In the week of March 28, 6.9 million Americans filed for unemployment, a record number in that time span. The short term effects of COVID-19 have already been devastating, but an economic breakdown around the world that’s centered around the United States is coming. The COVID-19 pandemic shut down the world economy in mere weeks, catastrophically shocking the world economic market. Most industries stopped instantly, in particular the travel, tourism, and sports industries cancelling activities and events. With life as usual halted across the globe, these industries have no way of operating business as usual and have been forced to find new ways to stay alive. For example, airline industries are now requesting money from the U.S. government to cover their costs during a period of little revenue.
On a local level, many small businesses are suffering to stay afloat. With people stuck in their homes following shelter-in-place orders, consumer traffic has significantly decreased and business owners have to find ways to maintain their rent, food, and other essentials without pay.
When a significant market shock happens, the world economy is forced to adjust suddenly. When a shock like COVID-19 occurs, supply drops as factories and shipping companies around the world halt. Demand then decreases as people scramble to save money. Prices may stabilize after they initially change, but the lost income for distributors will cause them to need to raise the price of products even with a drop in demand. Drops in both supply and demand will lead to a collision that changes the world market drastically and will have unforeseen consequences. As Nelson D. Schwartz, a writer for the New York Times, wrote, “The American economy is facing a plunge into uncharted waters.”
As demand drops for many goods, it also skyrockets for some specific products. Lora Jones, David Brown and Daniele Palumbo, writers for the BBC, said, “Supermarkets and online delivery services have reported a huge growth in demand as customers stockpile goods such as toilet paper, rice, and orange juice.” This is causing problems for distributors such as Amazon, which, especially with limited warehouses due to cautionary shutdowns for COVID-19, are now struggling to fill orders on time.
One repeatedly made comparison between the COVID-19 crisis is the 2008 financial crisis. Both events featured massive drops in the economy and massive increases in unemployment. However, there are a few big differences: the 2008 financial crisis was caused by deep flaws in the U.S. financial system, in particular with banks, while coronavirus is a system shock. One key difference is that our economy is much more integrally structured than it was in 2008, meaning that while it will be incredibly hard to recover, we will have to recover using different economic policies than the ones used in 2008 and use more bailouts of small business rather than banks. In 2008 the reason the economy collapsed was because of faulty practices in the financial industry, meaning there was something wrong with how the U.S. practiced finance that needed to be fixed. In this case, it is simply a large shock to the economy that will have to be addressed in different ways and the economic recession was not caused by a revealed issue in today’s economy.
This shutdown is going to affect individuals everywhere. Millions have already lost their jobs and millions more will. Income levels around the world have dropped, leading to bankruptcy and countless other things that happen when income flow stops yet the prices of necessary items remain the same or even increase as demand surges. This means that anyone working paycheck to paycheck will have to scramble to find a way to survive, and even the people who don’t live paycheck to paycheck will have to consider their economic future, which at this point is blurry for the entire world. It will remain to be seen if the $2 trillion dollar stimulus package passed by Congress will help the situation.