Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Was and I'm Tracy Halloway. So Tracy, today
Speaker 1: we are going to have the fastest follow up to
Speaker 1: a past guest that we've ever had, I think, because
Speaker 1: of course we've had some guests a few times or
Speaker 1: at least twice, but this time we were talking to
Speaker 1: someone that we talked to literally just a few weeks ago. Yeah.
Speaker 1: I think that's kind of a marker of how much
Speaker 1: has changed in markets and the economy in that short time,
Speaker 1: because when we spoke to this particular person, I think
Speaker 1: it was either late January or early February. Obviously the
Speaker 1: coronavirus was a concern, especially in China, but it had
Speaker 1: yet to really take off in places like Europe and
Speaker 1: the US. Now all of that is changing. People are
Speaker 1: worried abou out the economy, and of course we've seen
Speaker 1: a massive sell off in markets. Right since that discussion,
Speaker 1: we've had a de facto stock market crash, one of
Speaker 1: the fastest declines ever, breathtaking moves day after day, and
Speaker 1: now extremely serious and legitimate worries that a recession could
Speaker 1: be imminent. So we're talking about a recession as a
Speaker 1: sort of theoretical thing that at some point was likely
Speaker 1: to come. But now we're talking about a possible recession
Speaker 1: right here and right now, really globally, but also you know,
Speaker 1: specifically in the West and in the US right and
Speaker 1: of course, because we are talking about a potential recession,
Speaker 1: that means people inevitably are talking about what we can
Speaker 1: do to stop it. We've already seen the Federal Reserve
Speaker 1: do an emergency rate cut, but a lot of the
Speaker 1: focus is on fiscal stimulums. Right That's the big question
Speaker 1: is whether DC can get it together in a way
Speaker 1: that it rarely can to spend money to blunt the
Speaker 1: impact of these of this virus, which is expected to
Speaker 1: be traumatic. So without further introduction. A few weeks ago,
Speaker 1: we spoke to Claudia Psam, she's the director of macroeconomic
Speaker 1: policy at the Washington Center for Equitable Growth, and our
Speaker 1: discussion was, again it was theoretical, is what do you
Speaker 1: do to hold the recession if you see one coming?
Speaker 1: How should spending get out the door in a timely manner.
Speaker 1: We were not thinking of the discussion at that time
Speaker 1: as something like, oh, here's an imminent playbook that we need.
Speaker 1: But really we are in that position now. So without
Speaker 1: further ado, let's get right to it. Claudia, thank you
Speaker 1: very much for coming back on the podcast. Yeah, thank
Speaker 1: you for having me back. I appreciate it. So, just
Speaker 1: in your view, how serious are the recession risks right
Speaker 1: now for the US economy. I think the risks are
Speaker 1: incredibly serious. Uh, the events are fast moving right So
Speaker 1: if we were talking this time last week, I would
Speaker 1: not I've been say we should, we should be really concerned.
Speaker 1: This is not looking good as last week went on,
Speaker 1: I think, especially for me, I felt like we know
Speaker 1: how to do this, We know the fiscal tools that
Speaker 1: need to be deployed when we face a risk to
Speaker 1: the economy. Coronavirus is unique in many ways, but in
Speaker 1: a lot of ways it isn't. It's just something that's
Speaker 1: threatening on the economic side, something that's threatening the ability
Speaker 1: of people to go to work. People do want to
Speaker 1: go buy stuff Like this is what a threat to
Speaker 1: the U. S economy looks like. We know how to
Speaker 1: fight that. We've got the tools, we have experience from
Speaker 1: the last decade, but we need fiscal policy. And I'm
Speaker 1: sure we'll talk a lot about why monetary isn't enough.
Speaker 1: But to see, um, Larry Cudlo do the interview on
Speaker 1: Friday where he essentially said, yeah, we don't we don't
Speaker 1: really need the fiscal or it just there wasn't a
Speaker 1: really forceful we're going to do all it takes on
Speaker 1: the fiscal side, and between that and then the markets
Speaker 1: and you know, the Sunday night was really bad and
Speaker 1: the treasury. So all of this has just made me
Speaker 1: really concerned and concerned to the point not that oh,
Speaker 1: recession looks like it's you know, could happen that like
Speaker 1: if we do not act fast, like it is going
Speaker 1: to be a recession, Like I just um, and it
Speaker 1: doesn't have to I think this was so hard for
Speaker 1: me is it does not have to happen at all.
Speaker 1: Like if we were to act now, then this is
Speaker 1: this is gonna be painful. It's gonna be painful that
Speaker 1: people that get sick, some people will lose their job.
Speaker 1: We're not gonna be able to act fast enough and
Speaker 1: be able to help everybody. But it does not have
Speaker 1: to take the US economy down, and we're in such
Speaker 1: a good place right now. It's just it's tragic to
Speaker 1: like cut off this expansion. So Claudia, on that note,
Speaker 1: why do you think there is this resistance to fiscal
Speaker 1: stimulus stuff so far? So, like I said, we have
Speaker 1: all the economic tools. This is just a matter of
Speaker 1: political will or physical policy makers have all the tools
Speaker 1: they need, you know, that's that's not my lane the politics.
