A CONVERSATION
PANDECONOMICS
YOU HELPED CRAFT THE OBAMA ADMINISTRATION’S RESPONSE TO THE 2008 ECONOMIC CRISIS. HOW DOES THE CURRENT PANDEMIC’S ECONOMIC FALLOUT COMPARE WITH THE 2008 CRISIS? There are many ways that I think the financial crisis—the years 2008, 2009, 2010—is quite different from what’s happening with COVID-19, and we’ll get to that in a second. But, first, there are a few facets of it which are strangely parallel. They are both crises that originated around contagion in some sense. The financial crisis was about financial contagion—if one bank failed, it was going to lead other banks to fail, and if the banks failed, then the insurance companies would fail. It was that kind of interconnection that was everyone’s fear at the time. Now, it’s obviously physical contagion. The thing about that is that crises of contagion are about fear, and people’s response to fear is to withdraw. In 2009, it was about financial withdrawal, people just pulling their money out. So it had the feeling of old-fashioned bank runs. This time they’re pulling their physical person out of the economy, and so the service sector is collapsing. The contagion and fear is the biggest parallel. The main difference is that 2008 was a financial crisis. A lot of the attention had to be centered on preventing financial institutions from failing and spiraling into a Great Depression. This current crisis is really the first recession we’ve had that’s caused by something that has nothing to do with the economy. And so the sectors that are hit now look nothing like the sectors of 2009, which looked much more like a regular business cycle. This time big drivers of the collapse of GDP are sectors like healthcare—people stopped going to the doctor, they didn’t want to go to the dentist. They didn’t want to have somebody in their face. Before 2020, we largely viewed all of this service sector stuff—personal services, restaurants, leisure, entertainment, travel and tourism, going to the gym—as recession-proof. This time, it’s driving the recession. As a sidenote, that’s why I think forecasts have been so bad. People are basically trying to jam a totally unprecedented, unusual thing into a regular business cycle model. They’re asking, how fast did the economy come back in 1984 when we
WITH AUSTAN GOOLSBEE
Austan Goolsbee (YC ’91) served as President Obama’s Chair of the Council of Economic Advisers (CEA) from 2010-2011 and as a member of the President’s Cabinet. During his tenure on the CEA, Goolsbee helped shape the response to the global financial crisis and the Great Recession. He is now the Robert P. Gwinn Professor of Economics at the University of Chicago’s Booth School of Business.
BY BRYSON WIESE
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