Goldman's Jan Hatzius on the Lessons Learned in 2020

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So I don't know about you, Tracy, but I would definitely say that when the crisis hit earlier this year, and the stock market crashed, and layoffs surged, I definitely got pretty intense flashbacks to the Great Recession, the financial crisis 10 years ago.

Tracy Alloway (0:37)

Yeah, I mean, I think a lot of people did.

I think the big debate that was going on at the time was whether or not 2008 or 2020 was going to be the defining financial crisis for a particular group of people. And I think that debate's still going on, but for sure, we've never seen anything quite like this. And in March, we had a financial crisis alongside a real economy crisis with lots of businesses going into lockdown and things like that. And I think that was probably the major difference with what we saw in 2008

Joe Weisenthal (1:17)

Right. And I think now in December, 2020, and looking at the aftermath, we can say safely that so far anyway, the aftermath of what we experienced in March and April has really been nothing like the financial crisis. Of course, we have stocks, not just at all time highs, but well above the pre-crisis highs already.

Home prices, there's a housing boom happening, which probably not a lot of people would have guessed. The unemployment rate, it's still quite elevated, but it's come down a lot faster than a lot of people anticipated. So that another sort of difference from 2008, 2009, where the recovery and unemployment was extremely slow.

Tracy Alloway (2:02)

Yeah, I think that's right. And certainly, if you talk to a lot of people in March, no one would have expected to see the rebound in risk assets that we've seen, and no one would have expected that everyone will be buying houses, or those people that can afford them would be buying houses.

I do think the big difference this time around has probably been how quickly the Federal Reserve reacted, and also how quickly Washington rolled out that stimulus package, which kind of begs the question about what comes next, because as we're recording this, the next round of stimulus is stuck in political gridlock.

Joe Weisenthal (2:42)

Right, we are recording this on Wednesday, December 16th. There are some headlines this morning that they might be close to a deal, so by the time people are listening, we'll probably know. Also, there is a FOMC decision today, so again, we're having this conversation prior to that, you know, in the context of the sort of surprising recovery and how it's not like the GFC aftermath, I think one of the first clues or one of the first people who helped me really understand the difference was our guest today. We're gonna be speaking with Jan Hatzius. He is the chief economist at Goldman Sachs, a role he's occupied since 2011 And it was a note of his, I think sometime in April, making what at the time was, I thought a pretty extraordinary call, which is that he thought thanks to the CARES Act and fiscal stimulus, that household income would actually be up in 2020, which is not what you expect to see when the unemployment rate is spiking.

And to me, that was like one of the first times I saw someone like really crystallize this idea that this is gonna be a different year, that the 2008, 2009 playbook cannot really apply to this kind of a crisis.

Tracy Alloway (4:04)

Yeah, I agree. And a lot of people follow Hatzius' work. And I do think some of what he's written about recently kind of gets to the heart of the big question going into 2021, which is, how is the consumer going to react?

What's consumer confidence gonna look like?

Are we going to get this pent up demand scenario where once we get a vaccine and the lockdown gets rolled back, everyone goes out and spends and makes up for a lost time by going to bars and restaurants and things like that?

Or are we going to see some sort of permanent damage to consumer confidence after the events of 2020?

Joe Weisenthal (4:43)

Absolutely. Well, I can't think of a better guest to talk about, to finish up this extraordinary year in the economy and look ahead to next year than Jan Hatzius. So Jan, thank you very much for joining us.

Jan Hatzius (4:56)

Thank you for having me. You guys are being too kind.

Joe Weisenthal (4:59)

So tell us about the crash, the crisis from your perspective. A, did you also get some of those 2008, 2009 flashbacks?