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Unemployment in US and UK ‘may be worse than in Great Depression’

April 3, 2020 Leave a comment Go to comments

from today’s Guardian

Unemployment in Britain and the US could surpass the levels reached during the 1930s Great Depression within months as the coronavirus crisis crushes the global economy, a former Bank of England official has warned.

In a stark forecast as job losses mount around the world, David Blanchflower, professor of economics at Dartmouth College in the US and a member of the Bank’s interest rate-setting monetary policy committee during the 2008 financial crisis, said unemployment was rising at the fastest rate in living memory.

Writing in the Guardian, the economist said UK unemployment could rapidly rise to more than 6 million people, around 21% of the entire workforce, based on analysis of US job market figures that suggest unemployment across the Atlantic could reach 52.8 million, around 32% of the workforce.

“There has never been such a concentrated business collapse. The government has tried to respond but it has no idea of the scale of the problem it is going to have to deal with. We make some back-of-the-envelope calculations and they are scary,” he said.

  1. Patrick Newman
    April 3, 2020 at 11:43 pm
    Reply

    You get the feeling in the UK is that the government is making it up as they go along in both the economy and the epidemic. They dont seem to realise what is unfolding here. The initial sign on to unemployment benefit may be just the first instalment. Almost daily large businesses are going into administration on the one hand but on the other the thousands of small businesses like pubs and cafes are just folding. At the moment the only counter depression is the public sector spending and employment being maintained. It could be the Mother of all depressions at least the government are not talking dealing with the deficit!

  2. Helen Sakho
    April 5, 2020 at 12:56 am
    Reply

    Agreed, expect it should be called the FATHER of all depressions! Poor Boris is sick, but rambles on and on how people should support the NHS, and other poor workers at the forefront of caring for others, without themselves having the right gear. Even with the best of intensions, if they ever existed, this government could not cope with the increasing demand for public financing of basic health care, and social security support. One does not need to be a trained economist to foresee the tragedy that is unfolding: millions more will be driven into poverty, despair and depression with no jobs to go back to, and no hope of adequate governmental assistance to see them through these unprecedentedly harsh times. Mostly for the poorer strata of course.

  3. gracchibros
    April 6, 2020 at 12:51 am
    Reply

    Follow the logic of not only supply chains, but how different industries are structured and interact with others. Closing down the NCAA basketball tournament, which has been a feature of American life since I was a boy in early 1960’s means loss of revenue for the participating colleges and conferences, all the food and service caterers to arenas around the country, and all the motels and restaurants who did extra business when the tournament had games in a regional arena. And I’m sure it cut the sales of jerseys, mascots, mugs… and so forth…add in the professional game, the NBA…losing the sold out crowds of the playoffs, and just with this one sport one is talking about the loss of tens and probably hundreds of millions of dollars of income when the “chains” are added up.

  4. Ken Zimmerman
    April 16, 2020 at 4:02 pm
    Reply

    From the medical side. Philadelphia detected its first case of a deadly, fast-spreading strain of influenza on September 17, 1918. The next day, to halt the virus’ spread, city officials launched a campaign against coughing, spitting, and sneezing in public. Yet 10 days later—despite the prospect of an epidemic at its doorstep—the city hosted a parade that 200,000 people attended. Flu cases continued to mount until finally, on October 3, schools, churches, theaters, and public gathering spaces were shut down. Just two weeks after the first reported case, there were at least 20,000 more.

    The 1918 flu, also known as the Spanish Flu, lasted until 1920 and is considered the deadliest pandemic in modern history. Today, as the world grinds to a halt in response to the coronavirus, scientists and historians are studying the 1918 outbreak for clues to the most effective way to stop a global pandemic. The efforts implemented then to stem the flu’s spread in cities across America—and the outcomes—may offer experiences useful for battling today’s crisis. From its first known U.S. case, at a Kansas military base in March 1918, the flu spread across the country. Shortly after health measures were put in place in Philadelphia, a case popped up in St. Louis. Two days later, the city shut down most public gatherings and quarantined victims in their homes. The cases slowed. By the end of the pandemic, between 50 and 100 million people were dead worldwide, including more than 500,000 Americans—but the death rate in St. Louis was less than half of the rate in Philadelphia. The deaths due to the virus were estimated to be about 385 people per 100,000 in St Louis, compared to 807 per 100,000 in Philadelphia during the first six months—the deadliest period—of the pandemic.

    Dramatic demographic shifts in the past century have made containing a pandemic increasingly hard. The rise of globalization, urbanization, and larger, more densely populated cities can facilitate a virus’ spread across a continent in a few hours—while the tools available to respond have remained nearly the same. Now as then, public health interventions are the first line of defense against an epidemic in the absence of a vaccine. These measures include closing schools, shops, and restaurants; placing restrictions on transportation; mandating social distancing and banning public gatherings. (This is how small groups can save lives during a pandemic.)

