WEBVTT - How the Coronavirus Has Broken the Global Economy 0:00:02.400 --> 0:00:05.160 Hello, and welcome to Stephanomics, the podcast that brings the 0:00:05.160 --> 0:00:11.400 global economy to you. When we were last on air 0:00:11.480 --> 0:00:15.680 two months ago, the coronavirus was a China problem, one 0:00:15.720 --> 0:00:18.360 story of many that we might have talked about on 0:00:18.400 --> 0:00:22.239 this podcast. Now it's the only story, and most of 0:00:22.320 --> 0:00:25.720 us are living very differently, thinking very differently than we 0:00:25.720 --> 0:00:30.640 were even a few weeks ago. Inevitably, Stephanomics is going 0:00:30.680 --> 0:00:33.440 to feel a bit different too, But our basic mission 0:00:33.640 --> 0:00:35.720 to bring you what's happening in the global economy and 0:00:35.720 --> 0:00:38.839 why it matters hasn't changed. In fact, it seems more 0:00:38.880 --> 0:00:41.760 important than ever. So later on I'm going to talk 0:00:41.760 --> 0:00:45.080 to the American economist Adam Posen about how governments and 0:00:45.120 --> 0:00:48.280 economists have measured up to the challenge of this pandemic. 0:00:49.080 --> 0:00:53.120 But first, I am very grateful to James Mega, Julian 0:00:53.360 --> 0:00:56.880 and Jeff Black from Bloomberg's economy team in China for 0:00:56.960 --> 0:00:59.600 managing to produce this piece from the front lines of 0:00:59.640 --> 0:01:18.000 the bat to keep the global supply chain intact. I 0:01:18.120 --> 0:01:20.759 think for a minute about how you get your household goods, 0:01:21.560 --> 0:01:23.679 or at least how you got them two months ago. 0:01:24.560 --> 0:01:26.679 You might have gone to a local store or you 0:01:26.800 --> 0:01:30.520 ordered them online and waited for delivery. That's all become 0:01:30.560 --> 0:01:33.759 a lot more difficult since COVID nineteen spread around the world, 0:01:34.240 --> 0:01:36.959 with billions of people now in various forms of lockdown. 0:01:38.040 --> 0:01:40.640 But what about the people who make these items and 0:01:40.680 --> 0:01:45.360 how do these things travel across the world. Here in China, 0:01:45.800 --> 0:01:48.480 there's a thirty million strong army of truckers who linked 0:01:48.480 --> 0:01:52.680 the factories, markets, container terminals and warehouses of this country together. 0:01:53.400 --> 0:01:55.440 Now they're on the front line of that struggled against 0:01:55.440 --> 0:02:03.080 the coronavirus and its associated economic impacts. This is the 0:02:03.160 --> 0:02:07.280 Shinfai agricultural wholesale market in Beijing, the size of sixteen 0:02:07.320 --> 0:02:10.120 soccer fields, and there were trucks everywhere early in the 0:02:10.160 --> 0:02:13.960 morning on March nineteen. Every truck acts as a standalone 0:02:14.040 --> 0:02:17.480 sales booth. Tai Lily is a thirty six year old 0:02:17.560 --> 0:02:21.000 driver from nearby Herbe Province with a faux hawk haircut. 0:02:22.000 --> 0:02:24.040 He was playing with his phone in the driver's seat 0:02:24.080 --> 0:02:26.640 and we talked to him. Behind him was half a 0:02:26.639 --> 0:02:30.120 truck of oranges and boxes waiting to be sold. He 0:02:30.240 --> 0:02:33.600 told us about what he would be doing normally. No, 0:02:35.280 --> 0:02:38.880 because of the epidemic, lots of factories haven't returned to work. 0:02:39.400 --> 0:02:43.000 We have no other choices but to transport fruit. Fruit 0:02:43.080 --> 0:02:45.440 is all fresh and once picked, it needs to be 0:02:45.440 --> 0:02:49.480 shipped out right away, while factory goods can wait. Besides, 0:02:49.560 --> 0:02:53.200 there aren't many factory goods that need to be transported now. Anyway, 0:02:53.680 --> 0:02:55.960 the market was a lot quieter than it would normally be, 0:02:56.120 --> 0:02:59.600 according to Chai. That's partly because movement in public in 0:02:59.639 --> 0:03:02.520 Beijing is still difficult due to the fear of infection, 0:03:02.840 --> 0:03:06.400 and market demand remains suppressed. But there's an emerging problem 0:03:06.400 --> 0:03:09.200 now that will further crush demand for China's goods abroad, 0:03:09.720 --> 0:03:12.799 just as