Capitalisn’t: The Capitalisn’t of coronavirus

Mar 11, 2020

Sections Economics

Collections COVID-19 Crisis

On this episode of the Capitalisn’t podcast, hosts Kate Waldock and Luigi Zingales give an economist’s view of the coronavirus outbreak. How should we think about the economic trade-offs of interventionist quarantine measures, could this virus change the way we work, should you or should you not be buying up stocks? They tackle these questions and more.

Speaker 1: As the number of cases and the number of deaths from coronavirus mount, the economic impact is also starting to become clear.

Speaker 2: Panic is rippling through the global stock markets as nerves over the coronavirus send shares tumbling.

Speaker 3: The Italian Prime Minister has announced restrictions on movement across the entire country in the most drastic response yet to the spread of coronavirus.

Kate: Luigi, this is a pretty somber episode. So, let’s start by talking about northern Italy, where you’re from. What’s going on there, and what’s it like to have family members there?

Luigi: Yeah, it is very somber indeed. I have a 92-year-old mother who is now isolated in Padola, which is one of the epicenters of the disease. Actually, a small town outside of Padola is one of the epicenters. And over the weekend, the government introduced rules that, in principle, will stop people from moving from the northern part of Italy, where my mother and my siblings are, to the rest of the country.

Unfortunately, it doesn’t look like these rules are being followed very much, but the need for these rules was created by the fact that the epidemic was spreading at increases of 25 percent a day. And pretty soon there will not be enough intensive care units to receive the people who have the most serious form of the disease. And that’s pretty dramatic.

Kate: When do you think you’re going to be able to see them again?

Luigi: I don’t know. I think that this is part of the big unknown that we would like to try to understand and have the listeners understand in this episode.

Kate: From Georgetown University, this is Kate Waldock.

Luigi: And from the University of Chicago, this is Luigi Zingales.

Kate: You’re listening to Capitalisn’t, a podcast about what’s working in capitalism today.

Luigi: And, most importantly, what isn’t.

I think that what is first order is what is the level of public-policy decisions we have to make now. There is a medical component we’re not experts about. But there is a public-policy component that is very important, and you can look at it from an economic point of view, you can look at it from a philosophical point of view, you can look at it from a political point of view. 

Even from an economic point of view, which is the one often used to say we shouldn’t act, I think when you do the calculation right, when you do a serious cost-benefit analysis, you say, you want to intervene, and you want to intervene early and very steadily. And the example of China is that these interventions actually succeed. They succeed not only in slowing down the disease, but even in stopping it. However, they need to be very strict, at the level that we, in Western democracies, are not very comfortable with and used to. But if you take this as a war, in times of war, you take extreme measures. And we are in a war to slow down this disease.

Kate: I’m hanging out in New York right now, for better or for worse. And I quickly had to go out to lunch for a work meeting. And it was pretty appalling, the sort of stuff that I saw. I ended up taking the subway, because Ubers are super expensive, and there are still street performers dancing on the subway from car to car. I saw two of them. I saw homeless people sifting through trash. I saw a woman pick up a cigarette off the street that was only half smoked and smoke the rest of it. 

And when I went into a store to run an errand that I desperately needed to run, the guy that I spoke to there said that most people aren’t worried because it’s just the same as the flu. And if we can survive the flu, then why do we need to panic about this? And panic is bad for the economy, and panicking makes you a bad citizen because you’re going to be part of a stock market sell-off that’ll end up hurting small businesses. And this is something that I think Rick Santelli has propagated.

Rick Santelli: Think about how the world would be if you tried to quarantine everybody because of the generic-type flu. Now, I’m not saying this is the generic-type flu. But maybe we’d be just better off if we gave it to everybody and then in a month it would be over, because the mortality rate of this probably isn’t going to be any different if we did it that way than the long-term picture. But the difference is, we’re wreaking havoc on global and domestic economies.