Speaker 1: But I will say having been a forecaster, I mean
Speaker 1: I worked on all of the a stimulus from two
Speaker 1: thousand and eight, especially stimulustracted a household, so I stimulus
Speaker 1: payments two thousand nine, two thousand tend making work paid
Speaker 1: two thousand eleven and twelve, payroll tax cut. I mean
Speaker 1: I followed all those. I've had to analyze them for
Speaker 1: the staffs macro forecast. I did research on every single
Speaker 1: one of those. I know the research and I I
Speaker 1: mean I cried at the end of like they didn't
Speaker 1: extend anything like that's the payroll tax cut expired. That
Speaker 1: was the last of the stimulus. The unemployment rate was
Speaker 1: still high, like way too high, and there was all
Speaker 1: the discussions of austerity. And this doesn't just hit on
Speaker 1: one side of the political spectrum. And we had very
Speaker 1: senior macro economists who were in positions of leadership in
Speaker 1: various organizations saying yeah, we just we got too much debt,
Speaker 1: we gotta we gotta pull back, tighten the belt straps,
Speaker 1: and it I mean, it was um unconscionable what that
Speaker 1: meant to the people who really already had their belts
Speaker 1: their belts tightened as much as they could. So I like,
Speaker 1: I'm not as naive now because like they did it
Speaker 1: when it was so bad that like I just anyways,
Speaker 1: but it's you know, you you'd hope that there were
Speaker 1: lessons learned, Like we learned last time. We should have
Speaker 1: learned is that you have to act fast, and when
Speaker 1: you act fast, you gotta go big. You gotta go
Speaker 1: big to start with because that might be the only
Speaker 1: bite at the apple, and then you've got to stick
Speaker 1: with it because if you don't like there, there are
Speaker 1: long term costs for everyone in the economy. So yeah,
Speaker 1: that's like something I mean, Ay, what you say is
Speaker 1: like something that I've been thinking a lot about, which
Speaker 1: is I thought, you know, we had learned some of
Speaker 1: these lessons after the Great Financial Crisis that like, it
Speaker 1: doesn't pay to weight, it doesn't pay to be particularly cautious.
Speaker 1: The game is to go big and prevent it, and
Speaker 1: then you have the same old cast of characters all
Speaker 1: saying the same thing like, oh, worried about how we're
Speaker 1: going to pay for it, and we have the fiscal
Speaker 1: space and maybe we'll do something small and targeted. But
Speaker 1: as you note, uh, you know, the recovery from the
Speaker 1: crisis was shockingly slow, and I didn't realize it up
Speaker 1: until yesterday. I was looking at the chart how we
Speaker 1: didn't return to pre crisis levels of unemployment rate till
Speaker 1: that's in my mind. Maybe I would have thought it was.
Speaker 1: There's incredibly long lasting scars from the crisis. But we've
Speaker 1: been talking about fiscal stimulised. One of the things that
Speaker 1: we talked about when you were on the podcast a
Speaker 1: few weeks ago, and everyone should go listen to that
Speaker 1: because that really like sort of gives your whole body
Speaker 1: of work or a lot more of It is the
Speaker 1: importance of just getting cash into people's hands. That that's
Speaker 1: the key thing that we need to do right now.
Speaker 1: So talk about the importance of just putting money in
Speaker 1: peoples on bank accounts right here. Yeah, So when I
Speaker 1: talk about this fiscal response, so in a recession, I
Speaker 1: think there's two principles that we should be working on.
Speaker 1: One is we should go wide. So that's this idea
Speaker 1: of giving money to everybody, like give every man, woman,
Speaker 1: and child, United States five find a way to do it.
Speaker 1: So that's that's covering the breadth. I think it is important,
Speaker 1: and you're going to hear a lot more people talking
Speaker 1: about targeted stimulus, so I think that can. I think
Speaker 1: we should have that. People who get sick right now,
Speaker 1: people who are quarantined, they should get money. They should
Speaker 1: get more money because they're they're the ones that are sick,
Speaker 1: they're they're suffering the most. Give them more. But I
Speaker 1: think if we bypass the give something to everyone, we
Speaker 1: are going to really amp up the risk that this
Speaker 1: spreads and becomes a recession because right now, well right now,
Speaker 1: people are freaking out right because they don't because they
Speaker 1: don't know if they are going to get sick, They
Speaker 1: don't know if someone their family is going to get sick.
