NYT's David Leonhardt on inequality, the economy and the Covid-19 crisis | Homeroom with Sal

– Hi, everyone Sal Khan here from Kahn Academy Welcome to our Daily Homeroom live stream which is really just a way of having interesting conversations and staying connected during this time of school closures and social distancing Before we get into what I expect to be a very exciting and interesting conversation with our guest, I will give my standard announcement We are not for profit, we’re only able to exist because of philanthropic donations I wanna give a special shout out to several corporations that have stepped up in the last few weeks, especially as our costs have gone up Our usage has been about 2.5, three X of what it typically is during this COVID crisis You can imagine server costs, and we’re trying to increase our programs and content for a lot of folks So special thanks to Bank of America, Google.org, Novartis, AT&T, and Fastly, and our many other supporters who have been supporting Kahn Academy through the years that have really put us in a position to be able to do the work we’re doing now We still are running at a deficit So if you’re in a position to do so, please think about making a donation to Kahn Academy With that out of the way, I’m excited to introduce our guest today, David Leonhardt who’s a writer for the “New York Times” Good to see you, David – Good to see you, Sal Thanks for having me – No, it’s an honor And you know, you’ve been writing for a little while and you’re doing a lot this summer or the spring on inequality So what got you interested in inequality? – I guess, my background when I was in school, my favorite subject was math, but I also really liked working on the student newspaper So I think to some extent, it’s just a reflective of this long-time interest that I’ve always had of describing the world around me using numbers, and then doing it for a general audience, rather than an academic audience But then as I became a journalist over the last 25 years, I really came to think this was one of the most important things, really along with climate change, going on in our country The fact that the living standards of most Americans don’t track anymore with the statistics you read on what our economy as a whole is doing And that really creates all kinds of problems And in a way, that’s really what inequality is And so I think it affects everything from politics to obviously, living standards, to education, to health We clearly see it playing out now in the coronavirus And so it’s one of these things in which everywhere I looked around, or almost everywhere, I saw inequality kind of as an explanation for a lot of the huge trends in our society – And I wanna look at some of the charts in a little bit from some of your op-ed pieces, and some of your articles you’ve written But you know, just as a, maybe this will be a naive question, but just as a level set You know, in society, some level of inequality one might argue is inevitable Is there a certain threshold of when inequality becomes too much? And you said that it could lead to problems What type of problems do you think large inequalities could lead to? – Yeah, I think that’s an important level set I mean, I think not only is some degree of inequality probably inevitable, but I would go so far as to say it’s probably desirable The societies that have tried to get rid of inequality entirely have failed, essentially And probably the best, most tangible modern example is in China in which in the 1970s, China discovered that it was really having a hard time getting anything done because they were insisting that everyone was gonna have the same no matter what People weren’t farming their lands in efficient ways And the great sort of economic revolution in China was lead by Deng Xiaoping in which he tried to move, essentially, toward a system that was going to inevitably result in more inequality But it also lifted almost everyone’s living standards The problem is was when inequality just gets too, too big And we’ve seen this happen a number of times throughout history It happened in parts of the late 19th century in this country It happened in the 1920s And when inequality gets too big, you have many problems But I’ll highlight two One is that the people who are amassing huge amounts of society’s resources end up being able to essentially set the rules through the amount of influence they have over both the economy and politics to make sure they never lose what they have And two, is you end up with a lot of people whose living standards just aren’t rising very rapidly because you have such a large share of society’s resources going to such a small portion of society And you know, it’s subjective about when it’s too much But when you look at just how much inequality has increased over the last 30, 40, 50 years in this society

It’s been so extreme that I think you either have to say, “Well boy, something was terribly wrong in our society “in the ’50s and ’60s and it was too equal, “or something is wrong now, and it’s too unequal.” It’s hard to really imagine that both can work well – And there’s this fairness argument which you make very well just now that at some point, money to some degree is power and then that power could be to keep more money And then obviously, there’s a fairness that it just gets at some point unfair But are there other implications? I mean, if it gets too unequal, the things like the French Revolution, or I mean, is it just the nature of our democracy become less stable? – I think it does There’s a fascinating book by a couple of political scientists in which they look at why nations fail I believe that’s actually the title of the book And they argue that over the course of history, inequality is the key, not the only, but is the key reason