Podcast: The COVID-19 “Reallocation Shock,” With Nick Bloom
The U.S. Labor Department’s jobs report in February 2020 showed the country’s lowest rate of unemployment in 60 years. Two months later, it showed the highest rate of unemployment in 80 years. As The Wall Street Journal put it, “The coronavirus pandemic is forcing the fastest reallocation of labor since World War II, with companies and governments mobilizing an army of idled workers into new activities that are urgently needed.” Rob and Jackie discuss this “reallocation shock”—and which sectors will fare well or bare the brunt—with Nick Bloom, the William Eberle Professor of Economics at Stanford University, who also co-directs the Productivity, Innovation and Entrepreneurship program at the National Bureau of Economic Research.
Mentioned
- Jose Maria Barrero, Nick Bloom, and Steven J. Davis, “COVID-19 Is Also a Reallocation Shock,” University of Chicago, Becker Friedman Institute, working paper No. 2020-59.
- U.S. Bureau of Labor Statistics, Monthly Labor Review.
- Nicholas Bloom bio: William Eberle Professor of Economics, Stanford University.
Auto-Transcript
Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation. We’re a DC-based think tank that works on technology policy.
Jackie Whisman: And I’m Jackie Whisman. I handle outreach at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.
Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF, from the broad economics of innovation to specific policy and regulatory questions about new technologies. In this episode, we’re talking about the economic effects of the pandemic, including which parts of the economy are likely to bounce back and which might not.
Jackie Whisman: And I’m excited about this conversation because our guest looks at economic shifts that we’re all thinking about right now in the middle of this coronavirus pandemic, unemployment and the workforce of the future, housing and how work from home will affect where we choose to live. And it’s not all doom and gloom, but it’s safe to say that things are not going back to our understanding of normal once we get through this.
Rob Atkinson: And as the Wall Street Journal recently put it, “The coronavirus is forcing the fastest reallocation of labor since World War II with companies and governments mobilizing an army of idle workers into new activities that are urgently needed.”
Jackie Whisman: And beyond the workforce, a lot of our everyday behaviors are probably changed for good, too. I mean, millions of households are buying more online. Ours is buying millions of items online every day, probably will continue to do so. Businesses realize that activities they thought needed to be done in person can be done remotely, and workers are realizing at least part-time telework is not only possible, but maybe desirable.
Rob Atkinson: My main job in life now is taking Amazon boxes from our living room and taking them out to the garbage. So it’s easy to see how all this might bounce back, but it’s also easy to say that maybe it won’t, and we’re going to have essentially a big reallocation shock to the economy. So let’s get right to it.
Jackie Whisman: Yeah, Nick Bloom is the William Eveleigh professor of economics at Stanford University and the co-director of the Productivity, Innovation, and Entrepreneurship Program at the National Bureau of Economic Research. His research focuses on management practices in uncertainty. He previously worked at the UK Treasury and McKinsey & Company, and we’re happy to have him here. Welcome, Nick.
Nick Bloom: Happy to be here. Thank you very much for having me.
Jackie Whisman: So you wrote a recent paper for the-
Rob Atkinson: Jackie, can I just ... Sorry. I would just add also for our listeners, we really have relied a lot on Nick’s work over the years. Nick’s one of the best scholars of innovation and innovation policy really in the world. So I would encourage you to go to his website, which we’ll post in the show notes. There’s really a great array of really powerful and important studies that he’s been involved in.
Jackie Whisman: Damn, Nick. Nobody else has gotten that kind of intro from Rob. This is going to be good.
Nick Bloom: I don’t know what to say. I’m getting red. If you can’t see me, I’m getting embarrassed, so thank you Rob.
Jackie Whisman: I’m caught off guard.
Rob Atkinson: You’re welcome.
Nick Bloom: It’s true.
Jackie Whisman: Well, you co-wrote a recent paper that we want to talk about for the National Bureau of Economic Research titled “COVID-19 Is Also a Reallocation Shock.” Can we start by defining what you mean, this concept of reallocation shock? And also, tell us what you were looking for when you started this research.
