For the Coronavirus Economy, This Time Truly Is Different

global economy to you. And what you just heard it was a very distinguished US economist Ken Rogoff telling you we're not in Kansas anymore. At the start of this pandemic, economists thought they pretty much knew what we were in for. A short sharp shock COVID nineteen might kill the economy dead in the short term, but it wouldn't take long to bounce back. They don't say anymore. But now Rogoff and fellow economist Carmen Reinhardt, I think it could be

years before we make up the ground we've lost. Reinhardt has just this week been named the new Chief economist of the World Bank. People tend to pay attention to what she and Rogoff think since they wrote the definitive history of eight hundred years of financial crisis. What these two are saying today is that anyone betting on a

V shaped recovery from this crisis should think again. Bloomberg's executive editor for Economic Simon Kennedy had a long chat with them for the latest issue of Bloomberg Markets Magazine. We're playing you some of that interview later, but first, I have news of new jobs. Yes, you heard that right. COVID nineteen is creating some new jobs amid the ocean of layoffs. Except they're not jobs that your school career

adviser would ever have told you about. To fancy being a thermal scanner, or a contact tracer perhaps, or a decontamination technician. Bloomberg Business reporter Jeff Green and Federal Reserve reporter Steve Matthews decided to find out who was doing these jobs and how they felt about them. Jeff is in Michigan and he's with me now. Jeff, tell me

about these new jobs. How many are we talking about? Well, if you talk about the types of jobs, you know, you maybe talking about a dozen kinds of classifications that fit into sort of this broad umbrella of sort of a COVID you know, related job. Um In terms of the number of people, it's not gonna be thirty six million.

We're not going to offset unemployment with this. But one job called the tracer, where you try to find people who have been exposed to COVID, they're talking about a quarter of a million of those people needed, because you basically need to have somebody in every jurisdiction to try

and stop the virus as it gets started. Some of the other jobs, I mean, the thermal scanner, which is a fancy name for some of you who takes temperatures, those are gonna be pretty much every company is going to have somebody like that trying to make sure that people with fevers don't come into the work site. So you were talking thousands, but I don't think millions though,

and I was struck actually in your piece. There are some jobs or other old fashioned jobs that might be coming back into fashion because of the social distance seeing rules. JP Morgan had talked about bringing back elevator attendance. I guess we'll have a few things like that where we actually have people checking that we're doing the right thing

in context, where previously everything has been automated. Yeah, doorman, elevator operator, maybe even people from the mail room will have a whole different sort of importance and role that you know has been kind of fading until this. So let's let's hear more. I mean, you talked to quite a wide range of people across the country, you and your colleague Steve Matthews. But this was Mark Scofield, who's a retired Air Force special agent now working as a

thermal scanner. So I guess that's a temperature taker at a retail distribution center in North Salt Lake in Utah. For a personal perspective, for me, I haven't been sick for twenty years. I think I'm old enough. Communities had most of its effect to me, so I don't I personally don't feel any dangers that people I work with. We don't feel any danger you feel. We're secure in our little our booth or if we go out to say something. Some of them, some of the truckers are

really fun. Get to know him a little bit, and they want to talk to you and tell you a joke. And so we'll stand outside this job with our six feet apart and we'll chat for a few minutes and then I'll go do that thing. I think everybody in my shift there's very comfortable before we do. The interesting thing about him is he actually was working for Kelly Services, which is who's getting a lot of these people placed.

They don't necessarily say for who, but a lot of Fortune five kind of companies are are are needing these these positions. But he was a substitute teacher for them prior to taking on this role, so I mean he had just been doing that on the side. He had a background in it, so he would take substitute teaching gigs from from time to time, but there wasn't much call for that in this in this situation, so when it came up, he kind of raised his hand and said, yeah,

I'll do this. And he's a big guy, military guy, clearly feels pretty impervious. So I think it's he's an interesting character. And you made the point rightly, Jeff, that this is still a drop in the bucket, these new jobs compared to the ones that are being lost, the thirty six million and counting lost jobs. But of course I think people will be glad to hear that any jobs are being created in this environment. Do you do.