why societies decline That when basically you have societies in which the mass of people are not enjoying rising living standards, it can lead to political instability It also can end up being a real waste of talent If large sections of your society are closed off from opportunity, or even if they’re not completely closed off, if opportunity’s so difficult that most of the people in those sections of society will not be allowed to escape it, you end up missing out on huge amounts of talent There’s a recent research paper called “Lost Einsteins”, that tries to quantify some of the costs of our rising inequality And the idea is that there are probably hundreds of kids today who might reach the very, very top of science and other fields if only they had better opportunities than they do And so there really are, even if you can’t predict when those bills will come due, or exactly how they’ll come due, there really are long-term costs And I think even people who are on the happy end on many of the inequality trends should have some reason to worry that in the long-term, it could lead to a society that functions much less helpfully than one where living standards are rising broadly for most of the population – And let’s make that a little bit more tangible Philippe, if we could bring up that first chart which comes from one of David’s articles that shows inequality, or actually, it shows per capita GDP over the last several decades, and how the different groups David, could you just explain what’s going on here? It might be a little bit small depending on how large people’s screens are, but what do we see here? – Yeah, so I love this chart And so I think the place to start is exactly where you said we should start which is per capita GDP So that’s that dark black line with per capita GDP pointing at it So that’s basically over, since 1980, that’s the cumulative percentage change in how much our economy produces every year So you take the total value of everything we’ve produced, all the services, all the goods, everything, and then you divide it by the number of people That’s per capita And you say, essentially, if we divided our GDP perfectly evenly which again, I don’t recommend, that’s what would be happening And so you can see it’s really rising quite nicely in some ways, right? I mean, it’s nearly an increase of 100% So I’m sure most of the listeners know would be a doubling, okay? So it hasn’t quite doubled since 1980 This is adjusted for inflation, but it’s come pretty close to doubling But then, you kind of get under that, and you look at what’s happened to each economic group And you look at the bottom 50% Well, their incomes have risen They’re making more money than they were in 1980, but they haven’t risen that much – [Sal] And to be clear, this is all an inflation adjusted So it’s not just, you know, people say, “Oh, things were cheaper in 1950,” but this is adjusted arguably for inflation This is real income – This is adjusted for inflation And there are fights about exactly about how to do it, and is it perfectly done, or is it overstated or understated And those are good, interesting fights But the bottom line is if you adjust for inflation, what you’re really trying capture is the experience, people’s lives The fact that today, something, you know, what’s a Big Mac today? Five bucks? The fact that it might have cost two bucks in the past, I hope I’m not wrong about that I don’t eat a lot of Big Macs, that doesn’t actually show any significant difference between it over time So you adjust for that So what you see here is that for the bottom 50% or the middle 40%, things have risen You know when people say that the middle class today is making less money than it did in the past, I think that’s wrong if you’re looking at the long-term past But the increases have been modest And here, I think, is an important thing They have been much smaller than the increases

you would expect based from what our economy has been producing You then move up to what for shorthand, I call the upper middle class, the 90th to 99th percentile You’ve got a lot of doctors in there You’ve got lawyers You’ve got university professors You’ve gotta a lot of professionals, right? Their income has tracked actually quite closely with per capita GDP Not everyone’s, but as a group And then when you get to the top 1%, and really to the top of the top 1%, the top .01%, you see that they’re on a completely different trajectory Their incomes are tripling, are quintupling And so when you see this, I think it helps you realize some of the frustrations that people have People feel like, “Wait a second, “even if I make more money than my grandparents did, “than my parents did,” which some people do and some people don’t, it sure doesn’t feel like I’m keeping up with society as a whole And they’re right about that And it’s not just absolute changes that people judge their lives on There’s a rich psychological research that shows it’s relative changes as well I mean, put it this way, Sal, if you and I worked at a company where profits doubled, and you and I got a 10% raise the previous year, and we could look and see a bunch of other workers who got their pay tripled, would we say, “Oh my goodness, we’re so happy “we got a 10% raise”? Or would we say, “Wait a second, “this doesn’t feel totally fair.” And I think that’s how a lot of Americans feel, and they’re right to feel that way – And before we get into potential causes of these trends, I will ask, and I’ll play devil’s advocate a little bit which is you know, there’s this argument, look, we have market forces, capitalism As you mentioned, you don’t want absolutely equal You want people to wanna invest and take risk, and that might lead to some, and there’s bad and good luck that leads to some level of inequality Some