The decade's most triggering comedy
The American economy is still grappling with the implications of COVID-19 and the lockdown-induced recession.
The Business Cycle Dating Committee at the National Bureau of Economic Research — which tracks the length of American recessions and expansions — defines a recession as the time between a “peak” and “trough” in economic activity. Last year, economic activity peaked in February before bottoming out in April — meaning that the recession of 2020 was the shortest ever recorded in American history.
Nevertheless, the federal government responded more aggressively than in any previous downturn. In March 2020, President Trump signed the $2.2 trillion CARES Act; in December 2020, he signed another $900 billion aid package. In March of this year, President Biden approved the $1.9 trillion American Rescue Plan.
Some silver linings emerged from last year’s recession. However, policymakers’ responses to the spread of COVID-19 carry massive implications for the American economy. Here are the many lessons that Americans ought to take from the 2020 recession — the good, the bad, and the ugly.
The good — virtual work is viable
Almost overnight, millions of white-collar employees were forced by the onset of COVID-19 to begin working from home — which, for many, was a welcome change.
An October survey from Pew Research Center shows that large portions of the American workforce enjoy the benefits offered by remote work. Though only 20% of respondents were working from home before the outbreak of COVID-19, over 70% were still working remotely at the time of the poll. The majority of respondents indicated that they would “want to work from home after the coronavirus outbreak ends.”
For most telecommuters, the lifestyle offered by virtual work appears sustainable. Nearly nine in ten said they had a “very easy” or “somewhat easy” experience with technology and equipment; eight in ten were able to meet deadlines and finish projects on time. Two in three continued to feel motivated in their jobs.
Indeed, an analysis from McKinsey & Company shows that the potential for remote work is concentrated “among highly-skilled, highly educated workers in a handful of industries, occupations, and geographies.” Over 20% of the workforce “could work remotely three to five days a week as effectively as they could if working from an office.”
The bad — Government will compete with private employers
The combined $5 trillion in federal spending certainly played a role in stimulating the economy — especially the CARES Act, which was introduced at the trough of the recession. However, the omnibus bills created countless economic headaches and bottlenecks that persist to this day.
Enhanced federal unemployment payments introduced by the CARES Act — and extended through September 6 by the American Rescue Plan — created a significant worker shortage felt across the entire economy. The federal government thereby signaled a willingness to compete with private employers for jobs — or lack thereof.
Polls reveal that a significant number of Americans may have been choosing to collect state and federal unemployment checks rather than returning to the job market. For instance, Morning Consult found that roughly one in eight jobless American adults had turned down offers while unemployed because they “receive enough money from unemployment insurance without having to work.”
Since 14.1 million adults were collecting benefits in late June, Morning Consult inferred that roughly 1.8 million Americans may have turned down jobs to continue receiving the federal handouts.
At the same time, a record number of jobs were available in the American economy. The United States Department of Labor data revealed that as early as June, the number of open positions had increased to 10.1 million, Meanwhile, 8.7 million Americans were searching for work — implying that the number of openings significantly exceeded the number of jobless workers.
The federal government also signaled new degrees of willingness to spend in a fiscally irresponsible manner.
According to data from the Federal Reserve Bank of St. Louis, the total federal debt in the first quarter of 2020 was $23.2 trillion. By the second quarter, it rose to $26.5 trillion — marking a jump from 108% of gross domestic product to 136% of gross domestic product.
In the second quarter of 2021, federal debt reached $28.5 trillion, and Democrat leaders in Congress are now attempting to pass a $3.5 trillion social spending package.
As discussed by the Penn Wharton Budget Model — a project of the University of Pennsylvania’s Wharton School that evaluates public policy proposals — deficit spending is deeply harmful to long-term economic growth. This reality is explained by the crowding-out effect — a phenomenon by which government demand for funds diverts money away from private business investments, which depresses rates of entrepreneurship and innovation over time.
The effect of deficit spending on the capital stock — the number of productive assets used to produce goods and services — is severe. According to the Wharton economists, the capital stock would fall 0.78% by 2050 with $1 trillion in new deficit spending. With $10 trillion in spending, the capital stock would fall by 8.59%.
Voters can easily become hooked on government aid, despite the long-term fiscal consequences. A Quinnipiac University poll conducted in February 2021 — nearly one year after the 2020 recession had reached its worst point — showed that 78% of Americans, including 90% of Democrats and 64% of Republicans, supported an additional round of $1,400 stimulus checks. Voters also showed 68% overall support for President Biden’s stimulus package proposal.
Indeed, of the many precedents set by last year’s recession — both positive and negative — perhaps the most significant is the explosion of government involvement in economic management.
The ugly — anything can happen
The 2020 downturn came like a thief in the night.
As originally described by mathematician Nassim Nicholas Taleb, a “black swan event” is a “highly improbable event with three principal characteristics” — “it is unpredictable,” “it carries a massive impact,” and “after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was.”
The rise of Google and the 9/11 attacks, for instance, were black swan events. COVID-19 and the subsequent economic fallout were no different.
The United States was about to enter its eleventh straight year of economic expansion. Largely on this basis, several institutions predicted that the United States was fairly likely to experience a recession in 2020. Forecasters surveyed in November 2019 by the National Association of Business Economics downgraded their odds of another recession from 60% to 47%. In February 2020, MIT’s Sloan School of Management estimated a 70% chance of recession within six months. Also in late 2019, Bloomberg forecasted a 26% chance of a downturn.
The onset of the recession was far more sudden than any leading analyst predicted. Both the Dow Jones Industrial Average and the S&P 500 were trading at record highs in February; one month later, both indices saw their worst one-day plummets since the crash of 1987.
The views expressed in this opinion piece are the author’s own and do not necessarily represent those of The Daily Wire.