Adair Turner on the COVID-19 Crisis: A Supply-Side Shock, Policy Responses, and its Implications for Trust in Expertise and Climate Change

The discussion centers on distinguishing the COVID-19 crisis from past economic downturns like the 2008 Global Financial Crisis and the Great Depression. Adair Turner argues that while previous crises were primarily demand-side collapses, the pandemic began as a supply-side shock due to enforced shutdowns, which then created potential demand problems. He highlights the immediate collapse in supply and income for affected sectors, alongside a paradoxical increase in savings for those whose incomes were maintained but consumption constrained.

Turner emphasizes the need for fiscal stimulus targeted at maintaining income for individuals and ensuring the survival of sound companies, aiming to create a "giant enforced holiday" to preserve skills and installed technology for a rapid restart. He contrasts European policy responses, which largely focus on salary protection schemes and support for the self-employed, with concerns about the US approach potentially directing more funds to corporate ends without sufficient conditions. A crucial nuance is the goal to "freeze the economy" so that good companies emerge in their prior state, while highly leveraged or risky companies should not escape the consequences of their past actions.

Going forward, policy must address the tricky micro-issue of safely relaxing restrictions, stimulating demand where scarring has occurred (bankruptcies, unemployment), and managing large fiscal deficits. Turner suggests these deficits will be funded by increased private sector savings from constrained consumption. He advocates for effective targeting of fiscal support during lockdown and for recovery, stressing the importance of equity owners absorbing losses in bailouts to maintain capitalist principles.

The conversation extends to the impact on trust in expertise, contrasting the vindication of scientific experts during the pandemic with the collapse of trust in financial experts post-2008. Turner suggests the pandemic might foster a renewed respect for "true scientific experts" and "quiet competence" in leadership, potentially pushing back against populism in Europe, though he notes a different dynamic in the US. Finally, he discusses the pandemic's implications for climate change, arguing it will increase awareness of market failures in dealing with tail risks and long-term, gradual challenges, necessitating a stronger role for strategic state policy, despite short-term dangers like collapsed fossil fuel prices and potential setbacks for electric vehicles and public transport. The crisis also highlights the need to address existing structural trends like automation and global supply chain vulnerabilities, particularly in developing regions like Africa.

"most crises that we've faced in the past whether it be the global financial crisis or 2008 or let's say the great depression of two 8 19 29 to 33 um are fundamentally a set of reasons why demand suddenly collapses in the economy"

"what is different about this crisis and we need to get our heads around it is that this is a a crisis that begins on the supply side though it then also becomes a potential demand problem as well"

"what we're trying to achieve as much as possible is as it were to turn this into a sort of giant enforced holiday where you you can't work as much as you could"

"there will be an aggregate increase in the aggregate personal sector savings rate as a result of this because some people have maintained income but constrained consumption"

"the principle that should still be there is that equity is there to absorb losses and that um if necessary if firms need to be bailed out they may need to be bailed out but with um the equity owners losing because that is what equity is there for to absorb risk in a capitalist economy"

"what undoubtedly happened during the great financial global financial crisis was a collapse in the trust of the expertise of people who had purported to be experts on the financial sector"

"in this case the people who purport to be experts and who frankly i think have a more rigorous body of expertise than the so-called financial experts were suggesting before the crisis they in a sense have not been proved emperors with no clothes they have been somewhat vindicated"

"we don't feel markets don't deal well with small's probability potentially sudden catastrophic events nor with slowly developing long-term challenges which just don't get pulled into the either markets or even in case in many cases into political decision making"

"this event reminds us that we cannot leave all the important decisions about our future to free markets we also need thoughtful uh strategic states as well"

"the very process of being depressed for a period of time can lead to a failure to deliver skills and competitive advantages which depress you over a longer structural period"