John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution. He is also a research associate of the National Bureau of Economic Research and an adjunct scholar of the CATO Institute.
Before joining Hoover, Cochrane was a Professor of Finance at the University of Chicago’s Booth School of Business, and earlier at its Economics Department. Cochrane earned a bachelor’s degree in physics at MIT and his PhD in economics at the University of California at Berkeley. He was a junior staff economist on the Council of Economic Advisers (1982–83).
Cochrane’s recent publications include the book Asset Pricing and articles on dynamics in stock and bond markets, the volatility of exchange rates, the term structure of interest rates, the returns to venture capital, liquidity premiums in stock prices, the relation between stock prices and business cycles, and option pricing when investors can’t perfectly hedge. His monetary economics publications include articles on the relationship between deficits and inflation, the effects of monetary policy, and the fiscal theory of the price level. He has also written articles on macroeconomics, health insurance, time-series econometrics, financial regulation, and other topics. He was a coauthor of The Squam Lake Report. His Asset Pricing PhD class is available online via Coursera.
Cochrane frequently contributes editorial opinion essays to the Wall Street Journal, Bloomberg.com, and other publications. He maintains the Grumpy Economist blog.
- John CochraneSenior Fellow at Standford University
- Carlos CarvalhoAssociate Professor of Statistics at the McCombs School of Business at the University of Texas at Austin
Welcome to Policy McCombs. A data focused conversation on tradeoffs.
I’m Carlos Kavala from the Saban Center for Policy at the University of Texas at Austin.
It’s a pleasure to have with us today Professor John Cochrane from the Hoover Institution, where he is a senior fellow.
And let’s continue our conversations on Koven 19 pandemic. So, John,
you’ve been talking about pandemics for a while. I remember seeing some posts you had a year ago
on how that would be a much bigger shock than some of the things that governments like to talk about.
So how long have you been thinking about that? And it was that just an example of something that governments were
not prepared for? Or did you really think of that seriously before? And why is
that? Why is that something as consequential as this that we’re living through right now? It seems that every single
Western economy was not at all prepared to deal with a Western government.
That’s a deep question. So like all interviewers,
like all of your interviewers, I think there’s a bias toward. See, I told you all along.
That opportunity lies. Yeah. There’s a lot of chance for retrospective
bias here, certainly. And I have to say so I’m not a researcher
in this area. I value real scientific, peer reviewed researcher. I’m a blogger.
I’m the Grumpy Economist blog and op ed writer appointed the public intellectual. Maybe,
but that’s been my role in thinking about these things with that disclaimer. Yeah,
it really is part of the climate. There
is a genuine climate science and then there’s a climate hysteria. And in thinking about that,
I you know, there were people saying, what’s the greatest danger facing Western civilization?
And as I started putting together my lists 10 years ago, one of the greatest dangers
facing Western civilization, it struck me that pandemics ought to be really high
on that list, especially, you know, historically, every
wave of globalization has led to a pandemic from the sixth century in the Roman
Empire to the plagues of the thirteen hundreds in Europe, which followed the opening to
the east. Of course, the I think the worst pandemic in terms of fraction
of the population killed has to have been the the Colombian what
he’s supposed to call it these days, not the discovery of America, that’s for sure. In exchange
for that book, fourteen ninety one really struck me about the
U.S. economy. In exchange we gave him smallpox and they gave us corn. We gave him smallpox,
civil unrest, regular war, crop failure.
There’s a whole lot of things that struck me as dangerous to Western civilization
and because they come unexpectedly unprepared. Lee, in a way, that climate
comes very slowly. Any healthy society ought to be able to figure out climate takes
is we’re still on background in a way. I think we’re extraordinarily lucky.
Societies are never prepared for tail events. We got this
virus is perfectly designed to get our attention without killing
an enormous fraction of the population. There is nothing in the biology that
says a virus like this can’t kill 10, 20, 30. The bubonic plague, 50 percent
of the population. We got just enough to scare us and wake us up. I
dearly hope. Yes, as you said, everyone was completely unprepared. So that turns out to be false,
as I’ve now done a little more research on it. You know, our leaders were smart,
but George Bush read a novel about pandemics. And there’s a beautiful pandemic
response plan with PowerPoints and pretty pictures and all the rest of it turns out. And
this is stuff, if your read are curious. Somewhere on my blog, there’s like twelve
twenty beautiful pandemic response plans from Health and Human Services and the Department of Defense
worries about bioterrorism, that that’s one where bioterrorism, a designed virus.
Imagine how how open we are to that. And the one interesting
fact of all of these is none of them cites the others, which tells you about how much effect
they’ve had. So what you need in this case is public health,
which is a local detailed thing. And the same way schools have fire drills.
