foreignpolicy--2020-04-04--America Is Having an Unemployment Apocalypse. Europe Chose Not to.

America Is Having an Unemployment Apocalypse .
Europe Chose Not to .
The coronavirus pandemic has dramatically changed economic life across Europe and the United States .
By confining people to their homes , leading them to spend far less money than they otherwise would , the West has seen a collapse in consumption , threatening the survival of a sweeping number and range of firms , from restaurants to airlines to car manufacturers .
This , in turn , has produced a sudden and unprecedented collapse in demand for labor .
The United States has witnessed a dramatic rise @ @ @ @ @ @ @ over the last two weeks .
This is uncharted territory for labor markets , and so it is unsurprising that different countries have adopted different strategies for coping with the looming unemployment crisis .
Many European countries are cushioning the impact of the crisis on their labor markets by employing a system pioneered in Germany and Austria called Kurzarbeit ( short-time working ) .
In essence , it involves reducing the number of hours a firm ’ s employees work to reflect the fall in demand , but their salaries are reduced by @ @ @ @ @ @ @ , with the country ’ s federal labor office funding the difference .
Put simply , it is a form of wage subsidy .
Which approach is most likely to limit the long-term economic damage ?
The U.S. one of rapid cuts in employment in order to match the supply of labor with the suddenly depressed demand for it ?
Or the European approach of attempting to keep as many as possible at work ?
This will depend to a large extent on the length of the downturn : Can we look forward @ @ @ @ @ @ @ recovery and limited loss of economic activity , or are we facing a longer recession or even something akin to a depression ?
Many credit Germany ’ s rapid economic bounce-back from the 2008-2009 financial crisis to its system of Kurzarbeit .
German unemployment rose less than in comparable countries , enabling German firms to hold on to skilled workers , which in turn meant that they could respond more rapidly once global demand started to recover .
More European countries , including France and the United Kingdom , are pushing variations on @ @ @ @ @ @ @ in the hope of limiting the long-term impact to their economies .
Kurzarbeit is especially suited to Germany and other European countries with highly regulated labor markets and generous unemployment benefits .
For example , it is expensive for firms in Germany to lay off workers ; the procedure is lengthy , and they often have to pay for large compensation packages .
German businesses are therefore understandably keen to avoid laying people off , especially when they believe that they will soon have to rehire workers .
Second , unemployment benefits are @ @ @ @ @ @ @ permanent contract who has worked more than 12 months will typically receive unemployment benefits of 60 percent of their net salary for 12 months ; this rises to 67 percent for someone with children .
As a result , wage subsidies can be a cost-effective option for government .
There is no tradition of Kurzarbeit in the United States .
When demand for labor falls , the number of workers typically falls rapidly to reflect the drop—there is no attempt to divide up the remaining demand for labor among the existing number of @ @ @ @ @ @ @ is cheaper and much less complicated for U.S. firms to shed workers .
Another is that unemployment benefits are traditionally low compared with those in many Western European countries , hence public subsidization of private sector wages can seem expensive .
Typically , only a small proportion of European workers have been covered by Kurzarbeit schemes : full-time workers in larger firms , disproportionately in manufacturing sectors .
Those in non-unionized jobs or on temporary contracts have not tended to be covered .
But Kurzarbeit schemes are being rapidly expanded—the German federal labor @ @ @ @ @ @ @ soon be covered by it—and it is not an exaggeration to say that the current crisis has opened a continental chasm on labor market policy .
The United Kingdom has usually been closer to the United States than the rest of Europe when it comes to labor market policies , but it has now put in place a government program to pay up to 80 percent of private sector salaries ( capped at just over $ 3,000 a month ) .
Do the Europeans have it right ?
Much will depend on the @ @ @ @ @ @ @ see a rapid economic recovery from the third quarter ( July to September ) of the year , then the European approach will probably be vindicated .
The rise in unemployment will have been lower in Europe than in the United States , firms will have retained more skilled workers ( and their loyalty ) , and these companies will be better placed to ramp up production quickly , much as German ones did back in 2009 .
By contrast , unemployment will have risen much more in the United States , and @ @ @ @ @ @ @ , causing more corporate bankruptcies and with them pressure on the financial sector .
U.S. firms will face the costly and time-consuming process of rebuilding their workforces .
But what if the downturn is more protracted and the recovery is weak ?
