The Spirit of St. Louis: A View From Inside the Fed >> Welcome everyone to Real Vision's, The interview. I'm Pedro Da Costa and it's my pleasure to introduce to you today, David AndolFatto. He is Senior Vice President at the St. Louis Federal Reserve Banks research department where he helps his boss, St. Louis Fed President James Bullard figure out what's happening in the economy and what to do next with monetary policy. He's also a very broad minded economic thinker, which is why I thought he'd be a great guest for Real Vision. Thank you so much for joining me, David. >> Thanks Pedro, it's a pleasure to be here. >> One of my jobs as a Fed reporter is to translate Fed speak to the rest of the world. Real Vision has a fairly sophisticated audience of investors. So we don't have to translate terminology for our viewers, but I want to get into the Fed as an institution and how you operate, especially in a time of such deep uncertainty as we are now. Could you talk a little bit about how you go about looking at the economy and collecting data, especially at a time where there's so little visibility and so much uncertainty about the outlet. >> Well, that's an excellent question. I don't do it personally, but I have some very skilled colleagues who are gathering various data from data sources. Home-based, for example, is a real-time database on employment activity in thousands of establishments across the country, and my colleague Max [inaudible] in fact is actively scouring that data source in real-time in fact, and he uses that data to compare it to the actual CPS numbers that come out every once in a while and he's been remarkably accurate in forecasting what the CPS numbers are for employment, for example. That's just one example of the innovation, people doing what we have to do in this type of environment to get the real-time data. >> Absolutely. Can you talk a little bit about how this second wave and the news about the second wave is affecting the way that you look at the economy and just the nervousness that seems to be resurfacing here in the United States as opposed to other countries that appear to have gotten the pandemic more under control. >> It is a little disconcerting. One thing that's true about that data, let me refer, and if anybody's interested, please you can e-mail me or go to my Twitter site, I can send you the link to the data. Max very early on predicted a very sharp rebound in employment. In fact just nailed the CPS numbers just right on with uncanny accuracy. His real-time measurements have actually been pretty accurate. In light of that, it's a little disconcerting to see that the index that he is measuring in real-time is showing a definite slowing and in fact reversal recently, and so this of course is not inconsistent with what we know about how case counts and now even death rates are going up in the country. I think it's pretty clear that the actual shutdowns, the legislative shutdowns have some effect, but it's really clear that the major economic drag is coming first from people voluntarily just wanting not to go out and to protect themselves. Of course, this is a health crisis and it is important for people to take the precautionary measures to protect themselves. If employment has to go down in certain sectors, I guess we actually do want it to go down in some sense, conditional on the pandemic. We don't want to expose people to the ill effects of this pandemic and so I think that it's up to fiscal policy in particular to help smooth the impact across the affected groups. But in terms of your question, it seems like perhaps we're in for a W recovery, judging by how the data's coming in right now. >> Absolutely. I feel like the word leveling off has been the keyword that's been uttered among some Fed officials who have been speaking recently. In that context, I feel like anecdotal, as we were talking about, anecdotal data becomes so important when the hard data is so fast moving. I'm just wondering, before we get into the nitty-gritty of policy that I do want to ask you about and the tools that the Fed has at its disposal in a crisis such as this, are there any anecdotes that stand out to you as far as either businesses getting creative in adapting to the crisis or in terms of just stories of businesses that were just so hard hit that they might not survive. What are you hearing from business context? What stuff do you pick up from the district? >> Well, just I think what everybody's seeing out there, what I marvel at is, how this COVID crisis has actually seems to have accelerated a number of trends that have already been in place. For example, the Internet has made the world a much smaller place so that physical proximity isn't as important as it was in traditional economies. So you hear anecdotes of, not necessarily in our district, but in New York, for example. Landlords right now, for example, are offering steep discounts on rents, there's still a lot of vacancies. There's a big question of what's going to happen to commercial real estate. Especially in light of the fact that even given the existing technology, Zoom, Skype and all this, that I think it's been a little bit of surprise for a lot of businesses that they can actually function reasonably well with this physical distance. It's not ideal. We're still early on in the sense that this has been imposed