Another reason I think the V-shape story is dubious is that we’re all living in economies that have a hugely important service component. How do we know which retailers are going to come back? Which restaurants are going to come back? Cinemas? When this crisis began to morph from a medical problem into a financial crisis, then it was clear we were going to have more hysteresis, longer-lived effects.

KR: In our book, Carmen and I use the definition of recovery as going back to the same income as the beginning. That, by the way, is really not the Wall Street definition of recovery, where recovery is going back to where the trend was. So we use a much more modest version of recovery. And still, with postwar financial crises before 2008-09, the average was four years, and for the Great Depression, 10 years. And there are many ways this feels more like the Great Depression.

And you want to talk about a negative productivity shock, too. The biggest positive productivity shock we’ve had over the last 40 years has been globalization together with technology. And I think if you take away the globalization, you probably take away some of the technology. So that affects not just trade, but movements and people. And then there are the socio-political ramifications. I liken the incident we’re in to The Wizard of Oz, where Dorothy got sucked up in the tornado with her house, and it’s spinning around, and you don’t know where it will come down. That’s where our social, political, economic system is at the moment. There’s a lot of uncertainty, and it’s probably not in the pro-growth direction.

Also you probably need a debt moratorium that’s fairly widespread for emerging markets and developing economies. As an analogy, the IMF or Chapter 11 bankruptcy is very good at dealing with a couple of countries or a couple of firms at a time. But just as the hospitals can’t handle all the Covid-19 patients showing up in the same week, neither can our bankruptcy system and neither can the international financial institutions.

So there are going to be phenomenal frictions coming out of this wave of bankruptcies, defaults. It’s probably going to be, at best, a U-shaped recovery. And I don’t know how long it’s going to take us to get back to the 2019 per capita GDP. I would say, looking at it now, five years would seem like a good outcome out of this.

“If it drags on, the forces that are pulling the euro zone apart are going to grow stronger and stronger.”

BM: I’d like to focus on the debt issue. The Group of 20 has already agreed to freeze bilateral government loan repayments for low-income nations until the end of 2020. How else do we deal with what developing and emerging economies owe?

CR: The problem in emerging markets goes beyond the poorest countries. For many emerging markets, we’ve also had a massive, massive oil shock. Nigeria, Ecuador, Colombia, Mexico—they’ve all been downgraded. So the hit to emerging markets is just very broad. Nigeria is in terrible shape. South Africa is in terrible shape. Turkey is in terrible shape. Ecuador already is in default status, as well as Argentina. These are big emerging markets. It’s going to be enormously costly.

For the G-20 initiative, I indeed hope it is the G-20 and not just the G-19. China needs to be on board with debt relief. That’s a big issue. The largest official creditor by far is China. If China is not fully on board on granting debt relief, then the initiative is going to offer little or no relief. If the savings are just going to be used to repay debts to China, well, that would be a tragedy.

We’ve not mentioned Italy, and that brings us to the euro zone. This is very, very destructive within the euro zone. If it drags on, the forces that are pulling the euro zone apart are going to grow stronger and stronger.