Ted Audio Collective.
HBR Presents. Hi everyone, you're listening to After Hours.
I'm Young Mi. I'm Mi here.
And I'm Felix. Felix, Mi here and I missed you last time.
I know. It was heartbreaking not to be there.
Well, it wasn't the same.
It wasn't the same, Felix.
Not at all. Well, not true.
Not at all. Okay, so if you are a regular listener of this podcast, you know we normally record once a week.
But since there has been so much news, we've gotten a lot of requests to post episodes more frequently.
So consider this a bonus episode.
And although we can't commit to doing this every week, we'll try to do it when we can.
The plan for this episode is, one, we're going to talk about some of the economic headlines from the last couple of days with a specific focus on the idea of industry bailouts.
And then two, we're going to try to make some time for some general reflections and observations about what we see happening in the world.
And as always, we're not public health experts.
Much of the most important information obviously centers on public health questions.
We're not going to touch this because it's not important, but because that's not where our expertise is.
That's right. And one quick housekeeping note before we begin.
If you would like to sign up for our mailing list, you can do so by clicking on the link in the episode notes, or you can just shoot us an email at harvardafterhours at gmail .com.
We sent out a newsletter yesterday, and in it what we said was, we would love to hear from you about your experiences with the coronavirus situation.
We've been thinking of ways of bringing this podcast community together, and as a start, we've decided we would love to share your stories in one of our future episodes.
So if you're part of our newsletter community, or even if you're not, all you have to do is write us a note and tell us about things that are happening in your household, in your family, in your community, your company, wherever you are.
Just tell us what you're doing or what you're observing.
You can share acts of kindness or leadership or stories of hardship or uncertainty.
You can share anything at all.
We would love, love, love to hear your story from your part of the world.
One of the heartening things about this whole experience has just been the community that we already feel through our listenership, and we just want to kind of make it clear to everybody, first off, how valuable that is to us, but also if we can expand that and let you into that community via these
stories, we think that could really be fantastic.
So you guys ready to go?
We are? Okay, so the big economic news of the past couple days is the mad scramble to put together some kind of fiscal response package to the COVID -19 crisis.
The White House and lawmakers are currently considering a package anywhere in the $1 to $2 to $3 trillion range.
The numbers keep jumping around.
The plan will likely include hundreds of billions of dollars in direct payments to people, simply sending checks to everyone, a topic we hear and I discussed in our last episode, and also include funds to help small businesses continue to make payroll, which we also discussed a bit and I'm sure we're
going to come back to.
Now, because the details of the package are likely to change, I don't want to get too much in the weeds, but I would like to talk more generally about what is sure to be one of the most controversial pieces of any fiscal package we get, and that is what is commonly referred to as industry bailouts,
and it's currently looking like the airlines are going to be first in line for this.
A little context here, there was a time not that long ago when the airlines were dancing around bankruptcy, but in the past, I don't know, five, six years, they have had a really heady run of profitability.
So maybe it shouldn't come as a surprise that people are really angry at the idea that the government is thinking of bailing these guys out.
So what do you think?
Do these guys deserve a bailout?
So my first reaction is that bailouts are all about the future.
Bailouts are not about the past.
We're not thinking about bailing out a particular business because you behaved well in the past or you didn't.
We're thinking, oh my God, if you are going out of business, there will be significant damage to the economy.
One of the lessons that I took away from the great recession is that we should think of bailouts first and foremost as bailouts of people.
Sometimes you can support people best by keeping businesses alive.
Sometimes you can support people best by writing a direct check.
And so when I think about airlines, the first thing that I would ask is how many people?
And the answer is, well, it's about 10 million employees.
So it's not small as a point of reference.
Retail is about 15 million people.
So it's an important sector.
And we should ask, can we help the people in the airline industry best by saving the airlines?
I think that's exactly right, Felix.
I would add just kind of two things.
I particularly liked your initial point, which is we don't want to look backwards.
We want to look forward.
The two additional points I would make are first, you want to think about whether there's a systemic rationale for doing a bailout here.
So part of the story with the banks, whether you liked it or not, was there was a notion that there was some systemic risk.
