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- Economics Explained COVID-19 Series: Macroeconomic Mutations Transcript -

Host: Nina Low

Co-Host: Katrina Ongchangco, Namit Aggarwal

Guest Speaker: Professor Nathaniel Vellekoop



Nina Low [UEC Host]: Hey everyone! My name is Nina and today I will be your host for our very first episode of economics explained: COVID-19. I am joined by Katrina and Namit, who are also members of the UEC executive team, and they will be assisting me in case of any technical difficulties. 


A thank you and shout out to anyone and everyone who came to today’s live session, we really appreciate you and we hope to see you in future episodes.


So in today’s first episode, we will be investigating the different macroeconomic mutations that have been occurring or already occurred in the past few months. For example, labor force, consumption, and small businesses, how have they been distorted under the pandemic weather? Are there other  phenomenons happening in our macroeconomy? Today we have our guest speaker professor Vellekoop from UofT st- George here to speak for us and give us some insights.


Professor Vellekoop [guest speaker]: Thank you for having me here. Without further ado, let's jump into the topic...



Professor Vellekoop [guest speaker]: what the government does and the central bank does affects everything at the micro level, which we talked a bit before the chat. Freakonomics, which talks about how everybody, the students, parents, employers, is trying to recalibrate and reoptimize under the new circumstances, and I think as many people figured out, these circumstances change. It's like every month that something changes and you have to refigure out what you have to do and what you are going to do about the restrictions. Are you going to send your kids to school? Are you comfortable coming to work? So all those micro-decisions, I've heard many people's decisions now that are unheard of, add up to form the two levels of economics - macroeconomics and microeconomics. 


Let me just talk, and whenever you have any interruptions or questions please feel free to go ahead. 


Katrina Ongchangco [UEC Co-Host]: Sounds good!


Professor Vellekoop [guest speaker]: Very good. So the first thing of macroeconomics is that it is very concerned with GDP, an income of a country, and consumption. Consumption is about 60-70% of GDP. So it is a very large share of GDP. Also... labor force, how many people are working, and prices. And one thing you can see of COVID-19 is that we are really concerned with the labor force and GDP. Consumption is sort of okay... there are things going on, which we can talk about later on. Prices are not something that we are really worried about. Like inflation might be a concern of a near future, but right now it doesn't seem to be a major concern.


So let me just see if I can share my screen, and I would just like to show you some data from the website of Statistics Canada. The first lesson of COVID-19 is that if you want to talk about the macroeconomy or any impact on the economy you need data and statistics. Most macroeconomic economic statistics come in the delay around three months. To know what happened three months ago that is very fast or we can say light-speed in macroeconomics. So basically now we are trying to figure out what happened three months ago. We can make forecasts, but those forecasts can be pretty unreliable. 


So let's look at what we have here... this is from StatsCan on Canadian Economic Dashboard, a dedicated webpage on COVID-19. So what we have on our right hand side if you can see on my cursor, real gross domestic product. On the left we can see a couple of things... These are month to month changes. So right now in June 2020 - and again July data is to come in October and August in November - we can see what happened in June. This is not unheard of, StatsCan is not really slow, this happens in every country. Three months is actually quite fast to give us an idea how GDP is. So if you think about what GDP is... it is the income of the country. From February 2020 to March 2020, from one month to the next dipped -7%. The picture what you can have with that is that your income all of a sudden loses 7%. So if you earn $1000, all of a sudden you have $70 less to spend from one month to the next. Then from March to April, there is another 11% drop. So you can see how it keeps on going from March to April, but then it bounced back. In May, it bounced back from April. 



Professor Vellekoop [guest speaker]: So this is month to month, let's see what happens over the longer period. This is comparing February this year with February last year. So up to February, things were pretty okay. If you look at the year-growth, it was 2%, which is pretty okay. Then if we look at say April, to April last year, then we get an overall feeling of what is the overall impact or the full amount of impact, which is a dip of 17%. So if you think about whether we are in a recession... we are in a recession, GDP decreased quite a bit. This is enormous, even though the financial crisis in 2008 was not so fast and not so steep, not so deep. So the shock and the speed at which this goes is really really fast. So this is GDP, the national income for everybody. There is an underlying question and problem that this is the income of everybody, all households and firms in the economy, but it doesn't tell you anything about distribution or inequality. If you are concerned about inequality, you can think about how this can affect the wealthy people versus the bottom 50%. Most of this would be difficult to get and come by... it is not entirely clear, but there is a feeling that a lot of this impact is on everybody with more proportion on the lower part of the income distribution. It doesn't say that the wealthy people aren't hurt- if you lose your job as a rich person, that also hurts. So let's see what happens to employment.



