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How The Economic Effects Of Coronavirus Compare To Past Downturns


How quickly will things turn around after the economic shock of the coronavirus? Jason Furman is a veteran of the last major economic crisis. He chaired the Council of Economic Advisers during the Obama administration and helped design that administration's response to the 2008 financial crisis and the Great Recession. He now teaches at Harvard's Kennedy School of Government, and he joins us on the line this morning.

Thanks so much for being with us.

JASON FURMAN: Thanks for having me.

GARCIA-NAVARRO: And I also want to introduce NPR chief economic correspondent Scott Horsley, who's also with us this morning, and he'll be asking questions, too.

Hi, Scott.


GARCIA-NAVARRO: All right. Jason Furman, former Federal Reserve Vice Chairman Alan Blinder says the U.S. is already in a recession. Do you agree?

FURMAN: I think that is very likely. The question is whether the economy peaked in February or March.

GARCIA-NAVARRO: What is your reaction, then, to this weekend's two big moves by the government here in the United States? The White House is tapping natural disaster emergency powers to free up up to $50 billion to help respond to the coronavirus, and Nancy Pelosi struck a deal with the administration on sick leave, food assistance and more. What's your take?

FURMAN: I think both of those are great steps. The natural disaster doesn't just unlock 50 billion; it unlocks a set of rules that will make it much easier to deal with this. The House bill, I think, is terrific in terms of free testing; more money for state Medicaid programs, which I think is really critical at a time like this when states will come under strain; and the paid leave, which is imperfect, but it's a compromise. It's a good start. So I think all of that is terrific, important, can't happen too quickly.

HORSLEY: Jason, is part of the tension here that the very things that we need to do - that public health officials say we need to do to flatten this curve and avoid overwhelming the health care system are the things that are going to be economically painful? Nike just announced it's closing its stores in the U.S. temporarily. Our barber friend there might see fewer customers. How do we do what we need to do from a public health standpoint and, at the same time, try to minimize the economic pain?

FURMAN: Yeah. Look, Scott. The public health measures are going to hurt the economy quite a lot in the short run, and that's completely appropriate. That's completely appropriate for our health. It's also appropriate for our economy in the medium and long run because it will help end this more quickly. So I'm all for that.

Our economic policy, though, should be aiming to cushion the blow as much as possible. I don't - wouldn't go out and suggest that we hurt the economy for the sake of hurting the economy just to slow the spread of the virus. So we want to get relief to people. We want to get cash to small businesses to help them get through this. And we also need to be in a place where we're - want the economy to rebound as quickly as possible after this because the longer it goes on, the more people lose their jobs, the worse shape balance sheets are in for businesses. And you don't snap back very quickly when you're in a situation like that.

So I think public health - definitely. Don't worry about the economy right now. Do what you need to do. Economic policy should still be doing what it can to mute the impact as much as possible.

HORSLEY: And we've heard a lot about trying to roll out more testing for the coronavirus. Is that important from an economic standpoint, as well as, obviously, just to guide the health care response?

FURMAN: Yeah. I mean, the most important economic policy right now is to reduce the spread of this virus and to spread it out so that it's not overwhelming our hospital systems. Testing has been a really important part of that in countries like South Korea that have done a much better job than the United States have. So I'm glad that cost for individuals won't be an obstacle to testing. You need the actual tests, though. And that seems to be making some progress, but still way behind where we should be.

GARCIA-NAVARRO: The congressional aid package was really the product of negotiations between Speaker Pelosi and her House Democrats and Treasury Secretary Steve Mnuchin. You've called for just mailing checks to people. Can you explain why you think that's a good idea and maybe what other measures should be taken?

FURMAN: Yeah. I think we should be doing four types of things - number one, anything we need to do on the health side. This bill has testing. I think we should be doing more on hospital construction, ventilators, tents, respirators and the like. Number two, all the targeted assistance to the people that we can identify that have been hurt - that's what's in the House bill - things like unemployment insurance, nutritional assistance and especially leave.

Steps one and two, though, aren't large enough, and they don't reach a number of people who are going to be affected, which is almost all of us. So that's why step three should be broad-based assistance. I've proposed a check of a thousand dollars per adult, $500 per child.

There's a lot of different ways to do it. You could phase it out for higher incomes. That would get hundreds of billions of dollars into the economy. For some people, that would enable them not to work. So that's not necessarily for them about increasing economic growth. It's about public health. For others, it would let them continue to pay the rent. And for still others, it would put them in a better position to spend after all of this is over. So that's the third step.

The fourth thing is something, especially on the lending side, to help businesses with the huge liquidity crunch that so many of them are going to be going through.

HORSLEY: Jason, can I ask about what this is doing in the financial markets - not only the wild swings in the stock market, but also the credit markets? I want to play something your Kennedy School colleague Megan Greene said.


MEGAN GREENE: This has gone from being a supply-side shock, where the worry was that, you know, American companies wouldn't be able to get parts to finish their products to sell them to clients, to now being a demand-side shock, where everybody's working from home. And so you don't have people out buying stuff - to finally this week being a financial shock.

HORSLEY: Can you explain what that means by financial shock and how that could actually make things even worse in the real economy?

FURMAN: Sure. What most people are paying attention to is the ups and downs of the stock market. And that's important, but the stock market can actually go down a lot without that causing a decent recession. I'm not saying that's good. I'm not saying I want that.

The thing where you really get worried is if the lifeblood of the economy, the lending, starts to dry up. And one of the worrying things that happened this past week is that while the Federal Reserve lowered interest rates and the interest rates on Treasury bonds, which were very safe, were very low, interest rates on a lot of what matters for the economy, like home mortgages, actually went up. And that is because investors were just nervous about liquidity in some of those other markets.

What I'd like to see and expect to see this week from - coming week from the Fed is that they're going to do something not just to lower the headline interest rate but to start directly buying and getting involved in markets to bring down interest rates that people are actually borrowing at, like their mortgage rates, the rates businesses borrow at.

GARCIA-NAVARRO: Jason Furman, just quickly - we have a few seconds left. How long do you think this is going to last?

FURMAN: I have no idea, but I'm encouraged by the increasingly dramatic steps that we're taking as a country. I think those are great news for all of us.

GARCIA-NAVARRO: That's Jason Furman. He was the chair of the Council of Economic Advisors during the Obama administration.

Thank you very much.

FURMAN: Thanks for having me. Transcript provided by NPR, Copyright NPR.