They don’t have a manual down in central administration what to do in case of fire. They have
fire drills where the. I have to go out and practice, you know, getting ready
to stop a pandemic by public health means testing, tracing
and that’s it. Then you need a bureaucracy ready to go. And that’s
that low level, well-trained bureaucracy connecting the grand plans to our readiness
on the ground is what we obviously didn’t have anywhere in the Western world. So don’t start on a U.S.
facility and all the rest of us, you know, pretty much every Western country resorted to.
Here’s what I’m worried about. Mental stuff, economic lockdown should be.
It’s a panic, but it’s that this is totally out of control. There’s there should be a public health response
where you find sick people and stop it from spreading. Not everybody has to stay home and
we created the economy. OK, all right. So then let’s let’s talk about this specific
one and go back to early February, maybe late February or early March,
where New Start coming out. We start getting worried about this because some people worry about this before.
But honestly, I have to confess that I wasn’t. I was thinking, how is one another while another one of those Saras things
that happened a few years back. Mostly it’s going to be contained in Asia and then we start seeing
Italy happening. And and clearly by early March, I think everybody was really aware
of all the dangerous coming our way. So how are your personal problems then? What kind of
data or information you’re looking at or models are looking at to sort of inform your thinking
in preparing to evaluate the types of ideas I’m putting forward. So I’m going to come
comment a little more generally first. You’re exactly right. And it is a
it’s a feature, a common feature historically in some blog posts here that
cover this thing. The way public authorities respond to pandemics has
never through history. And the first response is, well, we don’t want to scare people
because most of the time there’s a lot of false positives. Most of the time it’s like
SA as it comes and goes. If you shut down the economy, they say, you’ve got to be kidding. What a joke that was.
So are certain our public officials you know, there’s a lot of 20/20 hindsight among public
officials. Oh, you should have closed it down three days earlier and so on, so forth. But that is just
a feature of the way things work, which is why I think you need a well oiled, low level
bureaucracy that handles this stuff automatically rather than relying on presidential
decisions. I just read the news. And in February,
the the news was fairly apocalyptic,
but I sort of have an open mind, too. The news was apocalyptic.
But we economists, we know one thing. We have a lot of experience with complicated computer
models. And that is one thing that makes me
I don’t want to say skeptic, because that’s a loaded word, a judicious evaluator of climate
projections. In economics, there was the Club of Rome that forecast in nineteen
seventy two. We would run out of resources. The planet would fizzle. By the 1980s,
Keynesian macro economic forecasting and policy evaluation models fell to absolute pieces
in about 1978 and have not come back.
So we know some about forecasting model being big black box forecasting models.
So like yes, said the models at the time, the infamous model from
the United Kingdom that was forecasting aren’t the stuff that look pretty terrible.
it as as well as anybody paying attention at the time.
So that was about projecting something like 2.2 million deaths in the US. About five thousand. That’s in the
UK. That was. Yeah. With a sort of a perhaps that’s unfair
to look at those numbers only in the context of that report and assess that that might be the worst case scenario.
But then we start planning based on worst case at that point in time. So a lot right. You want to place. But
but so I like you boy. I saw that. Wow. Did I really believe it? You know, the logic was
you multiply 2 percent death rates by sweeps of the population and it’s
know it’s hard to argue with that turns out to have been largely wrong. Which is an interesting
thing we’ll get to. But like you, I. So I look back at myself, you know, I actually took
a trip to London in early March. I look back saying, what was I thinking?
Can guarantee gauranteed somewhere. So I said, we do we do all this.
There’s two kinds of human psychology. One, that the jump you know, the Chicken Little
world is always the sky’s always falling. Another kind of slow to respond to danger. I’m
in the slow to respond type as well. But. OK. So we’re looking at the dire predictions
at that point. And and I think California was one where you live, was one of the early states
to say we have a shelter in place order where everything has to be shut down before any other
measure was was tried in some capacity. Right. That was the first reaction of offshore governor.
And we are still under that order two and a half months later, if not, if not more.
Unless you want to go pick up some free stuff down at the local stores. But yes. Right. And destroy.
So. So at that point, I mean, as an economist, you’re thinking, all right. So I don’t want to hand I have to ask.
I don’t know. Let’s say the proportion of those debts in California as one outcome. On the other
hand, the shelter-in-place order has its impact.
