In the fourth episode of Social Distance, the hosts, Dr. James Hamblin and Katherine Wells, are joined by the show’s first guest. With the turbulence of the stock market and the start of stay-at-home orders, what will the pandemic mean for the economy? The Atlantic staff writer Annie Lowrey joins from California to discuss.
Listen to the full episode here:
Some questions answered by Lowrey:
What are recessions usually like and why is this different?
Normally, a recession is something that is generated internally in the economy. So we can think about the recession that followed the dot-com bubble collapsing. There were a bunch of investments that were just crummy investments and people were counting on them coming out. There was just, like, a lot of irrational exuberance about the stock market. And so we needed to correct that. And then there was a lot of economic pain that came downstream.
And what’s different this time is that there’s nothing happening in the economy. You just have, like, like a comet that hit. And in order to solve this horrible medical crisis, we need economic activity to stop.
Many Americans have suddenly found themselves without jobs or more insecure in their jobs. What do they need?
We need some kind of cash stimulus to families. One idea that’s gaining momentum is just sending everybody a $1,000 check. And I think that that is a really smart proposal. Don’t try to solve everybody’s problems; give them resources to solve their own problems.
And then we’ll probably also need pretty significant aid to businesses. So businesses are going to be forced to lay workers off. And so we want to expand the unemployment-insurance program and things like food stamps just to get families cash and help them out. And then we’re going to have to help those businesses, probably with very-low-interest-rate loans and possibly other policies. So you need a complicated set of responsive economic policies to come into place really fast. And that is hopefully what is happening in Congress. But I think there’s a lot of concern that it’s going to be too slow and too small.
Will this be worse than the 2008 recession?
I think ultimately it will just be very different. There is no reason that this should be anything like that in terms of extended job losses and people losing their houses. I mean, it was a big recession complicated by a financial crisis. And hopefully, fingers crossed, if we get the economic policy right, this is going to be horrible and sharp and quick.
The Dow just closed and had its second worst day in history. You wrote a week ago that the average person should ignore financial news and not touch anything. Does that still stand?
Yeah, it does. If you need your money that’s currently tied up in the stock market in the near term, you probably want to go talk to a fee-only financial adviser about what you should do. But if you are on any kind of longer horizon, you can just stick to your plan and ignore this. You can just not look. In my group text with my friends, I told people they should make a commitment not to look at their 401(k)s for a year or two years. Just don’t look, right? Just forget about it.
The issue is that people panic and they pull their money out of the market and put it in cash. And there’s two issues with that. So one is that we’re already in a bear market. We’re already down more than 20 percent. So you’ve already lost 20 percent of your value. And you don’t want to be pulling the money out when everybody else is pulling it out. And the second is that it’s really hard to know when to put it back in. So even if you have panic-sold and now you have cash, like, are you going to be able to figure out when one is a good time to buy? If you are on any kind of long-term time horizon, volatility in the market is just part of being in the market. It is part of holding investments. You can just not look. Just don’t look.