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Nobel laureate Joseph Stiglitz on how to fix the economy during and after the pandemic

It’s not too late to save much of the economy — but America is still doing far too little.

A couple walking across Times Square at dusk.
A couple wearing masks crosses an almost deserted Times Square on April 13 in New York City.
Johannes Eisele/AFP via Getty Images
Emily Stewart covers business and economics for Vox and writes the newsletter The Big Squeeze, examining the ways ordinary people are being squeezed under capitalism. Before joining Vox, she worked for TheStreet.

Joseph Stiglitz knows the real risk in the middle of a historic pandemic and economic crisis is the United States doing too little, not too much. America doesn’t need to wait and see what happens before deciding whether to respond — the country went through a recession a decade ago.

“We’ve seen this movie before; we didn’t have to see it again,” the Nobel Prize-winning economist said in an exclusive interview with Vox.

There’s no question that an incredible amount of damage has already been done — you can’t un-bankrupt a business that’s already gone under — but it’s still not too late to act. If the federal government does more now, it can prevent the hole the country is in from growing deeper. Otherwise, every day that goes by with inaction, the devastation — which has affected already disadvantaged people much more acutely than it has those at the top — will continue to mount.

Stiglitz put it plainly: “This virus is not an equal opportunity virus, and the economic impact has not been an equal opportunity impact.”

The Columbia University economist and Nobel laureate has published a new paper, shared exclusively with Vox, outlining the risks currently facing the economy amid the Covid-19 pandemic and laying out a potential path back toward an economy that is prosperous and fair. In it, Stiglitz warns of the risks of vicious cycles and downward spirals that generally accompany economic downturns and explores how this time is different: What’s happening in the economy right now is driven by a pandemic, and addressing the health crisis must be the first order of business. The longer the country fails to do that, an economic problem that was initially thought to be short-term liquidity turns into one of long-term solvency for businesses and households. A temporary eviction moratorium only goes so far if, when it’s lifted, people are thousands of dollars in debt.

“There is at least a significant risk of real stress even if the economy recovers in 2021, just from the accumulated debt,” Stiglitz said.

Stiglitz, who has long advocated for the government to take an expanded role in markets, was talking about issues such as wealth concentration, corporate power, and the risks of unfettered capitalism before it was cool. His viewpoint is one the pandemic and resulting economic fallout have made only more relevant as people come to recognize the failures of the country’s health, economic, and political systems.

Joseph Stiglitz speaks seated at a podium.
Joseph Stiglitz at the Festival della Tecnologia in Turin, Italy, on October 7, 2019.
Stefano Guidi/Getty Images for Polito di Torino

I spoke with Stiglitz recently about his new paper and his broader take on what’s happening in the economy right now — why he chafes at the concept of “broad-based stimulus,” how he thinks the federal government could have played its hand better when bailing out the airlines, and why he doesn’t think it’s too late to act.

“We need to have a clear vision of the post-pandemic economy,” Stiglitz said. “The government has never spent money in the magnitude that it’s spending money to deal with the pandemic, and we are probably not going to spend that kind of money in the future. So we have to make sure that our money does double or triple duty.”

A transcript of our conversation, lightly edited for length and clarity, follows.

Emily Stewart

One argument at the center of this paper is that we’re really in danger of doing too little, rather than too much, to help the economy. What are the stakes here?

Joseph Stiglitz

The magnitude of the economic downturn has been, obviously, unprecedented and enormous.

We know from other economic downturns that there are these irreversibilities — hysteresis, as I sometimes put it. You don’t un-bankrupt a firm, after the economy starts to recover, that’s already gone bankrupt. There’s an enormous amount of organizational and informational capital that gets destroyed. The longer and deeper the downturn, the harder the recovery is. That’s where the predicate that we are at risk of doing too little rather than too much comes from.

If it turns out that the economy is stronger, the pandemic just disappears — as some people have said, as one person [President Donald Trump] has said will happen — we can cut back really quickly.

