Bonus Episode: “A Medically Induced Economic Coma”

So, the Why It Matters team, like everyone else, is home, and it’s hard, things are scary.  

I don’t know about you, but I have been having endless video chats with my friends and family. And, aside from drinking wine while showing off completed puzzles or homemade bread, we’re mostly talking about two topics. Health and the economy. We bounce back and forth. What starts as a question about how someone is feeling turns into an update about who lost their job. These conversations are happening everywhere - nobody wants to get sick, nobody wants to lose their job, and it can feel like it’s one or the other. 

As people deal with these worries, some politicians and business leaders have called for a return to work in order to save the economy - even at the expense of lives. 

It just keeps coming up, and so we decided, hey, let’s pick up the phone and ask two of our fellows to help us understand the problem. One an expert on health, and the other an expert on the economy. 

Just a heads up that this episode is going to have a different style than our other shows. It’s essentially two conversations without most of our usual music and narration and pizzaz. Don’t worry though, we’ll be back to our regular format, and non-coronavirus programming, for our season two premiere in two weeks.  

But for now, I’m Gabrielle Sierra, and this is Why It Matters. Today, saving the economy and saving lives...do we have to choose?  

Gabrielle SIERRA: Ok, first up Tom Bollyky. Senior fellow for Global Health at the Council.  He’s getting a lot of these calls, so hopefully he’s not tired of answering. 

Tom Bollyky, how are you?

Thomas BOLLYKY: I’m okay, you know, grappling with the shutdown like everyone else. 

SIERRA: Yeah, what is your work from home situation? She asks while sitting in her closet.

BOLLYKY: So, he answered while sitting in my bedroom. Well, we have three small kids, so you know, that's a challenge. And we live in the city of D.C., so there is no great backyard for them to run around in. So they bounce around the house more or less like excited molecules at this point.

SIERRA: So we have officially made it to April. Felt like we would never get here. Longest March on record, I believe is the expert opinion. Do you think April's going to be worse than March?

BOLLYKY: April in the United States will definitely be worse than March. That's because by and large, it takes about three weeks for people to start showing clinical symptoms. So starting to get physically ill from having contracted the virus, it spreads, as everyone knows at this point, exponentially, with a lot of the cases occurring among people who have unreported infections.

SIERRA: So I want to ask you about something that I keep seeing people arguing about on social media, even though I'm trying to avoid some of this stuff pretty, pretty hard. But, do you feel like we have to choose between saving the economy and saving lives?

BOLLYKY: No, I think saving lives or more specifically keeping people from getting infected is really the only way to save the economy. The reality of this is, is that we are not going practically to be able to go back to work until we get this back under control. So the best economic policy we have is health policy at this moment. We can have a bad economic impact of this pandemic with good policies, we’ll still end up there, or we could have a much worse economic impact of these with bad health policies, plus all the lives lost. And, I choose the former. 

SIERRA: But I've heard people say that if we don't spend money saving the economy, many more lives could be lost in the long run due to recession. So do recessions kill people?

BOLLYKY: They do. Recessions do kill people. There have been a number of studies that looked at the great recession. We saw health impacts, particularly for men, and racial and ethnic minorities, and it ranged from a lot of our diseases of despair that exists out there already, in terms of suicide or alcohol or substance abuse, traffic fatalities, safe harm, declining fertility, you name it, you see that in recessions. And we just saw it a dozen years ago. So we're going to see that again. But again, the option here is not preventing a recession by allowing this virus free reign to run rampant. It's, do we want this to be a shorter recession or do we want this to be a deeper and longer recession?

SIERRA: So the idea is to focus sort of on the immediate and the short term, and that will help, naturally, the long term.

BOLLYKY: Absolutely. You know, China is starting to head back to work. South Korea, which had its first case the same day the United States had its first case, is back to work. You know, we can do this. We got off to an awfully slow start. But it can be done, and the sooner we can do it, the better for us, both from an economic and a health perspective.

SIERRA: So I've read that half the national stockpile of ventilators has already been sent out, which sounds really scary. So if we want to stimulate the economy and fight the pandemic at the same time, I don't really understand why we can't put more people to work, making masks, the protective gear, the ventilators, the things we need.

BOLLYKY: So we can, but you know, we need to mandate this. There are going to be still supply chain issues about can we make all the components, can we get all that? But you know, we can manage that. What is difficult to manage is to be doing this in April instead of doing it in January, February, even early March.