Luigi: To be fair, Rick Santelli has apologized for this statement. But this statement is wrong in many dimensions. The first one is that the biggest problem is the availability of intensive care units at hospitals. And if the epidemic spreads too fast, then we don’t have enough IC units to take care of everybody, and the rate of mortality can go up dramatically. 

One piece of news I just saw coming from Italy is, if you compare the mortality rate in Lombardia, which is the region around Milan, with the death rate in the rest of the country, Lombardia has a scary 6.4 percent, versus the rest of the country’s 2.8 percent. Now, Lombardia probably has the best hospitals in the country. So, it’s not due to a lack of quality hospitals. It’s probably due to a lack of availability of IC units, when you have too many people who need it and not enough IC units. That’s a disaster.

Even if you were just a bean counter, and you looked not at human life but at the economic value of life, stopping the economy or slowing down the economy is a price that we should be willing to pay. And I did a back-of-the-envelope calculation. If we can manage the pandemic with only a 1 percent rate of death among the infected, we’re going to have only 400,000 deaths in the United States. 

But if we reach the level of Wuhan, where there was an undercapacity of hospitals, then the death rate could be 3 percent, and that means 800,000 people or more who die. We economists have this terrible habit of putting a value on life. And the statistical value of a life is considered roughly $9 million. So that would be a $7.2 trillion cost. That represents one-third of the US GDP. So, even if you were a purely cynical guy, you would understand that slowing down this epidemic is worth paying an economic cost, a cost to the economy.

Let’s now try to estimate the potential economic cost of the coronavirus. Now, this is a very difficult exercise, because the forecasts about the spreading of the disease are very uncertain. What do you think is going to happen to the US economy, and what do you think is going to happen to the stock market?

Kate: I’m going to base my numbers off some historical data and some projections. Both of these are a little bit dated, but in some sense, the best place to get our numbers is from historical incidences. So, back about 15 years ago, after SARS, the World Bank came up with some projections and calculations based on mild, moderate, and severe flu outbreaks. And I understand that this isn’t the flu, but in terms of mortality and contagion, it has some similarities. 

Based on the mild estimate, for high-income countries, there’s a loss of GDP of about 0.7 percent. And that’s comparable to the Hong Kong situation in 1968. Based on the moderate estimate, there’s a loss of GDP of 2 percent for high-income countries. And that’s based on the Asian flu of 1957. And then, based on the severe scenario, it’s more like 5 percent for high-income countries, and that’s based on the Spanish flu projections. So, I would say that—

Luigi: Sorry, you said 5 percent or 0.5 percent?

Kate: Five percent loss of GDP.

Luigi: Wow. That’s huge.

Kate: If we had a Spanish flu worldwide. I mean, remember, the Spanish flu killed potentially 100 million people. And so, fingers crossed, but I don’t think that it’s going to reach that proportion. 

So, my guess would be that we’re somewhere between the Hong Kong and the Asian flus, and so, on the order of 1.5 percent loss of GDP. What do you think?

Luigi: I’ve seen similar numbers. First of all, if you’re talking about 1 percent or 1.5 percent of the world GDP, we’re talking about a trillion dollars. So, we’re talking about real money.

Kate: Yeah, it’s not trivial.

Luigi: But there is the direct effect of people working less. There is the panic effect that if I read in the newspapers that everybody could die, my willingness to buy a new house or to buy a refrigerator or to buy something like that will go down. So, there will clearly be an effect on the demand side. 

And then, there is quite an important effect on the supply side that I’m not so sure was estimated in this earlier model, because I think this effect is relatively recent. We have created a much more international supply chain. A lot of products in the United States, like a lot of products in Italy, are produced with parts coming from China. In fact, the spread of the disease in Italy is very much connected with this supply chain. And if you look at a map of Italy, the map of exports and imports from China, and the map of the disease, it’s one to one. It’s the places that deal a lot with China that have a lot of disease. The places in the south that don’t have a lot of manufacturing, don’t deal with China, they have no cases of the disease.