very quickly. But if you want to think about how the technology is going to develop even further, to enhance communications and permit economic exchanges in the absence of physical proximity, I think that the changes are going to be profound. This changes I think were happening anyways. But what is really interesting is how quickly they have been accelerated and because the adjustments are going to have to be made in very short order, I think it's going to be very disruptive for that matter, but it is interesting to see. >> No. It's an imposed social experiment that I think very few firms or institutions were willing to go out there on a limb and be the first ones to do an all remote experiment. But then when everybody had to do it, you got to test the functionality of it in real-time and it has, I think for some institutions maybe not all, but for some organizations, it's proven more functional than they expected. So that, I think we're going to see a lot of that. Of course, there's so much work that can't be done remotely in this economy, of course, that exposes a lot of people to direct contact or to unemployment. But, I do want to ask you about the Fed's toolkit because of course you're around for the last crisis. You've been at the Fed a long time and we didn't expect that the Fed would have to be reaching this far into its toolkit this quickly and of course, this was the ultimate exogenous shock which is a pandemic. But I keep thinking about how far down the road of the unison between monetary policy and fiscal policy we've come. I just wanted to hear if you could speak to that about monetary and fiscal cooperation, whether it's constructive, whether it's here to stay or whether it's just an emergency measure that we're seeing for now. >> Well, for sure in emergencies, you tend to see agencies cooperating a lot more than they otherwise would and so this is not unusual, what you're witnessing right now. We understand that the Fed and the treasury and congress as well understand that this is something that needs to be dealt with in a cooperative and coordinated manner. This brings up a whole host of questions about what is the nature and the role of Fed independence, what does that mean in any case, why wouldn't the Fed, in some sense, cooperate all the time with the treasury and indeed, you could even ask the question of why does the Fed even exist as an independent agency in the first place? Congress could fold the Fed into the treasury for example. I think that what one can expect during the crisis is continued close collaboration and coordination between Fed and treasury as it should be the case. Going forward, that might be a different situation, I don't know, because congress has given the Fed certain mandates. Given those congressional mandates, the Fed really doesn't have much choice. There's some leeway in how to interpret them exactly. But given those mandates, the Fed will have to do its best to pursue them. One of those mandates is price stability, as it's represented in our official two percent inflation targets. So hypothetically, if you could ever imagine such a day, and I think very few people can because they haven't seen inflation for a very long time, but imagine, I don't know, maybe to global demand for the US dollar and US treasury starts to weigh in a little bit and deficits keep on pumping out US nominal liabilities at a continued rapid pace, you could very well imagine a world where inflationary pressure does start to take off. If that happens, and if we're past the health crisis, and now suddenly the Fed is presented with a bit of a difficulty here because it has an inflation mandate, and the question is, what is it going to do about it? We know central banks typically tried to raise interest rates aggressively to contain inflation. This might go against the desires of the administration and Congress. I could imagine future scenarios where conflicts arise, and these conflicts could be reconciled in by Congress passing amendments to the Federal Reserve Act if they feel like the Fed should have different mandates. That's entirely fair. But in terms of answering your question, yeah, during crisis, you can expect continued close collaboration. It's easy for the Fed right now to help out because inflation is nowhere to be seen, and we're just doing our part to help the treasury and Congress do what it needs to do during this crisis. >> Again, to not point, the term helicopter money gets thrown around. Are we doing helicopter money, are we close to helicopter money? Let me phrase the question in the following sets. I had discussion with the BIS Chief Economist, Hyun Shin Song this past week, and the annual report of the BIS frames the dividing line as follows. Basically, the Central banks stated intention is to support the economy and market function, and it is not doing monetary finance, but if you enter a period of fiscal dominance where the monetary institution becomes literally subordinate to fiscal goals, as sometimes happens in wartime, then you've crossed that line and that becomes dangerous for independence. So how do you think of that? >> Well, I guess, I was consumed when people say, are we doing the helicopter money? It's important to first define what one means by the term. I want to define it a bit differently than the BIS definition, fine. In some sense, who