Will Future Recessions Become Shorter?

Will Future Recessions Become Shorter?

The recession that began in February 2020 as a result of the COVID pandemic officially ended in April 2020 according to the National Bureau of Economic Research (NBER), a private nonpartisan economic research organization. (From the vantage point of 2021 this should come as no surprise). That makes the two-month COVID recession the shortest in U.S. history, and by a wide margin. The second shortest – only six months – occurred in 1980. By comparison the so-called Great Recession of 2008 lasted for 18 months, and the country did not recover from the Great Depression starting in 1929 until 1933, 43 months later. The average length of the 33 recessions since the 1850s was 17 months. Is there a reason the COVID recession was so short, and could that be the beginning of a trend to shorter recessions in the future?

I’m speculating somewhat because the data is quite sparse. But there is a possible correlation between the amount the federal government is willing to spend to prop up the economy during a recession and the recession’s length. Last year the U.S. plowed over $2.5 trillion into keeping businesses and families afloat, and the result was a severe but quite abbreviated GDP and stock market decline. Data from the St. Louis Fed suggests that the federal government’s financial support programs after the 2008 recession totaled about $1.8 trillion in today’s dollars, with a concomitant 18-month downturn. During the Great Depression, according to Bond Capital, the total government stimulus came to only about $800 billion. It could be argued that a massive and rapid injection of capital by the federal government does have some beneficial effect on economic downturns.

Note that the 1929 depression was not the longest in U.S. history. That distinction goes to the panic of 1873, which was caused primarily by rampant speculation in the hot new technology of the time (railroads). That economic downturn lasted from October 1873 through March 1879, during which there were at least a hundred bank failures. Be glad you weren’t around then.

We still don’t know the longer-term consequences of the additional trillions of dollars of debt the U.S. has accumulated during these downturns. Some economists fear another period of rampant inflation, while others view it as simply replacing lost productivity (i.e. no major impact). But from this point on, given the visible success of economic stimulus programs during times of economic stress, it’s unlikely that politicians from either major party would risk doing nothing if/when something should happen again.

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