COLIN HENNESSEY:
Hello and welcome,
my name is Colin Hennessey,
and as Executive Director
of U Chicago alumni,
which represents
the more than 180,000
University of Chicago
alumni around the world, it
is my pleasure to welcome you
to today's Harper Lecture.
Harper Lectures bring U
Chicago faculty to cities
around the world to
present their research.
This spring, for the first
time in the program's 41 year
history, Harper Lectures
are going virtual.
Thank you for joining us for
our first virtual Harper.
I am pleased to report that
with over 7,700 U Chicago
alumni and friends connected,
this is by far the largest
Harper Lecture in history.
Now before I begin, I
have a few brief comments.
There will be three
people speaking today.
You will hear my voice
and our presenters.
All participants will be muted.
However, we encourage
you to participate
by asking questions.
To do that, type a
question in the Q&A box
at any time during the talk.
We'll keep track
of all questions.
If you have issues
with audio, you
may want to shut down programs
running in the background
or dial in from your telephone.
Our presentation will last
for about 60 minutes today.
Our presenters will speak.
And then we'll have plenty
of time for questions.
The webinar is being recorded.
And we will make sure to share
it on our YouTube channel.
With that, I'm--
I'm pleased to welcome Hal
Weitzman, Executive Director
for Intellectual Capital at
the University of Chicago Booth
School of Business who will
introduce our faculty expert.
Hal is Editor-in-Chief
of Chicago Booth review,
which I encourage you to look to
for special COVID-19 coverage,
featuring original
interviews with
and articles by economists,
social psychologists,
operations and organizational
experts about the crisis
and how it will play out.
You can read more at
Review.ChicagoBooth.edu Hal
is also the host of
The Big Question.
Hal, thank you for being here.
HAL WEITZMAN: Thank you, Colin.
And thanks everyone
for joining us tonight.
And thank you for your
continued loyalty and support
of the University of Chicago.
And thank you for joining us
on this big experiment for U
Chicago and for the
Harper Lectures.
Your involvement
with the school,
especially during this crisis,
is greatly appreciated.
I particularly want to thank
you for providing encouragement
and resources to ensure that
our students are able to thrive
and draw the full benefit
of a Chicago education
at this difficult time.
I'd like to get to as
many of your questions
as possible, bearing in
mind there are 7,700 of us,
so we won't get to all of them.
But please do send
us your queries.
I'll do my best to get through
as many of them as we can.
And now it's my great
pleasure to introduce Raghu.
He really needs no introduction.
And he's asked me to keep
it short, so here it is.
Raghuram Rajan is the Katherine
Dusak Miller Distinguished
Service Professor of
Finance at Chicago Booth.
He was Governor of the Reserve
Bank of India from 2013 to 2016
and Chief Economist at
the IMF from 2003 to 2006.
He's the author
of several books,
including Fault Lines, which
won the FT Best Business Book
prize in 2010, and most
recently The Third Pillar,
which was nominated for
the same prize in 2019.
Raghu, we're delighted to
have you in this first virtual
Harper Lecture.
And because we can't
hear anyone else,
I'm going to give
you some applause.
[CLAPPING]
Raghu--
RAGHURAM RAJAN: Thank you.
HAL WEITZMAN: Welcome.
Raghu, this crisis has
been really fast moving.
And it's defied
many predictions.
But I want to start by
asking you, as of now 6:30
PM on April 13,
2020, how bad do you
think this immediate
crisis could get?
RAGHURAM RAJAN: I think as of
today, it could get really bad.
I think the sense of
the damage it can do
has been growing from January.
It's something in China
we've seen this before.
It'll die out to, oh,
it's exploding in Italy.
We should be aware
that this is not
just about global supply chains
being disrupted for some time.
And look, they've
declared a lock-down,
and that economy is
going to be hurt,
maybe Europe is
going to be hurt,
to seeing it in
the United States
and knowing that this is going
to be with us for a while.
And it's going to certainly have
a huge impact in terms of lives
lost, in lives impaired.
That's the human tragedy
but also economic costs.
You know, projections
are all over the place.
But people believe, I mean,
sensible people believe,
that in the second
quarter we will
see a decline in GDP,
projected at an annualized
rate of about 30% to 40%.
Now that's alarm--
an alarming number
and probably too alarming.
What it means is
over the quarter,
we will probably lose about
10 percentage points of GDP
in growth.
Now you don't have
to extrapolate it
through the end of the
year, because we believe
there will be some recovery.
But these are big numbers.
We're talking about
15% to 20% unemployment
by the end of this month
or early next month.
That's a really big number
in the United States
but also in the
rest of the world.
And we haven't seen the worst
yet in the emerging markets.
So this-- let's get the
bad news out of the way
and then we can talk
about everything else.
HAL WEITZMAN:
Raghu, as you know,
as Colin mentioned, at Chicago
Booth Review we've been talking
to top economists, including
yourself and other experts,
about the crisis.
And it seemed like
a few weeks ago
many economists were
predicting a V-shaped recovery.
Then lots of economists
seem to be forecasting
a U-shaped recovery.
So as we speak now, what shape
recovery are you expecting?
RAGHURAM RAJAN: The
reality is nobody knows.
So let me give you the
one-handed economist
sort of answer, which is,
I think, at this point,
very few people believe
it'll be V-shaped.
