Can Our Economy Handle This?

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S1: Hey, everyone. We’ve got Jordan Weissman on the show today. He has a tendency to curse, especially when he’s staring down a financial crisis. You’ve been warned. Last week, Slate’s Jordan Weisman came on the show and we tried to answer this question, will the Corona virus tank the economy? And since then, I gotta say, the signs have not been looking great. The stock market has continued to plummet. Washington has been scrambling to do something, anything to make a difference. Last week, the House passed what they called the family’s first coronavirus response act. Jordan says this bill, it’s still not enough.


S2: Yeah, I just I think we need to get more creative. You know, the administration is talking about things like bailouts for certain industries, like cruises and airline. What I saw happen. Like I just saying that we’re gonna bail out the cruise industry is still a little bit of a mind bender for me. Know, we’re talking about bailing out certain select industries, like airlines, like hotels, like cruises.

S3: But we already need to be thinking more creatively and more boldly.

S4: It’s interesting like listening to your ads that your ears like we need to think bigger. Like if you’re if you’re thinking of something, just like think again and think more. Yeah.


S5: But before we do something bigger, Congress is going to have to do something at all. While Jordan and I were talking that coronavirus Bill, it was pretty much put on ice. A single Republican lawmaker, a guy named Louie Gohmert, he was threatening to hold the whole thing up, insisting he should be able to read 80 odd pages of legislation allowed into the record before passing the bill on to the Senate.


S6: How how much faith do you have right now in Washington solving this on a scale of one to 10?

S2: They got 6.5 and I think that’s up maybe a little bit more. That’s cause I’m an optimist.

S5: You think that’s optimistic? And probably.


S2: I mean, have have you watched the negotiations over the House, Bill Prady?

S4: When it comes to coronavirus, Washington is moving faster than they have in years, but it still might not be enough. Jordan’s going to break down what’s still up for negotiation. I’m Mary Harris. You’re listening to what next. Stick with us.

S1: This bill that’s being debated in Washington, it is big. It includes paid sick leave, free coronavirus testing, funding for employment insurance, nutrition benefits. But Jordan, here’s all that.

S2: And he says, yeah, yeah, yeah. The problem is it’s sort of they’re all half measures. One big issue, for instance, is that the emergency sick leave and paid family leave or medical leave provisions don’t apply to companies with more than 500 workers. How much of the workforce is that? A big chunk off the top of my head. I can’t remember the exact number that is over five hundred. But with that and the other exception, which is companies with fewer than 50 employees, can also apply for a hardship exemption. The New York Times pointed out that these emergency benefits might only actually apply to about 20 percent of the workforce. Of course, that’s that that targets 20 percent. That’s pretty unlikely to have benefits people. Larger companies do tend to get things like sick leave, but they don’t necessarily at big fast food chains, things like that. Big retailers. But it’s fair to say that a lot of workers who are going to be on the frontline would ordinarily be on the front lines of this pandemic because they are very public. Facing jobs aren’t necessarily going to be covered by this bill.


S7: I mean, Nancy Pelosi said that the reason that she did this was because it would be silly for me to intervene as the government and do what these companies should be doing on their own.

S1: Is that is that reasonable to you?

S2: I was a little bit of gas when she tweeted that out. What she was essentially saying is there’s no reason for the government to pay for McDonald’s or Walmart or whoever to provide sick leave when they should be doing that themselves. We don’t want to subsidize them. The fact is, though, that this is absolutely the wrong time to be worrying about that. We are kind of facing an all hands on deck crisis where the amount of money that the government borrows to get through it is sort of immaterial. Interest rates are extremely, extremely low right now. Furthermore, you know, these companies are going to face, you know, added costs from things like sick leave. It’s not free when you pay someone who is sick and who can’t come in. You are also probably simultaneously paying somebody to fill their job. You’re essentially paying to workers. And companies are right now going to face extreme pressures on their margins. We don’t necessarily want them to face that extra burden in a crisis like this. It’s time to for both. I think Republicans and Democrats to put their concerns about things like deficits and subsidizing big companies who might not necessarily deserve it under normal circumstances aside, and just make sure that we get through this without facing an economic disaster.


