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Brad DeLong's Grasping Reality 2020-03-28 14:00:55

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Lizzie Burden: Trump’s Crusade to Reopen the Economy ‘May See Extra 5M Deaths’ and a Second Fiscal Bailout https://www.telegraph.co.uk/business/2020/03/28/trumps-crusade-reopen-economy-may-see-extra-5m-deaths-second/: 'Economists know the shutdown can’t last forever. As Padhraic Garvey, head of research Americas at ING, said: “Individuals have been told to literally go home because there’s no work for them. They have families to support and at a certain point, the pendulum has to swing back to supporting them.” Nonetheless, there is consensus among economists that there is no trade-off between health and economics—yet. Jonathan Portes... “Immediately we... should be trying to control the health consequences as much as possible. After that, the aim is to make sure that fall in GDP

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Lizzie Burden: Trump’s Crusade to Reopen the Economy ‘May See Extra 5M Deaths’ and a Second Fiscal Bailout https://www.telegraph.co.uk/business/2020/03/28/trumps-crusade-reopen-economy-may-see-extra-5m-deaths-second/: 'Economists know the shutdown can’t last forever. As Padhraic Garvey, head of research Americas at ING, said: “Individuals have been told to literally go home because there’s no work for them. They have families to support and at a certain point, the pendulum has to swing back to supporting them.” Nonetheless, there is consensus among economists that there is no trade-off between health and economics—yet. Jonathan Portes... “Immediately we... should be trying to control the health consequences as much as possible. After that, the aim is to make sure that fall in GDP doesn’t have long-term economic damage.... In six months’ time you may ask whether to keep some restrictions at some economic cost because a vaccine might come along, or say we should live with it as long as it’s contained and controlled and just deal with localised outbreaks and accept the negative health consequences. That’d be a reasonable public health debate to have in six months—but not now”...

...Economists are also unanimously deferential to the scientists. “You’re going to sacrifice people on the altar of what?” Anat Admati, professor of finance and economics at Stanford Graduate School of Business, asked. “Stock prices? Whatever’s good for the public health crisis is actually the best for the economy as well. The fastest way to get back to work would be if you tested every single person in the US, symptoms or not. Then you’d know who to isolate and who can work.” The respect is mutual. Public health experts’ reluctance to recommend widespread travel restrictions in January was partly based on fears of a disproportionate economic impact with only minimal epidemiological benefits.

The reality is the US shut down too late to copy China now, Brad DeLong, professor of economics at the University of California, Berkeley, said. “If we had imposed the Wuhan lockdown then three weeks after... the hunker down could be relaxed.” It’s no use trying to catch China by restarting prematurely. Trump, Larry Kudlow, his top economic adviser, and Steven Mnuchin, the US Treasury secretary, “appear to want to draw to an inside straight and make the existential bet that transmission will melt away with the coming of spring and the warming up of the country,” DeLong said. “I have not found any economist who will say in private that that is not a very bad idea from a cost-benefit risk point of view.” Besides, he said, the US has already lost all leverage over China. “When the US economy reopens, US-China negotiations are likely to take the form of us saying, ‘Please let us buy your stuff on whatever terms you offer.’”...

Even if the lockdown does end at Easter, there’s a substantial risk that the decision could backfire. By DeLong’s sums, if coronavirus cases double in just under five days, they grow 100-fold in a month, so if 10,000 have it by Easter week, 100 million will have it by mid-June, at which point the disease will have run its course but hospitals will have been overwhelmed and the death rate will have increased to 6pc. “Five million additional Americans will have died,” he said. “In return we will have produced an extra $1 trillion of stuff. That’s a trade-off of $200,000 (£164,000) per life, which is not a good trade-off to aim at making.”... Politics aside, the economic picture is bleak. In DeLong’s assessment: “Right now we are f------”...


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Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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