restrictions begin to be lifted and drivers returned 0:03:12.800 --> 0:03:15.480 to the roads at home. The spread of the disease 0:03:15.520 --> 0:03:18.560 around the world and the lockdowns and economies ranging from 0:03:18.560 --> 0:03:23.040 the US to Europe. In a choice, senior vice president 0:03:23.040 --> 0:03:25.720 at Moody's said, the shock from outside of China is 0:03:25.720 --> 0:03:29.720 a bigger concern now. We are in a very unprecedented 0:03:29.840 --> 0:03:34.520 situation when global supply chain is being disrupted UM and 0:03:34.600 --> 0:03:39.760 I think UM. So far we have been the supply 0:03:39.880 --> 0:03:44.040 chain and various in industry in China recovering to a 0:03:44.080 --> 0:03:49.560 different extent or resuming productivity to a various extent. But 0:03:49.720 --> 0:03:52.600 going out, it's a little bit difficult to predict. Um 0:03:52.680 --> 0:03:56.840 as the virus breaks out you know around the world, um, 0:03:56.920 --> 0:04:01.680 what kind of ramifications and um pulling impact that would 0:04:01.680 --> 0:04:04.640 have to bring back to China. I think now you know, 0:04:04.760 --> 0:04:09.440 without with very little visibility on how long and how 0:04:09.480 --> 0:04:12.840 how how fast evolving situation is. I think it's a 0:04:12.840 --> 0:04:16.120 bit difficult, but I think it's um it's it's It's 0:04:16.120 --> 0:04:20.200 probably fair to say that some supply chain disruptions it 0:04:20.279 --> 0:04:24.880 should should be expected. The situation in China's transport industry 0:04:24.920 --> 0:04:28.400 has come full circle in just a few weeks in February. 0:04:28.720 --> 0:04:32.080 During the immediate aftermath and the coronavirus shutdowns in Wolhan 0:04:32.200 --> 0:04:34.960 and other cities, even if you had goods to ship, 0:04:35.320 --> 0:04:39.400 it was next to impossible to find someone to drive them. 0:04:39.400 --> 0:04:42.839 Shoot Japan is head of logistics that Longy solar panel 0:04:42.880 --> 0:04:47.440 factory in Shanxi in northwestern China. Shoes says the industry 0:04:47.480 --> 0:04:54.440 is experiencing its biggest crisis in history. There were all 0:04:54.560 --> 0:04:58.440 kinds of unexpected and very serious abnormality. The normal order 0:04:58.440 --> 0:05:04.440 of transportation was completely the trupted. Mr Shu who we 0:05:04.520 --> 0:05:07.600 interviewed on March nine, is talking about the difficulties he 0:05:07.680 --> 0:05:11.359 encountered exactly one month before that, when trucks and drivers 0:05:11.360 --> 0:05:15.000 were in extreme shortage. At the time, he was urgently 0:05:15.040 --> 0:05:18.800 needing to ship raw materials to the company's factory in Vietnam. 0:05:18.839 --> 0:05:21.560 It relies solely on supplies from China, and it was 0:05:21.600 --> 0:05:24.320 about to run out of materials from production. If that 0:05:24.320 --> 0:05:27.000 would happened, more than two thousand workers will be sent 0:05:27.080 --> 0:05:30.920 home and the company would suffer great losses. Shoe managed 0:05:30.960 --> 0:05:33.760 to arrange a dozen trucks to deliver raw materials to 0:05:33.800 --> 0:05:36.640 Apport in chin Jaw, a city in southern China near 0:05:36.680 --> 0:05:40.160 the Vietnamese border, where a ship bound for Vietnam was waiting. 0:05:41.560 --> 0:05:44.400 There was one hitch. The trucks weren't able to leave 0:05:44.440 --> 0:05:47.120 the highway and chin Jaw because all exits were closed 0:05:47.160 --> 0:05:51.320 due to virus containment roadblocks. Shoe spent about ten hours 0:05:51.360 --> 0:05:55.039 pulling strings with the local commerce department and customs authorities 0:05:55.240 --> 0:05:57.440 before his fleet of trucks were allowed to exit the 0:05:57.440 --> 0:06:02.200 toll gate and clear customs. China's struggles to get back 0:06:02.240 --> 0:06:05.200 to work after its own virus shutdowns are likely to 0:06:05.200 --> 0:06:08.159 be repeated in other countries in coming months. The truck 0:06:08.160 --> 0:06:10.160 as we talked to said, it's been a hard road 0:06:10.480 --> 0:06:15.440 filled with risk and personal sacrifice. Fung, who's forty three 0:06:15.520 --> 0:06:18.239 years old, is a native of Unaway Problems in the East, 0:06:18.680 --> 0:06:20.680 but he works far from his family in the south 0:06:21.040 --> 0:06:25.640 in Guandong. We spoke with him on February. He talked 0:06:25.640 --> 0:06:27.880 about the fear he felt while driving through the peak 0:06:27.960 --> 0:06:32.440 of the epidemic ceremony worried. I wear my mask very 0:06:32.480 --> 0:06:36.760 tightly every day and replace it daily. For my family's living, 0:06:36.960 --> 0:06:39.760 I have to work. I don't have any other options. 