The worst part of the virus will be the recession it causes, and the young will get the short end of the stick.
Predictions are hard, especially about the future but I think the economic consequences will be more prominent in the annals of history than the disease itself. As the virus outbreak continues apace it seems increasingly unlikely that the response to the virus won’t result in a recession, possibly quite bad one at that. Assuming there is a recession, how will it play out? Here are my thoughts on the consequences of the virus outbreak, from a political economy viewpoint.
For many, the logical point of reference when discussing recessions is the Great
Recession as it is the most recent one or at least one of the more recent crises which reverberated across the globe. But 2008 is probably quite different than the recession we’re due in a month or two when the Covid-19 crisis really hits economically. 2008 was a financial crisis, caused primarily by and at first centred on the financial system which creates very different problems as compared to say a sovereign debt crisis or a demand shock. What type of recession is the virus most likely to lead to? I’d say a combination of a supply shock given how global supply chains have struggled when China’s output was drastically reduced in February and March, but the virus also has a marked impact on demand. Obviously demand will be reduced in states where cities are quarantined but even in states where the government wants life to continue as normal people seem worried to be out. This causes a drop in demand which hits restaurants and service firms hard, and especially small firms. More people working from home is another factor making it difficult for restaurants.
When thinking about the economy its always important to consider what groups of people tend to work where to understand the political impact. The sectors which are worst hit by the covid-19 crisis is tourism and restaurants. Those working at restaurants and in hotels tend to be quite young without higher educations. This means that the coming recession will be worst for some of those who already struggle the most. Young people already to a fairly large extent feel that the economy is rigged against them, and that they have far worse prospect than their parents did, and it’s not uncommon to hear that millennials are lazy, or that they can’t afford to buy homes because of frivolous lifestyles from the older generations. It seems likely to me that the young will become more cynical about their future prospects if unemployment picks up, which could give a real boost to movements like the Sanders campaign and Corbyn-style leftists.
I’ve been wrong almost every time I’ve made a prediction on the blog, but I really believe that the recession will be worse than the disease, and I really think that the young are going to be the worst off. Perhaps not a unique or ground breaking perspective, but crucial to keep in mind going forward.
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Written by Karl Johansson
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