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.”
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 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.”
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.”
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.
Madhav Rajan: 00:00:22 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 Schultz 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 7th in Hong Kong and May 13th 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.
Madhav Rajan: 00:00:54 Booth as you know has a long tradition of informing public disclosure through platforms such as Economic Outlook, which we started back in 1954, to 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 going to do a quick introduction to our three amazing panelists.
Madhav Rajan: 00:01:27 Our first panelist is Austan Goolsbee, the Robert Gwinn Professor of Economics at Chicago Booth. Austan served in Washington as chairman of the Council of Economic Advisers 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 to 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 Department of Justice. Of course, in 2009 he was voted DC's funniest celebrity, which I'm sure he will validate today.
Madhav Rajan: 00:02:11 Our next panelist, Randy Kroszner, is the Norman 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 on 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.
Madhav Rajan: 00:02:42 Our third panelist is Raghuram Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth. Raghu served as the 23rd governor of the Reserve Bank of India from September 2013 till September 2016. Between 2003 and 2006, he was chief economist and director of research at the International Monetary Fund. Raghu's latest book, The Third Pillar: How the Markets and the State Leave Communities Behind, was release last year and was a finalist for the Financial Times Best Business Book of the Year award.
Madhav Rajan: 00:03:14 So, we're thrilled to have three great panelists and a great moderator, Kathleen Hays, whom we're thrilled to have return. She's global economics and policy editor for Bloomberg Television and Radio. So, we thank Kathleen for coming back. With that, I'm going to hand it to Kathleen. Thank you, Kathleen.
Austan D. Goolsbee: 00:03:31 You're muted.
Kathleen Hayes: 00:03:32 There we go. Okay. You 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, this same panel. I think the outlook at the time ... the coronavirus actually was starting to take a bite out of China. I'm sure we mentioned it. I don't think it was a major topic. And obviously since early January, four months, so much has changed. I guess that's where I'd want to start, where we are now.
Kathleen Hayes: 00:04:02 Oh, and I want to mention, it's great we've got thousands of you listening, watching, submitting questions, and I'm going to sprinkle them in throughout this discussion. One of them from Jordan notes that US unemployment claims in the past, what, 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%. Bloomberg Economics is looking at the second quarter, Chair Powell of the Fed referencing an unprecedented drop in second quarter GDP. They're looking for 37% annual loss.
Kathleen Hayes: 00:04:43 So, where are we now? And Austan, since you kindly got me off mute, let's start with you. Where is the economy?
Austan D. Goolsbee: 00:04:49 Well, it's terrible. It's in the dumps. What do you mean, Kathleen? It's the worst four weeks in the history of the economy.
Austan D. Goolsbee: 00:04:58 Now, that said, there's two views of from how deep this thing goes. Is that like a normal recession and the recovery to a normal recession, or is 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% 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.
Austan D. Goolsbee: 00:05:50 So, hopefully it will not be like a normal recession, that there is the possibility of a more rapid recovery. I'm not going to call it necessarily V-shaped, 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 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.
Kathleen Hayes: 00:06:28 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? Randy, 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.
Randall S. Kroszner: 00:06:48 I very much agree with ... I hadn't heard the reverse check. I kind of like 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. 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, it's not going to be ... they're going to be much dimmer. The lights are not going to be nearly as bright as they were. They're going to get part of the way back up.
Randall S. Kroszner: 00:07:22 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 size enterprise, that we provide support to firms to keep their workers on.
Randall S. Kroszner: 00:07:38 The challenge is going to 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 going to 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 going to change, the transportation industry. It's soon to be much, much different.
Randall S. Kroszner: 00:08:04 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 reopen. The message after 9/11 was "If you want to be patriotic, go out to the shopping mall."
Randall S. Kroszner: 00:08:45 So, I think this is going to 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 that check so the lights are dim, but in order for the lights to brighten we have to realize there's going to be a lot of change. Small and medium size enterprise are going to go out of business. We're going to have a smaller transportation industry. We're going to have other places that will grow.
Kathleen Hayes: 00:09:12 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 have predicted, oh, now everyone's going to 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? Again, is it going to get that bad? Will there be a little more resiliency in some of these small businesses and others than we think?