0:06:40.160 --> 0:06:42.800 I have two sons at home. I'm the only breadwinner 0:06:42.839 --> 0:06:45.800 of my family. I have no other choice but to work. 0:06:46.560 --> 0:06:49.040 Frequent temperature checks on highways during the peak of the 0:06:49.080 --> 0:06:52.839 outbreak in China slowed him down and shuttered roadside restaurants 0:06:52.880 --> 0:06:56.480 made it hard to eat while on the move. All 0:06:56.520 --> 0:06:58.839 I hope is for the epidemic to be over soon. 0:06:59.360 --> 0:07:05.400 This way, I feel worried about infections when driving. Whose 0:07:05.480 --> 0:07:07.960 anxiety is the price for keeping even a fraction of 0:07:07.960 --> 0:07:11.160 a global economy operating, and it's in stark contrast to 0:07:11.200 --> 0:07:14.160 other professions which can work from the relative comfort of 0:07:14.200 --> 0:07:17.880 their own homes. Without people like Woo, supply chains would 0:07:17.880 --> 0:07:21.800 have come to a complete halt. Darante Country Risk analyst 0:07:21.840 --> 0:07:24.920 at Fitch Solutions in Asia says, the important role the 0:07:24.960 --> 0:07:29.600 logistics industry plays in the economy goes without saying. You 0:07:29.640 --> 0:07:32.440 can have your factories, um, you know, produced the goods 0:07:32.440 --> 0:07:38.440 manufacturer exports Indian and you still require the logistics industry 0:07:38.800 --> 0:07:42.440 to move those goods around the world. Uh So I 0:07:42.480 --> 0:07:46.480 would say, UM, definitely a very important industry to have 0:07:46.880 --> 0:07:50.720 us trying to try to recover from the economic disruption. 0:07:55.320 --> 0:07:58.080 The hardships that Chinese households have suffered seemed to be 0:07:58.160 --> 0:08:01.360 just the beginning. All indications are that the impact of 0:08:01.400 --> 0:08:04.480 COVID nineteen is far from over. The worst for the 0:08:04.480 --> 0:08:07.400 global economy is probably yet to come, and for China, 0:08:07.880 --> 0:08:10.960 if the virus returns, or even if it doesn't, the 0:08:11.040 --> 0:08:16.480 global downturn or prolong the pain. For Bloomberg News, I'm 0:08:16.600 --> 0:08:23.200 James Meager in Beijing. So that was the road level 0:08:23.400 --> 0:08:26.160 view in China. A bit of a gear shift now 0:08:26.200 --> 0:08:28.640 because in this first episode of the new series, I 0:08:28.720 --> 0:08:32.000 thought we might step back to think about the economics 0:08:32.040 --> 0:08:36.040 of the coronavirus how economists have responded to this very 0:08:36.120 --> 0:08:38.880 different kind of shock to the global economy, and whether 0:08:38.920 --> 0:08:41.439 the right advice has been getting to governments as they 0:08:41.440 --> 0:08:44.160 try to cushion the blow. One of the best people 0:08:44.160 --> 0:08:45.679 I could think of for talking about all that was 0:08:45.720 --> 0:08:48.240 my old friend Adam Posen, who has been president of 0:08:48.280 --> 0:08:52.920 the Peterson Institute for International Economics since and also served 0:08:52.920 --> 0:08:55.400 for a while on the Bank of England's Interest rate 0:08:55.520 --> 0:08:59.120 setting Committee. Adam, thanks very much for being with us 0:08:59.480 --> 0:09:03.319 from your booklined office. Thank you for having me, Stephanie. 0:09:04.000 --> 0:09:07.840 We're all living in a very different world from a 0:09:07.880 --> 0:09:09.920 couple of months ago, or even a few weeks ago. 0:09:10.520 --> 0:09:16.240 How do you think economists have done in first assessing 0:09:16.440 --> 0:09:19.800 this shock and then thinking about how we respond to it. 0:09:19.960 --> 0:09:23.520 I think economists have displayed both the strengths and the 0:09:23.559 --> 0:09:28.320 weaknesses of the profession, the strength of being relatively empirical, 0:09:28.559 --> 0:09:32.599 and perhaps the people's surprise having agreement on some basic principles. 