Depression? We don't know that yet
EDITOR'S NOTE
Our segment yesterday with Ian Bremmer--the widely followed Eurasia Group analyst--has generated quite a bit of discussion. (You can watch it here.) As the headline states, Bremmer says we're now in the first depression of our lifetimes.
Whoa, whoa, whoa, I said. I'm not so sure. Here's why: (a) What about 2007-08? The "Great Recession"? (b) What do we mean by "depression"? During the Great Depression, it took four years for the unemployment rate to hit its peak, around 25%. The economy kept worsening. We're talking about 25% unemployment in roughly four weeks after government-ordered shutdowns.
First of all, it's amazing to me that we'd even be debating whether the Great Recession was "that bad." It was that bad. It was horrendous. I actually think we're still living through its aftermath.
It was not like this pandemic, where the whole country shut down at once over a natural disaster. It was an internal systems collapse that actually started slowly and quietly. First in credit markets. Then home prices stopped rising. Then they started to drop. In early 2008--even after the Bear Stearns collapse--people still thought we might come out okay. I remember because I literally wrote the piece about this, with my colleague Justin Lahart: "Recession? Not So Fast, Say Some." It took another year--ironically, just as the recession was ending and the market rebound was starting--for the public to become so fearful about the U.S. entering a prolonged, yes, depression, and for Warren Buffett to pen his famous "Buy American. I Am," op-ed that most people thought was either tone-deaf, wrong, or crazy.
The Tea Party political reaction to the federal borrowing and bailouts didn't reach its apex until 2010. Occupy Wall Street--remember when they took over Zuccotti Park?--didn't happen until September 2011! The recession had technically been over for more than two years already and people were feeling that emotional about the economy. That's what makes it a Great Recession, along with the historically sluggish economic rebound and constant discussion about whether we were entering a "double-dip" downturn.
It was so bad, in fact, that Brian Sullivan became our energy reporter/expert simply because he wanted to go cover pretty much the only place in the U.S. that was seeing growth and expansion: the energy patch. It was so bad that when I first heard of the "cloud" and the sudden software explosion coming out of Silicon Valley around 2012-13, it was like the morning dawn after a long, scary night. Anyway, yes, it was bad.
Could this pandemic be worse? I suppose. That certainly seems to be the consensus right now, although I'm not convinced unless the shutdowns persist. Will it be worse than the Great Depression? We're only two months in. Frankly, I think it's a little soon to tell. And the tell is not the spike up in unemployment; it's the speed with which it comes back down.
We'll be speaking in Power Lunch today (around 2:15pm ET) to one of the Chicago economists behind a new working paper that estimates "42% of recent layoffs will result in permanent job loss." That, unfortunately, would make this depression-esque. Unlike calls for trillions more in government relief, though, the authors say we need to remove barriers to a faster recovery, including "unemployment benefits that exceed worker earnings...subsidize(d) employee retention, occupational licensing restrictions, and regulatory barriers to business formation."
My guess is this will be today's most-discussed interview :-)
See you at 1 p.m!
Kelly
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