"Navigating the Economic Crisis During a Global Pandemic" May 21, 2020 >> The problem is that we have never seen an economy really fall off a cliff this quickly. >> What's happening today is instead of playing out in months and years it's playing out over days and weeks. >> How are we going to address the ongoing public health problem while getting people back to work? >> Michael Barr: Welcome. I'm Michael Barr, dean of the Gerald R. Ford school of public policy. It is my great pleasure to welcome you today to this policy talks at the Ford school with my colleagues Justin Wolfers and Betsey Stevenson. We have hundreds of participants online already with others joining in different formats. We'll talk today about the current challenges of navigating an economic crisis amidst the global pandemic. With millions unemployed, businesses shuttered and continued uncertainty about the future we are facing an unprecedented economic situation. Our discussion today focuses on some of the questions economists, policy makers and global leaders are grappling with. Justin and Betsey are professors at the Ford school and have joint appointments in the department of economics. Betsey served at a member of the council of economic advisors advising president Obama on trade issues. Previously she served as chief economist at the Department of Labor. Justin is a contributing columnist at the "New York Times", a researcher at the bureau of economic research, senior fellow at the Peterson institute and the brookings institution. In addition to my academic rules I served in the U.S. treasury as president Obama's assistance secretary of the treasury for a financial institution during the global financial crisis and previously served under president Clinton in the state department White House and treasury department. Before we dive into the discussion, let me give you a couple notes about our format. We have some time at the end of the event today for questions and answers. We have received some in advance that I will be asking. If you're watching on Zoom, please use the q&a function at the bottom of your screen to send us your questions. We hope you will also use the Zoom chat to engage in a conversation about the discussion with your fellow audience members. It's a great way to engage with each other. For those of you watching live stream through other formats, tweet your questions to us using the hashtag # policy talks. Without any further ado, I'm excited to be here with you, Justin and Betsey. Thanks for joining us this morning or this evening, wherever you are in the world. >> Justin Wolfers: Good to see you again. >> Michael Barr: We'll do this informally with give and take back and forth and then open it up to questions. Really, I want to start with kind of a broad frame, Betsey and Justin if we could. There is a lot of talk now about the conflict between economics, opening up, and public health, staying closed. How do you see this? Is there really a conflict? How would you navigate it? >> Justin Wolfers: One way of thinking about this, Betsey will give a deeper answer than me, I'm sure. I will give a simple case study answer. My home country of Australia has shut down quite aggressively and has had a couple of days with zero new cases over the course ever of the pandemic. Only a hundred Australians died. 112, 115th the size of the United States. So there is basically no COVID anywhere now. There is a little bit. They have been very careful. The U.S. obviously, tens of thousands of new cases per day. 1,000 to 2,000 people dying per day. Less aggressive public health. Less test and trace, contact tracing, less use of masks and so on. Which economy would you rather be in today? My Australian niece is going back to school on Monday. My sister runs a bunch of gyms. She's planning on opening up soon. The Australians did tighten, they took it seriously but they look ready for a robust economic bounceback. >> Betsey Stevenson: I think the moral of the story is there is a big potential upside if we can really get cases to zero or at least R naught below one. It's not just the lives saved because we don't have this escalating case load during the shutdown, but also trying to get that R naught below one. That will give us more ability to go back to normal. So when people talk about things like are we going to bounce back and have a quick recovery, that's going to depend on how good a job we did stamping out the virus. It's now May. Unfortunately, the U.S. didn't do a very good job of stamping out the virus. So we didn't get a great bang for our buck in terms of shutting down. That doesn't mean we shouldn't have shut down. We saw New York become awfully close to getting their hospital system overloaded and having this cascading effect that would cause a bunch of other health problems. I think the bottom line is that it's fine and okay to think about ‑‑ and this is like a really ‑‑ I should couch this by saying a lot of people will object to this statement: Sometimes we go ahead and ‑‑ >> Michael Barr: Something controversial? >> Betsey Stevenson: You don't close the economy every time you have people who might die. That's the point people made about the flu. We don't shut down the economy for the seasonal flu even though people die from it. In this case, we had something very different. We had an exponential growth of the virus. It was more deadly, more contagious. It had the potential to do just enormous harm. We have the tools in public policy to think about the trade‑offs. We have something called a statistical value of a life. We can think how many lives might be saved. >> Justin Wolfers: This is why nobody likes economists. In English. Someone might like you. >> Betsey Stevenson: We can think of whether it was a good idea to close or not and whether it's a good idea to open. We can do this in a very purely mathematical sense by, you know, analyzing the costs and benefits. So, you know, in some sense there is a trade‑off. When people say there is no trade‑off, I want to be careful. Australia is not down to being 100% at zero, but it is so low it is clear they should open back up. In the U.S., we were facing really big costs in staying open. It was very clear that also the cost of shutting down