How This Recession Is Different From the Last
COVID-19 isn’t just a health crisis; it’s also a financial one. Tens of millions of Americans are now unemployed—a staggering rate the U.S. has not experienced since the Great Depression. And for all the speculation and talk of uncertainty, if there’s one thing economists seem to agree on, it’s that the consequences of COVID will have an impact on our economy for years to come.
“We are most certainly in an economic recession, not headed towards one,” said Janelle Jones, an economic analyst and managing director of Policy & Research at Groundwork Collaborative. The technical definition of a recession is two consecutive quarters of GDP decline, but Jones says that months from now when the data has caught up with the lived experience of millions of Americans, the current moment will be considered the start of the recession.
While it would be nice to compare this recession in 2008, it’s an apples-to-oranges scenario, experts say, with this one being much more profound than the last. The biggest difference is that this downturn is self-imposed due to a health crisis, while the Great Recession was “driven by bad decision-making on the consumer, corporate, and government level,” says Bobbi Rebell, a certified financial planner and personal finance expert at Tally. In other words, the last recession was purely economic. Now we have to contend with a major health crisis too.
“In the case we’re currently facing, this was abrupt and totally unpredictable even right before it hit,” Rebell says. “It’s important that people don’t blame themselves for these economic challenges.” She notes that the last recession, spurred by the housing crisis, was more of a structural problem that could’ve been prevented with more government oversight and less predatory lending. Another big difference between this recession and the last is that COVID is underscoring some major structural inequities within our economy.
Because many marginalized groups never fully recovered from the Great Recession, this latest recession will hit them even harder. “The economy as a whole is and was unstable because of its power imbalances that strained everyday workers, especially black and brown workers,” Jones explains. “By centering the needs of the most vulnerable in large structural changes, we can build a resilient, inclusive economy.” Unlike the last recession, tens of millions of Americans are now contending with unemployment, making the hit even more impactful—not to mention consumer, medical, and student debt have risen considerably in the U.S. since the last recession. “For the fastest recovery, we have to give people money,” she says. “The highest priority right now is helping workers and families keep their heads above water.”
In the bigger picture, we should consider the policies that have turned a crisis into an economic catastrophe, Jones says, adding that the next legislative package should focus on frontline workers, universal paid sick leave, and other worker protections to help individuals, families, and the economy get back on track. “During the last recession, corporations received massive bailouts while continuing the risky behavior that caused the economy to collapse,” she says. “Left unchecked, massive corporations will once again extract from the public good and exploit marginalized people, which will leave the economy less stable overall.” Calling and emailing your elected officials to express support for such packages can help turn the legislative tide, as can joining grassroots movements dedicated to policies you believe in.
For all the differences between this recession and the last, Rebell says the economic pain is a familiar one. “It could take as long—if not longer—as the last recession to get back to where we were before the coronavirus crisis.” Jones is hopeful that the policy-driven and structural problems made worse during this recession will at least underscore the need for a major economic overhaul. “We can use this moment to make bold structural changes for an economy stronger for all of us,” she says.
On a personal level, Rebell says it’s important to have a reserve of cash so you're not relying on credit. “Go through every expense and cut as much as you can. Check to see if you’re eligible for any government programs, such as unemployment or the Pandemic Unemployment Assistance program,” she advises. “If you are self-employed, see what programs you’re eligible for under the CARES Act.”
And avoid making any emotional decisions when it comes to your finances—namely, investments. “As we have learned, markets can rebound when you least expect it,” Rebell says. “Stocks have regained about 30% off the lows as of April 17. If you had sold in a panic, you have locked in some severe losses. If at all possible, keep contributing to your retirement accounts at the same pace.”
While we may not know when or how this recession will end, by exercising as much financial responsibility as we can at this moment, offering help to others in need, and advocating for economic programs that will help everyone in coming years, we can, hopefully, minimize the lasting toll this recession will have on times to come.
