A Nobel Prize Winner’s Suggestion for Fixing the Economy

the economy. To discuss these very difficult issues, I spoke to Paul Romer, a Nobel winning economist at New York University. He used to be the chief economist of the World Bank, and he's been thinking hard about this subject. Paul, thank

you very much for joining me. I want to start with a very influential essay that you and Alan Garber, the provost at Harvard, published in the New York Times, where you were the first I would say serious people to put in a major public venue the economic concerns about what we do about coronavirus on a par with the public health concerns, or in relation to the public health concerns. Describe to me, if you will, your current

thinking on that very challenging question. Yeah. I mean to be honest, I think there were a lot of people who were recognizing the size of the economic cost that we were going to bear. I think what was distinctive about our op ED was a very specific proposal about how to craft a middle ground where we get out of this trap where we either have to kill the economy or killed lives. So if I can, let me just try and explain the basics of the challenge, please do.

There's this notion of the replication rate. If one person is infected, how many new people does that person infect? What people call the R not or the R zero yep ur zero are not a replication rate. That number has to be less than one to keep the pandemic in check. If it goes above one, then it just grows like wildfire. Social distance is one way to get it below one, but of course it's really hurting the economy.

The way to keep it below one that is guaranteed to work is find the people who are infected and isolate them. Now, right now, what we're doing is we're isolating everybody because we don't know who's infected. So all we need to do is switch to a strategy where

we're testing everybody with regularity. As soon as we find somebody who's positive, we have them go into isolation for say two weeks, and that's all it takes to get on a path where this pandemic is dying out, and we can stick with that policy as long as it takes to get a vaccine, which is the other way to protect ourselves. So all it takes is to figure out who it is who's infectious and to isolate them without isolating lots of people who could otherwise just go

back to daily life and work. I am not an epidemiologist, and I want to be clear about the caveat to that to that effect, but I want to ask a question that's informed by my conversations with epidemiologists and what I'm reading, and it's this, under circumstances where we already have community spread, unless everyone we're tested nearly every day, isn't there a substantial risk that even testing every week or every ten days, which requires a tremendous number of tasks,

much greater than I think it seems realistic, at least according to what I've read, for us to be able to produce in the next few months, would leave open the possibility of continued spread. I mean, your key line is all we have to do is but the question is, you know, is that in fact doable? We don't want to be the people in the punchline of an economist joke who assumed they can opener. No, I hear you, And this is a good way to phrase the question.

Here's the way I would respond to the epidemiologists. It's that you guys are supposed to be the ones who take the numbers seriously, so do the numbers here. What they're saying is something like, oh, we can't get enough testing, so my gosh, you'd have to test people every every day. That's just not true. All you have to do is do the numbers here. If you tested people on average about once every two weeks, and even if your test has what they call a false negative rate, you fail

to catch some people who are actually infectious. Even under those circumstances, you can get rzro below one. And I'm really disappointed and want to challenge them. Why do they switch into this kind of know nothing mode of that just won't work? And then they the ones who claim they're the ones who do the math, they just stop doing the math. Now, let me be clear about what it would mean to test people on average about once every two weeks. This means running about twenty million tests

a day. That is a huge expansion in the testing capacity that we have, and it's never been the case that public health authorities had the kind of resources to do that kind of testing. So I understand why they're saying it's not possible, but just think about other cases where we've done something like this. The TSA screens about five million Americans a day, and you know, you could have imagined a time before nine to eleven where people were saying, oh my god, you could never screen all

people who get on airplanes. That's just impossible. And you know, so we have to stop flying because we might have a terrorist attack or something. You know, if we're serious about scaling out to millions a day, we've got this economy that could produce twenty trillion dollars worth of value. We've got sixty million workers. We could organize ourselves to administer twenty million tests a day. It's really not that

big a challenge. It isn't something that was ever available to public health authorities before, but we could easily decide to do it now. And I really want to just insist and I'm going to get aggressive about this. The epidemiologists can't just go into know nothing mode and dismiss this without actually doing the math and engaging seriously. So I think that many epidemiologists that I know at least would say, it's not that we're not doing the math at all. That they say, you know, we live on

math and we're not ignoring the math. I think that's

the first thing they would say. The second thing I think they would say is that they have to recognize not the normative claim that we ought to or we might be able to generate twenty million tests a day, but rather the predictive claim, because they engage in minute a minute prediction too of whether this particular president, with this particular configuration of economic forces facing him, is even plausibly capable of doing what you think we normatively ought

to do. And I think someone would say, we concede that it would, we should have twenty million testing. I've not heard any of bidemiologists saying, oh, it doesn't matter about the test. They all say we need the testing we need in a very serious way. But if they have a different assessment of the empirical probabilities. Well, yeah, let me let me just say, you know, I understand that, but I think people have to you know, stick to their area of expertise. They understand the math of these models.