S7: Yeah. I mean, when I saw that, I just thought we can think creatively here. Like there are ways you could have incentivize those companies to do the right thing.


S2: Well, I mean, so they’re offering some tax credits for companies to offer leave and more to compensate them for leave. I mean, they’re trying to be creative. I think fundamentally, though, the problem is this crisis has already kind of passed by the efforts in Congress. It’s already escalating to the point where it’s obvious that what is being contemplated on Capitol Hill, even as a first cut at the issue, just is not sufficient. We are seeing economic data trickle in from China, for instance, about what this virus did to their economy. That’s just absolutely devastating. I mean, you’re talking about certain sectors or, you know, retrenched by 16, 17, 20 percent in an economy that is ordinarily growing 7 percent per year in the U.S., we’re already starting to see data on things like, you know, restaurants as of Saturday night. Restaurant attendance was down by about 40 percent nationwide. You’re seeing a huge blow to the food and beverage and kind of accommodations, industry, hotels and airlines, you know, leisure and entertainment. There’s all these things that hire millions and millions and millions of people are just getting a body blow from this virus. And we’re barely in the thick of it yet. The bill that Congress has put out was looks like a good first step. A week ago and shit done changed that. Is that that’s that’s long of the short of it.


S1: This legislation is still making its way through the Senate, but Jordan says if he had his way, there’d be changes.

S2: I was saying a modest gesture at this point and the emphasis on modest would be increasing unemployment benefits so that they cover 70 percent of a worker’s paycheck instead of 60 and making sure that every state can pay for them for up to 26 weeks, which used to be the norm. But some weeks cut it back. You could even extend it further to, you know, two to eight months. Whatever you think is necessary, the other more dramatic thing a lot of people are talking about has gotten some support from the kind of left wing in Congress is just mailing checks to people taking sort of the Andrew Yang approach, the entry yang approach puts out. I mean, Andrew Yang is not the first person to think of this, although he’s he’s sort of claiming credit for it now. But, you know, the Bush administration after 9/11 and in late 2008 sent checks to people. Some of those were tax rebates. But that was the approach was just sending people checks. Claudia Sam, a former Fed official, has written extensively about why just sending people money in a downturn may be the most efficient way to fight a recession, and especially one like this, where the normal playbook for fighting a downturn won’t necessarily work. I think it makes a lot of sense just to spend a few hundred billion dollars and send people each adult a $2000 check so that they can at least cover rent for a month while everyone is quarantined.

S8: Washington’s response to the coronavirus goes beyond Congress, of course. Jordan’s watching the Federal Reserve as they intervene in these unusual ways to keep the market moving. This Sunday, the Fed announced they were cutting interest rates to near zero. It’s the kind of drastic measure that hasn’t happened in years.

S7: So let’s talk about what happened this weekend, because separate from all the legislation, you have the Fed making these economic maneuvers, it feels a little bit like to me, like they’re pressing every button on the board that they have, but doing it all at once. So they cut interest rates this weekend. Explain to me what that does and why it’s important.


S2: I think the best way to understand what the Fed was doing on interest rates is that they’re actually just trying to avoid making this situation any worse. If you leave interest rates too high, when the economy is contracting, when the economy is in bad shape, it can make a dire situation worse by cutting rates down to zero. Now they’re taking a little bit of preemptive action. They’re trying. I think they’re trying to avoid repeating the mistakes of the past where they just waited too long. The other thing that they did was announce that they would buy 700 billion dollars worth of treasuries and mortgage backed securities, which for all intents and purposes, they’re bringing back quantitative easing.


S7: What does that mean? Like does that mean that they’re printing money, essentially?

