Coronavirus Economy Update: What’s Happening Right Now with Economist Tyler Cowen

This isn't your average business podcast, and he's not your average host. This is the James Altucher Show. Today on the James Altucher Show. How does the Fed actually pay for this? Like, in a best-case scenario, how do we avoid the accusation of inflation, like Zimbabwe-style inflation, or even German— Germany 1920s-style inflation? The problem when you kind of both print money on the Fed side and borrow money on the stimulus side is that people could lose faith in the dollar worldwide and we experience inflation.

Well, right now there's two different things going on at once. The first is that just the supply of goods and services is falling, right? People aren't producing as much. That tends to raise prices. The other problem is that demand is falling. We're not earning as much, not spending as much. We're hoarding cash much more. That tends to lower prices. So we don't know which of those will be the stronger force. Uh, it could be there's a great danger that we have deflation and prices fall too much. I would say if the Fed ends up creating a higher than expected rate of inflation, that's actually a sign we succeeded, that the deflationary scenario is worse. No one wants to hear this, but I'm rooting for a higher rate of inflation. It would mean, uh, we did not have a total collapse.

I guess you want to avoid it ever spiraling. Like if suddenly we get out of this virus and by the end of the year inflation was in double-digit numbers on, on basic items like food, then that would be a scary, uh, number for people around the world who are investing in our dollar and our debt and so on. Uh, when is there a tipping point? Because the economy is the society. You can't really turn off the US economy like, like a light switch and then turn it back on a few months later. At what point are enough people kind of just unemployed, uncertain, scared? When would you say there's a tipping point where the system as we know it starts to crack? And what does that mean? Almost every sentence has to be, well, I'm good, but you know, good as can be. Like everything has to be qualified now. Like we're in this kind of, oh, this over this gray overlay on everything in life now has to be All sentences have to be, uh, take that into account.

And what's the, the sentence you have to put in every email that you wouldn't have put in before?

Uh, I hope you're being safe and distant from everybody.

Something like that. Yes.

Yeah. So, uh, Tyler Cowen, uh, once again, back on the podcast. Tyler Cowen's a great, uh, economist. Tyler, I'll do a full intro afterwards. You've been on the podcast a bunch of times with all, all of your excellent books and You're always a great resource to go to about all things economic, and we have no greater need for your knowledge than now. I'm sure you've been very busy.

Uh, yes, I'm in touch with many people all day long and reading and studying, uh, all matters coronavirus.

And I guess, um, you know, I'm sure you've thought about a wide range of issues and this might be kind of basic, but you know, we just had this massive multi-trillion dollar stimulus package passed, plus we have the Federal Reserve with trillions of dollars in stimulus or, or sort of stimulus with interest rate cuts and them getting involved in the securities markets. Maybe you could kind of just to sort of summarize what's happening and then we can talk about possibilities about what's going to happen.

Well, we're in a new, and I would say virtually unprecedented economic position right now. So we know how recessions work.— or even familiar with depressions. Of course, they're terrible events. But this is a case where we want to deliberately tune down the economy. It's as if we want to put the economy into a coma to limit the spread of the virus. And that's a highly unfortunate situation. But at the same time, we don't want to damage the economy in the longer term. So trying to achieve those same goals at once slow everything down, but also in a way keep it mostly intact. And then to introduce yet a further complication, I think we all know when things come back, like, it will be different. We may not know how, but you don't want to just preserve in amber exactly the set of businesses we had to begin with. So that's a very, very difficult situation.

Yeah, that's a good point, because for instance, if you target specific industries to quote-unquote bail out, We don't know if those industries, you're just kind of, uh, postponing the inevitable. Like, like for instance, for all we know, the cruise line industry is, is over for the next 10 years. We just don't know.

We may hope that, right?

I don't want to go on any cruises.

Exactly. Nor do I. And maybe you don't want other people to because they'll become super spreaders. So we probably shouldn't bail them out.

Yeah, we don't know. So, so, so maybe we could start with the stimulus package and, and, and again, we can get to kind of what this, what this so-called new, you know, what we think is going to happen, what this new normal might look like. Will the economy survive at all? Or, but, but what happened in the stimulus package? How will it help people? I mean, obviously people were looking forward to it, but then the market fell when it passed. But, uh, what, what, what specifically is it? Cause it's a lot, there's lots of things in it. There's lots of moving parts.

There are many parts to it, but you can think of one set of parts as just getting people cash. So those people who maybe have lost their jobs, they worked at a restaurant, they need to make a rent payment, uh, it gets them some amount of cash. It also makes it easier for people to collect unemployment insurance. Uh, those are all good parts of the bill. Yeah.

And it extends unemployment insurance and increases, uh, what you get for unemployment insurance. And everyone gets, um, you know, $1,200, kids get $500. So potentially if things like rents and mortgage mortgages can— mortgage payments can be put off and the only thing people are doing in isolation is, is buying food. Then, you know, potentially this is a good-sized check across a majority of Americans.

And on that, I think we're doing the right thing. So that's good news. We might need to do more later. I'd say we don't know. Better to wait and watch than commit prematurely. But on that, we're on the right track. Then there's a second part of the stimulus bill, which is a kind of bridge aid to businesses. And that's a little hard to evaluate because a lot of that will be handed out later. We'll see how good a job they do. I think in, in principle that's a good idea, but I'm a little worried that it will be political favoritism, or maybe we'll give too much money to companies that shouldn't come back, or some of it may just go to companies that don't need it. Some companies like the airlines, which have gone bankrupt in the past, maybe we should just let them go bankrupt. They won't stop flying necessarily, or maybe they should stop flying. So I'm a little worried we won't run that part of it well, but I certainly in principle think we're doing the right thing by spending a lot of money on bridge aid for businesses.

What about, um, for small businesses? So there's 28 million small businesses in the United States employing, I don't know, tens and, you know, a good chunk of the economy. And I see this in New York City, you know, every storefront is closed and kind of on the verge of bankruptcy in the norm. If this was a normal world, like, What are the details of the small business aspect of this?

