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How long we can expect the U.S. economic catastrophe to endure

The coronavirus pandemic leveled the U.S. economy in the second quarter of the year, leading to the worst collapse since the Great Depression. Gross domestic product fell by more than 9 percent between April and June. While some parts of the economy have improved since, weekly jobless claims are rising again. Harvard University economist Ken Rogoff joins Judy Woodruff to discuss the outlook.

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  • Judy Woodruff:

    The pandemic leveled the U.S. economy in the second quarter of the year, leading to the worst collapse since the Great Depression.

    The gross domestic product, which is a broad measure of the country's economic activity, fell by 9.5 percent between April and June, when much of the country shut down. If that drop continued over a full year, the economy would have shrunk by nearly one-third.

    Parts of the economy have clearly improved, but the initial recovery may be slowing. Weekly jobless claims were up again to 1.4 million. It is the 19th straight week of one-million-plus claims.

    Let's look now at the state of the economy with Ken Rogoff. He's an economist at Harvard University and the co-author of a widely cited book on financial crises, "This Time Is Different."

    Ken Rogoff, thank you for joining us again.

    Worst decline in a quarter ever, just how bad is this?

  • Kenneth Rogoff:

    I mean, it's stunning. We're looking at Great Depression-type numbers.

    Of course, we knew we had a very bad quarter, but we were hoping by now the virus would be calming down and things would be coming back. But we haven't tamed it, at least not nearly to the extent Europe has or Asia has.

    And so I think it is still going to be very difficult for the next six months or more.

  • Judy Woodruff:

    Well, let's talk about the larger picture.

    But, before we do, I want to dig into this a little bit. I mean, everybody knew it was going to be bad. Everything practically was shut down in the second quarter of the year. But what is behind this? What do you see in these numbers that explain what's happened?

  • Kenneth Rogoff:

    Well, we are all locked at home. You can't go to restaurants. Entertainment is shut down. Businesses can't bring people in.

    Frankly, I mean, I'm surprised it's not even bigger a number. Of course, it would have been if we hadn't had pretty powerful intervention from the Federal Reserve and Congress, at least in the last round.

  • Judy Woodruff:

    And, as you think about it, I mean, you mentioned the restaurants, the service industry, but it goes beyond that.

    I mean, what does this mean in human terms?

  • Kenneth Rogoff:

    I mean, it just incredibly exacerbates inequality problems.

    We have people who don't have a place to shelter in place that's comfortable or safe. And there are a lot of other things going on, people getting other diseases that they're not taking care of, mental health problems, heart problems, you name it. This is just a catastrophic situation, I think certainly the worst thing I have seen in my lifetime, the worst thing I think we have seen in generations.

    And it isn't over.

  • Judy Woodruff:

    And, Ken Rogoff, clearly, this is connected. And we have talked to you earlier today. And you talk about how much this is connected to what's going on with COVID, the fact that we are seeing a resurgence across much of the country, including in some places where it looked like it was getting better.

    Can the economy begin to come back while this virus is still raging in parts of America?

  • Kenneth Rogoff:

    I mean, only up to a point.

    We need parts of our economy, not just restaurants, hotels and bars. There are things like entertainment, air travel. If people have to socially distance, there are limits to how much businesses can do.

    I mean, frankly, I'm just stunned we don't have a national policy on something simple like wearing masks, which would help a lot. Contrast us with Great Britain. Their leader also said, oh, no problem, this is just a cold.

    And, of course, he got it. But then, when they shut down, they shut down. And the virus is really in remission there. Here, we kind of did it halfway, and we're just back to the starting line. We still need to deal with it.

  • Judy Woodruff:

    So, you're saying that there's a direct, absolute connection between the economy and this virus?

  • Kenneth Rogoff:

    Oh, absolutely.

    This is a health crisis that spills over into an economic crisis. And if you don't fix the health crisis, people aren't going to want to go out. We're not going to have the economy come back. It doesn't mean nothing can happen and we can't function. We will learn to live with it. But we shouldn't have to.

    And you can — they should do giant stimulus. They should protect people, but there's nothing they could do that would help as much as some basic things, like improving testing, requiring people to wear masks. Eventually, there will be a vaccine, but I don't know when that's going to be.

    So, yes, as long as the virus is raging, I just don't see how the economy can come roaring back.

  • Judy Woodruff:

    So, we see the Federal Reserve, which has a lot of control over economic activity, saying it's doing everything it can.

    And now we see Congress frozen in place, unable to come to an agreement. How much does it matter, Ken Rogoff, whether they come up with a $1 trillion plan, which is what the Republicans are talking about, or a $3 trillion plan, which the Democrats want?

  • Kenneth Rogoff:

    I mean, I think a $1 trillion plan is predicated on, we're just shooting up, things are going to get better, we just have to cushion things for a while. That's not where we are.

    I think you can argue at the margin of how to spend the money, but the states need help. Local governments, small businesses need help, unemployment, the unemployed, et cetera.

    No, I think the $3 trillion is much more on the mark. And I don't know that this is going to be the end of this. I think it's going to go on for a while. I think it will be $3 trillion and then $3 trillion again. I don't know what they're going to agree to.

    I have to say, if they expect to get reelected, they better — and I'm not just talking about the president. I'm talking about Congress. They better come up with something.

    But this impasse, when people are about to run out of support, when there's so many people who are going to lose the unemployment, extra unemployment insurance, et cetera, it's — we're on a precipice. I mean, I think they will come up with something. But we're just nowhere near out of this.

    So, the $1 trillion is kind of dreaming that things are getting much better quickly. They're not.

  • Judy Woodruff:

    And you have said a couple of times that this — it's hard to know how long this is going to go on.

    I mean, what are we realistically looking at, next year, the end of next year? I mean, what's the soonest this could start to look healthy again?

  • Kenneth Rogoff:

    Well, the soonest could be, we get a vaccine, and everyone has it by a year from now. That would be pretty fast.

    But I don't think it's going to be that fast. I mean, again, you have many experts on this program who can speak to it better than me. But, right now, until that happens, we just don't know. There's enormous uncertainty in the economy. And people are in a very precarious position.

    And there's certainly not going to be an exit in September. There's not going to be an exit in November. It's going to be well into next year. We're a few months into this only. It started in March. It's still just the end of July. We have at least the same again to go.

    I mean, people are naturally going crazy from the confinement. We need to find a solution, at least with masks or with something, so that people can function at some level, compared to what we have now.

  • Judy Woodruff:

    Grim forecast from economist Ken Rogoff.

    Thank you very much, though.

  • Kenneth Rogoff:

    Thank you.

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