would argue that, “Hey, look “At the end of the day, it looks like everyone has improved “in real terms “Why should we be so caught up with the relative?” Wouldn’t you rather have a world where everyone is improving, maybe some more than others, than a world where it’s equal, but we’re not improving as much? – Well, sure And I think part of the answer to that question is this is definitely better than some alternatives you could imagine It’s better than a world in which GDP wasn’t rising at all It’s better than a world in which only a small percentage of people are seeing an increase and no one else is seeing any kind of increase But when you look across the relative comparisons, it seems to me it really requires a stretch to argue that this is the natural outcome So one relative comparison would be other high-income countries over the same period They’ve also seen inequality rise, but they haven’t seen it rise as much as the United States has So some other countries have figured out ways to have middle class pay rise more rapidly and pay for low income workers rise more rapidly than our pay has risen Maybe even more starkly, those countries have also have had health and life expectancy grow substantially more than the United States has So it seems like they’re doing something differently from us and for much of the population, most of the population, it’s working better Then you look at our own country between the 1940s and the 1970s By no means a perfect period, a period in which opportunities for women were highly constrained, in which there was vicious, often legally sanctioned racism in which large numbers of Americans couldn’t vote Again, by no means a perfect period But when you look at these same measures what you see is that the pay of nearly every group, if we look at this from the ’40s to the ’80s, ’40s to the ’70s, the pay of every group would be much closer to that black line And not only that, but the pay of the middle would actually have increased a little bit faster than the pay at the top And so I think the burden, the people who say this is the natural outcome, I think the burden is on them to explain, well wait a second, why is this a natural outcome if it’s not what the United States used to have, and it’s not what many other countries have had? – And so given that, let’s go into possible reasons for why this either is happening around the globe which it sounds like it has been happening to some degree, and in especially in the case of the United States What do you think are the culprits here? – So I think there are a few And I think they’re all fascinating So I apologize, I’ll be going through them extremely quickly if you wanna dive more into any one of them I think it’s clear that globalization is part of the cause here And there’s a lot that’s wonderful about globalization I mean, for much of the late 20th century, you had large parts of the world that essentially weren’t competing in the global economy Either they were too poor, or they were part of the Soviet Empire

and essentially weren’t able to compete in the economy Or they were Europe or Japan which was essentially destroyed by World War II, both of which So some of it is this entrance of billions of people into the global economy which has increased competition, particularly for certain kinds of labor, and has created problems for people in the more affluent world That’s also wrapped up with technological change which plays a role there Then though, I think there are a set of forces we have essentially chosen – And just to make sure we all make sure we understand those points about globalization and technology ’cause I think they’re similar You know, some would say, okay there’s competition around the world, but why is that disproportionately affecting the lower incomes? And your argument would be technology and globalization You know, technology obviously is now arguably a robot or a computer might be able to do parts of that job So it kind of lowers the importance maybe of labor, or at least the negotiating capability And obviously if there’s someone in another country who could do that same job and because trade barriers have gone down, and monetary barriers have gone down, people can relocate factories And so now all of sudden, that could put pressure on wages in the US or in richer countries if someone in another country can do it for cheaper – That’s precisely right I mean, you take furniture manufacturer in North Carolina has managed to move to Latin America or to Asia where workers to do some of the same work, or maybe not as efficiently But if they’re being paid 1/5 as much, it doesn’t matter if they’re not as quite as efficient in doing it We’ve seen this again and again If workers are being replaced by farm workers, they might be replaced by a machine that can do what they would do And so maybe you used to have 10 workers doing something manually or with a factory assembly line Now you have two or three workers operating computers that make the same goods So those are true forces, really important forces – And then just to be clear on globalization, the academic argument for globalization is it actually makes the pie larger And so the consumers of those services or those goods, they might be able to get it for cheaper now And also, what’s probably happening to your point is those who own the technology or have the capital, they might be getting better returns now because some of their costs have gone down They’re able to lower the price so the consumers benefit, but then they’re able to get better profit because their costs have gone down even more – Yeah, and then I would argue maybe even bigger than either of those is that it can bring good jobs to people around the world You know, the last 50 years have seen the greatest reduction in global