What you need to have in
place for a V-shaped recovery
is really a lot of
confidence that you've
dealt with the spread
of the pandemic,
and the measures that
you have in place
to prevent it recurring
are really quite strong.
So a lot-- if you
think that managing
the fight against the virus
required a lot of capabilities,
managing the recovery
requires as much, if not more.
Because think of it, in order to
start up any place where there
are people in close
proximity, you
need to check that everyone
there is free of the virus.
At the very minimum, you
need temperature checks.
But you need more than
that, because there are so
many people who are asymptomatic
and still carry the virus.
So you need to have some way of
measuring whether in fact, they
might have it, or a sense that
the probability that anyone has
it is really very, very low.
We're not there yet.
And to get there,
at the very least,
we need a lot of
technology and hopefully
some medical advances,
including ways
of trying to figure out
whether people have antibodies.
That's still a very
uncertain research.
Or hopefully-- and this
is the holy grail--
make sure that everybody
in that room is vaccinated.
For that, we first
need a vaccine.
And then we need to roll it out.
So in the V-shaped
recovery, the idea
that pubs and bars and
restaurants and cruise ships
will all be full because people
are so sick of the lock-down
that they get back
to those places.
Well, that's unlikely, until
we have much more confidence
that others aren't carriers.
And we're very far from that.
What China has managed to do is
get the factories back to work,
by creating adequate
social distancing,
by creating distancing at
work, distancing in transport,
as well as sometimes ensuring
that people don't go back
to their homes where their
elderly parents are but live
in dormitories.
Now that requires a
lot of management.
And again, we are far
from that right now.
China hasn't got back its
restaurants to full capacity.
And Starbucks is working
about 50% capacity there.
And again, China's
done that with the help
of fairly intrusive
technology, apps
which tell the person at
the door where you've been
and whether you're
cleared to enter.
HAL WEITZMAN: I want to turn to
the global economy in a second
because there are many,
many questions that
have come in about that.
But I want to post you
a question from one
of our viewers
tonight, Ed David.
Ed asks, "Which industries
will comeback first?"
You talked about
this a little bit.
"And which industries will
be permanently changed?"
RAGHURAM RAJAN: Well, I
mean, that's a hard question.
I mean, it's hard to
understand how psychology
will change, right, after this.
I mean I watch movies where
people are crowded in a disco.
And I say, where's
the social distancing?
Why aren't-- why are
people all packed together?
Aren't they scared of catching
something from each other?
But that's fear.
And fear, obviously,
over time will go away.
But there are places where
we've learned to do things
somewhat differently.
I mean take for example our
own business of education,
my kids are going to their
universities via Zoom.
And you know, it's not great.
They'd love to be with
their friends in the room.
And they probably would pay more
attention to the faculty member
if they could see a real
live faculty member,
and the real
faculty member could
see them and make sure
they weren't fidgeting
on something or the other.
But I think that we
can get 80% of the way
with some of this
new technology.
And I'm sure that is true
of many other industries.
People have learned to do away
with face-to-face meetings
and have learned that
business meetings can
be conducted pretty well on
the technology that we have.
So, there will be changes.
But, you know, some of the
old stuff has its own value.
You know, being in exotic
places with interesting people
physically rather than virtually
will still carry value.
So to the question itself,
I mean almost surely
manufacturing will be
the first to come back.
Because there you can--
you can have
adequate distancing.
The high value added services of
the kind-- you know, education,
maybe even tele-medicine,
those are things
that can be done virtually.
Those will come back.
It's the high contact
services which
are probably going to be lost.
And this includes
things like tourism,
things that involved a lot
of travel in close spaces,
you know, crowded bars, discos.
I mean those will take time
and probably will need either
a cure, which tells people
the cost of getting it is not
that high, or a vaccine,
which tells them
they're protected against
it, or a sufficient test.
And a cheap test,
such that you can just
put your finger into some device
and it tells you whether you
have the virus or not.
And everybody else
who's in the room
has been checked, so that
you feel confident going in,
and you don't worry about it.
So I mean technology is
at work and maybe there
is a technological
solution, but those
are likely to be later when
we find some sort of solution
of this kind.
HAL WEITZMAN: Let's get back
to the economic effects.
And there've been a
lot of questions coming
in about the global economy.
And I guess there are
two points here that we
want your views on Raghu.
One is, what effect will this
just have on global growth?
And the second is about
integration and globalization.
You have expressed the hope
that this could bring countries
together in search for a global
solution to a global problem.
But there are also
signs that there's
moves towards more
economic nationalism.
Which of those forces do you
think is likely to prevail?
RAGHURAM RAJAN:
Well, first, I think
as far as the
global economy goes,
I think we've seen that
no part of the world
is immune from this.
It started with China, spread
to some parts of East Asia
but more to Europe, and then--
since then to the United
States and North America.
Now it's spreading to South
America and to South Asia,
as well as to Africa.
So everywhere in the world
is going to be affected.
There was some hope that heat
and humidity would slow down
the spread of the virus.
We've yet to see that.
And because we still
don't know if that's true.
I think that any hope
that global growth would
be positive this year has
likely dissipated by this time.
In the west, in the
industrial west,
we're looking at between
5 and 10 percentage points
negative of GDP growth, which
is a four from about 2 and 1/2,
which we were thinking earlier.
So for the year,
despite the rebound
that is still expected
in the last half,
in the second half of
the year and probably
towards the end of
the year, we still
will have negative growth
in industrial countries.