Nick Bloom: Sure. So the idea is looking at COVID as a recession. There’s a few things actually that are unique about COVID. One is obviously the size. So the COVID recession is absolutely enormous. Everyone’s going to come to realize that, but the rising unemployment is going to ... The only thing that we see as bigger than that has been the Great Depression.
The second is actually speed, so I think that COVID shock is unique in being so fast. So it seems an age ago, but if you remember the February 2020 labor report that came out in the beginning of March had the lowest rate of unemployment for 60 years, and within two months, it was the highest in 80. So never before have we seen a drop that fast. In fact, the only thing that’s really equivalent is like at the county level or the state level, something like Hurricane Katrina.
Then the third thing that I think is distinctive as well, I call this, the factors for reallocation shock. So many previous recessions pushed down multiple sectors at the same time, and it was kind of a rising tide lifts all boats in the recovery, and in the drop, they went back down again. COVID is really different because it’s had very differential impacts. So for example, high tech has actually done really well.
So I live out in Silicon Valley, and high tech has had a fantastic recession. It’s well up. NASDAQ’s far up. It’s booming in terms of sales. Amazon is reporting all-time record profits. At the same time, some other sectors have been absolutely destroyed, so obviously entertainment, accommodation, travel, eat-in restaurants, and it’s a reallocation shock. And if you think about that, we have to go back to the two previous reallocation shocks. And really, 1974, when the oil price spiked up, you found oil intensive sectors did really badly. There are some sectors that were oil efficient, did well.
Or in fact, back to World War II. So Pearl Harbor generated this huge reallocation. One of the best examples was Detroit. So before December 1941, Detroit was obviously focused on making cars. Within a space of about three months, it completely reallocated to making aircraft for the war. So COVID is like that. It’s a big negative shock, but also a huge heterogeneous impact across sectors.
Rob Atkinson: So, you know, Nick, we looked at the BLS numbers for industries and occupations recently, and you’re absolutely right. You get, you get some sectors that are down 50% in terms of employment, but you get some sectors that are actually up. For example, as you mentioned, the broadband industry is doing well. We’re all using broadband now at home, sectors like healthcare had seen increases.
What I think is interesting about this is in your paper, you talk about why some of these effects might be long lasting. I read something recently where it said that airlines might not get back to the same level of aggregate demand until maybe even a decade from now. And there certain things now that may never go back. Good example that Jackie mentioned most of us now buying more online retail. Well for a lot of Americans, that was a newer experience. They weren’t as comfortable with that, but now they’re going to be more comfortable with that. What do you think the implications of that are going to be?
Nick Bloom: So there’s a few overriding facts we know. One is that working from home is going to dramatically increase. So for example, just some aggregate figures, before the COVID pandemic, 5% of working days were spent at home. Currently, it’s 40% post-pandemic from various surveys who estimate to be about 20%, so that’s a fourfold increase in working from home. And if you flip it around, 15% less person days in the office, which is obviously a really big drop.
The second issue is it’s clear that even after the pandemic, there’s going to be increased sense of fear of travel, particularly getting in enclosed spaces. So I had a survey that I ran on 2,500 Americans, and we asked them, “Post-pandemic, assuming there’s a vaccine, how would you feel about various activities?” And 75% of people said, “They’d still feel uncomfortable about riding in a crowded subway or getting in a packed elevator.”
So I think those couple of things pushed towards obviously sector impacts like reducing travel, reducing accommodation ... In fact, on travel, we have a survey that’s just come out with the [inaudible] in Chicago University, and we ask businesses to predict long-run impacts on travel. In their report, long-run as in they defined is 2022 onwards, travel demand down by 40%, which is enormous, actually. And in fact, the largest impact is on business travel, so for airlines, this is huge. So travel is down, entertainment, things like cinemas.
I actually interviewed for a self project, a yoga studio, last Friday, and they talked about cataclysmic collapse in demand because, of course, nobody wants to be sweaty inside a small room. So there’s whole sectors that are hit, but there’s also a twist in the sense that cities, particularly the very dense center of cities, are going to be quite badly hit because for example, skyscrapers. How do you use those buildings? You can’t really get to the front door because of the subway. And then even at the front door, how do you get up to floor 25? So I think there’s multiple dimensions, including a whole industry reallocations, but also geographic reallocations from the cities to the suburbs and the rural areas.