poverty in recorded history It hasn’t been in this country It hasn’t been in Europe, it hasn’t been in Japan, but it has been in China, in India, in large parts of Africa and South America And so that is a very good development for people who live there It’s a good development for the world – And that’s a good disclaimer And I can’t wait to get to all of the questions we’re getting, but I do, I wanna go through all of the levers But this is, you know, as we talk about these levers, even though a lever may be contributing in some way to inequality, we’re not saying that it’s bad There might be other positive aspects about it There might be ways to mitigate those things So I think very quickly, you know, people say, “Wait, I like globalization “I don’t like globalization.” But it’s like, no, well there’s just some things that it might be contributing Might have benefits, might have negatives Same thing about technology So let’s keep going through these levers, then I’ll open it up to some of these questions I’m seeing – That’s great, I’m excited to hear them So I think then there are a set of things where I would argue that they are in many ways policy choices that we have made with either knowing that we’re making them, or not necessarily knowing So one of the really key changes is that we are no longer producing educated, increasing the stock of educated people at the rate that we used to be There’s a fantastic book by Claudia Goldin and Larry Katz called “The Race Between Education and Technology” And the title captures a lot this, which is the example I just gave where you went from 10 workers to two workers Those two workers, need to have higher skills in order to operate computers And if you think of the long sweep of history, you can kind of imagine this race between education and technology The technology gets more sophisticated Are we producing the kind of workers who can use the new technologies? And there’s been a huge slow down in educational attainment in this country, even though all the signs are that education pays off And I know people say, “Wait, is college overrated?” But as I like to point out the people who say, “Is college overrated?”, are often making sure that their own kids are going to college So I think in terms of their own behavior, people understand that education is not overrated The unemployment rate for college graduates is vastly lower than for non-college graduates The pay gap is near an all-time record College graduates live longer They are more likely to be happy They’re more likely to be healthy And so but we haven’t done a good enough job allowing more people to go to college and really, to complete college

So education is one issue – And actually, I’ll double back ’cause there’s a good question on that There’s so many I hope we have a little bit more time because I wanna get through all of these But there is a question that relates to your point about the college education which I think is interesting Mamata Barachariah says, “I often think we can get rid of inequality “by educating everyone who wants to be educated to your point, “but don’t you think this crazy college tuition “is one of the reasons behind the massive inequality?” And I also have heard the data of those with a college education make X amount more and et cetera, et cetera But you know, it’s not a causality necessarily It could be a correlation And so we’re getting a lot more people to go into it They’re getting into large amounts of debt, debt that’s equivalent to the down payment for their house in New York or California, and probably buying a house outright in a lot of the country Do you think, and maybe that’s not even captured into some of these inflation numbers What’s your sense of that? – So I think it’s important to separate this The cost of college is a real problem, but it’s often, I think, mis-described a little bit People hear, you know, it costs, you’re out in California, I’m out in Washington You know, it costs, what, $70,000 a year to go to Stanford, or to go to Georgetown or to go to a school like that But it’s really important to remember those are not normal schools And not only that, but the schools that charge that tend to give large amounts of financial aid to middle and lower income people The typical college, you know, like a California State University, or the University of Maryland at Baltimore County, or you name it, these places cost vastly, vastly less They still cost a lot And I think they probably cost too much, but you can’t end up going to one of those places and end up with $200,000 worth of debt You know, the average debt for college graduates is around $30,000 That’s not nothing But it’s much, much less than the gap So cost is a problem But still, the truth is that the vast majority of people who finish easily pay off their debt Not everybody, but the vast majority College debt is a much bigger problem for dropouts College debt is a bigger problem for people who end up with $15,000 of debt, but don’t get a degree We don’t talk about that crisis nearly often enough And then the only other thing I’d say is there’d been some really good academic studies that have studied people right at the threshold of getting into the least selective four-year college in a state like Florida And the people who were just above that threshold, and who just get into the least selective four-year college and thus have a shot to go to a four-year school actually end up doing substantially better in life over their 20s, that’s just as far as the data’s gone out, than people who just missed that threshold And so while clearly part of the value of college is correlation, I do think part of it is also causality – Yeah, no, that last study sounds really interesting And look, I can personally testify And I went to one of those