U.S. Economic Recovery After COVID-19

U.S. Economic Recovery After COVID-19

Mike Blake/Reuters
from Member Conference Calls

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Economic Crises

Public Health Threats and Pandemics

Panelists discuss the effects of the COVID-19 pandemic on the U.S. economy, potential consequences of current monetary and fiscal policy, and prospects for recovery after the pandemic abates.


Glenn Hubbard

Dean Emeritus and Russell L. Carson Professor of Finance and Economics, Columbia Business School; Former Chairman, U.S. Council of Economic Advisers

Edmund S. Phelps

Director, Center on Capitalism and Society, Columbia University

Cecilia Elena Rouse

Dean, Woodrow Wilson School of Public and International Affairs, Princeton University; Member, Board of Directors, Council on Foreign Relations


Rana Foroohar

Global Business Columnist and Associate Editor,Financial Times; Author, Don't Be Evil: How Big Tech Betrayed Its Founding Principles--and All of Us and Makers and Takers: The Rise of Finance and the Fall of American Business

FOROOHAR: Thanks so much. I’m Rana Foroohar. I’m an associate editor and columnist at the Financial Times. Very pleased to be leading this CFR call today on “The U.S. Economic Recovery After COVID-19.”

We have three really, really terrific panelists which I’ll introduce in just a moment. We’ve got an hour for our discussion. We’re going to engage, the four of us together, for about half of that, and then we’ll be opening the line up for questions, and you can use the instructions to queue your questions and then the operator will take them in order.

So let me just, without any further ado, sort of summarize our call. We’re looking to talk about the short-, medium-, and long-term implications of this crisis; the bailout packages; what are some of the changes we may be seeing overall in the economy; where growth goes from here. And we can go wherever the energy in the conversation is. So let me just start by introducing our panelists.

We’ve got Glenn Hubbard, who is the dean emeritus and professor of finance and economics at the Columbia Business School.

We’ve got Cecilia Rouse, who is the dean of the Woodrow Wilson School at Princeton, and she’s also a professor of economics and education there.

And then Ned Phelps, who’s the director of the Center on Capitalism and Society at Columbia University and is, of course, also a Nobel laureate in economics.

So thanks to all of you for being here. Feel free once we’re going to, you know, interrupt me politely, redirect, talk amongst yourselves.

But let me just start by asking the newsiest question, I guess, which is: What do we think about the bailout? What do we like about it? What don’t we like about it? I’d like you all to give a couple of minutes on your thoughts about where we are in terms of actions so far to deal with the crisis and then things you might like to see going forward. So, Glenn, why don’t you start? And then I’ll go to the other panelists.

HUBBARD: Sure. It’s a great question. I think part of assessing the package depends on what did you think the economy needed and what were you trying to do.

This isn’t a typical recession. This is a situation where a pandemic led authorities to basically shut down large swaths of the economy. So a goal would not be anything like stimulus; the goal would be to try to maintain business continuity and employment relationships until the economy could begin to restart.

I think the good news is policymakers acted pretty quickly, both on the fiscal and monetary sides, certainly compared to ’08. The actions to help small and mid-sized businesses, which have gotten off to a bit of a rough implementation start, still strike me as a very good idea. The large businesses, we’ll have to see how the Treasury does that. I have my own thoughts about how they could do that; maybe we could get back to that. All eyes are on the Fed, with its Main Street lending facility, how it will do. But it’s also done some other interventions in markets.

The tougher question, it strikes me, is: Going forward, what’s our next pivot? We can’t continue to spend at this rate, and so the question is what kind of pivot to wean firms and households off the extensive support that they’re on toward interim measures as the economy reopens.

FOROOHAR: OK, that’s great. That’s very helpful scene setting.

Cecilia, do you want to pick up and add on to that? What are you feeling?

ROUSE: So first of all, I completely agree with what Glenn just said about how this was not a typical stimulus package; it was a package to allow us to do what we needed to do to stem the pandemic. So what the—what the public-health professionals were telling us, which is we needed to stand down and stay home and stop economic activity to the extent that we needed to.

So I also completely agree that the federal government acted very quickly. It was big. It was bold. We’re lacking a little bit in execution, but that’s to some extent understandable, maybe some extent not understandable, given the speed and the magnitude of the effort.

I think it covered all the basic parts. The things that I’m looking forward to as we got forward are, you know, I worry we’re spending a lot of money. I’m not so confident in what the accountability will be, what the oversight is. That was baked into both the original package, and I’m not sure that was really addressed in this next tranche, which is—was passed by the Senate and will be addressed by the House tomorrow.

I would hope on the small-business package that maybe they’re closing the loopholes. It’s not so clear to me that that’s being closed in the second round because I think it’s very important this money goes to our smaller businesses. I live in Princeton, New Jersey, and we—you know, our town is full of small local businesses that are really struggling to get access to the money.

And third, while I agree with Glenn that we can’t keep spending, there are pockets that will need additional help. Workers may need some help a little longer than we maybe ideally would have wanted at the beginning of this, and our state and local governments definitely are going to be in big financial distress. And if we don’t help them, that will cause additional headwinds as they pull back on spending in education and health care and other places.

