Not the 1930s all over again
The recession is going to be brutal, but we need not fear a return to the 1930s
By ATB Economics 24 April 2020 2 min read
Special guest author: Todd Hirsch, Vice President and Chief Economist, ATB Financial
There’s no way to sugar-coat it: the recession brought on by COVID-19 and the oil glut will be the worst downturn in Alberta since the 1930s. This brings to mind images of people going hungry, living in dusty shacks and wearing tattered clothes à la the Great Depression.
But, while the recession will be severe, we don’t need to worry about those Depression era images becoming reality in Alberta in 2020. There are at least three reasons why.
First, the government response to the pandemic has been swift and unprecedented. While the process and details can be frustrating, governments are rolling out money like never before. That didn’t happen during the first years of the Depression when cutting spending was seen as the best thing the government could do. Today, government expenditure will prevent the hunger, homelessness and tattered clothes that marked the 1930s—at least in countries like Canada that have the wherewithal to do so. This spending is not a “free lunch,” but that can wait for another day.
Second, labour markets were much less flexible in the 1930s than they are today. Education and skill levels were lower and the technology didn’t exist to help people work remotely. Most workers toiled on farms, in factories, or in offices doing clerical work. When those jobs vanished, that was that. Today, jobs are being wiped out, but technology is helping many workers stay employed.
Third, the economic collapse of the 1930s was triggered by runs on banks and stock markets (and deepened by severe drought). Because governments responded in the wrong way, the Depression dragged on far longer than necessary whereas current efforts to maintain the financial system are working.
The economic pain has been deep and sudden, and the recovery will not be as V-shaped as we’d like, but the downturn will pass much sooner than it did in the 1930s. Admittedly, this is cold comfort for the many Albertans who are wondering when—or if—their jobs will return. But while comparisons to the 1930s may help us grasp the magnitude of the economic contraction, Canadians need not fear the levels of poverty and destitution that marked the Great Depression.
A note on COVID-19: The COVID-19 pandemic is having a major impact on the economy here in Alberta and around the world. The Owl will report on these impacts when good information is available while continuing to track regularly scheduled releases of economic data and long-term trends. Please go to atb.com for COVID-19-related updates from ATB Financial.