The economic destruction brought on by the COVID-19 global pandemic has brought up many comparisons to the Great Recession of 2008-09. While that crisis started in the financial sector and bled through the entire economy, this one was brought on by a global health crisis that caused the worldwide economy to come to a sudden stop, dislocating supply chains, industries, enterprises, small businesses, and consumers in unprecedented ways.
The government and central bank response to this crisis, like that of 2008-09, has also been swift and unprecedented. But there are already signs that the relief and policy measures will be handed out unevenly, as they were in the last crisis, creating even more income inequality in America.
Nobel laureate, professor and best-selling author Joseph Stiglitz was among leading economists decrying the rise in income inequality and the bailout of Wall Street in 2008 as Main Street slogged its way through years of a slow recovery. Just before the onset of the global pandemic, Stiglitz authored his latest book, People, Power, and Profits, which chronicles how the masses have lost economic leverage and lays out a path for a more progressive capitalism that shrinks income inequality.
As we look beyond the current health crisis to an uncertain recovery, I caught up with Stiglitz in April of 2020 to get his vision on how this health and economic crisis will shape the U.S. and global economy five to 10 years from now. What follows is our edited conversation.
- Joseph Stiglitz is a Nobel Prize-winning economist who works on a range of important topics such as information asymmetries and links between micro-to-macroeconomics.
- He has also written several books and has been known to take dissenting views on certain topics based on his work in those fields.
- In April 2020, Investopedia sat down with Stiglitz and discussed the state of the economy due to the COVID-19 pandemic and its impact on inequality.
Income Inequality and Health Inequality
Silver: From your perspective, what will be the long-term impacts of this recession and the high unemployment rate? How will it impact income inequality globally and in the U.S., five to 10 years out?
Stiglitz: One of the marked aspects of American inequality is that health inequalities are even greater than our income and wealth inequalities. COVID-19 has brought out the magnitude of these inequalities. One would hope that with the nation having seen these glaring inequalities, it would respond in a way that would try to curb them. This is what happens when you don't recognize the right of access to health care as a basic human right when you have large parts of the population suffering from nutritional deficiencies and so forth.
Republicans have taken the view in Congress that the states should be on their own, and the states are responsible for education, health, and social welfare. The states all have balanced budget frameworks. They can't borrow.
The states don't have the facility to print money as the federal government does. The states are about to be hit by a revenue shock that is surely greater than in 2008. That means if there is no assistance from the federal government, there will be significant cutbacks in education and health and so forth, and the inequalities that we'll see in our society will be all the greater.
Silver: Which races and demographics will be most significantly impacted by the economic shock? More than 10 years after the Great Financial Crisis, low-income and minority households still haven’t completely recovered. Who will feel it five to 10 years from now?
Stiglitz: I think it's exactly those groups at the bottom. Remember, a very large percentage of Americans have less than $500 or $1,000 in their bank account. They're living paycheck to paycheck, and paychecks have suddenly stopped. People like me who have jobs that can be conducted from home will be protected… they will continue to work. Those who can’t, won't, or are on the front line, and will come down with the disease, will see members of their family die—the breadwinner die—because they are most exposed. Both because of the health effects and because of the absence of the buffers and the failure of the government to direct money to these people who most need it, they're the ones who are going to suffer the most.
Intergenerationally, there's a similar pattern. Some schools were able to make a smooth transition to online teaching, but that requires all their students to have a computer and all the students to be online. Well, in the poor parts of the country there's no internet service. Not every family has a computer for every child and they can't afford it. They're going to be left with a gap in their education. We don't know how long that gap is, but there will be consequences.
The Impact on Globalization, 10 Years From Now
Silver: Let's talk big picture about globalization because that's a direction we were moving as global economies for the last couple of decades, until 2017. What will be the impact on globalization given this pandemic? When you look out five, 10 years from now, will we be much more tightly integrated in terms of our supply chains or will we become more isolated and nationalistic?
Stiglitz: I think this pandemic will accelerate the tendency that Trump has been pushing for de-globalization. The criticism, of course, is that standards of living will be lower if we are not able to take comparative advantage. On the other hand, the pandemic has illustrated one aspect of the market economy, that it has not been very prudent. Our shortsighted markets put short-run gains at the expense of creating a resilient economy. One aspect of a lack of resilience is supply chains that were highly vulnerable. They were not sufficiently diversified. They were not attentive to the possibility of interruptions caused by either a pandemic like this one or politics.