FOROOHAR: OK, that’s great. We’ll come back to a few of those points in more depth.

But, Ned, let me—let me ask you to weigh in here.

PHELPS: Yeah. Well, I’ve approached this topic from the stuffy, traditional perspective of monetary policy and fiscal policy, but I do—and I’ve looking at these policies from a social perspective, and that’s what I want to talk about in my five minutes.

FOROOHAR: Yeah, go for it. And particularly if you want to weigh in on the Fed and the debt debate, I’d like to tee that up because I want to bring everybody in on that.

PHELPS: Well, you don’t want me to start at the—at the top?

FOROOHAR: Start at the top, but then, yeah, let’s—yeah, go for it. And if you can keep it to, like, two or three minutes, that would be great.

PHELPS: OK, OK. Well, I have—I have three thoughts, very briefly.

One thought, maybe not the most important, is that the mountainous government debt, let alone a huge total of private borrowings, raises in my mind concerns about the ability of the government to continue the large deficits it has been running over the past couple of years. From one perspective, the most serious concern, I think, is that the huge public debt will understandably cause the government to hesitate to take the actions on the climate that are so urgent by now. Another point is that, as an economic theorist whose first book was on the consequences of public debt, I would ordinarily be alarmed at the effects of such an explosion of paper wealth. It will shrink the supply of saving and, hence, shrink investment, too, thus slowing the rise of wage rates and slowing government measures for the social good. In the long run, the huge increase of the public debt drives a serious wedge between capital and wealth, thus driving down the capital stock.

I’m kind of appalled at my Keynesian friends—there aren’t very many of them left now—but anyway, that they seem to be—have the—have the—have equanimity about the public debt no matter how large it might get to be. Now, however, the recent purchases of assets by the Federal Reserve Bank may be on the way of decreasing wealth, which would be in a way a welcome reaction to the increase in wealth. The resulting reduction of interest rates by the Fed can be argued to drive up consumer prices to the point where real cash balances are back down to their original level, but then the wealth of the private sector, the capital—that holds the capital they own and so forth, has been reduced by the amount of the assets that they sold to the Fed. So there’s been a net reduction in private wealth. There’s a classic paper on this by Lloyd Metzler in the Journal of Political Economy that I read as a graduate student in the 1950s, and it was—it was on just that point. So maybe the worry about a fantastic rise in public debt is less worrisome than it otherwise would be.

Another thought I’ve had is that the widespread shutdowns following the outbreak of COVID-19, in separating many employees, contractors, freelances and so forth from their occupations is costing them not only a loss of pay, which the government may or may not replace, but also what William Julius Wilson called the anchor that steady work and decent pay provide working class job holders. And what I—what I determined a long time ago, a sense of belonging. People felt that they’re belonging more in society if they were rooted in jobs. And an awful lot of people now are jobless.

That’s not to imply that the government ought to disregard the health risks that would result from a total dismantling of the present shutdowns of nonessential companies and institutions, but it does weigh on the side of considering the removal of shutdowns where the health risks of doing that are comparable to the everyday risks we take on subways, streets, and so forth.

FOROOHAR: Mmm hmm, that’s a good point.

PHELPS: Very briefly, the third point I would make is that—my third worry is the thought that the hurt and damage left by the pandemic could be serious enough to delay or prevent society from dealing with the two colossal problems arising in the future. One of these imperatives, of course, is to meet the challenge posed by—posed by climate change, which has become so urgent these days. And the other imperative is to meet the nation’s huge loss of dynamism that occurred around the end of the ’60s that is costing society so much innovation over almost all of the past fifty years. I think it’s imperative because I fear that the nation could collapse in social strife if huge numbers of people go on having no work at all in which they might have the opportunity to use their imagination and their creativity, in other words participate in the—in the process of innovation.

FOROOHAR: OK. So let me try and tie together some of the points that all of you have raised and ask another couple of questions here. Debt is obviously a big deal. I mean, it’s going to record levels. There are questions about who’s in line to get money first—small businesses versus large businesses, versus the types of workers that they’re being compensated or not. We want to make sure that even though this is—what’s being done now is really more of a kind of a bailout and a tourniquet rather than, you know, a productive investment program. I don’t see, like, a Keynesian multiplier here. But there’s also these future challenges of climate change, of now to get entrepreneurship back on track, that can we be thinking about them right now as we move onto, say, CARES 2 and some of the other stimulus that we know is coming down the road? So very broad question but, Glenn, let me ask if you have thoughts on that.

HUBBARD: Sure. Let me start on the debt part of your question, Rana. I’d say three things. One, there’s a big difference between a stock and a flow. So in World War II we borrowed a massive amount of money in a one-time move and raised the debt-to-GDP ratio to a little over 100 percent. By 1960, that number was more like 40 percent. And what happened, of course, was that the spending was one time and the denominator, GDP, grew. And for the one-time piece of this, I think that will—that too will happen here. Just like in the Second World War we had financial repression in the aftermath of the war. We’ve been living through that, actually, for a few years now and are likely to have more of that. So the incremental borrowing here, given the counterfactual, doesn’t strike me as a problem.

