So, is it time for Broadway to do a reprisal of Annie? Should we search for the next Shirley Temple or Fred Astaire to help get us through? Will bread lines and street urchins selling apples become a regular part of our lives in the new ‘20s?
In other words, are we heading for another Great Depression?
When the going got tough in March, the do-nothing Congress did something. Left and right quickly agreed on a stimulus package that the president signed, and they’ve kept at it ever since. As I write this, another package is in the works.
Also, the Federal Reserve, which more or less stood idly by in the early 1930s, took unprecedented measures to bolster the banking system, which has kept us from withdrawing greenbacks and stuffing them in our mattresses.
Sure, the national debt is growing like godzilla and red ink is flowing like Niagara Falls, but the dollar remains the world’s reserve economy, and investors so far have not lost faith in that.
A piece published earlier this month in the Harvard Business Review looked at parallels between this crisis and the Depression and concluded we aren’t letting history repeat itself.
“The intensity of this shock isn’t in question — the depth and speed of the fall in output is unparalleled and frightening,” the authors wrote. But politicians in the ‘30s were paralyzed, and the New Deal was too little, too late.
Today, in contrast, politicians acted quickly, especially by Washington standards, because of politics, not in spite of it.
This, the authors said, is because “crises tend to lubricate deal making, and the costs of political obstruction are particularly high, even in a hyper-partisan election year.”
Other voices are saying much the same.
“Most recessions occur because of a fundamental problem in the economy,” Cullen Roche, author of the Pragmatic Capitalism blog, wrote for Marketwatch. “This is a recession that’s more akin to staying home from work for fear of getting sick versus a recession where you get hurt on the job and fundamentally can’t perform. When the virus subsides, we will choose to go back to work.”
Meanwhile, compared to the crash of 1929, today’s political response “has been substantial and will dramatically boost spending in the third and fourth quarters,” he wrote.
Phillip Braun, a professor of finance at the Kellogg School of Management, wrote in Forbes last month that Washington tightened the money supply at the start of the Depression, which is the opposite of what is happening now.
“For that reason alone, it seems nearly impossible for the U.S. to fall into a depression today. The only possible trigger would be massive fiscal and monetary policy errors — and that is not what we’re seeing.”
When was the last time you heard that Washington wasn’t making errors?
And former Fed Chair Ben Bernanke, a scholar of the Great Depression, said the coronavirus slowdown “is like a natural disaster, and the response is more like an emergency relief than it is a typical stimulus or anti-recessionary response.”
He told a recent gathering sponsored by the Brookings Institution that he was pleased with the nation’s fiscal and monetary responses to this crisis.
None of this means we’re in for a jolly good time. People are suffering, and not just from illness. Many have lost jobs. Many have been temporarily furloughed and are wondering whether a prolonged slowdown will eventually cost them their jobs.
In Utah, political leaders are looking at falling tax receipts and wondering how and where to cut government spending. Tax reform discussions, which dominated headlines in January, seem like decades ago.
State Senate Budget Chairman Jerry Stevenson told the Deseret News this week he thinks full economic recovery could take three or four years. Everything seems to hinge on something no one can predict — the end of a pandemic through either herd immunity or a vaccine.
But, at least according to the experts, we can thank our normally dysfunctional leaders in Washington that we won’t be seeing a depression, with its deflation, or perhaps hyper-inflation, ravaging what’s left of the economy.