Economic forecasters have predicted that US unemployment rates in the months to come will exceed those of the Great Depression in the 1930s.
Forecasting the second quarter of the year, the Federal Reserve Bank of St Louis President James Bullard said last week: “We’re putting this initial number at 30 percent; that’s a 30 percent unemployment rate.”
Bullard also predicts that GDP in the United States will drop by 50 percent.
The Great Recession of 2008
The Great Recession of 2008-2009 was a historical event in global politics. Despite warning signs, and red flags thrown up by a few economists, the 2008 Recession shook many “policymakers, multilateral agencies, academics and investors,” according to Sher Verick and Iyanatul Islam at the International Labor Office.
In a paper entitled “The Great Recession of 2008: Causes, Consequences and Policy Responses,” the warning signs included “large current deficits in the US, UK and other advanced economies that were being financed by the excess savings of emerging economies and oil exporters (the global current account imbalance); loose monetary policy (most notably in the US in the wake of the mild recession of 2001); the search for yields and a misconception of risk; and lax financial regulation.”
How Covid-19 is Impacting the Global Economy
Speaking about the Covid-19 pandemic and its impact on the global economy today, German Chancellor Angela Merkel said: “Since German unification, no, since the Second World War, there has been no challenge to our nation that has demanded such a degree of common and united action.”
In the international community, talks of war reparations against China are taking place. Leaders in Beijing have been accused of misinforming the world about the epidemic that began in Wuhan, and suspected of possible unprofessional procedures at a laboratory in Wuhan that led to the outbreak of the virus.
Like the 2008 recession, the coronavirus pandemic took the world by surprise. The pandemic has left countries worldwide fighting a potential recession, as governments employ a quasi-shutdown of businesses and economies to plateau the spread of the virus all over the globe. This is far more dramatic than 2008: it is almost unprecedented.
Massive Rises in US Unemployment
The economic shutdown has seen nearly 3.3 million unemployment claims made in the United States in the past week. Before the coronavirus, the US Department of Labor’s highest record for unemployment claims made in a week was 695,000.
Following shutdown procedures enforced by countries worldwide, the world has seen a corresponding plunge in business revenue and a record spike in unemployment. As of March 31, the coronavirus has infected nearly 800,000 people worldwide, resulting in more than 40,000 deaths in 202 countries, areas and territories worldwide.
“Without question, we are going to be in a recession, if not a depression for the second quarter going into the third quarter,” said economist Andrew Busch, adding that “When we reopen the economy, we will be entering a vastly different world.”
Busch said this recession is going to hit less developed economies particularly hard.
“I worry significantly about places like India or Bangladesh or Pakistan, any of the other smaller less developed countries that are out there,” he said.
$2 Million for Every Life Saved
Ethical questions about whether we should prioritize human life over money are questions that remain taboo in the public sphere but the argument will increasingly rise to the surface in disquieting ways. In a paper published on March 29, economists Martin S. Eichenbaum, Sergio Rebelo and Mathias Trabandt asked: “what policies should the government pursue to deal with the infection?”
“Containment policies that reduce consumption and hours worked” are successful in preserving human life, they argue.
“By reducing economic interactions among people, these policies exacerbate the recession but raise welfare by reducing the death toll caused by the epidemic. We find that it is optimal to introduce large-scale containment measures that result in a sharp, sustained drop in aggregate output.
“In our benchmark model, when vaccines and treatments don’t arrive before the epidemic is over and healthcare capacity is limited, optimal containment policy saves roughly half-a-million lives in the U.S.”
Furthermore, every life saved from possible infection in the United States costs an average of $2 million to the American economy, Eichenbaum predicts.
Could Other Governments Do More?
Although the American, Danish, Canadian, Irish and British governments are currently relieving businesses by paying workers’ salaries during the shutdown, many other governments worldwide have not offered this economic relief to workers. In Sicily, the lockdown announced on March 12 has deprived millions of a steady income. Last week, residents began looting supermarkets after pressuring them to release free food to the community.
“We have no money to pay, we have to eat,” an alleged looter stated.
In India, where most citizens are manual laborers living day to day, the lockdown threatens social cohesion. The possibility of riots, looting and social upheaval is another financial threat to countries that do not offer their workers a living wage to acquire food and basic amenities during the lockdown.
Today’s economic crisis is deeply rooted in weaknesses in global public health and the global social safety net. The steep plunge in business revenue worldwide is revealing all the leaks in the ship that were being papered over by a philosophy of infinite growth. The many facets of the potential 2020 recession are too interconnected and too complex for a simplistic understanding of the issue, but reflecting on the successful social and economic policies which were taken during the last four global disasters is a step in the right direction.
For every global citizen, the consequence of failure is too high to afford.