With the S&P 500 hitting records, Apple’s value doubling in two years and Amazon and Walmart returning strong profits, this might seem like an absurd time to be writing about a pandemic depression.

But the prospect of COVID-19 and its economic shutdown causing a sustained downturn is very much on the minds of economists and other scholars and policymakers.

For example, a new article in Foreign Affairs magazine by Carmen Reinhart, chief economist of the World Bank, and her husband Vincent, BNY Mellon chief economist, argues that “this situation is so dire that it deserves to be called a ‘depression’ — a pandemic depression.”

Unlike the Great Recession, which was primarily caused by a housing and banking crash, this downturn is affecting many more sectors and doing so globally.

Last month, the Congressional Budget Office predicted that real GDP this decade will average 3.4% lower than it forecast at the start of the year. Unemployment, meanwhile, will be 6.1% on average compared with the earlier forecast of 4.2%.

Federal Reserve Chairman Jay Powell warned recently that “the path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check.”


Early economic measures seemed promising. The Fed expanded the money supply. Congress came together to pass a large stimulus. But the health side was not good: Some states opened too soon, many people resisted social distancing and masks, and we remain behind on testing and tracing. As a result, America has one of the worst COVID-19 rates in the world.

The two — health and economy — work in tandem. Shutting the economy was necessary. And sustained recovery won’t be possible until people feel safe.

Now, although the economy has regained some strength from the sudden, Great Depression-like drops of the spring, continued recovery is in doubt. A much-needed second stimulus is stymied in Congress by the GOP-controlled Senate. This raises the danger not only of pain for families but shortfalls for states.

Government isn’t like a family that should “tighten its belt” in hard times. In an economic crisis, the national government must act vigorously to fill the hole in demand. Otherwise, stagnation, slow growth or depression result.

Making comparisons between now and the much-deadlier 1918 influenza is difficult. Data was less complete or rigorous a century ago, and the second year of that pandemic coincided with production cutbacks as World War I ended.

Even with the Roaring ’20s around the corner, the economy still suffered a severe recession from 1920 to mid-1921.


As a new paper published by the National Bureau of Economic Research describes, “In 1918, countries with higher influenza mortality had deeper recessions.”

In the United States, with a lower mortality rate than most countries, industrial production fell 20% from July 1918 to January 1919. But it rebounded quickly, in a V-shaped recovery. The stock market didn’t decline here or in the United Kingdom.

Comparing today with the Great Depression is also difficult. In popular history it began with the stock-market crash of 1929. A troubled banking system, speculation, fraud and a farm crisis all contributed. It was made much worse by Fed blunders, the Smoot-Hawley Tariff and President Herbert Hoover’s reluctance to do enough to ease individual suffering (though even Hoover opposed “belt tightening”).

Many revisionists argue that even FDR’s New Deal didn’t pump enough stimulus into the economy. And it’s clear that Roosevelt’s pullback in 1937 caused a recession, and the Depression didn’t fully end until the ramp-up for World War II.

Depressions in the 19th century — 1837 to the mid-1840s and again in the 1890s — had similarly complex causes coming together to cause calamity.

Sometimes history doesn’t even rhyme. Never before has much of the economy been deliberately shut down because of a pandemic.


The only thing that might connect them to our risky moment was the long period of pain.

Optimists point to today’s abundance of remote work. But this applies to only one fortunate part of the workforce.

Most people can’t do their jobs from home. Nearly 17 million nationally worked in leisure and hospitality as of February. Nearly 28 million were employed in trade, transportation and utilities. An additional 13 million worked in manufacturing. More than 12 million in food services. On and on.

Many of these people are out of jobs. They are disproportionately low-income; people of color are hard hit. Millennials who were slammed by the Great Recession are further set back. Homeownership, the largest source of wealth for most people, is slipping away for many, and mortgage delinquencies are rising.

Small business is another danger spot. One poll had half of respondents saying they were worried about having to permanently close, a number that will rise if a second COVID wave hits in the fall. As of May, 100,000 small businesses had closed for good.

Finally, state, county and municipal budgets hurt by falling tax revenue will have to make more than cuts to “fat,” and the budget reductions will ripple into the private sector and families further prolonging the downturn.


Optimists can also differentiate today’s downturn from the 1930s by the absence of deflation. So far, so good. But without continued vigilance by the central bank and constructive policies from the other Washington, an extended period of falling prices could hurt the growth needed to avoid a long recession.

The toxic political situation supercharges the economic risks, at least until next January if Joe Biden wins the presidency and Democrats take the Senate. In these times of norm-breaking, however, the outcome of the election might not be known for some time, further darkening the economic outlook if more federal support for businesses and workers doesn’t come.

The stock market seems unfazed or oblivious to these dangers. It recovered all of its losses from the COVID sell-off, no matter that 28 million remain unemployed. But the stock market isn’t the economy.

It’s not too late for the federal government to deploy another stimulus, along with investment in advanced, job-creating areas such as high-speed rail and green industries. Most of all, we need leadership that stops the pandemic, something that’s largely been accomplished in Germany, South Korea and New Zealand.

Otherwise, prepare for Depression 2.0.