A number of emerging markets
will go the same way.
Even China, which has had
spectacular rates of growth
in the past, will probably
go negative for this year,
given how badly the
virus has affected it
in the first quarter and given
how slow the rebound is so far.
While they've got to
about 90% of capacity
on the industrial side, but
still some of the service
sectors, there's a lot of--
it's hurting there.
So bottom line global
growth, not great this year,
hopefully better next year.
And we will see a rebound.
So the difference between
this and the Great Depression,
the reason why so much
government and Central Bank
effort is going
on, is the attempt
is to keep the economy
in a kind of coma,
in suspended animation,
so it can be woken up
as soon as the
pandemic is behind us.
And of course, you
know, the economy
will get hurt over this process.
A number of firms have
closed, never to open again.
But the idea is to minimize that
damage so that it can start up.
Now I think from all
that we thought so far,
it's not going be
so neat and clean.
This was the hope of
the V-shaped recovery.
It's probably going
to be much lower.
Much of the recovery
will be next year.
But hopefully we should
see some later this year.
Now the last part
of the question
was global cooperation.
So it seems to me again
there are two possibilities.
One is the nationalism
that was already
pretty strong before the
virus gets accentuated.
By the effects of the virus, so
China points mainly at the US
and says, this was a
US intelligence plot.
And the US points the
finger at China and says,
this was concocted in China.
We see in India some allegations
that this was a Muslim plot.
I mean, that kind
of behavior again
can explode and make it
much harder for communities
to get together within
countries and for countries
to get together
across the world.
So that's one possibility.
And I think that the more we
re-elect nationalist leaders,
the more likely that
eventuality we have
of a breakdown in the
international order,
a focus on sort of trying
to protect your country.
And that means bringing
supply chains inside,
not being dependent on anywhere
else in the world, which
will be a tremendous
blow to global growth.
But also, I think it
will be no answer.
Because think of taking away
exports from many developing
countries and emerging
markets and saying,
now you have to
grow on your own.
Well, what that will mean
is much lower growth there.
Much lower growth there
will mean a lot of people
will want to immigrate.
Yes, where they immigrate to?
So it's going to
create new problems.
It's not going to
solve the old problems.
It's going to create new ones.
The other possibility, and this
is where I hold out more hope,
is that we see a change in
temper across the world.
People see the fact that
we are an integrated world.
Unless you wipe out
the virus everywhere,
you haven't wiped out
the virus anywhere.
And if we are to have planes
flying again across countries,
if we are to have
tourism, if we are
to have all the benefits of
globalization and growth,
we have to be an
open world, which
means we have to focus much more
on the problems that divide us
across the world.
And hopefully a
change in the tenor
of leadership across the world
creates a more coming together.
What are the new rules of
the game that we need to make
sure that some of the bad
behavior we have indulged
in over the last few years
gets attenuated, as well
as the old festering
problems of the past,
of the intellectual
property, this and that?
How do we move towards
a better world,
a word which corresponds to
the reality we all have today?
HAL WEITZMAN:
Raghu, a lot of what
we've heard about the data
that suggest that the--
some of the worst
effects of the crisis
so far have fallen on
the most marginalized,
on African-American communities,
on the undocumented,
on the prison population.
And we have a question
that's related to that from--
and apologies if I get your--
if I mispronounce your name.
But it looks like Vinhu Nerudu.
Economic recessions
and depressions
inevitably increase the wealth
gap between rich or poor.
But will the
aftermath of COVID-19
affect the wealth gap, due
to lost jobs or the impending
economic recession?
What are your
thoughts Raghu on how
this will affect the diverging
gap between the haves
and have-nots?
RAGHURAM RAJAN:
Well, almost surely
it's accentuating
that gap, right?
I mean take India, where one
of the devastating scenes
was of migrants, who, you know,
once the lock-down started
had no sense that they
would have food on the table
to eat, and essentially put
their bags on their back
and started walking
home to their village.
Because the trains
had been stopped.
And you see this playing
out country after country.
You know, one of the two pieces
of data we've seen in Chicago
is the most affected
community is
the African African-American
community, which
of course surrounds us here.
We're in the midst
of it in Hyde Park.
And so this must be
a source of concern.
Because it's accentuating
the fault lines
that were already
present in the world,
a world where the
haves benefited
much more from the access to
education, to health care,
than the have-notes.
And it was a world where
technology sort of rewarded
those who could benefit
from these differences,
while it automated the jobs
and sort of automated jobs
away for those who could not.
I would take a more
optimistic view
of this, which is that
now that, you know,
we've come face to face
with how, to some extent,
underprivileged large
segments of our society are
and how unprotected they
are, as we look forward,
we think about how
we remedy all this.
What do we need to do?
Because one of the things
we have to think about
is that we thought
these kind of crises
happen once in a lifetime.
Remember global
financial crisis,
we thought this is
the worst it can get.
So let's throw everything
at it, because it's not
going to happen
again in our lifetime
if we managed to avoid it.
Well, 10 years later,
we're back there.
And it's, again, let's do what
it takes because this is once
in a lifetime.
Well, there's so many
other challenges which
could hit us down the line.
And so we need to think
about what kind of society
is best positioned to deal
with these kinds of laws.
And that-- I don't suggest that
means throwing capitalism out.
We have to recognize
that capitalism
has been a way more
important factor in getting
us the kind of wealth that we
have in industrial countries.