cares what we call it? You know what I mean? I'm not really big on labels to be quite honest. The question is, are we doing the right thing? In light of the definition you provided, I would say the latter. I suppose we're doing the helicopter money by that definition. We're supporting the Treasury and the Treasury is fulfilling financing Congress' desired spending programs, and Congress is a representation of people's preferences. We voted for these people collectively. So in terms of the BIS definition, I would say maps into my earlier discussion. During the crisis, it looks like we're doing helicopter money because we're collaborating, coordinating, and the fiscal authorities clearly taking the reins. By the way, this is embedded in large part in the Dodd-Frank Act that altered the emergency 13(3) provisions of the Federal Reserve Act that prohibited defend from acting unilaterally in these emergency lending programs. >> These seems to have harm the Fed's credibility in a way. Because I remember when that 13(3) facility was changed during Dodd-Frank, there was a worry that the Fed would lose its capacity to react, but in fact they feel like having the treasury funding backing gives some credence to your ability to [inaudible]. >> Yeah. I think in Bernanke's memoir, I mean, he states quite clearly that he hated having 13(3) because he felt like the Fed being an unelected body, I mean, you're really trading on shaky ground. What Dodd-Frank effectively did was provide support by the Congress, Congressional and Treasury support, and stipulated that the Fed would have to act in conjunction with the Treasury during times of enacting these emergency measures. But hey, guess what? I mean, that's what typically happens in an emergency anyways, but now it's codified in the Federal Reserve Act, and I think you're right, I think it does land additional credibility to the Fed. >> Yeah, I know. When you mentioned that we haven't seen inflation for a long time, I could hear the real vision viewers cringing and saying, "Look at asset prices, all the inflation is going into asset prices." Whereas we talked a little bit off-air, I hear two criticisms from both, from market folks and from some of our viewers that the two things, the Fed policy is distorting asset prices, and therefore, we can no longer read future economic signals into the bond market and other markets because the Fed is so deeply involved. Secondly, that by boosting asset prices, it's sometimes not helping the economy as much. The Fed is increasing already high inequality. What do you make of these two arguments? >> I mean it's tough question. Of course, I'm very familiar with this charge, the Fed is creating inflation, the official numbers that we're reporting on measuring true inflation, the price of the good I buy at the grocery store is going up very rapidly. How can you say that there's no inflation and stuff like that? First of all, there's a difference between asset price inflation and inflation the way that we define it, that is meant in the Federal Reserve Act by price level stability. We look at a broad base of consumer goods and services, the PCE price index. In that index, you see as some prices going up and some prices going down, and on average the price index is not going very rapidly. So in that sense, the Fed feels like it's fulfilling its price stability mandate. There is no mandate to stabilize asset prices. Maybe your viewers feel like there should be a mandate to do something about asset prices, and I say, all the power to you, lobby your congressmen, lobby your representatives, and explain to them why you believe the Fed should have a mandate to do whatever you think is appropriate in terms of asset prices. But we don't have a mandate for asset prices per se. Our mandate is to try to keep the price level growing at low and stable manner to promote price level, inflation certainty, and also to do whatever we can to promote the growth of employment both in terms of the opportunities that people have and also wage growth. >> Let me get you out for one second. I just wanted to ask you about, because when you say you don't have an asset price mandate, even the folks say, "Look, every time stocks fall a certain amount, the Fed ends up moving." So the Fed is reacting to asset prices in that way. >> Oh yeah. >> I tried to read sort that the Fed is reacting to asset prices as it sees asset prices reflect the future economic activity, but the market people don't really buy that. >> Well, the market people have to think about, it's true that suppose the stock market starts to fall precipitously, now, why might they do that? Well, guess what? Usually it's because some bad news about the future development of the economy has arrived. Well, guess what? The Fed does have a mandate to react to that bad news. The fact that the market came down in reaction to that bad news, what do you want us to do about it? You want us to raise interest rates? You want us to cause the market to collapse even further? It's just not the right way to think about it. It's true that the FOMC does understand the role that our interest rates do play in helping to proper asset prices, and oftentimes, even Bernanke's come out explicitly and said part of the mechanism of lowering interest rates is it does increase asset prices. But assets are widely held in people's