Governments should not worry about “overspending” on stimulus for now as a “prolonged depression” poses as the biggest risk to the world, but their programs must be carried out in parallel with virus containment, advised Paul Romer, Noble Prize-awarded economist.

In a telephone interview with Maeil Business Newspaper, the NYU professor predicted “uneven” economic recoveries around the world depending on their programs on economic stimulus and fight with the spread of COVID-19.

He called for common investments and efforts to cope with viruses as they will be “others” after ongoing pandemic is battled.

The following is the full script of the interview.

Q. Since you published `Roadmap to Responsibly Reopen America` paper in late April, the virus situation has changed. Following the reopening of various economies, the world is now facing a resurgence in coronavirus cases and now worried about the potential second wave of COVID-19 infections. Do you think we need to consider a shutdown again?

A. I think it would be very damaging to shut down again and that should be the last resort. That we lose only in the most dire circumstances, right? So what we need, instead, is we need some measures to slow the spread of the virus that don`t involve a shutdown.

Every government needs to have those measures in hand, which are ready to go, so that if the virus is spreading again, you can implement those and stop the spread.

Q. You said "To restore the confidence required to revive the economy, we need a credible plan for keeping the total number infected below 5% of the total population." Why is 5% the `magic number`?

A. First, it is now too late to try and keep it to 5% in the United States. I think we`re close to 5% already, and we`re not making any progress and slowing it down. That was a goal that we could have reached if we tried back then. But, you know, it`s too late now.

There are many people who are dying. And this is a tragedy. The economy is also very depressed in the United States. My point is with “test & isolate”, we can do better on both of them. And in deciding, you know, which to emphasize for, that`s really up to voters and politicians.

There is another strategy, which is basically to use “contact & trace” to narrow the focus…. I think they`re similar in that both require some way to decide where is the most important place for us to go (to) do some test & isolate the people who are positive. You could get those people by looking at occupations … (and) regions. But you need to have some ways to figure out who are the people with the high priority to test. Test them and then you isolate the ones who are positive.

Q. Following the reopening, the U.S. has seen a resurgence in infection cases but its economy has shown signs of the recovery. Would the U.S. economy continue to recover?

A. We can keep recovering in the sense that people go back to the job and to normal activities. (But) That by itself would lead to a faster spread of the virus. If we accompany it with a measure like “test & isolate”, we can slow the spread. Then we can get the benefits of opening up and still have a slow spread.

What we`ve seen is, you know, (that) the number of cases is increasing (in some states in the U.S.), … because they`ve opened up, but they haven`t done anything else to slow the spread.

Q. How long do you expect the economic depression from this shock would last?

A. The (U.S.) Congressional Budget Office is predicting depressed output through 2030. For the next 10 years. So, a 10-year recovery is pretty bad.

Q. Governments across the world have introduced a slew of aggressive stimulus measures. What are the challenges of implementing bailout efforts for the long term?

A. I think right now the biggest risk is a prolonged depression. I think we`re not facing much risk of overspending on stimulus. So I think it`s too early to be overly worried about that.

But I would also say that stimulus without a solution for the virus problems, something like “test & isolate”, is not going to work.

You have to have … the parallel efforts of the program for fighting the spread of the virus. At the same time, you have a program for the recovery of the economy.

Q. Billions of dollars are being spent to rescue companies from the pandemic-driven economic fallout, but there are already criticisms that money is not going where it is most needed. Should all companies be treated the same regardless of their sizes?

A. Running a program of stimulus is something that requires effective competent bureaucracy. In the United States, we have under-invested in our government and our government has limited ability to do its job right now. And so (that) this is, unfortunately, holding us back.

(Regarding other governments’ measures) I think (it) will depend on the context in each country and for political reasons. Basic notions about transparency are very important. It`s impossible to treat every firm in the same way because each circumstances are different (like company) sizes, (and) they face different markets. But I think it is very important to be transparent about what measures governments are taking because secrecy could make people suspicious of, you know, special favors … unfairness.

GOING FORWARD

Q. What would be the next growth engine that will move the economy forward after the end of the coronavirus pandemic.

A. I think in the near term, health is going to be a very big issue. …. There`s going to be other viruses. Both firms and governments need to make investments right now to plan for ways to keep us all healthy. In the future, just to solve this pandemic, but to protect us from the next one.

I think, you know, what we need to be looking at is what kinds of things would be valuable in society, and things like you know, better health. I also think better educational opportunities would be very valuable. Now, technology might help achieve those goals.

Q. What are the challenges left for the recovery of the global economy after the reopening?

A. Well, the recovery is going to be uneven. Some countries will recover sooner than others. (Some other) countries are going to be facing less export demand (because of ongoing crisis in their former trading partners). And I think each government will need to think not just about opening up, and, you know, limiting the spread, but also what kind of stimulus measures, they can use to help their recovery.

Q. Which economies do you think will recover relatively more quickly than others?

A. In particular, I think China is well on the way to completely controlling the virus. Any countries that control the virus will still have outbreaks as they`re seeing in China right now. But I think they have shown that they have the ability to control the virus. So I think China will recover, but it`s going to be facing lower export demand.

South Korea has also done a good job of managing this. And like China, Korea is having some cases … but I think the government has the ability to respond and control those like China. One of the big problems South Korea (is facing) will be depressed markets for export.

Q. The Federal Reserve recently announced that it will keep the benchmark interest rate at near zero through 2022. What are your thoughts on this decision?

A. I think that`s a simple response on their part, but it may not be enough.

 Who is Paul Romer:

Paul Romer, economist and policy entrepreneur, is a co-recipient of the 2018 Nobel Prize in Economic Sciences for his work “integrating technological innovations into long-run macroeconomic analysis.” He is currently a professor in Economics at NYU.

Prior to coming to NYU, he taught at Stanford University’s Graduate School of Business and in the Economics departments of the University of California, Berkeley, the University of Chicago and the University of Rochester. He also served as the Chief Economist at the World Bank between 2016 and 2018.

While teaching at Stanford, he founded Aplia, an education technology company dedicated to increasing student effort and classroom engagement, which was sold to Cengage Learning in 2007.

The interview was conducted by Han Ye-kyung and Yoon Sunyoung

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]