0:09:32.960 --> 0:09:36.440 You know, policy context is very evident, so on the 0:09:36.440 --> 0:09:39.680 fiscal side, they it's fascinating to watch not just the 0:09:39.760 --> 0:09:43.160 Larry Summers or Jason Furman or Peter bell Fingers or 0:09:43.400 --> 0:09:45.920 people on John sunny Ferry on the left calling for 0:09:46.080 --> 0:09:49.600 massive fiscal stimulus. It's also people on the right like 0:09:49.720 --> 0:09:52.880 Ken Rogoff and Glenn Hubbard and us context you served 0:09:52.880 --> 0:09:58.640 in Republican administrations, there is agreement that government had to 0:09:58.640 --> 0:10:01.320 be involved and couldn't be just the central banks, and 0:10:01.679 --> 0:10:03.920 we had to think in terms of essentially said bridge 0:10:03.920 --> 0:10:07.839 loans and job preserving programs on an incredible scale. And 0:10:07.880 --> 0:10:10.280 I think that people should take some part from that. 0:10:10.280 --> 0:10:13.120 That for all to talk about economists never agreeing on anything, 0:10:13.440 --> 0:10:16.040 in this case, the response was clear, and that certainly 0:10:16.160 --> 0:10:18.280 was true with the central banks as well. They're all 0:10:18.360 --> 0:10:21.240 pretty much on the same page. But of course, as 0:10:21.400 --> 0:10:24.960 you well recognized, and I vi you to my shame cringing, 0:10:25.360 --> 0:10:27.560 if you look back to what economists were talking about, 0:10:27.600 --> 0:10:31.600 including myself in early February mid February, you know, we 0:10:31.600 --> 0:10:35.040 were not seeing this coming. Our ability to forecast and 0:10:35.080 --> 0:10:38.199 our ability to think about what kinds of shocks are 0:10:38.200 --> 0:10:41.600 happening when remains very limited. That was true before the 0:10:41.600 --> 0:10:44.040 two thousand and eight crisis, although a few people saw 0:10:44.080 --> 0:10:47.040 things coming, and that's true again here. So it's this 0:10:47.200 --> 0:10:51.439 combination of conditional on what happens. I think the economists 0:10:51.440 --> 0:10:54.120 are behaving well and getting the right advice out. But 0:10:54.440 --> 0:10:58.440 in terms of early warning and foresight and optic well, yeah, 0:10:58.440 --> 0:11:00.160 and I think it is. And of course we been 0:11:00.160 --> 0:11:02.760 going through the same exercise at Bloomberg. We had we 0:11:02.800 --> 0:11:06.240 have a group of economists who were actually very close, 0:11:06.320 --> 0:11:09.600 We have great expertise in China. They were looking at 0:11:09.640 --> 0:11:12.000 the data. We had a sort of China back to 0:11:12.040 --> 0:11:14.840 the work back to work tracker when we were looking 0:11:14.880 --> 0:11:17.520 in January and February, and we were able to see 0:11:17.679 --> 0:11:20.800 quite early that the shot to the Chinese economy was 0:11:20.800 --> 0:11:23.679 bigger than people thought. And then we therefore we were 0:11:23.720 --> 0:11:25.880 then thinking in terms of oh, that's going to mean 0:11:25.920 --> 0:11:28.360 ex or why for the rest of the world. But 0:11:28.480 --> 0:11:30.560 it took a remarkably long time for us or I 0:11:30.559 --> 0:11:33.439 think anyone else to move from that to thinking, hang 0:11:33.480 --> 0:11:35.600 on a minute, it's not just going to be dealing 0:11:35.640 --> 0:11:38.480 with a shot from China. What if the whole world 0:11:38.640 --> 0:11:40.800 has to go through what China is going through now? 0:11:40.880 --> 0:11:43.520 And it does seem to me extraordinary that more people 0:11:43.559 --> 0:11:48.480 didn't make that leap until really quite quite late, including us. 0:11:48.520 --> 0:11:50.560 I mean, is that something about people just not being 0:11:50.559 --> 0:11:53.760 able to compute a total change of regime or what 0:11:53.840 --> 0:11:56.120 do you think is driving that I think you thinks 0:11:56.120 --> 0:11:58.839 for driving that certainly one is as you say, it 0:11:59.000 --> 0:12:03.760 just require a willingness to think of things really deviating 0:12:03.800 --> 0:12:07.320 from normal. Economists talk about, you know, small with the 0:12:07.360 --> 0:12:11.000 technical word perturbations or movements around an equilibrium, and this 0:12:11.120 --> 0:12:13.040 is moving from one state of the world to another. 