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Back in January, Chicago Booth hosted Economic Outlook discussions in Chicago and Hong Kong, to look ahead at the global economy for 2020. Just four months later, the worldwide economic landscape has changed dramatically, as the COVID-19 pandemic has stalled economic activity in nearly every corner of the world.

With these dramatic changes in mind, Booth has reconvened Economic Outlook in the virtual world, with a series of three online events over three weeks, focusing on the US, Asia, and Europe.

In the first-ever virtual Economic Outlook, held April 30, Booth economics professors Randall S. Kroszner, Austan D. Goolsbee, and Raghuram G. Rajan—who all regularly share business and markets insights with world media such as CNN, Bloomberg, the Financial Times, the New York Times and the Wall Street Journal—discussed the critical economic questions facing the world amid the COVID-19 crisis.

Moderated by Kathleen Hays, global economics and policy editor for Bloomberg Television and Radio, the conversation ranged from the possible paths and pitfalls for recovery, to how economic sectors such as manufacturing and hospitality will fare, and concerns about incurring debt.

The first Economic Outlook drew more than 6,000 virtual attendees, who asked 500-plus questions around recovery, rising debt, and policy responses, among other topics, which Hays gamely worked into the discussion.

While much uncertainty remains, the Booth professors shared their perspectives and concerns around key questions facing business leaders, policymakers, employees, and families worldwide.

How have stay-at-home orders affected economies?

With tens of millions of unemployment claims in the United States, as well as more than 100 million jobs lost in India, global economies are suffering.

“We sent everyone home. We didn't allow people to go out and buy anything,” said Randall S. Kroszner, a former governor of the Federal Reserve System, and deputy dean for executive programs and Norman R. Bobins Professor of Economics at Booth. “So it's not a surprise that you get this astonishing contraction in demand and production.”

“Nobody in June of 1944 questioned how to pay for D-Day and keep it revenue neutral. If you look post–World War II, we went through a period of heavy taxation to pay back the debts that we accumulated. It's what we should have done, and spreading that over time is better than trying to pay for it all at once. The same is true here.”

— Austan D. Goolsbee

Hoping for a “reverse check mark”: What will the recovery trajectory look like?

Austan D. Goolsbee, former chairman of the Council of Economic Advisers and a member of President Obama's cabinet, warned that a traditional recession recovery is a slow process.

“We could go from less than 4 percent unemployment to 15 percent in a short period of time. In a normal recovery, the unemployment rate only goes down 1 to 1.5 percentage points a year,” said Goolsbee, the Robert P. Gwinn Professor of Economics at Booth. “Hopefully there is the possibility of a rapid recovery, maybe a reverse check mark where you went down, and then you came back at least part of the way at kind of a rapid pace. We absolutely have to do everything we can to go in that direction because the alternative is much more grim.”

Considering who to save: Should the government bail out everyone?

It’s likely that some sectors, such as manufacturing, can come back onstream quickly, while others will take much longer, if they ever fully recover at all, said Raghuram G. Rajan, former governor of the Reserve Bank of India and chief economist and director of research at the International Monetary Fund. That needs to be taken into account when considering government interventions.

“One of the decisions we have to make soon is how the government spends that money. It’s going to be expensive to keep the hospitality industry alive for a year or more until people feel comfortable going out again,” said Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance at Booth.

A new normal: Will some sectors expand while others contract?

Kroszner said that an effective recovery strategy should consider which types of jobs will be available in the coming years and how to ensure that employees have the skills to fill them.

“Well-intentioned programs that are trying to freeze things as they were in February are going to make it more difficult for people to find new positions,” Kroszner said. “At some point we're going to have to allow for a transition. We've got to get the support structures right to get people moving into new sectors.”

Spending wisely: What’s the key factor in getting people back to regular economic activity?

Goolsbee said that the shortest path to recovery is by spending on health care and testing.

“The most important thing you can do for the economy is slow the spread of the virus. That’s how you stimulate the economy, because people have to feel safe leaving their homes,” Goolsbee said. “We’ve now got six countries that have gotten out of lockdown and are going back to normal. Each of them has done extensive testing to get the rate of the spread of the virus low enough that it peters itself out.”

Growing debt: Is spending the right thing to do now?

Goolsbee said there’s no alternative to adding to the debt, but we should be considering the long-term implications for paying off these debts.

“Nobody in June of 1944 questioned how to pay for D-Day and keep it revenue neutral,” he said. “If you look postWorld War II, we went through a period of heavy taxation to pay back the debts that we accumulated. It's what we should have done, and spreading that over time is better than trying to pay for it all at once. The same is true here.”

Rajan added that these burdens could also affect future investment.

“This was the debt overhang problem that many emerging markets had,” Rajan said. “We should be wary when we have lots of debt and potential taxation down the line. A lot of investors are going to be worrying about where it's going to fall, and that could be perhaps very damaging for investment and growth.”

 

Explore More:

Sign up now for the next event in the virtual Economic Outlook series, focusing on Europe (May 13) to help you frame your economic outlook for the challenging times ahead.

Read more thought leadership from Booth faculty at Chicago Booth Review’s special collection on COVID-19.

Explore more Booth stories about the COVID-19 health crisis and how our global community is responding to the pandemic.

EO Video Module - Chicago 2020

- Good afternoon ladies and gentlemen.

Welcome to Chicago Booth's
virtual Economic Outlook 2020.

My name is Madhav Rajan, I'm the Dean

and the George Shultz
Professor of Accounting

at Chicago Booth.

I hope all of you are safe

and doing well in this uncertain time.

It's amazing to see such a great turnout

for today's Economic Outlook.

This virtual Economic Outlook series

will continue on May 7 in Hong Kong,

and May 13 in London.

I want to just thank all of you first

for attending today's event

and for engaging with
Chicago Booth in this way.

Booth, as you know, has a long tradition

of informing public
disclosure through platforms

such as Economic Outlook,
which we started back in 1954;

through our publications
such as Chicago Booth Review;

and through our initiatives

such as the Initiative on Global Markets.

Economic Outlook in particular

provides a forum for our
pathbreaking thought leaders

to confront the future,
evaluate emerging trends,

and share insights that help
reframe our understanding

of the world to come.

We have a phenomenal program today,

and I'm gonna do a quick introduction

to our three amazing panelists.

Our first panelist is Austan Goolsbee,

the Robert P. Gwinn Professor of
Economics at Chicago Booth.

Austan served in Washington as chairman

of the Council of Economic Advisors

and as a member of the
President's Cabinet.

Before Washington, his
research earned him recognition

as a Fulbright Scholar and a Sloan fellow.

Austan today serves on the
Economic Advisory Panel

for the Federal Reserve Bank of New York,

and has previously served on
the panel of Economic Advisors

to the Congressional Budget Office,

the US Census Advisory Commission,

and as a consultant for internet policy

to the Antitrust Division of
the Department of Justice.

And of course in 2009, he was
voted DC's funniest celebrity,

which I'm sure he will validate today.

Our next panelist, Randall Kroszner,

is the Norman R. Bobins
Professor of Economics.

He's also the Deputy Dean

for Executive Programs at Chicago Booth.

Randy served as a governor
of the Federal Reserve System

from March 2006 to January 2009,

and in that role, he chaired
the Committee on Supervision

and Regulation of Banking Institutions,

and the Committee on Consumer
and Community Affairs.

