Human civilization has been around for 6,000 years. That means 6,000 years of governance, war, evolution, and, yes — recession. We don’t typically think of recession as a concept that’s 6,000 years old. But then again, who would have thought the fall of Rome would be due, in part, to inflation?
So, the United States is much newer than the concept of recession. Just shy of 250 years old, it’s embryonic in comparison to England, whose kingdom was founded in 927 A.D.
And even still, the U.S. has experienced its fair share of recession. From the first time the property bubble burst in 1797 to the modern housing market crash of 2008, America has lasted through literally dozens of recessions. The term “recession” itself is defined as a period of temporary economic decline, typically marked by a fall in GDP for two consecutive quarters. Some of them only last six months; others drag on for years, and the shockwaves are felt for generations.
Given that the U.S. economy has been in a nosedive since mid-March, a recession — potentially even a depression — is unavoidable. The question is: How bad will it be?
Heading Into Recession
To understand what the U.S. is facing in 2020, you have to look at its history. This is not the first time the country has stared down the neck of recession. It’s not the first national health crisis. And it won’t be the last one either. However, it is an unprecedented time in the world — where a global health crisis has triggered a global recession — and there’s a measure of fear and uncertainty involved with that.
In order to get perspective on this impending recession, let’s take a look at two of the worst recessions in American history: the Great Depression and the Great Recession.
The Great Depression
- Time period: Aug. 1929-March 1933
- Length: 43 months
- Fall in GDP: 30%
- Unemployment: 25%
Not only was the Great Depression one of the longest periods of economic shrinkage in American history, but its 25% unemployment rate is the highest on record. And while the fall in GDP technically only lasted 43 months, it took the U.S. nearly a decade to recover.
The stock market crash and banking panic played undeniable roles in the depression. Essentially, too many people poured their assets into both stocks and bank accounts, and then suddenly withdrew them all as stocks began to fall. This panic led to a massive dip in stock prices and failure of banks. As a result, consumer spending and business investing dwindled to nothing, crippling the economy.
In addition to high unemployment, housing prices plummeted 67%, international trade fell 65%, and deflation — when the dollar decreases in value — climbed above 10%. To rub salt in the wound, massive droughts across the Great Plains destroyed American agriculture and left many farmers homeless.
Overall, it was a period that very few living Americans can remember, but one that we are all affected by. For example, the New Deal — a 1933-39 relief effort by FDR — created Social Security, which many people need to retire.
The Great Recession
- Time period: Dec. 2007-June 2009
- Length: 18 months
- Fall in GDP: 4.3%
- Unemployment: 10%
On paper, the Great Recession doesn’t look nearly as dire as the Great Depression. The unemployment rate was 15% lower, GDP fell by less than 5%, and the period of time the economy was shrinking was only 18 months.
However, while many Americans avoided losing their jobs, almost everyone lost something. Ten million Americans lost their homes. A quarter of households lost 75% of their total net worth, and more than half lost at least 25%. This especially affected Generation X and Millennials, many of whom are called the “lost generation” and have saved much less for housing and retirement compared to previous generations.
Not only did the Great Recession stunt the growth of young workers, but it increased class inequality. Between 2006 and 2016, the average household income of the bottom 20% fell by $571. Conversely, it increased by $13,746 in the top 20% of earners.
Many Americans were still trying to recover when the coronavirus pandemic struck. Homeownership rates had drastically fallen — exacerbated by ridiculously high listing prices across the nation — and average household debt had drastically increased. People trying to retire and people trying to launch their careers were making up for years of lost economic activity.
For those who lost everything in 2008, COVID-19 has hit twice as hard.
The Coronavirus Downturn
- Time period: March 2020-
- Length: Unknown
- Fall in GDP: 5% (thus far)
- Unemployment: 14.7% (as of April, most recent numbers)
The Commerce Department reported in late May that U.S. GDP fell at an annual rate of 5% in the first quarter of 2020. But that figure — 5% — only tells a fraction of the story.
It includes the months of January and February, when the economy was the strongest it had been in decades. Which means that, since the coronavirus began affecting the U.S. in mid-March, it only took half a month for gross domestic product to plummet 5%. Economists are anticipating a far worse decline for the April-June quarter.
In the same vein, the 14.7% unemployment rate reported by the Bureau of Labor Statistics is from the month of April, and has likely increased to 20% or higher since then. More than 40 million unemployment claims have been filed.
At this point, economists are arguing over whether the downturn will turn into a recession or a depression; the latter being a double-digit unemployment rate for 18-plus months. And there hasn’t been any consensus.
Paul Krugman, a Nobel Prize-winning economist, took a relatively optimistic — if not morbid — view of the recovery in The New York Times. “If the virus hangs on […] long, even if we don’t have a revolution, I suspect people will learn to live with it. Somebody said, if you don’t think Americans can live with the constant threat of mass death, think about school shootings. It’s just become part of the background.”
However, a survey of economists by FiveThirtyEight tells a different story. The group of economists predicted a 40% chance of GDP returning to its pre-crisis level at some point in 2022; and a 32% chance of it happening in 2023.
What’s more, they predicted an 82% chance of unemployment remaining above 10% for the remainder of 2020.
Which Recession Is the Worst?
Less than three months into the coronavirus downturn, it is impossible to predict how bad the economy will be affected, or how long it will take to recover. What most economists can agree on is that the recession will likely continue through the rest of 2020. GDP may take longer than that to fully recover.
What we know for sure is that GDP has already fallen by more than it did during the Great Recession. Unemployment rates are estimated to be at least twice as high. And, unlike during the Great Recession, more than 100,000 Americans have died due to a highly contagious, never-before-seen virus.
In the short term, COVID-19 has impacted Americans worse than the 2008 housing market crash; the country is nearing Great Depression-level unemployment. If things continue at the rate they’re going, it could turn out to be the worst recession in U.S. history.