Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Wisenthal and I'm so Tracy. Obviously, we've been covering this NonStop story of the virus and the crisis from different from various economic and market angles for the last several weeks now, but today we're going to do something a little bit different than some of our recent episodes.
What are we doing today? We're actually going to be talking to someone who's involved in formulating the policy response how the US anyway is addressing the economic crisis that's coinciding with the public health crisis. Right, So it sounds like this is our chance to sort of put a lot of the theory that we've been discussing into actual practice.
And it's one thing to talk about what governments should do, uh, and of course we do quite a lot of that on the podcast already, but it's quite another thing to talk about what governments are actually doing or how they should put those ideas into actions. Yeah, that's exactly right, Like there is this general idea out there that we know. He's like, Okay, there needs to be a fiscal response to this crisis, which we've seen to quite a large degree.
In some countries, people sort of overwhelmingly agree that it can't just be monetary. There's this idea I would say, I was sort of freezing or winter arizing the real economy so that people can continue to make their payments, make payroll things like that while their bills are coming to so that they could simultaneously pay their bills but now work right. And of course with all of those ideas, there are sort of all these different trade offs that
policymakers have to start considering. And a big one that comes up time and time again is the idea of moral hazard. You know, are you going to end up rewarding people for bad behavior? How you calibrate one program so that it doesn't interfere with another program? How do you incentivize people to take up the programs that you
actually want them to take up. And of course all of this is happening under immense time pressure, during the time of coronavirus, when everyone is quite stressed and worried about a lot of things. Right, there's so many aspects of this current economic crisis that are extraordinary. The time pressure is one. The scale of the layoffs that we've seen, at least in the US have been so far off the charts that past periods don't even register. Is a blip if you were to say, look at initial claims.
And because this isn't just a normal recession, because it's a complete shutdown, so many whether it's households or businesses, are essentially in the position in where one day they were doing fine and then the next day they were on the brink of crisis and layoff right exactly. So the scale is different, the speed is different. Possibly you could say that our political situation is a little bit different in the US at the moment. So who are
we talking to about all of this? Well, I think what you said about the politics is exactly right, because one of the things that we saw during the rush to pass the legislation at the end of March was sort of, at least temporarily, a high degree of political unanimity and politicians on sort of both sides of the aisle agreeing that whatever people think about government spending, deficits moral hazard, paying people who are unemployed, and so on,
they all put their views on that aside, at least temporarily, and we'll see how long that last. So today on the podcast, we are going to be talking to a very active policy maker in this space. He's Florida's Senator Marco Rubio. He's been championing, in particular the small business loans aspects of the deal that attempt to keep people on their payrolls during this crisis. Senator Rubio, thank you
very much for joining us at this extraordinary time. In your view, let's just sort of set the stage right now. Do you have a sense for how well the payroll protection part of the CARES Act is working? And do you have visibility and do how much money has been dispersed. Are you able to see that data billions of dollars have been dispersed. We won't. I think one of the fundamental misunderstanding because people think that the money being dispersed
is coming out of the treasury. The money the treasury that we allocated, that we appropriated in the bill is guarantees that the cash that's actually dispersed it is from the banks, so it's the bank's cash. And then this money is there on the federal side to guarantee the vaults, and that's why they're making them. So unless the banks are announcing it publicly or updating it regularly. You know, in a public form, we're not going to have a
total real time insight into what's been dispersed. Suffice it to say, like JPMorgan this morning had already dispersed nine billion. We know that they have to disperse it within ten days of approval. So you're gonna see a big bumping in those, uh in those disbursements here coming up as we're getting on the you know, the ten day mark of the first approvals, and in some cases we're at it and for some people, and so anyway, the it's moving along. My sense of it is, I think we
have to have some perspective here. Let's do the timeline. Okay, Seventeen days ago, on March seven, the President signs the Cares Act, which creates a three hundred and fifty billion dollar brand new program that basically half to businesses in America are eligible for. Seven days later, they begin taking applications, and eleven days ten to eleven days after that, they're dispersing billions of dollars to cover the paychecks of millions of American workers. All of that in the span of