became lower because so many people would have been sick in those businesses they wouldn't have been able to operate at anything like what they were operating before. >> Justin Wolfers: Can I make an analytic point? A couple of my students are in the audience and they'll recognize this. When we see the discussion about the economic costs of the shutdown, they're real. Mnuchin was talking about it yesterday. We shouldn't talk about the economic cost of the shutdown relative to, wow, wasn't the economy great at the end of 2019? The opportunity cost principle, remember that, says we ask or what? We could be shut down or what? Or have a COVID‑inflicted economy. Is a COVID‑inticketed economy with lockdowns better or worse than a COVID‑inflicted economy without lockdowns. Imagine how much fear would be holding back commerce if there were a greater spread of the virus. Make sure we are always comparing things relative to the right kind of factuals. I know Ford school students know how to do it. We need to remind people in the communities. This is an analytic error people make all the time. >> Michael Barr: Let me ask for a technical explanation and then I want a bottom line, maybe a shorter answer if you can. Is it worth doing the shutdown or not? Should we re‑open in the United States or not? There are different things around the world, but the technical question, Betsey, you used the word R naught which is a scientific denotation for the replication of the disease, COVID‑19. I wonder whether you could explain a little bit why it is important to get that number, R naught, or that sign under one. A lot of people aren't used to thinking in exponential terms. The difference between a little bit above one and a little bit below one. It's almost one. >> Betsey Stevenson: For all of you homeschooling your children, we learned that people need to learn exponential functions much better. Exponential functions are things that are doubling. Doubling is an example of an exponential function. So the main point of an exponential function is it can grow to infinity. It keeps growing rapidly. >> Justin Wolfers: To be clear, a virus can't spread to infinity. >> Betsey Stevenson: Yes. >> Justin Wolfers: If you want to sound sophisticated use the technical term, exponential‑ish. Because the virus's exponential growth on the very first day. After that it is exponentialish. When we approach global immunity, then it is no longer growing. So exponentialish for a population that largely hasn't had the virus which is what the United States including New York is. >> Betsey Stevenson: There is an easy way to think of this. If you get the virus, how many people are you giving it to? If you are giving it to two people and they are each giving it to two people and they are giving it to two people we spread the virus rapidly. If you are giving it to less than one person then the virus will die off. That's when we say R naught less than one. We want the typical person who gets sick to get a little bit less than one person sick on average. If we do that then the virus is very contained. >> Justin Wolfers: It's bad for the virus's health, right? >> Betsey Stevenson: You asked the quick question was it worth shutting down. Absolutely. Should we be opening right now? I don't think so. I think if you want to compare why I say the U.S. isn't ready it's not just that the virus is still spreading at too high a rate. We don't have have in place the things that are needed. It's not just that Australia shut down. They have massive testing and tracing in place. The U.S. doesn't. Once we have those in place it's time to start opening up. >> Michael Barr: Great. There are lots of issues involved in the current pandemic and the economic crisis. I want to spend a moment talking about the language, the economic crisis and the pandemic have highlighted, revealed, reinforced racial and ethnic disparities in societies. Very different impacts across income levels, the kind of work you do. I wonder how you all think about this set of issues. >> Justin Wolfers: I think it's at one level terrifying. We have a different set of issues we haven't spent the last several decades thinking about. We discovered yet again they seem to have the same disparate impacts that the economic issues we have been thinking about have. There is a recent paper published that ‑‑ well, sorry. We see these in a range of different places. For instance, in New York, testing was much more common in richer, wider paths of New York City. You have seen, of course, a lot more spread because a lot more spread is occurring when people have to work face to face. You have seen larger job losses for people with less education. That's a simple marker of socioeconomic status and income. Two things. First of all a lot of people in retail and face‑to‑face occupations are at lower incomes. And second, the employment relationships are more tenuous. Michael is my boss. Michael's business isn't doing well, but he's not going to fire me because we don't have a tenuous employment relationship. If I was working in a cafe and Michael was a cafe owner it would be understood if he has no hours for me he'll fire me. We are seeing sharper job loss at the bottom of the industry. >> Betsey Stevenson: We can break it into two parts of disparity. One is in health care. We have known about health care disparities about issues with people having health insurance, how they are treated at the doctor and COVID brought all of it into stark relief. We see what happens when people are inadequately insured, have inadequate access and when medical professionals listen to them with a different set of ears compared to how they listen to other people. I hope that the really starkness of this will have us address these persistent underlying inequities in the health care system. COVID isn't special. It's just showing us the problems that were already existing in the system. When it comes to employment, I think it's too soon to say exactly what's going to happen. Unemployment insurance was made historically generous. We have never made unemployment insurance as generous as it has been. We both expanded the number of people who would be covered, people who wouldn't have been covered because they