So I I would have never should have prepared for this by looking back at the dates of
my various blog posts and op ed. I do want to congratulate myself. I think I was about two weeks
ahead of consensus opinion on a couple of these occasions
as the shutdowns were coming. I was kind of as an economist as pulling my hair out. It seemed such
a sledgehammer blanket problem. I think I was advocating shutdown
smart. Just take a little bit of thought about the what kind of activities
are dangerous and what kind of activities are not dangerous. And rather than businesses
bad, shut down all business, try to come up with
at least. Yeah. Well, except they had the the essential business versus the non-essential business
essential in California. Looked at the list included construction of affordable
quote, affordable housing. You know, non-essential included
golf courses where you’re completely unlikely to get it. So at least as I was,
I was praying for some sort of smart policy. The trouble is what this
reveals is just these damaging lack of bureaucratic capacity that we have in the US
to make any sort of judgment about how much danger to virus versus how much GDP
or how many jobs are. Ah, that’s that’s what you want. You want to get the reproduction
rate under one at a minimal cost, the GDP. That means you got to think about what you shut down or what you don’t
shut down and just think about some. Only now is their base. Vaguely some recommendations.
OK. You can reopen, but stay six feet away from each other and so forth. This took two
months to put together. So I do think I was at the time in the
shutdown smart and not just business. You
know, birthday parties are the problem. So let’s let’s have some recommendations.
Plus, boy, it would be nice to use some sort of data. You know, places like I
go out to some of the wilds of the Central Valley for various hoppa activities. And there is
no corona virus. They’re just some some basic. How bad
is it where you are? What are the dangers? What kind of businesses can operate, what kind of businesses can’t operate
would have been. Boy, we could have done this with a lot of love, even knowing what we know it knew at the time.
I think we could have done this with much less hit to GDP. It is surprising to me that
that conversation was just not how do we I remember you talking about that and I remember using some of your some of your we talked
actually early in that during this time and I was working helping some folks here and in Texas.
And we put together very quickly a measure of risk that’s based on some Labor. Labor
Department surveys on on how often do you get close to somebody who was in a car with five people
or more of different activities? It could break down very quickly. OK, activities versus employment
versus GDP contribution, just stare at picture as a simple. Now, the finance professor, it looks
just like an efficient frontier type discussion. Right. And and it is obvious
and it’s simple. But it went nowhere. It went nowhere. And the things that were put forward were just that.
This notion of shut everything down. Don’t worry about any costs. And let’s wait.
So I was very concerned at that point in time and still am in the sense that I think that that tool
are still going to be considered for a potential second, second way in the U.S.
We do seem to well, once we’ve done seeing something once, then our need to justify ourselves
means that that’s what we do. Forever and ever. So I worry that the lesson
that I hope we would learn out of this, we need a robust, detailed, data driven public health
team ready to go and keep it going. You know, California had mobile hospitals
that have put together at great cost after the SARS epidemic. And our governor, Jerry Brown, cut them in
order to save $5 billion a year on the budget in favor of his $80 billion
high speed train. So you got to not just get it, you’ve got to keep it going during the years when nothing’s
happening, but that instead of that, we will learn the lesson, OK, we’re ready to go. Economic
shut shutdowns. You know, here we go again. Same way financially,
we’re replaying 2008 as if that was the perfect response. So what are we thinking about that
the costs associated should now? There’s the obvious things about, OK. Production is halted.
That means I don’t know. I think at some point the estimates are it depends on where we look at. But one trillion
dollars a month seems to be a reasonable number of economy. stoppie. I think
Casey Mulligan has put the number at seven trillion dollars over a span of a year. What you’re
looking at this week, I think the number of coming out of 50 percent contraction in the second
quarter is a possibility. I think hassid was was was putting those numbers out of my house yesterday.
But those are all that’d be a short term thing of like a long extended vacation. And
we all stopped for two weeks a month. And that’s fine. We’re back. And, you know, sure, we
forego production and the money that’s generated that month or so. But then then it’s back up.
It’s just not quite like that, right? Yeah. And here again in. I’m glad you’re forcing me
to come to terms with my own forecast, but I think I did fairly well on this one. My first op ed on the subject
very early on, I was thinking about the economic costs. And so
as this started, you know, the first economic impulse is to
say this is a supply shock. We’re shutting down businesses, but we shut down businesses every year from Christmas
to New Years and come right back. January 2nd actually looks to me like we shut down businesses about Halloween
to New Year’s in the US now. So that argues for
the V-shaped recovery. Why isn’t that going to happen? Well, first of all, we weren’t prepared
for it. Everyone keeps enough savings around to get, you know, get through there. And businesses
know that they’re not going to be people coming in during vacations. But the big problem is this goes
on for months. It’s unexpected. And Americans are once again up to their necks,
up to the gills in debt. You it’s not all Americans,
but many are restaurants. You know, they can’t laugh. They can’t keep paying their bills
for months on end with nothing coming in. And all business is that way.
