How the 2008 and 2020 recessions will be different, and why that matters

With the likelihood of a recession caused by the coronavirus outbreak, lawmakers have begun talking about remedies that will sound familiar to anyone who lived through the Great Recession of 2008: stimulus checks, assistance to hard-hit businesses, and moves by the Federal Reserve.

But economists say the upcoming recession is actually quite different from the Great Recession — and that will have consequences for the policy response.

What are the differences between the 2008 and 2020 recessions?

Experts told us the 2008 recession was caused by a lack of demand after the bursting of the housing bubble sent construction plummeting. By contrast, the current crisis was not caused by pre-existing economic weakness. Instead, the impending recession stems from a health problem and the fear of contagion.

This is an important distinction for several reasons:

It’s a rare cause for a recession, so there’s no ready game plan. The last time this happened was the recession that followed the Spanish flu of 1918. But the times were very different in terms of the economy, medical knowledge and technology. So there is no ready model for policymakers now to follow.

The contraction is happening with unusual speed. In the recession of 2008, a slowdown in the housing sector began as early as late 2005. In the current crisis, the shutdown of big parts of the economy is happening over just a few weeks.

Social distancing has a unique effect on the economy. The response to the coronavirus has been to keep people physically apart, which makes it difficult if not impossible to spend money, at everything from shops to restaurants to theaters to travel-related industries. Even people who have kept their jobs are likely spending less.

More businesses in more economic sectors may fail now. In 2008, no sector of the economy had to completely shut down. The current crisis, however, has left service-oriented businesses, such as restaurants, with no customers.

The current downturn has the potential to be temporary. There’s still deep uncertainty about how quickly the pandemic will pass, especially if second and third waves of infections emerge, requiring future rounds of social distancing. But once the epidemic passes, there will be pent-up demand. This offers hope for a better scenario than what played out after the Great Recession.

How do these differences affect the economic solutions?

The economists we interviewed offered these ideas for responding to the coronavirus crisis.

Short-term payments. We found widespread support among economists for cash payments to people and businesses, though also a clear-eyed understanding of the limits of that approach. In a conventional recession, handing out stimulus money helps people spend quickly. But there are limits to how effective giving out cash can be at a time when people are required to stay in their houses most of the time.

Loans or other assistance to businesses. These payments could be aimed broadly, or at certain sectors that are particularly hard hit. But if businesses get aid, experts said, it needs to be targeted for the benefit of workers, rather than executives.

Federal Reserve moves. The Federal Reserve can use several levers in a crisis. We go into greater detail on those levers here; they include signaling about future interest rates, asset purchases, and helping financial institutions with loans or guarantees.

Housing cost relief. One idea now being tried in hard-hit European countries is pausing all payments for mortgages, rents, and utilities. For most people, the cost of housing and utilities makes up a significant share of their disposable income. If what they owe drops significantly, then the financial pressure from getting laid off declines, particularly if the unusual nature of this recession means that something approaching normal returns quickly.

The Latest from PolitiFact

  • The National Guard is not coming to quarantine you: A widely shared text message says that the federal government is “preparing to mobilize the national guard,” “dispatch them across the US with military” and “announce a nationwide 1 week quarantine for all citizens.” This is False. State and local governments retain the power to quarantine Americans within their own borders. On the federal level, the Department of Homeland Security can screen and quarantine individuals reentering the U.S. from other countries. But forced quarantines are historically rare, and most infected people are allowed to self-quarantine.
  • How long the coronavirus survives on surfaces: The 2019 coronavirus can live for “up to 3 hours in the air, up to 4 hours on copper, up to 24 hours on cardboard up to 3 days on plastic and stainless steel,” says a recent Facebook post. We rated that Mostly True. Aside from air, the worst surface for the virus is copper; researchers could only detect viable virus particles there for up to four hours. On cardboard, they could not detect any after 24 hours. The coronavirus lives the longest on plastic and stainless steel — up to three days. This research is still being studied, however.
  • Is there a link between COVID-19 and blood type: A research report showing a possible link between blood type and the likelihood of contracting coronavirus has been written up in various mainstream news publications, and it’s getting some play on social media, too. The basic claim is that people with blood type A are more likely to contract the novel coronavirus. We’re leaving the statement unrated for now — the study that is the basis for the claim was not peer reviewed or published in a scientific or medical journal. Experts caution against immediately accepting the its conclusions.

PolitiFact Behind the Scenes

Like you, we’re worried about our loved ones right now. Most of us are working from home. We’re avoiding large gatherings. Some of us are trying to figure out child care. And yeah, we’re feeling a little stir crazy.

Like you, we want accurate information so we can make smart decisions during the coronavirus pandemic. But we know it’s hard to come by on your social media feed.

The good news is we’re in a position to help separate the good information from the bad. Our journalists are here to help — and trained to vet information in a crisis. We partnered with Facebook long before the outbreak to fact-check hoaxes. That work has never been more important as fake coronaviruscures, false news reports and conspiracy theories continue to spread.

When misinformation is rampant, and secret algorithms are built to keep our adrenaline pumping, we’re here. What’s more, our fact-checking is free for everyone in the community to read and share freely.

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