[MUSIC PLAYING]
ALAN BLINDER: COVID-19 is
a major, major, major -- you
can put as many "majors" as
you want into that -- disruption
of economic activity.
We are sitting now
in the midst of what
looks to be the most severe
recession since the 1930s.
I think there's every reason
to believe it will not
devolve into a depression.
SPEAKER: Welcome to "We Roar."
This spring, with coronavirus
disrupting all our lives,
we're reaching out
to Princetonians
everywhere to hear
how we're continuing
our collective and
personal missions,
how we're staying together at a
distance, and how so many of us
are working to serve
the wider world.
In this episode, one
of the nation's leading
macroeconomists
looks to the past
to envision the future of this
pandemic-driven recession.
ALAN BLINDER: I'm Alan Blinder.
I'm the Gordon S. Rentschler
Memorial Professor of Economics
at Princeton University.
I think this
pandemic, COVID-19, is
going to be studied
extensively by economists.
Right now, you can hardly
entertain that subject
without crying,
if not literally,
but figuratively on the inside.
But as time passes,
we will look back
at this as one of the most
extreme economic events that
has ever taken place.
This is not like
anything we have ever
seen since the Spanish flu
more than a century ago.
It killed many more
people around the world
and in the United
States than anybody
thinks the COVID-19 will.
But the economy snapped back.
The Spanish flu lasted
from 1918 into 1920.
There was more than
one wave, which
is something we'd like not
to happen in this case.
But that got followed by what
was called the Roaring '20s.
If you remember -- not remember.
You're not old
enough to remember.
The Roaring '20s were called
"roaring" because of how great
the economy was going
and leading eventually
to a stock market bubble
and a stock market crash.
But never mind the crash.
The point is that the
'20s were roaring.
So this is not going
to last forever.
And the economy will come back.
I'm a macroeconomist.
And that means among
the main things
that we study, think about how
to mitigate are recessions.
So we are sitting
now in the midst
of what looks to be the
most severe recession
since the 1930s.
I think there's every reason
to believe it will not
devolve into a depression,
which connotes lasting years
and years.
But we are in an extremely
severe economic downturn
mostly measured in terms
of what the public sees
in jobs, which are
being decimated,
and in GDP, Gross
Domestic Product.
When the initial unemployment
numbers started to come in --
and these were for weekly
claims for new people claiming
unemployment benefits --
we have never seen a number
anywhere close to that,
including in what got
called the Great Recession.
We thought that was horrible.
It was horrible, but
nothing like this.
One of the odd things
about this recession,
in addition to its
extreme severity,
is its concentration
on services.
GDP is a measure
of how much stuff
the whole economy is producing.
What a lot of people don't
understand about that
is that most of the stuff
is not physical goods.
It's services.
It's restaurants.
It's lawyers, doctors, plumbers.
The list is endless.
And services are something
like 65% of consumption.
And consumption spending is
something like 70% of GDP.
So do the math.
You've got over 30%
of the economy --
I don't want to say "decimated."
Some of it continues, but
very, very severely impacted.
And I don't mean to give the
impression it's only services.
Factories have shut down or
severely reduced their output
because they're not
selling anything.
Ultimately, the economy runs
on businesses operating,
whether they're making
goods or services,
to produce things
consumers want to buy.
And if the consumers
are not buying,
the business is not there.
[MUSIC PLAYING]
The question about long-term
damage is yet to be resolved.
It will depend on the
course of the disease.
If this thing lasts
longer than we now think,
the best guess
now is this horror
show, this horrible, horrible
decline in economic activity,
will be short-lived, that we're
measuring in months or quarters
at worst, not years.
If that's true, then the
diminution or destruction
of human capital
may not be great.
But if it lasts longer than
we think, it will be great.
People need work experience.
Young people coming out of high
schools and colleges need jobs.
Just think about if
you're graduating
from college or high school
in May or June of this year.
Where in the world are
you going to find a job?
And the evidence is those kinds
of scars, they're often called,
leave lasting impacts on
people that last for decades.
The college class of
2009 that graduated
into the teeth of
the Great Recession
is probably handicapped for
their entire life because
of that compared to, say,
to the class of 2007.
Another very obvious
long-term issue
is the size of
the national debt.
Now, I've never
been deficit-phobic.
There are reasons to
have budget deficits.
But a consequence
of that is that we
are going to have a much
bigger national debt than we
thought we would.
And there are questions
about what that will
do to the financial system.
There are, indeed,
questions about how much
even the United
States can borrow
in the near term at very,
very low interest rates.
We don't know the
answer to that.
It's a big number,
a very big number.
And we're not near it yet.
So there's no immediate concern.
Once the danger lifts --
and that's going to
happen in stages --
it'll take time
and it'll vary
across geographies.
I think the economy will
snap back very strongly
and, at the end of the rainbow,
so to speak, a vaccine.
And by the way, I
should add to that.
Anybody that talks about
it should add to that.
It's one thing to
have a vaccine.
It's another thing to
administer 330 million doses.
And that's just
the United States.
When you go to the world,
it's billions of people.
So we should just throw
everything at that.
Something I was just writing --
economists often
dote on trade-offs.
If you want more of this,
you have to have less of that
and so on.
That's kind of our
bread and butter.
That's what we teach
students all the time.
This is the time to
forget about that.
There is no trade-off.
Anything we can
throw at improving
the outcome of the pandemic
we should throw out.
And forget about
everything else.
I believe consumers will go
back to their old habits,
their old ways of buying,
the old things that they
used to buy and things
they used to do.
But it's going to take
a long time and be very,
variegated in
different dimensions.
So just to take two
examples, people
are already going
to grocery stores
because they have to eat.
Some people are getting
deliveries for their houses.
And they'll probably just go
back to going to the grocery
like they used to.
Sporting events,
movies, where people
are in crowds of
other people, I think
are going to come back
very, very slowly.
[MUSIC PLAYING]
What am I looking forward
to when this is over?
I should actually
start with hugging
my grandchildren,
which I haven't
done in quite a long time.
But professionally, getting
back into a live classroom with
live students that
you're not afraid of --
I mean, people my
age are being told
to be afraid of young
people because they
may be vectors of disease.
I don't like to think of my
grandchildren that way.
I don't like to think
of my students that way.
And when this passes, I won't.
[MUSIC PLAYING]
SPEAKER: This podcast
is a production
of the Princeton University
Office of Communications.
The opinions expressed
herein represent
the views of the
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