So, there is a pretty important effect. We know that China has slowed down quite a bit. People talk about 2 percent less in growth, at least in the first semester. And in particular, the area around Wuhan has ground almost to a halt. So, anything that comes from there is unlikely to be delivered, and we also know that there is kind of a 30 days’ delay, because that’s the time of the supply zone. So, those shortages are starting to hit the United States now. They will create a slowdown in offerings, because factories will stop producing because they don’t have parts.

Kate: I’m a lot less bearish on the supply side. I think that there’s a sense that all of our goods get manufactured in China. First of all, I think that the outbreak was for the most part concentrated in Wuhan, which focuses on automobiles, mostly. I mean, they have a steel industry as well, but their major export, at least from Wuhan, is automobiles. And the auto manufacturers, the manufacturing companies that are huge in Wuhan are Honda and GM. But I think that not every single auto company has a major factory there. And for the rest of mainland China, I have a sense that, if we believe the numbers, they are doing a pretty good job of keeping the coronavirus under control. And other auto manufacturing companies have restarted their operations. 

And so, I think that we shouldn’t be as concerned about China as a lot of people in the United States are. I think that there is a little bit of panic that is taking hold now. But in terms of the disruption in the global supply chain, I think that China’s actually on the upswing. And there was a brief period of no activity in Wuhan, but I think they’re ready to get started again.

Luigi: So, where do you see the major losses in the United States?

Kate: I think it’s going to be more on the aggregate demand side. I think people aren’t traveling. Particularly areas of the country that are dependent on tourism, I think, are going to be hurt. And I also think that people aren’t going out as much. So, the retail and services sectors, I think, will be hit more than expected. What about you?

Luigi: Maybe I extrapolate from my reaction, but there is clearly also a fear effect. I remember in September 2008, people were terrified just seeing the stock market plummeting. And even if they did not have a lot of money invested in the stock market, even if they’re not necessarily much poorer as a result of that, they became more cautious. I fear that people will become more cautious in situations like this. And the increase in uncertainty is huge. We cannot figure out what the right data are. And neither can people who invest. And so, I think that in this situation, if you are in doubt, you’re going to postpone an investment, not go ahead.

Kate: I think that that’s fair, but I think that people also have relatively short-term memories when it comes to this sort of thing. If we look at the effect of SARS in Hong Kong, for example, there was a stock market drop in March and April of 2003, which was during the brunt of it, and markets fell by 2 percent when other Asian indices were actually rising. And they also experienced a 63 percent decline in tourism, a 15 percent decline in retail sales. 

But a few months later, when the virus abated, markets rebounded pretty quickly. In fact, the stock market made up most of those gains. So, I do think it’s possible for markets and economies to recover relatively quickly after this sort of concern. But it’s a big open question as to whether that’ll happen here. On one hand, the coronavirus seems, or at least there seems to be weak evidence, based on where outbreaks have occurred, that the coronavirus doesn’t like warm weather. So, if we have an unusually warm spring, then it might be the case that the spread stops and markets bounce back. But on the other hand, if the virus becomes a pandemic and this really does hurt demand, it could set off a recession, in which case we’re in for a difficult time.

Luigi: So, you are coughing a lot, Kate. Did you test for coronavirus? I’m actually glad that we are taping at a distance, because I would be a little bit scared to be in the same room with you.

Kate: I wish I could get tested. I’ve been sick for the past couple of weeks, and fortunately I don’t think it’s coronavirus, because I had a pretty bad flu before the coronavirus came to the US. But even if I did want to get tested, I wouldn’t be able to, because I don’t meet the criteria for testing, because there just aren’t enough kits right now, and so they’re being very careful who they administer them to. So, yes, I am glad that they’re going to start making more kits and they’re going to start ramping up testing. But at least for the past couple of weeks, I’ve wanted to get tested and couldn’t.

