Podcast Summary
Government's role in accelerating innovation during crises: Government investment and involvement can help accelerate innovation and bring hopeful outcomes during crises, as seen in the development of tech industries and potential vaccines or therapies.
During times of crisis, the collaboration between governments and private sectors is crucial in accelerating innovation and finding solutions. As discussed on the Odd Lots podcast with Bill Janeway, a partner and senior advisor at Warburg Pincus, the role of government in funding and accelerating the process of innovation towards a potential vaccine or therapy is significant. With a clear target in mind, governments can invest in reliable testing for both the disease and potential immunity. Looking back at history, government spending has played a vital role in the development of tech industries, particularly in the case of Silicon Valley and defense department spending. Thus, the government's involvement can help move things faster and bring about hopeful outcomes in the current crisis.
Effective international collaboration and resource allocation during a global crisis: International collaboration and effective resource allocation are essential during a global crisis to accelerate the development of tests and vaccines. The lack of leadership promoting international cooperation and the incoherent procurement and allocation of resources during the COVID-19 pandemic highlight the need for a coordinated response.
Effective international collaboration and resource allocation are crucial during a global crisis, such as the current COVID-19 pandemic, to accelerate the development of tests and vaccines. The success story of international collaboration during World War 2, which led to advancements in radar technology, serves as a model for the current situation. However, we seem to be stalled due to a lack of leadership promoting international collaboration. The economy is facing a significant challenge with the closure of civilian production and a lack of demand. This is an opportunity to allocate resources to the highest priorities, such as protective gear and medical equipment, to help reopen the economy sooner. Unfortunately, the current situation is marked by an incoherent mess of procurement and allocation, with states competing against each other and the federal government playing no role. This issue should have been avoided in the current crisis, as the challenges of grand scale national procurement during a time of crisis, such as World War 2, have already been addressed. The breakdown of the traditional market mechanism for the supply of basic medical goods highlights the need for effective procurement and allocation during a crisis.
Managing Resources in a Crisis: During a crisis, the federal government can act as the purchaser of first resort and allocate resources based on need, while encouraging innovation and avoiding shortcuts.
While the current crisis presents unique challenges in resource allocation, it is not inherently insurmountable. Contrary to the situation during World War II, we now face a clear list of needed products such as masks, ventilators, and reliable tests. The federal government, in a national emergency, has the authority to act as the purchaser of first resort and allocate resources based on simple metrics of need. The resources required for research and development are global, and all countries have the same incentive to produce effective solutions. The proper public sector response is to spread resources broadly to encourage innovation and avoid relying on shortcuts. The outcome of the vaccine race will likely result in both winners and losers among pharmaceutical companies.
Balancing R&D Funding During Crisis: Government underwriting of research as a public good can strike a balance between incentivizing competition and preventing excessive profiteering during crises. Fair distribution of surplus and supporting entities with proven capacity are key.
During times of crisis, such as a global health pandemic, the allocation of funds for research and development (R&D) is crucial. However, it's important to strike a balance between incentivizing competition and preventing excessive profiteering. Government underwriting of research as a public good is a viable solution, as seen in past successes like the development of polio vaccines. When the output of this public good reaches the market, there should be a fair distribution of the surplus between consumers and producers. In the meantime, entities with proven capacity for research in the area should be supported. It's essential to learn from history and ensure that the benefits of scientific advancements are accessible to all.
COVID-19 Economic Crisis: German vs US Approaches: The German model focuses on keeping workforce during crisis for long-term efficiency, while US model mandates layoffs and inefficient unemployment insurance system, potentially leading to different workforces post-recovery. Fiscal spending is a consensus for economic recovery.