And I think with airlines you can potentially make this argument, which is in terms of commerce, both the airlines and the rails are important.
And one can think about the systemic role they play and justify, I think, perhaps a bailout.
The second reason to think about a bailout is because in effect what you're looking for is any tag you can use to kind of think about who is really worse off.
So the goal here is obviously to help any business who's doing poorly, but we don't actually know which businesses have been most impacted.
And the way we kind of navigate that process is we use a tag.
And that tag in this case is, oh, you're an airline, so you must be suffering a lot.
And so I think the second way to think about this is, well, look, we don't actually know how much some businesses have faltered relative to others.
But the rough justice approach is, here's an airline, it's in an industry.
We know they've suffered a lot, so we kind of get some money there.
Let me push both of you guys on this, because although I don't disagree with you, I think one of the reasons why the question that's being asked uses the word deserve, do they deserve a bailout, really refers to the question of whether or not they have behaved irresponsibly in the past.
And in particular, I think the thing that really angers people when they read about this is this notion that this is an industry that has raked in billions of dollars in profit and yet they have done a bunch of share buybacks.
They could have spent it on building up their cash reserves and saving for an emergency.
They could have spent it on improving their service.
They could have spent it on being more generous with their flight attendants and mechanics and pilots.
They could have done many, many things.
And because they didn't do any of those things, there is a sense that, well, should we be rewarding irresponsible behavior?
Look, I go back to the first thing that Felix said, you have to be ruthlessly forward looking at this time.
This is not a time for spite.
This is not a time for looking backwards.
This is not a time for any of those things.
And I know it's tempting to engage in that, but we have to be ruthlessly forward looking.
There is a lot of irresponsible lending and borrowing that happened in the last seven years.
We referenced this briefly last time, young me, but you cannot think about that because that is just going to confuse us.
This is no time for spite.
Can I add, I think, an important consideration to this?
One of the things I actually really liked about the 2008, 2009 response is that it was a bailout of the banks, which was super unpopular.
But at the same time, we coupled that with a real change in how we force banks to think about risk.
So if you look at the liquidity requirements, if you look at the capital reserve requirements, we ratcheted all of those up.
And as a result, we ended up with a much safer banking system overall.
So one of the things I think that we should do is if there's a sense that airlines is one of these weird industries where both the companies and the investors always underestimate the riskiness of the industry, then yes, by all means.
Couple those bailout provisions with a sense that, well, we're going to think about liquidity requirements a little differently because you seem to be one of these industries that is never enough forward looking.
The one thing I would add, though, Felix, is that we are talking about a huge exogenous shock right now.
And so even if you were sort of forward thinking, what we're dealing with now is not something that could ever easily be anticipated.
So if you take, for example, American Airlines, I think over the past five, six years, they've enjoyed $17 -18 billion in profit.
Imagine if they had just taken those profits to build up their cash reserves.
That would make actually no sense because American Airlines, I think their market collapse last year was like $12 billion.
So if we're going to ask them to sit on $17 -18 billion, that just makes no sense.
Not to mention the environment won't let them do it.
So if they were to sit on that kind of cash, they would basically be inviting an activist investor to come in to either put that money to work somehow, return it to shareholders.
I mean, it's not necessarily the case that you can just sit on a huge mountain of cash.
But I think if Mehere's point is right, that there is systemic risk, the reason why we need regulation, the reason why it cannot happen as sort of unilateral response is exactly because of what you point out, an activist investor is going to come in and say, what are you doing?
This mountain of cash.
But it could still be the case that from a social point of view, that mountain of cash has a big social payoff.
I think you made such a good point, which is that after 2008, that financial crisis, we bailed at the banks and as a result, we actually did make that industry less vulnerable to these kinds of disruptions.
And it's one of the reasons why the American economy recovered so much more quickly than European banks.
I think the relevant bailout though, if we think about it, is the auto bailout from 0809, which was very significant.
And that too, I think people are a little bit more ambivalent about that one, but it does also look like over the long run, first off, the federal government received back its investments in those companies and they did fairly well.
And so we can even justify that experience.
I think that may be the more relevant bailout than the bank bailout.
So one of the ideas that I liked, and I think it came up in the context of the bailout for small businesses.
