Odd Lots - How To Stop The Recession From Happening Right Now

Episode Date: March 12, 2020

The U.S. is on the verge of an economic crisis due to the coronavirus, as people and businesses aggressively pull back on spending. On this week's Odd Lots podcast, we speak with Claudia Sahm, the director of Macroeconomic Policy at the Washington Center for Equitable Growth, about what the government can be doing right now to stop a recession. Claudia has done extensive research on exactly this topic, and now is the moment to put her theoretical work into practice.See omnystudio.com/listener for privacy information.

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slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing Corporation Distributor. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenpaw. And I'm Tracy Allaway. So Tracy, today we are going to have the fastest follow-up to a past guest that we've ever had, I think. Because of course, we've had some guests a few times or at least twice, but this time

we were talking to someone that we talked to literally just a few weeks ago. Yeah, I think that's kind of a marker of how much has changed in markets. and the economy in that short time because when we spoke to this particular person, I think it was either late January or early February. Obviously, the coronavirus was a concern, especially in China, but it had yet to really take off in places like Europe and the U.S. Now all of that is changing. People are worried about the economy. And of course, we've seen a massive sell-off in markets. Right. Since that discussion, we've had a de facto stock market. crash, one of the fastest declines ever, breathtaking moves day after day, and now extremely

serious and legitimate worries that a recession could be imminent. So we were talking about a recession is a sort of theoretical thing that at some point was likely to come, but now we were talking about a possible recession right here and right now really globally, but also, you know, specifically in the West and in the U.S. Right. And of course, because we are talking about a potential recession, that means people inevitably are talking about what we can do to stop it. We've already seen the Federal Reserve do an emergency rate cut, but a lot of the focus is on fiscal stimulus. Right. That's the big question is whether D.C. can get it together in a way that it rarely can to spend money to blunt the impact of this virus, which is expected to be traumatic.

So without further introduction a few weeks ago, we spoke to Claudia Somm. She's the director of macroeconomic policy at the Washington Center for Equitable Growth. And our discussion was, again, it was theoretical. It's like, what do you do to halt a recession if you see one coming? How should spending get out the door in a timely manner? We were not thinking of the discussion at that time as something like, oh, here's an imminent playbook that we need. But really, we are in that position now. So without further ado, let's get right to it.

Claudia, thank you very much for coming back on the podcast. Yeah, thank you for having me back. I appreciate it. So just in your view, how serious are the recession risks right now for the U.S. economy? I think the risks are incredibly serious. The events are fast moving, right? So if we were talking this time last week, I would not, I've been saying we should be really concerned.

This is not looking good. As last week went on, I think especially for me, I felt like we know how to do this. We know the fiscal tools that need to be deployed when we face a risk to the economy. Coronavirus is unique in many ways, but in a lot of ways it isn't. It's just something that's threatening, on the economic side, it's something that's threatening the ability of people to go to work, people to want to go buy stuff. This is what a threat to the U.S. economy looks like. We know how to fight that.

We've got the tools. We have experience from the last decade. But we need fiscal policy, and I'm sure we'll talk a lot about why monetary isn't enough. But to see Larry Cudlow do the interview on Friday where he essentially said, yeah, we don't really need the fiscal. Or it just there wasn't a really forceful we're going to do all it takes on the fiscal side. And between that and then the markets and, you know, the Sunday night was really bad and the Treasury. So all of this has just made me really concerned. And concern to the point, not that, oh, recession looks like it's, you know, could happen,

that like if we do not act fast, like, it is going to be a recession. Like, I just, and it doesn't have to, I think this was so hard for me is it does not have to happen at all. Like, if we were to act now, then this is, this is going to be painful. It's going to be painful with people that get sick. Some people will lose their job. We're not going to be able to act fast enough and be able to help everybody, but it does not have to take the U.S. economy down. And we're in such a good place right now.