schools that I didn’t think I could afford ’cause the MSRP price was very high But I was able to go even though my mother made $16,000 a year in 1993 So I can completely vouch for that But anyway, I interrupted the various levers So we talked about globalization, technology, and education Let’s keep going – Yeah, yeah So I think you can combine immigration and trade policy I think sometimes people overstate the importance of trade policy It’s not like the trade deals we’ve signed have caused all these problems But some of them really have contributed to it And basically what we’ve done is we have allowed our both immigration and our trade policy to create much more competition in the middle and the bottom of the labor market than at the top So as you probably know, it’s like impossible if you’re a doctor from another country to move to this country and become a doctor, right? You kind of have to start all over at the beginning That’s basically a big trade barrier that protects doctors in this country, right? We say it’s because we don’t trust those other medical systems, but there are plenty of easy ways to figure out whether doctors are actually qualified without simply rejecting all of these qualifications from other countries But we don’t do that We make it really hard to become a doctor in this country On the other hand, we’ve had this absolute surge of lower skilled and medium skilled immigration into this country over the last 30 years That’s had some big benefits, but it also really has created additional competition And so when you look at our trade and our immigration policies, many of them really make sense that they have put more pressure on the wages of people in the middle and the bottom than at the top And then I would just very briefly after that, our tax policy Taxes on the very rich have plummeted The estate tax, income taxes, corporate taxes, every tax that the very rich pay have basically plummeted over the last 40 years And taxes for the people in the middle and at the bottom which very important,

there tend to be the payroll tax and sales taxes, have just not fallen very much And so over the same period that the market has caused inequality to rise, our tax code has exacerbated those changes rather than pushing against it – Philippe, if you could bring up that animation from David’s Twitter account on how tax has changed over time I think that really hits the point home of what David’s just mentioning There’s an animation that I really enjoyed, and I actually made a video with it Yeah, here we go And what you see, actually, you could explain this What’s going? It keeps repeating itself – [David] So this is the total tax rate You combine federal state and local for the very richest families I can’t remember You may see it on there as the top .01% You know, it’s something at the very, very top – [Sal] And what you’re saying that the right side, the right data point is for the richest? – Yes, thank you, sorry This is the whole tax Exactly right, Sal This is the whole tax This is the country, right? And so what you can see is in the middle and the bottom, these tax rates aren’t changing very much They’re staying within a fairly narrow range That’s the yellow line and the middle and to the left But to the very right, where you’re seeing the very, very richest folks, the tax rate is plummeting over time And I wanna emphasize, this is actual tax rate This isn’t the statutory tax rate you pay on the last dollar This is you take someone’s total income You then take all the taxes they pay, federal, state, and local And back in the 1950s, the very, very wealthy were paying more than half of all their income in taxes Maybe that’s too high May well have been too high But it’s plummeted to the point where out tax code now looks extremely flat There are fights among economists about is it totally flat? Do the rich still pay somewhat more? But the data all points in the same direction which is it’s become much much flatter than it used to be over time because we’ve cut taxes on stocks, on other investments, on inheritances, and on very top incomes And we haven’t done that to sales taxes and payroll taxes – [David] And just to make sure people understand, each, if you know at the horizontal axis, the left is the lowest income earners And then you go to the 30% percentile, 50th, 70th, 90th, 99th, and then 99.99th, and then the top 400 people And then the vertical axis is the tax rate, effective tax rate to your point It’s the total amount they paid, I guess, divided by their income And to your point, you see how this flows from 1950 all the way to close to present times And yeah, the zero to the 90th percentile or so, it’s been pretty much the same tax rate, give or take While it’s really that top 400 or the 99.99th, or even the 99th percentile that’s come down a good bit And you know where it ends is fascinating because it ends in 2018, where the total effective tax rates for the top 400 is lower than the 99.99th which is lower than the group right before it So how does that happen? ‘Cause you know, when I fill out my taxes I see for every incremental more you make, they’re taxing at a higher amount So how is it possible that the top 400 are taxed lower than the 99.99th percentile? – You may remember a number of years ago, Warren Buffett got a bunch of attention by saying that he paid a lower tax rate than his secretary And Warren Buffett is very good at explaining things pitifully And in some ways, that’s what he’s describing or what you see here One of the reasons is that we tax investments at a lower rate The people setting policy have decided that if you tax investments at a lower rate, you’ll get much more investment That’ll benefit everyone long-term It hasn’t quite worked out the way it’s been sold, but that’s the theory And so