S2: It means that the Federal Reserve is buying assets. It’s going out to the market. And it’s it is saying, hey, you’ve got a Treasury bond. I’m going to buy that from you. You’ve got a mortgage backed security. I’m going to buy that from you. So it’s creating a marketplace. Exactly. It’s less about printing money. They’re showing that there is going to be a buyer for these. And the reason they’re doing that is because of the last few weeks, these credit markets have been kind of troubled. They’ve they they’ve been showing signs of stress and that things were not working correctly. There was a lack of liquidity, which is the you know, the fancy way of saying it was hard to buy and sell Treasury bonds.


S9: And if the market for Treasury bonds goes haywire, if it stops working, if it falls apart, everything falls apart.

S5: Everything falls apart because treasury bonds are usually an incredibly safe place to invest. Think of them like the bedrock of the global financial system. Whole economies are built on a foundation of U.S. Treasury bonds. So in that market’s troubled, it’s bad for everyone.

S2: They are considered one of the safest assets in the world and they are the most widely available safe asset. And so if the kind of the foundation of the financial system starts to crack, which is the Treasury market, then everything starts to crack. It’s going to get real hard for banks to keep operating like normal for money market funds to keep operating like normal. It’s going to get hard for you to use your damn credit card.

S5: The moves the Fed is making right now, slashing interest rates and pumping millions into the bond markets. It’s similar to what they did in the wake of the 2008 financial crisis. Only this time, instead of rolling these changes out over the course of a year, they’re rolling them out over the course of a week.

S2: These are big, bold steps designed to show the world that they are not going to let this spiral into a financial crisis that is separate from an economic crisis. Right. You can have a sharp recession that does not lead the financial markets to fall apart. And the Fed is sort of signaling, look, there are only so many tools we have to help the real economy. We are deploying them. But Congress and it’s gonna have to do more. The fact that the Fed is sort of trying to get ahead of the game is, you know, to me. And by deploying whatever tools it knows it has available, even if they’re, quote, unconventional to me, that’s comforting.


S10: OK. But we’re talking around 11:30 noon, and it’s this kind of funny moment to be talking because, yes, the Fed made all these moves over the weekend and then the financial markets opened and things crashed again. And what was this like the third time that we’ve seen the these sort of emergency measures put into place where the markets are told to sit in time out for a couple minutes?

S2: Right. I mean, there they had to halt trading again because the S&P 500, you know, just plummeted. So what does that mean about the moves that the Fed made? Right. I mean, I think what’s important here is to try and separate out a few different threads. Right. There’s it’s kind of complicated what’s happening. First, there’s the stock market reaction. The stock market is you know, it’s always a little hard to attribute motives to the stock market. Other than just like pure animalistic fear is right.

S11: It’s I always hesitate to do it.

S9: But if you read the comments from fund managers, traders, they’re all saying the same thing, which is roughly that the market is collectively realizing that this is going to be bad. Right. The Fed’s moves signaled that this is going to be possibly a. Fear recession or a severe downturn. And they and people are now panic selling in response to that. And that might be the case.

S2: But eventually the stock market was going to find that out one way or the other because.

S11: Right. These are things we’re not. Keep it secret forever.

S2: You can’t keep it secret forever like they’re reacting to the news. However, that doesn’t mean that the Fed made a mistake by cutting interest rates. In the end, the Fed was if the Fed did not cut interest rates, it means that the actual economic fallout was probably going to be worse. So you need to separate those two things out there, sort of the reaction, the market’s reaction to the news that their perception of what’s going on has changed and the actual value of what the Fed did in terms of interest rates. Then there’s the second part of this, which is what’s happening in the bond markets. Right. Because when I say the Fed is trying to prevent a financial crisis, most of that involves things with the bond market.


S12: It’s trying to keep the bond market not happy, but not like it. It doesn’t want it to die.