Professor Vellekoop [guest speaker]: So this is again, a month to month change. Again, this is spectacular, I mean it's very depressing, but it is spectacular to see how fast this goes... Over the course of two months, basically... in terms of employment 1 out of 10 persons lost their jobs. This is just enormous. It is not entirely true because this is measuring employment, which is a slightly different measure, but this is just enormous...and these are really just people who lost work. It bounces back. As you can see these are month to month changes, so of-course when the lockdown eased and we entered phase two and phase three in several places, more and more people found a job. So if you want a longer perspective and we look at twelve months...



Professor Vellekoop [guest speaker]: Compared to last year, then you can see that from the bent of recovery, we are still not there yet. So here is the lockdown then April and basically we are here. Then again, we need to have September data to see what will happen over there. So this is employment. The third thing that I have mentioned is prices.



Professor Vellekoop [guest speaker]: This is inflation, the measure of general level of prices, at twelve month percentage change. You can see that in the lockdown, prices actually went down generally speaking. It could be a measurement issue. It is not so easy to measure when many stores are closed, and you assume that people are still buying as if nothing has happened. So in June 2020, prices sticked up a little bit. Yet, general inflation for right now is not a major concern of many policy makers; instead, it is really employment and unemployment. So this is a bit of the macroeconomic picture - Pieced together, you can see a very steep shock that is very sudden and very fast... and the decline is taking much longer. People would usually think of a "V," where in actuality, it is more of a "V" with one sharp decline and the other is much flatter. This shows how the recovery might take much longer. 


Nina Low [UEC Host]: Professor 


Professor Vellekoop [guest speaker]: yes, let's do some questions. 


Nina Low [UEC Host]: On the tangent on talking about income and unemployment, we do have a question regarding that... so there has been a news article in early August that there seems to be an illusory increase because of a disproportionate amount of low wage jobs being free, so do you observe or do you believe that this trend will be ongoing? Do you anticipate effects in the near future?


Professor Vellekoop [guest speaker]: in terms of wage growth?


Nina Low [UEC Host]: yes because it seems to be an illusory increase from the low wage jobs being unemployed 


Professor Vellekoop [guest speaker] yes, so certainly I don't know the answer. It has to do with the fact that there are so many things going on in the labor market right now. 


Nina Low [UEC Host]: Okay


Professor Vellekoop [guest speaker]: it makes it difficult to measure or compare things. So usually you could say wage growth, from looking at people working at normal time and comparing those with the year before in normal times. What we are trying to do now is we are trying to compare wages of people who are working at absolute abnormal times compared to normal times. The danger is that an apples and bananas comparison is there. The reason that I am saying that is because I showed you the employment statistics. If you looked at unemployment, which describes people who are willing to work but are out of jobs, that has gone up. So there are people out there that want to do work, but are still looking for a job. But at the same time, there are quite a few people [11:31] still on the payroll and are sitting at home. There is a large government program that actually pays a wage subsidy to employers that apply for that. So those people are sitting at home with their own payroll, strictly speaking, they are still employed with part of their paycheck being subsidized by the government. 


Then there is the trouble understanding what happens in the bottom of the labor market. As you can imagine there are a lot of people who are at the bottom of the labor market that might be laid off. So it would end up in the statistics as being unemployed or out of the labor force. It could very well be... let's say the underground economy is also increasing. You could think about whether many small firms still find a way to live a thing or not. All I am trying to say is that there are a lot of things moving in the labor market. So it is very difficult to get a good grasp of what exactly is going on. Of-course it sounds good if wage growth is growing.


Nina Low [UEC Host]: Yes


Professor Vellekoop [guest speaker]: Yes, if you weed out all the bad jobs and you are only left with the good jobs. Especially when good jobs typically have wage growth in good times and good jobs have a little bit of less wage growth in bad times, then we would just be measuring the wage growth of good jobs. It doesn't help people who are out of jobs right now.  


Nina Low [UEC Host]: Okay.


Professor Vellekoop [guest speaker]: So is that our bit of the question?


Nina Low [UEC Host]: There is actually another question about unemployment. So seeing that work can now be done remotely it seems that there is a possibility that firms could outsource labor opportunities that were originally given because they were restrained geographically. So do you foresee any major changes in allocating labor opportunities outside?


