Apr 12 JDN 2458952

In the week from March 15 to March 21, over 3.3 million Americans filed for unemployment. In the following week, this staggering record was broken, when over 6.6 million filed for unemployment. This is an utterly unprecedented number of unemployment filings in a single week; while the data is not as reliable further back, we think this didn’t even happen in the Great Depression.

The Dow Jones Industrial Average is down over 26% in the past quarter. The S&P 500 is down over 23% over the same period. The only comparable stock market crashes are Black Monday and the 1929 market crash.

Does this mean we are on track for another Great Depression? Fortunately, it does not.

This is all happening very fast, because of the rapid shutdowns of businesses during the pandemic. So when we look at short time horizons, things look very scary. But currently unemployment is still only 4.4%, and it is forecasted to rise to about 10% or 11%. This will certainly be a recession—indeed comparable to the Great Recession in 2009—but it will still pale in comparison to the Great Depression, when unemployment hit nearly 25%.

Also, we have a good reason for all this unemployment: We’re making people stay home to stop the spread of the virus. And it seems to be working: California and Washington took some of the most drastic measures, and have shown the fastest reductions in the spread of the virus.

This isn’t a normal recession. We are causing this unemployment on purpose. Paul Krugman makes the analogy to a medically-induced coma: We are shutting some functions down intentionally in order to make it easier to heal.

There is a significant chance, however, that this recession will end up being worse than it’s supposed to be, if our policymakers fail to provide adequate and timely relief to those who become unemployed.

As Donald Marron of the Urban Institute explained quite succinctly in a Twitter thread, there are three types of economic losses we need to consider here: Losses necessary to protect health, losses caused by insufficient demand, and losses caused by lost productive capacity. The first kind of loss is what we are doing on purpose; the other two are losses we should be trying to avoid. Insufficient demand is fairly easy to fix: Hand out cash. But sustaining productive capacity can be trickier.

Given the track record of the Trump administration so far, I am not optimistic. First Trump denied the virus was even a threat. Then he blamed China (which, even if partly true, doesn’t solve anything). Then his response was delayed and inadequate. And now the relief money is taking weeks to get to people—while clearly being less than many people need.

When Trump was first elected, I had several scenarios in my head of what might happen. The best-case scenario was that he’d turn out to be a typical Republican, or be kept on a tight leash by other Republicans. Obviously that didn’t happen. The worst-case scenario was a nuclear war with China; we are all very fortunate that this didn’t happen either. But this is honestly much worse than my median-case scenario, which was that Trump would be like another Reagan or another Nixon. Somehow he turned out to be another Reagan, another Nixon, another Harding, and another Hoover all rolled into one. He somehow combines the worst aspects of every President we’ve ever had, and while facing a historic global crisis his primary concern is his TV ratings.

I can’t tell you how long this is going to last. I can’t tell you just how bad it’s going to get. But I am confident of a few things:

It’ll be worse than it had to be, but not as bad as it could have been. Trump will continue making everything worse, but other, better leaders will make things better. Above all, we’ll make it through this, together.