GDP is What’s Ailing Me
Last week generously gifted us with a proverbial bag of fecal matter on our newsfeed. Second quarter results for the US economy were finally released, detailing a 32.9% decline in GDP.
Womp.
Any way you cut it, that’s the worst contraction of the US economy in recorded history. Economic pundits quickly replied to these reports, citing obscure filing practices of the BEA that report quarterly results as an annualized rate, a.k.a multiplied by 4.
They waxed eloquent about how 32.9% is inflammatory and sensational, and gave a more “realistic” number of 9.5% decline. Finally, their eager, information-laden tongues slightly satiated, they revealed that a 9.5% decline is still the worst contraction of the US economy we’ve seen in history.
Cool, we’re all on the same page now.
Formal recording of quarterly GDP only dates back to 1947, which of course excludes the Great Depression. However, estimates from that era record the single greatest drop of GDP at 14.8%, and a total peak-to-trough GDP decline of 30.5% from 1929–1933.
Taking our annualized rate of decline at 32.9%, you can see that even the Great Depression hardly puts its dukes up against the likes of our current contraction.
What does a GDP contraction actually mean, though? More specifically, how will it affect us moving forward? Simply put, GDP is measuring the monetary value of all finished goods and services made within the country, during a certain period.
In this case, the last fiscal quarter, April 1st — June 30th. When GDP declines, that means less goods and services have been produced or completed, meaning there is less money flowing through the US economy overall. Less goods and services being bought and sold means less money earned by the businesses and individuals that purvey them, leading to employee layoffs or businesses shutting down entirely.
Either of those options entails an increase in unemployed individuals, and a subsequent increase in those relying on unemployment to pay rent, buy food, etc.
This is where things get hairy. Like, my wife’s legs in winter, hairy. Up until last week, the Cares Act stimulus package included an additional pandemic unemployment relief sum of $600 per week. For many, these weekly payments, normal unemployment benefits included, summed between $750-$1000 a week. More than enough to pay rent, buy food, treat yo self, and pay off some debt.
The additional pandemic relief just ended.
Instead of $750-$1000 a week being dropped in your dusty bank account, try $150-$400 instead. Best case scenario, you’re living on $1,000-$1,600 per month. Sustainable short term? Yes. Long term? Hairy as a sasquatch post-hibernation.
This is the real crux of the issue. I believe the United States is at an inflection point, necessitated by the second wave of spiking Coronavirus cases across the US.
Health officials are calling for the country to be shut down again, entailing quarantine, essential travel only, and many businesses shutting their doors once again. Economists, however, looking at the same argument I detailed above, demand the US stay open, for fear of where another GDP slide would place us.
Evocative predictions of miles-long food stamp lines, mass evictions, and surging unemployment rates cascade from the mouths of these fiscal prophets, and who’s to say that they’re wrong?
So, my friends, we enter an ethical dilemma. Shut down the United States once more for the overall safety of its populace, but potentially face a Greater Depression and its manifold miseries? Or keep the United States on its track of reopening, to leave the populace to its own defenses against the immediate threat of Coronavirus?
I wish the situation was less bleak than either of those scenarios — and maybe it is! I’d love to hear your thoughts, comments, criticisms, lambasting monologues, and anything else below.
Thanks for reading :)