Once again, most businesses going into this highly leveraged.
And that means that a long shutdown along total shutdown of this magnitude, even in the Great Recession,
we didn’t go to zero. You know, you might’ve lost 10, 20 percent of your business. You didn’t lose everything for months on end.
So that that could lead to a wave of bankruptcies, not bankruptcies in the end of the world,
especially if you’re a big corporation like an airline. But it it it leads to liquidation more
often than not for small businesses. And, you know, people’s homes could get foreclosed and
sees that the danger is that a pandemic turns into a financial crisis
and then the businesses just aren’t there to reopen. When you get gold going again. So that, I think
was the central economic problem to worry about, isn’t it? Not a month
or two of terrible output. And is is that’s to be expected. You shut everything down.
The question is, are people are people who are reporting unemployed? Are they really unemployed
or are they just waiting for their companies to call them back? Well, the company is still there. The company can call them back.
It’s companies not there anymore. That’s going to be harder. And the longer this goes on, I
think the longer those adjustments are going to have. It just takes much longer to find a new job
than it does to go back to your old job. So those are the end
you’re asking retrospectively? I think that that was my first op ed, that this is the danger in trying to think hard
about how do we do that, how do we get through that problem? And
outside of economics, what are you thinking about? Any other costs that we’re not be open discuss
about that shut shutdown privately? Sure. But I try to keep my public
comments to economics. There’s a lot there’s a lot of discussion now about,
you know, you’re saving one kind of health at the expense of all sorts of other kinds of health.
I have stayed away from that because I don’t think it’s that salient. And I’m not
I’m not really an expert on which kinds of health you do. You know, I don’t have anything special to say, but it does
strike me as like one of the things that we tried to do is to flatten the curve so we don’t overwhelm the hospitals.
So what we do instead is shut down the hospitals for two months. The logic of that is just false.
It’s not going quite like that. I get it. But this is really interesting thing that happened. So we
look, we learned that the demand curve for medicine does slow, slow, slow down after all.
Turns out everyone thought hospitals would be would be overwhelmed, in fact, and that hospitals
weren’t overwhelmed even with covered patients, except in New York. And everybody stayed home from all their minor
stuff. And so hospitals are in that area about as bad financial shape as restaurants in particular.
We have this system, as you know, we have talked about otherwise. Ah, ah, monstrously
dysfunctional health system. Lies on cross-subsidies from paying customers for elective surgeries in
order to pay for emergency room treatment. So all of the paying customers who use on
their footing the bill for everything have disappeared for a while. All right. I am disappointed
a little bit on on the economics profession during that time. I think that there’s been there’s been a lot of great work.
The economist jumped into the Reto and think about Assa that the infectious
models, given that their knowledge, as you point out before, they have knowledge of those blackbox by
this computer models based on all these and so on. So so it’s not that different from the tool set. And
it’s. There’s a lot of great work being done there. But what I thought was lacking in the discussion early on
from economists, they on us, for example, is to talk about the impact of shutting down our schools
for two months, the long run impacts of that. And it just very little consideration
of that, given maybe, you know, in that very first instinct of a two week break
to figure out what to do and so on. But once we realized that no, no schools open since March
across the entire country. The other thing I think I’ll fault our economists friends on, we still
live in this advice for the benevolent planner
mode. And we also assume that benevolent planner is has a detailed bureaucratic
capacity to implement things. We don’t study regulation anywhere
near enough. I think in part because it’s just there’s a lot of anecdote, but not
a lot of data easily available. But the story of this has really been the story
of catastrophic failures of the low level regulatory agencies,
the the FDA refusing to certify plants where people want to. You know,
we think the greatest economy on Earth cannot, in a matter of months produce 50 cent
plastic facemasks. Are you kidding me? Well, the FDA won’t certify your plan. That has
to. You can’t use a paint face mask. It has to be certified in the ones that are China’s
selling. The European Union are only certified for European Union certified U.S.
The CDC bungling on the testing was just remarkable.
And as we talked about the inability of our governments to do anything other than just everybody stay at home
except for whatever we deem essential. And even then, the essential workers, you know, would they ambulance
drivers weren’t wearing facemasks for the longest time. You know, at least a minimum of thinking about
it. Now to the to your point. Some economists have been great. You
sit around the lunchroom and we’re full of these great clever ideas. Oh, well, we should just
separate the vulnerable people and let it spread, man, and all this stuff. But
just the bluntness of the regulatory tools compared to the cleverness of our models
is something that I think we need to pay more attention to. Let’s fast forward to now
given what we learn now. So in early March, maybe there was scary news that we were thinking of this being
different and what we know right now. However, updated your your understanding of
the severity of this of are there any particular models or information that currently
gives you a better understanding or where you are right now? And this is, by the way, just fought for the video.