He currently chairs the Federal
Research Advisory Committee

for the US Treasury's Office
of Financial Research.

Our third panelist is Raghuram Rajan,

the Katherine Dusak Miller
Distinguished Service

Professor of Finance at Chicago Booth.

Raghuram served as the 23rd Governor

of the Reserve Bank of India,

from September 2013 til September 2016.

Between 2003 and 2006
he was chief economist

and director of research at the
International Monetary Fund.

Raghuram's latest book, "The Third Pillar:

How Markets and the State
Leave Communities Behind,"

was released last year and was a finalist

for the Financial Times best Business Book

of the Year Award.

So we're thrilled to have
three great panelists

and a great moderator, Kathleen Hays.

we are thrilled to have her return.

She's global economics and policy editor

for Bloomberg Television and Radio.

So we thank Kathleen for coming back.

And with that I'm gonna
hand it to Kathleen.

Thank you, Kathleen.

- You're muted.

- Here we go.

Okay, he didn't even need
to crack a joke on that one,

but I'm sure he will.

I was just going to say
it's great to be back,

we did this in early
January, the same panel.

I think the outlook at the time,

the coronavirus had actually,

was starting to take a bite out of China.

I am sure we mentioned it,

I don't think it was a major topic.

And obviously since early
January, four months,

well, so much has changed.

And I guess that's where I'd wanna start.

Where we are now, we've got...

Oh, and I wanna mention, it's great,

we've got thousands of you listening,

watching, submitting questions,

and I'm gonna sprinkle them
in throughout this discussion.

And one of them from Jordan,

notes that, you asked unemployment claims

in the past four weeks total 30 million,

our Bloomberg consensus survey is looking

for a drop of something
like 22 million jobs

when the jobs report comes
out a week from tomorrow,

GDP contracted nearly 5 percent,

Bloomberg Economics is looking

in the second quarter (mumbles)

referencing an unprecedented
drop in second quarter GDP.

They're looking for 37 percent annual loss.

So where are we now?

And Austan, since you
kindly got me off mute,

let's start with you, where's the economy?

- Well, it's terrible,
it's in the dumps.

What do you mean, Kathleen?

There's never been—it's
the worst four weeks

in the history of the economy.

Now that said, there's two views

from how deep this thing goes,

is that like a normal recession,

and the recovery to a normal recession,

or is it something completely different?

I believe, and I hope

that it's something completely different.

And why I say that is,

let's say the unemployment
rate goes to 15 percent

or above when the jobs numbers come out.

In a normal recovery, the
unemployment rate only goes down,

one to one and a half
percentage points a year, okay?

So to go from less than four to 15,

in a very short period of time,

it would be literally more than a decade

before we got back to something resembling

what we were before the crisis began.

So, hopefully it will not
be like a normal recession

that there is the possibility
of a more rapid recovery.

I'm not gonna call it necessarily V-shape

because a V kind of connotes

that you got back to
where you were right away,

but the reverse check mark
style where you went down

and then you came back
at least part of the way

at a kind of a rapid pace.

We absolutely have to do everything we can

to go in that direction

because the alternative
is something much grimmer,

and we don't even want to contemplate.

- Yeah, I look at it as building a bridge.

We're in the valley of the virus,

maybe the canyon chasm of the virus,

and what's being done to get us across?

Randall, let's go next
to you in terms of just

where we are, how bad it can get

before ideally it gets better,
the way Austan just outlined?

- I very much agree with that,

I hadn't heard the reverse
check, I kind of liked that.

I was trying to figure out
how do you get that shape.

Because we turned the lights
off, we sent everyone home.

We didn't allow people to
go out to buy anything.

And so it's not a surprise

that you'll just get this
astonishing contraction

in demand, astonishing
contraction in production.

When we turn the lights back on,

they're going to be much dimmer.

The lights are not gonna be
nearly as bright as they were.

They're gonna get part of the way back up.

And so I think a lot of the
programs that have been done

around the world have
been to try to do that,

to try to make it so
that we preserve small-

and medium-sized enterprise,

that we provide support to firms

to keep their workers on.

The challenge is gonna
be, we get up to here

and then what happens?

Some of the programs that I
think are very well intentioned,

are ones that are gonna
make it more difficult

for people to then find new positions

because they're trying to freeze things

as of mid-February or early March,

and the world has changed.

The hospitality industry is gonna change,

the transportation industry,

it's due to be much, much different.

And I think this is very
different than 9/11.

When I was in the White
House, 9/11 occurred.

We had a terrible shock.

We shut down the air
transportation industry.

We shut down a lot of industries
for a short period of time.

But then when it reopened,

the message was not stay away, save lives,

and stay home, save lives—

I'm sitting here in the United Kingdom,

very close to our new campus
that's just about to open.

I was just watching Boris
Johnson talk about that,

and that stay home, save
lives, even after we reopened.

The message after 9/11 was
if you want to be patriotic,

go out to the shopping mall.
- Right.

- So I think this is gonna
have a much longer impact,

and I think a structural
impact, on many industries.

And so we can't just have
policies that bring us back,

part of the way up—the
checks of the lights are dim,

but in order for the lights to brighten,

we have to realize there's
gonna be a lot of change,

small- and medium-size enterprises,

they're gonna go out of business.

We're gonna have a smaller
transportation industry.

We're gonna have other places that grow.

- So Raghu, let's bring you in.

I wish there were a contrarian argument

I could put in front of you.

The only one I can think of
is so many people predicted,

"Oh, now everyone's gonna work at home."

I'm like, "Are you out of your mind?"

Listen to anybody who's
been working at home

with little kids running around.

They want to get back to work, right?

But I think these points
about people losing jobs

that don't come back, small
businesses that don't come back.

Where are we now in your mind?

And again, is it going to get that bad,

will there be a little more resiliency

in some of these small businesses

and others that we think?

- Well, let's start first
by saying there's a tragedy

and I'm sure that some
of the people watching us

have lost their jobs,

and certainly, I hope that
things work out as we go along.

It's a tragedy everywhere in the world.

you're talking about 20
million plus job losses

in the US, numbers from India

are over a 100 million
job losses in April.

That's huge for a country

where margins of safety are even thinner

than they are for most
people in the United States.

So this is a tragedy everywhere.

Let's hope the (mumbles)
what we know about that.

But let's take the two analogies,

the bridge analogy that you offered,

and the lights analogy
that Randy offered.

Well, we're trying to create the bridge.

The problem is that for some industries,

the bridge does fall across
the chasm, for some it's not,

it's gonna stop halfway,
and then the question is,

what do we do next?

Say, for the hospitality industry,

where you need pretty
much a vaccine or a cure

for people to be confident
of going back to restaurants

in the way that they used to do earlier.

Let's take the lights analogy also.

Randy talked about lights coming on.

The problem is some lights
are never gonna come on.

That's one, some businesses
are going to go out,

some lights aren't gonna come on

because the circuit's not complete.

Think about the global
supply chains that we have.

Every part needs to be functioning

for the current to flow through.

And it's gonna be that some
parts aren't gonna open up

because they're located in
places that haven't opened up.

But see what's happening in China.

They've started production
but they're finding

that earlier, while the
US firms were worried

about supply being disrupted from China,

China's worried about finding demand

being missing in the US,

you can send only so many goods to the US,

eventually they pile up in
warehouses, you gotta stop again.

