Princeton University’s Jessica Metcalf, Alan Blinder & Bill Dudley: “COVID-19: Fiscal, monetary and health policy responses"

COVID-19: Fiscal, monetary and health policy responses

On April 2nd, A Second Opinion joined with the Princeton University Griswold Center for Economic Policy Studies and the Center for Health and Wellbeing to host a virtual COVID-19 discussion on the “fiscal, monetary and health policy responses and implications for the economic outlook.” I was joined by Jessica Metcalf, Assistant Professor of Ecology, Evolutionary Biology & Public Affairs, an expert in disease modeling, vaccination programs, and the challenges of disease elimination. Alan Blinder, Gordon S. Rentschler Memorial Professor of Economics and Public Affairs, a former Vice Chairman of the Board of Governors of the Federal Reserve System, and economic advisor to President Clinton. And Bill Dudley, former president of the Federal Reserve Bank of New York and now Senior Research Scholar at the Griswold Center for Economic Policy Studies. In this wide-ranging discussion, we covered the projected economic impacts of COVID-19, what the Federal Reserve can hope to achieve with its toolkit, and what the disease models are telling us.


Sen. Bill Frist:               Even with nationwide adoption of stringent mitigation efforts, as many as 100,000 to 240,000 Americans may die from COVID-19. The outbreak could end up killing more Americans this year than any of our major wars, including Vietnam, the Korean conflicts and World War I.

Sen. Bill Frist:               You’re listening to A Second Opinion, your trusted source engaging at the intersection of policy, medicine, and innovation and rethinking American health.

Sen. Bill Frist:               On April 2nd, A Second Opinion joined with the Princeton University Griswold Center for Economic Policy Studies and the Center for Health and Wellbeing to host a virtual COVID-19 discussion on the fiscal, monetary, and health policy responses and implications for the economic outlook.

Sen. Bill Frist:               I was joined by Jessica Metcalf, assistant professor of ecology, evolutionary biology and public affairs, an expert in disease modeling, vaccination programs and the challenges of disease elimination. By Alan blinder, Gordon S Richler Memorial professor of economics and public affairs, a former vice chairman of the board of governors of the federal reserve system and the former economic advisor to president Clinton. And Bill Dudley, former president of the federal reserve bank of New York and now senior research scholar at the Griswold Center for Economic Policy Studies at Princeton.

Sen. Bill Frist:               In this wide ranging discussion, we covered the projected economic impacts of COVID-19, and what the federal reserve can hope to achieve with its toolkit and what the disease models are telling us. I’m your host, Senator Bill Frist. Welcome to a second opinion.

Sen. Bill Frist:               This is Bill Frist, and I’m excited to be here today with Princeton University’s Alan Blinder, Bill Dudley and Jessica Metcalf. Our discussion today will look at our current understanding of fiscal, monetary and health policy responses and implications for the economic outlook from COVID-19. A little about our presenters: Jessica Metcalf, assistant professor of ecology, evolutionary biology and public affairs. She’s a disease modeling expert and we’ll open the discussion offering the latest understanding of the epidemiological trajectory for the disease and its health policy implications.

Sen. Bill Frist:               Alan Blinder, the Gordon Wrestler Memorial professor of economics and public affairs and former vice chairman of the board of governors of the federal reserve. He will share his insights on the fiscal stimulus outlook. And Bill Dudley senior research scholar at the Griswold Center for Economic Policy Studies and former president of the Federal Reserve Bank of New York. Bill will share his perspectives on the monetary policy implications of COVID-19. A few words before we get started. The United States now leads the world in confirmed cases with over 215,000 of you, approximately 936,000 confirmed cases globally, and over 5,000 of the 47,000 reported deaths. As President Trump shared this week, even with nationwide adoption of stringent mitigation efforts, as many as 100,000 to 240,000 Americans may die from COVID-19.

Sen. Bill Frist:               The outbreak could end up killing more Americans this year than any of our major wars, including Vietnam, the Korean conflicts and World War One. As our listeners know, either from personal experience or the experience of friends, family, neighbors, and colleagues. This pandemic is perhaps equal parts deadly and financially devastating. The White House congressional leadership and our nation’s governors are struggling to navigate the two tracks, both of which we must act on. Balancing the human health cost and the substantial human economic cost, especially among vulnerable people, both of which run deep to the bone and are painful.

Sen. Bill Frist:               Our speakers today will touch on both. And now let me turn to our first discussion, Jessica Metcalf. Jessica.

Jesicca Metcalf:            Thank you. So late last year, the virus we’re now calling SARS-CoV-2 spilled over from an animal reservoir into human populations. Epidemiologists describe what happened next using two quantities, one of which is R naught or the number of new infections per infected individual in a susceptible population. And the other, which is a serial interval. So that is the time that separates one infected case to another. So if you imagine we dropped an infected case into a population and R naught was two, and the serial interval about a week, what we expect to happen is that a week later, there’ll be two cases. Two weeks later there’ll be four cases and so on. So with a serial interval of about a week, and an R naught of about two, the number of cases will double every week.

Jesicca Metcalf:            Current estimates for SARS-CoV-2 suggest that R naught is somewhere between two and three, and the serial interval is somewhere between five and eight. So you can see that whatever the nuance of these estimates, the consequence will be exponential growth. And exponential growth is what we’re seeing. This is data from the New York times showing states of the United States over time, indicating deaths on the top and cases on the bottom. I’ve put New Jersey in red and New York in purple. I think there are many things to take away from this figure, but perhaps the most striking thing that I want everyone to sort of keep at the front of their minds is that what we’re seeing here is the impact of actions that happened two to three weeks ago.

Jesicca Metcalf:            It takes about five days for one infected to infect another. It might take five days to show symptoms. It might take more time for symptoms to become serious. And so the effects of acts that we’re taking today won’t be seen in these trajectories for another two to three weeks. So it’s important, obviously, to hold the line. A key point is why is this particular virus such a global challenge? And there are I think two pieces to this. The first is that there is a lot of asymptomatic transmission. Estimates range from 20 to 80%, and what this means is that I could be infected with the virus but not know it. So I could go around spreading the virus to my contacts, and thus the virus can spread invisibly through populations, in ways that make it very difficult to contain.

Jesicca Metcalf:            On the other side, while it’s spreading asymptomatically by some individuals, it has very severe outcomes for others. This shows the initial estimates of the case fatality ratio, so the proportion of cases dying over age from CDC, China and CDC US. So it’s important to note the cases are not infections. These are individuals who intersect with the health system, and as I just mentioned, many infections may be asymptomatic, so may not even know they’re infected.

Jesicca Metcalf:            But recent estimates as of two days ago from the Imperial Group in London also suggest that the infection fatality rate increases with age in a similar fashion. These numbers are likely to change, we learn something new about the virus every day, but there does seem to be a consistent effect of age on the risk of severe outcomes for this infection. And that means that we can start trying to anticipate what we should do. Which is, so for example, this is work by some brilliant graduate students at Princeton who put together data on the demography of every County in the United States. And linked it up with what we know about hospital beds in every county in the United States.

Jesicca Metcalf:            So gray counties are counties where there are no hospital beds, and the dark reds are the ones where based on the demography and what we know about the hospitals, we estimate that there will be many more cases than there are hospital beds. And we’ve been working with this to try and help governor’s offices in Missouri and other places plan for resource allocation ahead of the coming storm. So this is the short… and I should say one more thing, which is that of course many assumptions go into these models, but the relative patterns, at least based on the age trajectory, give us some guidance as to what the future might hold.

Jesicca Metcalf:            That’s the short term. What happens over the longer term requires us to turn to another perspective that comes from epidemiology. And that is that once individuals have been infected, it’s very likely that they enter into a recovered phase. And so this is where many lines of evidence lead us to expect that individuals will be recalcitrant to reinfection, for at least a while. And this has a number of consequences for what we expect the dynamics of the infection to look like. So I’m going to illustrate this here using an R naught of three. So again, if you drop an infected individual, shown as the red dot into the population of susceptibles, shown as black dots, if R naught is three, that individual will infect three others. The number of susceptibles will thus fall, and the number of infecteds rise, and this will repeat itself and continue. And some of those infections will then leak into the recovered phase.

