Presidential Econ 101 - A To Do List

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Justin how's it going? Seems like you guys have had
a massive week?
A big week. What do you mean? What sort of
news are we having in November?
There's something a bit along those lines. Where's where's Betsy?
So just to bring the listeners in. Of course, the
US has just had an election, and obviously it's an
extraordinary time for economists as we've all got to start
thinking about economic policy for the new president. And actually
Betsy's serving on the Biden Harris transition to which means
she can't be with us today to talk about this.
But there's a lot to talk about anyway.
That's super exciting. I bet there's loads to get done.
Yes, the new administration begins on January twentieth. They're facing
a pandemic, a recession, a bureaucracy that many measures, is
in disarray and they need to hit the ground running.
So now, as I thought today would be a good
opportunity for presidential economics one oh one for today's episode
of Think Like an Economist.
So justin if you were going to brief the next
president about what they need to do about the economy,
where would you start? What would you say?
It's a funny thing for an economist in the middle
of a recession to say the starting points not monetary policy,
it's not fiscal policy. It's not calling a bunch of
economists in. It's beating the virus. One way of thinking
about the virus is it's like attacks on every person
to person interaction or service sector transaction that we have,
and that tax deters.
A lot of activity.
And if you think about it that way, that tax
is the reason the US economy and economies around the
world are in the doldrums right now. So if they
can remove that tax, things might get back to normal
sometime soon.
It's interesting because I feel like loads of people who
talk about restrictions being bad always bring in the economy
and how this is really damaging for the economy.
They think a lot of the discussion gets very mixed
up because people make the mistake of thinking the economy
is about dollars and cents. I know listeners of our
podcast would never make that mistake. We understand that economics
is about every aspect of the human condition, and it's
not just about the dollars and cents that go into GDP.
It's also about the health.
It's about keeping our relatives alive, it's about the joy
we get from being.
With each other.
All of this is part of economics because all of
this is what we're trying to do, which is figure
out ways to make the world of better place.
So what would be your first advice using economics tools
in terms of what to do right now? Given there's
a pandemic and there's a recession.
President Biden, if you care about the recession, and I
know you do, we need to beat the bug.
Your public health.
Team is going to come to you with all sorts
of suggestions. Some of them are very cheap. Make sure
people wear masks, show leadership, and show how one does
wear a mask, continue to social distance. Some will be
a lot more expensive. Widespread testing, getting the vaccine distributed
as soon as possible, contact tracing. But before you hesitate
on the price tag, realize that the benefits from beating
the bug are absolutely enormous. There was a recent study
by Harvard economists David Cutler and Larry Summers which found
that for the typical family of four so far, the
pandemic has cost them the equivalent of two hundred thousand
US dollars. Some of those costs are lost income. Some
of that's worse health for folks who've lived through the virus,
some of it's worse mental health for folks who have
been separated from loved ones, and some of its lost
relatives and lives lost.
So you've talked about beating the bug, which sounds like
a sort of immediate, short run measure. What do we
need to do in the medium run?
We need to inoculate the economy against future shocks. Look,
recessions happen, and we can almost never predict them, because
they happen when something that you don't expect jumps up
and bites the economy on the bum. It could happen,
and it could happen as soon as next week, and
for so many families and so many businesses that are
teetering on the brink right now. Yet another downturn would
be catastrophic, so we need to make the economy more bulletproof.
What I've suggested is we need to find ways to
automatically link the state of the economy to government spending.
This is what economists call automatic stabilizes. And if we
can do that, then we can also take politics out
of the equation.
The discussion about whether.
We should have more fiscal stimulus or not got caught
up in the electoral politics. One side didn't want to
vote for unless it helped the election prospects of the other,
and the economy and people suffer as a result. Let's
get Republicans and Democrats in a room. Let's get them
to agree on a formula for how fiscal policy should
in the future respond to the ups and downs of
the economy. Let's make that a law, and hopefully that
will help inoculate us against the next set of sharks.
And justin you've used this term fiscal stimulus. We're gonna
learn about this in later episodes, but can you quickly
tell us what this is because it seems to be
super important.
