I recently spoke by phone with Romer, who is a professor at N.Y.U. During our conversation, which has been edited for length and clarity, we also discussed why Americans may be resistant to digital contact tracing, the need for states to administer tests, and what lessons economists have learned from the crisis.
Over a month ago, you co-wrote an Op-Ed for the New York Times that stated, “To protect our way of life, we need to shift within a couple of months to a targeted approach that limits the spread of the virus but still lets most people go back to work and resume their daily activities.” Are we anywhere close to that approach? And, if not, is our way of life at risk?
We’re not much closer, no. We’ve made very little progress, and I think we are running some risks here. There’s a difference between saying “Here’s something which is likely” and “Here’s something that’s possible, but it’s so bad we have to start preventing it and avoiding that risk right away.” And that’s what I’m trying to say about the possibility that a depression worse than the Great Depression could lead to political turmoil that could do long-lasting damage to the nation. So I think we have to proceed with urgency to try and solve both the health crisis and the economic crisis, and I’m not surprised that we haven’t made a lot of progress yet. But I will tell you that I’m actually encouraged by the decision by Congress to spend twenty-five billion dollars for testing in the phase-three bill. [This allocation is part of Phase 3.5.] That was not what most people were expecting a few weeks ago, and it happened.
What is your biggest fear about the economy right now?
There was some analysis that was done at the St. Louis Fed, going through job categories and just thinking about the employment consequences of physical lockdown and social distancing. Their conclusion was that we were going to be at an unemployment rate above thirty per cent, so that was the early-warning sign that we’re headed for an economic catastrophe that’s worse than the Great Depression.
Different people have talked about different ways to get through this. Your plan focusses on testing more than almost anything else, and more than some of the other plans. Everyone acknowledges that testing is important, but why is it so central to every idea that you’ve put forward?
The key to solving the economic crisis is to reduce the fear that someone will get sick if they go to work or go shop. So it’s really about building confidence. The thing about testing is that it’s easy to explain and it doesn’t frighten people the way digital contact tracing does. It’s not subject to technological and social, political uncertainty the way digital contact tracing is. It doesn’t require the organizational capacity that doing human contact tracing does. It’s really just a very simple, easy-to-explain idea—that to control the pandemic, we need to get a reasonable majority of the people who are infectious into a quarantine, and then we’re good. That’s really all it’s about. So I wanted to try and articulate a very simple approach for managing this crisis, because I think that’s central to restoring confidence.
For example, think about me going back to my dentist. It doesn’t really matter what the law says or the governor says I can do. I don’t want to go back to the dentist’s office in New York City until I know that he can show me a recent negative test, and he doesn’t want me to come into his office until I can show him that I’ve got a recent negative test. So I think it’s easy to explain this idea to people, and I think it’s also easy to convince people that this is something we could do for as long as it takes to manage this pandemic. Suppose it takes more than twenty-four months to get to a vaccine. If it takes more than twenty-four months, I could see going and getting tested before I go to the dentist and the dentist could get tested. Neither of us has a problem with that.
I really think that confidence is so central to investment decisions, to planning, to anticipating the future, that we need something so simple that nobody worries if it’s going to work, nobody worries if we’re going to abandon it because it’s too painful. Everybody just says, “O.K., yep, that’s the plan. We’re going to stick to it.” And then we go.
Some of the other plans that have come out have dealt more with things like contract tracing and digital surveillance. Is your critique of this approach that you yourself are worried about privacy issues, or is it more that you think that politics or that those plans will be concerning to citizens, which will then impair our ability to put them into effect and get the economic growth back where we want?
I’m not worried about the privacy issues, because it’s kind of, like, “Compared to what?” I think we’ve got enormous problems with surveillance right now. This doesn’t seem to me to make it much worse. But I was participating in digital discussions about response to the crisis, and the meeting would go like this: “We need more testing.” Financial people said, “Yep, we got it.” “We need masks and protective equipment.” “Yep, fine.” “And then we need to have the digital contact tracing.” And then, all of a sudden, the whole meeting is taken up with hand-wringing and anxiety and all kinds of fears. Every time somebody said “digital contact tracing,” it became a target. So I just don’t see how you get something done with the kind of speed we need right now when it raises so many concerns among so many people.