It's just, it's tragic to, like, cut off this expansion. So, Claudia, on that note, why do you think there is this resistance to fiscal stimulus steps so far? So, like I said, we have all the economic tools. This is just a matter of political will. Or fiscal policymakers have all the tools they need. You know, that's not my lane, the politics. But I will say, having been a forecaster, I mean, I worked on all of the,

of the stimulus from 2008, especially stimulus directed at households, 2008 stimulus payments, 2009, 2010 making work paid, 2011 and 12 payroll tax cut. I mean, I followed all those. I had to analyze them for the staff's macro forecast. I did research on every single one of those, know the research. And I, I mean, I cried at the end of 2012. Like, they didn't extend anything. Like, the payroll tax cut expired. That was the last of the stimulus. The unemployment rate was still high, like way too high. And there was all the discussions of austerity. And this doesn't just hit on one side of the political spectrum. And we had very senior macroeconomists who were in positions of leadership in various organizations saying, yeah, we just, we got too much debt. We got to

pull back, tighten the belt straps. And it, I mean, it was unconscionable what that meant to the people who really already had their belts tightened as much as they could. So I, like, I'm not as naive now because like they did it when it was so bad that like I just anyways, but it's, you know, you'd hope that there were lessons learned. Like we learned last time, we should have learned, is that you have to act fast. And when you act fast, you got to go big. You got to go big to start with because that might be the only bite at the apple. And then you got to stick with it. Like, Because if you don't, like, there are long-term costs for everyone in the economy. So, you know, that's like something.

I mean, A, what you say is like something that I've been thinking a lot about, which is, I thought, you know, we had learned some of these lessons after the great financial crisis that, like, it doesn't pay to wait. It doesn't pay to be particularly cautious. The game is to go big and prevent it. And then you have the same old cast of characters, all saying the same thing, like, oh, we're worried about how we're going to pay. pay for it and do we have the fiscal space and maybe we'll do something small and targeted.

But as you note, you know, the recovery from the crisis was shockingly slow. And I didn't realize it up until yesterday. I was looking at the chart how we didn't return to pre-crisis levels of unemployment rate till 2017. That's much in my mind. Maybe I would have thought it was like 2014 or 2015. There's incredibly long lasting scars from the crisis. But we've been talking about fiscal stimulus. One of the things that we talked about when you were on the podcast a few weeks ago, and everyone should go listen to that because that really like sort of gives your whole body of work or a lot more of it is the importance of just getting cash into people's hands. That's the key thing that we need to do right now. So talk about the importance of just

putting money in people's bank accounts right here. Yeah. So when I talk about this fiscal response, so in a recession, I think there's two principles that we should be working on. One, is we should go wide. So that's this idea of giving money to everybody. Like give every man, woman and child in the United States, $500. Find a way to do it. So that's covering the breadth. I think it is important, and you're going to hear a lot more people talking about targeted stimulus. So I think that can, I think we should have that. People who get sick right now, people who are quarantined, they should get money. They should get more money because they're, they're the ones that are sick. They're, they're suffering the most, give them more. But I

think if we bypass the give something to everyone, we are going to really amp up the risk that this spreads and becomes a recession. Because right now, well, right now people are freaking out, right? Because they don't, because they don't know if they are going to get sick. They don't know if someone in their family is going to get sick. And the vast majority, like way up into the income distribution, people, they spend what they make. Right. So there are many people who are one paycheck, even some cut hours away from serious financial distress. So if you know that about yourself and you don't know if you're going to get the virus and you don't know if you're going to be out for two weeks from work and you won't get paid if you're out, then you're not going to go out and buy like the new washing machine or put the offer on the house or, you know, buy, go out to the rest. There's just so many things that you'll. do right now to cut back because you don't know. If Americans across the country do that all at once in the next couple months, like that that's how you take an economy with a three and a half percent unemployment rate, really solid GDP growth and turn it into a recession. Because like that, once that dynamic gets going, it doesn't matter how much you give to the like, you know,

5% of the population that becomes severely ill. We could get past the virus itself and have the economy already be into a tailspin that you can't then arrest as easily as you could right now. If you just told people, we got your back. Like, we're on this. What do you say to critics who make the point that given the uncertainty that you just described, so people don't know if they're going to have a job in the next few weeks, They don't know if they can go outside of their houses, just massive uncertainty for households at the moment.