So there is a problem of coordination.

The lights on will go all
come on at the same time,

you need the supply chains

to all come on at the same
time, that's what we did.

There's gonna be a process
of bringing them up.

So even manufacturing,

which is the easiest to
get up, is gonna take time.

Then the hospitality high-contact areas,

that's gonna take yet more time.

And one of the decisions
we'll have to make soon

is how do we spend our money?

So far, nobody's asked the question

about there being a constraint

on the amount of money you can spend,

but if you've got to keep the
hospitality industry alive

for a year and a half, it's
gonna take a lot of money

and you have to ask
whether that is well spent.

And I hope we get to those questions.

- Well, we certainly will,

because we've had a number of questions

about the budget deficit.

We've got a question here

about the government sending
more stimulus package

to citizens, we've got an interesting one,

will the US economy better
if we'd just given $15,000,

to each of the unemployed to sustain them

through the shutdown period.

So I guess that's the thing
maybe to talk about next,

the road ahead and where we are right now.

What can we do?

Is it fixing up the programs

that haven't worked perfectly yet?

Is it throwing a lot more money,

and we can get to what that's
gonna cost us in the future.

But as Jay Powell, chairman
of the Fed said yesterday,

"This is not the time to
worry about the Federal debt."

Which resounded hugely with
anybody who follows the Fed.

But, Austan what's the top of your list,

and of course you worked in Washington,

you were a Council of
Economic Advisors Chief,

you worked for President Obama.

There were some tough times there too.

What would you do first?

- Look, I think the analogies
to the financial crisis

and the recession of 2007,
'89, are only partial at best.

In my view, I keep saying
that the number one rule

of virus economics is different
from regular economics

and that is: the most
important thing you can do

for the economy is slow
the spread of the virus.

And all of the, whether
you want to call it

the Manhattan Project idea or
massive testing with tracing,

anything that slows the
rate of spread of the virus

is how you stimulate the economy.

The stimulus package that
we've passed is impressive

in how fast we did it, but
it's not a stimulus package.

And all the economists know that,

and they need to stop calling it that,

because it is a relief.

It's not meant to jumpstart the economy.

It's not gonna get GDP growth going again.

It is meant only that
people don't get evicted

from their houses, they
can keep food on the table.

Companies don't have to liquidate.

And all of the questions that Raghu

and Randy have raised explicitly

and implicitly about okay,

but if this doesn't just
go away in three months,

then there are gonna be
a series of decisions

we have to make.

So our cruise lines, do
we want the government

to support the cruise lines
if there will literally

not be any demand for people
to go on cruises for two years?

Should that go to the shareholders,

the debt holders, etc.

So the first thing I would do

is every single thing on the health side,

and it's not just theoretical

in that you can look around the world.

We've now got six countries

where they've gotten out of lockdown,

and they are going back to normal.

Okay, so if you take Korea's
probably the most advanced,

but you got Korea, Taiwan, now
Germany, Iceland, Australia,

and New Zealand are looking quite good

and each of them has
followed the trajectory:

do extensive testing—that
allows you to get the rate

of spread of the virus down low enough

that it's kind of petering itself out.

And if you do enough
testing, you can do that.

If you don't do enough
testing, the virus is the boss,

the President cannot announce

that the economy should go back.

The Governor cannot announce it.

A Mayor cannot announce it.

It has to be that people feel

that they're not gonna
go out of their house

and catch the virus.

Otherwise we cannot come back,

you can say whatever you want,

but we are not gonna come back.

- Okay, so Raghu, jump in there,

you were Chief Economist at the
International Monetary Fund.

You ran the Reserve Bank of India.

So you've looked at these kinds of things,

but again, this is something people

never had to look at before.

So I was gonna save that for later maybe,

but let's get to this question, the virus,

we had one of our questions asking about

how dependent solving this
is on finding a vaccine.

I think don't count on vaccine
folks, that'll be a miracle

if we get one as quick as people think.

So Raghuram, when you look at India,

when you look at emerging markets,

and when you look at the
US included, is this—

how big of a part of this is the solution?

- Well, I think absent
The medical miracles

we're all looking for—
the cure, the vaccine,

the antibody testing—

and there's a lot of effort going on there,

so we shouldn't lose hope—
let's put that aside.

What do we do if that doesn't happen

for the next year and half?

I think we really need to
manage the recovery process,

essentially play an informed whack-a-mole.

Now in the areas which
have relatively few cases,

you still have social distancing,

you have a process by
which people get to work

without crowding into buses.

Obviously you don't have
mass gatherings, etc.,

but people start getting back to work

and you keep testing, as Austan said.

And when you start discovering
the cases are piling up,

well, you start putting in
place tighter measures there

but you don't lock down
the entire economy.

So you have to look region
by region, area by area,

and start opening up.

Now for that, you have to get
the number cases first down

to a level where you feel
reasonably comfortable

that it's not gonna explode once again.

And I have to tell you, some of the states

in the United States which
are opening up right now

are not at that level.

At least I'm not an epidemiologist,

but from what they're saying,

this is not the point where
you can do the tracking

and testing,

and in fact we don't have
that infrastructure in place.

So we need to bring that
out in as fast as we can.

And to Austan's point,
that's a good place to spend.

That's a good place to
hire a lot of people

who are now unemployed, and
who are very capable people,

doing the kinds of things
we need to do there

because that will bring the
rest of the economy back sooner.

So we need to invest it.

- Randy.

- Well, exactly on those
points, what's amazing

is if you look into the GDP report,

the area that had one
of the steepest declines

in expenditure were in health services.

So, it's exactly the opposite
of what you might think

because you're like,

"Oh my goodness, all
these people are going

into hospitals and such."

But what's happened is that
the hospitals have been cleared out.

All of the other patients
who would otherwise be going in

for elective surgery, or here in the UK

because they've told people
basically, stay home,

save the National Health Service,

and that's how you got save lives.

People have been dying at home,

so people have been getting care,

and so there actually are a
number of healthcare workers

who would be available to do testing

to direct resources in that area.

And getting back to the point

that both Austan and Raghu made,

one of the reasons why you do the lockdown

is because you don't know.

It's just about like
basic business education.

So when you're not sure, you
kind of take a broad approach,

but if you can gather data,

you can have a solution
that's much more specific

and much more effective.

So without the data,

you do a broad lockdown,
because you don't know.

But as you gather more data,

understand things better,
you can be much more focused.

And so that's very good
both on a health side,

and on the economy side.

So being much more systematic,

much more focused about,

well, getting a lot more information,

you can make much better decisions

based on that information.

And then once you have that information,

we do wanna get people back into work,

but you have to realize
that it is not gonna go back

to exactly the same number of bulbs

that were on back in February and March.

Some of those bulbs will be out.

And so you have to
understand that, accept that,

and then have policies that
will facilitate people moving

from one industry to another.

Right now, I think we've done

something that's been very helpful,

is to try to preserve people's incomes,

preserve the ability to
keep food on the table.

But at some point we're
gonna have to realize

that we can't do that forever

and we're gonna have to
allow for a transition,

and so we've got to get the
support structures, right,

to get people moving into the new sectors,

whether it's tech sector or
new areas of the health sector.

- Can I ask you both to answer for me
a really quick question.

I'm just curious, would it be a mistake

for the government to do another

massive, economy-wide,
country-wide lockdown?