SIERRA: So what choices has the US made in situations like this in the past? Are there any past success stories we can emulate?

BOLLYKY: Yeah, so in the past, in World War II and in the Korean War, we granted the executive branch broad authority to regulate industry so that we could ramp up supplies that are needed for the nation’s defense, we are in that kind of moment. Now the president is talking about doing that this week on a limited basis and that’s great and I'm glad for it and we should. But we are awfully late for this wave.

But here's one thing I do want to emphasize, unfortunately, is that even when we get this under control, this isn't going away. This is just the first wave of this. Now if we can manage to get ahead of it, we can do what some other nations have done, which is to have good surveillance and testing and really minimize the effect of future waves. But until there is a vaccine, or a really effective therapeutic set can reduce people from getting sick from this, we're going to keep seeing waves. At this point, there are more than a million cases globally. It's a virus that isn't going to go away. There's no sign that it's going to go away with weather, so ramping up production is good for those second waves. I just wished we had done it earlier, so it was good for this wave too.

SIERRA: So has the timeline on a vaccine become any clearer?

BOLLYKY: So, it's a year and a year and a half away. That's what we're looking at. The other thing to know about the vaccine is once we have it, we still have to make it in the kind of volumes that can address people's needs. You know, how do we do that? But even once the vaccine becomes available, it'll take a little time for everyone to get it.

SIERRA: So I shouldn't be pinning all my hopes to that vaccine, huh?

BOLLYKY: Not in the short term. In the long term, I'm a believer in human innovation. What I do think you need for that to have its effect is a realistic and honest assessment of the challenges we face and the urgency in addressing them. But when you have that, I, you know, fundamentally believe in us to have that innovation to address that. We just need to mobilize it sooner than we have been.

SIERRA: What does the end game of this pandemic look like to you?

BOLLYKY: The medium term, and people should be honest about this, so I'm gonna try to be in this podcast, is that you know, even in the countries that have done well with this, they're still seeing cases. They get cases from people returning from abroad, with infections like sparks, you know, you need to control before they set off a wildfire.

That's going to be the reality for a year or two years with this virus, that we will have that risk. So this is not going to immediately go back to the way it was. That's the medium term of this. The long term is there are only really two, either we develop a vaccine, or at least 60% of the population needs to become immune. The challenge with the latter route is it will come at a great human cost. So I would like to bet on the former.

SIERRA: I guess this is a hard question to answer, but do you see any silver linings in all this?

BOLLYKY: Let me put it this way. Pandemics put a mirror to the societies they inflict and what they expose about ourselves in terms of our vulnerabilities, in terms of the limits of our health systems, in terms of the dysfunction of our politics in the past those have spurred reforms, whether it's the building of our public health systems or the construction of our great sanitation networks in cities. All these came as a result of past pandemics of cholera, or tuberculosis and the like. We will have those opportunities here. We will not be better for having experienced this pandemic. It could affect as many as 40 to 70% of the world's population. We will not be better off for having had that experience, but we will have an opportunity at the end to at least learn from it, and I hope we take it. 

SIERRA: Thank you so much. I hope you and your family are, you know, good, and don’t drive each other crazy, but take these moments to be together, and yeah, that you stay safe. 

BOLLYKY: Thanks. You too. Take care. 

So, according to Tom, we don’t have to choose between saving lives and saving the economy. For the time being they’re the same thing - the best way to help the economy is to stay home and prevent infections. And that’s a hard pill to swallow. What’s good for the economy as a whole has real costs - people lose their jobs, businesses fail. 

So, to understand the best way to contend with this double-edged sword, we decided it was time to call someone who has spent his life thinking about the economy. 

SIERRA: Sebastian Mallaby, hello, how are you?

Sabastian MALLABY: Hey, Gabby, I'm great. I'm in London. I’m in what my wife calls a cross between a multigenerational Victorian family because we've got three generations. My dad, us, two teenagers. It's a cross between a Victorian multigenerational family and a We-Work because we're all working away at different desks, at different parts of the house.

SIERRA: It definitely sounds like a full house. So for the people at home, which I guess is everyone right now, including you and me. Can you just tell me what you do for the Council.

MALLABY: I work at the Council on Foreign Relations as a senior fellow focusing on international economics. And so I follow what's going on in the global economy and I've written some books on the history of finance.

SIERRA: So I am in New York City and I would be remiss if I didn't ask you about the UK. How is it feeling there? What's going on right now?

