UNIDENTIFIED REPORTER, BYLINE: This is PLANET MONEY from NPR.
GREG ROSALSKY, HOST:
As we record this, it's Friday. We just minutes ago watched President Trump declare a national emergency in response to the coronavirus pandemic.
KENNY MALONE, HOST:
This is actually the second big coronavirus presidential address this week. On Wednesday, the president offered his plans for the economic consequences of this pandemic.
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PRESIDENT DONALD TRUMP: My fellow Americans, tonight I want to speak with you about our nation's unprecedented response to the coronavirus outbreak.
ROSALSKY: Trump called for extra funds to the federal government to provide low-interest loans to small businesses.
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TRUMP: To this end, I am asking Congress to increase funding for this program by an additional $50 billion using emergency authority.
MALONE: He also said that he would push for an expansion of paid sick leave. He said he would delay Tax Day for certain people and businesses.
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TRUMP: Finally, I am calling on Congress to provide Americans with immediate payroll tax relief.
ROSALSKY: A payroll tax cut. We don't have specific numbers, but this could be a massive amount of money.
MALONE: This was, simply put, a huge week. And those are huge proposals. And we have been thinking a lot about them and wondering, are these the right proposals?
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MALONE: Hello, and welcome to PLANET MONEY. I'm Kenny Malone.
ROSALSKY: And I'm Greg Rosalsky. Today on the show, the news is happening so fast, and we are working quickly to follow it.
MALONE: So today, we call up three of the smartest people we know, three economists who have studied or even been present for moments of huge economic crisis. And we simply ask them to help us understand what our country should do.
ROSALSKY: We should say here that we reached out to the White House for an interview to hear more about the Trump administration's economic approach to this new coronavirus, and we were not able to get an interview.
MALONE: But we were able to get three very experienced economists on the line, starting with Douglas Holtz-Eakin. Doug is the leader of the American Action Forum, which is a self-described center-of-right think tank.
ROSALSKY: All right. Before we start, I'm just kind of curious. Are you taking any personal precautions against the coronavirus?
DOUGLAS HOLTZ-EAKIN: Yeah. Well, you know, it's not coronavirus, but no one gets within 6 feet of me. I'm just not very popular.
ROSALSKY: Oh, that's not true.
We're not saying Doug is bad luck, but he has been around a lot of crises - like, in the room when it all happened.
MALONE: Back in 1990, for example, after Iraq invaded Kuwait, there was an economic downturn, and Doug was there, serving in the first Bush administration on the Council of Economic Advisers.
ROSALSKY: In 2008, in the middle of the financial crisis, Doug was there. He was on John McCain's staff, helping the senator figure out that crisis.
MALONE: And also, during 9/11, Doug was there, on the Council of Economic Advisers to President George W. Bush.
HOLTZ-EAKIN: I was in the Eisenhower Executive Office Building, saw a plume come up out of the Pentagon. And the evacuation plan was the Secret Service ran through the hallways screaming, a plane is coming. Run.
MALONE: Jeez.
ROSALSKY: Oh, my gosh.
And in the middle of all of that, Doug still had economist work to do.
MALONE: Is it the same day that you draw up that memo?
HOLTZ-EAKIN: Yes. And you do a very sterile exercise of saying, OK, on the demand side, what's going on? On the supply side, what's going on?
MALONE: Demand side and supply side - these are the two poles of a recession. Recessions historically are usually set off by a shock to demand.
HOLTZ-EAKIN: In Keynes' framing of it, there are animal spirits.
MALONE: Yeah.
HOLTZ-EAKIN: And these private firms suddenly get pessimistic and stop investing. It's - it has a snowball effect. They then have to lay people off, and that has a further snowball effect. And you get into this awful demand spiral down.
ROSALSKY: We're seeing this drop in demand right now almost everywhere. People are scared to leave their homes. They're not going to restaurants or hotels. Concerts are being canceled. Public health officials are urging social distancing. A lot of what's good for public safety right now - it's not good for business.
MALONE: But what's different about the coronavirus pandemic is that we are also seeing a supply side shock, a shock from the other side of the economy.
