Harvey: There is Light at the End of the Tunnel

Why the economic recovery from COVID-19 could be faster than the Great Recession

April 13, 2020
Entrepreneurship, Finance
Screen grab of Campbell Harvey speaking in his home office.

As painful as the economic fallout from COVID-19 will be, experts say there are several reasons the U.S. economy could recover more quickly than it did just over a decade ago with the Great Recession.

“This recession has a biological cause and a biological solution,” finance professor Campbell Harvey of Duke University’s Fuqua School of Business said recently in a question-and-answer session for Fuqua followers on LinkedIn. “The key of course, is to minimize the damage to the current economic structure. If we can do that, then we can have a sharp recovery. It's not a slow moving recovery, where there's a lot of uncertainty.”

The key to this recovery is getting small firms – such as bars, restaurants and retail companies as well as the millions of companies that are integral for our supply chains – through this period so when the country goes back to work, those companies still exist and their workers have jobs to go back to so we can get the economy moving again, he said.

This depends not just on the government providing emergency bridge funding, such as the $350 billion for small businesses in the CARES Act, but actually deploying the money quickly, which has not been the case, Harvey said. Businesses applying for funds under the Paycheck Protection Program at the Small Business Administration report widespread technical issues that prevent them from submitting their applications. Banks say they’re inundated with processing these loans and fulfilling requests will take time. 

“That's definitely not what we want,” Harvey said. “This is basically an initiative that is executed by the banks, but with the oversight of the [U.S.] Treasury and the Small Business Administration. We need to do a much better job of making that as efficient as possible. We cannot wait six months to deploy these bridge loans.”

It's important for people to understand that with the CARES Act and subsequent funding, the government is not offering businesses a “bailout,” like they did during the Great Recession. In that case, banks were not managing their risk and were overextended and “acting like hedge funds.” But COVID-19 is essentially a natural disaster that has prevented successful businesses from operating, and that is no fault of theirs, Harvey said. 

He compared the new coronavirus to how the U.S. economy responded to the Spanish Flu in 1918. 

“It began in the spring of 1918, and it abated in the summer. But then in the fall it hit really hard. And by 1919, people were wondering, is it going to come back again? Is there going to be another wave?,” Harvey said. 

There was a lot of uncertainty, which slowsthe economic recovery, he said. But in the case of the new coronavirus, it took just weeks to map the virus DNA, and scientists have begun trials for several possible vaccines. Identifying and deploying a safe and effective vaccine usually takes as long as 18 months, he said, but we should expect a vaccine faster at the beginning of 2021 given the stakes are high.

“There are other initiatives to mitigate symptoms that should be available soon,” Harvey said. “And indeed when the vaccine is deployed, it's essentially an all-clear. The uncertainty is resolved.”

The video clips below include more highlights from Harvey’s Q&A. 

This story may not be republished without permission from Duke University's Fuqua School of Business. Please contact media-relations@fuqua.duke.edu for additional information.

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