So if there's that level of uncertainty, how do you know people are actually going to spend the additional money that you give them? And I should just mention that here in Hong Kong, we already have this happening. Hong Kongers are getting cash handouts of a little over a thousand US dollars paid directly into their bank accounts. And the joke over here, although clearly it's not very funny, given. the situation is that everyone is just going to either save it or use it to buy, you know, a few rolls of toilet paper and some face masks. Yeah. So this, this has been the longstanding critique of these stimulus payments, tax rebates, the difference. So, and I think they make for a good story, right? And a lot of times of people telling the story, like, maybe it fits them.

Like, I don't, like, every dollar that comes in to me, I don't just go out and spend it. I've got a cushion. The fact that matters in the United States, and this is different than a lot of of other developed countries, we do not have a good safety net. We do not have financial buffers. Like a huge fraction of U.S. households do not have a paycheck's worth, let alone like $500 worth of money just sitting around that they can access quickly. So we're in a much more fragile place than other countries. And then on top of that, there is research. There is incredibly good research from the 2001 tax rebates and the 2008 stimulus payments that says people will spend it. But this trope will not go away. Like this is, I have, I was talking to someone who's been a lot of conversations with

Republican economic staff and time and again, they say, well, but they're just going to save it. You know, the wonky term of Ricardian equivalence. Like if I give you a dollar, but you know sometime the government's going to take it back, what you save it, or I was talking to someone who does the like permanent income hypothesis, like I give you a dollar and I'm going to calculate the annuity value of it over the rest of my life and spend it. Like those are just wonderful like theoretical models, but like those people don't exist. Well, I mean, Ricardian equivalent people just like there's like 10 of them in the world.

But the, you know, the permanent income hypothesis, there are people who have more money that they really do smooth it out. But there are a lot of U.S. households that for various reasons, and there's a lot of different models, kind of thinking about why this happens, they keep their spending and their income really closely tied. So it is very, and a lot of them, like, they don't have a lot of income, right? I mean, wage growth has not been good. Like, if you give them money, they will spend it. And this is something that as economists, we get wrapped into this with our models, or if you don't want to do this, you come, you grab a, you know, defunct economist model and say that's, the truth, but like if you just went out and grabbed 10 people in front of the White House and said, if I gave you 500 bucks, what would you do with it? I mean, they'd say they'd spend it. Like,

it's not a, I don't know. And I have heard discussions about, well, you know, we don't want people to go out to the store and we don't want them to spend. And I'm like, first of all, this is why I think you should go broadly, right? There are parts of the country right now. It's not, like, the virus isn't there yet. Like, let's get ahead of this. Like, people spend, and frankly, like, you can do a lot of spending sitting in your living room. Right? This is, I just, it's like we want to talk ourselves out of doing something, which totally reminds me of like 2007.

Like we knew things were going wrong in the housing market. We knew, but we just kept saying, well, but it's okay. Because look at this other good data. Like we're getting such a clear early warning. Like we get to watch the train coming at us. I mean, Italy shut down the country. Like, but we have the train coming at us and we're like, Oh, it's going to be okay. It's going to be okay. Like, oh, get out of the way.

Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But on Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com

slash audio. That's vanguard.com slash audio, all investing in subject to risk, Vanguard Marketing Corporation distributor. Yeah, it's really amazing to see the stuff that's happening in Italy now because it's very similar to the stuff we saw happen in China in January and February. And I think back then, no one thought that a democracy in the West was ever going to be able to shut down its population in the way that China did. Just on the notion of safety nets in the U.S., you mentioned this idea that the safety net just isn't quite there in the same way it is for some other developed countries, would expanding that such? that safety net be a preferable option here as opposed to handouts? If you could do it, would

replacement wages or expanded unemployment insurance or something like that be better than payouts? So I think there's a way to answer that question on the economics, and I think there's a way to answer it on the politics. I advocate for this going wide and giving everyone money, not because I think Everyone needs $500. Okay. I do it because I think that something you can do the fastest. And I think it's the most politically feasible. I mean, nothing is really politically feasible right now.

