Which is/will be worse? The Great Recession or Covid-19 crisis

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Laura Ingalls
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Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Laura Ingalls »

I just watched the Powell interview and listened to the gloom and doom. On a personal level I just don’t feel it is anywhere near as bad as the Great Financial Crisis (yet).

My two big metrics are the misery index of my neighborhood and my stock portfolio. During the Great Recession the idea of spending money when we were in the accumulation phase (well trying too with small children and only one [part time] job was stressful. This go round it seems there is nothing to spend on. I would gladly spend money on a haircut, travel to anywhere but my local parks, or a nicer restaurant. I’m not, doesn’t seem like a prudent idea for non-financial reasons.

I have had unemployed neighbors in both cases but now seems it is less widespread and people seem like they are getting more unemployment support. During the Great Recession my 403b was halved at it most brutal. Way less this go round. I sort of feel we have gone from 30x pre-covid spending to 30x current spending (or about 10-15% in actual dollars.)

Anyway sort of wondering how much of this is a function of being in a different season of life and how much is that it might not be as bad (yet).

Alphaville
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Alphaville »

Paul Krugman’s recent newsletter addressed this.

Let me dig up my inbox... would it be ok to repost here?

Laura Ingalls
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Laura Ingalls »

Sure

jacob
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by jacob »

Alphaville wrote:
Wed May 13, 2020 9:23 am
... would it be ok to repost here?
Not as such. I try to follow the fair use doctrine as well as the no-duplicating rule (also see forum rule 4) when it comes to posting large blocks of text.

Alphaville
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Alphaville »

jacob wrote:
Wed May 13, 2020 9:28 am
Not as such. I try to follow the fair use doctrine as well as the no-duplicating rule (also see forum rule 4) when it comes to posting large blocks of text.
alright, thanks. i suspected it a possibility which is why i posted separate. i’d offer a link to a nyt page, but it only comes via email... i think it works as an advertising for them which is why it’s not behind paywall.

anyway, tldr; he says the economy stabilized in the middle of last month and it should be a quick recovery if we stop the virus

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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by jacob »

Laura Ingalls wrote:
Wed May 13, 2020 9:19 am
Anyway sort of wondering how much of this is a function of being in a different season of life and how much is that it might not be as bad (yet).
As far as the visceral impact, personal (possibly extending to friends and family) circumstances account for most of the reactions and adopted positions. In my case, both have been nothing-burgers because ERE was resilient to both crises. Conversely, the election of a chaotic anti-immigrant administration has had more visceral impact on me than either of these even if it affected relatively few others.

It's trivial to see where the shoe pinches in retrospect. For the GFC it was owners of overleveraged housing, those connected to those industries (bankers, lenders, builders, ...), and those with debt or living off of investments. For CV19, it's extroverts (people-persons), those doing non-essential work or businesses, the old and/or unhealthy, and those without savings. There's some overlap here but also some new factors in terms of fragility.

But basically, the more boxes someone checks, the worse it probably feels.

IlliniDave
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by IlliniDave »

I think this will be worse than the 2007-2009 crisis by a long way. We're already at Great Depression (not Great Recession) unemployment levels and a big part of the country is still fighting tooth-and-nail to stay shut down another 1.5 years or longer. It'll probably take a generation to undo what of this can be undone, and we may be be looking at irrevocable destruction on a number of fronts.

Alphaville
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Alphaville »

yes we have great depression levels of unemployment but this is momentary and not the same as having a great depression.

the difference is the possibility of having a quick recovery.

here is the graph from krugman’s free newsletter:

Image

sorry i can’t provide a link to the newsletter as i can’t find one. it arrives in email form, but it’s free to subscribe to here:

https://www.nytimes.com/newsletters/paul-krugman

not sure that will get you yesterday’s email though.

anyway he’s saying that the top curves are quick “morning in America” pre-90s recoveries. at the bottom are slow jobless recoveries.

the difference, he says, is that the slowdown that preceded the quick recoveries was caused by high interest rates, whereas the slow jobless recoveries followed private sector overreach (commercial real estate, tech, and housing bubbles).

he sees the current slowdown as caused by “external” forces which, once removed, would allow the economy to snap back in place pretty quickly, barring further obstacles.

please note, he doesn’t see the slowdown as caused by “policies” but by the pandemic itself.
Last edited by Alphaville on Wed May 13, 2020 10:48 am, edited 1 time in total.