But there’s a big difference between a stock and a flow. We had an unsustainable fiscal policy before COVID-19. And I would certainly not want to see this as a time where we just say, well, our $2 trillion to do X, why can’t we just start some new programs? I think that would be a different conversation. The second here, who’s in line. And I do think the CARES Act grouped businesses by employment buckets, if you will, under five hundred people was supposed to be part of the paycheck protection program, the grants program. Very big firms—the Treasury has a program—my own view is the Treasury ought to be using preferred stock and not be handing out large taxpayer checks to those firms. In the middle, five hundred to ten thousand workers was supposed to go to the Fed. And the Fed so far is setting up a facility where no one will lend and no one will borrow, and I’m a little worried about that. I’m worried about that. But (they’re in a position ?) on debt is, the Treasury and the Fed, are they single, married, or divorced? Traditionally, they’ve been single.

FOROOHAR: (Laughs.) Or having an affair.

HUBBARD: Well, yes. They’ve had an affair several times over the years. They’ve been single, in that as economists we would say that there’s only one balance sheet. It’s the Treasury. It’s the taxpayers. The Fed is just an artifice of accounting and Congress’ creation. It’s nonetheless the case the Fed has been independent. There is an explicit coordination going on which at one level is healthy, just as it was during the Second World War, but I would remind everybody, but you probably already know, it took years after the Second World War for divorce to happen between the Fed and the Treasury. We read articles that the Treasury secretary and the Fed chair get along. I think that’s just super. But I’m much more interested in the institutional aspects. And I do worry a little bit.

On future challenges, I would just point to two quick things. One, Ned himself has done work on this for many years, the need to think about wage subsidies for low-wage work. That as needed before COVID-19. It brings it into high relief. And if we’re to have good reform—a good recovery, I think we need a great deal of policy clarity both from the federal government, over big policies, and over regulatory policies that are primarily at the state and local levels. That’s my view.

FOROOHAR: OK, great. Ned, I’m going to come back to you in a minute on a couple of these points, but, Cecilia, let me ask you to weigh in. And in particular on the sort of big company/little company debate. You know, whether or not the states, which are going to have to implement all this, are getting enough resources. You know, who’s being left out here? Who should be further up the line than they are?

ROUSE: Well, I mean, I don’t know that I have that much more to add, in the sense that I do think that our smallest businesses are where we need to be paying most attention in the sense that they employ 50 percent of the workers. And a lot of those that were unable to take advantage of the first paycheck—the first tranches of Paycheck Protection Program, PPP, were the smaller ones which may not have had the lawyers, and the accountants, and the relationships with bankers so that they could easily apply. Or, that were applying for numbers that were so small that it was administratively costly for the banks to be, you know, servicing and processing lots of little applications rather than a big one. And yet, that’s where I think we’re in danger of seeing quite a bit of job loss.

So if there’s a way to prioritize, I’ve heard people say that there should be more capacity at the Small Business Administration, working through community banks might be more effective than working through some of these other banks. In any event, I think that that should be a priority. We went a different route than some of our European peers, like the U.K., and the Denmark, and I think to some extent France, in terms of the federal government simply taking over a portion of the payroll for small businesses so that the workers remained attached to those employers and the employers could pay those bills, including not only a payroll but their other expenses. We went a different route, and I think we just need to make sure that we’re really able to provide that continuity for our smallest businesses.

Again, for the state, there were pieces in the CARES Act one and CARES Act, whatever, one-point-five, or how we’re going to think about this next bill. In the first wave it—states were allocated I think it was just over $300 billion. A lot of that was for COVID-related expenses. And the problem is state governments are not getting a lot of revenue either. And so they’re going to have to balance their budgets for everyday expenses that had nothing to do with COVID. So that is why I do think there’s going to have to be additional investments by the federal government to—or, I don’t want to call it investment—but additional support by the federal government to help us get past this. Because the faster we get past this and can get everybody back to where we were, the faster we can get back on a path to having the growth which will make, as Glenn pointed out, make this unusual expenditure for a year—hopefully maybe not even a year—but that we can get back on path so it becomes more a blip than part of our structural debt.

FOROOHAR: Let me ask you one follow up question. Since you’re a labor economist, do you have a view on whether the crisis and its aftermath is going to fundamentally swing the pendulum between capital and labor more towards labor? Do you think—you know, given that we’re probably going to have a lot more government involvement in the economy? Or is the unemployment simply going to be prolonged, companies are going to replace people with software?

ROUSE: Well, I actually hope that through this process where we do have our federal government, in particular I think—probably a lot of state governments as well, having expenditures that maybe we shouldn’t have been living with. I’m with Glenn as well that I think the federal government in particular was on a path that was not really sustainable. But I hope and I—OK, I’m an academic so I get to do the blue-sky thinking—that this pandemic helps us stop and say: Wait a minute. We need to prioritize and understand what is the role for government? We’ve got a very vibrant private sector. It’s very important. We want to bring back that dynamism, as Ned was just saying. It’s the pride and joy of our country.

