The recession of 2020 is going to be brutal, but we need not fear the 1930s

There’s no way to sugar-coat it: the COVID-19 pandemic is certain to be the world’s single worst downturn in modern history. For Alberta, it will be doubly bad because A) it’s hitting the energy sector extremely hard, and B) we’re going into the downturn with an economy that’s already severely compromised.

The reality is that in terms of the contraction in the size of the economy, Alberta is likely to see the worst year since the Great Depression of the 1930s. The unemployment rate could hit 20% or higher. All of that draws to mind the images from the Depression of people going hungry, living in dusty shacks, and wearing dirty and tattered clothes.

As bad as the economy is about to tank, we don’t need to worry about those images becoming reality in 2020. There are three reasons why.

1. Government response to the global pandemic has been swift and unprecedented in size and scale. While the process and details have been frustrating for those who need money right now, the federal and provincial governments are rolling out money like never before. That didn’t happen in the 1930s. In fact, it was conventional thinking at that time that the best thing the government could do is CUT SPENDING. The fiscal austerity that governments exercised in the 1930s made the situation much worse. Today, governments getting money into the hands of households and businesses will prevent the hunger, homelessness and tattered clothes that marked the 1930s. (Of course the stimulus money will still need to be paid for, but that will wait for another day.)
2. Labour markets were much less flexible in the 1930s than they are today. Skill levels were lower, and technologies didn’t exist to help people work remotely or to upgrade skills. Most workers toiled either on farms, in factories or in clerical work. When those jobs vanished with collapsing global demand (or due to drought, in the case of farming), there were no new industries or jobs to go to. Today, jobs ARE still being wiped out. But technology is helping workers either work in new ways (remotely, or at home) or to transition to new industries.
3. The economic collapse of the 1930s was a problem with the financial system, triggered by runs on banks and stock markets. Because governments responded in the wrong way, the Depression dragged on far longer and deeper than it needed to. The global economic crisis of today was triggered not by systemic problems in our financial system, but by a virus. And while the pain is deep and sudden, it WILL be controlled sooner rather than later by a vaccine. The recovery may not be quite as V-shaped as we’d like, but recovery is certain to come sooner than it did in the 1930s.

All of this may be cold comfort for Albertans who are facing joblessness and worrying prospects today. They wonder when — or if — their job will ever return. It will be painful, there is no doubt. And while comparisons to the 1930s may be correct with respect to the size of the economic contraction, we need not fear the levels of poverty and destitution that marked The Great Depression.