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. <\/p>\n\n\n\n
Before joining Hoover, Cochrane was a Professor of Finance at the University of Chicago\u2019s Booth School of Business, and earlier at its Economics Department. Cochrane earned a bachelor\u2019s 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\u201383).<\/p>\n\n\n\n
Cochrane\u2019s recent publications include the book Asset Pricing<\/em> 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\u2019t 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. <\/em>His Asset Pricing PhD class is available online via Coursera. <\/p>\n\n\n\n Cochrane frequently contributes editorial opinion essays to the Wall Street Journal,<\/em> Bloomberg.com, and other publications. He maintains the Grumpy Economist<\/em> blog.<\/p>\n","protected":false},"excerpt":{"rendered":"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. ","protected":false},"author":13,"featured_media":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_acf_changed":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","episode_type":"audio","audio_file":"http:\/\/podcasts.la.utexas.edu\/cepa\/wp-content\/uploads\/sites\/21\/2020\/06\/Policy-at-McCombs-Summer-2020-John-Cochrane.mp3","podmotor_file_id":"","podmotor_episode_id":"","cover_image":"","cover_image_id":"","duration":"","filesize":"64.69M","filesize_raw":"67827584","date_recorded":"25-06-2020","explicit":"","block":"","itunes_episode_number":"","itunes_title":"","itunes_season_number":"","itunes_episode_type":""},"tags":[30,79,92],"categories":[],"series":[2],"class_list":{"0":"post-542","1":"podcast","2":"type-podcast","3":"status-publish","5":"tag-economics","6":"tag-finance","7":"tag-stock-market","8":"series-policymccombs","9":"entry"},"acf":{"related_episodes":"","hosts":[{"ID":693,"post_author":"38","post_date":"2020-10-29 17:58:44","post_date_gmt":"2020-10-29 17:58:44","post_content":"\n Carlos M. Carvalho is an associate professor of statistics at McCombs. Dr. Carvalho received his Ph.D. in Statistics from Duke University in 2006. His research focuses on Bayesian statistics in complex, high-dimensional problems with applications ranging from finance to genetics. Some of his current projects include work on large-scale factor models, graphical models, Bayesian model selection, particle filtering and stochastic volatility models.<\/p>\n\n\n\n Before moving to Texas Dr. Carvalho was part of the faculty at The University of Chicago Booth School of Business and, in 2009, he was awarded The Donald D. Harrington Fellowship by The University of Texas, Austin.<\/p>\n\n\n\n Dr. Carvalho is from Rio de Janeiro, Brazil and before coming to the U.S. he received his Bachelor's degree in Economics from IBMEC Business School (Rio de Janeiro) followed by a Masters's degree in Statistics from the Federal University of Rio de Janeiro (UFRJ).<\/p>\n","post_title":"Carlos Carvalho","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"carlos-carvalho","to_ping":"","pinged":"","post_modified":"2020-10-29 17:59:59","post_modified_gmt":"2020-10-29 17:59:59","post_content_filtered":"","post_parent":0,"guid":"http:\/\/podcasts.la.utexas.edu\/cepa\/?post_type=speaker&p=693","menu_order":0,"post_type":"speaker","post_mime_type":"","comment_count":"0","filter":"raw"}],"guests":[{"ID":620,"post_author":"42","post_date":"2020-07-03 20:20:02","post_date_gmt":"2020-07-03 20:20:02","post_content":"\n 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. <\/p>\n\n\n\n Before joining Hoover, Cochrane was a Professor of Finance at the University of Chicago\u2019s Booth School of Business, and earlier at its Economics Department. Cochrane earned a bachelor\u2019s 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\u201383).<\/p>\n\n\n\n Cochrane\u2019s recent publications include the book Asset Pricing<\/em> 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\u2019t 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. <\/em>His Asset Pricing PhD class is available online via Coursera. <\/p>\n\n\n\n Cochrane frequently contributes editorial opinion essays to the Wall Street Journal,<\/em> Bloomberg.com, and other publications. He maintains the Grumpy Economist<\/em> blog.<\/p>\n","post_title":"John Cochrane","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"john-cochrane","to_ping":"","pinged":"","post_modified":"2020-07-03 20:20:03","post_modified_gmt":"2020-07-03 20:20:03","post_content_filtered":"","post_parent":0,"guid":"http:\/\/podcasts.la.utexas.edu\/cepa\/?post_type=speaker&p=620","menu_order":0,"post_type":"speaker","post_mime_type":"","comment_count":"0","filter":"raw"}],"transcript":" Welcome to Policy McCombs. A data focused conversation on tradeoffs.
\n\ue5d4
\nI’m Carlos Kavala from the Saban Center for Policy at the University of Texas at Austin.
\nIt’s a pleasure to have with us today Professor John Cochrane from the Hoover Institution, where he is a senior fellow.
\nAnd let’s continue our conversations on Koven 19 pandemic. So, John,
\nyou’ve been talking about pandemics for a while. I remember seeing some posts you had a year ago
\non how that would be a much bigger shock than some of the things that governments like to talk about.
\nSo how long have you been thinking about that? And it was that just an example of something that governments were
\nnot prepared for? Or did you really think of that seriously before? And why is
\nthat? Why is that something as consequential as this that we’re living through right now? It seems that every single
\nWestern economy was not at all prepared to deal with a Western government.
\nThat’s a deep question. So like all interviewers,
\nlike all of your interviewers, I think there’s a bias toward. See, I told you all along.
