How the pandemic is sending universities back to school

A blend of online and in-person education could make learning an option for all ages and classes

Simon Kuper

© Harry Haysom

Six months ago, few of the world’s academics had taught an online class. Now they’re almost all doing it. I asked dozens of them about their experiences. My conclusion: online education won’t replace the in-person variety, but will complement it.

University teaching after the pandemic will be blended: a mix of both methods. That could revolutionise universities, help them survive the economic crisis and bring higher education to tens of millions of people who have never set foot on campus.

Most academics I heard from aren’t enjoying teaching online. They plunged into the global experiment untrained, to a backdrop of children at home, poor WiFi and lockdown anxiety.

Some students in online classes are embarrassed by their homes, or are struggling to follow PowerPoint presentations on mobile phones.

The human factor is lacking: Zoom kills most jokes. One professor told me the experience had reassured him he would never be replaced by a robot. These accounts fit the long-term record of online education: though it has grown, dropout rates remain high.

The yearning to return to the classroom is reasonable, but also reflects the traditionalism of most universities. Academics, parents, alumni and employers inevitably accord status to the types of learning they themselves experienced decades before. Somebody from 1800 walking into a college last year would have recognised most teaching methods.

The ancient campus model probably works well for those aged 18 to 24 with several years to spare and well-off families. Yet even this small privileged cohort has just taken an economic wallop. In the largest academic market, the US, fewer families can now stump up $200,000 or more for a degree. Cash-strapped states won’t help them. Some colleges may fold.

But blended education could expand the university market to all ages, classes and countries. In many poorer countries, including China and India, fewer than one person in 20 aged 15-plus had completed tertiary education in 2010, according to the World Bank. Many “left-behind” adults everywhere would love to learn from home, get qualifications and change their lives, especially if the pandemic has left them jobless.

We need more adult learners. Their numbers in the UK almost halved between 2004 and 2016, write Andrew Scott and Lynda Gratton in The New Long Life.

David Blake and Kelly Palmer of Degreed, an educational technology company, point out that if you ask someone about their current health, the answer, “I ran a marathon 20 years ago” would make no sense. Yet ask people about their education and they tell you where they studied 20 years ago.

As lifespans expand, and technology changes, we should top up our education over the decades, while keeping our jobs and families. University is wasted on the young.

Blended teaching could help more students enter higher education, argues Chris Stone of Oxford University’s Blavatnik School of Government. He proposes a model in which some students spend a month on campus, then months studying from home, before returning to campus for the final weeks. That would allow universities to teach multiple cohorts a year, cutting tuition costs.

Stone believes this model could give students all seven elements of university education: knowledge (what is quantum physics?), skills (doing a case study at business school), content, a credential, networks (with fellow students, faculty or alumni), an institutional affiliation (“I’m a Duke alum”) and, in some cases, entry into elite society (“my college roommate is a senator”).

Anita Pilgrim, who teaches at the UK’s Open University, which pioneered blended learning, cautions that remote learners need lots of support. Her university has educational advisers who help students find a study-life balance, apply for funding, access resources for dyslexia etc. She tries to meet students in person when possible. “You can’t just expect them to have a laptop and log in and get on with education. They probably spend their first year . . . figuring out how to study,” she says.

Other academics, who are innovating daily, gave me examples of online methods that show promise. One is the trend to “flipping”: students first watch a lecture on video at home, then do assignments in an online class, where the teacher can help them. Zoom’s “chat” function can get shy students talking.

The added value of a classroom is interaction, so anything that isn’t interactive should be done outside class.

Academics report seeking more contact with locked-down students, through emails or Zoom calls. They are inviting star speakers for guest appearances, ditching rigid timetables to give short lectures when appropriate and recording videos that answer students’ questions. Some have even reworked their jokes for Zoom.