But the private sector can’t do everything. There are known market failures. So when we have what we call externalities, when people are sick, and they go to work, and they infect others, that’s not a good thing. And so people need to have paid sick leave so they can stay home and not miss a paycheck. We know that our health care system can become unaffordable if only people who can afford it or opting to choose it are those who are actually sick. And so we’ve built our safety net around employers are providing many of those benefits, if you will. And so what I hope is we understand what is the appropriate—what is the really important role for government providing public goods, such as public health. It’s important, such as national defense. And that’s where we need to be putting our effort, and make sure that we’re strong, and efficient, and effective there.

I think in the process what will happen is some of our low-wage workers who are business franchised—I think in New York City the Robin Hood Foundation just came out with the fact that 59 percent of those who are working and yet still below the poverty line—which is already a problem—do not have paid sick days. And a lot of them are probably our essential workers. And so we need to do better there. And I hope that in the process we are taking care of our whole economy and our whole society. I’m not trying to become, you know, a socialist. I’m not advocating that. But I think that as what is supposed to be the most advanced economy in the world, one, we should have a strong efficient government, and we should be able to take care of our own.

FOROOHAR: OK. That’s great. Ned, let me come to you and, you know, your work around dynamism. You’ve documented that the entrepreneurial deal in the economy, innovation has been decreasing for some time now, many years now. We certainly saw a lot of discussion in the runup to this crisis about the amount of corporate debt, the amount of financialization in the economy, corporate concentration. You know, do we have monopolies that are sort of stomping out zeal? People aren’t moving from state to state as much. That was part of what is now making the recovery from the crisis harder. COVID was the thing to chip the markets out of this corporate bubble, but you know it could have been many things. Where do we go from here? How do you see this now playing out?

PHELPS: Well, I’m quite worried about it. I don’t really see any positive signs out there. I’m a little worried, as I was saying in my prepared remarks, I’m a little worried that a lot of positive attitudes have been soured by the spectacle we’ve gone through, and all the tensions, and the disagreements, and the warring, and the different factions, and everything. I mean, I think—I think we have—I think we have to be more pessimistic now than we have ever before—ever were before.

FOROOHAR: Is there anything that could turn the ship right now that you see, that could be part of the crisis debate, that could address these larger issues of dynamism that you’ve talked about for some time?

PHELPS: Yeah, that was—I certainly don’t want to be negative in the slightest bit because I think we need all the optimism we can get. But I will say that as well-meaning as lots of proposals have been—well, in a nutshell I’ve been arguing that it’s not the economy. It’s the people. They feel the loss of good attitudes, the loss of curiosity, desire to explore, experiment, all of that. You don’t—I don’t have this—I don’t have a sense of that anymore. I just—I just see a lot of money grubbing, and a lot of discontent, and a desperate search for leisure pursuits or whatever type of thing. (Laughter.) I mean, I think—so I think—I think we have to change the educational sector and orient it more towards the good life, meaningful life, and one of exploration, discovery, invention, and all that. If we do that, we’ll be fine. And if we don’t do that, I think we’re not going to be fine.

FOROOHAR: Well, that’s interesting because a lot of people feel that in, you know, post-1929, the Depression, there were cultural shifts. It’ll be interesting to see.

Let me ask you all a couple more questions before we open it up to our listeners. One of the things that seems to be happening, was already happening before COVID, is certainly being sped up after, is the regionalization and localization of supply chains, at least the discussion of that, in some cases the implementation of that. It seems as though we’re heading towards a bipolar or a tripolar world, in which the U.S. and China’s decoupling with speed up, and Europe will live somewhere in the middle, and maybe there’ll be some kind of new transatlantic alliance, you know, if we’re lucky. We don’t know what that’ll look like.

What—A, do you all agree with that, that that is happening and/or speeding up because of the crisis? And, B, what affects will it have on the U.S. growth picture? Glenn, if you want to start.

HUBBARD: Sure. I will take that in two parts. One, I think that global relationships are needed now more than ever. Ned mentioned climate change. The pandemics and public health itself are another. Economic relationships, the problem of emerging market economies in the crisis. All these things point toward more rather than less being desirable. Having said that, in principle China’s being a bad actor for a long time on the international economic stage has been fueling a deglobalization push for some time—long before COVID-19. And I see that as only being accentuated, along with populism.

And supply chains—I worry that we’re talking about the wrong thing. I think the lesson for businesspeople is to be resilient. You don’t want to have a supply chain that’s so supremely optimized that a common shock wipes you out. A pandemic is a great example in its global reach. So to me, it would be having some redundancy in the supply chain, not necessarily just saying no to China or some other country. And I think some businesses are having that conversation themselves. Government is another matter. So globalization, I think, remains important. Supply chains we need more diversification. All of this does point to a world, though, where efficiency may be a bit less and growth opportunities a bit less, unless and until we build up our international institutions to get people talking again.

