Economic Crisis Is Upon Us
From the beginning, it was obvious that the business shutdowns, home lockdowns, and unemployment turned into living wage of the Pandemic Era was going to create an economic crisis. The question was whether it would be big or small.
And the answer is becoming more and more clear by the day.
This article in the San Diego Tribune tells the story. We are about to get it gooder and harder!
The inventory constraints have led to another phenomenon the auto analysts can’t recall seeing — demand for 1- and 2-year-old vehicles reached the point where some sell for as much or more than their original purchase price.
This article from NBC makes it even more clear!
When it was new, the window sticker price on a typical 2019 Toyota Tacoma SR double cab pickup was just under $29,000. Two years later, dealers are paying almost $1,000 more than that to buy the same vehicle, even though it’s used.
Then they’re selling it to consumers for more than $33,000.
Car sales, housing prices, unemployment trend lines, manufacturing production all tell the tale. We are rapidly heading into (or are already in) a major economic crisis that didn’t have to happen.
Had we continued along the path we were on we would have been looking at a V-shaped recovery. Meaning a very steep economic downturn and a very steep economic recovery. Instead, much like the 2008-2009 financial crisis, we are looking at a very steep downturn followed by a long, shallow recovery. That long, shallow recovery is an economic crisis.
Normally, when we have a recession, the recovery is a mirror of the downturn. But 2009 was not (nor was the Great Depression). And 2020 is already showing the same trend. That could be fixed, but not by the policies coming out of DC today.
This National Bureau of Economic Research graph, from this Business Cycle article, shows what is happening now pretty clearly.
The shaded time period is a recession. The blue line maps unemployment rate. Unemployment is a good proxy for GDP growth (and you would see the same sort of line if we mapped GDP). Now, notice how the line moves.
If we were to map government interventions here, you start seeing a trend. When the government leaves well enough alone, other than some safety net activity, the economy bounces back as fast as it fell. In the 2009 recession, especially, you see a long, slow recovery slope. And you are beginning to see the same line occurring for the 2020 recovery.
Why? Because government intervention negatively distorts economic behavior. Give people enough unemployment to pay their basic bills for 12 months and they will choose not to work. Shut down the ability to sell cars, and people will choose not to build cars. And then you will have no car supply to sell people. As the article I link above illustrates. In fact, I know several people who have sold their 2 year old used vehicles back to the dealership for more than they bought them for, new. This is not healthy economic behavior.
We are at the beginning of a whole new economic crisis that was driven by choices that never should have been made. And then exacerbated by Federal intervention into the economy that was wholly negative. And now the consequences are coming like the tidal wave after the meteor hits.
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