And I think your point
about what we didn't know

about which groups are most vulnerable,

we still aren't, one day you hear

wear a mask, the next day you see,

"Well, wear a mask, it will
protect someone else,

but it really doesn't help you."

But as we sort these things
out or would you say,

"No, Kathleen, I feel just
how I felt in March."

where you gotta protect
everybody, whatever the cost.

And go ahead that way.

And, Raghu, you start—quickly,

'cause I wanna get to
a lot of other things,

but that's my own kind of question.

What do you think?

Let's start with you.

- I think Randy makes a good point.

Given what we knew when
the lockdown started,

it was probably the right thing to do,

because we had no idea
really given the testing was so weak,

and we realized that, even
with a lot of testing,

we were missing a lot of people,

so the lockdown made sense at that point.

Now we need to move
towards a cleverer method

of more localized sort of
lockdowns, if you will.

And that is absolutely necessary,

otherwise the economic damage
is gonna be tremendous.

So we need to balance the two,
but I think more of informed

and more localized and
a lot more quarantining,

that's the playbook which
seems to have worked

in other places that have opened up.

And so there's no reason

why we need a different
playbook at this point.

- Yes, definitely.

My view is if that's definitely
setting up a false choice

of the economy vs the health,

I don't think that, I think
they're absolutely tied.

Everything you do on testing
and on health are what allows

the economy to come
back, it's not a tension.

Now, I will brag slightly.

If you go back to the first week of March,

I wrote a piece in the New York Times.

We had only five deaths
in the United States,

and I said if we have a health
outbreak in this country

on the order of magnitude
of what they have in China,

it is going to be worse
for the US economy

than it even was in China,
and it was horrible in China,

because this thing hits
us in our weak spot.

All the rich countries of
the world are dominated

by services, and services
are exactly the things

that get pulled down
when people are afraid.

Now, I still think if you believe

that this is a government's
decision to make,

you're kidding yourself, it's not.

The government can go,
we can form a committee,

we can choose, ah, we've
decided that Tuesday is safe,

and everyone can go back to
work. It will not happen.

The collapse of the economy began well

before there were official
lockdowns by the government.

And it's because people are afraid,

and people, you gotta
get them out of fear,

that if they go out of their house,

they might easily catch the virus.

You gotta get past that.

- Randy.

- Yeah, for sure, I mean I
think this is all in consistency

with what I was saying before.

You need the data in order
to be able to make decisions.

That's just the basic
of good decision-making,

whether it's in government
or the private sector.

And so I think we see that
the high value of that,

we've seen in the Korea,
we've seen that in Germany,

'cause Germany did a lot
to gather the data quickly,

and they're one of the economies

that is opening sooner rather than later,

and I think they're gonna
continue to test very carefully.

They're doing randomized testing.

This is exactly what last
year's Nobel Prize in Economics

was about—doing randomized control trials.

And so, you'd love to
be able to test everyone

and test everyone every day.

That's just not feasible.

But if you do randomized control trials

and you have a reasonable size sample,

then you don't need millions,
you can do thousands,

you can get a lot of information,

you follow those people over time

and you can figure out
where the hotspots are,

where you go, and then you
get the resources there.

Then you bring the personal
protective equipment there,

you bring the...

Hopefully you can get
kind of a reserve army

of medical professionals who go there

and deal with these issues quickly

and make sure it doesn't spread.

- Okay--

- Just jumping in on one point.

- Okay.

I think we need to take
into account trade-offs.

You're never gonna get to perfect safety

before you open up.

So there is a point at which you will say,

"Okay, the economic
cost of staying enclosed,

staying enclosed is maybe the optimum from
a medical perspective,

but it does a lot of damage."

It actually also does
some damage to health,

but it does some damage.

So you have to make those trade-offs

in the most careful way possible.

And so absolutely, we need
to think about both sides.

But I would say that it is possible

and countries have shown
you can do it, yeah.

- Yeah, and I'm thinking of a story

that Bloomberg News had a
month or month and a half ago

when the virus started hitting India,

saying there were people

who if they were forced
to stay home would die.

They would starve to death.

And I think it's not
that dire in our country,

fortunately, but certainly in
a lot of developing countries.

It is, and I wanna get to
that more specifically,

but first I've got kind
of a two-part question.

First, let's look at the Fed guys,

because they've just done everything.

And I thought, well, the
most interesting things

about the Federal Reserve,
and what Jay Powell said

when he was asked a question was,

"I think we're gonna have to do more.

Treasury's gonna have to do more."

And he's open for the Fed doing more,

very positive fiscal policy,
all of these programs.

And I think everyone's
worried about the debt

and the deficit,

there's just so many
questions in the feed here,

but one of the reasons we're gonna end

with a big deficit is
the Fed is all in, right?

And like when he said,

"Don't worry about the Federal debt now."

You don't worry about now, when
your house is burning down,

do you stop that fire, then
deal with something else?

Randall, you start, you've
been there, you've done that.

What do you think?

- Well, I'm really glad that in some sense

they had the legacy
from us from decade ago

to be able to stand up
and run the programs

really quickly and then
they built on that,

built a number of new programs
to get in much further

out on the risk curve.

The reason that they can do that

is because the emergency
powers they are using

require the Fed to,

they can in unusual and
exigent circumstances,

to do a whole variety of new things.

But they can lend only
against good collateral.

And what's been an interesting

and I think unexpected consequence

of some of the Dodd-Frank
reforms, which require sign-off

from the Treasury Department

in order for the Fed to do these things.

When I was there a decade ago,

we didn't need anybody's permission.

The Congress had given
the Fed these powers

to be able to act quickly and respond,

and our balance sheet went from
less than a trillion dollars

to $4 trillion in one quarter.

Well, not one quarter,

one to two and a half trillion
dollars in one quarter,

and then much faster.

Now what the Fed is doing lending to small-

and medium-size enterprise,
to municipalities,

to a lot of other parts of the economy

including lower rated debt,

that we wouldn't have been able to do

because we wouldn't have felt
we had enough collateral.

The Treasury is now taking the money

that has been given from
Congress to put that money

in the first loss position.

So the Fed can take more risks

because the Fed is not
directly taking that risk,

that risk is going to the Treasury,

that is to the taxpayer.

And so they're taking on more risks,

but they're also getting
much more involved

in political decisions on, who gets this?

Which municipalities qualify?

When I was at the Fed, we
bought US Treasury securities

when we bought mortgage-backed securities

that effectively had a Federal backing.

Those are sort of very neat lines.

A few other areas that gotten into,

but only the highest rate of debt,

now they're getting much
further out on the risk curve.

I think it's important that
they do so, but we have to worry

about some unintended
consequences down the line

if they get too far involved in politics.

- Well, oh gosh, when I
hear the word politics,

I'm very tempted to bring in Austan

and on the political angle,

but I guess I'll bring you
in on the central bank angle

and what the Fed is doing, Austan,

because it does sort of lead
to this political question

of debts and deficits,

but we've got a question here,

what would be the potential
downsize that could come out

of aggressive central bank's printing out

such massive amounts of money?

But let's particularly look at the Fed.

Is this the right thing to do?

Are you on board?

- Yes, but let's not confuse,
they're not printing money.

That's not what this is.

I think Randy raises a hugely
important potential downside

from this in both the
narrow and the broad sense.

