Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. As the coronavirus pandemic continues, the economic situation is becoming more dire by the day. Not only have an enormous number of businesses closed, but more people have filed for unemployment here in the United States, faster than at any other time in our history. Meanwhile, no one can say for certain when this will end. What should the government be doing to help our massive bailout or stimulus packages that inject money into the economy actually effective. What other options are there facing us? To discuss these extremely pressing questions, We're joined by Laurence Summers of Harvard University. Larry was chief economist of the World Bank. He was first Deputy Secretary of the Treasury under President Linton, and then Secretary of the Treasury. He was president of Harvard University, and then as an adviser to Barack Obama. He helped pull our country through another financial crisis, the one in two thousand and eight. We spoke on Monday afternoon. Larry, without hyperbole, I think it's fair to say that there's no one alive who knows more than you do about bailout stimulus, not only in theory, but in its real world implementation. And I really want to hear your big picture and your small picture account of where we are and where we're going here. You've said that the two big uncertainties facing us are how long will this last? And how fast can the economy reopen? And I agree that those are radically uncertain questions. Now, do you have something that you want to say on either of those topics, Well, I'd start with this. This is a profoundly different economic problem than any that I have dealt with in the past, or than anyone else has dealt with in the past. All the various problems we have dealt with in the past were fundamentally about demand and fundamentally about whether the economy could produce the demand and keep everything going in a way that would enable adequate employment. This is a quite different problem. This is a problem of supply. The primary reason why the US economy is weak right now is that thirty percent of us basically can't work productively because we can't work in our workplace, we can't take our work home, and that's the main reason why output is down and unemployment is up. So any idea that this can all be solved with sufficiently ingenious fiscal policy or monetary policy is a confusion. The role of fiscal monetary policy is a palliative that maintains a measure of spending power for those who are unable to be paid, and to try to maximize the potential of the economy to recover when health conditions permit. But the fundamental constraint on the situation lies in the area of health policy, not in the area of financial policy or economic policy. Alright, you use the word palliative, so let me just get some clarity around that, because palliative sometimes sounds like we're just making you feel better until you die. I take it what you mean is that it's effectively, to use a medical metaphor, it's life support. The economy would die without the kind of bailout funds that are being passed along, But they're not a stimulus in that they're not going to stimulate further demand. The only thing that's going to change that, if I hear you correctly, is actually reopening businesses so that people can get back out as soon as it's healthy to do that, and then that would eventually restimulate the economy almost they might stimulate demand, but stimulating demand doesn't do anything if supply is constrained. I see. So the example is I badly want to go to a bar right now. I mean, I really want to go to a bar, So the demand is there. The problem is the bars are not open, so there's no supply available for me. Exactly. The story of toilet paper is actually illuminating. There's a major toilet paper shortage that many of us have encountered when we've gone to the grocery store. The original theory that was offered for that shortage was people were hoarding just in case. If that were the correct theory, at a certain point, after people had hoarded enormous supplies, they would stop buying and the problem would naturally solve itself. That we might even get a toilet paper glut in the stores because people didn't need to buy anymore given the inventories they accumulated. That is not actually what has happened. What has actually happened is it turns out that people are spending a much larger fraction of their time in their homes rather than in their offices or in restaurants or in bars. And it turns out that the nature of the toilet paper that is sold for people to use at home is different than institutional toilet paper. And so in fact we have a genuine shortage of home toilet paper, which is a higher softer quality, and we have a potential glut of institutional toilet paper. And fundamentally, our problem in the toilet paper example is that not all the demand for home toilet paper can be fulfilled. If all we do is increase purchasing power and we don't increase supply, we're not going to increase the level of output. Got it. So even if I were prepared to spend twenty bucks a roll on toilet paper, it doesn't matter because the supply is at present not there for the right kind of toilet paper. Right. Or to put it in a different way, if you gave purchasing power to people, it wouldn't do anything to raise toilet paper production because there's no demand for the kind of toilet paper that can be produced, and it would just go to bid up the price of the kind of toilet paper that is already in excess demand. So the point is that in order to increase the overall level of output in the economy, the really fundamental problem is increasing supply, and that means creating situations where people can go back to work in productive ways. So some of that would be creating situations where people were back at work, and therefore the