Economic Lessons from Past Pandemics
How will the coronavirus epidemic change the US and global economies? Whose anti-crisis policy – American or European – is more effective? Should the admission of immigrants be reduced under these conditions??
The coronavirus epidemic has become a serious test for the United States and Americans. Megan Green, Harvard Kennedy School professor, told the Voice of America about the economic consequences of the crisis..
Nikolay Pavlov: How the pandemic affects the US economy?
Megan Green: The epidemic has had an unprecedented impact on the US economy. Look at the number of people who have applied for unemployment benefits in the past two weeks. We’ve never seen anything like it.
We now understand that it will take us time to contain the virus, and therefore we may have to resort to deep freezing of our economy for a longer period than expected. And even when we start to unfreeze the economy, there is no guarantee that everything will return to its usual state. We see what different states are doing for their population and small business: the answers to the crisis are completely different. The United States is issuing tons of debt to provide tax and monetary support to the markets, trying to channel money to people and small entrepreneurs who desperately need it, trying to support those who have lost their jobs by increasing unemployment benefits. Europeans have a completely different approach: states – not employing companies – pay salaries to keep jobs, instead of laying off people or sending them on unpaid leave. We’ll see which of these approaches works best..
N.P .: How long can this crisis last?
M.G .: Much depends on epidemiology, not economics. We know that a lot depends on the ability to test the population for coronavirus every two weeks, so that there is confidence that people are not sick with COVID-19. Economist Paul Romer recently suggested that if we test people every two weeks, we can isolate those who are sick, and others can return to their normal lives. But the problem is that it requires 150 million tests in the US every week – now we can barely test a million people. I think this would be the best approach and also the cheapest. These costs are much less than the losses incurred by private entrepreneurs as a result of the closure of the economy. And in the absence of tests, everyone will have problems.
Download Adobe Flash Player
How the coronavirus epidemic will change the economy of the United States and the world?
The code has been copied to your clipboard.
The URL has been copied to your clipboard
N.P.: How can the process of overcoming the crisis go?
M.G .: I think we will have a gradual and non-linear economic recovery. Not all companies will be able to weather this crisis. We will need to use more fiscal stimulus to keep companies healthy so they can survive the economic freeze. But this also means that some areas of business will never return to pre-crisis state. Economists have predicted the death of shopping malls for decades, but this has not happened, but it could happen now. Many large stores simply won’t open anymore. Airlines are suffering serious losses because no one else travels. I think some of them will go bankrupt. To be honest, this is completely normal for business. The oil industry is in dire straits. It all started with a disagreement over oil production between Russia and Saudi Arabia, and the Saudis decided to flood the market with oil because of this. But suddenly there are consumption problems, because no one goes anywhere or flies. Oil was not needed. This means that oil goes to storage, but our storage is almost full. We saw that the price of May futures contracts fell below zero. We have never seen this. This will continue as long as demand remains at the same level as it is now, and until we manage to cope with the epidemic. Many energy companies will cease to exist – some were in trouble with oil at $ 50 a barrel. The government should be very prudent in providing aid to companies. Providing it to healthy businesses and not giving it to those who experienced problems even before the crisis, so as not to create zombie companies: this is ineffective and will hinder the growth of the economy.
N.P .: How do you assess the requirements to immediately cancel the quarantine regime??
M.G .: The question is whether people are really willing to accept that what they are calling for will lead to higher mortality rates. It is possible that we could have overcome this crisis much faster if we had opened up our economy, but we would have paid for it with incredible human sacrifices..
N.P .: Since the onset of the crisis, the United States has significantly reduced the flow of legal immigrants. What do you think of this decision?
M.G .: I do not think that such a political decision makes any sense from an economic point of view. The data clearly show that immigration contributes to economic growth in the United States and most other developed countries. Not the fact that immigrants are applying for jobs that interest Americans. They often do work that Americans don’t want to do. In addition, immigrants overwhelmingly contribute to the social safety net because they have fewer opportunities to use it than Americans or citizens of other developed countries. Moreover, population growth stimulates economic growth. Epidemiologically speaking, it doesn’t make sense either, because the virus is already here and has been here longer than many officials are willing to admit..
N.P .: How the economy can change after the crisis?
M.G .: One of the long-term consequences of this crisis will be that governments will gain more influence in many economies. This will be a fundamental structural shift. In a country like the United States, where the social security system was already weakened, it’s even good that we thought about how to support the most vulnerable members of our society. Social inequality has increased significantly in industrialized countries and especially in the United States. This problem is likely to be exacerbated by the crisis. But at least our politicians began to think about what we could do about it. In this sense, the crisis can have a positive effect..