seventeen days. I know of no other program with this reach that has moved that quickly, and I think it's a combination of things. It's the fact that we're relying on the private sector through banks to distribute it, and a lot of hard work. And yeah, there were some issues in the early part of it, because when anytime you start something that's big and new, you're going to have some issues. But I don't think you can sit back seven. I mean it's it's dispersed funds faster than
the I R S did two taxpayers. It's dispersed funds faster than the direct payments to entire industries. So you know, I think it's a program that's getting better every single day. It will never be without issues, because nothing that you do, especially in a crisis emergency situation, is going to be perfect, but it's going to be very good and it's going to continue to improve. Just on the subject of scale, even though the Treasury isn't actually dispersing this money, it is,
as you say, just guaranteeing the loans. The program is never the less capped at three billion, and it's also capped at length. I think it's eight weeks. Would you expect that cap to get lifted at some point? Well, the eight week issues. From the time you get the disbursement, you're supposed to spend it on payroll and then and the rationale for that is the purpose of this program
was to uh keep employees attached to their employers. We had companies coming to us saying, we don't want to let go of our workers, even if the government's forced us to close. We value our workers and we want to continue to pay them the way other companies are, even if they're not working full time and in some cases not even coming in at all. We don't want to lose them. We feel bad for them, and I
think that's especially true in small business. And so we said, well, we're going to provide a vehicle for that to happen so people don't have to go into the unemployment system. And but in order to do that, you have to sort of define what the time period is so you're not sitting on this for two years and in fact not hiring people back. In terms of the amount, the amount is important because once once the amount that the Treasury and the government has to guarantee loans is reached,
the banks will stop issuing these loans. They're not going to issue loans unless the guarantee is there. That's why it's important to replenish these funds. So look, it's so I can't tell you a specificity a specific day, but if you look at it, we're started the day about two hundred over two d forty billion dollars of of commitments already, So it's hard to imagine finishing the week
without being very very close to that number. Given now the fact that you've got UM pay pals now in UM you know, a bunch of other fencins are in, and we're keep adding community banks. So I think the pace in the scope of this is going to pick up pretty quickly. M So, just to talk politics for one second, UM, there seems to be a wide consensus that it's worth topping up the program. Democrats want to pair this with more money for city states hospitals, maybe
more on the you ey side. Do you see a path forward if it's uh, the program is going to soon run dry, whether it's this week or next, to replenish it and come to some sort of agreement with the Democrats again with kind of with the same level of unanimity that we saw the first time the first go round. Yeah, except that I don't know why the two have to be paired. I think the issue of
paycheck protection, we know that's very simple. That's just as a program that's now up and running, we have a pretty good sense of how to outlay it, and it just needs additional funds so we don't have to stop
with and guarantees. Every single member of the Senate Republican, Democrat and Independent has hospitals and has cities who are not even receiving direct monies from the original Cares Act, and we want to help them to The problem is you've got to design a formula for distributing the funds.
You know, what is the formula that's going to be used to determine how much they say, with thirty thousand people gets versus a city with two hundred thousand people, And that's going to take some time to devise a
formula that works. I'll give you as an example. You know, we passed this care Is Act and it had money being distributed, but because of the unique structure of its finances, Jackson Memorial Hospital in Miami, Florida, the second largest hospital in the country, the second largest public hospital in the country, was being badly hurt by the formula that that they
came up with an HHS. It was fixed. But that's just an example of why when you distribute that amount of money, you have to have a formula in place that everybody signs out. That's more complicated than saying, let's just put more money into a program that's up and running and we know how it's distributed, so that that's
the that's the issue with that one. It's not that anyone's against it, is we got you know, everyone wants to know how that's how it's going to be designed, and how we're going to determine how much cities get. Is it per capita? Is it there's population size alone, and not account for some of the costs they have.
