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Robert Shiller: Pandemic of fear could tip economy into a depression

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'This isn't the same story as the Great Depression,' Robert Shiller says

Nobel-prize winning economist Robert Shiller warns a pandemic of fear could tip the economy into an undeserved depression.

Shiller, an expert in how our emotions drive financial decisions, finds the sheer volume of chatter surrounding depression risks due to the coronavirus could severely hurt the economy.

"This isn't the same story as the Great Depression. The Great Depression lasted ten years. They didn't have an unemployment rate under 12% until the decade was over," the Yale University professor told CNBC's "Trading Nation" on Thursday. "It's a popular narrative. But this is a pandemic. It shouldn't last ten years. It should be over in one or two years."

Even though he suggests there are few parallels between the 1930s and now, Shiller contends there's no question the downturn will be severe.

"We may not be up to our previous peak for a long time," he added.

Shiller, who wrote the 2019 book "Narrative Economics: How Stories Go Viral and Drive Major Economic Events," warned investors on "Trading Nation" in early March that the coronavirus panic was just beginning. He also said the market meltdown was far from over.

"The shortage of supplies is generating horrible news stories that put us all on edge," said Shiller. "It may mean people won't go to restaurants or sporting events in good numbers for years. You know the disease might not well be eradicated for several years from now."

'It may take years for unemployment to come fully back'

And, that could spell even more bad news for a jobs market that's already seeing record losses.

"People are scared by the talk of really high unemployment rate numbers that might becoming fairly soon — like 20%," he noted. "It puts a whole psychological framework onto this that may be a self-fulfilling prophecy."

On Thursday, the Labor Department reported weekly initial jobless claims soared by 6.6 million. The U.S. has now lost a tenth of its workforce in three weeks or 16 million jobs.

"The jobs market is more difficult than the stock market. The unemployment rate tends to shoot up and then only gradually come back down," Shiller said. "It may take years for employment to come fully back."

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Shiller: Coronavirus depression fears may set stage for self-fulfilling prophecy