Video transcript

Olga Bitel: As shelter-in-place policies gradually give way to businesses reopening and people returning to their daily lives, we can begin to access the scale of economic damage and form expectations about the path of economic recovery. Sheer numbers of jobless suggest that the current recession will prove to be quiet deep, perhaps even the deepest in modern times. What’s an open question though, is how short the current downturn will prove to be, and how swift the recovery? Economist differentiate recoveries by letters of the alphabet: Will we experience a V, a U, a W, a Z, or an even L-shaped recovery? Looking over the past five decades, we can draw on six episodes of U.S. recessions and recoveries. Here are a handful of observations. First, economic expansions do not tend to die of old age. Four out of six were caused by policies and the remaining two by malinvestment. Next, recessions that originate from malinvestment tend to last longer with more gradual recoveries as investment excess takes time to work off. In hindsight, economic growth during such episodes resembles a letter U. Vs are though the most common growth pattern, but there’s a caveat. V-shaped recoveries appear sharp in hindsight when multiple quarters or even years are compressed into a fraction of an inch of timeline. In real time, economic recoveries tend to feel long and uneven. So what kind of recovery can we expect? With few signs of malinvestment before the pandemic and unprecedented monetary and fiscal policy support since, we cannot rule out that although it will be deep the current recession may prove to be short and that it may be followed by a sharp recovery.