Executive Summary
AI
- Michael Mandel and Sean Flynn, textbook authors, discuss how COVID-19 moved supply and demand schedules, starting with oil, whose price went negative one day because airplanes, cars and buses stopped running while pumping continued.0:41
- Oil owners had to pay people to take the oil off their hands, and this happened within days of the lockdowns being announced as changed behavior flowed straight through to suppliers.1:21
- In food, COVID infections in meatpacking plants shifted the supply curve for pork and other cuts left, but supermarkets kept prices the same to avoid looking like price gougers, producing shortages and empty shelves, worsened by a mismatch such as restaurants using small bananas rather than big ones.2:35
- For college, schools converted to online teaching this spring so supply is roughly unchanged, while demand may fall as students consider gap years and hesitate to take on student loans, though recessions historically push people to stay in school longer, as happened with high school in the Great Depression.4:07
- Sean advises students to definitely stay in school, predicting the recession will take two to three years to recover from and be barely remembered in 10 years, with opportunities in bioinformatics, biotech and nanotechnology.6:14
Brief overview
COVID-19 shifted demand for oil and supply for meat, while college faces opposing demand forces.
Oil went negative because demand collapsed, not supplyPumping continued while planes, cars and buses stopped, so owners paid to have oil taken away.
Unchanged supermarket prices turned a supply shock into shortagesMeatpacking infections shifted supply left, but stores avoided price gouging, leaving empty shelves.
Stay in school: recessions reward finishing degreesSean expects a two-to-three-year recovery and says jobs will be waiting for graduates.
Questions this recording answers
7 questions, each answered where it is said
Why did oil prices go negative during the COVID-19 lockdowns?
Sean Flynn explains that oil kept being pumped because the supply schedule stayed the same, but airplanes weren't flying and people weren't driving, so demand shifted left. With nowhere to put the oil, owners had to pay people to take it off their hands, something never seen before in world history.
Answered around 0:41Why were supermarket shelves empty during the pandemic?
COVID infections in meatpacking plants shifted the supply curve for pork and meat to the left. Normally prices would rise to clear the market, but supermarkets did not want to be seen as price gougers and mostly kept prices the same, so quantity demanded exceeded quantity supplied, creating shortages.
Answered around 2:16Was there actually too little food during COVID-19?
Not exactly. With restaurants closed and people at home, there was a mismatch: restaurants and institutions consume different food than homes, for example small bananas rather than big ones. So the problem was less that not enough food was supplied and more that it was the wrong kind of food.
Answered around 2:55How did COVID-19 affect the supply and demand for college?
Sean Flynn says supply stayed roughly where it was because schools rapidly converted to online teaching. Demand may fall substantially as students consider gap years to avoid online classes, though historically recessions push people to stay in school longer, possibly into graduate school rather than a bad job market.
Answered around 4:01What happened to school enrollment during the Great Depression?
Michael Mandel notes that during the Great Depression there was a great surge in the number of people going to high school, because they were avoiding the very bad job market. In the current case, he suggests the equivalent may be graduate school rather than high school or college.
Answered around 4:43Will students be less willing to take out student loans?
Sean Flynn expects student loans to drop off. Going to college means four years without income plus debt, which only pays off if the future economy is good. Many see the future as permanently cloudy, fearing further viruses and pandemics, which could dampen willingness to invest in their own human capital.
Answered around 5:07Should a college student stay in school during the COVID recession?
Sean Flynn says definitely stay in school. The Great Depression generation went on to great lives in the 50s and 60s, and he expects this recession to be short-lived, two to three years, with new opportunities in bioinformatics, biotech and nanotechnology for those who complete their degrees now.
Answered around 6:14
Key Quote
“Well, the price actually went negative one day because there was so little demand for”
— Sean Flynn0:41
Key Quote
“Never happened before in world history.”
— Michael Mandel0:47
Key Quote
“the people who owned the oil had to pay in order to get people to take it off their hands.”
— Michael Mandel1:21