Luigi: There is an interesting tension from an economic and a medical point of view. The challenge is, you are operating in a situation of major uncertainties. The costs are very different depending on your perspective. 

If you are a doctor or somebody in charge of public health, you are trying to minimize the chance of a pandemic. And so, you might take actions that are too aggressive. In fact, if you are taking the right actions, they will look too aggressive ex post. Because every preventative measure is a measure that seems to be unjustified ex post, because the pandemic did not take place. And the only situation in which you get vindicated is if you say to do something, but you don’t do it, and the pandemic comes out, and then you say, “Oh, I wish we had done that.” But by that time, it’s too late. So, whoever’s in charge of public health tends to be, in my view, too pessimistic and too risk-averse.

On the other hand, if you are in charge of the economy, you want to go in the opposite direction, because every form of uncertainty and every form of intervention has huge economic costs, in the sense that if you block a city, if you block a region, the economic costs are very large. And I’ve heard people say, after all, most of the people who die are old. They don’t say, “So what,” but almost. 

And this brings back an important tension between economic argument and social/political argument. And I’m an economist, but I think that here, you should look at the political and social aspects first. And so, people’s lives should come first. And if they fail to do so, I think that that will create even more of a negative response to the economists’ attitudes that tend to be too cavalier and a bit too cynical.

Kate: I think that a couple of months ago, when the coronavirus hadn’t shown up in the United States yet and when we saw it exploding in China, and we saw pictures and videos of doctors in face masks and bunny suits walking around Wuhan, and everything that was closed down and we were starting to feel the potential effect of steel prices going up and car prices going up for certain brands, we were worried about the economic effects and we were critical of the extreme measures that China was taking. 

Now that the numbers are dropping in China, and there’s an immense amount of uncertainty about how high the numbers are here in the United States, but the sense is that it’s certainly growing, I think the tables have turned. And I think that we’re getting the sense that they’ve been through this before, the Chinese are more acutely aware of the risks of a global pandemic than we are, and that they were taking pretty good steps and steps that have been effective. And now, it’s just a matter here as to whether we get lucky or not. But if this were a few months ago that the coronavirus had spread to the United States, I think that the economists who have been critical of Chinese measures would certainly be in the wrong.

Luigi: I agree with you, Kate. And most importantly, if you look historically, the way this stuff was handled was by restricting mobility, quarantining people, reducing social interaction. And that is, by and large, the best way to fix the problem. And in today’s economy, it’s actually not that difficult to do many things at a distance. And I want to think about this not only as a crisis, but also as an opportunity. It’s an opportunity to actually change the way we operate and live. And I think that, for example, people will learn that many meetings can be done at a distance. That traveling is not that necessary. This could have gigantic benefits from a CO2perspective and global warming, and also change our habits of telecommuting and smart working and so on and so forth. I think that it’s important to embrace the opportunity and not just look at the downsides.

Kate: I couldn’t agree more with that. A lot of conferences, I don’t know if this is the case for you, Luigi, but I’m starting to hear every day that more and more conferences are being canceled or postponed. And people are questioning whether the conference could be held virtually. And if anything comes out of this, and if it ends up not being too serious in the United States, I think that that would actually be a huge silver lining. That we would start to be pushed towards holding large meetings virtually.

Luigi: So, there are important political and economic decisions that need to be made. We see the fragility of markets in a situation of panic. So, one of the reactions that people had was to buy masks and hoard masks.

Speaker 4: One of the central business storylines of the coronavirus crisis has been the shortage of so-called N95 respirator face masks.

Luigi: A few people are hoarding a lot. This creates a shortage, especially in hospitals, where are they very much needed.

Speaker 5: The shortage of respirator face masks has sparked a global race to fulfill those orders.

Luigi: You know, some economic professors in Italy said, “Oh, this is just efficient. It’s the market allocating resources to the highest bidder.”

