When we look deeper, the story that emerges is confusing and contradictory. Americans locked in their houses with children, work, and baked bread have created an extinction-level event for small businesses, which has resulted in unprecedented layoffs and furloughs. But thanks to government stimulus, overall income has increased, and Americans have shifted spending to the virtual economy, compressing 10 years of anticipated e-commerce growth into a matter of weeks.
The COVID-19 crisis is simultaneously thrusting Americans into the pre-urban homestead economy of the 1830s, re-creating the Depression-era joblessness of the 1930s, and pulling forward the virtual economy of the 2030s. We are living in the weirdest economy ever.
In at least three ways, this recession is completely bizarre and ahistorical. And each weirdness helps explain the perceived gap between the stock market and the rest of the economy.
First, the economy is not really “broken,” as it was in the Great Recession, when the U.S. housing market collapsed like a wobbly Jenga set as the stock market, labor market, and manufacturing industry all came clattering to the ground at once. Instead, a global pathogenic pulse, whose reverberations are being felt in every corner of the world, has suddenly interrupted an otherwise normally functioning economy. That means we can’t solve the economic crisis until we solve the public-health crisis.
But that logic also leads to the assumption that if the public-health problem is solved, the economic recovery could be quick. That’s why stocks have jumped on optimistic rumblings about vaccines trials. When every company is in the plague business, every stock is a vaccine stock—and every cheery vaccine headline is a corporate-equity stimulus.
Second, this crisis combines an unprecedented shutdown of the physical economy with an unprecedented federal effort to distribute emergency cash to tens of millions of families. In April, consumer spending suffered the worst drop on record in the same month that personal income saw the biggest increase on record. Read that again. It sounds totally implausible, but here’s how it happened. As department stores, restaurants, and shops closed, consumer spending and employment in those places plummeted. But the federal government also passed the CARES Act, which distributed thousand-dollar checks to tens of millions of families and increased jobless benefits by $600 a week. As a result, the typical unemployment-insurance recipient has been earning 34 percent more than he or she did while working. With millions of Americans earning more in unemployment than they were at work, personal income soared in April by 10 percent.
The CARES Act, along with emergency moves by the Federal Reserve to shore up the financial sector, are almost certainly a major factor behind the stock-market recovery. For evidence, look at the timing of the S&P 500’s big reversal—the week after March 21. What happened that week? The Fed announced that it would do whatever it takes to avoid a financial collapse, and the president signed the CARES Act into law. Corporations and labor aren’t always aligned, but here they are: The federal bonanza has made both investors and workers richer.