How Bad Will the Recession Be?

by Ben Zhao ’22

There are signs that the U.S. may experience one of its worst recessions in history this year. As of late 2019, there were many patterns similar to those that occurred preceding or during the Great Depression of the 1930s, including an overheating economy, record low interest rates, and a seemingly endless economic boom.

Due to the COVID-19 pandemic, many restaurants, small businesses that rely on workers’ physical presence, and tourism industries have collapsed. Many workers have lost their jobs as a result of this collapse: currently, the U.S. has around the same unemployment rate as it did during the Great Depression (Trading Economics).

In March and April of 2020, a survey about the U.S.’s economic state was sent out to MHS students. The world events happening at the time had a significant impact on students’ responses, and the survey received responses from students in different grade levels and with varying degrees of economic knowledge.

From this survey, it was clear that respondents were generally aware that markets operate in cycles with booms and busts. 97% of respondents said it was natural for capitalist economies to experience recessions.

What differed from student to student, however, was how they thought a recession should be addressed and how it could impact their families. 75% of respondents attributed inflation to be a cause of recession, and students most commonly suggested that the government should fund welfare projects in order to mitigate the effects of an economic downturn.

It is encouraging to see that responses to the survey reflect the student body’s awareness for the wellbeing of the general population and their concern for the economic safety of their nation.

Despite these students’ heartwarming responses, the reality of the situation is bleak. The recession may turn out to be worse than imagined: what distinguishes the 2020 Recession from those of the past is that many jobs may be permanently lost until a cure to the coronavirus is found or an alternative means of work is established.

While the stock market has recovered almost to its pre-pandemic state and certain financial sectors remain unaffected by the outbreak (Vox), in the long run, the pandemic could take a dangerous toll on the economy. The loss of workers and businesses could decrease aggregate demand and total consumption of goods.

What is even more concerning is that the U.S. has lost many tools that are conventionally at its disposal to treat recessions, including quantitative easing and the lowering of interest rates to encourage spending. The U.S.’s interest rates are already close to zero, which leaves the Federal Reserve with very little power to help revive the economy.

On the bright side, if a cure or vaccination for COVID-19 is discovered, the economy would almost instantly bounce back, as the recession is largely caused by the high unemployment rates. With the discovery of a cure, workers can return to work safely and restore the economy back to health.

Hi! If you find economics topics such as business cycles, and how certain policies affect the state of the economy interesting, that’s great! I will be working on an econ survey idea next year. If you have a passion for economics, have interesting ideas, or can help me perform some data analysis, please reach out to my email at benz3927@gmail.com

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