Bill Kerr: Welcome to the Managing the Future of Work podcast from Harvard Business School. I’m your host, Bill Kerr. This episode is one of a series of special dispatches on the sweeping effect that Covid-19 is having on society, the economy, and the future of work. In addition to our regular podcast episodes, we’ll be bringing you shorter and more frequent interviews with business leaders, policy makers, and leading scholars on the coronavirus.

Noah Smith is a Bloomberg opinion columnist and one of the top influencers in economics. A former finance professor, Noah brings to his readers the bottom-line economic realities of Covid-19, the ups and downs of policy responses, and the movements toward economic and social justice. Noah joins me today to discuss the pandemic, the economy, race, politics, and how to make the most sense of these tumultuous times. Welcome to the podcast, Noah.

Noah Smith: Hey, thanks for bringing me on.

Kerr: Noah, your Twitter following is about equal to the national debt, so maybe you can give us a sense to get started of how you approach selecting and researching your topics. And also for us, you know, what’s been different over the last three months as Covid has really taken over our lives.

Smith: Right. I don’t know that my Twitter following is a function of my intelligent topic choice, because I think it’s more a function of me just not having a life and having been on Twitter for 10 years. I think that Twitter is this thing where you …

Kerr: You mix a lot of fun personal stuff, Noah, along with the professional, so we’ll give you both the life part and also the Twitter following.

Smith: Well, anyway, so I have several regular kind of hobbyhorse issues that I like to talk about a lot. One of those was macroeconomics and the changes in that part of the economic profession. Another one is the shift to empirical economics from the more purely theory-based discipline. Then there were policy issues like immigration, safety-net improvements, urban land-use policy. And there’s about maybe six or seven of these hobbyhorses that I have, and that’s pretty much it. But as an economics pundit, you’re expected to be this generalist, where you can weigh in on anything, from India-China conflict to where to get lunch. So that’s lucky for me. It’s more a privilege, obviously. But it basically means that there’s so many economics-related—or tangentially economics-related—controversies that I can just weigh in on, that it’s never a problem finding something to write about.

Kerr: And if you think about Covid, in particular, it’s got obviously the medical dimension as well as the economics side of it. Has there been more of a need to cross over these disciplinary boundaries or be able to think outside the traditional economist’s toolkit to write about these topics?

Smith: That’s an interesting question, because first of all, a number of economists started trying to play amateur epidemiologists—in fact a few are still doing this—and the results were not very good. You saw some economists create a model of optimal lockdowns that assumed that lockdowns are entirely responsible for the slowdown in economic activity, and then inventing a new kind of an epidemiological model that professionals have never invented that allowed them to come up with unique policy conclusions that were pretty unworkable in real life. So I think that was an example of a bad foray into epidemiology, and it was one of several. On the other hand, as we saw in the financial crisis, a lot of times the relevant experts are ... when they deal with a new situation that they hadn’t modeled or they hadn’t really prepared to deal with, they can make a lot of mistakes, and it can help to have an intelligent outside perspective. We saw that with macroeconomists and financial economists in 2008 and ’09. And I think now we’ve seen it with public health people, too, most especially with the issue of masks. At the beginning of the epidemic, we had the WHO, the CDC, and a number of public health experts telling us not to wear masks, masks don’t work, blah, blah, blah. And it was pretty clear from the outset that there was something fishy about this advice, and there was something wrong with this, and a lot of independent people looked into it, found that masks really do work, and now the entire story has changed. Now all the experts say wear masks. The WHO and CDC now say wear masks. We were very slow and reluctant to come around, but finally did. So in that case, it was the public that restrained the experts and belatedly helped correct a disastrous mistake that probably lost a lot of lives, actually. So there’s this balance; when non-experts pretend to be experts, they can cause a lot of damage. But by evaluating and critiquing and investigating the expert consensus, they can provide a lot of value.

Kerr: That’s a great way of putting it, where you’re challenging a little bit the presumptions that people are holding or the way you’ve always approached the topic, but also not thinking suddenly you know everything about something and should throw out all the past wisdom. Let me talk to you a little bit about the forced shutdown of the economy and also the virus spreading. You’ve written about this in a whole bunch of different ways, so I’m not going to ask you to summarize everything. But instead, just surface for the listeners to this podcast, what are a couple of things you think are underappreciated by business leaders, by policy makers, by the general public about Covid and its implications for the economy that you would surface up and say, “Guys, you really need to pay attention to this.”