Take unemployment insurance. Nobody’s going to choose to be unemployed, or not very many people will. Even if we appropriate money for unemployment insurance, if unemployment decreases we won’t spend the money. So what’s the worry about having the unemployment insurance program there if we need it? And if we don’t need it, we don’t spend the money.

Emily Stewart

You’ve called for the government to “do what it takes” on the recovery. But is it too late for that? Maybe I’m too pessimistic, but the stimulus talks don’t seem promising.

Joseph Stiglitz

Obviously, it was very foolish of the Republicans and the administration to say, “Oh, we’ll see how this plays out.” I could have told them how it was going to play out — we didn’t have to see it. We’ve seen the movie before; we didn’t have to see it again.

But on the other hand, as bad as the damage has already been, it will continue to mount. If we started to provide extended and augmented unemployment insurance and helped the states and localities, as just two examples, it will reduce the magnitude of the downturn that we would otherwise have and therefore reduce the amount of scarring that we’re going to have.

It would have been better, as the CARES Act came to an end, if we had picked up with a new round, but we didn’t do that. But the time is now.

Every week that we don’t do anything, the damage is going to increase. And other countries in the world are beginning to recognize that — the UK is just now putting in place a new furlough scheme. There’s a recognition they didn’t do an ideal job in the beginning, but it’s not too late to make amends. It doesn’t undo the damage from not having an ideal program, but it prevents more damage.

Emily Stewart

Right. Recently, I was talking to coworkers about saving. Nobody could really be expected to save up the money to ride out a global pandemic, nor do we want everybody hoarding all their money all the time — it would be bad for the economy.

Joseph Stiglitz

One of the striking things that has emerged more clearly from the pandemic is that America is divided into two broad groups. Something like half is living paycheck to paycheck, so they don’t have any savings to dip into. A large portion of Americans have less than $400, $1,000 in their bank accounts. Now with the pandemic, you run through that $400, $500 in a month. And they haven’t paid rent, they haven’t paid their mortgages, and all those [eviction moratorium and forbearance programs] are coming to an end. Some of the disaster I see going forward for those people is that the first priority is food, but even with food stamps, it might not be enough.

They’re also going to lose their cars because they’re not going to be able to make their car payments. And then we know their story, because we saw it in 2008 and 2009: You lose your car, you can’t get to work, public transportation in the United States is inadequate, and it’s a downward, vicious circle. You worry about the number of Americans for whom that’s their future.

Now, people at the very top, the top 10 percent, have been saving a lot, partly because the future economic situation is so uncertain. So that’s another aspect of the failure of the Trump administration to provide the assurance that assistance is going to be there. For those who can save, there’s a lot of uncertainty, and they’re engaging in precautionary saving. Firms aren’t investing because they don’t know where the economy is going. You get this precautionary behavior that feeds into a deeper economic downturn.

If the government stepped up and said, “We’re going to be with you, we’ll give you whatever it takes,” you may not need as much money. People relax because they know we’ll have a recovery whenever the pandemic gets under control, and firms start doing investment. But right now, the failure of the Trump administration and Republicans in the Senate to provide the assistance that’s needed and to commit to doing it has actually contributed to the economic downturn.

Emily Stewart

So we can say the White House and Congress aren’t fully committed to doing whatever it takes, but it seems like the Federal Reserve is. What’s the Fed’s role in this?

Joseph Stiglitz

The Fed can provide liquidity to companies that are solvent. But the Fed is not allowed to lend, and it’s basically not in the DNA of any central bank, when there’s no solvency, not even to another bank.

Here’s what the issue is: When we thought at the beginning this was going to be a four-week, five-week, 10-week interruption at most, then liquidity was the issue. I have enough money on my balance sheet, I have a future, I’ll survive. But we’re now months into the pandemic, and firms that didn’t have enough capital reserves are on the ropes. The Fed can’t do anything about these firms — their problem is one of solvency, and that problem will only be addressed, if it can be, by restoring economic growth.

