Former White House Economic Advisor On Current Administration's Policies
DAVID FOLKENFLIK, HOST:
And now we're going to turn to someone who has advised two Republican presidents on economic policy - most recently President Trump - Tomas Philipson. He was the acting chairman of Trump's White House Council of Economic Advisers for three years. He stepped down at the end of June. Tomas Philipson, thanks for being with us.
TOMAS PHILIPSON: It's good to be with you.
FOLKENFLIK: Is there a coherent economic policy the administration has adopted towards the current financial crisis that we can identify? And if so, what is it?
PHILIPSON: Yeah, I think there's a pretty clear policy that we set out to implement. One is - on the public health front was that the country is clearly so heterogeneous that it made less sense to have a sort of one-size-fits-all federal policy on the public health front. And then on the fiscal policy or economic policy front, you know, we essentially destimulated the economy - which is never done, at least not in recent history - by telling people not to engage in economic activity. And, therefore, their fiscal policy was aimed to provide a bridge - a liquidity bridge from doing that into a state in which economic activity picked up, again.
However, you're right. We saw a very sharp downturn in the second quarter, obviously. But what was little noticed in that number was that disposable income, which is a measure of how much income you have after you pay taxes and get transfers from the government, went up by far the largest increase we've seen. And that is telling me that we kind of overdid it on the fiscal sort of aid to people because it shouldn't be that people get richer when they get hit by a pandemic, which, on average, is obviously not true for all households. There are certainly suffering out - households out there.
FOLKENFLIK: OK. Let me...
PHILIPSON: But on average, it went up for them as opposed to go - gone down in terms of disposable income.
FOLKENFLIK: Tomas Philipson, let me tease out a couple of things quickly there because we - it sounded to me as though you're describing an approach of sort of almost encouraging letting a thousand flowers bloom when it came to the health policy - and your specialty is, of course, health economics. And I want to get to that in a minute or two. But then you talked about the economics that you wanted provide this - that the administration wanted to provide, a bridge. It seemed, at times, as though that was the policy administration was kind of brought to rather than leading the charge at but certainly was, you know, enacted and got that out there. You're saying at this point that there's too much money in people's pockets, you know.
As a layman, as a noneconomist, it would seem to me that people might have had, in the second quarter, this big burst of disposable income in part because in the first quarter, so much went away. It would almost seem as though, for a lot of people, you're saying, well, this has worked. There's money in the pockets of people to spend, which, in some ways, is what advocates said they wanted all along, that is there to be enough money for people to spend, that the economy did well, regardless of whether or not the Household A or Household B really needed the extra, you know, 20 bucks or 200 bucks here or there.
PHILIPSON: Well, I mean, one way of thinking about what this is is that government provided insurance for a economy-wide, population-wide shock. It's very hard for individual or private insurance companies to insure against a shock that hits everyone because they go under when that happens. So if you think of the insurance that way, what I'm saying here is that you get paid a lot more than what you're insured.
FOLKENFLIK: If you were still serving as chairman of the White House Council of Economic Advisers, what would you be advising Secretary Mnuchin and President Trump to do?
PHILIPSON: What is lacking I think is a fiscal policy that's more kind of integrated with the public health recommendations. So this epidemic is unique in that the productive part of the economy, the young people are very low-risk. So you have an epidemic that is low-risk for the people who are producing the GDP or are in the labor market. About 95% of people in the labor market are below 65. And then you have an old population who's retired and is not productive that we need to protect. And that separation between high and low risks could be much more better stimulated with fiscal policy. That is to say, we want to subsidize that separation to a much larger degree than we currently have done.
FOLKENFLIK: Tomas Philipson, you've said on CNN last week that your team alerted the White House about the threat of - that a pandemic - not the coronavirus per se but that a pandemic could pose three months before COVID-19 arrived in the U.S. I went back and read your report. And it's pretty prescient about the threats, about the deadliness of it. It, you know, fits fairly snugly with a lot of the stuff we've seen. Who did you tell? And what was their response?
PHILIPSON: So I think that's been very mischaracterized in terms of what that report was about.
PHILIPSON: That report was about much more rapid vaccine development and - in a pandemic, which is exactly what warp speed implement. And I'll talk a little bit about what works...
FOLKENFLIK: In your report, you talk about how the traditional egg-based way that people derive vaccines basically slows down the ability to get something that's awfully effective in a timely enough way for people to be inoculated and protected from the disease in a way that will help society as a whole. What I'm interested, in some ways, is that was a pretty prescient report. You said, look, it's only about a 4% chance this could happen. But, boy, if it does happen, it'll be a huge problem. I want to know what kind of reaction that fosters or stimulates or inspires inside the White House. You, after all, were the acting chairman of the Council of Economic Advisers. What response did you get from it? And who did you tell?
PHILIPSON: No, I mean, White House reports are highly vetted within - you know, through the staff secretary, CA reports included. So, obviously, it was - everyone was aware of the report. And we worked very closely. This is actually an executive order that came out of NSC and HHS on how to adopt more quickly producible vaccines if you want. So this was an ongoing effort I think that's been going - you know, most administrations are involved with these preparedness efforts, et cetera. So I don't think it was anything unusual.
And every administration, including ours, has a unit with NSC that basically is set up to work on that in terms of preparedness, biological threats, et cetera, and a part of their ongoing work that's not something that just gets launched with an epidemic that goes on and has been going on for many, many years without us having seen an epidemic or a pandemic in a hundred years like this one.
FOLKENFLIK: We've been speaking with Tomas Philipson. He was the acting chairman of President Trump's White House Council of Economic Advisors for three years. Professor Philipson, thanks so much for joining us.
PHILIPSON: Thanks for having me.
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