Smith: To be honest, I don’t know, because I think that people are really paying attention to most of the stuff that they ought to be paying attention to. They’re really doing a good job of covering all the angles, and I think part of that is just because we were in lockdown, coronavirus was taking over the whole world, and there was really nothing else to write about. Now there’s protests and racial issues and some other things to write about. But people really scoured the entire landscape of policy issues. Now there are some new emerging things that people are just now starting to talk about—for example, this risk of zombie companies—the idea that if the Fed simply lends massive amounts of money to every single business, at what point do those loans cut off? And if there are sort of these structural adjustments after Covid, what happens then? So structural adjustments, for example, would be, like, suppose that Covid produces a long-lasting shift from going to the movie theater to watching Netflix at home on your TV or a laptop or whatever. If that is a durable change, then at what point does the Fed stop lending money to movie theaters and let those people become unemployed and let the investment stop and stuff like that? The Fed is very politically cautious. It doesn’t want to be seen as having caused a recession or any negative economic effects. And so the question is, will there be tremendous political pressure on the Fed to essentially keep up loans to businesses forever? In Japan, we have actually seen that happen. We’ve seen massive pressure on the Central Bank to continue loans to essentially everybody under the name of quantitative easing. If that decreases productivity over the long term, then that could cancel out any inflationary pressure from low interest rates. Usually we think that low interest rates cause inflation, but if productivity goes down, then that takes away the inflationary pressure. But it also means sort of this worse-off economy in the long run. Whereas, if we let the companies die that need to die in order to produce the new economy, the new more-efficient economy, then we get healthier, higher productivity in the future. So we might find ourselves in this sort of trap. And there is indications that Japan found itself in this sort of trap in the 1990s after their financial bust, after a lot of the banks there kept businesses on a lifeline long past when they should have been allowed to restructure. So that’s one issue that’s kind of emerging right now that I think a few people are just starting to pay attention to. I think that the links between Covid and social unrest are not well understood and not well examined. Ideas like that, you know, like pandemic lockdowns, stress, and its effect on social unrest will be something that people will be looking at going forward. I don’t think it’s that people have overlooked or ignored these. I think that these are just recently emerging things that people haven’t fully looked at yet.

Kerr: Yeah. So you think about the racial justice protests that are ongoing. How do you think the summer is going to play out? And also, as the election draws near—that will happen in November—what’s the possibility for us to get political and social alignment around reforms to these tough issues?

Smith: I do think that police reform is going to be a popular, unifying cause in America, which is great, because we’ve needed that for decades. People have really been upset with the way that policing works in America since I was a kid. That whole police apparatus was really built in response to the unrest of the 1960s. And I think the time had come to dismantle it. But I think it just sort of proceeded on autopilot. And I think that that’s now going to be reexamined. So that’s good. And you’ve already seen a lot of cities starting to do these police reforms, and I think you have a mindset that more than the usual cosmetic body camera and bias training stuff is going to be necessary. And I think that, to some degree, cities will have to figure that out for themselves. But there’ll be national pressure on every city to do deep reforms. And that’s good. I think that people—between the bungling of the coronavirus response and Trump’s disastrous failed attempt to get the military to stand in for police—the polls are consistent with the idea of a broad national nine-point swing from 2016, which was as close to 50/50 as you can possibly get, which would be enough to essentially win all the swing states for Biden. We’ll see if that holds. The conventions are important, the debates are important. The economy’s still going to take a long time to recover. There’s an initial rapid bounce-back, but that’s, I think, there’ll only be a partial bounce-back. And the economy’s still going to be in the dumps by the time election time rolls around.

Kerr: In a lot of your writings, you emphasize how the pandemic can increase inequality. Can you talk us through some of those linkages? And also, what’s the best policy responses to help counteract those worrisome trends?

