Thursday , June 4 2020
Home / S. Sumner: Money Illusion / How this recession might be different

How this recession might be different

Summary:
The following are not predictions, rather indications of how this recession (actually depression) might be different:1. Length: The shortest recession that I can recall was in 1980, and lasted for 6 months. Some economists believe the economy bottomed in April, which would make this a 2-month recession. Even a May bottom would represent an unusually short recession.2. Unevenness: With appropriate monetary policy, we should see many booming industries. I’m not saying this will occur, but it might. Take-out food. Online shopping. Netflix. I recently had a new automatic garage door opener installed. Any and all types of consumption that can be done safely ought to be booming. In contrast, during a normal recession almost all industries will experience decline.Then

Topics:
Scott Sumner considers the following as important:

This could be interesting, too:

Tyler Cowen writes Our regulatory state is broken, installment #1837

Tyler Cowen writes Wednesday assorted links

Tyler Cowen writes My excellent Conversation with Ashley Mears

Tyler Cowen writes Is this why budget deficits might prove sustainable?

The following are not predictions, rather indications of how this recession (actually depression) might be different:

1. Length: The shortest recession that I can recall was in 1980, and lasted for 6 months. Some economists believe the economy bottomed in April, which would make this a 2-month recession. Even a May bottom would represent an unusually short recession.

2. Unevenness: With appropriate monetary policy, we should see many booming industries. I’m not saying this will occur, but it might. Take-out food. Online shopping. Netflix. I recently had a new automatic garage door opener installed. Any and all types of consumption that can be done safely ought to be booming. In contrast, during a normal recession almost all industries will experience decline.

Then there are grey areas like real estate. I’d be willing to buy a house right now, especially with the low mortgage rates. Is my preference typical? This summer I’ll probably take a vacation by car, rather than by air. Perhaps eating takeout food while visiting a National Park. Again, I don’t know if this is typical, and hence I don’t know how vacations by car and real estate will do this summer. Just that I could imagine them booming.

And what about boats and RVs? Camping? I’ve recently been doing more biking. What about backyard play sets for your kids, which can be delivered to your house?

Of course all of this is influenced by aggregate demand. If the Fed doesn’t provide enough NGDP, then almost all industries might suffer. If they do provide enough money, then some industries will boom while others suffer.

PS. The Bloomberg editorial board agrees with me on challenge studies for a vaccine.


Tags:

 
 
 
Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

Leave a Reply

Your email address will not be published. Required fields are marked *