Raghuram G. Rajan: 00:09:46 Well, let's start first by saying this is a tragedy and that I'm sure that some of the people watching us have lost their jobs. Certainly I hope that things work out as we go along. It's a tragedy everywhere in the world. I mean, you're talking about 20 million plus job losses in the US. The numbers from India are over 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, and let's hope [inaudible 00:10:22] now what we know about that.
Raghuram G. Rajan: 00:10:26 But let's take the two analogies, the bridge analogy that you offered and the lights analogy that Randy offered. When we're trying to create the bridge, the problem is that for some industries the bridge does go across the chasm. For some, it's not. It's going to 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 earlier.
Raghuram G. Rajan: 00:10:57 Let's take the lights analogy also. Randy talked about lights coming on. The problem is some lights are never going to come on. That's one. Some businesses are going to go out. Some lights aren't going to 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 going to be that some parts aren't going to open up, because they're located in places that haven't opened up.
Raghuram G. Rajan: 00:11:23 But see what's happened 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, because [they] send only so many goods to the US. Eventually they pile up in warehouses. You've got to stop again.
Raghuram G. Rajan: 00:11:43 So, there is a problem of coordination. The lights aren't going to go out, come on at the same time. Know that you need the supply chains to all come on at the same time. That's going to be difficult. That's going to be a process of bringing them up. So, even manufacturing, which is the easiest to get up, is going to take time. Then the hospitality, high-contact areas, that's going to take yet more time.
Raghuram G. Rajan: 00:12:03 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're going to keep the hospitality industry alive for a year and a half, it's going to take a lot of money, and you have to ask whether that is well spent. I hope we get to those questions.
Kathleen Hayes: 00:12:24 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, "Would the US economy be better if we'd just given $15,000 to each of the unemployed to sustain them through this shutdown period?"
Kathleen Hayes: 00:12:44 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 going to 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.
Kathleen Hayes: 00:13:10 But Austan, what's the top of your list? Of course you were in Washington, Council of Economic Advisers' chief. You worked for President Obama. There were some tough times there too. What would you do first?
Austan D. Goolsbee: 00:13:22 Look, I think the analogies to the financial crisis and the recession of 2007, 8, 9, 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.
Austan D. Goolsbee: 00:13:59 The stimulus package that we passed is impressive in how fast we did it, but it's not a stimulus package. 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 going to 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.
Austan D. Goolsbee: 00:14:29 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 going to be a series of decisions we have to make. 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, et cetera?
Austan D. Goolsbee: 00:14:59 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? Korea's probably the most advanced, but you've 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.
Austan D. Goolsbee: 00:15:40 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 going to go out of their house and catch the virus. Otherwise, we cannot come back. You can say whatever you want, but we cannot come back.
Kathleen Hayes: 00:16:03 Right. 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 this kind of things. But, again, this is something people have never had to look at before. Because I was going to save that for later maybe, but let's get to this question of the virus. We had one of our questions asking about how dependent solving this is on finding vaccine. I think don't count on vaccine, folks. That'll be a miracle if we get one as quick as people think. So, Raghu, when you look at India, when you look at emerging markets, and when you look at the US included, how big of a part of this is this solution?
Raghuram G. Rajan: 00:16:42 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. But let's put that aside. What do we do if it doesn't happen for the next year and a half? I think we really need to manage the recovery process, essentially play an informed whack-a-mole.
Raghuram G. Rajan: 00:17:13 In the areas which have relatively few cases, you still have social distancing. You have a process by which people get to work without traveling into buses. Obviously you don't have mass gatherings, et cetera, but people start getting back to work. And you keep testing, as Austan said. 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. You have to look region by region, area by area, and start opening up.
Raghuram G. Rajan: 00:17:47 Now, for that you have to get the number of cases first down to a level where you feel reasonably comfortable that it's not going to 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 at 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 in as fast as we can.
Raghuram G. Rajan: 00:18:16 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 of 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 there.
Kathleen Hayes: 00:18:33 Randy?
Randall S. Kroszner: 00:18:35 Exactly on this point, 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 either 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 save lives." People have been dying at home. So people haven't been getting care. So, there actually are a number of health care workers who would be available to do testing, to direct resources in that area.