Smith: There’s a number of ways. Recessions always kind of increase inequality because the poor get hurt more. If you’re just living hand to mouth and you lose your job, that’s worse than if your stocks go down. And the most marginal workers are always the first to be fired when bad times hit and the last to be hired when good times go on, which is why it’s important to have very long expansions. But that’s a story for another day. Now what’s going to happen is that people got really laid off in sectors like retail, food service, tourism, hospitality. Those are sectors that disproportionately employ young people. Young people work as wait staff, store clerks, hospitality people, et cetera. And those people got hurt the most. Women got hurt more than men, actually. And so that’s going to exacerbate generational inequality. We’ve already seen millennials have essentially much worse wealth outcomes than Generation X-ers or boomers at a similar stage of life. Generation X-ers started slower than boomers in terms of building wealth but eventually, mostly, caught up. Millennials are not catching up at all. And this feeling of generational warfare, I think, is going to intensify, and Generation Z is going to be like millennials, but more so. And so we’re going to have generational inequality and inequality by job type, in addition to the normal income inequality and wealth inequality that we see. And the question of how do we forestall that … I mean, one way is just by getting everyone back to work as fast as possible. But I think that that’s not going to do the trick, obviously. One of the things that we probably need to do is think about how to get wealth into young people’s hands. And yes, we could do that with stocks. We could do that with a thing called a “social wealth fund,” where we basically buy stocks on behalf of young people. But I think that people are going to more feel that it’s their wealth and really feel the autonomy and option value and power that comes from holding wealth if it’s housing. So in other words, I think we’re going to need some big program of getting young people to own houses really early in life. And Singapore does a really good job of this. Singapore does this elaborate system of down-payment assistance and house-price supports and controls, where they basically put houses into young people’s hands really early to give people a stake in the economic system. It’s really effective. We did that once with the GI Bill. We had this thing where the entire World War II generation basically got to buy a house for cheap, often in the suburbs. And there was an echo of that in Vietnam, of course. And that, I think, created broad-based wealth, but it also created this toxic system of wealth building, where we only did it once. And now, in order to cash out of that, all the baby boomers have to keep their house prices really high. So that’s why they don’t allow new housing construction or affordable housing or transit or anything that seems like it might decrease their property values. Because the boomers have all these houses that represent their entire nest eggs. And if we figure out some way to transfer those nest eggs into the hands of younger people so they can become younger people’s nest eggs—nest eggs for millennials and Gen Z—it’s going to involve elaborate tax and transfer schemes that I think people haven’t really faced up to yet, except for Elizabeth Warren, who actually has a plan to do something like this, but no one paid attention.

Kerr: Yeah, and many of your writings emphasize the local regulations for housing and these political economy challenges, when people want to block the expansion of housing in their backyard and so forth. Noah, two other things that I know you have thought a lot about are a universal basic income—UBI—and then also jobs guarantees. And they’ve been on and off the horizon. But clearly, if this continues with the unemployment for longer than the summer, there are going to be evermore calls on this. Give us a little bit of your sense about the efficacy of those two programs.

Smith: Universal basic income, there’s both theoretical and empirical reasons to believe that it doesn’t stop people from working, which is really important. Because when you give people money, things like long-term unemployment insurance or welfare—the so-called “dole” that they used to have in European countries—when you actually pay people not to work, they don’t work. And that’s not surprising at all. But universal basic income is better than that because it actually pays you regardless of whether you work or not, so you just have this extra boost. The one problem is, so first of all, universal basic income isn’t universal, because the taxes to pay for it are progressive. So it’s actually a basic income that phases out at higher incomes and goes negative. And people don’t realize that because they don’t combine the tax and the transfer piece in their minds. So they think it’s universal, but it’s actually income-based because of the taxes to pay for it. The MMT [Modern Monetary Theory] people who say that you don’t need taxes to pay for things are silly and wrong. But the problem is that universal basic income, if you try to make it a full income that can actually replace a job, is way too high. And so imagine trying to give everybody $30,000 a year, and depending on where you put that tax cutoff, you could be looking at just multiplying the federal government spending by large multiples. And that’s not going to work. Everyone knows that’s not going to work. However, the universal basic income that’s just a few thousand dollars a year is expensive but workable. And it could provide this kind of cushion that would allow people to pay for childcare, food, or whatever else they need. The big problem with the universal basic income is rent. So if you give everybody $5,000 a year, and then landlords raise rent by $5,000 a year, all you’ve done is pay landlords out of tax money. That’s stupid and bad. So there needs to be some sort of robust method. And so some people have suggested, “Oh, national rent control is a solution.” Well, national rent control isn’t very suited to local needs. And national rent control, if you set it too high, it can block construction in a lot of places, and if you set it too low, it just doesn’t do anything. And so it’s sort of this tightrope policy that’s hard to manage. So nobody really knows how you can prevent landlords from all over the country from capturing the gains from universal basic income. That’s a big problem. An analogy is when we decided to give everybody student loans for college, and tuition just went way up. Now everybody’s got all this debt, and college didn’t get any cheaper at all. Instead, it’s just people are worse in debt now. And it’s not inflationary by the way. This is not inflation. It’s the rise in the price of this thing that you subsidize. Yeah, I mean universal basic income might raise inflation, but the taxes that you use to pay for it will reduce the inflation, and that’ll be a wash. The thing is, prices will rise specifically for the things that the people you give the money to spend most on, and that is rent. So that’s really what it’s about.

