The scene of the Great Depression in the United States 90 years ago reappeared in Wisconsin: affected by the new coronary pneumonia epidemic, dairy farmers were forced to dump hundreds of thousands of gallons of milk (about 1.78 liters per gallon). Since many American families hoarded milk in the early stages of the epidemic, there is no need to buy it now, resulting in a serious surplus of milk production.
Is the “Great Depression” coming again?
In 2013, Robert Schiller, a Nobel Prize winner in economics and a professor of Stirling economics at Yale University, accepted a telephone interview with Surging News. In an interview, Schiller was at home in New York, the hardest hit area in the United States. He told Peng Mei News reporter that he had been quarantined at home for two weeks. Last time he went out to go to the hospital, he canceled all travel plans.
“The epidemic is just beginning in the United States, and there is still a lot of work to be done. We have worked very hard.”
Almost all the world has entered a “lockdown” state, and the economy is almost stagnant. Will the new coronavirus take us to recession?
Schiller used behavioral finance to predict the US economic recession twice: For the first time, he predicted that the US Internet bubble would burst, and he called it “non- “Rational prosperity”; for the second time, he predicted that the collapse of the US real estate market would lead to the 2008 financial crisis.
Schiller put forward the “Schiller price-earnings ratio”, that is, the periodic adjusted price-earnings ratio (CAPE), excluding inflation, and replacing the ordinary price-earnings ratio with the average profit of 10 years in the past year Calculate profits to smooth the impact of economic cycles on valuation. Schiller’s data shows that the CAPE of US stocks exceeds 25 times and enters a mad period of “irrational prosperity.”
In May 2007, the CAPE of US stocks was 27.6 times. This number later became the peak of this cycle. In January this year, CAPE once reached 31, just below the peak of the stock market crash of 1929 (33) and the value before the stock market plunged by 50% in 2000 (44).
And now the CAPE is 23, the average value of US stocks since 1981 is 17, Schiller pointed out that in the past 10 years, when the CAPE was this value, the stock market was relatively mild. of. If the epidemic does not continue to deteriorate, we can be hopeful in the next 10 years. But if the epidemic will continue for 1-2 years, or even longer, the stock market will be worse.
After the Great Depression, the S & P index experienced a seven-year bear market after its plunge in 1929, and its market value fell by three quarters by 1932. Although the stock market rebounded in 1936, But it wasn’t until 20 years later that US stocks returned to the level of 1929 in 1949.
Schiller told Peng Mei News that the current state of anxiety and fear will become the collective memory of this generation in the next 10 years, which is very similar to the panic caused by the stock market crash in 1929. Later, for more than 90 years, the stock market crash of 1929 and the Great Depression have always existed as distinct collective memories.
Schiller told Peng Mei News that the current state of anxiety and fear will become the collective memory of this generation in the next 10 years, which is very similar to the panic caused by the stock market crash in 1929. Later, for more than 90 years, the stock market crash of 1929 and the Great Depression have always existed as distinct collective memories.
Although Schiller very much hopes that the epidemic will not develop in the worst direction, and also hopes that people can be more optimistic about the “narrative” of the epidemic, it is still recommended not to hold Too many stocks may cause unbearable losses.
Surging news : Do you call the new coronavirus a “very dangerous” virus?
Robert Schiller: Yes.
Surging news: Your judgment is not the same as other economists. Because most economists would say that they are not epidemiologists, they cannot judge the virus. Why do you assert that the new coronavirus is a dangerous epidemic? What does this have to do with financial markets?
Robert Schiller: I have a new book “narrative of economics” ( narrative of economics ), I regard the epidemic as a story, a kind of narrative, that is to say, The new crown virus itself can spread as a story and promote major economic events .
People The fear of the Great Depression is similar to the fear of the new coronavirus now . Part of people’s concerns are reasonable and rational, because the existence of the new crown virus is a fact, but there are also irrational parts.
Surging News: So you think that the New Coronavirus epidemic should be divided into two, one is the virus that exists as a fact, and the other is how people tell stories about the virus?