FOROOHAR: OK, great. Cecilia, what do you think?

ROUSE: Well, I think I would agree with that. I tend to focus more on domestic policy issues, and especially in the labor market, but I think this pandemic certainly highlights the extent to which we are interconnected both across—well, in the United States we have been—but certainly internationally. That’s on the economic front. The pandemic also highlights how in our public health we are very interconnected. And climate change is going to be the ultimate. And so we’re going to have to maintain those relationships and we’re going to have to remain strong.

I think Glenn’s point about how we may need to trade off a little bit of efficiency to have some redundancy and a little bit more resilience is also an important potential takeaway. I takeaway—I believe that also in terms of workers, that with firms, you know, really driving workers, outsourcing workers, so workers—we’ve decoupled workers from the employer, so they no longer are getting health insurance from their employment situation, for example, or really running just-in-time workforces. I feel that we’re running that in terms of being highly efficient as well, and we’re leaving many workers out of our system as a result. And so I think we’re also going to need to take a little bit less efficiency there in order to be able to share and spread out more of the what we call rents—so more of the benefits of the labor market.

And what Ned was talking about, the dignity of work, I think we need to have—we need to be sharing that a little bit more. I don’t want to pretend that I absolutely know what that looks like. Universal basic income is one way that that happens. You know, there are a lot of potential disadvantages to universal basic income. But I do feel that we—especially we economists have really been pushing the goal of efficiency, and I worry then in the process we’ve lost that a little bit on our humanity. We’ve lost a little bit of our social thread.

FOROOHAR: Ned, do you think—feel free to comment on any of this, but I’m also curious if—

PHELPS: Yeah. So just—it’s not my field but I’d like to say that I think that a new administration could—the one that wants to restore good relations in the world could do a lot to revive foreign trade, international economic relations. And I want to make another point here. On the other hand, I also think, though, that we went a bit overboard in free trade—on free trade. It didn’t—it didn’t make economic sense to have all our medications produced in China, for example. It just—on the face of it, that’s an output that you would want to—you would want the location of such production you would want to diversify over the world. And so there are a lot of reforms there in this area that could be—could be made that would be helpful. Yeah.

FOROOHAR: Let me ask you one follow-up question, since you run the Center on Capitalism and Society. Do you think the crisis will really be a line in the sand between stakeholder capitalism and shareholder capitalism? Do you think we can now say yes, we are moving to a new era there?

PHELPS: I guess I’d have to say that there are unmistakable signs of moving toward a more—what did you call it? What—

FOROOHAR: Stakeholder versus shareholder capitalism.

PHELPS: Yeah, stakeholder. I’ve always hated stakeholderism. (Laughter.) But stakeholderism of the right kind could be—of the best kind might be better than no stakeholderism at all. I mean, sure, you do want, I think, the—you want to engender in society a sense of solidarity, a sense of social mindedness in corporations.

But that does not mean turning the corporations over to presidents who want to use them for political purposes. And it does not mean that corporations have to—that corporate leaders have to spend all their time placating interest groups in their regions or their cities. We don’t want that either. If people out there have things they want paid attention to by society, let them go to the government. That’s what the government is for.


PHELPS: It’s not the function of corporations to administer to the social needs of every interest group.

FOROOHAR: OK. All right. Great.

Well, we’ve covered a lot of ground. I have many more questions. But let’s open it up, if we can, to our listeners. And, operator, are you—are you there?

OPERATOR: I’m here.

FOROOHAR: OK. Great. So are there some questions queued up for us?

OPERATOR: Yes, ma’am.

(Gives queuing instructions.)

The first question will come from Michael Mosettig. Please go ahead with your question.

Q: I know the three panelists are from the academic world. What are you hearing there on the ground about the potential financial implications of this for colleges and universities? And one of the reasons I ask this is I’ve really been slammed in the last day by my Asian friends, all of whom studied in the United States, that are saying, looking at this executive order, as much as it’s only for a short time—say they would not think of coming to the United States to study at this point, and their parents wouldn’t let them.

FOROOHAR: What a great question. Who wants to grab that first?

HUBBARD: I can—I can take a first stab. It’s Glenn. I think the executive order on immigration to which you refer, it’s not 100 percent clear what its application will be to students. But I agree with you that it’s bad public policy and an unwelcome sign. It’s a great strength of this country that we have a fine education system not only for Americans but for the world. It’s one of our great exports.

As to the finances of universities, and we put them in, at risk of oversimplifying, two buckets: you know, highly selective institutions that are represented by employers of the panelists, among others, and unselected institutions. Non-selected private institutions have been in a bit of trouble for some time. They will be in worse trouble. Many failed in the 1930s. I would expect to see that again.

But even at elite institutions, pressures from lower endowment returns—not just the bad returns from a pandemic, but just lower structural returns going forward—pressures on tuition, and just demographics of the population going to college, you know, suggests that this may be time for colleges and universities, even elite ones, to get their financial houses in order.

FOROOHAR: Great. Great point. OK. Should we—anybody else want to weigh in or should we take another question?