hadn't earned enough. We expanded for them. We expanded to include people who didn't have traditional employment relationships but were independent contractors. And then we brought people's unemployment insurance checks when we add in what's called the pandemic unemployment assistance so that more than half the people are getting ‑‑ earning more in unemployment insurance than they were bringing home in a paycheck. There was a huge incentive for the cafe owner. Not just the tenuous relationship. You may as well lay the worker off because they'll do better with the unemployment insurance check. Even if you were a care, good employer who wanted to keep people on payroll you could look and say, they are going to do better so I will take advantage of the government assistance. But will they get hired back? Is that relationship strong enough that the cafe owner goes back to their old employees and brings them back or is everybody going to have to shuffle and look for new jobs? Then there is the point Justin was making about the service economy. Most of our unskilled labor in the United States ‑‑ I should say unskilled, people without a college degree that are moved from different types of jobs, move around the economy. They are often face‑to‑face jobs. We are a service‑based economy. 80% of our jobs are in the service sector in some form. Not all of those jobs but many involve face‑to‑face contact. So we are going to see struggling there as people reassess how they want to interact with people. So let's talk about the unemployment numbers a little bit more detail. Maybe you can chart what's been happening with unemployment for our audience. And then, you know, digging into Betsey's point, how do we interpret these numbers? Are they a temporary blip in a healthy economy that everybody is going to get back in or is there just a fundamental disruption that means that many of the jobs people had are not going to be there for them as we remerge hopefully from the pandemic at some point. So two very tough, interesting questions. Let's start with the numbers. >> Justin Wolfers: Do you want to take it or do you want me to? >> Betsey Stevenson: I'll start with the numbers. First of all, the unemployment rate that came out was 14.7%. Honestly, that sounds not bad but that's because it's not the right number. Even if BLF in their technical notes said a bunch of people answered the survey wrong or the interviewer coded them wrong, but we are not in the business of changing the data. So this looks like an error, but we are not going to change it. If we did change it the unemployment rate would be 19.2%. So in reality we have a 19, 20% unemployment rate. We have seen roughly 21.5 million people drop from payrolls over the last two months, but we have seen 35 million people apply for unemployment insurance compared to 2 million over the same period a year ago. So what does that mean? There must be more people dropped from payrolls than we have even seen so far. We have roughly 30 million to 40 million people who have separated from their employer in some way. So that's the set of numbers we're looking at. Now, the next question is how should we think about those numbers? Do you want to dig in first? >> Justin Wolfers: Sure. We keep getting headlines like the largest surge in unemployment in American history. When I say the largest, the largest by a factor of ten, the last monthly number. The last decline in employment, sorry. So when you look at rates of change it's horrific. It's not only unheard of, it is ten times worse than unheard of. The thing to understand though is this recession is different. Normally the way a recession plays out, even something like Lehman Brothers collapses, that then takes a while to spill out through the rest of the economy. The manufacturer up the road in Flint may notice the sales are off, but he's not sure if it's because someone else cut prices or the economy is off. It takes a while to sort it out. Then they meet to figure out what to do with the workforce. When they close down that affects upstream and downstream people. The great recession played out over eight months. This one, they walked on, blew the whistle and told everyone to get off the pitch. It was a highly synchronized recession. The economy was changing as much every two days as it typically does in a year. That's why the rates of change are dramatic. In some sense they are uninterpretable. >> Betsey Stevenson: Let's think about what this really means. The real question is how many people get brought back to their jobs? If we look at the great recession in 2008 over the course of two years we saw payrolls decline by about 9 million jobs. Those were mostly, not all, but real job destructions. The employer went away. The person didn't get recalled back to their job. They had to find new work. It took people a long time to find new work. That's why recovery takes so long. You wake up, you don't have a job. You have to start thinking about where to search. You have to apply. You have to try to figure out what's a good match and the employers are doing the same thing and also waiting for new businesses to start up. Right now, we haven't had that much job destruction, but we could have more. So what we have done is told everybody to go home. If everybody is called back, there is no real permanent harm. Now it's unlikely everybody is going to get called back. But that's going to be ‑‑ the real question is how many people get called back. >> Justin Wolfers: We should emphasize the good news as well as the bad news. Michael asked is this a blip. Some of it is. Quite likely a lot of it is. The question is how much. So we have some estimates, one in the "times" this morning that said maybe half will be permanent lay‑offs. The California UA office asked people, have you lost your job permanently or do you expect to go back. 90% expect to go back. If 90% go back that's a temporary blip, but the issue is we don't actually no. >> Betsey Stevenson: Yeah. To emphasize the good news there are a bunch of business models that will still be successful after we pass coronavirus. People will go back to the dentist. Dental hygienists might be laid off but many will come back to their jobs. So what jobs don't come