Rob Atkinson: And also occupational, which is related to industry. They’re just going to be in the piece we did where we looked at BLS numbers, we ranked all the occupations informally one to five, with five being sort of the least human interface. So my son’s a computer programmer in Silicon Valley. He’s a five, and a yoga instructor, or I don’t know a nurse is a one, got to be next to somebody. And as you would imagine the correlation is quite negative, the higher your score, the fewer job loss. So the job losses have been concentrated in these occupations that are where you have to actually be with people. And those are the jobs that are going to be slower to come back. I would imagine.
Nick Bloom: Yes. I mean, there’s a couple of things. One is there’s a very worrying impact on inequality that comes out of this. So exactly as you say, if you look at the types of occupations that have intense face-to-face interaction or require equipment, they’re the ones that can’t be done from home. And they’re the ones that also, in reverse, are the most exposed to pandemic infection risks. And they have seen the largest shrinkage. They’re also the ones that tend to be the least well-paid.
On the other hand, folks like me and you that can basically work from home ... it’s not perfect, but we can definitely get by working from home, our occupations have been far less impacted. In some cases actually, are more productive. I know in the survey, something like 20% of people report being more productive working from home because they cut out their commute. And it turns out, of course the same groups of people that have more distant, less face-to-face occupations are also the ones that are highest paid.
I remember going to the American Economics Association meetings in January 2020. I mean, it was literally on the eve of the pandemic and the two big themes that came out were A, slowing growth, and B, rising inequality. And those two are just being amped up dramatically by COVID, so that’s one thing that I worry about, that COVID’s just going to increase inequality running forward.
Rob Atkinson: So, you know, Nick, by the way, I should mention to our listeners, we had a technical problem. So Jackie, unfortunately, can’t join us for the rest of the interview, but I will carry on. What I noted, I think it might have been the March data from the BLS survey. I think it was the CPS survey where they noted the largest increase in per capita, hourly income, probably in American history. And the reason was because the jobs that were lost tended to be lower wage jobs, the jobs that stayed. And so it made the overall average income of jobs go up dramatically. So it’s exactly to your point.
I saw another study recently that something like, I don’t know, 30% of the jobs are producing a vast amount of the output now, because again, people like you and me can work from home, but so many others, the restaurant worker, for example, has a much harder time doing that.
Nick Bloom: Yes. I mean, it’s fascinating. I have been doing another study that’s yet to be published, but I can give you the rough contours of it with the Bank of England. The Bank of England and Nottingham University have something called the Decision Maker Panel. So it’s a huge survey of around 3,000 British firms that runs every month. We actually set it up because of Brexit. We thought, “This is the big one we going to get to make in Brexit.” I mean but boy, it’s like Brexit is the little ripple before the tsunami of coronavirus.
So we had this thing in place for the last three or four years. I mean, we matched it up to company accounts, went over a lot of information about firms’ productivity. And what’s interesting is productivity has taken a negative hit by COVID, but there’s two offsetting effects.
So one is what I call within firm. So each firm on average under COVID has become significantly less productive, and it’s kind of obvious why. There’s a lot of social distancing. There’s a lot of time wasted in a sense on hand-washing, and mask wearings, reduced communication, and all these protocols. So each individual firm looks like it’s maybe 10%, 15%, 20% less productive, so that’s a big negative.
But on the other hand, there’s this between firm or batting average effect, which is within each industry, there’s survival of the fittest going on. So the more productive and more innovative firms tending to do better. But there are much bigger in components between industries, and it turns out, if you just ... I mean, maybe it’s not that surprising. But if you look in the data, and it’s very much to your point, then what’s defined as traditionally high productivity industries that have a lot of value added person that’s like finance is a classic one, or actually manufacturing, have done relatively well. And low productivity industries like food service, accommodation travel, that don’t have much output per capita have done quite badly.