Testing has sped up but is still not where it needs to be. Shouldn’t the government be willing to do basically anything, including spending any amount of money, to amp up testing, because the money it spends will be a rounding error in the budget compared to the economy coming back?
I think I share your puzzlement about why that doesn’t just end the discussion. And some people ask, “Well, what do you as an economist have, what’s your business poking into an issue that should be the domain of the epidemiologists?” And my answer is, “Listen, you need the perspective of economics to say that, right now, this depression is costing us, in an order of magnitude, back-of-the-envelope, five hundred billion dollars per month. So, if we can come up with a solution that costs us like eight to ten billion a month, we’re way ahead. And so don’t worry about whether we can afford to do the testing compared to the alternative. We can obviously afford it. Let’s just see if we can agree to testing at that level, then provide the kind of safety we need, and that we can communicate to everybody how this works and why it will work.
Here’s really what I think is going on. If you had said to me in 2019, “Pandemics are a really big threat. We should be spending a hundred billion a year to test people frequently,” I would have said, “Oh, I’m not really sure if you’d have to go that far.” I would have been skeptical, too. It seems like maybe overkill. It’s a lot. So if the baseline that you’re comparing to is life as of 2019, it’s kind of a reach and it’s a struggle. It’s expensive to do what I’m proposing.
But now we should look at the feasible alternatives, one of which is that we let this virus just spread through the entire population. That’s going to kill at least a million people. And what people haven’t grappled with yet is that that process of it spreading through the population is itself going to take a year. So, this is not a quick path to reopening the economy, even if you’re willing to sacrifice that many people. On the other hand, if what we’re doing is using social distancing and staying away from each other, whether it’s compelled officially or just automatic because we’re afraid, if that’s the way we’re keeping the replication number of this virus below one, we could be in this depressed state for eighteen months, twenty-four months, a long time. And I think it’s going to become politically unsustainable.
So then, if you revisit a million people dead or a depression for eighteen to twenty-four months, a hundred billion on tests seems, to me, like a walk in the park. And I think the difference is that a lot of people are reacting the way I would have reacted in 2019. I just don’t think they’ve come to terms with the grim reality of the limited choices that confront us now. So I think, unfortunately, we need some scientific voices, instead of just trying to cheer everybody up and say we can do this. You can find other voices that say, “Unless we come up with a better way to fight this virus, it’s going to be awful. It’s going to be horrific.”
I guess drinking bleach could work.
No, no. Let the record show I did not respond to that remark.
How much do you think the twenty-five billion dollars can do?
I think it can do a lot, actually, if it was used and was used well. It’s a little unclear how it’s going to be used. But I think the states are the ones who can move fast, so I actually think getting money to the states is a good idea. The economic reality, of course, is that when a recession or a depression hits, the state budgets just get killed, so you can’t ask the states to come up with new revenue to pay for this. But I think the states could spend revenue that the federal government gives to them because the federal government can borrow. The states could spend that to purchase tests. And I think what the states should do right now is just start telling the suppliers in this area, “We’re willing to commit to buy a bunch of test services from you if you can deliver them as fast as possible.” Although, to quantify that, my guess is that the best case is we’re going to get the price for the test down to ten dollars. So let’s say, like, eleven billion dollars is what’s going to go to the states. If all of that is spent on tests, it gets you about a billion tests. You start working through the math. There are many, many more than a million people in health care. At least on the front lines, there are almost a million police officers. There are a lot of people we want to be testing. So you pretty quickly get up to millions, and a lot of those people should be tested in the beginning every day. So we’re going to burn our way through a billion tests in two or three months, I think.
What did you make of Mitch McConnell’s idea for states to go seek bankruptcy?
This is one of these issues where you could have the thoughtful discussion or you could have the politicized discussion.
Well, we live in a political world.
