How this recession might be different

The following are not predictions, rather indications of how this recession (actually depression) might be different:

1. Length: The shortest recession that I can recall was in 1980, and lasted for 6 months. Some economists believe the economy bottomed in April, which would make this a 2-month recession. Even a May bottom would represent an unusually short recession.

2. Unevenness: With appropriate monetary policy, we should see many booming industries. I’m not saying this will occur, but it might. Take-out food. Online shopping. Netflix. I recently had a new automatic garage door opener installed. Any and all types of consumption that can be done safely ought to be booming. In contrast, during a normal recession almost all industries will experience decline.

Then there are grey areas like real estate. I’d be willing to buy a house right now, especially with the low mortgage rates. Is my preference typical? This summer I’ll probably take a vacation by car, rather than by air. Perhaps eating takeout food while visiting a National Park. Again, I don’t know if this is typical, and hence I don’t know how vacations by car and real estate will do this summer. Just that I could imagine them booming.

And what about boats and RVs? Camping? I’ve recently been doing more biking. What about backyard play sets for your kids, which can be delivered to your house?

Of course all of this is influenced by aggregate demand. If the Fed doesn’t provide enough NGDP, then almost all industries might suffer. If they do provide enough money, then some industries will boom while others suffer.

PS. The Bloomberg editorial board agrees with me on challenge studies for a vaccine.



14 Responses to “How this recession might be different”

  1. Gravatar of Michael Rulle Michael Rulle
    18. May 2020 at 12:15

    Its funny—my daughter and husband (3 kids age 5 and under)just bought a really nice RV Saturday—they own a Ford 250—-and they are planning just the kind of vacation you describe–camping, etc.

    I DVR’d Powell from last night—-he certainly seems to believe the Fed has no limits, so to speak—despite no NGDP target.

    Moderna? 8 person trial—-but some seemingly good results.

    China locks down 103 million in Jilin Province? Rumor of 850k more infections? That cannot be good at all if true.

  2. Gravatar of Ray Lopez Ray Lopez
    18. May 2020 at 12:21

    Apparently Sumner is buying into the hype about the C-19 vaccine, despite the below, (hat tip Marginal Revolution).

    Re Moderna’s announcement: only 40% of vaccines are found to work, after the initial promising announcement says this paper:

  3. Gravatar of Justin Justin
    18. May 2020 at 12:38

    Very interesting recession. The Fed is pumping up expectations, certainly out to two and three year horizons, given equity prices and inflation expectations. Personally I think Hypermind is way too pessimistic on 2021Q1 YoY growth. The Federal Government is also doing some flawed, but I think useful fiscal policy to ease the short run burden of unemployment on face-to-face service workers. This is possibly the one case where I can see such policies being appropriate.

    As you say Scott, we are recalibrating the economy. Given long enough, we could build an economy with little face-to-face interaction. Mostly though, the virus turns out to be not as deadly as initially feared. Litigation risk will probably keep people working remotely in many businesses for a while, but I suspect we’ll be rapidly moving back to normal by July. Wearing masks is a pain and there’s little risk to 80% or 90% of people

  4. Gravatar of msgkings msgkings
    18. May 2020 at 13:38

    Good ol’ Ray, still trying to get the market to crash again because he missed the March lows.

  5. Gravatar of msgkings msgkings
    18. May 2020 at 13:45


    It’s a ‘pain’ to wear masks but an easy measure for everyone to keep taking. I see no reason to stop wearing masks until there’s a vaccine. And even then it’s probably a good idea for older folks and immunity deficient people to wear them every flu season. I predict wearing masks will become a permanent thing for many (not all or even most) like it is in China.

    And working remotely is DEFINITELY here to stay. It won’t be as prevalent as under lockdown, but many many businesses have learned during this pandemic how useful and easy it is to do that. My own practice will move to having everyone get at least a day a week from home, now that we see how well we can do it. A doctor client of mine is over the moon about doing telemedicine as much as he can from now on, etc. This is the biggest lasting change I can see from the pandemic. I would short downtown office real estate. Should help with traffic and pollution too.

    So yes we will be returning to a kind of normal over time, but it will be a new normal and in many ways a better one.

  6. Gravatar of Steve Steve
    18. May 2020 at 16:13

    Perhaps eating takeout food while visiting a National Park.

    Sumner visits the Grand Canyon and asks “Where are the Concrete Steppes?”

