Not all recessions are created equal. And as our current pandemic-fueled recession drags on and coronavirus cases continue to surge, fears of a “double-dip recession” are mounting.
So what does that mean?
“A double-dip recession is when a second recession begins before the recovery from the first recession is complete,” said Martha Olney, a teaching professor of economics at the University of California, Berkeley.
Picture the economy beginning to recover from a recession, only to be interrupted by another downturn — potentially even worse than the initial slump.
“The analogy I like to use is when you’re in the hospital and you have surgery, you come out of surgery and you’re in recovery and you’re making progress, and then all of a sudden you have a relapse,” Olney said.
The good news is that double-dip recessions are relatively rare. The last time the U.S. experienced one was nearly 40 years ago, in the early 1980s.
“The first part of the double-dip recession starts at the end of 1979, early 1980. And that’s related to interest rates being quite high in response to the second OPEC crisis, which again, drove gas prices and inflation very, very high,” Olney said.
In an attempt to curb inflation, the Federal Reserve raised interest rates, which triggered a recession. That’s the first dip.
In response, the Fed lowered rates and the economy started to recover.
But this wasn’t happening in a vacuum.
“Now, remember that 1980 is an election year. Ronald Reagan was elected the first time in November of 1980. And then early in ’81 and into ’82, under the new administration, when the battle was to really kill the inflation, the interest rates were raised even higher,” Olney said.
The federal funds rate — a key lever the Fed uses to influence interest rates — was over 20%, which stalled the recovery and brought the economy into another recession. That’s the second dip.
Which brings us to the current conversation in Congress about the next stage of economic relief — at a time when the number of people receiving unemployment benefits has topped 20 million for months.
“We know, for instance, that the unemployment insurance that people have been receiving is running out at the end of December. And so there are some serious headwinds coming in January of 2021,” Olney said.
Headwinds that include the protections against foreclosures and evictions expiring, aid to state and local governments running out and the likelihood that many of the jobs that have been lost during the pandemic aren’t coming back.
COVID-19 Economy FAQs
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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