basically we tax things like stock returns at a lower rate we tax labor income And the people on the far right of this chart have much more of their income in capital investments, in stocks than they do relative to the people in the middle – Yeah, and actually, I asked that last question somewhat naively My last career, I was a hedge fund analyst And I remember, I mean, my boss who was a portfolio manager and was the partner, he felt guilty about it He, a great guy He actually would donate We once made a good investment on an egg company, and he felt so bad because he’s a vegetarian that he donated all of his profits for humane treatment of chickens But he felt guilty when I learned about this I was paying a higher tax rate as an analyst because that was just income versus what he was paying because his income was classified as capital gains income So he was paying roughly 15% while I was paying 40 or 50% So it is a fascinating phenomena So we have a ton of questions here We’re already at our normal end time, but I wanna make sure we get to some questions Let me know, David, if you’ve gotta run

or if you’re running into another session But you know, one question that’s been coming up a lot, even before COVID, you know, Maya Sharma from YouTube asks, “Do you think universal basic income “is a valid solution in the long-term?” – So I mean, look, this is a great matter for debate, right? And if we have any high school debaters listening today, I know that universal basic income was one of the big topics that was debated on the high school circuit last year And it seems like it’s actually led to a lot of debates that people really liked because there are very good philosophical arguments on both sides of it What I would say is I think that it really does have some of the same incentive problems that we talked about with some of the issues of societies that tried to get rid of inequality I know universal basic income isn’t trying to get rid of inequality, but I think when you look at what really, really matters to people, what correlates with good health, what correlates with happiness, it often does involve work It involves the dignity that work brings It involves feeling like you’re part of something larger, a larger project And so I have some real skepticism about universal basic income as our solution And I would be much more interested in a set of solutions where we really tried to substantially increase the returns to what are now low wage work You can do that through a much higher minimum wage You can do it through a much bigger earned income tax credit And then, maybe also looked at the idea of rewarding people more for what are now unpaid forms of labor, like child care and elder care But to me, the idea of a universal basic income where we’re paying people not to work, despite everything we know about some of the health and psychological costs to not working, and in addition, Sal, I don’t think I need to receive universal basic income You know, I have a job as a journalist and it pays me enough to live on And I really don’t think our government should be sending me a check every month And you know, there are millions of people who also don’t need to be getting a check every month So I’m a skeptic of universal basic income, but I also see the arguments for it, and I think it’s a good thing that we as a society have started to debate it more – Yeah, and I think the argument would be, if we received checks, we’ll also on the other side be taxed higher, so it would kind of be a wash But it’s easier to implement things like other social safety nets created some of that disincentive that you talked about While universal basic income, you could still have a job But yeah, it’s an interesting debate You know, one of the things you brought up was minimum wage An economic purist would have an argument against it saying, “Hey, if you artificially raise the market-clearing wage, “then companies, your classic economics “with your supply and demand curve, “you’re now going to create this dead weight loss “where you’re not going to hire everyone.” There’s also arguments that it could create incentives to move even faster towards technology or globalization What are your counterarguments to those arguments? – I mean, I think there’s both the philosophical and empirical counterargument There’s been a real flowering of research in the minimum wage over the last 20 to 30 years And some of it shows that there is a trade-off, that if you put in place a minimum wage, you lose some jobs The bulk of it shows that the number of jobs you lose from increasing the minimum wage, within reason If we went to a $50 an hour minimum wage, who knows what would happen We’d presumably lose a lot more jobs The losses are actually much more modest It’s not the small, relatively small dollar changes don’t immediately lead to declines in employment There’s a famous study looking at New Jersey and Pennsylvania, when one increased their minimum wage, and the other didn’t And so in terms of a perfect economic laboratory, you’d imagine that a whole bunch of jobs on one side of the border would move to the other, but they didn’t And so it turns out that people make decisions for all kinds of complicated reasons And the minimum wage, often, for a business doesn’t lead to some radical reduction in employment And it can lead, quite quickly, to big changes in the quality of life of people who are receiving a 20% increase, you know, $5 an hour to $6 an hour That’s a 20% increase in pay And so I think if you kind of look empirically at the research, it suggests that minimum wage increases have done more good than harm most of the time And then I think philosophically, I understand why a society might say, “Look, we’re a wealthy society “We’re simply not willing to have “People living below a certain standard “And so we’re gonna set a minimum standard.” – Going back to either in minimum wage, or even this notion of universal basic income, it does feel like the COVID crisis, obviously, for no fault of their own, many millions of people are losing their jobs right now Restaurants are either temporarily or permanently shut down