Kate: No, I mean, that’s ridiculous. Look, I think in a situation like this, if there’s a possibility of a pandemic, then the efficient allocation of resources is for everyone to have a face mask. And for everyone to use the face mask, particularly when they’re traveling. And so, there have been reports of certain governments nationalizing the face mask and hand sanitizer industry for the purposes of preventing an outbreak, and I think that that’s absolutely the right response. In this case, I think that the socialist response is the right one.

Luigi: Kate, you got this right. Actually, Andrew Cuomo started to produce disinfectants. The government, at least the state government, is entering into the business of supplying disinfectants.

Kate: Yeah, absolutely. And part of what concerns me about this is that they’re apparently using prison labor in order to make this hand sanitizer. And so, it’s a little bit sad that we have to turn to those measures, because hopefully we should be able to incentivize people by just paying them a salary to work in a hand sanitizer factory. But that aside, I am glad that it’s something that some states are starting to do.

Luigi: No, it’s interesting, because this is a situation in which every reasonable economist will agree, market outcomes are not efficient, they do not deliver something that is economically or politically appealing, and where we need to have some form of intervention. I’m not so sure that you want to nationalize the providers of masks, but you need to somehow regulate or have reserves or have some form of provision so that you ensure that everybody who needs a mask has a mask. 

And by the way, your reaction is not atypical. In situations like this, people find that government intervention is superior to the market outcome. And that’s when the idea of socialism or even fascism becomes particularly appealing. It’s not an accident that fascism and communism spread after World War I and after the Spanish Flu. When you saw that markets were not allocating resources very effectively and the government intervened, they became popular because they intervened. 

One of the aspects that people have not talked about very much is, if it continues this way in the United States, there will be a farther movement to the left of the electorate. As you said, there will be demand for some form of socialism. Maybe democratic socialism, but socialism. 

Also, when I compare the responses and the outcomes here in the United States and in Italy, the fact that in Italy we have universal health care makes things much, much easier and protects people much, much better. Testing, of course, has a huge externality. If you have the disease but you don’t test, you can contaminate me. And so, I am happy to pay, at least in part, for your test. That’s an important aspect of universal health care. At this point in the campaign, I think that it is unlikely that Bernie will become the nominee. But all this spreading of the disease will certainly help the Bernie side of the world versus the more moderate or capitalistic side of the political spectrum.

Kate: Yeah. And I’m not saying this to support Bernie, but I think that if people understood how successful the autocratic, communist response in China has been to the coronavirus outbreak, I think that there would be more support for similar measures here in the United States. 

And by the way, I think it’s worth mentioning that we were supposed to have a plan in place for this sort of thing. In response to SARS, a number of senators, including Harry Reid, Ted Kennedy, Barack Obama, they proposed the Pandemic Preparedness Response Act. A different version of this was eventually signed into law in 2006, the Pandemic and All-Hazards Preparedness Act. And that eventually evolved into something called PAPAIA that Trump signed into law in June of 2019. 

So, we’re supposed to have a plan in place for these things. But if these measures are in place, it’s a total mystery to me as to why the response has been so slow, both in terms of getting people tested and making sure that people are informed about the right safety measures in order to limit the spread of coronavirus.

Luigi: So, what are the successful examples of trying to curtail the spread of this epidemic? One example is, of course, Wuhan. Wuhan was the center, the epicenter, where everything started. They went on a very, very serious lockdown. People were basically blocked in their houses for several weeks. And now, the cases are finally slowing down. 

The other examples are Taiwan and Singapore, where they intervened super early, they contained. They used technology to actually trace people and make sure they don’t move when they’re not supposed to move. 

But I think that the most important thing is, you need to have a buy-in of the population on these measures. In Italy, last weekend they passed this draconian law that forces people not to move outside of the red zones. But number one, they did not force them to stay home, and number two, they find it difficult to enforce it, because if there’s no desire to comply, it’s very hard for any police to enforce it. 