But it feels to me like that is because everybody gets it. Once you get into targeting unemployment insurance, food stamps, any of these are a good example, there can be this feeling of, well, I saved up. I worked hard so that when there was a tough time in my life, I didn't have to go get food. stamps. Why should I as a taxpayer pay for somebody else to go get food stamps when I know they were out, you know, go taking their kids out to dinner before they, you know, got laid off? So I think there's this aspect of if we make sure that everybody knows we, the government is here. We're going to help all of you. Then it might give some space to be like, okay, well, now that we've helped everybody, we really do need to especially help those who get hit hard. But I think if you just target it to the ones who really need it, The United States has a very troubling history of those people who need the help the most, we are the least likely to give it to them. So, like, I don't, if, you know, in a perfect world, I'd want the safety net to be better. I'd want the money, like, serious amounts of money to go to the people who need it most.

But I'm afraid that if we don't do something broad, they won't get anything. When we talked to you before, the focus of our discussion was not merely the sort of, theoretical how to stop recession from happening one day, but some of the work that you've done, what's called the Sam rule named after you, which is, okay, the unemployment rate rise to above a certain threshold. It tends to be a good recession indicator. That's when the checks should go out. Again, people should listen to that episode. We're not there yet in the actual data. And as you've said yourself, your perception of the recession risks has massively heightened even since this time last week. So in a way, this Sam rule would almost be probably

too slow, given how quickly this crisis is coming upon us and the stock market crash and so forth. So in light of that, what is the ideal A, what's the, well, yeah, just like, what is the basis or what is the best approach right now, given the uniqueness of the situation, the severity, the speed, the unexpectedness to get the cash out the door. Right. So I think we should hit go now. Right. As you said, there's no, there's no reason to wait for the unemployment rate to jump noticeably. So like the SOM rule isn't going to trigger for months, right? We could start seeing unemployment begin to rise, but we're starting in a really good place, right? But the unemployment rate, once it gets going, it doesn't stop. And like, again, we can see unlike 2000,

where we were the epicenter of the disruption, the recession, the financial crisis, we got an advance warning. Like, this is happening overseas. Like, it starts in China and Asian. But, you know, so, like, this is different because we don't need the unemployment rate to tell us that something bad is working its way through the global economy. Right. So the thing, so I wouldn't wait until the somberl triggers.

I do think one of the benefits of the recession ready volume, so that was one that I had the proposal in. There's several others. There's been other discussions in the past year about automatic stabilizers in a lot of circles, which is really heartening. So that means there is legislative text ready to go or very close, right? So it might have been being prepared for automatic stabilizers. And frankly, a lot of this, the recession ready volume, every single one of the proposals we did was something that had been implemented in some form before. Right. So, that legislative tech literally is sitting on the shelf somewhere. So you can just take that structure. Like we've thought like I thought really hard myself and looking at the research about, okay,

if I want to get money out to people, a lot of people quickly, what's the best way to do that? And I came down on one-time payment, $500,000 one-time check electronic payment, as opposed to doing a chain, you know, the payroll tax cut. Like that was one that I looked at because that had been done in the Great Recession. So like that's a decision point of like, okay, you want to get money out. Congress wants gets money out. It's like, okay, how can we do that best? And I'm like, okay, here, based on the data and the research and the evidence, do a one-time payment. Right.

And there's like in each of the different, the unemployment and insurance chapter had a lot of really thoughtful ideas about how to strengthen that program. I think right now the FMAPs or the federal share of funding that goes to Medicaid would be an excellent way. to push out a lot of money fast. So there's all these structures. I think one, well, there's a lot of things that are unfortunate that we're in the situation we are today. Some of the things that was specifically like what I had proposed, the idea of doing things making automatic stabilizers, then you can build the logistics.

