 Okay, we're live. This is stink tech on a keep it Monday morning I'm Jay Fidel and I'm joined by Ken school and an economist with HPU and We're we're here to talk about What do we talk about a corona watch? we're talking about the the economics of corona watch and It's very important because you know people really don't go into the weeds on it We need to know the details. We need to know the process. So Ken welcome to the show Thank you very much Jay. This is great great to join you So we hear about you know the possibility if not the fact of a recession and or worse And we hear about you know the slowdown because we see you know people aren't coming in they've been told not to come in They're not having gatherings and gatherings are economic activity And so what we have is it is it obvious to everybody's you know Everybody knows that there's there's a slowdown going on But my question to you is how how does that ultimately work? So I don't I don't spend you know, 20 bucks getting a haircut because the barbers are high on the list of risk They're very close to you. They may breathe on you. You may breathe on them. Whatever the case may be So I'm not going to get a haircut and I'll wait and I'll wait maybe as long as it takes I'll wait. I'll I'll have long hair like yours Ken before we're done with this so Now multiply that by millions and millions and millions and what happens in the economic picture What happens to the economy of people are not doing? Transactions for the purchase of goods and services Which have been customary which have you know risen all boats in this economy or any economy all of a sudden all the boats are You know, they're quiet everything is quiet What does that do? How does that work? How does that lead to a recession? Well actually, you know, we had been under the longest expansion period in post-war era and it was I I think for a long time people were kind of wondering when when the economy might Take a downturn anyway So it's Some experience under the 19 in 2001 Where 95% of the economists at the beginning of the year said we won't have a recession Even at the end of the year in September the majority of economists saying we won't have a recession and yet the economist magazine reported We were already in a recession six months before they even recognized it So economists aren't always right in predicting when the recession is going to be there I don't presume to be any different than the than the other economists except to think about how we Would be having things that we don't yet see coming now. I think we had such a big boom with the stock market and the housing market and things like that that I that frankly we could have been due for a recession and this just prick the bubble and And set things downward, but it's downward in a much much more Rapid pace than we would have ever expected in any other manner. Oh, I'll say I mean you have every governor every mayor and the president although he's kind of resident I was just listening to his His press conference this morning and I don't think he's stepping up to this at all even now Even after the media has been criticizing him to a fairly well But everybody is saying don't go in slow down. Don't have gatherings. Don't have meetings Don't have ball games Don't don't do the kinds of things you used to do and that includes in very large part the things that feed the economy the You know the creation of goods and services the acquisition of goods and services the sale of goods and services And this it's immediate. This is different, you know than any recession you and I have ever seen This is not something that creeps up from behind. This is happening every day. It's only a week or two old It's crashing literally crashing around us and so is the stock market, you know It's not clear in the stock market crash of 1929 Whether the stocks led to the depression or there was an underlying flaw that led to the you know The crash of the stock market, but here we have both and it's hard to say which one came first So which one's affecting but they're both happening at the same time and you look around talk to your friends Nobody is doing nothing all of a sudden to me You know that is unique and Unprecedented and that could lead to the biggest recession hyphen Depression I want to ask you about that. We have ever seen this is not only unusual. It's unprecedented So query, you know, how can you get a handle on what is going to happen? I think a lot of people have stuck in the stock market. They you know, they're too, you know Deer in the headlight sort of thing. They don't they don't they can't make plans around the stock market So they stay in and and and one of these days The stock market's gonna, you know, realize that and the stock market's gonna go down much further So I suspect this is going to make 1929 1930 31 look look like look like look like easy Don't you I mean this is this is killing us every day Yes, I agree with you Jay And for Hawaii, it's especially hard because we're so dependent on travel and tourism those are the first things to go when people get worried and panic and That has been hit hard already. I think when the data comes out next, we'll see that it was down much much more even even much more than what happened after the 9-11 and 9-11 was a temporary thing, but this thing is unknown how long it's going to go I mean, I I guess you could say there was some uncertainties about the 9-11 era But this is really unpredictable if you look back at the Spanish flu, which is often presented as the pandemic that was the most horrendous in the 20th century And of all times really It really came in three stages And there was the the first stage which was relatively mild in around march of 1918 and then by july Much more there was a meeting in the