If the economy’s not growing — even in a sector where you’re not directly affected by the pandemic — people aren’t spending as much, and some of those businesses are finding it really, really hard.

Emily Stewart

That’s where we get into what you call “contagious” and “noncontagious” sectors, no? Industries that are directly impacted by the pandemic and ones that aren’t?

Joseph Stiglitz

So, as an example, there are sailing companies where you could be quite isolated on a boat but nobody’s going down to Florida. You’re not in a contagious business, but people have to travel, and to get to you requires exposure. But people are just conserving their spending.

Emily Stewart

You’ve been critical of some of the government spending on companies, basically saying, “Why didn’t they save up for a rainy day?” Something like the airline industry, right? What should the federal government have done here? I mean, can you really let the airlines fail?

Joseph Stiglitz

It’s a hard decision, and I understand the politics; both the airlines and the unions wanted help.

First, I would have put conditions on that money. One is that they cooperate on tracing. It’s one of the real scandals, that we know that one of the problems is the risk of contagion on the airlines, and they have all the data on who’s sitting where, and they could provide that. In other countries, they do that. But the American airlines refused to cooperate. After getting billions of dollars, they said, “You have to give us more money on tracing.” So that’s one condition, which I view as a whole set of health conditions trying to control the pandemic. The second set of conditions are on the carbon footprint, and, again, France and some other countries imposed conditions on reducing their carbon footprint.

Second, I would not have given them money, I would have lent them money. Basically, when you lend them money, there’s a downside risk you won’t be repaid. We need some upside potential, which is what we did when we bailed out the auto companies.

We’re not in the businesses of giving gifts. They put themselves in that position of having too little capital buffers, and they paid out huge amounts in share buybacks and dividends. Why should we bail them out? The answer is that we worry about jobs and we worry about the macro effects, but we can effectively claw back that money from the shareholders by providing it as loans. The free money is basically going to the rich shareholders.

Emily Stewart

Recessions always have disparate impacts. Is this one exacerbating inequality in a way that is unique?

Joseph Stiglitz

This virus is not an equal-opportunity virus, and the economic impact has not been an equal-opportunity impact. The virus goes after people with poor health conditions, and America doesn’t recognize access to health care as a basic human right. We have so much inequality — the largest health disparities of any of the advanced countries.

The virus has attacked the people at the bottom most, and the economic impact has been disproportionate for people at the bottom. Contagious sectors, our service sectors with low-paid workers who are often essential workers, they’re more exposed and coming down with the disease more. And because those sectors are disproportionately affected by the pandemic, they’re losing jobs at a much higher rate. People who live on Zoom are not losing their jobs.

Emily Stewart

You mention in the paper some concerns about a broad-based stimulus. What do you mean by that?

Joseph Stiglitz

Back in 2008, 2009, there was a lot of discussion about stimulating the economy. We talked a little bit about targeted [relief], but it was mostly [about needing] a stimulus. And in the beginning of the pandemic, there was a lot of discussion about the stimulus too.

The impact of the pandemic is very different on different sectors, and on different parts of the population and the poor. Therefore, a broad-based expenditure would not be as effective or equitable as a program [that’s] targeted at the more vulnerable.

A broad-based stimulus could, for instance, lead to an increase in demand for the “noncontagious sectors.” The noncontagious sectors are often manufactured goods, and manufactured goods are mostly imported. That’s not going to help the problem in America — we want people to buy “made in America.”

The service sector is focused on the United States, but that’s the contagious sector, and we have to think a lot about how to get money where it’s needed. And the fact that the effects are so different between the bottom and the top means you have to think a lot more than you did in 2008 about how you design and target the programs.

Emily Stewart

How should we be targeting this? If you get a magic wand here, what do you do?

Joseph Stiglitz

Since this is a pandemic-induced downturn, you begin by talking about health. That’s why you have to make sure there’s money for hospitals, for testing, for Medicaid for the states to maintain their health care services. That’s priority No. 1.