This could easily happen if governments are forced to maintain the lockdowns for longer and are then only able to ease them gradually , as appears to be the case in China .
Kurzarbeit is not a long-term solution for a number of reasons .
First , it is costly .
@ @ @ @ @ @ @ this cost initially looks manageable .
But even in Germany very generous unemployment benefits do not last forever .
Second , the longer Kurzarbeit goes on , the more socially inequitable it can become ; those workers with full-time jobs in the sectors covered by these schemes are largely protected from the downturn , while others—many of whom are poorer—face the full brunt .
Third , the longer the downturn , the greater the likelihood that consumption and investment patterns will shift and the challenge will not be to kick-start existing production capacity @ @ @ @ @ @ @ industries .
In this situation , Kurzarbeit could distort wages and hold back necessary structural changes in an economy .
For example , it is possible that demand for German cars—at least the gas-powered variants—will never properly recover from this crisis .
It may therefore make little sense to artificially maintain employment levels in that industry .
If we suffer a prolonged downturn and weak recovery , other factors will have a bigger impact on how economies fare than whether or not they employ Kurzarbeit schemes .
Countries that succeed in ensuring that @ @ @ @ @ @ @ and maintain a decent level of consumption ( thereby keeping a limit on corporate insolvencies ) , and guarantee universal access to health care will likely come through the crisis in better shape than those that do not .
The U.S. administration has certainly stepped up emergency support for businesses , while the Federal Reserve—like the European Central Bank and the Bank of England—has moved aggressively to boost liquidity in an effort to head off a financial crisis .
The CARES Act passed by Congress at the end of March also increases unemployment @ @ @ @ @ @ @ qualify for them .
But even after these changes , which U.S. labor unemployment offices are struggling to process , most Europeans have better unemployment and welfare benefits—and , crucially , poor and jobless Europeans have better access to health care .
The U.S. government could easily address these issues by spending more money .
The world wants dollars , now more than ever—the yield on 10-year U.S Treasury bonds is currently just 0.7 percent .
Although this would no doubt prove cheaper for the United States in the long term , there @ @ @ @ @ @ @ it will significantly boost spending on social programs .
The United States has a better record than Europe of channeling money and workers into new , fast-growing industries , suggesting that it could yet emerge from the current crisis in better shape than Europe .
But the pace of innovation has slowed in the United States in recent years , with competition waning and markets becoming more concentrated than in Europe .
While U.S. technological leadership is not in question , in many ways European capitalism looks to be in a healthier state @ @ @ @ @ @ @ EU can make it through the coronavirus crisis without the eurozone coming apart and throwing the region into chaos , it may yet emerge from this with fewer scars than the United States .

The coronavirus pandemic has dramatically changed economic life across Europe and the United States. By confining people to their homes, leading them to spend far less money than they otherwise would, the West has seen a collapse in consumption, threatening the survival of a sweeping number and range of firms, from restaurants to airlines to car manufacturers. This, in turn, has produced a sudden and unprecedented collapse in demand for labor. The United States has witnessed a dramatic rise in jobless claims—a scarcely believable 10 million over the last two weeks. This is uncharted territory for labor markets, and so it is unsurprising that different countries have adopted different strategies for coping with the looming unemployment crisis.
The coronavirus pandemic has dramatically changed economic life across Europe and the United States. By confining people to their homes, leading them to spend far less money than they otherwise would, the West has seen a collapse in consumption, threatening the survival of a sweeping number and range of firms, from restaurants to airlines to car manufacturers. This, in turn, has produced a sudden and unprecedented collapse in demand for labor. The United States has witnessed a dramatic rise in jobless claims—a scarcely believable 10 million over the last two weeks. This is uncharted territory for labor markets, and so it is unsurprising that different countries have adopted different strategies for coping with the looming unemployment crisis.
Many European countries are cushioning the impact of the crisis on their labor markets by employing a system pioneered in Germany and Austria called Kurzarbeit (short-time working). In essence, it involves reducing the number of hours a firm’s employees work to reflect the fall in demand, but their salaries are reduced by much less than the reduction in hours, with the country’s federal labor office funding the difference. Put simply, it is a form of wage subsidy.