0:12:13.440 --> 0:12:16.680 And economists are just as bad on that as everybody else. 0:12:17.120 --> 0:12:21.600 But I think another piece of it is ultimately fundamental, 0:12:21.720 --> 0:12:26.240 which is the talk between people who would do public 0:12:26.280 --> 0:12:29.760 health and do pandemics and not just economists, with foreign 0:12:29.800 --> 0:12:32.720 policy people, market people has been quite limited. I was 0:12:32.760 --> 0:12:36.360 talking to somebody from one world's largest most successful investment funds, 0:12:36.520 --> 0:12:38.960 and they're one of those funds that sucks up every 0:12:39.000 --> 0:12:41.840 piece of big information that you know, big data that 0:12:41.880 --> 0:12:44.880 you know of. And even they didn't see this coming, 0:12:45.080 --> 0:12:48.600 They didn't make that mental transition, despite the fact that 0:12:48.760 --> 0:12:52.240 the person who owns this fund contributes to public health research. 0:12:52.720 --> 0:12:55.240 So I think it's just a human failing. It's a 0:12:55.320 --> 0:12:57.920 very sad human failing, but it is one that we've 0:12:57.960 --> 0:13:02.480 just had a failure of collective imagination. What's interesting is 0:13:02.520 --> 0:13:04.720 we have got to actually just in the last couple 0:13:04.720 --> 0:13:07.240 of weeks, some of these conversations that had previously been 0:13:07.280 --> 0:13:10.560 on the sidelines now getting a bit more mainstream. I 0:13:10.600 --> 0:13:13.480 suspect as people get frustrated were being stuck at home 0:13:14.440 --> 0:13:18.760 about the trade offs between the public health emergency and 0:13:18.800 --> 0:13:22.480 the economic emergency. And I wonder what you think, because 0:13:22.480 --> 0:13:27.320 there's there was Intuitively people said, well, we're we're sort 0:13:27.360 --> 0:13:31.480 of putting the public health first in and the result 0:13:31.600 --> 0:13:33.880 is we're really killing the economy and we know that, 0:13:33.920 --> 0:13:35.280 and we're going to try and do all we can, 0:13:35.360 --> 0:13:40.360 but we're prioritizing the health. But increasingly people have said 0:13:40.400 --> 0:13:43.400 that actually it's better for the economy as well not 0:13:43.559 --> 0:13:45.280 to have the pandemic. So do you think we had 0:13:45.320 --> 0:13:48.160 too long where there was a sort of false trade 0:13:48.160 --> 0:13:53.000 off there between the economy and the public health emergency. Yeah, 0:13:53.000 --> 0:13:57.200 it was a very human thing, was very responsible of 0:13:57.240 --> 0:14:00.719 our political leaders in countries including the US, the UK, 0:14:00.920 --> 0:14:04.600 Brazil and elsewhere can talk that way. The historical evidence 0:14:04.800 --> 0:14:07.360 has always been pretty dark, clear going back to this 0:14:08.200 --> 0:14:13.240 flu pandemic nineteen, going back to the nineteen fifties, flu 0:14:13.360 --> 0:14:17.720 academic going to natural disasters of this sort that you 0:14:18.320 --> 0:14:22.119 do better over not even that longer run, a relatively 0:14:22.200 --> 0:14:26.200 short run, by doing what you need to control the damage. 0:14:26.280 --> 0:14:28.920 The damage is the real shock, the the loss of 0:14:29.040 --> 0:14:32.400 human lives, the loss of feman work hours, the capacity 0:14:32.440 --> 0:14:36.320 constraints on the hospitals and the medical system, the fear 0:14:36.360 --> 0:14:39.440 of people that is legitimate, and the withdrawal of purchasing 0:14:39.640 --> 0:14:43.120 in from certain sectors and certain activities. Those are all real. 0:14:43.240 --> 0:14:45.680 Those are gonna happen no matter what. And I think 0:14:45.720 --> 0:14:49.120 that's what people were reluctant to really recognize and admit. 