back? In a way, I have been trying to think about this and to break it down to what are going to be the forces that act on the economy. One is that people have lost income. When they lose income we see demand goes down. When demand goes down, there is going to be some job loss. Businesses might re‑open and find people don't come back as much, simply because they don't have as much income to spend. They also might not come back as much because they are fearful of the virus that they don't think enough has been done, that they don't feel safe. I think there are a bunch of industries like restaurants, like travel that are really going to continue to suffer, not just because of loss of income, but because there is also fear around engaging with the economy. Another factor that we have to start to think about is people are starting ‑‑ they had a shock to how they live. They have spent nine, ten weeks, maybe longer, maybe for some shorter quarantining at home. They have been forced to learn a new technology, even if they had been adamantly against using new technology. They have been forced to try out new things ‑‑ >> Justin Wolfers: Just to be clear, let's think about what we mean by new technology. You might be thinking, well, now I have learned how to sit in a Zoom meeting. We all have and we are enjoying working in pajama pants. I was also mastered new technology of dumbbells. I lift them up and down and you can see I'm buff now. But I no longer need to go to the gym. You can imagine there being a persistent effect. >> Betsey Stevenson: That's an interesting comment. Of course people always had dumbbells at home and there was a big demand for going to the gym. What's different now, one is more people have home equipment, but also when we think about technology, lots of companies have started streaming fitness classes. People who have been like, I don't know if I want to do streaming, I enjoy the live class. They were forced to try streaming class. Some will find, hey, this is a good substitute for the gym, particularly if you then combine that with fear of catching a contagious disease like COVID at the gym and if it's a cheaper option, you combine it with declining incomes to see fewer people going back to the gym. So there are some industries that I think are really going to struggle. I think the travel industry ‑‑ you know, people mock Zoom. Of course we have learned Zoom. But I think businesses are going to rethink how much they spend on business travel coming out of this pandemic. >> Justin Wolfers: That's your boss nodding now. He controls your travel budget. So infer what you will from that. >> Michael Barr: It may shrink this coming year. >> Betsey Stevenson: So you put fear of getting sick, we now have a better substitute that people know how to do, and companies are dealing with serious cash flow problems. I think we'll see travel continue to struggle for some time, even if we invent a vaccine that diminishes the fear aspect, even if they develop protocols that diminish the fear aspect you have the technology substitute and the issue of the declining income and revenue stream. >> Michael Barr: Let's talk a little bit ‑‑ you named three factors, the disruption factor, the income factor, and the fear factor if you will. There's been a policy response you could say to two of the three. How does the policy response in the U.S. and other countries around the world on the income and the fear side, how are we doing? >> Justin Wolfers: My job as an academic is to complain. My job as someone who is not a big fan of the White House is also to complain. But on the flip side, the initial fiscal and monetary response has been, I think, commensurate with the size of the problem. A two trillion dollar bill is unheard of in American history. The income support for the unemployed, the implementation is problematic. We don't have ways to get money to people easily but they'll jam a lot of money into the pipes. The monetary response has been dramatic. So I think we should really recognize it's been a serious policy response. Now one exception. If you want to ask me what the three most important economic policy tools are right now, they are public health, public health, and public health. Then comes fiscal and then comes monetary. We are doing okay on fiscal and monetary. The first three is what I'm worried about. >> Michael Barr: That goes to the fear factor. >> Betsey Stevenson: Yes. On the income factor, we have done pretty well. I just looked at some analysis of the April unemployment data. 60% of the people who lost their jobs were in the bottom two ‑‑ of the income. This was disproportionately hitting the bottom. But the bottom two quintiles received unemployment insurance greater than 100% of their previous wages. >> Justin Wolfers: You should say that in English. >> Betsey Stevenson: Shoveled a lot of money to these folks. They are bringing them more money in unemployment insurance. We made up income there and you have the direct payments they sent out. If you are in the bottom half of income distribution you did pretty well. Even really the middle has done pretty well. We are looking at basically getting replacement rates. So they are bringing home roughly similar incomes. We stopped consumer consumption purchases. People's spending really dropped in march before the shutdown started. It's been hard to get people out, but we directed the money to the right people. We have also ‑‑ way more hiccups on the business side, tried to get money to businesses but with more hiccups. The fear side, I think, is where we are bombing. We are really bombing on the fear side. There is no sense that there is confidence that we have a coherent plan. There is arguing across the aisles. Somehow this has become a partisan issue as if ‑‑ I never would have thought a virus could become a partisan issue. We are all in this together. All of our health is the same. It's not like it's a partisan issue divided between the healthy and the unhealthy. It's a somewhat toxic political situation in the United States making it hard to address the fear issue adequately. >> Justin Wolfers: Fear goes two ways. There is a lot of fear out of the economy. There might be parts of the economy where there is not