How does the economy in the Coronavirus era compare to the Great Depression?

Published 3:35 pm Monday, May 11, 2020

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A local economics professor weighs in

The Great Depression was a catastrophic occurrence in history that few have not heard of.  How does the current economic status amid the coronavirus pandemic compare?
According to Warren F. Mackara, an Associate Professor in economics at East Tennessee State University, in some ways, it’s like comparing apples to oranges, in other ways, it’s similar.
“In some ways, we’re comparing apples and oranges here,” he said. “One thing we have to remember is that the economic conditions we have right now are very much self-inflicted. That’s not like what it was in the Great Depression where we had, due to some very complex factors, things that were more traditional in terms of the way they hit the economy.”
Mackara described how our current state was more self-inflicted due to coronavirus prevention.
“The current problem we are having with the economy was because we decided to shut down the economy,” he said. “It wasn’t like someone made a bad mistake or the stock market crashed. This was something where the government said we were going to shut down. They’re not really the same thing. It wasn’t economic circumstances that caused us to be in our current economic circumstance. It was very much intentional because we are trying to slow the spread of a disease.
While Mackara noted the differences in circumstances, he pointed out that the Great Depression was also a global phenomenon. Additionally, the numbers themselves are comparable.
“What we can compare is what’s happening to the unemployment rate, what’s happening with the GDP, what’s happened to various metrics of macroeconomic conditions, and if we do that there are a lot of similarities,” he said.
Mackara noted we had the highest unemployment rate in April that we had since the Great Depression. It was reported for that month that it was at 14.7 percent, with 20.5 million jobs lost. While it is not as high yet as the Great Depression, Mackara warned it could get that way.
“It could get that high,” he said. “We’re not done with the bad news with regard to economic conditions. We haven’t even seen Gross Domestic Product (GDP) for the second quarter, that’s when its really going to be hit hard. We saw a really sharp decline in the first quester, but the first quarter only had the first impact of the coronavirus at the very end of that three month period. The next GDP report will be April, May and June.”
Mackara said the next GDP report, which will be released in July could be worse, possibly a double digit decline in economic activity.
In this perspective, he said the events are similar.
“If we want to compare the numbers, yes there are some similarities there,” he said. “Some of the numbers may actually be worse when we finally get them.”
So, where do we go from here? Can we bounce back economically?
Mackara described the differences between Tennessee’s economy to that of other states, where it depends on what is open and what is not. Likewise, some sectors of the economy will bounce back, others may take longer, some may not at all.
“For an extended period of time, you will see an unequal recovery from this problem, which will make it very difficult for policy makers and politicians to figure out how they’re going to deal with the inequities to both the business owners, the workers, property owners and others who are effected by this.”
Mackara pointed out that the economy will bounce back because there isn’t one single economy, but multiple, some of which will bounce back.
In terms of shopping, Mackara described that the trend of online shopping, some of which has caused businesses to close, was going on well before the virus, and said that although this is a growing trend, there are enough traditional shoppers left to want face-to-face interactions. Alternatives brought on by the virus have hastened this, and of course there will be changes.
He concluded speaking on how the rest of this year will be critical.
“The rest of this year will be critical,” he said. “We’ve got a presidential election coming up, and depending on what happens at that election as well as what happens to the congressional elections all over the country,  that’s going to make a big difference on what happens in 2021 and beyond.”
As of May 2, 2020 there were 1,781 new claims filed for unemployment in Northeast Tennessee.

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