Which approach is most likely to limit the long-term economic damage? The U.S. one of rapid cuts in employment in order to match the supply of labor with the suddenly depressed demand for it? Or the European approach of attempting to keep as many as possible at work? This will depend to a large extent on the length of the downturn: Can we look forward to a rapid, “V-shaped” recovery and limited loss of economic activity, or are we facing a longer recession or even something akin to a depression?
Many credit Germany’s rapid economic bounce-back from the 2008-2009 financial crisis to its system of Kurzarbeit. German unemployment rose less than in comparable countries, enabling German firms to hold on to skilled workers, which in turn meant that they could respond more rapidly once global demand started to recover. More European countries, including France and the United Kingdom, are pushing variations on the German approach during the current crisis in the hope of limiting the long-term impact to their economies.
Kurzarbeit is especially suited to Germany and other European countries with highly regulated labor markets and generous unemployment benefits. For example, it is expensive for firms in Germany to lay off workers; the procedure is lengthy, and they often have to pay for large compensation packages. German businesses are therefore understandably keen to avoid laying people off, especially when they believe that they will soon have to rehire workers. Second, unemployment benefits are high; a German on a full-time permanent contract who has worked more than 12 months will typically receive unemployment benefits of 60 percent of their net salary for 12 months; this rises to 67 percent for someone with children. As a result, wage subsidies can be a cost-effective option for government.
There is no tradition of Kurzarbeit in the United States. When demand for labor falls, the number of workers typically falls rapidly to reflect the drop—there is no attempt to divide up the remaining demand for labor among the existing number of workers. One reason is that it is cheaper and much less complicated for U.S. firms to shed workers. Another is that unemployment benefits are traditionally low compared with those in many Western European countries, hence public subsidization of private sector wages can seem expensive.
Typically, only a small proportion of European workers have been covered by Kurzarbeit schemes: full-time workers in larger firms, disproportionately in manufacturing sectors. Those in non-unionized jobs or on temporary contracts have not tended to be covered. But Kurzarbeit schemes are being rapidly expanded—the German federal labor office estimates that 2.4 million workers will soon be covered by it—and it is not an exaggeration to say that the current crisis has opened a continental chasm on labor market policy. The United Kingdom has usually been closer to the United States than the rest of Europe when it comes to labor market policies, but it has now put in place a government program to pay up to 80 percent of private sector salaries (capped at just over $3,000 a month).
Do the Europeans have it right? Much will depend on the length of the downturn. If we see a rapid economic recovery from the third quarter (July to September) of the year, then the European approach will probably be vindicated. The rise in unemployment will have been lower in Europe than in the United States, firms will have retained more skilled workers (and their loyalty), and these companies will be better placed to ramp up production quickly, much as German ones did back in 2009. By contrast, unemployment will have risen much more in the United States, and households will have suffered more financial damage, causing more corporate bankruptcies and with them pressure on the financial sector. U.S. firms will face the costly and time-consuming process of rebuilding their workforces.
But what if the downturn is more protracted and the recovery is weak? This could easily happen if governments are forced to maintain the lockdowns for longer and are then only able to ease them gradually, as appears to be the case in China. Kurzarbeit is not a long-term solution for a number of reasons. First, it is costly. In countries with generous unemployment benefits, this cost initially looks manageable. But even in Germany very generous unemployment benefits do not last forever. Second, the longer Kurzarbeit goes on, the more socially inequitable it can become; those workers with full-time jobs in the sectors covered by these schemes are largely protected from the downturn, while others—many of whom are poorer—face the full brunt. Third, the longer the downturn, the greater the likelihood that consumption and investment patterns will shift and the challenge will not be to kick-start existing production capacity but to shift resources—capital and labor—into new industries. In this situation, Kurzarbeit could distort wages and hold back necessary structural changes in an economy. For example, it is possible that demand for German cars—at least the gas-powered variants—will never properly recover from this crisis. It may therefore make little sense to artificially maintain employment levels in that industry.
If we suffer a prolonged downturn and weak recovery, other factors will have a bigger impact on how economies fare than whether or not they employ Kurzarbeit schemes. Countries that succeed in ensuring that households can pay their rents and mortgages and maintain a decent level of consumption (thereby keeping a limit on corporate insolvencies), and guarantee universal access to health care will likely come through the crisis in better shape than those that do not.