Speaker 1: And the vast majority, like way up into the income distribution,
Speaker 1: people they spend what they make, right so you're there
Speaker 1: are many people who are one paycheck even some cut
Speaker 1: hours away from serious financial district as. So if you
Speaker 1: know that about yourself and you don't know if you're
Speaker 1: going to get the virus, and you don't know if
Speaker 1: you're gonna be out for two weeks from work and
Speaker 1: you won't get paid. If you're out, then you're not
Speaker 1: going to go out and buy like the new washing machine,
Speaker 1: or put the offer on the house, or you know,
Speaker 1: by go out to the rest. There's just so many
Speaker 1: things that you'll do right now to cut back because
Speaker 1: you don't know if Americans across the country do that
Speaker 1: all at once in the next couple of months. Like that,
Speaker 1: that's how you take an economy with a three and
Speaker 1: a half percent unemployment rate, really solid GDP growth and
Speaker 1: turn it into a recession because like that, once that
Speaker 1: dynamic gets going, it doesn't matter how much you give
Speaker 1: to the like you know, five percent of the population
Speaker 1: that becomes severely ill. We could get past the virus
Speaker 1: itself and have the economy already be into a tailspin
Speaker 1: that you can't then arrested easily as you could right
Speaker 1: now if you just told people we got your back,
Speaker 1: like we're on this. What do you say to critics
Speaker 1: who make the point that given the uncertainty that you
Speaker 1: just described, so people don't know if they're going to
Speaker 1: have a job in the next few weeks. They don't
Speaker 1: know if they can go outside of their houses. Just
Speaker 1: massive uncertainty for households at the moment. So if there's
Speaker 1: that level of uncertainty, how do you know people are
Speaker 1: actually going to spend the additional money that you give them?
Speaker 1: And I should just mention that here in Hong Kong
Speaker 1: we already have this happening. Hong kongers are getting cash
Speaker 1: handouts of a little over a thousand U S dollars
Speaker 1: paid directly into their bank accounts. And the joke over here,
Speaker 1: although clearly it's not very funny given the situation, is
Speaker 1: that everyone is just going to either save it or
Speaker 1: use it to buy, you know, a few rolls of
Speaker 1: toilet paper and some face masks. Yeah. So this this
Speaker 1: has been the longstanding critique of these stimulus payments, tax rebates, uh,
Speaker 1: the the difference. So, and I think they make for
Speaker 1: a good story, right And and a lot of times
Speaker 1: people telling the story like maybe it fits them, like
Speaker 1: I don't like every dollar that comes into me. I
Speaker 1: don't just go out and spend it because I've got
Speaker 1: I've got a cushion. The fact that matters in the
Speaker 1: United States, and this is different than a lot of
Speaker 1: other developed countries. We do not have a good safety net.
Speaker 1: We do not have financial buffers, Like a huge fraction
Speaker 1: of US households do not have a paychecks worth, let
Speaker 1: alone like five worth of money just sitting around that
Speaker 1: they can access quickly. So we're in a much more
Speaker 1: fragile place than other countries. And then on top of that,
Speaker 1: there is research. There is incredibly good research from the
Speaker 1: two thousand one tax rebates and the two eight stimulus
Speaker 1: payments that says people will spend it, like I just
Speaker 1: but but this this trope will not go away, like
Speaker 1: this is I have talking to someone who's been a
Speaker 1: lot of conversations with um Republican economic staff, and time
Speaker 1: and again they say, well, but they're just going to
Speaker 1: save it, you know, the wonky term of Riccardian equivalence,
Speaker 1: like if I give you a dollar, but you know
Speaker 1: sometimes the government's going to take it back when you
Speaker 1: save it. Or I was talking to someone who does
Speaker 1: the like permanent income hypothesis, like I give you a
Speaker 1: dollar and I'm going to calculate the annuity value of
Speaker 1: it over the rest of my life and spend it
Speaker 1: like those are just wonderful, like theoretical models, but like
Speaker 1: those people don't exist well, I mean Riccardian equivalent people
Speaker 1: just like there's like ten of them in the world. Um,
Speaker 1: but the you know, the permanent income hypothesis, there are
Speaker 1: people who have more money that they really do smooth
Speaker 1: it out. But there are a lot of US households
Speaker 1: that for various reasons, and there's a lot of different
Speaker 1: models kind of thinking about why this happens. They keep
Speaker 1: their spending and their income really closely tied, so it
Speaker 1: is very and a lot of them like they don't
Speaker 1: have a lot of income, right, may mean wage growth
Speaker 1: has not been good. Like if you give them money,
Speaker 1: they will spend it. And this is something that as
Speaker 1: economists we get wrapped into this with our models. Or
Speaker 1: if you don't want to do this, you come you
Speaker 1: grab a defunct economist model and say that's the truth.
Speaker 1: But like if you just went out and grabbed ten
Speaker 1: people in front of the White House instead, if I
Speaker 1: gave you five bucks, what would you do with it?
Speaker 1: I mean they'd say they'd spend it, Like it's not
Speaker 1: a I don't know, and and I have heard discussions
Speaker 1: about well, you know, we don't want people to go
Speaker 1: out to the store, and we don't want them to spend.
Speaker 1: And I'm like, first of all, this is why I
Speaker 1: think you should go broadly. Right, there are parts of
Speaker 1: the country right now. It's not like the just the
Speaker 1: virus isn't there yet, Like let's get ahead of this.
