As coronavirus in the United States spreads, the magnitude of the economic impact is starting to appear. The number of unemployment claims is skyrocketing — Goldman Sachs predicts an eightfold increase in a week, the highest ever recorded — and the stock market is setting record-breaking low days. A recent study from Imperial College of London predicts that COVID-19 deaths in the U.S. could range, depending on the response, between 1 and 2 million — at least double the number of American casualties in both World Wars combined. The economic devastation of such loss is hard to imagine.
Columbia University economist Joseph Stiglitz, a Nobel Prize laureate and former chief economist of the World Bank, has been critical of the way that the U.S. responded to the last recession. He spoke to The Inquirer about what should be done now to ease the crisis. Responses were edited for length and clarity.
Right now, there’s a degree of confidence we’ll be able to develop a vaccine — though it may take a year — and develop antiviral drugs. If we were 300 years ago, [COVID-19] would be just a plague on the whole world. It highlights the role of government both in social protection and in research. The irony is that President Trump has been defunding the CDC, which is part of our system of health protection, and defunding science research.
Trump says he wants checks out there in two weeks. We don’t have the capacity to write checks that quickly just like we don’t have the capacity to produce tests and ventilators. As a nation, we have the capacity but the Trump administration has defenestrated the capacity of government.
This is a situation that we’ve never had before. That’s why some of the vocabulary that you’ve seen discussing the response is not on target. A lot of people talk about a stimulus. It’s not like 2008 or the Great Depression or other downturns where there was lack of demand. Giving people more money isn’t going to lead them to fly more on airplanes. The problem is the hunkering down in response to the virus. And that’s why the policies appropriate in 2008 need to be changed.
Getting a couple of thousand dollars to everybody right now is absolutely essential. We have to make sure that the consequences of not having the money, the worst consequences, are mitigated. And that means no evictions, no foreclosures, no compounding of usury as interest rates, forbearance on student loans, and more.
One suggestion is just to tell employers to pay people whether they’re working or not. And if they’re not working, we’ll reimburse you. Ideally, have the employers give them the $2,000 check and have other people apply for it. So that reduces the burden on the government and shares it in a broader way. If you put the burden more on employers, that would leave maybe 10% of the population that would be uncovered. And getting checks out for 10% of the population rather than 100% is something that we could manage.
It’s the difference between top-down trickle down economics and a bottoms-up approach. What we did in 2008 was trickle-down economics where we gave a lot of money to the banks, and we assumed that somehow everybody would benefit. We got an important lesson in the first three years of the recovery: 91% of the increase in income went to the top 1%. It didn’t trickle down and millions lost their homes, their jobs, and [endured] an enormous amount of suffering.
I distinguish very carefully, both in 2008 and now again, between saving the corporations, and their jobs. We might need to lend money to these companies [as] warrants or convertible bonds so that we participate in the upside as well as the downside and get compensated for the risk. What the airline industry wants is an outright gift and that makes absolutely no sense.
It’s always a question of prioritization. A lot of people said we didn’t have money in 2009 to re-stimulate the economy. And then suddenly, in 2017, they found a couple trillion dollars to give tax cuts to corporations, and billionaires. So always hidden behind the scenes is a statement about prioritization. It’s very clear if we were attacked in a war, we would find the money. This is a kind of war.