demand for toilet paper was again filling its normal pattern. Some of it would be addressed if you could find ways of converting institutional toilet paper production capacity into the production of soft home toilet paper. But fundamentally you have to address the problem on the supply side. What are the implications of that analysis for what will happen when and if we are able to, in some gradual stepped way, start getting workers back into the productive parts of the economy where they can help restore the supply. It would seem to imply that the difficulty of getting the match up and running would be addressed, maybe much more quickly than under circumstances of a more ordinary demand crisis. Is that a fair implication? I think potentially that's right. I have used the example of what happens in Truro, Massachusetts, where I'm speaking from right now. Truro is a vacation town on the tip of Cape Cod. Every winter Truro has what, in a certain sense is a terrible depression. It's employment level, it's GDP go down by more than fifty percent, and every summer it rises up. And so I think if we're able to prevent the destruction of enterprises through bankruptcy and liquidation, I think there's the prospect that if we can get health conditions back to normal, then we can move back fairly quickly in terms of economic performance. I think it's basically misguided in light of this analysis, that we're spending trillions and trillions on broad gaged economic and financial policies and we're scrimping on health policies that have the prospect for bringing back the economy faster. The overwhelming priority should be every possible experiment in terms of developing more tests, in terms of alternative contact tracing systems, anything that can put the health crisis behind us is by far the highest payoff investment in this moment. And that's obviously, in parts a matter of dollars, but it's also a matter of proper organization. Larry, with respect to your seasonal analogy, it's one of the more hopeful things that I've heard, and I just want to ask you a question about it. A few weeks ago I interviewed for the podcast one of your colleagues in the economics department at Harvard, Stephanie Stansheva, and one of the points that she made is that as economic relationships break down as people are out of work, the transaction cost of getting people back to recreate those relationships rises, and so it becomes hard to do. Now. In your example of Truro or any vacation community which in a sense has a big decline out of season, usually long term economic relationships are retained even over the out of season period of time. Right, people have the shops that they go to, and they have the caretakers who work on their homes, and their contractors and so forth and so on. Is there a danger do you think in this particular circumstance that the re establishment of those relationships will just be much more difficult in the wake of the worksoppages that we have now than it is in a seasonal response situation. It depends on how long it takes, and it depends on the nature of the relationships in Truro, Massachusetts or a vacation town. As you move from July to September, and then you go around again until July. There are probably two kinds of things that happen. They're the chefs at the restaurants, and they're the shops that I remain loyal to. And it turns out that people have long memories and they do other things during the summer, and then they find their way back. Then there are other kinds of relationships, the waitresses in the restaurants, where there probably isn't such long memory, but where there isn't such great costs to a restaurant to having a different workforce of waitresses in twenty twenty than they had in twenty nineteen. But I think it's easy to overdo this idea that we're doomed because a relationship has been separated for some substantial interval. And I think it is very much wrong to think that people have to continue being in the workplace. It's a ubiquitous feature. For example, over decades of automobile companies that in recessions they quote laid off automobile workers who remained attached to those companies, who received significant unemployment insurance, and then when demand picked back up they were rehired. So I think we need to protect the peace people. There are more market mechanisms than people appreciate for protecting other aspects. Suppose I am a shopkeeper in a shopping center and I can't open because I'm a clothing store and I'm not deemed to be essential during the corona period, I will stop paying my rent. Now it's possible that my landlord will evict me and that my shop will be lost. On the other hand, my landlord's likely to look at the situation and say, well, if I evict him, who am I going to get to come into his place in the midst of this? And this will probably be over in a few months, and he'll be able to pay rent again if he was before, and will work some solution out with respect to the period when he couldn't earn revenue, and the relationship will be deserved. So I am more optimistic about the economy's ability to remain resilient. If the health problems can be put behind us, then some of my friends are we'll be back in just a moment. Larry, I find it very compelling to say that we would very quickly recoup any investment that we made in technology that would let us get back to work and testing is a really good example of that. The challenge that I'm struggling with in that context is sort of why we aren't doing more at that level, And as far as I can make out, the reason seems to be a perception, maybe an accurate perception, that there are a whole number of bottlenecks in enabling testing on the kind of scale of you, on the order of millions of tests a day in the United States that would be necessary to get this going. Now, that's not an argument for not