In the narrow sense,

if you're a fan of
central bank independence,

this is not really a great period

for central bank independence,

it's getting the Fed
involved very upfront-ly,

that's not grammatical,
but it's putting the Fed,

in a fiscal policy decision-making mode.

And I worry that look,
let's say we get a vaccine

or we have these treatments,

and so this is a short-lived shock

and everyone pays back the
money and everything is fine,

then we will view this as
the Fed did a brilliant job

at helping to alleviate the suffering

and shorten the crisis.

Now let's say it goes the other way

and there is no such thing
as immunity, or it's like HIV

and we never get a vaccine.

Then if things start to go wrong,

this is going to tempt the
politicians to point a finger

and say, "Oh, the Fed screwed it all up.

Look, we lost hundreds
of billions of dollars

on these lending programs.

That's because of the Fed's mistakes."

Now it's not true, that
was the policy decision,

but that's the downside
is that on the back end,

if it goes badly, they're gonna
come back and blame the Fed

and the Fed's independence
will in a way be lost,

and I am quite nervous about that.

- Okay, so Raghu to you now,

because we look at the
programs that were started,

say when
the Treasury market

started going crazy, right?

And the yields were just crashing.

The tenure went as low as
1.3, then it stood it back up

and they've calmed back down, right?

They're able to reduce the
size of their repo operations.

So they are having success that way.

Again, you ran the Reserve Bank of India,

so you know what it's
like to sit in that chair

and make decisions when
sometimes your choices,

like there's no great
choice that you can make?

- Yeah, this is not a period

you have great choices of course,

but look what is easy is liquidity.

And that's the Fed's role undoubtedly.

And that's why intervening
in the Treasury markets

and all the other good markets
that Randy intervened in

when he was there, make sense.

The problem right now
is they're going deeply

into credit markets

and lending is not really the Fed's role,

especially when it involves a fiscal cost.

Yes, the Treasury is backstopping them,

but they making decisions,
choosing A and not B,

and who's gonna, they're
not elected to do that.

So that raises a question
again, what's the overall point?

The overall point is, we need to make sure

the economy doesn't
suffer permanent damage,

if this is gonna be for a short while,

and therefore, if the Fed is the
only agency that can do this,

well, so be it.

We're trying to prevent
the economy from suffering

from the pandemic.

What we're not trying to
do is compensate people

for the losses.

That's something always hear,

"Oh, we didn't know the
pandemic was gonna come.

We got hit, that's a bad
thing, it was not our fault."

Oh, too bad, it wasn't anybody's fault.

Not the taxpayers who
were gonna pay for this.

Not the people who lost the jobs.

So why should a firm which is healthy

and is likely to survive through this,

or why should a big university
with an enormous endowment,

get compensation from the government--

- Whoa, whoa, whoa, whoa.

- The point is, (mumbles)
should be to protect firms

and people that can be protected.

Not all can be saved, but they
can be saved over this period

because otherwise there'll
be a lot of damage.

There are also some firms
that even if you save them

doesn't add much value, because
they're not doing that much.

There's not a whole lot of
value added in their firm.

They're making losses or
they're not really adding much

to what individuals do.

So we need to start
thinking about all that.

The broader point is really this,

even when you look at
the Fed's activities,

the question you have to ask yourself,

is it helping entities who
would not otherwise be here,

and is it doing sort of
good in the long run?

One of the areas where
already there are concerns

is pricing is getting
distorted across the market.

- Mm-hm.

- The Fed is intervening in every market,

so nobody now worries about credit risk

during this downturn.

Now in the short-term,
that may be a good thing.

In the longer run, it prevents the market

from doing what it should, and
you see the US has the Fed,

the rest of the world doesn't have it.

So one of the consequences
of this is a flight to see—

now that's not the US Fed's problem,

That's not the United States problem—

it is a global problem, because
the Fed has the firepower,

the rest of the world doesn't.

That distortion is already at work.

- Okay, so I also get a quick,

rejoinder Austan Goolsbee, you go ahead

'cause you were at a point
where you have a rejoinder.

- I didn't have a rejoinder,

I agreed with everything he said.

- Oh, okay, well then let's move on.

Okay, I think you guys,
you raised great points

and sometimes I've felt in
the last couple of months

and even people on Wall Street,

"Oh, I can't trade this market now.

I've never had to do this before."

It's like, well, we don't
wanna bail out hedge funds

in the end, and we hope we won't have to.

But, moving on to debt,

because here's a nice
simple example from Bob.

Debt levels are increasing rapidly in US

what are the effects of
this massive amount of debt,

short-term, long-term
in the United States?

And of course they're rapidly
increasing around the world

and countries already with big debts,

they're getting bigger.

So, Randy, let's come
to you on this first.

'Cause I know you were
talking when we talked

before the panel started about
perhaps waves of bankruptcies

and those kinds of things happening,

how you're gonna deal with them?

But broadly speaking,

are we ever gonna get out of this debt?

Are we gonna have to have a debt jubilee

around the world, as one of
the other questioners asked?

- Well, there's clearly
gonna be a lot more debt

that's outstanding, and there
are a lot of guarantees

that are being given,

but will those guarantees be made good

on, who's gonna pay for them, and how?

This goes back to some of
what Raghu was talking about,

there are losses that
occur, the shock occurred,

and it means that some of the
investments that people made,

both in their human capital
as well as in physical capital

is not gonna have the
return that it once had.

Unfortunately, there's
nothing we can do about that

and we have to try to provide
support in the transition,

but realize that we
can't stay in the world

that we were once in.

The world is changed
and I think it's changed

in a permanent and structural way.

So there could be very widespread bankruptcy.

And so I think that's one of the things

that's very difficult to
sort of acknowledge now

by government authorities,

'cause one, they don't wanna scare people.

And two, they wanna remain optimistic.

But I think it's very important
to start thinking now,

is there a way that we can try

to have a large-scale restructurings

and large-scale bankruptcies
that move very efficiently

and very quickly.

And something like a
prepackaged bankruptcy

but in a widespread way.

We actually did something
like this, in the 1930s—

there was a so-called gold clause

in every long-term debt
contract outstanding

that said you would be
repaid in either dollars

or the value of gold.

We devalued by more than
60 percent relative to gold,

people said, "Well, I
want a $1.60."

The Supreme Court decided against that.

And so there was sort of a massive,

a massive debt forgiveness.

But what's interesting is that,

what happened is that
equity prices went up,

part of that is because
of the debt relief.

- Okay.

- So they could hold it not to pay.

Part of it was because
there wasn't gonna be

a second downturn in the
economy in the mid-1930s,

but interestingly, a lot
of debt prices went up also,

because they avoided going
through a bankruptcy,

avoided going through all of the costs,

and just got right to
a particular solution.

So I think we have to think carefully

about asset management companies,

expedited bankruptcy procedures,

because I think that'll
be the best way to try

to move the economy to the new normal.

- Okay, so in terms of,
Austan, let's go to you next

on this question of debt deficits.

And again, you had a very
important job in Washington

you tried to factored
these things in the outlook

are you just like kinda like Jay Powell,

let's talk about that in five or 10 years

when we're past this?

- Yeah, mostly yes, as I
say nobody in June of 1944,

the absolutely wrong
thing to do is be like,

"Well, what tax do we
need to pay for D-day?

