Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: global economy to you. When we were last on air
Speaker 1: two months ago, the coronavirus was a China problem, one
Speaker 1: story of many that we might have talked about on
Speaker 1: this podcast. Now it's the only story, and most of
Speaker 1: us are living very differently, thinking very differently than we
Speaker 1: were even a few weeks ago. Inevitably, Stephanomics is going
Speaker 1: to feel a bit different too, But our basic mission
Speaker 1: to bring you what's happening in the global economy and
Speaker 1: why it matters hasn't changed. In fact, it seems more
Speaker 1: important than ever. So later on I'm going to talk
Speaker 1: to the American economist Adam Posen about how governments and
Speaker 1: economists have measured up to the challenge of this pandemic.
Speaker 1: But first, I am very grateful to James Mega, Julian
Speaker 1: and Jeff Black from Bloomberg's economy team in China for
Speaker 1: managing to produce this piece from the front lines of
Speaker 1: the bat to keep the global supply chain intact. I
Speaker 1: think for a minute about how you get your household goods,
Speaker 1: or at least how you got them two months ago.
Speaker 1: You might have gone to a local store or you
Speaker 1: ordered them online and waited for delivery. That's all become
Speaker 1: a lot more difficult since COVID nineteen spread around the world,
Speaker 1: with billions of people now in various forms of lockdown.
Speaker 1: But what about the people who make these items and
Speaker 1: how do these things travel across the world. Here in China,
Speaker 1: there's a thirty million strong army of truckers who linked
Speaker 1: the factories, markets, container terminals and warehouses of this country together.
Speaker 1: Now they're on the front line of that struggled against
Speaker 1: the coronavirus and its associated economic impacts. This is the
Speaker 1: Shinfai agricultural wholesale market in Beijing, the size of sixteen
Speaker 1: soccer fields, and there were trucks everywhere early in the
Speaker 1: morning on March nineteen. Every truck acts as a standalone
Speaker 1: sales booth. Tai Lily is a thirty six year old
Speaker 1: driver from nearby Herbe Province with a faux hawk haircut.
Speaker 1: He was playing with his phone in the driver's seat
Speaker 1: and we talked to him. Behind him was half a
Speaker 1: truck of oranges and boxes waiting to be sold. He
Speaker 1: told us about what he would be doing normally. No,
Speaker 1: because of the epidemic, lots of factories haven't returned to work.
Speaker 1: We have no other choices but to transport fruit. Fruit
Speaker 1: is all fresh and once picked, it needs to be
Speaker 1: shipped out right away, while factory goods can wait. Besides,
Speaker 1: there aren't many factory goods that need to be transported now. Anyway,
Speaker 1: the market was a lot quieter than it would normally be,
Speaker 1: according to Chai. That's partly because movement in public in
Speaker 1: Beijing is still difficult due to the fear of infection,
Speaker 1: and market demand remains suppressed. But there's an emerging problem
Speaker 1: now that will further crush demand for China's goods abroad,
Speaker 1: just as restrictions begin to be lifted and drivers returned
Speaker 1: to the roads at home. The spread of the disease
Speaker 1: around the world and the lockdowns and economies ranging from
Speaker 1: the US to Europe. In a choice, senior vice president
Speaker 1: at Moody's said, the shock from outside of China is
Speaker 1: a bigger concern now. We are in a very unprecedented
Speaker 1: situation when global supply chain is being disrupted UM and
Speaker 1: I think UM. So far we have been the supply
Speaker 1: chain and various in industry in China recovering to a
Speaker 1: different extent or resuming productivity to a various extent. But
Speaker 1: going out, it's a little bit difficult to predict. Um
Speaker 1: as the virus breaks out you know around the world, um,
Speaker 1: what kind of ramifications and um pulling impact that would
Speaker 1: have to bring back to China. I think now you know,
Speaker 1: without with very little visibility on how long and how
Speaker 1: how how fast evolving situation is. I think it's a
Speaker 1: bit difficult, but I think it's um it's it's It's
Speaker 1: probably fair to say that some supply chain disruptions it
Speaker 1: should should be expected. The situation in China's transport industry
Speaker 1: has come full circle in just a few weeks in February.