Well, there's really a major question, I think: when will this all end? And I know I don't have the expertise to judge that, but I can tell you, speaking with experts, I don't think they quite know either. So there is some chance of there being a second wave in the winter, and I think if there's a second wave, it's a very different scenario. If all this is over in 3 months and just done, then I do think the world we knew more or less bounces back as we knew it. Not completely, maybe not cruise ships, but that scenario— things will look pretty familiar. And that's easy to deal with. But say you have, as you did with the Spanish flu in 1918-1919, a second wave. Winter waves of pandemics can be worse. Some chance even of a third wave. Then I think you're in a situation where these small businesses and New York City and elsewhere, you know, maybe they're never coming back. And you actually want a lot of those people to start driving food trucks or, or work for Amazon. And then extending them bridge aid in a lot of those cases is a mistake. You might want to give them humanitarian aid to make the transition, but you don't just want to recreate, you know, the Manhattan we knew and loved. And since I don't think anyone really knows which of those is in the cards, it's very difficult to make the right decision.

Right. So they— so let's take restaurants, for instance. The average restaurant before this crisis had 16 days of cash on hand, and now we're starting to see, you know, 16 days roughly has gone by where there's been less to zero traffic depending on the region, and these restaurants are going out of business.

They're—

I'm seeing it in New York. They're laying off, uh, people, no severance, just, uh, there's gonna be million— you know, last week we had record numbers of people applying for unemployment. We're going to see that again this coming week. Uh, uh, what— so, so with this new federal stimulus, I guess the average small business like a restaurant can go to the bank, I guess, or I don't know what the procedure is, and, and basically take out a loan to cover employees, I guess, inventory, maybe some rent obligations, and, and so on. Do you think that's going to be helpful, uh, if things come back fairly quickly, or what, what's your take on that?

Again, if things come back quickly, that's all great. It's doing the right thing. It's helpful. Uh, I suppose as a policymaker, I would be willing to take that chance. But in all honesty, there's a significant probability the public health issues stretch on for longer than that. People just get out of the habit of going to restaurants. Maybe even 9 months from now, things might be much safer, but not totally safe. And you'll have a risk-averse population and you're faced with the notion that a lot of those people need to transition out of the restaurant sector, and then some of that bridge aid would have been a mistake. That's why it's so difficult to evaluate, right?

Like, uh, this is, this is now a naive question, but if you had just simply taken that $2.2 trillion and just given it to every, you know, in the same way you're giving these $3,000, you know, these $1,200 checks, you could have given, you know, up to $18,000 a check per person. Do you think that would have been a better direct stimulus than what we're doing?

If you think it will stretch on for a long time, that is better. If you think it will be over quickly, the bridge loans are better. That is how I would put it.

And then, and then in terms of the Federal Reserve's role, I think, uh, you know, the Federal Reserve has committed trillions of dollars to support the various markets. But what does— and you've described this well on— or, and you've also linked to descriptions of this from your blog. By the way, your blog Marginal Revolution is a must read every single day. Not only your own thoughts, but your links to other people's thoughts is really excellent. I've been using it as a great resource during this entire time. Um, what, what's the Federal Reserve doing that's helping the economy right now?

I think the Federal Reserve has done a great, fantastic job in this. So maybe as recently as a week ago, there were very serious stresses on financial markets. So people are trading in these markets. And a lot of them are trading on borrowed money. So there's the chance if prices move too much in particular directions that they're asked to put up more margin, they can't do it, that people become insolvent because of their trading positions, that liquidity in various markets dries up because people want to hoard cash because they're uncertain about the future. So if everyone is just hoarding cash and there's not enough liquidity in the market, everyone can get stuck. You could have a financial crisis on top of all these other problems. So the Federal Reserve basically did— some of us call it QE infinity. They just said, we'll intervene with whatever it takes, wherever it takes, and, you know, do whatever we have to do. So what's happening?

That was the right thing to do.

It's calmed the market somewhat. It's a very dangerous place to be. I take this very seriously. I'm not happy that they had to do that. The idea that you have a money-printing institution that simply, more or less at will, will just go and do things as a kind of fireman of financial markets. It's still a very scary place to be, but I would rather they be doing that than not doing it, for sure.

What's an example of some of the things they're doing now that they weren't doing before?

Well, if you think of, you know, corporate debt, corporate debt is overextended, right?

So let's say I'm a big company and I borrowed a lot and I have a debt payment due, 'But because of this virus, I haven't been able to make that interest payment or that debt payment.' And then in the meantime, for jobs to be kept up and running, say for bigger businesses, those companies are issuing commercial paper to borrow money, right, from the market to meet their payroll.

But if they have debt hanging in the background, the market might say, 'No, we're not gonna buy your commercial paper. We don't wanna swallow that. It's too risky.' But if the Fed is saying, 'We'll step in to buy whatever is needed,' Uh, there's a much better chance those companies can stay on track.

So, so let me, let me just work through that example. I know this is basic, but I just want people to understand. So let's say I'm a huge company or, or any size company. I have to meet payroll tomorrow, but the, the revenues that my employees have generated, I haven't— not everybody, not all the vendors have paid their invoices. So I need to borrow money just for a day or two to pay my employees to meet the next payroll. And many companies go through this. Typically they go to the bank, borrow for a day at very low interest rates. It's very safe. Uh, this is called commercial paper. And now let's say a bank says, no, I'm not doing that. What's— is that what's happening or what's happening?

Well, the Fed is saying in essence to everyone, including the bank, look, if you buy that paper and if something goes wrong, we'll step in and buy it from you if need be. So that makes it safer for everyone.