enough fear right now. The masks have become partisan and that's insane. In Australia, the prime minister in each of the state premiers, the equivalent of a governor. They collectively made the national decisions. The state leaders are all very popular and they are often of a different partisan makeup than the national leaders. It became harder for things to become a partisan issue because if you wanted to attack the other side you are also attacking your own state leader. I think they got a lot more national buy‑in to the national plan. Of course our problem isn't just that we don't have buy‑in, but we don't have a plan. There are certainly other models in the political economy of this working more effectively. >> Michael Barr: I think that's a terrific set of points. I think on the ground the policy has a difficult time being translated from the national to the local level. For example, we work with a lot of businesses ‑‑ small businesses in Detroit. In the first round of the paycheck protection program, the small business program, none of them got access to funding. Predominantly minority‑owned small businesses. There is this lag obviously between national and local policy. As you pointed out, it's hard to know what the national policy is on public health. Really the governors have been taking the lead on the public health side with different policies across the country. Here in Michigan, our governor ordered a relatively strict set of stay at home orders that are now being lifted. She's being protested in the state capitol. You have probably seen some of the images. >> Justin Wolfers: Can I turn it around and ask you a question? You were involved in the post‑'08 cleanup and there were a lot of lessons we should have learned and plumbing in place. Did it happen? If not, why not? How do we make sure we learn the lessons this time so the next crazy thing that turns the economy, we'll be better prepared? >> Michael Barr: A lot of the issue is temporary programs put in place after the financial crisis were allowed to expire. So instead of building in automatic stabilizers into the economy which would make a lot of sense when there is a crisis, these things kick on, we have systems to distribute funds. We just let them as a country lapse. I think that we are seeing the consequences of that. And then a lot of things were never gotten right. There are millions of families in the United States, for example, who lack access to a bank account. So getting them access to funds is actually much harder. So among the most vulnerable people we have the least good method to deliver the cash assistance they need. >> Betsey Stevenson: You know, what I saw, Michael, was the same mistakes that we see over and over again which is that policy makers often forget to think about the incentives they are creating. So if we think about why all the Detroit businesses couldn't get access to funds, they created a set of incentives where banks wanted to give money to customers and GIF out the largest loans they could. What we wanted to have done is to have set up incentives for the banks to bring in businesses that didn't have relationships and to save the smallest businesses, the businesses that actually ‑‑ a small amount of money would have kept them afloat. We did the exact opposite thing. >> Michael Barr: Exactly. We should have stacked it so the smallest loans got funded first before you had access to the bigger funding. >> Betsey Stevenson: It was the opposite. >> Michael Barr: They just messed up the program. They were operating under extreme time pressure. They got a ton of money out the door, you know, for the amount of time they had and through the SDA which is not an institution that usually moves at that speed and scale. But you're right. The fundamental design issue was wrong from the start. That was foreseeable. It would have made a very big difference to fund all the small loans first before you got to the large loans in that program. We are at the point where I'm opening up to audience questions. I have quite a number. A lot of you are interested in how long it will take for the economy to get back to normal and what recovery may look like. People describe V‑shaped recoveries, U‑shaped recoveries and Ws and swooshes. What are we going to see? >> Justin Wolfers: Let me take that. I'm going to do something incredibly unusual for an economist which is look you in the eye and tell you none of us have a clue. Let me tell you two stories and tell you the truth is somewhere between them. One is the super optimistic story. We know you can shut down an economy and re‑open it a few months later and it will be vibrant. We know it because the economy does this every year. They shut down the economy every year as does the tourist parts of the upper peninsula and Paris. Everyone disappears. No one works for a few months. We re‑open and it is vibrant again. We can re‑open an economy and have it bounce back. The other extreme is we get to the end of this, being largely quarantined and we feel we have some of the bug under control. Families have spent down most of their savings. Most of us look at the economy and feel much more uncertain. We have to put together a rainy day fund which is saving rather than spending. All of the businesses that we thought were vibrant, successful businesses in January and could be vibrant and successful in a few months' time had cash flow problems that means they didn't survive. If that's the case we have the new equilibrium which is businesses aren't hiring because people aren't spending and people aren't spending because businesses aren't hiring. That's a more traditional, standard, classic recession. It's also exactly the type of recession that the Great Depression was. You can get stuck in people not spending and people not hiring over and over for years. I have told you it's somewhere between a couple of weeks and many years. The truth is we are not going to know where we stand until we start to see ‑‑ start to come out of the virus parts of this thing. >> Betsey Stevenson: Realistically, there is no ‑‑ I put no probability weight on a couple of weeks. What we are going to see and it is important for people to realize is the best news scenario is we start to open