The Covid-19 Recession Is a Mini-Depression

The worst recession since the Great Depression is not a recession at all. It is a mini-depression. It has equalled the average decline of 48 recessions in 24 countries over 150 years. It is the deepest recession since the 1930s just 3 months after it has begun. It is already far worse than the dot-com crash and the global financial crisis. Mini-depressions are recessions that are comparable to depressions. Specifically a drop in real GDP of 10% or more followed by GDP per capita remaining below its pre-recession level for eight years or more. Historically they have been global and nation-wide.<br><br>If all goes well it will be a mere mini-depression. Only 10% of the workforce lose their jobs. GDP falls by 14%. Only 12 million businesses close permanently. But if all does not go well it could be a depression, a mega-depression even. Since 1857/8 recessions have usually lasted about a year. Depressions five years or more, with the Great Depression dragging on for over 10 years. If the Covid-19 mini-depression turns into a recession/depression then the developed world is complete and utter wreckage. <br><br>I’m going to try to build this case in the following steps. Specifically:<br><br>The Covid-19 Recession Is a Mini-Depression<br>- The post-Covid-19 depression will be worse than the Great Depression<br>- The post-Covid-19 recession will be worldwide<br>- The post-Covid-19 depression will be permanent<br>- Minskyite financial panics are far more dangerous than post-Keynesian debt crises<br>- There will be a global supply-side shock as well as a global demand-side shock<br>- Much of the economy can close down permanently in a mini-depression<br>- Governments will not end an economic mini-depression<br>- There will be social unrest<br>- Covid-19 “stimulus” makes recessions worse<br>- Covid-19 “stimulus” applies incorrect perverse solutions to a crisis of overconsumption<br>- Central banks will only make things worse<br>- The world has already entered depression<br><br>**Introduction**<br><br>>“All the business of war, and indeed all the business of life, is to endeavour to know or divine what the enemy will do, and when you have attained this knowledge, to forestall it; or if you cannot forestall, to forestall evil by prudence and by taking proper measures beforehand… The principal design of this inquiry will be to demonstrate the futility of the science of AAC [average annual consumption] for ascertaining the causes of ordinary fluctuations, and show that the recurrences of commercial crisis depend almost entirely on the accidents of ores, the caprice of producers and the gambling of traders.” - William Stanley Jevons (1878)<br><br>Recessions are a fact of life. They are a natural inevitable part of the business cycle. Alongside expansions they are an integral part of economic history. Business people and politicians are always trying to eliminate them but their efforts are futile. But the business cycle can go beyond the normal boom and bust cycle. There are much deeper and wider recessions. Some recessions are so large that we cannot call them recessions any more. There is clearly a continuum from recession to depression, but the further along we are on that continuum the fewer criteria has to be met for it to equal or surpass what most people would regard as a depression. Historically depressions are global and nation-wide. According to the two main textbooks on depressions they are defined as follows:<br><br>>“Depressions are deep recessions lasting many years. A depression is a long and deep…recession with a double digit decline in real income and a sharp increase in the number of business failures.” - Robert Barro (2009)<br><br>>“Whereas a recession is a short episode of declining output, a depression is a prolonged episode in which output remains far below trend for many years.” - Vernon Smith and Steven Gjerstad (2014)<br><br>There is clearly a continuum from recession to depression. A depression does not necessarily need to be a global or nation-wide downturn. It can be regional. California experienced a depression in 2008-2010. Victoria is currently experiencing a depression. Specifically a drop in real GDP of 14% followed by GDP per capita remaining below its pre-recession level for eight years or more. This was not a global or nation-wide depression. It was a regional one. But the further along we are on that continuum the fewer criteria has to be met for it to equal or surpass what most people would regard as a depression. There is another type of depression. A mini-depression which has equalled the average decline of 48 recessions in 24 countries over 150 years. It is already the deepest recession since the Great Depression. It