One way of thinking about a determinant of the size
of the economy is how much spending is going on,
and if you and I are not doing much spending
and businesses aren't, the government can step in and do
a lot of spending. And then the hope is that
people who receive that spending will also go on and
spend it as well. So that's what fiscal stimulus is,
and that's an important part of how we can try
and jolt the economy out of its current stupor.
And in this case, you mean the government should literally
be giving people money.
In many cases, yes, sending people money, in some cases
spending it directly. Think about things like what is the
best time to spend billions of dollars building roads? Is
that when unemployment is high, tons of people need jobs,
wages are low, when we can borrow it a low
interest rate, like right now, or is it once the
economy is booming everyone has jobs, they'll only come and
work on your road project for a higher wage. It's
pretty clear if we're going to build roads, we're better
off doing it today than in some future moment.
I should be clear. And as when I say building roads, there's.
A bit of a metaphor about that. I mean the
big investments that we need to make, not just to
keep our economy humming, but to make it more livable,
a better place. So it includes environmental investments, it includes
infrastructure investments, it includes community investments. We're going to spend
that money. Let's do it when it has the most benefit. Now,
part of this requires is to build the infrastructure to
scale up and down government spending at different points in time.
That's something that we really failed at this time. So
sometimes fiscal stimulus is literally sending people money, and the
US government decided to send people twelve hundred dollars checks,
but it took weeks and weeks to get that money out,
and in fact, there's still millions of people who still
months later haven't received that check. That seems really amazing
given that Jeff Bezos and Amazon can get me one
of tens of thousands of products to my door in
two days, and the government can't get me money in
two months. So we need to fix that. We need
to create pipes that allow the government to get money
out quickly and effectively so that we can offset future
economic shocks.
Justin we've looked at the short run, the medium run,
like all economists were going to come to the long run,
what does the president need to be focusing on for
the long run.
This is very much advice that's half political and half economic.
The political part is politicians too often allow this crisis
to consume their every day. And hopefully we will get
through this crisis. It's a public health crisis, an economic crisis.
But then we're going to have mid tim elections within
two years, and so maybe we'll have a political crisis,
and you keep focusing on the short run and you
never achieve the important long run things that led you
to want to run for office. And so I would
say to the President, even though it feels like the
wrong time for these big investments, maybe it's the right
time think about your longer run goals. Inequality has been rising,
and that's something you're concerned about. The American healthcare system
is incredibly inefficient and very difficult to reform. But if
we reform it, we could really help people. Our social
safety net is frayed, and we really saw that when
millions lost work and not everyone was able to get by.
We've obviously got the environment to worry about, and of
course there's been fraying trust in important economic institutions.
And so I'd say to the president.
Many of these problems seem enormous, but when you crack
open an economics textbook, or let me add listen to
a future episode of Think Like an Economist, you'll see
these are things that my tribe has been studying for years,
and we have some pretty good solutions. We've talked about
some of them, for instance, on the environment in past episodes.
We'll keep talking about those solutions, but they're all out
there and they're waiting for president to pick them up
and implement them.
So your tips for the next president would be in
the short run to beat the bug, in the medium run,
to inoculate the economy against future shocks, and in the
long run to focus on things such as inequality, the environment,
and healthcare and you know these big visions on how
we can live better.
Really, now, as you have summarized it so well that
I hereby nominate you as the next Secretary of the Treasury,
and I hope you can get your agenda implemented well.
But you guys make it sound so much simpler than
it is.
But this is an important point for the listeners. We
can get bogged down in all the ways these things
are difficult. We can also stand back, see the big picture,
see that there are solutions. Look in our standard economics
textbooks and understand the ways in which these problems are solvable.
We need the political will to do it. I'm not
a political scientist, so I say to the president that
parts your job, but the economics profession is here to
provide you with the support and the insights I think
you need to tackle these big problems.
Justin thanks so much for your tips for the next president,
and good luck to Betsy who is busy working on
all this over the next few months.
I'll pass that on if I ever get to see
her again. But I got to tell you she's working
some long hours.
Well, fixing the economy. It's important work.
Well, I'm glad we got the right woman there.
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