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Nobel Prize-Winning Economist Offers Insights Into Historic Economic Decline

Jul 31, 2020
Originally published on July 31, 2020 7:09 am
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RACHEL MARTIN, HOST:

All right. So we're going to talk more about the implications of this significant drop in economic growth in this country with Paul Romer. He's a Nobel Prize-winning economist who served as the chief economist at the World Bank and is now a professor of economics at New York University. Thank you so much for being with us this morning.

PAUL ROMER: Oh, glad to be with you.

MARTIN: We know we're already in a recession because of the pandemic. But what does this precipitous drop in the GDP tell you?

ROMER: Well, it is very large, and it came very suddenly. So both of those dimensions should make us worry that the costs of this recession, the harm it does will be worse than, say, the costs of the recession around the financial crisis. And those costs were long-lasting. Careers were interrupted. People were unemployed for a long time. It took a long time to get back to full employment.

MARTIN: You're talking about 2008 - the 2008 crash.

ROMER: 2008, yeah.

MARTIN: Yeah.

ROMER: But we saw political repercussions - you know, the shift to populism, more antipathy to foreigners. And we've only begun to understand how this particular crisis is going to affect our social fabric.

MARTIN: We've seen states start to reopen. There were some signs of an economic recovery. And now a surge of new infections and news of the contraction. I mean, when you look ahead, what are you most concerned about, and what do you look at?

ROMER: Yeah, there's - we know what's causing this recession. It's the virus, the pandemic. And we can't recover until we stop the pandemic. So each time we try to recover economic activity leaving the pandemic unresolved, the pandemic gets worse, and then people pull back. The government puts measures on to keep people from interacting and spreading the virus. So this is a case where we have to get the sequencing right, deal with the health issue first. Then we can use stimulus to try and help the economy recover.

MARTIN: I want to ask about the unemployment benefits, which we talked about with Scott. They're expiring today. It's up to Congress to negotiate a new deal. The two parties are still far apart on this. What do you think are the longer-term consequences if people can't get unemployment benefits because of the pandemic or if that money, that payment is reduced by a lot?

ROMER: Well, the first thing is that from the perspective I was just describing, stop the pandemic first. Then do the stimulus to try and recover. The most important part of this bill would be the measures which would support the faster development of vaccines, the measures - the money that would support a rapid expansion of testing. Those are the things that will stop the pandemic. Now, the unemployment benefits will not help us recover back to full normal activity until we get the pandemic resolved. But they will deal with the other problem we face, which is one of inequality. The shock is not being shared equally across all people in the United States. Some are suffering much more than others. And any sense of decency suggests that we should try to share the pain and help out those who are suffering the most.

MARTIN: You once wrote that a crisis is a terrible thing to waste. No doubt we are in a crisis right now of multiple levels. How do you apply that notion to this moment?

ROMER: Well, you know, it was a quote that was intended to describe crises that are less serious than the current one. But there's still a grain of truth in it, which is that no matter how bad the circumstances are that we find ourselves in, there are things we can do to make our circumstances better. And so we need to avoid the apathy, the passivity, the paralysis that can come from a crisis and need to look carefully at, first, what do we do to share the pain? What do we do to help recover? But also, what could we do to actually come out of this, as with more goods and services? But even better, how can we come out as better people?

MARTIN: Nobel Prize-winning economist Paul Romer. I would love to continue the conversation about what that would actually mean. Thank you so much for coming on today.

ROMER: Glad to be here. Transcript provided by NPR, Copyright NPR.