Why The Great Depression of 2020 Will be Different! by Julio Loredo

 

Why the Great Depression of 2020 Will Be Different

By Julio Loredo

They are already calling the current pandemic-induced economic crisis, “The Great Depression of 2020.” The paradigm is, of course, the Great Depression of 1929 that substantially changed the world’s model of development, signaling the onset of State intervention in the economy (the welfare state).

Analysts are also calling it “The Great Jump Backwards,” because it will push the world back in time by canceling three decades of economic development. International agencies estimate the contraction in GNP worldwide at -5.2%. The Eurozone with be the hardest hit with -9.1%. “It is the worst economic recession since 1870, a devastating blow for the world economy,” declared David Malpass, president of World Bank Group.

 

While the world’s situation seems bleak enough, I live in Italy, where the plight is even worse. The Organisation for Security and Co-operation in Europe (OCSE) recently published a study estimating the fall in its GNP at around -13%. This pushes Italy back to the economic level of 1993. According to OCSE pundits, the Italian situation should improve a little in 2021, bringing the country back to the situation of 1997. This improvement is hardly a consolation… Thirty years of economic development will go down the drain and, with them, so many dreams of a better future.

The fall in per capita income will be the worst since World War II. “It is the worst crisis since the Second World War, capable of bringing devastation to the health, the well-being and the work of people, creating unprecedented uncertainty,” said OCSE analyst Robert Boone.

Italy’s public debt will swell to 170% of its GNP. In turn, this will weigh enormously on the national budget, deviating resources that could otherwise be used to fuel the economy. A chain reaction of deleterious effects will be unleashed in which the final consequences are difficult to predict. Only one thing is certain: we will have to adapt to a substantially lower standard of living. We have no idea of the social unrest that this may spur.

The crisis is already hitting Italian families very hard. The number of citizens below the poverty level has more than doubled. Soup kitchens and Caritas food-distribution centers have seen swelling numbers lined up to receive help. We see the same lines at pawn shops, where thousands of people are selling their family jewels to survive. Shops, restaurants and industries are closing down permanently, while unemployment and idleness consequently soar. Even historical places that had survived two world wars and several depressions are going belly up.

This bleak panorama prompted the rating agencies to downgrade Italy’s debt to the BBB- level, one step short of junk bonds, further worsening the country’s outlook.

These are some of the short-term consequences of the crisis. Analysts are already looking to the future. Before speaking of economics, however, we must talk about the state of the people. The economy is nothing more than people interacting in the public market. The economy depends on the psychological condition, moral standards and mood of the people. Sound-minded people, with dynamic expectations and high moral standards, make for a healthy economy. The COVID pandemic seems to be striking at this fundamental level.

I recently spoke at length with a friend of mine, who is a well-known psychologist. She briefed me on the psychological consequences of the pandemic. Echoing the general opinion of Italian psychologists, she said that the pandemic is causing mental trauma. It is shaking people’s certainties, even at the unconscious level, forcing them into situations for which they are not prepared. People are particularly shocked to see their life expectations drastically reduced. The mirage of an ever-improving, ever richer, ever freer and more gratifying world—on which many people based their existence—has been dealt a deadly blow. People are presently still dazed; they still haven’t come to grips with the new situation. Their minds are still reacting to the shock and trying to absorb it. As time passes and the shock eases away, psychologists fear that many people will suffer from Post-traumatic Stress Disorder (PTSD), with potentially devastating consequences. Data reveals that prescription drug use and psychological assistance seeking has skyrocketed these past months.

 

Widespread PTSD can easily throw society into depression, jeopardizing the possibilities for an economic bounce-back. “The COVID-19 pandemic can bring in another epidemic, whose first symptoms we can already glimpse,” says La Mente è Meravigliosa, a journal of clinical psychology. “We have to begin talking about depressive disorders. Several factors are overlapping in that deep level of the mind where emotions, uncertainty, fatigue, lack of control and even a sense of emptiness can seriously affect our mental balance. It is, therefore, important to prevent Covid-19 depression.”

A similar study recently published by Washington University’s Center for Science and Social Connection warns that as the COVID contagion diminishes, psychological depression is increasing.

Analysts and historians compare the current economic crisis to those of 1870, 1929, 1945 and others. The implication is that, just as we managed to overcome those crises, we will surely prevail over this one. I fear that this is not quite the case.

I fear that Italy, as most European countries, is worse equipped today to cope with such a devastating situation than it was in the past. Two factors must be considered. Each one would merit extensive analysis, for which, of course, I have neither time nor space. I shall, therefore, limit myself to putting forth the terms of the problem.

First, we have to consider that we are dealing with a generation that is psychologically different from the preceding ones.

There is an aversion for intellectual effort, notably to abstraction, theorization, and doctrinal thought. The result is a hypertrophy of the senses and the imagination, leading to the “civilization of the image,” denounced by Pope Paul VI in 1969. As noted by Prof. Plinio Corrêa de Oliveira in his work, Revolution and Counter-Revolution, this generation has “a frame of mind characterized by the spontaneity of the primary reactions, without the control of the intelligence or the effective participation of the will, and by the predominance of fantasy and feelings over the methodical analysis of reality. All this is fruit, in large measure, of a pedagogy that virtually eliminates the role of logic and the true formation of the will.”

 

Will this generation be as adequately equipped with the psychological soundness and stamina to cope with the crisis as its forbearers? Only time will tell.

Secondly, we must take into account that our society has become multi-cultural, multi-ethnic, multi-religious, multi-moral, multi-everything. In the previous depressions, Italians were conscious that they had a glorious past to defend and a national heritage to hand over to the next generations. Thus, they rolled up their sleeves and worked hard to get back on their feet. Today’s society has so many different sectors and interests, most of the time colliding with each other, it is difficult to find a unifying idea. What sense does it make, for example, for recently-arrived African immigrants, most of whom don’t even speak Italian, to invoke the national interest?

 

Will this fragmented society find the strength and cohesion to cope with the crisis as in the past? Again, only time will tell.