So the one-time payments, they have only gone out on a discretionary basis. So it's not like unemployment insurance where we already have this program set up. So one of the things that I have been racking my brain over is, okay, I want to get people to everybody. How would I do that logistically so that like money could start coming out right away? And that it gets, it's tricky. Like you can't do what you did in 2008 with the stimulus payments because the IRS can't, they're in the middle of tax season. They can't process anything on the fly. I mean, money can't go out until May.

So, and I would, I don't want to wait until May. for people to get 500. So I spent a lot of time thinking about, well, you could do it this way and you could do it that way. But I'm not sure anybody wants to do it at all. So in some options, you start losing the window if you don't move. So let's say, okay, somehow mechanically we get that checkout to every individual in the country, that $500 checkout.

But one of the scary things about this virus, it's a virus. It grows virally. right now we might have a thousand cases in the U.S. measure probably way more. Next week, we could have multiples of that. We don't know how long it's going to take at all for the health response to be effective at curbing this. So is a one-time check enough, or would it be in this kind of situation where you don't really know the severity and the intensity and the duration of the Brett, something where there's like a check every month until we hit some level. Yeah. So first I'd say like the one time payments regardless if they're once a month or once a

year, like they're not going to be enough. Like a policy response has to come on multiple fronts. So I think there's an aspect of helping households broadly, like get everybody $500. There's an aspect of helping the households who get really sick. And I think, you know, you know, to back up, The coronavirus, this is an illness. This is a public health emergency first and foremost. So I think one of the most important things that Congress could do, and I think they could move this a lot faster than figuring out how to get to money in everybody's pockets, is really push money to states so that they can do state and local governments,

know their public health infrastructure better than anybody in the federal government. Give those states money. tell, I mean, the FMAP goes through Medicaid. I mean, Medicaid itself, because it's a public health emergency, is going to need more fun, like at the state level, as people need to claim, go to the hospital and pay for the emergency care. But that's a place where, you know, you can get the money out for the health system. I think a creative idea, I'm not sure, I mean, this hasn't been done,

but you basically take areas that have mass outbreaks, say maybe if Seattle becomes this, And you declared a natural disaster relief area. So do something very akin to a hurricane hits an area. And FEMA just comes in. They bring in, you know, the portable housing units. I mean, we could very well need those for quarantines. And, you know, the equivalent of in a hurricane, it's like if your house gets flattened and you need money to rebuy it, you can make a claim and you get money from the federal government.

You can make a claim. If the coronavirus flattens you financially, you can go get a claim and get help. So I think there are structures. I mean, the FMAP, like, has been used in this way to get money to states. I think thinking hard about how you could take FEMA and turn that into treaties as a disaster. Like, to me, that's, like, first order is, like, help people not die. But, you know, on this, like, helping people not die, one of the benefits of getting money to everyone is it is a totally sad fact in the United States.

But there are individuals who do not seek medical care, because they, because of the cost. So over 10% of U.S. adults last year said that they didn't go see a physician when they were sick because they didn't think they, you know, because of the cost, not to pay for it. Now, this is like the last thing that we would want people to do is to stay at home, you know, not go to the doctor because they don't have the money to pay for the care. I think what's even more likely is they're going to say, well, if I go to the hospital and I test positive, they're not going to let me go to work.

I need to go to work. So the United States has this aspect of like, if we don't get some extra financial support to people right now, the virus, this is going to be worse. It could be worse here, despite the fact that we have this incredible health system. And like, we can save people in the United States that no other country can when they get, like, really sick.

But they got to go to the doctor, right? And I don't know. And this thing is so infectious. So I think there's this very, like, difficult interplay between the health aspects and the economic aspects and just everything, the way it's rolling together, does not look good. Yeah, in some ways, it's kind of disappointing that we're talking about fiscal stimulus in the form of payouts and tax reductions and that sort of thing when probably the first line of defense

to an economic hit cause from the coronavirus is health care policy. And now, having said that, I am going to smoothly segue to asking you about monetary policy, which is probably even less important on the scale of saving people's lives. But I mentioned the Federal Reserve's emergency interest rate reduction. What do you think of that as one way to sort of help out with the economic hit? And we've seen a lot of stress in the markets, tightening of financial conditions, things like that. So could the rate cut help with that sort of stress, even if it doesn't necessarily immediately roll into the real economy? Okay. Yeah, so I'll, I will go to the Fed. I wanted like one last in your segue piece about the, the first response here should be through the health care system.

