Former US Treasury Secretary Larry Summers feels that dealing with the COVID-19 shock to the US economy more aggressively up front probably could mean a faster recovery like is the case with financial bailouts. “I have the optimistic guess—but it’s only an optimistic guess—that the recovery can be faster than many people expect,” he said in an interview to Vanity Fair magazine.

Easing of restrictions will happen in a phased manner once there is clear evidence of a decline in infections, he said. Important activities would be allowed to resume first and discretionary activities sometime after that, Summers said.

“But when those things have happened, I think the recovery is going to be quite rapid,” he said in the interview.

Summers is not in favour of any form of corporate bailouts in which shareholders don’t suffer.

“Society is taking a loss, a fundamental loss of hundreds of billions of dollars of income here,” Summers said.

“Those losses don’t go away because you borrow money or because you print money. They are borne by somebody. I think we need to be careful about how hard we work to protect shareholders with these programs or to protect bondholders with these programs rather than protecting working people. If Boeing’s shareholders are not substantially diluted in the context of any public bailout of Boeing, it will be outrageous,” he said.

Summers said it was important that the focus of the bailout efforts be the protection of workers and the maintenance of the capacity of the economy to function. It should not be “the alleviation of all economic pain, particularly economic pain that is being borne by shareholders.”

He said the reason shareholders and bondholders earned higher than average returns is because they agreed to be the last in line when times were tough.

“..and we need to ensure that they are the last in line,” said.

Summers said he was in favour of small businesses being protected.

“I’m for protecting the owners and employees of pizza shops. But large companies that are seeing their profits go way down because of an event that no one anticipated, the owners of those companies should be the primary bearers of that risk,” he said.

Summers said it was important that funding to states and localities be increased, adding there was a “substantial lacuna” in the support the government has provided in respect of critical services.

“Money that could have moved very quickly is money to state and local governments which, among other things, could be supporting first responders and nurses in municipal hospitals. It is a tragedy that doctors’ incomes are being cut and there isn’t money to fully compensate nurses in some municipal hospitals, that there isn’t enough money to pay for making some kind of information technology available for kids who can’t go to school,” he said.

First Published:Apr 3, 2020 5:26 PM IST