Speaker 1: Let people spend, and frankly, like you can do a
Speaker 1: lot of spending sitting in your living room, right. This
Speaker 1: is I just it's like we want to talk ourselves
Speaker 1: out of doing something, which totally reminds me of like
Speaker 1: two thousand and seven, Like we knew things were going
Speaker 1: wrong in the housing market. We knew, but we just
Speaker 1: kept saying, well, but it's okay because look at this
Speaker 1: other good data, Like we're getting such a clear early warning,
Speaker 1: like we get to watch the train coming at us
Speaker 1: Italy shut down the country, Like but we have the
Speaker 1: train coming at us and we're like, oh, it's gonna
Speaker 1: be okay, It's I'll be okay, Like, oh, get out
Speaker 1: of the wake. Yeah, it's really amazing to see the
Speaker 1: stuff that's happening in Italy now because it's very similar
Speaker 1: to the stuff we saw happen in China in January
Speaker 1: and February, and I think back then, no one thought
Speaker 1: that democracy in the West was ever going to be
Speaker 1: able to shut down its population in the way that
Speaker 1: China did. Um just on the notion of safety nets
Speaker 1: in the US, you mentioned this idea that the safety
Speaker 1: net just isn't quite there in the same way it
Speaker 1: is for some other developed country ease would expanding that
Speaker 1: so that safety net be a preferable option here as
Speaker 1: opposed to handouts, if you could do it, would replacement
Speaker 1: wages or expanded unemployment insurance or something like that be
Speaker 1: better than payouts. So I think there's a way to
Speaker 1: answer that question on the economics, and I think there's
Speaker 1: a way to answer it on the politics. I I
Speaker 1: advocate for this going wide and giving everyone money, not
Speaker 1: because I think everyone needs FI Okay, I do it
Speaker 1: because I think that's something you can do the fastest,
Speaker 1: and I think it's the most politically feasible. I mean,
Speaker 1: nothing is really politically feasible right now, but it feels
Speaker 1: to me like that is because everybody gets it. Once
Speaker 1: you get into targeting unemployment insurance, food stamps, any of
Speaker 1: these are a good example, there can be this feeling
Speaker 1: of well, I saved up. I worked hard so that
Speaker 1: when there was a tough time in my I didn't
Speaker 1: have to go get food stamps. Why should I, as
Speaker 1: a taxpayer, pay for somebody else to go get food
Speaker 1: stamps when I know they were out, you know, taking
Speaker 1: their kids out to dinner before they got laid off.
Speaker 1: So I think there's this aspect of if we make
Speaker 1: sure that everybody knows we the government is here, we're
Speaker 1: going to help all of you, then it might give
Speaker 1: some space to be like, Okay, well, now that we've
Speaker 1: helped everybody, we really do need to especially help those
Speaker 1: who get hit hard. But I think if you just
Speaker 1: targeted to the ones who really need it, the United
Speaker 1: States hesitive um a very troubling history of those people
Speaker 1: who need to help the most, we are the least
Speaker 1: likely to give it to them. So like, I don't
Speaker 1: if you know, in a perfect world, i'd want the
Speaker 1: safety net to be better. I'd want the money, like
Speaker 1: serious amounts of money to go to the people who
Speaker 1: need it most. But I'm afraid that if we don't
Speaker 1: do something broad, if they won't get anything. When we
Speaker 1: talk to you before, the focus of our discussion was
Speaker 1: not merely the sort of theoretical how to stop a
Speaker 1: recession from happening one day. But some of the work
Speaker 1: that you've done, what's that? What you what's called the
Speaker 1: some rule named after you, which is, Okay, the unemployment
Speaker 1: rate rises to above a certain threshold, it tends to
Speaker 1: be a good recession indicator. That's when the checks should
Speaker 1: go out again. People should listen to that episode. We're
Speaker 1: not there yet in the actual data. And as you
Speaker 1: said yourself, um, your perception of the recession risks has
Speaker 1: massively heightened even since this time last week. So in
Speaker 1: a way, this some rule would almost be probably too slow,
Speaker 1: given how quickly this crisis is coming upon us in
Speaker 1: the stock market crash and so forth. So in light
Speaker 1: of that, what would what is the ideal? Um A,
Speaker 1: what's the well, you know, just like what is the
Speaker 1: basis or what is the best approach right now? Given
Speaker 1: the uniqueness of the situation, the severe to speed, the
Speaker 1: unexpectedness to get the cash out the door? Right, So
Speaker 1: I think we should hit go now. Right, As you said,
Speaker 1: there's no there's no reason to wait for the unemployment
Speaker 1: rate to jump noted noticeably, so like the sombarle isn't
Speaker 1: going to trigger for months, right, we could start seeing
Speaker 1: unemployment begin to rise, but we're we're starting in a
Speaker 1: really good place, right, But unemployment rate, once it gets going,
Speaker 1: it doesn't stop. And like again, we can see unlike
Speaker 1: two thousand eight, where we were the epicenter of the disruption,
Speaker 1: the recession, the financial crisis, we got an advanced warning
Speaker 1: like this is happening overseas, like it starts in China
Speaker 1: and Asian But you know, so like this is different
Speaker 1: because um, we don't need the unemployment rate to tell
Speaker 1: us that something bad is working its way through the
Speaker 1: global economy, right, So the thing so I wouldn't wait
Speaker 1: until the sowar triggers. I do think one of the
Speaker 1: benefits of the recession ready volume. So that was and
Speaker 1: I had the proposal in there's several others. There's been
Speaker 1: other discussions in the past year about automatic stabilizers in
Speaker 1: a lot of circles, which is which is really heartening.