Priority No. 2 is that we have to make sure money is getting to the most vulnerable, and that’s where unemployment insurance schemes become important. The United States unemployment insurance program is one of the worst in the world in terms of both coverage and income replacement in many states, and that’s why the augmented program made a lot of sense.

The third thing, and where the question of whether it’s too late worries me, is that from the beginning I thought it was important to keep people attached to their jobs, especially in the United States because workers depend on employers for health insurance. There were schemes in New Zealand, Denmark, and the UK that tried to do that. And we tried that with the PPP [Paycheck Protection Program], but it was a very badly designed program. It didn’t work well, and a lot of the damage has been done.

Some people ask if it’s too late. I think the fact that we’re seeing another million, 800,000, 700,000 people joining the unemployment rolls each week means it’s not too late to try to stop that. It would have been better to do it earlier, but even now, the rate of discharge is very high, and we have to think of ways to maintain the link between workers and their firms.

The hardest thing, I think, is what to do about help for small businesses, particularly as what began as a liquidity problem is being morphed into a solvency problem.

Emily Stewart

I remember early on in the pandemic this liquidity versus solvency question bubbling up and kind of ignoring it.

Joseph Stiglitz

It’s also true at the household level, and it’s not getting a lot of attention. At the beginning, we had programs to stop evictions, to stop mortgage foreclosure. What that really amounted to is that low-income and middle-income people have accumulated a huge amount of debt.

We’re going to be facing an eviction problem; people are going to lose their cars. If you think the average family spends 25 to 30 percent of their income on housing every year, that means your debt of not paying your rent for a year is 30 percent of your income. For somebody who’s living on the edge, they’re not going to be able to make that up.

So we have to think about what is going to happen. There is at least a significant risk of real stress even if the economy recovers in 2021, just from the accumulated debt.

Emily Stewart

Assuming we someday get the pandemic under control, how should we approach the recovery?

Joseph Stiglitz

We need to have a clear vision of the post-pandemic economy. The government has never spent money in the magnitude that it’s spending money to deal with the pandemic, and we are probably not going to spend that kind of money in the future. So we have to make sure that our money does double or triple duty.

I have a broad sense that we need to move toward a greener economy, a more knowledge-based economy, and I would like a more equal economy.

For instance, when we spend money on installing solar panels or doing insulation, that increases the demand for low-skilled labor and that helps the problem of inequality. It has high multipliers, and it helps us move toward a greener economy.

When we provide assistance to our universities, which are in dire shape right now, we’re making sure that we’re not destroying one of the most important sectors of the economy for the post-pandemic world. One of the things that I find absolutely shocking is that there’s been no discussion about what’s happening to universities, even though we all know that the leading sectors of the US economy are our tech sectors, our research sectors, our bio sectors, high-tech sectors. In the discussion of the pandemic recovery, we talk about the old economy, not the sectors that are going to enable us to be competitive in the future.

Emily Stewart

A lot of the issues we’re talking about right now — inequality, risks to the economy — are things you’ve been talking about for a long time, and they’re increasingly part of the political discussion. What makes you hopeful about the current situation, if anything?

Joseph Stiglitz

We’ve seen more graphically than we did before the inequalities in our system, including in our health care system. When I wrote my book, People, Power, and Profits [published in 2019], the data was something like two-thirds, three-fourths of Americans want a better health care system. The number of Americans who want a better health care system now is overwhelming. The concern about inequality has really, really grown. That, I think, is a hopeful thing.

I had worried before about the lack of resilience in our economy, that we had an economy that was too shortsighted and hadn’t focused on some of the risks. Americans have become much more aware about the lack of resilience of our undiversified global supply chains.

I’ve written about the important role of the government in protecting us against disasters. Michael Lewis wrote the book The Fifth Risk, [which said] we rely on the government to protect us, and [that] the Trump administration and, more generally, conservatives are undermining our ability to collectively respond to risk. The pandemic has been exhibit No. 1, and I think people now realize that. Not everybody, but at least a large number of Americans. The hopeful note is that a vast majority of Americans and an overwhelming number of young Americans are on board on this agenda.

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