Tyler Cowen: uncertainty

Transcript context

…I don’t see that capitalization issue is an equity issue the way you do. I don’t think American airlines, United Airlines, Delta, et cetera want to take risks with their customers going forward because most of their equity isn’t crashing that plane. It’s their brand name, which can be destroyed. Well then the share value would be high. But if we really let the equity value be wiped out by this recession or depression, it would be very easy for the share values of United, Delta and American to go to a dollar a share. Even that would be kind of an option on the bailout. Right? There’s a lot of corporate debt in America right now. Corporate debt levels were pretty high. It worked fine under the previous level of economic activity where people actually went outdoors. I was not panicked over that. But corporate debt levels that high in a world with 20% unemployment and we’re all intentionally trying to shrink output and maybe have a quarter where output shrinks by say negative 13%, that makes me very nervous and I start thinking the capitalization of those enterprises is really important. For sure, I don’t know, but I’m pretty sure the debates I’m hearing are not sophisticated enough on this issue. Oh, that’s for sure. I think the biggest problem that pundits, and I’ll put myself in that class on this level of conversation, I mean we just use words like bailout as if we know what we’re talking about or if it’s well specified. As you’re pointing out, it’s not well specified. What that means in practice, what strings are going to be attached to it. I think there will be strings attached this time that weren’t attached in 2008 which probably is, it might be a good thing. I think it was some of those things were not good in 2008 and I think it discouraged people’s faith in democracy and capitalism, which has been I guess part of our problem going forward. But a lot of this, it’s hard to imagine. Let’s turn it, we’ve got about 20 minutes left. Let’s turn to two issues that we’ve started to talk about a little bit, which are whether this is going to have a longer run impact on the way Americans expect government to solve problems versus individuals. Obviously that trend has been going on for about 70 years or maybe a 100 years. You could argue that government should be doing more. It seems to be this is going to accelerate that trend potentially.…

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