up and the virus doesn't take hold and we are able to continue opening up. We will see a lot of people recalled from their jobs. We'll see what looks like very fast job growth over the summer into the fall. That will eventually slow, but it will slow before we put everybody back to work. That will be the core, real recession Justin was talking about. The people whose jobs were destroyed and we need to find a way to get them back to work. Most reasonable estimates suggest it will take a while. We are not going to go back to the economy as it was at the end of 2019 until 2022. That's optimistic that we are back to where we were in 2019 in 2022. It's possible the thing drags out and is worse. I think one thing people are worried about is if there are permanent destruction along supply chains, we can reduce our potential level of output. So if the broccoli farmer who is farming broccoli for restaurants and just threw a bunch of broccoli in dumpsters because they couldn't get it to restaurants, they didn't know how to distribute it to the right people, they either have to figure out how they are more resilient if the restaurant orders don't come back or they have to scale back what they are growing for the next season. The question will be what they choose to do. Do they ‑‑ that's just one example. There are lots of potential for there to be a destruction supply chain that makes it even harder to get back to where we were in 2019. >> Justin Wolfers: I had one thought. Five days before the election, the first few GDP numbers will come out. Forecasts are the economy will grow by 5% but Americans say the economy will be growing at an analyzed rate of 20%, the fastest rate of growth ever recorded. It's almost certainly ‑‑ it is very likely the case that in months leading up to the election we'll be recording job growth of over a million people per month. Unprecedented. So the economy will be in bad shape. Unemployment will certainly be above 10%. But we'll be improving at a rate that the political discourse around these issues ‑‑ I'm not looking forward to it. >> Betsey Stevenson: I don't know. We need to ask a political scientist on that. People do know lots of people have been sent home. I don't know if we'll be able to fool them by saying, look, 20% of people got recalled back to their job, isn't it grand? Or will people say, what about the other 80%? That's what we hope to see, right? A worst case scenario is shutting down in September, October as the virus takes greater hold. >> Michael Barr: Many countries saw their rates of COVID‑19 disease increase and then fall with their public health measures. The U.S. saw it increase and flatten. We are deciding to re‑open before anybody else has decided to re‑open at a level that creates serious public health risks. It is hard to know whether this will last into the summer or not. >> Betsey Stevenson: That's my ‑‑ I think we are more likely to need additional shutdowns because we are opening too soon. We're going to see further spread. My fear of that is that I think the longer this lasts where we are not successful in stemming the virus, the more permanent destruction there will be. >> Justin Wolfers: This is doubly complicated. The policy issues are complicated because we may have a federal government really focused on economic effects prior to November. We then may have a caretaking government between November and January. So the politics is ‑‑ you know, we have seen this play before. It happened in 2008. Actually we had moderate functional policy. >> Michael Barr: I think 2008 is a positive example that I don't think will be replicated. The transition between administrations, even though there was a bitter political fight, the transition between administrations was very smooth. Obama transition officials were really working in the treasury department during the fall. There was a seamless handoff in the middle of the crisis. I think it was highly unusual and is unlikely to be replicated in this particular instance. I wonder whether we could talk about the globalization issue that Betsey, is raised by your modest example of the problem in the supply chain domestically. Obviously we are seeing huge disruptions in global supply chains, disruptions in global travel, disruptions in the access to visas and the ability to cross borders. Again, you know, can you help us think is this the end of globalization? Or is this a small bypass that we'll return to the kind of system we knew with increasing globalization when we come out the other side of this? >> Justin Wolfers: Let me describe three important forces, maybe more. One is politics. So, of course, U.S./China relations, China/everyone relations, U.S./everyone relations, and also just countries like Canada, Australia, do you want to bring more stuff on shore? What I teach in national trade to my students is I say there is the national security argument. For most of the career I said that doesn't seem like a big deal. All of the sudden it does. I have been thrilled that food supply actually has been barely disrupted. I understand it has been, but really to the worst case scenarios we are all still eating much as we were before. So politics is going to create a force or onshoring. The second force is technology. As soon as I learned to teach at the University of Michigan from my home studio known as Betsey's office, there is a question of why am I teaching only students in Michigan? Why aren't I also teaching students in Sydney? So this could lead to a rise in services trade which would be a rise in globalization. But I think the third thing is we can never underestimate the extent to which global trade is facilitated by real human interaction. I think having foreign students come to the United States and form close relationships in the hallways around the university is one big part of that. Having tourism. And so the real human interactions through tourism, education in particular and business travel which I think really do grease the wheels or obviously there will be less of it. On net in the short run it will almost certainly be a few years of deglobalization, but I wonder if then service trade will push a second of greater trade. >> Betsey Stevenson: I agree with Justin. >> Justin