How bad is it?
That is the question on everyone’s mind as we come to grips with the economic carnage caused by global economic shutdowns, supply chain disruptions, and ongoing quarantines of million of people. Do we face another Great Depression, or simply a deep recession more like 2008? And equally important, are soft Americans prepared for either? Have we started to process all of this psychologically? Have we really come to terms with the enormity of the situation, with the unprecedented risk posed by business shutdowns? Are Americans so accustomed to a certain material standard of living that they do not understand how fragile it is?
Here is what we know.
Since February, 30 to 40 million of Americans have been thrown out of work. Four or 5 million file new unemployment claims each week. The real unemployment rate is probably more than 20 percent, while the labor force participation rate drops like a stone. In states like Hawaii, unemployment may approach 35 percent. Deutsche Bank economists predict an absolutely staggering 40 percent reduction in U.S. GDP for the second quarter of 2020.
Meanwhile, millions of American households and businesses simply stopped paying rent or mortgages on March 1, and bankruptcies spread across major American retailers like wildfire. Countless small local businesses, many left out of the running for the new Small Business Administration (SBA) loans recently created by Congress, simply will not reopen regardless of what happens over the next few months.
So although we have a sense of how deep the economic damage runs, we can only guess how long it may last.
Will the virus remain a threat, real or perceived, for months or years? And if so, how long will state governments maintain at least partial business lockdowns? Will the U.S. economy enjoy a vaunted V-shaped bounce-back recovery, as promised by Trump administration cheerleader Larry Kudlow? Will it look more like a U, with months or years of stagnation at the bottom? Or worse still, like an L with no rebound in sight?
Looking back at the 2008 crisis provides a sober argument against a quick recovery later this year.
Consider this analogy:
Jeff Deist is president of the Mises Institute. He previously worked as chief of staff to Congressman Ron Paul, and as an attorney for private equity clients.
This article was originally published on Mises.org.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.