So, so like Wells Fargo or Bank of America, can say to the, the business, okay, normally you're not meeting our, our, our borrowing standards anymore for, for even commercial paper, which is only like a 1 or 2 day loan, but we're still going to lend you this money because we just got a phone call from the Fed that if this, if you can't, uh, pay us back, the Fed's going to, uh, uh, buy this from us. So we were taking no risk. Is that what's—

That's correct. But it's much broader than that. The Fed has announced a willingness really to do whatever it takes in any market. And where the troubles might pop up. You know, who would have thought in 2008-2009 AIG, this insurance company from New York State, would have been a big source of trouble? Very few people, if any, predicted that. So, we're gonna have problems pop up that no one has seen in advance, really. And the Fed is just saying, no matter where these problems pop up, it doesn't have to be commercial paper, we have, in general, a willingness to step in.

And, um, What do you think the Fed— a lot of people suspected this in 2008, 2009, but I think, and these rumors are starting to come back. Do you think the Fed will go as far as to buy stocks?

I hope they don't have to, you know, I think we're more likely to have problems in debt markets than stocks. So maybe, you know, something like over-the-counter derivatives can be a risky area. There's a lot of leverage. A lot of people needing to make margin calls. Uh, I don't think stocks is the most likely scenario, but again, everything's possible. Right.

And you know, it's funny because you said that a lot of people might have margin calls, but it's not people you're talking about. You're talking about, uh, companies, institutions.

I mean, yeah.

I mean, why not, why not extend the margin rates for margin calls for individuals? That would certainly help a lot of people or basically a lot of, you know, retail investors. Although I guess I don't know how big that population is.

Well, retail investors, just as human individuals, are being helped in other ways. But keep in mind, the Fed is a very blunt instrument. So the Fed cannot easily, you know, buy and sell the loans made to the local candy store or the local grocer, right? It's just too small a scale. And they don't have the capacity to manage that. So what the Fed does, just by the necessity of the costs of processing the transactions, will be at a larger scale. It will be larger-scale institutions. The philosophy is, say, if the Fed helps out banks, the gains from that will trickle down to smaller businesses. That should prove true. But the Fed in a direct sense is targeting much larger institutions.

And, you know, there's— you could argue there's a third stimulus right now, which is that oil has fallen from, I don't know, $54 to $20 during the past month. So, you know, but, but since very few people are driving for work, that stimulus— driving to work— that stimulus has not yet felt fully, but that's a potential stimulus on the economy.

Well, just for the US economy, we've become a major exporter of oil. So while the low oil price is good for the world in general, it's certainly not good for Texas or North Dakota. It's may or may not be good for the US economy as a whole. So the break we get on that one is at best small, and in some ways it's a negative. But again, it's good for the world, right?

And, and, and again, just kind of Going through all the summary issues of what happened or of what's happening, the Fed, how does the Fed actually pay for this? Like how, how do we, in a best case scenario, how do we avoid the accusation of inflation, like Zimbabwe-style inflation or even German, Germany 1920s-style inflation? So the problem when you kind of both print money on the Fed side and borrow money on the, uh, stimulus side is that people could lose faith in the dollar worldwide and we experience inflation?

Well, right now there's two different things going on at once. The first is that just the supply of goods and services is falling, right? People aren't producing as much. That tends to raise prices. The other problem is that demand is falling. We're not earning as much, not spending as much, we're hoarding cash much more. That tends to lower prices. So we don't know which of those will be the stronger force. Uh, it could be— there's a great danger that we have deflation and prices fall too much. I would say if the Fed ends up creating a higher than expected rate of inflation, that's actually a sign we succeeded, that the deflationary scenario is worse. No one wants to hear this, but I'm rooting for a higher rate of inflation. It would mean we did not have a total collapse.

You, I guess you just don't want to, you want to avoid it ever spiraling. Like if suddenly we get out of this stimulus and by the end, I mean, we get out of this virus and by the end of the year, inflation was in double-digit numbers on, on basic items like food, then that would probably be, that would be a scary, uh, number for people around the world who are investing in our dollar and our debt and so on.

Uh, that's true, but I think you need to keep in mind under these very weird circumstances, the price indices are not that informative. So right now I'm afraid to go to the supermarket. Uh, the price on the shelf, it's probably the same as what it ever was. But the actual real price to me is quite high. I won't go. I won't buy. We're not sure as economists how to think about that. It's not the same as inflation. But again, the price index saying, "Oh, it went up whatever percent," it's not reflecting the realities we live. The realities we live is we're in a way quarantined, one hopes, and we're afraid to do a lot of things. The actual price is so high, we don't want to do it. It's not the fault of the Fed. It's not the fault of anyone. It's simply inevitable. And I would focus on what do actual lives look like and not like what's the number in the CPI. And I think markets understand that, too.

So, so again, so now we have this stimulus package passed and potentially there could be another one a month or two from now if needed, although at some point I would imagine there's fears of just you can't print forever. I, I agree that this stimulus package was needed, and, and if you go by the 2008-2009 playbook, it seemed to have worked then without all of the nightmares that people had been predicting. So hopefully the same thing happens now, although it's much greater. Given that the stimulus is so much greater than 2000-2009— 2008-2009— in a best-case scenario where this sort of peaks and subsides in the next, you know, couple of months and the economy goes back to work, What will we feel like as the stimulus starts to kick in over the next, you know, 3, 4, 6 months?

Well, if this whole thing is over in 3 months, I think there'll be an incredible boom. It'll be a bit like right after World War II. People had spent years not being able to buy what they wanted. It wasn't in the store. They were busy with other preoccupations. And then all of a sudden you have everything flooding on the market, soldiers going back to work, a lot of production, a lot of spending. And again, if this is over fairly promptly, I think it will be like that and it will feel very good.

And, and do you see asset prices rising like a stock market, things like that?

Well, the market usually figures out pretty quickly when this is going to happen. So by the time it's actually happening, no, I don't think asset prices will rise. I think they'll have risen well in advance. Obviously, we're all rooting for that. But again, that's the first effect that will kick in.

And then, and then what will happen?

Uh, people will feel free to travel again, you know, on public transportation and go to restaurants and go back to work. And again, there'll be a pretty phenomenal boom and people will just feel better. Their mental health will improve. They'll be more productive. Kids will be back in school. Many, many benefits. I'm not sure it's going to run that smoothly, but it is a possible scenario, right?