Professor Vellekoop [guest speaker]: yes, that is a good question. Coming from a country, the Netherlands, where part-time work and telecommuting are working from home are very culturally accepted. If I were to work in the Netherlands and I wanted to work from home one day a week that would be perfectly fine. There are typically arrangements for that and that is better in the firm culture and the labor culture. Here in North America there seems to be a bit of a cultural change. I think what employers are finding out now - both  workers and firms - is that if you let workers work from home, there are actually quite a few workers who like it, who like to work from home and not having to sit in traffic. It works both ways, I think there are also some people who find that they cannot work from home. They actually have a preference to go into the office. 


I think the question is more about should we be more afraid that the good jobs are now going to move to other countries... and that I am not that sure of. In the sense that, so far, the jobs are still here in Canada.  There is probably a reason why they are still here... and the fact that people are not working from home in Canada, I don't think that there would be a massive change of jobs to other countries in terms of outsourcing.  


Nina Low [UEC Host]: Okay.


Professor Vellekoop [guest speaker]: Do I think that there would be a more permanent change in culture that some firms would come and offer this as a perk. So if you want to work from home, you can, and it would pay for your workplace at home and cover some expenses... that I can see in the future. This would be something an appropriate remnant and benefits if I were to say. 


Nina Low [UEC Host]: Mm... make sense. Thank you. I think we have a question from the participants.


[registered student guest]: Yes, sorry I do just have a question that just popped up about the mobility of labor. So both in Canada and surely in other countries as well, what do you think are some of the more effective approaches that are being taken to increase the exchange of labor from a more physical work environment to the newer jobs and requirements that will be growing from this?


Professor Vellekoop [guest speaker]: What I think is going to be a longer trend or a staying trend? 


[registered student guest]: Yes, so do you think that there is going to be some staying trends in the types of jobs out there? And if so, how can you increase the mobility of labor from the older kinds of jobs to these newer kinds of jobs? 


Professor Vellekoop [guest speaker]: So the transition from, let's say, being physically present in the office to a more telecommuting or screen-based labor force... is that what you are pointing at?


[registered student guest]: Yes, if you mind that. [17:18]


Professor Vellekoop [guest speaker]: Just trying to get the question straight. Um... that is more of a ... If you try to think there are a lot of people that are now experiencing what it is to be in an online environment. It is not just the workers in the workplace, but also schools, students, and alike. So I think there are now many people that are now experiencing what it means to do online school. If you talk to my students, I am not sure... you see students, for example, see a benefit in online teaching. They see some flexibility, but for the most part, they do miss some in-person context, especially the social aspect of it. So for the idea of the labor market, I think it is very similar, if you work in teams or if you work in a firm culture, it is a social environment. Social environments are very difficult to build up if you only have online contact. Maybe I am getting too old for that. So maybe the new generation is much more flexible in that it is much easier to make online contact. But... I think 20 years of online dating has not found a silver bullet that online dating is an actual perfect substitute for meeting in person. So I have a feeling that if I generalize the idea a little bit, it is going to be the same for the workplace. There would be elements that could be taken over. It could be something as simple as working one day at home or working at a distance. But I think it also depends on if you work at a firm that really has a corporate culture, then it would be very difficult to do online. 


Another thing that I want to point out is that we have found out over the last five months that there are some structural flaws in our society. The structural flaws... there are many... but the one that I want to point out is the lack of reliable internet. You can build everything online as you wish, but you only have two or three large internet providers in Canada and it is very expensive. In terms of internet reliability and internet speed... I don't know about that. Do you really want to build the future of the labor force if that is the constraint? So maybe if you think... as a government or a society, if we really want to move towards that direction, maybe we should really invest in better internet, more equal internet access, etc. Does that make sense?


[registered student guest]: Yes, it does. Thank you! 


Professor Vellekoop [guest speaker]: Does that answer your question? 


registered student guest]: It does. You actually added some awesome points as well that added to it. 



Professor Vellekoop [guest speaker]: I am happy to take more questions. I like this type of interaction. I also like to hear if people have their own ideas. 


Katrina Ongchangco [UEC Co-Host]: Actually I have a question myself. 


Professor Vellekoop [guest speaker]: Sure.


Katrina Ongchangco [UEC Co-Host]: Sorry, I am just going to turn on my camera. So everyone always knew that the future of the economy would be more technology based... and technological advancements would take over large portions of different jobs and different industries. Do you think this pandemic is highlighting the need for our economy's need to  move forward in more technical advancements in the way we operate businesses and work with our employees? 