Jesicca Metcalf:            Over time, what’s going to happen is that the infecteds will be surrounded by recovered individuals. So in some sense the red dot I’ve shown there is wasting two of its potential new infections, wasting in inverted commas, on individuals who are recalcitrant to infection, the recovered individuals. And we get to a stage where the infected individual can infect less than one other infected individual. And so the infection will be on the downswing. And eventually you reach an equilibrium, where the number of… Susceptible individuals can persist in the population, but they’re indirectly protected by what we refer to as herd immunity. This logic underlying this figure underlies many of the graphs you’ll have seen repeatedly over the previous weeks, which suggest that we should be making every effort we can to flatten the curve.

Jesicca Metcalf:            The height and the timing of the peak are governed by this quantity, R naught, or the magnitude of transmission that’s occurring. And so if we can reduce it by reducing contact, by hand-washing, by all the activities and policies that have been implemented, we should at least be able to delay the peak of the outbreak and hopefully bring it down to levels where health systems are not being overwhelmed. Because that is one of the most pernicious outcomes of this virus. There’re simply so many cases that health systems cannot handle it. The other thing about buying time is we have more time to think about developing therapeutics, and we might be able to find new angles and new approaches to grappling with this virus.

Jesicca Metcalf:            So another thing that people bring up when they think about this, what’s happening over time, is what will seasonality do to this virus? And it is absolutely true that the coronaviruses are winter viruses. What we know about other viruses in this family, is that they tend to peak in the winter months. And it’s likely that this is because like many viruses, reduced humidity and lower temperatures facilitate transmission. Perhaps by facilitating how droplets move through the air from one individual to another, but we’re not exactly sure what the mechanism is. So if this was the case in a situation where the viruses were circulating regularly, you might expect something like the cartoon I’ve shown here, where you get an outbreak pretty much every winter. The thing is, we’re in a different situation here.

Jesicca Metcalf:            We’re in a situation where the virus has arrived into the population for the absolutely first time, and there’s a huge susceptible population. And so what could happen is that you just get this huge peak of transmission that is pretty much unchanged by changes in the nuances of how transmission is shaking out. There’re so many susceptibles, that even if transmission is reduced by little bit, you still expect a large number of infecteds to be busting through.

Jesicca Metcalf:            So this is a kind of theoretical expectation, a wonderful postdoc at Princeton, Rachel Baker has been pushing this research agenda forwards. But we can also look beyond the theory, to what we know from the other exemplar, which is perhaps pandemic influenza. It gives us the best historical viewpoint on this infection. And this shows you the time series of pandemic influenza in Copenhagen, so the 1918 outbreak. Which you can see started in summer, which is not a classical time for influenza, and yet still there was very large number of cases concentrated in the summer months.

Jesicca Metcalf:            So I think all of this suggests that it’s not clear that seasonality will do much to modulate transmission over the coming months. So everything we know about this pathogen so far has been based on data, on cases and deaths. Everything we know about its population spread. And arguably, this is a very incomplete window into what’s going on in the epidemic. We’re only seeing that red box, we’re not seeing the susceptibles, we’re not seeing the recovereds. There is potential to use other measures to get at this, so every single one of us contains clues in our blood as to what infections we’ve been exposed to previously, by markers of our immune system known as antibodies.

Jesicca Metcalf:            Brian [Grenfell] and I called for a global emiological observatory that could harness this information to enhance both everything from pandemic preparedness to [inaudible] vaccination campaigns. [inaudible] been very, I think potentially important global health asset, having this set of information ahead of this pandemic, but also with all the other challenges we face. And how that would work, is that we would end up having information on who is susceptible and who is recovered. So what is the fraction of individuals that this infection could spread upon? And this would be useful in the early phases of the outbreaks. So if you imagine we’re in a situation where there were observing a certain number of cases over time, shown by those red dots, but maybe data fades out after a certain phase and we know there’s going to be under-reporting. There’s always under-reporting.

Jesicca Metcalf:            So it could be the situation, but many different of our mathematical models would be compatible with this time course of cases. And it would be very difficult to decide between them, based simply on the number of cases. However, if we also had data on the proportion of the population that was susceptible and the proportion that wasn’t, we could pin down much more closely exactly what was going on, exactly how much transmission was occurring. This is a really, I’m already talking about seropositivity as if it was possible to track this, this is a really urgent and I think fast moving research agenda. We don’t know exactly how we will be able to read out whether individuals have antibodies in their blood or not. Although there’s been some really exciting innovations happening almost every day.

Jesicca Metcalf:            We do suspect that immunity for this coronavirus will last at least a little while, from previous evidence from other coronaviruses, from mathematical models, from patterns of immunity. But how do we translate that into a simple test that we can deploy to identify whether for example, health care workers are immune or not, is still very much at the forefront of research. And then how we translate that into thinking about whether these individuals will be protected from reinfection and how long that might last, as I think incredibly… important and urgent. And will be part of I think how the recovery from this pandemic phase happens.

Jesicca Metcalf:            Something that is close to my heart and I think is not discussed very often, is that low and middle income countries are likely to be particularly hard hit. And this may be because social distancing is impossible in such settings because of housing situations, because of how you get food. Even healthcare workers in these settings may be vulnerable to [inaudible 00:15:16]. So I think engineering efficient spread of trusted information will be key. Economic safety nets are going to be urgent as, important household members fall ill, people from professionals that just can’t distance. And we don’t know, people often say, oh well you know the populations are younger and they don’t have quite the same capabilities. Neither of those facts I think is quite true, or is going to actually prevent the devastating impact of this virus. And we also don’t know whether there are interactions with other infections like malaria at this point, which could make it even worse.

Jesicca Metcalf:            So I think this is another really critical area for getting ahead, and we’ll be doing a lot of work in Madagascar, similar to our US work, to try and map this. So to end, there’s a lot of open questions and I think I’m looking forward to hearing my colleagues presentations on this topic, at how we balanced social economic impacts and epidemiological advantages of our different shutdown strategies. People are thinking a lot about ways in which we can combine testing, registration tracking, but in ways that protect people’s privacy to sort of move into a pandemic recovery trajectory. And unfortunately I think this is not the last time this is going to happen. So I think it’s also important that we keep in mind everything we can learn over the course of this outbreak for next time.

Sen. Bill Frist:               Thank you very much. Now we’ll turn to Alan Blinder to share his insights on the fiscal stimulus outlook, Alan.

Alan Blinder:                Good morning everybody. Let me start with a few basic ideas that frame what follows. First, we’re in a severe recession right now. This one is hitting much faster than recessions have ever hit before, and it’s almost certain to be deeper then anything we’ve experienced in the United States since the 1930s. That certainly includes what we now call the great recession of a little more than a decade ago. A quarter of annual decline of GDP in the 30 to 40% annualized rate seems very plausible right now. Nobody knows, we have no models for anything like this, but that’s very, very believable. The goal that we should all have economically, is to make this as close to the proverbial V-shape recession and recovery as we possibly can. That is a fast down, we can’t help that, we’re having a fast down, but then a fast up, if we can do it. I’m going to come back to that, of course.

Alan Blinder:                Second main idea is the basic medicines that we’re used to relying upon to mitigate and cure recessions are likely to be vastly less effective than they normally are. If you think first about fiscal policy, which is what I’m going to talk about and then I’ll mention monetary policy and hand it off to Bill. If you think first about fiscal policy in the jargon of economics, the normal fiscal weapons will have loan multipliers. What do we mean by that? If you cut taxes to mitigate a recession, which is a typical response, you rely on people to spend that money, that money becomes income to other people and they spend that money. When you have a population shuttered inside and afraid to go out, and spending minimal amounts on groceries, medicines and absolute essentials, you don’t get that much oomph from a tax cut, say. Similar for the multiplier effect of government spending.

Alan Blinder:                On the monetary side, which I’m going to take just a minute of this, because Bill’s going to talk about that. On the monetary side, the standard medicine is to lower interest rates and the Fed is not putting them on the floor across the yield curve. What we’re trying to do there, is get people that are on the margin to buy a car, to buy a house, to buy machinery, if you’re a business. People on the margin being tipped over the margin by the lower cost of capital. That’s very unlikely in the current circumstance. I think in fact, monetary policy now needs to be focused on debt burdens. So we’re looking at life preservers right now. And that need means we need to think out of the box, and at the end, I’m going to think a little bit of the box with you.