You know, in our intro, Joe and I were talking a little bit about the difficulty of calibrating public policy, especially under this kind of time pressure, and also balancing it with a lot of the other initiatives that the government is currently unrolling. So I was wondering, when it comes to the p p P, how do you balance that with the expanded unemployment benefits, Because of course there's a discussion now that some workers might be better off
taking unemployment rather than being kept on the payroll. And these are all decisions and discussions that small businesses are having to have at the moment right well. And I think the answer to that question is that since you can't have both, you can't you can't both be on the payroll of your employer to the p p P and also on unemployment. Um, whatever you're spending on one side,
you're you're saving on the other. So um. But it's, as you said, it's very difficult right now to predict exactly what people are going to do because there's no sustinct as business. There's every business makes a different decision. There's not one set across the board of however one's going to decide. So we have seen I mean, look, there are going to be cases of people that decide I'm not going to go back to work because in my state, I'm actually making more on unemployment than I
would by working. Obviously, there's an impediment to that, and that is that many states have had their systems crash. So there I know people have been waiting for three weeks to get into the Florida system because the phones are being answered. You know, the website was overwhelmed, etcetera. Some people are gonna say, you know, I'd rather just have my job back because I know I'm gonna get paid and it's going to be there when this all ends.
The unemployment benefit goes away in four months, some people and some businesses are going to decide when I was a perfect time to lay people off. You know, we have a issue emerging with the hotels and restaurant particular hotels, A lot of them came to us and asked for special language. Many of them are franchises of big companies, and but they're not owned by the company, so we created special language for them to be included in the
Small Business Protection Program. And now some of them are saying, well, we want you to change the law. We don't want to use the money for payroll. We want to use it to pay franchise fees and things of that nature. And I was like, well, that's why it's called the Paycheck Protection Act. The reason why we carved you in this because you told us you wanted to keep your workers on payroll even if you had no people staying. We're not going to do that. So you know, there's
a lot of that kind of stuff going on. And I'm not saying they're not going through tough times, but our program the wrong one for them to come to for for the assistance they're seeking. If it's about keeping people on the payroll, well for it. So the bottom line is, in an emergency, unprecedented situation, you're going to have a lot of unanticipated things come up. And what we have to do is are on the side of action. The worst thing that could happen is we don't do
anything real quickly. While we're in this situation now, and there's this widespread view that it's nobody's fault that we want to keep jab businesses and payrolls alive to get through this health crisis, why not apply some of the principles of payroll protection to some of the larger companies, more direct cash grants to larger corporations that are currently getting helped maybe through the FED programs and so forth, to either through suasion or force have them keep more
people on the payroll. Well, I think if this is a model that we can make work. Some people would argue that, and in fact, I remember nearing the end of our deliberations and Senate one of the senator lunches in the Republicly conference. We had a number of people stand up and say, hey, why aren't we doing that for everybody? You know? But of course I'm the chairman of the Small Business Committee, and all we we took we so we we didn't have that in our mandate.
We actually took on additional things like the no profit sector and independent contractors and ten ninety nine employees that qualifying or this as well for the first time. So but I agree, I mean, I think there's a model there that could be followed. Obviously a lot more money, because when you're talking now about entities that employed thousands of people, you're not talking about ten billion dollar loans will pay roll over eight weeks. You're talking about multi
multibillion dollar loans. But I think it's a concept that could theoretically work in those settings as well. I think that the notion in that front was just um trying to Most of those companies were just asking for access to some credit vehicle that they could use to ride through the short term of what they were facing. But but I agree, I mean, I think it's a model that could be applied to different businesses of different sizes. Have you had any discussions with anyone else in government