This is a best-case scenario. So again, last week a record number of people applying for unemployment. I think there was 3.1 million new unemployment filings. The prior record had been 695,000. So this is a substantial increase over the prior record. Next week might be just as ugly. We don't know. Uh, when is there a tipping point? Because the economy is the society. You can't really turn off the US economy like, like a light switch and then turn it back on a few months later. At what point are enough people kind of just unemployed, uncertain, scared, meant— like you mentioned, mental health being affected. When would you say there's a tipping point where the system as we know it starts to crack? And what does that mean?

Again, this is unprecedented territory. I don't think anyone knows. The fact that I'm a professional economist, I'm not sure it makes my guess any better. Than anyone else's who's been following the news. My intuition is 6 to 9 months, but again, that's not science. That's me, you know, stabbing and guessing at it.

Right. And, and I, my question is why, why so optimistic? So why not 6 to 9 weeks? Because, and the reason I ask is as soon as people are unemployed and, and you look at all restaurants, right, there's 15 million people working in the restaurant industry. I'm just signaling them out. But, but, you know, all small businesses, tens and tens of millions. Once they're— these people are unemployed and there's no prospects for going back, or they're unsure what, what they're going to do, and they need money for, you know, whatever it is. Uh, you know, I feel 6 to 9 months is optimistic. Well, why, um, what happens in 6 to 9 weeks when just 2 weeks of this has been, um, so scary for tens of millions of people?

Well, that scenario I'm pretty optimistic about. Of course people would be scared. But I don't think the resources will have dispersed. So let's take an extreme example, the NBA, right? That's been shut down. They shut that down actually a while ago. That was a pretty early shutdown. Let's say that 3 weeks from now they figure out a way to run the NBA that's safe. Maybe no spectators, but games on TV in a secluded gym somewhere. Every player would get a text and very quickly those players would show up back to work and it would happen. Right? They've nowhere else to go. They're not going to quit the NBA. They're not going to go get lost. They're not going to go back to the home country, whatever. The NBA would reconstitute very quickly.

What about—

Not everything will be that quick. But I think if it's only, say, 6 weeks, and there's still a lockdown, like, people don't have the chance to go get lost doing something else. So I think most businesses would reconstitute pretty quickly.

Right. So, so, but what about though, people, um, you know, for instance, these big conferences that, that shut down, whether it's Coachella or South by Southwest, or, you know, there's not only the, the people going to the conference, there's the tens of thousands of people or hundreds of thousands of people who had gigs related to the conference. And those revenues for them have been lost forever. And, and maybe it would be as if Christmas shutting down for the toy industry. Like, you You can't really miss a Christmas season for a year or else most of the toy companies will go out of business. So, so what about people who they're just essentially out of business because of several weeks of no work?

Again, they're at home somewhere, they're in an apartment, they're digging into their stock of, of, you know, hamburger or whatever. Uh, if things bounce back, they haven't forgotten how to play the guitar. But that said, I think if this drags on, people who do live performance. I think that sector will be, you know, maybe half as large as it had been just a few months ago. And that's a terrible tragedy. And a lot of those people, the more marginal performers, they will just have to get other jobs altogether because their full audiences won't turn out.

And you think the jobs will be there. So, so again, like a lot of industries related to recreation and tourism and dining or shopping, you know, at storefronts, uh, these industries might change. People might be more rel— more reluctant to, to travel for business or more reluctant to go out to a restaurant when they can eat it at home. And so, so the, the new normal, as you were suggesting earlier, might be, might be very different. And, and will this be an overall reduction in jobs even if this, you know, even if this thing ends today, which which it isn't, but are we reaching a new normal where people are gonna kind of stick to some of this social distancing and that will have its repercussions on the economy?

That is my expectation, yes. So there'll be fewer people doing restaurants, there'll be fewer people doing, you know, live entertainment. And not all those jobs pay that well, but people enjoy them, right? It's fulfilling or it's interesting. So more of those people will just have to get ordinary jobs. I'm not sure the wage hit will be large, may or may not be, but I think they'll be much worse off. They'll have much worse lives by their own standards, and that will be part of the human tragedy of this.

Let's stop to take a quick break. We'll be right back. Do you think, you know, I've seen a lot of You know, even before this crisis was hitting, we, we saw society being polarized on either side, in part because of whether you call it the wealth gap or the income gap or whatever. And even now I'm seeing kind of, um, almost more, uh, you know, violent messaging on social media platforms about this disparity, about how the wealthy are handling this versus the non-wealthy. Do you think the fact that many more lives could be in despair after this virus ends, do you think that could create any kind of social unrest or, you know, any kind of other tipping point on society?

Again, those questions are very hard to forecast. I would say in previous world history and American history, during wartime, polarization tends to go way down. And this is like a war. So I think for the Immediate future polarization is and will continue to be quite a bit down. Obviously, over President Trump, opinions will still be extreme, but on the whole, it won't be the way it was. Now, once the war is over, so to speak, I'm not sure. But also in the afterglow of wars, the immediate afterglow, people are just feeling good. You also have low polarization, say, 3 or 4 years after that. I'm less sure.

Yeah, because again, what will happen is let's say you have— you had this initial 2-point whatever, $2.1 trillion stimulus package. Then you have trillions of dollars that the Fed is potentially going to use to stimulate, uh, the, the securities markets. And then, uh, you know, who knows what else is out there, but you're talking about a stimulus package far greater than the 2009 crisis. So what you're saying is no matter what, as a society, we're going to feel a little bit flush after this is over and for the 3 to 12 to 18— who knows how long afterwards until maybe there's either too much money in the economy or there's another wave or some other event happens?

