What we’ve learned so far about where the economy is headed
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Around the time that the Coronavirus Aid, Relief, and Economic Security Act became law, we assembled a group of people who study economic and financial history to ask what the Great Depression can teach us about the economic downturn that the CARES Act was meant to combat.
Eight weeks later, we checked back in with them to talk about what we’ve learned about the crisis since then.
“I think it’s worse than I expected,” said Eric Hilt, a professor of economic history at Wellesley College.
“A month ago, I wouldn’t have said it will get as bad as the Great Depression because the factors that have caused this are so different, but now I’m not so sure,” said Kathleen Day, a lecturer at Johns Hopkins’ Carey Business School who specializes in financial crises.
“My expectation is that it will not be another Great Depression,” said Carola Frydman, a professor of finance at Northwestern University who studies financial history. “But I think it’s going to be a very bad crisis in relative terms.”
Back in March, Hilt, Day and Frydman said it would be a good idea to keep an eye on the unemployment rate, the health of the credit markets and commercial bankruptcies as the crisis unfolds.
The unemployment rate jumped from 4.4% in March to 14.7% April.
“Those are levels that we haven’t seen since the Great Depression,” said Frydman. “The key question going forward is how permanent or temporary that being increased is going to be.”
“On the other hand, financial markets are doing remarkably well, all things considered,” Hilt said. “And I think the reason for that has been the Fed’s incredibly aggressive response.” Since the crisis began, the Federal Reserve has enacted programs that could put as much as $6 trillion into the economy. “So that mitigated the damage to a pretty significant extent,” he said.
Although some well-known retailers have filed for Chapter 11 bankruptcy protection recently, including Neiman Marcus, J. Crew and J.C. Penney, the total number of commercial bankruptcy filings were lower in April 2020 than the same month last year.
“But that’s a lagging indicator,” Frydman said. “I think in the coming months, we might see more of them trickle in.”
To recap, unemployment is bad and will likely get worse; credit markets still seem to be functioning OK, which is good; and bankruptcies — we’ll have to wait and see.
But Hilt, Day and Frydman all said there is still a lot we don’t know about how this crisis will play out.
“The fact is, there’s just so much uncertainty,” Day said. “Will there be a rebound in cases once things start opening up? All those factors are so uncertain right now that we just don’t know.”
COVID-19 Economy FAQs
What’s the outlook for vaccine supply?
Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.
How has the pandemic changed scientific research?
Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”
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