This is June 3rd here. Now we’re talking. Yeah. So here’s really danger
where we get dangerous because I’ll offer forecasts that will undoubtedly be wrong before your forecast
this. Given what we know, what has updated our view on this? So
my own thinking and my reading, I think I’ve learned a couple of things. We’ve all learned the death rate is
much lower among young, healthy people than we thought. Vast majority
of the deaths are among old people, you know, like half. Right. Nursing homes. We
have learned that the essay, our models were fundamentally wrong. So the basic
model and this is easy to understand. A virus spreads exponentially. I give it
to two people. He gives it to two people, they give it to people and so forth until it runs into some force
that slows it down. The basic model said the only force that slows it down is the people you’re
running into have already gotten it and they’re new. That’s the herd immunity idea.
Well, turns out the force that slows down the reproduction of virus is people aren’t total morons and
even their governments are total morons. They change their behavior so they don’t give it to as many people.
So I and many economies started exploring what we call behavioral ESSI models, where
the limiting factor is not that you run into people who’ve already had it. You’re still in a
situation where most people haven’t had it. But the limiting factor is changes in behavior, economically
costly changes in behavior that limit the spread of the disease. My little model on that was
very interesting to me. It always settles out at a reproduction rate of
the reproduction rates. The key parameter here. If if the reproduction rates less than 1,
it goes away. The reproduction is greater than one. It gets bigger. And so the goal of all
the number one goal is. Reproduction rate below 1. But if people are if people
pay more attention to it, when there’s more of it around and less attention when there’s less of it around,
then the reproduction rate just settles to one kind of always. So that was an interesting
little behavioral SARS model that led me to think that what’s going to happen is
not a massive second wave where everything they were forecasting February comes back in
the fall, but instead this just trundles along
with a reproduction rate around, you know, weigl’s embers, embers, com embers get put out. People
pay more and less attention. And then
as it as we learn more about the disease and people are able to take more care
and less economic cost, then the total number of infections slowly dies away.
So I’ll I’ll put that on. That’s my forecast. There’s good news. The good news is I don’t
think we’re primed for a huge second wave that does kill the millions of people that they were forecasting.
Think they keep saying, well, if it’s coming. The bad news is that until there is
some really good testing, tracing and the bureaucratic
capacity to do something, what the testing and trace that the main thing missing we have the tests.
We just our our bureaucracies don’t know what to do with test results.
And they’re now thinking all we need to hire some contact tracers. Don’t wait. Well, that would have been a nice idea six
months ago. So anyway, that that thought leads me to think that we’re
gonna be living with this at low level for quite some time. The second thing
I’ve learned is the importance of super spreaders, heterogeneity,
economists. This is behavior and heterogeneity. Boy, what are the two biggest
things that economists think about as we point out? One thing I think when you say a behavior model, I think some people
would think about is a rational model. Right. It’s irrational. All that takes into account behavior is not a
behavior as as some behavior. Economic models are just. Man, I’m really sad that
the behavior has got to us. I don’t look perfectly good term. We are all behavioral
economists. We study human behavior. We write down models of human behavior.
And then we see if those models work. That’s what I meant by behavior as opposed to mechanical
diseases do not spread in humans the way they spread in rats because humans understand there’s a disease
out there. Thank you for that. Terminological correction.
The second most really boring thing is the importance of super spreaders. And you’ve heard the stories, you know, cruise
ships, nursing homes, meatpacking plants, birthday
parties, weddings, a choir practice. This thing is is spread
most in play in situations where a fairly
large number of people is indoors together for quite some time and they’re
talking or singing. And therefore, it’s not just droplets that go from one person to another,
but little aerosols that spread through a room. Now, why does that matter? All tales
are fat tales. And if our goal is to get the aggregate reproduction
rate below 1, it does not help much to take an economist whose reproduction
profit possibilities like Point 5 and make his point for. What matters
is getting all that these super spreader events where one person gives it 270.
If you can just stop that. You get the aggregate reproduction rate below 1 and then the best part
about it. Most of those things don’t contribute a lot of GDP. Meat packing plants
are our kind of debt. That’s a hard one. But a birthday parties, choir practices, stuff like
that. That is the central activity. So the good news on
that is that I think there is a way for this to the behavioral response
can be both government and individual. Just avoid these super
spreading nuclear. And that doesn’t mean it’s okay. Is it given to public and private health?