The U.S. administration has certainly stepped up emergency support for businesses, while the Federal Reserve—like the European Central Bank and the Bank of England—has moved aggressively to boost liquidity in an effort to head off a financial crisis. The CARES Act passed by Congress at the end of March also increases unemployment benefits and the number of people who qualify for them. But even after these changes, which U.S. labor unemployment offices are struggling to process, most Europeans have better unemployment and welfare benefits—and, crucially, poor and jobless Europeans have better access to health care. The U.S. government could easily address these issues by spending more money. The world wants dollars, now more than ever—the yield on 10-year U.S Treasury bonds is currently just 0.7 percent. Although this would no doubt prove cheaper for the United States in the long term, there is little to suggest—at least so far—that it will significantly boost spending on social programs.
The United States has a better record than Europe of channeling money and workers into new, fast-growing industries, suggesting that it could yet emerge from the current crisis in better shape than Europe. But the pace of innovation has slowed in the United States in recent years, with competition waning and markets becoming more concentrated than in Europe. While U.S. technological leadership is not in question, in many ways European capitalism looks to be in a healthier state. If—and it is a big if—the EU can make it through the coronavirus crisis without the eurozone coming apart and throwing the region into chaos, it may yet emerge from this with fewer scars than the United States.


foreignpolicy--2020-04-03--Are the Markets Underestimating the Coronavirus Depression?

Are the Markets Underestimating the Coronavirus Depression ?
One of the most enduring images to come out of the last financial crisis more than a decade ago was that of former Federal Reserve Chairman Alan Greenspan—once seen as the “ maestro ” of markets—expressing his “ shocked disbelief ” that Wall Street had blown itself up .
How could people so smart act against their own “ self-interest ” and get things so wrong ?
Greenspan wondered aloud during testimony to Congress in the fall of 2008 .
“ The whole intellectual edifice , ” he famously said , had @ @ @ @ @ @ @ record bull run of the markets—which lasted until the coronavirus pandemic sent them tumbling a few weeks ago—the hoary conventional wisdom of Wall Street reasserted itself : The brilliant traders and analysts on the Street will always find a way to protect their self-interests , and they usually figure things out before anyone else , pricing in the worst possibilities .
But today , with financial markets seesawing day by day yet generally holding steady—even as some economists and knowledgable pundits suggest the U.S. economy is heading into a depression—it ’ s worth @ @ @ @ @ @ @ , it ’ s probably not too much to say the financial markets may now be whistling past the graveyard of the American economy .
One of the problems is that when faced with something truly huge and world-overturning—something unprecedented and therefore unpredictable—disbelief recedes slowly .
That was the case in 2007 and 2008 , when major authorities , even Fed Chairman Ben Bernanke , kept reassuring Americans that housing prices were supported by “ very strong fundamentals , ” and investors looking for safer ground put up a constantly eroding wall of @ @ @ @ @ @ @ mortgages .
This continued right up until Lehman Brothers collapsed and hundreds of thousands of trading counterparties , unseen until then , defaulted and panicked , nearly bankrupting most major financial institutions .
The smartest minds in finance had deluded themselves into thinking they were spreading risk around the world when mainly what they were doing was hiding it .
All at once , it seemed , everyone realized that the entire financial system was infected and there was no safer ground any longer .
[ Mapping the Coronavirus Outbreak : Get daily @ @ @ @ @ @ @ it ’ s affecting countries around the world . ]
In recent weeks , after a big initial plunge in March , the markets have been bumping along even as the signs of economic devastation become clearer every day .
Economists are warning that unemployment is going to hit Depression-plus levels , and Trumpian hopes for a sharp V-shaped recovery—one in which the economy regains its prepandemic vitality and shape after only a couple of months—are dimming rapidly .
On Thursday it was reported that another 6.6 million people had filed for unemployment @ @ @ @ @ @ @ in two weeks , and a day earlier a Federal Reserve of St. Louis economist projected the jobless rate could reach 32 percent , higher than the worst of the Great Depression , indicating that many businesses will go under and not come back .
The Paycheck Protection Program that launched Friday as part of the $ 2 trillion disaster relief plan will help a lot—under it , businesses that keep workers on their payroll for eight weeks or promise to rehire laid-off workers will have federal loans forgiven—but this is only an @ @ @ @ @ @ @ .
Meanwhile , many economists argue that much of the new stimulus is ill-designed , and Senate Majority Leader Mitch McConnell is balking at another one any time soon .
