During the COVID-19 pandemic, the United States has experienced unemployment figures not seen since the Great Depression. But Bill Polley, Associate Professor of Economics at Western Illinois University, said the Great Depression is more akin to the Great Recession of 2008 than to this year's economic freefall.
“There was a stock market bubble brought on by some of the excesses of the 1920s,” Polley said about the Great Depression. He said the Great Recession was also brought on by a financial crisis.
“In 2008 it was the housing bubble. Housing prices were way out of line with where they needed to be, there was a correction, it caused a massive disruption in financial markets, and that rippled through to Main Street.”
He said the response by the federal government in 2008 prevented the recession from becoming another depression. He said the government shored up the financial system, an action that many criticized at the time.
Polley said this year’s economic collapse has nothing to do with the fundamentals of the economy. “It’s totally non-economic. It’s just a matter of biology more than anything -- we as a human race have succumbed to something that we have to deal with in this way and it has very severe and unfortunate economic side effects.”
For example, the enforcement of social distancing guidelines has led to numerous job losses during the COVID-19 pandemic.
“That prevented some businesses from being open at all, and it’s also caused people to choose to change their habits about where they shop, where they go, and things like that,” Polley said.
He said many jobs today are in the service and retail industries, whereas more workers were employed in manufacturing during the 1920s and ‘30s. Agriculture also was more prevalent back then, especially in the Midwest.
Regarding whether the economy should be reopened slowly or quickly, Polley called that “the trillion dollar question.”
He said much remains unknown about the coronavirus and there is not enough hard scientific evidence to know when the nation can fully reopen.
“There’s something economists call Knightian uncertainty. It’s named after Frank Knight, an economist around the turn of the 20th Century,” Polley said.
“Knightian uncertainty is when you don’t even know the probabilities. We don’t know the odds of the different activities that we’re getting into here with regard to reopening.”
He said the lack of scientific data means decisions about the economy are instead being based on ideology.
He said it is not known how long the current recession will last. But it is clear the magnitude of losses will prove to be the largest since the Great Depression.
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