Wolfers: Could you say that again? >> Betsey Stevenson: I agree with Justin. Whenever we have a downturn, the technological change tends to be accelerated. We already talked about that. People have been moving down a path of shopping online. That accelerated over the pandemic. It's not going to go back to where it was prior to the pandemic. I think we are going to see a big pause in globalization, but I don't think we are going to move very far backwards and certainly not in a permanent way. There could be a realignment of global powers. We have seeing it for the past couple of years anyhow. Some countries are working together with other countries better in terms of dealing with a pandemic. Some countries have done a better job of keeping the pandemic at bay like Australia, New Zealand. Maybe Australia and New Zealand should be able to go between each other's country, but you don't want to let Americans in because we are going to come in and bring the virus to them. I think we are going to see some countries get more isolated than others as a result. You know, the question is how long does it last? >> Michael Barr: Our public health failures in the United States could make it harder for us to trade with other countries to do business with other countries. >> Betsey Stevenson: It will isolate us for a little while. >> Michael Barr: So let's talk a little bit about the upside of the kind of questions that are about this disruptive moment leading to new opportunities. Justin cited one in educational services. Can you all think of other areas where the technological disruption might be an exciting area to pursue in the future? >> Justin Wolfers: It's a hard question when you pose it that way. I will filibuster so Betsey can think of something optimistic to say. Every part of the world would be better off without COVID, full stop. Are we going to adapt and make it less shitty, yes. That's the natural way of thinking about your question. When people talk about the economy being reinvented, you know, I sort of remind them that the post war economy looked a lot like the prewar economy and the post war society looked a lot like prewar society. One answer is a lot of it will be the same. Of course things were a point of inflection and a range of different things. We talk about Rosy the riveter as having led to a surge of women in the workforce. You know, we might have dads who learn to do things like change diapers. I don't know what your vacuuming situation has been like, but I have been working hard around the house ‑‑ harder than I have been in a while. So you could see some reinvention of gender roles and family roles. >> Michael Barr: We have to be optimistic. >> Betsey Stevenson: We bought a vacuuming robot and he programs it from his phone. Are you kidding me? We're getting into chore wars now? I think, you know, human ingenuity is a completely remarkable thing. We have seen people come up with solutions already in this crisis that have been just ‑‑ you know, taking my breath away with their ability to solve problems. >> Justin Wolfers: Can I give a dumb, happy example? My daughter likes performing in musicals. She has the musical ability of her parents so you can imagine what these are like. Don't say that, Justin. She's not listening. It turns out her musical theater company has set up a Zoom musical. It's amazing. These kids rehearse and the screens go from character ‑‑ I don't know how they'll do it. They were able to do it within a couple of weeks. The ingenuity. Of all the things you think you can reinvent, reinventing school musicals is something I never could have imagined. >> Michael Barr: We have been getting questions fast and furious. I have been trying to integrate them into the conversation. One set of questions is around all the deficit spending happening in the U.S. and other countries around the world. How much should we worry about the growing deficit? >> Betsey Stevenson: You know, I'm not worried about it right now. I can't think of a better reason for governments to spend money than to fight a global pandemic. Do I think the tax cut and jobs act was a very dumb idea because it led to large deficits and growth in the overall debt for no good reason? Yes. Would I prefer that when the sun is shining again we do a better job managing our budget and managing our deficit spending? Absolutely. But you don't just spend willy nilly and let the deficits grow when the sun is shining and then when it's raining we say, we can't borrow to fix the hole in the roof. This is the time to borrow. Not the time to ask that question. Interest rates are at historic loans. We need to be borrowing. I think there is a lot of space to sustain it still. We should have real conversations about how we actually approach the debt. I will give you an example. Historically, during great wars in the United States we borrowed tons of money during world war one, world war two. We borrow money when there is a war and when the war is over, we pay it back somewhat. So we don't keep growing our debt after the war. We bring the debt as a shared GDP down. That's what we should go back to. >> Justin Wolfers: We grow the economy faster than we grow the debt. It's not actually that we repay the debt. It's that the debt has to rise more slowly than GDP. If that's the case then debt to GDP falls. >> Betsey Stevenson: But you don't cut revenue even if GDP is growing. Coming out of the recession we got a handle on things for a while. And then coming in ‑‑ we decided we would hand all the money back to corporations, cut all this revenue with no real plan for it. >> Michael Barr: What do you mean by "we"? >> Betsey Stevenson: We, the nation. >> Michael Barr: There is a set of questions around the issue we talked about really at the beginning about the enormous racial disparities in our society and how the COVID‑19 economic and public health crisis magnified those. What policies do you think are promising going forward to help reduce those inequalities? >> Justin Wolfers: So I think there's two things that immediately come to mind. Then there are deeper, more structural things. During a pandemic when people can't work, they need income support. It turns out that's particularly true for low income