0:14:49.480 --> 0:14:51.440 Once you admit that, and once you admit that, the 0:14:51.480 --> 0:14:54.480 real binding constraint for us all in even in the 0:14:54.600 --> 0:14:56.760 rich world, as we've seen in Italy and Spain now 0:14:56.840 --> 0:15:01.000 New York, is hospital capacity medical systems, because you can't 0:15:01.160 --> 0:15:03.080 It's like for a thousand of your flood, you can't 0:15:03.080 --> 0:15:06.040 always have enough medical capacity for this kind of pandemic. 0:15:06.080 --> 0:15:09.360 On the hand, once you recognized that is the binding 0:15:09.440 --> 0:15:13.160 constraint for everything, then it just falls largically. This is 0:15:13.240 --> 0:15:15.120 no place where I will see you kind of got 0:15:15.120 --> 0:15:21.120 it right. The overwhelming majority immediately said we're better off 0:15:21.200 --> 0:15:24.160 doing the medically induced called offer these sectors and it 0:15:24.240 --> 0:15:26.880 will pay off. And it's not because it's gonna be wonderful, 0:15:26.920 --> 0:15:30.560 but it's because it's better than the t and the 0:15:30.720 --> 0:15:33.600 one of the big bits of advice, I guess that's 0:15:33.720 --> 0:15:37.640 particularly you can see it, particularly in the European government's efforts, 0:15:38.280 --> 0:15:41.600 is this effort to if you like, hold the economy 0:15:41.600 --> 0:15:44.200 and suspended animation. You know everything that that the sort 0:15:44.240 --> 0:15:48.360 of bottom has fallen out of demand um and obviously 0:15:48.400 --> 0:15:50.720 a lot of businesses feeling that they will go under 0:15:50.920 --> 0:15:54.320 very quickly seeing the kind of fallen been the kind 0:15:54.320 --> 0:15:56.400 of falling revenues that you don't get even in a 0:15:56.440 --> 0:15:59.560 really deep procession, if you're talking about nine or a 0:15:59.640 --> 0:16:01.960 hundred said in some cases rather than even the worst 0:16:02.000 --> 0:16:04.600 kind of recession, which might see twenty or thirty fall 0:16:04.640 --> 0:16:07.600 and in demand. But the economists have basically said, now 0:16:07.640 --> 0:16:10.440 what you have to do is is do what you 0:16:10.480 --> 0:16:12.720 can to fill that hole that's been blown into the 0:16:12.760 --> 0:16:15.480 economy so that the economy is then intact when you 0:16:15.520 --> 0:16:17.880 come out the other side. We know what we should 0:16:17.880 --> 0:16:19.560 be trying to do in principle. Do you think in 0:16:19.680 --> 0:16:21.600 practice we're going to be able to do that or 0:16:21.640 --> 0:16:23.320 do you think that there will be there will be 0:16:23.400 --> 0:16:26.240 permanent cost of this even though we know there was 0:16:26.280 --> 0:16:28.800 nothing fundamentally wrong with the economy and we went into it. 0:16:29.040 --> 0:16:31.840 I think you've hit the profound insights, which is that 0:16:32.000 --> 0:16:35.320 even more than the usual recession, this is something where 0:16:35.360 --> 0:16:39.120 there's abroad sudden stop and who falls apart in terms 0:16:39.120 --> 0:16:41.920 of businesses and jobs depends entirely on cash flow at 0:16:41.960 --> 0:16:45.520 that moment. It's not about sort of merit did you 0:16:45.560 --> 0:16:48.280 have a good product, did you invest, did you save enough? 0:16:48.440 --> 0:16:52.720 It's really just the side of economic death is do 0:16:52.760 --> 0:16:54.720 you have the cash right now or do you happen 0:16:54.760 --> 0:16:56.680 to be in the wrong industry at the wrong place. 0:16:57.160 --> 0:17:00.640 And so the response that we've put together other and 0:17:00.680 --> 0:17:03.000 I should say, well, I mean the cultum unity is 0:17:03.040 --> 0:17:06.919 put together is really one about providing essentially a bridge 0:17:06.920 --> 0:17:10.120 loan for everybody. It's the goal to say, don't foreclose 0:17:10.160 --> 0:17:14.600 the mortgages, don't foreclose on loans, don't put people off 0:17:14.720 --> 0:17:17.359 of jobs if you can hold onto them. If we 0:17:17.640 --> 0:17:20.399 the government leave the public funds, you to keep those jobs. 0:17:20.560 --> 0:17:23.760 Because there is this reality that once something goes under, 0:17:23.800 --> 0:17:26.639 it's a company, if it's a job place, and people 0:17:26.800 --> 0:17:31.040 leave that it's very hard to rebuild. I mean, small 0:17:31.080 --> 0:17:34.240 businesses may be easier to rebuild and back than than 0:17:34.280 --> 0:17:38.160 big businesses because there's less capital involved, there's less reputation, 0:17:38.200 --> 0:17:43.400 there's less network, but nonetheless you do have this permanent scarring. 