Understanding the Covid-19 Recession

To listen to an audio edition of this essay narrated by me, click here.

Your brain works fine without new oxygen for a minute or two. But past the three minute mark, you’ll lose consciousness. As each minute passes, 2 million brain cells die, causing increasingly irreversible damage. Once ten to fifteen minutes have elapsed, there’s no turning back.

It works the same way with money. All economic beings — businesses and consumers — can go a little while without income. But wait too long, and the harm becomes permanent. We might have to cancel plans, lay off workers, or lose our homes. And if we go without cash for too long, we’ll shut down.

As everyone now knows, we’re currently experiencing the sharpest cutoff of economic oxygen in living memory. Most recessions are triggered by a financial bubble bursting, like stocks in 1929, technology companies in 2000, and subprime mortgages in 2008. These shocks often feel confusing at first and then bleed slowly into the economy as the effects unfold.