And that doesn’t perfectly offset the within firm thing, but it’s very weird. Now whether you want that as a policy maker is a different question. Because normally you think of what the between thing is called creative destruction. And normally as economics, we love it. We think like it’s great that productive sectors expand and unproductive sectors contract.
But COVID, isn’t quite that. COVID is just that unproductive sectors contract, the productive ones are going to hold in their own. So a batting average, when you actually get rid of the lower tail and that don’t replace it, is not great, but of course it does improve the aggregate figures and it’s almost identical to your incomes. You know the thing we’re losing jobs, but those that are left are higher paying. So in some senses is a very misleading statistic, but yes, productivity of the remaining parts of the U.S. economy is rising. And therefore the drop in GDP is nowhere near as big as actually the drop in employment.
Rob Atkinson: Actually there’s another dynamic there as well. And that’s within industries as well as between industries. I want to come back to that and then talk about the implications of policy. But before I lose this track, I do want to ask your thoughts on that. It seems to me that you’ve got a demand and a supply side questionnaire. I mean, you think about, for example, a sector like movie theaters, a movie theater demand way down.
Even I saw a new study National Bureau of Economic Research Study this week, a very clever study. It looked at some metropolitan area that was on one side of the river and Kansas and the other side in Iowa, I think. And in Iowa, the governor had had a lockdown and in another state they didn’t or vice versa. And as a natural experiment, it turns out there wasn’t very much difference in ... people were, “I’m not going to the restaurant. You can lock it down or not. I’m still not going.”
But one of the things I think that with technology, people don’t want to go to movie theaters, but you know, with 4K TVs now, you get these big 70 inch wonderful 4K TVs, super great broadband. Not go into a theater, and you’ve got companies like NBCUniversal, that’s putting out first run movies right to the streaming. Same thing with airline travel, as you mentioned, just the ability to do business meetings through Zoom and do them quite well. I think these technology factors are going to have a longterm effect.
And then obviously the other one being a travel. I mean, I guess at some point I might decide I want to go back and buy my own groceries, but I sure as hell like going on with my wife and my daughter and I’m filling out the app and having the groceries delivered. Maybe we might keep going. Anyway, just thoughts on that, how the technology changes here and if we had this pandemic 10 years ago, it would have been very different because the technology really wasn’t very good 10 years ago.
Nick Bloom: Yes, my thought would be more like 20. So I do a lot of work. I’m working from home and I actually had a big randomized controlled trial in China we did in 2010 where we got 1,000 people in the firm. We asked them, “Who wants to volunteer to work from?” 500 asked to then we randomized them and we sent basically those were the even birthdays. Like if you’re born on the 2nd, 4th, 6th, 8th, 10th of the month, except you’ll work from home for the next 9 months. And those with odd out of the volunteers stayed in the office.
But yeah, I can talk about that, but what’s incidental to that is the fact that we sent 250 employees to work from home for 9 months in the course of a week. And the four things we need to work from home, are internet, or basically broad band in particularly, email, cheap laptops and video calls. And all four of them are around now. They were around in 2010. The last piece of technology for working from home was actually ... it’s come out of Skype.
So that Skype came out in 2003. By about 2005, 2006. It was pretty mainstream. And I remember coming out to Stanford and using it to communicate with my parents, and my kids communicate with their grandparents. So we’ve really been able to effectively work from home for about 15 years now. I kind of think that COVID pandemic is amazing in a sense, this is something we should have long been doing. It’s strange it takes a pandemic to force it on us in the same way the war has often forced major change. But yes, I think there is going to be big change.
When another statistic in the survey I mentioned earlier about air travel. So 80 firms said they’re going to reduce travel by 40%. That’s a dramatic reduction, in particularly business travel. B, we asked them before the COVID pandemic, “What share of external meetings were online?” And they said, “15%.” We said, “After the COVID pandemic, what share do you predict will be online?” And they said, “50%.” So it’s very clear. There’s a big shift.
