Appearing remotely on Sunday’s Face the Nation, St Louis Federal Reserve Bank Chairman James Bullard indicated that the Fed has no idea, really, just how bad the Coronavirus Contraction is going to get. Asked by Margaret Brennan about his team’s prediction that “47 million Americans could lose their jobs,” bringing the unemployment rate up to 32%, Bullard said the “32 percent number is a compromise in the middle.”
In the middle of what, you might ask. Bullard told Brennan that he and his economists at the St. Louis Fed estimate that the “unemployment rate could go anywhere between 10 percent and 42 percent.”
So things could get Great Recession bad or blow past the 25% unemployment record set during the depths of the Great Depression in 1933. That’s a bit like the doctor telling you that you either have a bad case of the flu or maybe caught a rare form of cancer that makes all your limbs slowly fall off.
I’m not picking on Bullard here. Not only does no one know what’s going to happen to the economy, at this point nobody can know. The question is less “How bad is it going to get?” but “How quickly do we recover?”
The answer to that could be very nice, indeed.
An economy with plenty of liquidity and weeks of pent-up demand ought to bounce back almost as quickly as it sank — like a big kid on a trampoline. Sharp economic downturns are usually followed by equally sharp recoveries. The 1981-82 and 1991 recessions come to mind.
What made the Great Depression and the Great Recession alike were anemic recoveries that took seemingly forever. As I noted back in March [VIP link]:
When Franklin Delano Roosevelt came into office pledging to end the Great Depression, he and Congress simmered up a party-size bowl of alphabet soup agencies to micromanage the business, wages, prices, and employment. The result? A couple of left-leaning UCLA economists were forced to conclude that FDR’s New Deal actually lengthened the Great Depression by seven years.
Coming into office on the heels of the 2007-08 financial panic (caused in no small part by Washington meddling in the mortgage markets), President Barack Obama indulged in a flurry of lawmaking and micromanagement unseen since FDR. As a result, Obama’s recovery was the slowest since FDR’s. In some ways — Washington’s addictions to spending and debt are the worst examples — we’re still dealing with the hangover from Obama’s reaction to the Great Recession. read more