But we need to think
whether what surrounds it,
or what surrounds the markets,
the nature of government,
the nature of the
community, whether that's
sufficient for the kinds
of risks and challenges
that we face going forward.
So I hope there will
be a healthy debate.
And from that debate,
unlike the debate
post global financial
crisis, where
it seemed as if what the policy
makers had taken away was,
we just need to stimulate
it and we'll be out of it.
Now it is, well, we need
to fundamentally rethink
the kind of society we live
in and deal with the problems,
if nothing else because this
has exposed the fault times.
HAL WEITZMAN: On that
exact note, Raghu,
you talked about the
effect on society.
What about the effect on the
treasuries around the world?
Because we've had unprecedented
levels of government spending,
and a lot of questions
asking about the effect
of that policy.
I'm going to read you two.
One from David Igel.
"I'm really worried
about the level
of national debt, especially the
increased debt we, presumably
the United States,
are now taking
on how much is too much."
and one from Bruce Kovarich,
"how are governments
paying for their
responses to the pandemic?
Will deficit spending
have serious consequences,
inflation, currency
market, collapse?"
Your colleague Chang-Tai
Hsieh this week
was writing about
the possibility
of sovereign debt
defaults and the need
to pay attention to that.
What are your thoughts
about sovereign debt?
And how much is too much?
RAGHURAM RAJAN: It's huge.
And, you know,
earlier there were
people, respected professors
like Olivia Blanchard,
who made the very sound
point that, you know,
with low interest rates from
now to wherever we can see,
perhaps the level of
debt that was sustainable
was higher than
the level of debt
that countries had, even
post global financial crisis.
Well, I think we've
just lost all that room.
Because we've added another
20 percentage points.
Remember it's both the
numerator that's going up,
the debt that is being issued
to spend on all the government
is spending, but
also the denominator.
GDP is going down.
So debt to GDP becomes higher.
But I think there are
a bunch of issues here.
But clearly nobody is saying
that we should essentially
let the economy collapse.
But we have to be careful
that, at these times,
we don't treat this
as an endless--
endless source of wealth.
Because somebody has to
pay for it down the line.
And if we don't pay for it,
it's left to our next generation
or a generation after that.
And clearly, it's a wonderful
legacy we're leaving for them.
Because not only do they
have to pay for the debt
that we took on, but they also
have to pay for our retirement,
because there's not
enough in the kitty
to pay for our retirement.
And they also have to
pay for our health care.
And the intergenerational
strife that is possible
if this is the
legacy we leave them
is certainly something
to worry about.
Clearly, they would
prefer having debt
than having no economy.
But is that the stark
choice that we have?
Are we sometimes too easy
spending their money?
And so we need to rethink
government spending also,
which is-- which
is why, I mean, I
said one of the benefits of this
is we will hopefully look away
from just seeing massive
stimulus as the way
to resolve these
problems and look more
to the kinds of
structural reforms
we need to do in country after
country to get the sustainable
rate of growth up while
reducing the risk.
I mean, if you think
about it, arguably
one of the reasons there
is so much fragility,
certainly in the United States
as we enter this crisis, one
of the reasons why the Fed today
is buying fallen angels, that
is triple B bonds that have
slipped below investment grade
and gone into--
and now have become junk,
why is the Fed buying that?
Well, partly because
the easy monetary regime
before this crisis encouraged
leverage, corporate leverage,
built up during the 10, 12 years
after the financial crisis.
And that left very little
margin for companies,
which is why so many
of them are saying
we need government aid to
help us during this few months
that there's a lock-down.
I mean, the argument that
this is unprecedented,
it's not our fault, therefore
bail us out, is bogus.
I mean, there are lots of things
which are not people's fault.
It's not the taxpayer's part
that coronavirus happened.
The only rationale to
help them is because we
want to keep an economy alive.
We don't want the
social and capital
that's embedded in these
companies to collapse.
But that said, I think it
is very well worth asking
the question, how are we to
make sure that you don't create
the kind of fragility
in your capital
structure, the fragility
in the operations,
that the next time
this happens again,
you're back knocking
on the door?
Why is it that you've
taken on so much leverage?
And is it that we're encouraging
this kind of leveraging
with the kind of monetary and
fiscal policies that we follow?
So again, this would
not be a question
if this was once in a lifetime.
Yeah, it happens.
Well, forget moral hazard,
forget bad behavior,
we're not doing any of that.
But that's what we said after
the global financial crisis.
And we're back there again.
HAL WEITZMAN: And a related
question to that comment,
Raghu, that comes from--
and again I apologize
for my pronunciation,
[? Mohit ?] [? Narotmarotra, ?]
"how do we ensure a better
corporate and personal fiscal
responsibility?
What's the point of having
the greatest economy, that's
the US presumably, if businesses
and people don't even have
a couple of months of buffer?"
And so that relates to what
you were just talking about.
Should we-- should we tolerate--
do we allow companies to
go bankrupt that haven't--
rather than bailing them out?
Who should we bail out?
How should we think about that?
Should we bail out [INAUDIBLE]
RAGHURAM RAJAN: So some
companies are, you know,
it's not their fault.
They're struggling.
They don't make much money.
They're in very
competitive markets.
And I don't think we should
immediately sort of chastise
them for having thin buffers.