You mentioned cinemas. My forecast, by the way, is lots of things like cinemas, gyms, eat-in restaurants that are particularly in retail, that’s in these big malls may well end up being converted into office space. So it has to be clear where that comes from. Skyscrapers and cities are very problematic because getting to them on mass transit and getting up these elevators, people really don’t want to do that because of the close proximity that requires.
So from talking to companies in the surveys, you see massive demand for offices, but out of the center of city. So basically offices that you can A, drive to and B, that you can get to every floor without having to use an elevator. And that looks a lot like the kind of property we have in shopping malls. Now, those offices that exist that are like that. For example, high-tech campuses are in over demand, so there’s not any I know who’s leaving those offices. You need to create more of them. So I suspect what we’re going to see is a lot of cinemas and gyms closing down.
I know they’re perfect buildings for offices. They got parking there, one or two story, you know, they’re easy, they’re near shops. So that’s the sense of the big reallocation. It’s not like we’re going to have thousands of abandoned buildings, something like some mass Detroit, we’re just going to find these buildings are going to be converted to another purpose.
Rob Atkinson: Yeah. I mean, it’s interesting. Before the pandemic, a lot of people were talking about the shopping mall crisis, with ... we move to e-commerce, it’s just going to keep getting a bigger and bigger share retail. And you had a lot of malls that are essentially dead and were dying. And I think is interesting. Your point is, well, maybe, actually now what you’re going to see is some of those malls and similar types of spaces converted into office space. So there’ll be more suburban jobs and that they need to talk to people downtown. They just do it through a video link.
Nick Bloom: Totally. I think there’d be a lot of combustion of this space into [inaudible]. Again, on working from home, what you see in the data is, so again, I just give you some figures just to summarize it. There’s huge heterogeneity of what people want. So, just to be, survey 2,500 people and ask them, “Post pandemic, how many days a week would you like to work from home? So ignoring the infection, risk post pandemic, how many days a week?” And the answer you got was 20% of people said never. So, they said, they want to work in the office five days a week. And if you look at who they are not surprisingly, it’s young single people that live in small apartments.
I mean I saw this out in Shanghai. If you live in a tiny apartment, and you are single, you really want to get into work. You want to make spouse or friends and it’s terrible. You’re very isolated. You don’t want to get up, sleep and walk all there in the same room.
At the other end though, 25% of people that wanted to work from home five days a week. And they looked a lot like my kind of demographic, they were older. They were married with kids now and they owned a house. And, you know, personally for me, I’m not sure they were in the pandemic, but I’m very aware that I’ve been in one of the luckiest groups, that it hasn’t been so bad working from home. And then the remaining 55%, which I’ll say I’ll put myself in that sheet would be people that want a mixed mode. So partly I’d like to be in the office three days a week, but I’d like to have two days a week at home.
And that turned out to be the most typical preference. So the average person in our survey basically would like to do something like work in the office Monday, Wednesday, Friday, and have all their meetings and their social time. And there work meetings and client events then and training and be at home Tuesday, Thursday. And I think if that goes ahead, you could easily see, you know, centers of cities flattening up, moving out to the suburbs, more offices in the suburbs, more retail out in the suburbs.
So I don’t think, you know, it’s the end of retail, the end of dining. Certain industries, I think are more programmatic. Gyms are a bit troubling. You know, it’s hard to think of a gym without getting hot and sweaty, dribbling all over the equipment, etc. I mean, it’s not they’re going to go away, but I wouldn’t be surprised to see the gym industry swivels a bit more towards people’s equipment in their own houses. Or I’ve seen designs for gyms where, you know, there’s one piece of equipment per room, etc.
I think a major question that is very hard for anyone to know about. And in fact, I’m doing a lot of work on uncertainty and one of the things ... I’m actually talking in Jackson Hole in about four weeks. And I’m going to talk a lot about uncertainty now, so, I’ve been looking into this. But one of the huge pieces of uncertainty right now in the long run is how representative the pandemic is. So, in one extreme, you think that this is an outlier event. In a bit ... a little way, like 9/11 was not obviously prestige and increase in terrorism, but there really wasn’t anything of that scale afterwards.