HOLTZ-EAKIN: So supply shocks are things which make it harder to produce goods and services for sale, or more expensive to do so.
ROSALSKY: That's workers and businesses not producing as much as they used to because we have supply chains from China shutting down and workers here calling in sick. It doesn't matter that people want stuff if stuff isn't getting made.
MALONE: And again, this is a case where what is good for public safety happens to not be good for the supply side of the economy right now. But the problem with dealing with supply shock, Doug says, is the tools the government has to fight recession - they mainly work to stimulate demand.
HOLTZ-EAKIN: If you give people a check and say, go buy something, that doesn't fix anything on the supply side. It doesn't fix the tragic loss of life. If you cut interest rates, it doesn't fix those things. So the things that we have, the kinds of spending the government can do, taxes it can cut, the kind of interest rate movements the Fed can engineer - they can't help you with supply shocks, so those you just have to live with.
MALONE: We've got nothing? There's nothing we can do for a supply shock?
HOLTZ-EAKIN: The only thing we can do is try to ameliorate the consequences of it.
ROSALSKY: But there are things we can do for the demand side. There are things we can do for the millions of Americans getting hammered by the rapid fall of consumer spending, especially those who work in the service industry as waiters and valets and maids.
MALONE: Yeah, some economists have called for a stimulus package, a one-time injection of hundreds of millions, or even billions of dollars, like we saw during the financial crisis. But Doug Holtz-Eakin - he thinks that is the wrong crisis to be thinking about right now.
HOLTZ-EAKIN: I think the best analogy for what's going on right now is the aftermath of the terrorist attacks of September 11, 2001. In the aftermath of those attacks, we had a threat to the security of the American population, and we had to undertake direct mitigation of that threat.
MALONE: Doug's main point, like a lot of people we talked to, is that the best thing you can do right now, the best thing you can do for the economy is to deal with the problem at hand. During 9/11, Doug says that was addressing terrorism. And today, that is obviously stopping the outbreak of coronavirus.
ROSALSKY: And Doug says we should be pouring money into coronavirus testing, into state medical funds, into whatever it takes to get this thing under control as quickly as possible, because if people aren't healthy, they can't participate in the economy. And if people are healthy but terrified, they also won't participate.
MALONE: Now, in terms of traditional stimulus, Doug thinks what could work is something like what the president has suggested, a payroll tax cut. The way this typically works is that the federal government just takes a little bit less out of everybody's paycheck, and then people get to keep a little bit more money every pay period.
ROSALSKY: What's your view on that kind of policy?
HOLTZ-EAKIN: It could have a place in a broader package, but I don't think it is in and of itself the solution. It has a real problem in that it doesn't address anything for those who don't have a job.
MALONE: Right.
HOLTZ-EAKIN: And it's not particularly well targeted by income, right? You're giving a big tax cut to high-payroll people. So it's a pretty blunt instrument I think done more for the sort of psychological let's-give-people-confidence reason than others. But it has the virtue that it would continue, right? It's not a one-time policy.
MALONE: And this is why Doug is not in favor of an idea that you'll hear getting floated right now. It's kind of a big typical stimulus idea, and that is just cutting checks to everybody as a way of kind of shoving money into the economy right now.
HOLTZ-EAKIN: It's a one-size-fits-all proposal, but we don't have a single problem out there. As I said, you can give people a lot of checks; they're not going to fly on international flights. So I worry about the durability of that solution. If this goes on not just in the second quarter but in the third quarter and you sent the checks out in March, what's going to happen later in the year? So I'd prefer something that has a little more durability and looks different than a shock and a one-time stimulus.
MALONE: You've convinced me checks are a bad idea, but I suspect we'll have three interviews, and at the end of each one, I'll be convinced that the current one is right.
HOLTZ-EAKIN: So you know what that'll prove? It will prove that it's hard.
MALONE: Yeah.
HOLTZ-EAKIN: Whatever we end up doing, it will be the result of a very hard set of decisions.
MALONE: Yes.
HOLTZ-EAKIN: There's nothing easy about this.
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MALONE: The next economist we talked to, Heather Boushey, is the head of a left-leaning think tank called the Washington Center for Equitable Growth. Heather showed up at our studio with a bunch of papers in hand, at least one printed chart and a paperback titled "Recession Ready."