trying, but it does raise the question of real world distribution bottlenecks, and I mean things like the number of swabs, the number of chemical reagents available. And there could, of course be technological innovations that would let us do these things faster and without their techniques, and of course in principle that's all possible, but it raises the question of time scale, and maybe what a lot of people are thinking is it doesn't make sense to invest heavily in this given the improbability of success. Let's be concrete for a moment, our lost GDP as a consequence of this crisis is about eighty billion dollars a week. So if we accelerate the recovery path by one week, that's worth eighty billion dollars. That dwarfs any number that anybody is remotely thinking of. In terms of testing. Economies are remarkably flexible things, and they do respond to incentives. They may not respond in three days, but they really do respond over time. This is not a time to be worried about efficient pricing of swabs, given the magnitude of the stakes. This is a reason to be trying everything. If the probability of success on something that's worth eighty billion dollars a week is only one fourth, well, that's twenty billion dollars a week. It's been estimated that tests cost fifty dollars. At fifty dollars a test, you can do a lot of tests for a very small fraction of twenty billion dollars a week. And that's assuming it's one week with the twenty five percent probability of success. Larry, I want to ask you about the question of who takes the haircut in this bailout. One of the points that you've made repeatedly is that there's real fundamental loss that's happening under these circumstances, that this isn't the kind of set of economic problems that can be solved or mitigated just by printing money or lowering interest rates. So that means there is real loss that's going to take place in the economy. The bailout process is just beginning, and inevitably corporate America will have its hand out seeking bailouts. And you've had lots of first hand experience with this. What's your view. I mean, should the airline shareholders have to take a big hit here, or should the airlines be bailed out as after nine to eleven and so on and so forth. For other industries, including maybe most prominently the oil and gas industry, I think there's almost no reason why shareholders be insulated from these losses. Shareholders are people who invested money with the expectation that, unlike people who put their money in a bank or bought US government financial instruments, they would earn a premium of four or five percent a year. And the reason they would earn that premium is that they were taking the risk that if something predictable and uncertain happened, they would lose money or that if something unpredictable and uncertain happened, they would lose money, that they were being compensated for subjecting themselves to what Donald Rumsfeld called unknown unknowns. And now an unknown unknown has happened, and they got paid for taking this risk, and it seems to me it would be very wrong to try to insulate them from that risk. All the more because the distribution of shareholder is a distribution of people who are far, far, far more affluent than most American citizens. Now, there will certainly be cases where you can't really protect workers without protecting the enterprises of which they're apart. So, just as there are unintended victims of necessary actions in wartime, there are unintended beneficiaries of necessary financial bailouts. But the objective should be to maintain economic activity for the benefit of customers and workers, not for the benefit of shareholders or lenders who have accepted substantial risk in return for over many years having been paid a premium interest rate. The airline industry, in a way is a classic instance, because there are half a dozen instances in the last twenty years when airlines have gone through bankruptcy, their debts have been written down, their share prices have been written way way down and they've continued to fly. And most of us, as we stood in line to get on board, had no idea whether an airline was bankrupt or not. So we need to stop confusing bankruptcy with the destruction of an enterprise's productive capacity. Just in support of your argument, Larry, I think it's even fair to say that pandemic doesn't count as an unknown unknown in Donald Rumsselo's formulation. It's a known unknown. You know, from the time that I was in seventh grade, a central part of our curriculum was pandemic is a thing. It has occurred historically, it can occur again. Their circumstances of globalization that can give rise to it. We've seen various potential pandemics being limited or constraint that may have led people to make a mistake in terms of the probabilities of an actual pandemics breaking out, But that such a thing could exist was certainly very clear to everybody and should have been therefore a known unknown rather than an unknown unknown. I think that's right. The idea that we could have a pandemic should have been in people's minds. Most of the leading financial authorities who were involved in the effort to establish new financial regulation said sometime in the last few years that they thought we would never have a financial crisis as serious as two thousand and eight in their lifetimes. One of the many reasons why I didn't join that view was an awareness that if we had pandemic flew of the kind we'd had nineteen eighteen, it would probably be an immense financial crisis, and that that was a significant risk. So I think you're right, Larry. Before I let you go, I just want to ask you one last sort of macroeconomic question that's puzzling me. And it's Corona adjacent, let's say, and that is the role that the United States has just played, the President Trump has just played in