The more we reelect nationalist leaders, the likelier it is we will have a breakdown in the international order. That would mean bringing supply chains wholly inside countries, not being dependent on anywhere else in the world, which will be a tremendous blow to global growth. But such a move will create a reaction which may slow it down. If developing countries have to go on their own, that will mean slower growth and people will want to migrate. That would create new problems for industrial countries—walls cannot keep the determined out unless we create police states. Almost surely, manufacturing will be the first to come back because there you can have adequate distancing. High-value-added services—education, maybe even telemedicine—are things that can be done virtually.
On April 13, as part of the University of Chicago’s virtual Harper Lecture series, Chicago Booth’s Raghuram G. Rajan spoke with Chicago Booth Review editor-in-chief Hal Weitzman about many of the crisis’ looming questions. Nonleisure activities eat up the bulk of time saved by working from home. The size of the pandemic’s economic shock, and the policy response to it, exceed many recent crises.
China hasn’t got its restaurants back to full capacity, and Starbucks is working at about 50 percent capacity there. China has done that with the help of fairly intrusive technology apps that tell the person at the door where you’ve been and whether you’re clear to enter. Despite occupying such a large share of the world’s attention, COVID-19 continues to impose massive uncertainty about public health and economic well-being.
Which industries are best positioned to bounce back, and which are facing prolonged hardship? Can policy makers cooperate across international boundaries given scarce resources?
There will be changes, but some of the old ways have value too. Being in exotic places with interesting people physically, rather than virtually, will still carry value. China has managed to get factories back to work by creating adequate social distancing and by creating distancing at work and in transport, as well as sometimes ensuring that people don’t go back to the homes where elderly parents are. That requires a lot of management, and we are far from that.
When policy makers lift the stay-at-home orders in place in most of the United States, economic activity won’t suddenly resume at its previous clip. Chicago Booth’s Chad Syverson discusses the path back to pre-coronavirus levels of activity, and how the “irreversibilities” inflicted during a crisis can make that path more difficult. Lehman Brothers was a global financial services firm whose bankruptcy in 2008 was largely caused by — and accelerated — the subprime mortgage crisis. The Great Recession was a sharp decline in economic activity during the late 2000s and was the largest economic downturn since the Great Depression. The financial crisis of was a different kind of bubble.
Like only a few others in history, it grew big enough that, when it burst, it damaged entire economies and hurt millions of people, including many who were not speculating in mortgage-backed securities. The price of a stock or any other commodity can become inflated beyond its intrinsic value. Usually, the damage is limited to losses for a few over-enthusiastic buyers. The predatory lenders who marketed homeownership to people who could not possibly pay back the mortgages they were offered. The financial crisis was a global event, not one restricted to the U. S. Portugal and Spain suffered from extreme levels of unemployment.