Professor Vellekoop [guest speaker]: That is a great question. So if you look over the long term trends in the labor market - say the last 20 years- there is a clear shift. From 1900s agriculture to industry, then later on from industry to services. This became very clear that it was services that were hit really hard. There are also a couple of other industries that were hit really hard, such as the meat industry. Yet, it was more like the smaller businesses and services that require personal contact. I don't think we realized how much we relied on those personal services. I think what you saw happening is that during COVID-19, which was very interesting, there were placements of one service with another service. So instead of people going to restaurants and bars to eat out and dine in, which would be a service of patrons and waiters, you saw people eating at home, which is a transition to delivery and delivery services. And this happens pretty smoothly if you let the labor market work. It really sucks - excuse me for my word - for you to lose your job. But there is always a new opportunity there, and that is something that really surprised me for COVID-19. People are really creative in trying to find new opportunities. So coming back to your question, how does technology have to do with that? What you see happening is that there is an interesting thing - almost like a marriage or partnership - that people are trying to find new opportunities and new jobs, which requires some creative thinking and business opportunities. I admire people who have that... I am a professor so I am not really entrepreneurially minded, but I admire people who are. Those people who are looking for opportunity are really creative about it, and they use technology for that. In that sense, you can look at this two ways. Either you can look at the economy technologically advancing and understand what people need to do or the economy is moving and people are just trying to use the tools there are and can use, and work with that. Both perspectives are two different ways of looking at the same thing. I think the people who do ballet classes or music lessons. Before COVID-19 hit, they would have never thought about doing online music lessons or online ballets. With COVID-19, they have to. It works both ways - supply and demand- for this type of service because people aren't leaving their house and other people now need to find some jobs. So now you see all sorts of innovations, not any big time innovations, but more how people use existing technology in a new way. 


Katrina Ongchangco [UEC Co-Host]: Yep, okay. Thank you.


Professor Vellekoop [guest speaker]: It is also if you are not sick and you don't have to worry about cash, it is also a very exciting time.


Katrina Ongchangco [UEC Co-Host]: Yea...I think this pandemic is actually almost forcing the world to transform and adapt to a new way of living. I think eventually you might have gotten the point where we rely on online services. I think it sped up our reliance on technology more.


Professor Vellekoop [guest speaker]: That is a good point. I think my guess is as good as yours in that regards. I think those things tend to go gradually. Most people don't like change. Younger people are more likely to adopt new technology, but anybody older than 25 or so are set in their ways. We can see this from all the big numbers and stuff. You get what you are used to... but I think under the force of the pandemic, people are forced to change their ways and forced to think about it. Of-course you may not like it, but while doing it, you might figure out that there are actually benefits... maybe to the point where you think about why didn't I do this before? 


Katrina Ongchangco [UEC Co-Host]: Yea.


Professor Vellekoop [guest speaker]: I could have told you that there are benefits doing this, but for you to try out something new... yea, if people are not willing to try out a new restaurant, then people are not willing to try out a new way of working. 


The other thing is it forces you to think about what you miss and what you crave. So I think there are a lot of people craving back to normal. How the normal would look like and how long normal would take... I don't know. But I think there is some aspect of whatever is going to be probably going to be a blend of some of the goods and bads of the pandemic to the new normal we find. But maybe I am too limited in my thinking there, so that is also fine. 


Nina Low [UEC Host]: So I think this probably a really bad analogy... but it seems like pre-COVID19 would be our medieval ages and then post-COVID19 would be our Renaissance. So there would be a change in the structure for labor and how we do with our way of living. 


Professor Vellekoop [guest speaker]: Yeah... I think what I know from history, there are some big questions of why the Renaissance happened when it happened. It wasn't exactly special about... and I think there are probably some cultural factors and economic factors that helped. The other thing is to not forget that the medieval time was around a thousand years and the Renaissance lasted around 200-300 years. So to try to capture that in three months or five months is a bit ambitious.  


Nina Low [UEC Host]: Yes, that's true. It's quite a stretch. Are there any questions from our students live here?


[registered student guest]: I just have a question about the macroeconomic impact of a second wave. I know that there is a group of doctors that specifically interviews the doctors associated with UofT. He was proposing that rather than wait to shut down the economy that we should impose a predetermined lockdown period, where  people would know of the impacts ahead. I would just wonder what your opinion would be on what the impact of that would be? Would that be better than just allowing a second wave to just sneak up on us and gradually shutting things back down again? 


