You have no doubt noticed that the global economy has taken a beating in recent months due to the COVID-19 pandemic. Not just a regular beating either. The COVID-19 recession is the worst economic meltdown since the Great Depression of the 1930s. We are living through history whether we like it or not.
Economists talk about recession as being two successive periods of negative economic growth. That doesn’t necessarily mean much. What matters is that recessions harm people’s wellbeing — think homes lost, less “stuff” purchased, and unemployment. While we do pull through recessions, they tend to hit some people harder than others which can have long-run implications. Unfortunately, crashes are an innate part of the economic system.
There is no such thing as long-term economic stability. You might have heard the popular saying that there is an economic disaster every ten years or so. COVID-19 is just the latest in a long line of economic crashes.
COVID-19 is a hydra of a recession featuring:
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A demand shock as people reduce spending.
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A supply shock as containment measures and social distancing impact productivity.
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A fall in asset prices as share markets fell, although they have subsequently rebounded.
Governments have their hands full with stimulus measures such as welfare spending, wage support and large spending programmes to keep the economy afloat. However, these measures are undermined by the need to keep the virus at bay.
Recessions are both a disaster and a learning opportunity. Policymakers need to learn from recessions so we can understand how to mitigate the damage. We probably get better at addressing economic disasters, but the big ones like COVID-19 or the 2008 Great Recession bring with them unique features that we can learn from each time. Perhaps one day economists will have the ability to properly predict and avoid recessions, but that’s unlikely to happen any time soon.
All crises bring with them a chance to better understand this thing we call the economy. Here is a timeline of economic crashes throughout history.
About the author: Byte Size Story connects everyday economic interactions with the big picture. The blog talks about popular issues using economic ideas to tell a story, exploring topics such as government intervention, global events and markets.