This recession is different

When major media outlets or financial analysts want to know about the likelihood of recession they call Professor Campbell Harvey. That’s because Harvey was the first to discover an indicator that has predicted every recession accurately since the late 80s – an inverted yield curve. Harvey explains how the current economic crisis differs from the past and why he believes the job prospects will be especially good for students graduating from business school next year.

Dean Bill Boulding interviews Campbell Harvey on Instagram

Cam Harvey, J. Paul Sticht Professor of International Business

“I think that it is really important to draw distinctions between this particular episode and previous episodes. I think that it is really helpful in understanding the economic implications of this event. This is not a black swan event. We’ve had pandemics throughout history. In 1918, we had a terrible pandemic, where on a population adjusted basis, 200 million people died. Six times more Americans died from the Spanish Flu than in World War I. We have had other episodes, we’ve had SARS in 2003, MERS, Ebola, HIV. This is something we have to get used to. I think the key thing to understand here is that the cause of this economic crisis is biological.”

“In 2008, we had a structural problem in the economy, many of these banks over levered, operating like hedge funds, backed by government insured deposits, and they were far offside. And we can point our finger at that sector, and basically say, that’s the cause of the crisis. It was a financial cause. Whereas this crisis is a biological cause. We can’t point our finger at a particular sector or particular company and say, you were offside and now we have to bail you out. No, this was completely different. Again, there was no structural problem. We had high-quality firms out there. Essentially, we need to provide some aid.”

“The unemployment is staggering. 17 million people in three weeks. That’s more than the entire job losses during the Great Recession. But it’s not unexpected. The people that work in restaurants and bars and retail, that’s 30 million people right there. It’s not unreasonable to think that 15 million will lose their jobs. And there is another 37 million people in sensitive industries, think airlines. I think that it is reasonable to expect that we will have unemployment that will be record unemployment. It happens very quickly.”

“There is a horizon, and the horizon has got two aspects to it. The first is a pharmacological solution that reduces the risk of death. And that will likely come in the fall. And the second is a vaccine. And the vaccine with high probability will be deployed at the beginning of 2021. And the vaccine is effectively an all clear. So in this particular situation, there is an end because it is biological.”

“When there is uncertainty, then consumers are really hesitant to spend. Businesses are hesitant to deploy capital for new projects. Businesses are hesitant to hire people. All of that uncertainty delays the recovery. Whereas, this particular episode, while painful both on the health front and the economic front, it’s painful in the short-term. Because we can see that there is a biological solution to this particular problem that we are having. And in my opinion, we will see some recovery in the fourth quarter. By the first quarter of 2021, we will see the equivalent, staggering numbers, where unemployment is decreasing, not increasing.”

“If you are considering a one-year masters or a two-year masters, this is an ideal time. In the global financial crisis, it wasn’t so obvious when the recession was going to be over. This time, we have clarity. And it’s why this particular episode is unique in terms of previous recessions. Previous recessions just did not know how long they were going to last. Whereas this one, given the biological cause, there is a biological solution with high probability that will be implemented. There is a high probability that we can jump out of this quickly.”

“In the global financial crisis, we talk about people losing their jobs. If you lost your job at Lehman Brothers, and many of my students lost their job at Lehman Brothers, or were going to go to Lehman Brothers before they went bankrupt, there was no expectation that you would go back to Lehman Brothers because they did not exist. And to go to another company, very difficult. Whereas the people that are being furloughed, notice the difference in language-furlough-they expect to go back.”

“This uncertainty will be resolved, and I think that it makes the prospects very favorable for next year. And I do think the policymakers finally understand that, essentially, they need to keep these high-quality businesses alive, long enough, to get the biological solution, and then it’s back to work. And back to work is really important.”

Quick Facts

Area: Finance

Elective Course: Innovation and Cryptoventures

Researches: investment finance, emerging markets, corporate finance, behavioral finance, financial econometrics and computer science

Street Cred:

Served as President of the American Finance Association (2016)

Research Associate of the National Bureau of Economic Research

Visiting scholar at the Board of Governors of the Federal Reserve System

Fellow of the American Finance Association

Founding Director of the Duke-CFO Survey, a quarterly survey polling more than 1,500 CFOs worldwide

Partner and Senior Advisor at Research Affiliates, LLC, overseeing more than $200 billion in client funds


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