Professor Vellekoop [guest speaker]: Yeah... this is more of a question of what is the best way to deal with the pandemic. There is a medical aspect to it and that would deeply affect the years to come. You see different countries over the world that handled it in a different way. Some countries have a very strict lockdown, some counties have a lockdown with stipulations or regulations, and some countries have no lockdowns at all. It is not so easy to figure out what the best way is. I don't envy the researchers that are into that because we don't have a control group. It is not like we shut half the country down and the other half is not. The control group is like we shut half of Toronto down and the other half we don't. So we don't know. 


The lock down came in March. But in March, there are still a lot of people out there that had a hard time believing that this is as bad as it would be or turned out to be. If we had not locked down the place, would these people have come to the realization that this was a necessary measure. And again, I can get my opinion for a better one. If people really want to argue that this lockdown was unnecessary that is fine. 


The second lockdown right now, since March, I believe there is a better general awareness. We know more about the disease, the seriousness, and the transmission. Mouth coverings are more accepted now than they were in March. If you were to say during March let's not lockdown the place, but everyone has to wear a mask, I don't know if people were to do that in March. Now people do. People are more acceptable. Even if some clothing might be necessary, there is a generally more accepting attitude that there are things we need to do to prevent a general closure. In March, I would see a general closure as to increase awareness. Right now, businesses have changed. If a company or grocery tells you to wait outside until there are less people in the store, now it is okay... in march, people might be very upset. The second point you mentioned was really good, it is about expectations.


If you would know if you cross a certain threshold, you would just lock the place down. Or we can do a week-to-week let us see approach. I think that is a horrible [33:40] problem and so I don't envy the policy makers that have to make these decisions - Do I have to wait for things to get out of hands? Or if the [33:50] are full, we will lock down the place? I don't know what is better there, and people's expectations matter a bit. Does that answer your question? 


[registered student guest]: Yes, I think so. But I was more wondering whether you thought how the economic impact would be. Would we have less of an economic impact if we have a planned shutdown versus if we were forced to shut down again? Would GDP decrease more if we had a surprise lockdown versus a controlled one? 


Professor Vellekoop [guest speaker]: So... let's see if I was a firm and I already had a horrible five months, where I had four months with low or zero revenue with lots of fixed costs, I just spent a lot of money to invest in reopening my business, and I am looking at the numbers thinking to myself... I don't really have to close down my place and we might be able to stick it out and there is a possibility to not lockdown my place... then I would keep the workers that I have. If, on the other hand, I know for sure that in a month I have to close down my business, then I might as well close today. So even though I know for sure that I can do another month of business - it is an anticipation effect - you know that you would shut down for a month or maybe two months because who knows that is what they did in the previous lockdown. If you anticipate that, you might as well close down your firm. 


I could see a scenario where a short lockdown for a short period of time just to contain this might help. I can also see that people are trying to look ahead and predict what is going to happen; trying to make sense of this. A lockdown is a very brute instrument in that case because you know for sure that you have to close your place. 


[registered student guest]: Okay, thank you!


Professor Vellekoop [guest speaker]: But the short answer is I don't know. 


[registered student guest]: I do have another question... I am not sure if there is any more content you have to cover. This question is based on a book that was released in the beginning of the lockdown by a UofT professor Joshua Gans. He mentions in his release that he predicted there would be a very fall in GDP, which is comparable to an extended holiday - as if the product day to day during Christmas Eve you are going to have (as sharp of a decrease in GDP) as you have during COVID-19. The question comes with, he mentions how it wouldn't really be a recession because it is not really due to a flaw in our economic system, but a plan to pull back so we can go back there. Now my question is do you think there are flaws in our economic system either during demand or supply wise, maybe debt wise, that were exposed due to the shut down? And if so, do you think this would start to show up more and more as we leave the state we are in right now or as we enter it in our second wave? 


