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The devastating economic impact of the COVID-19 pandemic has drawn comparisons with a previous U.S. economic calamity – The Great Recession of 2008.

That crisis, similar to the current one, included high unemployment, a plunging stock market and government stimulus packages. While the population wonders how and when the U.S. economy will recover, there are some lessons learned from 2008 that can be applied now, says Steve Kruman (www.brycewealth.com), a financial planner and investment advisor at Bryce Wealth Management.

“There was a wide variety of strategies in the last recession, from infrastructure investments to re-regulating financial institutions and others,” Kruman says. “Some worked and some didn’t. Seeing where we went wrong may help us get this right.”

Kruman breaks down what he thinks were the wrong recovery strategies in the last recession, and ways the economy could be steered back on course this time:

Questionable strategies in 2008

• Over-regulated businesses. “Regulations have been cut dramatically, which is a contrast to 2008,” Kruman says. “Shortly after the 2008 recession hit, we entered a period where the federal government began promulgating numerous impediments to business, resulting in more than more than 20,000 regulations affecting businesses. Yes, we recovered, but we would have made a quicker and better recovery if we had not been adding restrictions on businesses. It’s a drag to drive a car when the emergency brake is still on. The same thing applies to the national economy struggling to recover while regulations are being piled on.”
• Risked taxpayer money. “Taxpayer money was wasted on some projects that never should have been funded by the government, especially in the alternative energy sector,” Kruman says. “It’s not up to the U.S. government to pick winners in the economy. It’s up to venture capitalists and other investors to help fund companies. Taxpayer money shouldn’t be put at risk.”
• Reduced lending. “Bank lending dried up despite massive government support. Public outcry changed that,” Kruman says. “Government meddling set the stage for the problem that hit the total economy in 2008. It’s also important to remember that the ‘patient’ was showing signs of deteriorating health in 2007. The subprime mortgage crisis was mushrooming. Rapidly expanding derivatives full of such high-risk mortgages were being sold to investors who may not have understood what they were getting into.”

Strategies that could help now

• Focus on small businesses. “The government’s aid to small businesses has been a good sign,” Kruman says. “That’s a departure from the 2008 crisis, when policymakers targeted most of the bailout at Wall Street. Wall Street recovered fairly quickly but homeowners did not. Now millions of laid-off workers and many businesses are in trouble, and the focus needs to stay mainly on both to help ride this out.”
• Banks’ flexibility. “Banks are taking steps to assist customers,” Kruman says. “Deferred principal payments and forgiven interest during the business shutdown period for credit cards, auto loans and mortgages would provide critical support to the economy. It’s possible because U.S. banks were in a position of strength before the pandemic due to record levels of capital and liquidity.”
• Future incentives. “We need to figure out how to help businesses past the short-term parameters of the current assistance,” Kruman says. “Protecting the payroll temporarily only goes so far. The government should give small businesses tax incentives, like a double deduction for employer contributions made for employee health insurance in 2020.”

“Re-invigorating our economy is like an airplane taking flight,” Kruman says. “It has to roll down the runway for a while to gain speed before it has the needed lift to take off. If all four engines – employers, lenders, the government, and the employees who make American business hum – are functioning at top thrust in the manner consistent with the best interest of the nation, we can get this economy up and flying high again as quickly as possible.”

Steve Kruman (www.brycewealth.com) is a financial planner, investment advisor and insurance agent at Bryce Wealth Management. He’s also a licensed attorney focusing on estate planning. Kruman is a Life & Qualifying Member of the Million Dollar Round Table, the only industry organization for people who are ethical top performers.