Alan Blinder:                Third major point, which is why Jess went first, is that unlike anything we’ve ever seen before, the path of the economy is likely to be dictated a major way by the path of the pandemic. We’re all hoping for a single peak pandemic, not a repeat performance. If we get that, we might have something approximating a V-shape recovery. If we don’t get that, we will not. And we’re in for a long period of terrible economic conditions. Last point is rhetorical or metaphoric. I’m constantly seeing, including yesterday, I haven’t looked today, the metaphor that we’re in a medically induced coma. I hate that. And it’s wrong. I hope it’s wrong. And I’m trying to push another metaphor, which I’m going to push in my next wall street journal piece. That we want to turn this into as close as we can to a timeout. Things pause and then resume. Now, we’re not going to succeed fully. This is going to leave scars of all sorts, human, business scars, financial scars, et cetera.

Alan Blinder:                But it points us in the right direction, and I’m going to come back to that. So those are the basic points. I thought it might be useful to run over briefly. What’s in the so-called CARES act, the big package that Congress past a little while ago. Which you want to think of as a bandaid, a very big bandaid. It’s important to have a bandaid, but it’s not more than a bandaid. So let me tick off some of the major things in this bandaid. First of all, the one that’s got the most attention to sending checks of $1,200 per adult, $500 per child. Note that this is just one time, and a number of people have raised the question, that’s nice, maybe I can pay the rent for one month. What happens after that? But we’ll come back to that. Second, and I think most important, I think the best thing that’s in this package, is the expansion and extension of unemployment benefits.

Alan Blinder:                So extension to people not previously covered, and an increase in the generosity of UI, unemployment insurance benefits. People that rely on that, that have just had a 50, 80, 100% decline in their incomes are going to spend it to the extent that they can. So that’s terrific. But in the US context, unlike what would be true in any European country, when you lose your job and go on unemployment benefits, you’re going to lose your health insurance. Maybe immediately or maybe you can afford the [inaudible] to keep it going, but you’re either going to lose it or be in very difficult shape. And by the way, let’s remember that COVID-19 is not the only reason people get sick. People have health insurance, and we spend 17% of our GD-

PART 1 OF 4 ENDS [00:23:04]

Alan:                            … have health insurance and we spend 17% of our GDP on health because they get sick in a whole variety of ways. I’m going to come back to that also. Third big component of the package is small business loans and grants. I have a strong suspicion, though we’ll see how this plays out, that a lot of those loans to small businesses are going to become grants to small businesses. The main condition is that they keep people on payroll and there are a lot of details behind that. I think a lot of that will wind up being forgiven. I just want to point out, in terms of implementation, that that’s easier to say than to do. It’s not so trivial to find all the small businesses in trouble and to help them.

Alan:                            Fourth is much too much, I believe, in terms of the fraction of the package in loans to large businesses. Not that there wasn’t any of that needed. There is, but it’s almost a quarter of the package and that seemed to be a little bit too much. The big deal there is about I think $425 billion that’s going to be used as a first loss to backstop the Fed’s presumed 10-to-1 lending program. Bill, we’ll talk about that, I’m pretty sure. I’ll just leave it at that except to point out, I was glad to see in the details of this, some of that lending can go to state and municipal governments and I think that is super, super important. I’ll come back to that.

Alan:                            Too, part of this package also was direct aid to states and local governments. There’s a so called Marshall Plan for Hospitals which we barely need. Inevitably there are tax cuts for businesses. It’s hard for me to imagine those are going to have much power in the current environment, but this was a legislative compromise. It all adds up to about two and a quarter trillion as far as anybody can tell. Look, you shouldn’t think that the estimators have got a lot of experience with anything like this, so this is a seat of the pants estimate. That’s a lot of money. It’s about 11% of GDP, which is roughly in real dollars twice as much as we did in the 2009 stimulus package, which was over several years. There are many issues about this. The two that I want to mention are the speed and the administrative burden. I’ve already alluded to the ladder.

Alan:                            It’s not that easy to find these people. That’s not that easy to find poor people. People that don’t file income tax returns are invisible to the IRS. Although they’ve recently agreed to pull in the social security recipients, which is a good thing. If you’ve ever dealt with the IRS, you probably know they’re not the greatest, most efficient computerized system on earth. They’ll do their best, but their best won’t be good enough. The second aspect is what I alluded to a couple of times, getting it actually done. We are now relying on the so called deep state to work harder and better than they ever had before. We’ve seen, for example, already this is not a criticism, websites of the unemployment insurance programs in the various States crashing under the burden. So there are a lot of problems with that.

Alan:                            There are some clear needs already as this bandaid is applied. I’ve alluded to some of them already, just quickly state and local governments which are bearing tremendous financial and other burdens are going to need much more help than was provided for in the CARES Act. Secondly, there’s the problem of health coverage for the uninsured that I already mentioned. There seems to be a resistance in the White House for opening the ACA markets to let people that are not in, in. I hope that resistance will break soon. And by the way, something I haven’t seen anybody talk about, but is obvious when you think about it is the health insurance companies. Insurance is about spreading the risk when the whole population, it’s not the whole population, but a titanic a number of people start making claims on any insurance system you worry about the insurance system breaking. And if that happens, the government’s going to have to come in because of the way we arrange health insurance in America.

Alan:                            And then something I mentioned before, these $1,200 checks are coming just once and then what happens after that? So I want to sort of wrap up, finish up with the point that we’re going to need some blue sky thinking here, and the normal things are not going to be enough. And here’s one piece of blue sky thinking that I’ve been thinking about, which is the maintenance of payroll by the government. We’re used to the notion, and this is the way capitalism works, that businesses pay their workers. Instead of having these workers fired and furloughed, if the government would start picking up paychecks, maintaining payroll, which would among other things, keep them on their health insurance plans and keep them ready for re-employment when the hope or up-leg of the V happens the economic aspects of this calamity could be a lot less severe than otherwise.

Alan:                            This sounds like a crazy idea. In normal thinking as an anti-recession remedy it would be a crazy idea. It’s so crazy that Denmark, the United Kingdom, the Netherlands, and in some measure Germany have already done this. I’m not sure they’ve been able to implement it. You can’t implement these things in a minute. But they’ve announced plans like this to maintain people on payrolls when private businesses can’t do that. Last thought leading to Bill. All of this is going to require a truly titanic amount of new lending and forbearance on old lending. We need to shift the burden from the weaker credits who won’t be able to bear it to the stronger credits and that’s one of the many places the Federal Reserve comes in. Thank you.

Speaker 1:                    Thank you [Alan 00:29:54]. Now we’ll turn to Bill Dudley for his perspectives on the monetary policy implications of COVID-19. Bill.

Bill Dudley:                  Thank you.

Bill Dudley:                  So I think the first thing I want to stress is that the Fed’s role is quite different this time than it was during the financial crisis. During the financial crisis, we were seeing a collapse of the financial system and that collapse of the financial system was threatening to bring about an economic collapse. This time the causality is quite different. We’re having an economic collapse a sudden stop an economic activity, which is putting a lot of stress on the financial system, but the Fed can’t do anything about that initial drop in demand, so what the Fed’s goal here is a little bit different. It’s basically to try to mitigate the second round and third round effects of that initial drop on demand on market functions, on the availability of credit. So the economy can continue to go on as best it can, coping with the social distancing consequences of the virus.

Bill Dudley:                  So what I want to do is cover three topics. One, briefly review what the Fed has done to date. Two, talk about what this will accomplish. And three, talk about where the gaps are in terms of what the Fed is up to. So the Fed has been extraordinarily busy. If you think of the financial crisis as stretching from August 2007 until the spring of 2009, this is happening in a much more condensed timeframe. So already the Fed has cut short term interest rates to zero. They’ve engaged in large scale repo operations to make sure that security dealers can fund their securities. They bought large amounts of treasury and agency mortgage-backed securities to ensure that those markets continue to function. They’ve cut the discount window rate to a quarter of a point and they basically said to banks, come in and borrow from the discount window because they actually want to be able to supply liquidity to the banking system.

Bill Dudley:                  They made the FX dollar swap programs, this is for foreign banks to finance their dollar assets, more attractive by cutting the costs and extending the terms out to 84 days. In addition to this, the Fed has introduced a large number of emergency lending facilities. Some of these are facilities that we saw during the financial crisis like support for primary dealers, support for the commercial paper market, support for securitized lending, auto loans, credit card receivables, commercial mortgages and residential mortgages. But they’re also inventing new facilities. Two facilities for the corporate bond market, both the primary market and the secondary market, and the most novel introduction is what’s called the Main Street Lending Facility. This is supposed to aid smaller businesses, not the smallest business, but smaller businesses. And this is going to be difficult for the Fed to ramp up because they’ve never done this before. This is not something they can just take down from the shelf and implement very, very quickly.

