Kevin Warsh And The Long Road Back To Economic Recovery

interview with Kevin Warsh
Thursday, April 2, 2020

To watch the video, click here.

Peter Robinson: Today, a conversation with someone Tom Wolfe would have described as a Master of the Universe, someone who works on the commanding heights of the American financial system. During the administration of President George W. Bush, Kevin Warsh served as Special Assistant to the President and Executive Secretary of the White House National Economic Council. From 2006 to 2011, he served on the Board of Governors of the Federal Reserve System. Kevin now works in New York with the legendary investor, Stanley Druckenmiller, and serves as a fellow here at the Hoover Institution. Kevin, thanks for making the time to join us.

Kevin Warsh: Peter, thanks very much, it's great to be back on the show.

Peter Robinson: Okay, so, before and after, I'm gonna take a moment to set this up. Before the coronavirus, and I'm taking this from a piece that you published in "The Wall Street Journal", in late February, just weeks ago, quote, "U.S. workers incomes were growing "at the fastest rate in a generation. "The unemployment rate was at a 50-year low. "Profits for U.S. businesses were near cyclical highs. "Productivity had improved markedly "in the past year," close quote. That's the before picture, here's the after picture, and I'm quoting this from a news item that I picked up in "The Journal" I think was yesterday or the day before. "Many economists now expect the U.S. economy "to experience a severe recession. "Goldman Sachs economists see it contracting "at an annualized rate of 24% "during the April-to-June quarter. "Morgan Stanley sees the unemployment rate rising "to 12.8% this spring, the highest since the records began "to be kept in 1948," close quote. This is a calamity! Am I correct?

Kevin Warsh: So it's the biggest supply shock to the economy in a 100 years. So in that sense, it's every bit as big a deal as we've suffered, and, in some sense, a bigger more consequential shock than we had in 2008 and nine when I was last in government. But I think if you go back to what I wrote a few weeks ago in February, when I explained the momentum of the economy, the rest of that passage was about the risks that were at the doorstep.

Peter Robinson: Right.

Kevin Warsh: So I think when we look back over this period, we're going to see the 2008 crisis as one bookend, the 2020 pandemic as another, and we're gonna look at the period between the wars and ask the question, what did we do? Did we position the economy to withstand the shock, or did we act too complacently in the conduct of policy?

Peter Robinson: Can you let me do a little layman's stuff, which is very easy for me because I am a total layman in this. Give me some Economics 101. We have shut down everybody except essential services. I am, whatever else I may be, I am non-essential. A substantial portion of the economy is just closed down. Go to the grocery store, and there are empty shelves in odd places. There was no flour the other day. Apparently, people were deciding to bake at home. But restaurants closed. The dry cleaner is closed. The barber shop is closed. What happens, we've closed down the economy. Now we've been in, it differs a little bit from region to region, but fundamentally we've had 15 days already of the shutdown. And the President announced the other day that he expects it to last another month. Just tell us how to think through what happens when we put the economy into an induced coma.

Kevin Warsh: Right, so the economy has suffered from a sudden stop. And I should say that, Peter, you were my teacher 30 years ago, so I'm not sure I would describe--

Peter Robinson: Policy, not Economics!

Kevin Warsh: So, I would not describe you as a perfect layman here, but we've put the economy into a sudden stop now. Government officials have put the economies in recession before, just never on purpose. This time we've done it on purpose, and that makes it a radically different period. So what happens by my estimation, about 40% of consumer spending has been turned off. That is, 40% of consumer spending does not exist now that would have existed four or six weeks ago. Consumption is 2/3 of output, so that's a recession in and of itself.

Peter Robinson: Wow.

Kevin Warsh: Now, of course, business investment is seeing the shortfall in demand, seeing the path of government policy, and also radically pulling back. So this is more fundamental and the weaknesses are more balanced between the consumer pullback and the business pullback that we had in 2008. Just again, for context, in 2008, our worst quarterly GDP was in the fourth quarter of 2008. GDP fell by about 8 1/2%. I think we lost something like 840,000 jobs that month. Those numbers are gonna look quaint in a very short time. But even during that period, Peter, consumption pulled back to the tune of three to 5%, meaning the consumer was hanging in there. So you can get a sense just from this description how fundamentally different this is.

Peter Robinson: All right now, one more sort of Economics 101 question here: What are we concerned about? You were in the Fed. You're out in, and you're still a policymaker. You practice business, but you're at the Hoover Institution, so you get paid to think about these things, Kevin. Why can't we just say, all right, look, we've got a rough patch here. Maybe 45 days, maybe 60, and then we flip the switch, everybody goes back to work. Of course, that can't quite happen, but why not? What are the chief concerns for a policymaker looking at this shutdown?

Kevin Warsh: Well, I'd say the way you described it is probably the dominant consensus in economics profession. We've pulled back on aggregate demand. That pullback will last 30 to 120 days. The government will fill that hole in aggregate demand through this $2 trillion stimulus bill, and we'll come out of it on the other end. You cited, at the beginning of this discussion, the Goldman Sachs piece that came out in last couple of days. I believe they said something like second quarter GDP will be down 34%, but then there'll be a big bounce back in the third quarter to the tune of 19 or 20%. And most economists, most professors in different parts of fine institutions like Stanford, say, well, we have a fall in aggregate demand, and we'll fill it. That's not my judgment. That's not my view. So the way to state it simply is, the economy in the U.S. is not a pop-up store. You can't just turn it on. You can't just fill it up with demand by having consumers show up and fill it up with supply and go back to the races. The economy is a very complex organism. Its dynamism, its various pieces, are what make the U.S. economy the most dynamic, the most innovative, but also, when confronted by a shock like this, it suggests to me that sudden stops aren't replaced with sudden starts.

Peter Robinson: All right, we'll come back to that. This is not going to be a cheerful conversation, is it, Kevin? You are ordinarily the most cheerful of men, but this is, we have bad news to face. More Economics 101, can you distinguish for me, just as if you were in an opening class here, distinguish between monetary and fiscal policy?

Kevin Warsh: Well, it's a good question. It's one that I'd like to harp on because in times of crisis, monetary policy and fiscal policy can blur sometimes with the excitement of members of the United States Congress. So let's go back to first principles.

Peter Robinson: Yes.

Kevin Warsh: Monetary policy by its very name has something to do with money. Monetary policy is what central bankers do. That's the conduct of money in the economy, the conduct of credit in the economy, the conduct of liquidity in the economy. That's why we've given independent central banks around the world special authority, which is powerful, but I would say reasonably narrowly construed in normal times. But importantly, monetary policy in my framework, which is, again, a little bit different than perhaps most in the profession, monetary policy shouldn't be fine tuning too much in peace times. But when there's a shock of war, monetary policy was born to be aggressive. And the central bank of the United States, the Federal Reserve, now after its hundred-year anniversary, came into being after the Panic of 1907. So in my view, it's a crisis fighter, and a crisis fighter with monetary policy--

Peter Robinson: In your piece in "The Journal" in February, you quote Milton Friedman. This is you, wrote, quoting you, "Milton Friedman stated that," now we're quoting Milton, "'Monetary policy can contribute "'to offsetting major disturbances in the economic system, "'arising from other sources,'" close quote. Back to you, "Friedman was no fine tuner, "but he didn't believe in passivity "during times of trouble either," close quote. So, I'll ask you in a moment to give you a critique of how the Fed has behaved, but, as a matter of general principle, what should the Fed be doing? How should we think about this engine of liquidity in the economy?

Kevin Warsh: So in my judgment, no doubt affected tremendously by Milton on campus 30 years ago who was a dear colleague of both of ours, and his spirit is still with us at the Hoover Institution. So, Milton, I think it has been written in more recent histories as someone who said, oh, let the economy go as it is, laissez-faire economics. But his view of central banks was always somewhat more refined than that. What he really wanted central bankers to do was to let the economy have its business cycles, not to ensure that economies had 20 or 30-year periods of growth, but the business cycle was important. And central bankers would be putting themselves and their economies in harm's way if they tried to overly adjust their tools 'cause the tools are pretty blunt.

Peter Robinson: Right.

Kevin Warsh: But what Milton had written about for most of his career, and people like me who consider ourselves trying to think about Milton's lessons today, when you get stuck by a crisis, like the crisis of 2008 or the crisis of 2020, that's when if in peace times you were humble in your policy tools, if you came into periods of crisis with all of your credibility, with all of your monetary tools at full power, you could act aggressively. What I tried to suggest in the piece that I think you're referencing in February and a piece a couple of weeks ago in March is what central bankers should be doing in periods of crisis especially like this is provide liquidity against good collateral to all solvent comers. Don't pick winners and losers. But the way I interpret that policy is central bankers in peace times are often focused to the right of the decimal point, asking themselves questions about, Oh, if inflation is now 1.7%, what can we do to move it to 1.9 or 2.0%? Milton's lessons, that at least I took from them, is stay focused to the left side of the decimal point. The world is a place that can be hit by shocks at the strangest of circumstances, and when you're gonna miss your goals for inflation or output by a lot, by full percentage points, you wanna be poised to act there to provide liquidity. And that's my judgment about what central banks in the U.S. and most of the world should be doing as we speak.

Peter Robinson: All right, the stimulus bill, I'll come back to the Fed in a moment, but, first, the stimulus bill fiscal policy, which concerns what the government, concerns taxation and spending, correct? Fiscal policy. Here's the front page of "The Journal" on March 27. The headline, "Trump Signs $2 Trillion "Coronavirus Stimulus Bill", and here's the lead: "The bill is the largest relief package in U.S. history "and extends aid to many struggling Americans "through direct payments "and expanded unemployment insurance. "The package provides loans and grants to businesses "and augments drained state coffers," close quote. You've just told us about the importance of monetary policy. Was this $2 trillion stimulus a good idea? Is it necessary? How do you judge it?

Kevin Warsh: So you've provoked me again. So I'd say first, I don't like the language of it being a stimulus bill. I don't know what the designers had in place, but it strikes me as quite odd. Our government has decided to shut down most of the economy. It would be strange then with the other hand if they were trying to get the economy to be going again.

Peter Robinson: Right.

Kevin Warsh: If that's the balance of policy, then these policies are working at cross purposes, and the money would not be well spent. So my judgment, if I look inside the four corners of the $2 trillion expenditure, I think about it this way: First, the overall size and number of zeros doesn't mean that much to me in a period like this. What matters more is what's in the design. Because, again, my judgment is not that central banks or Congress needs to be filling holes in aggregate demand. It's that we need to at this point be buying time, seeing what happens, learn more. Keep the fundamental micro foundations of the economy alive so that when we decide to, in your language, take the patient off of the induced coma, that the patient can find his first steps. So inside the stimulus bill, I'd break it down like this, Peter, call half of it or so what I would describe as income support. This is, we're a rich country. We care very much for the least well-off among us and cull a trillion dollars to try to find its way into people's pockets that are less well-off so that they can make it through a period of huge uncertainty. I don't think about that as stimulus, and I think that's a dangerous suggestion when we're in a period of induced coma.

Peter Robinson: I see.

Kevin Warsh: And we could have a discussion about whether that trillion is well spent. I'll just make one example. No doubt that we're gonna see the labor markets take the worst turn that we've seen since World War II. We're gonna see the labor markets, people getting thrown out of their jobs, being furloughed. The unemployment rate's spiking, I suspect, somewhere into the teens. And so Congress, you understand, wants to say, listen, many of these people were late in coming into the workforce. They finally are somewhere near full employment. People in the bottom quartile or so are getting their first wage gains in the last 18 months that they've gotten over the course of the last decade. So that's a feeling of compassion. But in the design of these policies, it appears as though in many states, once people find their way onto the sidelines, and they're getting unemployment insurance, we have to ask ourself in economics a rather cold hearted question, are they getting paid more for leisure than they are for work? What we wanna do is we want there to be a generous safety net for people who find themselves in harm's way through no fault of their own, but when the world, when the patient comes out of that induced coma, we want them to reattach themselves immediately to the labor force, want them to come back and be part of the American dream, be part of their employer, be part of this dynamic economy. In the last crisis, what we ended up with for nearly a decade was a generation of workers that suffered from bouts of despair. They had detached from the labor force. And if we learned anything from the post crisis era of '09, we don't want to commit that same sin again because it's not good for those workers, and it's certainly not good for our economy.

Peter Robinson: And what was the policy error in 2008, if it was a policy error and not, sometimes bad things simply happen? But was there a specific policy error? Was it the Obama, what was it, an $800 billion so-called stimulus? Was that the error that enabled, permitted, coaxed people into leaving the labor force when really it would have been better for them if they had not?

Kevin Warsh: So I would say it's probably the story for another show. But if I could summarize, I would say, central bank monetary policy after the crisis had ended, call that the end of 2010, was largely the only game in town. Fiscal regulatory and trade policies were not bolstering the economy. Central banks were trying to do everything, or do most of things in peacetime. And central banks, at that point, could not do a lot after the crisis to get the economic growth back to the 3% level or so that we've grown accustomed to in the post-War era. So with low growth that mark the period from the end of the last crisis until just a couple of years ago, 2% economic growth, that's great for Wall Street.

Peter Robinson: Right.

Kevin Warsh: That's great for the well-to-do and the highly educated. But you really need that extra percentage point of growth so that those with skills that could reattach to the labor force do so because the labor markets are then hot enough and pay enough to re-engage that labor force. Just to put a number two on it, we thought there was a generation of people that had permanently detached from the labor force, but, over the last three or four years before the last three or four months, we found with a pretty hot economy those people found their way back into the labor force and were making huge wages. And so that's why we have to be particularly concerned as citizens, nevermind as economists, in thinking about how we don't put them back in a detached way for the labor force. They need every opportunity to find their way back. Hence, you can hear my call for liquidity for all, rather than fiscal policies that might discourage work on the other side of us.

Peter Robinson: Right, okay, I'm thinking, I'm thinking because this is the only way I can think. I'm picturing my own experience here, my own neighborhood. So before the actual shutdown took place, there was a week or two when things were bad, but we hadn't all been told to shelter in place. And our friend, Scott Immergut, who's producing this very show as we speak, came up here and gave me a call. He was staying at the Stanford Park Hotel, which you know well. Stanford Park must have 150 rooms. It's a medium-sized hotel. It's not a convention center, but it's not a little place either. Scott was one of three guests in that whole hotel. You can't run a hotel like that. And there were people in the kitchen who aren't in that kitchen. I don't know about the Stanford park, but people, ordinary wage earners, maids, cooks, waiters, waitresses. The correct way, I'm asking, to think about the stimulus is, at least in part, the good bit of the stimulus, the bit of the stimulus that Kevin Warsh approves of is expanded unemployment to help those people make their rent. Is that right?

Kevin Warsh: That's right, that's right. The purpose of, again, I won't use the stimulus because we're telling that hotel effectively to close down,

Peter Robinson: Right.

Kevin Warsh: but I wanna tell them to close down and reopen at the same moment. Government policy shouldn't be doing that. But what we're really trying to say to the hotel is, shut down for now. And when this light switch goes back on in a period, measured hopefully in months but potentially longer, we want you and the labor force to reattach quickly. So we wanna provide support for those that through no fault of their own have been hurt. But we want them to reattach quickly and we want the momentum that the U.S. economy had to pick up and accelerate. And when we design policies that do the opposite, we need to worry about a period at the other end of this of low growth that's pretty good for Wall Street, keeps interest rates down, but isn't so good for that group of people. So that's a large portion of what Congress has done in their $2 trillion.

Peter Robinson: Kevin, you've got me now thinking back in my old speechwriter's frame of mind. So the correct way, were you and I back in Washington, the correct way to write a speech for a senator or for the President or for a member of Congress to describe this $2 trillion package, strike the word stimulus. You've made that point a couple of times now. That's just the wrong way to think about it. But even sheltering in place has costs. And the stimulus to the extent that it's a good thing, to the extent that it was the right thing to do, to the extent that Kevin Warsh approves of it, the stimulus is rent and utilities. Is that correct?

Kevin Warsh: Yeah, I think that's a very nice description.

Peter Robinson: Groceries, rent, and utilities.

Kevin Warsh: That's right.

Peter Robinson: Okay.

Kevin Warsh: And what the bill is trying to do is it's trying to say, let's take a time-out together. We're a rich and generous country. We're in this together, and we're gonna come out of it better, stronger, faster. So the second big component of the $2 trillion was a liquidity provision from the United States Congress to the United States Treasury, which, I hope and expect, will then largely be devoted to the Federal Reserve. And that's so that the Federal Reserve can quickly use liquidity provisions in its own structure and its own practices and provide liquidity to all solvent comers. So if you were that hotel you were talking about, and you were a solvent business with good collateral and you could have gotten a loan from your local bank on January 1st, 2020, the Federal Reserve will stand behind that loan. So when the hotel goes to its local bank and said, Hey, I need a credit line for the next 90 days, the bank might say, well, you don't have any customers. Scott was one of the only guests there. I wish I could give it to you, but I can't. Well, in this formulation, again, if Congress grants the money to Treasury and Treasury grants it to the Fed and the Fed designs a program the way I've described over the last few weeks, the bank says, Well, yeah, I know your business. I know exactly how you were on January 1st, and I trust you, and you've been a very good borrower. So I am gonna give you the 90 days of credit line, and I will extend that as long as the virus affects your business. And in the unlikely event, that the hotel can't survive this period, in that unlikely event, the bank won't take the losses. The U.S. Government will take the first loss on that.

Peter Robinson: Okay.

Kevin Warsh: But that's my judgment about how the Fed, the Treasury, and the Congress can work together and buy time for that hotel because we're really trying to buy time for the people in that kitchen.

Peter Robinson: Spend just a moment longer, if you would, explaining the nightmare scenario. The hotel goes to the bank, the bank says, Sorry, you don't have customers. I can't give you any more credit. And that happens throughout the economy. What comes next?

Kevin Warsh: So what happens after that, if that happens all throughout the economy, the economy in the U.S. is interconnected, and I should say interconnected to the world. The world is suffering far more even than the U.S., both epidemiologically but also economically. If that happens, you have a cascade of bankruptcies, a cascade of losses in credit markets, a loss of confidence, so a retrenchment of animal spirits. And you have what could be a garden variety recession and turns into something far darker. Again I can't help but make reference to the period between the two great wars and say these are the possibilities that we have to ward off, that we have to ensure it doesn't happen, so--

Peter Robinson: That if I may ask, the coronavirus is nobody, well, we could argue whether the Chinese should have acted diff. Set that aside, it's nobody's fault in this country. But, if we permit, the cascade of the kind that you just described, a ripple of business failures, that would be somebody's fault. We know enough to prevent that. I'm stating this, but it's in the form of a question. We know enough to prevent that, and that's simple competence. That's not too much to ask of the government, correct?

Kevin Warsh: So I agree with you. We know that, but we also know another lesson. And it's a lesson that we should take seriously in the context of the bill the President signed. We also know that if we decide to take over American-style capitalism, replace dynamism and creativity with a government-owned airline industry, a government-owned national defense industry, a government that now says who should be on your board and why, a government that then says to the airlines, you can't fire workers, or you can't, as a restaurant, fire anybody. You must keep your locations open. That's the other error, and we would then be doing real harm to American-style capitalism. So in my judgment, between these two poles, when we are confronted with this degree of uncertainty, rather than trying to stimulate the economy, what we should be trying to do is buy time, and that's ultimately what central banks were born to do.

Peter Robinson: All right, this brings us to the Fed now. I'm quoting "The Wall Street Journal" to you once again, here's the March 30 headline, "The Fed Transformed". And here's the lead, "Mr. Powell," that's Jerome Powell, Jay Powell, the Chairman of the Fed, "has placed the Fed on wartime footing, "cutting rates to near zero, purchasing huge quantities "of government debt, and breaking a taboo, "lending to American businesses," close quote. Now, by the way, in your piece in February, you urge the Fed to do just exactly that, invoking something I didn't know existed, which is Section 13-3 of the Federal Reserve charter, but leave it to Kevin Warsh to know all about it, and to make direct loans to businesses. We'll come to that in a moment. That's the one bit of it all that raises my eyebrow. You being you, I'm sure will be able to reassure me on that. Overall, though, how do you grade the Fed under Jay Powell?

Kevin Warsh: Okay, well, I've gotta first take issue. What I did not want were direct loans from the Federal Reserve to individual enterprises. What I would like would be use the banking system to have the banks underwrite loans based on their own underwriting criteria, pre-virus, and should those loans turn bad, the Fed as the regulator of those banks will ask whether that loan was properly underwritten as of the first of the year. And if that loan turns bad and someone needs to pay, the Congress to the Treasury and the Treasury to the Fed pays those losses.

Peter Robinson: Got it.

Kevin Warsh: That's quite different than the Fed provide--

Peter Robinson: And that's what I approve, I approve of that plan Kevin, sorry.

Kevin Warsh: Right, so I--

Peter Robinson: You've already reassured me on that one, all right.

Kevin Warsh: I am not comforted by the idea that the central bank wanders away from its remit and decides to pick winners and losers. That's, again, why my view is liquidity for all solvent comers, so we don't make those distinctions that were ill-equipped to me.

Peter Robinson: And the correct thing is for the Fed to act as a backs to push liquidity into the system, because Jay Powell and the Board of Governors cannot know the managers of the hotel across the street here in Palo Alto, California, those banking relationships, thousands of banks across the country, what they need is money. They don't need to be told about their customers, correct?

Kevin Warsh: Exactly, yes.

Peter Robinson: All right, okay, So cutting interest rates nearly to zero, all right, the layman says, first of all, that does my savings account no good, but I can understand why you'd want to do that. But isn't that a little bit scary because if you cut rates almost to zero, you have just shot the last arrow in your quiver?

Kevin Warsh: So you're going to provoke me yet again, Peter. I would say these guys are three or four weeks into the war of all wars. And so I'm going to try to hesitate to be critical. They are in the bunker. I was in the bunker, and I remember three or four weeks into the bunker last time. We had a lot of would-be quarterbacks, backbenchers from the bleachers saying what we could and should do. So I'm going to do my best to resist that temptation. What I will say, though, Peter, is this--

Peter Robinson: You are reprimanding me very elegantly, Kevin.

Kevin Warsh: What I will say is this, if we had come into this period with the traditional ammunition that one goes, that one's comes into after a 10 or 12-year period of economic recovery, and if we had stayed near and very close to our traditional remit, then I believe we would have had a lot more ammunition, a lot more credibility, so that when a shock comes, we'd be even more ready for it. It is fair to say, Peter, that no one saw this shock coming, but central bankers are in the business of saying, I don't know what the shock will be, but I want to be prepared for it. That's mission number one. So over the course of the last dozen years or so, the question we should have always asked is, what could possibly go wrong? Instead of suggesting that everything was going just perfectly and financial stability was in great shape and the economy was great. There are plenty of cheerleaders out there in the world and the central bank doesn't need to be among them.

Peter Robinson: All right, the way out... Well, before I get to the question about how this will end, let me ask you this. Are you satisfied, there was a lot of controversy, and I myself am stuck between central bankers who know a great deal more than I do about banking and public health officials who know worlds more than I do about viruses, but the argument runs as follows: Shutting down this economy not only has, the argument runs as follows, we hear over and over again, Joe Biden, Bernie Sanders have been saying this. Joe Biden said, "an extra point on the Dow Jones is "not worth one single human life." And that is an absurd statement. It's a false dichotomy, a false choice between lives on one hand and money on the other. That's nonsense. If you shut down the economy, just as you said a moment ago, we learned from the experience of 2008 if we know anything, we know that unemployment, underemployment has horrible health effects in itself, the opioid use, alcoholism, depression, and even suicide. If you wanted to be as crude as to do it, you could probably make an argument that there will be as many lives lost under certain economic circumstances as might be lost under certain circumstances in the managing of the coronavirus. Are you satisfied that the reaction that shutting down the economy remains the correct policy response to the coronavirus? Are you simply deferring to public health officials? How do you feel about that absolutely basic threshold question?

Kevin Warsh: So I'm not sufficiently privy to the debate before the President as his health advisors come to the press briefing room where you've spent plenty of time, so I don't know those inputs. I'm institutionally deferential to the scientists in healthcare.

Peter Robinson: All right.

Kevin Warsh: But I would suggest this, I think, in some sense, it's a false choice. We make trade-offs every day. Making policy, making government policy is about making choices. There are, again, to cite Milton, very few free lunches out there, and, if there were, we've taken them in this period between the wars. So I guess what I would broadly say is what the government could do as a matter of policy, now that the Secretary of the Treasury, the Congress, the Fed Chair, the President have rolled out a lot of new programs and a lot of new money, we've heard a lot of the music, but we haven't heard the lyrics. So my suggestion is that they announce what the economic war plan really is. This is the first war that I can think of in history where the enemy can't read. So we can tell the whole war plan out there. So the suggestion would be pick a date at which the President believes that the economy will be ready to begin to normalize, at which point he and the healthcare officials believe we can take the foot off the brake. And set those dates as series of expectations. Tell the story of the incredible Fed facilities that have been rolled out, each with a one-page document. And the Treasury secretary and Fed Chairman then can describe in long, beautifully written prose, by the likes of you and others, what their diagnosis is, what our objectives are, what are the goalposts. And that kind of certainty I think will be important for businesses, so they can prepare for what happens on the other side, and important for households and citizens to understand how we get from here to where we wanna be. So I think it's time for the lyrics to catch up with the music. And I think this would be the appropriate time to do that. So I would say clarity is what's called for not certainty.

Peter Robinson: All right, Kevin, what's your instinct, your very informed instinct? But still all I'm asking for is your instinct. From the moment, we don't know when that moment will be, but from the moment the President says, we're ready to start again, from that moment, how long will it be until things feel normal? I'm asking how long will it take to restart the economy?

Kevin Warsh: So I think it'll take longer than most believe. Again, I don't think the economy can be turned on as quickly as it was turned off. I think that's in general the great benefit of the American capitalist system, that it relies upon subcomponents and components. It relies on a complex supply chain and complex demand chain. So I think trying to restart that will take a while, and there'll be some sputtering along the way, but I--

Peter Robinson: Months, weeks, months?

Kevin Warsh: Quarters, quarters.

Peter Robinson: Oh.

Kevin Warsh: I think it takes a while. So as a base case, I don't think that we're gonna look back and say, as some in my profession suggest, boy, that was a terrible second quarter, and everything's just swell. Secondly, Peter, I would say there's no going back. In some senses, I think this crisis is a fundamental one and will fundamentally change human behavior. The consumption patterns of the U.S. I think in all likelihood are going to be fundamentally different on the other side. Businesses and putting together global supply chains will be different. And so if anything, if I think back over discussions you and I have had around campus over the couple of years, the big challenges of the U.S.-China fight, the big challenges of de-globalization, the big challenges of the role of the Federal Reserve, there's no going back. And my instinct is that this crisis will accelerate the trends that have already been in place, debate about China and the U.S. and the future of the 21st century, how linked the global economy should really be. What should be the role and responsibility of a central bank? And I think households and businesses will be quite different on the other side. And, in some sense, different can be better but can also be quite a transition to get there. So I don't foresee any any quick snap back. And so for those that have Vs in Us in their alphabet to describe that, that might be what happens in an economic model. That doesn't strike me as what's gonna happen on the ground.

Peter Robinson: All right. Do you know any good jokes, Kevin? What I want is a V for this show. I'd like to come out of this on a high note, but it just doesn't look as though we're going to do that today. My impression--

Kevin Warsh: Let me give it a shot. Let me give it a shot. This is not a time for jokes; even though as we're taping, it's April Fool's Day. But these are serious times, and I would say a few things. One, I'd rather have our problems in the United States confronted by this virus than anyone else's problems in the world. I think that our economic prospects relative to growth in the rest of the world are far better. That doesn't mean we're all going to be booming, but on a relative--

Peter Robinson: Better than China?

Kevin Warsh: Yes better than China. I believe that this is hitting the Chinese, hitting the Europeans at very salient, very difficult moments for their own economic growth. And so as difficult as the challenges is in front of us, I'd rather be a policymaker and a thinker thinking about how does the U.S. endure this and thrive on the other end, rather than trying to cope with a multi-year recession or an economy in a radical transition like China, from being an export-led economy to one that will be overwhelmingly domestic in orientation as a policy matter. So let me begin with that relative good news. And on an absolute basis, I'll say something which is I think a little bit difficult to have the confidence I wish we could, which is, we can come out of this better, stronger, faster, and more productive, not just on a relative basis, but on an absolute basis. But the conduct of economic policy has got to be better to do that. We have to ensure that this economy can thrive on the other end, and if we find ourselves in the next hundred days or the hundred days after that picking winners and losers across our industry, putting government officials effectively as overseers on the boards of American enterprises or do things that makes it harder for companies to decide how to survive this, maybe they need to lay off a third of their employees, I'd rather them do that than go bankrupt and lay them all off. So we need to embrace that kind of thing and the question for public policy in the next year or so, will economic policy rise to the challenge so that we're stronger in an absolute basis or not. And that's where folks like you and me in the world of ideas that once served in government, where we might be able to poke and prod in the right direction.

Peter Robinson: So we help, let me, a little cluster of last questions, Kevin. You just identified the worst lesson, the wrongest lesson, so to speak, that we could learn from all this would be to aggrandize the state, to aggrandize the government. What's the best lesson we can learn from this?

Kevin Warsh: The best lesson is emergencies are fundamentally different than peace times. The emergency of 2008 and nine was serious, and it required some degree of radicalism by the central bank, but that's radicalism that I think is consistent with the central bank's founding mission. In peace times between the last crisis and this crisis, that's when central banks and other policymakers need to go back to their narrow remit and let the economy do its bit. And when we get confronted with the next emergency, which we have now, central bankers can be aggressive again, I wish that they'd come into this period without treating the last decade like every day was an emergency, like the stock market when it falls 11% is somehow this calamitous thing. We need to prepare in peacetime for wartime. But for you and me at this moment, what did former Secretary of Defense say? "You go to war with the army you got not the army you want." And when I look at the people that are in the army on the field, I'm encouraged, not discouraged. What they've done in the last three or four weeks is reasonably impressive, under a very high degree of difficulty. A higher degree of difficulty than I think we can fronted more than a decade ago. They've got our support. They need our prodding, and they need to ensure that we get to the other side of this emergency and not treat the decade that follows as though the actions that were undertaken in the spring of 2020 marks the economy for the next decade.

Peter Robinson: Two last questions. If you could offer one sentence of advice to President Trump, whom you know, what would you say?

Kevin Warsh: So I don't know him that well, I certainly didn't know him until he was President, but I've had a discussion or two with him over the intervening years but not in recent times. I guess my intuition is something that he seems to have taken seriously in the last several weeks. This is a war. This is a wartime President. In the same way that the healthcare officials that stand behind him at the podium have been complements to him, I've explained the facts and told what's on the ground. The strong economic team that he's assembled across government, Treasury, the Federal Reserve, and others, they need to describe their economic war plan with the clarity and specificity that we've heard from the public healthcare officials. And that description of the lyrics, that description of the battle plan with the confidence-inducing, even if the news everyday isn't the greatest, it's a big and mature and sophisticated country. We've been through tougher battles than this before in our long history, and we can get through this one, but I don't think we get through it through surrogates. I don't think we get through it through subterfuge. I think we get through it by being candid and open about the seriousness of the moment and what the battle plan is so we're better, stronger, and faster on the other side. So I hope that podium is filled not just with healthcare officials, but with officials across the government, National Security and Economic Security, laying out their war plans because the country's big in the turn can handle it.

Peter Robinson: Last question, your word of advice to a different person, the ordinary American stuck at home, worried about making his or her mortgage payment?

Kevin Warsh: So I wouldn't, I wouldn't. I don't consider myself well equipped to do that. What I would suggest is the challenges that that person has is very different than the challenges that you and I are privileged to have. We can do much of our work remotely. We can find ways, maybe inefficiently, to think about the world of ideas or think about financial markets or sit alone with a yellow sheet of pad and sketch out thoughts. But the hard working Americans, they need a job to go to, and they need a place to go. I think what they need to hear is from their economic leaders to tell them that there's a plan, and that they should come with them. I'll just end with a final bit of advice, and that's to our students. Over recent years, Peter, as you know, I teach some economics at the Graduate School of Business at Stanford. And I've noticed in the last two or three years, I talk about the financial crisis of 2008 and nine, and they look up from their tablets. But I could have very easily been talking about the Great Depression. I mean, they had heard of it. They knew it was a big deal. But I could have been talking about 1929. It had no resonance with them. And so I ended up trying to reframe that discussion differently than you or I would have taught it six or seven years ago. Well, let me give a message to that group of students today. They're now all scattered around the country, figuring out about online learning. This crisis is serious. This crisis is scarring, but this crisis also is filled with opportunity. And in vintages, if I were the graduating class of 2020 from an undergraduate institution or a community college or a business school, you'd frankly rather emerge coming out of a crisis or even in the darkest days of a crisis than 10 or 11 years into a bull market created in part by very aggressive central bank policy around the world and high asset prices. So they might be down. They might be a little despairing about their job is, I'd say for that cadre of people, they've never had it so good. And for the group of people that are already part of the workforce, this is a very tough transition. And policymakers, even has-beens like you and me, we need to use this as an opportunity to give some lessons from the past so that that worker finds more opportunity, not less after what is, no doubt, a grave and serious challenge over the next hundred days.

Peter Robinson: Kevin Warsh of the Hoover Institution, thank you.

Kevin Warsh: Peter, thank you.

Peter Robinson: For "Uncommon Knowledge", the Hoover Institution, and Fox Nation, I'm Peter Robinson.