New Kind of Recession

26 March 2020


Cogito Ergo Non Serviam

Jobless Claims Shatter Record


The Covid-19 outbreak and shutdown has put literally millions of Americans out of work. Today's jobless claims came in at 3.28 million. This shatters the old record set in the 1982 recession, when just under 700,000 claims came in. This is not a usual wave of unemployment. These people are out of work because of the governmental demands that their firms close to prevent the spread of the virus. Absent the virus, they would have work. The economic problem is big, but not necessarily enduring nor is it unfamiliar.

The $2 trillion aid package the Congress is in the process of passing will give almost all of these people 4 months of unemployment insurance. It won't replace their wages and salaries entirely, but it will help keep them afloat and enable them to pay bills that need paying. This should not be viewed as a hand out or a bail out. Instead this is better viewed as a novel exercise of eminent domain. For a time, the government needs businesses to do something they would not otherwise do, and they and their employees are getting some compensation for that harm.

That, of course, is the macro-economic viewpoint. At the kitchen table level, people are out of work who thought they had a job that they could count on. Usually, there are signs that a job is going to vanish. That did not happen because these jobs are not gone, merely in suspension. But to the man and woman trying to feed kids, keep the lights on and make sure grandparents have their medications, these are irrelevant. There is simply pain and worry.

A note from Bloomberg economists Eliza Winger, Carl Riccadonna and Yelena Shulyatyeva read in part, "The deterioration in claims to date already implies an unemployment rate approaching 5.5% in April, and there is no reason to believe this is the peak. The volume of applications overwhelming state administrative offices suggests additional million-plus weeks for initial claims may lay ahead."

Matthew Luzzetti, chief U.S. economist at Deutsche Bank AG, said, "This morning's data leaves no doubt that the economy is currently in a recession."

"This shows the severity of the downturn, and the speed of it," said Michelle Meyer, head of U.S. economics at Bank of America Corp. "It speaks to the unusual nature of this recession -- it is an abrupt plunge into recession versus prior downturns, where the shock has time to multiply. We could have very high numbers continue for the next few weeks."

The jobs are there, the workers are there, the trouble is no one is safe going to work. The virus needs to burn itself out, and while it does, staying home is the wisest course. Once a treatment and a vaccine are available, the fear will diminish and the economy will revive. The issue is how long will that take? Wuhan has been in a severe lockdown since mid-January, and a relaxation of the restrictions will occur only on April 8. Three months in the US is at least the minimum one can expect.

So long as the government is prepared to keep cash flowing into consumers' pockets, there is a chance that the economy will undergo minimal damage in the long term. However, the cause of this recession is not economic; it is medical. Economic policy is merely a holding action while the researchers work.

© Copyright 2020 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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