While the US government does not seem to be very much on top of things, I think that the businesses and institutions like universities seem to be ahead of government. Many businesses are recommending that people work from home. Many universities are moving to online teaching only. So, in a sense, they are ahead of the curve. And I think this is good, because we don’t want in any way to spread panic, but what we are trying to do is reduce the spread of the disease, and we’re not doing it necessarily for us, we’re doing it for the weakest part of society that is going to bear the biggest cost of this.

Kate: Yeah. Just anecdotally, there are concerns about cases at Georgetown University now, and so, I’m on spring break at the moment, but I’m concerned about going back to DC, and I’m kind of expecting that I’ll have to teach remotely for the rest of the semester. And also, I have a friend who works for a hedge fund. And that hedge fund has a remote sort of offsite bunker just to make sure that their operations continue, and they’re allocating a certain percentage of their workforce to this remote bunker just to make sure that they can keep on trading, even in the worst-case scenario.

Luigi: I’m so reassured that as the economy is collapsing, hedge funds are still standing and doing their work efficiently.

Kate: I know, I know.

Luigi: That’s a matter of relief.

Kate: Yeah.

Luigi: What I am concerned about is not only how autocratic or not autocratic the government is, but also how captured the government is by special interests. If you want to have a prompt and successful response to this virus, you need to interfere with commerce. You need to put people’s lives before economic cost. And, of course, there is a lot of pressure to do otherwise.

Kate: And I think in the case of the current administration, it’s not just special interests that want to keep business running and people shopping. But it’s Trump himself who’s self-interested, right, because of where we are in the political cycle. I think he’s worried that the coronavirus, if it’s taken too seriously, can set off a recession or at least a bear market, and he’s trying to do everything that he can to avoid that, so that he can take responsibility for the relatively successful expansion we’ve had ever since he’s taken office.

Luigi: But if, on one hand, he seems to dismiss the management of the problem, on the other hand he seems to be very proactive in pushing the Fed to intervene.

Speaker 6: A surprise emergency move.

Speaker 7: Federal Reserve announcing that it is cutting interest rates.

Speaker 8: The Fed, hoping to counter the coronavirus effect on the economy, slashing rates half a point to boost markets.

Luigi: The Fed has cut interest rates by 50 basis points, and that’s a pretty aggressive move, because generally the Fed intervenes by only 25 basis points.

Speaker 9: It’s the first time the Fed has taken these kinds of steps since the 2008 financial crash.

Donald Trump: Finally. Finally. Do it more. Do a little bit more. The Fed rate is too high. It’s very simple. It’s too high.

Luigi: For our listeners, the purpose of reducing interest rates is to make borrowing money cheaper, so that if you want to buy a house, if you want to make an investment, you find it more convenient to do it now. And that should prompt a higher demand for durables, consumer durables and investments, compensating the potential reduction in demand due to the fact that people are afraid and they postpone. 

Do you think that President Trump pressured, convinced Chairman Powell to act?

Kate: I mean, yes. I don’t know what’s going on in Jay Powell’s head. But it’s clear that Trump has wanted this interest-rate cut for a long time, even before the word coronavirus had been uttered. It’s not clear that this had anything to do with the coronavirus. If he really cared about preventing the coronavirus, he would be talking and spending more time with the CDC rather than at the Fed. But I think that this was just a convenient excuse that pushed Powell over the edge.

Luigi: If cutting interest rates is not going to do it, what do you think should be the move, Kate?

Kate: To be honest, my opinion on this has changed quite a bit over the course of the past two weeks. A couple of weeks ago, when we had sort of toyed with the idea of doing an episode on coronavirus, there were still maybe 100 cases in the United States. It seemed like the spread was under control. And now it seems like quite the opposite, and I think in particular, the major development of the past week and a half has been how much the markets have been rattled by coronavirus. It’s pretty scary that the stock market selloffs have been tripping circuit breakers, and we’ve had to pause trading because it’s dropping so precipitously. 

