The latest Department of Labor numbers were released this morning, indicating another 4.4 million Americans have filed for unemployment over the past week, demonstrating continued economic fallout from the rapid spread of novel coronavirus despite recent curve-flattening successes.
With the five-week total now surpassing 26 million unemployed individuals, our current economic setback has many in the general public (and some experts) throwing around the D-word, fearing the United States (and the world at large) are poised to enter an imminent economic depression as a result of fallout from the coronavirus pandemic.
Such estimates come on the heels of last week’s grim reporting from the International Monetary Fund, which projected the global economy would shrink by 3 percent throughout 2020, a drop-off they characterized as “much worse than during the 2008–09 financial crisis.”
While the impact on markets and employment from COVID-19 has been quick and severe, only time will tell to what extent the world suffers an economic setback — and to what degree declining productivity will affect our day-to-day lives.
Moreover, while it’s all but certain the globe is already in the throes of a recession, it’s likely too early to say that an economic depression looms on the horizon.
Will There Be a Coronavirus Depression?
Part of the reason the word depression gets thrown around with increasing frequency is because the acute economic hardship from COVID-19 seems to resemble that of the late 1920s. Our current unemployment rate is by some estimates the highest since the Great Depression, which began in September 1929 and lasted well into the ’30s.
However, for our current financial fallout to become a depression, it would likely require years of government negligence with regard to easing unemployment and providing relief. To that end, the response from the current administration has been relatively quick, yet criticism remains on its effectiveness.
While Congress has passed several coronavirus relief packages thus far, including a slated injection of $349 billion in forgivable small business loans this week, many feel that measures such as the $1,200 disbursement from the Internal Revenue Service aren’t nearly enough to cover the expenses of working Americans.
A number of experts weigh that the United States’ ability to weather the storm will be contingent on lawmakers’ ability to act quickly and effectively.
“It’s not enough to just send Americans relief checks,” said Nobel Prize-winning economist and Columbia University professor Joseph Stiglitz in a recent interview for CNBC. “Banks have to be put on hold like the rest of the economy, [and] regulators need to make sure that Americans aren’t being dinged when they can least afford it.”
Ways to Avoid a Coronavirus-Related Depression
Some of the steps lawmakers can take to provide a greater financial safety net include:
- Avoiding a trade war: Restrictive economic policies tend to increase the price of goods for consumers and exacerbate uncertainty in the labor market.
- Easing restrictions on the export and import of goods or services: Enabling the efficient transportation of goods (especially facemasks, ventilators, and other medical necessities) can aid in speeding up recovery time for affected individuals.
- Increasing incentives for employers who keep staff on payroll: Congress has taken steps in this regard already by allocating funds for loans, which if used to pay employee wages are forgivable. Expanding this effort would further enable more Americans to maintain job security while continuing social distancing measures.
- Fostering public-private partnerships: Government provisions to banks and financial institutions as an incentive to delay mortgage payments or bills for consumers can alleviate the day-to-day strain of unemployment throughout this time.
The Bottom Line
Targeted efforts and government-lead relief can prevent a further escalation of coronavirus's effects on the global economy, reducing the possibility of a depression, and avoid repeating the errors of the last century.