Teaching online has shortcomings — but so does in-person teaching. Patrick McDevitt, a historian at the University at Buffalo, says: “Many professors are not brilliant lecturers. Many students skip lectures or spend them on their phones or daydreaming.

”Personally, I’ve embraced online education. My wife and I have set up a free lockdown-era “university”, Pandemonium U, which is bringing expert speakers to people stuck at home worldwide.

The experience has given me a glimpse of the countless untapped adults yearning to learn.

Paul Krugman Is Pretty Upbeat About the Economy

In a Q&A, the Nobel-winning economist says the pandemic recovery probably won’t be like the one from the last recession.

By Noah Smith

Paul Krugman is one of the world's most influential and provocative economists. Although Krugman made his professional mark in academia, where his work on trade and economic geography earned him a Nobel prize in 2008, it is his commentary that has brought wider public recognition. Last week, Bloomberg Opinion writer Noah Smith interviewed Krugman online about the state of the U.S economy in the midst of the coronavirus crisis. This is a lightly edited transcript of their conversation.

Noah Smith: This pandemic, and the resulting economic slowdown, don't look much like the Great Recession -- or any recession since high-quality economic data has become available. How should we think about this unprecedented event? Can we model it as a demand shock, like the last downturn? Are there any simple models here to guide us?

Paul Krugman: Is this a demand shock or a supply shock? Yes. And no. The aggregate-demand-aggregate-supply framework doesn't work well for this crisis, because it assumes that the economy can reasonably be represented as producing a single good -- a fine approach most of the time, but not now.
What's happening now is that we've shut down both supply and demand for part of the economy because we think high-contact activities spread the coronavirus. This means we can't just use standard macro models off the shelf.
But it's not all that hard to produce two-sector models that use many of the same strategic simplifications we've used in the past. I've seen really nice work on the question of whether the lockdown in some sectors spills over into recession in other sectors (Veronica Guerrieri et al.), and whether and how it produces financial market spillovers (Ricardo Caballero and Alp Simsek). I'm finding these approaches really helpful as a lens for viewing the data and the policy response.
That is, I don't feel analytically at sea here. Even though this crisis is really different from anything we've seen before, my sense is that we've got a pretty good handle on the economics. In particular, we know enough to understand why conventional responses like stimulus or tax cuts are inappropriate, and why we should be focusing on safety-net issues.

NS: So typical stimulus isn't the goal here, and instead we're merely alleviating human suffering while we wait for the shock to end. But that raises an important question: What are the constraints on government action here? In a normal, demand-based recession, there's little risk of inflation from monetary or fiscal policy because the demand shortage is acting to push prices down. But in this situation, it's not clear which way the shock is going to push prices -- the model of Guerrieri et al., for example, is ambiguous on this point. So should we worry that enormous deficits and Federal Reserve asset purchases might stoke a runaway inflation spiral?

PK: In principle it could indeed go either way. People with intact incomes could be switching to unconstrained goods and services rather than postponing spending, so that aid to the unemployed could be inflationary. But that's not what we seem to be seeing. It looks as if the private sector surplus has risen by enough to accommodate public deficits, with room to spare -- that is, it's deflationary.

One big reason, I suspect, is that Guerrieri et al. -- whose model was almost exactly the way I would have done it, so this isn't a criticism -- don't include a role for investment. The fall in demand isn't just households postponing consumption until they can go to restaurants again; it's also a crash in construction of houses, commercial real estate and so on. Who wants to build an office park in a plague?

NS: That's a good point. But this does raise another question. During the Great Recession, you were -- rightfully, in my view -- a harsh critic of people who used bad macroeconomic models to try to explain that crisis as the result of natural shifts in technology or workers deciding not to work. This time around, how do we know which economists have good models? Leaving out investment can make a model give wrong results, but it's a fixable problem. What sort of theories and ideas should we absolutely shun?

PK: In both the Great Recession and now there are two classes of ideas we can immediately classify as worthless.