Robert Schiller: Yes. I wrote in the book that “narrative” can be as contagious as a virus, and narrative can affect economic behavior like a disease. If a story dominates the public opinion field for several years, then many things will change like an epidemic. For example, in the 1930s, there was a narrative about the Great Depression. People panicked because they were worried about the economic collapse. Fear spread as a psychological atmosphere, so a story of people fearing the Great Depression was formed. This is very similar to the current fear.
Surging news: From a factual perspective, is the world facing a prospect similar to the economic depression of the 1930s? Ben Bernanke (former chairman of the Federal Reserve) said this was not a Great Depression.
Robert Schiller: I think there are several aspects that are very similar, and they are all equally driven by fear. The difference is that this time the fear of the virus is superimposed on the “narrative” fear.
Surging news: What are the fears of people during the Great Depression?
Robert Schiller: At that time, people worried that once they become unemployed, they will be permanently unemployed and will not find good jobs. An important narrative derived from this is “technical unemployment” (technical unemployment). The prevailing view at the time was that technological progress had caused this situation, that is, the high unemployment rate due to the use of machines, because so many workers were no longer needed. People became very scared. However, it later proved that the term “technical unemployment” was incorrect because later the economy and employment resumed.
Surging news : Do you call the new coronavirus a “very dangerous” virus?
Robert Schiller: Yes.
Surging news: Your judgment is not the same as other economists. Because most economists would say that they are not epidemiologists, they cannot judge the virus. Why do you assert that the new coronavirus is a dangerous epidemic? What does this have to do with financial markets?
Robert Schiller: I have a new book “narrative of economics” ( narrative of economics ), I regard the epidemic as a story, a kind of narrative, that is to say, The new crown virus itself can spread as a story and promote major economic events .
People The fear of the Great Depression is similar to the fear of the new coronavirus now . Part of people’s concerns are reasonable and rational, because the existence of the new crown virus is a fact, but there are also irrational parts.
Surging News: So you think that the New Coronavirus epidemic should be divided into two, one is the virus that exists as a fact, and the other is how people tell stories about the virus?
Robert Schiller: Yes. I wrote in the book that “narrative” can be as contagious as a virus, and narrative can affect economic behavior like a disease. If a story dominates the public opinion field for several years, then many things will change like an epidemic. For example, in the 1930s, there was a narrative about the Great Depression. People panicked because they were worried about the economic collapse. Fear spread as a psychological atmosphere, so a story of people fearing the Great Depression was formed. This is very similar to the current fear.
Surging news: From a factual perspective, is the world facing a prospect similar to the economic depression of the 1930s? Ben Bernanke (former chairman of the Federal Reserve) said this was not a Great Depression.
Robert Schiller: I think there are several aspects that are very similar, and they are all equally driven by fear. The difference is that this time the fear of the virus is superimposed on the “narrative” fear.
Surging news: What are the fears of people during the Great Depression?
Robert Schiller: At that time, people worried that once they become unemployed, they will be permanently unemployed and will not find good jobs. An important narrative derived from this is “technical unemployment” (technical unemployment). The prevailing view at the time was that technological progress had caused this situation, that is, the high unemployment rate due to the use of machines, because so many workers were no longer needed. People became very scared. However, it later proved that the term “technical unemployment” was incorrect because later the economy and employment resumed.
I worry that similar things will happen now. There is now a lot of discussion about artificial intelligence, which is an advanced form of robots. Although very imaginative, it can cause fear. Therefore, if the unemployment rate continues to fall, it is likely to be very similar to the situation of the Great Depression.
Surging news: Data has shown that the United States is experiencing an unprecedented wave of unemployment.
Robert Schiller: At the beginning of the week on March 28, the number of jobless claims exceeded 6 million, and this data set a historical record. If this trend continues, the situation may even be worse than the Great Depression. Because the virus really exists, it can suddenly sweep the world.
Surging news: If the world ’s major economies experience economic stagnation for 12-18 months, will the United States face more serious challenges than the Great Depression?
Robert Schiller: This depends on the following three aspects. First of all, is it possible to find an effective treatment plan, and if it can cure many people, it can ease people’s fear of the virus. Secondly, whether the vaccine can be successfully developed, if it is not developed, the duration may exceed 18 months. Third, although the epidemic may end soon, people may still feel threatened by this year ’s unforgettable memories, and I do n’t know when the virus will come back.
