The Effects of an Economic Recession
Nick McFadden
An economic recession can shake an economy and turn it upside down. An economy can be thriving and everything can be looking great until shortly after, a recession hits and the economy sinks. What is a recession? A recession is when the economy slows down for about 6 months. Usually we don’t know we are in a recession until it’s been going on for a while. In fact, we experienced an economic recession this year as COVID-19 hit. According to CNBC, The National Bureau of Economic Research declared in early June that there was officially a recession in the United States. Before the current recession, the most recent recession in the US was between the years 2007-2009. Causes of recessions can be inflation, major crises like a war, pandemic, or natural disaster, when interest rates get too high, or the prices of houses become more than their actual value. Every now and then, something tragic can happen to the economy like a recession and the effects can not be understated as individual people, families, and the state of the economy overall all experience the effects of a recession.
Recessions affect individual people and families and can change someone’s life forever. According to BBVA, during a recession you could earn less money, you could be laid off as unemployment rates rise during recessions, and your debt might build up. Rare cases cause people to actually see benefits during a recession. This shows that everyone is affected differently. People who live paycheck to paycheck without money saved for a rainy day might find scary things happen to them during a recession. If someone in this situation earns less money from a recession, then they might not have enough money to pay for their essentials in life. They might struggle to pay for food and water. They also might struggle to pay their bills. This is problematic is this can lead to someone losing prized assets like a car or a home. Losing a home is life changing as you would need to find a new place to live. You might have to live in a different city then, and that might mean a family has to send their kids to a different school. This could result in kids getting a different education and leaving friends from their old school behind. As we can see, the effects of a recession can negatively change someone’s life as they know. However, some people might see the opposite result. According to Business Insider Jeff Bezos, founder of Amazon, saw his wealth raise by a staggering $48 million during the current recession from the COVID pandemic. One reason for Bezos seeing such large benefits has been because Amazon has seen a huge surge in their sales. People have been at home more during COVID so it makes sense that online orders are increasing while people are isolated in their homes. For many Americans the pandemic has had a negative financial impact, however for Bezos his wealth skyrocketed. This shows that individuals can see different effects from a recession.
From a recession, individuals and families experience effects like I mentioned earlier. But those effects come from the economy as a whole being damaged. These big picture effects to the economy include high unemployment, a stock market crash, higher poverty rates, less opportunity, and investments could be gone well. Some of these macro numbers show the state of an economy and when these numbers are not where they should be during a recession that is a problem. The graph above from statista shows the unemployment rates going back the year 1950. We can see that in May of 2020 during the latest recession it was 13.3% which is an alarming rate. This was caused by the pandemic which sparked the economic recession. Another big picture effect during a recession is the stock market. We saw the stock market crash this year in 2020 and in 2008. Looking the graph to the left from Passive Income M.D., we see the stock market crash from 2008 and the effect that it had on the Dow Jones industries shares. According to Wealthsimple the DowJones average fell 777.68%. This affected the economy as a whole and the investors that had shares of stocks. Those investors likely lost a lot of money because their stocks were not worth nearly as much. Also, people who invested in a retirement savings account like a 401k can lose half of their money in their 401k during a recession. The economy as a whole can take a huge hit from a recession.
An economic recession can happen when we least realize it, but as we know the effects can be devastating so we should always be prepared for when a recession is coming. With tragedy hitting in situations like these you can take steps to put yourself in the best spot possible like locking in a 401k so you don’t lose money you invested. But other things are out of your control like if your company is letting people go and you lose your job. When a tragedy like an economic recession happens you should be prepared for the worst but still hope for the best as often the economy is scarred and takes time to recover.
Works Cited
Jackson, Nancy Mann. “Nancy Mann Jackson.” BBVA, 22 May 2020, www.bbvausa.com/moneyfit/savings-and-budgeting/what-is-a-recession-and-what-might-it-mean-for-me.html#:~:text=A recession is when the,income levels feel the impact.
Leonhardt, Megan. “The U.S. Is 'Officially' in a Recession-but Economists Say It's Far from a Typical Downturn.” CNBC, CNBC, 9 June 2020, www.cnbc.com/2020/06/09/us-officially-in-a-recession-but-its-different-than-2008.html.
Lusk, Veneta. “The Market Crash of 2008 Explained.” Wealthsimple, www.wealthsimple.com/en-us/learn/2008-market-crash#:~:text=The 2008 stock market crash took place on Sept.,of the bank bailout bill.
Woods, Hiatt. “How Billionaires Got $637 Billion Richer during the Coronavirus Pandemic.” Business Insider, Business Insider, 3 Aug. 2020, www.businessinsider.com/billionaires-net-worth-increases-coronavirus-pandemic-2020-7.
Www.facebook.com/passiveincomemd. “S&P Stock Market Crash 2008.” Passive Income M.D., 13 Mar. 2018, passiveincomemd.com/how-i-lost-over-100000-on-a-hot-stock-tip/sp-stock-market-crash-2008/.
It was interesting how you looked at a lot of different effects on a recession instead of just specifically looking at one. This helps see the big picture effect of recession. As you pointed out Jeff Bezos made money during the pandemic. It’s important to look at the big picture because if we only looked at it from that point of view, then you might think that a recession is actually good. Usually recessions are rare and don’t occur too often. However, in the last 15 years, 2 recessions have occurred. This makes you question whether this could become a new trend or whether it is just a coincidence and we’ve just gotten really unlucky in the past few years. I think that it's more likely that this is a coincidence, but if it is a trend, then the government should become more prepared on how to deal with these recessions if they are going to become more frequent.
ReplyDeleteI really liked how you not only talked about short term affects, but also long term affects, as that was what I was really curious about, as economic recessions may cause higher unemployment rates, and take away savings, etc. but I wasn't sure exactly how it may affect the average day to day person in the long run, or the economy as a whole. I also liked how you talked about the flip side to the story, which is how some people actually benefit from the recessions (ex. Jeff Bezos as you talked about or others like Elon Musk.) Not only that, but learning how and why they actually could benefit from a recession is interesting, and it's now interesting to not only think about that but now I may start thinking about potential jobs I could take and how they would be affected by a recession (like how would my company do, would I likely get laid off, etc.)
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ReplyDeleteI really enjoyed reading your blog post and think you brought up some really good points overall about economic recessions. For example, how we do not know a recession is occurring until we are in the thick of it. This is very true and seems to be the case most of the time, but in the times of the COVID-19 pandemic we saw downturns happening really fast and how our economy was hurting badly. I also think it was very interesting how you talked about families and how all members of a family can be affected, instead of just a member being laid off. It allows for a deeper perspective of how everyone is affected. Overall, this was very insightful of how people can be affected due to a recession and how a recession can hit you out of left field. This blog post does a really good job of breaking down recessions and the overarching effects of them.
ReplyDeleteI would disagree with you that we don’t know there is a recession until we’re in the middle of one. Of course in November very few people would know the impact that covid had on our lives, but at the start of February some people were predicting the impact of covid correctly. I think you made interesting points about how to handle a recession like investing in a 401K with a life lock.
ReplyDeleteI like how you included the impact of intermediate families members being laid off, or denied pay. This can affect the whole household they are living in. The environment can change based on the income for each member. Overall I think you did a great job of using real life statistics in the recent world. Great job!
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