Friday's employment report was devastating — and reality almost surely worse. The BLS itself says that the unemployment number was probably understated 1/ https://www.bls.gov/news.release/empsit.nr0.htm

True unemployment probably ~20%. If so, worse than all but the worst 2 years of the Great Depression, according to estimates that try to apply modern concepts to available historical data 2/

But how long does this go on? Short answer is nobody knows. Long answer, I think, is that it depends hugely on the course of the pandemic — which may seem like a "well, duh" proposition but a bit more to it than that 3/

First of all, maybe a good idea to stop talking about whether there will be a V-shaped recovery, bc unclear what that means. Growth in 1934-6 was very fast, but not nearly enough to bring tolerable unemployment 4/

Reasonably certain that we will have something like a Nike swoosh — recovery much slower than initial descent, but q is how fast. 5/

Past 6 recessions show two very different kinds of recovery — rapid surges after pre-1990, extended "jobless recovery" in later cycles 6/

I think we understand the difference. Slumps like 1979-82 brought on by the Fed raising rates to squeeze down inflation; as soon as it relented demand sprang back. Later slumps were Minsky moments, when the private sector realized it had overreached. Much harder to restart 7/

So where does the Covid-19 slump fit? Despite myself, I'm (very) guardedly optimistic. The virus is arguably more like the shock of temporarily high interest rates than like an overhang of excess household debt. So fairly fast recovery seems possible 8/

The market doesn't seem to agree! Never mind stocks: medium-term interest rates suggest that the market expects policy rates to be near zero for a long time 9/

I ran that chart back to 2008 in order to show that markets can be wrong. In early stages of recovery from 2008 crisis markets effectively bet on a V-shaped recovery that never arrived. Making the same mistake in reverse now? 10/

Two big caveats: First, recovery depends on dramatic decline in social distancing, which depends on virus/fear of virus. If premature opening leads to extended plateau or 2nd wave, slump can go on and on 11/

Second, while structural problems didn't bring on the slump, slump may create problems that extend its shadow — eg state fiscal crises, widespread household and business bankruptcies etc 12/

Some political irony here: Trump/GOP demands for early opening and refusal to extend relief may be what prolongs the slump, so that people are still miserable in November 13/