in the virus led to a much more serious outbreak and much higher death toll And then it was followed by a third mutation in december, which was even worse so What they say about the corona virus is that it is a mutatable virus highly mutatable and that If if they contain it as it is and come up with vaccines, okay, we could be a Maybe within a month or maybe two, but if it if there are variations that come up I and that could be worse even it's possible that we could This could go on an unlimited or an indefinite period of time and you're right. I think with those kinds of of Worries then it would certainly be worse or as bad could be as bad as the great depression I'm not saying that as such because I don't have the evidence of it I'm just saying that when you look at the possibilities out there It's a complete unknown Well, I mean you talk about the the spanish flu of 1918-19 And so forth that was really interesting. I mean Arguably that was also a mutation But I think what happened is it it it grew it started Patient zero was here in the midwest and I think Kansas In the united states and then we had the war and we sent all these troops over To europe and they carried among them and they had training camps, right? And training camps propagated the virus And then the troops went from the training camps to europe They propagated the virus in europe And then it gets really interesting that it's often a little But it was already in europe might have mutated and it might have just been another wave, you know another another Another wave of virus coming back when the troops came back in 1918-1919 And so now the u.s. Had another another epidemic The u.s. Started it and the u.s. Caught it on the way back And so you have a combination of this this global travel Plus, you know bad hygienic conditions Plus The mutation effect that you talked about It was it was really bad and it had a profound I agree it had a profound effect on the economy for some time and it's an interesting Model to drive from because we could have maybe in different degrees But we could have that kind of experience now But one of the things you mentioned which I which I wanted to dwell on a little bit was tourism We have a mono economy here try as we we have since john burns to build a You know a diversified economy. We haven't done that. Nobody will say we've done that We don't manufacture a technology sector as peanuts You know there's nothing but importing goods and services for big box stores and a lot of People who work in waikiki and that's oversimplifying it But that's the essential mono economy of hawaii So if one day as in 9 11 you stop all the tourism you get a very sharp decline in the state product Okay, and and I guess what I'd like to ask you as an economist is that that affects everything because now The average guy who doesn't have a lot of money in the bank who doesn't have a lot of resources to draw from Who may not have enough food in his pantry? has no income and He was working in the hotel industry got laid off or there's not the same level of work or in the restaurant industry all the industries that flow out of tourism And and he's in big trouble. So the question is how does that work? How does that? That that's stoppage filter into other corners of a mono economy Well, we have Many things that are fixed expenses. I mean we have to pay rent. We have to pay on the Loans and yet our income temporarily drops off and that's not just for the worker it's for the for the business that's trying to I keep things together and and pay their workers and and they've got at the same time The customers have stopped coming in You know, and there's this this thing it's a strong motive I think for a work for an employer to allow the the worker sick leave and To even pay the testing and so on for them because you don't want a worker coming in and bringing Disease to the rest of the employees because then they'll all catch it and they'll all have this trouble So you've got these fixed expenses But the variable revenue is way off. So yeah, that's that's a dire circumstance And it matters how much time is involved if it's just one or two weeks Well, that's manageable and even if it's a very serious depression or or recession or whatever Um, well the the land labor and capital assets are still there It's just they're not being utilized and productive and you're right that we've had A monolithic sort of economy that that's not Hasn't been very flexible And I I think that there are certain things that we could do that would make it I think when emergencies hit From hurricanes in let's say in Puerto Rico one thing that they wanted to have access to was a lot more from uh from Imports and I think the jones act is something that could could figure in here in terms of opening up a lot more opportunities for Our agriculture to be able to ship to the mainland if it was a lot cheaper than uh, you know with uh lower cost shipping we'd have more More longshoremen jobs if more ships were able to come in and and bring in lower cost things from Abroad, I think uh, that's would be one way to immediately try to Soften the blow of a low economy by bringing in lower cost materials from From the mainland and then being able to sell what we produce here on the mainland What you're describing is um, you know the future hopefully a hopeful future When we're done with this when we've seen a lot at the end of the tunnel when we come out of it Then we should address these issues. Hopefully we won't have the same level of incredible complacency That we have had since john burns But but the reality is our leadership in the state has really done very little To make us more resilient And uh, we we don't have resilience to deal with this or for that matter any extreme circumstance such as