And in terms of fiscal stimulus, I think particularly this coronavirus is going to hurt a lot of small and medium-sized businesses. They’re not going to be able to maintain their leases. They’re not going to be able to pay back any business debts that they have. And I think that that will trickle up to medium to larger-size businesses.

I think that this will affect loan markets. I think it’s already affecting loan markets. And that’s when things get really scary. I mean, to be honest, the stock market dropping for a little while has an impact on people’s retirement, people’s savings. But when credit markets get frozen, that’s when things get really scary. And it’s looking like credit markets are starting to freeze up. Even really safe collateralized loan obligations, for example, which we consider relatively immune to macroeconomic changes. They’re not being issued, spreads over LIBOR are blowing up, which is a sign that loan market participants are really worried. And so, it seems like the markets are fragile, we’re very highly levered. This is spreading to beyond just the stock market, and we should be concerned, and that calls for a fiscal stimulus. 

What do you think, Luigi?

Luigi: I think we have to be careful when we say fiscal stimulus. I think that we definitely need to intervene. But the idea that most people have of a fiscal stimulus is a massive government expenditure, a bit like Obama did in 2009. And maybe eventually we need that, but now we need a much more targeted intervention. I think that to begin with, we need to guarantee that workers who stay home get paid. A lot of people are not protected, especially in the United States. You don’t have a lot of medical leave, and you start losing your salary pretty quickly. And many people cannot work from home. Many of us are lucky because we can do so, but many cannot. And if you lose your salary, that’s pretty dramatic, and number one, you’re going to keep going to work. And that will spread the disease. 

So, I think that intervening early to try to stop that is super important. And it is important to make sure that small and medium firms don’t get choked by the inevitable disruptions that take place. If I’m counting on my next month’s revenue to pay my bills, and the next month’s revenue is not coming because travel is disrupted, because the supply chain is disrupted, because people stay home, I think that that is potentially very devastating for the small firms, and you need to intervene yesterday. You don’t have to stimulate demand in the future.

I would focus my attention on this, because this is also a way to tranquilize people and make sure that they’re not too sort of frightened by what is going on. And then, once the emergency is done, then maybe that is the time to think about, do we need to stimulate the economy with some particular fiscal stimulus? Or, one of my favorite things, if you are afraid that people are not purchasing because of uncertainty, you can actually have a temporary elimination of the sales tax. If people know that this is temporary, they will increase their purchases now in order to take advantage. And so, that in general has a pretty good effect in stimulating the economy immediately. Because the risk is that by the time this is approved, by the time it’s implemented, by the time it’s done, it will come out a year, year and a half from now, when hopefully the economy is back to normal. So, I think we need to intervene, but we need to have a very targeted intervention that deploys very fast.

Kate: Yeah. To be clear, when it comes to spending dollars today, I think that the majority of those dollars should be spent on health and preventative spending. Like you said, hospitals, as well as making sure that people have the right sort of equipment, medical equipment, they need to stay healthy. But it’s also worth noting that the 30-year US Treasury yield is less than 1 percent. And that means that the US government can borrow on a 30-year basis for a very low interest rate. If that’s a possibility for the government to borrow that money to pay back a long time from now and to spend it now, in order to make sure that we don’t enter into a 2008-like recession, I think that that’s something that the government should be seriously considering.

Luigi: Yeah. But the problem is that the government is not able to spend it now. It may be able to waste it now, but not to spend it now. I think what I would love is an infrastructure plan. And maybe the idea is we borrow now at this low rate, and then we implement the infrastructure plan next year in a pre-discussed way. But I think that definitely an intervention is needed.

Kate: The last thing I’ll say is that a lot of people are speculating about whether this is a good time to buy the stock market or start buying stocks because prices have gone down by a lot in the past couple of days. First of all, this is extremely ill-advised and irresponsible. One should understand that if you do decide to pursue that sort of investment strategy, you’re essentially just gambling on what’s going to happen with the coronavirus, and unless you’re an epidemiologist, but even if you are an epidemiologist, it’s impossible for anyone to predict how this is going to continue to affect markets going forward. If you’re 24 years old and you have a lot of money saved and you don’t care if you lose half of it, then, fine. Go ahead and take that risk.