You get the impression from the other people you talked to that they're happy to do it, although they're worried about the potential risks in some of these jobs. I mean, everybody who's doing it seems to have a different way. They've sort of rationalized or or just dealt with it as not being something they're worried about, either because of the protective measures or where they see themselves in sort

of their health. I Mean, one of the things that's pretty much true across the board is this is more money than they might be making in their day to day job. I mean, these are usually twenty dollars or more an hour, and a lot of the people taking these jobs were probably in sort of the fifteen dollar

an hour or less category. So you're you're looking at people who are able to um get a raise basically to do something that seems somewhat risky, but risky in a sense that you're wearing full protective equipment and you're usually behind plexiglass and maybe more protective than you are when you go back to work if you didn't have this job. But I guess we should add but you've also got a new job that you didn't have a few months ago when we're not supposed to moonlight here

at Bloombow. But I think in this case the bosses have approved. You've been You've been working away yourself on something on the anti COVID effort, Is that right? Yeah? I mean I have a three D printer or two or three. It's a hobby, you know, And I've been working from home, so they're literally right behind me through a door. And I've been working with some local people,

some nonprofits just to kind of make personal protection equipment. Um. You know, thankfully, there's a lot less demand for the really heavy duty stuff. We were doing a lot of face shields at first. Now it's mostly they call them ear savers. It's so that when people wear masks all day, it doesn't rub their ears raw. And there's a high demand for that from people who are, you know, basically

wearing masks everywhere. How many originally of the mask do you think you made in the early stages, About three and fifty of the straps for the masks. Um, they were like printed with a special plastic that's easier to disinfect than than somebody else put on a face shield. Um, just over a thousand of the ear protectors right now.

We're still doing those, probably winding that down soon, but I'm trying to get another thousand done so they can because people are sending them all over the country where you know where, they're having trouble finding them. Well, I'm glad that you're not doing the really urgent stuff anymore because we've made you turn off your machines in order to do this. But I should let you get back to that and your and your work for blue Bird.

Jeff Green, thanks very much, thank you. Now. When Carmen Reinhart and Ken Rogoff wrote their history of financial Crises in late two thousand and nine, their title was ironic, this time is different. Eight centuries of financial folly reminded readers that it really was different, and the catastrophic two

thousand and eight nine credit crisis wasn't unique. Rogolf is a former I m F Chief economist who is now a professor at Harvard, and right now, Reinhardt is also a professor at Harvard, but as we heard earlier, she's about to be Chief economist of the World Bank, right in the middle of what feels like a one of a kind crisis. So my colleague Simon Kennedy started his interview by asking the obvious question, is this time really different.

It's certainly different from prior pandemics in terms of the economy, the policy response to shutdown. The other thing that I like to highlight that is very different is the suddenness, how sudden this has been. If you look at US unemployment claims in six weeks, we've had what it took sixty weeks in terms of the run up. If you look at capital flows to emerging markets, the same story.

You know, the reversal and capital flows in the four weeks ending in March that the decline matched what during the global financial crisis took a year. So the suddenness, the abruptness of it, is also a factor that is a byproduct of the widespread shutdowns which we had not

seen before. Certainly the global nature of it, and as highlights the speed point bursting out across the whole world, the first global recession, the crisis really since the Great Depression, because the two thousand made was the rich countries and not the purchased markets had a good crisis in two thousand eight, and they're not going to this time, regardless of how the virus hits them and the policy response. Think about China. Can you imagine if this had hit

fifty years ago? Can you imagine trying having the state capacity to shut down Hubei Province to feed nearly sixty million people, give them food and water, and concentrate medical attention. So there's a policy option that we have, and I think most countries have felt it's the choice that had to be taken to try to try to protect ourselves. How degrade the policy responses? What do you what do

you make of them? Um? No, if I think the policy response has been massive and called for that absolutely necessary. You can quibble between the European style sort of try to preserve firms and workers and their current jobs, the US version, which is to try to address it as a natural catastrophe and try to subsidize people but allow

higher unemployment. I think they're actually not that different. If this thing persists, then a lot of those European firms will end up having to let their workers go when the crisis passes. If it doesn't, a lot of the U S firms will end up rehiring their workers. But certainly the aggressive crisis response reflects lessons learned in two thousand and eight and common does that aggressive policy? Does