attempting to broker a deal with other large petroleum producing companies to shore up oil prices. Now, on the one hand, you know, there are lots of people in the United States who were working in energy related businesses or in oil related businesses, and so I suppose this could be justified on the grounds that it's an attempt to help out American workers in shore up in American industry. On the other hand, it sort of looks like the United States participating, or it is the United States participating very directly in the kind of cartelization that historically we as a country have been at least publicly skeptical about. You know, the United States was never a member of OPEC and at least actually never talk the talk of how great it is to assure that prices would be protected from real world changes, in this instance, in the demand side rather than the supply side. Can you just give me a you know. Larry Summer's reaction to this, was this something the United States should have done? And if so, why, because it can be a little hard to see from the outside. I think if I had been the policymaker, I would not have done it, essentially for the reason you describe this is a cartel. We don't usually believe in supporting cartels. And it's not like our only interest is as an exporter. We have moved in the last few years and so now we're just about self sufficient. But that means the US consumer interest is about comparable to the US producer interest, and the consumer interest, of course loses when we push prices up. Most of the other winners from higher prices are places like Russia and Saudi Arabia where it's not at all clear that our national interests are served by their becoming wealthier. So I would not have done this. That said, there is a problem, which is the tendency towards what economists call a cobweb cycle. And if you allow the price to collapse, then the profits collapse, and then the funds for investment collapse, and then down the road you have a big supply shortage and the price spikes right back up. So there is that concern. I think it would be better met by reinforcing investment during this difficult period. I also think that you're a ted idealistic on the these kinds of arrangements. I remember when I served in President Clinton's administration being the dissenting voice, but the dissenting voice who lost the argument when the United States was an enthusiastic participant in the organization of an aluminum cartel, with the rationale being to protect American aluminum producers who employed a fair number of people, and to be supportive of Russia at a time when we were trying to support President Yelson and they were a substantial aluminum exporter. So I think it would be wrong to think that this was anything like the first time the United States had been substantially supportive of a cartel in a key global commodity on grounds of price stability, although the rationale here may also be a domestic rationale goal of helping an industry with which the president and his party are seen as being pretty closely aligned. If I can say something the opposite of idealistic, as I said in the aluminum example, that was also part of the calculation. I'm with the economics profession and a lack of enthusiasm for cartels, but it'd be a mistake to overstate the strength of the American tradition in opposing them. Larry, thank you very much for your analysis and your time. There's a lot to think about there, some of it a little more hopeful and some of it a little more pessimistic than other things that I've heard, but all of it deeply insightful and informed by your distinctive combination of knowing the theory and having done the reality. So thank you very very much. Thank you. Speaking to Larry Summers, you get a strong sense of both how serious the challenges are that are facing our economy now and also a hint of greater optimism than some other sources have expressed about the probabilities of our being able to turn it around. On the one hand, Larry is crystal clear that this is not the same kind of economic crisis that we've faced before, and that therefore government money to ordinary people and to businesses is not going to take the form of a stimulus that will get things going again. To the contrary, Larry says very very clearly, it's just to keep us going for now. It's not going to turn things around. That's a serious, serious concern, and one that I think is all too often missed by people who think about this crisis in terms of past crises. On the other hand, Larry also thinks that there's an argument for seeing this current crisis as a bit like a seasonal stoppage in an industry that operates by the seasons. And if he's right about that, then our capacity to restart the economy once health and safety concerns have been alleviated may actually be substantially greater than other analysts have such tested. There's a bit of each in Larry's analysis, some sense of the gravity of the situation, some cautious optimism about the potential for the future. You can be sure that we're going to continue to stay very closely on top of the story of the economic consequences of the current pandemic and how we bounce back from it until the next time I speak to you. Be careful, be safe, and be well. Deep Background is brought to you by Pushkin Industries. Our producer is Lydia Genecott, with research help from Zooe Wynn. Mastering is by Jason Gambrel and Martin Gonzalez. Our showrunner is Sophie mcibbon. Our theme music is composed by Luis gera special thanks to the Pushkin Brass, Malcolm Gladwell, Jacob Weisberg, and Mia Lobel. I'm Noah Feldon. I also write a regular column from Bloomberg Opinion, which you can find out of Bloomberg dot Com slash Felton. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot Com Podcasts. You can follow me on Twitter at Noah are Felt. This is Deep Background

Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. As the coronavirus pandemic continues, the economic situation is becoming more dire by the day. Not only have an enormous number of businesses closed, but more people have filed for unemployment here in the United States, faster than at any other time in our history. Meanwhile, no one can say for certain when this will end. What should the government be doing to help our massive bailout or stimulus packages that inject money into the economy actually effective. What other options are there facing us? To discuss these extremely pressing questions, We're joined by Laurence Summers of Harvard University. Larry was chief economist of the World Bank. He was first Deputy Secretary of the Treasury under President Linton, and then Secretary of the Treasury. He was president of Harvard University, and then as an adviser to Barack Obama. He helped pull our country through another financial crisis, the one in two thousand and eight. We spoke on Monday afternoon. Larry, without hyperbole, I think it's fair to say that there's no one alive who knows more than you do about bailout stimulus, not only in theory, but in its real world implementation. And I really want to hear your big picture and your small picture account of where we are and where we're going here. You've said that the two big uncertainties facing us are how long will this last? And how fast can the economy reopen? And I agree that those are radically uncertain questions. Now, do you have something that you want to say on either of those topics, Well, I'd start with this. This is a profoundly different economic problem than any that I have dealt with in the past, or than anyone else has dealt with in the past. All the various problems we have dealt with in the past were fundamentally about demand and fundamentally about whether the economy could produce the demand and keep everything going in a way that would enable adequate employment. This is a quite different problem. This is a problem of supply. The primary reason why the US economy is weak right now is that thirty percent of us basically can't work productively because we can't work in our workplace, we can't take our work home, and that's the main reason why output is down and unemployment is up. So any idea that this can all be solved with sufficiently ingenious fiscal policy or monetary policy is a confusion. The role of fiscal monetary policy is a palliative that maintains a measure of spending power for those who are unable to be paid, and to try to maximize the potential of the economy to recover when health conditions permit. But the fundamental constraint on the situation lies in the area of health policy, not in the area of financial policy or economic policy. Alright, you use the word palliative, so let me just get some clarity around that, because palliative sometimes sounds like we're just making you feel better until you die. I take it what you mean is that it's effectively, to use a medical metaphor, it's life support. The economy would die without the kind of bailout funds that are being passed along, But they're not a stimulus in that they're not going to stimulate further demand. The only thing that's going to change that, if I hear you correctly, is actually reopening businesses so that people can get back out as soon as it's healthy to do that, and then that would eventually restimulate the economy almost they might stimulate demand, but stimulating demand doesn't do anything if supply is constrained. I see. So the example is I badly want to go to a bar right now. I mean, I really want to go to a bar, So the demand is there. The problem is the bars are not open, so there's no supply available for me. Exactly. The story of toilet paper is actually illuminating. There's a major toilet paper shortage that many of us have encountered when we've gone to the grocery store. The original theory that was offered for that shortage was people were hoarding just in case. If that were the correct theory, at a certain point, after people had hoarded enormous supplies, they would stop buying and the problem would naturally solve itself. That we might even get a toilet paper glut in the stores because people didn't need to buy anymore given the inventories they accumulated. That is not actually what has happened. What has actually happened is it turns out that people are spending a much larger fraction of their time in their homes rather than in their offices or in restaurants or in bars. And it turns out that the nature of the toilet paper that is sold for people to use at home is different than institutional toilet paper. And so in fact we have a genuine shortage of home toilet paper, which is a higher softer quality, and we have a potential glut of institutional toilet paper. And fundamentally, our problem in the toilet paper example is that not all the demand for home toilet paper can be fulfilled. If all we do is increase purchasing power and we don't increase supply, we're not going to increase the level of output. Got it. So even if I were prepared to spend twenty bucks a roll on toilet paper, it doesn't matter because the supply is at present not there for the right kind of toilet paper. Right. Or to put it in a different way, if you gave purchasing power to people, it wouldn't do anything to raise toilet paper production because there's no demand for the kind of toilet paper that can be produced, and it would just go to bid up the price of the kind of toilet paper that is already in excess demand. So the point is that in order to increase the overall level of output in the economy, the really fundamental problem is increasing supply, and that means creating situations where people can go back to work in productive ways. So some of that would be creating situations where people were back at work, and therefore the