Randall S. Kroszner: 00:19:23 Getting back to the points that both Austan and Raghu made, one of the reasons why you do the lockdown is because you don't know. Just thinking about it, it's like basic business education. 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. 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. So, that's very good, both on a health side and on the economy's side, being much more systematic, much more focused about, well ... getting a lot more information, you can make much better decisions based on that information.
Randall S. Kroszner: 00:20:06 Then once you have that information, you do want to get people back into work, but you have to realize that it is not going to go back to exactly the same number of bulbs that were on back in February and March. Some of those bulbs will be out. So, you have to understand that, accept that, and then have policies that will facilitate people moving from one industry to another.
Randall S. Kroszner: 00:20:34 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 going to have to realize that we can't do that forever, and we're going to have to allow for a transition. So, we've got to get the support structures right to get people moving into the new sectors, whether it's the tech sector or some of the new areas of the health sector.
Kathleen Hayes: 00:20:59 Can I ask you both to answer 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; you next day you see "Well, wear mask. It will protect somebody 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. You've got to protect everybody whatever the cost and go ahead that way." Raghu, you start. Now, quickly, because I want to get to a lot of other things. But that's my own kind of question. What do you think? Let's start with you, Raghu.
Raghuram G. Rajan: 00:21:47 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 that testing was so weak. And we realized that even with a lot of testing we're missing a lot of people. So, the lockdown made sense at that point. Now we have to ... we need to move towards a cleverer method of more localized sort of lockdowns, if you will. That is absolutely necessary; otherwise, the economic damage is going to be tremendous. So, we need to balance the two, but I think a more informed, a more localized, and a lot more quarantining. That's the playbook which seems to have worked in other places that have opened up. There's no reason why we need a different playbook at this point.
Kathleen Hayes: 00:22:36 Austan.
Austan D. Goolsbee: 00:22:37 Kathleen, my view is that's definitely setting up a false choice of the economy versus the health. I don't think that. I think they are absolutely tied. Everything you do on testing and on health are what allows the economy to come back. That's not a tension.
Austan D. Goolsbee: 00:22:56 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.
Austan D. Goolsbee: 00:23:29 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've got to get them out of fear that, if they go out of their house, they might easily catch the virus. You've got to get past that.
Kathleen Hayes: 00:24:07 Randy?
Randall S. Kroszner: 00:24:08 Yeah, for sure. I think this is all consistent 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. So, I think we see the high value of that. We've seen that in Korea. We've seen that in Germany, because Germany did a lot to gather the data quickly, and they're one of the economies that is opening sooner rather than later. I think they're going to 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 controlled trials.
Randall S. Kroszner: 00:24:45 You'd love to be able to test everyone and test everyone every day. That's just not feasible. But if you do randomized controlled trials, and you have a reasonable sized 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. Hopefully you can get kind of a reserve army of medical professionals who go there and deal with these issues quickly and make sure that it doesn't spread.
Kathleen Hayes: 00:25:25 Okay. Go ahead.
Raghuram G. Rajan: 00:25:26 Just jumping in on one point, I think we need to take into account trade-offs. You're never going to get to perfect safety before you open up. So, there is a point at which you will say, okay, the economic cost of staying closed ... staying closed may be the optimal from a medical perspective, but it does a lot of damage. It actually does some damage to health, but it does some damage. So, you have to make those trade-offs in the most careful way possible. Absolutely we need to think about both sides, but I would say that it is possible, and countries have shown you can do it.
Kathleen Hayes: 00:26:03 Yeah. I would just say ... 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. It's not that dire in our country, fortunately, but certainly in a lot of developing countries it is.
Kathleen Hayes: 00:26:20 And I want to get to that more specifically, but first I've got kind of a two-part question. First, let's look at the Fed, you guys, because they met, they have just done everything. 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 going to have to do more. Treasury's going to have to do more," and he's open for the Fed doing more. Very positive about fiscal policy, all of these programs.