First, anyone who is peddling known zombie ideas like the magical efficacy of tax cuts should be dismissed out of hand.

Second, anyone who is just rolling out their usual ideas without making allowance for the special nature of the situation shouldn't be taken seriously. Back in 2008-10 you had people talking about monetary and fiscal policy as if there weren't an issue with the zero lower bound. Now you have people -- as always, a lot on the right but some on the left -- talking as if this were a garden-variety recession, not a shutdown enforced by social distancing.

In other words, it's only worth listening to people making a real effort to grapple with the novelty of this crisis.

Given that, I actually don't think it's too hard to think through a lot of what's happening. Most of the economy still works the same way as usual, which is to say more or less Keynesian in the short run. We can understand a lot of the unusual stuff just by applying usual behavior rules to an unusual situation: people may be unemployed with businesses losing sales to exotic causes, but their spending decisions will probably be like those of job losers in normal times. A lot of what's going on in financial markets reflects the same kinds of balance-sheet spillovers we saw in 2008-9. 
The hard part is quantifying cross-cutting stuff. How important are supply-chain disruptions relative to excess capacity in driving inflation? What are we missing about things driving spending? (Investment-free consumer-only models can be a very useful strategic simplification — hey, I did that to think about the liquidity trap — but they may miss a key factor right now).

But the truth is that among economists who are making good-faith efforts to respond to unusual times, as opposed to saying what they always say, I'm actually seeing a lot of common ground. I don't see battling orthodoxies this time around.

NS: That's good to hear. One final question: How long can we expect the economic fallout from this shock to last? The Spanish Flu, which also led to a lot of social distancing, didn't seem to leave a lasting economic scar on the nation. But the modern economy is very different -- more dependent on delicate supply chains, more reliant on webs of debt and credit, more weighted toward services rather than manufacturing and agriculture. How likely is this to turn into a lost decade? And what policy mistakes might we make that prolong the pain?

PK: I’ve been trying to get a handle on this by looking at recessions over the past 40 years. Until now we’ve had two kinds: 1979-82-type slumps basically caused by tight money and the 2007-09 type caused by private-sector overreach. The first kind was followed by V-shaped “morning in America” recoveries; the second by sluggish recoveries that took a long time to restore full employment.

My take is that the Covid slump is more like 1979-82 than 2007-09: it wasn’t caused by imbalances that will take years to correct. So that would suggest fast recovery once the virus is contained. But some big caveats.

One is that we don’t know how long the pandemic will last. Right now, we’re probably opening too soon, which will actually extend the period of economic weakness.

Another is that even if we didn’t have big imbalances before, the slump may be creating them now. Think of business closures, which will require time to reverse.

And I also wonder how much long-term change we’ll experience as a result of the virus. If we have a permanent shift to more telecommuting and less in-person retail, then we’ll have to shift workers to new sectors, which will take time. That was an argument lots of people made, wrongly, in 2009, but it could be true now.

All that said, right now I don’t see the case for a multiyear depression. People expecting this slump to look like the last one seem to me to be fighting the last war.

Collapsing rates leave investors dangerously exposed to equity risk

The classic portfolio — 60% stocks, 40% government bonds — no longer makes sense

Paul Britton

Gold could be one option for investors having to think about alternatives to bonds © Bloomberg

Covid-19 has brought us to a historic turning point in financial markets.

A fundamental investment strategy that has protected institutional and retail investors alike for decades — balancing equity risk by holding high-quality government bonds — has finally run its course.

When the Fed lowered short-term rates to zero in response to the pandemic, the last shoe dropped.

The implications of this change are huge.

For one thing, millions of retail investors have been left largely defenceless, lacking a tried and tested means of diversifying the inevitable risk of holding equities. Similarly, the sophisticated and extremely successful hedge fund strategy known as Risk Parity faces an existential challenge: without meaningfully positive government bond yields, it has been thrust into a harsh environment in which it is unlikely to prosper.