And remember, the reason why this is hugely important is 50 % of employment in the United States is small business.
And so where we draw the line for small businesses is in the context of these economic injury loans.
The way an economic injury loan works is, you show me your cash flow and you show me that your cash flow dropped by more than X % as a result of the coronavirus.
The moment you can show that it dropped by a particular amount, then you get typically a 30 -year loan at really preferential interest rates.
No other questions asked.
Maybe we should apply those same rules for big businesses as well.
I think what else you could do in that context is, you can have repayment happen via the tax system, which is a way of saying, one of the things you want to do is make sure that repayment happens as the businesses succeed.
And then you basically repay it quickly, if you're doing well and you bounce back quickly, and you repay it really, really slowly if you're not doing well.
Speed, I think, is a really important variable here.
And you already see it now in the political process, how everything takes a little longer than we would like.
And then in particular, if we're consumed by the fear that we don't do it exactly right, we might saddle many of these programs with a million rules that ultimately undermine their effectiveness.
Sometimes what I fear is that we're trying to get it right, which I think is a correct approach, but we're trying to get it right in the moment.
My preferred approach is just be generous right now, but say, look, if it turns out that you have been doing really, really well all this time, that loan needs to be repaid.
I really think speed is in the end what will create a greater degree of certainty and make the recession much more shallow, much less terrible than it otherwise would be.
You know, coming out of the 2008 crisis, what we saw is the emergence of so much polarization in our country as a result of this narrative being created, that the bailouts all went to folks at the top of the economic ladder and normal people in this country really bore the brunt of the pain.
And what I think both of you guys are saying is something very, very different, which is there is a way to structure these bailouts such that the money flows through to the people who work for these companies.
In other words, what we're not advocating is a system that essentially privatizes all of the upsides associated with being a shareholder and socializes all the risks, all the downsides.
We're not saying that at all, but rather there is a way to structure these programs so that the primary beneficiaries are ultimately the people who work for these companies.
And I don't want that narrative to get lost.
Yeah, it's so critical young me what you just said.
In the end, bailouts are for people, bailouts are not for companies.
It just so happens that every now and then the best way to help people is to keep the company they work for alive.
And I think that's essentially what we're trying to do.
But I think looking at all these proposals that will come out of Washington, that's the yardstick by which we will say, this is a great program or this is a terrible program.
If it looks like a program that's just going to bail out shareholders, that's a terrible program.
If it looks like, oh, we figured out a fabulous way to keep a business that is a strong business to begin with, keep it alive, create jobs for the long term, then maybe you deserve a bailout.
So important to remember that.
Okay, we're here. Yeah, so as our second segment, we wanted to do something a little bit more instructured like we did last time, which is just to kind of think about some of the deeper reflections and thoughts we're having at this crazy time.
So young me, what's been on your mind?
What have you been looking at?
So first, I love this idea that you're asking us to reflect every week.
I really love that.
So thank you for the idea.
So what I've been thinking about is I have been thinking about the strange and inconsistent psychology of being asked to care about people you don't know.
And I was thinking about this as I was hunkered down like most of us are, looking at these photos of places where people continue to be out on the street, congregating in beaches and in bars.
And even in the news today, there were these interviews with people in these crowded places who seemed completely unconcerned, completely cavalier, perhaps because there's evidence that they're less likely because of their youth or their relative health to succumb to the virus.
And it occurred to me that there's almost an economy of caring, a kind of hierarchy of concern.
So, for example, right now, this virus appears to put the elderly at a particularly high degree of risk, whereas children seem remarkably asymptomatic.
Can you imagine if that were reversed?
Can you imagine how much more heated our reaction would be if it were the case that children were the most at risk?
In the economy of caring, children occupy the most privileged position.
They're the segment we place the most value on, which is, of course, very good.
But further down the hierarchy, that's where I'm not sure.
The elderly are somewhere there, but maybe not as high as they deserve to be.
Other high risk segments like people with diabetes, people who are chronically ill, people who are poor and lack access to good health care, and then there are these segments that don't seem to generate any kind of emotional valence.
So take the homeless.
Our emotions about the homeless seem so impoverished right now, even though they are really high risk.
