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Over the past year, the United States has grappled with the ebb and flow of COVID-19 cases and the damage they’ve caused the economy. While the Fed worked to build stability and Congress has passed relief packages, vaccines are being rolled out, and a new administration raises questions about how and how quickly economic recovery can be achieved.

With that in mind, Chicago Booth is convening panels of experts for the school’s 2021 Economic Outlook, held virtually in Chicago, Hong Kong and London to examine the economic factors that will shape the coming year.

Booth faculty members Austan D. Goolsbee, Randall S. Kroszner, and Raghuram G. Rajan, who have held major policy positions in addition to publishing significant academic research, opened the series in Chicago on Jan. 13.

Moderated by Kathleen Hays, global economics and policy editor for Bloomberg Television and Radio, their spirited discussion touched on the changes expected under the incoming Biden administration, past and potential economic stimuli, trade with China, and debt, among other issues.

More than 4,000 people attended the virtual event, peppering moderator Hays with questions for the panelists which she incorporated into the lively, insightful, and thought-provoking hour-long conversation. Watch the full video here, or scroll to read highlights below:

The Fed: How much influence will the virus have on its decisions this year?

The fallout from the COVID-19 pandemic has been the major driving force in the Fed’s decisions for the last year and will likely continue to be so for the foreseeable future, said Randall S. Kroszner, a former governor of the Federal Reserve System.

“The Fed and Central Bank can provide the foundation for recovery and liquidity support,” said Kroszner, deputy dean for executive programs and Norman R. Bobins Professor of Economics at Booth. “They can make sure that markets are functioning appropriately, but it’s really hard for them to do the next step of creating jobs or moving people from one sector to another. The economy is not just going to snap back to the way it was, and so the Fed will need to continue to provide that support.”

Relief payments: How should future stimulus funds be spent to best spur the economy?

The federal government has approved two relief packages worth trillions of dollars in the hopes of boosting the economy through business loans, direct cash payments and the extension of unemployment insurance. As rebounding jobs numbers have stalled, now is not the right time for the government to tighten its belt over concerns about the deficit, said Austan D. Goolsbee, former chairman of the Council of Economic Advisers and a member of President Obama’s cabinet.

“Now is not the moment to cut the deficit. I just think that’s wrong, just completely misreading the economic moment,” said Goolsbee, the Robert P. Gwinn Professor of Economics. “I think that [policymakers] should spend money and they should direct the money to the places where the relief is the most necessary. What’s needed are monies to people who are about to be evicted, who are having gas shut off.”

“You’ve got a boom in tech, and you’ve got a very strong contraction in the hospitality and transport sectors. It’s going to be hard to move those people from one to another.”

— Randall S. Kroszner

Emerging markets: What concerns exist about debt among emerging markets that have had to borrow heavily to face down the COVID-19 pandemic?

Emerging markets have certainly been hit hard economically, but the rise of technology offers them some opportunities as well. If broadband infrastructure is in place and agreements can be made, places like the Philippines could offer services like telemedicine to other countries, said Raghuram G. Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance.

“Yes, the emerging markets have been hit tremendously, but the pandemic has also alerted us to the opportunities of trade in services,” said Rajan, former governor of the Reserve Bank of India and chief economist and director of research at the International Monetary Fund. “And it can be a two-way flow. The point is, it has created the possibility of opportunities. And when we build back, we shouldn’t build back the same way. We should indeed build that much better.”

Change: Things won’t all go back to the way they were a year ago. What major changes do you see emerging from this pandemic?

The hope we may have briefly had, that the economic impact of the pandemic would be short-lived, has passed. Now that it’s clear that certain sectors of the economy will be changed forever, it will be important for governments and industries to recognize that and adapt accordingly, Kroszner said.

“You’ve got a boom in tech, and you’ve got a very strong contraction in the hospitality and transport sectors,” Kroszner said. “It’s going to be hard to move those people from one to another. Some of those companies will have to shut down. That doesn’t mean that you don’t provide support for the affected households, but you need to facilitate their ability to move on. That’s one of the most difficult things for politicians to do, to accept that you need to move on. That gets people back into productive work more quickly, which is good for them and good for the economy.”

“Economists would say it’s in everybody’s interest to take tariffs off tomorrow, and that’s probably the right view, but it will take time.”

— Raghuram G. Rajan

Trade with China: How will the Biden administration deal with the ongoing trade war between the United States and China?

There is far more dividing China and the United States than simply commercial disagreements, Rajan said. That means the Trump tariffs won’t come down immediately under a new president, and many players will have to come to the table to resolve these issues.

“I think there will be a new process of dialogue, and I think this will be probably a little more systematic than the process of dialogue the previous administration followed,” Rajan said. “There will be an attempt to bring in the Europeans and the Japanese in a more comprehensive discussion on what the responsibilities of each side are. Economists would say it’s in everybody’s interest to take tariffs down immediately, and that’s probably the right view, but practically, it will take time, and it will take a certain amount of confidence building on both sides.”

“The problem is, eventually they’ve got to pay back the money. The right way to ask the question is, ‘Is it fair, is it right, that kids born in 2021 are going to pay vastly different tax rates as a share of their lifetime income than people who were born in 1951?’”

— Austan D. Goolsbee

Debt: The measures enacted to stimulate the economy and provide relief to citizens have cost significant amounts of money. How worried should we be about paying that back?

Concerns about the United States becoming like Greece during the global economic collapse of 2008–09 are unfounded, Goolsbee said. "The US’s debt capacity is massively higher than where we are now and the debt service costs have actually fallen as the debt has risen. If we were to have a problem, there are many other countries that will have a problem first and will set off warnings for us."

“To me the issue isn’t that deficits will drive up interest rates here. The more relevant issue is about generational equity—should kids born in 2021 have to pay more of their lifetime income in taxes than people born in 1951?’” Goolsbee asked.

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