demand for toilet paper was again filling its normal pattern. Some of it would be addressed if you could find ways of converting institutional toilet paper production capacity into the production of soft home toilet paper. But fundamentally you have to address the problem on the supply side. What are the implications of that analysis for what will happen when and if we are able to, in some gradual stepped way, start getting workers back into the productive parts of the economy where they can help restore the supply. It would seem to imply that the difficulty of getting the match up and running would be addressed, maybe much more quickly than under circumstances of a more ordinary demand crisis. Is that a fair implication? I think potentially that's right. I have used the example of what happens in Truro, Massachusetts, where I'm speaking from right now. Truro is a vacation town on the tip of Cape Cod. Every winter Truro has what, in a certain sense is a terrible depression. It's employment level, it's GDP go down by more than fifty percent, and every summer it rises up. And so I think if we're able to prevent the destruction of enterprises through bankruptcy and liquidation, I think there's the prospect that if we can get health conditions back to normal, then we can move back fairly quickly in terms of economic performance. I think it's basically misguided in light of this analysis, that we're spending trillions and trillions on broad gaged economic and financial policies and we're scrimping on health policies that have the prospect for bringing back the economy faster. The overwhelming priority should be every possible experiment in terms of developing more tests, in terms of alternative contact tracing systems, anything that can put the health crisis behind us is by far the highest payoff investment in this moment. And that's obviously, in parts a matter of dollars, but it's also a matter of proper organization. Larry, with respect to your seasonal analogy, it's one of the more hopeful things that I've heard, and I just want to ask you a question about it. A few weeks ago I interviewed for the podcast one of your colleagues in the economics department at Harvard, Stephanie Stansheva, and one of the points that she made is that as economic relationships break down as people are out of work, the transaction cost of getting people back to recreate those relationships rises, and so it becomes hard to do. Now. In your example of Truro or any vacation community which in a sense has a big decline out of season, usually long term economic relationships are retained even over the out of season period of time. Right, people have the shops that they go to, and they have the caretakers who work on their homes, and their contractors and so forth and so on. Is there a danger do you think in this particular circumstance that the re establishment of those relationships will just be much more difficult in the wake of the worksoppages that we have now than it is in a seasonal response situation. It depends on how long it takes, and it depends on the nature of the relationships in Truro, Massachusetts or a vacation town. As you move from July to September, and then you go around again until July. There are probably two kinds of things that happen. They're the chefs at the restaurants, and they're the shops that I remain loyal to. And it turns out that people have long memories and they do other things during the summer, and then they find their way back. Then there are other kinds of relationships, the waitresses in the restaurants, where there probably isn't such long memory, but where there isn't such great costs to a restaurant to having a different workforce of waitresses in twenty twenty than they had in twenty nineteen. But I think it's easy to overdo this idea that we're doomed because a relationship has been separated for some substantial interval. And I think it is very much wrong to think that people have to continue being in the workplace. It's a ubiquitous feature. For example, over decades of automobile companies that in recessions they quote laid off automobile workers who remained attached to those companies, who received significant unemployment insurance, and then when demand picked back up they were rehired. So I think we need to protect the peace people. There are more market mechanisms than people appreciate for protecting other aspects. Suppose I am a shopkeeper in a shopping center and I can't open because I'm a clothing store and I'm not deemed to be essential during the corona period, I will stop paying my rent. Now it's possible that my landlord will evict me and that my shop will be lost. On the other hand, my landlord's likely to look at the situation and say, well, if I evict him, who am I going to get to come into his place in the midst of this? And this will probably be over in a few months, and he'll be able to pay rent again if he was before, and will work some solution out with respect to the period when he couldn't earn revenue, and the relationship will be deserved. So I am more optimistic about the economy's ability to remain resilient. If the health problems can be put behind us, then some of my friends are we'll be back in just a moment. Larry, I find it very compelling to say that we would very quickly recoup any investment that we made in technology that would let us get back to work and testing is a really good example of that. The challenge that I'm struggling with in that context is sort of why we aren't doing more at that level, And as far as I can make out, the reason seems to be a perception, maybe an accurate perception, that there are a whole number of bottlenecks in enabling testing on the kind of scale of you, on the order of millions of tests a day in the United States that would be necessary to get this going. Now, that's not an argument for not