The World’s First Affluence Recession

The World’s First Affluence Recession

The pandemic is making Americans poor—precisely because of the way they were rich.

The modern economy has been immune to infectious disease—until now. Epidemics in the modern world have ruined hopes, debilitated bodies, and claimed tens of millions of lives. This the first epidemic in American history that has also caused an economic crisis. Between April and June, about $2 trillion of economic activity in the United States came to a halt. Adjusting for changes in prices, that was nearly one tenth of gross domestic product. Even though public-health authorities and ordinary people took similar steps to stop past epidemics from spreading, none had remotely comparable effects on the economy—not cholera, which struck repeatedly in the 19th century; not the fearsome bubonic plague, which visited San Francisco in 1900; not even the so-called “Spanish” influenza that arrived in the United States in 1918 and killed tens of millions internationally.

What has made this pandemic unique is that for the first time, consumers worldwide can afford to spend a significant share of their incomes on non-essential goods and services. Much of their consumption has become optional, and rather than risking death to buy a Frappuccino, they’ve chosen to stay home. Others would like to go out, but public-health authorities have ordered non-essential businesses to close. Because the discretionary share of consumption has expanded, the choices about non-essential business that governments and individual consumers make in response to pandemic disease have become an economic problem.

The shift in the makeup of economic activity is due to decades of transformative economic growth. Previous epidemics did not cause economic crises because most consumers were poor by today’s standards, and their discretionary spending was minimal. The overwhelming demand for necessities such as food and clothing, which neither households nor governments could restrict in the interest of public health, kept the economy going. Today’s economy depends on a thousand luxuries large and small, from overpriced coffee to air travel, and these luxuries are what many consumers are now giving up. Willingly or not, they are saving instead of spending. Extreme savings rates are a defining feature of the available data on the coronavirus economy.