Last March, we brought together a group of people who study economic history so that we could ask them what the Great Depression can teach us about the current economic crisis and what we need to keep an eye out for as the pandemic continues.
When we last spoke with them in MayEric Hilt, professor of economic history at Wellesley College, said the economic crisis was shaping up to be worse than he initially expected.
Carola Frydman, a finance professor at Northwestern University who studies financial history, and Kathleen Day, a lecturer at Johns Hopkins Carey Business School specializing in financial crises, both said it was difficult to say where to go. ran the economy with so much uncertainty. on the path of the virus.
So now, more than six months after the Trump administration declared a public health emergency in the United States due to the coronavirus outbreak, we’ve brought them back to the program to ask them how they feel now about the economy.
“I’m getting more and more pessimistic,” Hilt said. “I don’t feel good at all,” Day said. “Not much has changed since the last time we spoke,” said Frydman. There is “still a big question mark and a lot of uncertainty”.
But even in times of uncertainty, there are markers we can use to keep track of what’s going on. The first one standing? Unemployment rate.
“Although the financial markets are doing relatively well, the unemployment rate is still high,” Hilt said. “The unemployment rate has dropped slightly,” Frydman said. “But it’s still very serious,” Day said.
At 10.2%, the unemployment rate last month remained near the worst levels reached during and shortly after the Great Recession.
Last month, the number of unemployed who lost their jobs permanently reached 2.9 million.
“And the longer this goes on, the more permanent unemployment will be for some, and the more difficult it will be to solve this problem,” said Frydman.
In addition, US business bankruptcies are on track to reach a 10-year peak, according to S&P Global Market Intelligence. In recent months, there have been several bankruptcies of well-known companies including J.Crew, JC Penney and Lord & Taylor, as well as a a multitude of energy companies.
“Part of it is a dismantling of businesses that might not have been successful anyway,” Day said. “But we are certainly seeing it happening faster.”
Also and related, consumer confidence is declining. “It’s a big deal,” Day said. “People say, well, maybe I wasn’t fired… but I’d better save for a rainy day.”
Spending by or on behalf of consumers represents almost 70% of economic activity. “And when they stop using, the economy slows down,” Frydman said.
There is no perfect historical point of reference for the crisis we are in now, but Frydman said a lesson from the 1918-19 Spanish flu pandemic is the importance of government spending to mitigate economic damage. “In this case, it happened because of the war effort, and right now it’s done through various federal programs, ”she said.
But with the $ 1,200 relief checks, the extra $ 600 a week in unemployment benefits, and the paycheck protection program behind us until another relief program passes through Congress, the consumers will have less money in their pockets.
“It’s going to have economic consequences that can spill over into the entire economy,” Hilt said. “I think we have all our hopes for a great medical solution to the crisis,” Frydman said. “But that doesn’t mean the economy will recover immediately afterwards.”