Excerpts from columns by, and interviews of, Jeffrey Frankel, concerning the Coronavirus Recession of 2020.
May 13, "The Coronavirus Recession of 2020," Powerpt., pdf., HKS.
JF -- Just as growth cannot be lastingly restored without defeat of the virus, so debt sustainability cannot come without lastingly restored growth..
May 11, “Risk of reopening US economy too fast: A W-shaped recovery,” Associated Press. May 12, ABC News.
JF -- The push to reopen the economy is making a W-shaped recovery very much more likely.
May 8, “Addressing the COVID-19 Crisis: The Advanced Economies,” outline, Ppt. For Virtual 2020 MPA/ID Celebration Panel, Harvard. Panel zoom video.
April 29, 2020, “Coronavirus Pandemic and the Global Economy,” Ppt, Policy Panel, Harvard Kennedy School.
May 4, 2020, "History Warns Us to Avoid a W-shaped Recession," SeekingAlpha.
May 4, "How to Avoid a W-shaped Global Coronavirus Recession," The Guardian.
April 29, 2020, “Economic Trends Amid COVID-19,” Ppt presentation, Bank of China Board.
April 22 -- “Coronavirus and the bursting of the everything bubble,” Webinar video, American Enterprise Institute.
JF -- I worry about a W-shaped recovery, arising out of policy mistakes by our political leaders. Two likely mistakes are well-demonstrated by precedents of the inter-war period. Mistake #1: Sounding the all-clear signal on contagion too soon, as in the 2nd and 3rd waves of the 1918-19 flu pandemic.…Mistake #2: Abandoning the stimulus too soon, resulting in a renewed economic downturn, as in the US recession of 1937.
April 8 - “Recession or depression? Two Harvard economists anticipate what the rebound of the economic crisis will be like,” La Nación, Argentina.
Q: Can this situation be compared to the Great Depression? Or any other historical parallel that you can refer to?
JF: This recession is unprecedented in its abruptness and is likely to show the deepest decline since the 1930s. But my best guess is that the subsequent recovery time will not be as long-lasting as the Great Depression. The closest parallel is the global influenza pandemic of 1918-20, which has been estimated to have caused negative growth of 6% in the typical country, in a recent paper by Barro, Ursua, and Weng.
JF -- "Foreseeable Unforeseeables," Project Syndicate, March 27, 2020. Also in The Korea Herald, March 29. “Coronavirus should not have caught leaders and markets off-guard,” The Guardian, March 31, 2020.
Knowledgeable analysts were aware not only that such a thing could happen, but also that it was likely to happen eventually. Although the precise nature and timing of these events were not predictable with high probability, the severity of the consequences were. Had policymakers considered the risks and taken more preventive steps in advance, they might have averted or mitigated disaster. In the case of COVID-19, epidemiologists and other health experts have been warning about the danger of a viral pandemic for decades, including as recently as last year. But that has not stopped US President Donald Trump from claiming that the crisis was “unforeseen,” that it is an issue that “nobody ever thought would be a problem.” Worse, in 2018, the Trump administration actually eliminated the National Security Council unit that had been created by President Barack Obama to deal with the risk of pandemics; and it has regularly tried to slash the budgets of the Centers for Disease Control and Prevention and other public health agencies. It is little wonder that America’s handling of the pandemic -- the lack of testing and the dangerous shortage of critical care equipment and facilities -- has fallen so far short of other advanced economies, not least Singapore and South Korea.
March 24, 2020, Interview by Economychosun, South Korea
Q: I’d like to know your opinion on the global economic impact of the Covid-19 crisis. Do you think the recession is a fait accompli?
JF: We are already in a global recession, even though it will take a bit longer for the most relevant economic statistics to confirm that. It is exceedingly rare that economists can make such a pronouncement in real time with any degree of confidence. But it is clear enough in this case.
"Top economists see echoes of Depression in US sudden stop,” Bloomberg, March 23, 2020.
“The economic hit could be sharp and deep,” said Harvard University professor Jeffrey Frankel. But assuming that infections peak in 2020, “there is no reason why economic activity should stay depressed for a period of years, which I take to be the definition of a depression.”
JF -- Tweet, March 22, 2020
The most alarming precedent for the current pandemic: the 1918-19 flu. We shouldn’t call this one the “Chinese coronavirus.” But why do we call 1918 the Spanish flu? It did not originate there. It came to public attention because Spain, a WWI neutral, didn’t censor its news.
JF -- Tweet, March 14, 2020
A pet peeve of mine is the common use of “exponential” to mean “rapid.” There is no connection at all between the two terms, as a matter of math. Now we have the spread of the coronavirus, which is literally exponential. So what word is used to describe infection rates? “Spike!”
Early Warnings of a 2020 Coronavirus Recession
“Why odds of a coronavirus recession have risen,” Interview in the Harvard Gazette March 17, 2020.
GAZETTE: But why were some forecasters still optimistic in late February, when the coronavirus was quickly spreading throughout the world?
FRANKEL: Forecasters thought the coronavirus outbreak would have some effect in China, with no widespread or long-lasting macroeconomic effects. It wasn’t really their fault, because the historical record is relatively reassuring. When you look at SARS in 2003, or for that matter natural disasters like hurricanes, what tends to happen is that it has a big negative impact on the economy where it happens and the impact is felt for one quarter. The 2003 SARS epidemic originated in China and the Chinese experienced negative growth through one quarter, but then they quickly bounced back. … In general, the event doesn’t even show up in the statistics for GDP for the year as a whole. I don’t blame people who were optimistic in February. But very quickly, it was becoming obvious that this was going to be worse than that.
