The coronavirus outbreak has sent the economy into meltdown. Now, many people are concerned we’re seeing great depression type unemployment rates. Is history repeating itself? Unemployment has soared in 2020, and many businesses have been forced to close. If you’re one of the millions who’s been hard hit financially, you’re probably worried about the future. After all, no one can say for sure how long the Covid-19 nightmare is going to last.
Just the thought of a repeat of what happened in the 1930s is enough to send anyone into a panic. The stock market crashed, millions were unemployed, and businesses closed. Even people who had jobs had their wages slashed. So, things were pretty bleak 90 years ago — but things are pretty grim now, too.
A reason for optimism
So, are we headed for a new great depression? Surprisingly, many analysts don’t think so. Of course, the country has dropped into an economic black hole. But the reasons for the Great Depression unemployment rates were different from what’s happening now. Because of that, many don’t think we’ll reach the unemployment levels seen in the Great Depression.
Read on to find out why the coronavirus pandemic probably won’t trigger a re-run of the 1930s financial collapse.
Recession vs. Depression
It’s vital to understand the difference between a recession and depression to know if we’re on course for a repeat of the Great Depression.
A recession is when there’s negative economic growth for six months, or two quarters. An economic depression occurs when there’s negative growth in the country, along with rising unemployment, over many years.
How the US economy fell into depression in the 1930s
During the Great Depression, the economy shrunk by nearly 50% from 1930 to 1933. At the same time, the unemployment rate grew from 8.7% in 1930 to almost one-quarter of the population in 1933. It was only in 1934 when the New Deal was announced that the depression started to ease. In 1934, the rate of unemployment began to improve.
Differences Between the Great Depression and the Covid-19 Crisis
Why do many experts think the coronavirus crisis won’t result in anything similar to the Great Depression? Here are a few key differences between the Covid-19 economic uncertainty and the Great Depression:
- No economic boom — During the “roaring ‘20s,” there was an economic boom, which resulted in a hard crash in the ‘30s. The years before 2020 didn’t experience anywhere near the excesses of the 1920s.
- The economics are different — Leading up to the Great Depression, many countries were raising taxes and cutting back on spending. Since the Covid-19 pandemic, most counties — including the US — have introduced massive stimulus packages.
- Disruption is likely temporary — The coronavirus impacted the economy hard and fast, unlike the Great Depression. Many people expect that economies will recover in 2021 and not take many years — like what happened after the market crash in 1929.
- Health reasons — The Great Depression happened in the US due to structural, economic reasons. Up until 2020, the economy was in reasonable health. The reason why everything ground to a halt was because of stay-at-home orders to stop the spread of the virus.
- Lessons learned — Even before the 2020 economic collapse, US administrations have been using stimulus packages to boost the economy. Since the Covid-19 outbreak, the government has released trillions of dollars to protect the economy. This includes the $1,200 stimulus check for every American.
Already, many states are beginning to allow businesses to reopen so people can go back to work and help stimulate economic activity.
The Great Depression Unemployment Rates
During the Great Depression, unemployment rates reached an all-time high in US history. At its lowest point, 15 million people were unemployed — roughly 25% of the working population.
Now, you may be saying: “Did I not hear that in April 2020, there were over 20 million people claiming unemployment benefits?” That’s true — the Bureau of Labor Statistics confirms it.
On the face of it, it could seem like the unemployment rate during the Great Depression is lower than the Covid-19 crisis. But it’s essential to put the figures into perspective, based on the percentage of the working population. Remember, we had a much lower population during the 1930s.
The Great Depression unemployment rate was nearly 25% of the working population. And unemployment stayed at 14% until 1940. However, the Covid-19 unemployment rate is 14.7%.
Expressed in terms of millions of people, the Covid-19 crisis may seem worse. But it’s not. The percentage of unemployed people now vs. during the Great Depression is lower.
It’s also good to remember that most businesses plan to reopen soon. During the Great Depression, many businesses were closed permanently. Demand just wasn’t there.
The Bright Side
Analysts are confident that the current high unemployment won’t stay like that for years. Here are a few reasons why:
- Economies are reopening — Many businesses that were forced to close due to Covid-19 are starting to open. Demand for these goods and services is still there. Many states are reopening in May and June. So, restaurants, the service industry, and other nonessential businesses will start rehiring again.
- Scientists are working on a vaccine — There is no date when a vaccine will be ready. But, immunization against Covid-19 will allow everyone to get back to normal. This estimated time is around 12 to 18 months before vaccines may become widely available.
- Demand for services will continue — Unlike the time of the Great Depression, demand for services remains. When lockdown orders lift, and a level of normalcy returns, consumer demand for products will also return. In many cases, it hasn’t really gone away.
Why It’s Unlikely We’re Headed for a Great New Depression Due Covid-19
There’s some hope on the horizon that the financial woes due to Covid-19 won’t last for many years. Unfortunately, most of us are going to struggle along economically. Even with coronavirus rent moratoriums, the stimulus check, and credit card debt relief, it’s tough going for many right now.
To help ordinary folks get through these tough times, the government has approved several stimulus packages.
Financial stimulus packages
Already, the government has passed bills giving money to millions of businesses and taxpayers. For example, the Families First Act made it easier to get paid sick leave and unemployment benefits — even for self-employed people.
Then the CARES Act gave $2 trillion to help stimulate the economy and preserve jobs through the coronavirus pandemic. There’s also talk about a second round of stimulus checks which could see every American getting $2,000 a month while the virus rages.
Trillions of dollars have been spent to bolster the economy during the Covid-19 pandemic — something that was not available in the 1930s. Gradually, people will get back to work, the economy will recover, and life will get back to normal.