pension funds as well. It's something that you'd expect the Fed to keep the wealth intact, to help promote spending in the face of a sudden downturn. It's not like the Fed is specifically trying to make Tesla's stock go to a thousand dollars or something like that. So I would argue that it's true that despite the fact that there's no mandate for asset prices if it's mandate, we do monitor asset prices, but we monitor all sorts of data, and that usually, the actions we take that seemed to benefit stocks, also those same actions tend to benefit the broader economy. So it's not surprising that the stocks would react positively to our intervention, that's how I would respond to those criticisms. >> But what about the inequality front, the fact that the asset prices are just helping rich people and everybody else is left out? >> Well, I find that argument very curious, because you too hear lowering interest rates right now do promote asset prices, there's no doubt about it, and also long bonds. So people who were holding long bonds who have seen huge capital gains in their bond portfolios, and asset prices had been elevated. People say, well, there you go, there's an example that the Fed promoting the interest of the rich. Well, I'm old enough to remember back in the 1980s when the argument was exactly reversed, when interest rates were very high, and I had the same cast of characters complaining that the high interest rates were promoting the rich, because these rich bondholders were earning this very high interest rates on their bonds, and they were characterizing the high interest rate policy is basically basic income for the rich. >> Very interesting. >> No, I don't know, if the Fed has high interest rates were helping the rich, if the Fed has low interest rates were helping the rich. It's seems like there's really nothing the Fed can do. You're always going to get criticized for helping the rich. My view is the Fed has an explicit set of mandates to try to do the best it can to help all Americans. The whole economy, the best it can given its limited tools and given its congressional mandates. Anything the Fed does will have complicated redistributional effects. We understand this, but our hope is that if we try to do what's best for the whole economy, the best we can, that it's up to Congress to patch up and enact the redistribution that is necessary to fix any unintended consequences on the distribution front. Then the Fed together with Congress can together have a sound, good monetary fiscal policy with an appropriate redistribution scheme. That's how it should work in principle. But what can the Fed do? It has a limited set of tools and a limited set of mandates. We do not have direct authority to fix redistribution issues. >> Well, speaking of tools, I wanted to ask you about the toolkit as it's been redeployed echoing some of the 2008 measures but also with some innovations. I would break it into two buckets, of course just monetary policy, the bringing interest rates back to zero and QE looming in the background, and then the credit facilities themselves. It seems like the initial response was designed for a fairly short-lived phenomenon. I'm just wondering if this becomes a more prolonged recession, do you see the Fed as having to pass the baton to the fiscal authorities or do you see it digging deeper into a tool and toolkit? >> Well, again digging deeper into our toolkit is not a unilateral action here. It's just something we're doing already together with treasury approval, treasury secretary Mnuchin has to sign off on everything. I see if the crisis continues to go on, the Fed will continue to support the treasury. I can't imagine a world where that doesn't happen. It's what is in our mandate. We were created by Congress to help serve the American people and in crisis, you just do what you have to do. Post-health crisis might be a little bit different, it's harder to predict what might happen there. >> The credit facilities, including the main street living facility, which took a while to get off the ground, they haven't gotten much use, do you expect them to get increased use as a lot of these companies face greater risk of insolvency and they run out of the cushions that they initially had? >> I don't know. I haven't paid too much attention to the exact workings of what's holding that facility back. One would have to revisit the question, the commercial banks, are they serving their communities well enough? If they're not, why not? Is there something that the Fed can do to help support these banks, support their communities? The Fed was not designed to service at a retail level. We don't have the capacity, we don't have the expertise. The central bank was really designed to be the bank for the banks. So it's layered in that way. We really do expect the private sector to do what they have to do. The community banks especially are the ones that have the close relationship with the people in their community. They know the good credit risks are. They know stuff. I would say this is going to be a big question for the regulatory regime. If we think it's not functioning well, what's holding it back? Is it the structure of the regulations? Do they need to be restructured? Is there anything that the Fed could do to help support banks meet the needs of the community? I don't know what the