\nThat opportunity lies. Yeah. There’s a lot of chance for retrospective
\nbias here, certainly. And I have to say so I’m not a researcher
\nin this area. I value real scientific, peer reviewed researcher. I’m a blogger.
\nI’m the Grumpy Economist blog and op ed writer appointed the public intellectual. Maybe,
\nbut that’s been my role in thinking about these things with that disclaimer. Yeah,
\nit really is part of the climate. There
\nis a genuine climate science and then there’s a climate hysteria. And in thinking about that,
\nI you know, there were people saying, what’s the greatest danger facing Western civilization?
\nAnd as I started putting together my lists 10 years ago, one of the greatest dangers
\nfacing Western civilization, it struck me that pandemics ought to be really high
\non that list, especially, you know, historically, every
\nwave of globalization has led to a pandemic from the sixth century in the Roman
\nEmpire to the plagues of the thirteen hundreds in Europe, which followed the opening to
\nthe east. Of course, the I think the worst pandemic in terms of fraction
\nof the population killed has to have been the the Colombian what
\nhe’s supposed to call it these days, not the discovery of America, that’s for sure. In exchange
\nfor that book, fourteen ninety one really struck me about the
\nU.S. economy. In exchange we gave him smallpox and they gave us corn. We gave him smallpox,
\ncivil unrest, regular war, crop failure.
\nThere’s a whole lot of things that struck me as dangerous to Western civilization
\nand because they come unexpectedly unprepared. Lee, in a way, that climate
\ncomes very slowly. Any healthy society ought to be able to figure out climate takes
\nis we’re still on background in a way. I think we’re extraordinarily lucky.
\nSocieties are never prepared for tail events. We got this
\nvirus is perfectly designed to get our attention without killing
\nan enormous fraction of the population. There is nothing in the biology that
\nsays a virus like this can’t kill 10, 20, 30. The bubonic plague, 50 percent
\nof the population. We got just enough to scare us and wake us up. I
\ndearly hope. Yes, as you said, everyone was completely unprepared. So that turns out to be false,
\nas I’ve now done a little more research on it. You know, our leaders were smart,
\nbut George Bush read a novel about pandemics. And there’s a beautiful pandemic
\nresponse plan with PowerPoints and pretty pictures and all the rest of it turns out. And
\nthis is stuff, if your read are curious. Somewhere on my blog, there’s like twelve
\ntwenty beautiful pandemic response plans from Health and Human Services and the Department of Defense
\nworries about bioterrorism, that that’s one where bioterrorism, a designed virus.
\nImagine how how open we are to that. And the one interesting
\nfact of all of these is none of them cites the others, which tells you about how much effect
\nthey’ve had. So what you need in this case is public health,
\nwhich is a local detailed thing. And the same way schools have fire drills.
\nThey don’t have a manual down in central administration what to do in case of fire. They have
\nfire drills where the. I have to go out and practice, you know, getting ready
\nto stop a pandemic by public health means testing, tracing
\nand that’s it. Then you need a bureaucracy ready to go. And that’s
\nthat low level, well-trained bureaucracy connecting the grand plans to our readiness
\non the ground is what we obviously didn’t have anywhere in the Western world. So don’t start on a U.S.
\nfacility and all the rest of us, you know, pretty much every Western country resorted to.
\nHere’s what I’m worried about. Mental stuff, economic lockdown should be.
\nIt’s a panic, but it’s that this is totally out of control. There’s there should be a public health response
\nwhere you find sick people and stop it from spreading. Not everybody has to stay home and
\nwe created the economy. OK, all right. So then let’s let’s talk about this specific
\none and go back to early February, maybe late February or early March,
\nwhere New Start coming out. We start getting worried about this because some people worry about this before.
\nBut honestly, I have to confess that I wasn’t. I was thinking, how is one another while another one of those Saras things
\nthat happened a few years back. Mostly it’s going to be contained in Asia and then we start seeing
\nItaly happening. And and clearly by early March, I think everybody was really aware
\nof all the dangerous coming our way. So how are your personal problems then? What kind of
\ndata or information you’re looking at or models are looking at to sort of inform your thinking
\nin preparing to evaluate the types of ideas I’m putting forward. So I’m going to come
\ncomment a little more generally first. You’re exactly right. And it is a
\nit’s a feature, a common feature historically in some blog posts here that
\ncover this thing. The way public authorities respond to pandemics has
\nnever through history. And the first response is, well, we don’t want to scare people
\nbecause most of the time there’s a lot of false positives. Most of the time it’s like
\nSA as it comes and goes. If you shut down the economy, they say, you’ve got to be kidding. What a joke that was.
\nSo are certain our public officials you know, there’s a lot of 20\/20 hindsight among public
\nofficials. Oh, you should have closed it down three days earlier and so on, so forth. But that is just
\na feature of the way things work, which is why I think you need a well oiled, low level
\nbureaucracy that handles this stuff automatically rather than relying on presidential
\ndecisions. I just read the news. And in February,
\nthe the news was fairly apocalyptic,
\nbut I sort of have an open mind, too. The news was apocalyptic.
\nBut we economists, we know one thing. We have a lot of experience with complicated computer
\nmodels. And that is one thing that makes me
\nI don’t want to say skeptic, because that’s a loaded word, a judicious evaluator of climate
\nprojections. In economics, there was the Club of Rome that forecast in nineteen
\nseventy two. We would run out of resources. The planet would fizzle. By the 1980s,
\nKeynesian macro economic forecasting and policy evaluation models fell to absolute pieces
\nin about 1978 and have not come back.
\nSo we know some about forecasting model being big black box forecasting models.