Speaker 1: During the immediate aftermath and the coronavirus shutdowns in Wolhan
Speaker 1: and other cities, even if you had goods to ship,
Speaker 1: it was next to impossible to find someone to drive them.
Speaker 1: Shoot Japan is head of logistics that Longy solar panel
Speaker 1: factory in Shanxi in northwestern China. Shoes says the industry
Speaker 1: is experiencing its biggest crisis in history. There were all
Speaker 1: kinds of unexpected and very serious abnormality. The normal order
Speaker 1: of transportation was completely the trupted. Mr Shu who we
Speaker 1: interviewed on March nine, is talking about the difficulties he
Speaker 1: encountered exactly one month before that, when trucks and drivers
Speaker 1: were in extreme shortage. At the time, he was urgently
Speaker 1: needing to ship raw materials to the company's factory in Vietnam.
Speaker 1: It relies solely on supplies from China, and it was
Speaker 1: about to run out of materials from production. If that
Speaker 1: would happened, more than two thousand workers will be sent
Speaker 1: home and the company would suffer great losses. Shoe managed
Speaker 1: to arrange a dozen trucks to deliver raw materials to
Speaker 1: Apport in chin Jaw, a city in southern China near
Speaker 1: the Vietnamese border, where a ship bound for Vietnam was waiting.
Speaker 1: There was one hitch. The trucks weren't able to leave
Speaker 1: the highway and chin Jaw because all exits were closed
Speaker 1: due to virus containment roadblocks. Shoe spent about ten hours
Speaker 1: pulling strings with the local commerce department and customs authorities
Speaker 1: before his fleet of trucks were allowed to exit the
Speaker 1: toll gate and clear customs. China's struggles to get back
Speaker 1: to work after its own virus shutdowns are likely to
Speaker 1: be repeated in other countries in coming months. The truck
Speaker 1: as we talked to said, it's been a hard road
Speaker 1: filled with risk and personal sacrifice. Fung, who's forty three
Speaker 1: years old, is a native of Unaway Problems in the East,
Speaker 1: but he works far from his family in the south
Speaker 1: in Guandong. We spoke with him on February. He talked
Speaker 1: about the fear he felt while driving through the peak
Speaker 1: of the epidemic ceremony worried. I wear my mask very
Speaker 1: tightly every day and replace it daily. For my family's living,
Speaker 1: I have to work. I don't have any other options.
Speaker 1: I have two sons at home. I'm the only breadwinner
Speaker 1: of my family. I have no other choice but to work.
Speaker 1: Frequent temperature checks on highways during the peak of the
Speaker 1: outbreak in China slowed him down and shuttered roadside restaurants
Speaker 1: made it hard to eat while on the move. All
Speaker 1: I hope is for the epidemic to be over soon.
Speaker 1: This way, I feel worried about infections when driving. Whose
Speaker 1: anxiety is the price for keeping even a fraction of
Speaker 1: a global economy operating, and it's in stark contrast to
Speaker 1: other professions which can work from the relative comfort of
Speaker 1: their own homes. Without people like Woo, supply chains would
Speaker 1: have come to a complete halt. Darante Country Risk analyst
Speaker 1: at Fitch Solutions in Asia says, the important role the
Speaker 1: logistics industry plays in the economy goes without saying. You
Speaker 1: can have your factories, um, you know, produced the goods
Speaker 1: manufacturer exports Indian and you still require the logistics industry
Speaker 1: to move those goods around the world. Uh So I
Speaker 1: would say, UM, definitely a very important industry to have
Speaker 1: us trying to try to recover from the economic disruption.