HEATHER BOUSHEY: I brought my book.
MALONE: It does work well in your...
BOUSHEY: Yes.
MALONE: You're riding the wave of this pretty well.
BOUSHEY: You know, we said, hey, it's going to happen eventually. Let's get ready.
ROSALSKY: This book, which Heather co-edited, is a collection of things we could do to fight recessions.
BOUSHEY: One of the things that has really changed in recent decades has been the rise in economic inequality...
MALONE: Yeah.
BOUSHEY: ...In terms of wealth, in terms of incomes, in terms of job quality. And so that different context that we are going to be fighting this recession in and, quite frankly, fighting this pandemic in - that, I think, is a really important piece to keep front and center.
MALONE: And this, Heather says, is why she sees a potentially very dangerous collision right now during the pandemic of humanitarian and economic problems, because our economy has lots of low-wage in-person jobs. Think about a waiter, an Uber driver, a yoga instructor. These are jobs you cannot do from home. And they also tend to be lower-wage jobs. They tend to have fewer benefits, including, she says, less access to paid sick leave.
BOUSHEY: And I know that we are - that we're talking here on a podcast, but...
MALONE: Do you have a chart? OK, so what are - OK, so this is a beautiful chart. You want to rattle it?
BOUSHEY: Yes.
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ROSALSKY: Heather pulls out this graph. It's part of a recent study on paid sick leave. And not super surprising, when people get paid sick leave, they stay home when they're sick, and cases of the traditional flu plummet.
BOUSHEY: If we were to say - you know, if we were to say, OK, everybody in the United States now, no matter what kind of job you have, has access to paid sick days - you can stay home if you're sick - this would decrease not only the spread of coronavirus, but also the flu and other contagious diseases. And that's really important. And that's going to lower the cost of this pandemic for our society. It's going to lower the stress on our health care sector.
ROSALSKY: So Heather says from a public health perspective, finding a way to make sure people have paid sick leave is a no-brainer.
MALONE: But she also says from an economic standpoint, it is a no-brainer because people are scared to go out and spend money right now. And maybe you would be less scared if you knew that your Uber driver, your yoga instructor, your waiter are allowed to stay home if they wake up with a cough that is maybe fine or might be coronavirus.
BOUSHEY: If I know that when I walk into NPR, people have paid sick days, so I'm not likely to come into contact with somebody who's going to make me sick, I'm going to be more likely to walk into your offices, right? So, I mean, and that...
MALONE: You did come in here anyway.
BOUSHEY: I did. I did.
MALONE: I appreciate that.
BOUSHEY: Well, you know, I was pretty sure that you guys had paid sick days.
MALONE: We have a lot of Purell. We do have paid sick days.
BOUSHEY: Yeah. Knowing, no, everybody has paid sick days, so, no, somebody who's sick is going to stay home - that, along with testing, seem like some of the most important things we could do to reduce the shock on the economy.
ROSALSKY: A big part of the book Heather brought into the studio is about an idea they call automatic stabilizers. Think of these as like the air bags for the economy. As it starts to crash, we would have these things in place. They'd automatically deploy when we need them.
MALONE: So, for example, when the economy starts to crash, we know that people lose their jobs. And so one automatic stabilizer would be to automatically increase social programs like SNAP, the food stamp program.
ROSALSKY: Or during a downturn, when we know people are going to lose their jobs and insurance, the federal government can automatically increase the amount of money for unemployment insurance or the amount it pays states for things like Medicaid and children's insurance.
MALONE: And one of the major automatic stabilizers Heather thinks we should do is a kind of automatic cash stimulus. So when unemployment starts going up by a certain amount, checks hit the mail to literally everybody.
BOUSHEY: Because we haven't prepared for it, cutting checks to every individual, every family in the United States is a logistical challenge.
MALONE: Yeah.
BOUSHEY: And it's also tax season, so the IRS is a little busy right now, right? But again, you know, as we started this conversation, we said we needed to think about the backdrop of heightened economic inequality. So thinking about that backdrop, making sure that you're reaching all those folks that aren't at a job where they have a paycheck where they are subject to payroll taxes, so thinking, too, about the gig workers who may be getting 1099s. There's, like, some - you know, how does the payroll tax cut affect their income and earnings?
