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Back in January, Chicago Booth hosted Economic Outlook discussions in Chicago and Hong Kong, to look ahead at the global economy for 2020. Just four months later, the worldwide economic landscape has changed dramatically, as the COVID-19 pandemic has stalled economic activity in nearly every corner of the world.

With these dramatic changes in mind, Booth has reconvened Economic Outlook in the virtual world, with a series of three online events over three weeks, focusing on the US, Asia, and Europe.

In the first-ever virtual Economic Outlook, held April 30, Booth economics professors Randall S. Kroszner, Austan D. Goolsbee, and Raghuram G. Rajan—who all regularly share business and markets insights with world media such as CNN, Bloomberg, the Financial Times, the New York Times and the Wall Street Journal—discussed the critical economic questions facing the world amid the COVID-19 crisis.

Moderated by Kathleen Hays, global economics and policy editor for Bloomberg Television and Radio, the conversation ranged from the possible paths and pitfalls for recovery, to how economic sectors such as manufacturing and hospitality will fare, and concerns about incurring debt.

The first Economic Outlook drew more than 6,000 virtual attendees, who asked 500-plus questions around recovery, rising debt, and policy responses, among other topics, which Hays gamely worked into the discussion.

While much uncertainty remains, the Booth professors shared their perspectives and concerns around key questions facing business leaders, policymakers, employees, and families worldwide.

How have stay-at-home orders affected economies?

With tens of millions of unemployment claims in the United States, as well as more than 100 million jobs lost in India, global economies are suffering.

“We sent everyone home. We didn't allow people to go out and buy anything,” said Randall S. Kroszner, a former governor of the Federal Reserve System, and deputy dean for executive programs and Norman R. Bobins Professor of Economics at Booth. “So it's not a surprise that you get this astonishing contraction in demand and production.”

“Nobody in June of 1944 questioned how to pay for D-Day and keep it revenue neutral. If you look post–World War II, we went through a period of heavy taxation to pay back the debts that we accumulated. It's what we should have done, and spreading that over time is better than trying to pay for it all at once. The same is true here.”

— Austan D. Goolsbee

Hoping for a “reverse check mark”: What will the recovery trajectory look like?

Austan D. Goolsbee, former chairman of the Council of Economic Advisers and a member of President Obama's cabinet, warned that a traditional recession recovery is a slow process.

“We could go from less than 4 percent unemployment to 15 percent in a short period of time. In a normal recovery, the unemployment rate only goes down 1 to 1.5 percentage points a year,” said Goolsbee, the Robert P. Gwinn Professor of Economics at Booth. “Hopefully there is the possibility of a rapid recovery, maybe a reverse check mark where you went down, and then you came back at least part of the way at kind of a rapid pace. We absolutely have to do everything we can to go in that direction because the alternative is much more grim.”

Considering who to save: Should the government bail out everyone?

It’s likely that some sectors, such as manufacturing, can come back onstream quickly, while others will take much longer, if they ever fully recover at all, said Raghuram G. Rajan, former governor of the Reserve Bank of India and chief economist and director of research at the International Monetary Fund. That needs to be taken into account when considering government interventions.

“One of the decisions we have to make soon is how the government spends that money. It’s going to be expensive to keep the hospitality industry alive for a year or more until people feel comfortable going out again,” said Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance at Booth.

A new normal: Will some sectors expand while others contract?

Kroszner said that an effective recovery strategy should consider which types of jobs will be available in the coming years and how to ensure that employees have the skills to fill them.

“Well-intentioned programs that are trying to freeze things as they were in February are going to make it more difficult for people to find new positions,” Kroszner said. “At some point we're going to have to allow for a transition. We've got to get the support structures right to get people moving into new sectors.”

Spending wisely: What’s the key factor in getting people back to regular economic activity?

Goolsbee said that the shortest path to recovery is by spending on health care and testing.

“The most important thing you can do for the economy is slow the spread of the virus. That’s how you stimulate the economy, because people have to feel safe leaving their homes,” Goolsbee said. “We’ve now got six countries that have gotten out of lockdown and are going back to normal. Each of them has done extensive testing to get the rate of the spread of the virus low enough that it peters itself out.”

Growing debt: Is spending the right thing to do now?

Goolsbee said there’s no alternative to adding to the debt, but we should be considering the long-term implications for paying off these debts.

“Nobody in June of 1944 questioned how to pay for D-Day and keep it revenue neutral,” he said. “If you look postWorld War II, we went through a period of heavy taxation to pay back the debts that we accumulated. It's what we should have done, and spreading that over time is better than trying to pay for it all at once. The same is true here.”

Rajan added that these burdens could also affect future investment.

“This was the debt overhang problem that many emerging markets had,” Rajan said. “We should be wary when we have lots of debt and potential taxation down the line. A lot of investors are going to be worrying about where it's going to fall, and that could be perhaps very damaging for investment and growth.”


Explore More:

Sign up now for the next event in the virtual Economic Outlook series, focusing on Europe (May 13) to help you frame your economic outlook for the challenging times ahead.

Read more thought leadership from Booth faculty at Chicago Booth Review’s special collection on COVID-19.

Explore more Booth stories about the COVID-19 health crisis and how our global community is responding to the pandemic.


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