But there are other companies
that made plenty of money,
were in monopoly situations,
and didn't create enough
of a buffer, in fact
loaded up on debt,
and now are faced with a much
more difficult situation.
And for those companies, I
think a legitimate question
is, well, your shareholders
benefited in good times.
Why is it that you're now
looking for the government
to bail you out?
And ideally what we do
is run those companies
through bankruptcy court,
wipe out the shareholders,
wipe out some of
the bondholders.
And the valuable
part of the company
would stay and would survive.
The problem, sometimes, is when
this happens on a mass scale,
you know, bankruptcy courts
will be completely overwhelmed.
And it is possible
that widespread costs
of financial distress could
hold the economy back.
So that's the
argument for saying,
OK, let's bail out
the most viable ones.
Now that's different.
And I want to emphasize
that sometimes when
we talk about giving a helping
hand, for people, the helping
hand is most valuable to
the poorest, the people who
don't have, for a
variety of reasons,
don't have decent savings.
Those are the people
in times of calamity
that you need to help, because
you-- they need to survive.
And there are many who
don't have adequate savings.
We've all read those numbers.
Many Americans don't
have the $400 or $500
it would take for an
emergency operation.
So I think that is a legitimate
function of a society,
to protect its
weakest, especially
in times of great difficulty.
But when you go to
corporations, and you make--
you ask who should we help?
Well, you want to
help the corporations
where there is the
most value that
will be lost if that
corporation essentially falters.
And this doesn't
necessarily mean
helping every [INAUDIBLE]
of every operation there is.
Because some aren't viable and
should probably close down.
Now that kind of
analysis can't be
done in a hurry in the
midst of a crisis, which
is why we say bailout
everybody for a little while.
But even there, I think we
should be asking this question
all the time.
Who is it that we
really need to in order
to keep the economy going?
HAL WEITZMAN: Among the support
that was in the stimulus bill,
the CARES act, has gone to
small businesses and even more
money coming.
Is that-- is that the
right thing to do.
RAGHURAM RAJAN: I think if you
said viable small businesses,
that makes economic sense.
Because these are
businesses that
are working on a thin margin,
but provide employment
and are profitable.
They're not profit things.
And if they go bust, they
may not start up again.
But again, if you ask me
to wear my economist's hat,
this kind of sort of argument
has to be made carefully
and might differ across a
variety of small businesses.
For example, a franchise shop
could close down and reopen in
the same location three
or four months later,
without any loss in
value because the value
is in the franchise.
And you may even get
the same people back.
So is there a need to keep
it alive over the next three
or four months?
On the other hand, a
specialized craft shop
may be hard to get some of
those people back or maybe.
So I think you have to go
deeper if you want to do
a sensible economic analysis.
But, you know, Congress
simply doesn't have time.
And if it starts
picking and choosing,
it'll be a political mess.
And therefore, it's
sort of a blanket,
we bail out all small and
medium sized businesses
with this amount
of cash, and maybe
that's the only thing
to do at this time.
There is a certain amount
of ill-directed funding,
you know, help the
people, not necessarily
on viable businesses.
But I think, at this
point, you just spend.
Now if this lasts
much longer, you
have to make much more
careful decisions.
Who really needs to be revived?
And who is it better to let
go and have the people move on
to new industries, new firms,
where in fact they can do
much more good for the economy.
That kind of
hard-hearted decision
will have to be made
if we're talking
quarters rather than months.
HAL WEITZMAN: Raghu, you
talked earlier about the effect
that the crisis might have on
what we think of as capitalism,
particularly in
the United States.
And two questions related
to that, Greg Schott
asks about how you view
the impact on capitalism.
And I'm going to attempt
your name, [INAUDIBLE] asks,
the current crisis has shown
the importance of a social net.
How likely are things to move
in this direction in the US
and in India?
Talk a bit more about
what specifically, I mean,
we've seen the
Financial Times even
talking about everything
being on the table,
including universal
basic income.
Talk about what
effect this might have
on social policy in the future.
RAGHURAM RAJAN: Well, let's
start with capitalism.
I mean, unlike the
global financial crisis,
where you could argue this was--
that it was directly
created by risk-taking
in financial markets,
this is a pandemic.
And its consequences
are less easy to please
on the door of, quote
unquote, greedy business.
However, of course, we've
already talked about the fact
that businesses may be
more fragile, because
of the leveraging
that took place
after the global
financial crisis.
And certainly there
will be some discussion
of whether too many big
firms sort of paid out
large dividends,
bought back stock,
while leaving themselves
undercapitalized for an event
of this kind.
Of course, nobody would have
foreseen this kind of calamity.
And it's easy to
see after the fact
that you should have foreseen,
when in fact it's very hard.
But that said, I
think it won't be
so much about whether markets
work, as about the kind of role
that governments, and I
hope the discussion also
veers to communities,
the kind of role
that they will have in
buffering the kind of effects
that we see with this pandemic,
the disappearance of jobs
because of a cataclysm
like this one.
And how do we get back
jobs in the right place?
Is the right to approach
the European approach where
they hold your jobs in suspended
animation and pay you to not--
even if you don't come to
work, which protects the firm.
But if there are
massive changes required
as a result of what happens
during the pandemic,
it doesn't allow for
easy reallocation
to the new industries
that are going to emerge
and the old industries
that need to fade away.
The US system is harder.
Despite the CARES Act,
I think a lot of people
will lose their jobs.
