"There’s a lot of denial here, as there was in the 1930s,” said Eric Rauchway, a historian at the University of California, Davis, who has written extensively about the Great Depression. “At the beginning of the Depression, nobody wanted to admit that it was a crisis. The actions the government took were not adequate to the scope of the problem, yet they were very quick to say there had been a turnaround.”
Though it may not attract the attention that reopening beaches and a soaring stock market might, the evidence is everywhere if you look closely.
Consider those seemingly great new employment numbers. It is clear that many workers who were temporarily laid off in March and April returned to work in May, such as employees at once-closed restaurants that opened up, or construction workers who returned to job sites.
But it still left the economy with 19.55 million fewer jobs than existed in February. And the rebound came in part thanks to more than $500 billion in federal aid to small businesses offered on the condition that workers be retained, under the Paycheck Protection Program.
Other data points to a severe but slower-moving crisis of collapsing demand that will affect many more corners of the economy than those that were forced to close because of the pandemic.
New orders for manufactured goods, for example, remained in starkly negative territory in May, according to the Institute for Supply Management; its index came in at 31.8, far below the level of 50 that is the line between expansion and contraction.
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“Hotels are locked down, so people buy fewer cars because they don’t need to travel as much,” said Veronica Guerrieri, an economist at the University of Chicago Booth School of Business. “Restaurants are locked down, so people don’t need fancy clothes because they don’t want to go out as much.”
The result is that what started as a disruption to the supply side of the economy has metastasized into a collapse of the demand side, she and co-authors say in a recent working paper. They call it a Keynesian supply shock: an inversion of the demand-driven crisis of the Great Depression described by the great economist of that era, John Maynard Keynes.
“Demand is interrelated with supply,” said Iván Werning, an M.I.T. economist and a co-author of the paper. “It’s not a separate concept.”
The demand shock, with lagged effects, is only beginning to hurt major segments of the economy, like sellers of capital goods that are experiencing plunging sales; state and local governments that are seeing tax revenues crater; and landlords who are seeing rent payments dry up.
The deflationary crunch has yet to squeeze with full force, rises in food and gas prices over the last few weeks notwithstanding.
When it does, it is going to be grim. And a depression will take lots of lives, too.
That's what I kept warning people, especially those who screeched about "not sacrificing lives for mammon." Food is a part of the economy. Housing is a part of the economy. (One could even argue they are the cornerstones of it.) You can't shut stuff down, without affecting them.
ReplyDeleteYes, one of the many, many, many things I got sick of on FB over the past three months was the derision towards people who worried about the economic destruction.
ReplyDeleteThere was a pro-forma, contractual obligation-ish "yes, I imagine unemployment is bad," but it was quickly followed with the litany of "STOP MURDERING GRANDMA, YOU GREEDY BASTARD. STAY! AT! HOME! PROTESTS ARE JUST GOING TO PROLONG THE LOCKDOWN, AND YOU INBREDS HAVE BAD HAIR ANYWAY!"
The above is just a slight caricature. I can only imagine the somersaults they are doing now to defend protesters.
The reality is, protesting the death of one's livelihood is a good cause, too. And when the cascade finally plays out, food pantry lines are ubiquitous and "for lease" and "foreclosure" signs stretch as far as the eye can see, they'll recognize it.
They won't admit they were wrong, but the facts will still smash them in the face.