Alphaville
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Alphaville »

ah! i found it under “sample”! here it is:

https://static.nytimes.com/email-content/PK_sample.html

i assume the sample will update to a new iteration in the future so this works only for a limited time.

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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by jacob »

A counterpoint to Krugman's thesis is that companies are learning that WFH might not be such a bad idea after all. See e.g. https://www.nytimes.com/2020/05/12/nyre ... -home.html which bears out what DW is telling me too. Such an increase in location efficiency would have impact on downtown office space, restaurants, bars, and commuter services, that is, white-collar support jobs, which in the post-COVID world would have overreached. In addition, shifting people away from the cities would shift the tax base as well. This would be problematic as infrastructure projects are typically paid for with debt.

Alphaville
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Alphaville »

not sure if counterpoint precisely, perhaps complement/supplement/parallel path.

he speaks of the economy having stabilized at a lower level which, indeed, is in part thanks to the possibilities offered today by the internet. this would have been impossible before. and reduced commuting would be a very good thing.

but yes the loss of whole sectors of the economy that support this commute would be problematic.

however... they might just turn into other kinds of while collar support. from grocery and meal deliveries to house cleaners, to personal trainers and massage therapists visiting clients at home...i can see people wanting the same comforts.

infrastructure away from cities would mean infrastructure elsewhere, like expanded broadband... but yeah there’s a) a risk, and b) a cost attached to this, no doubt.

Laura Ingalls
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Laura Ingalls »

@Alphaville thanks for the link

chenda
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by chenda »

My gut feeling - and that's all it is - is that there will probably be a post - crona bounce back and more rapid recovery than after 2008, a la the Krugman piece. Unless we get a major second or third wave of infections, which will drag out and exacerbate the crisis into a long term depression.

I also sceptical there will be a significant change in working patterns in the near future. There will be a strong desire to return to normality and familiarity, and even if working patterns do change, the service economy will simply adapt to it, as @Alphaville notes.

Though its interesting to speculate how an pandemic 25 years ago, before the internet was widespread, would have been different.

bostonimproper
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by bostonimproper »

I think the COVID-19 crisis is going to precipitate/accelerate a lot of more dire pivots in the world order (particularly around American hegemony) than the Great Recession, but the effects won't be truly felt until 5-10 years out.

nomadscientist
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by nomadscientist »

There's less obviously malinvestment than in the GFC. It took time to find out what those mcmansion builders and salesmen should more profitably be doing. Many will have spent time retraining.

First order effect of reopening after COVID is that the same bars, restaurants, hair salons as were there before come back, and their same customers come back. That's comparatively easy. Most of them where I am haven't closed anyway, they've just changed their mode of operation, which makes it even easier.

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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by jacob »

chenda wrote:
Wed May 13, 2020 12:32 pm
Though its interesting to speculate how an pandemic 25 years ago, before the internet was widespread, would have been different.
Or if some adversary decides that this is an excellent time to bring the internet to its knees.

2Birds1Stone
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by 2Birds1Stone »

A very timely piece from Howard Marks, https://www.oaktreecapital.com/docs/def ... tainty.pdf

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fiby41
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by fiby41 »

CHS who is in the ERE blog roll has a lot of articles on this
https://www.oftwominds.com/blogmay20/gl ... d5-20.html

Laura Ingalls
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by Laura Ingalls »

https://apple.news/AiRVfWaQpQk65UI8DId-FtA

Not sure if this link will work, but the content seemed germane the topic.

chenda
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Re: Which is/will be worse? The Great Recession or Covid-19 crisis

Post by chenda »

A more negative assessment from some economist who appears to know what he is talking about. Decade long depression, food riots and climate change shocks all might be heading our way.

https://nymag.com/intelligencer/2020/05 ... l#comments

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