  7. Gravatar of agrippa postumus agrippa postumus
    18. May 2020 at 16:50

    How to explain a people, born under the true flame of liberty, led to ruin by the purveyors of the dismal science? I’ll let the Bastard explain:

    “Commodity, the bias of the world,
    The world, who of itself is peised well,
    Made to run even upon even ground,
    Till this advantage, this vile-drawing bias,
    This sway of motion, this Commodity,
    Makes it take head from all indifferency,
    From all direction, purpose, course, intent:
    And this same bias, this Commodity,
    This bawd, this broker, this all-changing word,
    Clapp’d on the outward eye of fickle France,
    Hath drawn him from his own determined aid,
    From a resolved and honourable war,
    To a most base and vile-concluded peace.
    And why rail I on this Commodity?
    But for because he hath not woo’d me yet:
    Not that I have the power to clutch my hand,
    When his fair angels would salute my palm;
    But for my hand, as unattempted yet,
    Like a poor beggar, raileth on the rich.
    Well, whiles I am a beggar, I will rail
    And say there is no sin but to be rich;
    And being rich, my virtue then shall be
    To say there is no vice but beggary.
    Since kings break faith upon commodity,
    Gain, be my lord, for I will worship thee.”

  8. Gravatar of Benjamin Cole Benjamin Cole
    18. May 2020 at 17:09

    Not sure more helicopter drops on globalized Wall Street results in more aggregate demand inside the US.

    The Swiss National Bank, over a several-year period recently, did abut $100k of QE per resident, with no detectable effect on Swiss GDP. Also, see Japan.

    Experienced central bankers, such as Stanley Fischer, recommend helicopter drops on Main Street.

    There is also the time factor. When people are unemployed, the time to get them re-employed is immediately.

    I recommend holidays on payroll taxes and income tax withholding.

    Of course, ending the lockdowns entirely is essential.

  9. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    18. May 2020 at 17:46

    Amid of Corona turmoil,I sold my shares of a cheese maker out.

  10. Gravatar of Carl Carl
    18. May 2020 at 18:20

    @Ray Lopez
    That’s an interesting study. Thanks for linking to it. But after thinking about it for a while, I’m not sure what to make of the 40% number they cite.
    For example, looking at the industry table, there have been 144 HIV vaccine programs (of the 1552 total paths) with a 0% success rate. Should they just lump those in with vaccine programs for other germs when from what I understand HIV poses a uniquely difficult challenge for vaccine development because it attacks the adaptive immune system itself?
    Should I focus on the 0 for 5 record with SARS and MERS programs or the 40% hit rate for the grab bag category of “respiratory infections” where there have been 575 programs?
    What should I make of their finding that only 12 of 27 disease categories “with at least one development path observed have seen at least one approved vaccine.” Of the 15 failed categories, however, only 3 had more than 10 programs: HIV with 144, Hepatitis C with 23 and Sepsis with 13. Considering the number of vaccine programs underway for SARS-COV2 that actually might be a reason for high confidence that we will get a hit.

  11. Gravatar of rwperu34 rwperu34
    18. May 2020 at 21:30

    As we look at the very real possibility of this technically being only a 2-3 month recession, something I remind myself constantly;

    Levels matter.

  12. Gravatar of ssumner ssumner
    19. May 2020 at 07:59

    Michael, You said:

    “Rumor of 850k more infections?”

    I suggest you stop listening to the source of that idiotic rumor. Unless you think all of East Asia is engaged in a mass conspiracy.

    Ray, You said:

    “Apparently Sumner is buying into the hype about the C-19 vaccine”

    Apparently you don’t know how to read.

    Justin, You said:

    “Wearing masks is a pain and there’s little risk to 80% or 90% of people”

    These comments make me want to pull my hair out. Even people in their 60s have a significant risk of dying. Do you realized that we grounded the Boeing 737Max despite less than a one in a million risk of dying while flying on it? Americans don’t like 1/100 or 1/200 type risks of dying.

    And you only need masks for a few minutes each da; it’s not a hassle at all. In Japan they wear them even when there is no epidemic.

    rwperu34, Exactly.

  13. Gravatar of Matthias Görgens Matthias Görgens
    21. May 2020 at 21:05

    Benjamin, being able to buy up the world’s assets without raising inflation is a boon to be welcomed, not a burden.

    Just keep buying the world until inflation (or NGDP) hits the target.

    The dividends from owning the world should buff up the Fed’s regular wire transfer of its profits to the treasury nicely.

    At some point they’ll also have bought back all those treasuries held by overseas investors like the Chinese. That has always been a political (though not economic) problem spot.)

    Large scale AND simultaneously ineffictive asset buying is the holy grail of (indirect) government funding.

    It’s the exact dream land MMT is promising.

  14. Gravatar of Matthias Görgens Matthias Görgens
    21. May 2020 at 21:09

    Scott, in Singapore we have to wear masks outdoors now as well.

    That’s a bit more annoying thanks to our tropical climate, and there’s only minimal risk of infection outdoors, especially when you stay at more than a metre distance from other people.

    Wearing masks indoors where there’s Aircon is not much of a big deal. And indoors is also where the transmission risk is.

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