0:17:43.760 --> 0:17:45.640 I think that we also have to think about in 0:17:45.760 --> 0:17:49.760 terms of behavioral changes that persists. So we saw that 0:17:49.880 --> 0:17:52.160 after two thousand and eight to two ten or two 0:17:52.160 --> 0:17:56.480 thousand twelve in Europe, where you had extended increases in 0:17:56.520 --> 0:18:01.480 female labor force participation, extended rises in households savings. People 0:18:01.520 --> 0:18:04.320 were being holding off and moving out of the house 0:18:04.359 --> 0:18:09.360 and building family surprising houses. These were all sensible, understandable 0:18:09.359 --> 0:18:11.640 precautionary measures. I think we're going to see a lot 0:18:11.680 --> 0:18:15.040 of the same, but it's going to be biased towards 0:18:15.119 --> 0:18:18.439 or against, frankly, certain ministries. We can talk about cruise ships, 0:18:18.520 --> 0:18:21.160 we can talk about nails a lots, we can talk 0:18:21.200 --> 0:18:25.960 about tourism, and that part is going to be a 0:18:26.000 --> 0:18:30.160 permanent scar well, if we're thinking about potential long term changes. 0:18:30.280 --> 0:18:33.399 You mentioned at the start that economists on the left 0:18:33.440 --> 0:18:36.400 and right actually had ended up having a similar advice 0:18:37.040 --> 0:18:41.239 for governments in response to this crisis, and that was 0:18:41.280 --> 0:18:43.639 about spending a lot of money and doing a lot 0:18:43.680 --> 0:18:46.399 of things that they're not used to doing. Um, do 0:18:46.440 --> 0:18:48.680 you think that could also be a change that the 0:18:49.160 --> 0:18:51.640 attitude to government could change, and we could see even 0:18:51.680 --> 0:18:54.639 in the US, a desire for government to take a 0:18:54.640 --> 0:18:58.160 bigger role and maybe also have better long term safety 0:18:58.200 --> 0:19:02.159 net for gig workers and the like. I think it will. 0:19:02.200 --> 0:19:04.000 I think there will be pressure in that direction, and 0:19:04.040 --> 0:19:06.280 I'm hopeful, But I also think this is going to 0:19:06.359 --> 0:19:08.879 be much more contentious. I think that there will be. 0:19:08.920 --> 0:19:11.919 I'm already talking to people who say, and again not 0:19:12.040 --> 0:19:14.760 completely and reasonably, well, we don't want to communize the system. 0:19:14.840 --> 0:19:17.960 We don't want to have permanent ownership of government of 0:19:18.000 --> 0:19:21.280 all the main industries. But I certainly believe the US 0:19:21.400 --> 0:19:24.639 has a real opportunity and a real reason now to 0:19:24.800 --> 0:19:28.640 move towards more safety net, as you say, for its workers, 0:19:28.640 --> 0:19:31.520 for its people. And I think also what's become very 0:19:31.520 --> 0:19:34.919 clear but it changes in the unemployment regime in the US, 0:19:35.080 --> 0:19:36.800 is that we do have a lot to learn from 0:19:36.840 --> 0:19:40.080 Europe that you need to make it so the jobs 0:19:40.080 --> 0:19:43.359 are not as fragile as low connection as you mentioned, 0:19:43.400 --> 0:19:47.040 gig workers informal sector, part time people, but also eating 0:19:47.080 --> 0:19:50.280 full time people in the US tend to have much 0:19:50.520 --> 0:19:54.919 more tenuous support and connection to do their jobs at 0:19:54.920 --> 0:19:57.639 the lower end of the income scale. That should change. 0:19:58.600 --> 0:20:01.200 I use the term I think it's not very sexy term, 0:20:01.240 --> 0:20:02.960 I guess, but I think we need to start taking 0:20:03.119 --> 0:20:10.040 terms offer stocking, that businesses, people and especial government create 0:20:10.240 --> 0:20:15.360 a reserve, and that reserve can be stockpiles of masks 0:20:15.440 --> 0:20:19.399 and medical equipment. That reserve could be money for people 0:20:19.480 --> 0:20:23.040 who temporarily lose their job in this kind of crisis, 0:20:23.080 --> 0:20:26.760 as opposed to quitting or something else. Well, we could 0:20:26.760 --> 0:20:29.520 definitely see that also in the in the health care sector. 