And I just did want to point out, you know, last week we did have the president signed, Congress enacted, a $8.6 billion legislation. And it was largely, for health fund, like to hospitals, work on the virus. I think, you know, that's a good step. And that was really the first piece of legislation that came out. $8.6 billion is an insult. Like that is nowhere near the amount of money. So I think we kind of got the idea right that that's where we need to go first. But I don't think people have really like latched on to how big this needs to be. And which actually does segue very well into the Fed piece. So the, so the Federal Reserve should do whatever. whatever it can do.

You know, the Fed has two primary rules. They're the lender of last resort. I hope we don't get there with this one, but, you know, they'll be ready. And their monetary policy is there to stabilize the business cycle. So this is exactly when the economy looks like it's going south, the Fed uses the tools it has to the extent it can to help shorten the recession, make it less severe, right? So the, and I have full faith that the Fed officials are, you know, will do their level best and they will be creative.

So I'm not worried about hitting the zero lower bound. Anyone who says, oh, we should save the ammunition. So we don't go. And I was like what the ammunition is here for this moment. Like fire away when they think it's appropriate, right? So but the problem is the primary transmission mechanism, whether it's federal funds rate or it's asset back purchases. And you, I mean, Rosengrin wants to purchase other assets,

go for it. But at this point, all of this is going through moving down the long-term interest rate, munking around with some financial asset. It's just the interest rates are so low. Like the debt was cheap before the Fed cut 50 basis points, and it's cheap now. Actually, it's really cheap now. I mean, 10-year treasuries are so low. I mean, I was joking with someone about, like, what's going to hit the zero lower bound first?

the 10-year treasuries or the Fed funds rate. I mean, it's just, it's absurd. And so what's happened is the primary way that the Fed has to support an economy in time of trouble is just not effective. Like you, so, but the upside, there's a silver lining to this. Is it because treasury yields are so, like, it's so cheap to borrow right now. There is an incredible demand for U.S. treasuries, which are these safest assets. in the entire world, like, borrow the money.

Like this, I mean, the markets are screaming at Congress to do fiscal policy. So it's like the Fed doesn't have the tools. And I mean, I am sure they will continue to cut. You know, they will open up. I mean, especially if it gets into any kind of a need for emergency lending. Like, they'll do what they can. I mean, they have some things I got to have signed off by Treasury now that they didn't before. But like, there's no, there's absolutely no way that they are not.

And they know it. They've been saying for years, fiscal policy, you have to help us. You know, but I've gotten increasingly frustrated. I think over the weekend, I was, wrote a blog post trying to, I was really like, how can we get money out to people? And I actually was kicking around through this money finance fiscal policy, which is actually the way the Fed could, in theory, get money out. But it's, you know, derisively called like the helicopter money. And so Ben Bernanke got his nickname. I refuse to call it helicopter money.

But like that's a tool. It's never been used. I mean, it is absolutely ridiculous that like that feels like somehow the most hopeful. Because it doesn't involve a, like, there potentially can be a way to do it that the Fed does it totally on its own. Like we should never have a political system that is so dysfunctional that it requires an unelected body to do what is right for the country.

And like this money based fiscal, like this is just. absurd. Like, we shouldn't be doing that. We shouldn't even be talking about that. But that's just reemphasize, like, fiscal policy has to happen. It cannot be the Fed. I think you make a really excellent point there, because obviously we have come to rely so much on monetary policy. And that is the first thing that we heard out of the White House is not a fiscal response, but sort of browbeating Jerome Powell to cut more and cut more aggressively. But the question that arises is how much is that because monetary policy is the best tool versus how much our political system is so broken that the only entity that we can rely on to do anything is the unelected one