answers to those questions aren't right now. >> I wanted to ask you a little bit about digital currencies. You've done a lot of work on crypto and our audience pays a lot of attention to that market. It's come back into the fore because there initially it was a fear of cash exchanges, of course. In the pandemic, digital exchanges become even more important. Well, how do you see the role of technology as developing in a way that they could be beneficial to breaking the chains that you describe, like the lack of access to certain banks that some communities might have? Central mediation, I guess, would be the key term. >> Well, that's an interesting question. To some extent, we've been seeing technological progress in this area for centuries in fact, with telephone, wires, and the existing institutional structure, in fact, has evolved over time as technologies have changed over time, facilitating communications, secure communication. There's been a lot of advances in cryptography to enhance the security of these communications. Because at the end of the day, what we're talking about is data, is information. How to store it, how to manage it, how to keep it safe, how to keep it accessible, and how to make sure it's not counterfeited or stolen. As the innovations in this space, as innovations in communications technology, the Internet was huge for this, as these innovations continue to come forth, I do expect that perhaps the conventional local bank dealing with people in the local proximity might not be as important as it was in the past. I have mixed feelings about that to be quite honest because we see this a lot on the consumer's side, the consumer loans, the so-called commoditization of consumer loans. It can be cheaper and conservative constituency, but on the other hand, there's something missing. I remember when my father emigrated from Italy as an immigrant in Vancouver and he needed a loan to build a house, and he couldn't get it. But he went to the credit office manager and went to his office and said, "By golly, I need this loan. Why don't you come down and see what I'm doing and I'll show you." The credit officer actually came to the site on the weekend in person to take a look at my dad working away on a side job by the way. So he was working during the day as a construction worker, building the house at night. He came and he sighs. He says, "You know what? I'm giving you this extra money for what you need." I mean, how are you going to do that, I compute? >> There's no visit like that with the online algorithm. The online algorithm is not going to show how to build a house. >> I don't know. I think that never underestimate the sophistication that can be built into these things. I'm of two minds of this thing. But to answer your question, yeah, I think that these innovations could potentially lead to access to credit where it might not otherwise be available. But I'd push back a little bit here because I want to caution that if you see that credit is being denied to a particular constituency for no obvious reason, you have to ask yourself, "This is crazy. Why wouldn't a bank want to make money?" Oftentimes the answer is a regulatory restriction. No amount of technology is going to fix a regulatory restriction. Oftentimes people confuse the benefits of a technology only because it circumvents the existing regulatory restriction. But if that was a restriction, if that was the problem, why not lift the restriction, to begin with? So that's something we should consider as well. >> Thanks for that. I wanted to ask you about a broader topic. Just to give you some context, Real Vision has just published an interview with Stephanie Kelton about her new book. It's amazing how much attention MMT, Modern Monetary Theory for those who don't know, is getting in the public domain these days, considering that when I first met its proponents back during the crisis they were at the side panel at the AEA. There weren't invited to the big chair yet. Now, of course, Stephanie Kelton is a nationally known figure. But I know that you're an economist at the Fed who's paid attention to this stuff for a long time. To your point about not really caring about labels, that's where I take interest in MMT, is they've helped me think about the economy in broader ways and for that I thank them. But I just wonder what your take is on MMT and what they bring to the table and how they help you think about deficits essentially. >> For a long time I've been corresponding with proponents of MMT, just out intellectual curiosity, in fact. I didn't even know. I didn't treat them any different than anyone else. They have a set of ideas and I was interested to communicate and learn about what these ideas were. Everything I'm about to say now, I should provide the caveat that I'm not an expert necessarily. In fact, I don't think many MMTers are even experts, to be quite honest. It's such a broad, not perfectly well-defined school of floods. >> The disagreement within the school it's hard to define. >> After years of discussing things with them, I'm settling in on what they're about. But I have a great deal of respect for proponents in MMT because, in my view, they demonstrate they have a superior knowledge of the institutional setup. They have a very good understanding of how money markets just function at the operational