The economic crisis caused by the COVID-19 pandemic is unprecedented since the Great Depression, leading to a near-shutdown of the civilian economy. The pressure for international collaboration and minimum favoritism towards potential vaccine providers is high. As for recovering from the crisis, two different models are available: the German model, which focuses on paying companies to keep their workforce, and the US model, which has mandated layoffs and an inefficient unemployment insurance system. The German approach is more efficient in the long run, as it avoids the need for rehiring a new workforce when the threat recedes. The US approach, on the other hand, may result in a different workforce being available when the economy recovers. Additionally, there is a consensus that fiscal spending will be necessary to get the economy running again.
IRS underfunding hindered economy during pandemic: During the pandemic, IRS underfunding prevented it from playing a larger role in financing the economy and maintaining productive capacity through wage subsidies.
During the economic crisis caused by the pandemic, the underfunding of the IRS for decades prevented it from playing a more significant role in keeping the economy afloat. The IRS, which has access to everyone's Social Security numbers and provides refunds to millions, could have been a useful tool in financing the economy and shifting production from military to civilian demand. The challenge now is to identify and respond to inflationary pressure during the delicate process of bringing back online the supply that has been closed off. The CARES Act, which provided insufficient funding, could have been expanded to include wage subsidies for all entities, not just small businesses, to maintain the productive capacity of the economy. The European, UK, and German models of employment subsidies should have been embraced on a larger scale. The IRS could have been the vehicle for implementing this, but its underfunding made it an unlikely choice. This is a great shame and a waste, as the US coming back up will be less efficient as a result.
Navigating the complexities of demand return on a state-by-state basis during the COVID-19 pandemic: Governments must provide consistent, reliable messages to inspire confidence and collaboration is crucial for optimizing supply chains in times of crisis.
The road to recovery from the economic and social impacts of the COVID-19 pandemic will be challenging and varied, with behavioral changes and health concerns continuing to influence consumer behavior. The role of the government beyond spending money is to provide consistent, reliable, and confidence-inspiring messages, but this may be more effectively achieved at the state level due to the limitations of federal power. This real-time experiment in American federalism presents an opportunity for economists and political leaders to navigate the complexities of demand returning for services and products on a state-by-state basis. The pandemic has highlighted the importance of collaboration, both domestically and internationally, in optimizing supply chains for both products and services. The history of American federalism, as detailed in Gary Gershell's "Liberty and Coercion," offers valuable insights into the balance of power between the federal and state governments in times of crisis.
The cost of efficiency in supply chains: The pandemic has highlighted the need for supply chain resilience and collaboration between competitors to mitigate risks and ensure multiple sources of supply. Government stability and managing inflation post-pandemic are economic considerations.
The pursuit of efficiency in supply chains has come at the cost of resilience and robustness, which has become painfully clear during the current crisis. This realization may lead to a shift towards prioritizing resilience and bringing back critical production capacities to the US, as well as encouraging collaboration between competitors to ensure multiple sources of supply. From an economic perspective, the uncertainty caused by the crisis calls for a renewed appreciation of the role of government in providing stability, as recognized by John Maynard Keynes. While we have a clear understanding of what needs to be invested in, such as personal protection equipment and vaccines, the post-pandemic economy may bring new challenges in managing inflation and withdrawing excess liquidity.
Understanding the Role of Government in the Private Sector's Economic Recovery: Government support, including 'blank checks' and 'fireside chats', is crucial for the private sector's recovery from economic downturns, according to Bill Janeway on Odd Lots podcast.
Key takeaway from the conversation between Joe Weisenthal and Bill Janeway on the Odd Lots podcast is that the private sector is currently dependent on government support to recover from the economic downturn. Janeway emphasized the need for "blank checks" from governments and "fireside chats" from governors to help breathe life back into the economy. Janeway's perspective, which balances private sector experience and academic theory, is particularly valuable in understanding the nexus between the two as governments around the world work on their recovery policies. Janeway's book, "Doing Capitalism in the Innovation Economy," is highly recommended for those looking to deepen their understanding of this topic. Additionally, listeners are encouraged to check out the new Bloomberg podcast, "Money Stuff," where Matt Levine and Katie Greifeld discuss finance and other related topics every Friday.