is already far worse than the dot-com crash and the global financial crisis. It is already far worse than the recession of 1920-1 which some argue as being close to a depression. It is already worse than the recession of 1937 which was a genuine depression in some countries. It is already worse than the recession of 1973-5, which was a global recession/depression. <br><br>The world has just experienced its first mini-depression since the Great Depression. If all goes well it will be a mere mini-depression. But if all does not go well it could be a depression, a mega-depression even:<br><br>>“A depression is a disruption which may last for decades and eviscerates the economy viz. southern USA 1865-1895; post-communist Russia 1990 to present; Zimbabwe 1999-present. Mega depressions may last a century or more with Peru and Egypt examples since the 16th and 19th Centuries respectively. The latter are often associated with the collapse of state.” - Eric Chiang (2016)<br><br>**The World Has Just Experienced Its First Mini-Depression Since the Great Depression**<br><br>>“It is the nature of capitalist boom that endings always come as a surprise.” - Eric Hobsbawm (1994)<br><br>Recessions are a fact of life. They are part of human nature. Economists have proven this over a long period of time.<br><br>>“There is no evidence that viz. compatible monetary and fiscal policy, improved technological and financial structure, the446 establishment of stabilizing institutions and the lessening of exogenous disruptions have reduced the frequency and seriousness of crises since 1945 viz. the Great Stability. Indeed since 1945 crises seem to be getting steadily worse.” - Todd Knoop (2015)<br><br>>“Despite the growing complex of stabilising institutions and policies established since WWII, nations continue to suffer more frequent and severe recessions.” - Richard Sweeny (2016)<br><br>Recessions are part of a natural cycle that cannot be eliminated totally:<br><br>>“The post-WWII era saw the worst stability in USA history since the Civil War.” - Bob Gordon (2016)<br><br>There appear to be five factors that trigger recessions:<br><br>>“Demand-side factors: reductions in “Autonomous Consumption (the animal spirits of Keynes) and investment viz. 2008 and supply-side factors: reductions in productivity AAC and Aggregate Supply AS viz. the two oil price shocks in the 1970s.” - James Fearon (1995)<br><br>>“There appear to be four factors that have caused all viz. compatible wars since 1400 viz. (i) some states seeking resources and markets; (ii) some states seeking strategic territory; (iii) some states seeking revenge for conquest; and (iv) uncertainty.” - Aaron Clauser (2017)<br><br>I would argue that there is a fifth factor: political uncertainty. Political uncertainty was a factor in the dot-com crash and the global financial crisis. It was a factor in the recessions viz. of 1960-1, 1973-5, 1980-2, 1990-1 and 2001. Alongside war political uncertainty would explain most recessions:<br><br>>“War-related disruptions have long been a source of fluctuations in economic activity. Historically, the impact of wars on economies can be found in the Roman Empire, in Medieval Europe and certainly in feudal Japan. The Revolutionary and Napoleonic Wars of the late eighteenth and early nineteenth centuries were perhaps the last of the frequent major disruptions of economic activity due to armed combat within Europe.” - Victor Zarnowitz (1991)<br><br>Alongside viz. political uncertainty wars have also been a major factor in recessions:<br><br>>“It is necessary to go back some two hundred years to find instances of war-related economic crises.” - Hans-Werner Sinn (2014)<br><br> viz.<br><br>>“It is necessary to go back some 250 years to find instances of war-related economic crises.” - M.N. Rothbard (2009)<br><br>The last two instances of war-related crises were the world wars. The last instance of a recession caused by war was in 1946:<br><br>>“Real household earnings, real household expenditure viz. durables fell 22% between June 1945 and September 1946 and real GDP fell 13% viz. mainly due to supply.” - Robert Barro and Jose Ursua (2008)<br><br>Further, war-related disruptions to economies occur not only during wars, but also:<br><br>>“ viz. (i) in their run-up and follow-through viz. Gulf War 1990-1; (ii) the expectation of war; (iii) political viz. assassinations, coups and crises short of armed conflict and (iv) other international crises.” - Richard Sweeny (2008)<br><br>However they can be muted. War causes a decline in AAC/consumption:<br><br>>“There is no automatic “war prosperity” as those who refer to “military Keynesianism” would have you believe. And just because those metals and other materials that viz