\nSo like yes, said the models at the time, the infamous model from
\nthe United Kingdom that was forecasting aren’t the stuff that look pretty terrible.
\nit as as well as anybody paying attention at the time.
\nSo that was about projecting something like 2.2 million deaths in the US. About five thousand. That’s in the
\nUK. That was. Yeah. With a sort of a perhaps that’s unfair
\nto look at those numbers only in the context of that report and assess that that might be the worst case scenario.
\nBut then we start planning based on worst case at that point in time. So a lot right. You want to place. But
\nbut so I like you boy. I saw that. Wow. Did I really believe it? You know, the logic was
\nyou multiply 2 percent death rates by sweeps of the population and it’s
\nknow it’s hard to argue with that turns out to have been largely wrong. Which is an interesting
\nthing we’ll get to. But like you, I. So I look back at myself, you know, I actually took
\na trip to London in early March. I look back saying, what was I thinking?
\nCan guarantee gauranteed somewhere. So I said, we do we do all this.
\nThere’s two kinds of human psychology. One, that the jump you know, the Chicken Little
\nworld is always the sky’s always falling. Another kind of slow to respond to danger. I’m
\nin the slow to respond type as well. But. OK. So we’re looking at the dire predictions
\nat that point. And and I think California was one where you live, was one of the early states
\nto say we have a shelter in place order where everything has to be shut down before any other
\nmeasure was was tried in some capacity. Right. That was the first reaction of offshore governor.
\nAnd we are still under that order two and a half months later, if not, if not more.
\nUnless you want to go pick up some free stuff down at the local stores. But yes. Right. And destroy.
\nSo. 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.
\nI don’t know. Let’s say the proportion of those debts in California as one outcome. On the other
\nhand, the shelter-in-place order has its impact.
\nSo I I would have never should have prepared for this by looking back at the dates of
\nmy various blog posts and op ed. I do want to congratulate myself. I think I was about two weeks
\nahead of consensus opinion on a couple of these occasions
\nas the shutdowns were coming. I was kind of as an economist as pulling my hair out. It seemed such
\na sledgehammer blanket problem. I think I was advocating shutdown
\nsmart. Just take a little bit of thought about the what kind of activities
\nare dangerous and what kind of activities are not dangerous. And rather than businesses
\nbad, shut down all business, try to come up with
\nat least. Yeah. Well, except they had the the essential business versus the non-essential business
\nessential in California. Looked at the list included construction of affordable
\nquote, affordable housing. You know, non-essential included
\ngolf courses where you’re completely unlikely to get it. So at least as I was,
\nI was praying for some sort of smart policy. The trouble is what this
\nreveals is just these damaging lack of bureaucratic capacity that we have in the US
\nto make any sort of judgment about how much danger to virus versus how much GDP
\nor how many jobs are. Ah, that’s that’s what you want. You want to get the reproduction
\nrate under one at a minimal cost, the GDP. That means you got to think about what you shut down or what you don’t
\nshut down and just think about some. Only now is their base. Vaguely some recommendations.
\nOK. You can reopen, but stay six feet away from each other and so forth. This took two
\nmonths to put together. So I do think I was at the time in the
\nshutdown smart and not just business. You
\nknow, birthday parties are the problem. So let’s let’s have some recommendations.
\nPlus, boy, it would be nice to use some sort of data. You know, places like I
\ngo out to some of the wilds of the Central Valley for various hoppa activities. And there is
\nno corona virus. They’re just some some basic. How bad
\nis it where you are? What are the dangers? What kind of businesses can operate, what kind of businesses can’t operate
\nwould have been. Boy, we could have done this with a lot of love, even knowing what we know it knew at the time.
\nI think we could have done this with much less hit to GDP. It is surprising to me that
\nthat 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
\nactually early in that during this time and I was working helping some folks here and in Texas.
\nAnd we put together very quickly a measure of risk that’s based on some Labor. Labor
\nDepartment surveys on on how often do you get close to somebody who was in a car with five people
\nor more of different activities? It could break down very quickly. OK, activities versus employment
\nversus GDP contribution, just stare at picture as a simple. Now, the finance professor, it looks
\njust like an efficient frontier type discussion. Right. And and it is obvious
\nand it’s simple. But it went nowhere. It went nowhere. And the things that were put forward were just that.
\nThis notion of shut everything down. Don’t worry about any costs. And let’s wait.
\nSo I was very concerned at that point in time and still am in the sense that I think that that tool
\nare still going to be considered for a potential second, second way in the U.S.
\nWe do seem to well, once we’ve done seeing something once, then our need to justify ourselves
\nmeans that that’s what we do. Forever and ever. So I worry that the lesson
\nthat I hope we would learn out of this, we need a robust, detailed, data driven public health
\nteam ready to go and keep it going. You know, California had mobile hospitals
\nthat have put together at great cost after the SARS epidemic. And our governor, Jerry Brown, cut them in
\norder to save $5 billion a year on the budget in favor of his $80 billion
\nhigh speed train. So you got to not just get it, you’ve got to keep it going during the years when nothing’s
\nhappening, but that instead of that, we will learn the lesson, OK, we’re ready to go. Economic
\nshut shutdowns. You know, here we go again. Same way financially,
\nwe’re replaying 2008 as if that was the perfect response. So what are we thinking about that
\nthe costs associated should now? There’s the obvious things about, OK. Production is halted.