level. Traditionally, macroeconomists like myself, we don't care about the circulatory system. It functions, we take it as given that it functions. Of course, that's a perfectly fine thing to do until you get a heart attack or something that you're very worried about. The details of how these things might malfunction. They're very good at understanding the operational details. They are very good at understanding the institutional set-up. They're very good at describing how things work. They tend to have a very broad and deep knowledge of economic history, which I think is just indispensable for policymakers. So I learned a lot from them and I like talking to them. Having said that, their views on the deficit and debt, they don't really follow standard or conventional, this is not a criticism, this is just a description. They don't really follow the standard modern macroeconomic rules, that's why they're heterodox, of writing down models explicitly in terms of mathematical things. It's a language that is basically the lingua franca of macroeconomic theories. It's this mathematical apparatus. I've tried to translate some of their ideas and propositions into the language that I'm familiar with. What I discovered is a lot of the propositions that MMTers make or I can locate them in the models and theories that I work with. The models I work with are not necessarily conventional in the sense of the way the Fed, the new Keynesian model, but I think I'm within what you'd consider a pretty mainstream type of branch of economic theory. To my view, I can actually locate a lot of their propositions in my theory. I think a lot of the things that they say are correct, conditional on a number of things holding true. I have a lot of sympathy for what they say because I think a lot of what they say is actually correct. I have a lot of sympathy for one of the key elements of their program is Abba Lerner's functional finance, for example, I think it makes a lot of sense. Who cares about the deficit? Who cares about the debt? We have to focus on whether or not the government is allocating its expenditures in a socially productive manner. I mean, if, and this is a big if by the ways, if the government is doing that, I mean, how you finance it is virtually irrelevant. There's a lot of truth and power to that statement. >> Especially for a government with a reserve currency. I mean, it doesn't apply globally, I assume. >> I would say it would apply to all governments because if a government is actually allocating resources in a socially productive manner. Even if you don't have a reserve currency, you should be able to raise the funds to finance these socially productive, but to your point exactly, and if you have a global reserve currency, just makes it so much easier. It's not really something to worry about. The caveat, of course, that they make and they're explicit about this, this is not a proposal to just print money willy-nilly. Their claim is that we print money anyway. I mean, that's not the point. The point is in terms of the big critique that you often hear coming against this idea is inflation, but it's not really a legitimate critique. If you understand that the important conditioning statement is that the government is going to do socially and economically responsible spending, that's the weak part, but conditional on that, you don't have to worry about inflation. You don't have to worry about the debt. You don't have to about it. People who were attacking MMT on the basis of inflation or the debt or interest expense or debt crises are just off the mark. Where you should attack them is in that important conditioning statement: if you can really truly believe that the government will manage the economy in a socially productive manner. >> That's really interesting. I feel like macroeconomic shackles itself often by being so narrowly tied to its theology of original tablets and not being willing to look at other social sciences and in a more cooperative way. I learned a little bit about that when I worked with some economist at the Economic Policy Institute where we were focused on race. A lot of race-focused economists are told that they're really just sociologists who are studying cultural phenomenon because racism can't be modeled, therefore it ''cannot exist''. Of course, that's infuriating to most people who see racism as actually existing very clearly. Can you talk about how economics can enrich itself by looking at, say, at things like history and other subject matters. >> Oh boy. Jeez, where do you even begin? First of all, I don't explicitly work in these areas, that is to say the race issues. In terms of your broader point of economists reaching out to other social sciences, I think this is indispensable really. I guess I'm guilty of this as well, although I do tend to talk to economists. I have written papers, for example, on self-esteem, which is something I have read literature in psychology area. If you can go, you can go and look at my paper, and I've written something on self-esteem. In fairness to me, I guess I have practiced a little bit of what I preach. I have explored other social sciences and see what they have to offer to try to understand certain phenomenon. More of us could probably do more of that, but I think that it's probably true of all the social sciences. I'm not so sure that