I mean, there still might, but you know, it’s been almost 20 years. And we’ve had to take much more security risks, but I don’t think, for example, at the time, people talking about the end of flying and you saw flights returned to their prior level within about three years.
The other end, is a view that actually these pandemics are going to be very common. And we’re just lucky with SARS and MARs and Ebola and Avian flu that it wasn’t as infectious. And we should prepare ourselves for a world where these pandemics come around every five or 10 years. Now, that’s true. That will really changed things because, if say you’re a company, you don’t want to be ... if you’re Goldman Sachs, you don’t want to be at the top of a skyscraper of every 10 years, you’re going to take a year out of your office building.
So, I don’t know where we are and in some senses, it doesn’t even matter entirely where we are scientifically. What’s also just important as well, people in firms think we are. So, I’ve been trying to collect survey data on that, but of course that’s moving very fast, but I think that’s going to be a huge shaper of the way industry and you know, society reshapes after the pandemic.
Rob Atkinson: Yeah, absolutely. I mean, there’s a lot of uncertainties. One of the things I think as you rightly noted, I mean, at ITIF, we have a flexible policy. People could work from home. I worked from home every Friday for the last couple of years, ‘cause good time to get writing done. But I know when we go back to work, I know that every ITIF employee is going to ... most of them are going to want to say, “Hey, I want to come in three days a week,” and I’ll say, “Great, what difference does it make?” Just so easy to do it now.
So I want to shift over in the time we have left Nick to talk a little bit about some of the policy implications of this and at a sort of a broad general level. There’s really kind of two ways for Congress to think about a recovery package. And I suppose you could say there’s three, they could not do one, which would be a disaster. So, they’re going to do one. The question is, do you do-
Nick Bloom: That in itself is very interesting that the whole economics profession and policy makers have become so much more interventionist. You went back, you know, 30 years to kind of the Zenith of Milton Friedman and the supply side is it’s not clear whether you’ve done anything. In the Great Depression, you go back 80 years, we didn’t do anything until we just let the economy take its course. Whereas now, ‘08, ‘09, I think we learned our lessons. It’s better to act sooner. So exactly right. I mean it’s no longer a policy choice not to do anything, but that in a sense, even in my lifetime, I’m 47. I remember 25 years ago for something like this, the view was ... when I was a grad student economics, that business cycles are part of the natural state of fluctuations and policymakers should do nothing. And clearly nobody ... well, very few people believe that anymore.
Rob Atkinson: Yeah. Thankfully, very few people believe it now. So, I don’t know exactly when this podcast will post, which will be in about 10 days from now whether Congress will have had a recovery package or not. But let’s assume for the sake of argument that they haven’t. I think the big question for Congress really ... and it’s even a question I don’t even think they’re aware of frankly, is do you have a recovery package that is premised on the notion of everything going back to where it used to be? It’s just we’re in this deep trough, we come out of it. The gyms go back open, the restaurants go back open, the airlines go back open. The office space, the office towers go back open, or which I think what you’re saying, and I 100% agree with. No, there’s some of this sort of just overall demand reduction and the economy, but it’s uneven and there’s going to be long-term if not permanent reallocation shocks.
And it seems to me that that’s a big issue in thinking about how you design a package, you were somewhat critical of paycheck protection program in the following sense, and correct me if I’m wrong, that it props up firms that perhaps shouldn’t be propped up. I mean, we’re going to have fewer restaurants in the U.S. I don’t think there’s any question about that. And yet propping up every restaurant makes it harder for the ones that could be stronger to actually survive. And again, not to say there shouldn’t be programs to help firms, I think your point is instead of making that into a grant, essentially forgivable loan. You make it into just a real loan, the stronger companies apply and you respond and go with the reallocation though. Anyway, thoughts on that, what do you think the implications of what you’re arguing are for policy here?
Nick Bloom: I think one overriding thing is the government needs to provide [is] insurance. So if you think of the lockdown, we’re asking people not to work and stay at home. For many people, that is a loss of income. So, you know, I was never in favor of universal, basic income pre pandemic. And I don’t think I will be after the pandemic, but right now I feel like it’s important actually. So during the period we’re literally asking people not to work and they are doing society a favor by not working, we have to compensate them. The second issue is in terms of firms, I think we really don’t want to be bailing out companies that are in sectors that are just pumped, they go into contract. It just doesn’t seem to make much sense. We’re saving a zombie company.