Bill Dudley:                  Now, as Alan said, these facilities that can actually fund a lot of lending capacity because the CARES Act gave the Treasury $454 billion to backstop the Fed’s lending. So levered 10-to-1 the Fed has $4.5 trillion of lending power. So what will all this accomplish? Well, first of all, I think the Fed has eased financial… has tried to push against all this bad news for the economy to try to basically support financial conditions as best it can. Financial conditions clearly have tightened as the stock market’s gone down and credit spreads have widened, but I think it would have been much more severe if the Fed hadn’t acted so aggressively. The second thing the Fed has done is they’ve acted very aggressively to try make sure that markets continue to be well functioning. One of the initial flare up areas of problems in the markets was actually in the US Treasury market.

Bill Dudley:                  And it was all due to the fact that there are a lot of hedge funds that owns a lot of cash Treasuries and they were short futures against those cash treasuries levered 30, 40, 50-to-1. When volatility in the interest rate markets picked up, they couldn’t hold that number of treasury securities and so they started to dump those treasury securities into the market. The Federal Reserve intervened by taking the other side and so the Fed has been ramping up their Treasury purchases quite a bit, and now the Treasury market is actually performing well again. Commercial paper market, securities lending, corporate bond, this is all about making sure that markets continued to function so people can meet in the market and borrow money and lend in those markets. The second thing the Fed has been doing with these emergency lending facilities is act as the lender of last resort.

Bill Dudley:                  And this is very, very important because private players are more likely to stay in a market when they know that there’s a Fed who’s able to purchase assets if they decide that they need their money back. So when their commercial paper that they’ve invested in comes due it’s a lot more reassuring to know that the company can always issue commercial paper to the Federal Reserve and so I can get my cash back. So the backstop role of the Fed actually crowds in private investors and it helps keep markets working well. And the third thing the Fed is doing by these lending facilities is expanding the balance sheet capacity of the financial sector to accommodate the increase in credit demands. As the economy collapses, people are going to have a lot more needs for credit and there’s limits to how much the banking system can expand their balance sheets.

Bill Dudley:                  So the Fed is the only entity out there that can actually expand their balance sheet to accommodate the increase in credit demands that we’re going to see. The Fed absorbs some of that and to the extent the Fed does absorb some of that, that creates more capacity for other people in the financial system to lend to households and small businesses. So what are the challenges and the gaps? Well, the Fed actions help, but there’s still going to be a huge drop in economic activity. You saw that today with the initial unemployment claims for the last week, 6.6 million of initial claims. That’s initial claims. That’s just the flow of new people who are becoming unemployed and obtaining unemployment. There’s nothing that we’ve ever seen anything like that before. So the Fed actions can help, but we have to understand that there are going to be pretty difficult days for the economy ahead.

Bill Dudley:                  Second, it’s going to take time for the Fed to stand up some of these facilities. In particular, the Main Street Lending Facility, which the Federal Reserve has never done before. They haven’t actually even published the term sheet yet about how this is actually going to work. And there are a couple of gaps in terms of their coverage. So far they haven’t done anything of note for the municipal debt market and they’ve done nothing of note for the non-investment grade corporate debt market. I think for municipal debt, I think they’re going to move forward with a facility very similar to what they’ve offered for the corporate investment grade debt market. For non-investment grade debt though this is going to be I think a bridge too far, at least at this point. They need the Congress to tell them do something about the non-investment grade portion of the corporate market because people who are in non-investment grade portion of the corporate debt market mostly got there by choice, by their own choice.

Bill Dudley:                  It wasn’t the coronavirus that pushed them and made them non-investment grade. It was their desire to be very leveraged to try to boost their equity returns for their investments. It’s also hard for the Fed to get involved in the non-investment grade market because where do you draw the line? Anybody you lend to is a winner. Anybody who refuse to lend to is a loser. And that makes it very difficult for the Fed. And finally getting involved in the non-investment grade debt market, the money you won’t go as far. You can leverage the money 10 to one for things like commercial paper and investment grade corporate debt, but you probably can’t leverage the Treasury’s money 10-to-1 safely if you’re engaged in the non-investment grade corporate debt market.

Bill Dudley:                  So we’re going to have a… The Fed is doing everything they can make things not so bad, but they’re still going to be terrible for a while because we’ve just had this extraordinary drop in economic activity that’s going to continue for least another month and maybe considerably longer depending on the paths of the coronavirus.

Speaker 1:                    We will now turn to the Q and A portion and discussion of our event today. I’ll start with you, [Jess 00:00:38:14]. Jess, thanks so much. Your presentation was the perfect to opening and scene setting for this. And as you were presenting, I couldn’t help but think of a couple of things. First, what will it take to learn whether infected people are protected from re-infection? This re-infection way you presented is our sort of ultimate point that we want to get to, looking at your graphs and the slopes. What’s it going to take to learn about that?

Jess:                             I think it’s going to be hard. I think we’re going to have to, because what you need to know is whether individuals who have some marker, which is we’re still working on identifying quite what the cutoff should be, what the measurements should be, are not vulnerable to reinfection. There are ways in which you… So essentially what we will need will be data on individuals through time that keeps track of both their infection status, so whether they have active virus but also their immune status. We’re actually trying to launch a survey in Princeton right now where we get people to volunteer to send in samples, self-sampled samples that we can test for both these features. It’ll be a drop in the ocean of the many huge studies going on, but I think every piece of data we get on this is going to be incredibly valuable.

Jess:                             The health care workers are obviously another really important population, which presumably are contributing to such surveys and such tests. It will be if we know that populations that are repeatedly re-exposed that we believe to be immune are not showing signs of infection. And of course you would never do that experiment, but the world that we’re in, that process will be happening. Oh, I mean you’d never did that experiment. It’s unlikely that that would be ethically appropriate in most settings. So I think there’s a wide array of… I think the key thing we need right now on COVID is lots and lots of data and lots of repeated samples on individuals.

Speaker 1:                    Yes. And the testing has been slow. And I know in every community represented probably a thousand people who are on this program right now, every community people getting tested are the sickest or the health personnel, and to get that to source zero for a surveillance that you talk about, is going to take something, a grand approach like you said, and the tests just aren’t there yet. Unfortunately.

Jess:                             Mm-hmm (affirmative).

Speaker 1:                    Let me turn to Alan with all of the new spending going on and at the same time because the small businesses are closing and tax receipts plummeting, governments are clearly going to have to borrow a huge amount of money over time. Yeah. Is that a possibility? Is that a reality? How are they going to do that?

Alan:                            Well, we sure hope so. Let me be a little bit more specific than that. Municipalities are going to be very hard pressed to do it. States generally have balanced budget requirements. Now you can fudge those in certain ways, but that’s a first barrier that maybe encountered legally. But even apart from that, the credit worthiness of New Jersey say where I am now is not a match for the credit worthiness of the United States government. So one way or another through guarantees or borrowing and then on lending the federal government is going to be bearing most of this burden. That is going to lead at the end of this period, well, sorry, before we get to the end of this period that is going to lead to a test of the notion, I speak slightly facetiously, that the demand for US Treasury debt is infinite.

Alan:                            Now we don’t really think it’s infinite but it’s very, very large and we haven’t come anywhere close to testing the limits, especially when the Federal Reserve has got its oar in the water and is buying a lot of it. But there’s going to be a lot more to be sold on capital markets and we’ll see if US government, federal government interest rate starts creeping up. We hope not so far not, but the federal government’s going to be borrowing amounts that we haven’t seen relative to the economy since World War II, which leads me to the second part of the answer. When this is over, there is going to be an enormously larger federal debt relative to GDP than we thought. We already have projections where in the not so, so distant future it was going to be 100% of GDP.

Alan:                            It’s going to be a lot more than that. We’re going to be therefore testing the highs that we hit during World War II. The good news there is that with the aid of the Federal Reserve holding down interest rates, interest rates stayed low throughout World War II. That’s what the Fed did, keep them so the lower… The other piece of good news is over the next 30, 35 years after World War II the federal government managed to reduce the debt-to-GDP ratio from ballpark 100% to ballpark 25%. That’s a lot. It didn’t do this by running surpluses year after year. What you have to do to get that done and what we will have to do after this is over is run annual budget deficits that is small enough. You’ve got a deficit, but it’s small enough that the debt-to-GDP ratio is falling not rising. That’s for the future.