Speaker 1: The hardships that Chinese households have suffered seemed to be
Speaker 1: just the beginning. All indications are that the impact of
Speaker 1: COVID nineteen is far from over. The worst for the
Speaker 1: global economy is probably yet to come, and for China,
Speaker 1: if the virus returns, or even if it doesn't, the
Speaker 1: global downturn or prolong the pain. For Bloomberg News, I'm
Speaker 1: James Meager in Beijing. So that was the road level
Speaker 1: view in China. A bit of a gear shift now
Speaker 1: because in this first episode of the new series, I
Speaker 1: thought we might step back to think about the economics
Speaker 1: of the coronavirus how economists have responded to this very
Speaker 1: different kind of shock to the global economy, and whether
Speaker 1: the right advice has been getting to governments as they
Speaker 1: try to cushion the blow. One of the best people
Speaker 1: I could think of for talking about all that was
Speaker 1: my old friend Adam Posen, who has been president of
Speaker 1: the Peterson Institute for International Economics since and also served
Speaker 1: for a while on the Bank of England's Interest rate
Speaker 1: setting Committee. Adam, thanks very much for being with us
Speaker 1: from your booklined office. Thank you for having me, Stephanie.
Speaker 1: We're all living in a very different world from a
Speaker 1: couple of months ago, or even a few weeks ago.
Speaker 1: How do you think economists have done in first assessing
Speaker 1: this shock and then thinking about how we respond to it.
Speaker 1: I think economists have displayed both the strengths and the
Speaker 1: weaknesses of the profession, the strength of being relatively empirical,
Speaker 1: and perhaps the people's surprise having agreement on some basic principles.
Speaker 1: You know, policy context is very evident, so on the
Speaker 1: fiscal side, they it's fascinating to watch not just the
Speaker 1: Larry Summers or Jason Furman or Peter bell Fingers or
Speaker 1: people on John sunny Ferry on the left calling for
Speaker 1: massive fiscal stimulus. It's also people on the right like
Speaker 1: Ken Rogoff and Glenn Hubbard and us context you served
Speaker 1: in Republican administrations, there is agreement that government had to
Speaker 1: be involved and couldn't be just the central banks, and
Speaker 1: we had to think in terms of essentially said bridge
Speaker 1: loans and job preserving programs on an incredible scale. And
Speaker 1: I think that people should take some part from that.
Speaker 1: That for all to talk about economists never agreeing on anything,
Speaker 1: in this case, the response was clear, and that certainly
Speaker 1: was true with the central banks as well. They're all
Speaker 1: pretty much on the same page. But of course, as
Speaker 1: you well recognized, and I vi you to my shame cringing,
Speaker 1: if you look back to what economists were talking about,
Speaker 1: including myself in early February mid February, you know, we
Speaker 1: were not seeing this coming. Our ability to forecast and
Speaker 1: our ability to think about what kinds of shocks are
Speaker 1: happening when remains very limited. That was true before the
Speaker 1: two thousand and eight crisis, although a few people saw
Speaker 1: things coming, and that's true again here. So it's this
Speaker 1: combination of conditional on what happens. I think the economists
Speaker 1: are behaving well and getting the right advice out. But
Speaker 1: in terms of early warning and foresight and optic well, yeah,
Speaker 1: and I think it is. And of course we been
Speaker 1: going through the same exercise at Bloomberg. We had we
Speaker 1: have a group of economists who were actually very close,
Speaker 1: We have great expertise in China. They were looking at
Speaker 1: the data. We had a sort of China back to
Speaker 1: the work back to work tracker when we were looking
Speaker 1: in January and February, and we were able to see
Speaker 1: quite early that the shot to the Chinese economy was
Speaker 1: bigger than people thought. And then we therefore we were
Speaker 1: then thinking in terms of oh, that's going to mean
Speaker 1: ex or why for the rest of the world. But
Speaker 1: it took a remarkably long time for us or I
Speaker 1: think anyone else to move from that to thinking, hang
Speaker 1: on a minute, it's not just going to be dealing
Speaker 1: with a shot from China. What if the whole world
Speaker 1: has to go through what China is going through now?
Speaker 1: And it does seem to me extraordinary that more people
Speaker 1: didn't make that leap until really quite quite late, including us.