I think the long-run trend— and again, this is purely speculation— is both the kind of left-wing and right-wing views will weaken. We'll see a rise in what I call authoritarian centrism. People will perceive that as what has worked. So the idea that maybe you're under some kind of surveillance for your health which would have been extremely controversial and never have happened a few months ago. Uh, that's been done now in Singapore, it's been done in South Korea, uh, done in a more extreme form in China. It seems to have been partially effective, and we may get a form of that here. So people will care much more about what works. There'll be less interest in civil liberties, and this will be a centrist view, not a left or right-wing view, and the concerns of the left and right wing will look fairly petty compared to human lives. That would be my intuitive expectation.

Yeah. And so economics and health now are intertwined in a weird way. So what data are you looking at on this virus from the health side that would inform you on the economic side? So, so as an example, I'm looking at— now that Wuhan is supposedly going back to work, it's interesting to look at number of new cases and number of new deaths in Wuhan each day. Because it would be interesting to see if that spikes.

Yes, I check the numbers from all the countries where this is happening on a regular basis. Deaths, percentage of people that need to go into intensive care, number of cases reported. None of those numbers are entirely reliable. I'm not sure whether I should trust any of the current numbers from China. Singapore and Taiwan so far have done the best job, and they also seem to have the best data. So I'm a big fan of the US getting its act together when it comes to data and testing and measuring.

Yeah, like, uh, you know, Singapore and South Korea doing this tracing, you know, where they, they, they know where you've been and know you've interacted with. So if you get infected, they're able to inform everybody, uh, who, who, who could also potentially got infected. I think that seems very powerful. But, you know, another thing that we don't seem to know is, you know, we don't know the difference between, you know, on the one hand, lockdown, like Wuhan style, seems to work. And on the other hand, no lockdown but aggressive testing and quarantine, testing and quarantine, like South Korea and Singapore, that seems to work. So it, it, could it be a case that there's some level of social distancing that works? A full lockdown might be too much, zero lockdown might be too little. It's sort of in the middle and some sort of aggressive testing and quarantining, you know, might work. What I'm asking basically is, can we reopen the economy but keep social distancing, keep quarantining the most likely suspects, and move forward?

In due time, yes, but we can't do that now. So here's a way to think about it. I do think we need lockdown, but lockdown on its own with nothing else won't work. You could freeze the virus, but then if you let everyone out again, it comes back. So lockdown is simply buying you time to expand hospital capacity and to expand your ability to figure out who has it, isolate them, treat them, do whatever you need to do with those people. So the time you're buying, you need to use very effectively. So we start with lockdown. The time we've bought, we have not used very effectively, but we need to up our game there. And once we have upped our game and expanded hospital capacity and testing and tracing ability, then we can relax this in waves, and more people will get sick relative to lockdown, but we'll be able to take care of them better. It's a very ugly, slow kind of back-and-forth process. It's not pretty, right?

And, and, and you, you sort of brought a point in your last statement, which is that, you know, there's this concept of flattening the curve where if we do this lockdown and plus social distancing plus, you know, quarantining. The idea is that there's fewer, uh, cases at any one moment, so that gives the healthcare system time to either, uh, deal with all the cases that happen without overflowing, or time to make more beds, make more ventilators, make more, uh, surgical masks and other equipment that's needed. So there's almost two ways to unflatten the curve. One is to have fewer cases, and the other is to have time to make more equipment. So it's either bottom-up or top-down.

And we need to do both, right?

And we need to do both. And so, uh, it does seem like, you know, the private sector is coming to life by making, you know, tens of millions of surgical masks, uh, you know, potentially ventilators. Uh, do you think, do you think these private sector efforts are going to help with the flattening the curve, help the healthcare system deal with this in time before they overflow?

Absolutely. And I think the private sector overall has been pretty phenomenal. You have pharma companies jumping in, testing antivirals to see if those will help people, working to develop vaccines. We're not sure how any of those endeavors will go. But, you know, Zoom and the system we're on now, Squadcast, have kept our conversations up and running. Skype also. Amazon and UPS deliver our packages. Netflix entertains us at night. It's actually kind of big tech and corporate America that has shown and looked very good in this process. You know, Facebook having more face masks on hand than any hospital system. That's crazy, but you know, bravo to Facebook. So the rest of American society needs to step up and do as good a job as the healthcare workers and the big tech companies and big businesses have done.

And how would you suggest the rest of American society do that?

Well, our government has really wasted a lot of the time we bought initially. We knew about this for 2 months and essentially did nothing. And we've had all kinds of regulations from the FDA, from the CDC that have slowed down our response, and those should have been cleared away automatically. So if you want to set up a mask factory in this country, I've had people write to me trying to do this, and they say, oh, it takes 2 months to get the permits to open up a mask factory. Now, maybe that makes sense in normal times, but it is crazy today, and we have been way too slow clearing away all those regulations.

Similar, you can argue for FDA trials, like formal FDA trials of both cures and vaccines. Like, let's say someone's 80 years old on a ventilator. Are you going to deny them a cure just because it's not in stage 4 of the FDA?

I think the so-called right to try movement has become more popular, will be popular throughout this process. That will have some risks and dangers. People wanting to try things that may not be good for them. But again, the notion that you just tell people who are about to die, no, you can't have this. I don't think we're going to do that. We saw Chinese and South Korean doctors experimenting with many treatments. We're still not sure how well those worked. But I think we will do some version of the same. And we are.

So, so right now you look at the data, it's all across the board. U.S. is still ramping. The U.S. obviously has not peaked yet. Do you think Italy is close to peaking? Like, the number of new deaths per day doesn't seem to be growing exponentially. It seems to have largely flattened, although of course it's, it's too early to say. What's, what's your gut on what, what's happening across the data?

For Italy, you need to pick the country apart and look at it city by city, region by region. I suspect the worst parts of Italy are close to their, their peak bad. And that it is getting better or will be getting better fairly soon. When I say better, I just mean the rate of it getting worse is slower, so it's a funny notion of better.

No, but that's actually a really important point though.

Progress of a sort, right? So it will make it possible for those places to return to normal at some point in time. But again, what's happening in Sicily and what's happening in Lombardy, they're totally different stories as if they were different countries.

