Great question, Gary. Diffusion in this case means how widespread the effects of the recession are felt. In the case of the Great Recession, the recession began with a variety of local housing markets (mostly in the Sun Belt) but soon diffused to a great extent throughout the rest of the economy because of the devastating domino effect these housing market issues had on the web of banks and financial institutions that support our economy—the diffusion was significant. Whereas with the Dot-com Recession, most of the impact was on internet companies; while there was some domino effect on the rest of the economy, the damage was mostly contained to that sector—the diffusion in this case was limited.
Additionally, the diffusion of the COVID Recession presents an interesting case. The lingering effects of shutdowns devastated some industries, service-oriented ones in particular: full-service restaurants and bars, hotels and hospitality, travel, and fitness centers. But other industries benefitted greatly from these restrictions: food delivery services, online services like Zoom and Peloton, and durable goods retailers. Interestingly, the recovery has been as asymmetrical as the downturn, making the COVID recession/recovery one of the more complicated and interesting case studies in diffusion that we've seen in modern times.
The asymmetries of the recovery are, in some cases, startling. Commercial real estate in large cities is far from recovering, and 30% of dry cleaning shops (mostly mom and pop) are gone forever. Even industries that flourished during the pandemic (online shopping, teleconferencing, home exercise, etc.) are experiencing a hangover as demand returns to more normal levels and they pay the price for overexpansion.
Great post, Eric. I really enjoy your lucid explanation, and I'm sure many others do as well!
If only the Fed could print commodities, it sure would help address our inflation problem.
Could you expand a bit about what diffusion means?
Great question, Gary. Diffusion in this case means how widespread the effects of the recession are felt. In the case of the Great Recession, the recession began with a variety of local housing markets (mostly in the Sun Belt) but soon diffused to a great extent throughout the rest of the economy because of the devastating domino effect these housing market issues had on the web of banks and financial institutions that support our economy—the diffusion was significant. Whereas with the Dot-com Recession, most of the impact was on internet companies; while there was some domino effect on the rest of the economy, the damage was mostly contained to that sector—the diffusion in this case was limited.
Additionally, the diffusion of the COVID Recession presents an interesting case. The lingering effects of shutdowns devastated some industries, service-oriented ones in particular: full-service restaurants and bars, hotels and hospitality, travel, and fitness centers. But other industries benefitted greatly from these restrictions: food delivery services, online services like Zoom and Peloton, and durable goods retailers. Interestingly, the recovery has been as asymmetrical as the downturn, making the COVID recession/recovery one of the more complicated and interesting case studies in diffusion that we've seen in modern times.
The asymmetries of the recovery are, in some cases, startling. Commercial real estate in large cities is far from recovering, and 30% of dry cleaning shops (mostly mom and pop) are gone forever. Even industries that flourished during the pandemic (online shopping, teleconferencing, home exercise, etc.) are experiencing a hangover as demand returns to more normal levels and they pay the price for overexpansion.
Thank you, Eric. So diffusion can refer to the spread of recession geographically, as well as through different business sectors and markets.