Speaker 1: I mean, is that something about people just not being
Speaker 1: able to compute a total change of regime or what
Speaker 1: do you think is driving that I think you thinks
Speaker 1: for driving that certainly one is as you say, it
Speaker 1: just require a willingness to think of things really deviating
Speaker 1: from normal. Economists talk about, you know, small with the
Speaker 1: technical word perturbations or movements around an equilibrium, and this
Speaker 1: is moving from one state of the world to another.
Speaker 1: And economists are just as bad on that as everybody else.
Speaker 1: But I think another piece of it is ultimately fundamental,
Speaker 1: which is the talk between people who would do public
Speaker 1: health and do pandemics and not just economists, with foreign
Speaker 1: policy people, market people has been quite limited. I was
Speaker 1: talking to somebody from one world's largest most successful investment funds,
Speaker 1: and they're one of those funds that sucks up every
Speaker 1: piece of big information that you know, big data that
Speaker 1: you know of. And even they didn't see this coming,
Speaker 1: They didn't make that mental transition, despite the fact that
Speaker 1: the person who owns this fund contributes to public health research.
Speaker 1: So I think it's just a human failing. It's a
Speaker 1: very sad human failing, but it is one that we've
Speaker 1: just had a failure of collective imagination. What's interesting is
Speaker 1: we have got to actually just in the last couple
Speaker 1: of weeks, some of these conversations that had previously been
Speaker 1: on the sidelines now getting a bit more mainstream. I
Speaker 1: suspect as people get frustrated were being stuck at home
Speaker 1: about the trade offs between the public health emergency and
Speaker 1: the economic emergency. And I wonder what you think, because
Speaker 1: there's there was Intuitively people said, well, we're we're sort
Speaker 1: of putting the public health first in and the result
Speaker 1: is we're really killing the economy and we know that,
Speaker 1: and we're going to try and do all we can,
Speaker 1: but we're prioritizing the health. But increasingly people have said
Speaker 1: that actually it's better for the economy as well not
Speaker 1: to have the pandemic. So do you think we had
Speaker 1: too long where there was a sort of false trade
Speaker 1: off there between the economy and the public health emergency. Yeah,
Speaker 1: it was a very human thing, was very responsible of
Speaker 1: our political leaders in countries including the US, the UK,
Speaker 1: Brazil and elsewhere can talk that way. The historical evidence
Speaker 1: has always been pretty dark, clear going back to this
Speaker 1: flu pandemic nineteen, going back to the nineteen fifties, flu
Speaker 1: academic going to natural disasters of this sort that you
Speaker 1: do better over not even that longer run, a relatively
Speaker 1: short run, by doing what you need to control the damage.
Speaker 1: The damage is the real shock, the the loss of
Speaker 1: human lives, the loss of feman work hours, the capacity
Speaker 1: constraints on the hospitals and the medical system, the fear
Speaker 1: of people that is legitimate, and the withdrawal of purchasing
Speaker 1: in from certain sectors and certain activities. Those are all real.
Speaker 1: Those are gonna happen no matter what. And I think
Speaker 1: that's what people were reluctant to really recognize and admit.
Speaker 1: Once you admit that, and once you admit that, the
Speaker 1: real binding constraint for us all in even in the
Speaker 1: rich world, as we've seen in Italy and Spain now
Speaker 1: New York, is hospital capacity medical systems, because you can't
Speaker 1: It's like for a thousand of your flood, you can't
Speaker 1: always have enough medical capacity for this kind of pandemic.
