This from the Mises Institute:
The surge in unemployment isn’t over. New jobless claims data released today by the US Department of Labor showed that total claims surged again in the week ending May 9, exceeding 2 million for the eighth week in a row.
Last week there were 2.6 million new claims for unemployment insurance. That was down from 2.8 million the previous week, and down from the peak of 6.2 million on the week of April 4.
Since claims began to surge on the week of March 21, 33.3 million new claims have been filed.
Last week the Department of Labor released monthly data estimating that 20 million jobs have been lost in recent months. That means nearly all the job gains of the last twenty years are gone.
This drove the unemployment rate above 14 percent, although Chicago Fed economists suggest that it may really be above 25 percent.
In other words, the horrifying trend towards economic collapse caused by state mandated lockdowns continues and the very real threat of mass starvation looms ever closer, and not just for the poorest countries in the world. With estimates suggesting unemployment may rise as high as 34.6% in April we are looking at crippling rates of unemployment never seen before in American, perhaps even world, history. This is worse than the Great Depression, when unemployment rates topped out at 24.6%.
The only silver lining in those numbers above is that the rate of people filing for unemployment sharply dropped in the last few week. But we may not want to hang too much on that number as it could sharply increase again at any point depending on what the government decides to do. Perhaps the most terrifying possibility is that the government will look at these numbers and instead of backing off and allowing the economy to recover state officials will use this as a justification for even more meddling and thus prolong the coming depression indefinitely.
If the state backs off we could see something like the Depression of 1920 to 1921. At the end of World War 1 federal debt from the war was massive and inflation increased dramatically to over 20% within a few years while the soldiers returning from the war drove the unemployment rate over 11%. In response, the Federal government instituted drastic spending cuts, decreasing its budget by over 65% and the Federal Reserve slashed the discount rate which increased the amount of money in the economic system, restoring purchasing power to the inflated dollar. The resulting depression was painful but short. Unemployment hit 11.7% in 1921 but by 1923 it had dropped to 2.3%. The depression was over.
Compare that to the Great Depression. After the economic crashed of 1929 the Hoover Administration immediately began launching (what were then) massive economic interventionist programs designed to “protect” the American worker and American economy. When he failed to “fix” the economy the newly elected Franklin D. Roosevelt (FDR) launched even greater economic interventionist programs. These policies, as two UCLA economists have demonstrated, helped prolong the Great Depression all the way from 1933, when FDR was elected, to World War II when they were ended to prosecute the war.
Historian Burton Folsom Jr. came to similar conclusions and elaborates in detail on just how destructive to the economy the New Deal was in his book New Deal or Raw Deal?. I think you can take it even farther honestly. When you combine their work and see how the Great Depression was at its worst exactly when the New Deal was at its strongest it strongly suggests that while the 1929 crash caused a depression and Hoover extended it the Great Depression was a direct result of the New Deal itself.
So which path will the US take? The signs are mixed. Trump’s willingness to let state governors decide take whatever approach to the pandemic they want, which has resulted form total lockdowns in places like California to no state lockdowns at all in Wyoming. This is good news as it means some places will be able to recover more quickly and thereby revitalize the economy sooner than later. On the other hand, his immigration restrictions have threatened the supply web, especially in the harvesting of food. On the other hand you have Senators calling for massive spending increases including giving every American $2,000 a month, minimum. The increase in unemployment that Trump rolled out is already by incentivizing people to lose their jobs or shutdown their businesses so they or their employees can collect unemployment:
$600 per week. That’s what the federal government is now offering to people who’ve lost their jobs because of the coronavirus. For many workers and employers, that money is a godsend — a way to keep food on the table while also cutting payroll costs. But the extra money can create some awkward situations. Some businesses that want to keep their doors open say it’s hard to do so when employees can make more money by staying home. “We basically have this situation where it would be a logical choice for a lot of people to be unemployed,” said Sky Marietta, who opened a coffee shop along with her husband, Geoff, last year in Harlan, Ky.
If that kind of pattern keeps up, as some politicians hope by extending and increasing the government payouts to people and unemployment, you will be paying people not to work. The result of that will be the entire economy grinding to a halt to, much as it did during the Great Depression, causing destruction to millions of lives. Which path the government takes here within the next few weeks -either to allow markets to operate and recover or to launch vast government programs to intervene in the economy- will effect the lives of not just hundreds of millions of Americans for decades to come, but, potentially, the entire world. It will determine whether we are looking at another forgotten depression like the 1920-1921 depression or another Great Depression with all the social, economic, and spiritual chaos that entails.