America's New Great Depression?
On May 14, CNN reported that an additional 3 million Americans had filed for unemployment benefits. For those of you keeping score at home, that means the total number of Americans that have filed for unemployment insurance since the start of the COVID Lockdowns is now at 36 million. Roughly 22% of the entire U.S. Labor Force. CNN points out that the number of new claims has fallen each week, but this seems little solace in the face of such gargantuan unemployment.
How much higher can unemployment go? Goldman Sachs has estimated the unemployment rate peaking at 25% in the US. They also predicted that the “real jobless rate”, the percentage of people looking for jobs but cannot find them, will peak at 35%.
If these predictions come to fruition, it will be the worst unemployment crisis in US history, narrowing beating out the Great Depression, which peaked at 24.9% in 1933.
The economic impact of the COVID-19 Lockdowns cannot be understated. Entire industries, such as retail and movie theatres, have been effectively closed down. Small Businesses and their owners are struggling, to put it mildly. Many of these small businesses operate on thin profit margins, if they turn a profit at all. Closing down for several months has already killed many of these businesses. Even large businesses, like JCPenney, have filed for bankruptcy.
The COVID-19 Lockdowns will also destroy lots of progress made over the last 30 years against extreme poverty in third-world countries. The IMF has estimated that an additional 50 million people worldwide will fall into absolute poverty as a result of COVID-19 Lockdowns. Some estimates have been much higher, going as high as 420 million to 580 million falling into absolute poverty.
The failures of government in this crisis are yet to be mentioned. Large businesses, such as Ruth’s Chris Steakhouse received a $10 million loan from the Paycheck Protection Program while many small businesses ended up with nothing. After massive backlash, Ruth’s Chris returned the loan. Other large companies like Shake Shack also returned funds to the PPP after backlash.
CNBC reported on May 15 that a study conducted showed that 44% of Americans that have filed for unemployment insurance have been denied or are still waiting. Even though trillions have already been spent in economic stimulus by the Federal Government, many Americans have received only $1200 from it. When the average mortgage payment in the US is $1029 a month, a $1200 check will not do much simulation. As of this writing, another massive $3 trillion stimulus bill is being discussed in Congress, with another $1200 check attached for each American. Again, this would just mean even more trillions have been spent with the average American and their families getting only $2400.
After the lockdowns are over and life returns to “normal”, the economy will not just be able to start up again along with all other facets of life. Too many analogies are made in modern economics likening the economy to an engine. It is not a thing to be turn on and off easily and at will. The damage has been done. The businesses that have closed will not just come back. Capital is being consumed throughout these lockdowns that will not be easily replaced. Jobs that have been lost will not magically reappear.
What are we to make of all of this? Are we entering another Great Depression?
The waters in which we are now treading are uncharted. What made the Great Depression so great is the response of the government to the depression, which greatly prolonged it. However, the way that government has responded to economic crises has changed since Hoover and FDR. The Federal Reserve is certainly a much different agent then it was in the 1930s, especially since the 2008 Recession. The philosophy of the State’s role in times of crisis has shifted as well, as there were no stimulus checks for those in the Dust Bowl. TARP is also a modern creation.
The economy will certainly need time to recover. The question is, what will be done by Washington D.C. and the Fed to try and “help” this recovery? Will we see a repeat of New Deal policies? A “New New Deal”?
The future is always uncertain, of course, but the near future seems much more so.
If we are to have another Great Depression, it will be a modernization of the disaster of the 1930s. This includes new ideas, as well as old, from the government on how to fix this crisis. The Fed, as previously mentioned, is more active than its 1930s counterpart. It will behave differently as well. However, I will predict that its policy will have something to do with very low interest rates for very long periods of time. Just a wild guess.
If only Steinbeck were alive today, we might at least get some good reading out of all of this.
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