An expert on recessions explains what’s so strange about this one, how Washington could bungle the recovery—and why this pandemic wasn’t a “black swan” event
The new threat of Covid-19 has thrust new cadres of experts into the public eye, mostly from the health world. Now that we’re heading into a sharp and sudden economic downturn, with ballooning unemployment and a stock market down almost 20 percent, attention is turning to a new kind of expert: recession wizzes.
He spoke to POLITICO about what we have to look forward to. The interview has been edited for length and clarity.A: The simple answer is “no.” The only thing that is somewhat similar is in 1918. But even that is not a great example. There was a pandemic then. Nobody knew what it was, but they did figure out that gathering in crowds was a bad idea. That slowed down the economy around the world.
There is no playbook for this. What you have to be aware of is that this crisis is operating on two tracks. In the global financial crisis, we were doing financial things to remedy a financial situation. In this crisis, we’re doing financial things to mitigate a financial situation that was initiated by a biological situation. Finance can cure finance. Finance cannot cure the biological problem. But both have to be addressed.
You mentioned the 18-month time frame that’s typical for vaccine development and production. How does the economy fare if it takes that long for people to know they won’t contract the virus? as possible in stasis until we get the number of cases going down dramatically. Then, when we have a vaccine, that’s the all clear and businesses will start hiring again in huge numbers.
This is far more complex. In this recession, we’re not pointing the finger at anybody. It’s more like a natural disaster. This affects high-quality firms, mainly small businesses. So the response has to focus on those groups. The banks need to be told, “You need to accept as the truth what the applicants are actually saying.” It’s a trade-off. Some people will take advantage of this. But the cost of delay and making the process very bureaucratic is that firms will fail. If firms fail, there won’t be jobs to go back to when the biological problem is solved.
There was a structural problem with our economy in 2007 in that our banking system was broken. There wasn’t a structural problem in 2020. Nothing was broken. If we can go back to work, this recovery will be very robust and historic in terms ofStill, won’t people who may have been out of work for months be reluctant to spend and companies hesitant to rehire after nearly a year with little income?
I think it is possible that we’re going to have a historic comeback. I’m not sure I’d address it as a rocket. Business will not just go back to normal with the snap of a finger. Do you think Congress will feel pressure to provide more aid even after trumpeting the $2 trillion CARES act as historic in size and scope?
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