◼ECONOMICS BloombergBusinessweek May 4, 2020A recession is no picnic. A financial crisis leaves
wounds that last for decades. A pandemic, though,
can sow a unique kind of chaos.
The Black Death took a highly stratified medi-
eval society and turned it upside down. With
75 milliondead,Europe’swealthylandowners
couldn’tfindenoughpeopletotendtheirfields.
Whenpeasants—the essential workers of the day—
demanded higher pay, the elites of the 14th cen-
tury fought back with punitive laws, forced labor,
and taxes. Even so, wages for the lowliest workers
soared. In rural England, they doubled.
As epidemics go, the novel coronavirus is a rel-
ative lightweight—one that has nevertheless killed
more than 200,000 people worldwide so far. Yet
it’s accomplished something not seen in far dead-
lier outbreaks of the past: a simultaneous shutdown
of much of the world’s commerce. No one can pre-
dict the long-term effects of a pandemic hitting an
economy this complex and globalized.
For now, the most obvious guide to what comes
next isn’t the Black Death, which precipitated
thedemiseofEuropeanfeudalism,buttheGreat
Recession,whichhadmoreorlesstheopposite
effect.Intheaftermathofthe 2008 financialcrisis,
inequality soared to heights not seen since the
early part of the last century. At first, elites feared
that much of their wealth would be wiped out in a
globally synchronized market crash, à la 1929. But
central banks pumped out trillions of dollars as
monetary stimulus, markets recovered, and what
followed may have been the best decade in history
for the superwealthy.
Wall Street’s savviest investors are already pull-
ing out their 2008 playbooks. The basic idea: Pay
discount prices for ailing businesses and other dis-
tressed assets now, then cash in later when every-
thing bounces back. In early April, Goldman Sachs
Group Inc. said it was considering setting up a
$10 billion fund that would make loans to finan-
cially strapped companies. Executives at Apollo
Global Management Inc. told investors during a
March 24 call that the crisis was the private equity
firm’s “time to shine.” And in an April 7 appearance
on Bloomberg TV, billionaire Steve Schwarzman
said his Blackstone Group Inc. was “looking aggres-
sively” at making investments—even as he warned
the pandemic could take a $5 trillion bite out of the
$21 trillion U.S. economy.
Will the recovery from this crisis, whenever it
arrives, be as unequal as the last one? There are
reasons to think so. Even as business closings
threaten to push U.S. unemployment past the 25%
record set during the Great Depression, the stock
market has bounced back from its March lows,26
DATA: GREGORY CLARK, UNIVERSITY OF CALIFORNIA AT DAVISbuoyed by a multistage government rescue effort
that’s running in the trillions of dollars.
Some billionaires are faring better than oth-
ers. The personal net worth of Amazon.com Inc.
founder Jeff Bezos has increased more than $25 bil-
lion in just the two weeks from April 3 to April 17,
according to the Bloomberg Billionaires Index,
while three heirs of Walmart Inc. founder Sam
Walton are collectively more than $6 billion richer
than they were at the start of the year.
So far, so 2008.
History is full of surprises, though, and no
two crises are alike. Among the many ways 2020
could differ from 2008: This downturn may be
worse. The International Monetary Fund predicts
the world economy will shrink 3% this year, the
most since the Great Depression. And the Great
Depression had a very different impact on the
world’s rich from the Great Recession.
From 1929 to 1932, the top 0.1%’s share of all
U.S. household wealth plunged by a third, and the
top 0.01%’s portion fell by half—a funhouse-mirror
opposite of their 2007-10 surge, according to esti-
mates by Emmanuel Saez and Gabriel Zucman,
a pair of professors at University of California at
Berkeley who study economic inequality.
The 1929 Wall Street crash helped create a new
economic order in the U.S. called welfare capital-
ism. With the New Deal, American workers gained
a safety net. With World War II, they won leverage
with employers and higher wages. The owners of the
means of production—well, they didn’t do as well.
By 1950 the very richest Americans, the top 0.01%,
controlled just 2.3% of the nation’s wealth, less than
a quarter of their share in 1929. Meanwhile, the bot-
tom 90% of households had doubled their share.
One wild card, now and in past crises, is govern-
ment policy. A dozen years after the financial crisis,
it’s still galling to many that America’s leaders failed
to prevent millions of foreclosures, even as bailout
funds propped up the banks that originated mort-
gages that went toxic. “In 2008 they got away with
it in a sense,” says University of Texas professor
James Galbraith. “They’re going to find that they
can’t stop the pitchforks this time.”
The Federal Reserve’s policies also contributed
to widening the wealth divide. Record low interest
rates—meant to stimulate borrowing and produc-
tive investment—pushed asset values ever higher.
Corporate profits soared as the economy recovered
much faster than workers’ wages. If you had capital
to deploy in the bleak days of late 2008 and early
2009, you were lavishly rewarded. From the depths
of the crisis to the beginning of this year, U.S. stocks
more than quadrupled.Inflation-adjusted
averagedailywage
formen,in pence▼ England after the
Black DeathPopulation1340 14501340 14501005004m20