25 Apr 2020

Why the Current Unemployment Is Worse Than the Great Depression

Economics 3 Comments

My latest as mises.org. The key point:

However, besides this technical issue, there is a much more fundamental difference between unemployment in the early 1930s and today: back then, the people out of work had been laid off. Yet today, the people out of work are in lockdown.

This is an enormous distinction. When the economy crashed following the stock market in 1929, consumers restricted their spending according to their preferences as to what was most expendable. Some businesses went under completely—and these were the businesses that were the least important, according to their customers.

At the same time, plenty of other businesses remained afloat, but they cut back their workforces. Again, businesses laid off the most expendable workers, as judged by the managers/owners.

Intuitively, during the Great Depression (and any other standard recession, for that matter), the economic system sheds those jobs that are the least important, in order to gradually reallocate workers into niches that are more appropriate. The deeper the malinvestments have been during the boom phase, the more workers will find themselves in unsustainable outlets when the crash occurs. But given the fact that X-percent of the jobs need to disappear, the market economy during a normal downturn sheds them in the most economical areas, causing as little disruption to the flow of goods and services as judged by the consumers.

In complete contrast, today the principal criteria for which 20+ percent of current workers have lost their jobs are (1) they don’t work in an occupation that can be done from home and (2) they aren’t deemed “essential” by government officials. Naturally, these criteria don’t come close to approximating what is the most economical way to shed jobs, from the perspective of consumers.

3 Responses to “Why the Current Unemployment Is Worse Than the Great Depression”

  1. Transformer says:

    I agree that government decrees on which workers are deemed not essential and therefore have to be fired are against the interests of both the affected workers and consumers.

    However in a pandemic scenario if may well be the case that additional production costs arise (due to health and safety requirements needed in the workplace to stop the workforce getting sick) and may fall differently on different kinds of jobs. It may well turn out that even in a free market workers who can work from home might be less affected by layoffs than those who cannot – and this would not in fact be against the interests of consumers and indeed would be consistent with Bob’s statement about what happened in the 1930’s that ‘businesses laid off the most expendable workers, as judged by the managers/owners’.

  2. random person says:

    Bob Murphy: “In fact, from a purely self-centered standpoint I want low-risk people to leave their homes so that they can get the virus and (hopefully) only suffer mild symptoms, so that its overall prevalence in the community quickly fades away. This will make it safer for members of my household, if and when we carefully venture out into the world after this initial period of isolation.”

    Including these two links could help strengthen your argument in this paragraph. Basically just to point out that you aren’t the only one thinking this way; a New York doctor is too.

    “Why Severe Social Distancing Might Actually Result In More Coronavirus Deaths”


  3. random person says:

    A lot of the time, informally employed people are counted as unemployed.


    I’m not sure how many of the officially unemployed people during the Great Depression were informally employed, but looking at India, the lockdown is also pushing people out of the informal economy, which is probably part of why it’s so deadly there.

    “Indians Forced Into Quarantine Are Dying in Lockdown—but Not From Coronavirus: For Indians Living on $1.90 a Day, a Forced Lockdown Is a Death Sentence” by David Gilbert


    “Elsewhere in India, farmers are taking their own lives because they can’t get laborers to harvest their crops. Police are accused of beating lockdown violators to death. Migrant workers are dropping dead after being forced to walk hundreds of miles home. Alcoholics are dying from drinking methanol because all alcohol sales have been banned. Children are dying of starvation.”

    “These deaths and hundreds of others all have one thing in common. They have been caused by the draconian lockdown measures introduced by India’s Prime Minister Narendra Modi. The lockdown, announced with just hours of notice last month, was implemented without proper provisions and support to protect the hundreds of millions of Indians who struggle to survive on $1.90 a day or less.”

    In Nigeria, a lot of people are disobeying the lockdown orders in order to avoid hunger, apparently.

    “COVID-19 lockdown: Hunger obeys no order, say Nigerians defying stay-at-home directive” by Maria Diamond, Adetayo Adeowo and Onyinye Ezeilo


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