GAZETTE: While some were optimistic, you published an article warning that the odds of a global recession were rising dramatically because of the coronavirus. What are the odds now?
FRANKEL: The odds have gotten worse. Throughout my career I have not tried to predict when the next recession will come. I’m not a professional forecaster. I don’t think economists can really do it as a matter of principle. But in this case, I sort of made an exception and said that the odds of a global recession seemed elevated…. In any case, the important point is that the probability of a global recession is certainly much higher today than it was a month or two ago….We don’t yet have numbers for employment or GDP that reflect what is happening, but it’s clear that this is going to be a big hit. China is going through it first, chronologically, and then a lot of other countries, like Italy and others in Europe, are following suit. Then us….But the economic effects are going to be deep. I think it will probably qualify as a U.S. recession.
“Coronavirus Might Spark a Business Debt Crisis, Economist Warns,” Newsweek, March 6
Jeffrey Frankel, who served as chief economist to and then as a member of the Council of Economic Advisers during the Clinton administration, said corporate debt is a prominent concern amid the coronavirus issues. "I think it is possible that the coronavirus might trigger a global recession, that financial volatility is part of that, and that corporate debt is particularly vulnerable," Frankel, James W. Harpel Professor of Capital Formation and Growth at Harvard Kennedy School, told Newsweek.
“…The virus will "simply" reduce global growth by half a percentage point, the OECD estimated on Monday. But according to Jeffrey Frankel, it's an unlikely scenario. The shock has hit at a time when the world economy is particularly vulnerable, he believes. First and foremost, he points to the threat from the financial markets, with prices peaking sharply up to the turning point last week. In the United States, the stock market has swelled by 20 percent over the past year despite ongoing warnings of an upcoming recession.
“I would argue that the market had reached a stage where you could well describe it as a speculative bubble. You never know when such a bubble will burst, but a shock like this could very well make it happen,” he says, letting us understand that we haven't seen the worst yet.
Interview for "Coronavirus on top of a weak global economy" (in Korean), Chosun Ilbo, March 1.
Q: The global stock market is plummeting due to growing concerns over the spread of the coronavirus. This is due to concerns over a slowdown in the global economy. What is your outlook on the impact of coronavirus on the global economy? Do you think it will affect other regions besides China and Asian countries?
JF: Until late February, most observers – including stock market investors in particular -- were optimistic that the coronavirus would not have a substantial impact on the global economy.…
This coronavirus, however, has now become a more serious case…. I think that the growth rate in 2020 is likely to be substantially less than forecasters were predicting in January. whether it is China, the US, or the world economy.
JF -- February 27, 2020, “Will the Coronavirus Lead to Global Recession?” blogpost
At the start of the year, the economic mood was tending toward the optimistic. … forecasts as recently as January called for world growth to rebound in 2020. Now, just since January, there is new reason for pessimism. Recessions are exceedingly difficult to forecast and the wise economist avoids trying. But the odds of a global recession have risen dramatically. The reason is the coronavirus that originated in Wuhan, technically named COVID-19.…The virus might spread to other countries in a more major way…. It is not necessary for a high proportion of the population to be infected in order to impact a high proportion of a country’s economy. The effect of contagious disease tends to be disproportionate (even though understandable), in the sense that healthy people refrain from travel, shopping and work, even when such individual decisions are voluntary.
JF -- "Will the Coronavirus Trigger a Global Recession?" Project Syndicate, Feb. 24, 2020. "Will coronavirus trigger a global recession?" The Guardian, Feb.26.
While global recessions are exceedingly difficult to forecast, the odds of one … now seem to have risen dramatically.…So far, US investors seem unconcerned about these risks. But they may be taking too much comfort from the US Federal Reserve’s three interest-rate cuts last year. Should the US economy falter, there is nowhere near enough room for the Fed to cut interest rates by 500 basis points, as it has in past recessions.
February 22, 2020, "The stock market appears remarkably unconcerned about risks arising from US trade policy, the coronavirus, or anything else. It has continued to climb. Maybe stock market investors have it wrong."
Feb. 10, 2020, Economic Outlook, Council on Foreign Relations, Harvard Economic Club, Boston.
[Outline now posted at https://scholar.harvard.edu/frankel/united-states-politics.]
JF -- “What could cause a global recession in 2020? The Wuhan coronavirus could….An epidemic like this is a classic black swan tail-risk we knew could happen.”
August 15, 2019, "Bond rate shift may suggest recession," Harvard Gazette.
JF "...when the next recession comes it’ll be worse than the average..."
June 2019 “Jeffrey Frankel on Taxes, Trade, Tariffs, and the Possibility of the Next Recession,” interview, GrowthPolicy, MRCBG, HKS.
JF: “The result [of recently pro-cyclical policy] could be a deeper recession than the average downturn.”
JF -- “The next recession may be a bad one,” podcast, Vox Talks, Oct.11, 2018.
Spring 2007 “Responding to Crises,” Cato Journal. 27 (2).
JF -- "Several other possible adverse developments could potentially precipitate or exacerbate recession. A decline in the housing market has long been prophesized due to the magnitude of the preceding run-up….[To] take a scary example, if there were to be new terrorist attacks with nuclear weapons, the effects could be far more severe, crippling trans-border transactions, from containerized cargo to the movement of persons. The same is true of a future avian flu epidemic or other contagious disease."