Speaker 1: So that means there is legislative text ready to go
Speaker 1: or very close, right, So it might have been being
Speaker 1: prepared for automatic stabilizers. And frankly, a lot of this
Speaker 1: the recession ready volume, Every single one of the proposals
Speaker 1: we did was something that had been implemented in some
Speaker 1: form before, right, So that legislative text literally is sitting
Speaker 1: on the shelf somewhere, so you can just take that structure,
Speaker 1: like we thought, Like I thought really hard myself and
Speaker 1: looking at the research about, Okay, if I want to
Speaker 1: get money out to people a lot of people quickly,
Speaker 1: what's the best way to do that? And I came
Speaker 1: down on one time payment dollars, one time check, electronic
Speaker 1: payment as opposed to doing a change, you know, the
Speaker 1: payroll tax cut. Like that was one that I looked
Speaker 1: at because that had and done in the Great Recession.
Speaker 1: So like that's a decision point of like, Okay, you
Speaker 1: want to get money out, correspons gets money out. It's like, okay,
Speaker 1: how can we do that best? And I'm like, okay, here,
Speaker 1: based on the data and the research and the evidence,
Speaker 1: do a one time payment right. And there's like in
Speaker 1: each of the different the Unemployment Insurance Chapter had a
Speaker 1: lot of really thoughtful ideas about how to strengthen that program.
Speaker 1: I think right now, the the f maps of the
Speaker 1: federal share of funding that goes to Medicaid would be
Speaker 1: an excellent way to push out a lot of money fast. Um,
Speaker 1: So there's all these structures. I think, one, well, there's
Speaker 1: a lot of things that are unfortunate we're in the
Speaker 1: situation we are today. Uh. Some of the things that
Speaker 1: was specifically like what I had proposed, Uh, we are
Speaker 1: the idea of doing things making automatic stabilizers. Then you
Speaker 1: can build the logistics so the one time payments they
Speaker 1: have only gone out on a discretionary basis, So it's
Speaker 1: not like unemployment insurance where we already have this program
Speaker 1: set up. So one of the things that I have
Speaker 1: been racking my brain over is, Okay, I want to
Speaker 1: get people to everybody, how would I do that logistically
Speaker 1: so that like money could start coming out right away
Speaker 1: and that it gets It's tricky, like you can't do
Speaker 1: what you did in two thousand eight with the stimulus
Speaker 1: payments because the I R S can't there in the
Speaker 1: middle of tax season. They can't process anything on the fly.
Speaker 1: I mean, money can't go out until May, so and
Speaker 1: I would I don't want to wait until May for
Speaker 1: people to get five. So I've spent a lot of
Speaker 1: time thinking about what you could do it this way,
Speaker 1: and you could do it that way, and um, but
Speaker 1: that's but I'm not sure anybody wants to do it
Speaker 1: at all. So, like in some options, you start losing
Speaker 1: the window if you don't move. So so let's say, okay,
Speaker 1: somehow mechanically we get that check out to every individual
Speaker 1: UH in the country that checkout. But one of the
Speaker 1: scary things about this virus, it's a virus, it grows
Speaker 1: viral e. Right now we might have a thousand cases
Speaker 1: in the US measure probably way more net next week
Speaker 1: we could have multiples of that. We don't know how
Speaker 1: long it's going to take at all. There's for the
Speaker 1: health response to be effective at curbing this. So is
Speaker 1: a one time check enough or would it be in
Speaker 1: this kind of situation where you don't really know the
Speaker 1: severity and the intensity and the duration of the threat
Speaker 1: something where there's like a check every month until we
Speaker 1: hit some level. Yeah, So at first I'd say, like
Speaker 1: the one time payments regardless off there once a month
Speaker 1: or once a year, like they're not going to be enough.
Speaker 1: Like a policy response has to come on multiple fronts.
Speaker 1: So I think there's an aspect of helping households broadly,
Speaker 1: like get everybody five. There's an aspect of helping the
Speaker 1: households who get really sick um and I think you know,
Speaker 1: you know, to back up the coronavirus. This is an illness.
Speaker 1: This is a public health emergency first and foremost. So
Speaker 1: I think one of the most important things that Congress
Speaker 1: could do, and I think they could move this a
Speaker 1: lot fashion than figure out how to get to check
Speaker 1: money in everybody's pockets is really push money to states
Speaker 1: so that they can do State and local governments know
Speaker 1: their public health uh infrastructure better than anybody in the
Speaker 1: federal government. Give those states money, tell them. I mean
Speaker 1: the f MAP goes through Medicaid, I mean Medicaid itself
Speaker 1: because it's a public health emergency, is going to need
Speaker 1: more fun like at the state level forum as people
Speaker 1: need to claim go to the hospital and pay for
Speaker 1: the emergency care. But that's a place where you know
Speaker 1: you can get the money out for the health system.