You can still get it by, you know, contact with one person. But from a public health
point of view, all you gotta do is stop the stupor spreading activities and the thing will go away.
So those two I’ll now put my forcast chips on it. I think this will trundle along
with us for a long time without a huge second wave. And I think
that part of the reason is we’re not that dumb. We’re not going to put covered patients
back into nursing homes again. No one’s gonna be that dumb to do that again.
We’re going to take precautions that meat, meatpacking plants hope.
Now, here, my faith in human rationality is a little bit unsettled.
I wrote an op ed just before Memorial Day saying people aren’t dumb. They’re not going to go congregated.
Places where you can have a super spreading activity and then Memorial Day weekend came along and there were the pictures
of all the crowds on the beach and read stories from. From the places that have led up,
you know. Korea, South Korea, which was admirable in its public health response, then let up and
people went to nightclubs, nightclubs. Are you out of your mind?
There’s a New York Times. We’ll talk about it. A very good, super spreading article. New York Times couple
days ago and reported on cases from Hong Kong. Hong Kong did a good public health job
and then kind of reopen. And one guy gave it to seventy three people because he went to carry
Yoki bars. Karaoke bars.
Yeah. I’ve been defending human rationality all these years. And now, well, my preferences, that’s
totally irrational right now. But anyway, from a from a
Chernus Society point of view, I have hope that we don’t have to. Every
single one of us. Monitor every deala detail of our behavior and make sure that every
jogger wears a face mask if we can just stop the super spreading activity. So those are the
two central things I’ve learned. It seems that that not only the behavior
model that you’re talking about, but this idea of avoiding heavy deals seems to have started even before
all the places were in lockdown. That’s again, it gives me hope when the rationality of people you suddenly
see this. This is a crashing mobility data in all sorts of things.
Even prior to governments implementing forced lockdown. Oh, by the way, let’s be clear.
The forced lockdown that we have any w very different, for example, was Europe. We don’t have police yelling
at us to go back to our house, thankfully. And I got better at a golf course.
But know walking away, two and a half year old son. But beyond that, we didn’t have we didn’t
have the draconian real measures. And yet, the degree of that, it looks like the
the reproductive rate of the virus was sort of quickly go into something around one
from the beginning of of of the data showing something around two and a half or so. Right. Airlines,
restaurants, mobility data that that’s Tom Phillips in at the CIA has been doing a great
job of assembling. He’s got a bunch of tweets showing private behavior. Figure
this out very quickly. Now, that’s whereas we start to think about the recovery.
When do you go into a restaurant? Again, a nice, you know, a great day in New York City
into a restaurant with a loud everybody yelling or even taking an airline flight.
You know, when are you going to feel comfortable taking an airline? But there’s there’s there’s some sense people can
also be too cautious. And as long as the virus is sputtering along.
This is another sort of incident. Thinking about the last month or so,
how much of a recovery we’re gonna get will those sectors. I just cannot see them coming back
as long as this virus is is out there and trying to win
now. Do you have any insight on on why it is that we
took this very fairly radical option as a measure to attack
this problem of locking people down across the entire Western world, putting our
economies emboss for two months or more, given that that it seems that that’s
like the sort of benefit of the doubt. I’m not doing that. Should be very high.
And yet it became very widely spread like wildfire as the thing
to do, if not for one single country that still are doing
the reasonable thing and showed us that individual behavior and commitment at tales can avoid
a exponential growth of the disease. Let me get back to a study. Is proof proof
that OK, if you ask me whether I think it’s possible to not have the
exponential growth they are in your say you’ve seen what, Zach, what’s happening there? They’re just keeping this is going to be
the slow burn for a while. Right. People do say Sweden. Sweden does have a higher death rate
than than other countries. But they achieved that. They made kind of a cost benefit
tradeoff about that. Right. That’s right. Van is very much
involved, associated with that with the nursing home. I think 70 percent at best in Stockholm
or nursing home related to getting a good job protecting those folks. That’s the reality. This is a more
a political question than an economic question. Well, certainly there’s a lots
better economic policies we can think of for doing this. And I’ll just give a light,
light hearted. You know, you a no political leader has
it’s very hard to do too much in a crisis. So the political calculation.
Why do they why do they start by lying about it, saying, oh, it’ll go away? Because you don’t want to be the guy who shut down the economy
for Sarge. Once the public is convinced that this is a big problem,
then it’s there’s very little political cost to doing too much to solve
a big problem. And that’s, I think, why they clamp down with the big sledgehammers.
