Lessons From The Great Recession
The Great Recession of the last decade is fresh in the minds of most adults, but what it teaches us about the COVID-19 recession remains arguable. The two recessions differed significantly in suddenness of onset and scale. But both occurred in the waning months of a presidential administration, leaving recovery to a new party.
When the new administration took up residence in the White House last January they came with a full agenda, leading off with a $1.9 trillion economic rescue package. President Joe Biden appealed for a revival of bipartisanship, but arriving on the heels of a fractious four years of polarized politics, the risk of leading with a large expenditure was predictable. Voting on the package split along party lines with the exception of one Democrat voting against it.
Republicans opposed the package for including too much spending for state and local governments; for increasing benefits for the unemployed that would discourage people from looking for work; for including provisions that have little to do with the pandemic; for doing little for the economy to recover; for adding too much to the federal budget deficit and possibly unleashing inflation. Democrats agreed to reduce eligibility for stimulus checks for families and individuals in some middle-income ranges and other changes were made as the bill went back and forth between the House of Representatives and the Senate.
The case for a massive stimulus is strong: it addresses the hardship faced by the millions of people who remain unemployed in the recession. Beyond that, economists welcome the historically low interest rates of a favorable current investment environment that translate into low government borrowing costs and the opportunity to re-employ millions of workers in infrastructure projects.
There is widespread belief that the stimulus package created to restore the economy following the Great Recession was too little, resulting in an unnecessarily long recovery period of six-and-one-half years before jobs reached their pre-recession level; that was two to four years longer than in the three previous recessions. The current recession has resulted in far more jobs lost than the Great Recession. Most significantly, the pandemic ushered in changes in how and where work is performed that are expected to eliminate many jobs permanently.
From the beginning of the Great Recession in late 2007, the number of employed persons decreased by 7.5 million over the following three years. Employment did not recover to its pre-recession total until June of 2014. By contrast, between February and April 2020, the first months of the COVID-19 pandemic, the number of jobs decreased by over 25 million. A year later the losses had been trimmed to 8.5 million, a great reversal but it still exceeded the total losses of the Great Recession. Gains since October 2020 have been relatively flat. Unlike the Great Recession, a large portion of those jobs will not return, and the workers who filled those lost jobs are not likely to find work without retraining.
The U.S. Bureau of Labor Statistics prepared a graph comparing recovery periods, in months, for employment following past recessions. The COVID-19 recession differs from previous recessions in the high number of jobs lost, but also in the speed of the partial recovery, as illustrated by the graph’s red line. The future course for that red line is unknown, but over the past 40 years, the ominous trend was that each recession has lasted longer than previous ones. The lesson from the Great Recession is that it was longer than it should have been, due to a lack of aggressiveness in confronting it.
New York Times and Associated Press surveys in February and March 2021 found popular support for the $1.9 trillion package was 70% positive. It was favored by three-quarters of independent voters, 40% of Republicans and nearly all Democrats. Two recent articles suggest why this may be the case: A February 19, 2021 New York Times article had the headline “Republicans Struggle to Derail Increasingly Popular Stimulus Package.” Then a March 2 Washington Post article appeared under the headline “When Democrats Govern, They Try Hardest to Help Red States.”