that explain the markets? Stock markets particularly of You wouldn't necessarily if I'd shown you the chart at the start of the year, you would have wondered what the collapse was, but you wouldn't necessarily have You wouldn't necessarily We've been hit by a global pandemic. If you looked at look at Wall Street, what's behind? What's that break between the markets? And UM? I would say, partially, partially, how much of the resilience, if you will, if not a brilliance in

the market is is policy driven? I think a lot of it is. UH. That you know, UH, let's take monetary policy. UM. Before the pandemic, the US unemployment was at its lowest level since the nineteen sixties. By most metrics, the US was at or near full employment, which very plausible. That you know, your path was one towards rising rates UM.

Clearly that has been completely replaced by a view that rates are zero now that that they've come down, UH, and that they're gonna stay low for a very long, long, indeterminate period of time with a lot of liquidity or from from the Federal Reserve. So that's a big game changer for you know, discount discounting futures, you know, stream of dividends and and and and so on um for the markets. Let me just point out another issue in

terms of the policy response. The policy response, again, the FED has established a lot of facilities that are now providing support not only to corporates, but to corporates on a much lower grade in terms of their ratings, you know, the fallen angels, the higher risk that the you know, the the kind of risk gear corporates than certainly was even envisioned at the outset of the pandemic um And I think what this does is the market is really

counting on a lot of rescues. Of course, the FED lower forever is part of part of it, but I also feel the markets have a very sanguine view of the virus and what's going to happen and how quickly we can return to normal, or maybe how quickly we will choose to return to whatever normal is, how quickly the lockdowns will will lend um and it seems very

uncertain to me. The virologist and epidemiologists I respect, you know, always start out their comments by saying, you know, we're in the second inning where we might, if we're lucky, be at the end of the beginning of the epidemic. That sort of thing, and and and that rings true. I don't know how we're coming back to two thousand nineteen levels in any near term. The ECB gave a I think a three year projection that'd be great. That

seems quite optimistic to me. And I thin the true fall and g d p U economic historians will debate for years. It's probably much larger than a measured fall. It's not just the people not working, but what's the efficiency of the people that are working. And then the monetary response is done hand in hand with the Treasury. This this level of UH guaranteeing private debt and municible debt that Treasury owns, the Federal Reserve, and it's completely uh,

you know, working together on this. But it's banking on this V shaped recovery, something pretty good happening. If you're you can't keep expanding all the credits that you're guaranteeing in the economy. And definitely if a lot of the firms aren't aren't aren't coming back, So it remains to

be seen what they will do going forward. I think we're going to see a lot of work for bankruptcy lawyers, and you know, going across a lot of industries, we see one retailer after another entering Chapter eleven already, and that's probably just the beginning. The numbers are gonna look spectacularly great in some months. Simply because you're coming out from a base that was pretty devastated. That doesn't imply that per capita incomes are going to go back in

V shape two what they were before. You know, it's very critical. Characteristic of all of this shock has been that it has disrupted supply chains globally, big time um trade. You know, if you look at the w t O projections, they tell you, well, it can decline anywhere between thirteen and thirty two. So I don't think you just break and re recreate supply chains, you know, at the drop

of a hat. I think that there is a lot of geographical changes that are that are being necessitated because if the economic downturn has been synchronous, the disease itself hasn't been synchronous. It started in China, hate Korea, hate parts of Asia, moved to Europe, moved to the US. So the idea that the disease is going to be dealt with globally in such a synchronous and rapid way that it allowed for V shape, I find that dubious.

The second part that I find the V shaped story dubious is what Ken was already alluding to the chapter elevens. You know, we are all living in economies that have a huge important service component. How do we know which retailers are going to come back, which restaurants are going

to come back? Uh, cinemas and and so when this crisis began to morph from a pandemic, from a medical problem into a financial crisis, then I think the roots for it having more longer lived effects we're set, And I think those two factors are going to make for

more protracted recovery. Yes, I go back to the e CBS forecast for three years uh to go back to the same the same income as the beginning, which is what Carmen and I use is the definition of recovery in our book that, by the way, is really not the Wall Street definition of recovery, where recovery is going back to where the trend was which is typical in a recession. We use a much more modest for inever povery.