And it made me think of the AIDS crisis, remember that?
And how so many people had to die before people started to care.
And it really took a basketball star.
Remember Magic Johnson?
And then a child. Remember Ryan White?
And Rock Hudson. Yes, before a lot of people started caring.
So here's another interesting thought exercise.
Imagine if instead of being particularly dangerous for older people, this virus struck people down totally randomly with no rhyme or reason.
My sense is that people would have taken it much more seriously, more early on.
However, because it tended to target certain segments more often than others, it enabled us all the minute we heard about the virus to do a kind of mental sorting exercise.
Am I high risk? Is anybody in my family?
And if the answer was no, well then we became part of this strange economy of people being asked to care about people that we don't know.
And so that's what I've been thinking about as I've looked at all these photos of people out there.
What's so interesting to me about that is, and there are many things, but there is this sense, if you think about that counterfactual word affected anybody, right?
These are like actually deep philosophical questions.
It's kind of like you're putting yourself behind the veil, like am I going to get chosen or is someone else going to get chosen?
But I think you're right to think that these counterfactuals of children being affected or randomly being affected are so powerful to make us think through the implicit assumptions in our lives.
There's this interesting contradiction.
So I read some of the really tight knit communities where people continue to have big weddings, or maybe the weddings are instead of a thousand people, it's now 300 people, but it's still like totally, totally irresponsible to have these.
And as I was reading these reports, I sort of had two impulses.
How selfish that you think your community and the practices in your community are more valuable than the fact that if there's just a single person at that wedding who carries the virus, you are going to infect so many more people as a result of having attended.
But also, even from the narrow view of that community itself, presumably these are people you care about, you love, you're close to, and no one stands up and says, having a large wedding at this point in time is just irresponsible.
Like why is that? Why is it that it's so hard for us to close down the beaches?
It's so hard for us to say big weddings are not a great idea at this point in time.
I couldn't really wrap my head around what that says.
Yeah. I don't know how to wrap my head around it either, but it's one thing if we were being asked to make a huge sacrifice.
But these are small sacrifices.
We're being asked to stay at home.
And in the scheme of things, that's not a lot to ask if it can save a few lives.
And yet it's somehow really, really hard to get people to do it.
Anyway, should we go to you, Meir?
So my reflection is related in a way, which is I've been trying to think through what happens in a month or two from now.
Because in a way, the calculations that you outlined are very stark, which is what do we know today?
We should be isolating and we can become these transmitters of these diseases.
And so the advice to stay home is clear.
So what happens in two to six months when this develops into a more chronic situation?
So I think the trade -offs we're making today, even as you just both pointed out, are not being made correctly by a lot of people.
But they're kind of stark and they're clear, right?
Which is, it's smart to stay home.
At some point soon, we're going to have to think through this trade -off, which is going to be much tougher.
I know I'm looking ahead, but it's interesting to me to think at some point we're going to have to pivot because the reality is lost economic activity is also lethal and also debilitating, psychologically debilitating and physically debilitating.
So there is going to come a time where the trade -offs are not as stark as they are today.
And we're going to have to have conversations where we say, yes, it is now with us, this virus is with us, but we have to return to normal.
And that transition is going to be so hard because we're going to be trading off the fact that economic activity actually is also important to our health.
And we can no longer be bunkered because it actually have so many costs to people.
So I am really struggling.
I don't know if you guys have thoughts about this, which is today the trade -off is stark and clear.
People need to reduce economic activity.
People need to stay home so that we get a grip on this crisis.
In a month or two months, that is not going to be the same trade -off.
And we're going to need to return to some normalcy because guess what?
All that lost economic activity has its own health consequences.
Does that resonate with you guys?
It does. And I think this intersects with the public health response because you can imagine getting on top of the public health situation, but it's not binary.
It's not as if you snap your fingers and now you're totally in control of the situation.
Instead, there's this gray area of time when you feel like, okay, we think we sort of have a handle on things.
And then the question becomes, do we begin to sort of get back to some normalcy, but then maybe it will crop back up again?
And I think that's the part that's going to feel really uncertain.
And in a way, there's this strange trade -off.
If we're really good at flattening the curve, the resurgence of the virus I think is going to be a bigger event.
