Will Covid-19 Cause a Recession?

The Dow Jones Index is down 36% since February 10, the sharpest decline in US history (Source: Google)

Around the world, markets are adjusting to a new reality; people are stuck in their homes. According to the New York Times, in the United States alone, 38 states have issued statewide orders to stay at home for all but “essential” workers.

This scale of orders to stay home is unprecedented, and it is already creating lasting consequences. However, the real reason for this decline may not have anything to do with the virus. Instead, it looks eerily similar to the 2008 recession.

In 2008, years of speculation that had created a massive economic bubble came to a grinding halt. Borrowers who were eager to capitalise on a booming housing market and lenders who fulfilled these demands in order to sell more bonds engaged in a seemingly endless exchange until people realised that everything supporting this speculation was meaningless.

President Trump’s tweet describing the virus as an “invisible enemy” (Source: Twitter)

When comparing the economic difficulties of today with those of 2008, it is easy to say that the latter was caused by poor investment while the former is solely due to some invisible enemy that we can’t control. In reality, this virus has served as an excuse for business owners and governments alike not to address the problems (that are similar to those in 2008 and the Great Depression) that have created an inflated economy and even more speculative spending.

What makes this situation even worse is the fact that governments are unable to focus their policies on only tackling the economic issues. They are also faced with a wave of public health crises to try and address at the same time.

This leads to the question: what has been done to combat these issues and how do these efforts compare to that of 2008 and of the Great Depression? Most importantly, will these measures work?

Former US President George W. Bush signing the Economic Stimulus Act (Source: HowStuffWorks)

In the years following the Great Depression, president Franklin Delano Roosevelt implemented a series of policies aimed at addressing social inequalities and taking the economy out of a severe depression. Some policies included Social Security, reform of Wall Street, and increased power of the government in financial regulation. Although the economy didn’t recover until WWII, these policies instilled hope in the American people and put the US on the right track. In 2008, the Bush administration implemented the Economic Stimulus Act, which cut taxes by roughly 300 billion, allocated another 300 billion to job growth, and assigned 200 billion to unemployment insurance.

Today, what we are seeing is countries implementing similar to that of 2008, and less like the 1930s. The United States responded to the Covid-19 outbreak with a stimulus package of roughly 2 trillion, which put cash in the hands of any American affected by the crisis in order to allow them to complete necessary payments (like rent). This response, although seemingly productive and forward-thinking, will likely only provide only short term relief. What happens when the next cycle of payments are due and unemployment continues to rise? Perhaps more importantly, if the economy does rebound quickly, how will society adapt in order to prevent another recession from happening in the future?

Americans receiving unemployment applications (Source: Getty Images)

If governments repeat the mistakes of 2008 and inject more money into an economy that caused the recession in the first place, we are bound to spiral into an even more severe recession in the future. Furthermore, if governments rethink the way that our economy works, like president Roosevelt did in the 30s, we will create lasting stability and provide hope for future generations. This is accomplished through greatly reducing the power of banks and ensuring that less Americans take on debt.

If governments rethink the way that our economy works, we will create lasting stability and provide hope for future generations.

As high school students, we will soon enter this economy of borrowing and lending. It is up to us to try and reverse the mistakes of the past and be responsible citizens. As SAS student Tina Gupta states, “I just hope the economy is stable by the time I’m out of college.”

Author: Cameron Ragsdale

Cameron Ragsdale is currently a senior at SAS and this is his first year reporting for The Eye. This is his 10th year in Singapore, having moved back and forth from Austin, TX, starting at the age of 6. He enjoys watching Breaking Bad for the 12th time and listening to music. You can reach him at ragsdale34890@sas.edu.sg

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s