They're not experts in politics, public expenditure, mobilization. I don't think they're the ones who should make for everybody the judgment about what's politically feasible, and then, worst of all, having made that judgment, hide it behind some phony assertion

like you'd have to test people ever every day. What they should say, I think is the same thing I'm saying, which is like, look, if you want to be sure you're below with R zero below one, at any level of prevalenced the United States, you're going to need to test something like twenty million people a day. And then let's leave it to others to figure out if setting ourselves up to do that kind of testing would actually be less costly than continuing to do what we're doing

to the economy. I think some epidemiologists, at least privately worry that if they say more or less what you're saying, that that's an invitation to the Trump administration to say, even without the twenty million tests a day, we can return to greater degree of normalcy, and that if that happens, it could genuinely lead to a public health disaster. Yeah, but let me just jump in, just head on in this, because this is exactly the thing I've been saying to economists.

I would say exactly these things to anybody in science. You cannot tell people things that are just factually untrue because you think that the political spin is such that will get better outcomes that way. And I'll give you a very clear example of how this is coming back to bite us. The WHO and some supporting authorities said, oh, masks don't help, so don't use masks. Now, it's just

not true. If you've got everybody who goes out in New York City, for example, to wear a mask, that could reduce our zero The reason they said something that wasn't true is because they were worried, quite reasonably, that we don't have enough masks. That were worried if people ran out to buy masks, we wouldn't have masks for the people in the hospitals who need them the most. But it was a huge mistake to say something that was misleading, bordering on being false. To try and achieve

a good outcome. What scientists need to do is stick to what's true, protect our credibility, and then tell others well, given that it's true that masks will protect people, you may face a sudden surge in the demand for masks. You better move right away to make sure that your hospital workers have the masks. They get the first in line to get those masks. But we just should have stuck to the truth there. And my answer to the

epidemiologist right now is the same. I don't see any danger in saying consistently, if we test on the scale of twenty million people a day and we isolate everybody who's positive, everybody else can return to work and we can contain this pandemic. And if you need to go on and say, if we just start sending people to work without testing, without any strategy for identifying who's positive and isolating them, we will kill hundreds of thousands of people.

I just don't see why those are hard statements to make clearly and directly to the public. We'll be back in just a moment. I want to ask you about this potential disciplinary gap that you're describing, and maybe I should be more aggressive and say maybe there's even a

disciplinary war that's emerging. And roughly speaking, there are the epidemiologists, most of whom also have mds as well as new degrees in public health or statistics on the one hand, and on the other hand are economists, and each is sort of in his or her element, because the public health epidemiologists are spending their whole lives studying what happens when disease spreads, and disease is greatly dangerous and is spreading, and the economists spend their whole careers studying what happens

in especially to people do macro studying the rise and fall of economies, and our economy is now in a kind of a free fall. Each says, my disaster is very, very bad. It needs to be taken seriously, and there's a kind of struggle going on. It sounds like perhaps this is hypothesis over which struggle is the greatest, which

challenges the greatest, where the priorities should lie. And there also maybe some epistemological differences, because the epidemiologists are accustomed to thinking about avoiding harm, and they don't spend a lot of time thinking about costs and benefits, and in contrast, the economist's whole undertaking is to think about costs and benefits. Does that resonate at all with what you're observing. I think there's a lot of truth in what you said there,

so I don't disagree with that at all. I also think that's important to remember that I think everybody, the vast majority of people operating in these different camps, are doing so with good intentions and in good faith. So this isn't a case of bad actors. I think it is hard to appreciate the perspectives and the arguments of others, But let me just say that, you know, Alan Garber is actually an MD and the p HD economist. He's not an epidemiologist modeler, but you know he certainly knows

those guys. So Alan and I were really, in a sense, trying to bring these two communities together. And the ironic part if you extend that you think about the public health people, if you think about what Alan and I are saying, we're saying, in effect, those economists who are telling you all about stimulus and so forth, we're spending way too much on their proposal, and we're not spending nearly enough on the kind of thing that you and public health have been arguing for for so many years.