I think the fundamental premise of globalization will be greatly undermined. The premise was you don't have to be self-reliant. You don't have to be energy self-reliant. There's a global market for oil. You don't have to be food self-reliant. There's a global market for food.
Now people are going to realize, yes, there's a global market, except when we need it... except when there's a pandemic. So there's going to be a reorganization of the global economy with countries seeking at least a modicum of self-sufficiency.
The risk is that we will go too far in the other extreme. If we go to the other extreme, our standards of living are going to fall. Our standards of living are almost surely going to fall anyway, simply because of the devastation that this virus is bringing. The only question is, how fast and how far. Surely this move towards more extreme de-globalization will accelerate that.
COVID-19 and the Collapse of Oil Prices
Silver: What about this double whammy of pandemic and the recent collapse in oil prices? When you have this global shutdown and you have this collapse in oil prices and maybe the end of the fossil fuel economy as we know it. What does this mean for climate change and the global economy?
Stiglitz: The oil price shock interacts in a complicated way with the next crisis that we have to deal with and has not gone away, which is the climate crisis.
The positive side is that the crash in prices will discourage drilling for oil and gas and shale gas, which is a good thing because we already have discovered enough oil and gas and we're going to wind up with large amounts of stranded assets as we move towards a green economy. On the other hand, the low oil and gas prices may make the transition to a green economy more difficult.
Renewables were highly competitive with oil and gas, and coal, but now with the new energy prices, they will have a harder time. I think in 10 years, though, the evidence of climate change will be so overwhelming that we will nonetheless go towards the green economy.
Universal Healthcare and Universal Basic Income
Stiglitz: Polls show that most people are in favor of the idea that everybody should have access to healthcare. They see access as a basic human right, and if we're talking about 10 or 15 years from now, I think we'll wind up with some version of one of the European systems, but we may get there slowly through the public option as a transition mechanism.
I think we will also improve access to higher education. We cannot have the kind of divided society where the children of lower-middle-income Americans have to struggle so hard to get a decent education. The costs to our society are enormous. So I think we're going to move to a system where there is universal access, whether it be an Australian-style universal-income-contingent loan program, or a system with low tuition as some European countries have implemented, but we will make a university education affordable to everybody.
There will be a significant increase in the minimum wage. A system where a large fraction of Americans live at the edges, when we are supposedly the wealthiest country in the world, should be viewed as unacceptable.
Hope for More Science Funding
Silver: What's one positive you think may come out of this that we look back on a decade from now and say, if it weren't for COVID-19, we wouldn't have done this?
Stiglitz: COVID-19 reminds us that, when we have a crisis, we turn to collective action and to government. Undermining the ability of the government to protect us or to prevent this or some other kind of disaster comes at a great cost. We let our stockpiles be depleted. We didn't maintain ventilators. We defunded the CDC, we abolished the office of pandemics in the White House. All the things that were designed to protect us against the risk of a pandemic and help us cope with one, should it occur, were undermined and underfunded because of anti-government attitudes, and we were thus left in the lurch.
I think, hopefully, we will have learned to appreciate how important government and collective action is, as part of the right balance in a well-functioning society between the market, the state, and civil society.
We learned that markets often don't work well. The markets weren't able to supply us with masks. They don't respond in emergencies in the relevant timeframe. Of course, even before the crisis, dramatically in the 2008 crisis, we had seen that they were shortsighted. But this crisis has reinforced the point: We have created an economic system that is not resilient and can leave us unprepared.
I think the COVID-19 crisis may also bring about a greater appreciation of science. The reason we have a higher standard of living than 250 years ago, you know, is science, the advances in our understanding of the world. This—together with advances in the understanding of how we manage complex economic and political systems—is the real source of the wealth of nations, to use Adam Smith's phrase.
For the last several years we've been denigrating science, but it was only science that enabled us to respond as well as we did to the pandemic. We should invest more in research and educational institutions that have served us well, and would have served us even better if we had given them the support that they deserved.
Favorite Economic Terms Amid the Crisis
Silver: What economic term or definition are you finding yourself returning to over and over as you speak with your students about the current crisis?
Stiglitz: Resilience was a term we didn't use very often before the pandemic. Now everybody's using the word resilient. We created a system that was not resilient. A second term is one that we use in the analysis of climate change: externality. When somebody who is contagious goes out without a mask, he imposes costs on others and that’s why we need collective action to try to contain a disease where individual actions will not lead us to a desirable social outcome.