Kathleen Hayes: 00:26:45 I think everyone's worried about the debt and the deficit. I mean, there's just so many questions in the feed here. But one of the reasons we're going to end up with a big deficit is the Fed is all in. When he said "Don't worry about the federal debt now" ... You don't worry about it now. If the house is burning down, stop that fire; then deal with something else. Randy, you start. You've been there, you've done that. What do you think?
Randall S. Kroszner: 00:27:08 Well, I'm really glad that in some sense that they had legacy from us from a decade ago to be able to stand up a number of the programs really quickly. Then they've built on that to build a number of new programs to get much further out of the risk curve. The reason that they can do that is because the emergency powers they are using require the Fed, in unusual and exigent circumstances, to do a whole variety of new things, but they can lend only against good collateral.
Randall S. Kroszner: 00:27:39 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 to 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 four trillion dollars in one quarter. Well, not in one quarter. It went to two and a half trillion dollars in one quarter, and then much faster.
Randall S. Kroszner: 00:28:08 Now what the Fed is doing 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 risk, because the Fed is not directly taking that risk. That risk is going to the Treasury, that is to the taxpayer.
Randall S. Kroszner: 00:28:43 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, and we bought mortgage-backed securities that effectively had a federal backing. Those are sort of very neat lines.
Randall S. Kroszner: 00:29:01 A few other areas that they've gotten into, but only the highest rated 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.
Kathleen Hayes: 00:29:20 Oh gosh. When I hear the word politics, I'm very tempted to bring in Austan in 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 debt and deficits. If I went by the question here, what would be the potential downsides that could come out of aggressive central banks 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?
Austan D. Goolsbee: 00:29:51 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 up-frontly ... that's not grammatical.
Austan D. Goolsbee: 00:30:23 But it's putting the Fed in a fiscal policy decision-making mode. I worry that if ... 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.
Austan D. Goolsbee: 00:30:50 Now let's say it goes the other way and that 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 Feds 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 backend, if it goes badly they're going to come back blame the Fed, and the Fed's independence will in a way be lost. I am quite nervous about that.
Kathleen Hayes: 00:31:33 Okay. Okay. So, Raghu, to you now, because we look at the programs that we're starting to say ... when the Treasury markets started going crazy and the yields were just crashing. The 10-year went as low as, what, .3? Then it scooted back up, and they've calmed that down, right? They were able to reduce the size of their repo operations. 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 ... there's no great choices that you can make.
Raghuram G. Rajan: 00:32:04 Yeah. This is not a period of great choices, of course. But, look, what is easy is liquidity, and that's the Fed's role undoubtedly. That's why intervening in the Treasury markets and all the other good markets that Randy intervened in when he was there makes sense. The problem right now is they're going deeply into credit margins, and lending is not really the Fed's role, especially when it involves a fiscal cost. Yes, the Treasury is backstopping them, but they're making decisions, choosing A and not B, and who's going to ... they're not elected to do that.
Raghuram G. Rajan: 00:32:39 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 going to 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 impact.
Raghuram G. Rajan: 00:33:01 What we're not trying to do is compensate people for their losses. That's something you always hear. "Oh, we didn't know the pandemic was going to come. We got hit. That's a bad thing. It was not our fault." Well, too bad. It wasn't anybody's fault. Not the taxpayers who are going to pay for this, not the people who lost their 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 [crosstalk 00:33:32]
Austan D. Goolsbee: 00:33:31 Whoa, whoa, whoa, whoa, whoa.
Raghuram G. Rajan: 00:33:31 The point is your objective should be to protect firms and people that can be protected, not all can be saved, but that can be saved over this period, because otherwise there will 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 that firm. They're making losses, or they're not really adding much to what the individuals do. So, we need to start thinking about all that.
Raghuram G. Rajan: 00:34:03 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 helped, and it is doing good in the long run? One of the areas where already there are concerns is pricing is getting distorted across the markets. The Fed is in turn intervening in every market. So, nobody now worries about credit risk during this downturn. Now, in the short run that may be a good thing. In the longer run, it prevents the market from doing what it should.
Raghuram G. Rajan: 00:34:35 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 safety. 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 a firewall. The rest of the world doesn't. And that distortion is already at work.