So oddly, you know, on the public health side, we're coming in from the outside, but we're saying, actually, you know, you guys were right, and we should have been spending billions more on you, and so let's just do it

in a hurry. Now. There's a special dimension that makes it a little bit tough in the epidemiological community right now, which is that they have been attacked, basically by trolls who are trying to say, like this Imperial College study with many deaths and some of these other studies were politically motivated. So they've been blindsided by suddenly being pulled into the world of the trolls and vitriol and lies,

and they don't quite know how to respond. Some of them, understandably are feeling defensive, and you know, at first glance they may worry a little bit about, well, how do we know that Romer and Garber aren't just you know, kind of one more subtle attempt at troll lists and undermine our credibility. But here I think what we need to do is just engage and engage on the specifics.

Take each other's arguments seriously, and I think we should be able to all come to consensus around some of these basics, like even if we don't know things like prevalence, if we test at a sufficient scale and then isolate the people who test positive, we can get below our zero. And then from the on a side, I think we can say, and this is a policy we can stick

with indefinitely. Everybody who tells you, well, I've got this policy and I know it's so damaging that we can't do it for very long, but let's just do it for a little while and then and then they never say, well, and then we'll do something else. We should be extremely skeptical right now of anybody who says, well, just do this really damaging thing and then we'll make it up

as we go. Do you have a view on whether President Trump should be invoking the Defense Production Act in order to compel the kinds of investments that you're talking about. I mean, the analogy to World War Two and to other wars is pretty striking here. What the World War Two historians are always telling us is that the build

up post Pearl Harbor actually really took a while. You know that it took a couple of years for the United States to generate the kind of They also think that the United States won the war because if it's capacity to mobilize production. So, don't get me wrong, they're in broad agreement with you. But there's a question of temporality. There's two ways to respond to a question like that. One is yes, indeed, President Trump should or President Trump

should not. I think we, just as economists, have to get out of the mode of thinking that we're philosopher kings who can tell somebody else here's what you should do. You know, and it takes self control and discipline. Those are not the right kind of answers to provide. But here's the kind of answer that I think would be helpful. Here's why something like the Defense Production Act might help us ramp up production very quickly. Think about just masks

or body suits. We say to a manufacturer, we'd like you to increase the output of your equipment by a factor of ten so we can get a surge of production in the next few weeks and months to then meet the sudden demand we're facing. And we want you to do it at the same price. Sell your goods

at the same price you were selling your goods before. Well, the manufacturer then says, listen, you're asking me to buy all this equipment which will last for like ten years, and you're asking me to run this equipment for maybe two or three months, six months. The demand might go away, and then I've paid for equipment that could have been producing for ten years, but I only get to use it for six months, and then I'm going to suffer

huge losses if I operate that way. So if the market operated the way we describe it in the textbooks, we just say, okay, well, the market price for a surge in production of masks is like ten times what the market price was before, and that will help you give you an incentive, mister manufacturer, miss manufacturer, to take a risk that you're going to end up with obsolete

capital equipment in a few months. But now we have this constraint, which is just a fact, which is that many people, the vast majority of people, respond moralistically to what they see as price gouging or kind of opportunism. So the realities, we can't let the market do its job with high prices to motivate surge production. So what might work in a case like this is for the government to say, Okay, we'll buy the equipment for the production line. We'll rent it to you on a month

by month basis. You provide the workers, you do the design, the manufacturing, sell the masks is something like the prices you sold before, and then if it turns out the demand falls off in a few months, you can stop paying rent on the machines. We the government eat the loss of machines that are now obsolete. I think this would be a socially acceptable way to radically scale up production.

And the trick here is to avoid the moralistic kind of analysis and just look pragmatically and say, gee, if we're talking about a surge, somebody might bear some costs because equipment be obsolete in a few months, and we as taxpayers would like our government to bear that cost because we really want to get this equipment very quickly. And that I think could be done either with or

without the DPA. The DPA might be an effective way of doing it, but I think their statutory room for the president to do what you described in a voluntary deal with the companies without having to invoke centralized industrial control. Yeah, I think, And there's just been some lack of clarity like this is also unfamiliar, and we're moving so fast. I think some firms are worried that how the DPA will be used is that some official will say you have to expand your production of masks, you have to

charge the prices from before. In effect, you have to bear the cost of the equipment which may turn out to be obsolete very soon. So as long as we make it clear that the DPA is really a mechanism for just brokering a deal that is the deal that we as taxpayers and citizens want, but which for variety of reasons, we can't allow through a mechanism where we

just pay a very high price for production. Right now, this is just a mechanism that would let us use our government to broker the deal we want, which is fundamentally, we just need the masks as fast as possible. Paul, let me ask you one more question before you go, and this has to do with the relationship between your own academic expertise and trajectory and the work that one of the Nobel Prize and your views in this particular crisis.