But if you’re older, and especially if you’re retired or close to retirement, then you should absolutely not even think about doing this. This is a strategy called catching the falling knife, for good reason. It’s not a strategy that anyone ever encourages, at least anyone with any sound financial experience. 

And then, finally, think about when Bear Stearns collapsed. That was in March of 2008. That was still six months before Lehman Brothers collapsed. There was a sell-off around the time of Bear, but that doesn’t mean that it was a good time to invest in markets. Look, I hope that markets don’t get a lot worse from where they are today, but who knows? There is a possibility that this can continue going on for quite a long time.

So, Luigi, it’s pretty obvious that the coronavirus itself is a capitalisn’t. But in terms of where we are today in the US and our responses to it, do you think it’s capital-is or capitalisn’t?

Luigi: I think it’s very much a capitalisn’t. The response in the United States has not been, in my view, effective and prompt. And I think it has been quite contaminated, and I use the word contaminated in the right way, contaminated by special interests. 

So, I would like to see a government that thinks about the life of patients before they think about the profits of the pharmaceutical industry, in the sense that President Trump met with some leaders of the pharmaceutical industry, and the first concern was, how do we make sure that they maintain profitability as we’re going to employ more of their products and so on and so forth? 

I think I would like to pass along the message that we should all stay calm, but we should all contribute to solving the problem by staying home and not diffusing the disease. And I think that that’s an important message.

I see this pandemic as really a test of quality of governance and support of the population for the measures taken by government. In countries like Korea, in countries like Singapore, in countries like Taiwan, people have voluntarily complied with very harsh measures taken by the government because, number one, they believe in the government. Number two, they have a sense of respect for others that I don’t see a lot in Italy and, to be honest, I don’t see a lot here, too. And I think that what we need to do is really internalize what the costs that we are producing are, without panicking, but trying to do our best to slow down the spreading of this disease. 

What about you, Kate? What do you think?

Kate: I think the two major contaminations of our response to the coronavirus here in the United States, and I agree that it has been a capitalisn’t, are culture and the political cycle. I think culturally we’re just not as used to dealing with situations like this as Asian countries. We think that face masks look silly, and we think that it’s a waste of time to wash your hands after you go to the bathroom, and we think that it’s completely preposterous to have to stay home and telecommute. All of these things are good things, and all of these things are simple things. And the fact that our government isn’t encouraging us to do them, very actively, is really depressing. And I think it is going to end up being dangerous.

And in terms of the political cycle, I think, look. Markets bounce back. People bounce back after sickness, after illness goes away. And so, if we had just taken the hit, if we had just closed down schools and quarantined people, engaged in social distancing right away once the coronavirus came to the United States, then we wouldn’t have the massive uncertainty about the extent of the outbreak in Seattle right now. And chances are, it could have disappeared relatively quickly. And yet that’s not where we are. We’re in a state of panic. 

So, the longer we go before taking extreme measures, the worse it’s going to get. Whereas I think there’s a possibility that China’s on the upswing, that they will actually recover relatively quickly. And so, it’s too soon to see how things will shake out, but it’s pretty clear to me that the response here has been a capitalisn’t.

Luigi: So, Kate, you are a young influencer. So, you can change the perception . . .

Kate: Not an influencer.

Luigi: Yes. You can change the perception that Americans have about how cool it is to wear a face mask. And I’ve seen a picture, a very cute picture coming out of Italy, of two young lovers who kiss each other through a mask. So, you should take a picture with your fiancé with a mask and kissing with a mask. That will set the new standard of what we should do to fight the coronavirus.

Kate: I think that’s a cute ending. And I should get tested!

Luigi: And get tested!