Kathleen Hayes: 00:34:55 Okay. A quick rejoinder, Austan Goolsbee. You go ahead, because you [crosstalk 00:34:59]
Austan D. Goolsbee: 00:34:58 No, no. I didn't have a rejoinder. I agreed with everything he said.
Kathleen Hayes: 00:35:02 Oh. Okay. Well, then let's move on. Okay. I think that you guys raised some great points, and sometimes I've felt in the last couple of months that even people on Wall Street who ... "Oh, I can't trade this market now. I've never had to do this before." It's like, well, we don't want to be allowed hedge funds in the end, and we hope we won't have to.
Kathleen Hayes: 00:35:23 But moving on to debt, because here's a nice simple example from Bob. Debt levels are increasing rapidly in the US. What are the effects of this massive amount of debt, short term, long term, in the United States? Of course they're rapidly increasing around the world in countries already with big debts. They're getting bigger.
Kathleen Hayes: 00:35:41 So, Randy, let's come to you on this first, because I know you were talking when we talked before the panel started about perhaps waves of bankruptcies and those kinds of things happening and how you're going to deal with them. But broadly speaking, are we ever going to get out of this debt? Are we going to have to have a debt jubilee around the world as one of the other questioners asked?
Randall S. Kroszner: 00:36:06 There's clearly going to 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 going to pay for them, and how? This goes back to some of what Raghu was talking about. There are losses that occurred. This shock occurred, and it means that some of the investment that people made, both in their human capital as well as in physical capital, is not going 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.
Randall S. Kroszner: 00:36:48 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 is, one, they don't want to scare people, and, two, they want to remain optimistic. But I think it's very important to start thinking now, is there a way that we can try to have large-scale restructurings and large scale bankruptcies that move very efficiently and very quickly? Something like a prepackaged bankruptcy but in a widespread way.
Randall S. Kroszner: 00:37:18 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% relative to gold. People said, "Well, I want $1.60." The Supreme Court decided against that, and so there was a massive debt forgiveness.
Randall S. Kroszner: 00:37:45 But what's interesting, what happened is that equity prices went up. Part of that is because of the debt relief, so the equity holders didn't have to pay. Part of it was because there wasn't going to 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.
Randall S. Kroszner: 00:38:18 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.
Kathleen Hayes: 00:38:29 Okay. Austan, let's go to you next on this question of debt deficits. And again, you had a very important job in Washington, and you've had to factor these things in the outlook. Are you kind of like Jay Powell, "Let's talk about that in 5 or 10 years when we're past this," or what do you think?
Austan D. Goolsbee: 00:38:47 Yeah. Mostly yes. As I say, 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 it revenue neutral?" That's totally not what they should be thinking about.
Austan D. Goolsbee: 00:39:05 This topic does come up every January. It came up, Kathleen, with us this past January and the one before. I keep saying the problem with debt and deficits for the United States is not that it's going to drive our interest rate up and that we're going to 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.
Austan D. Goolsbee: 00:39:31 If you look post–World War II, we go through a period if 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. The same is true here.
Austan D. Goolsbee: 00:39:49 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 $2-3 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. Ought to 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 going to pay it. Are we going to pay it in the future? Are we going to pay it now?
Kathleen Hayes: 00:40:29 Okay. Raghu?
Raghuram G. Rajan: 00:40:31 Well, first, I think Randy's 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. With the high debt loads, with little access to credit, once we get to sort of lift off, it's going to be very difficult for them to grow or move far.
Raghuram G. Rajan: 00:40:51 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. 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. So, the easier we make it, the quicker we will see those firms recover. And some may have to close.
Raghuram G. Rajan: 00:41:21 Certainly there's no reason why ... for the sake of argument, I'm going to take a name. Not saying I know anything about its condition. But Boeing could go if it comes to deep distress 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. For these industrial firms, I think a proper bankruptcy may be warranted down the line if they have too much debt.
Raghuram G. Rajan: 00:41:58 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? That also will mean that, if you're going to bring back corporate taxes, a lot of corporations are going to be wary at this point. Where is it going to hit? Who's it going to hit on? And should I be making a lot of investment?
Raghuram G. Rajan: 00:42:32 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 going to be worry about where it's going to fall, and that could be perhaps more damaging than anything else.