MALONE: So, yes, challenge logistically, but you're saying worth it.
BOUSHEY: Yes.
MALONE: In the middle of our interview with Heather - this was on Wednesday - this kind of incredible thing happened. We had our phones out, and they started buzzing. It was one of those news push alerts.
ROSALSKY: I just want to say that I just got a breaking news alert that the Italian prime minister has ordered all businesses except pharmacies and grocery stores to close, tightening the lockdown of his country. I'd imagine that's bad for the economy.
MALONE: Heather is - yeah, Heather is - she is mouthing some version of holy crap, although I won't say what I - I'm not a lip reader, but I don't think that's what you said.
BOUSHEY: That is an extremely - I mean, so first off, on a human level, that is an extremely important indicator of how challenging the Italian government is finding containing this contagious virus that kills people.
ROSALSKY: Yeah.
BOUSHEY: So the fact that they need to take this measure only underscores what we've been talking about here today. It - to my mind, it only underscored - if you don't want that to happen, make sure that everybody who is sick goes home, stays there, doesn't lose their job, doesn't lose their income. That is the No. 1 thing you need to do.
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MALONE: After the break, we ask one of the economists who had to deal with the Great Recession what we should be doing right now.
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AUSTAN GOOLSBEE: I'm Austan Goolsbee. I'm a professor of economics at the University of Chicago's Booth School of Business, and I used to be the chairman of the Council of Economic Advisers for President Obama.
ROSALSKY: Before we get into more questions, have you personally taken any precautions against the coronavirus?
GOOLSBEE: Oh, definitely. I mean, I've been washing my hands enough that now the backs of my hands are totally chapped and red.
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GOOLSBEE: And two or three weeks ago, I went to Costco. I got a 30-pound bag of sushi rice and some canned green beans.
MALONE: (Laughter)
We asked Austan, are we going into a recession? Are we already in a recession?
GOOLSBEE: Well, there's no question that we are about to enter a period of substantial slowdown in the economy. Our economy is much more driven by exactly the kind of face-to-face services that are the things that everybody stops doing when stuff goes wrong. So I think by measures of economic growth, for sure, we're on path for a recession.
ROSALSKY: And if I recall correctly, you had an important position during the last recession. Do you think this current moment - economic moment compares to the previous one at all?
GOOLSBEE: Yeah. Look; the 2008 financial crisis - that was terrifying, but in a different way. The thing about the virus economics that's different from regular business cycle economics, as I say, is that the most important thing you can do for the economy has nothing to do with the economy. And that is you have to slow the spread of the virus because the thing that is 100% correlated with the decline in economic activity is that everyone's afraid, and so they withdraw from the - from economic life.
ROSALSKY: Austan says they figured this out in South Korea and Japan. They've been actively looking for patients. They've been quarantining people. They've been giving out free tests.
MALONE: In the U.S., on the other hand, testing has been a catastrophic mess, which has made actively looking for infected people ineffective, to say the least.
ROSALSKY: And so for Austan, like every other economist we talked to today, the most important thing we can do for the economy right now is contain the virus. And for him, just like Heather Boushey, a critical part of that is expanding unemployment insurance and paid sick leave.
MALONE: As for, like, the classic economic stimulus ideas, which is, you know, basically pumping money into the economy somehow by cutting taxes or increasing government spending, Austan Goolsbee is not out on that idea. It's just that he would offer a little bit of caution at this particular moment. And he has an analogy for why.
GOOLSBEE: If the rainstorm is coming, one approach is while the storm is coming, let's - we're going to wring the water out of our shirt as fast as we can and keep wringing it and hope to dry ourselves out.
ROSALSKY: (Laughter).
GOOLSBEE: While the storm is raging, I do not think that is going to work. The only thing that will work is get an umbrella. And let's give everybody umbrellas, and let's try to get inside. Now, as soon as the rainstorm is over, now is the moment of stimulus.