Speaker 1: I think a creative idea. I'm not sure. I mean
Speaker 1: this hasn't been done, but you basically take areas that
Speaker 1: have mass outbreaks and maybe of Seattle becomes this and
Speaker 1: you declared a nastural disaster relief area. So do something
Speaker 1: very akin to a hurricane hits an area and the
Speaker 1: FEMA just comes in, they bring in you know, the
Speaker 1: portable housing units. I mean, we could verywell need those
Speaker 1: for quarantines. Uh. And you know the equivalent of in
Speaker 1: the hurricane. It's like if your house gets flattened and
Speaker 1: you need money to revite, you can make a claim
Speaker 1: and you get money from the federal government. You can
Speaker 1: make a claim. If the coronavirus flattens you financially, you
Speaker 1: can go get a claim and get help. So I
Speaker 1: think there are structures. I mean the f MAP like
Speaker 1: has been used in this way to get money to states.
Speaker 1: I think thinking hard about how you could take um
Speaker 1: FEMA and turn that into trees as a disaster. Like
Speaker 1: to me, that's like first order is like help people
Speaker 1: not die. But you know on this like helping people
Speaker 1: not die. That one of the benefits of getting money
Speaker 1: to everyone is it is a totally sad fact in
Speaker 1: the United States, but there are individuals who do not
Speaker 1: seek medical care because they because of the cost. So
Speaker 1: over ten percent of US adults last year said that
Speaker 1: they didn't go see a position when they were sick
Speaker 1: because they didn't think they know, because of the cost
Speaker 1: not to pay for it. Now, this is like the
Speaker 1: last thing that we would want people to do is
Speaker 1: to stay at home, you know, not go to the
Speaker 1: doctor because I don't have the money to pay for
Speaker 1: the care. I think what's even more likely is they're
Speaker 1: going to say, well, if I go to the hospital
Speaker 1: and I test positive, they're not going to let me
Speaker 1: go to work. I need to go to work. So
Speaker 1: the United States has this aspect of like, if we
Speaker 1: don't get some extra financial support to people right now
Speaker 1: the virus, this is going to be worse. It could
Speaker 1: be worse here, despite the fact that we have this
Speaker 1: incredible health system, and like we can save people in
Speaker 1: the United States, but no other country can when they
Speaker 1: get like really sick, but they got to go to
Speaker 1: the doctor, right And I don't know, and this thing
Speaker 1: is so infectious. So I think there's this very like
Speaker 1: difficult interplay between the health aspects and the economic aspects
Speaker 1: and just everything the way it's rolling together does not
Speaker 1: look good. Yeah, in some ways, it's it's kind of
Speaker 1: disappointing that we're talking about physical stimulus in the form
Speaker 1: of pay out UH and tax reductions and that sort
Speaker 1: of thing when probably the first line of defense um
Speaker 1: to an economic hit pause from the coronavirus is health
Speaker 1: care policy. And now having said that, I am going
Speaker 1: to smoothly segue to asking you about monetary policy, which
Speaker 1: is probably even less important on the scale of saving
Speaker 1: people's lives. But I mentioned the federal reserves emergency interest
Speaker 1: rate reduction. What do you think of that as one
Speaker 1: way to sort of help out with the economic hit? Uh?
Speaker 1: And we've seen a lot of stress in the markets,
Speaker 1: tightening of financial conditions, things like that. So could the
Speaker 1: right cut help with that sort of stress, even if
Speaker 1: it doesn't necessarily immediately roll into the real economy. Okay, yeah,
Speaker 1: so I will go to the FED. I wanted like
Speaker 1: one less in your segue piece about the first response
Speaker 1: here should be through the health care system, and I
Speaker 1: just didn't want to point out, you know, last week
Speaker 1: we did have the President signed Congress and acted a
Speaker 1: eight point six billion dollar um legislation, and it was
Speaker 1: largely for health fund like to hospitals work on the virus.
Speaker 1: I think, you know, that's a good step, and that
Speaker 1: was really the first piece of legislation that came out.