trying, but it does raise the question of real world distribution bottlenecks, and I mean things like the number of swabs, the number of chemical reagents available. And there could, of course be technological innovations that would let us do these things faster and without their techniques, and of course in principle that's all possible, but it raises the question of time scale, and maybe what a lot of people are thinking is it doesn't make sense to invest heavily in this given the improbability of success. Let's be concrete for a moment, our lost GDP as a consequence of this crisis is about eighty billion dollars a week. So if we accelerate the recovery path by one week, that's worth eighty billion dollars. That dwarfs any number that anybody is remotely thinking of. In terms of testing. Economies are remarkably flexible things, and they do respond to incentives. They may not respond in three days, but they really do respond over time. This is not a time to be worried about efficient pricing of swabs, given the magnitude of the stakes. This is a reason to be trying everything. If the probability of success on something that's worth eighty billion dollars a week is only one fourth, well, that's twenty billion dollars a week. It's been estimated that tests cost fifty dollars. At fifty dollars a test, you can do a lot of tests for a very small fraction of twenty billion dollars a week. And that's assuming it's one week with the twenty five percent probability of success. Larry, I want to ask you about the question of who takes the haircut in this bailout. One of the points that you've made repeatedly is that there's real fundamental loss that's happening under these circumstances, that this isn't the kind of set of economic problems that can be solved or mitigated just by printing money or lowering interest rates. So that means there is real loss that's going to take place in the economy. The bailout process is just beginning, and inevitably corporate America will have its hand out seeking bailouts. And you've had lots of first hand experience with this. What's your view. I mean, should the airline shareholders have to take a big hit here, or should the airlines be bailed out as after nine to eleven and so on and so forth. For other industries, including maybe most prominently the oil and gas industry, I think there's almost no reason why shareholders be insulated from these losses. Shareholders are people who invested money with the expectation that, unlike people who put their money in a bank or bought US government financial instruments, they would earn a premium of four or five percent a year. And the reason they would earn that premium is that they were taking the risk that if something predictable and uncertain happened, they would lose money or that if something unpredictable and uncertain happened, they would lose money, that they were being compensated for subjecting themselves to what Donald Rumsfeld called unknown unknowns. And now an unknown unknown has happened, and they got paid for taking this risk, and it seems to me it would be very wrong to try to insulate them from that risk. All the more because the distribution of shareholder is a distribution of people who are far, far, far more affluent than most American citizens. Now, there will certainly be cases where you can't really protect workers without protecting the enterprises of which they're apart. So, just as there are unintended victims of necessary actions in wartime, there are unintended beneficiaries of necessary financial bailouts. But the objective should be to maintain economic activity for the benefit of customers and workers, not for the benefit of shareholders or lenders who have accepted substantial risk in return for over many years having been paid a premium interest rate. The airline industry, in a way is a classic instance, because there are half a dozen instances in the last twenty years when airlines have gone through bankruptcy, their debts have been written down, their share prices have been written way way down and they've continued to fly. And most of us, as we stood in line to get on board, had no idea whether an airline was bankrupt or not. So we need to stop confusing bankruptcy with the destruction of an enterprise's productive capacity. Just in support of your argument, Larry, I think it's even fair to say that pandemic doesn't count as an unknown unknown in Donald Rumsselo's formulation. It's a known unknown. You know, from the time that I was in seventh grade, a central part of our curriculum was pandemic is a thing. It has occurred historically, it can occur again. Their circumstances of globalization that can give rise to it. We've seen various potential pandemics being limited or constraint that may have led people to make a mistake in terms of the probabilities of an actual pandemics breaking out, But that such a thing could exist was certainly very clear to everybody and should have been therefore a known unknown rather than an unknown unknown. I think that's right. The idea that we could have a pandemic should have been in people's minds. Most of the leading financial authorities who were involved in the effort to establish new financial regulation said sometime in the last few years that they thought we would never have a financial crisis as serious as two thousand and eight in their lifetimes. One of the many reasons why I didn't join that view was an awareness that if we had pandemic flew of the kind we'd had nineteen eighteen, it would probably be an immense financial crisis, and that that was a significant risk. So I think you're right, Larry. Before I let you go, I just want to ask you one last sort of macroeconomic question that's puzzling me. And it's Corona adjacent, let's say, and that is the role that the United States has just played, the President Trump has just played