And how do we keep the revenue neutral?"

That's totally not what they
should be thinking about.

This topic does come up every January,

came up, Kathleen, with
us, this past January

and the one before,

and I keep saying the problem with debt

and deficits for the United States

is not that it's gonna
drive our interest rate up

and that we're gonna have a fiscal crisis

of the form of like a small
emerging market country,

it's that eventually you
have to pay back the money.

And if you look post World War II,

we go through a period of
heavy taxation to pay back

the debts that we accumulated
to fight World War II.

It's what we should have done,

and spreading that over time is better

than trying to pay for it all at once.

And the same is true here.

I think the fact that the
George W. Bush administration

passed a $2 trillion war
that was not paid for.

Donald Trump's got a $2 trillion tax cut

that was not paid for.

We've now got $2 to $3
trillion of relief package

that are not paid for.

And none of those things
drove up the US interest rate,

we're at record low
rates, oughta tell you

the debt capacity of the US government

is well in excess of where we are now.

It's just a choice of
when are we gonna pay it?

Are we going to pay it in the future

or we're gonna pay it now?

- Raghu.

- Well, first I think
Randy is absolutely right.

We should be thinking about
structures to facilitate

the bankruptcy of small and medium firms,

because what you want is them to survive,

and with high debt loans,
with little access to credit,

once we get sort of lift off,

it's gonna be very difficult
for them to grow or move fast.

So they need to go to
some sort of structure

with a prepackaged bankruptcy,

my landlord takes this much of it,

my bank takes this much of it.

And at the end of that,

I have a little bit of working capital

with which I can start again.

So a number of firms will have to do that.

Small firms find it the hardest to go

through bankruptcy court without
a severe loss in value.

And so the easier we make it,

the quicker we will see
those firms recover.

And some may have to close.

And certainly there's no reason
why, for sake of argument,

I'm gonna take a name,

not saying I know anything
about it and listen.

But Boeing could go if
it comes to be distressed

through a quick bankruptcy,
like the auto companies went,

and see some of its debt written down,

if it finds that it's not able to go on.

Those are things that
can be done over time.

Those are things that can
be done in the case of firms

that won't collapse overnight,
like the financial firms

and for these industrial firms,

I think a proper bankruptcy
may be warranted down the line

if they have too much debt.

What about the government?

I'm with Austan in the sense

that there's tremendous capacity

within the government to spend more.

The question is the repayment

as well as the uncertainty
about repayment.

Austan says taxes will have to go up,

but on whom, and what
kind of political battles

will be fought there?

And that also will mean

that if you're gonna bring
back corporate taxes,

a lot of corporations are
gonna be wary at this point,

where is it gonna hit?

Who's it going to hit on?

And should I be making
a lot of investment?

This was the debt overhang problem

that many emerging markets had.

I'm not saying the US is a
natural candidate for this,

but we should be wary
when we have lots of debt

and potential taxation down
the line, a lot of investors,

business people are gonna be worrying

about where it's gonna fall

and that could be perhaps more
damaging than anything else,

and I agree with Austan
at least at these levels,

even if it's a 100 percent of GDP,

which is where it's
headed to over the year,

it's not unpayable for the US

especially at these low interest rates.

- I think there's a kind of
question I want to lump together

and then give each one of you
a choice how to answer it.

Because a number of people said,

"Well, people, you guys are talking

"about how industries are gonna change.

You don't exactly say,
give me an example.

This particular industry,
how is it gonna change

and be different?"

Somebody just asked about,
"What about the airlines?"

Someone else asked, "Gee,
what about disruptors?"

So I'm gonna go back to Austan,

pick any one part of that you want,

that most sticks out for
you because obviously

you follow things like disruptors,

but everybody's kind of
watching industries change.

But I think it's interesting too,

because it's easy to say
something's gonna change,

but how and again for
me, are you guys sure

things are really gonna change permanently,

or when this whole
question of fear goes away?

Who's gonna...

I'll be happy to sit
right next to somebody

in a crowded restaurant,

I'm not gonna shy away
from that particularly

if I'm not in a vulnerable group, right?

If I don't have a preexisting condition

and maybe I've got lots of antibodies.

So anyway, jump in Austan
with any part of that.

- Yeah, well you got a bunch going on,

- Pick one.

- Look, I think this
goes back to the question

of how long is this gonna last,

or at the least, how long until
we get a control on the rate

of spread of the virus.

If they waved a magic wand and told you

that there is a vaccine and it
will be available next week,

then there will be no impact.

We would pay this thing.

I think the economy would
go exactly right back

to where it was before.

If this is extended, I
think of several industries

that are strong in Chicago,
transportation-related,

tourism, leisure, hospitality-related,

they're gonna just have much lower demand.

Now closer to home on
us, you've got four boxes

that you can see at home.

We're teaching class online.

I got 70 boxes of people
I'm trying to call on

and do these cases.

So, the education sector for sure

and the business meeting
sector for sure have drifted

toward more online components,

but I don't know what the
productivity is gonna be.

I don't know that if
we've invented a vaccine,

let's say one year from now,
there might be some drift

toward more online education,

but I think people would
be itching to get back

into the physical classroom
as soon as they could.

I think from my perspective,

historically for sure, pandemics,

but anything that are
these globalized crises,

tend to drive people to
isolationist thinking.

- Okay, all right.

- And partly, even if
you weren't a nationalist

in orientation before,

I think a lot of businesses

will wanna have a more
resilient supply chain.

And they will say, "I
don't wanna be so dependent

on just one country or
maybe even on any countries."

- Right, okay.

- To be some component
of self-sufficiency.

- Okay.

- And I think the second is, as it plays

into the public safety net,

I think a lot of businesses
are gonna conclude

from this individually
that you don't wanna have

as many employees,

that you wanna have more
flexible work environments.

- Okay, all right.

- So the policy I think
needs to be less tied

to the employees.

- Okay, so Randy, jump
in any part of that,

and there's been a lot of questions

about not just education
broadly and how it might change,

but what it means for the new efficiency

for University of Chicago,

what it means for the Booth school?

You probably started out by
talking about the London campus.

I just wonder, if any,
we've got disruptors,

we've got industries,

how the effect is gonna
change permanently education.

Take some piece of that.

- Sure, I'll take a little
bit of the education

and some of the other industries.

So, obviously we've had to
move a lot of classes online.

That's true, not just in
Chicago, but globally.

And there people are not
able to move as easily

as they had been able to move before.

One of the things we
love about our programs

is their true global and
international nature.

And that's being challenged
by both the concerns

that we've been talking about,

concerns that people have about traveling

and formal restrictions
on travel or unwillingness

or slow processing for visas.

And so, that is something that I think,

education institutions around
the globe have to face.

It's a big debate here in
the UK about that also.

We also have to adapt to
thinking about is there a way

to use the new technology
that faculty had really

not much experience with before.

We're putting an incredible
amount of time into doing that.

There's some things that
maybe we can do well on that.

And so maybe we can do a
combination of sort of live

and technology-enabled learning.

So it's allowing us to do some
more types of experimentation

much more rapidly than we otherwise would,

which I think in the long
run will be a positive.

More generally I think, what this suggests

or I think this is kind
of a shock suggests

that there's gonna be a value of scale.

And so I think, we've talked
a lot about the challenges

for small- and medium-sized enterprise.