Extreme weather and climate change, you know Which which could really devastate us and we we don't have The self-reliance That you need to be sustainable, but that's not the issue right now because right now it's a question of Figuring out, you know a how this is going to how's going to play out And and also as you mentioned how long it's going to take to recover and it's a very complex questions So let's take one of them before the break and that is So I give you a state where tourism dries up on a very expedited basis And then all the subsidiary industries of tourism they dry up because there's no tourism, you know to to do trade with Um, and those people who own those business worked in those business Uh, they they have no money and so the businesses that would support them They they dry up too. It's a chain reaction, isn't it? And so at the end of the day, there's no businesses Um, and I you know, I just wonder how that works and and what and what the bottom line is Where do we get to the bottom line? Is it is it soup kitchen? What is the bottom line? So much depends on how long this uh, this virus Has us in a kind of panic. I mean you you saw for example, I don't know if you I was at the sam's club of one at pearl city Over the weekend when there was just a rumor That uh, it was a false rumor that that mattson was going to suspend their Shipments for a couple weeks or so and people panicked Well, even without the rumor about mattson people were panicked about toilet paper and water and then all else that comes along with it So in a sense there's a There's a blip in terms of a huge amount of purchasing because of people are stocking up as we do every hurricane season And the shelves are empty temporarily but uh, you know, I I don't think we're at the point yet where Uh, those supply lines are shut down Uh, to my knowledge, you know The the shipping lines are still open and amazon's under tremendous, uh demand to to Uh to deliver the postal services are delivering Uh, so I'm I'm not at the point of feeling desperation yet but it as you to point out how long this Harris if we if we see that it can be Finished within a few, you know that it that it doesn't and get better the number of infections goes way down Uh, then that's good news and then we're back to normal with uh, everybody with a great story to tell But if it goes on much longer than that then I think you're you're talking about some real hard times for people where they get the money and then uh well, I I'd say have to say that I'm I'm I think that people do have a very good sense of responsibility towards it I mean look at the people's already response in terms of social distancing People have given up The hugs and the handshakes for for an elbow budge and uh a bump and that's not necessarily altruistic That's not necessarily altruistic. They're protecting themselves. They're trying to stay healthy. That's why they do that And I think it's very interesting you mentioned, uh, you know the run on the stores for silly toilet paper for everything and anything that might, uh, you know allow somebody to In maintain a household in the face of a a break in the shipping line But um reality is it's all motivated by less than altruistic motivations And that that gives me great concern about what happens when it gets even tougher Let's take a let's take a break. That's ken school and a professor of economics at hawaii pacific university When we come back, we're going to ask him the most difficult question of all when it hits bottom How does the economy knit back together again? How do you start it up from basically The low point would be right back with ken schooling. Yeah, we're back with ken schooling I'm sorry. You missed the break because in the break ken pointed out that I was a little on the pessimistic side and he was not nearly so pessimistic But what is your sense of it? I mean personally professionally ken Well, yeah, I I don't feel, uh I That armageddon has come yet and I I feel that People are very very capable of Handling situations there, you know, there's a guy named Uh, robert lucas who got the Nobel Prize in economics for what he called rational expectations that despite all the Predictions of the economists about what they think is going to happen with the economy what then what isn't going to happen on people Managed they're they're driven or desired to solve problems into their own decisions and and people In mass they get back to what they were doing before once, uh, you know, once the coronavirus the big unknown Is out of the way. Yeah, that's my question Let's just let's assume we hit bottom Wherever that is whether it's soup kitchen or just a modest production and goods and services and income and Disposable income and all that let's assume that somehow this gets saved And I I have a little trouble visioning exactly how that'll happen But now now we're on the way up now the economy is beginning to you know rise again How does that work and here's a big question? How long does it take? Uh, I I would add that in the 1918, uh flu epidemic the spanish flu It took something like in the order of six or eight months Um, what are your thoughts on that? You know the the recovery so to speak Oh, yeah, there were uh worldwide estimated estimates of uh anywhere from 20 to 50 million deaths that resulted from that And in the united states a half a million Well 650,000 people had perished more than Than all soldiers in civil war Um, and it was a terrible experience to to go through but people bounced right back over we had the the Right after that The great thing about The war was that it it ended and people came back home and they uh, and the the economy, uh Really blossomed and I would say that The the the spanish flu is the worst Case scenario Because we're