Professor Vellekoop [guest speaker]: Yes, I think that the pandemic has shown the cracks both in our public health system and as well as the economic security system. You can think of a couple things. One thing that surprised me in March was the speed of which firms were laying off workers. You can  read the headlines, and they are really spectacular... spectacularly bad like 20000 workers a week in company A over a course of a week. Those people are just being forced to unemployment. In a practical perspective, the unemployment system is not designed for those large in-flows and then it becomes [38:40]. I like the aspect of the holiday where you get some free time and some unemployment benefits and you can just sing it out. I don't know... I think people who are unemployed in a pandemic are in an extremely stressful situation. Unemployment is not very generous in Canada, which is why they had to serve [39:08]. Not to mention that if you got unemployed in March, there is a waiting time. If the system is overwhelmed, you can easily wait another couple weeks more. So that is one. It shows the flaws of our unemployment insurance system. So there are a couple of economists and government officials that are now thinking very hard, when we get out of this, what should we do about the unemployment insurance system. Should it be a [39:52] system benefit or something like that... For example, to qualify for unemployment benefits... not everyone who loses their job qualifies for unemployment benefits. So everybody who [39:58] works, such as Uber drivers, free lance, etc don't qualify for unemployment benefits. If they lose their jobs, what do they do now? 


I think another crack is that the cost of housing is really large, especially in metropolitan areas. First thing that you saw in many cases, not so much in loss of income, but really the cost of living. If you think about the household budget, you have money coming in and the money you have to don't want to get evicted from your house or your credit scores to blow up because you can't pay your mortgage. It's very interesting when you read the newspaper articles, it is not so much about people worried about losing their jobs and income because there you can make amends and do some certain things; but most people are more worried about do I get evicted if I miss a month of rent or not so much if I am evicted, but more will I be able to find a new home and rent a new house. Many metropolitan houses in Canada are... a disaster. It's more of the basic social means of housing and shelter and protection of both home owners. So it's just a balance between landlord and tenants and as well as between banks and [41:34] providers and home owners. I think there are still a couple of battles that are going to be fought or have to be fought or need to be revisited. So I can think about more cracks in the system, but those  were two things that are really upfront. 


[registered student guest]: All these cracks also cause debt levels to rise a lot. [42:03] so we do have a lot of people paying their debts because of the government benefits. People who were already in debt before, those were the people who are having trouble and having their [42:19] up and skyrocketing. Same thing goes for small businesses that are financially stable before were doing fairly better with government help; those who were shaky before weren't... you can also see that in the national level, for example what is happening in Argentina right now, to an extent trying to become more financially stable. So the question is when it comes to debt, the debt scenario we will be seeing world wide or market-wide, how do you think the pandemic is going to be affecting that? Do you think there would be higher debt? Do you think as the bad debtors are going to default the leftover debtors would be more of the quality ones from the start? What do you think is going to happen with the landscape?


Professor Vellekoop [guest speaker]: Yes, excellent question... I would just give it a couple of pointers there. So the first one is that whether you are a government, firm, or a household, if you want to weather a bad shock, you need to have some cushion somewhere. In other words, if you are a firm that cannot borrow either because you borrowed to your max or you simply don't have the credit lines, or if you are a household maxed out with your credit cards, if you are cash strapped and nobody wants to borrow you money, you are in trouble; you need to come up with money. The funny thing is that for households, you have to have two months or three months, depending on the financial advisor, of cash sitting in the savings account to cover three months worth of expenditures. You might have heard of that advice. The principle is that it is an okay advice. Good credit also helps a lot there. For firms who don't save up... why don't firms run into that problem? Why don't we advise firms to save up three months worth of cash? Because, there is a good reason for it, the amount of cash the firms would be holding would just be sitting... it won't be doing anything... it is an insurance policy (maybe even an expensive insurance policy). 


The second thought is what does a shock do in this case? It speeds up a process of something that would happen anyways. Maybe I would have defaulted on my mortgage in a years time and now it happens to be COVID-19 because it just happened earlier. So the idea of weeding out the bad is going to be for households and firms is just being sped up. So in that sense it is not such a bad idea. There are two forces that work in opposite ways. One way is that everybody is defaulting at the same time. This is not good. You can think about the microeconomic effect - if a lot of people at the same time cannot pay their mortgage, there might [45:43] problem. It will spill over to when 10 people default, the bank can cover that... when one thousand people, I don't know, there might be a passing problem there. But it might work in the opposite, where when a lot of people default at the same time, maybe they can bargain for better conditions. If I default last year or this year, I would have to bargain with my bank and they would just take advantage of me. Now because I am not the only one, many people, maybe it balances more to my favour and I will get more leeway from the bank in a sense. You can think of both of them working at the same time. 


The third point that I want to mention is government debt. I just want to mention that because it is a big concern. With Argentina, it is a major concern. With Canada, there are people who say that the government is racking up debt. Can we afford to pay that? The short answer is yes because as long as the government of Canada can issue debt. But on the other hand, on the other side, there is somebody willing to take on the debt. For every person that borrows there must be a lender - Basically economics.


