Ask HN: How bad will the 2020 economic crisis be?

I found this article to be insightful re the economic impact: https://www.economist.com/business/2020/03/21/much-of-global...

I’m an economist and I wish I had some guidance to offer, but unfortunately I have none. I’m struggling to get a grip on this situation.

Firstly, though I have not worked there for six months or so, I am Italian (from Milan, in the north, the worst-hit area). The economy there has basically shut down. Consumer spending has collapsed, production has collapsed, and logistics are increasingly untenable.

What can we expect? Six months of this (and some people are projecting up to eighteen months) are going to shut down demand. There’s a term going around now “demand destruction” — I’m not going to pretend to know more than I do, so I’ll admit forthright that I had never heard it until a few weeks ago — that seems to meet the requirements here.

It’s uncertain whether the supply side of the economy will be similarly affected. Probably yes, as governments curb production to slow the spread at the workplace.

Even three months will be dreadful.

Now, let’s think of a few things: governments are stepping in with public support to support businesses, provide liquidity, and support workers that do not have income. That means debt. That means interest payments in future, for those businesses that are fortunate enough to survive. Taxpayers will be on the hook for decades.

The situation is so severe that German economists are proposing a 1 trillion euro Eurobond issue to help support the economies because the southern economies cannot hope to cope with this.

I guess I’ll sum it up thusly: this might turn out to be a “great pause”, but economies and demographics cannot idle without incurring enormous financial costs.

I've heard economic forecasters predict that the economy will spring back once the crisis is over. Their reasoning is that the crisis is an external issue, not a problem with the economy itself, as with the housing crisis. Once it becomes more contained and controlled, there will be work for people to do, and people available to do that work, and the economy will just start humming along again.

I'm more pessimistic. The extent of the layoffs, even if temporary, is just too large to not have a lasting impact. What happens when people with inadequate emergency savings get laid off and can't pay their bills? There's a cascading effect. Maybe they owe a landlord with inadequate emergency savings who now can't pay his mortgage. Maybe they owe a bill to a small business operating on small margins that can't stay afloat. Maybe they owe a corporate behemoth that has aggressively taken on debt and now needs to lay off a bunch more people to be able to pay off that debt. The federal government's mortgage deferral solution might help homeowners, but it's not going to solve the problem that people are going to continue to need to buy things and not have the money to buy them. Even those of us who are fortunate to have some emergency savings will see those savings dwindle down if we're laid off.

And keep in mind that in a lot of cases, when people lose their jobs in the U.S., they also lose their health insurance. Not a great position to be in during a public-health crisis.

I am absolutely certain that the OP is correct, I don’t dispute it

But telling somebody who is managing a 40-people firm facing 20x revenue drop that “it might work out as well as the Black Death did” is... kind of missing the whole point, to be perfectly accurate.

The individual countries of the EU have not coordinated on this whatsoever and I can't see it remaining in its current form post-crisis. We're probably looking at a more loosely-defined trade union and a trend away from further integration. I'm not sure if this will be good or bad for the European economy, but it will certainly affect it in the short-term.