Speaker 1: On the hand, once you recognized that is the binding
Speaker 1: constraint for everything, then it just falls largically. This is
Speaker 1: no place where I will see you kind of got
Speaker 1: it right. The overwhelming majority immediately said we're better off
Speaker 1: doing the medically induced called offer these sectors and it
Speaker 1: will pay off. And it's not because it's gonna be wonderful,
Speaker 1: but it's because it's better than the t and the
Speaker 1: one of the big bits of advice, I guess that's
Speaker 1: particularly you can see it, particularly in the European government's efforts,
Speaker 1: is this effort to if you like, hold the economy
Speaker 1: and suspended animation. You know everything that that the sort
Speaker 1: of bottom has fallen out of demand um and obviously
Speaker 1: a lot of businesses feeling that they will go under
Speaker 1: very quickly seeing the kind of fallen been the kind
Speaker 1: of falling revenues that you don't get even in a
Speaker 1: really deep procession, if you're talking about nine or a
Speaker 1: hundred said in some cases rather than even the worst
Speaker 1: kind of recession, which might see twenty or thirty fall
Speaker 1: and in demand. But the economists have basically said, now
Speaker 1: what you have to do is is do what you
Speaker 1: can to fill that hole that's been blown into the
Speaker 1: economy so that the economy is then intact when you
Speaker 1: come out the other side. We know what we should
Speaker 1: be trying to do in principle. Do you think in
Speaker 1: practice we're going to be able to do that or
Speaker 1: do you think that there will be there will be
Speaker 1: permanent cost of this even though we know there was
Speaker 1: nothing fundamentally wrong with the economy and we went into it.
Speaker 1: I think you've hit the profound insights, which is that
Speaker 1: even more than the usual recession, this is something where
Speaker 1: there's abroad sudden stop and who falls apart in terms
Speaker 1: of businesses and jobs depends entirely on cash flow at
Speaker 1: that moment. It's not about sort of merit did you
Speaker 1: have a good product, did you invest, did you save enough?
Speaker 1: It's really just the side of economic death is do
Speaker 1: you have the cash right now or do you happen
Speaker 1: to be in the wrong industry at the wrong place.
Speaker 1: And so the response that we've put together other and
Speaker 1: I should say, well, I mean the cultum unity is
Speaker 1: put together is really one about providing essentially a bridge
Speaker 1: loan for everybody. It's the goal to say, don't foreclose
Speaker 1: the mortgages, don't foreclose on loans, don't put people off
Speaker 1: of jobs if you can hold onto them. If we
Speaker 1: the government leave the public funds, you to keep those jobs.
Speaker 1: Because there is this reality that once something goes under,
Speaker 1: it's a company, if it's a job place, and people
Speaker 1: leave that it's very hard to rebuild. I mean, small
Speaker 1: businesses may be easier to rebuild and back than than
Speaker 1: big businesses because there's less capital involved, there's less reputation,
Speaker 1: there's less network, but nonetheless you do have this permanent scarring.
Speaker 1: I think that we also have to think about in
Speaker 1: terms of behavioral changes that persists. So we saw that
Speaker 1: after two thousand and eight to two ten or two
Speaker 1: thousand twelve in Europe, where you had extended increases in
Speaker 1: female labor force participation, extended rises in households savings. People
Speaker 1: were being holding off and moving out of the house
Speaker 1: and building family surprising houses. These were all sensible, understandable
Speaker 1: precautionary measures. I think we're going to see a lot
Speaker 1: of the same, but it's going to be biased towards
Speaker 1: or against, frankly, certain ministries. We can talk about cruise ships,
Speaker 1: we can talk about nails a lots, we can talk
Speaker 1: about tourism, and that part is going to be a
Speaker 1: permanent scar well, if we're thinking about potential long term changes.
Speaker 1: You mentioned at the start that economists on the left
Speaker 1: and right actually had ended up having a similar advice
Speaker 1: for governments in response to this crisis, and that was
Speaker 1: about spending a lot of money and doing a lot
Speaker 1: of things that they're not used to doing. Um, do
Speaker 1: you think that could also be a change that the
Speaker 1: attitude to government could change, and we could see even
Speaker 1: in the US, a desire for government to take a
Speaker 1: bigger role and maybe also have better long term safety
Speaker 1: net for gig workers and the like. I think it will.
Speaker 1: I think there will be pressure in that direction, and
Speaker 1: I'm hopeful, But I also think this is going to
Speaker 1: be much more contentious. I think that there will be.
Speaker 1: I'm already talking to people who say, and again not
Speaker 1: completely and reasonably, well, we don't want to communize the system.
