Coronavirus, the economy, and you
Editor Adam Abadi lays out the economic impacts of the novel coronavirus.
As coverage of the coronavirus continues to dominate the news, the outbreak’s economic impacts are often conveyed through headlines about plunging financial markets. To many Vassar students, however, Wall Street’s woes may seem distant and irrelevant.
But the reality is that the coronavirus outbreak will hit the economy in ways that directly affect Vassar students.
Most importantly, it now seems inevitable that the pandemic will spark a global recession. This could occur by means of both a “supply shock” and a “demand shock.”
A supply shock would occur if coronavirus disrupts the production of goods and services on a large scale. For example, if factories are shut down because of social distancing policies or if international trade is limited, that would contribute to a supply shock.
A demand shock will occur because people are consuming fewer goods and services as a result of the pandemic. This will most dramatically affect service-oriented industries such as restaurants, bars, hotels, and airlines.
Normally, a recession is caused primarily by either a demand or supply shock. But the coronavirus is especially worrisome for the economy because it could cause both simultaneously, and because supply shocks are naturally harder for economic policymakers to mitigate, relative to demand shocks.
The economic impacts of the coronavirus could affect Vassar students in several ways.
A recession would cause unemployment to increase, making it much harder for graduating seniors to find jobs. Research has also indicated that graduating during a recession might hurt students’ socioeconomic status and health outcomes for many years after graduating.
A coronavirus-induced recession will also cause some students’ parents to lose their jobs, especially if they work in certain service-oriented industries like the hospitality and restaurant sectors. Furthermore, a recession would make it harder for students to find summer employment. This would make it more challenging for some students to fund their Vassar tuition, and could potentially put extra strain on the college’s financial aid program.
Financial hardship associated with recessions can have negative effects on mental health. College students are already disproportionately at risk for common mental health issues such as anxiety and depression. Higher levels of economic adversity, combined with social distancing and the devastation of the coronavirus outbreak itself, could hit some students hard in terms of mental health.
So far, the coronavirus outbreak has caused a lot of instability in financial markets, which could worsen as we continue to veer towards a recession. A lot of retirement funds such as 401(k)s and IRAs are invested in the stock market. This means that drops in the stock market—such as the 12% plunge in the S&P 500 on March 16—can affect the retirement savings of many Vassar students’ parents.
The coronavirus outbreak is also likely to affect interest rates for the 53% of Vassar students who have taken out student loans. On March 15, the Federal Reserve drastically cut interest rates as a preemptive response to the coronavirus’s economic impact.
Since the Fed’s rate cuts are meant to indirectly affect all interest rates throughout the economy, this will likely cause student loans disbursed to Vassar students for the 2020-21 school year to have lower interest rates.
The Trump Administration’s recent student loan interest waiver will not significantly affect current Vassar students. It does not even change monthly student loan payments; it just means that the accumulation of new interest on federal loans will be temporarily paused.
Of course, these economic considerations are secondary relative to the sheer human cost of the pandemic. Many thousands more will die—potentially including family members of Vassar students—and this article is not meant to minimize that tragedy. But in order to respond appropriately to the inevitable disruptions to all of our daily lives, it’s important to understand as many facets of the outbreak as possible, including its economic impacts.