Yeah. I think right now bankruptcy of states would be a mess. It would really be a disaster, because states are just so important as the front-line service providers in this country. If you imagine a very well-organized bankruptcy process, and you think about when United [Airlines] went into bankruptcy several years ago, United kept flying the planes. So, bankruptcy is just a mechanism where not everybody’s going to get what they were promised, and you’ve got to figure out who’s going to get what, but in the best case, it happens in a way where you know the organization keeps doing its job. Unfortunately, we don’t have a bankruptcy process. Suppose the state actually just gets to the point where it cannot meet all of its promises that it’s made. We might need a way to figure out, O.K., well, who’s not going to get what they were promised? This is what we had to do for the city of Detroit.
It would be good if we had a better-organized mechanism for doing that, but we don’t have that right now. And so the justification for the trillions of dollars that the federal government has been giving out for individuals and to firms is that we want to keep all of them out of bankruptcy processes right now, because that will just overload the system, and nothing will function, and it’ll be a disaster. And, by that same logic, I think we want to keep states out of bankruptcy or a bankruptcy-like process.
You mentioned earlier that you might not want to go to the dentist even if your dentist’s office was open. Do you think there’s been too much focus on the specifics of the stay-at-home orders and not enough on what people’s incentives are? And, even if the stay-at-home orders are lifted tomorrow, how much of the economy can we expect to go back to normal?
Yeah, this is the thing I’m really trying to drive home for people. Fear and uncertainty are just like the acid that kills investment, and investment is what it takes to restart. So, until we can reduce the uncertainty and address the fear, credibly address the fear, you can’t just use happy talk to try to make the fear go away. Unless you’ve got a credible, understandable way to make the fear go away, we will not get the recovery we need.
This crisis is unprecedented in my lifetime, and there are many aspects of this that look much more worrisome than even the Great Depression. The speed with which the economy collapsed is just stunning. Auto sales fell in a month by an amount that it took a year to take place around the time of the financial crisis. We’ve never seen so many people forced into unemployment in such a short space of time. So this is really a totally unprecedented shock to the economic system.
You mention the Depression, but are there other historical examples you have been turning to for lessons?
I remember being part of a conversation with a bunch of economists the weekend before the Lehman Brothers bankruptcy was going to take place. And the conversation was, “The market’s had a long time to anticipate this, and if we’re not going to let them go bankrupt, we’re never going to let anybody go bankrupt. This’ll be no big deal.”
So then the bankruptcy filing takes place on Monday, and by Wednesday we’re looking into the abyss in terms of our financial system. We were about to just have the whole system come crashing down. We live in a much more interconnected world now, and that means that it’s more fragile than we realize. I used to tell my students, when I was teaching macro, to picture me out by a stoplight, holding a cardboard sign saying, “Will give macroeconomics lessons for food.” And I used this to try and get them to understand that my ability to make a living is contingent on this incredible system that supports education, that pays professors to teach people who get educated. And if all of a sudden none of that happens, things can really come crashing down in ways that are really stunning.
American economists, to speak broadly, have been bullish on the interconnectedness of the world economy and the benefits it provides. I don’t want to say that this crisis proved that that’s not true, but do you think that the economics profession will reconsider some of its ideas?
Yeah. I think there will be a more focussed analysis of the threat posed by pathogens, and now that that’s real, I’m hoping we invest in this capacity for testing, because we need that capacity to handle not just this pathogen but the other ones that are going to come down the pike. So that, I think, is certain.
I think there will be another conversation. This goes beyond just globalization. The gains from specialization go all the way back to Adam Smith. He talked about the advantage of a bigger market being that we could have a finer division of labor and be more specialized. There’s this great story about the pin factory where people do various different pieces of the job of making pins. So, we’ve been very attuned to the efficiency gains that come from finer and finer division of labor and specialization. What we’ve underestimated is the systemic risk that that very finely tuned system of specialization exposes us to. And so I think we will start to ask whether there are ways that we could build some more robustness into our whole system.
If I can use an analogy, Netflix used this thing they called the Chaos Monkey, which would go in and just break servers, break routers, just take them offline and then make sure that the Netflix infrastructure system could still keep working. I think, from a public-policy perspective, it’d be good if we started having some drills where we just break things, like, “O.K., you can’t import that input into your pharmaceutical process for six months,” or, “You can’t rely on this mechanism.” We may need a little bit of a Chaos Monkey to help make sure that we’re all building a little bit more resiliency into the things that we do.
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