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Covid-19 Spreads: Is a global economic downturn on the cards?

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Automatic TRANSCRIPT

Show covert nineteen the corona virus beginning in China but now we see the news stories the satellite nation of South Korea it's watching turmoil in its production lines the non satellite nation Iran is cut out from the world community and world manufacturing so we're going to set that aside and go to northern Italy where there is a super spreader we're told and there are Italian town shutting down particularly Italian towns near the best mills the Italian mills now I'm describing economics but I'm doing it anecdotally so I welcome Christine McDaniel a senior research fellow at the Mercatus center who is approaching covered nineteen from the point of view of world economics Christina very good evening to you mention in your remarks we don't have a great deal of data but what we have is there any indication of an analogy to the corona virus have we seen the world deal with at this scale of threat before and do we know what it means for the economy when and if it recovers good evening to you good evening thank you so much that to be here on this fascinating it's not grim topic well the condiments you know we look at our historic events and course there's the mayors and the sars outbreaks although this one is a somewhat different in the sense that the incubation period as the actual duration is not yet known at first it was reported to be two weeks but then just today we're hearing out of China out that there was an extra long coated nineteen incubation dad a whole family of six tested positive for the virus falling and your bonds long cord G. so if we were still very unclear on the parameters and until we get a better sense of the incubation and the and the spread then you know until that happens it's still gonna be very difficult to to what we know what the reach could be all that said today China is much more integrated into the world economy than it was during the sars outbreak and US production can be shut down if China shuts down so so well we haven't reached a health epidemic yet like Diane Swonk said you know it is very possible that there will be an economic camp that make even without health condemning it even if it's just so what if you're driven but again we just don't have the data to know for sure we have a report from South Korea that Honda I will suspend production in South Korea because of the covet nineteen actually because they can't get parts from China but that leads to shin bone the bone we also have a similar indications from Sam song and we can expect that care will also struggle is it does this tell us that it's a profound damage to the world economy as my thinking as bad as an amateur Christine is that whoever wants to buy an automobile has the money in his pocket and when that automobile is available the purchase will happen so whether it happens in the first quarter of the second quarter the third quarter it's still part of growth is that it is that it is that it is the wrong way to approach this or is is that too positive well it's it's probably right you're talking about pent up demand you know things like for you know a large consumer goods if I want a new car or a new washing machine you know whether I go out today tomorrow or next month I'm going to go out and buy one so there are certain purchases that will happen even if they are delayed and their other purchase at your purchases and and trip trips that just won't happen because they didn't happen last week you know for example a conference that you don't you might wish they were supposed to go to that you didn't go to are you what are you did you go out to dinner you didn't have to go to work another event so there are some things that those sales are just gone and they're gone forever so it it depends on the type of sale that we're talking all right let me give an example I was scheduled to be in it was Pakistan within these next days for an international conference of financial conference called by the president very important to the development of Central Asia which you know is undergoing a re awakening right now renaissance it's been delayed till fall now yes that's a delay but it's not a cancellation and yes there will be a negative effect on the hotel years and the drivers and the airlines in and out of those Pakistan is that profound the travel agency is what I'm chiefly of focusing on but also the business travel agency which is a which pays top dollar well remember travel and tourism accounts for about ten percent of global economic activity so if that ten percent slows down for the next quarter or two then that's going to show up in the in the GDP numbers it will eventually bounce back but you know in the near term it you know it probably is going to look to bleed out through the through lower GDP a lower GDP in the first and second quarter but we look at GDP globally is this just a job for the IMF Christine Shawcroft well you know it it just goes to Millis is is not really going to help here if our people are just staying home right there in the we heard the CDC and HHS today and they said that the other course they're balancing against you now it depending on how things go in the eyes of would be a very aggressive on one hand they want an aggressive containment strategy on the other hand they want minimal impact to communities and so they were talking about you know encouraging people to stay home okay we'll find staying home then your physical stimulus is not necessarily going to help you know it might help some particularly I financially failing firms but in terms of the core they're the real reason for the economic slowdown the two center bucket tied to the virus back to school season which is not necessarily going to help so you have to remit long term economic growth is driven by mainly two things number one population number two productivity growth and so don't the long term is what you need to ask yourself how is this going to affect populations how was it going to affect productivity growth productivity growth you know that's our ability to make more eager to do more with less and in the long run I don't see how this would affect predicted to gross and last we have to make some structural changes to how we do business and that yeah it is no cost and slow things down but I think we're far from getting to that discussion yet Christine you read your colleagues and there do they love to kind of this love modeling is their modeling to describe something at this scale is there a book about this or are they writing the book now there are lots of models of modeling a chance going on right now and you're right we we we economists love models and up we use models to you know basically hold everything constant and just change one thing to get a better sense of how one thing can affect everything else we can model anything right and we have a global economic models country by country even the sub national level regional level models sector by sector so we can and we're very good at at modeling the economic effects of a chair or tax but the problem with this is we don't really know what the the the shock to the model is is it a supply side shock is the demand side Sharkey is a little bit little bit of both so and so economists get a better sense of how the virus is going to translate into affecting costs is supply and demand it's it's really hard to to use models to get some type of precision on the economic