about expanding it. Are people asking you how it's going with the small business p p P. Yeah. So you know, it's interesting because it's the one that's gotten the most attention early on. And you know, when we started this process, I would say, you know, the first day that came out with the REGs was that Friday, we had a list of like thirty things that we were hearing from bankers and lenders all across the country. And that list
has basically been narrowed down to minute little details. In essence, it was a lot of work that went into sort of getting these questions answered. Ivan Treasury today released its third set of guidance that dealt with some additional questions that were lingering. And in that process is you know, I will tell you that every day is the first day that this came out, I had twelve senators called and even the second day we had eight. So people
are watching and there. Now what's happening now is people are hearing from businesses that are actually having funds dispersed. But I can tell you that during the process of this conversation, there was talk about even among our work group, are by partisan work group. Who else could we include? And it really just came down as a function of dollars, you know, when they originally told us we had three
hundred billion and then increased to three fifty. But if they wanted us to take on some of the other sectors that some people were talking about, it would need a lot more than three fifty. It will probably take up most of the bills. So um, there's been some talk about it, but really the focus over the last week has been about improving the program and the questions that we're holding back lenders, and luckily we've been able
to do most of that. And then one of the things I focused on a lot is some of the underserved communities, uh small, really small micro businesses, minority communities that may not have sta strong banking relationships and therefore having access problems. And that's why I've been harping all week on the need to bring in non bank lenders, which is in the bill right. This is not something
we came up with. Now. The bill specifically talks about fin techs and non bank lenders being on ramped into the system, and that's beginning to happen where approximately individual lenders now are participating, from credit unions to small banks, and as they're as they're ramping up and coming on
the system, it creates more access points. And I'm really excited about payper au and fin techs because PayPal told me the first leon they made was five thousand dollars, So that gives you an idea of the small, small, small, micro business impact this could happen and m and I think as that ramps up, I think those access issues are going to be improved. That's really what we've been focusing on here in the last few days. Senator, before you have to go in a few more minutes, let's
talk about the sort of post crisis period. Hopefully the health crisis ends quickly and businesses of various sorts can reopen, and everyone wants that, but I also think that sort of realistically, we know not all businesses are going to reopen. Most economists expect unemployment to remain somewhat elevated for quite
some time. What do you see as either in a round four or round five of what the government can be doing to get us We were at what a lot of people thought was full employment, three point five percent unemployment, the best levels in decades. How what could the government do to get us is back to that as fast as possible. Well, I think it really begins by people in positions of influence and leadership being brutally honest, and that is we're not going to go back immediately
the way things were March first. I think when you start to see here whenever that is different jurisdictions and states begin to modify the restrictions they've put in place, it isn't gonna be zero to sixty. It's gonna be you know, we're gonna reopen parks and we're gonna allow kids to go to school for two hours, but you're still gonna have a lot of the same regulations in place for a while. And that includes, you know, how close you can stand in line to people, how many
people can gather into place. That's just a fact that people need to absorb that that we're not going to go back to just March first right away. The second point I would make is I will try to divide this up into three buckets. The first is, we don't know yet how bad the damage is. This reminds me
of a hurricane. You're sitting at home and hurricane is howling outside and it sounds really bad, and you know it's really bad, and you see some trees falling and branches breaking, but you have no idea how widespread the damage is. Until it's over and you come outside and you start to do a damage assessment. We won't know
the full economic damage. And some of it's gonna have a tail to It's gonna linger for some period of time, so that before we can even talk about exactly how to solve that, we have to know the full extent of it. I think we're related to that is not just how to recover, but some strategic decisions we're gonna have to make about the structure of our economy. And in particular, I am a huge supporter of capitalism because