Speaker 1:                    Good. Thank you. Bill, there’s so many things and you listed so well and explained so well. If you step back and to 30,000 feet, how would you sort of personally, based on your experience, evaluate the Federal Reserve’s response thus far? I mean, bottom line, listening to you, I’m kind of looking for, in your opinion, are they doing a good job or not such a good job?

Bill Dudley:                  I think you’re doing a great job. I mean I think they’ve responded much more aggressively and much more broadly than people would have probably expected. And the most important thing they have I think it’s the support of Congress. Last time, when they were coming in and providing aid to individual financial firms, that was very unpopular. I think what they’re doing now, which is to provide broad support to the economy, including smaller businesses that’s a lot more popular. And I think Chair Powell has done a great job. I think also in cultivating good relations with Congress. So the Fed is in a much better place from a political perspective than it was during the time of the financial crisis.

Speaker 1:                    And is that because of what we learned from the financial crisis that it was embedded in the culture or is it for some other reason?

Bill Dudley:                  I think it’s because the people that are sort of responsible for this are different. It’s the coronavirus that’s responsible for this rather than big banks or big insurance companies that did stupid things. And so the enemy is sort of our collective enemy. And so I think there’s much more political support for doing whatever it takes to support the economy. And also the Fed has been helped by the financial crisis in the sense that there’s a bunch of things that were already on the shelf that the Fed could pull down and enact quite quickly. So if you hadn’t had the financial crisis you wouldn’t have had the same set of tools in place, which has allowed the Fed to respond much more rapidly.

PART 2 OF 4 ENDS [00:46:04]

Allen:                           Which has allowed the Fed to respond much more rapidly.

Bill:                              I think the fact this is a common enemy, the partisanship that has characterized so much of the last decade in this country, people seem, because it is this kind of common enemy out there, to be putting that aside, which makes all of our systems work a little bit better. Yes, as Allen talks about, and as you described in your presentation, what happens, the course of the virus and the pandemic and our response will determine what happens in the economy over a long period of time.

Bill:                              All of us are thinking a little bit, built around that, how are we going to get out of this? When is this social distancing, which is keeping everybody at home inappropriately, and we have to applaud the American people for responding the way they have so far and keep encouraging that. But to unwind that, what is it going to take? The data you present. And when you say more data, what is it going to take for us to unwind that slowly?

Bill:                              Is it going to be community by community, is going to be state by state? Is it going to be an individual mayor, and what will they need to make social distancing an orderly disconnected policy that’s so important today?

Jess:                             I think that’s a great question. I think we’re in this for a long game. I’ve been talking about the susceptibles, and the susceptibles who do not get infected in this first peak are not going to go anywhere, so we have to think very carefully about how we step down from the measures we have in place in order to protect vulnerable populations. There are many of the steps that we have taken, which I think are entirely appropriate, that are also potentially very societally and economically damaging.

Jess:                             For example, closing schools. So what can we do? I think that once it becomes apparent that we’re in a better space, I think we should be thinking about a very principled way of approaching the questions of reopening schools in ways that we can learn the most possible about what that does in terms of community risk. Schools are a particular question because it seems like children potentially don’t transmit as much, so there might not be so much danger associated with opening.

Jess:                             But we can’t move on that unless we know and we can’t move on that in the absence of data. So, I think there’s a real … I think there’s … One of the things that’s happened over the course of this epidemic is we’ve squandered opportunities to learn about what things work the best. So, I think piloting school openings once it becomes apparent that that might be safe, and doing this in an orderly fashion where the outcomes are extraordinarily well documented so that we can also then close them back down if it seems like the outcomes are bad, would put us in a much better place about planning how the step down happens, both for this pandemic but potentially for the next one.

Jess:                             And school closings is just one example. I think this is generally true for all the other extraordinary heavy policy strategies that we’ve had to influence.

Bill:                              Well, every community is beginning to think about that and it’s a long, long process, and I think your comments are really right on target and give good guide rails to do that. I’m going to go ahead and turn to the many, many questions that we have, and I’m categorizing some of the questions, but I’m going to read them exactly as they’re coming in. And each of our discussers are happy to jump on and we can go back and forth. We’ll go through them fairly quickly but thoroughly so we can get to a number of the support questions.

Bill:                              Veronica E. writes, do we expect the average US citizen to suffer more from the effects of the economic crisis than, for example, the average EU citizen, as we saw during the great recession of 2008? What does this say about the difference in welfare systems between US and European countries? I’ll throw that out to anybody.

Allen:                           I’ll take that.

Bill:                              Allen.

Allen:                           Someone else may want to add. I think the answer is the average US citizen is very likely to suffer more because, first of all, the much thinner social safety net that we had going into this. It was, prior to all of this, worse to be poor in America than to be poor in France, by a lot. And that’s just going to get worse. So that’s the preexisting condition, so to speak. In addition to that, despite the bipartisanship that we’ve seen, I find it hard to imagine the US Congress doing some of the things that parliaments in Europe are doing to make their safety nets even broader and thicker than they were going in.

Allen:                           By the way, Bill, if you don’t mind, I’d like to ask you a question, which is, several things I said, and that Bill Dudley said, and that Jessica said are going to need further action by the US Congress, which is now scattered to the winds. How do they do that?

Bill:                              Yeah. Well, no, it’s a fascinating question that I have actually been talking to the current leadership in Congress about, in part because during the shutdowns of government we have some experience, but how does government function if you have social distancing. Can you even close down government? And in my study, it was interesting that during the 1918 influenza pandemic, the house did not adopt any special way of voting if there’s extreme shutdown quarantine, social and physical distancing.

Bill:                              So they did not, but what they did adopt is a way to vote remotely. They did it by telegraph or correspondence. And what they eventually used was a unanimous consent agreement that they could pass critical legislation even though they didn’t have actual physical quorum or presence on the Senate floor. So, I called my parliamentarian when I was majority leader, and who’s actively involved with Congress now, and what he’s told me yesterday, and I’ll quote, is that remote voting is probably the easy part of it.

Bill:                              Which means that the remote deliberations such as the usual and customary debate on the floor, the amendment process are really much more challenging, and those contingencies have not been sufficiently thought through. This was just as of the last few days coming through. In both houses there has been a lot of discussion over the last several days and in the Senate, I think Senator Portman, I believe, and I think it was Senator Durbin, have a proposal to allow for remote voting during this.

Bill:                              So it’s being addressed today. We don’t have a lot of precedent. If you have to have unanimous consent, that means that if somebody calls in and only one Senator basically says, “No, you can’t do it,” then the question is, what is going to happen? While a few members would likely be needed to set the procedures in motion on the floor to get that floor process going, the majority of members, if you had it set up, could work remotely, could work from home.

Bill:                              And the real disadvantage is by Senate rules that one person [inaudible] could stop the whole system. So that’s a long answer and a complicated answer, but the good news is they’re thinking about it. We have precedent in the past, so the government can’t be shut down in any way. But the Senate is typically run by rules and precedent, much more by precedent than rules, and those can be changed very quickly as we go forward.

Bill:                              So with that, let’s go to back to it, but the thank you for that question. And looking up here, we have a whole bunch of questions that are really fantastic in a different … Bill, do you think that the Fed should intervene to allow forbearance across the board, but without stressing the intermediaries? In particular, why not pass regulations that let banks carry non-agency MBS without marking them to market, since non-agency MBS payers are exactly the ones that need forbearance the most?

Bill:                              Alternatively, why not offer a credit line to all citizens for rent mortgage? Bill?

Bill Dudley:                  Well, I think that from the Feds perspective they want to … They are actually granting some forbearance in terms of regulation, and they basically have said a couple of things. Number one, you can actually use your liquidity buffers, your capital buffers to fund your lending, the households and businesses. They’ve told banks that … Think about having some forbearance in terms of the timetable of when someone has to pay you back.

Bill Dudley:                  So if 30 days will make a great deal of difference about whether someone can stay current on their loan or it’s going to default, use some forbearance. But I think it’s harder for them to single out particular markets and say, “We’re going to forbear on that particular asset class.” I think that’s more difficult for them. I’d be surprised if they try to do that because then that would be sort of picking winners and losers in the economy, and it would subject them to a lot of debate.

Bill Dudley:                  I also think that for the Fed to … When we talk about programs that the Fed would like to do, the Fed would like to do lots of things, but the problem is that a lot of times it’s actually difficult to do operationally. So let’s imagine that the Fed could just lend money to households. It sounds like a nice idea in the middle of this kind of crisis, but how would they actually operationalize that? How would they actually access the right quality of the borrower?