Well, and obviously there's
some large enterprises

that are gonna have major challenges

Raghu was mentioning some of those,

and certainly large airlines of course.

But I think larger organizations

that are able to use the technology

and able to, one be more diversified.

So for some manufacturers, for example,

ones that are making a
whole variety of things

including disinfectants,

they've actually done reasonably well.

If you look overall, if they
were just more specialized,

they wouldn't do quite as well.

And so small- and medium-sized enterprises

tend to be more focused
and less diversified.

So I think one of the things
that's gonna come out of this

is another benefit of large
scale of being able to use

this technology, of being able
to be better diversified.

And so, there had been a broad
trend towards that before,

and I think this is
going to intensify that.

- Raghu.

- Well, just to go on some other areas.

Well, for sure, we've got

more technology adoption right now.

Many of us have learned how to use Zoom

and that's gonna make
our meetings more easy.

And as Randy said, some
combination of physical

and virtual is gonna be the norm

and that's gonna be true
of many, many service industries.

But I want to focus on two. One is this,

this was unthinkable, the
pandemic was unthinkable.

We thought this doesn't
happen in civilized society.

- Mm-hmm, yeah.

- And it's hit us, and I
wonder, one Randall said,

"Corporations will move
towards more resilience."

Perhaps, that will be the case.

Two, they could have done
it before and they didn't

because it had a great
impact on their profitability

and they were trying to maximize profits

without worrying about volatility.

But the other thing that I think,

I hope it will force
them to do is think about

what else is unthinkable?

And right now, the big unthinkable

for many of my age
group is climate change.

We haven't thought about it,

the younger generation has
thought about it much more

and we say, "Yeah, it is coming.

It is gonna have more disruptive effect."

But we haven't envisaged
something as big as as this one.

And so I hope what this does
is forces us to think much more

about all those other possibilities.

- Mm-hmm.

- And focus much more on the
sustainability of the planet.

Now, that said, I have
worries that we won't get away

from our short-term thinking
because of what we did

during the pandemic.

So, for example, one of the things we need

to get away from if we want to go

towards more sustainability is less debt.

But in fact, what the conventions

during this pandemic will bear out

is yeah, you can go with a
lot more debt than you used to

because when push comes to
shove and there is a cataclysm,

all stops will be pulled out,

and we've done that twice
in the last 10 years.

- Okay.

- During the global financial crisis and now.

So we keep saying, well,
yeah, at some point we'll worry

about moral hazard, I think that's
not the time to be worried.

And I think that's right.

But once we're out of it,

we still don't think about moral hazard.

We still don't think about leveraging,

we still don't think
about the need for bailouts.

And my fear is that we've just verified

that there is a very
big Federal Reserve put,

and it won't go away.

So how do we think about those things?

To get longer term thinking,
sustainable thinking

that's gonna get you right.

- Well, if the lockdown continues,

we'll have plenty of time
at home to read books,

and think about it, right?

So we'll see how that
goes, I'd like to get,

a big question in
before we run out of time

about the world and
international conditions.

Most of the questions
we've gotten so far have

to do with India and Raghu,

you can certainly take that
part of it, like where are they,

where are they going,
how this affects them,

what they should do with
their fiscal deficit?

All kinds of things,
the value of the rupee

and other ones have been
a lot on China, right?

And supply chains and
how it will affect them.

So Randy, we'll go first to you,

you spend a fair amount of time in China

talking to peoples as
part of your educational

and etc. agenda, so
what do you see there?

- Yeah, we have our campus in Hong Kong,

so I visit there often and
actually I started visiting there

more than 30 years ago.

And so it's been very interesting

to see the evolution over time.

So China, obviously, where things started.

They were the first to
respond, enormous lockdown,

one of the first to start to unlock.

And so they're trying to get
back to business as usual,

but it's not business as usual.

Hotels are open, but
they're 20 percent occupancy.

Shopping malls are open, but
very few people are shopping.

It's back to what we
were talking about before

about these behavioral changes that occur

regardless of what the regime is,

whether it's Chinese Communist Party

or whether it's a Western
style democracies.

That's a behavioral change

that's there, that's gonna
take a while to overcome.

You had a trend that was going on anyway

towards moving production
facilities out of China,

both because China had developed so much,

so it's starting to become more expensive,

and so Vietnam, Malaysia, Indonesia,

had become much more strong, Thailand,

much stronger competitors,

if you wanted to build
a global supply chain

because it was cheaper there,
and so that was one force.

Second, the trade disputes
were another force

for making people wary of doing that.

This shock has, I think, led
people to be even more wary

of that international, you
could say it's diversification,

but it's also a series of interconnections

that have risks associated with them.

And so some of that production

will probably come back onshore.

I think some of that may help
that is the dramatic decline

in energy prices, in the US,

so manufacturing, which had
become relatively expensive,

can be done more in the US now—

who knows what's gonna
happen with the oil market?

Oil prices were negative for a few days,

maybe they'll go be negative again,

probably not over the long
run, they'll be negative,

but it just shows you the
tumult that's in that market

and the difficulty of those forecasts.

But I do think there's gonna
be a very different approach

to globalization,

I think that's gonna
have an impact on China.

- Okay.

- And so China needs to
develop its domestic demand,

which it had been on the path to doing,

but obviously the shock has come in,

- Okay.

- And I think the US and
the rest of the world

is gonna be slow to come back.

- So Austan, jump in,

you don't have to answer this question,

but there were a couple of
questions about China's role

in the development of COVID-19

and not being more transparent, etc.

I think that the big door I'm opening

for you to walk through is,
COVID-19, economic outlook,

particularly when you look at China,

particularly when you look at Asia,

which has been such an engine of growth.

- Yeah, I think bluntly
you can't really trust

the health statistics coming out of China,

and everybody kind of knows that.

And so I still don't
fully know what to make

of now the Chinese government
is portraying, "Everything

is getting back to normal.

We're coming out of lockdown,
we have zero new cases."

Is that true or not true?

I don't have a great sense.

I know that in Korea,

a place where we have a lot more open data,

and we can observe the model,
that model is succeeding.

That extensive testing,
totally upfront accountability

by the government to say,

"Here is this magnitude of the problem."

And it was a major magnitude
problem in South Korea

and they did not shirk
or shy away from that.

They showed what it was.

They went through the testing protocols

and that has allowed them to
get their economy to come back.

I think China is for sure
gonna experience heavy bumps

of the same form the US is,

but it won't be as bad in China

because the services are not as important

as a share of what China's doing.

So agriculture is hit much
less and can come back faster

and manufacturing can come
back faster than can services

that are done face-to-face.

I think it's a whole separate question,

how much excessive debt do you

and how leveraged do you
think the Chinese economy is?

If you're prone to thinking
that that was a big problem

before COVID, then you're probably
gonna get pretty nervous

looking at the outlook

over the next one to two years in China.

- Okay.

- If you didn't think that
was as much of a problem,

then I think they're on
the same struggle back

but on a path to return.

- Okay, so Raghu, anything
you want to say about China,

but definitely lots of questions,

What you think about India,

where they are in COVID-19 more broadly,

where the economy's heading?

So again, dive in.

- Well, first I have to
say these are grim times,

not one joke from Austan so far.

(laughing)

It's tough to go through one of these.

I'm actually cool, itching
of course with Austan,

and I'm counting on him to
keep the school incentive.