Many investors need to hold equities because of their ability to deliver long-term capital growth above the rate of inflation. One standard way to dampen the well-known volatility of any equity portfolio has been to balance a 60 per cent holding of equities with 40 per cent exposure to government bonds — the classical paradigm of portfolio construction.

For the past 20 years, this worked because equities and government bonds were reliably negatively correlated: the bond portion would appreciate when equity markets fell, keeping the overall portfolio on an even keel.In fact, the 60/40 portfolio was even better than that.

Government bonds acted as an insurance policy, helping to cushion the investor against losses on their equity holdings, but this was an insurance policy the government paid you to own. The coupon on your bond holdings provided a material source of return, on top of the protection you gained by diversifying your equity risk.

Now that double benefit has turned into double jeopardy. As main central banks have lowered interest rates towards zero over the past decade, the yield component of the return on a portfolio of government bonds has evaporated.

That leaves capital appreciation as the sole source of future returns.

But the room for prices to rise has arguably all but disappeared too.

In the year to April 2020, the Barclays US Treasury Total Return Index gained nearly 9 per cent, as the US 10-year Treasury rate moved from 1.92 per cent to 0.64 per cent. This delivered a positive return that partially offset losses from falling equity markets.

But if we are faced with another crisis, then US Treasuries simply cannot gain enough from here to offset equity losses. Why?

Because the 10-year note has less than 0.9 per cent of yield left until it goes to zero — and the Federal Reserve and Treasury have made clear they are extremely reluctant to see negative interest rates.

This is why retail and institutional investors alike are now at a turning point. For investors who hold the classic 60/40 portfolio, this is a disaster. They have lost a reliable source of return and their diversification strategy is broken.

Imagine that you are just setting up your first retirement account to begin saving for your future. A traditional 60/40 blend would not deliver anywhere near the diversification or returns that it has done historically, therefore forcing you to own a portfolio dramatically skewed towards stocks.

Over the past three decades, a typical 60/40 portfolio has returned nearly 10 per cent on the equity portion per year and just under 6 per cent from the Treasury bonds, netting out at around 8 per cent a year overall.

But with bonds at zero, investors will need much higher returns on their equity portfolios to maintain that record: around 13.3 per cent a year, in fact. This will inevitably encourage greater risk taking, with the potential for larger losses.

Advocating a portfolio like this with no risk-balancing is unfair and irresponsible. Doing so leaves these retirement savers totally reliant on continuing appreciation in stocks — and seriously exposed to downturns.

In seeking new sources of ballast for balanced portfolios, asset allocators will have to think about alternatives to bonds, including cash, gold, cryptocurrencies, and explicit volatility strategies — such as put options directly hedging equities — with which they may be less familiar.

There are pros and cons to each selection, but the key point is that, with the diversifying power of bonds gone, there is no longer any natural choice.

That inevitably means we should expect lower returns in the future from balanced portfolios because “free insurance” through the bond market is no longer available.

Paying for protection is never an appealing prospect. But now that investors are dangerously exposed to equity risk, it is one they and their advisers should at least consider.

The writer is founder and chief executive officer of Capstone Investment Advisors in New York

This Isn’t Your Father’s Corporate-Bond Market

Central banks and tracker funds have upended the way prices are set in the credit market, but the new system could be better for businesses

By Jon Sindreu

Corporate bonds have never been so popular. Are they a safer investment than they used to be in a downturn, or just riding a wave of central-bank and index-fund money? Both could be true.

U.S. companies have issued a record $1.2 trillion worth of bonds this year, according to Dealogic—a 78% increase relative to the comparable period of 2019. Even companies in the aviation industry like plane maker Boeing,which are expected to face years of depressed demand, have found buyers. Remarkably, issuance of junk bonds has jumped, too.

It is a historical anomaly. Usually, bonds markets shut at the beginning of a crisis—issuance shrank 20% in 2008—and then recover during the actual downturn. This time, the slump barely lasted a few weeks.