Airlines, hotels, we could make a long, long list To some degree, some of what the stimulus packages have done is starting to look a little bit like universal basic income You know, every gets a $1,600 check Unemployment insurance is extended, even if you’re a contractor So do you think we’re going to naturally evolve there, if this COVID crisis, we have 30 million unemployed, 35 million unemployed People need to be fed People need to just be able to pay their rent – I would be surprised if this leads us to universal basic income because sending checks to people is extremely expensive, right? The math, that’s just the way the math is You’re sending them to everyone and they’re not that small And look, we’re still gonna need to collect the data on this, but my instinct is that these checks being sent to everyone are not particularly efficient forms of stimulus They are not a very good bang for the buck way to keep the economy functioning And I think there’s a logical way to think through this So many, many people, most people have not lost their jobs Not only have they not lost their jobs, many of them have had their typical daily or weekly expenses plummet, right? They’re not paying for gas anymore They’re not paying for the bus They’re not paying for subways I don’t know about you, but the amount of money I spend on food has plummeted because instead of picking up a $2 coffee or a $6 sandwich, I’m making myself peanut butter on bread for lunch ’cause I’m around my refrigerator And so these people who have kept their jobs and had their expenses go down, millions of them have just gotten these checks And I think the evidence is showing that they’re not actually gonna spend that money They’re gonna save it Yet, now you take someone who did lose her job For that person, the amount of money that we are sending them isn’t nearly sufficient to cover the rent, to cover food, to pay for childcare And so we’ve got this slightly funny situation in which we’ve spent huge amounts of money spent sending $1,200 to everybody below a certain income threshold For many people, that’s more than they need And for other people, it’s not nearly enough And yet, it’s so expensive that if we wanted to keep doing it in perpetuity, we’d have to do massive cuts to other social programs like Medicare and Medicaid And so I’d be surprised if it’s where we end up long-term, but lots of surprising things happen – And what would you, you know, if you were emperor, and you were going through this COVID situation, what would be your course of action? You know, I’ve heard, we had Ray Dalio on here and I even chatted with him a little bit afterwards And he’s like by spending trillions and just pumping it into the economy Yeah, this is increasing the debt by trillions, but the alternative is worse, that we go into a depression if we don’t do that So would you be in favor of that type of thing, and if so, what is the metric? Is it by writing these checks to everyone? Which it sounds like it wouldn’t be Is these loan programs which seam to have been misused a little bit by certain corporations So how would you try to tackle this? – Austan Goolsbee, who’s an economist to the University of Chicago, has this nice kind of series of lessons that he put on Twitter, very quick, about virus economics And I’m gonna misstate it slightly I apologize to Austan But the first rule of virus economics is the only way to help the economy is to defeat the virus And I think that’s exactly right So I think we can’t get back to normal if people are still fearing for their lives, if they’re fearing particularly for their parents’ and their grandparents’ lives It just won’t happen And so I think the most effective forms of economic stimulus are likely to be something like a massive program to increase testing capacity All the estimates I’ve seen that while the United States is doing more testing, we’re not doing nearly enough A big program to increase quarantining, a big program to increase protective equipment for medical workers, a big program to increase contact tracing And of course, more research into vaccines and treatments The good news is, while that stuff’s really expensive, it pales in comparison to the kind of trillions of dollars that congress has spent to try to prop up the economy So I think if you can think of the economic stuff as being necessary, but really just being a prop that tries to get us through a period where we are investing enormous amounts in crushing the curve, and then allowing us to begin to operate and also get a vaccine That strikes me as probably the most effective approach But it doesn’t really seem to be the approach that we’re following as a society Instead, we’ve got this scattershot approach in which we’re shoveling massive amounts of money out the door which I do think is probably necessary, even if it’s being done in some inefficient ways And we’re not really committing ourselves to a huge national project to increase testing And we’re now starting to open up even though