historians or people in psychology or in political science necessarily reach out to economists either. Maybe this is a good time for all of us to get together and say, "You know what? We're social scientists." In fact, when I used to teach, I used to teach my students, I'd say, what distinguishes economics from the other social sciences, and I said, you know what, it's really not the questions that are being asked. We're all asking the same questions and they're all fundamentally about understanding social interactions. Sociologists have a particular way of going about addressing and interpreting phenomena. Anthropologists have a different way, political scientists have a different way, economists have a different way. I'll reference you to my lecture notes, I actually teach my students the difference between the social sciences is really our methodology, the way we go about trying to understand and interpret the world. You know what? I think if looking at the same phenomenon from different perspectives is probably a good idea. I mean, the parable of the blind man and the elephant comes to mind. I think collectively, the blind men, if they could measure the elephant, the nose, the trunk, the ears. I should say, the nose, the trunk, I should say, and submit their reports to a collective agency and consolidate the measurements, the social sciences as a whole could do a lot better. >> That's a great point, and especially during a pandemic where as the pandemic first started kicking in, every economist I would call would say it really depends on what the epidemiologists say. At one point I started just calling epidemiologists and in fact, I interviewed a couple of them on this very show, so it's not even just social sciences, it's really just a cross co-operative effort period. I know that you think about the world economy and not just the US economy and I was wondering, in this period of uncertainty, how you're seeing global economic developments affecting us and what parts of the world you've been paying attention to? >> Well, I do go to the Financial Times' Coronavirus Tracker and I take a look at how the virus is developing across regions of the world as well as the United States and I do worry. I actually worried very early on about the impact that this was likely to have in emerging markets in fact, because I said, oh my God, I mean, it's one thing for it to hit relatively well-developed economies with relatively well-developed hospital systems. The resources, the doctors, the nurses, the health care professionals to help deal with the health crisis. What's going to happen in the rest of the world? Indeed, one does see some troubling statistics. I mean, you do see places in Mexico, Latin America, some regions of Africa and in Asia and very worrisome developments. I mean, it's just so sad to even think about it. >> It really is. I can try to foresee it. We're competing for which country is doing the work we got with them. >> In terms of that, in my head I always think about what is the ideal thing to do. I always saw a country like the United States, Canada, the ones that are better off should have handled the health crisis very much sooner domestically and did everything we could to help the global community combat. It's the same thing as if they instruct you on the airplane in case of emergency to attach your own mask before attaching that to the child. Get your house in order as quickly as possible and do whatever you can to help the global community that might not be in a position to react. I don't see this happening so much and the measurements coming in are hard to assess. I noticed a little while ago Justin Wolfers plotted some data just very preliminary and provisional I guess. But surprisingly, the correlation that I saw was that the mortality rates in the lesser developed world seem to be less lower than in the developed world. I don't know if this is correct by the way, this is just what I saw. But that piece of data gave me some hope that, I'm thinking perhaps people in lesser developed countries are fitter, perhaps they're more active, maybe they're physically more capable. >> The age demographics certainly would be young. >> The age, they tend to be much younger as well. My first thought is in terms of the humanitarian crisis, the health crisis, and what can be done about it. That of course spills over into economic considerations that feed back into the United States and at the Fed. In the way that that happens is, if these global economies and these emerging markets are suffering, it's just natural that investors are going to want to stay away from investing in these economies. Typically, what you see is a global flight to safety and one year ago I think you could have the US Treasury. What does that imply about interest rates? Interest rates further downward pressure, US dollar appreciation, disinflationary pressure. What does it imply about the Fed Treasury? Well, it gives us a lot more fiscal space. The Fed doesn't have to worry about inflation as much as it would otherwise. These are just the cold calculus, but to me that's just incidental. It's the humanitarian crisis that needs to be dealt with. >> I agree with you. It becomes harder and harder to talk about monetary policy when you have a global pandemic causing so many deaths. So I appreciate your human focus very much. What