A pink piggy bank stands on a blue medical background in a medical mask.
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Watch Robert Goulder, contributing editor at Tax Notes International, and Joseph Thorndike, director of the History Project at Tax Analysts and contributing editor at Tax Notes Federal, discuss economic parallels between the coronavirus pandemic, the Great Depression, and other key moments in U.S. history.
Here are some highlights…
On whether we are facing another Great Depression
Joseph Thorndike: What makes me think of this in terms of a depression is, and this is not in the official definition, but is unemployment. People don’t have jobs [and] that’s real human suffering… in a way that’s really palpable. What we’re seeing right now is unemployment on a scale that is truly almost unimaginable. It is unimaginable for almost everyone alive today . . . We don’t really even know what the numbers are, but the numbers are huge . . . At the high end, [the numbers] exceed the Great Depression of the 1930s and at the very least, they’re matching the numbers of the 1930s.
[However], the depression is, in many ways, not the best point of comparison for what we’re going through right now because it came from different sources, and it proceeded and unfolded in ways that are probably not going to be the same as what we’re going through right now . . . Particularly, it was very slow in terms of the recovery, and there are reasons to hope that our recovery now will be faster.
On the long-term deficits
Joseph Thorndike: When you go out and you poll Americans, they do care about deficits but it’s never their top priority. I don’t think that deficits don’t matter at all. I just don’t think that they are anyone’s top priority or any voter’s top priority, [and] certainly no politicians’ top priority. We’re not going to pay for this over the short term. I think over the long term we will pay for this at some point. The conventional wisdom among economists is that at some point the bills do get paid, but the reckoning is potentially a long way off. I suspect that this reckoning is a long way off. What’s really important here is the severity of the problem. The real danger here is austerity. It’s pulling back too fast . . . The danger is that we don’t do enough to ameliorate it right now and that the economy hobbles along for years and years at subpar levels.
What we’ve learned [from history] is go big or go home, right? If you’re going to try to spend your way through a recession and . . . into recovery, you have to be fearless about it. You have to spend enough to make a difference. Otherwise you just get to spend enough to go into some debt and not really get yourself . . . right.
On recovery spending and small government advocates
Joseph Thorndike: I believe that that instinct for small government is real and . . . you can discern it in various periods in American history. A certain suspicion of bailouts is not terrible for democracy. The thing about bailouts is that they may be necessary in the moment. 2008 is a good example of this. Maybe we needed to bail out Wall Street to prevent a total meltdown and a total disaster. It seems, in retrospect, pretty clear that Wall Street got off pretty easy this way, right? At the same time, it might’ve been necessary in the moment. The question becomes—do you have to accept some of this injustice, some of this unfairness, and some of this cronyism in order to . . . save the country? I think that’s a live debate. It’s reasonable for people to be on different sides of that.
For my money, I think those bailouts were necessary. I think that if you believe that Wall Street got off easy, the time to fix that is after the crisis. Looking back at the Great Depression, a lot of those systemic reforms, they weren’t done in the moment. They had in the moment things that they did . . . to relieve unemployment and whatever else. They also did systemic reforms that they took more time with. I think that’s the way to do it. You do systemic reform after the disaster has passed.
On income inequality and the recovery process
Joseph Thorndike: What really makes the difference is how we spend our money, not how we raise the money. I’m never convinced by the boogeyman threat of progressive taxation . . . destroy[ing] the growth engine. It doesn’t do that, but neither is progressive taxation the great solution to inequality. At some point we have a reckoning with all this money we’re spending. At some point the financial and bond markets are going to be uncomfortable with all this money that we’re borrowing. We’re going to need to make a good faith effort to get our fiscal house in order. Realistically speaking, that’s not going to come just from raising taxes on corporations and the corporate income tax or raising the estate tax rate. It’s not going to come just from raising individual income tax rates on rich people. It’s going to come from more broad-based taxes. Inequality is a big problem. The pandemic will end before the inequality problem ends. We’ll see how the pandemic changes the politics.