“That will tank the economy -— just like it tanked it before,” Goolsbee said in the interview.
A worsening economy would cause countless companies and small businesses to collapse, forcing already-hurting banks to suffer massive losses.
“It could cause a financial crisis,” said Goolsbee, currently a professor at the University of Chicago’s Booth School of Business. “We could be back into conditions like the 2008 financial crisis.”
Big banks brace for trouble
Analysts are confident, so far at least, that America’s banks are up to the challenge.
Dodd-Frank, the sweeping financial reform law that recently turned 10 years old, forced banks to bulk up on loss-absorbing capital.
Real-time indicators flash yellow
A recovery tracker created by Oxford Economics has shifted into reverse, dropping for the third time in the past five weeks.
“The foundations to this recovery are cracking under the weight of a mismanaged health crisis,” Gregory Daco, chief US economist at Oxford Economics, wrote in a report Thursday.
Morgan Stanley: Daily infections could hit 150,000
Goolsbee’s research shows there is a very strong correlation between fear of the virus and consumer behavior — regardless of whether governments enact lockdown orders.
“The virus is the boss,” he said. “When people think they are going to get infected, they stop going out.”
“This is really playing with fire. They must get the spread of the virus under control. That’s what almost every other country has done,” Goolsbee said, pointing to the success in Germany, South Korea, Japan and New Zealand.
A two-speed recovery?
He believes political considerations led the United States to prematurely reopen parts of the economy before it was safe to do so.
“It reflected the personality from the top. You can see throughout the president’s press conferences a deliberate effort to minimize the danger,” Goolsbee said.
The economic repercussions could be serious if social distancing and masks-wearing are not widely adopted.
“I fear if we continue to politicize this thing, we’re going to split into two economies,” Goolsbee said, describing a bifurcated recovery where states that take the pandemic seriously outperform those that don’t.
Yet Goolsbee still holds hope that the United States can get a handle on the health crisis before it causes more loss of life and damage to the economy.
“We’re not that far from getting control of the virus,” he said. “I’m guardedly optimistic that it doesn’t take much effort to get back on a path where the virus is shrinking, rather than exploding.”