0:20:29.600 --> 0:20:32.359 I guess My final question is, and it is true, 0:20:32.480 --> 0:20:35.639 having conversations like this about the proper role of government 0:20:35.720 --> 0:20:38.439 and what governments are currently doing in Europe to respond 0:20:38.480 --> 0:20:41.000 to the crisis has led a number of people to 0:20:41.040 --> 0:20:44.360 say that Europe might come out rather better from this 0:20:44.400 --> 0:20:47.800 pandemic than the US. Do you think that's right? Or 0:20:48.040 --> 0:20:50.600 it feels very odd to be saying that Europe might 0:20:50.640 --> 0:20:53.000 come out ahead on anything, really, because we're so used 0:20:53.040 --> 0:20:56.320 to saying it's a very sclerosic, inflexible economy with two 0:20:56.440 --> 0:20:59.399 larger role for the state and all these things. But 0:20:59.520 --> 0:21:01.399 is it possib well that those things are actually going 0:21:01.440 --> 0:21:05.320 to be a competitive strength at least in responding to 0:21:05.359 --> 0:21:08.040 this virus. I think it will. I think it should. 0:21:08.280 --> 0:21:11.639 I think it will. Even before this virus crisis, the 0:21:11.680 --> 0:21:15.719 productivity gaps and especially the per capita income growth gaps 0:21:15.800 --> 0:21:21.200 between Europe and US and UK say, we're much smaller 0:21:21.760 --> 0:21:24.720 as productivity is declined throughout the Western world in the 0:21:24.800 --> 0:21:28.119 last decade. And so then you have to keep asking yourself, well, 0:21:28.240 --> 0:21:30.880 if you're just having a much nastier economy and much 0:21:30.920 --> 0:21:34.960 scarier economy, a much less equal economy, and now economy 0:21:35.040 --> 0:21:38.199 much more vulnerable to disaster and illness. And when I 0:21:38.200 --> 0:21:40.760 say economy, I really mean the people, what are you 0:21:40.800 --> 0:21:44.360 getting for it? And it is not clear at all 0:21:44.600 --> 0:21:46.960 that the US is getting awhere near as much for 0:21:47.080 --> 0:21:50.119 that as they would like, as we would like. And 0:21:50.200 --> 0:21:54.160 so I think that discussion has to take place now. Uh. 0:21:54.400 --> 0:21:57.080 That said, Europe is messing itself up in a different 0:21:57.119 --> 0:22:02.560 way by its unwillingness to share and neutralized risk cross borders. 0:22:02.920 --> 0:22:05.280 You know, it's it's like New York and Louisiana have 0:22:05.480 --> 0:22:08.760 to come together. There is still very strong objection to 0:22:09.080 --> 0:22:13.640 sharing of risk within Europe and so yes, European system. 0:22:13.720 --> 0:22:17.879 The European values what they get for their greater government 0:22:17.880 --> 0:22:22.240 intervention versus what they give up looks increasingly attractive. But 0:22:22.560 --> 0:22:26.239 Europe and the euro Area in particular is starting to 0:22:26.240 --> 0:22:29.840 fail on a different basis. Adam posing, thank you very much, 0:22:30.359 --> 0:22:36.840 Thanks for having me, Thanks for listening to Stephanomics. Like everybody, 0:22:36.920 --> 0:22:40.600 we're working in unusual circumstances right now. The program might 0:22:40.680 --> 0:22:42.960 sound a bit different week to week, but we're certainly 0:22:42.960 --> 0:22:45.280 going to have plenty to talk about, and Bloomberg reporters 0:22:45.280 --> 0:22:48.320 and economists are still hard at work. You can catch 0:22:48.359 --> 0:22:51.439 all the latest news and analysis from Bloomberg Economics on 0:22:51.480 --> 0:22:55.560 the Bloomberg News website or by following at Economics on Twitter. 0:22:56.760 --> 0:22:59.360 The story in this episode was written and reported by 0:22:59.440 --> 0:23:03.000 James May and Julian It was produced by Magmas Hendrickson 0:23:03.040 --> 0:23:05.879 and edited by Jeff Black and Scott Lamman, who is 0:23:05.920 --> 0:23:10.440 also the executive producer of Stephanomics Special Thanks to Adam Posen. 0:23:11.160 --> 0:23:14.119 The head of Bloomberg Podcast is Francesca Levie.