ROUSE: Well—this is Cecilia. So I was just going to add that in the public sector there is definitely going to be a very big financial hit. The UC system has already put out an estimate that in March alone they had over $500 billion in excess expenditures above and beyond what they were doing related to COVID and otherwise, and that was just in March alone.

And then we know that they rely, to some extent, on their federal—on their state budgets and state revenues, and so they’re expecting very big financial hits. They also are institutions that have relied on international students to be paying full tuition. And so it’s a double side of losing that source of tuition revenue and also not having, you know, help from the states is going to be a big financial crisis in the public sector as well.

FOROOHAR: OK. All right. Let’s take another question.

OPERATOR: The next question will come from Paul Speltz. Please go ahead with your question, sir.

Q: Hey, Glenn. This is Paul Speltz. How are you doing?

I would like your opinion, please, on what is the impact of all of this post-COVID, whenever that’s going to be, on the risk of famine globally and let’s just call it food shortages in the USA, all of which could lead to some severe civil disruption.

Thank you.

HUBBARD: So it’s a good question. I’m not a super expert on this but I’ll give it a shot. I think part of what we’re seeing in the U.S. is a problem of, again, hyper efficient supply chains. So it’s jarring for the public to see some people hungry and then agricultural interests disposing of wasted food. And, of course, that’s not malice. That’s a problem of supply chains that are very hyper optimized for one thing or another.

I think there’s a role for redundancy in agricultural supply chains, food supply chains, just like in manufacturing, and, potentially, a role for government in a pandemic of helping coordinate that.

Nothing I see would point to a structural problem for the United States in food but more an issue about supply chains. Where that’s an issue abroad has been, largely, in countries that have faced problems in getting adequate nutrition for the population long before COVID-19, and that—I would go back to a point I made earlier that this is not a time for us to forget about our fellow world citizens in emerging markets.

FOROOHAR: OK. Any other thoughts there? We can move on to the next question, if not.

OPERATOR:  The next question will come from Lyric Hale. Please go ahead.

Q: Yes. Hello. This is Lyric Hale with EconVue in Chicago.

I think what most people are looking for from economists is the answer to the question how long. How long can we do this? I think policymakers want to know. People want to know that. Businesses want to know that. And nobody seems to have a good idea of the answer to that.

So assuming the SBA and all of those other things happen, really, when will the bottom fall out if this has to go on for another month or two months or three months? What’s the bottom line? Thank you.

HUBBARD: Well, I guess if all of us knew the answer to that question we’d probably be billionaire hedge fund people rather than—(inaudible). (Laughter.) I guess—

FOROOHAR: (Laughs.) Exactly.

ROUSE: You give it a go, Glenn.

HUBBARD: Yeah. The way I think about it is this business cycle episode, when I think about it that way, is like a Nike swoosh, so a V or an L or a W. So you have a sharp downturn, and it’s probably not even worth our time figuring out exactly how bad that’s going to be. It’s going to be very bad and we’ve had policy focused on that.

The question is the slope of the swoosh coming up, and I think that where I would see the import of your question is we should be pivoting very quickly to thinking about policies that are in the middle. To wit, right now we’ve had a debate between should you just have things like straight loans with no subsidies or should you be effectively indemnifying someone for expenses, taking a zero-one approach.

In the recovery we’re going to need a hybrid and that could be everything from some of the European models to, in this country, the use of the short-term compensation part of the unemployment insurance system. It could be wage subsidies through a negative payroll tax. It could be the Fed’s new facility. I think that’s where we need to be thinking.

I think the bottom falling out is—(inaudible). It’s going to depend on the policy response that we have and, of course, the health-care dynamics which I’m, you know, not expert enough to say.

FOROOHAR: Cecilia, do you want to come in on this one?

ROUSE: Yeah. So I wish I had a crystal ball. Then I could be on an island instead of somewhere in Princeton.

But, you know, it’s really important for us to remember that this is not a problem that originated in the economy. It’s not an economic problem, fundamentally. This is an epidemic, a pandemic, and so the economic recovery is going to be driven by how quickly we can start to address and mitigate and live with the COVID-19.

So I’ve got all eyes on the scientific community to develop, first, cheap, reliable, accurate testing. I read that the FDA just approved an at-home test by LabCorp. So that’s the first sign. I’m sure other companies, Quest, in particular, is working on that, and when we have accurate cheap testing that we can scale that will allow us to start.

And, I’m sorry, I need to couple that with a workforce of people to help with tracing, and there have been—there’s been talk of trying to use volunteers from the Peace Corps, AmeriCorps. We have a lot of people who are out of work who could be trained to be contact tracers.

So we have testing and tracing. We can start to put back our economy. COVID will still be among us. But with some physical distancing we can start to take some calculated risks just as we do with the flu. Then, of course, the gold standard here is developing really effective therapeutics so it’s not as lethal, and then, ultimately, a vaccine. But that’s a bit ways off.