Bonds are behaving more like bank debt, which tends to remain stable or even increase at the onset of recessions, as lenders keep distressed clients afloat—and only later turn off the taps. This was confirmed by a recent report from the Bank for International Settlements. It also found a tight link between this lending cycle and the “real” economy’s booms and busts.

The reason for the change is familiar: Central banks are heavily intervening in this market, which was already transformed by the presence of passive index trackers.

Investors can’t tell where to go from here. Spreads between corporate-debt yields and risk-free interest rates are at their highest in a decade relative to the earnings yield on stocks, making bonds look cheap.

But these spreads remain much lower than in 2008, even though ratings agency Moody’sexpects the global default rate to jump to similar levels by year-end. It reinforces the widely held idea that central banks are inflating a bubble with policies that have little discernible effect on economic growth. 

But perhaps this is the wrong way of looking at it. Central banks don’t buy corporate paper at a preset price; they simply ensure ample demand at whatever price they were already trading.

They act as market makers.

This is an extension of their widely understood role as “lenders of last resort” to banks. As once bank-centric financial systems have evolved into complex global chains of financial collateral, officials have deployed myriad facilities to provide liquidity to every corner of this new ecosystem, including corporate bonds.

One concern is that the corporate-debt market has become less liquid. In the old system, price discovery would happen through banks trading individual issues, sometimes against the wind. Now, post-2008 regulations constrain their activities, and behemoth asset managers like BlackRockand Vanguard have grown to dominate the market. The result is an increasingly one-way flow of bonds into the vaults of central banks and passive tracker funds—which by definition can’t buy the dip.

Yet price discovery is still happening. It has simply moved to investors evaluating the market overall through these tracker funds, which the Federal Reserve is now backstopping just in case.

If recent experience is any guide, this new system is fit for purpose: It provided some form of rational pricing during the selloff and now seems better than its predecessor at keeping the credit taps open for corporate America. It may not stretch to making companies invest if the recession drags on, but could still mellow the financial element of economic cycles identified in the BIS report.

Market values don’t exist in a vacuum. In the world of interventionist central banks, corporate bonds may truly be a safer investment.

Central banks are heavily intervening in the market. / Photo: kevin lamarque/Reuters

The End of Europe’s Chinese Dream

The COVID-19 crisis has pushed Europeans' strategic thinking about China – already shifting because of three developments – past the tipping point. After years of pursuing closer bilateral economic ties, Europeans suddenly realize that they have become dangerously dependent on Chinese trade and investment.

Mark Leonard

leonard55_XinhuaDing Lin via Getty Images_likeqiangmogherini

BERLIN – A paradigm shift is taking place in relations between the European Union and China. The COVID-19 crisis has triggered a new debate within Europe about the need for greater supply-chain “diversification,” and thus for a managed disengagement from China.

That will not be easy, and it won’t happen quickly. But, clearly, Europe has abandoned its previous ambition for a more closely integrated bilateral economic relationship with China.

In the past, when Europeans sought trade, economic-, and foreign-policy reforms vis-à-vis China, their hope was always to increase contact with the country while making the relationship fairer and more reciprocal. The basic goal was to expand bilateral trade and pry open the Chinese market for European investments.

Even when the European Union toughened its approach toward China, its objective was still to deepen economic ties with the country. The creation of new EU instruments to screen investments and enforce antitrust measures were presented as regrettable but necessary measures to create the political conditions for closer cooperation.

In a report published earlier this month, Andrew Small of the European Council on Foreign Relations argues that the EU’s engagement with China will henceforth have a new purpose: to structure the Sino-European relationship in a way that reduces Europe’s dependence on Chinese trade and investment. The new consensus is that Europeans should be more insulated from the whims of unreliable or overbearing foreign governments, whether in Beijing or Washington, DC.

