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How worried should we be about COVID-19 and the economy?


You know. Much as stock markets have built circuit breakers to put a stop to panic selling and recalibrate the mood. Which by the way happened today. Not Long. After the open when the S. and P. Five hundred hit seven percent on the downside. So too will we use the program today to recalibrate the mood to explain. Why all of a sudden the economic realities of the corona virus seemed to have gotten so much more real to start us off economists making green from the Harvard Kennedy School Megan's to have you back on the program. Thanks for having me. Why as best you can figure out did. The bottom seemingly fallout today. What happened so I think it was a confluence of two things? Mainly one is northern northern Italy. Pretty much shut down so it just fed the idea that even if cases or slowing down within China they're actually accelerating outside of China. And that's a big deal and then the second issue actually isn't directly related to the corona virus. It's more related to the OPEC meeting on Friday where Saudi and Russia decided to flood the market with oil. And so I'M OIL. Prices of fallen pretty precipitously and that creates huge credit problems for a lot of companies related to the energy industry which are actually pretty highly leveraged inert generally rated just above junk level. And so if you start seeing defaults than they'll be downgraded and there will be four selling so that's also provided a lot of drama today highly leveraged lots of borrowing more on oil coming up from Scott Tong in a minute. Let me ask you about a word you use though Things are accelerating outside China. Speaking broadly are you surprised at the speed with which this whole thing has come to this moment. Sue Him nine just given how incredibly interconnected. The world is both in terms of global supply chains but also more importantly in this case in terms of people traveling around and I think that China really did great work in buying the rest of us time In that they had really draconian measures to try to keep people in their own towns in their own buildings. It's much more than most people realize. In addition to quarantining and social distancing. You know there's an APP that the government runs where you can see you as corona virus. So that enforces social distancing so China about us a lot of time and a lot of us could have completely squandered it most of all the US so our response to this crisis has been pretty embarrassing. I think for a developed country with a highly competent health system. How much of that American response contributes to what I perceived to be the changing nature of this crisis. It's going from a supply shock which we talked about when apple had its earnings warning to now people worried about demand shock and the credit markets. And all of that. So the demand shock. I think we're really worried about and rightly so but we don't actually have any data that suggesting it's happen. So the demand shock we know is coming out of China Rate. The second largest economy in the entire world was at a standstill for at least five weeks for for the. Us demand shock at home. It's just perceived at this point right it involves people not going out to dinner not going out and spending and we can certainly get there but at the moment I think it's just concern about. It's not we're not getting any data that suggesting that that's the case really It's just something that seems like it might be coming and I think it's absolutely reasonable for us to worry about this. And then that's feeding over into the financial markets of course is confidence is is been bled from them. And so you've seen these huge moves over the past couple days if and let stress that this is a big if but if we do turn into a recession in this economy given the underlying fundamentals as politicians like to say we're strong right. The labor market strong consumers are really confident. What might a recovery look like on the other end of this thing depends entirely on epidemiology and None of us really have answers there so it really depends on how far this virus spreads if the viruses eventually contained and we have inappropriate policy response with some fiscal stimulus. You know a year from now the we might remember this entire experience but know we'll have forgotten about the economic implications of it traits. So it could just be transitive. We saw that. With the SARS virus for example. There is a big drop off in demand and then you know it picked up pretty immediately once the virus was contained. So that could be the case here but if it actually is spread further and is more deadly than of course we might not get a v-shaped recovery. It might be much more gradual and require more policy intervention Megan Green and economist. Also a senior fellow at the Harvard Kennedy School. Thanks a lot of really. Appreciate your time and your

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