We have experienced unprecedented economic effects of the COVID-19 pandemic and social distancing policies. Twenty two million Americans lost jobs in four weeks. The Federal Reserve Bank of St. Louis projects potentially 30 percent unemployment and a 50 percent decline in GDP by June. This looks like a depression, but is it really?
A recession or depression is visible – idle factories, reduced investment, and unemployed workers – but the causes are typically numerous and elusive. An economy in a depression is like a motor that has stopped working. Economists also note that recessions extend across most of the economy, as opposed to being a slump in one sector. The oil bust of the mid-1980s, for example, did not produce a recession.
Our current slump meets the breadth requirement. While sectors like tourism and entertainment have been particularly hard hit, the 30 percent decline in global oil demand demonstrates widely reduced economic activity. The stock market tumbled over 30 percent as well, consistent with a broad slump.
Yet in a very important way, the COVID-19 slump, dubbed by some the Great Suppression, differs from recessions and depressions; the decline has resulted from closing businesses to stem the virus’ spread. Christmas Day, when GDP craters as most factories, stores and restaurants close, perhaps provides a more appropriate economic analogy. The Christmas shutdown is intentional; people do not want to work and businesses oblige. Is the COVID-19 slump a lengthy Christmas break?
More HERE