So take the airline industry, it’s very clear the airline industry is probably going to have to contract by a third, you know, maybe even a half. So in that sense, airlines are probably going to have to go bust. So, it would not make sense. And that’s true across large swaths of industry. The tricky thing is then is in terms of how do you migrate from support to encouraging reallocation and, you know, very particular policy that’s tricky right now is the $600 extra top-up on employment insurance.
So during the very worst of the pandemic, it made a lot of sense to have this extra top-up money to basically make people whole. We had asked them not to work, so, we’re going to pay them not to work. As the economy starts to rebound, and we want to restructure, we actually need to get these people back into work. And, you know, I know I’ve heard this from business owners because I’ve been interviewing a lot as part of various surveys, but you see it in the press that business owners will say, “Many of my employees refuse to come back into work ‘cause they’re earning much more unemployed.” And in fact, the statistics are I think 70% of the unemployed currently are more unemployed than there were back in work.
So, I guess my own personal view would be, I mean, it’s hard ‘cause it’s a more complicated policy. It would be structuring the policies to in the short run provide insurance, and in the long-run slowly pull that away so that you try to encourage people to get back to work. So, you could imagine the $600 a week was whittled down whereas maybe a function of aggregate unemployment. If aggregate unemployment is 10%, 12%, you can’t really blame anyone for not finding a job. If unemployment’s falling down to 5% or 6%, it’s much easier to say there are jobs out there and they normally do it by area so much like in the great recession. In the local area, you in the labor market’s healthy, we really shouldn’t be giving extra supplement. In the local area, you had unemployment rates 20%, you know, there’s not really something you can hurt. I think a more flexible post would make sense.
One thing that’s worth noting is unfortunately the current pandemic, we have a horrible political situation. We have an extremely polarized situation. And we have an executive that in my mind, they’re not really focused on the best way to have recovery. And so Congress has handed power to the Federal Reserve Board. Jay Powell is basically running us economic policy and he and the Fed have done really well, but they have very limited power. So in a kind of frustrating situation where Congress and the presidency are not seeming able to do that much.
So, they’ve handed it back to the Fed, but the Fed for example can’t do bailouts. The Fed is not able to do bailouts. It’s only able to enlarge their concept tax policy. So I’d never thought I’d say this. You know, normally I’ve been in favor of America having small government, but right now it feels like we have small and bad government. And it’s really hurting us in our ability to do the pandemic. And you can hear I’m British, but the British are not much better than many countries abroad at laughing at the Americans and the chaos that we’re in. And it’s really not a great example of democracy around the world that the mess that America is in right now.
Rob Atkinson: We’ve been fighting this fight on government modernization really, since we started in 2006, including e-government. And you know, you mentioned the $600. My understanding is one of the reasons they just pick that number out of the air was the state unemployment insurance computer systems are so backward. So hard to reprogram that you couldn’t just say, let’s just do 87% of somebody’s income if you’re below this number, how hard is that? And yet it is hard. We did another study right after the pandemic, looking at how effective the state UI systems were. And there were so many states where you couldn’t apply online, on your phone and it was awful.
At one level for a long time, we can laugh at it. Now it’s not a joke, it’s a tragedy. And I really think one of the first things Congress should do, they should allocate money to the states to get a unified national IT system that allows you to do a state unemployment system that works. And you can then design it to these local labor markets, to percentages all these other nuances that you want to do to get good recovery policy. And we’re not doing that. So that’s my rant for the day here.
Nick Bloom: No, no, I’m totally aligned. Look, America’s rich and successful because it’s had small government, but it felt like it went too far. The downside of small government is if a crisis happens and you need government. We’re just unfortunate, not only is the kind of basic size of the government too small, I guess or at least for the pandemic. But I want to avoid becoming too political, but the current leadership and you can point fingers at both sides if you want, is extremely polarized and there’s a lot of fighting.
I mean, just another observation. The Council of Economic Advisors is basically disbanded. You see the same thing in the UK, just Micheal Gove’s favorite comment about we’ve had enough of the experts. I mean, what’s your response. It’s like now let’s hear from someone that knows nothing about what they’re talking about. You know, it’s very frustrating that we’re in the middle of the pandemic. People like Fauci and economists and financiers that you think might have expertise of being sidelined. And that’s maybe a more fundamental issue with democracies. I’m huge in favor of democracy, but I was actually listening to a podcast earlier today by someone saying the Chinese, what they’re taking away from this democracy doesn’t work because the America’s so fumbled, the response to the pandemic, which is frustrating.
Rob Atkinson: Well, of course, and we need to wrap up here, but of course the all time, great line is Churchill, “A democracy is the worst of all possible systems.” I know I’m blowing the quote.
Nick Bloom: No, you’re right. A democracy is a terrible form of government, but it’s better than all the others.
Rob Atkinson: It’s better than all the others.
Nick Bloom: It reminds me, I actually know this because I’ve been using it to talk about working from home. It’s interesting because many people have been saying, “Well, working from home isn’t great. You’ve got your kids around and you’re in these noisy spaces and you’re on broken equipment and it’s full-time.” And I’m like, “Well, yeah, I totally agree, but thinking of the alternative.” The alternative is not the office as it was so, 2019, when it’s nice, there’s that buffet barracks and ping pong table. It’s the office now, which is mask and gloves and health checks. And, you know, it’s kind of horrible. I mean,
I actually don’t see they ... if there are a couple of policies that ITIF I think would be very aligned on. I would pit for one is just massive expenditure in broadband. It’s very clear that national rollout broadband including honestly subsidizing it to poor parts of cities that can’t afford it makes a lot of sense because broadband is not only important economically for allowing people to work and also school at home, if we’re getting this, even if you can’t work from home, in many communities, your kids still need to learn from home. But also enabling people to stay home for medical reasons that we don’t want them going out. So, broadband seems like it’s a no brainer for a policy.
The other area I think is just more expensive than R&D. We know U.S. growth has being slowing for the last 30, 40 years. The government’s been pulling back on expenditure into research and development, particularly the R that is strikes me that, you know, most basic sciences, the kind of thing we want, both for addressing the pandemic, but also to restart growth. So, going back to the ‘50s and ‘60s, we’re at this explosion of university research, it’d be great for the federal government to put more money into things like the NSF and the NIH.
Rob Atkinson: So if we were one of those Roman republics where they had two liters at once and we were both the leaders, we’d be in great shape because we’ve long argued. In fact Doug Brake just did a nice report on that, why broadband both in terms of rural build-outs, as well as urban or low-income supports for people so they can afford broadband is critical. And also R&D, we spend less money on R&D at the governmental level as a share of GDP than before Sputnik. It’s unbelievable.
So, Nick, this was fantastic. We could go another hour, at least I could. And I’m sure our listeners could, but we try to keep these to some limited time. So, thank you so much for being here. Can you tell our listeners how they could find you and look at all the great articles that you’ve been writing and others?
Nick Bloom: All right, thanks. Yes, I think the easiest thing, it just put Nicholas Bloom or Nic Bloom into Google or you can add Stanford. I share that name with quite a few other people. I’m quite a good rugby player and my uncle weirdly enough, he plays the guitar. But I think if you put Nick Bloom Stanford, I should come up top in the ... Then I have a bunch of blogs and things on my website.
Rob Atkinson: That’s great. I actually share the name with one of the best tattoo artists in the world. So I think I’m confused for that all the time. So great. Thanks again, Nick. And that’s it for this week. If you liked it, please be sure to rate us and subscribe. You can find the show notes and sign up for our weekly email newsletter at itif.org and feel free to email show ideas or questions to [email protected]. And please follow us on Twitter, Facebook and LinkedIn, @ITIFdc.
Thanks for listening. We have more episodes and great guests lined up. New episodes will drop every Monday morning. So we hope you’ll tune in next week.