The issue with many emerging
markets is they bought

into this crisis not well-prepared.

Take Brazil,
take Mexico, take India,

large fiscal deficits, they
typically don't have the room

to expand spending significantly, again,

it's one of those break-the-glass moments,

but they have to do what is necessary,

but they don't really
have the kind of capacity

that Western economies have.

And many of them start with health systems

which are under-invested
in and not wonderful.

So if the virus spreads as it
has in the Western economies,

it is gonna be a real calamity
in any of these countries.

Fortunately, so far,

whether it is because they're
not measuring properly

or whether it is because the virus

really hasn't spread that
much, some of these economies,

especially the economies in
Africa, but also South Asia,

so far haven't been hit as
hard as one might think,

given the populations, given
the crowded sort of environment

and so on,

And I don't think it's
entirely mismeasurement,

because you don't hear
as much about the debts.

You don't hear as much about the hospitals

being overflowing.

At the same time it's hard to explain why

because the story that the
hotter, more humid climate

is what prevents the spread.

That's not necessarily true

because Mumbai is a hot spot right now

with tremendous rates of infection

and it looks like the
vertical exponential curve

as anywhere else.

So there's something else going on,

we don't fully understand.

Hopefully, the virus
doesn't spread as much,

and these countries can
come out of their lockdowns,

sooner rather than later,

because people have much less reserves.

The problem there is
gonna be as you get out

of the lockdown, the kind
of management that Austan

and Randy have
talked about, the testing,

tracking, etc.,
is harder in a country

which is relatively poorer.

You don't have the same
kinds of medical resources,

medical facilities, but they
gonna have to work it out.

So it is work-in-progress,
they are limited resources

and not helped by capital
flight, which is on, as we speak,

tremendous amounts have flowed
out of the emerging markets,

but they have to do what they
can within this environment.

So wait and watch.

- Okay, wait and watch.

Well, I think I've let us
go a little bit over time,

but I wanna ask one more
question, each panelist

just something very simple,
I guess lesson learned,

but more from this sense of hope.

Sometimes you go through hard things

or they say every cloud
has got a silver lining,

and you look at a
situation you got through

and you realize, whoa,
that actually I did get

something good out of all
the pain and suffering.

And so Randy, you can lead
the way on this final question.

Don't make it too long, but
just give us a sense of...

As we look ahead,
what's the hopeful note?

What's the lesson learned
that we're gonna take forward

that's gonna give us some good
out of all this difficulty?

- A few pieces to it, but I'll be quick.

One is that it's really been amazing

to see how people have
pulled together in a way,

because you could easily say,

"Oh my goodness, everybody
is gonna infect me,

and so I don't wanna help anyone.

I just wanna hide with my family."

We haven't seen that.

We've seen in the US
as well as here in Europe

where I am, an enormous
outpouring of people

willing to help other people,

of responders who are putting
themselves in harm's way.

and in some cases tragically passing away

because they are helping other people.

So that is, I think, something
that's very positive.

Something else that's been
quite amazing to me is see

the quick response of
research in so many areas.

My colleagues at Chicago Booth
have just done an incredible job,

I think Marianne Bertrand,
doing surveys of small business

to really try to
understand what's happening

and get that information
into the policy process

as quickly as possible.

Austan, Raghu, and others writing op-eds,

and trying to get sensible ideas
into these policy processes

as quickly as possible.

I didn't think academics
could react so quickly,

and they really have.

- Okay.

- And then, I think that's a hope

and that'll also, I think be good

for bringing economists together

with epidemiologists so that
next time we don't see, it's one

or the other, but to be
able to work together.

- Oh, I like that last point.

I think that's one thing that scientists,

you need to hear from many
different types of scientists,

and let's hope that is a lesson
learned for the next one.

I'm gonna finish on Austan,

I'm gonna give him a chance
to levity it up for us a bit.

But Raghu to you, what's
the positive, hopeful note

that you see coming out of all this?

- On the one hand, talk
about silver linings,

this has accentuated all the fault lines

that existed earlier, right?

The divisions within society,
it's hitting the worst

and the most unprepared hardest.

Divisions between countries,
again, the same case.

So on one hand that seems tragic,

why are those fault lines being
hit again in the same way?

But on the other hand,
it, it does raise the hope

that now that we see this
happening again and again,

maybe we finally sort
of try and deal with this

and resolve some of these issues.

And interestingly, one
of the things that is...

Pointing to Randall's point about camaraderie,

many people use the war analogy

and we do know that post World
War II, people came together,

for example, in the UK,
certainly in the United States,

and thought about how do we
do this better as a country?

Because, we owe it to
the people who suffered,

the people who were on the front lines.

In this case, it's not
so much the soldiers,

but certainly our medical
specialists, our medical personnel

as well as the people delivering the mail,

people delivering newspapers,

the people in the
grocery stores, and so on.

And so there may be a coming together

and to some extent we
are also rediscovering

the value of community.

I mean, think about where
all the migrants are going.

They're going back to their village.

They're going back to where they came from

because that's where
they will find support.

Hopefully, we realize that
they're not finding support

in the places where they are.

We start thinking about building

a stronger sense of community,
but one of the effects

of this isolation is I
value community much more.

And the last point, just to
reiterate what I said earlier,

there are big global problems

and sort of dealing with
one hopefully makes us

focus on the rest, especially
the problem of climate change,

but also the problem of aging.

How do we fix the consequences
of these or avert them?

And that to my mind is
one of the silver linings

of something like this.

It makes us think that's not impossible,

we need to deal with it.

- Speaking of appreciating things more,

I can't believe like the
highlight of my day can be,

God, I gotta go to Lowe's and
walk through, and look at stuff

and maybe I actually got to buy something,

and then I think go to the
drive-thru at Starbucks

or Dunkin' Donuts and you
appreciate the little things,

retail basics that you can't
always get at anymore.

So Austan, what's yours?

- Well, look, the lows—
our bathroom sink,

under the sink is leaking, but
I can't get anyone to fix it.

So I'm going through
YouTube trying to figure out

how do you fix a water shut
off, the water release valve.

So if anybody knows
that, send me an email.

I think the case for
optimism is the following.

We aren't that far from being on a path

that we could get out of
lockdown if we just do

what they've done in countries

where they've gotten out of lockdown.

Okay, we know need a vaccine,

it would be great if we got the vaccine,

but there's five, six major countries

that have gotten out of lockdown

and started growing
again without a vaccine.

Because if we just get
some more testing, tracing,

and with some public health focus,

like maybe it's wearing masks
and washing our hands more.

If we get the rate of
spread of the virus down

to an R value of less than one,

then the disease will peter out.

And we're not that far from it.

Whether we gotta mobilize,
we gotta do that,

but we're not that far from
being able to get on that path.

- Okay. Well, gentlemen thank you so much.

I kind of just remind our
audience, this is so much fun.

I always am thrilled
to join Raghuram Rajan,

Randy Kroszner, Austan Gooldsbee.

Thanks also to Madhav Rajan,
who is the dean of University of

Chicago's Booth School of Business,

for bringing us in and getting us started.

Gosh, maybe we'll do this again.

We'll see, it's been quite
a year already, hasn't it?

So I want to, again, thank
all of you who signed up.

Thank you for joining us and
have a wonderful safe day.

- Stay safe. Bye bye.

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Chicago EO 2020

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