The new unemployment numbers released Friday , showing an uptick to 4.4 percent , up from 3.5 percent in February , with 701,000 new job losses , are widely recognized as not reflecting this rapidly developing new reality .
The Dow Jones Industrial Average reacted to the news with only a slight downturn of 361 points , or 1.69 percent .
But at @ @ @ @ @ @ @ come look staggering : Thousands of restaurants and hotels , and possibly many airlines , will never return to solvency , nor will many entertainment and leisure companies such as casinos and movie houses , and a wide range of other small businesses from auto repair to construction .
The so-called gig economy of millions of self-employed workers is beginning to go under ; most of these people will fall into serious debt and will have to reinvent themselves in some new way .
The social consequences will be long-lasting .
The gap @ @ @ @ @ @ @ already jarring to social stability , will only widen : The less money you earn now , the less able you are to ride out the pandemic at home without going out to put food on the table—and therefore the more susceptible you are to the disease .
Ironically , it is many of these less fortunate— “ first responders ” like the cashiers and stockers at big outlets such as Walmart and Target , warehouse workers , and delivery people—who are keeping the U.S. economy and indeed American society running right now @ @ @ @ @ @ @ wage .
And they ’ re not happy , understandably , with their lot .
However soon the coronavirus dies out , that social instability is not going away .
“ This is not going to be an easy recovery once we do hit bottom , ” said Lawrence White of New York University .
“ I ’ m afraid of the deterioration of intangible but very important relationships , whether supply chain relationships or employment relationships .
Or customer relationships .
Or lender-borrower relationships .
The longer we go , the more @ @ @ @ @ @ @ is to recreate what we had.
” Some analysts argue that the markets are doing the best they can with little information or precedent , and typically markets try to price in worst-case scenarios , with a great deal of success most of the time .
“ Financial markets are forward looking , ” said Liaquat Ahamed , a former bond trader and author of the Pulitzer Prize-winning book Lords of Finance , in an email .
“ We knew just anecdotally that millions of people had been thrown out of work because @ @ @ @ @ @ @ numbers are not news .
What matters now for the stock market is how long this lockdown has to be .
With the $ 2 trillion package ( 10 % of GDP ) the federal government has been remarkably aggressive in providing a cushion that could tide us through the next six weeks ( i.e .
10 % of the year ) .
The trillion dollar question is will the lockdown have to be longer than the middle to end of May ?
” That ’ s probably a safe bet at this @ @ @ @ @ @ @ coronavirus could linger on through the summer , and possibly recur in the fall .
What is hardest of all for markets to digest now is the sheer , unprecedented speed of the economic shutdown , which has stalled the entire world economy in a matter of weeks .
“ Whereas the Great Depression was a slow-motion economic disaster , we are experiencing ours in hyperspeed , ” said Lawrence Glickman , a historian at Cornell University .
In the longer term , the larger question is how this changes not only the @ @ @ @ @ @ @ system—and the international community itself .
For U.S. President Donald Trump and key advisors such as Peter Navarro , his chief trade negotiator , the crisis is also an opportunity to shut down globalization , especially by “ decoupling ” from China , which has been their apparent goal ever since this frankly protectionist president took office .
“ If we learn anything from this crisis , it should be never again , never again should we have to depend on the rest of the world for our essential medicines and countermeasures , @ @ @ @ @ @ @ on Thursday .
“ And if there ’ s any vindication , it ’ s the president ’ s Buy American , secure borders , and a strong manufacturing base philosophy , strategy , and belief.
” Many experts are now suggesting the neo-isolationists will have the upper hand post-crisis .
The coronavirus is threatening “ the economic and political sinews of globalization , and causing them to unravel to a certain degree , ” the Yale University disease historian Frank Snowden told the Wall Street Journal .
He said the “ coronavirus @ @ @ @ @ @ @ ” proving most damaging to cosmopolitan cities such as New York that are “ densely populated and linked by rapid air travel , by movements of tourists , of refugees , all kinds of businesspeople , all kinds of interlocking networks.
” Against those trends the advocates of global capitalism will have to find fresh ways to justify a rebirth of the international system and turn globalization into something more than what it has been , which is mainly a profit machine built on complex supply chains and cheap labor .