So I think—but we—so have to let the public health lead here. But I am optimistic that in the coming weeks—we’ve only been doing this for what, four, six weeks. Seems like a lifetime. But I actually am fairly optimistic that in coming weeks, a couple of months, we’re going to be in a position where we can strategically start to reengage and take some calculated risks in reopening the economy.

FOROOHAR: OK. Ned, do you want to weigh in?

PHELPS: Yeah. Well, I’d just like to second this hopefulness. Yeah, I’m hoping, too, that we can get out of this mess within—expecting that we can get out of this mess in a couple of months or so, though I’m worried about the specter of a possible return of the virus sometime in the fall. I wish we could get a little more information on that. But that’s really very disheartening.

I think as economists, we—of course, we can’t tell the viruses what they ought to be doing. But we can try not to make mistakes at the government level, and I think we should—as economists, we ought to be thinking about costs and benefits all the time or most of the time. And there I’m—as I was commenting in my initial remarks, I’m very worried about the personal costs and the social costs of going on week after week without getting back to one’s job, one’s work. I think people are going a bit crazy, becoming often angry at times, frustrated. And I think maybe, as economists, we should be approving of taking reasonable risks with regard to opening again.

FOROOHAR: OK. Let’s take a few more questions.

OPERATOR: The next question will come from Bhakti Mirchandani. Please go ahead with your question.

Q: Hi. This is Bhakti Mirchandani from FCLTGlobal; a really, really interesting conversation. Thank you for laying out these issues.

I was wondering what your thoughts were on the bipartisan effort to restore worker payrolls across the country. A number of countries like the U.K. and Denmark have done this, and I think France as well has done this—(inaudible).

FOROOHAR: Cecilia, do you want to—or Glenn, whoever wants to start first.

HUBBARD: I’ll defer to Ceci to go first.

ROUSE: Well, right. These are efforts that in the U.K., Denmark—and I believe France is doing this as well—where the federal government is basically paying the firms’ wages to the workers. So the firm continues to pay the workers, and then the federal government is paying the firms.

Typically it’s not the full amount of the pay, so that there is some skin in the game for both the workers and the firm. But it is a different way to help workers receive some cash—a cash transfer while maintaining the employment relationship.

I think it’s a very interesting approach. I think that it’s a way to likely—I think countries have done this—will likely be able to restart more quickly. They have not broken the employment relationship between the worker and the firm. So they’re not talking about numbers of unemployed, for example, which we are counting because we are doing our cash transfer to our unemployment-insurance system.

I also worry about our small businesses that may go under in the process, in our slow process of getting aid to them. Many entrepreneurs can open new businesses, but that will take time for them to pivot, and that process of destruction and creation can take a little bit of time.

So I’m intrigued by it. I don’t think we were really set up to do that. I know that there are a proposal or two by some senators for us to be funding in that way. I think it would have taken more imagination. And I think we were really—I think the federal government said, look, we’re not going to let the perfect be the enemy of the good; it’s really important that we figure out what we can do with what we have—what we have existing. But I think it’s actually a pretty interesting approach for this kind of crisis.

FOROOHAR: Glenn, do you want to comment?

HUBBARD: I’ve been wondering—I’ve heard a couple of times this afternoon a reference to the system at work in Britain and France and Denmark. I had thought that the concept of furloughing the employees, so the workers remain employees but they’re on furlough and the government sees to it that these employees continue to get their paychecks.

And in any case, wherever this system originates, I noticed that Germany has done extremely well in getting firm—getting employment back up. And they’ve also done very well in getting the infection rate from the virus—the infection rate of the virus, that’s also been declining steeply in Germany. I don’t know whether these two things are connected.

ROUSE: So Germany—this is Cecilia; I can just weigh in. Germany has been employing its short-time working allowance, in which the federal government is paying 60 percent of the salary as well. So that’s one way on the economic side that they have—so they’re not going to call it unemployment again, even though there’s probably been some reduction in hours and some reduction—


ROUSE: —in pay.



Q: But don’t the employees go home, being told that they—don’t they require the employees to go home so they don’t—


Q: —infect one another?



FOROOHAR: OK, last word here? Are we—should we move on?

Let’s take another question.

OPERATOR: The next question will come from Stephen Myrow. Please go ahead.

Q: Yes, hi. This is Steve Myrow. I, you know, echo the hope that was described a little while ago. But while we hope for the best, I think we have to prepare for the worst. And I’ve been thinking about this in terms of when I was—I worked for Hank Paulson at Treasury in ’08 during TARP.

So in terms of comparing and contrasting to then, on one hand we’re being much more generous in terms to individuals, in terms of the expanded UI, the stimulus check, the increased SNAP, than we were quickly enough back then, which is good. But in terms of the stigma of the bailouts from the banks and the autos that we dealt with back in ’08, there’s clearly not a lot of political appetite for that.

And right now all of these packages have been set up under the premise that it’s going to be a short period of time and then we’re going to go back. But increasingly it’s looking like there’s a risk that, because of the testing problem—the, you know, U.S. isn’t really built for contact tracing—we could end up waiting on therapeutics until the fall, potentially, before you have a significant return—you know, child-care capability and return to economic activity.

