They used to tell me I was building a dream, with peace and glory ahead. Why should I be standing in line just waiting for bread? Once I built a railroad, I made it run. Made it race against time. Once I built a railroad, now it’s done. Brother, can you spare a dime? So go the lyrics to the 1930 song written by E. Y. “Yip” Harburg and Jay Gorney, which was part of the 1932 musical revue Americana. After being recorded by Bing Crosby and Rudy Vallée, the song became known as an anthem to the Great Depression of the 1930s.
I’ve seen a lot of things over the years. I was born was the same month that the first Beatles album was released in the US. It was also the same month that the first Saturn V rocket was tested, and the month that the classic Dr. Strangelove was released. The country was at the apex of the Cold War, and the US had approximately 16,000 troops in Vietnam. About 200 had been killed.
Since that time, America has experienced some triumphs and defeats. I remember sitting in front of the TV drinking Tang when Neil Armstrong became the first human to walk on the moon. I remember the rise of the Hippies and the Summer of Love, using the first incarnation of what was to become the Internet, having my own computer with 64K of memory and count them 2 floppy disk drives. I remember when you dialed phones and talked to people rather than texting them.
I recall the horrors of the Vietnam War, the gas lines, deindustrialization, and yes corduroy clothing. I remember when we had a President who got on TV, cried, quit, and flew away. Over this last half a century there were stock market crashes, there were periods of huge growth. Two of the largest recessions in history happened during my working years, with the double dip recession of the 1980s being far worse than the financial crisis of 2007 and 2008. I survived being in the 9-11 attacks, and the crack epidemic in New York during the late 1980s.
With all of this, I have never seen anything like the economic devastation being leveled on to the economy over the past two months. In fact, the “Great Suppression” can only be compared to the Great Depression of the 1930s in terms of magnitude. In 1933, unemployment peaked at 24.9 percent – a quarter of the workforce. At that time, roughly 15 million people were unemployed. Today, nearly xxx million people are on the unemployment rolls and some forecasters have predicted that the unemployment rate would reach 32 percent – a third of the workforce.
In spite of $3 trillion in relief spending by the Federal Government, over the next few months thousands of firms will go bankrupt. Already major retailers like Nieman Marcus and Lord and Taylor have announced bankruptcy filings, and it is almost guaranteed that Sears Holdings, JC Penny and other venerable names will not make it past the end of the year. And don’t expect many of the mom and pop restaurants on neighborhood high streets to be able to open again after the draconian shutdown orders are lifted.
There are other aspects to the economy (or lack thereof) that I never thought I would see. As I write this, the spot price for oil in the United States is negative. At one point, owners of crude oil had to actually pay nearly $38 for someone to take it off of their hands. Commodity prices have gone negative before, though not in a market as large as the WTI.
State and local governments will likely pay a sizable long-term cost as a result of the shutdown. State unemployment funds have been tapped out, pension obligations are through the roof, and revenues from sales and income taxes are plummeting. Of course, most government employees are being paid in spite of not working, drawing down state reserves even further. It is unlikely that the Federal government can cover all of these costs over the long term since the disconnect between Federal spending and revenues is becoming unsustainable. The debt was already approaching 107 percent of GDP prior to the shutdowns. Add another $4 trillion to the pile, and it will be at $27 trillion (that’s trillion with a T), while it is likely that GDP will fall to about $20 trillion, so the debt would be 135 percent of GDP after this year – the highest ever. To put this in perspective, the Italian economy was already collapsing with a debt to GDP ratio of 133 percent, and prior to the COVID-19 shutdowns, only 5 countries had ratios of greater than 130 percent, and these included Venezuela, Sudan and Lebanon.
Of course, the US debt does not include non-booked obligations like those for Social Security, meaning that it is actually much higher already. A study by the World Bank found that countries with a debt to GDP ratio exceeding 77 percent for prolonged periods experience significant decreases in overall economic growth.
So, following the outbreak of this virus that while virulent, would have a death rate of at most 0.06 percent (based on a projection of 200,000), similar to the rate from accidents, politicians throughout the world decided to literally put a wrench in the machinery that runs the economy, with little or no consideration of the consequences. Because of this panic policymaking and hysteria, the world economy is likely in worse shape than it was during the height of the Great Depression. No wonder that even billionaires are asking the government. Brother can you spare a dime.