Right, and so what about what's happening in Sweden where There's really been not that many measures taken, and yet they are having a pattern of almost no real significant rise in cases and deaths.

That's a radical experiment. I fear for them. It could be just in terms of time. They're behind the curve. We don't know. You know, Japan thought they had the thing licked and they just went about more or less normal business. And now they're realizing all these cases have been festering. And they'll probably end up going back to some kind of lockdown. So it takes quite a bit of time for you to know your strategy is a good one, and that's one of the problems, because the temptation to relax and let down your guard and send everyone out to party again is very strong, and of course there are business interests too. So we need to monitor what Sweden is doing very closely. Of course I hope it works for them, but I'm also very worried.

And, and do you think, like, there's one thing we don't know— we don't know so much of kind of the complexity of this virus. We don't really know the level of contagion. We don't truly know the fatality rate. You know, it's all across the board, and it's been all across the board since the beginning. You know, if you were to look at, you know, I've seen fatality rates anywhere from 0.01% to 6%, and— you know, in terms of the level of contagion, we, you know, we have people predicting 150— up to 150 million cases in the U.S. to minimal. So what's— what's— again, I know this is your gut talking, but you've seen a lot of the data and you've talked to a lot of people. What do you— how do you see this virus playing out?

What I observe is it going differently in different areas. So the death rate in Germany is lagging the death rate in, say, Lombardy, Italy. Some of that may just be the Germans are behind on the curve, but I don't think that's all of it. So some people have suggested that in Italy, young and old people live together more, so the young people circulate the virus and the old people are more likely to die of it. Italy, when people meet up, they hug, they kiss, they're very intimate. They sit in rooms all night, sort of talk at each other, sort of, you know, speak more in each other's faces. Germany, by reputation and I would say fact, it's a kind of cooler, more distant culture. We don't have direct evidence. That probably does lower the rate of spread. You see the same in Iceland, possibly in Sweden. So, you know, some cultures are better at social distancing to begin with, like nerd culture. You sit at home, you play chess, you are socially distanced.

You know, I know I have no worries. This is actually heaven. Just being forced to stay inside and, and do whatever.

But for some people, for some cultures, that's much, much harder. And I think that's where some of the differences are coming from.

So, okay. So overall, again, you're looking at data from various countries. What would suggest to you that we're kind of— what are the specific numbers that would suggest you were over the hurdle? And then what would you be looking for in the economic data at this point?

Well, I think simply seeing traffic and foot traffic being sustainably high for extended periods of time. Of course, we're all used to looking at GDP numbers. I'm putting less weight on those now because in part the good outcome is you want those to fall.

So I think— Why is that?

It means people are staying at home and not spreading the virus. —so you don't want them to bounce back at the highest possible speed. That's going to prove unsustainable. So I think you want to look at just hospital systems. How well are they handling the flow of patients? Do they have enough ICU units? Do they have enough ventilators, enough masks? Whatever drugs turn out to be relatively effective, what does the supply and application of those look like? And if you're doing well on those fronts, like, the rest will come back.

I, I, you know, you're very confident in that, and that is encouraging to me. You know, and part of the re— you know, part of the reason right now capacity in New York City hospitals is, uh, low, meaning they have more room to accept patients than even before, is because there's nobody else. They're, they're not doing any other medical procedures for any— basically any other illness, particularly elective medical procedures. And, and you sort of see that across many industries, but let's stick with the healthcare system. I worry that we're missing the ancillary effects of what's happening. So yes, maybe if we flatten the curve, there'll be fewer cases of coronavirus. But do you worry that if 20 million people are unemployed, you know, 10 weeks from now, there could be rise in opiate deaths, suicides, you know, domestic violence, you know, mental health cases that go over the tipping point. Like, I'm worried that, I don't know, we're not thinking of everything, but I know we don't— it's impossible to think of everything. I do absolutely have that worry.

But if this sets your mind at ease at all, if you study the literature on suicide, we're very bad at predicting which societies, which cultures have higher rates of suicide. We don't really know what causes it. So the intuition, like, oh, now things are worse, more people will kill themselves. We don't know that that's true. Like, it could be true. It depends how much of a sense of purpose perhaps people feel. So I'm not convinced that will all get so much worse. And if people really are cooped up at home, a lot of social problems actually will diminish, right? People may not be going out, getting into drunken fights, shooting each other. A lot of gang-driven drug deals may be going down. So I don't want to call any of this a silver lining, but some of the secondary social consequences are going to be positive. Like, on these issues, we were not doing a good job to begin with.

Meaning, um, we weren't helping people in the, you know, mental health system, or, or here's another one, dentistry. Nobody's— if you need a root canal and you're in nonstop pain, what do you do?

That's very bad. But I think, for instance, violent crime is already down significantly, and people just going around buying opioids— I don't know that we've measured that, but since no one is out there, I presume that is down too, right?

Yeah, so that is, that is encouraging. So I'm just trying to think, like, if I were, if I were in my 20s and, and I lost my job— let's say I was doing something, I lost my job no prospects are opening up, no money's coming in. But the flip side of that is, I guess I'm not going outside, so I'm not buying anything other than food. But now the government's sending me this check that should hold me over for hopefully a month, maybe 2 months, who knows. Uh, do you think things are, are balanced in that way right now so that even, you know, on both edges of society we're, we're treading— we're able to tread water? Or is there some part of society we're going to lose here.

I think we're able to tread water better than many people think. So there are close to no social pressures on you to spend money. Peer events you feel you need to go to. So some mix of YouTube and, you know, maybe you live with your partner, but if not, you, you know, find whatever and you just wait it out and spend money on food. I'm not saying it's fun, but there are many, many parts of the world where people live on small amounts of money, and that's real hardship. Uh, but they do it right. I know many people personally who do this, and many of us will do it for a while. And, uh, I think it is survivable. I think it may hurt people's future job market prospects. We'll see about that, but it's quite possible. You mean because, because some industries will be wiped out and you could have been getting trained all that time. So some people are good at learning online. We're seeing a lot more of that. That's great.. But I'm pretty sure a lot of people are not good at learning that way. They need face-to-face instruction. Those people might spend a year or two just not getting educated. That will set them back. Maybe they can make up for it, but I think that's a very real disadvantage they could have moving forward.