MALONE: I love this analogy, but it is a weird one. So if it's not clear what's going on here, wringing out your shirt is spending money. It's paying people money somehow. That's the stimulus. And it won't do anything until you treat the bigger problem - until you put the umbrella up.
ROSALSKY: That said, Austan thinks something like the automatic stabilizer stimulus could work well - you know, that idea from Heather's book. It's better, he says, because it's a data-driven stimulus. So government money is being deployed when numbers say we need it, not when politicians say so.
MALONE: Yes. So it's like a watch that tells you the exact right moment to start wringing your shirt out.
ROSALSKY: We talked to Austan the morning after Trump's Oval Office speech, and we wanted to run through the proposals with him. President Trump called for an additional $50 billion in low-interest loans for small businesses.
MALONE: And Austan told us he thinks that's a good idea. Lots of businesses are going to get slammed. They're going to need help. Fifty billion dollars' worth of help? We can debate the amount, but generally good idea.
ROSALSKY: President Trump also called for a delay on the deadline for filing federal taxes.
MALONE: That's an easy one, Austan says - no-brainer. We should totally do that.
ROSALSKY: But on the payroll tax cut, no. Austan thinks this is a mistake. It's wringing out the shirt while it's still raining. It's also, he says, a pretty unfair way to distribute stimulus.
GOOLSBEE: So, A, that doesn't - it doesn't really make sense. And then, B, the whole fear here is that such a sharp drop in economic activity in a short period of time is going to get a whole mess of people laid off - that they're going to lose their jobs, the temporary workers and part-time workers and gig workers are going to be shut out and that there's - there are millions of retirees. All of those people in those categories who are at high risk economically and health-wise from this virus, they don't pay any payroll tax. So cutting the payroll tax is kind of steered to the wrong people.
MALONE: Austan Goolsbee told us that he would prefer as a method for getting money flowing through the economy a sales tax holiday - but not yet. Again, deal with the pandemic first, and then we can look at that.
GOOLSBEE: Once you get to the moment where we are trying to rebuild and say we've passed the peak infection rate and we start on the downside, now we're back into a traditional stimulus discussion of, how do you get the most economic activity with the highest bang for the buck?
Personally, my view is that the highest bang for the buck when you get to that would be to cut the sales tax rate, have the federal government pay the states whatever is the cost to have a temporary cut in the sales tax, have a holiday, because to get the tax cut, at least then you would have to go spend the money.
MALONE: You know, it's - you're the - I guess the third economist we've talked to. And every single person, first and foremost, didn't want to talk about economics, really. It was, you have to stop the pandemic. This is a science question and a policy question. But let's talk about stimulus once we fix that problem. From an economics show standpoint, that's very disappointing. But I suppose that's very telling.
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GOOLSBEE: But, look; it's like the difference of virus economics from regular business cycle economics is this paradox that the best thing you can do for the economy has nothing to do with the economy.
MALONE: Right.
GOOLSBEE: It is about slowing the spread of that virus. So that turns it back into the public health aspect.
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ROSALSKY: Well, I think we've taken a lot of your time. I just want to thank you so much for, like, talking us through your thoughts on everything.
GOOLSBEE: Yeah.
ROSALSKY: And stay safe out there.
GOOLSBEE: OK. You, too.
ROSALSKY: All right. Bye.
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MALONE: Look; we are watching this unfold as quickly as everyone listening to this, and so we will try and keep you updated. And if you have questions, we would love to know what you're thinking about, what you're worried about. You can always email those to us. We are planetmoney@npr.org. We're on Facebook and Twitter and Instagram - @planetmoney.
ROSALSKY: Today's show was produced by Alexi Horowitz-Ghazi and Nick Fountain.
MALONE: Alex Goldmark is our supervising producer. Bryant Urstadt edits the show.
ROSALSKY: And by the way, you should totally subscribe to our newsletter. I'll be following the coronavirus pandemic and all the economic fallout from it in future weeks. You can subscribe to the newsletter at npr.org/planetmoneynewsletter. I'm Greg Rosalsky.
MALONE: I'm Kenny Malone. This is NPR. Thanks for listening. And be safe. Be safe and smart, everybody.
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