Raghuram G. Rajan: 00:42:53 And I agree with Austan, at least at these levels. Even if it's 100% 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.
Kathleen Hayes: 00:43:06 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 have said ... You guys are talking about how industries are going to change, but you don't exactly give me an example. This particular industry, how is it going to change and be different? Somebody just asked about, "What about the airlines?" Someone else asked, "Gee, what about disruptors?"
Kathleen Hayes: 00:43:29 I'm going to 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 industry to industry. But I think it's interesting too, because it's easy to say something's going to change, but how? Again, for me, are you guys sure things are really going to change permanently? Or, when this whole question of fear goes away, who's going to ... yeah, I'll be happy to sit right to somebody in a crowded restaurant. I'm not going to shy away from that, particularly if I'm not in a vulnerable group, 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.
Austan D. Goolsbee: 00:44:04 Yeah. Well, you've got a bunch going on.
Kathleen Hayes: 00:44:07 Pick one. Pick one.
Austan D. Goolsbee: 00:44:07 Look, I think this goes back to the question of how long is this going to 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 several industries that are strong in Chicago, transportation-related, tourism, leisure, hospitality-related, they're going to just have much lower demand.
Austan D. Goolsbee: 00:44:49 Now, closer to home on us, you've got four boxes that you can see at home. We're teaching class online. I've 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 going to be. I don't know that ... If we 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.
Austan D. Goolsbee: 00:45:36 I think, from my perspective, historically for sure pandemics but anything that are these globalized crises tend to drive people to isolationist thinking. Partly, even if you weren't a nationalist in orientation before, I think a lot of businesses will want to have a more resilient supply chain, and they will say, "I don't want to be so dependent on just one country," or maybe even on any countries. I think there will be some component of self-sufficiency.
Austan D. Goolsbee: 00:46:14 I think the second is, as it plays into the public safety net, I think a lot of businesses are going to conclude from this individually that you don't want to have as many employees, that you want to have more flexible work environments. So, the policy I think needs to be less tied to the employees.
Kathleen Hayes: 00:46:35 Okay. So, Randy, jump in, any part of that. There's been a lot of questions about not just education broadly and how it might change, but what it means for the University of Chicago, what it means for the Booth School. You could probably start it out by talking about the London campus. I just wonder ... We've got disruptors. We've got industries, how they're effected, are they going to change permanently. Education. Take some piece of that.
Randall S. Kroszner: 00:46:59 Sure. I'll take a little bit of the education, then some of the other industries. Obviously we've had to move a lot of classes online. That's true not just in Chicago but globally. 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. So, that is something that I think educational institutions around the globe have to face. There's a big debate here in the UK about that also.
Randall S. Kroszner: 00:47:45 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 are some things that maybe we can do well on that, and so maybe we can do a combination of live and technology-enabled learning. 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.
Randall S. Kroszner: 00:48:22 More generally, what I think this suggests, or I think this kind of shock suggests, that there's going to be a value of scale. So, I think we've talked a lot about the challenges for small and medium size enterprise. And obviously there's some large enterprises that are going to have major challenges. Raghu was mentioning some of those, and certain large airlines of course. But I think larger organizations that are able to use the technology and able to, one, be more diversified ... So, 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. So, small and medium size enterprises tend to be more focused and less diversified.
Randall S. Kroszner: 00:49:14 I think one of the things that's going to come out of this is another benefit of large scale, of being able to use this technology, of being able to be better diversified. There had been a broad trend towards that before, but I think this is going to intensify that.
Kathleen Hayes: 00:49:29 Raghu?
Raghuram G. Rajan: 00:49:32 Well, just to go in some other areas, for sure we've got more technology adoption right now. Many of us have learned how to use Zoom, and that's going to make our meetings more easy. As Randy said, some combination of physical and virtual is going to be the norm, and that's going to be true of many, many service industries. But I want to focus on two. One is this was unthinkable. Pandemic was unthinkable. We thought this doesn't happen in civilized society. And it's hit us. One, Randy said corporations will move towards more resilience perhaps. That will be the case, though 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.
