As of late February, COVID-19 spread from China across the world, reaching many major European nations and the United States. Social distancing, the best-known approach to combat the spread of disease, was put into effect by the United States, as well as most European nations. The United States, Italy, and China missed the “early window,” the period in which social distancing would most effectively prevent major spread. Thus, social distancing is currently being extended into early May as the disease proliferates.
In a nutshell, the stock market crash that started on February 20th resulted in liquidity shock and financial stress. It became increasingly difficult to trade liquid assets like stocks for cash, impeding all types of investments. Without investments, many companies face financial deficits resulting in problems amassing capital, the means of production, and pressure on central banks (Carlson Szlezak et al). Between financial deficits and capital problems, the market economy saw a decrease in supply, a drop in consumer confidence (and therefore, spending), and widespread layoffs. These problems, compounded by social distancing, grew tremendously.
Social distancing by nature puts the world in a state of recession, suppressing economic growth and activity. The economy is currently “frozen” and many businesses can not profit or operate (Carlson Szlezak et al.). About 3.28 million people filed for unemployment this past month. Consumer spending makes up about 70% of the United States’ GDP, and with many people’s jobs at stake, there will be a significant decrease in consumerism; already early figures have noted a drop of at least 8%.
There are a few methods to combat the effects of this recession. On March 25, the Trump administration passed a bill to spend $2.2 trillion to stimulate the economy by giving loans to businesses and giving $1200 checks to citizens making $75000 per year or less. This package also increases unemployment insurance benefits. The stimulus bill is meant to cushion the blow for middle and lower-income citizens who were hit especially hard by the recession. Early signs from the stock market were positive, and subsequent Congressional actions have helped the market recover half of its substantial March losses.