Kerr: You know, one of your central topics is also immigration. And as we were recording this podcast, it seems imminent that the Trump Administration’s going to halt the issuance of some new skilled-worker visas like H-1B or student work visas. I guess a two-part question here. One, do you buy the argument that this is going to help save some jobs for Americans that are unemployed during this crisis? Second, what do you think are some of the long-term consequences—even if it’s a 90-day or a 120-day suspension of the visas?

Smith: Let me be a little more general with my response to this question. Trump was elected to stop immigration. Specifically, he was elected to stop non-white immigration, which has been most of our immigration for the last 30 years or whatever. And Trump has largely succeeded. But he didn’t succeed without help. Immigration to the United States is now going to go into a long-term pause, I believe. Here are the reasons. Number one, one of the biggest drivers of immigration to the United States was immigration from Mexico, as anyone over the age of 20 knows. But large-scale immigration from Mexico stopped in 2007. In fact, in net terms, it went into reverse. So actually, since 2007, more Mexican-born people have been leaving the United States than coming in. So essentially, the Mexican immigration wave was already done, and that’s due to falling fertility in Mexico, increasing incomes in Mexico. But that was the big first thing that reduced US immigration. Because a lot of those Mexican immigrants had been sort of low-wage laborers, the skill composition of American immigration shifted up. So more and more immigration—in fact, now probably the dominant piece—was high-skilled immigration. It was people with college degrees, or with a family with lots of college degrees, or people called in to fill specific jobs. Things like that had begun to dominate American immigration in the years since 2007. Therefore, it’s not clear whether Trump was specifically biased against high-skilled immigration from the start, or whether or not it’s simply the most common form of immigration and, thus, the easiest for him to attack. Whatever it is, Trump’s main effect will be to stop high-skilled immigration. But again, he didn’t do it alone. So there’s other factors going on here. Trump has made it a lot harder for skilled immigrants to get visas to study at US universities, to get jobs at American companies, through a variety of sort of harassment-related policies. Those could all be reduced by Biden. But there’s other things that probably aren’t going to be reduced by Biden. One is increasing national security concerns with regards to China, and increasing tensions with China. China had been one of the biggest sources of our high-skilled immigration, and I think that’s going to be done for a while. Unless we take a large amount of, say, refugees from Hong Kong or whatnot, we’re not going to see a lot of immigration from China soon probably. Big things could change, but barring any big change, we’re not going to see much immigration from China because of the tensions. The national security apparatus is cracking down on Chinese researchers and employees at companies and students and anyone they think can be a spy. And just the general tensions between the countries are making Chinese people less willing to come here. This little outburst of racism over coronavirus—you know, people are like, “It’s a Chinese virus” or something—there wasn’t a ton of violence, but there was a little bit of violence against Asian people in America. That’s going to scare off Chinese immigrants. And combine that with the tensions and improved opportunities in China—you know, China’s economy is now effectively a developed nation in many areas—and so that provides huge opportunities for skilled workers in China to remain in China—or even to go back, if they’ve come to America. Meanwhile, you have massive racial tensions in America with the protests, with this white supremacist backlash that really began in Obama’s presidency, but has gathered force and culminated with Trump in Charlottesville, and some of these alt-right kind of people. Then on the other hand, you have a whole bunch of people who are very dissatisfied with the status quo of race relations in cities and driving the protests and stuff. I think that a lot of immigrants are going to feel like they’re walking into the middle of a race war coming to America. And they’re not wrong either. It’s not a real war, but it’s something. It’s a conflict. And then there’s coronavirus. Coronavirus shut off international travel. There’s going to be a somewhat bad economy for a while. It’s going to be skilled immigrants who really take it on the chin from a lot of layoffs and reductions of hiring and barriers to entry, and all those kinds of things. But I think that all of these factors are going to conspire to make American immigration pause. And Biden might fail to reverse all of Trump’s restrictions, too, as we saw with Obama and the security state that George W. Bush put in as a response to 9/11. Obama didn’t completely reverse it. And Biden might not completely reverse the measures against immigration that Trump has put in place.