Yeah, I mean, we're seeing this entire— I mean, what is it, like 1.5 billion kids around the world aren't going to school now because of, because of this virus. And we're seeing like I have, I have 5 kids. They're all essentially home from school right now. And some are, some are home from college. Some are home from high school. Some were going to graduate, but that's all gone now. It's unlikely that schools are going to open up this year at all. So it's, it's really affecting this generation of kids that are about to pass into adulthood and giving them a lot of, a lot of fear.

I also, what do you think about— how many do you think are learning more, if I may ask?

Maybe, maybe one.

That's my prediction. Like, of every 5 kids, one of them will learn more and that kid will just do great. And like 3 or 4 will learn less and they'll have more problems.

Yeah. So again, I'm worried about this on a societal level, like what's going to happen if this extends. Like I, I've been thinking, but you're, you're, you know, you know, just depending on the data. Who knows when this is going to peak? Hopefully it peaks sooner rather than later. But what do you think of this idea of unlocking the economy up region by region and age by age? So take a state like Ohio where there's hardly any cases, hardly any deaths, and of course every death is tragic and sad, but there's many more deaths from other sources. What about unlocking, uh, businesses there for people under the age of 40 and then under the age of 50 and then You know, do it county by county or state by state.

I'm not well informed about Ohio, but I would say we need to do random testing there and see, are they really in a safe position or is it just people are in that period where they're not sick yet and it's about to explode? So we need better data before we would make that decision.

Problem is, you know, just like with swine flu, we're probably not going to get the better data until this subsides.

I think we can get better data. Random testing of people. We could have better data within a week. I'm not saying we will, but tests— they have one in Singapore that tests people, you know, ex post. Did you have it? And also, do you have it now? So if we are prompt and willing to spend the money and willing to relax regulations and willing to mobilize as if this is a war, within a week or not much more than a week, we can know that for many regions. I do think it will take longer than that.

And is that happening? Like, is it— is there— because everybody keeps saying, oh, we have a test, we have a test. Is anyone using the test? Like, is the test getting out there?

The train is in motion, but distribution is slow. You also never are completely sure how good your test is, how many false negatives, how many false positives. So it's not that simple as just having a test. And then you have to worry, well, who shows up to take the test? Is it an actual random sample? Well, of course not. It's often the people who feel bad and they're scared. They feel they need a test. Or there's some people who'll just, "Oh, I'll try anything new." It's like a social fad. And then there's people who are terrified, "Oh, I don't want to get the test, wait in line with all these sick people." So to figure out what's really going on is complex, but before we would let the Ohioans run loose, I really think we need to do that. And they're doing okay now, right? Like they have their stocks of food. The most cautious thing to do, prudent thing to do is to wait.

So what, what, um, so this has been great. And, and, and what I'm gathering from this, I've been very nervous about the societal effects of even 3, 4, I mean, the past 2 weeks, by the way, it seemed like it's an eternity to 2 weeks ago yesterday. I was able to go out for breakfast at a local restaurant and meet friends and so on. Now that's like a distant, distant memory. That's like science fiction to me now. And, and I get worried that as things get worse for people, you know, an economy is really a collection of people who are working together to, to grow their own, you know, personal choices as well as society's choices. And as that gets shut down and people feel frustrated, I get worried about when does the system break. You're saying is, is that since we're all inside anyway, We're not only flattening the curve on the health crisis, but we're flattening the curve on essentially an economic crisis in a weird way.

I do think, of course, there's a limit somewhere. But if you look at past history, something like the London Blitz, London being bombed by the Nazis, which was really very dangerous, terrible, right? London did not collapse into disorder. If anything, London pulled together. Now, that's no guarantee we'll repeat exactly what they did. These are very different times.. But I think overall, past historical experience with sieges, bombings, and the like, I don't want to call it optimistic, but it does not show a general social collapse early on, really very much at all.

And then, uh, you know, finally, again, I want to ask about the stimulus. Let's say things go back to normal— what, not, not normal. Let's say things go back to a new normal, whether it's weeks or months or whatever. Uh, What will we see first in this stimulus? We'll obviously see some quarter, whether it's Q3 or Q4 or Q1 of next, whenever it is, we'll see some quarter that has a huge economic surge. Just like next quarter, we'll see this huge economic downturn, you know, based on today's data. But what will, what will we start to see and feel? Well, if I don't have a job and I was doing DJing at local conferences or whatever, How am I going to feel and see, and how will my life start to improve as things get back to a new normal?

Well, first you'll see stock and commodity markets picking up. They will know it first, so to speak. And you'll say, hey, I'm not gaining from that. Why are they so cheery? My life is still terrible. But I think what you will see in the meantime is job offers from places like Amazon or UPS Shipping. I'm not saying they're good jobs. Or jobs you will take or should take. I don't know. But you will see more and more of those offers to do work on a kind of basic service and transport and food. Obviously, the healthcare system, those might be more dangerous jobs, but you will see those sectors really getting their acts fully into gear and they're already expanding. But you're going to see job growth there first before like the comedy club comes back.

Yeah, no, I definitely agree with that, by the way. That would have happened without even this crisis. But what sectors have been thriving that have surprised you?

I don't know that any of it has surprised me. Obviously that Zoom, the company, is doing well is to have been expected. And I think just delivery, delivery, delivery. And I think a lot of that will stick. A lot of people are saying to themselves, why did I you know, go to Whole Foods once a week. I can just set up delivery online. I know what I want and they'll bring it to me. And I think that's permanent. There'll be much more of that, fewer cashiers in Whole Foods and more people driving those delivery trucks. And I just think that's a shift we've kind of figured out. Hey, that was inertia. Now we're doing it better.