we're also much more adept at at handling the medical circumstances. We can get a A vaccine uh into action Much more rapidly than they had the capacity for in those days We do have a lot more travel global and world travel And so people could take disease We're all around the planet But they had them just by the elders going abroad Um, no, I I think people bounce back pretty readily from those circumstances because they're they're They know the way things were they know how to do business. They know her What their skills are and how to work and it's not like they forget all of that when when the virus Shuts things down temporarily So as an economist can uh, I think What what is your advice to people, you know, of course, there's medical advice galore here some of it is valid Some of it is not but what's your advice in terms of economics? Uh, you know the suggestion or maybe the law is that you close down shut down limit, you know in new york You can only operate at half capacity right now Um in a restaurant. Um, what about here? What what's your advice to the business person? What's your advice to the employee? Now and when they see the light at the end of the tunnel It's funny because as I saw the the headlines about the stock market going down You know the stock market now is about where it was I mean the dow Jones is is about where it was when president trump took first took office So it's lost everything that it had in those three years Well, it can and the advice that all of these These, uh, pundits are offering is what a great time to buy the prices are so low And knowing knowing investors in the stock market. That's probably what they're gonna do as soon as as soon as things look at at all um positive in terms of reducing the numbers of of uh infections from the disease And people to go back and that's in there to get the best prize and uh and buy back in this probably is a is a good time for Uh for businesses to borrow money because interest rates are extraordinarily low If they want to get prepared And you know, I I do these surveys in my classroom Because every time the attitude towards borrowing and investment or the third prospects Is always dependent on the person's own attitude towards risk And you know about half that says I Borrow more build up The things because things aren't going to be bad forever and then I'll be in a better position others will panic and say buy less and so there's both kinds of personalities and it's uh They're there and I I'd say uh The the ones who are Are the bold risk takers are the ones who are going to set things right back on track really quickly And they'll probably come out ahead from the investments that they make Well, that leads to my last question Ken But my last question is this and this is a really interesting exercise, I think You know, they say that this uh virus this is a pandemic is going to change the world It's going to change the way people conduct themselves They're social distancing if you will it's going to change the way, um, you know The geopolitics of the relations between nations and states it's going to change government um the question is Tough question How how is it going to change the economy? When we look down through that tunnel and come out at the other side and we have our recovery And everybody including especially the ones who are willing to take quote rational risks and quote Um, how is it going to be different? How is the business world going to be different? How is the economy going to be different and how is the relationship of Business and people and the government if you can see how this works How is that all going to be different? I'd like to think that governments will be More cautious in the future about spending everything they possibly can I would like it if you know when when the state government has a surplus budget That they put money aside or they cut taxes rather than you know, in other words build up the reserve So that if there's an emergency in the future, they've got a buffer to take to take care of it I wish that we had control over what are called these um What is it when a when a hospital can't open up because oh, sir They need certificates of need. We have a probably the the fewest um hospital beds available in the country because these certificates of need Allow one hospital to prevent another hospital from uh from Opening up and competing with them and that sort of thing Restricts our our supply so that when we have a crisis, there's we're we're less flexible less able to handle these things With the federal government, you know the federal reserve lowered their interest rates to zero well I I'd wish that they were not operating at near zero for the last 10 years so that this zero meant something, you know, it They when they're always on this The booms spend everything possible attitude and then there's not much of a buffer left I mean, you know, they're they're going to borrow more money and and uh and uh I I I just wish that the governments would be a little more cautious during the good times Well, I hope we learn from this, you know, it's so easy to forget when you're not under pressure And uh, you know, it's a sign curve of remembering and forgetting remembering and forgetting Anyway, I I would like to rejoin this conversation with you Uh, we're out of time right now But uh in the next few weeks, I'd like to pick up where we left off today And uh and take another look at the economy and the economic indicators and figure out How far we've gone and where we're going and when we'll come back Thank you Ken school and appreciate your time stay healthy You too Yours in purel aloha Yeah, one of the reasons one of the reasons I want to come back with you is that your sound was up and down And I don't know why it could be that