Bill Dudley:                  What would the terms and conditions … How would they actually get the money to the households? So when we talk about what the fed should do, we also have to remember there are limits on what the fed can do. And if it’s going to take … If it takes three to six months to operationalize a new program, that’s probably not that helpful because people need the support now.

Bill:                              Good. Allen, any comment on that?

Allen:                           No, no, I agree entirely. But what I think people don’t realize is the Fed doesn’t have ways to pump in funds, lending funds to millions of clients. It’s used to do dealing with dozens of clients, maybe hundreds at most, but not millions.

Bill:                              Tremendous. Is there an optimization problem to consider between number of lives lost and time the economy is in time out? I guess more importantly the clauses with how to approach this problem.

Allen:                           I’ll take a quick stab at that, but I want to … I’m done, I’m going to pass it to Jess. There are grim calculations that trade off money for lives. I’ve never … I find those too grim. I’ve never gone there, and don’t want to. But the main point is that there isn’t … At the margin there are always trade offs, but in the large there is not a trade off, because the quicker we get this pandemic under control, the quicker we can get the economy growing again, and it’s that simple.

Bill Dudley:                  If I could just ask something here, Bill, the cost to the healthcare system too, if you don’t get this under control, you’re just going to overwhelm your healthcare system, and we’re already straining the healthcare system at the very limits. So if you didn’t do the social distancing, you would overwhelm your healthcare system, which would create even a greater set of problems.

Bill:                              Yeah, man. I think a lot of our communities around the country, and of course we see it in the headlines every day that are experiencing that surge now. And we have, still in this country, a huge, not only stockpile, but each facility now, or the PPE, the personal protective equipment, a huge shortage in this country. And to be honest the press conferences that we’re seeing every day out there are not fully addressing what the impact is on local health facilities across this country and what we’ll likely see over the next three weeks.

Bill:                              Jess, in terms of following up on the question that Allen answered, you want to add anything?

Jess:                             So I think that it is … I am not an economist, but I have good friends who are economists, and my understanding is that at least we can look to history and we can see what happened in the wake of the influenza outbreak. And cities which implemented what we’re calling non-pharmaceutical interventions actually did better economically by some metrics. So, I think there’s an encouraging mark of history there. I think it’s also worth remembering how you …

Jess:                             Trade offs of hard to express but I think every single one of us is likely to know someone who know someone who knows someone who will be affected by this infection, and badly affected, and that surely has spillover effects. I think it’s also worth saying, I really do think this is going to be a very long game. I can’t say that enough. We’re looking where the size of the susceptible pool after hopefully … Estimates out of Wuhan suggest that 90% of the population is still susceptible, right?

Jess:                             So it could take root again, even despite the … As a result of the huge incredible efforts that were put in place. So I think we are in a whole new world, so how we work in this whole new world is going to be really interesting and it’s going to take a lot of innovation and a lot of thoughtfulness from the economic side and the epidemiology side. And I also think we should learn everything we can on both those threads as we move forwards.

Bill:                              Yeah, I am … And you’re in the middle of it Jess, but I’ve talked to just about all of the big modelers across the country down the West coast, East coast and throughout middle America, and they all say the same thing, our models can only work, can only work as good as the data we’re provided in real time. Not just whether an infection is plus or minus it occurred, but at what day the symptoms actually began. Our value, which is so important and is still being estimated broadly, but every day if we can collect that data at the local level, local community level, we can improve those models and the predictability.

Bill:                              I think secondly, your presentation is so suburban in showing the flattening effect. A lot of people think the social distancing, which does accomplish the flattening, will make these cases go away. They don’t. It flattens them out, pushes them into the future when our healthcare system can more comfortably and more realistically take care of these patients and not be stressed and not be strained, and we have enough ventilators and we have enough PPE.

Bill:                              And the [inaudible 01:01:30], that doesn’t stop the cases, which all of you have said it’s going to be a long, long battle. We’ll ultimately win it, but a long, long battle coming forward. All right, back to the questions. Looking ahead, what is the greatest risk, deflation, disinflation or too rapid inflation? And what are the implications of that for the economy and policy makers?

Bill Dudley:                  I’m happy to take the first crack at it and I’ll turn over to Allen. I think in the very short run this is deflationary, right? Because you’re just a huge drop in economic activity, and you see that in the oil markets, you’re going to see that in real estate valuations. So in the very short run it’s clearly deflationary, except in areas where there are shortages like PPE and health care equipment. Longer run though, I think the jury is out about how this plays out three or four years down the road.

Bill Dudley:                  Will the economy snap back, how much pressure will it put on resources? So it’s possible that the response to this over the longer term could actually turn out to have an inflationary consequence. But I think in the near term, I think it’s very definitely on the disinflation or deflationary sides.

Bill:                              Allen?

Allen:                           I very much agree with that. I’m going to only add that in the longer term, once we’ve gotten rid of the horrors of this virus, I shouldn’t say gotten rid of, turned it into a manageable illness rather than a horror show, which it is now, the Fed is going … The challenge for the Fed is going to be to gradually withdraw the incredible liquidity that it is showering or is about to shower the economy with, quite correctly. To pull the punch now would be crazy, and they won’t do that.

Allen:                           But if we have trillions and trillions of dollars of additional credit and money sloshing around the economy, when we return to normal, whenever that is, you’re going to have an inflation problem. The Fed knows that and it’s going to pull back on some unknowable now path, and we just hope they get it close to right.

Bill:                              Yeah, Bill.

Bill Dudley:                  Yeah, I agree with that.

Bill:                              All right, well I’m going to turn to Oliver [inaudible] Jess and me and probably a few hundred others listening right now, you can define what this means. Oliver writes, we have seen recently SOFR rate below EFFR rate, what does it indicate about the liquidity situation in the financial market?

Bill Dudley:                  I’ll take that. So far as the secured overnight funding rates, so this is basically the rate for repo. So if you have a security, a treasury security, and you want to obtain cash, you take cash by, you’re pulling out your treasury security.

Bill Dudley:                  So so far, basically it’s capturing that market. I think it’s just the fact that the SOFR rate is low basically it’s just telling you that the Fed has actually been successful in returning markets to a more normal function. If you were seeing upward pressure on the secured overnight funding rate, that would be telling you that the Fed was not enabling the, the, the easy financing of treasury securities. So I think that what’s happening suggest that the treasury market is returning to normal in terms of functioning.

Bill Dudley:                  I’ve talked to a number of people in the marketplace and they’ve confirmed that to me. That wasn’t the case three or four weeks ago. But now I think because the Fed has been so aggressive in doing repo and buying huge volumes, and they bought hundreds of billions of dollars of treasury securities, that’s returning the market to a more normal function.

Bill:                              Allen, anything to add?

Allen:                           Oh no, I don’t have anything to add there. Nope.

Bill:                              Okay. Back to the audience. Thank you. Should we be concerned that the economy will face supply side constraints during the crisis and/or providing corporate liquidity?

Allen:                           Let me start on that and then Bill can … I’m not worried about corporate liquidity because the Fed is on the job and they’re going to make sure there’s enough liquidity. The problem for the corporations is markets, finding people to buy their product. For some products, the corporate sector is straining to produce as much as they possibly can the PPE medicines. Apparently paper products like toilet tissue, things like that, and ventilators.

Allen:                           But for a lot of corporations the markets aren’t there, they’ve dried up. So I don’t think the issue is liquidity, the issue for most corporations is going to be demand.

Bill Dudley:                  I’ll just add on the other side of this, when we ever get to the other side, there will be some friction in terms of ramping the economy back up again because supply chains have been disrupted by this and it’ll be hard to get all the parts to arrive to build the car at the same time. So there’ll be a … And this is not going to be a smooth rebound in economic activity once Coronavirus danger passes because there have been so many disruptions to supply chains.

Bill:                              Thank you. Is there a national capability? Jess, this will be towards you and me I guess, but towards you and me, is there a national capability to get ahead of the medical supply issues, where States appear to be competing over supplies and equipment with suppliers? This is from Brandon. Jess, any comment on that?

Jess:                             I think it’s astonishing how the supply side thing first became apparent in the context of testing, and it’s really remarkable how little coordination there has been in testing across the States. I think there’s certainly spaces where that could be strikingly improved, particularly in the context of the serological testing I was talking about, which would give us a hand rule on what the immune profiles are. Different communities are doing totally different things in different ways and there’s no overall oversight.