And but hopefully, you
know, it is more dynamics
so that many will
get re-employed
as the economy comes back.
And this will prompt a
renewed dynamism in growth,
at least that's the hope.
But we don't know.
I think there'll be a
lot of debate on that.
On the safety net
itself, will, in fact,
we're going to see a bigger
debate about the safety net,
about health care for all,
about universal basic income.
Almost surely we will.
But then, we will also have an
accompanying debate about who's
going to pay for it.
Because the debt level we start
out with will be much higher.
And there will be
the question of where
do you get the resources
for any of this?
I personally believe
that we're still
a long way from
universal basic income.
But certainly
universal health care
will be very much on the
table during the next American
presidential election.
And we have to see
where that goes.
HAL WEITZMAN: In your
last book, Raghu,
which I mentioned at the
beginning is The Third Pillar,
is all about communities
and how they have been--
they're sort of ignored parts
of the social contracts,
compared to the state
and the economy.
Has your thinking changed at
all on communities because
of this crisis and their role?
Has it strengthened
your view, perhaps,
on the importance of their role?
RAGHURAM RAJAN: Well, I think
it has strengthened my sense
that this is a very
important building
block for the new
world going forward.
One of my big concerns
in writing that book was
the growing centralisation of--
both induced by
government, as well as
markets, driven by the
integration of markets
around the world.
We want uniformity.
And we want uniformity
in governance.
So increasingly
governance was being
done not just at
the national level
but at the international level.
And to some extent, I saw
nationalist movements,
populist nationalist
movements, as a cry
against that kind
of centralization.
The echo from the
Brexit campaign being,
let's take power back.
And I thought that that
was a very strong voice.
But what was important
was to listen to it
some, while preserving the
benefits of global trade,
of global investment.
So how do we get the
benefits, which absolutely we
need, given that we are
an integrated world,
and we can't wall ourselves off
from poorer parts of the world?
We need global
trade to give them
some helping hand in
getting richer, but also
in preserving our own wealth and
making sure that we stay rich.
I think we need global
trade and global investment.
But how do we reconcile
that with the strong sense
that we're losing identity,
we're losing a sense of agency
that many, sort of,
communities don't have
a sense they control anything.
And so much of that
book was a plea
for re-empowering
communities, so
that they can address some of
the gaps that are left behind
by globalized markets and
globalized government,
the things that we see today.
So with this virus,
where in fact, we
have to distance ourselves
and can't actually
engage in community, you
have communities sort
of trying to take care of
the elderly, who, you know,
these touching
stories of young kids
who are more immune from
the-- are more protected
from the virus than elderly
people going and doing shopping
for their elderly neighbors
and leaving those shopping
bags outside their
neighbor's door,
so they would have
access to something
while the lock-downs are on.
And you can see these
kind acts, even when
we are distancing ourselves.
And, of course, as we interact
with each other virtually,
we recognize how
much we're missing
of the true community
of being in proximity
with a human being.
And we realize
that virtual can be
an add-on to our real community,
but it's not a substitute.
So I'm hopeful this
accentuates the need
to build those relationships
which hold us in good stead
when all else fails,
when the markets fail us,
when the governments fail us.
HAL WEITZMAN: Raghu, you've
thought a lot about what
this crisis means for India.
And you've written for us,
for Chicago Booth Review,
about the challenges faced
[AUDIO OUT] policy makers.
And we've had a huge number of
questions tonight about India.
Here's just one.
Pilar [INAUDIBLE],, Dr. Rajan
please [AUDIO OUT] for India
and indeed emerging
markets in general,
their ability to eventually
recover from this pandemic.
RAGHURAM RAJAN:
Well, the good news
so far in emerging markets,
in developing countries
is the pandemic hasn't
progressed as much as it has
in industrial countries so far.
We don't know whether,
you know, some of that
is because of undermeasurement,
undercounting, under-testing.
But thus far, apart from China,
none of the large emerging
markets has been
hit in a big way.
It may be that we
are seeing it coming.
Certainly in India,
we see the growth rate
of cases following the
same exponential path.
And I think that is
true of other emerging
markets like Russia and so on.
So the worst is
probably yet to come.
And we have to see
how bad it gets.
Because many of these countries,
developing countries in Africa
and South Asia, more
than a developed--
than emerging markets have
very limited medical resources.
And even now, even if they
have the financial resources
to order medical equipment,
there aren't masks to be had,
for love or money
around the world.
There aren't
ventilators to be had.
They're all being
sort of, in a sense,
driven towards the
industrial countries who
need is high at this point.
I am hopeful that either
the industrial countries get
satiated, as you know, they
bend the curve on the number
of cases, and hopefully,
like New York seems
to be discovering, they
don't use all the capacity
that they put in place.
And over time, we find there is
spare capacity, which can now
be redirected to some of the
poorer areas of the world,
because they will desperately
need it at that time.
So the sequencing of the crisis
across geographical areas
may be a boon, because it allows
the transference of resources
if the world comes
together on that.
But I do think the world
needs to come together.
Because if the crises hits the
emerging markets and developing
countries in the same way that
it hit Italy and the United
States, those will look
really mild in comparison
to what happens in
those poorer countries.
Because they simply don't have
the same kind of resources
to fight the virus.
HAL WEITZMAN: Raghu,
you talked earlier about
the economic nationalism
and the barriers that
might come up after, as a
consequence of this crisis.
