Economist Mark Gertler Ceded
Not many people can hear Ben Bernanke's voice, just by taking their mobile phone out of their pocket.
Mark Gertler (USA, 1951), a long-time collaborator of the former chairman of the Federal Reserve, is one of them.
And it's much more: this New York University professor is one of the most cited economists in the world.
The BBVA Foundation has just awarded him the Frontiers of Knowledge award together with Nobuhiro Kiyotaki, John Moore and their friend Bernanke "for establishing the interrelation between the financial sector and the real economy and its amplifying effect in crises".
Gertler likes to quote a line from investment guru Warren Buffett: "Only when the tide goes out do you know who was swimming naked," so we'll start there.
Ask.
Who swims naked in this pandemic crisis?
Answer.
[Laughs] I think politicians have learned their lesson from the last crisis.
In March 2020, when the recession began to hit and financial markets to crumble, the problems were somewhat different than in 2008 and 2009, when companies were too in debt.
Now they are suffering the firms of sectors such as leisure and hospitality, which saw their income and their ability to borrow, which increased the cost at which they were financed.
But massive intervention by the Fed to extend credit lines and increase asset purchases caused credit markets to begin to stabilize in April.
Without that, we could have had a kind of repeat of the Great Recession.
It would not have been an exact copy because they are different sectors and problems, but I think the lesson has been learned.
The question is, is the game over?
It will depend a lot on the duration of the recession, because there are households that have to pay rent, small businesses that have to repay loans, etc.
And if the recession lasts much longer, perhaps there could be problems in the financial sector.
Instead, if we get the virus under control (and that's still a lot to assume at this point), we could get out of this just fine.
Q.
Will the tide that Buffett spoke of will ebb when central banks raise interest rates?
A.
I think there are two ways of looking at that analogy.
The economy has been rocked hard, that's the first ebb in the tide, and with the help of the Fed we were able to deal with it.
The second, as you say, will come when we normalize interest rates, although the other side of the coin is that the only reason we would do something like this is that the economy is improving, and that is positive.
Q.
Is the financial system better prepared?
A.
The financial system was in pretty good shape going into this crisis, at least as far as we know.
Interestingly, in 2008, at the beginning of the crisis, commercial banks appeared to be in very good shape, but investment banks, which were not under the direct supervision of the Fed, were left exposed.
And also commercial banks had off-balance sheet operations, so there was risk, but we didn't see it coming.
This time we are a little more confident that the system is in good shape, but also, as I mentioned earlier, the Fed was ready to intervene in a different way.
Bernanke: "The current recession will increase inequality more than usual"
The former president of the Federal Reserve, Ben Bernanke, another of those awarded by the BBVA Foundation, believes that the pandemic shock will be shorter, but will generate more imbalances.
In response to EL PAÍS via email, Bernanke warns that the pagans of the crisis may be those with the fewest resources.
"Unlike most recessions, which are concentrated in sectors such as housing and industry, the 2020 recession affected more services that involve face-to-face contact, such as transportation, hotels and restaurants. Because these sectors tend to employ lower-wage workers, as well as many minorities, the 2020 recession increased inequality even more severely than a typical recession, "he explains.
He also believes that the transformation to come will be more profound than in other crises.
"Assuming the vaccination process goes smoothly, the recovery will be much faster than after the fall of 2008. However, there will be more long-term effects, such as increased telework, which could affect the economy of large cities with many office buildings. "
Q.
Does this crisis remind you of the Great Recession?
A.
They are different.
In many ways, 2008 was more complex because at the epicenter were all those financial connections that we couldn't see and didn't initially understand.
Handling that was quite difficult.
At first it was like flying blind.
Once it became more clear where things were going, there was a very aggressive intervention by the Federal Reserve.
Bernanke knew that financial crises can degenerate into depressions if politicians don't intervene, and we got a very aggressive response.
Even so, there was a very slow recovery as the reduction of debt and the absorption of financial problems took time.
The current crisis is a little different.
The experts saw it coming.
They warned us about the virus.
Q.
And they didn't pay enough attention to them.
A.
The political leadership in the US at the time was totally incompetent, so the virus got out of control.
The key method to deal with the current crisis is to fight the virus, in addition to offering fiscal relief.
If we get the virus under control, say by the summer, most sectors of the US economy will recover quite well.
However, there will be others, such as small businesses, that could be permanently affected as consumers have switched from buying in the store to buying online.
It all depends on when the virus is controlled, but if it is controlled, I see no reason why we cannot have a faster recovery than from the previous recession.
P.
Greece, Italy, Spain ... will emerge from this crisis with skyrocketing debt levels.
A.
I think that is a serious problem.
And even so is the level of debt in the US Right now we are on an unsustainable debt path and how we deal with it will be a big issue going forward.
Right now I'm more concerned about that than about inflation, especially if central banks have to raise interest rates.
Q.
The virus is not under control yet, but there are some Stock Exchanges and asset prices are at highs.
Is the economy overheating on stimulus?
R.
I think that stimuli have several dimensions.
One is providing funds to deal with the virus, which I think is absolutely critical, the most important part of the package.
Another is the relief for the sectors really harmed.
The biggest problem going into the recession was inequality and this recession made things worse, so we have to help people in the worst affected sectors.
That being said, it is a legitimate question to question whether all the money is being appropriately allocated or not.
A good part of, for example, stimulus checks [tens of millions of Americans have received checks for 1,200 and 600 dollars each, and Biden is seeking to approve another one], goes to savings rather than being spent.
But even if there is a risk of overdoing it, in general, I support that policy.
P.
Do those who say that recovery can be the beginning of a happy twenties exaggerate?
R.
We have two economies: that of large companies that are listed on the stock market, which is doing very well.
And the other economy, that of small businesses, retail stores and restaurants, which have been hit hard by the virus.
They are having a hard time and it will take a while for them to recover.
So yes, we can have the roaring 1920s for maybe 70 or 80% of the economy, but we are going to have sectors that are going to take much longer to recover, and they are going to need help.
P.
Do politicians have responsibility in this economic crisis?
A.
I recently told someone that in 2008 we had Bernanke, the best possible person in charge.
In this crisis we had Trump, the worst possible.
In the late 1920s the field of macroeconomics was undeveloped, and when the Great Depression hit we had no idea what to do.
In this crisis we had all these experts, all these epidemiologists, telling us that we had to react aggressively against the virus, and they were basically ignored.
We had incompetent people at the helm and now we have competent people, so we'll see if it makes a difference.
Q.
Before the pandemic, the US was approaching full employment.
A.
If you look at the data, the first three years of job growth under Donald Trump were actually smaller than the last three years under Obama.
Trump inherited an economy that was in the midst of a long expansion, and the only policy initiative he took was cutting taxes, which had far less impact.
The cost of that was another trillion and a half of debt.
I would say that in economic terms his record is pretty poor, he did nothing exceptional and he was completely wrong about the virus that ruined the economy.