Speaker 1: Eight point six billion dollars is an insult like that
Speaker 1: is nowhere near the amount of money so I think
Speaker 1: we kind of got the idea right that that's where
Speaker 1: we need to go first. But I don't think people
Speaker 1: have really like latched onto how big this needs to
Speaker 1: be and which actually does segue very well into the
Speaker 1: FED piece. So the so the Federal reserve to do
Speaker 1: whatever it can do. You know, the FED has two
Speaker 1: primary roles that the lender of last resort. I hope
Speaker 1: we don't get there with this one, but you know
Speaker 1: they'll be ready. Uh, and their monetary policy is there
Speaker 1: to stabilize the business cycle. So this is exactly when
Speaker 1: the economy looks like it's going south. The FED uses
Speaker 1: the tools it has to the extent it can to
Speaker 1: help shorten the reset. Shouldn't make it less severe, right,
Speaker 1: So the and and I have full faith that the
Speaker 1: FED officials are you know, will do their level best
Speaker 1: and they will be creative. Like so I'm not worried
Speaker 1: about hitting the zero lower bound. Anyone who says, oh,
Speaker 1: we should save the ammunition so you know, we don't
Speaker 1: go And I was like, what the ammunition is here
Speaker 1: for this moment? Like fire away, um when they think
Speaker 1: it's appropriate. Right. So, but the problem is the primary
Speaker 1: transmission mechanism whether it's Federal funds rate or it's asset
Speaker 1: back purchases, and you, I mean Rose and Grand wants
Speaker 1: to purchase other assets, go for it. But at this point,
Speaker 1: all of this is going through moving down the long
Speaker 1: term interest rate, monking around with some financial asset. It's
Speaker 1: just the interest rates are so low, Like the debt
Speaker 1: was cheap before the Fed FED cut fifty basis points,
Speaker 1: and it's cheap now. Actually it's really cheap now. I
Speaker 1: mean tenure treasure reason are so low. I mean I
Speaker 1: was joking with someone about like what's going to hit
Speaker 1: the zero lower bound first, the tenure treasuries or the
Speaker 1: Fed funds rate. I mean, it's just it's absurd. And
Speaker 1: so what's happened is the primary way that the Fed
Speaker 1: has to support an economy in time of trouble. It's
Speaker 1: just not effective, like you so, But the upside there's
Speaker 1: a silver lining to this, is it because treasury yields
Speaker 1: are so like, it's so cheap to borrow right now,
Speaker 1: there is an incredible demand for US treasuries, which are
Speaker 1: the safest asset in the entire world, like borrow the
Speaker 1: money like this, I mean, the markets are screaming at
Speaker 1: Congress to do fiscal policy. So it's like the FED
Speaker 1: doesn't have the tools they and I mean I'm sure
Speaker 1: they will continue to cut um. You know, they will
Speaker 1: open up. I mean, especially if it gets into any
Speaker 1: kind of need for emergency lending. Like they'll do what
Speaker 1: they can. I mean, they have some things I gotta
Speaker 1: have signed off by Treasury. Now they didn't both or UM,
Speaker 1: but like they there's no there's absolutely no way that
Speaker 1: they are enough. And they know what they've been saying
Speaker 1: for years fiscal policy. You have to help us, um,
Speaker 1: you know. But I've gotten increasingly frustrated. I think over
Speaker 1: the weekend, I was wrote a blog post trying that
Speaker 1: was really like how can we get money out to people?
Speaker 1: And I actually it was kicking around through this money
Speaker 1: finance fiscal policy, which is actually the way the FED
Speaker 1: could in theory get money out. UM. But it's you know,
Speaker 1: derisively called like the helicopter money, and so Ben Bernik
Speaker 1: you got his nickname. I refused to call it helicopter money. UM.
Speaker 1: But like that's a tool has never been used. I mean,
Speaker 1: it is absolutely ridiculous. But like that, it feels like
Speaker 1: somehow the most hopeful because it doesn't involve a like
Speaker 1: their potentially could be a way to do it that
Speaker 1: the FED does it totally on its own. Like we
Speaker 1: should never have a political system that is so dysfunctional
Speaker 1: that it requires an unelected body to do it is
Speaker 1: right for the country. And like this money based physical
Speaker 1: like this is just absurd, Like we shouldn't be doing that,
Speaker 1: We shouldn't even be talking about that. But let's just
Speaker 1: re emphasized like physical policy has to happen, it cannot
Speaker 1: be the FED. I think you make a really excellent
Speaker 1: point there, because obviously we have come to rely so
Speaker 1: much on monetary policy, and that is the first thing
Speaker 1: that we heard out of the White House is not
Speaker 1: a fiscal response but sort of browbeating Jerome Powell to
Speaker 1: cut more and cut more aggressively. Uh. And but the
Speaker 1: question that arises is how much is that because monetary
Speaker 1: policy is the best tool versus how much our political
Speaker 1: system is so broken that the only entity that we
Speaker 1: can rely on to do anything is the unelected one
Speaker 1: where the people at the FOMC don't have to answer
Speaker 1: the voters. Worth noting to you used to be an
Speaker 1: economist at the Federal Reserve for people who don't know
Speaker 1: your background. So before we go, though, UM, let's just
Speaker 1: uh sum it up. So President Trump, maybe he's listening
Speaker 1: to the podcast, He's like, I really want to have
Speaker 1: Claudia on. We need to or into the White House
Speaker 1: to save the economy, just sort of real quickly, give
Speaker 1: us your three bullet points. This is how we prevent
Speaker 1: the coronavirus from ending the expansion. So they need to
Speaker 1: act now. They need to go big, and they need
Speaker 1: to be creative. Like I said, all the tools are there,
Speaker 1: some of them to be able to act now and
Speaker 1: to move really quickly, there will need to be some
Speaker 1: creativity like I talked about thinking about FEMA natural disaster
Speaker 1: areas with a lot of other uh policies. You just
Speaker 1: the policies are there, you just got to do it.