Jess:                             And of course everything you do you want to be absolutely sure you are not in any way impeding any of the supply chains that are going towards important health care workers activities. That’s the piece of it I touch. I’m sure Bill you have much more nuanced views on the bigger picture.

Bill:                              Well, I think that the supply chains have failed us. The national stockpile, which I’ve been involved with in Washington, and Allen you probably were indirectly as well, never contemplated a pandemic quite like this. It would’ve been much more a epidemic or an outbreak response in a state, two or three states, but not affecting 30, 40% of the population in every state in America. All of us have heard the stories and the stockpile is inadequate.

Bill:                              It was just never intended. It was never thought of. So much of this is uncharted. At the hospital level, I am really concerned just because I’m hearing, in part because I’m a doctor and a former public figure, but I’m hearing from hundreds of people all over the country, doctors and nurses who are unable, unable to safely carry out their work because they only have two masks that they’re using again and again and again, or they don’t have the protective shields.

Bill:                              This is very different from, again, what you see at these daily news conferences that are coming out of Washington. But on the ground, the flow, and it’s coming, but …

PART 3 OF 4 ENDS [01:09:04]

Speaker 2:                    The flow. It’s coming, but it’s just hasn’t come there yet. The testing is been a big failure, and I’m not writing about it, because you can’t beat up on yourself too much. But the serological test that you’re talking about, the tests, again for our viewers, are basically a rapid test, PCR, polymerase chain reaction. Do you have it? Do you not? Some question on false negatives, false positives, but that’s the definitive test. Unfortunately, it takes six or seven hours to do. Nobody, again, thought you’d have to do this many and therefore, even the public health labs were set up to do 100 a day, and not 1,000 a day.

Speaker 2:                    These rapid assays, like Abbott has put out today. I got a test, it’s a rapid assay today, but it’s not really available. I know the president said it was going to be available next week, but it just simply has not been available at all. And hopefully, it will be shortly, but again, it’ll be up to the thousands. The machines are not distributed as they say. The second types of tests, and those are the ones that you see right now, are these serological tests that Jess is talking about. They’re antibody test, to detect whether somebody has had the disease before. If they’ve been exposed, they’ve had it.

Speaker 2:                    And as Jess pointed out, those are critically important to do, to be able to predict, not only when we can start opening things up, but the whole hard immunity slide that she showed. Those tests are not out there today. Right now, I’d say 1000 people listening now, I’ll bet five have been able to get that serological antibody test, ultimately, an important test. So we’ve got a long, long way to go there, but people are working hard on it in Washington.

Speaker 2:                    The answer is not going to be just in Washington, but I disagree with what’s being said in Washington, it’s just a state issue. We have to continue to mobilize the very best of the power of the United States of America, to get these supply chains fixed. And today they’re not quite fixed. It’s coming, I don’t want to be an alarmist, but when you go into a hospital today, and you see a local hospital can’t get 200 ventilators, you know we have a problem today. It’s going to get better, but it’s going to require all of us thinking and working in the very best way possible, in that regard. Anything else you’d add, Jess, in terms of that?

Jess:                             No, I think that’s absolutely right. And the protective equipment for healthcare workers is such an important issue. I mean, we’re asking them to go… It’s a human rights issue, really, and I-

Speaker 2:                    Yeah. And it’s not being done today. Working on it, but not being done. Go back to the question, how does the federal government agree to pick up payroll, without encouraging businesses to lay off more workers? That’s from Larry H.

Allan:                           It’s a very good question, and that’s one of the many reasons you wouldn’t even think about this in normal times. Obviously, a mechanism has to be set up, I think, in the first instance, at least, then maybe that would be the whole thing. You concentrate on small businesses, very small. I mean, really small businesses, and let the big businesses fend for themselves. There are mechanisms, via layoffs. And the same kind of thing that leads someone to file an unemployment claim could lead someone to file a claim of that nature.

Allan:                           But the truth is, and it’s a very good question, is we haven’t thought through. There will be 37 details to do something like that, and we’ve never had reason to think them through. The one advantage we have, should we go that way, I don’t think the US Congress will go that way, but should we go that way, is Denmark, the Netherlands and the UK will have been there before us. And we can watch some of the things that they’ve done, and some of the problems that they’ve encountered.

Speaker 2:                    I think this whole concept of learning and, Jess, you went right to it, and Allan again, all of us, this is a global pandemics that don’t have passports, and viruses don’t have visas. And we have a lot to learn from what other countries have done, especially since the pandemic started elsewhere. And I think it applies to policy as well. And Allan, I really appreciate your comments on… We may not have the wherewithal or the guts or pulling together to do it, but the awareness that we, as citizens, need to have that other people are addressing it, in ways that at least we ought to, to blue sky think about, is really, really important for us today. None of us have the answers, we’re all pulling together.

Speaker 2:                    And putting our thoughts out there is critically important. Back to the questions. Again, thank all of our viewers so much for the questions. As you can tell, most of our time, we have about 15, 14 minutes more, it is spent on these questions, so thank you so much. Yale professor Nicholas Christakis told professor Robbie George on March 30th, just three days ago, in a James Madison Webinar, that there is a… And I quote, “Nontrivial probability that we will not open schools in the fall. Presumably, this will have a huge ongoing impact on the economy.” What is your take on this? People need to plan, and we all hate uncertainty. And that’s from John.

Allan:                           Well, I don’t know who’s going to take that. We’re all guessing. Just depends completely on how the pandemic plays out. Jess spoke about that a moment ago, and I would think she’ll have [crosstalk] [inaudible 01:14:40]. All I can say is I teach at Princeton university and my current guess is, I’m going to be teaching online in September. Hope it’s not true.

Speaker 2:                    And Bill, I’m going to turn to you and then just the impact on the economy as part of that question as well. But Bill on that question.

Bill:                              So if the schools are closed, that tells me that the pandemic is still raging. As the pandemic is still raging then social distancing is probably still necessary. So it’s really not just about the schools, it’s about social distancing I think more broadly. That’s how I would intro.

Speaker 2:                    And Jess so just again to have the discussion, but since we here, although it’s not showing up in our data here locally in Tennessee, but since we hear that the people who are most vulnerable to die and are greatest at risk are older people. Explain why this whole school issue in closing schools is so important and your response to the question.

Jess:                             So I think no man or woman is an Island is the principle issue. We all have people that we know and people that we live with or people that we contact regularly who are in vulnerable groups in terms of age, but there also came morbidities that are sneaking up that we’re learning more and more about. So I think that human society tends to be quite social. It turns out. There is a lot. I mean, I do think it’s a really important question as to how we approach learning about this. So I also believe that it’s quite unlikely that we will be back at school in fall. Will probably be teaching remotely.

Jess:                             However, I think absolutely in passionately that we should try these large policy interventions that we have the ability to wield, we should be trialing changes in a principled fashion to try and learn what happens if you open up a school for a week? Does it seem like transmission is occurring again? In which case we can close it back down, but let us be ready to measure every single piece of this that we can and let us be ready also to test policies. Policies of this scale and magnitude. Let us not be afraid to learn as we move through. Trying to move out of this pandemic and trying to move back into a more normal life.

Speaker 2:                    And I’ll just add the… And one of the issues with the schools is that they do become reservoirs and people because of the closeness of people in a school, this virus is very transmissible, not as much as measles, but probably 10 times more than the common seasonal flu. And probably 10 times more deadly. But as it circulates through a school and people go home and they’re back at their parents and their grandparents, it becomes a synergistic in a true exponential, we use the word exponential to exaggerate things, but just true exponential of process goes on and that is the importance of the schools and the distancing there.

Speaker 2:                    And of course adoption in higher education is easier in terms of using the technology we’re using now, but we’re learning very, very quickly in K–12 how to use that technology and I think over the summer and these next few months that will really accelerate to over time. Back to the questions there appears. And this is really important, I’ll say that I spent all last night with our policy leaders and I’ve talked to governors around the country and involved with the leadership here in Tennessee and this is a huge, huge question playing out. There appears to be… And this is from John Day. John. Thank you.

Speaker 2:                    There appears to be noticeable variation in state and local policy response, especially around implementation of social distancing. What are the implications for health outcomes across states and localities? Are people living in areas without social distancing, facing greater risks? Or do we all face risks resulting from areas that are not implementing social distancing? From John Day.

