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‘The Situation Is Unparalleled’

Rappaport visiting professor Richard Cordray compares the 2008 Great Recession to the current pandemic-related downturn.


Richard Cordray, the first director of the Consumer Financial Protection Bureau (CFPB) and former Ohio Attorney General, gave a public address at BC Law September 23 in which he drew comparisons between the nature and effects of the current financial crisis and those of the Great Recession of 2008. Cordray is this semester’s Jerome Lyle Rappaport Distinguished Visiting Professor at Boston College Law School.

After an introduction by Rappaport Center for Law and Public Policy faculty director Dan Kanstroom, Cordray provided background on the economic collapse of 2008, adding that he, like many, never expected to see another such economic failure.

“During my tenure as the first director of the Consumer Financial Protection Bureau [2012-2017], I regularly described the Great Recession as the worst economic collapse of our lifetime and believed that would be so for another generation or two at least. After all, it has been 75 years since the Great Depression, and cataclysms are rare,” Cordray said. “But now here we are unexpectedly with the economy cratering 12 years later.”

The Great Recession was marked by two major weaknesses in the US, he said. “First, the housing market, itself a source of considerable economic activity, was deeply damaged. Second, financial channels were impaired, the credit markets locked up, and many businesses lost financing that were unprepared for such a setback.”

He went on to explain why it was so difficult for the economy to recover after 2008. “Any financial crisis has an especially broad impact because it flows into unrelated sectors of the economy,” Cordray said. “The principle sources of weakness—mortgage lending and housing and the financial industry—were also highly problematic because their tangled affairs did not allow any quick return to equilibrium.”

Cordray then turned his attention to how the 2008 crisis differed from the current one brought on by the Covid-19 pandemic. “During the second quarter of this year, US GDP plunged by an annualized rate of 32 percent on top of a decline of 5 percent during the first quarter, almost all of which was felt with the nationwide suspension of economic activity in the last two weeks of the first quarter,” he explained. Cordray compared this to the worst quarter of the prior recession, when the GDP fell by 7.2 percent in the fourth quarter of 2008, highlighting the unprecedented severity of our current economic crisis.

While the 2008 recession could be linked to two major weaknesses in the US economy, Cordray said, “there were no obvious deficiencies in our economy as of February, 2020.”

Instead, we saw the economy crash as a result of a policy created in March to shut down in-person circulation and most corresponding face-to-face economic activity, he said. “The situation was unparalleled, much like a medically induced coma to treat a patient confronting urgent, life threatening circumstances.”

The unusual nature of this crisis has made it difficult to interpret the data related to the economic effects. “The numbers affected became so large that they overwhelmed established methods of data collection, including state unemployment application processes and the normal utilization of seasonal adjustments,” Cordray said.

He begged the question, “What are the effects on the world’s largest economy when it is halted instantaneously as though shutting off a light switch? Can it be switched back on all at once just by listening to government edicts?”

These kinds of questions have led Americans into the debate over what the economic recovery will look like in the coming years. Cordray offered three possibilities: a v-shaped recovery, a u-shaped recovery, or a w-shaped recovery.

“Given that the project of getting the pandemic under control, at least in this country, has proven to be quite challenging, we are not returning to full illumination immediately. Our situation instead is more like flipping the light switch with a newly applied dimmer control,” Cordray said. “The trajectory of that crucial variable—the effects of the pandemic—remains to be worked out, and it is the single most important question mark for the time being.”

Due to the uncertainties surrounding the pandemic, it is difficult to say where the economy will go from here, but Cordray believes there are lessons to be learned from what we’ve seen so far.

“I think the absence of a blame narrative is important. The unique historical nature of the pandemic is such that it is broadening the possibilities for reform. It is opening up new fields and new ideas to be actually considered that were being locked out of our gridlock system before,” Cordray said.

For instance, Cordray said, “Issues like a universal basic income or other reforms that might be proposed, which might have seemed radical two years ago, won’t seem quite so far-fetched and might be tenable, depending on where the political landscape falls out in the wake of this upcoming election.”

When asked about the effects of the presidential election, Cordray immediately highlighted the response to the pandemic as a key dependent variable. “If we don’t respond effectively to the pandemic, there will be economic fallout, it will be more protracted, it will be more severe,” he said.

“I think there’s really no question that a Biden presidency would be expected to deal more effectively with the pandemic than the Trump presidency has, based in part on the fact that the Trump presidency has had its turn at bat here and dismally failed to prevent or mitigate the problem,” Cordray said.