There's a question here
from David Mordecai
regarding industrial
organization.
Would you care to speculate on
the logistical prospects for 3D
printing or automation
and robotics resulting
from the current situation?
RAGHURAM RAJAN: Well, David, if
this is my old student David,
hi.
And, you know, as usual
you ask a tough question.
And I don't know the answer.
I mean, how these
specific technologies will
affect industrial organization.
I think two issues today
seem very clear, right.
I mean, it's probably
stating the obvious.
But every company is going to
look at its global supply chain
and try and figure out where
it has sacrificed resilience
for efficiency too much.
In other words,
where has it tried
to reduce costs
significantly but become
overly exposed to a single
supplier or single region
of supply.
So we will see global supply
chains diversifying far more,
even if that comes at some cost,
in order to build resilience
in those supply chains.
And many will try and bring
more of their supply chains
within a common political
or geographical area.
Because right now
what happens is you
are exposed to the fragility
of the weakest link.
While when you're
all in one area,
well, you're exposed to
that particular area,
but you're not exposed to risk
everywhere else in the world.
So there would be some
incentive to, on the one hand,
onshore when your markets
are in industrial countries,
but on the other hand offshore
when your market is in China.
So that you're not
sort of exposed
to the China-US trade conflict
or any other disruption
that might occur.
So that's one.
And the other, I
think, is we will
see a lot of smaller
firms essentially give up
the ghost during this
crisis, because they
have far fewer reserves,
far less buffers.
And that will mean
more concentration
of industry, which we
were already complaining
about before the pandemic.
So big is going to
get slightly bigger.
I mean, watch for the big
banks to get yet still bigger.
HAL WEITZMAN: Raghu, here's a--
here's an interesting
contribution
we've had from Wendy Schaeffer.
As a doctor in New
York City, I have
to ask whether the economic
and social cost of the lockdown
is worth the lives saved.
For example, the
social impact on
poor marginalized
communities seems
like it may take more of a
toll than the virus itself,
which is more life-threatening
to the very elderly.
So Wendy, thank you for
working, the work that you do.
Raghu, what are your
thoughts on the trade-offs
that hospitals, policymakers,
local municipal policymakers
have to make?
RAGHURAM RAJAN: Well,
it's a great question.
And first, I join you in
thanking all the doctors
and nurses and medical
personnel who are putting
their lives on the line.
But also all those
people who are
still making the economy work,
the workers in the stores,
in the Lyft drivers
and Uber drivers,
and the people still, you
know, working the planes
to make sure that
at least there's
some connectivity between
different parts of the country.
So there are enormous
number of people
who are effectively
putting their lives
on the line during this crisis.
And we owe them a
tremendous thanks.
I think the-- there are two
parts to this question, right?
So let me start first
with how many lives are we
going to trade-off
for economic activity?
And I think if you put it so
bluntly, very few politicians
would know what the answer is.
And you can sort of try and
find out the NPV of a life
and try and work
out the calculus.
But the reality is that's not
how politics works, right.
So what would happen
is, supposing you
didn't do any of the
social distancing.
You did mild social distancing.
And then you had the
spread of the virus,
and then you had massive--
a massive overload of
the medical system,
where doctors had to make
the choice every minute
for a few weeks of
which patient to save
and which patient to let die.
And you had a
significant higher load
on the hospitals than we've
seen, at least thus far.
I think that that
would be traumatizing.
And it would probably mean
that, as that was ramping up,
politicians would succumb to
the general pressure to distance
and would impose distancing
but a little late.
And so we'd have all
the costs of distancing.
But it'd have to go on for
longer, because you haven't--
you haven't curbed
the virus spread.
But you also incur
all the pain, in terms
of overloaded medical
systems, debts, et cetera.
I think what-- the case for the
distancing and the suppressing
and the lock-downs
that we have, and I'm
fully aware I'm mangling
terms right now.
But the whole idea
is to bend the curve,
to push it down to a level which
is manageable by the system,
and then find ways to not
just try and root out any new
outbreaks-- that's the
management we talked about
earlier--
prevent a second or a third
recurrence, but hopefully bide
time.
One to get the equipment more
up to speed and more equipment,
but also get us
closer to when we
have a solution, whether
it's a cure or a vaccine.
So I mean this is why
buying time makes sense.
But the question is a great one.
Because what are we going to
do if the curve doesn't bend,
and you got to keep people shut
up for quarters not months.
And I think that's when
politicians will have
to make the difficult decision.
Do we actually let
the economy collapse?
Because the longer this lasts,
the more financial fragility
starts kicking in.
And what is just a
economic downturn also
creates a financial meltdown.
That's what could happen if we
are locked down for six months.
And that's much bigger to deal
with than what we, hopefully,
will have to deal with today.
So I mean, I think
the best case one
could hope for is
suppress the virus,
suppress the cases
to a low number
as China seems to have
done, and then deal
with any localized outbreaks.
Hopefully, that's all there is.
There's no second or third wave.
And some time, you know, the
most optimistic are, you know--
well, let me not
throw out a number.
But sometime a
cure or of vaccine
will be available, which
is reasonable enough
for us to get back
to work without fear.
HAL WEITZMAN: Raghu, regional
leaders in the United States,
like Governor Cuomo in New
York and Governor Pritzker here
in Illinois, have
complained about having
to go on the open market
to buy medical equipment
and competing with each other
and with federal agencies.
