Not all recessions are created equal. And as our current pandemic-fueled recession drags on and coronavirus cases continue to surge, fears of a “double-dip recession” are mounting.
So what does that mean?
“A double-dip recession is when a second recession begins before the recovery from the first recession is complete,” said Martha Olney, a teaching professor of economics at the University of California, Berkeley.
Picture the economy beginning to recover from a recession, only to be interrupted by another downturn — potentially even worse than the initial slump.
“The analogy I like to use is when you’re in the hospital and you have surgery, you come out of surgery and you’re in recovery and you’re making progress, and then all of a sudden you have a relapse,” Olney said.
The good news is that double-dip recessions are relatively rare. The last time the U.S. experienced one was nearly 40 years ago, in the early 1980s.
“The first part of the double-dip recession starts at the end of 1979, early 1980. And that’s related to interest rates being quite high in response to the second OPEC crisis, which again, drove gas prices and inflation very, very high,” Olney said.
In an attempt to curb inflation, the Federal Reserve raised interest rates, which triggered a recession. That’s the first dip.
In response, the Fed lowered rates and the economy started to recover.
But this wasn’t happening in a vacuum.
“Now, remember that 1980 is an election year. Ronald Reagan was elected the first time in November of 1980. And then early in ’81 and into ’82, under the new administration, when the battle was to really kill the inflation, the interest rates were raised even higher,” Olney said.
The federal funds rate — a key lever the Fed uses to influence interest rates — was over 20%, which stalled the recovery and brought the economy into another recession. That’s the second dip.
Which brings us to the current conversation in Congress about the next stage of economic relief — at a time when the number of people receiving unemployment benefits has topped 20 million for months.
“We know, for instance, that the unemployment insurance that people have been receiving is running out at the end of December. And so there are some serious headwinds coming in January of 2021,” Olney said.
Headwinds that include the protections against foreclosures and evictions expiring, aid to state and local governments running out and the likelihood that many of the jobs that have been lost during the pandemic aren’t coming back.
Are states ready to roll out COVID-19 vaccines?
Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.
How is the service industry dealing with the return of coronavirus restrictions?
Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.
How are hospitals handling the nationwide surge in COVID-19 cases?
As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.
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