So at a very gross level of generality, your works innovation had a lot to do with taking into account in models of macroeconomic growth the way that new ideas, innovations, and technological change actually affect trajectories. Do you find that when you're thinking about this set of problems and you're staking out your own position, that your view maybe in some direct way influenced by your sense that, yes, we're

in this crisis. Yes there's a trajectory that the epidemiologists and others are predicting, but they're not taking into account the kinds of innovative interventions they could be undertaken of, precisely the kind you are talking about. Yeah, I'm one thing about using Twitter, as it does force you to boil things down. I sent out a tweet where I said that I've spent my whole career trying to make a single point, which is just because something is unfamiliar,

it doesn't mean it's impossible. Now, I mean, who can argue with that. But it's something which we don't keep track of, we don't think about. So when somebody says, testing twenty million people, basically I've never seen that. I have no experience with that. That's so unfamiliar. Oh that

must be impossible. No, actually, it's not impossible. And every time we go down a path where we try and do something new, when we try to estimate, well, how hard is this going to be, it's inevitably much less hard, much less costly than we think, because we discover ways to do it once we start trying to do it. We discover ways to do it that we never even

knew we're possible. So I'm not only confident that we could afford to scale out exactly what we're doing right now, but absolutely certain that if we start doing that, we're going to find ways to do it at much lower cost and much more quickly, much less disruption than anybody imagines right now. And you know, and you can actually go back and look at various episodes like how hard is it going to be to reduce sulfur dioxide emissions

that caused acid rain? Or like how hard is it going to be to stop using the chlorofluorocarbons which we're destroying the ozone layer. You go back and read that, you know, the literature in the debate before it was like this is going to be the end of life as we know it if we don't have chlorofluorocarbons, but you know, we banned them. We found an alternative, we stopped using them, and you know as bradiodorant and just

roll on deodorant. You know, there's an almost unlimited infinite number of alternative ways to do things, but because they're unfamiliar, we tend to think they're not possible, and we need to just lose that kind of fear and commit to let's go down this path. We don't know exactly how we're going to do it, but we're going to find a way to do it, and once we commit, it'll turn out fine. Paul, thank you very much for your insights.

I think your core insight, which you described as spending your career on that unfamiliarity is not the same thing as impossibility, is tremendously valuable in this particular moment, and I want to join you in hoping that we're able to scale up testing and other interventions with the kind of speed and capacity that it would take on your account to make the interventions that you were talking about.

Thank you very much for your time. Well, thanks for being so you know, so patient with my vehemence and my arguments, not at all that's that's a sign of passion in a moment when we need we need lots of that. Talking to Paul Romer was genuinely fascinating for me. The passion with which he expressed his point of view captures to my mind the intensity of this moment and the importance of listening seriously to experts of all kinds

as we try to chart a course forward. On the one hand, I benefited hugely from hearing the core insight that Paul described as the primary one of his career and for which he won the Nobel Prize, namely that the unfamiliarity of a challenge does not translate into the

impossibility of a new and creative response to it. On the other hand, I was a little surprised to discover myself defending the epidemiologists in this conversation against a rather sharp charge that they're not doing the math properly, or that they're failing to take into account the capacity of the system to respond and to produce twenty million tests a day. In the end, I think a significant part of the dispute between Paul and the epidemiologists depends on

the question of empirical reality. Namely, can we actually do this? And on that question, you'd have to be a genuin and profit to give a definitive answer. Until I speak to you again, Be safe, be careful, and be well. Deep Background is brought to you by Pushkin Industries. Our producer is Lydia gene Coott, with research help from Zooie Wynn. Mastering is by Jason Gambrel and Martin Gonzalez. Our showrunner

is Sophie mckibbn. Our theme music is composed by Luis GERA special thanks to the Pushkin Brass, Malcolm Gladwell, Jacob Weisberg, and Mia Lobel. I'm Noah Feldman. I also write a regular column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash Podcasts. You can follow me on Twitter at Noah R. Feldman. This is Deep Background.