Former Presidential Economist Examines Coronavirus Disruption
ARI SHAPIRO, HOST:
Every day, the coronavirus paralyzes more daily activities in the U.S. - travel from Europe banned, sports events canceled, even Broadway is going dark. One place there has been movement is in the financial markets, mostly downward. Today, the Dow Jones Industrial Average lost nearly 10% in its worst day since 1987. This health crisis is also becoming a financial crisis.
Austan Goolsbee was head of President Obama's Council of Economic Advisers, and he joins us now. Welcome back to the program.
AUSTAN GOOLSBEE: Thanks for having me.
SHAPIRO: You wrote in The New York Times that the economic impact of the coronavirus is likely to be worse in the U.S. than in China. Why?
GOOLSBEE: Well, if you look at the economy of the United States or of the rich countries in Europe, they're much more dominated by these face-to-face services that are exactly the things that get pulled down, whether they're leisure and entertainment and sports or going to the gym or all sorts of services. And - so if everyone stops doing that, that's a bigger hit on the U.S. economy even than it was in China when they shut down.
SHAPIRO: And you've also said that virus economics are different from regular economics. Explain what you mean by that.
GOOLSBEE: Yeah. By that, I mean a virus - the closest thing in our collective memories to this moment, the brutal day following a brutal couple of weeks, was the financial crisis.
SHAPIRO: Right, in 2008.
GOOLSBEE: But financial crisis economics and business cycle economics is a little different than the virus in that the main thing that is paralyzing the economy is this fear and withdrawal. And so in a way, the best thing you can do for the economy has nothing to do with the economy with virus economics, and that is - things like paid leave for people that are sick is actually not stimulus. It's paying people not to come to work. But anything that slows the rate of spread of the virus is the best kind of stimulus. And it does slow the rate of spread of the virus. So we have to get on top of this as a public health matter, I think, before you can effectively deal with this as an economic matter.
SHAPIRO: Except if we do slow the rate of the virus and this epidemic continues for weeks or months, is there any way to turn around the financial slide?
GOOLSBEE: Yes, and no. No in that - look; there's going to be a substantial slowdown. You saw a substantial slowdown in China, you see in Italy, where they're closing down virtually all commercial activity, you see even in Korea and Japan, places where they have managed the spread of the virus better than we have here. You've seen substantial slowdowns. Our goal is and should be allowing us the opportunity to bounce back as this thing passes over us, and that means you can't let everybody go bankrupt or starve or have these persistent, lasting problems from what we hope to be a temporary shock.
SHAPIRO: And so do you see the crunch that we're experiencing now as an irrational panic or an appropriate response to the cancellation of big economic engines like pro sports, like Broadway, like school, like the economic activity that goes on in major cities every day?
GOOLSBEE: A bit of both. I mean, some of this aspect, like I say, as we in fear withdraw and have social distancing to try to slow the virus, there is going to be a substantial slowdown of economic activity.
GOOLSBEE: But I can never get out of my head, from the 2008 crisis, Paul Volcker's words over and over at that time, that during a crisis, the only asset you have is your credibility. And as the U.S. government has not made credible statements, that contributes to fear. That makes it go down, and we've got to do better. We need the president to succeed here.
SHAPIRO: Austan Goolsbee was chairman of President Obama's Council of Economic Advisers. He's now an economics professor at the University of Chicago. Appreciate your time today. Thank you.
GOOLSBEE: Thank you.
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