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The U.S. Is Not Headed Toward a New Great Depression

In an article for HBR, the authors argue that while there is no doubt that the intensity of the coronavirus shock — the depth and speed of the fall in output — is unparalleled and frightening, it is a long way from a macroeconomic shock — even a severe one — to a structural regime break, such as a depression or a debt crisis.

This research was published on May 1st, 2020 in Harvard Business Review

There is no doubt that the coronavirus is driving a macroeconomic meltdown around the world. In the U.S. and elsewhere, heavy job losses will likely drive unemployment figures to levels not seen since the Great Depression. Fiscal efforts to contain the crisis are pushing deficits to levels last seen during World War II. Both developments have spurred fears and commentary that the crisis is spiraling into either a depression or a debt crisis.

But is it too soon for such pessimism? The intensity of this shock isn’t in question — the depth and speed of the fall in output is unparalleled and frightening. And coronavirus will also leave a structural macroeconomic legacy if economies don’t return fully to their old growth trajectory or rates. But it’s a long way from a macroeconomic shock — even a severe one — to a structural regime break, such as a depression or a debt crisis.