in attempting to broker a deal with other large petroleum producing companies to shore up oil prices. Now, on the one hand, you know, there are lots of people in the United States who were working in energy related businesses or in oil related businesses, and so I suppose this could be justified on the grounds that it's an attempt to help out American workers in shore up in American industry. On the other hand, it sort of looks like the United States participating, or it is the United States participating very directly in the kind of cartelization that historically we as a country have been at least publicly skeptical about. You know, the United States was never a member of OPEC and at least actually never talk the talk of how great it is to assure that prices would be protected from real world changes, in this instance, in the demand side rather than the supply side. Can you just give me a you know. Larry Summer's reaction to this, was this something the United States should have done? And if so, why, because it can be a little hard to see from the outside. I think if I had been the policymaker, I would not have done it, essentially for the reason you describe this is a cartel. We don't usually believe in supporting cartels. And it's not like our only interest is as an exporter. We have moved in the last few years and so now we're just about self sufficient. But that means the US consumer interest is about comparable to the US producer interest, and the consumer interest, of course loses when we push prices up. Most of the other winners from higher prices are places like Russia and Saudi Arabia where it's not at all clear that our national interests are served by their becoming wealthier. So I would not have done this. That said, there is a problem, which is the tendency towards what economists call a cobweb cycle. And if you allow the price to collapse, then the profits collapse, and then the funds for investment collapse, and then down the road you have a big supply shortage and the price spikes right back up. So there is that concern. I think it would be better met by reinforcing investment during this difficult period. I also think that you're a ted idealistic on the these kinds of arrangements. I remember when I served in President Clinton's administration being the dissenting voice, but the dissenting voice who lost the argument when the United States was an enthusiastic participant in the organization of an aluminum cartel, with the rationale being to protect American aluminum producers who employed a fair number of people, and to be supportive of Russia at a time when we were trying to support President Yelson and they were a substantial aluminum exporter. So I think it would be wrong to think that this was anything like the first time the United States had been substantially supportive of a cartel in a key global commodity on grounds of price stability, although the rationale here may also be a domestic rationale goal of helping an industry with which the president and his party are seen as being pretty closely aligned. If I can say something the opposite of idealistic, as I said in the aluminum example, that was also part of the calculation. I'm with the economics profession and a lack of enthusiasm for cartels, but it'd be a mistake to overstate the strength of the American tradition in opposing them. Larry, thank you very much for your analysis and your time. There's a lot to think about there, some of it a little more hopeful and some of it a little more pessimistic than other things that I've heard, but all of it deeply insightful and informed by your distinctive combination of knowing the theory and having done the reality. So thank you very very much. Thank you. Speaking to Larry Summers, you get a strong sense of both how serious the challenges are that are facing our economy now and also a hint of greater optimism than some other sources have expressed about the probabilities of our being able to turn it around. On the one hand, Larry is crystal clear that this is not the same kind of economic crisis that we've faced before, and that therefore government money to ordinary people and to businesses is not going to take the form of a stimulus that will get things going again. To the contrary, Larry says very very clearly, it's just to keep us going for now. It's not going to turn things around. That's a serious, serious concern, and one that I think is all too often missed by people who think about this crisis in terms of past crises. On the other hand, Larry also thinks that there's an argument for seeing this current crisis as a bit like a seasonal stoppage in an industry that operates by the seasons. And if he's right about that, then our capacity to restart the economy once health and safety concerns have been alleviated may actually be substantially greater than other analysts have such tested. There's a bit of each in Larry's analysis, some sense of the gravity of the situation, some cautious optimism about the potential for the future. You can be sure that we're going to continue to stay very closely on top of the story of the economic consequences of the current pandemic and how we bounce back from it until the next time I speak to you. Be careful, be safe, and be well. Deep Background is brought to you by Pushkin Industries. Our producer is Lydia Genecott, with research help from Zooe Wynn. Mastering is by Jason Gambrel and Martin Gonzalez. Our showrunner is Sophie mcibbon. Our theme music is composed by Luis gera special thanks to the Pushkin Brass, Malcolm Gladwell, Jacob Weisberg, and Mia Lobel. I'm Noah Feldon. I also write a regular column from Bloomberg Opinion, which you can find out of Bloomberg dot Com slash Felton. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot Com Podcasts. You can follow me on Twitter at Noah are Felt. This is Deep Background