MALLABY: Well, we're in lockdown just like in New York. So everybody's supposed to stay inside their house from nearly all the time. You are allowed out to take your one daily outing, to do some exercise for up to an hour. You can go for a walk or a bike ride. We go on walks because the weather has been pretty great. And London can often be crowded and polluted, but right now it's not polluted and it's not crowded. So, you can have a very nice kind of exploration of this historic city.

SIERRA: So, here in the US there's been this push to go back to work and, you know, despite the virus and to fight through and save the economy. I mean, do you think that we have to choose between saving the economy and fighting the virus?

MALLABY: I think that for now we don't have to choose because whether you are thinking about the economy or thinking about public health. You would choose to lock down and to try to get this pandemic under control. I think, Gabby, the tough decision is going to be, not now, but in two or three months from now when the virus has moved on, you know, some people will have gotten it, and therefore, so long as they've survived, they're going to be immune.

And the more people who are immune, the less it's obvious that it's worth telling everybody to isolate. You see what I mean? So I think as time goes by, we will reach a point where it'll be fair to say people should go back to work, even though you haven't eliminated all of the public health risk.

SIERRA: I know here in the US I've been reading that the government is going to be sending money to individuals and to small businesses. So how does this actually work? What's the goal there?

MALLABY: The goal is to try to keep everybody afloat so that when the virus finally plays itself out, and maybe we get a vaccine, you know, a year or so from now, people will be able to go back and resume their lives with as little damage as possible. You don't want people to incur enormous debts so that when the virus has gone they're still desperately financially underwater. You know, this is an enormous financial hit it will be the worst recession, the deepest recession since the 1930s, it will be much worse than 2008, 2009, in terms of the reduction in economic activity, because you know, we're in a medically induced economic coma, you know, most people are being told, do not work, do not produce stuff, do not be economically active. And when that happens, of course, economic activity will collapse. So, you know, the economy is going to shrink by 20 or 30% month on month in the second quarter of this year. And that means that to get through that quarter, when people are not earning money, you need to spend savings. Many Americans don't have savings, so then they would have enormous hardship. And, if the ones who do have savings spend all those savings, they're going to be in a weak state afterward. So it's better for the government to give them money and for the extra debt that you're creating because of this massive recession, that that should be public debt rather than private debt, because the public sector, the government is going to be better at managing that debt and paying it back and surviving despite the debt.

SIERRA: But I mean, is a one-time payment enough to accomplish those goals? That seems like a lot with one installment.

MALLABY: No, you're right. I mean, I think it's gotta be more than that. And I believe that, you know, come May or thereabouts, you know, I wouldn't be surprised to see Congress pass the supplemental stimulus to give additional help to people.

SIERRA: I was in New York during 9/11 and I remember the big push was, you know, spend money, support the economy, support your local places. Is that sort of the ideal situation with your stimulus check now too?

MALLABY: The classic line was, you know, come to New York, watch a movie, go out to dinner, stay in a hotel. Now you've stimulated the New York economy and you've paid it back for 9/11. Now you can't, right, because the movie, the, you know, Broadway shows are closed, the restaurants are closed, and the hotels pretty much aren't operating either. So we have a simultaneous hit, both to demand, in other words, spending is going down, but also certain types of supply aren’t there either because businesses are closing down, they can't operate. So I think the money this time is less about go off and spend it. It's more about take this and try to survive.

SIERRA: So a lot of people are losing their jobs. I know I have several friends and many more that are going to face job loss and everyone's filing for unemployment. So is the US going to run out of money to pay all these people for their unemployment benefits?

MALLABY: You know, that's a great question, Gabby. It gets into a very, very interesting, experiment that we're going to be running in the next few months. If you think back to 2008, one of the amazing policy surprises was that the federal reserve could create unlimited amounts of money and use it to bail out the financial system. And there was no apparent penalty for that. In the past, you would have said, hey, if the Central Bank just prints money, you're going to get inflation. This time there was no inflation and without inflation, there was no reason that the Central Bank should stop printing more money, and it carried on doing so-called quantitative easing where it basically creates money and pumps it into the economy.

