This Trend Will Slow Economic Growth Long After the Pandemic Is Over

What the U.S. economy is going through right now is far worse than a technical recession. A recession is defined as two or more consecutive quarters of declining growth along with higher unemployment. A recession beginning last February has already been declared by the National Bureau of Economic Research (NBER), which is the private arbiter of when recessions begin and end.

If we judge strictly by growth figures, the recession may already be over (although we won’t know for months to come, until quarterly growth figures are available and the NBER has time to evaluate them and make a call). Most recessions don’t last that long, usually only about six–nine months. But that misses the fact that we’re really in a new depression.

A depression is not measured by declining growth, but is measured by a combination of actual declines and a below-trend recovery. This happened during the Great Depression. There was declining growth and a technical recession from 1929–1932. Then a recovery (from a low level) from 1933–36. Then a second technical recession in 1937–38 and then another recovery from 1939–1940.

The entire period 1929–1940 is known as the Great Depression in part because the stock market and commercial real estate never recovered their 1929 levels even by 1940 (they finally recovered in 1954). Depressions are also categorized by large behavioral changes including higher savings rates, smaller family size and internal migration.

These effects are intergenerational. Many behavioral changes from the 1930s were still prevalent in the 1950s and early 1960s and lasted until the baby boomers came of age in the late 1960s. According to this article, this kind of profound change with lasting impact is happening again.

Due to a combination of COVID-19 spreading in densely populated areas, business failures, urban riots and failing mayors and police departments, Americans are migrating from the big cities to suburban and country areas by the millions. American families are leaving dysfunctional cities such as New York City, Seattle and San Francisco and heading for Montana, Colorado, Maine and upstate New York in the Catskill Mountains among other safe havens.

Big cities have always offered a trade-off between higher taxes and urban stress in exchange for entertainment, great restaurants, museums and intellectual buzz. Today the venues and buzz are gone, the crime rates are soaring and all that is left is the stress and taxes. So people are getting out.

Changes like this are not temporary. Once people move out, they don’t return ever. Their children may return someday but that could be 15 or 20 years away. And those who leave tend to have the most capital and the most talent. This leaves the cities as empty shells populated by oligarchs with personal bodyguards and the poor, who have to deal with the street-level violence.

This shift can be helpful for individuals who move, but it’s devastating for the economics of major cities. And that’s devastating for the U.S. economy as a whole. It’s one more reason we will be in depression for years even if the technical recession is over soon.

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