And now it’s going to be, as you said. Right. A lot of justifying that. That was a good idea, that policy
choice is not a bad one. And you’re right to see that happening. A lot of people claiming causal
effects on, on, on well, they’re supposed to go two and a half million people. We kill 100000 people.
So lockdowns save 2.1, you know. So it’s that kind of they’re going to
say she’s already started. Nobody lost her last day election. Right. Well,
if you’d let another 20000 thousand old folks in nursing homes die, you know, maybe we could have gotten along
with that 15 percent unemployment that at 20 percent unemployment. That doesn’t it doesn’t win the
election. It is a question. That’s a good question. Do you have a sense of
whether we’re going to be able to try to estimate what would have been what’s the counterfactual here? What?
What if we had done Sweden well before? You think that.
Because obviously there’ll be a change. There’ll be a shocking demand. By by what you’re saying, people behavior
would change. People not flying. I go out and cruise ships, et cetera, et cetera. That has an impact on the economy.
Do you have a sense that would you would you would you dare putting a number on on on that counterfactual?
I I think that’s. Let’s say you’re talking to students. Here’s a good thesis
topic at the part about it is it’s a you need to do some
pretty detailed micro modeling to figure that out. So like we
have a dog. They shut down the dog hair. Kromer. Why exactly? A dog
groomer is a, you know, shutting down. So there’s an example. If they had
said all businesses are shut down except essential businesses and dog grooming businesses,
we can figure out how much more with the virus have spread 0 and how much
GDP would you get out of dog grooming businesses? I think you’d have to make
that calculation along with.
Could could we even the businesses that remained open. I was shocked at how many, you know, like the Amazon
workers had to go on strike to get sort of basic stuff imposed that Amazon.
So the private sector did a pretty darn good job. But there was it was interesting how much was
going on. And just then the idea is, well, we’re essential. So it’s business as usual. So
obviously, this could have been done at much, much less economic cost. How much?
Good question. Yes. That that that that’s definitely I mean, I hope that at least gives an opportunity
to study. This is the difference in time between different states. It wasn’t things,
but it got me the big lost opportunity. We shouldn’t be talking about economic
shutdowns at all. Big lost opportunity is in January a competent
public health response. You know, use the German test. All right.
Dude, shut down flights from Europe, flights from China. Even if you don’t have to shut
down the flying. The Chinese were bless their hearts. They. They were at least using
temperature they had. Did you go into an airport and there’s a video machine that that takes everyone’s
temperature. The TSA just started talking last week about maybe we should get some of those,
you know, so hitting this early and hard with standard
public health measures is the lost opportunity that we should be promoting. You see the hope
of us actually tooling up on that and doing we. But again, go back to your point, the beginning
of it for worry about this, things like climate change. That is 100 years from now, potential problem
to have a lot of time to adjust. And by doing so, we don’t worry about investing the things that might hurt
us today. We’re not ready when those things happen. So right now, we have happens opportunity.
But this virus, as you said, was not bad enough to really wipe
half of the population out. But one of those good could come. Do you have hopes that we’re going to
create that infrastructure? And because, again, there’s the state capacity problem we have. We
do too many things and perhaps not too many things that we need to do and not do them very well.
Now, we have to try to remain hopeful and not too cynical about the project of
American democracy. I mean, I will echo the Paul Romer
has got it exactly right. What? We’re spending seven trillion dollars on sending checks to voters
and we can barely, you know, and then we’re fighting about who’s going to pay for masks and who’s going
to pay for testing. You know, $100 billion dollars on test. Everybody in the damn country
would would that would stop it instantly. But, you know,
we were barely where we’re barely even touching that sort of thing. So,
you know, a country who can’t do that can do we have still the
capacity as a government to undertake long
term reforms? I don’t know. So we we sort of didn’t respond to terrorism
there there, at least whether it was successful or not. A useful or not, there was a
a deep, low level bureaucratic. You know, we discovered after 9/11 that
the cops don’t know the phone number of the firemen who don’t know the phone number of the FBI yet call the FAA.
So let’s give everybody the contact list and make sure they know what the phone numbers are.
So we did we did in that instance have the capacity to put together a
detailed bureaucratic response. Can we do that again? I hope so. If not,
the next one will come and it’ll it’ll be worse. So final question, when you’re thinking about the long
term consequences growth associated. This really thought about that a bit and assuming
that there’s going to be with us for a while until a vaccine is available, how would you evaluate that?