It went on doing that for quite some time after the 2008 crisis. So suddenly we had this realization that Central Bank power was way bigger than we had suspected before. Now this time we're running the next experiment, which is about government budget power, the Treasury's power to have payments to American families and American businesses almost without limit. Can that be done in the way that Central Bank money printing was done almost without limit? Now, there are a lot of economists who think yes right now because inflation is nowhere in sight, therefore, the Central Bank can create money and it can use that money to buy government bonds. And when the Treasury sells government bonds to the Central Bank, the Treasury gets lots of cash and it can give that cash to Americans freely. And this process could continue really to an enormous extent. And there will not be inflation, there will not be a crash in the dollar, there will not be any adverse consequence. And so you have this sort of free license to basically create money.

SIERRA: Well, what's the potential downside to that? That kind of sounds a little bit too good to be true.

MALLABY: It does sound too good to be true. The downside is that government debt will increase. But the mitigating thing is that the government debt will be owed to the Federal Reserve, which would have bought the debt, and the federal reserve is ultimately part of the government. So the government would be kind of owing money to itself, and so that isn't actually terribly damaging. 

What happens is the government has a bunch of debt. The Treasury has to pay interest on that debt. It pays the interest to the owner of the debt, the owner of the debt is the Central Bank, the Central Bank collects all that interest, and under the rules of the Central Bank, it pays back its profits, guess where, to the Treasury.

So the Treasury basically pays the money to the Fed and gets it back from the Fed, and it's a wash. So it is very much like alchemy. You are printing money out of nothing. It's creating gold by magic. So it's kind of weird, but it's one of those things where, you know, if you think about it carefully, you can't think of a reason why it wouldn't work, so long as people are okay with it. 

Of course, if everybody decided to panic all at once and run away from the dollar and buy gold or Bitcoin, then the dollar would crash and we would all be in trouble. But I don't think that's going to happen. So I think we may discover that you can increase government debt without it actually crippling the economy. 

SIERRA: I mean, it seems like it's worth a try, at least in a situation this tough.

MALLABY: Right. Because we have certainty about the cost of not helping people out, that they will be real human hardship. And we have uncertainty about the economic consequences of racking up a lot of extra government debt. And so I agree with you, it's an experiment that we should be willing to try.

SIERRA: Nice, so I can take at least one of my immediate worries off my long list. Not worry as much about that specific thing and just focus on everything else that is continuously worrying me.

MALLABY: I'm glad I've given you a silver lining.

SIERRA: Thank you for that relief. So, you know, I am an eternal optimist even in the face of, you know, what's going on right now. Are there any other silver linings that you sort of see coming out of this.

MALLABY: So on Saturday, my sister had a birthday and she lives about a half-hour walk from my house, so I cooked up a plan where I went on my walk, my other sister came on a walk too. And, we brought our kids along and a big banner that said happy birthday in huge letters and some gifts, and we put the gifts on the doorstep, and then we retreated a safe distance and called my sister on cellphone. And when she opened the door, what she could see was the gift down on the steps in front of her house and the big banner, and we were all safely distant and, you know, medically obedient to the public health rules. But we did manage to have a family birthday celebration.

SIERRA: Oh, I love that. It was my father's 65th birthday on Friday. And, we sent food delivered and I had put like a little note and the local restaurant, they sent him this big card and it was signed by all of them, and you know, it was just really lovely. So I guess we're doing the best we can with these birthdays, right?

SEBASTIAN: I like your story. 

SIERRA: Sebastian, thank you so, so, so much. 

So, do we have to choose between saving the economy and saving lives? Whether you look at it from the economic angle or the health angle, right now the answer is a clear no. According to our experts, the best thing for the economy is still to stay home, prevent further infections, and keep as many people alive as possible.  

But there will eventually be a time, when the United States, and other countries, have to make tough choices about when healthy people should return to work. Even as additional waves of the virus threaten to appear. 

In the meantime, stay safe, be well, and we’ll see you soon. 

Want to learn more? Visit CFR.org where you can find show notes for this episode, and a Coronavirus topic page that gathers all the Council’s expert analysis of the pandemic. 

Please subscribe on Apple Podcasts, Spotify, or wherever you get your audio. We also want to hear from you directly during these extraordinary times, so send your thoughts to [email protected].

Why It Matters is a production of the Council on Foreign Relations. The show is created and produced by Jeremy Sherlick, Asher Ross, and me, Gabrielle Sierra. Our sound designer is Markus Zakaria, and our researcher is Rafaella Siewert. Robert McMahon is our Managing Editor, and Doug Halsey is our Chief Digital Officer. Original music was composed by Ceiri Torjussen. Special thanks to Richard Haass and Jeff Reinke.

For Why It Matters, this is Gabrielle Sierra, signing off. See you next time!