capitalism always reaches the most efficient outcome. But every now and then, the most efficient outcome is not in our national interest, and we have faced that here with critical shortages of certain things. You know, we don't have a critical shortage, for example, in our food supply. We may have some disruptions eventually, but not shortages because we can domestically feed ourselves, but we can't make pep you know. Uh. Personal protection equipment. We struggle to make ventilators. We had
to repurpose industries for that. Some of the basic active ingredients and our leading pharmaceuticals come from abroad, I think, and not to mention if you want to get into other realms, things like rarest minerals and telecommunication and so the question be times when is something so critical to our national security or national well being, But we have to have a domestic capacity to do it. Even if it's from a pure market perspective, it's not the most
efficient place to do it. And that's a that leads us to industrial policy, which is something we've talked about for a couple of years. I'm not saying that applies to every industry, but there are some. We're gonna have to define what they are and we're gonna have to have policies around that. Well, just on that point, I mean, you yourself put out a paper about how you see
the economy last year. Do you think there's a broader rethink in the GOP about economics and how it should work, maybe moving away from free markets towards a system where there is a greater role for the government. And secondly, if that's the case, how do you get Republican voters to actually vote for government rule or government policy that could be in their interests. Well, I would argue to you that we already have government policy that makes those
sources of decisions. No, I'm not talking about government owning the means of production or even directing the means of production. I'm talking about government having policies that incentivize certain capacities domestically that wouldn't otherwise exist. But we do that now. We do that now through our tax code. Our tax code has an immediate tax benefit to for example, returning value to your investors to share by back, so that, um,
we we incentivize that. There's nothing inherently evil about it, but we incentivize it. And maybe we should be incentivizing investment instead. And then there are some industries, for example, that it will never be cost effective to mind for rare earth minerals in the US, because the Chinese are subsidizing their industry and are going to undercut our price point. But we don't want to be dependent on them, and so we're gonna have to come up with some government
policies to even the playing field. You see that somewhat in telecommunications in this whole five G issue with Huawei, where there are there are no non Chinese companies that are able to offer the product of always offering because they're able to do it at a lower cost because they're subsidized and protected domestically as well in their market by the Chinese government. So that is not We're not
We're we're not. We're not talking about socialism, not talking about communism, We're not talking about government ownership of the telecommunications industry. But we are saying, to the extent you're going to have incentives for certain outcomes in your economy, should they not be incentives towards outcomes that serve the
national interest, which include national security. But I would argue also in food, the creation of dignified work that's widely available so that you can have strong communities and strong families. But just real quickly and then we'll wrap up. I mean, Tracy mentioned this report you put out a year ago, and I was pretty astonished at the time, this called
American Investment in the twenty first century. Fascinating paper. It's cited a number of like random obscure left wing economists that like I follow on Twitter, I couldn't even really believe it was coming from a senator, let a loan, a Republican senator in your caucus. Do you sense some sort of shift or some sort of um, you know, increased skepticism or rethinking about some of the lease a fair views. It did not seem like the sort of the Heritage Institute views that I was sort of used
to seeing from Republicans for many years. And I'm curious if you think there is some general shift in sort of this philosophy. You know, it's a work in progress. I would argue to you that most of us in Republican politics are a product of, you know, twenty or twenty five years of sort of uh, the you know, the LEAs a fair libertarian view of economics, and that's deeply embedded in in a lot of the decisions and
policies that Republicans of pursuit. And generally they're right, I mean, low taxes, less spending, all these this is the ideal outcome.
And I don't argue against any of that. I'm not arguing that we should be a high tax environment or a high regulatory environment, but I am arguing that within that framework, there are certain exceptions that are in our national interests, and I think the crisis has revealed some of them, um, in terms of the inability to ramp up production of certain things without massive disrupt asking, you know, Ford and General motors to make ventilators and so forth.
