Ford School Policy Talk: Hope for economic recovery tied to health success
The U.S. and global economy will only recover when major improvements in healthcare and the ability to combat the coronavirus take hold. The crisis has exacerbated inequality along racial, ethnic and economic lines. This recession is unlike any other we have seen.
These were the main themes in a wide-ranging Ford School Policy Talk [From a Distance], “Navigating the economic crisis during a global pandemic", including Dean Michael S. Barr and economists and faculty members Betsey Stevenson and Justin Wolfers.
The Policy Talks video can be seen here.
Highlights of the discussion:
The importance of improving health for an improving economy
Wolfers: The Australians did tighten, they took it seriously but they look ready for a robust economic bounceback.
Stevenson: There is a big potential upside if we can really get cases to zero. So when people talk about things like are we going to bounce back and have a quick recovery, that's going to depend on how good a job we did stamping out the virus. Unfortunately, the U.S. didn't do a very good job of stamping out the virus. So we didn't get a great bang for our buck in terms of shutting down. That doesn't mean we shouldn't have shut down. In the U.S. we were facing really big costs in staying open. Should we be opening right now? I don't think so. We don't have in place the things that are needed.
Wolfers: If you want to ask me what the three most important economic policy tools are right now, they are public health, public health, and public health. Then comes fiscal and then comes monetary. We are doing okay on fiscal and monetary. The first three is what I'm worried about.
Barr: Many countries saw their rates of COVID 19 disease increase and then fall with their public health measures. The U.S. saw it increase and flatten. We are deciding to re open before anybody else has decided to re open at a level that creates serious public health risks. It is hard to know whether this will last into the summer or not.
Stevenson: The fear side, I think, is where we are bombing. We are really bombing on the fear side. There is no sense that there is confidence that we have a coherent plan. There is arguing across the aisles. I never would have thought a virus could become a partisan issue. It's not like it's a partisan issue divided between the healthy and the unhealthy. It's a somewhat toxic political situation in the United States making it hard to address the fear issue adequately.
Wolfers: Fear goes two ways. There is a lot of fear out of the economy. There might be parts of the economy where there is not enough fear right now. The masks have become partisan and that's insane.
The pandemic has exacerbated racial, ethnic and economic disparities
Barr: The economic crisis and the pandemic have highlighted, revealed, reinforced racial and ethnic disparities in societies. Very different impacts across income levels, the kind of work you do.
Wolfers: I think it's at one level terrifying. We discovered yet again they seem to have the same disparate impacts that the economic issues we have been thinking about have. You have seen, of course, a lot more spread because a lot more spread is occurring when people have to work face to face. You have seen larger job losses for people with less education. That's a simple marker of socioeconomic status and income. During a pandemic when people can't work, they need income support. It turns out that's particularly true for low income people, for communities of color. I'm worried that the income support goes away [on July 31] when political will goes away rather than when the need goes away. The second thing is we know from generations that recessions hurt disadvantaged groups more. So anything we can do to make a recession short, you know, whether it's fiscal, monetary, public health we'll have an extra effect on disadvantaged groups.
Stevenson: We have known about health care disparities about issues with people having health insurance, how they are treated at the doctor and COVID brought all of it into stark relief. I hope that the real starkness of this will have us address these persistent underlying inequities in the health care system. COVID isn't special. It's just showing us the problems that were already existing in the system.
This recession is unique
Barr: How do we interpret the unemployment numbers? Are they a temporary blip in a healthy economy that everybody is going to get back in or is there just a fundamental disruption that means that many of the jobs people had are not going to be there for them as we remerge hopefully from the pandemic at some point?
Stevenson: First of all, the unemployment rate that came out was 14.7%. But in reality we have a 19%, 20% unemployment rate. We have seen roughly 21.5 million people drop from payrolls over the last two months, but we have seen 35 million people apply for unemployment insurance compared to 2 million over the same period a year ago. So what does that mean? There must be more people dropped from payrolls than we have even seen so far. We have roughly 30 million to 40 million people who have separated from their employer in some way.
Wolfers: We keep getting headlines like the largest surge in unemployment in American history. When I say the largest, the largest by a factor of ten, the last monthly number. The last decline in employment, sorry. So when you look at rates of change, it is horrific. It's not only unheard of, it is ten times worse than unheard of. The great recession played out over eight months. This one, they walked on, blew the whistle and told everyone to get off the pitch. It was a highly synchronized recession. The economy was changing as much every two days as it typically does in a year. That's why the rates of change are dramatic. In some sense they are uninterpretable.
The next six months
Barr: If each of you could say in the next six months the U.S. government can do one thing, what's the one thing it should be sure to do to make our economy healthy and strong for the long term?
Wolfers: Test and trace. The one thing we need to do is beat the bug. A whole lot of economic benefits will flow from that. Lockdowns are part of it. But when we discover that people have it, finding everyone they have been in contact with, calling them, testing them, making sure they won't then infect others is the single best way to beat the bug. We see it from a range of countries. It's expensive. But relative to the cost of a pandemic-fueled economy, it is unbelievably cheap. We need to make bigger investments in public health.
Stevenson: We have to help the states out financially. The state government budget shortfalls are just enormous. States are going to end their fiscal year in July with revenues that are 10 to 20% lower than projections. Many of them need to make cuts before July. Really strong, vicious cuts. When we are looking at their fiscal year 2021, you're looking at 30 to 40% declines in revenue. Those will be massive cuts. It will extend the recession. What we saw in 2008 was state and local employment fell all the way through 2014. You know, it had just recovered in 2019. So let's not let it go back to the 2014 levels.
The Policy Talks video can be seen here.
Michael S. Barr is the Joan and Sanford Weill Dean of the Gerald R. Ford School of Public Policy, the Frank Murphy Collegiate Professor of Public Policy, the Roy F. and Jean Humphrey Proffitt Professor of Law at the University of Michigan Law School, and the founder and Faculty Director of the University of Michigan's Center on Finance, Law, and Policy. He is also a nonresident senior fellow at the Center for American Progress. At the Law School, Barr taught Financial Regulation and International Finance, and co-founded the International Transactions Clinic and the Detroit Neighborhood Entrepreneurs Project.
Betsey Stevenson is a professor of public policy and economics at the University of Michigan. She is also a faculty research associate at the National Bureau of Economic Research, a visiting associate professor of economics at the University of Sydney, a research fellow of the Centre for Economic Policy Research, a fellow of the Ifo Institute for Economic Research in Munich, and serves on the executive committee of the American Economic Association. She served as a member of the Council of Economic Advisers from 2013 to 2015 where she advised President Obama on social policy, labor market, and trade issues. She served as the chief economist of the U.S. Department of Labor from 2010 to 2011, advising the Secretary of Labor on labor policy and participating as the secretary's deputy to the White House economic team.
Justin Wolfers is a professor of public policy and economics. He also serves as a member of the Congressional Budget Office Panel of Economic Advisers. Wolfers' research interests include labor economics, macroeconomics, political economy, social policy, law and economics, and behavioral economics. Previously, Wolfers was an associate professor of business and public policy at the University of Pennsylvania and a visiting professor at Princeton University. He is a research associate with the National Bureau for Economic Research, a senior fellow of the Brookings Institution, a senior fellow of the Peterson Institute for International Economics, a research affiliate with the Centre for Economic Policy Research in London, and an international research fellow at the Kiel Institute for the World Economy in Germany.