I look back at things we were putting out
and I personally was saying and doing
in mid-late February, and I just cringe, it's amazing.
In this first episode of the new series
I thought we might step back to think
about the economics of the coronavirus.
How economists have responded to this very different
kind of shock to the global economy,
and whether the right advice has been getting to governments
as they try to cushion the blow.
One of the best people I could think of for talking
about all that was my old friend Adam Posen,
who's been president of the Peterson Institute
for International Economics since 2013
and also served for a while on the Bank of England's
interest rate setting committee.
Adam, thanks very much for being with us
from your book-lined office.
Thank you for having me Stephanie.
We're all living in a very different world
from a couple of months ago, or even a few weeks ago.
How do you think economists have done
in first, sort of, assessing this shock
and then thinking about how we respond to it?
I think economists have displayed
both the strengths and the weaknesses of the profession.
The strength of being relatively empirical
and perhaps to people's surprise having agreement
on some basic principles in a policy context
is very evident.
There is 99% agreement that government had to be involved,
it couldn't be just the central banks,
and we have to think in terms of essentially
setting bridge loans and job preserving programs
on an incredible scale.
But of course, as you well recognize,
I view to my shame, cringing, if you look back
to what economists were talking about, including myself,
in early February, mid-February, you know,
we were not seeing this coming.
Our ability to forecast, and our ability to think about
what kinds of shocks are happening,
when, remains very limited.
And one of the big bits of advice,
I guess that's particularly, you could see it,
particularly in the European governments'
efforts is this effort to, if you like,
to hold the economy in suspended animation, you know,
everything that, the sort of bottom has fallen
out of demand, and obviously a lot of businesses
feeling that they will go under very quickly
seeing the kind of fall in, the kind of fall in revenues
that you don't get even in a really deep recession.
You're talking about 90% or 100% in some cases,
rather than even the worst kind of recession,
which might see 20 or 30% fall in demand.
But the economists have basically said,
Now, what you have to do is, do what you can
to fill that hole that's been blown into the economy
so that the economy is then intact
when you come out the other side.
Do you think we, I mean, we can, we know what we should be
trying to do in principle, do you think in practice,
we're gonna be able to do that?
I think you've hit the profound insight, Stephanie,
which is that even more than a usual recession,
this is something where there's abrupt, sudden stop,
and who falls apart in terms of businesses and jobs
depends entirely on cash flow at that moment.
It's not about, sort of, merit, did you have a good product?
Did you invest?
Did you save enough?
It's really just the size of economic death
is do you have the cash right now,
or do you happen to be in the wrong industry
or the wrong place?
And so, the response that we've put together,
and I should say we, but I mean the communities put together
is really one about providing essentially
a bridge loan for everybody.
It's the goal to say don't foreclose on mortgages,
don't foreclose on loans, don't put people off of jobs
if you can hold on to them or if we, the government,
we, the public, funds you to keep those jobs,
because there is this reality that once something
goes under, if it's a company, if it's a job place,
and people leave, that it's very hard to rebuild.
Some people have said that we may see a reset
in our approach to government and our, what kind of role
the government should have.
Maybe it should be offering, always having and offering
more of a safety net to people in the gig economy,
for example.
Will this different attitude towards government change,
do you think, even in somewhere like the U.S.?
I think it will, I think there'll be pressure
in that direction, and I'm hopeful.
But I also think this is gonna be much more contentious.
I think that there will be, and I'm already talking
to people who say, again, not completely unreasonably,
Well, we don't want to communize the system.
We don't want permanent ownership of government
of all the main industries
but I certainly believe the U.S. has a real opportunity
and a real reason now to move towards more safety net,
as you say, for its workers, for its people.
And I think also what's become very clear
with the changes in the unemployment regime
in the U.S. is that we do have a lot to learn from Europe,
that you need to make it so that jobs are not as fragile,
as low connection, as you mentioned, gig workers,
informal sector, part time people, but also
even full time people in the U.S. tend to have
much more tenuous support and connection to their jobs
at the lower end of the income scale.
That should change.
Adam Posen, thank you very much.
Thanks for having me.