Data released by the US Bureau of Labor Statistics on Friday shows that 20.5 million US jobs were lost in the month of April alone, causing the unemployment rate to skyrocket to 14.7%. In contrast, in February the percent of the active workforce not employed was a record low of 3.5%.
White House economic adviser Kevin Hassett warned Sunday that the US unemployment rate could go beyond 20% due to the COVID-19 pandemic.
“By saying that people have to stay at home, have to isolate, you have cut out something on the order of at least 25% of the economy. If you look at the sectors directly which are affected by the virus … you can’t go to a restaurant, you can’t hop on a plane - it totals up to about 24% of the economy,” Keen, the author of “Debunking Economics” and the world’s first crowdfunded economist, told Radio Sputnik’s Loud & Clear Monday.
“It’s not going to stop at 20%, and the only way you can turn it around is by providing an alternative cash flow,” Keen pointed out to host John Kiriakou.
“Now, that’s quite feasible. The government could give people the money they need to pay for their basic expenses and not to go financially flat during the lockdown. But what’s actually happening, because people are expected to pay their costs when they have no income, they’re going to come off this with no cash flow whatsoever and be unable to shop. The only way to stop it is by the government creating the money in the meantime,” he continued.
The Great Depression, the most devastating economic downturn of the industrialized world, which lasted from 1929 to 1939, caused US unemployment levels to surge to an estimated 25%. During an appearance on CBS’ “Face the Nation” Sunday, Hassett acknowledged that the US could see some of the worst unemployment rates in history.
"Right now, looking across the US, there are more than 30 million people that are getting initial claims from unemployment insurance, and that's the biggest negative shock to the jobs market that we've seen since World War II," Hassett said.
There are some similarities between the economic downturn caused by the coronavirus and the Great Depression. However, there are some differences as well, Keen pointed out.
“The coronavirus is totally unprecedented in terms of the economy being smashed. We’ve not only had the financial sector causing a crash and then hitting the real economy. If you look back at the Great Depression, that was preceded by the roaring 1920s. And people don’t realize this, but one of the reasons the 1920s roared is that margin debt went from being 1% of GDP [gross domestic product] in 1920 to 12% by 1930, meaning people had taken out loans gambling on the stock market,” he said, adding that the ensuing crash primarily affected those who had invested money in stocks.
“This time around, it’s actually the people who don’t gamble on the stock exchange … They’re the ones whose demand is being taken out of the equation. The financial sector and the investment collapsing, it’s about 30% of the economy. When you pull people out, as we have with the coronavirus, that affects about 70% of the economy. So, it’s a much, much larger hit,” Keen noted.
“But the thing which is common is that in both cases, in the Great Depression and now, we have a higher level of private debt than we’ve had in any time in America’s previous history,” Keen explained.
"People were financially fragile during the Great Depression; they couldn't take that 12% hit. This time around, the high level of private debt is actually higher than at the very worst point in the Great Depression. So people have got financial commitments they need a cash flow for, and their cash flow has been destroyed,” he said. “We’re going to have a financial crisis if we don’t do the only thing we can do to stop it, which is to pump government money.”
The Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion bill signed into law by US President Donald Trump on March 27 which was supposed to protect the American people from the economic impacts of COVID-19, has been criticized for not helping the average American. A new report by the Institute for Policy Studies has found that between March 18 and April 10, the collective wealth of American billionaires increased by $282 billion, or 9.5%, while tens of millions of Americans are losing their jobs.
“The Trump administration should be giving out money to workers. It should be giving money to small businesses so they can meet their rents, pay their debts. That’s where it should be going. By giving it to the corporations, they are doing the same thing they did after the 2008 crisis. They gave it to the big companies, and they gave it to the banks … to keep the big corporations going. But the big corporation can’t work without the small person walking through the front door and shopping, and if you don’t provide that to them, this is going to fall over,” Keen noted.
The US may have to revert to domestic manufacturing instead of globalized production, Keen added. However, it is still far too dangerous for Americans to go back to work.
“You have to bring manufacturing back on shore, and this [the pandemic] gives you an added reason, because if we actually had regional-based production rather than globalized production, this would have occurred in the Asian region and would have spread very slowly to the rest of the world,” Keen explained.
“I think it’s very dangerous [for Americans to return to work now]. You still have an enormous level of contagion of this disease,” Keen added.