If the government of Canada wants to issue debt there is nobody willing to take it because they think the government of Canada is not reliable, over in debt, or extra risky, you can try to issue all the debt you want but it is not going to happen. The very fact that Canada can issue this amount of debt must mean that somewhere in the economic system it is being absorbed and taken. If you look at the interest rates of Canada bailing, it is no problem at all. 


So this is the type of thing where if your roof is blown off top of your house, you will borrow money to repair the roof even if you don't have money. Why would you borrow money? Nobody is going to look at you and say are you insane? Are you borrowing 20 grand to repair your house? Or 50 grands to repair your house? Maybe you should sit out with the windows without the roof of your house and save up the money until you can pay for it - nobody is going to say that, or at least nobody that I know. Of-course you are going to borrow money. If you don't repair the roof, your house is going to deteriorate in value. At least for now, for the last 12 years, I am pretty happy with that analogy for government confidence [48:32]. We borrow money that the government can just pay back over the next forty or fifty years, or even a hundred years, doesn't matter. At least if you learn something from this, and if we repair some of the cracks in our system, that might actually be worth to [48:54].   


[registered student guest]: Do you think that is the same for at least some developing countries? Because at least when it comes to the people who are giving this debt, Canada, the US, and Europe are fairly safe, so I would be demanding the debt. Now if the debt is coming from a developing country like Argentina or Brazil, you would be having to really struggle in the debt market to sell the debt.  


Professor Vellekoop [guest speaker]: I am not an expert in international macroeconomics or international economics. But one thing that I see from looking at newspapers or looking around is that COVID-19 shows the cracks in our global economy. We have the luxury that we can lockdown the place and people don't like it and people complain, but in a way it is a luxury. We actually can do it and the government can pay for people to sit at home. In many countries of the world where the government doesn't have the money, where if people sit at home, they will starve...they would like to lockdown the place... they can't. Or if they lockdown the place, like India, it doesn't help. [50:21]. To put it in a large perspective, the many problems that we talk about are very rich world problems, unfortunately. So this is a very sobering thought. 


[registered student guest]: Thanks for the answer. 


Professor Vellekoop [guest speaker]: I have some more time. I think there were a couple of questions in the chat... I'll leave it up to the host. 


Nina Low [UEC Host]: I believe that would be a wrap up for this episode though. If you have any questions, you can stay after if professor Vellekoop does allow that. Or else you are free to go, and thank you for tuning in. 


Katrina Ongchangco [UEC Co-Host]: Thank you everyone. You can still ask questions... I think professor Vellekoop you said you have some time. 


Professor Vellekoop [guest speaker]: I have some time. 


[registered student guest]: Thank you very much for UEC and the professor for your time. It was very informative. 


Professor Vellekoop [guest speaker]: Was it clear enough?


[registered student guest]: It was actually. You had some really good points and I will definitely be spending some time thinking about those right now. 


Professor Vellekoop [guest speaker]: Very good. These are very good questions, so I appreciate it. 


[registered student guest]: Thank you sir. Have a great day everyone. 


Katrina Ongchangco [UEC Co-Host]: Alright thank you.



Professor Vellekoop [guest speaker]: I have never done a podcast before. Was this okay? 


Katrina Ongchangco [UEC Co-Host]: Yea. It was great. Thank you so much.


Nina Low [UEC Host]: Yea. It was really good. 


Katrina Ongchangco [UEC Co-Host]: It was more of a conversation-type thing. I think that one that is more like a presentation, people can get more bored and lose focus. When one is more like two people talking back and forth, it is more engaging. 


Professor Vellekoop [guest speaker]: I have talked enough to the screen sometimes to talk to others. 


Katrina Ongchangco [UEC Co-Host]: I really enjoyed the episode thank you. 


Professor Vellekoop [guest speaker]: Yea. Thanks for having me. It was a pleasure. 


Nina Low [UEC Host]: Mm... I do have a few questions if there are no questions live right now. Is it possible to ask you?


Professor Vellekoop [guest speaker]: sure. 


Nina Low [UEC Host]: okay, so we do have quite a handful of questions from our registered students and we just picked a few that are quite important for this episode. So how is the real estate market now under the effect of COVID-19? 