Kerr: Maybe I can have us think a little bit about Alberto Alesina, which can help us think about some of the racial topics that we’ve talked about, as well as also immigration. Unfortunately, Alesina recently passed away. And he was a Harvard economist, for our listeners. In comparing countries, Alesina talked a lot about how it was more difficult to provide public goods or social safety nets when a country had very deep ethnic divisions. And so maybe you can close this podcast by reflecting upon us about what the lessons of Alberta Alesina could have for the present situation. And is it feasible for the US to do much better?

Smith: Well, right. Alesina basically looked at a lot of these countries that are dysfunctional and said, “What can we see that’s similar about these countries?” And you see a lot of them are the result of things like colonialism carved up these artificial nations with these ... If you look at maps of Africa or the Middle East, you’ll see a lot of straight-line boundaries that just obviously were made by some British functionary, and they cut across ethnic groups. So he noted that those countries that have more of those artificial borders tend to have worse public goods provision and less redistribution. And he said, “This is no coincidence.” What happens is that, when you have ethnic divisions—not necessarily divisions in terms of skin color, language, or things like that, but divisions in a sense of being on the same team. Divisions of identity, where one group of people in the country doesn’t really feel like they want to help and support the other groups of people in the country. Where people put their group identity in their mind above the national identity—then he saw worse outcomes in terms of redistribution and public goods. And, obviously, this is the case in America for a different reason. We didn’t have artificial post-colonial boundaries, but we did have slavery. And we had … the legacy of slavery created a whole social apparatus of racism, where a lot of white people were told that black people were their inferiors, weren’t real Americans, or just not to think about them and just forget about them. And so you had this form of racism that was the legacy of slavery. And because of that division, a lot of white people in America—not all, obviously—but a lot of white people have been reluctant to embrace welfare programs that would give any money to black people, or public goods, like transit, that would benefit black people, because there was this racist idea that black people were less deserving. And you had all these nasty racial stereotypes, like black people are lazy, that were promulgated as a way to reduce support for welfare, or they had that effect, anyway. And they reduced support for public goods. And this is a big problem for our country. Obviously, every time Democrats propose, “Oh, let’s spend a bunch of money on the roads. Let’s give people money so they can send their kids to childcare,” you get huge opposition from Republicans and conservatives. But you see this rhetoric—some people use dog whistles, and they try to imply it, and some people come right out and say it—but whatever it is, you see this rhetoric of black people don’t deserve things, so government spending is bad. And this has been a pillar stated or unstated of conservative ideology over the past half-century or more. And this is a big problem for our country, because it means that we have trouble maintaining our roads, and it means that we have a crappy welfare state, and we have a crappy health care system, too. And it’s just getting to the point where it’s not working anymore. So hopefully, these protests are the beginning of a sign of more racial unity, where finally a critical mass of white people decides, “You know what? Black people actually are our countrymen, and deserve all the things we have. And we need to …” and maybe that will increase support for public goods and welfare and all the other things we need.

Kerr: You know, I guess maybe the final thought or question is, are there any other emerging trends about Covid and the economy and all the things that you’re keeping your eye on right now that you’re going to circle for the month of July ahead and say this is something to keep an eye on?

Smith: So, national tensions in the wake of coronavirus are something to keep an eye on. Pax Americana—this idea that America is this big global super cop who can rush to use its overwhelming military might and diplomatic clout to put out fires—that’s gone. That’s way gone. And now we’re going to see gradually the return of great power conflicts and the return of localized conflicts as a result of that, I think. And coronavirus has illustrated deeply how dysfunctional and ineffectual American governance and capabilities have become. And that’s a very dangerous thing, because now China will have more confidence to bully India or Taiwan, Japan, et cetera. And there’ll be various human rights abuses because there won’t be this American-led global consensus telling human rights abusers to cut it out. And so basically, all of the stabilizing influence that we had come to know from the late-Cold War and post-Cold War periods are out the window. So I would keep an eye on great power conflicts, war, unrest. In other countries, we had this giant global wave of protests in 2019. Something like that could come back. Or countries that didn’t experience a wave then could now experience a wave. So I think everyone’s paying attention to Covid in America and to race relations in America—as they should be. Those are super-important things and will continue to be important. But I’d look at other countries as well.

Kerr: Noah Smith is a Bloomberg opinion columnist, and we thank him for joining us today to talk about politics, race, the economy, and Covid-19. Thanks, Noah.

Smith: Thank you so much. Great to be on.

Kerr: Thank you for listening to this special episode of the Managing the Future of Work podcast. To find out more about our project on the future of work and for more information on the coronavirus’s impact, visit our website at hbs.edu/managing-the-future-of-work and sign up for our newsletter.