Raghuram G. Rajan: 00:50:31 But the other thing that I think, I hope, it will force them to do is think about what else is unthinkable. 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 it about much more. And we say, "Yeah, it is coming. It is going to have more destructive effect," but we haven't envisaged something as big as this one. So, I hope what this does is forces us to think much more about all those other possibilities and focus much more on the sustainability of the planet.
Raghuram G. Rajan: 00:51:09 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. 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, during the global financial crisis and now.
Raghuram G. Rajan: 00:51:48 But we keep saying, "Well, yeah. At some point we'll worry about moral hazard. Now is not the time to think about it." 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 B loans. 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 going to be an issue.
Kathleen Hayes: 00:52:18 All right. While 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.
Kathleen Hayes: 00:52:26 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. 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. Other ones have been a lot on China and supply chains and how it will affect them.
Kathleen Hayes: 00:52:54 So, Randy we'll go first to you. You spend a fair amount of time in China and talking to people as part of your educational and et cetera agenda. So, what do you see there?
Randall S. Kroszner: 00:53:07 Yeah. We have our campus in Hong Kong, so I visit there often. Actually, I started visiting there more than 30 years ago. It's been very interesting to see the evolution over time.
Randall S. Kroszner: 00:53:22 China obviously was where things started. They were the first to respond, enormous lockdown, one of the first to start to unlock. 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% occupancy. Shopping malls are open, but very few people are shopping. It's back to what we talked about before, about these behavioral changes that occur regardless of what the regime is, whether it's the Chinese Communist Party or whether it's Western style democracies. That's a behavioral change that is there, that is going to take a while to overcome.
Randall S. Kroszner: 00:54:03 You had a trend that was going on anyway towards moving production facilities out of China, both because China had developed so much and was starting to become more expensive. So, Vietnam, Malaysia, Indonesia had become, Thailand, much stronger competitors if you wanted to build a global supply chain, because it was cheaper there. So, that was one force. Second, the trade disputes were another force that were making people wary of doing that.
Randall S. Kroszner: 00:54:35 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. Some of that production will probably come back onshore. I think something that may help that is the dramatic decline in energy prices in the US. So, manufacturing, which would become relatively expensive, could be done more in the US now. Who knows what's going to happen with the oil market? I mean, it was negative for ... oil prices were negative for a few days. Maybe they'll go negative again. Probably not over the long run they'll be negative, but it just shows you that the tumult that's in that market and the difficulty of those forecasts.
Randall S. Kroszner: 00:55:19 But I do think there's going to be a very different approach to globalization. I think that's going to have an impact on China, and so China needs to develop its domestic demand, which it had been on the path to doing. But obviously this shock has come in, and I think theirs and the rest of the world is going to be slow to come back.
Kathleen Hayes: 00:55:39 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, et cetera. 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.
Austan D. Goolsbee: 00:56:00 Yeah. I think bluntly you can't really trust the health statistics coming out of China, and everybody kind of knows that. So, I still don't fully know what to make of the ... 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.
Austan D. Goolsbee: 00:57:02 I think China is for sure going to 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. 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 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 going to get pretty nervous looking at the outlook over the next one to two years in China. If you didn't think that was as much of a problem, then I think that they're on the same struggle back but on a path to return.
Kathleen Hayes: 00:57:59 Okay. So, Raghu, anything you want to say about China? But definitely lots of questions, what you think about India, where they are, where they are with COVID-19 more broadly, where the economy's heading. Again, dive in.
Raghuram G. Rajan: 00:58:13 First, I have to say these are grim times. Not one joke from Austan so far. So, it's tough to go through these. I'm actually co-teaching a course with Austan, and I'm counting on him to keep the students entertained.
Raghuram G. Rajan: 00:58:32 The issue with many emerging markets is they got 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 the Western economies have. And many of them start with health systems, which are underinvested in and not wonderful. So, if the virus spreads as it has in the Western economies, it is going to be a real calamity in any of these countries.
Raghuram G. Rajan: 00:59:21 Ultimately, so far, whether it is because they're not measuring properly or whether it is because the virus really hasn't spread that much, southeast 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. I don't think it's entirely mismeasurement, because you don't hear as much about the deaths. You don't hear as much about the hospitals being overflowing.
