Is Reopening the US a Good Idea? (w/ Pedro da Costa and Adam Posen)
PEDRO DA COSTA: Coming back to the US context, since we're going to be stuck at home for a while now it seems, I wanted to ask you a couple of things. The administration and others have presented the reopening of the economy as a tension, like either you reopen the economy now, or if you actually address the pandemic, then you risk a deeper downturn. Can you talk about how keeping the economy shut a little bit longer might actually be pro-growth? ADAM POSEN: Well, we know a lot from past pandemics, including the 1918 great flu, including the flu that happened in the '50s and elsewhere, that you can't overwhelm the economy and overwhelm the healthcare system and come out again. There are two realities. The first is what everybody's been talking about, which was the critical question, which is what was the total limit on the ability of the US healthcare system to deal with the number of truly sick people, and this is a question of there's a finite number of ventilators, finite number of respiratory ICU units, but it's also a question of hospital human resources, and everybody from orderlies and cleaners to nurses, doctors, pharmacists, all that, but also facilities. Now, it turns out, as I mentioned earlier, it's looking like, thank God, that the rate of infection is much higher and the mortality rate, the seriousness of symptoms is much lower. As a result, we may if the curve for the US as a whole in New York, and places like that specifically is bending right now, is peeking. We may have come in well underneath what the hospital system could handle. It's been horrible for the frontline workers, it's been a huge burden but for reasons you've talked about, like the battles between states and lack of coordination on purchasing and stockpiling and all these things, to worse than it had to be. Anyway, ultimately, we're seeing that like the emergency hospitals in Central Park and in the Javits Center may not be used just to give an example in New York City, maybe we're through that. That's the first constraint. If we're not going to be overloading the hospital healthcare system, again, too soon to say for sure, but it's starting to look that way, then you can start thinking about reopening. Then it comes to a different trade off, and this is the other basic fact, which is people look after themselves. People are not perfectly rational, obviously, they get scared, sometimes they're in denial. There are great differences in that view of the disease and how it's being implemented across the US, but the bottom line is, if people think it's not safe to go back to work, think it's not safe to spend, think it's not safe to go to a restaurant or a store, think it's not a good idea yet to invest, whether it's a small scale business or a large scale investor, President Trump going, going out there and saying, have fun, go out, spend money isn't going to work. We've seen this in history. Again, people initially underplays an illness, and then over time, they start to take it seriously. We cannot force the economy open more than people believe it to be reasonable. Additionally, it shows up in economic cost. What we've seen in history was that when you prematurely reopen the economy, you end up losing on balance, because what happens is you end up with more deaths, more illness, more restraint, more of a panic when it reemerges. You don't really gain that much back opening the economy before the health situation is under control. Now, again, in the US, it's very distinct by region. There are places in the south, places in other parts of rural America, not at Southwest entirely, the [?]. The Atlantic and other reporters have written about where there is insufficient health care, where there are problems, but the main constraint, the main reason you don't want to reopen prematurely is because it doesn't gain you anything. PEDRO DA COSTA: Were you surprised by the strength and robustness of the US policy response? You might have expected it from the Fed, but the fiscal stimulus came together pretty rapidly. What did you make of that process, and how do you see it progressing as the crisis? ADAM POSEN: Yeah, I was pleasantly surprised. This was, frankly, great. I give it an A minus, and I think a lot of people will. The defense response was terrific, and that did basically put a floor under financial issues without them directly supporting the stock market or doing any direct bailouts but just providing liquidity, providing sense so that's been great. The fiscal package, also, I think it's really been genuinely very good. I've been pleasantly surprised by some of the Trump administration officials, in particular Treasury Secretary Mnuchin, to some degree, NEC Chair Kudlow. They deserve a lot of credit. I wasn't in the room to be clear, but I've heard from many people, and it's well reported that Mnuchin and his team worked very constructively in a substantive way without crazy ideas give and take with Pelosi and her team, with people in both houses of Congress, both parties and the package we ended up with, first the initial version from Pelosi and Mnuchin together and then what got passed, is genuinely good. Just to give you a sense of benchmarks, they passed about 10% of GDP in stimulus. This is totally historically impressive. I think it's roughly the right number, we may need to add a bit more but remember, the Obama era stimulus against the crisis 2009-'10 was about 3% of GDP over two years. PEDRO DA COSTA: And much more hard fought. ADAM POSEN: And much more hard. You're absolutely right. There's back and forth with Congress, Pedro, there was a lot of doubt about it throughout, then it was immediately carved about. Second, as you emphasized rightly, my colleague, Jason Furman, who ended up as Obama's CEA chair and was there for the Obama packages in 2009-'10 and contributed to the congressional discussions this time, when he points out this is done in a matter of weeks, the Obama packages took a month to pass. Then what I would emphasize is the content of the package is actually genuinely very good. The vast bulk of it is going directly to households or directly to small businesses. They're calling it loans to small businesses, mostly grants because that's the way you disperse it. It's like Germany after World War II, the Marshall Plan funds were dispersed through so-called business loans, a lot of it was grants. It's tied to employment to try to keep jobs in real estate supported in local areas. The Small Business Administration and the Treasury haven't gotten out everybody's checks yet. I know that there's genuinely pain when they don't but the scale of this effort in the matter of weeks is extraordinary. No, I think I think they've done great. Bailing out the airlines is wrong. Bailing out big businesses is wrong. There's a certain amount of fraud and waste, it's always going to be there, especially in this administration, and when they take away inspector general's oversight, but compared to where the package was, a lot of that even got excise. The policy response on the economic side, including the Fed, I think, has been great, frankly. What's scary is the public health side, going back to where you were a minute ago on the portrayal of the being a tradeoff, lockdown and failure to coordinate among states on supplies and the denial, and all these things that are well known, that's terrible. The economic policy response, I think, has been really good.