So by the time you get from here to, say, post-Labor Day, there’s going to be a lot of businesses that have gone from what’s currently a liquidity problem to becoming a solvency issue. And so, whether it’s phase four, phase five, phase six, are you going to be in a situation where, even on the popular PPP program, you’re not giving small businesses that are in trouble enough to keep their businesses running? You’re just giving them a little bit more than enough to pay their employees.

But even with a Boeing or the airlines—the airlines, they gave a grant. Congress was OK with a grant for the employees. But the Treasury Department figured out that 70 percent of the grant was equal to what would be the applicable UI benefit, and the rest of the 30 percent became a low-interest loan.

So are we going to have—it seems like Congress is going to have the TARP moment if this scenario plays out at some point. And what are we going to do in that situation? Do you just let a lot of these companies fail and restructure and get bought up, or is there going to have to be some significant equity involved in it?

FOROOHAR: Great, great question.

Glenn, do you want to grab that one?

HUBBARD: I can grab that. Actually, that’s a lot of questions. So I’ll just try to answer one or two, in the interest of time.

I think there’s a big difference between TARP and what the Fed is doing, and I worry the Fed’s trying to learn the last war’s lessons and it’s not right. So when we did TARP, the argument was about, of course, banks’ interconnection and contagion. Economists did not believe that TARP would lose money in lending to banks. The structure was such that, with market dislocations, banks needed the interim injection. I was not one of those who supported the auto bailout, which the government did lose money. But the government did not lose money in banks.

Here it’s different. We are going to lose money. The Congress did give the Fed capital, $454 billion of it, for facilities. And if the current treasury secretary and the current Fed chairman believe their job is to not lose that money, they are definitely learning the wrong lesson.

I think that plays into another one of your questions. One of the problems of ’08 is there was a public perception that banks were, quote, bailed out but millions of other people suffered, including homeowners, who couldn’t get their mortgages refinanced, something that I tried to champion back then.

Right now you’re seeing this play out in the small-business dynamic. One reason that I felt politically, as well as economically, we want to get the small-business piece right is we don’t want yet another round of perception that big connected businesses succeeded and small, more atomistic businesses did not.

In terms of the structure of what Treasury is doing, again, as I said before, I think a preferred stock with warrants arrangements a la TARP would be the thing that protects the firms, the taxpayers, and accusations of crony capitalism.

FOROOHAR: OK. We have time for maybe one more question. Should we take a last one?

PHELPS: Well, I’d just like to add on to the—if I may—

FOROOHAR: Oh, sure, Ned. Go ahead.

PHELPS: —the previous question.

I think the anxiety that we have about—that we economists have about what will happen if, by autumn, we haven’t turned the corner, I think that argues for being a little more courageous, a little more venturesome, and encouraging firms slowly to get back into the game. I think we’re being too passive and overconfident about how long we can wait before we restart the economy, as I say.

FOROOHAR: Cecilia, any final thoughts before we take a last question?



Final question.

OPERATOR: Final question will come from Charles Cobb. Please go ahead with your question, sir.

Q: Thank you very much. This is Charles Cobb, and I have a question for Ned and Glenn.

My question really stems from Ned’s concern that the current pandemic response will crowd out spending on other priorities like climate change. So here’s the question. Will the current economic crisis prove or disprove the validity of modern monetary theory?

FOROOHAR: (Laughs.) Good one. Good one to end on.

HUBBARD: I’ll grab it quickly. It’s Glenn.

Modern monetary theory has a truism in the trivial sense. I mentioned before about the marriage of the Fed and the Treasury’s balance sheets, so in that sense it’s true. But the notion that you can finance deficits by monetary means again and again and again and again and just keep doing it until you see inflation I just think is a very naïve view of both economics and the political process. But the trivial view about the balance sheet is certainly true.

PHELPS: Well, Charlie, yeah, we used to think that economics or macroeconomics was just about fiscal policy and monetary policy. And now there are all these new forbidding directions—dimensions that we’re facing now.

So, yeah, I mean, I guess it’s no longer—it’s no longer obvious that the right mix of fiscal and monetary policy will have restored employment, let alone growth, by next winter. That’s not obvious. We’ve got this health thing that’s completely new to us and is having indirectly profound effects on the national mood, causing anxiety, causing a lot of differences in society. So I think we have our hands full.

FOROOHAR: We have our hands full is maybe a good place to end. (Laughs.) And on MMT, I would just say I’m fascinated by what the gold markets are telling us about that.

Thank you all for these great comments. I mean, what I’m hearing, just to wrap up, is that we still have a long way to go. There’s going to be a lot more spending and higher debt before we’re done. It’s an important conversation to balance health and reopening at this stage, and that there’s going to be some pretty profound changes to the corporate world and the world of work; so lots of fodder for future conferences, I’m sure, and conversations.

So thanks, all of you, for participating. And thanks to the listeners on the line.

ROUSE: Thank you. It’s been a pleasure.

HUBBARD: Thanks, Rana.

FOROOHAR: OK, take care. Bye bye.


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