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The Great Depression of the 1930s was a defining trauma of the 20th century and a low point against which every recession is compared. The recession saw 36 million people file for unemployment in the US alone, but this figure has already been surpassed following the fallout of the coronavirus pandemic.
An MIT economist now believes the global economy could be about to enter unprecedented territory.
We are in a really dire situation
Professor Daron Acemoglu
Professor Daron Acemoglu told Express.co.uk: “The economic impact of coronavirus has been terrible.
“We’re having the worst job crisis of definitely the last 90 years, but perhaps in terms of the job aspects, it may be as bad as the Great Depression. And I don’t know when the end will be.”
The economist also revealed the worst-case scenario is worryingly plausible.
He said: “The worst-case scenario is several-fold.
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“If the supply chains of major companies collapse, that would really lead to a very prolonged recession because you cannot return to normal.
“You can have 20 percent unemployment or more for quite a long time.
“You can have global demand dry-out, which could prolong all of this even longer.
“So a great depression like several years is not out of the question if we continue to mismanage the crisis.”
Professor Acemoglu believes poor leadership at both a governmental and institutional level is responsible for the economic consequences.
He said: “I think the bad, faulty and inconsistent response to it, especially in the US, the UK and some other countries raises every possibility that there might be a second wave.
“And that could be quite bad both for triggering additional lockdowns and also damaging consumer surplus and supply chains in the economy even further the already extremely strained supply chains.
“So, I think we are in a really dire situation.
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“Don’t get me wrong, the pandemic was a huge and a colossal shock, but I think a lot of the fallout is also because of our bad response to it, partly because the institutional expertise – especially in the US and to some degree the UK – has been eroded due to a variety of political changes.
“It’s was pitiful to see, for example, the CDC’s (Centre for Disease Control) response in the US fall so short.
“The fact the US, a country that spends 18 percent of its GDP on health care, cannot scale-up testing and get ready in time.
“The CDC didn’t raise the alarm bells or get the President to listen in January when it was quite clear measures needed to be taken.
“The list is way too long, but these institutional failures have meant we are now in a situation between a rock and a hard place. So I do not see the end in sight.”
However, although critical of the West’s reaction to the health crisis, the expert thinks the economic response has prevented the pandemic from creating even more pandemonium.
He said: “On the one hand, all of these policy mistakes, especially from the Trump administration, CDC, WHO (World Health Organization) and partly the UK as well are to be noted.
“On the other hand, the economic response so far has been very good and that has prevented the worst from happening.
“If policymakers hadn’t intervened in the tripartite way that they did: liquidity by cutting interest rates, support for most vulnerable people in society through unemployment insurance and other means, and support for companies so the supply chains don’t completely collapse through bankruptcy – they couldn’t have saved us from the worst effects.”
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