- Nobel laureate Joseph Stiglitz in a Wednesday interview with Business Insider’s Sara Silverstein discussed the damage the coronavirus outbreak is inflicting on the US economy and what it might take to eventually rebound from the sudden shock.
- While he expects the US economy to rebound at some point, “it won’t be a robust recovery,” he said.
- He worries that there are gaps in the $2 trillion coronavirus stimulus bill making its way through Congress, he said.
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Nobel laureate economist Joseph Stiglitz is not anticipating a booming recovery from the coronavirus pandemic.
In a Wednesday interview with Business Insider’s Sara Silverstein, Stiglitz discussed the damage the coronavirus outbreak is inflicting on the US economy and what it might take to eventually rebound from the sudden shock.
Initially, there might be a quick recovery, Stiglitz said. “Not back to where we were, but remember, what shut down the economy was not failing banks, it was the disease, and once that goes away, people can go back to work.”
He continued: “I expect while it’ll bounce back from the extremes of unemployment that we’re seeing now, it won’t be a robust recovery.”
To combat the spread of COVID-19 cases, a number of states across the US have implemented drastic measures encouraging people to practice social distancing and shutting down non-essential businesses such as bars, restaurants, and museums. In addition, schools are closed, and millions of workers are stuck at home with no clear end date in sight. That’s led to a record spike in weekly unemployment claims, as coronavirus-induced layoffs begin.
The problem is that the economic freeze is going to have a lingering impact on consumers and businesses, according to Stiglitz.
“The balance sheet of many firms, many households, is going to be wrecked,” he said. “They are going to see their savings used up, there’s still going to be a lot of fear.”
The strength of any recovery will depend on a lot of things, according to Stiglitz, including economic and fiscal policy.
The Federal Reserve has taken unprecedented actions to bolster the US economy and provide liquidity amid the coronavirus pandemic – it slashed interest rates to zero, injected capital into financial markets, launched unlimited bond-buying, and established facilities to help local businesses and governments.
The Fed’s actions are important, according to Stiglitz. “But it should be clear, they can’t make up for inadequate fiscal policy on the part of the federal, state, and local governments,” he said, adding that it’s out of their purview.
Now, investors and economists are waiting to see further developments around the $2 trillion coronavirus stimulus package that was approved by the Senate late Wednesday. The bill includes aid for industries hit hardest by the coronavirus pandemic, payments for millions of Americans, and unemployment benefit expansions.
Still, Stiglitz worries that the government doesn’t understand what it will take to restart the economy.
“In spite of the many, many virtues of the bill that is likely to be voted on by Congress, there are some big gaps, and those are going to mean that the recovery is going to be slower than it otherwise would be,” said Stiglitz.
The government should pay a lot of attention to the position of individuals, he said, in addition to other economic variables. “They will have gone through two months, three months of devastation, and you can’t just pick up” where you left off, he said.
He worries that consumer debt will surge as people turn to credit cards to make ends meet during the pandemic. In addition, it’s likely that state and local governments will be behind after the outbreak ends, as revenues will have taken a hit. Businesses big and small may also see more layoffs in the future if they aren’t given “significant assistance,” he said.