where the people at the FOMC don't have to answer to voters. Worth noting, too, you used to be an economist at the Federal Reserve for people who don't know your background. So before we go, though, let's just sum it up. So President Trump, maybe he's listening. to the podcast. He's like, oh, I really want to have Claudia on. We need to, or into the White House, to save the economy. Just sort of real quickly, give us your three bullet points. This is how we prevent the coronavirus from ending the expansion. So they need to act now. They need to go big and they need to be creative. Like I said, all the tools are there. Some of them, to be able to act now and to move really quickly, there will need to be some creativity. Like I talked about thinking

about FEMA and natural disaster areas. With a lot of other policies, you just, the policies are there. You just got to do it. I think right now it seems one of the biggest hurdles is taking on death. And they just, somehow that was okay a few years ago, but now it's not. But I mean, really, like, this is the time to step up. And the only way that we are going to avoid people getting to a painful place financially and health-wise is we need everybody working together. Like we need the Fed cutting. We need Congress pushing out money to states. We need the administration supporting all of this. There are things the administration can do today to boost paychecks for workers that don't even require Congress. So there's like all these tools that are out there

that we've used in recessions past. And there just there has to be this political commitment to we're going to do it and we're going to do it together. Claudia, thank you very much for taking the time to join us again. I know you're in high demand because everybody is talking about this urgent need for fiscal stimulus, and you're one of the people who has been writing about and fleshing out ideas for a while now. So appreciate you coming back on the podcast, and hopefully people listen to your ideas, and we don't have a completely unnecessary economic disaster on top of the impending health business. I agree. Thank you.

Thanks, Claudia. Tracy, I'm really glad we had Claudia back on. And what she articulated in terms of the sort of sense of frustration, watching policymakers act so slowly, both on the health front, on the economic front, wanting to go small. It's like, what did we waste the last 10 years arguing about if that's still where we are? Yeah, it's that lack of political will that always comes up, you know, even when we have discussions about modern monetary theory and stuff like that. But I also really liked her point about the Federal Reserve and people sort of relying on the Fed to make the first move and essentially be the grownups in the room in many ways.

And, you know, we are talking about an unelected body that should have a very limited mandate. But here we are. Right. It is a depressing. The reliance on monetary policy, particularly in developed markets in the West, is simultaneously been not particularly effective from a growth standpoint. We know that the recovery after the crisis was too slow. It took forever to get enough people back to work.

Wage growth has been mediocre. So, A, it hasn't been particularly effective. And B, it does sort of indicate this rot. And it's not just in the U.S. even. I mean, like, where are the political leaders in Europe? Where's Angela Merkel, whereas others who are sort of looking at the same thing? I mean, they dealt with their crisis. They had the financial crisis, then they had the euro area crisis in 2011.

And yet, it's like this weird paralysis among elected leaders. So hopefully that changes. And again, that we don't have to have a, you know, compound the health disaster with the end of the recovery. but it might happen. With economic pain. Yeah. I mean, I guess the good news, and I really hesitate to call this good news, but certainly in some places, some parts of the world like Hong Kong, where they are giving out these cash handouts,

$1,000 in Hong Kong, we're going to have some data relatively soon on whether or not that helped at all. And Hong Kong, of course, is suffering from twin shocks of the coronavirus as well as the fallout from the protests last year. So on the plus side, and I really hesitate to say that, we will get some evidence of whether or not this kind of fiscal stimulus can work. Well, also in the meantime, with any luck, knock on wood, you in Hong Kong are sort of coming out of the dark light at the end of this tunnel, this crisis, whereas here in the U.S., it really has that feel of like we're just on the verge of going into it. So we will look to you in Hong Kong. Hopefully, hopefully your future is bright there.

Then hopefully our future is bright here as well soon thereafter. Yeah, look, I'll tell everyone when I start spending again. How about that? This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Jill Wisenthal. You can follow me on Twitter at The Stallwork.

And you should follow our guest on Twitter. Claudia Somm. She's at Claudia underscore S-A-H-M. And you should follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts under the handle at podcasts. Thanks for listening.

On April 4, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, we did this to you. What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example,

we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts.