’This is not a normal recession or even a normal depression’: Former White House Director of Economic Policy
Former White House Director of Economic Policy under George H.W. Bush Todd G. Buchholz joins Yahoo Finance's On The Move panel to discuss how leadership has been responding to the coronavirus outbreak.
Video Transcript
- But let's talk more about the stimulus measures here. I want to bring in Todd Buchholz. He was the White House Director of Economic Policy under George H.W. Bush. Todd, it's good to see you. I hope you're well. And I want to ask you about what is needed--
TODD BUCHHOLZ: I hope I'm well, too.
- --as we see Congress sort of haggle over what should be in a stimulus bill.
TODD BUCHHOLZ: Well, look, there is no doubt that businesses are hurting terribly. Large businesses and small businesses. The service sector, in particular. It's nice to hear today that Hasbro is selling more toys. Netflix is obviously streaming more programming. But the problem for this economy is the government basically has us on lock-down. That means no one's going to restaurants, no one's going to hotels, no one can board a cruise ship.
And so the government needs to be cranking up the printing press as the Federal Reserve Board has promised to do, buying debt as the Fed has promised to do. But the government's also got to be giving bridge loans, and not just simply bridge loans, but forgivable bridge loans.
Because this is not a normal recession or even a normal depression as a result of over speculation. This is a problem where we have a biological disaster and a government that is essentially telling companies, do not do business now. I had a piece in the Wall Street Journal last week suggesting that the government, desperately, is going to need to help the service sector, restaurants, hotels, the cruise ship industry, because Americans are going to be afraid to get out of their homes.
And so I think that should be targeted, actually, for midsummer. In the piece in the Wall Street Journal, I argued that every American household should get a prepaid debit card from the government with $500 deposited on it that can be used starting July 1st to go to a restaurant, to take a cruise to Alaska, to go on a hotel trip. We need to truly make America not just great again, but fun again. And obviously this virus has taken all the fun out of normal life and out of the economy.
- Todd, I was curious. There's some speculation-- Larry Kudlow has alluded to this, the president has alluded to this-- that in another week, they may pull back on this shelter in place social distancing formula that a lot of states and the federal government are using. Would that be a mistake, ignoring the scientists?
TODD BUCHHOLZ: Well, If they were ignoring the scientists, it would be a mistake. But of course, there is a division among the scientists. The British have taken a slightly different view. There is an argument that perhaps, maybe college students, because largely they would be unaffected, as young people, should have stayed on college campuses rather than bringing potential infections back to the general community. So there is a scientific debate here.
There is no way that President Trump, or my friend Larry Kudlow, or anyone in Washington D.C. knows, at this moment, what would be the optimal time to tell America that the streets are safe again. That obviously has to be detected day by day, hour by hour. And if we get some encouraging results from Gilead, or get encouraging results from the chloroquine-zithromax combination, well, that would advance the calendar. And that would be tremendously good news.
RICK NEWMAN: Todd, Rick Newman here. Some people are saying, with regard to helping companies, just let them declare bankruptcy and then use bankruptcy for what it does. Figuring out how to apportion out debts and things like that. Of course, we did that to some degree with General Motors and Chrysler back in 2009. Is that a good idea this time around?
TODD BUCHHOLZ: No. I think that's a bad idea. You know, there were those in the Great Depression, those stick in the muds who said the answer to the Great Depression is not for the Federal Reserve Board to print money, or to make it easier for people to get loans, but to liquidate, liquidate, liquidate. And that's, in fact, what the Federal Reserve Board allowed to happen in the 1930s.
But the great economist Milton Friedman had staked his career on showing, successfully, that if only the Federal Reserve had taken aggressive action, we could have avoided 25% unemployment. So I think Jerome Powell at the Federal Reserve Board is taking a page from Milton Friedman's book and doing the right thing. Because again, this is not a matter of over speculation. This is not a crisis that was driven by companies over expanding and using other people's money.
There are many responsible. Most of the businesses that are feeling great pain now were very responsible up until a week or two ago. And now, through no fault of their own, they are suffering. And to allow them simply to declare bankruptcy and try to rebuild themselves, that is not necessary. The Federal Reserve Board has an unlimited balance sheet. Someday we may have to pay back the debt, but boy, if the world is willing to lend us money at 0.7% interest rates, now is the best time to take advantage of that.
- Well, Todd, it's so interesting. You're saying that-- I kind of revisited a post you had written in the South China Morning Post last summer titled, China and Europe are in a slump, but the US economy is profiting from their pain thanks to those low interest rates. When you think about globalization and the way that US has benefited, now we're seeing the downside where we're all so very interconnected.
And to your point, a lot of the industries that have been hit the hardest are the ones like tourism and hospitality, where we rely on other people and that interchange of commerce. Can you speak to kind of the forecast, looking six months ahead, as to how you anticipate the US to fit back into the global economic picture?
TODD BUCHHOLZ: Well I think the US will end up being more "guarded" about industries that leave the US that turn out to be critical industries. In this kind of crisis, you can imagine a situation-- Well, let's say that China had not flattened the curve, and needed every bit of medicine for its own citizens. With so many pharmaceutical laboratories in China, the US could be facing an even greater shortage.
So I think the US government, US industry is going to revisit-- you know, Donald Trump had this campaign on the idea of bringing factories back, and he made that as an economic argument. But now there is a little bit more of a national security argument that we're going to have to be prepared to make things in America, that could be deemed critical. And this bio virus, this biological threat has made that more clear, at least in that case.
- Todd I just wanted to mention, we had said a few moments ago that Boeing shares were halted. It looks like we now have the news on Boeing, which is that it plans to shut down its factories in Washington state for two weeks in an effort to slow the spread of COVID-19. As we've been talking, of course, we've been talking about the various stimulus measures, and a question that I frequently been asking guests is, how do you balance support for big corporations and industries with support for individuals and small businesses?
Because yes, Boeing is vulnerable for other reasons, but it seems like the vulnerability here would lie more with the individuals and small businesses, no?
TODD BUCHHOLZ: Well, I think for many communities that's the case. 2/3 of the economy is built on consumer spending. Most of us are buying haircuts and dinners at restaurants rather than buying our own personal 737s to keep in our garage. But there's no doubt the employment in large industries is vast, and Boeing employs not just those in Seattle to build the planes on the shop floor, but all of the inputs.
And those inputs may be from small businesses, whether it is seat covers that are made by small upholstery firms throughout the country, or it's a matter of pieces of plastic that are appended to the armrests. Those are built in Boeing factories. Those are made by smaller businesses. So I think it becomes a very political discussion, is it big business or is it small businesses? The big businesses directly employ people, but there are many constituent parts.
And so I think we've got to be careful about that. But to your question, or your point, Julie, yeah, we need to be helping small businesses as well. The restaurant industry has been devastated. It's hard to put them back together again. Boeing and other large businesses tend to have more cash on hand than some guy who's trying to keep his pizza joint going.
And so, therefore, Boeing might be able to endure a two week shutdown, or a three week shutdown. Most small businesses don't have that extra cash on hand and the ability to meet payroll. And the government here has to step in.
- Todd, good to see you. Stay well. Todd Buchholz is former White House Director of Economic Policy under George H.W. Bush. We appreciate it.