And still with post war financial crises before two thousand eight nine the average was four years, and for the Great Depression ten years. And there are many ways this feels more like the Great Depression when you look at the de globalization which seems so likely to follow this, Whether say in the United States the Republicans are in power the Democrats, that seems like one thing they have a consensus about getting back to something. We wrote gosh

and late late March. I think we were very early in on this point that you probably need a debt moratorium that's fairly widespread for emerging markets and developing economies. And an analogy the the I m f H were Chapter eleven. Bankruptcy is very good at dealing with a couple of countries or a couple of firms at a time. But just the way the hospitals can't handle all the COVID nineteen patients showing up in the same week, neither

can our bankruptcy system. Neither can the international financial institutions. So there are going to be phenomenal frictions coming out of this wave of bankruptcies to faults again. If we can get a super v recovery, it'll all be forgotten. The policymakers will look like geniuses. Uh not. I'm not saying they've done anything but a good job that I think they have done a good job. But you know they'll be you know, have saved the day. But it's

it's probably that's probably not going to happen. It's probably going to be at best you shape recovery. And I don't know how long it's going to take us to get back to the two thousand nineteen per capital g d P I. I would say, looking at it now, certainly world, you know, for the world, five years would seem like a good outcome out of this. Um. What about the debts in the in the major com you mentioned Italy but also elsewhere. At the moment, there's definitely

that mentality that this is a price worth paying. How worried are you about the debts in the longer term? Yeah, it's not a free lunch we had, but we had there's no choice. The whole point of having a strong balance sheet, of being able to borrow freely, is to be able to do it with abandoned in situations like this. This is like I wore, naturally staggering, natural catastrophe, whatever you want to call it. There's no debate that they should be doing all they can to try to maintain

political and social cohesion to maintain economies. But what lies at the other end. I go back to my Wizard of oz an analogy, UH with Darthy up there. The financial markets think there's no chance interest rates will go up, there's no chance inflation will go up if they're right in that last five years. And by the way, if another shoe doesn't drop, if we you know, don't have another global problem in the meantime, I mean, it'll be fine,

but we could have costs from this. We're talking about economy shrinking by and per year, and those are just staggering compared to the depth burden costs, whatever they are. So you know, certainly we would strongly endorse doing what they're doing. But then the summer selling it as a free lunch, that's stupefyingly naive. Early on, you a talking

about inflation. I think there's a projects into column. Those still your views that that could be an inflation first the end of this, well, I don't think where we we don't know where will come out. So the probabilities for the foreseeable future will have deflation, because you know, that's where we are. But at the end of this, I think we're going to have experience an extremely negative

productivity shock with declobalization. Even if the vaccine magically appears, the deglobalization will be the last the deglobalization and probably the political social political ramifications, which may be good overall for society, but in terms of growth and productivity, they will be lasting negative shocks, and demand may come back and and many of the forces that have led to very low inflation may have gone into reverse either because

of declobalization, or workers will strengthen their rights and unions will be kind of stronger, which it becomes possible in a more deglobalized world. It's easier to rebuild union strength when you're not competing with foreign terms. And of course inflation is a is a possibility, but the market for a season like essentially zero chance of ever having inflation again. And I think that's uh, you know, it was very wrong.

Thanks for listening to Stephanomics. We'll be back next week with more on how COVID nineteen is turning the global economy upside down. Remember you can always find us on the Bloomberg Terminal, website, app or wherever you get your podcasts, and for more news and analysis from Bloomberg Economics, follow as Economics on Twitter. You can also find me on at my Stephanomics. This episode was produced by Magnus Hendrickson.

The interview you just heard was conducted by Simon Kennedy, and the published version of the transcript im Bomberg Markets Magazine was edited by Stryker Maguire. Special thanks to Jeff Green, Steve Matthews, Mark Scofield, Carmen Reinhardt, and Ken Rogoff. Scott Lanman is the executive producer of Stephanomics and the head of Bloomberg Podcast is Francesca Levy.