I think perhaps the best way to contrast the prior recession and the one we will be entering is the difference between the old credit cycle (ABC) theory and real economic shock recessions, as you seem to be doing.
I’m not as convinced the real shock will be the hit to the labor markets or even really a lack of aggregate demand. I suspect the way it will pay out will be closer to the post WWI and then great depression era type shocks. These were huge shocks to the global economic order and supply chain structure of that time. The pandemic is having a similar impact to global economic trade and relations, at a time were pressure on the existing structure was already starting to show where the cracks and fragile points lay.
While clearly Say’s Law does apply, and those that lose the market to sell into may lose their ability to express demand for other peoples output—and that will then cascade. But I would expect the response to that would be reallocation of domestic resources into increasing supplies for those lost imports. Additionally there will likely be more politically and geographically aligned trading blocks. Perhaps the implication there might be some shifting in the margins for where countries or regions are able to define their comparative advantage in trade.
Rebuilding the economic nexus (from any one countries perspective) will take some time. One might also expect that aspects of both economies of scale and perhaps scope will require the notch down in overall productivity/value creation in production due to higher average costs. But over time that will spawn new technology and so may be a wash. (I’ve been one of those who has not been fully on board with the whole globalization theme as a good plan. It is the easy path forward but is more fragile. A less integrated world economic structure will be more robust in the face of a greater set of shocks. I also think people will find ways to be as efficient as we have been up to now so overall wealth for the world will be close to the same.)
I think perhaps the best way to contrast the prior recession and the one we will be entering is the difference between the old credit cycle (ABC) theory and real economic shock recessions, as you seem to be doing.
I’m not as convinced the real shock will be the hit to the labor markets or even really a lack of aggregate demand. I suspect the way it will pay out will be closer to the post WWI and then great depression era type shocks. These were huge shocks to the global economic order and supply chain structure of that time. The pandemic is having a similar impact to global economic trade and relations, at a time were pressure on the existing structure was already starting to show where the cracks and fragile points lay.
While clearly Say’s Law does apply, and those that lose the market to sell into may lose their ability to express demand for other peoples output—and that will then cascade. But I would expect the response to that would be reallocation of domestic resources into increasing supplies for those lost imports. Additionally there will likely be more politically and geographically aligned trading blocks. Perhaps the implication there might be some shifting in the margins for where countries or regions are able to define their comparative advantage in trade.
Rebuilding the economic nexus (from any one countries perspective) will take some time. One might also expect that aspects of both economies of scale and perhaps scope will require the notch down in overall productivity/value creation in production due to higher average costs. But over time that will spawn new technology and so may be a wash. (I’ve been one of those who has not been fully on board with the whole globalization theme as a good plan. It is the easy path forward but is more fragile. A less integrated world economic structure will be more robust in the face of a greater set of shocks. I also think people will find ways to be as efficient as we have been up to now so overall wealth for the world will be close to the same.)