The economic consequences of Covid-19: more or less severe than the immediate consequences of the crash of 1929 ?

Its difficult to discuss such a tragedy that has cost so many lives in economic terms. But to make certain the damage from the pandemic is not made worse by poor policy decisions we need to understand the full impact of the shock of lock downs and widespread premature death. The cost of the loss of so many good people before their time cannot be overestimated. For their loved ones the loss is incalculable.

In narrow economic terms the change in the GDP and rise in unemployment  is a useful place to begin. Month to month from March to April the Canadian economy as measured by the GDP shrank by 7.2 %. The American GDP fell over the one month period March to April by11.75 %. Over the year to year period the American GDP fell by 13.7 %.

In the period of 12 months August 1929- August 1930 American GNP fell by 20 % over the year.Given the current rate of decline it is possible perhaps even likely that the decline in American GDP will equal or surpass the record of 1929 to 1930.

.So if the period is standardized as 12 months even if the rate of change in unemployment slows down the unemployment shock in the US is very substantial . There are also definitional issues in assessing the impact since many workers currently laid off will not all immediately be hired back immediately once a safe effective vaccine is found .

In Canada the unemployment rate has jumped to 13.7 % already higher than the average of just over 13 % for the whole decade 1930 to 1939. In four of these years 1932 1933 1934 and 1935 the rate was above 14.2%.reaching a peak of 19.3 % in 1933 then falling to 9.1% in 1937 and rising to 11.4 % in 1938 and 1939.(p.29, Harold Chorney, The deficit and Debt Management, CCPA 1989 from M.C.Urquhart and K.A.H.Buckley  Historical Statistics of  Canada) Wages and salaries fell fro m $2948 million dollars in 1929 to $1796 million in 1933 recovering to 2,633 million dollars in 1939. The GNP fell from 6134 million $ in 1929 to $3,510 million in 1933 recovering to $5636 million by 1939.

 In the UK the rise in unemployment was very substantial also. In 1929 long term unemployment was 43000 in 1929 . It rose to 288,000 by 1937. The GDP fell by 5.4 % from 1929 to 1932.(Crafts, N. F. R. “Long-Term Unemployment in Britain in the 1930s.” The Economic History Review, vol. 40, no. 3, 1987, pp. 418–432. JSTOR, Accessed 13 June 2020.) In April of 2020 the GDP fell by 20.4 % suggesting a sharp rise in unemployment. Currently the data on unemployment is out of date based on March results when the rate was close to 4 %. But because of widespread furloughs temporarily supported by income replacement programs UK unemployment is likely to be underestimated until June data is released. From April 2019 to April 2020 the UK suffered a fall in the GDP of 24.5%.(The Office of National Statistics , cited in W.Schomberg & David Miliken, U.K. economy fell by a quarter during ‘catastrophic‘ March and April The Globe and Mail, June 13,  2020, p.B3) 

So its too soon to make a judgement on whether the pandemic has had worse narrow economic consequences than the crash of 1929 and the Great Depression. But the evidence is quite strong that much more stimulus, more public works and income replacement is necessary for Canada, the UK and the U.S.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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