What about remote learning?

Remote learning, like I said, there's a class of student below half, but not a tiny percentage that really loves it and thrives with it, and they will demand much more and get it. But a lot of students who just don't have the right kind of patience to learn online, and they need face-to-face interaction. So, you know, very unequal effects there. Probably good for the nerds, I would say, overall.

Revenge of the nerds after hundreds of years, thousands of years.

Yes, continuing revenge of the nerds. Continuing.

So, um, you know, Professor Tyler Cowen, uh, and, uh, thanks once again. I feel we've— you, you've helped me to understand further the stimulus package, what the Federal Reserve's doing. You have some optimism about, uh, the long-term or longer-term effects of the economy shutting down. You're a little bit more optimistic than me in terms of the economy being shutting down long-term. We don't really know from the data about healthcare, but you're suggesting just keep track of, you know, every data point to see, you know, what's stabilizing, what's working, what's not. And any last thoughts? What scares you?

Well, first, your city, New York City, it will become much younger, I think, because it could be much safer. But for it to be totally safe is probably really quite a ways away. So New York will start to feel more like Berlin. Uh, that's the result of tragedy. But if you're just curious, like, how will your life change where you live? I think will really be different. Densely populated areas will much more be the province of the young than they had been.

Well, I, I, on, on that point, I think you— I agree because for one thing, in my particular building, I would say 90% of the building left New York City to escape this crisis. And, and the other thing is I'm feeling like leaving New York City for the first time, essentially in my life, in terms of want, not wanting to live here. I feel like I've been in 3 ground zeros. Like I was in the World Trade Center on 9/11. I was on, I lived on Wall Street during the financial crisis, actually lived there. And now again, New York City is like the capital of the world for this virus. Just me personally, I am sick of living in a permanent ground zero. And so I'm probably eventually going to move out of New York City at some point.

The suburbs of Northern Virginia where I live, uh, have proven comfortable. There are real problems here, uh, but there's already a lot of social distancing to begin with. People used to call it alienating. Now they're quite glad. But I would just say to all of our listeners, I mean, I'm not intending to give you medical advice, but I speak to a lot of people who know more about the medical side of this than I do. And I would just urge you, please, to take this very, very seriously. And if you're young, it's not just something that afflicts the elderly. There's even some chance there could be, you know, permanent damage to some people who get it. But please take seriously the warnings you're receiving and live as safe a life as possible for your sake and the sake of your loved ones and friends.

Well, Professor Cohen, thanks so much. And you play any chess lately? I know you've been following the candidates' matches, which I did. Ended.

They ended, you know, for obvious reasons. They did the right thing, but, uh, I'm very sad that I can't watch it in the mornings.

Well, hopefully you'll be able to watch it soon. And you know, another industry that could, could start to happen, you know, they, they don't play chess remotely because everyone's worried about cheating and maybe there'll be better AI to detect cheating in, you know, games or other events or other situations to allow for remote test-taking or remote, uh, events like, like chess or who knows.

And we'll adjust and test the players. Same with professional sports. You'll need to be tested every day. We can't do that yet. But in, you know, within a few months, that will be possible. And sports and chess will resume with complete vigorous testing of the players. Chess is easy. You don't ever touch the other player, or at least one hopes.

Right. But, but you mentioned the NBA earlier. So the NBA has about 400 people in it. Presumably they all came into contact with the virus or someone who has the virus or someone who had came into contact with someone with the virus. 10 of the 400 got infected with the virus. Presumably all will recover. Does that give you any insight into the data if only, you know, 2.5% of people exposed potentially got it? Or am I making, um, am I extrapolating too much here?

People have debated the NBA data quite a bit, and those players were tested fairly early, but we're not sure everyone who has it is raising their hand and admitting to it. So I think it's hard to say. I suspect there's a lot of players who may have tested positive and they're just keeping their mouths shut. They're staying at home. It's easy enough not to go out in public. So I would say we still don't know. But to think that within 2 months you could run a smaller version of the playoffs and everyone's tested every day, I expect that.

I'll be watching. So, OK, testing is critical. Stimulus, you know, pending the economy coming back, it will be good. And economy coming back is not as— it's not as bad as I thought. I— my opinion had been it needs to come back like immediately or else everyone's going to be lost in space. But you make— you make some, some really good points, and I, and I appreciate you spending the time.

If there's the second wave, third wave, it's very bad for the economy. I'm not an outright optimist. I'm optimistic if this is over quickly, but I'm not convinced it will be over quickly. And then I'm much more pessimistic. Just the lingering uncertainty, people unwilling to make commitments and decisions.

Yeah, I think, I think that's right. Like you're saying it could come back. We could go back to a new normal, but everyone is going to kind of, because we just don't know, everyone's going to be kind of afraid of a second wave, even if there's vaccines or cures, there's, there's mutations. So we're still not going to know. And like you say, many of these viruses have, have second waves. Um, you think that could put things in some sort of stagnation of, of response?

The uncertainty is my greatest fear, and we are not good as human beings at dealing with that uncertainty.

No, for, for a good reason, but, but maybe now for, for bad reason. But at the same time, the second wave feels like almost in the distant future, like we have to kind of come back from the economy, in the economy, before there's a second wave, probably, unless we're just quarantined for the next 12 months, which seems impossible, seems unlikely. Does that seem unlikely to you?

Let's just say we'll know a lot more soon. All right, like with most issues, right, this one we will indeed know a lot more soon.

You will. And again, in, in a lot of these countries— Singapore, South Korea, China— it did seem to peak within 1.5 to 3 months. The, the peaks sort of happened. And so we can hope for that potentially mid-April, maybe early May. Who knows? In the U.S., we will see. We will know if it peaks pretty soon, uh, if it peaks all the way, the way it peaked in China and so on.

It's been great talking to you. Thank you. Okay, thanks.

Okay, and I will talk to you soon. Take care. Bye.