Surging news: You think the market collapse is not over.
Robert Schiller: It should be said that the stock market is still facing great uncertainty. If people’s fears continue to intensify, the situation may be very bad, but on the other hand, the stock market may eventually be good, and we may have the opportunity to return to life in the past.
Surging news: How can you achieve the latter state?
Robert Schiller: This is a state that the government can still deal with, that is, only a small number of people die in the end because of the infection, and about 1% of people die, just like the annual flu season. After the end, people will resume their normal work, and there will not be many deaths, so it will not affect the financial market. But people are likely to stay at home for several months, which will cause psychological panic. If people all over the world stay isolated at home, it will form a psychological atmosphere, which will be very difficult for many people.
Surging news: Is the Fed’s bailout timely?
Robert Schiller: The Fed wants to give everyone an impression that this is a very serious crisis. Now that the market has stabilized a bit, it is currently useful.
Surging news: Data has shown that the United States is experiencing an unprecedented wave of unemployment.
Robert Schiller: At the beginning of the week on March 28, the number of jobless claims exceeded 6 million, and this data set a historical record. If this trend continues, the situation may even be worse than the Great Depression. Because the virus really exists, it can suddenly sweep the world.
Surging news: If the world ’s major economies experience economic stagnation for 12-18 months, will the United States face more serious challenges than the Great Depression?
Robert Schiller: This depends on the following three aspects. First of all, is it possible to find an effective treatment plan, and if it can cure many people, it can ease people’s fear of the virus. Secondly, whether the vaccine can be successfully developed, if it is not developed, the duration may exceed 18 months. Third, although the epidemic may end soon, people may still feel threatened by this year ’s unforgettable memories, and I do n’t know when the virus will come back.
Surging news: You think the market collapse is not over.
Robert Schiller: It should be said that the stock market is still facing great uncertainty. If people’s fears continue to intensify, the situation may be very bad, but on the other hand, the stock market may eventually be good, and we may have the opportunity to return to life in the past.
Surging news: How can you achieve the latter state?
Robert Schiller: This is a state that the government can still deal with, that is, only a small number of people die in the end because of the infection, and about 1% of people die, just like the annual flu season. After the end, people will resume their normal work, and there will not be many deaths, so it will not affect the financial market. But people are likely to stay at home for several months, which will cause psychological panic. If people all over the world stay isolated at home, it will form a psychological atmosphere, which will be very difficult for many people.
Surging news: Is the Fed’s bailout timely?
Robert Schiller: The Fed wants to give everyone an impression that this is a very serious crisis. Now that the market has stabilized a bit, it is currently useful.
They may be able to take action earlier, but they are very fast. The Fed has many ways to help alleviate the status quo. The rapid and immediate interest rate cut will help calm market sentiment and prevent depression. But we still need to wait and see whether these measures are enough. Unfortunately, the Fed does not have much room to cut interest rates. The United States has never seen negative interest rates. This is different from Europe.
Surging news: There are many opinions that the Great Depression is getting worse partly because the Fed ’s response is too slow.
Robert Schiller: Yes. The view represented by Friedman believes that the Fed injected a large amount of money into the economy before the economic crisis, and the growth of the money supply completely deviated from the growth of the real economy, causing the “money illusion” and the illusion of prosperity in the short term. “There was eventually an overproduction. But I don’t completely agree with them. Before the peak of the stock market in 1929, the Fed shot to “cool down” the economy, raising the federal funds rate to 6% and raising the interest rate on securities transactions to 20%. You can blame the Fed, but you ca n’t prove how much they need to be responsible for the Great Depression.
Surging news: Is the globalization we are familiar with ending?
Robert Schiller: Yes, we live in a prosperous era, especially China, and soon grow into one of the richest countries, in which international trade plays an important role. But the global supply chain is difficult to maintain in this period, and people are more isolated. The good thing is that the world is now fighting against viruses, and this is what we are facing together.
Surging news: There are many opinions that the Great Depression is getting worse partly because the Fed ’s response is too slow.
