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Stephanie Kelton
Professor of Economics and Public Policy,
Stony Brook University
Stony Brook, N.Y.
Stephanie Kelton, 51, is a professor of economics and public policy at Stony Brook University, in Stony Brook, N.Y., and a senior fellow at the Schwartz Center for Economic Policy Analysis at the New School for Social Research. She is the author of The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, and is a former economic adviser to Senator Bernie Sanders.
Barron’s: What will be the major investment opportunities in the aftermath of the pandemic?
Stephanie Kelton: Greening economies is a huge opportunity for profitable investments in the private sector. Governments can lead on climate, but there are a lot of profit opportunities that will come from that.
What are some of the big long-term consequences of the pandemic for society and the economy?
We’ll have big changes to how we live and work. Some of the things people anticipated early on, such as mass migration from cities, were overblown. But how we work is definitely changing. I did a panel with Gary Cohn [former COO of Goldman Sachs and head of the National Economic Council under President Trump] the other day, and he wondered whether he would ever get on a plane again to do a one-hour meeting. I agree with him that businesses are having different ideas about how to do meetings and whether we need people to be in the office every day. That could have long-term disruptive effects to air travel, commercial real estate, downtown restaurants, and such. We also know we’re going to lose potentially half of all small businesses. That’s going to have a big impact on everything from corporate concentration to the makeup of local communities.
One of the encouraging things is that Americans have saved an extra $1.3 trillion since the pandemic began. How will that affect the economy, especially once a vaccine is distributed?
We are kind of fooling ourselves with the accumulated household-saving story. We have this toxic set of events unfolding: first, the withdrawal of income support, so the savings available to many households are now depleted. You turn on the news and you can see vast lines of cars of people lining up at food banks. You can tell by looking at the cars that these people have never been to food banks before. A quarter of Americans are now food insecure. You have mortgage- and student-debt forbearance and eviction bans all ending at the end of the year. If this leads to a wave of missed payments, defaults, and evictions, it could eventually spill over into another financial crisis.
The other hopeful data point has been the strength of the jobs recovery. What do you make of that?
The recovery in jobs surprised many of us in terms of how quickly we clawed back the 36 million jobs that were lost, but we’re still down about 10 million. The concern is that without around $1 trillion in aid for state and local governments, there could 5.2 million job losses, according to the Economic Policy Institute. We have been living on borrowed time with the money from the Cares Act, but that’s coming to an end. The question is how many of the jobs that have been recovered remain in place as the savings that were accumulated dissipate. State and local governments are just getting going on budget cuts.
What are some of the potential policy responses that the Biden administration could do even without the cooperation of Congress?
Canceling some portion of student-loan debt, if that can be done, would free up some cash flow for more than 40 million Americans. You can do some things through executive action, but I don’t know if you can do enough without action from Congress. Again, if all you’re doing is deferring rent and then expecting people to make all the missed payments, that won’t work.
People are asking, “how can the Fed get more creative?” I hate to see it. I don’t want to see the central bank “get creative” because it shouldn’t have to. Congress should do its damn job. But in the absence of Congress doing its job, you take advantage of every institutional tool that you have.
Imagine we’re two years in the future. Everyone has been vaccinated, the virus is gone, and the economy has recovered either completely or most of the way back to where it was. What should be the big policy priorities for the U.S. government in that world?
When you have a crisis like this, you have two options: go back to normal, or “build back better.” One of the things a lot of people have recognized since the pandemic began is that there are structural deficiencies in the way we have organized health care, global supply chains, the distribution of income, and such. Once we get past relief and onto recovery, then you can focus on investments that lead to real reforms. The $2 trillion that Biden wants to spend on climate change is both recovery and reform. Same with the $700 billion on manufacturing. That’s recommitting to the importance of manufacturing and research and development. Then there’s the $775 billion on education and care. Those would go a good distance to fundamentally transforming part of the labor market, trade, and climate. One shouldn’t be dissuaded from staying focused on an agenda that includes those things on the other side of Covid.
Finally, where would you like to go once the pandemic is over and it’s safe to travel again?
My kids are still young enough that places like Hogwarts are superexciting for them. So, going to Universal Studios in Florida would be the thing for them—maybe not the top choice for me, personally, but giving them a family vacation again and seeing them happy would be my ideal.
Thanks, Stephanie.
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Write to Matthew C. Klein at [email protected]