. The New Deal was a big deal. In inflation-adjusted dollars, it was smaller than the 2009 stimulus, but it was bigger on a per-capita level. It was equivalent to a full 40% of US economic output vs about 6% for the 2009 package. Both the New Deal and the 2009 package led to a similar increase in federal debt as a percentage of GNP.
I am not sure, but the current package will likely be the largest in history by any measure except as a percentage of total output. But the key thing is that whereas the New Deal kicked that money in 4 years after the market crash, this money is coming just over four WEEKS after the market crash.