people, for communities of color. So a lot of the income support, by the way, comes back to something you said earlier, Michael, it is tied to a political calendar that ends January 31. That looks like a very ‑‑ I'm worried that the income support goes away when political will goes away rather than when the need goes away. The second thing is we know from generations that recessions hurt disadvantaged groups more. So anything we can do to make a recession short. You know, whether it's fiscal, monetary, public health we'll have an extra effect on disadvantaged groups. >> Michael Barr: So there's a set of questions about fed interventions. Is the fed interventions just picking winners and losers? How worried should we be about that? >> Betsey Stevenson: I'm not that worried about this idea of picking winners and losers. You know, in the normal recession, maybe we want to let some businesses go belly up and, you know, sort of the issue of picking winners and losers. Right now we have businesses that were going along and everybody got hit by this shock. Nobody could have been possibly prepared for. So we want to support all the businesses because they got hit by, you know, a shock that they couldn't possibly have prepared for and it's not their business model that's driving them out of business. >> Justin Wolfers: Can we be careful about one thing? I'll bring it back to con 101. The word bailout is almost never defined. There are two ways. We can give them money. Here, have free money. We did that with the airlines. What the fed is doing is lending money. When Betsey said help and support, not really. It's giving them a loan when the financial system is not in the situation to do so. We expect much, not all, but much of the loans to be repaid. If folks need a loan to get through a crisis, why not? >> Michael Barr: That's helpful to them and the economy as a whole, helpful to income support. So it may help on all fronts. Obviously many businesses are going to have all kinds of new costs if they are to re‑open in a safe way and a way consistent with public health standards. There are going to be a whole set of new investments they need to make just to open safely. >> Betsey Stevenson: I think that's absolutely right. We need a massive infrastructure project in the United States where the infrastructure is increasing the safety of our businesses in terms of reducing the likelihood that contagious diseases spread. This is necessary because COVID spreads so easily and it is so potentially deathly as well as creating long chronic health problems. There are also other health sides. It's not the only contagious disease. There are colds, the flu, all sorts of things that cause people to lose days of work to be less productive because they get a communicable disease. When we do this massive infrastructure project, we invest in making lots of businesses, everything from my kids' gymnastics studio to big factories. When we make them work better so that they are spreading fewer diseases, at the end we'll all be better off. We want to make those investments a public good is what they really are. That public good, you know, each factory that reduces the likelihood their workers get communicable disease also reduces the chance that people bring the disease back into the community. So I would like to see governments spend money investing in the public good which is safer businesses. >> Michael Barr: That's great. So can we riff on that a bit and let's let you ‑‑ we have maybe a minute and a half left. If each of you could say in the next six months the U.S. government can do one thing, what's the one thing it should be sure to do to make our economy healthy and strong for the long‑term? >> Justin Wolfers: Test and trace. >> Michael Barr: Say what you mean more. >> Justin Wolfers: The one thing we need to do is beat the bug. A whole lot of economic benefits will flow from that. Lockdowns are part of it. But when we discover that people have it, finding everyone they have been in contact with, calling them, testing them, making sure they won't then infect others is the single best way to beat the bug. We see it from a range of countries. It's expensive. But relative to the cost of a pandemic‑fuelled economy, it is unbelievably cheap. We need to make bigger investments in public health. >> Betsey Stevenson: So this idea that we would invest in tracing, many countries do a lot more than the United States does. You know, we have this very vague thing. There is an e‑mail if you have kids, you got the e‑mail from the kids saying there is strep throat in the classroom. That's sort of the idea behind test and trace except for that's not really well done. There is no real government agency that's insisting that anybody you come in contact with when you have this communicable disease gets notified. With COVID that seems to be really important. I agree with Justin on that. But to say something different, we have to help the states out financially. The state government budget shortfalls are just enormous. States are going to end their fiscal year in July with revenues that are 10 to 20% lower than projections. Many of them need to make cuts before July. Really strong, vicious cuts. When we are looking at their fiscal year 2021, you're looking at 30 to 40% declines in revenue. Those will be massive cuts. It will extend the recession. What we saw in 2008 was state and local employment fell all the way through 2014. You know, it had just recovered in 2019. So let's not let it go back to the 2014 levels. >> Michael Barr: This has been absolutely terrific and a fun conversation. It's great to see you both and have a chance to chat about these really critical issues. Thanks to all of you who joined us today on Zoom, Facebook, Twitter and other social media. We really appreciate it. A great chat going on. Terrific q&a. Thanks for joining us today. We look forward to seeing you again in the near future for another policy talk at the Ford School. Thanks for joining us. >> The problem is we have never seen an economy fall off a cliff this quickly. >> Instead of playing out over months and years it's days and weeks. >> How are we going to address the ongoing public health problem while getting people back to work?