Economists and policymakers have been worried about an American recession for a few years now. The issue has led to passionate arguments and has caused widespread debate. A severe economic recession isn’t inevitable. Signs point to the risks of a recession being on the rise. This looming economic crisis would hit younger generations and people of color particularly hard. Perhaps most importantly, it serves as a reminder of the lessons we’ve learned from past recessions. The current austerity measures being pursued by the Trump administration may further complicate the nation's ability to recover should a recession occur, raising questions about the future economic landscape.
The Looming Threat of Recession
Almost every economist is looking for those tell-tale signs that always seem to foreshadow an oncoming recession. On the surface, recessions are bad as they mean declining economic output, lower consumption, and reduced trade activity. This reality poses significant dangers to early-career professionals. Because they typically suffer from the “last-hired, first-fired” phenomenon, they are particularly vulnerable during economic downturns.
“Everyone’s focusing on the trade, the tariffs; but to me, the far scarier thing is cutting all this government spending,” said Harvey, the economist at Texas Christian University.
The 1981-1982 recession serves as an example of what not to do. None of this is to downplay how deeply it impacted everyone entering the labor market during those years. As a result, millions lost billions in lower wages and in worse economic, social, and health outcomes that lasted for decades. Non-White workers were disproportionately affected, shining a light on the unequal effects that economic crises have on marginalized communities.
Historical Lessons and Current Concerns
Although recessions only last an average of a year, the associated impacts on workers’ future earning potential and financial well-being can span decades. The Great Recession of 2008 is a sobering example of the enduring damage that financial crises can inflict. Not only did it take years for housing and equity values to recover, but great upheaval shook financial markets in the interim. In most recessions, inflation ceases to run hot as demand collapses. That’s of scant consolation to those facing the loss of their jobs and the uncertainty that layoff brings.
“It’s almost like a cupping and bleeding kind of medicine from the Middle Ages — that we need to suffer to end up with some sort of positive outcome,” Harvey noted.
The austerity measures that the Trump administration is now putting into effect would make these problems even worse. Reductions in government spending may hinder economic recovery efforts and place additional strain on individuals who are already struggling to make ends meet.
“So many people are living paycheck to paycheck, and this administration is looking at all sorts of cuts to the safety net, and that’s particularly concerning,” explained Gould.
The Human Impact of Economic Downturns
For those people who’ve experienced past recessions, the consequences can be physical and permanent. Natale, who graduated into that job market after the Great Recession, talked about their experience of economic precarity and lack of opportunity.
“I’d work my ass off and come home, pay all my bills, and I’d have $100, maybe $200 left for the month for groceries, gas, everything else,” Natale recalled.
“Had it not been a recession, I think the options would have been a lot greater,” he added.
Indeed, more of us long to identify with Natale’s story. In times of financial distress, they suffered the consequences of being unable to find stable work and amass wealth. The lessons from past recessions further stress the need to eschew austerity measures that would only stretch recovery efforts over years more.
“I think that we learned that austerity is what really held back the recovery,” Gould reflected on previous economic policies.
Look at recent history. What led to such a rapid recovery after the pandemic was a different approach. This strategy worked to stave off draconian austerity measures.
“In the pandemic recovery, that was not what was pursued, and that’s why we had such a fast bounce-back,” Gould noted.