Pandemic Cost Four Times Higher Than 2008 Financial Crisis
ZAKARIA: 2020 has been a tough year economically. But not for Amazon, which has seen its market capitalization increase by $750 billion to around $1.7 trillion. That has taken Jeff Bezos's net worth to around $200 billion. Meanwhile, vast swathes of the American economic landscape have been devastated by the pandemic. How to make sense of it all and what to do about it. Joining me now is Larry Summers. He was treasury secretary under President Clinton, later served as president of Harvard University where he is still a professor. Welcome, Larry. Let me ask you first about this new study you've put out in the "Journal of the American Medical Association" where you estimate that the cost of this pandemic will be four times larger for America than the global financial crisis in '08, '09. And the number you put is $16 trillion. That is staggering.</s>LARRY SUMMERS, FMR. U.S. TREASURY SECRETARY, PROFESSOR, HARVARD UNIVERSITY: It is. And it's because the fatalities are a part of it. The disturbed, almost destroyed in some sectors, economy is part of it. The fact is that for a lot of people who get COVID there are going to be serious follow-on consequences and there's a tremendous amount of anxiety and depression. And if you put a dollar figure on that, as best economists do, you get to a quite extraordinary sum. And it points up the insane folly when this is costing us dozens of billions of dollars a week that we are investing so little in having a supply of PPE, and in having a competent testing regimen. The cost of incompetence here dwarfs the human cost of the Vietnam War in terms of fatalities that could have been avoided, in terms of financial costs. If we had run this as well as the average country has run it -- heck, if we had run it as well Pakistan ran the response, we would have saved in the neighborhood of $10 trillion.</s>ZAKARIA: And do you think at this point it is still important to try to get that testing and tracing system in place even if it involves spending a lot of money? It feels like there is still this follow-on cost that we are facing as these waves of COVID continue --</s>SUMMERS: The sums --</s>ZAKARIA: -- to course through the country.</s>SUMMERS: The sums of money in testing, Fareed, are trivial compared to the sums, compared to the cost of premature fatalities by the tens of thousands. It should be a matter of the utmost urgency. You should, in America, be able to walk in, get a test, and get an answer the next day that's reliable. No matter who you are, no matter where you are. The cost of that is not one percent of the $16 trillion that this whole thing cost us, not close to one percent. Our failure is almost unimaginable as a country.</s>ZAKARIA: Now, describe what we should do in terms of the relief. It feels like what you're describing is something that will need the expenditure not just right now but over the next year or two of trillions and trillions of dollars more. Are you comfortable with that kind of expenditure?</s>SUMMERS: Look, Fareed, to be an economist for a second. The fact that we've got an interest rate that's essentially zero is telling us that the funds are available and they're not going to crowd out anything important. Instead, they're going to push the economy forward. All of the dangers are on the side of spending too little right now rather than spending too much. What we should do right now is beyond any question. We should be starting a process of renewing our infrastructure with maintenance projects that can operate quickly. We should be supporting state and local governments so they can do things like health and education and protecting security on the streets. And, yes, we should be helping the unemployed and we should be helping lower income families. It cannot be that the highest priority in the United States today is lending money to credit-worthy corporations.</s>ZAKARIA: Explain why you think that we have this leeway because of low interest rates? Because there are people look at it and say yes, but still won't the interest rates change and we'll end up with a huge debt-to-GDP ratio. There are still lots of people who worry about can we really add $5 trillion to our debt.</s>SUMMERS: Fareed, it's always right to worry. But think about the situation of a person buying a house. You can buy a much bigger house on your income when the mortgage rate is 3 percent than you can when the mortgage rate is 13 percent as it was when I bought my first house. And the same logic applies to the government. The government can afford to borrow more when the debt service is going to be so much cheaper.</s>ZAKARIA: Do you worry that this will cause the dollar to collapse? I'm now, again, giving you all the arguments against big spending that people are making. This will plummet the dollar.</s>SUMMERS: Fareed, you worry about everything if you're an economic policymaker. But for the dollar to collapse, it has to collapse against something. And I heard a wise guy say that Europe was a museum, Japan was a nursing home, China was a jail and bitcoin was an experiment. That may not be exactly fair, but it captures a real truth. Which is for all our problems and all its problems, the dollar is the world's safe haven. It's the place that money moves into when people get nervous about the state of the world. And as long as we don't screw up our political system even worse and there's certainly been people trying in the last -- including the president of the United States -- in the last few months, as long as we don't screw it up worse, the dollar's going to be okay.</s>ZAKARIA: Larry Summers, always a pleasure. Coming up in a moment on "GPS," the nomination of Amy Coney Barrett to be the next associate justice of the supreme court. After four long days of hearings this week, the senate judiciary committee will vote on Thursday. Noah Feldman and Emily Bazelon will tell me what they learnt from the hearings when we come back.