“ The @ @ @ @ @ @ @ is different from the many that have come before , ” said Cornell ’ s Glickman .
“ Will the legitimacy of the system be challenged in a thoroughgoing way , as it was not in 2008-2009 ?
Will political solutions , such as Medicare for All , that seemed extreme a few weeks ago gain political purchase ?
Will we change how we value labor , now that we see that restaurant , retail , postal , health care workers , and journalists ( among many others ) are doing essential labor @ @ @ @ @ @ @ take off , in the wake of the labor actions by Instacart and Amazon workers ?
” Are the markets really pricing all this stuff in right now ?
Probably not .
April 3 : This story was updated with the Dow ’ s close .

One of the most enduring images to come out of the last financial crisis more than a decade ago was that of former Federal Reserve Chairman Alan Greenspan—once seen as the “ maestro ” of markets—expressing his “shocked disbelief” that Wall Street had blown itself up. How could people so smart act against their own “self-interest” and get things so wrong? Greenspan wondered aloud during testimony to Congress in the fall of 2008. “The whole intellectual edifice,” he famously said, had “collapsed.”
One of the most enduring images to come out of the last financial crisis more than a decade ago was that of former Federal Reserve Chairman Alan Greenspan—once seen as the “maestro” of markets—expressing his “shocked disbelief” that Wall Street had blown itself up. How could people so smart act against their own “self-interest” and get things so wrong? Greenspan wondered aloud during testimony to Congress in the fall of 2008. “The whole intellectual edifice,” he famously said, had “collapsed.”
In the subsequent decadelong record bull run of the markets—which lasted until the coronavirus pandemic sent them tumbling a few weeks ago—the hoary conventional wisdom of Wall Street reasserted itself: The brilliant traders and analysts on the Street will always find a way to protect their self-interests, and they usually figure things out before anyone else, pricing in the worst possibilities. But today, with financial markets seesawing day by day yet generally holding steady—even as some economists and knowledgable pundits suggest the U.S. economy is heading into a depression—it’s worth second-guessing Wall Street once again.
Indeed, it’s probably not too much to say the financial markets may now be whistling past the graveyard of the American economy.
One of the problems is that when faced with something truly huge and world-overturning—something unprecedented and therefore unpredictable—disbelief recedes slowly. That was the case in 2007 and 2008, when major authorities, even Fed Chairman Ben Bernanke, kept reassuring Americans that housing prices were supported by “very strong fundamentals,” and investors looking for safer ground put up a constantly eroding wall of denial against the rising tide of defaulting mortgages. This continued right up until Lehman Brothers collapsed and hundreds of thousands of trading counterparties, unseen until then, defaulted and panicked, nearly bankrupting most major financial institutions. The smartest minds in finance had deluded themselves into thinking they were spreading risk around the world when mainly what they were doing was hiding it. All at once, it seemed, everyone realized that the entire financial system was infected and there was no safer ground any longer.
[Mapping the Coronavirus Outbreak: Get daily updates on the pandemic and learn how it’s affecting countries around the world.]
In recent weeks, after a big initial plunge in March, the markets have been bumping along even as the signs of economic devastation become clearer every day. Economists are warning that unemployment is going to hit Depression-plus levels, and Trumpian hopes for a sharp V-shaped recovery—one in which the economy regains its prepandemic vitality and shape after only a couple of months—are dimming rapidly. On Thursday it was reported that another 6.6 million people had filed for unemployment claims, adding up to 10 million in two weeks, and a day earlier a Federal Reserve of St. Louis economist projected the jobless rate could reach 32 percent, higher than the worst of the Great Depression, indicating that many businesses will go under and not come back. The Paycheck Protection Program that launched Friday as part of the $2 trillion disaster relief plan will help a lot—under it, businesses that keep workers on their payroll for eight weeks or promise to rehire laid-off workers will have federal loans forgiven—but this is only an island in a sea of soon-to-default debt. Meanwhile, many economists argue that much of the new stimulus is ill-designed, and Senate Majority Leader Mitch McConnell is balking at another one any time soon.