Our ability as the ability of the private sector in the U.S. in particular? Because I
I guess I’m asking this question from a price that I have, that the U.S. economy, the U.S. private sector is just more flexible
than therapy and one, for example. And I think that’s going to give us it gives me hope that we’ll be able
to adjust were to adjust a little faster, be able to relocate resources in the ways. Would you agree with that? Do
you have a general so you could even think more specifically in this country,
inside of the country, do you think there’ll be a different type of recovery in different parts of the country?
Yes. So, boy, this is going to be shown not tomorrow, isn’t it? So
making forecasts. So I want to say at the outset, the economic future
is is very uncertain. And that’s a deep point. I think
all of our public policy should be based much more on recognizing the uncertainties of
economic forecasts rather than here’s the conditional mean. And now we’re going to act as if that certainty.
And I do think that, you know, like the Milot military, some scenario planning, bracing for the worst
is as important as making the forecasts. And, you know, there’s good and bad scenarios out here.
A lot of it depends on the disease if the disease fizzles away quickly. If we do get testing, testing
is just one of the it’s just a way of reducing the economic cost of getting your reproduction rate below
one. So if we either by testing other means find ways to reduce the economic cost of
getting the reproduction rate below one and it goes away by the end of fall. I think there’s a chance
to go back to sort of normal fairly quickly, if not, you know, the
other the downside is that it trundles along the economy, stays depressed, then the financial
crisis part of it does hit and then we’re into a recession for a long time. The other dangers, of
course, is just how much damage is the government going to do in its efforts here?
You know, as much as I feel for people who lost their jobs, if you pay people more to stand
employed than to go back to their jobs, they don’t go back to the jobs. They don’t find new jobs.
And there is a big shift in demand going on. So the flexibility you mentioned, we
do need to move. People need to move to different kinds of jobs in different kinds of activities.
So the US-UK, I guess, say, yes, as you look at the U.S., you kind of despair of our lack of flexibility
and to look at all the rest of the world that these things could be a lot worse. Will those
shifts happen? I think there will be some shifts. So first,
as long as the costs of dealing with the virus are high, we have a supply shock and we’re going to be trundling along.
The good part of that is a lot of the need is for low skilled workers. So if there is a decently
functioning labor market for low skill workers, they audit. There’s a lot of jobs in wiping
things down and checking who’s got the masks on and contact tracing and so forth.
Now we have a singular ability to screw up labor markets. But but that’s not good GDP, all
that stuff. You know, those are low skilled jobs. And if restaurants have to serve every two spots,
then restaurants are gonna cost twice as much, which means people aren’t going to go out that much. And, you know,
wages for restaurant workers are going to be lower. And that goes around the economy.
And there are some worrisome. I think I still think the
debt matters and what, you know, the aftermath, the disincentive
after mass and that and the deficit aftermaths of where we’re going. If we
respond to this stuff with a whole raft of new both programs
and debts that have to be paid off, that’s there’s there’s a big economic danger for this lying
around for a long time. And the shifts in demand could be pretty huge. Already
cities, I think we’re in trouble. We’ve all learned how to do Xoom
as much of the pleasure as it usually is to come to Texas. You and I did this.
So the social network fixed costs of zew of online.
We’ve kind of all well, that that’s going to change a lot of how businesses do things.
Facebook and is said half of their employees are going to work from home from now on. Well, that’s
not great news for the real estate market in Menlo Park. Now, maybe that’s good things. It’s a
completely outrageously priced here. Our city is going to survive.
I think is a big question. I know a lot of young tech millennial types who are
just, you know, a year ago. I have to live in San Francisco because the bars that restaurants that night,
so forth. And now now they’re all saying,
well, I think it’s time to move down the peninsula where I can send my kids to a public school. And. And there
are some bars and restaurants which are known, especially after voting. Those are going to be
a business coming back. And the state and local government finances are an absolute disaster.
So, you know, it may look like cities may look like a bad man movie for a while.
And that would be kind of a that’s an example of a shift in demand that’s going to take a
while for the U.S. economy to think. Yeah, it’s amazing how quickly right now I want to go. We’re writing about it. We
should be doing more in the city. Cities should just be more dense. We should encourage density. That’s the
new cities may have won this from completely lucky way. They might have won.
This is worried about gentrification. Well, your worries are over. I don’t want to. I’m not going to check
you on linguistics. Not we should we should allow that. We should have allowed people to build
in size. That’s right. That’s right. All right. John,
this is great. Thank you so much. And thank you for all the work you do on the ground, the economists. I make my
students read a lot of things from there. It’s incredibly informational for all of us. Thanks. It’s great to talk to
you. And I hope all of this doesn’t look completely dumb by the fall. No, hopefully not. All right.
Bye bye. Thanks for listening to Policy McCombs.