The Hill's Steve Clemons interviews acting Secretary of Banking and Securities for the Commonwealth of Pennsylvania Richard Vague. Vague has also written several widely acclaimed books on the nature and drivers of economic crises including “A Brief History of Doom” and “The Next Economic Disaster: Why It’s Coming and How to Avoid It.”

Excepts from the interview below:

On how Pennsylvania is currently weathering the crisis on the economic front

ADVERTISEMENT

I certainly didn't expect something of this magnitude, with this kind of consequence, but we do have precedence. The depression of 1920 had at part and parcel of it, the Spanish flu pandemic that lasted from 1918 through 1920. ... The bankers in Pennsylvania and across the country have been doing a terrific job stepping up, working with customers. A huge part of that is the Treasury's $350 billion for small businesses. But, as you know, that has been entirely used at this point in time and we understand there's as many or more applications that did not get processed and did not get funded, then did get funded. That implies that there's a need that might be at least another $350 billion if not far more than that that needs to be met and it needs to be met quickly.

Clemons: On our other Hill.TV show, Rising, our hosts had an interview with an editor from the American Prospect magazine. This editor was very critical of the way the governance set up for the small business loan program because the banks have very few restrictions on pumping money out and taking lots of fees as they do so. Are you worried that the incentives are misaligned in that effort on funding small businesses in this crisis?

VAGUE: I don't see it that way at all. I think the bankers are — the interest rate on these loans are very low. There is a processing fee. These banks are working 16 to 20 hours a day to try to get these things done. The system has all sorts of operating difficulties with it. I think that the incentives, if anything — either they're appropriate or they're not quite sufficient. But the objective, as you recall, would be to get money in the hands of small businesses, and we're doing that. We just need to do a lot more of that.

Clemons: The Pennsylvania state Senate the other day voted to overturn the governor's stay-at-home orders. ... What is the state of play in Pennsylvania right now on reopening the economy versus ongoing public health concerns?

VAGUE: Health is the priority. And Gov. [Tom] Wolf has been tremendously courageous in the face of all sorts of pressure in making sure health is our priority. And we see reasons for concern. Singapore is something we've all seen over the last few days. They were very successful early on. They reopened too quickly, and cases are skyrocketing in Singapore. We don't want that to happen. But what I can tell you is an enormous amount of planning is going on at the Commonwealth of Pennsylvania planning level on how to reopen and keep folks safe from a health standpoint. So I think you're gonna see a lot of great precautions built into the system as we reopen that allow us to begin to operate again, if you will, and remain safe. I think we're gonna see that hopefully sooner rather than later.

Clemons: You wrote an oped for The Hill not too long ago. And in that op ed, you talked about the resource level that was going to be needed and what we needed to do to get money in the hands of real people where they are now and on a repeated basis until we were through this. ... There seems to be a huge gap between what you said we needed and that stimulus package. Where are you now on the state of further stimulus?

VAGUE: I think the amount that we still need is at least a couple of trillion more. Maybe more than that. And the most effective way to do that is going to be to increase and extend the checks that get directly in the hands of consumers and to increase and extend the funding support such as the SBA payroll protection plan. Those are the things needed. What I can also tell you is that states and municipalities are going to need a lot of support very quickly to be able to continue to provide the services that are so critical across the state — from a health care and education and payroll standpoint. So we need all that. And frankly, getting it for a month or two or three from now is going to compound the damage. We need it this week. We need it next week.

Clemons: I'm interested in the questions of what our social contract is going to look like in the future with with working families and people out there. And whether it's been automation and technology, whether it's been offshoring and trade, there's been sort of a steady drumbeat against [the economic standing of] workers for a long time in the United States, and sometimes when you have moments like this, as you've written about during the Great Depression, where all sorts of institutions are created and essentially a new social contract put together by Roosevelt or later by Lyndon Johnson. Are you thinking of what we do about rewiring America’s social contract?

VAGUE: People are consumed with just the day to day of getting back up and running. The number of details that are going to be involved in getting the current economy restarted are going to be many and perhaps even a little overwhelming, so I'm not sure there's the opportunity. But I tell you, folks’ mindsets are going to be different as we exit this crisis. One of the things I've advocated for some time is — the United States ought to be teaching and training workers that are already 30 and 40 and 50 years old. New skills, better skills. And we ought to be training not 10,000 people a year, but a million people a year or 2 million people a year. Now that's something that we were proposing last year and the year before as a way to address the exact thing that you're talking about now. I don't think that's that expensive. Spending $10 billion a year, $20 billion year or something like that felt daunting a year ago. Today, I think, our feelings about costs have been rescaled, and we understand something like that is in fact, very affordable.

Clemons: You are one of the great experts on both private sector debt and government debt. Government debt is surging today to very high levels. Give us the Richard Vague take on whether this government debt being taken on is something about which we should be concerned.

VAGUE: Today as regards government, federal government debt specifically, make no mistake, we have ample capacity to do what we need to do. Government debt to GDP was about 106 percent on Dec. 31, 2019. In Japan, it's 238 percent. That gives you a sense of how far we could continue to go and still have additional capacity. I think even with all that's in the pipeline, the federal government debt to GDP will be about 130 percent, perhaps. That is not a level that is a problematic level. We still have ample capacity. There's any number of theorists who've shown that the spending at the government level creates identical assets or wealth in the private sector and that's actually, the way the accounting for that works. The other thing that I would be sure and mention is — people worry about inflation as a result of this. All of our research has shown that the opposite is what we ought to be concerned about. Rising debt levels over the last 40 years had invariably resulted in lower interest rates, not higher interest rates. I think that will continue to be the case. I think the pressure on interest rates will be for them to go lower. I think there will be deflation, and that's what we need to be concerned about.