The new unemployment numbers released Friday, showing an uptick to 4.4 percent, up from 3.5 percent in February, with 701,000 new job losses, are widely recognized as not reflecting this rapidly developing new reality. The Dow Jones Industrial Average reacted to the news with only a slight downturn of 361 points, or 1.69 percent. But at current rates, the unemployment numbers to come look staggering: Thousands of restaurants and hotels, and possibly many airlines, will never return to solvency, nor will many entertainment and leisure companies such as casinos and movie houses, and a wide range of other small businesses from auto repair to construction. The so-called gig economy of millions of self-employed workers is beginning to go under; most of these people will fall into serious debt and will have to reinvent themselves in some new way.
The social consequences will be long-lasting. The gap between the rich and everyone else, already jarring to social stability, will only widen: The less money you earn now, the less able you are to ride out the pandemic at home without going out to put food on the table—and therefore the more susceptible you are to the disease. Ironically, it is many of these less fortunate—“first responders” like the cashiers and stockers at big outlets such as Walmart and Target, warehouse workers, and delivery people—who are keeping the U.S. economy and indeed American society running right now, and at little better than minimum wage. And they’re not happy, understandably, with their lot. However soon the coronavirus dies out, that social instability is not going away.
“This is not going to be an easy recovery once we do hit bottom,” said Lawrence White of New York University. “I’m afraid of the deterioration of intangible but very important relationships, whether supply chain relationships or employment relationships. Or customer relationships. Or lender-borrower relationships. The longer we go, the more they deteriorate, and the harder it is to recreate what we had.”
Some analysts argue that the markets are doing the best they can with little information or precedent, and typically markets try to price in worst-case scenarios, with a great deal of success most of the time.
“Financial markets are forward looking,” said Liaquat Ahamed, a former bond trader and author of the Pulitzer Prize-winning book Lords of Finance, in an email. “We knew just anecdotally that millions of people had been thrown out of work because of the lockdown. So the unemployment numbers are not news. What matters now for the stock market is how long this lockdown has to be. With the $2 trillion package (10% of GDP) the federal government has been remarkably aggressive in providing a cushion that could tide us through the next six weeks (i.e. 10% of the year). The trillion dollar question is will the lockdown have to be longer than the middle to end of May?”
That’s probably a safe bet at this point, with health experts saying the coronavirus could linger on through the summer, and possibly recur in the fall. What is hardest of all for markets to digest now is the sheer, unprecedented speed of the economic shutdown, which has stalled the entire world economy in a matter of weeks. “Whereas the Great Depression was a slow-motion economic disaster, we are experiencing ours in hyperspeed,” said Lawrence Glickman, a historian at Cornell University.
In the longer term, the larger question is how this changes not only the United States but also the globalized trading system—and the international community itself. For U.S. President Donald Trump and key advisors such as Peter Navarro, his chief trade negotiator, the crisis is also an opportunity to shut down globalization, especially by “decoupling” from China, which has been their apparent goal ever since this frankly protectionist president took office. “If we learn anything from this crisis, it should be never again, never again should we have to depend on the rest of the world for our essential medicines and countermeasures,” Navarro told the White House briefing on Thursday. “And if there’s any vindication, it’s the president’s Buy American, secure borders, and a strong manufacturing base philosophy, strategy, and belief.”
Many experts are now suggesting the neo-isolationists will have the upper hand post-crisis. The coronavirus is threatening “the economic and political sinews of globalization, and causing them to unravel to a certain degree,” the Yale University disease historian Frank Snowden told the Wall Street Journal. He said the “coronavirus is emphatically a disease of globalization,” proving most damaging to cosmopolitan cities such as New York that are “densely populated and linked by rapid air travel, by movements of tourists, of refugees, all kinds of businesspeople, all kinds of interlocking networks.”
Against those trends the advocates of global capitalism will have to find fresh ways to justify a rebirth of the international system and turn globalization into something more than what it has been, which is mainly a profit machine built on complex supply chains and cheap labor. “The question is whether this crisis of capitalism is different from the many that have come before,” said Cornell’s Glickman. “Will the legitimacy of the system be challenged in a thoroughgoing way, as it was not in 2008-2009? Will political solutions, such as Medicare for All, that seemed extreme a few weeks ago gain political purchase? Will we change how we value labor, now that we see that restaurant, retail, postal, health care workers, and journalists (among many others) are doing essential labor that is massively underpaid? Will unionism take off, in the wake of the labor actions by Instacart and Amazon workers?”
Are the markets really pricing all this stuff in right now? Probably not.
April 3: This story was updated with the Dow’s close.