A few weeks ago, COVID-19 — in its dispassionate campaign against the world — transformed Treasury Secretary Steven Mnuchin into a harbinger of bad news. With millions already laid off, Mnuchin furthered anxieties, warning that the unemployment rate may rise to 25%.
This is in stark contrast to the recent reality of 2019, now seeming like a distant fantasy. In December, CNBC wrote an article recognizing that “the U.S. economy has started and ended a decade without a recession,” while a Bankrate survey perceived recession threats as a diminishing worry.
Now, as found in the same New York Times update that briefed about Mnuchin, dominating headlines are of airlines “bleeding money,” the difficulty of reopening New York and the virus spreading in the White House.
Rather appropriately, the article opens up with an image of “The Triumph of Death,” a 15th-century Sicilian fresco depicting an apocalyptic take on Europe’s bubonic plague. But even the Black Death provided lessons to be learned.
Professor David Routt, writing for the Economic History Association, points out that peasants gained more economic freedoms following the plague’s agricultural downturn, while “the cutting of costs ultimately rewarded the European consumer with a wider range of goods at better prices.”
Of course, while it’d be erroneous to draw direct comparisons between then and now, Routt’s research comes to underline a significant fiscal principle: downturns aren’t necessarily evil.
Since the Great Depression, some may be surprised to learn that the U.S. has entered 13 recessions — here defined as a significant decline lasting a few months or more — as the National Bureau of Economic Research informs. Looking at the 21st century alone, the 2000s opened with the Dot-com recession, only to be followed by the housing market crash of 2008.
Downturns, therefore, can be considered natural, working like an economic detoxing, as explained by Investopedia. However painful the momentary consequences, they test firm durability, removing risky or failing businesses and reallocating their resources for better use.
Moreover, they “discipline investors,” penalizing those who gamble with hazardous investments. In fact, according to the previously mentioned CNBC article, a reason for the U.S.’s decade-long growth can be credited to the fresh memory of 2008, making consumers and businesses “more risk-averse.”
Besides their benefits, history also comforts in another way: At some point, recessions always prove to end.
Notwithstanding, downturns will never cease to be points of societal fear in a nation’s narrative. As business profits begin to dwindle, firms can only keep so many workers; therefore, unemployment augments, just as Mnuchin has warned. Even those who hold on to their jobs may live with the anxiety of losing them.
It isn’t comforting for people to hear that their current unemployment, lowered wages and lessened standard of living may give way to opportunity later, whether that means more economic freedom or buying powers.
Moreover, it’s borderline inappropriate to assert that the temporariness of recessions should excuse panic. However short-lived, “individuals who experienced even a single recession impact still had higher odds of … depression, generalized anxiety, panic, and problems with drug use — three years after the recession,” researcher Miriam K. Forbes said, quoted by the Association for Psychological Science.
However, what makes downturns more intimidating than necessary is inappropriate government policy. In many ways, consumers and workers are at the mercy of the government to turn a recession around, they themselves unable to affect the outcome. That’s why the speed and magnitude of administrative reaction may be the difference between an upsetting market hiccup and economic carnage.
An April installment of The New Yorker, a tired nurse depicting its front cover, does well to explain this. It quotes an ex-employee of Goldman Sachs, frustrated with the U.S.’s hesitation to shut down: “You could either have four weeks of pain and a future boom or just years of this rolling bulls--- and a depression.”
At the same time, to ease fear and financial pain, the U.S. may take an example from Europe. There, in some countries, workers aren’t fired, but simply put on leave, 80% of their salaries paid by the government, as broken down in a Vox video. This would lessen anxieties, as well as the complications of finding new jobs, for both firm and employee.
Finally, proper government policy would also help delay any future recessions, limiting the need to fear about upcoming hardships. While downturns have their benefits, they’re eliminated when the government props up businesses that should naturally die. In an example, the same New Yorker article summates this wonderfully: “The bankers … get paid like geniuses, and yet, every 10 years, they need bailing out.”
History says not to fear downturns.
Sadly, the state of a country’s economy has its influence over its people’s psychology. While downturns may provide much-needed market rejuvenation, they come with unavoidable costs of job loss and damaged mental health for thousands of individuals.
If nothing’s learned from history, detrimental effects will never be reduced.
Filip De Mott is a junior journalism and international affairs. Contact Filip at firstname.lastname@example.org.