Speaker 1: I think right now it seems one of the biggest
Speaker 1: hurdles is taking on debt and they just somehow that
Speaker 1: wasn't okay a few years ago, but now it's not.
Speaker 1: But I mean really like this is the time to
Speaker 1: step up. And the only way that we are going
Speaker 1: to avoid people getting to a painful place financially and
Speaker 1: health wise is we need everybody working together, like we
Speaker 1: need the FED cutting We need Congress pushing out money
Speaker 1: to states. We need the administration supporting all of this.
Speaker 1: There are things administration can do today to boost paychecks
Speaker 1: for workers that don't even require Congress. So there's like
Speaker 1: all these tools that are out there that we've used
Speaker 1: in recessions past, and they're just there has to be
Speaker 1: this political commitment to we're going to do it, and
Speaker 1: we're going to do it together. Claudia, thank you very
Speaker 1: much for taking the time to join us again. I
Speaker 1: know you're in high demand because everybody is talking about
Speaker 1: this urgent need for fiscal stimulus, and you're one of
Speaker 1: the people who has been writing about and fleshing out
Speaker 1: ideas for a while now. So appreciate you coming back
Speaker 1: on the podcast and hopefully people listen to your ideas
Speaker 1: and we don't have a completely unnecessary economic disaster on
Speaker 1: top of the impending health business. I agree, Thank you,
Speaker 1: Thanks Claudia, Tracy. I'm really glad we had Claudia back
Speaker 1: on and what she articulated in terms of the sort
Speaker 1: of sense of frustration, uh, watching policymakers act so slowly
Speaker 1: both on the health front on the economic front, wanting
Speaker 1: to go small it's like, what did we waste the
Speaker 1: last ten years arguing about if that's still where we are. Yeah,
Speaker 1: it's it's that lack of political will that always comes up,
Speaker 1: you know, even when we have discussions about modern monetary
Speaker 1: theory and stuff like that. But I also really liked
Speaker 1: her point about the Federal Reserve and people sort of
Speaker 1: relying on the Fed to make the first move and
Speaker 1: essentially be the grown ups in the room in many ways.
Speaker 1: And you know, we are talking about an unelected body
Speaker 1: that should have a very limited mandate, but here we
Speaker 1: are right. It is it's a depressing The reliance on
Speaker 1: monetary policy, particularly in developed markets in the West, has
Speaker 1: simultaneously been not particularly effective from a growth standpoint. We
Speaker 1: know that the recovery after the crisis was too slow.
Speaker 1: It took forever to get enough people back to work.
Speaker 1: Wage growth has been mediocre, so A, it hasn't been
Speaker 1: particularly effective, and B it does sort of indicate this
Speaker 1: rot and it's not just in the U S event.
Speaker 1: I mean, like, where are the political leaders in Europe?
Speaker 1: Where's Angela Merkel? Whereas others who are sort of looking
Speaker 1: at the same thing. I mean, they dealt with their
Speaker 1: crisis they had the financial crisis, that they had the
Speaker 1: Euro Area crisis, and yet it's like this weird paralysis
Speaker 1: among elected leaders. So hopefully that changes, and again that
Speaker 1: we don't have to have a you know, compound the
Speaker 1: health disaster with the end of the recovery, but it
Speaker 1: might happen with economic pain. I mean, I guess the
Speaker 1: good news and I really hesitate to call this good news,
Speaker 1: but certainly in some places, some parts of the world,
Speaker 1: like Hong Kong, where they are giving out these cash
Speaker 1: handouts a thousand dollars in Hong Kong, We're going to
Speaker 1: have some data relatively soon on whether or not that
Speaker 1: helped at all. And Hong Kong, of course is suffering
Speaker 1: from twin shocks of the coronavirus as well as the
Speaker 1: fallout from the protest last year, so on the plus side,
Speaker 1: and I really hesitate to say that, we will get
Speaker 1: some evidence of whether or not this kind of fiscal
Speaker 1: stimulus can work well. Also in the meantime, with any
Speaker 1: luck knock on wood, you in Hong Kong are sort
Speaker 1: of coming out of the dark light at the end
Speaker 1: of this tunnel of this crisis, whereas here in the
Speaker 1: US it really has that feel of like we're just
Speaker 1: we're just on the verge of going into it. So
Speaker 1: we will. We will look to you in Hong Kong
Speaker 1: hopefully hopefully your future is right there, and then hopefully
Speaker 1: our future is bright here as well soon thereafter. Yeah, look,
Speaker 1: I'll tell everyone when I start spending again. How about that.
Speaker 1: This has been another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway, and I'm Joe Wisantal. You can follow me
Speaker 1: on Twitter at the Stalwart, and you should follow our
Speaker 1: guests on Twitter. Claudia Sam She's at Claudia Underscore Some
Speaker 1: s A h M. And you should follow our producer
Speaker 1: on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow
Speaker 1: the Bloomberg head of podcast, Francesca Levi at Francesca Today,
Speaker 1: and check out all of our podcasts under the handle
Speaker 1: at podcast. Thanks for listening. Te