Are We Doing the Right Thing Here?

Charles Crumpley
Editor and Publisher of the San Fernando Valley Business Journal

Here’s a question for you: What was the worst quarter economically in modern U.S. history?

The gross domestic product plunged 10 percent in a steep but brief recession in the first three months of 1958, making that the worst quarter. The second worst came in the Great Recession when GDP fell 8.4 percent in the last quarter of 2008. (In case you’re wondering about the Great Depression, they only made annual, not quarterly, assessments of the GDP back then; 1932 was the worst year with minus 12.9 percent.)

But the answer to that question soon will change because those numbers will be blown away by the quarter we’re in right now.

Former Federal Reserve Chair Janet Yellen last week predicted a hit to GDP in the current second quarter of 30 percent. That’s three times steeper than the existing record.

But wait. Could Yellen’s prediction be too modest? One Federal Reserve regional president, James Bullard of St. Louis, forecast a second quarter GDP slide of 50 percent.

And remember, Yellen and Bullard are not some independent prognosticators but sober Federal Reserve types – the official shepherds of our economy.

Any way you look at it, the current quarter’s numbers will be “absolutely shocking,” as Yellen put it.

We may hit unemployment levels never seen before. The collective decision to shut down our economy because of the coronavirus scare could cost us 47 million jobs this quarter, according to the Federal Reserve Bank of St. Louis. If true, that would translate to an unemployment rate of 32 percent – much worse than the nearly 25 percent at the low point of the Depression.

Another way to look at it: Remember all those jobs lost 11 years ago in the Great Recession? We’re now looking at five times that many jobs lost. In this quarter. Five times.

Still, the economy could sustain a hit this big if the shutdown were short. Here’s what really scares me: The shelter-in-place orders may last months, not merely weeks, more. If that happens, it would be devastating. Fewer than half of small businesses hold enough cash to endure a 30-day shutdown, according to a 2016 survey of 600,000 small businesses by the J.P. Morgan Chase Institute, as pointed out by the economists at California Lutheran University’s Center for Economic Research and Forecasting in Westlake Village.

The $350 billion small business lending program authorized by Congress may be a temporary help but won’t last long. When businesses vaporize that money, the rush to bankruptcy court will look like the scramble for toilet paper at Ralphs a few weeks ago.

Those who blithely say “this will all blow over in a few months and we can go back to work” apparently fail to realize that many of us will have no workplace to go back to.

Here’s another question for you: Did we really intend to do this? Kill our economy, I mean. I know we want to be safe and try to avoid a dangerous flu and everything. On the other hand, did you work hard to build up your career or your business? Have you done the right thing and invested in a college fund for your children? Did you deny yourself today so you could save for retirement tomorrow? Well, all that is in peril now and many Americans may soon fret about a possible future that includes the modern-day equivalent of bread lines and soup kitchens. If we visit Paris in our retirement, it may have to be the one in Texas.

Whenever you make the point that the economy is a crucial part of our lives, you sometimes hear some rejoinder like, “So you’re saying money is more important than lives?” Those misguided people are making a false choice. It is perfectly possible for most of us, particularly those younger than 65, to continue working and keeping our businesses open, at least at a low level, while maintaining safe practices. Oh sure, we still would suffer a nasty recession, but it wouldn’t be the depression we’re looking at, with its crushed dreams, blown savings and the elevated incidence of violence, drug and alcohol addiction and suicide that attend high unemployment and a protracted economic shrinkage.

And here’s a final question for you: Years from now when we look back on this coronavirus pandemic and weigh the carnage done to our lives against the death rate of COVID-19, will you say that in the spring of 2020 we did the right thing?

 

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