Professor Vellekoop [guest speaker]: So I tried to look at that... and it is not easy to find any numbers on that. My feeling that the construction of new houses is a bit too late. It takes a few months for construction to start. I believe in April and May, house prices went down or didn't grow as much compared to previous. But there was also not a whole lot of supply of houses. There were a lot of people that were just not selling houses. I think there was a break one month or so with a real nice opportunity for people   that are ready to buy now. 


There are several cases in my environment of people who were ready to buy a house and saw this time to buy. In general the housing market, the housing market is even more difficult to describe than the labor market in that sense. 


Nina Low [UEC Host]: I've heard on the news that people are starting to look towards buying houses in suburbs rather than cities because there is no need to commute. Do you think this would be a trend going on in the past few months?


Professor Vellekoop [guest speaker]: That was a thing? I am surprised because that basically means that either people are very confident that life will keep up this way and  those are typically people who have some flexibility on the job.


Nina Low [UEC Host]: that's true.


Professor Vellekoop [guest speaker]: I think if you find a typical 9-5 job in the city,  where you have to commute, I would be a bit hesitant to move out. If a year from now and everything is out again, they would have a horrible commute waiting for them. Maybe probably people who worked in IT, it really doesn't matter where you work. All you need is a house with a good internet connection. 


Nina Low [UEC Host]: that's true. Just one last question about revenge spending. There was one student that pointed out that COVID-19 has limited people's activity and consumption, but since more effective restriction measures have been put out to limit the spread of COVID-19, businesses are starting to get back. So do you think there would be a revenge spending going on specifically for luxury brands in China? Can this behaviour help the smaller businesses?


Professor Vellekoop [guest speaker]: So revenge spending as if I am not going to buy luxury brands for China, but to buy them from the locals? 


Nina Low [UEC Host]: I think this question is from a student who is currently in China... I am not sure, but I believe that they are just asking the concept of "revenge spending" and whether that is a possibility. 


Professor Vellekoop [guest speaker]: So funny thing is I have never heard of revenge spending the term. 


Katrina Ongchangco [UEC Co-Host]: me neither. 


Nina Low [UEC Host]: same for me.


Professor Vellekoop [guest speaker]: I think it is more in the ballpark of a shopper's attitude in marketing. It is more of a psychological marketing... the fact that I haven't heard about it doesn't mean that it is not true. It is just that I have never heard, it is not really a concept in economics. 


Katrina Ongchangco [UEC Co-Host]: I searched it up now. Apparently it is over-compensating for the fact that you weren't spending that much during quarantine. So now they are compensating for the fact that they didn't spend before and now they are spending more. So like "revenge."


Professor Vellekoop [guest speaker]: Like a license to spend. 


Katrina Ongchangco [UEC Co-Host]: Yea. Pretty much.


Professor Vellekoop [guest speaker]: It can be. I can think of two groups of people. One group of people who are relatively unscathed through the pandemic. If you kept your job and income and found yourself in four months of lockdown, you'd probably have a bit more savings because you couldn't consume as much. It is a nice feeling because you didn't have to do anything special for those savings. It is not from hard effort, it is more like you spend less and it just happened. I think for those people, I can't imagine, they would look at their savings account and say that "oh, I can spend more." When it is deliberate like a license to spend type of thing or revenge spending, it is more deliberate action - I feel all this anger and emotions because I couldn't spend and now I am going to spend. The other group of people are resurfacing. If you lose your jobs, you consume less because your income also went down. Your future looks more uncertain, so you are more mindful of your budget but you still feel some anger about it. I can't think that... it probably comes up in unexpected ways. Well we are going to see, it is going to be interesting for all sorts of disciplines at the same time. 


Nina Low [UEC Host]: Yea. I've actually never heard of the term before too. So maybe it would be in our textbooks in the future if it actually becomes something. 


Professor Vellekoop [guest speaker]: It might be in marketing textbooks or psychology. 


Katrina Ongchangco [UEC Co-Host]: Maybe consumer spending like behavioural finance. 


Professor Vellekoop [guest speaker]: Oh yes, behavioural marketing. 


Katrina Ongchangco [UEC Co-Host]: I think this should be all of our questions for now. But thank you again for joining us today. We really appreciate it. You made our first episode very interesting. 


Professor Vellekoop [guest speaker]: Thank you so much for having me, and hopefully the next time we meet, we will be in-person. 


Katrina Ongchangco [UEC Co-Host]: Sure. Thank you! Have a good day. Bye. 


Professor Vellekoop [guest speaker]: Bye. Thank you. 

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