I mean, in the limit when you flatten the curve to really low but just persistent, then it starts to look a little bit like flu, and then you have to really rethink a lot of our assumptions.
But it's not straightforward how to do that.
Okay, so those were two heavy ones.
Felix, you got something uplifting?
I don't know. Uplifting is difficult in these times.
But do you remember the two, three days after 9 -11?
It was this really interesting mix of emotions.
On the one hand, it was this big catastrophe, one of the worst things that had ever happened to people in New York, people on the East Coast, the United States.
It was unimaginable.
But there was also a moment of kinship, a moment of social connection, a moment of solidarity.
That was really quite amazing.
So at that point in time, I lived in Philadelphia in a neighborhood where super narrow streets, so people were out and about often anyway.
But it was all of a sudden you felt so much closer to all your neighbors.
You felt so connected to people.
I remember the political relationships between the United States and Europe are not always the easiest thing on the planet, but I remember so many Europeans reaching out and saying, oh, we're in complete solidarity with you.
This is terrible. And then, of course, we squandered that moment in a really, really terrible way, in that we started a war that was based on a lie and everything spiraled downwards from there.
And I have a sense that something similar is happening now.
You talked about the personal aspect of this in the previous episode.
Social distancing, in a sense, is a complete misnomer.
What we need is physical distancing, and we need social closeness.
And I think we get it through different means.
I'm actually having my first online happy hour with friends tomorrow, which I'm really curious about what that's going to be.
But I see that in political terms, there's now something similar like this budding solidarity.
All of a sudden, we can agree that sick leave is a good thing.
All of a sudden, we can agree that $1 ,000, which essentially is a little bit like universal basic income, might be a good thing.
And it's carried by, I think, a notion of, we want to be good to one another, we want to help out each other, and it's carried by a notion of, it's no one's fault that they're in a precarious situation.
What if we saved those sentiments?
What if we said, well, you know, just like every now and there's a terrible virus that spreads and everybody deserves help?
That we say, well, every now and then, people get sick and it's no fault of their own.
And having insurance against sickness and the loss of income when you're sick is a meaningful thing.
Maybe we could say, well, just like there's ups and downs in every person's life, maybe having a steady stream of income that you never have to worry about is a good idea.
And so I see even in Washington, all of a sudden, Democrats and Republicans can agree on some things that are carried by a notion of solidarity.
And I think it would just be amazing if we could save this moment, if we could save the sentiment and then translate it into real politics.
So often when people are in trouble, it's not their fault.
So often, they're really deserving of help.
And if we use this crisis to build a better world, to build a world where people can trust that they will be helped if they really need the help, I think we will look back and say it was terrible and some really good things came out of it.
That is so, my mind was going in so many places when you were talking.
So maybe there is something to moments like this reminding us what it means to be a citizen, to be a good citizen and to take care of each other.
All I can think is, from your lips to God's ears, Felix, I think that's the silver lining to all of this and I would love that to be the case.
And I also think the other interesting thing about what you said, Felix, is people talk a lot about the 2008 recession and what happened in the aftermath, but actually 9 -11 is, in our lifetimes, actually the more analogous event.
Yes. Both in terms of its effect socially, the fear, the isolation to some degree, the immobility to some degree, and you're right, some of that got wasted.
But there were these moments that were precious and actually I think those things are things we should try to hold on to from that experience.
I think that is exactly right.
Okay, thanks guys. Okay, Felix, you weren't here last time, but in your absence I rebranded our recommendations to Silver Linings.
The marketing expert rebranded.
What can I say? But I'm going to give you the choice.
You can either do a pick or you can do a silver lining or you can do both.
I will go with silver lining, of course.
Okay, what's your silver lining?
So, obviously in this particular situation, having accurate information is just incredibly important.
And we're learning so much about the virus even today.
Like, is it airborne?
Is it not airborne?
When people have it, during what period of time do they shed most of the virus?
So, given all these uncertainties and given the importance of information, I wanted to recommend a website called Stat, or some people refer to it as Stat News.
It's a website that is published by Boston Globe Media and they specialize on health -related and healthcare news.
Typically it's quite industry -focused, but now it plays, I think, a really amazing role at popularizing and publishing health -related information that is critical to understand the coronavirus.
If you want a source that you can really trust that's connected to lots and lots of scientists, that's grounded in science, and super responsible about what they report and what they don't report, Stat, I think, is really your friend.
Oh, that's nice. It is nice to see scientists reclaiming their status.
Yes. Yeah, absolutely.
A little bit. If there is a silver lining, I think that is one.
Me here. So, you know, I've found myself, in these last couple of days, obviously being cooped up, and this is a bill of silver lining and a pick, I think, and I've found myself, you know, kind of going high and low at times, and so I have just found music to be an incredible salvation at times like
this because we're all at home a lot more, and music is fantastic, and in particular, the person I want to recommend is Brian Eno, who I have always loved.
Of course, Felix. Felix is music.
Yeah, exactly. So, Brian Eno, you know, way back when, was like a producer for Talking Heads, but now he's kind of morphed into like this king of ambient music, and I have to tell you, it's so calming and so refreshing to put Brian Eno on in the background.
If you're feeling a little jangly and you're feeling like, wow.
What a great idea. You know, things are going crazy or no, they're all going to be okay, and you just are oscillating a little bit.
Brian Eno is the solution, and he takes a little time to get into the rhythm because it is ambient music, but I have to say, it's really beautiful, and we're going to be spending a lot of times indoors, and we're going to need a lot of music, and you need new music.
It's a little bit of a weird pick because ambient music, some people feel like, what is that stuff?
But once you get into the rhythm, and there's no one better than Brian Eno.
So, my pick is Brian Eno.
Can I add a related recommendation?
So, there's an album by Brian Eno and John Kale, Wrong Way Up, which is so energizing.
So, if I wake up and I'm in a fabulous mood already, but I want to be 120 in five minutes, that's the music I listen to.
So, Brian Eno, John Kale, Wrong Way Up.
Absolutely. You can't go wrong.
Oh, okay. I'm going to check it out.
So, my silver lining starts with, about a week ago, that was when we all were starting to restrict our movement.
And so, my younger son was home, and that was a time when I still felt okay with him going to a few places, not to lots of places, but one of the places he went to was his friend's house.
And I called him at one point, and his friend had stocked up.
His friend was ready for, you know, He had created a bunker, and he had all this canned food.
And so, I called my son at one point, and I said, did you eat something?
And he said, oh yeah, we opened up some cans, and I had Chef Boyardee.
And then he paused, and he said, it was good.
Which totally cracked me up.
And then I thought to myself, you know, it is interesting, because I was at the grocery store, and I saw people stocking up on the kinds of foods that you would think they would normally never, ever purchase.
And I thought to myself, I am going to do this as well.
I am going to revert back and buy some of the foods from my childhood that I would never, never think of eating under normal circumstances.
So, for example, the other day, I'm almost embarrassed to say it, I had a pop tart.
Oh, very good. It was good.
Here's my confession.
We've gone to Pepperidge Farm, cinnamon rolls.
You know those things that come in that packet, and you just put, oh, they are so good, and so bad for you.
You twist them open, yeah.
That's my version of this.
See? So the silver lining, this is an excuse.
It's so funny that you say this, because tonight, we will cook a dish that I grew up with, which was sort of, I didn't grow up with curry.
And so there was a chef who brought curry to Switzerland, and it's a dish that I remember from my childhood.
And tonight, after, I don't know, 25 years of not eating that thing, which I'm sure is not going to be that great, we're going to make that again.
That's fantastic. See, going back to your childhood foods, it's somehow comforting.
So that's my silver lining.
So this is one of those times where you shouldn't feel guilty.
I mean, don't go crazy, but you shouldn't feel guilty if you're hunkered down at home, to kind of revert back to some of your childhood eating habits.
If you want to have a little bit of macaroni and cheese, then, you know, just have a little bit of macaroni and cheese, and don't feel bad about it.
That's my recommendation, and my silver lining.
What a silver lining.
That's great. That's it for this week.
We're going to be back with a regular episode, of course, next week.
Thanks everyone for listening.
This is After Hours from the HBR Podcast Network.
Thank you.