    Of course, getting citizens to comply with such orders is another story: In 1918, a San Francisco health officer shot three people when one refused to wear a mandatory face mask. In Arizona, police handed out $10 (about $173 today) fines for those caught without the protective gear. But eventually, the most drastic and sweeping measures paid off. After implementing a multitude of strict closures and controls on public gatherings, St. Louis, San Francisco, Milwaukee, and Kansas City responded swiftest and most effectively: Interventions there were credited with cutting transmission rates by 30% to 50%. New York City, which reacted earliest to the crisis with mandatory quarantines and staggered business hours, experienced the lowest death rate on the Eastern seaboard.

    In 2007, two studies published in the Proceedings of the National Academy of Sciences sought to understand how responses influenced the disease’s spread in different cities. By comparing fatality rates, timing, and public health interventions, they found death rates were around 50% lower in cities that implemented preventative measures early on, versus those that did so late or not at all. The most effective efforts simultaneously closed schools, churches, and theaters, and banned public gatherings. This allowed time for vaccine development (a vaccine was developed in 1936 but never tested) and lessened the strain on health care systems. The studies reached another important conclusion: That relaxing intervention measures too early could cause an otherwise stabilized city to relapse. St. Louis, for example, was so emboldened by its low death rate that the city lifted restrictions on public gatherings less than two months after the outbreak began. A rash of new cases soon followed. Of the cities that kept interventions in place, none experienced a second wave of high death rates. In 1918, the studies found, the key to flattening the curve was social distancing. And that likely remains true a century later, in the current battle against coronavirus. “[T]here is an invaluable treasure trove of useful historical data that has only just begun to be used to inform our actions,” Columbia University epidemiologist Stephen S. Morse wrote in an analysis of the data. “The lessons of 1918, if well heeded, might help us to avoid repeating the same history today.”

    Donald Trump obviously never studied this history. Or any history, for that matter.

    On the economic side, even though there were no national economic measures in 1918 (would not be invented until after 1929), we believe the economic effects of the 1918 influenza pandemic were short-term. Many businesses, especially those in the service and entertainment industries, suffered double-digit losses in revenue. Other businesses that specialized in health care products experienced an increase in revenues. The 1918 pandemic played out by February 1919 but continued till the Summer of 1920 in remote areas of the world. We estimate that about 550,000 Americans died of Spanish influenza and pneumonic complications in the ten months of the pandemic (March 1918-January 1919) who otherwise would have lived. The combined battle deaths of personnel of the United States Armed Forces in World War I, World War II, and the Korean and Vietnamese conflicts amount to 423,000, far less than what the nation lost to Spanish influenza in ten months.

    Some academic researchers suggest that the 1918 influenza pandemic caused a shortage of labor that resulted in higher wages (at least temporarily) for workers, though no hands-on argument can be made that this benefit outweighed the costs from the excessive loss of life and overall economic activity. Research also suggests that the 1918 influenza caused reductions in human capital for those individuals in utero during the pandemic, therefore having implications for economic activity occurring decades after the pandemic.

    According to a 2007 study by the Federal Reserve Bank of St. Louis, the potential financial costs and death tolls from a modern-day influenza pandemic in the United States are estimated at an initial cost of several hundred billion dollars and the deaths of hundreds of thousands to several million people.

    The likely economic effects of a modern-day influenza pandemic and possible ways to mitigate the severity of any future pandemic include:
    • Given the positive correlation between population density and influenza mortalities, cities are likely to have greater mortality rates than rural areas.
    • Nonwhite groups have a greater chance of death because roughly 90% of all nonwhites live in urban areas (compared with about 77% of whites). This correlates with lower-income individuals being more likely to die—nonwhite (excluding Asians) households have a lower median income ($30,858 in 2005) compared with white households ($50,784 in 2005). Similarly, only 10% of whites were below the poverty level in 2005 compared with more than 20% for various minority groups (except Asians).
    • Urban dwellers are likely to have, on average, better physical access to quality health care, though nearly 19% of the city population in the United States has no health coverage compared with only 14% of the rural population. The question remains as to affordability of health care and whether free-service health-care providers, clinics, and emergency rooms (the most likely choices for the uninsured) can handle victims of the pandemic.
    • Health care is irrelevant unless there are systems in place to ensure that an influenza pandemic will not knock out health-care provision and prevent the rapid disposal of the dead in the cities (as it did in Philadelphia, which was exacerbated by medical leaves during World War I). If medical staff succumbs to the influenza and facilities are overwhelmed, the duration and severity of the pandemic will be increased. In Philadelphia during the 1918 pandemic, “the city morgue had as many as ten times as many bodies as coffins.”
    • Local quarantines would likely hurt businesses in the short run. Employees would likely be laid off. Families with no contact to the influenza may too experience financial hardships. To prevent spread, quarantines would have to be complete (i.e., no activity allowed outside of the home). Partial quarantines, such as closing schools and churches but not public transportation or restaurants (as done in Philadelphia, St. Louis and Washington, D.C.) would do little to stop the spread of influenza.
    • Some businesses could suffer revenue losses in excess of 50%. Others, such as those providing health services and products, may experience an increase in business (unless a full quarantine exists). If the pandemic causes a shortage of employees, there could be a temporary increase in wages for remaining employees in some industries. This is less likely than in 1918, however, given the greater mobility of workers that exists today.

    That some of parts of these findings from the 2007 report are no longer correct is obvious. But its conclusions still remain relevant today.

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