The Trump Administration Should Not Risk The Economic Scarring of a Recession

Donald Trump has not ruled out that his onslaught of erratic tariff announcements, draconian and random cuts to the federal workforce and legally challenged government program stops could lead to a recession. The economy is already showing signs of slowing: less hiring and possibly rising inflation. Whether the economy will indeed slide into a recession is very much an open question. But, it would be surprising if the sharp increase in economic policy uncertainty coupled with spending cuts would not result in a slowdown with higher unemployment rates. Less hiring will hurt many vulnerable older workers, who often keep working to supplement limited retirement savings, but also Black and Latino workers as well as disabled workers, who also have few savings to fall back on. Policymakers cannot take the chance of a recession lightly because it undermines the economic progress these groups have made in recent years and would create widespread and long lasting economic pain.

The last two recessions before the pandemic show that the economic pain of a recession can linger for many years. This was especially the case during and after the financial crisis from 2007 to 2009, but it held for the prior recession, too. Data from the Bureau of Labor Statistics (BLS) show that the unemployment rate increased from 5.0% in December 2007, when the Great Recession started, to a high of 10.0% in October 2009, four months after the Great Recession officially ended. It took until September 2015 – almost another five years — before the unemployment rate again reached the low from before the Great Recession. The experience when the dotcom bubble burst in 2021 is similar, though, not as extreme. The unemployment rate went up from 4.3% in March 2021, when the recession started, to a high of 6.3% in March 2003 or 16 months after the recession officially ended in November 2001. The unemployment never fell to its pre-recession low before the Great Recession hit. Both recessions before the pandemic created long-lasting economic struggles for millions of workers.