David Warsh: The Great Depression and the possible 'Coronavirus Depression'
The course of the Great Depression in the United States, as reflected in per-capita GDP (average income per person.
SOMERVILLE, Mass.
People are searching for a way to talk about the economic consequences of the COVID-19 pandemic. Veteran economic journalist Robert Samuelson wrote last week in The Washington Post, “For the first time in my life, I think a depression is conceivable.” The Financial Times Saturday led the paper with a four-column headline: “Global Economy set for deepest reversal since Great Depression.”
Robert Gordon, a member for more than 40 years of the Business Cycle Dating Committee of the National Bureau of Economic Research, wrote to say: “Thinking ahead to the ultimate data that the Bureau of Economic Analysis will release on the decline in GDP in 2020:Q2, I should look back at my interpolated quarterly data for the 1930s to see what was the largest quarterly decline of GDP during 1929-32 or 1937-38. Will this time be larger than that?”
Even without the BEA data, it seems reasonable to suppose that the next several quarters – and whatever financial fragility is exposed therein – will enter historical consciousness around the world as the Coronavirus Depression. Already the experience is very different from the W-shaped recessions of 1981-82, or the deep recession, lasting from December 2007 until June 2009, that accompanied the slow-fused Panic of 2007-08.
Samuelson listed three distinctive characteristics that distinguished the Great Depression from business contractions before and since: the scale of havoc and economic suffering that occurred; the “intellectual vacuum” that accompanied it, insofar as economists lacked a widely accepted theory to explain it; and the absence of a social safety net to cushion the human costs of collapse.
He might have added its length – two contractions, 1929-1933 and 1937-38 —gave it the shape of a 10-year lazy-W – and the fact that it culminated in a long global war.
But of course the Great Depression has not gone into history as altogether unexplained, even though Keynesians and monetarists continue to argue about it. And while the United States had very little in the way of a safety net at the beginning of the 1930s, many of the features that are cushioning the blow today were in place by the end of the decade – bank-deposit protection, unemployment insurance and the Social Security System.
Three years of Depression brought about a change in administration, and, after a false start (the National Recovery Administration), President Franklin Roosevelt and the 73rd Congress produced the lasting reforms of the New Deal – public works, safety nets, labor-market reforms and an array of new regulatory agencies. The onsets of both those later “great recessions,” in 1980 and 2008, also brought changes in the White House and Congress. In their respective ways, those elections, too, produced changes in the country’s long-term direction.
What might be expected to result if Democrat Joe Biden is elected in the fall? Whatever his imperfections as a candidate, he is just one among many leaders who would come to the fore. I am just guessing, but perhaps health-care reform would top the agenda once again.
President Trump made yet another attempt to damage the Affordable Care Act last week, when he declined to open enrollment to millions of suddenly unemployed and uninsured workers and ordered Medicare to cover coronavirus treatment fr the uninsured instead.. For a Democratic administration, tackling reform of the health-care system in the wake of the Coronavirus Depression would be the logical place to start.
David Warsh, an economic historian and veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this column first appeared.