Raghuram G. Rajan: 00:59:58 At the same time, it's hard to explain why, because the story that the climate is what ... the hotter, more humid climate is what prevents the spread, that's not necessarily true, because Mumbai is a hotspot right now with tremendous rates of infection. It looks like the vertical exponential curve as anywhere else. So, there's something else going on we don't really understand.
Raghuram G. Rajan: 01:00:20 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 going to be, as you get out of the lockdown, the kind of management that Austan and Randy have talked about, the testing, tracking et cetera is hard in a country which is relatively poorer. You don't have the same kinds of medical resources, medical facilities. But they will have to work it out.
Raghuram G. Rajan: 01:00:51 So, it is a work in progress. There are limited resources, 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.
Kathleen Hayes: 01:01:08 Okay. Wait and watch. Well, I think I let us go a little bit over time, but I want to ask one more question, each panelist. Just something, a very simple I guess lesson learned, but more from this sense of hope. Sometimes we go through hard things, or they say every cloud's got a silver lining, but you look at a situation you got through and you realize, "Whoa, actually I did get something good out of all the pain and suffering."
Kathleen Hayes: 01:01:37 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 going to take forward that's going to give us some good out of all this difficulty?
Randall S. Kroszner: 01:01:52 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 going to infect me, and so I don't want to help anyone. I just want to hide with my family." We haven't seen that. We've seen that in the US, as well as here in New York 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're helping other people. So, that is, I think, something that's very positive.
Randall S. Kroszner: 01:02:28 Something else that's been quite amazing to me is seeing the quick response of research in so many areas. My colleagues at Chicago Booth have just done an incredible job of doing ... 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. So, I think that's a hope.
Randall S. Kroszner: 01:03:08 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.
Kathleen Hayes: 01:03:19 Ooh, I like that last point. I think that's one thing that ... in science, you need to hear from many different types of science, and let's hope that is a lesson learned from the next one. I'm going to finish on Austan. I'm going to 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?
Raghuram G. Rajan: 01:03:37 On the one hand, talking about silver linings, this has accentuated all the fault lines that existed earlier, the divisions within society. It's hitting the poorest and the most unprepared hardest. Divisions between countries in the same case. So, on the one hand, that seems tragic. Why are those fault lines being hit again in the same way? But on the other hand, 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.
Raghuram G. Rajan: 01:04:12 Interestingly, one of the things that is ... pointing to Randy's point about camaraderie, if 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, medical personnel, as well as the people delivering the mail, the people delivering newspapers, the people in the grocery stores, and so on. So, there may be a coming together.
Raghuram G. Rajan: 01:04:56 To some extent, we're 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 can find support. Well, hopefully we realize that they're not finding support in the places where they are, and we start thinking about building a stronger sense of community. But one of the effects of this isolation is I value community much more.
Raghuram G. Rajan: 01:05:20 The last point, just to reiterate what I said earlier, there are big, global problems, and 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? That to my mind is the silver linings of something like this that makes us think, "That's not impossible. We need to deal with it."
Kathleen Hayes: 01:05:44 Speaking of appreciating things more, I can't believe the highlight of my day can be, god, I got to go to Lowe's and walk through and look at stuff, and maybe I actually got to buy something. Then I can go to the drive-through at Starbucks or Dunkin' Donuts. I mean, you appreciate these little things, retail basics, that you can't always get at anymore. So, Austan, what's yours?
Austan D. Goolsbee: 01:06:09 Well, look, Lowe's ... 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 shutoff, the water release valve. So, if anybody knows that, send me an email.
Austan D. Goolsbee: 01:06:27 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 don't 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 ... 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 1, then the disease will peter out. And we're not that far from it. We've got to mobilize, we've got to do that, but we're not that far from being able to get on that path.
Kathleen Hayes: 01:07:24 Okay. Well, gentlemen, thank you so much. I've got to just remind our audience, this is so much fun. I always am thrilled to join Raghuram Rajan, Randy Kroszner, Austan Goolsbee. Thanks also to Madhav Rajan who's 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.
Randall S. Kroszner: 01:07:59 Stay safe. Bye-bye.