we haven’t hit many of the benchmarks that epidemiologists say we should hit And so I’d love to be proven too pessimistic about this, and there really is uncertainty But I feel like the most likely scenario is that we’re opening up too soon, and we are gonna pay a price both in terms of further outbreaks, but also in terms of our economy sliding back into some kind of lockdown and further recession when the outbreaks come – Yeah, your point is no matter how much stimulus you put in, if people are still afraid to go outside, afraid to participate in the economy, the stimulus will kind of be just like pushing on a string And I’ll add one area for anybody listening, who’s looking to spend a few billion here or there I think internet access for everyone, especially in this time, is a very, very good investment I think it would pay many good economic dividends And if you look at it compared to, you know, I’ve done back of the envelope calculations I think you could get all the families who don’t have access today some kind of basic internet that you can use Kahn Academy on for on the order of a few tens of billions Which sounds like a large number, but that’s about 1% of the amount of money that’s been spent in the stimulus packages just over the past few months – And to loop back to the main topic, I mean, where is broadband access a problem? It’s much more a problem among lower income people than upper income people – Yeah, one question, this is coming from, it’s going back to one of your other levers on the education I do wanna ask this ’cause it’s a thought experiment that I’ve had with friends, you know, just thinking about the issue Jenny Scoball from Facebook asks, “But let’s say everyone gets a college education “Will there really be jobs for all of those people?” I mean you could imagine, what if everyone had a PhD tomorrow? Will there really be that many jobs for those folks? – So I love this question I get the version of this question a lot when I’m out speaking I would actually ask people to flip it and go not forwards in time, but backwards in time Why is it necessary that everyone gets a high school education? Why is it necessary that everyone gets an eighth grade education? Why did we as a society decide that 13 years of public education was essentially the minimum that all people should have? And that’s not just a hypothetical question There was a real, live debate in this country in the early 20th century, and around the world about this And there were people who said, “Come on, let’s be realistic “Most Americans don’t need to go to high school “They need to learn to read and that’s about it “The high school should be for the top echelons of society “It’s a waste of time and money to send ordinary workers “to high school.” And then there were people, the high school movement which was a national movement, a sort of national, local movement Maybe strongest at first in Iowa, who said, “No, no, no, education will pay off “If we create more educated workers, “more educated citizens, “our society will be healthier “And there will end up being jobs “for many of those people.” And that second group really won the bet in a route Europe for a long time kept high school education as more of an elite thing We went to mass high school education, and it built so many great American industries It built agriculture, to have educated farmers It built Hollywood It build American manufacturing It built one industry after another And so if 13 years was the amount of mass education that made sense in the early and mid-20th century, why is it that we think that number wouldn’t have gone up almost 100 years later? And I think clearly, when you think about how much more advance technology is, that number has gone up And so thinking about 15 or 17 years as the right number for mass education makes sense And my instinct is if we got there, much has happened 100 years ago, we would find all kinds of job we didn’t even know existed for our more educated citizenry And I don’t think there’s a natural limit that says, “Well, nine wasn’t enough education “13 years was enough education, “but anything more than 13 would end up being wasted.” – No, and obviously you’re preaching to the choir when you’re talking to me about it And the way I think about it is, there is some logic to the argument that Jenny is making, that a degree doesn’t automatically convert into a job But from a societal scale, and we use years as a proxy, and we use high school and college as a proxy But it’s really can we get people to that level of critical thinking? Can we get them to that level of skills so they can leverage the technology around them, leverage, understand the complexity of the environments so they can either plug in to jobs that already exist, or will exist in 10 years Or even more interesting, so they can create new jobs They can be entrepreneurs at a small or a large scale which is a job creation engine So it is an interesting, I think on the margin that argument, there is some

Just the piece of paper by itself isn’t going to give you the job It’s the fact that you’ve actually developed those types of skills And you know, we talk a lot about this labor pyramid inverting now where we need to get either people to the top of that labor pyramid into the knowledge economy to get those skills, or the inequality’s gonna keep going So we’re way over time This was a super, I feel like we should continue This is part one I’m just commit you already – I’d love that (laughing) – But thank you so much, David This was a really, really stimulating conversation, a conversation that I think people need to be having more and be having in kind of a, you know, not politicizing it Just like, what are the facts? What do we understand? What works, what doesn’t? And nothing is all bad or all good, but we should all be informed So thank you so much for participating – Thanks for having me, and thanks to all of the viewers for the great questions – Great, thanks so much David Well, thanks everyone for watching Obviously, these conversation go longer when we’re really having a good time But thank you for all of your questions It’s a really important conversation Thanks for joining the live stream, and I look forward to seeing all of you tomorrow