Robert Schiller: Yes. The view represented by Friedman believes that the Fed injected a large amount of money into the economy before the economic crisis, and the growth of the money supply completely deviated from the growth of the real economy, causing the “money illusion” and the illusion of prosperity in the short term. “There was eventually an overproduction. But I don’t completely agree with them. Before the peak of the stock market in 1929, the Fed shot to “cool down” the economy, raising the federal funds rate to 6% and raising the interest rate on securities transactions to 20%. You can blame the Fed, but you ca n’t prove how much they need to be responsible for the Great Depression.
Surging news: Is the globalization we are familiar with ending?
Robert Schiller: Yes, we live in a prosperous era, especially China, and soon grow into one of the richest countries, in which international trade plays an important role. But the global supply chain is difficult to maintain in this period, and people are more isolated. The good thing is that the world is now fighting against viruses, and this is what we are facing together.
So globalization will not suddenly stop, and in a few years, people will gradually realize that they are in a new normal.
Surging news: If the epidemic lasted for more than 1 year like the Spanish flu in 1918, or the vaccine could not be developed. How will our economic behavior change?
Robert Schiller: It depends on our narrative. If you look at the Spanish flu, it hasn’t really affected the economy or caused the stock market to collapse. When the flu was the worst in 1918, U.S. stocks still rose during that period. Why? I think it is because people at that time had confidence in dealing with the flu. They knew that the flu was contagious. They treated the flu as strictly as we do now, but did not let the economy stagnate. People still go to restaurants. Therefore, it does not have much impact on the economy. It was not until a few years later that the economy experienced a recession in 1921.
Surging news: If the epidemic lasted for more than 1 year like the Spanish flu in 1918, or the vaccine could not be developed. How will our economic behavior change?
Robert Schiller: It depends on our narrative. If you look at the Spanish flu, it hasn’t really affected the economy or caused the stock market to collapse. When the flu was the worst in 1918, U.S. stocks still rose during that period. Why? I think it is because people at that time had confidence in dealing with the flu. They knew that the flu was contagious. They treated the flu as strictly as we do now, but did not let the economy stagnate. People still go to restaurants. Therefore, it does not have much impact on the economy. It was not until a few years later that the economy experienced a recession in 1921.
So I ’m worried about the current narrative, a decade of economic recession cycle is normal on some level, I ’m worried that people think about this recession too much Serious , described as a very difficult period. Maybe not? Maybe it will be more optimistic? Of course it may be very bad, the stock market may fall another 20% -30%. This is not my prediction, but this possibility cannot be ruled out.
Surging news: One of the reasons why the Spanish pandemic did not stagnate the economy, is it not that the economies were more isolated during that period?
Robert Schiller: Yes. At that time, during World War I, all countries were very isolated, and international trade declined sharply. But the war ended in November of that year. So there was a new optimism.
Surging news: After the epidemic, Trump ’s support rate was very high.
Robert Schiller: Yes. It is now a typical state of war, a war against viruses. People must stay at home, and they may not be able to buy food or other living materials. This is much like war, and during the war people needed strong leaders. Trump gives a televised speech every day, very enthusiastic. This approach is also very effective for his support rate.
Surging news: What is your biggest current concern?
Robert Schiller: I am worried that the epidemic will not change, and it will eventually infect most people. I am worried that there may be another wave and many variants of the virus. We can’t go to the restaurant anymore, and the sports season cannot return. But this is just my worry, not a prediction.
Surging news: One of the reasons why the Spanish pandemic did not stagnate the economy, is it not that the economies were more isolated during that period?
Robert Schiller: Yes. At that time, during World War I, all countries were very isolated, and international trade declined sharply. But the war ended in November of that year. So there was a new optimism.
Surging news: After the epidemic, Trump ’s support rate was very high.
Robert Schiller: Yes. It is now a typical state of war, a war against viruses. People must stay at home, and they may not be able to buy food or other living materials. This is much like war, and during the war people needed strong leaders. Trump gives a televised speech every day, very enthusiastic. This approach is also very effective for his support rate.
Surging news: What is your biggest current concern?
Robert Schiller: I am worried that the epidemic will not change, and it will eventually infect most people. I am worried that there may be another wave and many variants of the virus. We can’t go to the restaurant anymore, and the sports season cannot return. But this is just my worry, not a prediction.
(Intern Li Yanxuan also contributed to this article)