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An Interview with Kenneth Rogoff

Summary:
This week in Say More, PS talks with Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University. Project Syndicate: The current disconnect between stock-market valuations and the real economy, you recently explained, is rooted in the fact that “small businesses and individual service proprietors,” rather than publicly traded companies, are bearing the brunt of the COVID-19 crisis. You also noted that, as government support lapses, many “otherwise viable businesses” will fail, “leaving large publicly traded companies with an even stronger market position.” Yet when US President Donald Trump announced that he had ended negotiations with Congress over a new stimulus bill, the stock market immediately

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This week in Say More, PS talks with Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University.

Project Syndicate: The current disconnect between stock-market valuations and the real economy, you recently explained, is rooted in the fact that “small businesses and individual service proprietors,” rather than publicly traded companies, are bearing the brunt of the COVID-19 crisis. You also noted that, as government support lapses, many “otherwise viable businesses” will fail, “leaving large publicly traded companies with an even stronger market position.” Yet when US President Donald Trump announced that he had ended negotiations with Congress over a new stimulus bill, the stock market immediately soured. Was this a blip, perhaps driven by the realization that large companies, such as airlines, weren’t getting bailed out anytime soon? Or does it suggest that Wall Street and Main Street aren’t so disconnected after all?

Kenneth Rogoff: To be clear, much of the stimulus being doled out today is best described as (badly needed) disaster relief. Government programs, such as extended unemployment relief and direct money transfers, have helped ordinary people, but that does not mean they are bad for the stock market.

Yet stocks have also benefited from many other factors, especially zero interest rates and programs whereby the US Treasury and the Federal Reserve have propped up corporate- and municipal-bond markets in unprecedented fashion. If it proves more difficult to contain COVID-19 than currently hoped, however, we may face a spate of bankruptcies, which would challenge the market’s belief in the government’s willingness to incur large losses to prop it up.

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Rogoff recommends

We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Rogoff's picks: