NYT's David Leonhardt on inequality, the economy and the Covid-19 crisis | Homeroom with Sal

Hi everyone, Sal Khan here from Khan Academy. Welcome to our daily homeroom live stream, which is really just a way of having interesting conversations and staying connected during this time of school closures and social distancing.

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With that out of the way, I'm excited to introduce our guest today, David Leonhardt, who's a writer for The New York Times.

David: Good to see you, Sal.

Sal: Good to see you, David. Thanks for having me.

David: No, it's an honor! You've been writing for a little while, and you're doing a lot this summer or spring on inequality. So what got you interested in inequality?

David: I guess my background when I was in school was that my favorite subject was math. But I also really liked working on the student newspaper. So I think to some extent, it's just a reflection of this long-time interest that I've always had of describing the world around me using numbers, and then doing it for a general audience rather than an academic audience. But then as I became a journalist over the last 25 years, I really came to think this was one of the most important things, really along with climate change, going on in our country.

The fact that the living standards of most Americans don't track anymore with the statistics you read on what our economy as a whole is doing — that really creates all kinds of problems. In a way, that's really what inequality is. I think it affects everything from politics to obviously living standards, to education, to health, which we clearly see playing out now in the coronavirus.

It's one of these things in which, everywhere I looked around, or almost everywhere, I saw inequality as an explanation for a lot of the huge trends in our society.

Sal: I want to look at some of the charts in a little bit from some of your op-ed pieces and articles you've written. But, you know, just as a maybe this would be a naive question, but just as a level set, you know, in society, some level of inequality one might argue is inevitable. Why is there a certain threshold when inequality becomes too much? And what type of problems do you think large inequalities could lead to?

David: I think that's an important level set. I mean, I think not only is some degree of inequality probably inevitable, but I would go so far as to say it's probably desirable. The societies that have tried to get rid of inequality entirely have failed essentially.

Probably the best, most tangible modern example is in China, in which, in the 1970s, China discovered that it was really having a hard time getting anything done because they were insisting that everyone was going to have the same, no matter what. People weren't farming their lands in efficient ways.

The great sort of economic revolution in China was led by Deng Xiaoping, in which he tried to move essentially toward a system that was going to inevitably result in more inequality, but it also lifted almost everyone's living standards. The problem is when inequality just gets too big, and we've seen this happen a number of times throughout history.

It happened in parts of the late 19th century in this country, it happened in the 1920s. When inequality gets too big, you have many problems, but I'll highlight two. One is that the people who are amassing huge amounts of society's resources end up being able to essentially set the rules through the amount of influence they have over both the economy and politics to make sure they never lose what they have.

Two, you end up with a lot of people whose living standards just aren't rising very rapidly because you have such a large share of society's resources going to such a small portion of society.

You know, it's subjective about when it's too much, but when you look at just how much inequality has increased over the last 30, 40, 50 years in society, it's been so extreme that I think you either have to say, “Well, boy, something was terribly wrong in our society in the 50s and 60s and it was too equal,” or “Something is wrong now and it's too unequal."

It's hard to really imagine that both can work well. And there's this fairness argument, which you make very well just now, that at some point, money to some degree is power, and then that power could be to keep more money. And then obviously there's a fairness that just gets at some point unfair.

But are there other implications? If it gets too unequal, does the nature of our democracy become less stable?

David: I think it does. There’s a fascinating book by a couple of political scientists in which they look at “Why Nations Fail,” I believe that's actually the title of the book. They argue that over the course of history, inequality is the key — not the only, but is the key reason why societies decline.

When basically you have societies in which the mass of people are not enjoying rising living standards, it can lead to political instability. It can also end up being a real waste of talent. If large sections of your society are closed off from opportunity, or even if they're not completely closed off, if opportunity is so difficult, then most of the people in those sections of society will not be allowed to escape it. You end up missing out on huge amounts of talent.

There's a recent research paper called “Lost Einsteins” that tries to quantify some of the cost of our rise in inequality. The idea is that there are probably hundreds of kids today who might reach the very top of science and other fields if only they had better opportunities than they do. So, there really are, even if you can't predict when those bills will come due or exactly how they'll come due, there are really long-term costs.

I think even people who are on the happy end of many of the inequality trends should have some reason to worry that in the long term it could lead to a society that functions much less healthily than one where living standards are rising broadly for most of the population.

Sal: Let's make that a little bit more tangible. If we could bring up that first chart, which comes from one of David's articles that shows inequality — or actually it shows per capita GDP over the last several decades — and how the different groups... David, could you just explain what's going on here? It might be a little bit small depending on how large people's screens are, but what do we see here?

David: So, I love this chart. I think the place to start is exactly where you said we should start, which is per capita GDP. So, that's that dark black line with “per capita GDP” pointing at it. So, that's basically over since 1980, that's the cumulative percentage change in how much our economy produces every year.

You take the total value of everything we produce, all the services, all the goods, everything, and then you divide it by the number of people — that's per capita. You say essentially, if we divided our GDP perfectly evenly—which again I don't recommend — that's what would be happening. You can see it's really rising quite nicely in some ways. It's nearly a 100% increase.

So, I’m sure most of the listeners know that would be a doubling. Okay, so it hasn't quite doubled since 1980; this is adjusted for inflation, but it's come pretty close to doubling. But then, you kind of get under that and look at what's happened to each economic group.

You look at the bottom 50 — well, their incomes have risen. They're making more money than they were in 1980, but they haven't risen that much. To be clear, this is all inflation-adjusted, so it's not just, you know, some people say, “Oh, things were cheaper in 1950.” This is adjusted for arguably inflation; this is real income. This is adjusted for inflation.

There are fights about exactly how to do it and whether it's perfectly done or is it overstated or understated, and those are good interesting fights. But the bottom line is, if you adjust for inflation, what you're really trying to capture is the experience of people's lives. The fact that today, something — you know, what's a Big Mac today? Five bucks? The fact that it might have cost two bucks in the past — that doesn't actually show any significant difference between over time.

So you adjust for that. What you see here is that for the bottom 50 or the middle 40 percent, things have risen. When people say that the middle class today is making less money than it did in the past, I think that's wrong if you're looking at the long-term past. But the increases have been modest.

Here, I think, is an important thing: they have been much smaller than the increases you would expect based on what our economy has been producing. You then move up to what for shorthand I call the upper middle class, the 90th and 99th percentile. You've got a lot of doctors in there, you've got lawyers, you've got university professors, you've got a lot of professionals. Their income has tracked actually quite closely with per capita GDP — not everyone's, but as a group.

When you get to the top one percent, and really to the top of the top one percent, the top 0.01, you see that they're on a completely different trajectory. Their incomes are tripling or quintupling. When you see this, I think it helps you realize some of the frustrations that people have. People feel like, “Wait a second, even if I make more money than my grandparents did, than my parents did — which some people do and some people don't — it sure doesn't feel like I'm keeping up with society as a whole.” And they're right about that.

It's not just absolute changes that people judge their lives on. There's rich psychological research that shows its relative changes as well. I mean, put it this way, Sal: if you and I worked at a company where profits doubled and you and I got a 10% raise the previous year and we could look and see a bunch of other workers who got their pay tripled, would we say, “Oh my goodness, we're so happy we got a 10% raise”? Or would we say, “Wait a second, this doesn't feel totally fair”?

I think that's how a lot of Americans feel, and they're right to feel that way.

Sal: Before we get into potential causes of these trends, I will ask you — I'll play devil's advocate a little bit — which is, there's this argument: “Look, we have market forces, capitalism.” As you mentioned, you don't want to be absolutely equal — you want people to want to invest and take risks, and that might lead to some level of inequality. Some would argue that, “Hey, look, at the end of the day, it looks like everyone has improved in real terms. Why should we be so caught up with the relative? Wouldn't you rather have a world where everyone is improving, maybe some more than others, than a world where it's equal but we're not improving as much?”

David: Well, sure, I would. I think part of the answer to that question is, this is definitely better than some alternatives you could imagine. It's better than a world in which GDP wasn't rising at all. It's better than a world in which only a small percentage of people are seeing an increase, and no one else is seeing any kind of increase.

But when you look across the relative comparisons, it seems to me it really requires a stretch to argue that this is a natural outcome. One relative comparison would be other high-income countries. Over the same period, they've also seen inequality rise, but they haven't seen it rise as much as the United States has. So, some other countries have figured out ways to have middle-class pay rise more rapidly and pay for low-income workers rise more rapidly than our pay has risen.

Maybe even more starkly, those countries have also had health and life expectancy grow substantially more than the United States has. So, it seems like they're doing something differently from us. For much of the population, most of the population, it's working better.

You look at our own country between the 1940s and the 1970s, by no means a perfect period — the period in which opportunities for women were highly constrained, in which there was vicious, often legally sanctioned racism, in which large numbers of Americans couldn't vote — again, by no means a perfect period. But when you look at these same measures, what you see is that the pay of nearly every group, if we look at this from the 40s to the 80s, the pay of every group would be much closer to that black line.

Not only that, but the pay of the middle would actually have increased a little bit faster than the pay at the top. So I don't think, I think the burden on the people who say this is the natural outcome, I think actually the burden is on them to explain, “Well wait a second, why is this the natural outcome? If it's not what the United States used to have and it's not what many other countries have had.”

Sal: Given that, let's go into possible reasons for why this either is happening around the globe, which it sounds like it has been happening to some degree, and especially in the case of the United States. What do you think are the culprits here?

David: I think there are a few, and I think they're all fascinating. So I apologize, I'll be going through them extremely quickly. If you want to dive more into any one of them, I think it's clear that globalization is part of the cause here, and there's a lot that's wonderful about globalization. I mean, for much of the late 20th century, you had large parts of the world that essentially weren't competing in the global economy — either they were too poor, or they were part of the Soviet Empire and essentially weren't able to compete in the economy.

Or they were in Europe or Japan, which was essentially destroyed by World War II. So some of it is this entrance of billions of people into the global economy, which has increased competition, particularly for certain kinds of labor, and has created problems for people in the more affluent world.

That's also wrapped up with technological change, which plays a role there. Then, though, I think there are a set of forces that we have essentially chosen.

Sal: Just to make sure we all understand those points about globalization and technology, because I think they're similar. Someone might say, “Okay, there's competition around the world, but why is that disproportionately affecting the lower incomes?” Your argument would be, technology and globalization. Technology, obviously now arguably, a robot or computer might be able to do parts of that job and so it kind of lowers the importance maybe of labor or at least the negotiating capability.

And obviously, if there's someone in another country who can do that same job, and because of trade barriers have gone down and monetary barriers have gone down, people can relocate factories, that could put pressure on wages in the U.S. or in richer countries.

David: That's precisely right. I mean, you take a furniture manufacturer in North Carolina who has managed to move to Latin America or to Asia, where workers can do some of the same work, or maybe not as efficiently, but if they're being paid one-fifth as much, it doesn't matter. If they're not quite as efficient in doing it, we've seen this again and again. If workers are being replaced by foreign workers, they might be replaced by machines that can do what they would do.

So maybe you used to have 10 workers doing something manually or with a factory assembly line. Now you have two or three workers operating computers that make the same goods. Those are true forces, really.

Just to be clear on globalization, the academic argument for globalization is that it actually makes the pie larger. If we take the furniture example, consumers of those services or those goods might be able to get them for cheaper now.

Also, what's probably happening to your point is that those who own the technology or have the capital might be getting better returns now because some of their costs have gone up. They're able to lower the price so the consumers benefit, but then they're able to get better profit because their costs have gone down even more.

David: And I would argue maybe even bigger than either of those is that it can bring good jobs to people around the world. The last 50 years have seen the greatest reduction in global poverty in recorded history. It hasn't been in this country; it hasn't been in Europe; it hasn't been in Japan. But it has been in China, in India, and large parts of Africa and South America.

That is a very good development for people who live there. And that's a good disclaimer. I can't wait to get all of the questions we're getting, but I do want to go through all of the levers.

Sal: That's great! I'm excited to hear them.

David: So, I think then there are a set of things where I would argue that they are in many ways policy choices that we have made, whether knowingly that we're making them or not necessarily knowing. One of the really key changes is that we are no longer producing educated people, increasing the stock of educated people at the rate that we used to be.

There's a fantastic book by Claudia Goldin and Larry Katz called “The Race Between Education and Technology.” The title captures a lot of this, which is the example I just gave, where you went from 10 workers to two workers. Those two workers need to have higher skills in order to operate computers, and if you think of the long sweep of history, you can kind of imagine this race between education and technology. The technology gets more sophisticated; are we producing the kind of workers who can use the new technologies?

There's been a huge slowdown in educational attainment in this country, even though all the signs are that education pays off. I know people say, “Wait, is college overrated?” But as I like to point out, the people who say “Is college overrated?” are often making sure that their own kids are going to college.

In terms of their own behavior, people understand that education is not overrated. The unemployment rate for college graduates is vastly lower than for non-college graduates. The pay gap is near an all-time record. College graduates live longer; they are more likely to be happy; they're more likely to be healthy. But we haven't done a good enough job allowing more people to go to college and really to complete college.

Sal: There's a good question on that. I know there are so many. I hope we have a little bit more time because I want to get through all these, but there's a question that's related to your point about college education, which I think is interesting.

Mamata Bhattacharya says, “I often think we can't get rid of inequality by educating it.” Well, I think we can get rid of inequality by educating everyone who wants to be educated, to your point. But don’t you think this crazy college tuition is one of the reasons behind the massive inequality? You know, I also have heard that the data shows that those with a college education make X amount more, etc., etc. But, you know, it's not a causality necessarily; it could be a correlation.

And we're getting a lot more people to go into it; they're incurring large amounts of debt, debt that's equivalent to the down payment for a house in New York or California, and probably buying a house outright in a lot of the country. Do you think that's maybe not even captured in some of these inflation numbers?

David: I think it's important to separate this. The cost of college is a real problem, but it's often, I think, misdescribed a little bit. People hear, you know, it costs, I mean, you're out in California, I'm in Washington. You know, it costs what, $70,000 a year to go to Stanford or to go to Georgetown or to schools like that.

But it's really important to remember those are not normal schools. Not only that, but the schools that charge that tend to give large amounts of financial aid to middle and lower-income people. The typical college, you know, like a California State University or the University of Maryland, Baltimore County, or you name it, these places cost vastly, vastly less. They still cost a lot, and I think they probably cost too much.

But you can't end up going to one of those places and end up with $100,000 or $200,000 worth of debt. The average debt for college graduates is around $30,000. That's not nothing, but it's much, much less than the gap.

So cost is a problem, but still the truth is that the vast majority of people who finish easily pay off their debt. Not everybody, but the vast majority. It's actually college debt that is a much bigger problem for dropouts. College debt is a bigger problem for people who end up with $15,000 of debt but don't get a degree. We don't talk about that crisis nearly often enough.

But the only other thing I'd say is there's been some really good academic studies that have studied people right at the threshold of getting into the least selective four-year college in a state like Florida. The people who are just above that threshold and who just get into the least selective four-year college and thus have a shot to go to a four-year school actually end up doing substantially better in life over their 20s — that's just as far as the data has gone — than people who just missed that threshold.

So while clearly part of the value of college is correlation, I do think part of it is also causality.

Sal: That last study sounds really interesting. And look, you know, I can personally testify; I went to one of those schools that I didn't think I could afford, but because the MSRP price was very high, I was able to go, even though my mother made $16,000 a year in 1993. So, I can completely vouch for that.

But anyway, I interrupted the various levers. So we talked about globalization, technology, and education. What let’s keep going?

David: Yeah! So I think you can combine immigration and trade policy. I think sometimes people overstate the importance of trade policy. It's not like, you know, the trade deals we've signed have caused all these problems, but some of them really have contributed to it.

Basically, what we've done is we have allowed our immigration and our trade policy to create much more competition in the middle and the bottom of the labor market than at the top. As you probably know, it's like impossible if you're a doctor from another country to move to this country and become a doctor, right? You kind of have to start all over at the beginning. That's basically a big trade barrier that protects doctors in this country.

It’s not we say it's because we don't trust those other medical systems, but there are plenty of easy ways to figure out whether doctors are actually qualified without simply rejecting all these qualifications from other countries. But we don't do that. We make it really hard to become a doctor in this country.

On the other hand, we've had this absolute surge of lower-skilled and medium-skilled immigration into this country over the last 30 years that's had some big benefits, but it also really has created additional competition.

So when you look at our trade and our immigration policies, many of them really make sense that they have put more pressure on the wages of people in the middle and the bottom than at the top.

Then I will just very briefly add to that our tax policy. Taxes on the very rich have plummeted — the estate tax, income taxes, corporate taxes — every tax that the very rich pay has basically plummeted over the last 40 years. Taxes for people in the middle and at the bottom, which are very important, tend to be the payroll tax and sales taxes, have just not fallen very much.

So over the same period that the market has caused inequality to rise, our tax code has exacerbated those changes.

Sal: If we could bring up that animation from David’s Twitter account on how tax has changed over time, I think that really hits the point home of what David's just mentioning. There's an animation that I really enjoyed, and I actually made a video with it; yeah, here we go.

What you see — actually you could explain this — what's going on? It keeps repeating itself.

David: So this is your total tax rate. You combine federal, state, and local for the very richest families. I can’t remember, you may see it on there; is it the top 0.01 percent?

Sal: Yes, thank you; this is the whole tax — exactly right, Sal. This is the whole tax; this is the whole country, right? So what you can see is, in the middle and the bottom, these tax rates aren't changing very much; they're staying within a fairly narrow range.

That's the yellow line in the middle and to the left. But to the very right, where you're seeing the very, very wealthiest folks, the tax rate is plummeting over time. I want to emphasize this is actual tax rate; this isn't the statutory tax rate you pay on the last dollar.

This is you take someone's total income, you then take all the taxes they pay — federal, state, and local. Back in the 1950s, the very, very wealthy were paying more than half of all of their income in taxes. Maybe that's too high; it may well have been too high, but it's plummeted to the point where our tax code now looks extremely flat.

There are fights among economists about whether it's totally flat. Do the rich still pay somewhat more? But the data all points in the same direction, which is it's become much, much flatter than it used to be over time, because we've cut taxes on stocks, on other investments, on inheritances, and on very top incomes.

Sal: Just to make sure people understand, you know, if you look at the horizontal axis, the left is the lowest income earners, and then you go to the 30th percentile, 50th, 70th, 90th, 99th, and then the top 400 people. The vertical axis is the tax rate, effective traction to your point — it's the total amount they paid, I guess divided by their income.

To your point, you see how this flows from 1950 all the way to close to present times, and where it ends is fascinating because when it ends in 2018, the total effective tax rate for that top 400 is lower than the 99.99, which is lower than the group right before it.

So how does that happen? Because, you know, when I fill out my taxes, I see, you know, for every incremental more you make, they're taxing it a higher amount. So how is it possible that the top 400 are taxed lower than the 99.99 percentile?

David: You may remember, a number of years ago, Warren Buffett got a bunch of attention by saying that he paid a lower tax rate than his secretary. Warren Buffett is very good at explaining things pithily, and in some ways, that's what he's describing.

One of the reasons is that we tax investments at a lower rate. We've decided — or the people selling policy have decided — that if you tax investments at a lower rate, you'll get much more investment; that'll benefit everyone long term. It hasn't quite worked out the way it's been sold, but that's the theory.

Basically, we tax things like stock returns at a lower rate than we tax labor income, and the people on the far right of this chart have much more of their income in capital investments in stocks than they do relative to the people in the middle.

Sal: I actually asked that last question somewhat naively. My last career, I was a hedge fund analyst. I remember, my boss, who's a portfolio manager and was a partner — he felt guilty about it. He’s a great guy. He actually would donate. We once made a good investment in an egg company, and he felt so bad because he's a vegetarian that he donated all of his profits for humane treatment of chickens.

But he felt guilty when, you know, I learned about this. You know, I was paying a higher tax rate as an analyst because that was just income versus what he was paying because he had, his income was classified as capital gains income, so he was paying roughly 15%, while I was paying, you know, 40% or 50%. So it is a fascinating phenomenon.

So we have a ton of questions here. We're already at our normal end time, but I want to make sure we get to some questions. Let me know, David, if you've got to run or if you're running into another session. But, you know, one question that's been coming up a lot, even before COVID — Maya Sharma from YouTube asks, “Do you think universal basic income is a valid solution in the long term?”

David: I mean, look, this is a great matter for debate! If we have any high school debaters listening today — I know that universal basic income was one of the big topics that was debated on the high school circuit last year. It seems like it actually led to a lot of debates that people really liked because there are very good philosophical arguments on both sides of it.

What I would say is, I think that it really does have some of the same incentive problems that we talked about with some of the issues of societies that tried to get rid of inequality. I know universal basic income isn't trying to get rid of inequality, but I think when you look at what really, really matters to people — what correlates with good health, what correlates with happiness — it often does involve work. It involves the dignity that work brings; it involves feeling like you're part of something larger, a larger product, a larger project.

I have some real skepticism about universal basic income as our solution, and I would be much more interested in a set of solutions where we really tried to substantially increase the returns to what are now low-wage work. You can do that through a much higher minimum wage; you can do it through a much bigger earned income tax credit; and then maybe also look at the idea of rewarding people more for what are now unpaid forms of labor, like child care and elder care.

But to me, the idea of a universal basic income where we're paying people not to work, despite everything we know about some of the health and psychological costs to not working — and in addition, Sal, I don't think I need to receive universal basic income. You know, I have a job as a journalist, and it pays me enough to live on. I really don't think our government should be sending me a check every month.

And, you know, there are millions of people who also don't need to be getting a check every month. So I'm a skeptic of universal basic income. But I also see the arguments for it, and I think it's a good thing that we, as a society, have started to debate it more.

Sal: I think the argument would be, you know, if we receive checks, we'll also on the other side be taxed higher. So it’d kind of be a wash. But it's easier to implement universal — but you know, things like other social safety nets created some of that disincentive that you talked about, while universal basic income, you can still have a job.

But yeah, it's an interesting debate. You know, one of the things you brought up was minimum wage, and the economic — there's kind of an economic purist argument against it, saying, “Hey, if you artificially raise the market clearing wage, then companies...” you know, your classic economics with their supply and demand curve, you're now going to create this deadweight loss where you're not going to hire everyone.

There's also arguments that it could create incentives to move even faster towards technology or globalization. What are your counter-arguments to those arguments?

David: I mean, I think there's both a philosophical and an empirical counterargument. There's been a real flowering of research in the minimum wage over the last 20 to 30 years. Some of it shows that there is a trade-off that, if you put in place a minimum wage, you lose some jobs.

The bulk of it shows that the number of jobs you lose from increasing the minimum wage within reason — if we went to a $50 an hour minimum wage, who knows what would happen? Presumably, we'd lose a lot more jobs. The losses are actually much more modest and that people — it's not so that small, relatively small dollar changes don't immediately lead to declines in employment.

There’s a famous study looking at New Jersey and Pennsylvania when one increased their minimum wage and the other didn’t. In terms of a perfect economic laboratory, you’d imagine that a whole bunch of jobs on one side of the border would move to the other, but they didn't.

So it turns out that people make decisions for all kinds of complicated reasons, and the minimum wage often for a business doesn't lead to some radical reduction in employment. It can lead quite quickly to big changes in the quality of life of people who are receiving a 20% increase.

You know, $5 an hour to $6 an hour is a 20% increase in pay. I think if you kind of look empirically at the research, it suggests that minimum wage increases have done more good than harm most of the time.

And I think philosophically, I understand why a society might say, “Look, we're a wealthy society; we're simply not willing to have people living below a certain standard, and so we're going to set a minimum standard.”

Sal: Going back to either minimum wage or even this notion of universal basic income, it does feel like the COVID crisis, obviously for, you know, no fault of their own, many millions of people are losing their jobs right now. Restaurants are either temporarily or permanently shut down, airlines, hotels — we can make a long, long list.

To some degree, some of what the stimulus package has done is starting to look a little bit like universal basic income. You know, everyone gets a $1,600 check. Unemployment insurance is extended, even if you're a contractor. So do you think we're going to naturally evolve there if this COVID crisis, we have 30 million unemployed, you know, 35 million unemployed? People need to be fed; people need to just be able to pay the rent.

David: I would be surprised if this leads us to universal basic income because sending checks to people is extremely expensive. The math — it's just the way the math is. You're sending them to everyone, right? And they're not that small.

We're still going to need to collect the data on this, but my instinct is that these checks being sent to everyone are not particularly efficient forms of stimulus. They are not a very good bang-for-the-buck way to keep the economy functioning.

I think there's a logical way to think through this. Many, many people — most people — have not lost their jobs. Not only have they not lost their jobs, many of them have had their typical daily or weekly expenses plummet. They're not paying for gas anymore; they're not paying for the bus; they're not paying for subways.

I don't know about you, but the amount of money I spend on food has plummeted because instead of picking up a $2 coffee or a $6 sandwich, I'm making myself peanut butter on bread for lunch because I'm around my refrigerator.

So these people who have kept their jobs and had their expenses go down, millions of them have just gotten these checks. I think the evidence is showing that they're not actually going to spend that money; they're going to save it.

Yet now you take someone who did lose their job — for that person, the amount of money that we are sending them isn't nearly sufficient to cover the rent, to cover food, to pay for child care.

We've got this slightly funny situation in which we've spent huge amounts of money sending $1,200 to everybody below a certain income threshold. For many people, that's more than they need, and for other people, it's not nearly enough.

Yet it's so expensive that if we wanted to keep doing it in perpetuity, we'd have to do massive cuts to other social programs like Medicare and Medicaid. I’d be surprised if it’s where we end up long term, but lots of surprising things happen.

Sal: What would you, you know, if you were emperor and you were going through this situation, what would be your course of action? You know, I've heard Ray Dalio on here and I even chatted with him a little bit afterward. He's like, you know, by spending trillions and just pumping into the economy, yeah, this is increasing the debt by trillions, but the alternative is worse, that we go into a depression if we don't do that.

So would you be in favor of that type of thing? If so, what is the metric? Is it by writing these checks to everyone, which it sounds like it wouldn't be? Is it these kind of loan programs, which seem to have been misused a little bit by certain corporations?

So how would you try to tackle this?

David: Austin Goolsbee, who's an economist at the University of Chicago, has this nice kind of series of lessons that he put on Twitter very quickly about virus economics. I'm going to mistake it slightly; I apologize to Austin, but the first rule of virus economics is the only way to help the economy is to defeat the virus. I think that's exactly right.

So I think that we can't get back to normal if people are still fearing for their lives, if they're feeling fearing particularly for their parents and their grandparents' lives. It just won't happen.

I think the most effective forms of economic stimulus are likely to be something like a massive program to increase testing capacity. All the estimates I've seen say that while the United States is doing more testing, we're not doing nearly enough. A big program to increase quarantining; a big program to increase protective equipment for medical workers; a big program to increase contact tracing; and of course, more research into vaccines and treatments.

The good news is, while that stuff's really expensive, it pales in comparison to the kind of trillions of dollars that Congress has spent to try to prop up the economy. So I think if you can think of the economic stuff as being necessary but really just being a prop that tries to get us through a period where we are investing enormous amounts in crushing the curve and then allowing us to begin to operate — and also get a vaccine — that strikes me as probably the most effective approach.

But it doesn't really seem to be the approach that we're following as a society. Instead, we've got the scattershot approach in which we're shoveling massive amounts of money out the door, which I do think is probably necessary even if it's being done in some inefficient ways.

We're not really committing ourselves to a huge national project to increase testing, and we're now starting to open up even though we haven't hit many of the benchmarks that epidemiologists say we should hit.

I'd love to be proven too pessimistic about this, and there really is uncertainty, but I feel like the most likely scenario is that we're opening up too soon, and we are going to pay a price both in terms of further outbreaks but also in terms of our economy sliding back into some kind of lockdown and further recession when the outbreaks come.

Sal: Your point is that no matter how much stimulus you put in, if people are still afraid to go outside, afraid to participate in the economy, you know, the stimulus will kind of be just like pushing on a string.

I'll add one area for anybody listening who's looking to spend a few billion here or there: I think internet access for everyone, especially in this time, is a very, very good investment. I think it would pay many economic dividends, and if you look at it compared to — you know, I've done back-of-the-envelope calculations — I think you could get all the families who don't have access today some kind of, you know, basic internet that you can use Khan Academy on for the order of a few tens of billions, which sounds like a large number, but that's about 1% of the amount of money that's been spent in the stimulus packages just over the past few months.

To loop back to the main topic, I mean, where is broadband access a problem? It's much more of a problem among lower-income people than upper-income people.

David: One question that's coming from, you know, it's going back to one of your other levels on education. I do want to ask this because it's a thought experiment that I've had with friends. You know, just thinking about the issue — Jenny Scoble from Facebook asks, “But let's say everyone gets a college education. Will there really be jobs for all of those people? I mean, you could imagine what happens if everyone had a Ph.D. tomorrow. Will there really be that many jobs for those folks?”

David: I love this question. I get the version of this question a lot when I'm out speaking. I would actually ask people to flip it and go not forwards in time but backwards in time. Why is it necessary that everyone gets a high school education? Why is it necessary that everyone gets an 8th-grade education? Why did we, as a society, decide that 13 years of public education was essentially the minimum that all people should have?

That's not just a hypothetical question; there was a real live debate in this country in the early 20th century, and around the world, about this. There were people who said, “Come on, let's be realistic. Most Americans don't need to go to high school; they need to learn to read, and that's about it. High school should be for the top echelons of society. It's a waste of time and money to send ordinary workers to high school.”

Then there were people, the high school movement, which was a national movement — a sort of national-local movement, maybe strongest at first in Iowa — who said, “No, no, no, education will pay off. If we create more educated workers, more educated citizens, our society will be healthier, and there will end up being jobs for many of those people.”

That second group really won the bet. In a route, Europe for a long time kept education — high school education — more of an elite thing. We went to mass high school education, and it built so many great American industries.

It built agriculture to have educated farmers; it built Hollywood; it built American manufacturing; it built one industry after another. So, if 13 years was the amount of mass education that made sense in the early and mid-20th century, why is it that we think that number wouldn't have gone up almost 100 years later?

I think clearly, when you think about how much more advanced technology is, that number has gone up. So thinking about 15 or 17 years as the right number for mass education makes sense, and my instinct is if we got there much as happened 100 years ago, we would find all kinds of jobs we didn't even know existed for our more educated citizenry.

I don't think there's a natural limit that says, “Well, 9 wasn't enough education, 13 years was enough education, but anything more than 13 would end up being wasted.”

Sal: Yup, and obviously you’re preaching to the choir when you're talking to me. The way I think about it is there is some logic to the argument that Jenny is making that, you know, a degree doesn't automatically convert into a job.

But from a societal scale, the — and it's, you know, we use years as a proxy and we use high school and college as a proxy — but it's really, can we get people to that level of critical thinking? Can we get them to that level of skill so they can leverage the technology around them, leverage, you know, understand the complexity of environments so they can either plug into jobs that already exist or, more interestingly, so they can create new jobs; they can be entrepreneurs at a small or a large scale, which is a job creation engine.

So it is an interesting — you know, I think on the margin that argument there is some, you know, if you just — the piece of paper by itself isn't going to give you the job; it's that the fact that you've actually developed those types of skills.

You know, we talked a lot about this labor pyramid inverting now where we need to get either people to the top of that labor pyramid into the knowledge economy to get those skills, or you're just gonna — inequality is going to keep going.

So we're way over time. This was super, I feel like we should...

David: Yeah, we should continue this. This is part one, I'm just going to commit!

Sal: [Laughter] But thank you so much, David. This was a really, really stimulating conversation, a conversation that I think people need to be having more and be having in kind of a, you know, not politicizing it. Just like, what are the facts? What do we understand? What works? What doesn't? Nothing is all bad or all good, but we should all be informed.

So thank you so much for participating.

David: Thanks for having me, and thanks to all the viewers for the great questions!

Sal: Great! Thanks so much, David.

Well, thanks everyone for watching. Obviously, these conversations go longer when we're really having a good time, but thank you for all of your questions. It's a really important conversation.

I look forward to seeing all of you tomorrow.