And there's a
question here related
to that from Robin Simon.
What do you think are the
pros and cons of the US having
a coordinating
federal response, or I
guess not having much
of a federal response,
versus each state
having its own plan?
RAGHURAM RAJAN: Oh, this is one
of those tough, really tough
questions.
I mean, I think, in
the best of worlds,
in the midst of a calamity,
letting the market work is
sometimes a little hopeful.
You sort of say, well, letting
the market work would allocate
resources appropriately.
Somebody who needs a spade
just to dig that garden would
be outbid by somebody who
needs a spade to dig, you know,
let's say their dog out
buried under rubble.
But I think that,
at times like this,
having states trying to outbid
each other, having some states
have excess resources, some
states have too little,
having the richer states
or richer countries
have more access while the
poorer countries have little,
because they have little
franchising power, this
is probably not the
best way, when you know,
when you know that you need to
deal with the virus everywhere
to be safe anywhere, right.
And so it seems as
if, at this point,
you sort of take off your
market head for a little while
and say, yes, there
are places where
the market could be made to
work in this kind of situation.
But some kind of
overall coordination
also makes sense, especially
because purchasing power
differs so widely across states
but also across countries.
And allocation, at this
point, done simply by dollars
may not reflect true
need and true value
to the global system, as well
as to the national system.
HAL WEITZMAN: Raghu,
speculation is something
that economists never
really want to engage in.
But let me ask you to give
us your thoughts on where
we'll be one year
from now, and where
we'll be two years from now.
RAGHURAM RAJAN: Hopefully
one year from now,
we will see unemployment
rates coming down rapidly.
Hopefully, we will have a
compressed time for a vaccine.
And, you know, sometime
later this year, we
have enough proof of concept
and then we start rolling out,
you know, both on
multiple dimensions,
whether it's testing,
whether it's vaccine,
whether it's cure.
And so we see a recovery well
underway a year from now.
That's on the recovery side.
And hopefully two years
from now, you know,
this is a nightmare, but
a nightmare of the past.
That we're in a
much better shape.
We probably won't be back
to the very healthy levels
of unemployment we had
before this pandemic, 3
and 1/2 percent.
But we will have brought it
down to something which is
more like the historical norms.
But also hopefully we'll be
talking about all the fault
lines that have been
exposed, and how do we
fix the global system, how do
we fix the national system,
how do we make sure that this
is a sustainable economy going
forward and not an
economy which is
so dependent on drips of
stimulus and so fragile
to close.
HAL WEITZMAN: And you talked--
and we'll make this our
last question Raghu.
You talked about some of
the positive things that
have happened recently,
about young people looking
after the older people
in their community.
What do you think-- do you
think some of that positivity
might last?
And what are the positive things
that we might be left with?
RAGHURAM RAJAN: Well,
I'm hopeful, right,
that we saw after World War II,
and I think the analogy to war
is sometimes overstretched.
But this is a
collective experience
we are-- we're having as
a country, as a world.
This is akin to a World War.
And hopefully having been
through this experience,
we not only feel goodwill to
those who helped us through.
Certainly the medical
professionals, but all
those low paid workers who have
helped us get through this.
But we also recognize
that we are one planet.
And there are so
many challenges which
are better faced together,
rather than faced individually
as countries.
I mean, obviously, climate
change has been changed,
has been knocking on our door.
And too many people have been
quick to dismiss the risk
that it may cause.
Well, hopefully we see this.
And we say, well, we have
been quick to dismiss
the risk of pandemics
before, and then
we have this full blown one
and see how bad it can get.
Well, let's take the risk
of climate change seriously.
Let's take the issue of
inequality seriously.
And let's try and use
the power of markets,
the power of technology,
the power of human ingenuity
to solve many of these problems.
Let's find a way
to deal with these.
I'm hopeful that solidarity
within the country,
and perhaps across countries,
may be rediscovered.
when you go through this kind
of a horrendous experience.
Now maybe that's
wishful thinking.
Because we see
partisanship sort of
demonstrate itself as
well as nationalism.
But hopefully the
good people on this--
on this can overcome
not so good.
HAL WEITZMAN: Raghu, thank
you very much for sharing
your insights with us.
Thanks to all of you for
your fantastic questions
and contributions.
We have 594 questions here.
I think we got through
about eight of them.
So Raghu, presumably you'll make
yourself available for another
what [AUDIO OUT] Harper
Lecture, interactive Harper
Lectures in the future.
But thank you for your--
for participating.
I apologize to those
of you whose questions
we didn't get to.
We tried to get to
as many as we could.
Raghu, thank you very much.
And now I'm going to hand
it back over to you Colin.
COLIN HENNESSEY: Thank
you Raghu and Hal
for that interesting
conversation.
All of us at U
Chicago alumni wish
to share our heartfelt
thanks to those of you
on the frontlines
of this pandemic.
From health care workers
and first responders,
to grocery store workers
and essential employees
here in Chicago and across
the globe, we say thank you.
To learn more about the
University of Chicago's
response to those
impacted by COVID-19
and to find out how
you can help, please
visit the website
shown on your screen.
I hope you will join us in two
weeks on April 27th at 6:30 PM
Chicago time for our
next virtual Harper,
featuring health economist
and Dean of the University
of Chicago Harris School of
Public Policy, Catherine Baker.
Until then, we wish you
good health and well-being.
Thank you for joining us.
You may now disconnect.