So I think there's a growing sense of it. I'm not sure it's still I can tell you when we did the tax bill, there was a tremendous amount of pushback against the child tax credit. A lot of people viewed it as some sort of a welfare payment. And my argument was, whether they're paying it in payroll tax or they're paying it in income tax, it's still a tax. It's money that's coming out of their paycheck. And and and our tax coach should reflect what we say is
one of our priorities, which is strong families. I think that ironically, that turned out to be the most popular part of the tax bill that we've passed, and UM and I wanted to actually do more in that regard than we ended up doing. We've got an increased but we wanted to do more. So I'd say this is still a work in progress, but there are certainly a growing number of people today in the Senate and in
the House who share these views to some degree. A Senator Rubio, really appreciate you taking the time and thank you for coming on the podcast. Thanks for having me. Thanks so much. Well, Tracy, I really enjoyed sort of getting the chance to um. I would say, you know, it's a cliche, but here how the sausage is made just a little bit, because you know, on the one hand, the Cares Act, it was incredibly rapid from the onset of the downturn in late February early March, it was
just a few weeks by lightning. You know, that's lightning by Washington standards. On the other hand, there's so much damage and even by early March. I remember we were talking, you know, we talked with Claudia sam in early March. It's like send the checks out now. And so it's kind of interesting hearing from his perspective all the different calculations and the sort of different factors that have to go into a bill of this size. Yeah, it was also interesting to hear him talk about the role of
the inks, and he sounded pretty pleased with it. One of the criticisms of the program has been the idea that the money is running through banks which actually have to make the loans even though they're guaranteed by the government. Could that function have been better fulfilled by something else, such as, you know, some sort of government body. So it's interesting to hear him talk about that, as well
as the participation of the fintech firms. One other thing I was thinking during the discussion was just how important hierarchy and incentives are in government. So he mentioned, you know that this had happened for small businesses partly because he was head of the Small Business Committee and so that was his job. He was tasked to help that particular component of the economy, and that's how this program
came about. Yeah. Absolutely. I also thought it was interesting that he did say that it could be a model and we haven't seen it yet, but it could be a model in the future for Okay, well, if you're going to give company small businesses grant to not do layoffs,
why not do something similar for large companies. And the fact that it had been discussed within the center, within the Republican Caucus, the fact that he was open to it, I thought was pretty interesting, and just generally it was you know, he's been like on Twitter talking a lot about the rollout, so I guess it was good to hear his view that things are getting better and getting
smoother on the disbursement of fund standpoint absolutely. And then the other interesting thing was, of course, the broader discussion about how the Republican Party is thinking about economics at the moment. If you haven't read the policy paper, American Investment in the twenty one Century is definitely worth reading. Perhaps something you wouldn't necessarily expect to be coming from
a Republican senator. But one thing that always interests me in this discussion is I feel like, even if Republicans are moving towards a position where there is potentially a role for greater participation by the government, I always wonder if voters are going to be on board with that, especially since voters have been told, you know, for three decades now that the government should be as small as possible,
that intervention regulation, it's all bad for them. I always wonder if that public shift is possible or can happen as quickly as some people might want it to. I think it'll be really interesting. I mean, we're going to be in this country, for sure, dealing with the sort of economic and political fallout prices. Right, so maybe this is the moment when that shift happens. Well yeah, I mean a we were just at you know, three point
four or three point five unemployment. The number of people who are either seeing their small businesses or businesses of any size go from drop lose revenue in a matter of days. The number of people who are experienced seeing job procarity or job straight up job laws, people in all kinds of areas. I mean, think about it. If you imagine if you were a dentist before you never
thought okay, you didn't think teeth are recession. But suddenly here you have an economic crisis in which no one is going out, no one is going to the dentist. So the idea of sort of labor market procarity economic procarity is reaching a whole new realm of people in
this crisis. So it does feel like and for better or worse, this could open up sort of new thinking and new opportunities, sort of the new ideas among people that it's like, oh wow, I am really exposed to economic volatility in a way that I had previously realized. And again I think people should really read this paper.
As you mentioned, because I wasn't kidding. It's like, you know, one of these points, it is like going after a shareholder primacy and how that's hurt the role of American businesses. The It will be interesting to see if these ideas and this crisis allows some of these ideas to further
take root within the party. This discussion always makes me think of relativism versus absolutism, So I always think of the Republican Party is sort of a relativist party in the sense that if a policy is enacted people Republicans tend to get upset. I'm basing a lot of this off my dad, by the way. Um, but Republicans tend to get upset if it benefits someone else more than them. There's this sort of sense of unfairness, I guess about it.
But maybe this is the moment when that starts to change and it shifts more towards a sort of absolute gains kind of regime. But um, yeah, let's see, there's a we'll be talking about this for a long time. There'll be a lot to a lot to a lot to chew over. Indeed, all right, well, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and
I'm Joe Why Isn't All? You can follow me on Twitter at the Start Work, And you should follow our guest on Twitter, Florida Senator Marco Rubio. He's at Marco Rubio and follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Followed the Bloomberg head of Podcasts on Twitter, Francesca Levi at Francesca Today, and check out all of our podcasts unto the handle at podcasts. Thanks for listening.