The pandemic and the Wall Street crash anniversary

On the 91st anniversary of the Wall Street crash, what lessons should we keep in mind? The sad event marking the Black Thursday in 1929 that shocked the US commerce and started the greatest wave of unemployed haunts us again in the shadow of the current p

The latter pales by comparison to the social and economic evils unleashed by the sad event in 1929. This is not to underestimate the current damage inflicted by the COVID-19 pandemic and the economic downturn it engendered which boosted the ranks of unemployed Americans to 20.5 million in May. The total number of people claiming benefits in all programmes for the first week in October was 23 million. Some estimate that the future rise in the number of unemployed workers due to COVID-19 is substantially greater than the increase due to the Great Recession, which started from December 2007 to June 2009, when it pushed the unemployment rate to a peak of 10.6% in January 2010, considerably less than the current pandemic rate, according to a new Pew research.

It goes without saying that a number of economists don’t believe the official US unemployment rate as it now breaches the 20% mark and fear it will linger at that level for an extended time, as it did during the Great Depression in 1929. The fragility of the labour market during the pandemic can be masked by the fact that persons are partly working on minimum wage supplements which would otherwise be considered unemployed.

The Malta Labour Force survey for the second quarter indicates that the total employment stood at 259,523 while the unemployed persons stood at 12,031. By elimination, inactive persons totalled 166,861 (38.1%) which is higher than the EU norm. Few do realize that persons working in the public sector including administration, defence, education, human health and social work activities (males and females) amount to 56,030.

Now the 2021 Budget speech proudly inform us that the wage supplement till now saved 100,000 jobs at a cost of €40m monthly. This is a singular fact. Taking into consideration total employment of 259,523 less 56,030 state dependents, this leaves us with a non-public working population of 203,493 − out of which almost half are kept afloat by the wage supplement scheme.

This is a stark statistic for a small island where almost half of the non-State payroll is being furloughed due to the loss of business caused directly by the pandemic. Back to Black Thursday one needs to consider a unique factor when comparing the present unemployment position with the pandemic, is the significance of teleworking in keeping people on the job. The option to telework was not available in 1929, but in 2020 this facility helps considerably across workers depending on their education level.

Let us revisit the events that led to the Great Depression in the so-called Black Thursday of 24 October when investors panicked. History reminds us that when the stock market crashed in 1929, it didn’t happen on a single day. Instead, the stock market continued to plummet over the course of a few days setting in motion one of the most devastating periods in the history of the United States.

Similarly to the job creation schemes introduced in 1929/30, this year the US government unveiled a $2 trillion coronavirus rescue package for struggling companies and employees, which includes loans, equity stakes for government in businesses in strategic sectors and direct cash payments to individuals. While these bailouts might provide interim relief, they will plunge countries, companies and families into debt for years, while we will also have to deal with the social crises of deaths, suicides and mental disintegration for a long time after the coronavirus pandemic.

Another evil after the Great Depression was a rise in nationalism around the world – as a direct result of the financial, social and emotional hardships of the Depression. Obviously there was a collective damage effect since when the market crashed, businesses lost their money, and consumers also lost their money because many banks had invested their money in risky sectors without their permission or knowledge.

Comparing to what happened in the current pandemic last March, there has been a number of politicians (in our case – the motto − go and enjoy the summer − the waves are in the sea) continued to issue optimistic predictions for the nation’s economy. Unfortunately, the second and third wave of the virus raged on relentlessly and today we are seeing both US and other parts of the globe facing increasing levels of mounting mortalities. Similarly, in 1929, the Depression deepened, with consumer confidence evaporated and many lost their life savings.

Business houses closed their doors, factories shut down and banks failed. More recently in the global recession of 2007/8, which has been going on for the past 10 years, the US saw the need to bail out banks and insurance companies by the use of government bailout funds called TARP.

In comparison, it is estimated that the 2007-2009 global financial crisis cost the US around $4.6 trillion in terms of lost growth in GDP, or 15% of its GDP compared to the years before the financial crisis. Another dire reminder is that during the Great Depression, unemployment in many countries hovered around 25%, with one in four people in industrial countries made jobless by it. In the US, 23,000 people committed suicide. In conclusion, the current pandemic is causing individual economies to plunge into recession; businesses will close down and jobs will be lost at similar levels to that of the Great Depression.

Moreover, the pandemic is impacting both industrial and developing countries; whereas the Great Depression was largely concentrated in industrial countries. Critics suggest that governments could ride the wave of post-coronavirus financial and emotional hardships in the same way they did after the Great Depression. There is a caveat. The real danger is that the hardships caused by the coronavirus pandemic will lead to authoritarian governments coming to power in many countries, while those already in power become more entrenched. This needs to be avoided, since governments in a pseudo drive to prevent the virus from spreading start sealing off borders, tracking infected individuals using surveillance technology and restricting people’s movements.

Once this is allowed to succeed then the suffering learned from the Great Depression would have been forgotten and not used as a guidance of the sad anniversary.

It goes without saying that a number of economists don’t believe the official US unemployment rate as it now breaches the 20% mark and fear it will linger at that level for an extended time, as it did during the Great Depression in 1929.