The COVID-19 crisis has caused dreadful pandemonium and to make add on to the amounting anxiety, emerging articles are comparing the current economic downturn to the 1930s Great Depression. Are we even in a recession? Depression? Frankly, no. Maybe not yet, or maybe it would never happen. “The Next Great Depression” sounds scary, but context is radically different and it’s not helpful to define this period of time with more crisis-sounding titles.
Context of the Great Depression
Emerging from World War I, the U.S. was catapulted to the global stage as a world power but suffered from war debt. Despite the prosperous 1920s, national debt increased to over $20 billion and U.S. loans to Europe amounted to $10 billion. Global trade began to slow, and matters worsened with retaliatory tariffs. Hoover’s lofty Smoot-Hawley Tariff decreased the appeal of foreign goods, and European markets retaliated by placing an import quota on American goods. This left both regions with an undersupplied market, and sales plummeted because less people could afford to pay for the higher production costs. Furthermore, the Federal Reserve did not provide the necessary liquidity that the falling economy called for. Along with massive withdrawals, the bank failures also paved the way to the Great Depression. The early 1930s was marred with the stock market decline, collapse of major industries, and uncertainty in administrative policies. Given the decision of tariffs to amend war debts and failed regulation of the bank, the Great Depression is largely attributed to ineffective government policies.
COVID-19’s economic impact appears to have less factors. Fear of contracting the disease stopped people from going outside, which led entire industries to a grinding halt. There is no money going in, so none can be pumped out either. The stimulus bill may be akin to President Roosevelt’s New Deal policies, both sought to jumpstart the economy. Thus far, the government’s response to the virus have been somewhat dicey, so it is too early to say how federal actions would influence the virus’s spread and impact. The International Monetary Fund (IMF) has released some data and a statement saying that we are indeed in the worst economic catastrophe since the Great Depression. The IMF predicts that global output per capita will contract 4.2% this year. To put this in perspective, it shrank less than half that amount during the 2008 financial crisis. GDP could fall by another 8%, and the baseline scenario for global economic growth this year is -3%. That’s just not a great situation for anyone.As far as we are now, the federal government has not “shut everything down”. Only enterprise corporations such as the NBA have taken such measures. In the face of enormous revenue falls, private companies have to eventually restructure or even completely rebuild from scratch. It’s still up in the air regarding whether the economy has been paused, or it collided with a giant wall and shattered. We are technically neither in a recession nor recession because it has simply not been long enough to say for sure. However, it has been long enough to say that if we each play our part by staying home, practicing good hygiene, and just being generally supportive to others, we can quell the damage of the virus itself. It’s not the ideal situation, but it’s also not worth anyone’s time to vigorously compare crises.
TLDR; We are definitely in an economic downturn, and because it’s an invisible disease, paranoia will linger longer than a purely financial crisis would otherwise. It’s way too early to slap labels on the state of the economy, therefore too early to panic about it. What we do know more about though, are the biological consequences. Just, wash your hands, stay at home (WATCH AVATAR: THE LAST AIRBENDER) and don’t disintegrate!