other things are you thinking about in terms of post-pandemic trends? What I mean is when you have a shock that's this global and this structural, I never understood the word structural in such a visceral way as I do now. Usually I think of the word structural as a fuzzy word that economists use to get away from difficult explanations. But when restaurants are no longer viable, that's a structural shift. What structural changes are you expecting and how fast can the economy get back to it's old clip given that kind of structural hit? >> It's fascinating you could see this. I think about the nature of this shock. I mean, it's really quite remarkable. It leaves me to look back in time and I ask myself, when was the last time the United States was really afflicted by something so great? I think at probably the Second World War maybe. As I mentioned, my father and mother are both from Italy. They both grew up in war time at least. So I've had firsthand accounts for what true chaos was like. It really does give one a different perspective on just the incredible amount of wealth and material prosperity that the United States and other countries have been able to generate in the post-World War II era. As I look back over the data and the development of these economies, I'm struck at how incredibly lucky we've been as well. We had the Korean War, the Vietnam War. Then don't get me wrong, we've had our little OPEC oil crisis, but come on. These things pale in comparison to what my grandparents had to go through in the Great Depression or the second World War or even my parents. The one thing that strikes me is, boy, we've been lucky this post-World War II. The transition from the Second World War has just been this remarkable period of prosperity. Now we got hit by a shock. Now let's see how resilient we are and how we are going to react to it. The other thing is, what I think is tying into something I said earlier is I think what this shock has done is it has accelerated in a number of trends that have already been in place. I'm hard-pressed to think of any transits reversed. Maybe some of your viewers can offer comments there. But in terms of accelerating, yeah, the work at home for example. You made a very good point, I think, is that what this shock has done is actually led to a coordinated effort in this experiment. Something that would have happened otherwise. That would have happened in bits and pieces and progressed relatively slowly. I think it would have happened, maybe 10 or 20 years, but it's greatly accelerated this experiment and it looks like it's going to work. I don't see us going back to where we were before, just because we were on a trend that was changing anyways. But I think what it has done is accelerated a trend that has been in place. I think as I mentioned earlier, the speed of the adjustment is what is potentially troubling because we can handle slow adjustments, meaning they're disruptive but they're relatively manageable. We're talking about a pretty significant shock here. What's going to happen to commercial real estate in New York? Our businesses, why do they want to rent in New York downtown? Or at least as much commercial spaces they wanted before. Why do people want to live downtown again? I mean there's a lot of people around, you might get infected. >> It could be a center of attraction. Spending a night in New York was a really fun thing and now it's a scary thing. >> You better mean that that goes beyond this too, a lot of pension funds or REITs are loaded up and real estate investment trusts. What's this going to do to the pension funds? You can go down these shocks, it's a big shock, it's reverberating through all parts of the economy, changing the way we interact, changing the way we behave. At the end of the day, we're going to cope, we're going to adapt. We as a society have coped with even much larger shocks, The Great Depression, the 1918 pandemic, the Second World War. I have no doubt that we'll as a community be able to adapt. I just hope that the broader community understands that we have to help. I think it's in the interests of the community as a whole, that is the community of the United States to help those people that have been disproportionately affected by these changes. Because first of all, it's not anybody's fault and it happened so rapidly. I think it just makes sense to help those disproportionately affected to make the adjustment to the new normal. >> Absolutely, and when you talked about retraining workforces, if you look at the claims numbers that we've had recently and it's just mind boggling how quickly it has gone up. Anyway, I think we're going to leave it there but thank you so much David. That was super helpful and I really appreciate it. You are very open and thoughtful and I thank you again for your time. >> Thank you so much Pedro. You gave me a lot of good ideas too, so I do appreciate it too. Thank you. >> Wonderful. Cheers. >> Welcome to the end of the video. We know that on average, 85 percent of you who start a video on Real Vision finish it. That's extraordinary on Facebook, it would just be four percent and that's because Real Vision creates the most engaging content in the entire media world. Let us help you grow your business by making video content that really engages your customers. Email us at customvideo@realvision.com.