S8: It’s interesting that we teased apart kind of the political response as well as the Fed’s response to what’s happening, because they seem pretty different.

S13: The Fed seems to be acting in this decisive way.

S7: You know, very major movement very quickly.

S1: And Washington, as you said, looks a little more like half measures, compromises, little bits as you go. And, of course, you know, Congress is much more political than the Fed. I wonder if you take any lessons from that.

S9: I mean, it’s right. It’s it’s a little bit discouraging because it suggests that our non-democratic institutions are right now better equipped to deal with a true crisis than our democratic ones, although that’s not totally different from 2008. You know, the Fed was once it finally realized something was wrong, it was able to swoop in and try to keep the financial crisis from spiraling into something like the Great Depression. But at the beginning, as I said, I was a little bit of an optimist.

S6: And it’s because I I think that at some point soon, you know, Nancy Pelosi and Stephen Nation and Donald Trump and even maybe Mitch McConnell will realize we’re dealing with something kind of unprecedented in modern American history.

S9: We haven’t had a pandemic just shut down large swaths of the economy. You know, since 1918, really? And that this is going to require something more than what they’ve shown us up until now.

S10: Listen to your talk. It feels like the administration in Washington in general, they’re kind of in this catch 22 like they have to. They have to admit that the economy is going to take one on the chin and kind of hunker down and get ready for that.


S7: But it’s so hard to do, especially when you look at the Trump administration, where what are their major arguments for their success is the stock market and the financial situation?

S11: Yeah, it is.

S9: And, you know, Trump is used to being able to just rely on his reality distortion field to, you know, barrel through bad news. And he can’t do that now. But I think in the medium term, not even the long run, just the medium term, like, you know, the next six months, we would all be much better off if Donald Trump and everyone around him admitted we are in a freaking crisis and we need to take extraordinary measures to address it, to confront it. And gradually dribbling out half measures that only tackle part of the problem is not sufficient, is self-defeating and is going to make this longer and more painful for everybody.

S11: Jordan? Yeah. I have news. While we’ve been speaking. Senator Mitt Romney proposed just sending everyone a thousand bucks off during coronavirus. That’s that’s good.

S9: Again, it’s not unheard of. Like Bush sent people checks weirdly, despite the fact that he he campaigned as a doctrinaire economic conservative. Romney is a centrist, sort of reverted back to his moderate roots. And this is an example of that where you say, OK, we need some fiscal stimulus. Let’s get to it. Yeah, I’m glad he’s there. Hopefully other people in Congress will listen to him.

S14: You feel a little better?

S2: Yeah. Yeah. I mean, like that’s like I said, it’s it’s not Mitch McConnell, but it’s someone it’s someone important.

S15: Jordan Weisman, thank you so much for joining me. Thanks for having me. Jordan Weisman covers the economy for Slate. And that’s the show.


S14: Yesterday, I asked you all to share a bit about what you’re doing to keep yourselves and other people sane during this crazy time on Twitter. I am retweeting all the ways people are trying to support each other or model good behavior, whether it’s the sign that the Wu-Tang Clan printed up encouraging everyone to wash their hands or this video of the St. Patrick’s Day celebration that my colleagues parents threw in their home as they tried to socially distance themselves. Share your own story of how you’re getting by and encouraging other people to do the right thing. On Twitter, I’m at Mary’s desk. Or you can call leave a message 2 0 2 8 8 8 2 5 8 8. That’s 2 0 2 8 8 8 2 5 8 8. This show is heroically produced by Daniel Hewitt, Maurice Silvers, Mary Wilson and Jason de Leone. I’m Mary Harris. I will be back here with more what next tomorrow?

S16: I hold that my kids are gonna come downstairs to get mac and cheese, all that Ditlow Rolling Thunder.

S17: Can you get me your mac and cheese and go back upstairs? But why do you want to talk to Jordan Weissmann?

S16: Well, I think it’s on the show. But but where is the mac and cheese?