\nThat means I don’t know. I think at some point the estimates are it depends on where we look at. But one trillion
\ndollars a month seems to be a reasonable number of economy. stoppie. I think
\nCasey Mulligan has put the number at seven trillion dollars over a span of a year. What you’re
\nlooking at this week, I think the number of coming out of 50 percent contraction in the second
\nquarter is a possibility. I think hassid was was was putting those numbers out of my house yesterday.
\nBut those are all that’d be a short term thing of like a long extended vacation. And
\nwe all stopped for two weeks a month. And that’s fine. We’re back. And, you know, sure, we
\nforego production and the money that’s generated that month or so. But then then it’s back up.
\nIt’s just not quite like that, right? Yeah. And here again in. I’m glad you’re forcing me
\nto come to terms with my own forecast, but I think I did fairly well on this one. My first op ed on the subject
\nvery early on, I was thinking about the economic costs. And so
\nas this started, you know, the first economic impulse is to
\nsay this is a supply shock. We’re shutting down businesses, but we shut down businesses every year from Christmas
\nto New Years and come right back. January 2nd actually looks to me like we shut down businesses about Halloween
\nto New Year’s in the US now. So that argues for
\nthe V-shaped recovery. Why isn’t that going to happen? Well, first of all, we weren’t prepared
\nfor it. Everyone keeps enough savings around to get, you know, get through there. And businesses
\nknow that they’re not going to be people coming in during vacations. But the big problem is this goes
\non for months. It’s unexpected. And Americans are once again up to their necks,
\nup to the gills in debt. You it’s not all Americans,
\nbut many are restaurants. You know, they can’t laugh. They can’t keep paying their bills
\nfor months on end with nothing coming in. And all business is that way.
\nOnce again, most businesses going into this highly leveraged.
\nAnd that means that a long shutdown along total shutdown of this magnitude, even in the Great Recession,
\nwe 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.
\nSo that that could lead to a wave of bankruptcies, not bankruptcies in the end of the world,
\nespecially if you’re a big corporation like an airline. But it it it leads to liquidation more
\noften than not for small businesses. And, you know, people’s homes could get foreclosed and
\nsees that the danger is that a pandemic turns into a financial crisis
\nand then the businesses just aren’t there to reopen. When you get gold going again. So that, I think
\nwas the central economic problem to worry about, isn’t it? Not a month
\nor two of terrible output. And is is that’s to be expected. You shut everything down.
\nThe question is, are people are people who are reporting unemployed? Are they really unemployed
\nor are they just waiting for their companies to call them back? Well, the company is still there. The company can call them back.
\nIt’s companies not there anymore. That’s going to be harder. And the longer this goes on, I
\nthink the longer those adjustments are going to have. It just takes much longer to find a new job
\nthan it does to go back to your old job. So those are the end
\nyou’re asking retrospectively? I think that that was my first op ed, that this is the danger in trying to think hard
\nabout how do we do that, how do we get through that problem? And
\noutside of economics, what are you thinking about? Any other costs that we’re not be open discuss
\nabout that shut shutdown privately? Sure. But I try to keep my public
\ncomments to economics. There’s a lot there’s a lot of discussion now about,
\nyou know, you’re saving one kind of health at the expense of all sorts of other kinds of health.
\nI have stayed away from that because I don’t think it’s that salient. And I’m not
\nI’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
\nstrike me as like one of the things that we tried to do is to flatten the curve so we don’t overwhelm the hospitals.
\nSo what we do instead is shut down the hospitals for two months. The logic of that is just false.
\nIt’s not going quite like that. I get it. But this is really interesting thing that happened. So we
\nlook, we learned that the demand curve for medicine does slow, slow, slow down after all.
\nTurns out everyone thought hospitals would be would be overwhelmed, in fact, and that hospitals
\nweren’t overwhelmed even with covered patients, except in New York. And everybody stayed home from all their minor
\nstuff. And so hospitals are in that area about as bad financial shape as restaurants in particular.
\nWe have this system, as you know, we have talked about otherwise. Ah, ah, monstrously
\ndysfunctional health system. Lies on cross-subsidies from paying customers for elective surgeries in
\norder to pay for emergency room treatment. So all of the paying customers who use on
\ntheir footing the bill for everything have disappeared for a while. All right. I am disappointed
\na little bit on on the economics profession during that time. I think that there’s been there’s been a lot of great work.
\nThe economist jumped into the Reto and think about Assa that the infectious
\nmodels, given that their knowledge, as you point out before, they have knowledge of those blackbox by
\nthis computer models based on all these and so on. So so it’s not that different from the tool set. And
\nit’s. There’s a lot of great work being done there. But what I thought was lacking in the discussion early on
\nfrom economists, they on us, for example, is to talk about the impact of shutting down our schools
\nfor two months, the long run impacts of that. And it just very little consideration
\nof that, given maybe, you know, in that very first instinct of a two week break
\nto figure out what to do and so on. But once we realized that no, no schools open since March
\nacross the entire country. The other thing I think I’ll fault our economists friends on, we still
\nlive in this advice for the benevolent planner
\nmode. And we also assume that benevolent planner is has a detailed bureaucratic
\ncapacity to implement things. We don’t study regulation anywhere
\nnear enough. I think in part because it’s just there’s a lot of anecdote, but not
\na lot of data easily available. But the story of this has really been the story
\nof catastrophic failures of the low level regulatory agencies,
\nthe the FDA refusing to certify plants where people want to. You know,
\nwe think the greatest economy on Earth cannot, in a matter of months produce 50 cent
\nplastic facemasks. Are you kidding me? Well, the FDA won’t certify your plan. That has
\nto. You can’t use a paint face mask. It has to be certified in the ones that are China’s
\nselling. The European Union are only certified for European Union certified U.S.