This new thinking is evident in statements from the EU’s top officials. For example, Josep Borrell, the EU High Representative for Foreign Affairs and Security Policy, recently called on Europeans to shorten and diversify their supply chains, and to consider shifting their trade ties from Asia to Eastern Europe, the Balkans, and Africa. Sounding a similar note, the EU’s competition czar, Margrethe Vestager, wants to change state aid rules to protect European companies from Chinese takeovers. 1

For their part, most European governments did not want a change in strategy. Until now, they have been heavily invested in developing a cooperative relationship with China; on a practical level, they are desperate for Chinese-made medical supplies to get them through the pandemic.

Nonetheless, three factors have altered Europe’s strategic calculus. The first is a long-term change within China. The EU’s previous China policy was based on the so-called convergence wager, which held that China would gradually become a more responsible global citizen if it was welcomed into international global markets and institutions.

Instead, the opposite has happened. Under President Xi Jinping, China has become more authoritarian. As the Chinese state has increased its role in the economy and Chinese markets have become less hospitable to European companies, Xi’s signature policies – Made in China 2025, China Standards 2035, and the Belt and Road Initiative – have not only forced European companies out of the Chinese market, but have also exported China’s model abroad.

China is no longer merely competing for a share of low-value-added production. It is quickly climbing up the global value chain, and penetrating the very sectors that Europeans regard as central to their own economic future.

Second, the United States has increasingly adopted a more hawkish view of China, particularly since US President Donald Trump entered the White House. Well before the pandemic, a broader “decoupling” of the US and Chinese economies seemed to be underway. This change came rather abruptly, and was a shock to Europeans, who suddenly had to worry about becoming roadkill in a Sino-American game of chicken.

Consider the way many European states are struggling to placate both the US and China over the Chinese tech giant Huawei’s role in building European 5G networks. In theory, Europe’s new skepticism toward China should have paved the way for closer transatlantic cooperation on this issue. But by assailing Europe with tariffs, secondary sanctions, and other unprovoked attacks, the Trump administration has muddied what should have been a clear choice.

But the third (and most surprising) development has been China’s behavior during the pandemic. After the 2008 global financial crisis, China seemed to rise to the occasion as a responsible global power, participating in coordinated stimulus efforts and even buying up euros and investing in cash-strapped economies. Not this time.

Consider one telling episode from the pandemic. Early this year, as the coronavirus was raging through Wuhan, EU member states shipped nearly 60 tons of medical equipment to China. Much of this came from national strategic stockpiles, and it was sent discreetly, at China’s behest. By contrast, when the pandemic arrived in Europe, the Chinese government made a big show of offering “aid” to Europe – much of which actually came with a price tag.

Worse, China has been using the cover of the COVID-19 crisis to pursue politically controversial economic deals, such as a Chinese-financed Belgrade-Budapest railway plan that was smuggled through Hungary’s legislature as a part of its COVID-19 emergency package. Similarly, Huawei has been loudly making the case for why the crisis justifies an even faster 5G rollout. And in the United Kingdom, a Chinese state-owned venture-capital fund recently tried to take control of one of the country’s top chipmakers, Imagination Technologies.

Most disturbing of all, however, has been China’s exploitation of health needs to advance its own petty political interests. For example, Chinese officials have warned the Netherlands that shipments of essential medical supplies may be withheld in retaliation for the Dutch government’s decision to change the name of its diplomatic office in Taiwan.

Since the crisis erupted, the EU has shown more of a willingness to push back against Chinese disinformation campaigns, and has adopted measures to protect distressed European companies from being bought out by Chinese investors. But the most serious moves are yet to come. Europeans will soon start turning the talk of “diversification” into action.

One way or another, the structural changes working through the global order may have eventually produced a new debate about China anyway. But now that COVID-19 has laid bare both Europe’s dependencies and China’s true intentions, a strategic shift is well underway.

Mark Leonard is Director of the European Council on Foreign Relations.