Jess:                             So I think that individual risk is certainly shaped by two things. They’re shaped by the measures in place in the communities around us, so everything from social distancing to school closure as you said, Bill, will trickle into the individuals, we’re inevitably exposed to some individuals we have to go out and buy food and such thing so that will shape our individual risks. Also, our own behavior will shape our individual risk.

Jess:                             Every time you wash your hands, every time you make sure you do maintain a six foot difference, the distance between you and other people you talk to, you will be reducing your own individual risk, but certainly I think that the policymakers around you are modulating your risk environment and there is the… Again, this is one of those pieces where we must learn as much as we can and the evidence to date indicates that social distancing measures are helping. They certainly are helping but how much and which ones are the most powerful.

Jess:                             It’s something we should really be drilling in to try and understand as best we can, combining mathematical models with nuanced and detailed data collection and leveraging these different policies. Different places are doing different things. In a way that means we can learn things.

Speaker 2:                    Jess, so you have New York now for all sorts of reasons that we know being international airports, the crowding and that’s there. The natural liberty of people being together all the time. A state in the Midwest that really may not be seeing very much. Does it matter? How much does it matter? Because for a governor to come in and close down a state, close the economy now totally do it. It hurts people. And the economist will tell us that especially among vulnerable populations, that’s a human economic cost to that. And the governors might be sitting there and saying, “Well, it doesn’t really make a difference. Why don’t I wait until I get a little bit further along my career?” What’s your response to that?

Jess:                             So I think the thing about exponential growth is the earlier you move in on it, the better chance you have of reducing that spread. So I think the precautionary principle is it play here. We should be… We’ve seen what the consequences are. It’s not just a theoretical model. It is what is happening in Northern Italy right now. How the precautionary principle plays out is a different question and that’s where I think we can start putting the leaders and thinking about policy interventions.

Jess:                             Again, I think there’s so much we have to learn and we should be taking this opportunity to learn it at every single stage. I think there are reasons to potentially expect that New York it’s just in a tougher place than a place like Missouri. But it might be partly because it’s harder to implement things like social distancing in New York. You’re living in a shared apartment, you can’t avoid the doors. So I think there is a way in which things can be tailored to particular context. And again, let’s learn as we go and let’s be cautious. Let’s not be reckless as we move forward.

Speaker 2:                    Let’s take one last question that I’d like to hear each of our discussions of minute. Then I’ll close down so we can finish on time, respect people’s time, assume the epidemic takes longer than expected and a second way becomes likely. What else needs to be done on the fiscal side? Do we double down on lockdown or face the consequences of a collapse in our healthcare system? I guess that’s two different questions combined. So on the fiscal side, what else?

Allan:                           Well, I wish I knew the answer to that except to say much more, the longer this lasts the more we’re going to have to do on the fiscal side. And the more, coming back to an earlier question, the more we are going to start testing the limits of even the federal government to borrow. I do take some comfort, if you want to call it that, in the fact that the Spanish flu in 1918-’19 there’s not an economic activity in America or anywhere else for that matter. It was very damaging. Horrible. Millions of people died around the world. And yet at the end the economies came back. That will happen this time around. So we can take some solace and that although the human… The issue is what is going to be the human cost before we get to the other side of the bridge. And I’m not. Well, we don’t know. We don’t know the answer to that.

Speaker 2:                    Bill, anything you’d add to that?

Bill:                              I just think one thing you didn’t really have to underline here. Not only do we know that the economy’s pretty bad, but the outlook is highly uncertain. Because we’ve heard today, we don’t really know how this coronavirus is going to evolve. We don’t know how susceptible it is to social distancing and so yeah, kind of have a crystal ball about what’s going to happen. I think is very difficult. That makes it harder for policy makers because not only do they know that things are bad, but they don’t know how bad they’re going to be or for how long and that’s… We’re going to basically learn by doing unfortunately. To quote Tim Geithner during the financial crisis, I think two outages I would want to leave people with. “Hope is not a strategy.” You need a strategy and playing beats no clam. Well, there are two things, Tim I could say over and over again. I think both of those go for this time around.

Speaker 2:                    Good. Thank you, Bill. Let’s just say real quickly, Jess, any final comment? Again, it’s always a challenge you to wrap these things up. We have some great questions left and [inaudible] job and addressing the questions but Jess any final comments?

Jess:                             Well, just to echo something you said Bill, we will get through this. I think there’s lots of strategies that people are thinking about for the step down for thinking about how we test people, whether we can track people. There’s going to be innovation that will allow us hopefully to move sooner rather than later into a space where normal life can resume. And it’s going to take innovation then. It’s going to take a work along those lines. But I think there are going to be ways forward. We’re going to find a plan.

Speaker 2:                    Yeah. Bill any final comment?

Bill:                              I do think that over time we’re going to get more information, more data. So we’re going to be able to make better decisions in terms of like who is actually had the Corona virus, who’s susceptible and the best way to deal with it. So I think the more we can get information that means testing. I mean testing to me is like job number one. More information we can get the better plan we can devise.

Speaker 2:                    Data, data, data. Testing, testing, testing it’s used in real time and that’s I think all of our listeners understand that. If we get the data today, it is used today. And Allan?

Allan:                           I just want to finish with a non economic remark. None of us have really mentioned this. They will eventually and hopefully sooner be a vaccine and that’s how we’ll get the real hard immunity by vaccinating the population. We can just also come sooner rather than later.

Speaker 2:                    And that’s where the flattening of the curve. I’ll say the flattening of curve doesn’t diminish the number of cases and I concentrated on the protection of our healthcare system and surge, which means more people will live. The flattening of the curve just by the time to that vaccine. The vaccine is one year to 18 months off. That’s a super short time. It’s never been done quite that quickly, but that’s the number of smart people around the world that are working on that today. Well with that I want to thank again all of our listeners for joining today’s COVID-19 discussion sponsored by Princeton universities, Griswold Center for economic policy studies, the center for health and wellbeing and A Second Opinion podcast. Rethinking American health.

Speaker 2:                    As I mentioned before, a full recording of the talk will be posted on the reservoir center’s website. And tomorrow on A Second Opinion podcast. It’s A Second Opinion podcast and then you can distribute those to other people. You can find that podcast on Apple podcast, Spotify, YouTube, or on And again, take these down and share them with friends and colleagues as a trusted resource, that sort of trusted information that people are looking for today. And while we’ve heard some really potentially dire projections, prediction, discussion today, I do want to close with a more positive note. Socially, economically, mentally, we’re going through uncharted territory as we’ve discussed. As social creatures it is difficult for all of us to be confined in the way that we are today in our homes and away from our friends, away from our kids and grandparents and away from our loved ones.

Speaker 2:                    And really unable to do the things that we’ve always, always, always been able to do. But I think it’s important that we understand that not for a minute should any of us think that what we’re doing does not matter as individuals. It’s kind of neat because we’re empowered as individuals to really do something which affects the lives of our state and our city and our community. So let’s all continue to stay home and practice the good hygiene and support local businesses if we can and reach out by phone or virtually or however to those who might be lonely or who might be isolated in some way.

Speaker 2:                    And each one of you, each one of us is making a difference in helping literally. Literally save lives and protecting the most weak and vulnerable among us. And I think as we all know, we can and we will beat this as a community, we’ll win. But it’s going to be hard to get there and we have to make sacrifices along the way. But we will beat it as a community and as a state, as a nation. And as we talked about in this discussion today as the world. So thank you all for tuning in and everyone have a great day. Thank you.

Speaker 3:                    Thank you for tuning in to this special broadcast of A Second Opinion. As developments occur, we will continue to keep you up to date with episodes from trusted sources coming right to your phone. Make sure to subscribe to the podcast to get the most current information on the Corona virus pandemic. And be sure to listen to our regular Monday broadcast. Next week is the second episode in our continuing special series on innovation. We’re joined by my friend, Dean Cayman, a world renowned inventor and engineer whose inventions have literally changed the way we live.

Speaker 2:                    This episode of A Second Opinion was produced by Todd Schlosser, the motor’s creative group and snapshot interacted. You can subscribe to A Second Opinion on Apple podcast, Spotify, or wherever you are listening right now. You can also watch our interviews on YouTube and on our website and be sure to rate and review A Second Opinion so we can continue to bring you great content. You can get more information about the show, its guests and sponsors at that’s A Second Opinion broadcast from Nashville, Tennessee, the nation’s Silicon Valley of health services where we engage at the intersection of policy, medicine, and innovation.