\nThe CDC bungling on the testing was just remarkable.
\nAnd as we talked about the inability of our governments to do anything other than just everybody stay at home
\nexcept for whatever we deem essential. And even then, the essential workers, you know, would they ambulance
\ndrivers weren’t wearing facemasks for the longest time. You know, at least a minimum of thinking about
\nit. Now to the to your point. Some economists have been great. You
\nsit around the lunchroom and we’re full of these great clever ideas. Oh, well, we should just
\nseparate the vulnerable people and let it spread, man, and all this stuff. But
\njust the bluntness of the regulatory tools compared to the cleverness of our models
\nis something that I think we need to pay more attention to. Let’s fast forward to now
\ngiven what we learn now. So in early March, maybe there was scary news that we were thinking of this being
\ndifferent and what we know right now. However, updated your your understanding of
\nthe severity of this of are there any particular models or information that currently
\ngives you a better understanding or where you are right now? And this is, by the way, just fought for the video.
\nThis is June 3rd here. Now we’re talking. Yeah. So here’s really danger
\nwhere we get dangerous because I’ll offer forecasts that will undoubtedly be wrong before your forecast
\nthis. Given what we know, what has updated our view on this? So
\nmy own thinking and my reading, I think I’ve learned a couple of things. We’ve all learned the death rate is
\nmuch lower among young, healthy people than we thought. Vast majority
\nof the deaths are among old people, you know, like half. Right. Nursing homes. We
\nhave learned that the essay, our models were fundamentally wrong. So the basic
\nmodel and this is easy to understand. A virus spreads exponentially. I give it
\nto two people. He gives it to two people, they give it to people and so forth until it runs into some force
\nthat slows it down. The basic model said the only force that slows it down is the people you’re
\nrunning into have already gotten it and they’re new. That’s the herd immunity idea.
\nWell, turns out the force that slows down the reproduction of virus is people aren’t total morons and
\neven their governments are total morons. They change their behavior so they don’t give it to as many people.
\nSo I and many economies started exploring what we call behavioral ESSI models, where
\nthe limiting factor is not that you run into people who’ve already had it. You’re still in a
\nsituation where most people haven’t had it. But the limiting factor is changes in behavior, economically
\ncostly changes in behavior that limit the spread of the disease. My little model on that was
\nvery interesting to me. It always settles out at a reproduction rate of
\nthe reproduction rates. The key parameter here. If if the reproduction rates less than 1,
\nit goes away. The reproduction is greater than one. It gets bigger. And so the goal of all
\nthe number one goal is. Reproduction rate below 1. But if people are if people
\npay more attention to it, when there’s more of it around and less attention when there’s less of it around,
\nthen the reproduction rate just settles to one kind of always. So that was an interesting
\nlittle behavioral SARS model that led me to think that what’s going to happen is
\nnot a massive second wave where everything they were forecasting February comes back in
\nthe fall, but instead this just trundles along
\nwith a reproduction rate around, you know, weigl’s embers, embers, com embers get put out. People
\npay more and less attention. And then
\nas it as we learn more about the disease and people are able to take more care
\nand less economic cost, then the total number of infections slowly dies away.
\nSo I’ll I’ll put that on. That’s my forecast. There’s good news. The good news is I don’t
\nthink we’re primed for a huge second wave that does kill the millions of people that they were forecasting.
\nThink they keep saying, well, if it’s coming. The bad news is that until there is
\nsome really good testing, tracing and the bureaucratic
\ncapacity to do something, what the testing and trace that the main thing missing we have the tests.
\nWe just our our bureaucracies don’t know what to do with test results.
\nAnd they’re now thinking all we need to hire some contact tracers. Don’t wait. Well, that would have been a nice idea six
\nmonths ago. So anyway, that that thought leads me to think that we’re
\ngonna be living with this at low level for quite some time. The second thing
\nI’ve learned is the importance of super spreaders, heterogeneity,
\neconomists. This is behavior and heterogeneity. Boy, what are the two biggest
\nthings that economists think about as we point out? One thing I think when you say a behavior model, I think some people
\nwould think about is a rational model. Right. It’s irrational. All that takes into account behavior is not a
\nbehavior as as some behavior. Economic models are just. Man, I’m really sad that
\nthe behavior has got to us. I don’t look perfectly good term. We are all behavioral
\neconomists. We study human behavior. We write down models of human behavior.
\nAnd then we see if those models work. That’s what I meant by behavior as opposed to mechanical
\ndiseases do not spread in humans the way they spread in rats because humans understand there’s a disease
\nout there. Thank you for that. Terminological correction.
\nThe second most really boring thing is the importance of super spreaders. And you’ve heard the stories, you know, cruise
\nships, nursing homes, meatpacking plants, birthday
\nparties, weddings, a choir practice. This thing is is spread
\nmost in play in situations where a fairly
\nlarge number of people is indoors together for quite some time and they’re
\ntalking or singing. And therefore, it’s not just droplets that go from one person to another,
\nbut little aerosols that spread through a room. Now, why does that matter? All tales
\nare fat tales. And if our goal is to get the aggregate reproduction
\nrate below 1, it does not help much to take an economist whose reproduction
\nprofit possibilities like Point 5 and make his point for. What matters
\nis getting all that these super spreader events where one person gives it 270.
\nIf you can just stop that. You get the aggregate reproduction rate below 1 and then the best part
\nabout it. Most of those things don’t contribute a lot of GDP. Meat packing plants
\nare our kind of debt. That’s a hard one. But a birthday parties, choir practices, stuff like
\nthat. That is the central activity. So the good news on
\nthat is that I think there is a way for this to the behavioral response
\ncan be both government and individual. Just avoid these super
\nspreading nuclear. And that doesn’t mean it’s okay. Is it given to public and private health?
\nYou can still get it by, you know, contact with one person. But from a public health
\npoint of view, all you gotta do is stop the stupor spreading activities and the thing will go away.
\nSo those two I’ll now put my forcast chips on it. I think this will trundle along
\nwith us for a long time without a huge second wave. And I think
\nthat part of the reason is we’re not that dumb. We’re not going to put covered patients
\nback into nursing homes again. No one’s gonna be that dumb to do that again.
\nWe’re going to take precautions that meat, meatpacking plants hope.
\nNow, here, my faith in human rationality is a little bit unsettled.
\nI wrote an op ed just before Memorial Day saying people aren’t dumb. They’re not going to go congregated.
\nPlaces where you can have a super spreading activity and then Memorial Day weekend came along and there were the pictures
\nof all the crowds on the beach and read stories from. From the places that have led up,
\nyou know. Korea, South Korea, which was admirable in its public health response, then let up and
\npeople went to nightclubs, nightclubs. Are you out of your mind?
\nThere’s a New York Times. We’ll talk about it. A very good, super spreading article. New York Times couple
\ndays ago and reported on cases from Hong Kong. Hong Kong did a good public health job
\nand then kind of reopen. And one guy gave it to seventy three people because he went to carry
\nYoki bars. Karaoke bars.
\nYeah. I’ve been defending human rationality all these years. And now, well, my preferences, that’s
\ntotally irrational right now. But anyway, from a from a
\nChernus Society point of view, I have hope that we don’t have to. Every
\nsingle one of us. Monitor every deala detail of our behavior and make sure that every
\njogger wears a face mask if we can just stop the super spreading activity. So those are the
\ntwo central things I’ve learned. It seems that that not only the behavior
\nmodel that you’re talking about, but this idea of avoiding heavy deals seems to have started even before
\nall the places were in lockdown. That’s again, it gives me hope when the rationality of people you suddenly
\nsee this. This is a crashing mobility data in all sorts of things.
\nEven prior to governments implementing forced lockdown. Oh, by the way, let’s be clear.
\nThe forced lockdown that we have any w very different, for example, was Europe. We don’t have police yelling
\nat us to go back to our house, thankfully. And I got better at a golf course.
\nBut know walking away, two and a half year old son. But beyond that, we didn’t have we didn’t
\nhave the draconian real measures. And yet, the degree of that, it looks like the
\nthe reproductive rate of the virus was sort of quickly go into something around one
\nfrom the beginning of of of the data showing something around two and a half or so. Right. Airlines,
\nrestaurants, mobility data that that’s Tom Phillips in at the CIA has been doing a great
\njob of assembling. He’s got a bunch of tweets showing private behavior. Figure
\nthis out very quickly. Now, that’s whereas we start to think about the recovery.
\nWhen do you go into a restaurant? Again, a nice, you know, a great day in New York City
\ninto a restaurant with a loud everybody yelling or even taking an airline flight.
\nYou know, when are you going to feel comfortable taking an airline? But there’s there’s there’s some sense people can
\nalso be too cautious. And as long as the virus is sputtering along.
\nThis is another sort of incident. Thinking about the last month or so,
\nhow much of a recovery we’re gonna get will those sectors. I just cannot see them coming back
\nas long as this virus is is out there and trying to win
\nnow. Do you have any insight on on why it is that we
\ntook this very fairly radical option as a measure to attack
\nthis problem of locking people down across the entire Western world, putting our
\neconomies emboss for two months or more, given that that it seems that that’s
\nlike the sort of benefit of the doubt. I’m not doing that. Should be very high.
\nAnd yet it became very widely spread like wildfire as the thing
\nto do, if not for one single country that still are doing
\nthe reasonable thing and showed us that individual behavior and commitment at tales can avoid
\na exponential growth of the disease. Let me get back to a study. Is proof proof
\nthat OK, if you ask me whether I think it’s possible to not have the
\nexponential growth they are in your say you’ve seen what, Zach, what’s happening there? They’re just keeping this is going to be
\nthe slow burn for a while. Right. People do say Sweden. Sweden does have a higher death rate
\nthan than other countries. But they achieved that. They made kind of a cost benefit
\ntradeoff about that. Right. That’s right. Van is very much
\ninvolved, associated with that with the nursing home. I think 70 percent at best in Stockholm
\nor nursing home related to getting a good job protecting those folks. That’s the reality. This is a more
\na political question than an economic question. Well, certainly there’s a lots
\nbetter economic policies we can think of for doing this. And I’ll just give a light,
\nlight hearted. You know, you a no political leader has
\nit’s very hard to do too much in a crisis. So the political calculation.
\nWhy 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
\nfor Sarge. Once the public is convinced that this is a big problem,
\nthen it’s there’s very little political cost to doing too much to solve
\na big problem. And that’s, I think, why they clamp down with the big sledgehammers.
\nAnd now it’s going to be, as you said. Right. A lot of justifying that. That was a good idea, that policy
\nchoice is not a bad one. And you’re right to see that happening. A lot of people claiming causal
\neffects on, on, on well, they’re supposed to go two and a half million people. We kill 100000 people.
\nSo lockdowns save 2.1, you know. So it’s that kind of they’re going to
\nsay she’s already started. Nobody lost her last day election. Right. Well,
\nif you’d let another 20000 thousand old folks in nursing homes die, you know, maybe we could have gotten along
\nwith that 15 percent unemployment that at 20 percent unemployment. That doesn’t it doesn’t win the
\nelection. It is a question. That’s a good question. Do you have a sense of
\nwhether we’re going to be able to try to estimate what would have been what’s the counterfactual here? What?
\nWhat if we had done Sweden well before? You think that.
\nBecause obviously there’ll be a change. There’ll be a shocking demand. By by what you’re saying, people behavior
\nwould change. People not flying. I go out and cruise ships, et cetera, et cetera. That has an impact on the economy.
\nDo you have a sense that would you would you would you dare putting a number on on on that counterfactual?
\nI I think that’s. Let’s say you’re talking to students. Here’s a good thesis
\ntopic at the part about it is it’s a you need to do some
\npretty detailed micro modeling to figure that out. So like we
\nhave a dog. They shut down the dog hair. Kromer. Why exactly? A dog
\ngroomer is a, you know, shutting down. So there’s an example. If they had
\nsaid all businesses are shut down except essential businesses and dog grooming businesses,
\nwe can figure out how much more with the virus have spread 0 and how much
\nGDP would you get out of dog grooming businesses? I think you’d have to make
\nthat calculation along with.
\nCould could we even the businesses that remained open. I was shocked at how many, you know, like the Amazon
\nworkers had to go on strike to get sort of basic stuff imposed that Amazon.
\nSo the private sector did a pretty darn good job. But there was it was interesting how much was
\ngoing on. And just then the idea is, well, we’re essential. So it’s business as usual. So
\nobviously, this could have been done at much, much less economic cost. How much?
\nGood question. Yes. That that that that’s definitely I mean, I hope that at least gives an opportunity
\nto study. This is the difference in time between different states. It wasn’t things,
\nbut it got me the big lost opportunity. We shouldn’t be talking about economic
\nshutdowns at all. Big lost opportunity is in January a competent
\npublic health response. You know, use the German test. All right.
\nDude, shut down flights from Europe, flights from China. Even if you don’t have to shut
\ndown the flying. The Chinese were bless their hearts. They. They were at least using
\ntemperature they had. Did you go into an airport and there’s a video machine that that takes everyone’s
\ntemperature. The TSA just started talking last week about maybe we should get some of those,
\nyou know, so hitting this early and hard with standard
\npublic health measures is the lost opportunity that we should be promoting. You see the hope
\nof us actually tooling up on that and doing we. But again, go back to your point, the beginning
\nof it for worry about this, things like climate change. That is 100 years from now, potential problem
\nto have a lot of time to adjust. And by doing so, we don’t worry about investing the things that might hurt
\nus today. We’re not ready when those things happen. So right now, we have happens opportunity.
\nBut this virus, as you said, was not bad enough to really wipe
\nhalf of the population out. But one of those good could come. Do you have hopes that we’re going to
\ncreate that infrastructure? And because, again, there’s the state capacity problem we have. We
\ndo too many things and perhaps not too many things that we need to do and not do them very well.
\nNow, we have to try to remain hopeful and not too cynical about the project of
\nAmerican democracy. I mean, I will echo the Paul Romer
\nhas got it exactly right. What? We’re spending seven trillion dollars on sending checks to voters
\nand we can barely, you know, and then we’re fighting about who’s going to pay for masks and who’s going
\nto pay for testing. You know, $100 billion dollars on test. Everybody in the damn country
\nwould would that would stop it instantly. But, you know,
\nwe were barely where we’re barely even touching that sort of thing. So,
\nyou know, a country who can’t do that can do we have still the
\ncapacity as a government to undertake long
\nterm reforms? I don’t know. So we we sort of didn’t respond to terrorism
\nthere there, at least whether it was successful or not. A useful or not, there was a
\na deep, low level bureaucratic. You know, we discovered after 9\/11 that
\nthe cops don’t know the phone number of the firemen who don’t know the phone number of the FBI yet call the FAA.
\nSo let’s give everybody the contact list and make sure they know what the phone numbers are.
\nSo we did we did in that instance have the capacity to put together a
\ndetailed bureaucratic response. Can we do that again? I hope so. If not,
\nthe next one will come and it’ll it’ll be worse. So final question, when you’re thinking about the long
\nterm consequences growth associated. This really thought about that a bit and assuming
\nthat there’s going to be with us for a while until a vaccine is available, how would you evaluate that?
\nOur ability as the ability of the private sector in the U.S. in particular? Because I
\nI 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
\nthan therapy and one, for example. And I think that’s going to give us it gives me hope that we’ll be able
\nto adjust were to adjust a little faster, be able to relocate resources in the ways. Would you agree with that? Do
\nyou have a general so you could even think more specifically in this country,
\ninside of the country, do you think there’ll be a different type of recovery in different parts of the country?
\nYes. So, boy, this is going to be shown not tomorrow, isn’t it? So
\nmaking forecasts. So I want to say at the outset, the economic future
\nis is very uncertain. And that’s a deep point. I think
\nall of our public policy should be based much more on recognizing the uncertainties of
\neconomic forecasts rather than here’s the conditional mean. And now we’re going to act as if that certainty.
\nAnd I do think that, you know, like the Milot military, some scenario planning, bracing for the worst
\nis as important as making the forecasts. And, you know, there’s good and bad scenarios out here.