Speaker 1: We don't want to have permanent ownership of government of
Speaker 1: all the main industries. But I certainly believe the US
Speaker 1: has a real opportunity and a real reason now to
Speaker 1: move towards more safety net, as you say, for its workers,
Speaker 1: for its people. And I think also what's become very
Speaker 1: clear but it changes in the unemployment regime in the US,
Speaker 1: is that we do have a lot to learn from
Speaker 1: Europe that you need to make it so the jobs
Speaker 1: are not as fragile as low connection as you mentioned,
Speaker 1: gig workers informal sector, part time people, but also eating
Speaker 1: full time people in the US tend to have much
Speaker 1: more tenuous support and connection to do their jobs at
Speaker 1: the lower end of the income scale. That should change.
Speaker 1: I use the term I think it's not very sexy term,
Speaker 1: I guess, but I think we need to start taking
Speaker 1: terms offer stocking, that businesses, people and especial government create
Speaker 1: a reserve, and that reserve can be stockpiles of masks
Speaker 1: and medical equipment. That reserve could be money for people
Speaker 1: who temporarily lose their job in this kind of crisis,
Speaker 1: as opposed to quitting or something else. Well, we could
Speaker 1: definitely see that also in the in the health care sector.
Speaker 1: I guess My final question is, and it is true,
Speaker 1: having conversations like this about the proper role of government
Speaker 1: and what governments are currently doing in Europe to respond
Speaker 1: to the crisis has led a number of people to
Speaker 1: say that Europe might come out rather better from this
Speaker 1: pandemic than the US. Do you think that's right? Or
Speaker 1: it feels very odd to be saying that Europe might
Speaker 1: come out ahead on anything, really, because we're so used
Speaker 1: to saying it's a very sclerosic, inflexible economy with two
Speaker 1: larger role for the state and all these things. But
Speaker 1: is it possib well that those things are actually going
Speaker 1: to be a competitive strength at least in responding to
Speaker 1: this virus. I think it will. I think it should.
Speaker 1: I think it will. Even before this virus crisis, the
Speaker 1: productivity gaps and especially the per capita income growth gaps
Speaker 1: between Europe and US and UK say, we're much smaller
Speaker 1: as productivity is declined throughout the Western world in the
Speaker 1: last decade. And so then you have to keep asking yourself, well,
Speaker 1: if you're just having a much nastier economy and much
Speaker 1: scarier economy, a much less equal economy, and now economy
Speaker 1: much more vulnerable to disaster and illness. And when I
Speaker 1: say economy, I really mean the people, what are you
Speaker 1: getting for it? And it is not clear at all
Speaker 1: that the US is getting awhere near as much for
Speaker 1: that as they would like, as we would like. And
Speaker 1: so I think that discussion has to take place now. Uh.
Speaker 1: That said, Europe is messing itself up in a different
Speaker 1: way by its unwillingness to share and neutralized risk cross borders.
Speaker 1: You know, it's it's like New York and Louisiana have
Speaker 1: to come together. There is still very strong objection to
Speaker 1: sharing of risk within Europe and so yes, European system.
Speaker 1: The European values what they get for their greater government
Speaker 1: intervention versus what they give up looks increasingly attractive. But
Speaker 1: Europe and the euro Area in particular is starting to
Speaker 1: fail on a different basis. Adam posing, thank you very much,
Speaker 1: Thanks for having me, Thanks for listening to Stephanomics. Like everybody,
Speaker 1: we're working in unusual circumstances right now. The program might
Speaker 1: sound a bit different week to week, but we're certainly
Speaker 1: going to have plenty to talk about, and Bloomberg reporters
Speaker 1: and economists are still hard at work. You can catch
Speaker 1: all the latest news and analysis from Bloomberg Economics on
Speaker 1: the Bloomberg News website or by following at Economics on Twitter.
Speaker 1: The story in this episode was written and reported by
Speaker 1: James May and Julian It was produced by Magmas Hendrickson
Speaker 1: and edited by Jeff Black and Scott Lamman, who is
Speaker 1: also the executive producer of Stephanomics Special Thanks to Adam Posen.
Speaker 1: The head of Bloomberg Podcast is Francesca Levie.