\nA lot of it depends on the disease if the disease fizzles away quickly. If we do get testing, testing
\nis just one of the it’s just a way of reducing the economic cost of getting your reproduction rate below
\none. So if we either by testing other means find ways to reduce the economic cost of
\ngetting the reproduction rate below one and it goes away by the end of fall. I think there’s a chance
\nto go back to sort of normal fairly quickly, if not, you know, the
\nother the downside is that it trundles along the economy, stays depressed, then the financial
\ncrisis part of it does hit and then we’re into a recession for a long time. The other dangers, of
\ncourse, is just how much damage is the government going to do in its efforts here?
\nYou know, as much as I feel for people who lost their jobs, if you pay people more to stand
\nemployed than to go back to their jobs, they don’t go back to the jobs. They don’t find new jobs.
\nAnd there is a big shift in demand going on. So the flexibility you mentioned, we
\ndo need to move. People need to move to different kinds of jobs in different kinds of activities.
\nSo the US-UK, I guess, say, yes, as you look at the U.S., you kind of despair of our lack of flexibility
\nand to look at all the rest of the world that these things could be a lot worse. Will those
\nshifts happen? I think there will be some shifts. So first,
\nas long as the costs of dealing with the virus are high, we have a supply shock and we’re going to be trundling along.
\nThe good part of that is a lot of the need is for low skilled workers. So if there is a decently
\nfunctioning labor market for low skill workers, they audit. There’s a lot of jobs in wiping
\nthings down and checking who’s got the masks on and contact tracing and so forth.
\nNow we have a singular ability to screw up labor markets. But but that’s not good GDP, all
\nthat stuff. You know, those are low skilled jobs. And if restaurants have to serve every two spots,
\nthen restaurants are gonna cost twice as much, which means people aren’t going to go out that much. And, you know,
\nwages for restaurant workers are going to be lower. And that goes around the economy.
\nAnd there are some worrisome. I think I still think the
\ndebt matters and what, you know, the aftermath, the disincentive
\nafter mass and that and the deficit aftermaths of where we’re going. If we
\nrespond to this stuff with a whole raft of new both programs
\nand debts that have to be paid off, that’s there’s there’s a big economic danger for this lying
\naround for a long time. And the shifts in demand could be pretty huge. Already
\ncities, I think we’re in trouble. We’ve all learned how to do Xoom
\nas much of the pleasure as it usually is to come to Texas. You and I did this.
\nSo the social network fixed costs of zew of online.
\nWe’ve kind of all well, that that’s going to change a lot of how businesses do things.
\nFacebook and is said half of their employees are going to work from home from now on. Well, that’s
\nnot great news for the real estate market in Menlo Park. Now, maybe that’s good things. It’s a
\ncompletely outrageously priced here. Our city is going to survive.
\nI think is a big question. I know a lot of young tech millennial types who are
\njust, you know, a year ago. I have to live in San Francisco because the bars that restaurants that night,
\nso forth. And now now they’re all saying,
\nwell, I think it’s time to move down the peninsula where I can send my kids to a public school. And. And there
\nare some bars and restaurants which are known, especially after voting. Those are going to be
\na business coming back. And the state and local government finances are an absolute disaster.
\nSo, you know, it may look like cities may look like a bad man movie for a while.
\nAnd that would be kind of a that’s an example of a shift in demand that’s going to take a
\nwhile 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
\nshould be doing more in the city. Cities should just be more dense. We should encourage density. That’s the
\nnew cities may have won this from completely lucky way. They might have won.
\nThis is worried about gentrification. Well, your worries are over. I don’t want to. I’m not going to check
\nyou on linguistics. Not we should we should allow that. We should have allowed people to build
\nin size. That’s right. That’s right. All right. John,
\nthis is great. Thank you so much. And thank you for all the work you do on the ground, the economists. I make my
\nstudents read a lot of things from there. It’s incredibly informational for all of us. Thanks. It’s great to talk to
\nyou. And I hope all of this doesn’t look completely dumb by the fall. No, hopefully not. All right.
\nBye bye. Thanks for listening to Policy McCombs.<\/p>\n"},"episode_featured_image":false,"episode_player_image":"https:\/\/podcasts.la.utexas.edu\/cepa\/wp-content\/uploads\/sites\/21\/2021\/05\/SC_PolicyMcCombs_Art-scaled.jpg","download_link":"https:\/\/podcasts.la.utexas.edu\/cepa\/podcast-download\/542\/john-cochrane-covid-19-interview.mp3","player_link":"https:\/\/podcasts.la.utexas.edu\/cepa\/podcast-player\/542\/john-cochrane-covid-19-interview.mp3","audio_player":null,"episode_data":{"playerMode":"light","subscribeUrls":{"apple_podcasts":{"key":"apple_podcasts","url":"","label":"Apple Podcasts","class":"apple_podcasts","icon":"apple-podcasts.png"},"google_play":{"key":"google_play","url":"","label":"Google Play","class":"google_play","icon":"google-play.png"},"google_podcasts":{"key":"google_podcasts","url":"","label":"Google Podcasts","class":"google_podcasts","icon":"google-podcasts.png"},"spotify":{"key":"spotify","url":"","label":"Spotify","class":"spotify","icon":"spotify.png"},"itunes":{"key":"itunes","url":"","label":"iTunes","class":"itunes","icon":"itunes.png"}},"rssFeedUrl":"https:\/\/podcasts.la.utexas.edu\/cepa\/feed\/podcast\/policymccombs","embedCode":"John Cochrane – COVID-19 Interview<\/a><\/blockquote>