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The Era of Geoeconomics Has Arrived · Stephanomics

0:05
Speaker 1: Hello, Stephanomics, here the podcast that brings you the global economy,
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Speaker 1: and for this special holiday episode, we're sticking to our
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Speaker 1: tradition of giving you a single conversation with someone who
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Speaker 1: has interesting things to say about the world, food for
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Speaker 1: thought over the holiday season, or maybe just a refuge
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Speaker 1: from all that family fun. As Jerry Seinfeld famously said,
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Speaker 1: there's no such thing as fun for all the family.
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Speaker 1: Whatever the reason, I do know a surprisingly large number
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Speaker 1: of people tend to tune into Stephanomics at Christmas, even
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Speaker 1: on Christmas Day. My guest this Christmas is to Paul Tucker,
0:41
Speaker 1: former Deputy Head of the Bank of England, with a
0:43
Speaker 1: long career at the Central Bank of the UK, and
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Speaker 1: now a respective author and teacher as a resident research
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Speaker 1: fellow at Harvard Kennedy School. Paul, Sir Paul, thank you
0:55
Speaker 1: very much for joining us on Stephanomics. End of the year.
1:00
Speaker 1: I got to know you as a central banker. You
1:02
Speaker 1: had a whole career as a central banker, a technocrat
1:05
Speaker 1: at the Bank of England, running, among other things, the
1:08
Speaker 1: Markets division at the Bank of England and the thick
1:10
Speaker 1: of the global financial crisis. But since leaving the bank
1:14
Speaker 1: you've been teaching at Harvard and writing, writing less and
1:18
Speaker 1: less about economics and more and more about politics and philosophy.
1:22
Speaker 1: So have you changed or has the world changed around us? Well,
1:28
Speaker 1: first of all, thank you very much for having me here.
1:30
Speaker 1: It's it's great to join Stephanomics. I think both. Actually,
1:35
Speaker 1: in one sense, having a new life nearly a decade
1:39
Speaker 1: into my new life, it was an opportunity to go
1:41
Speaker 1: back and live an alternative life. That's that's fun. And secondly,
1:48
Speaker 1: the world has changed so much that you can't take
1:52
Speaker 1: economic policy away from politics and the really big issues.
1:55
Speaker 1: It It throws up that I think I served as
2:00
Speaker 1: a staff for and a policy maker in a much
2:02
Speaker 1: simpler world where monetary policy could be siloed away from
2:07
Speaker 1: trade policy, and both could be siloed away from security
2:11
Speaker 1: policy and human rights policy. I don't actually think any
2:14
Speaker 1: of those things are true anymore. You're preaching to the
2:17
Speaker 1: choir on that one, because I think that even the
2:19
Speaker 1: silos at Bloomberg need to come together. We talk a
2:21
Speaker 1: bit about that. So your your new book, Global Discord,
2:25
Speaker 1: Values and Power in a Fractured World order, what's a
2:29
Speaker 1: one line description of what it's about, Whether or not
2:34
Speaker 1: all the things that international cooperation relies on, whether it
2:38
Speaker 1: in trade, monetary, staff, environmental, human rights, etcetera, etcetera, etcetera.
2:42
Speaker 1: The law of the Sea can possibly survive now that
2:47
Speaker 1: there is potentially an existential contest between the People's Republic
2:52
Speaker 1: of China and the West. And this is an enormous change.
2:57
Speaker 1: I see in Your Your, the promotional material that the
3:00
Speaker 1: publisher says in Global Discord, Paul Tucker lays out principles
3:04
Speaker 1: for how democracies can approach relations with China and other
3:07
Speaker 1: illiberal states without sacrificing their deepest political values or jeopardizing
3:13
Speaker 1: their safety. I have to say, when I was reading
3:15
Speaker 1: the book, it feels like it's about how the international system,
3:20
Speaker 1: or I guess what we call the world order as
3:22
Speaker 1: we know it, is going to survive an era in
3:25
Speaker 1: which China is just a much, much bigger player. That's
3:29
Speaker 1: exactly right, and a bigger player with a completely different history,
3:34
Speaker 1: a completely different government system, completely different deep values. Something
3:39
Speaker 1: why I promote the book. Something I go and asking
3:42
Speaker 1: people is have you heard of Document number nine? And
3:45
Speaker 1: most people say no. It was leaked in two thousand
3:48
Speaker 1: and thirteen, and it is a litany of seven knows
3:53
Speaker 1: and six of those knows are basically objecting to liberal
3:58
Speaker 1: and democratic values and a repress and everything else. And
4:02
Speaker 1: it is a fact of the world that China is
4:06
Speaker 1: very powerful, and it's going to in my view, it's
4:08
Speaker 1: going to remain very powerful for a very long time.
4:11
Speaker 1: And yet it comes to international organizations, regimes cooperation with
4:18
Speaker 1: a completely different way of thinking about the world than
4:22
Speaker 1: anything that is familiar to us in our recent history,
4:25
Speaker 1: by which I mean the last two d and fifty years.
4:27
Speaker 1: One early line in your book did shine with me
4:29
Speaker 1: right from the start, because you say, when more or
4:32
Speaker 1: less any public policy instrument can be weaponized, geoeconomics becomes
4:37
Speaker 1: integral to foreign policy. And we have been thinking about
4:40
Speaker 1: that a lot at Bloomberg, and I recently created a
4:43
Speaker 1: geoeconomics squad, combining the economics and the politics reporters with
4:50
Speaker 1: lots of people around the world who are focused on technology, energy,
4:54
Speaker 1: international trade, because it feels like all of those things
4:57
Speaker 1: are coming together and we can't, even as reporters, put
5:00
Speaker 1: them into boxes anymore. You do. Quite a lot of
5:03
Speaker 1: your book is addressed to that, isn't it? Yes, it is,
5:06
Speaker 1: it is. And you know, the common theme for all
5:09
Speaker 1: of that is that partly because of the new technology,
5:12
Speaker 1: but not only because of that, almost any part of
5:17
Speaker 1: economic policy can be weaponized and therefore is an adjunct
5:21
Speaker 1: of security policy. And then when the Ukraine War broke
5:24
Speaker 1: out and Russia's foreign exchange reserves were seized around the world,
5:31
Speaker 1: a lot of people responded with surprise. My response was,
5:35
Speaker 1: I wondered what the threshold was for that. It was
5:38
Speaker 1: completely obvious to be given my background, that that could
5:42
Speaker 1: be done, and that was serious enough to do it.
5:46
Speaker 1: And I guess now, or a decade ago, the swift
5:50
Speaker 1: payment system doesn't matter what that is a then that
5:53
Speaker 1: it's a mechanism for sending payment messages across the world
5:57
Speaker 1: that was used in sanks against Iran. Prime ministers and
6:02
Speaker 1: presidents thought this was a fantastic thing to do. Um
6:06
Speaker 1: central Bank has thought, oh, that's that's quite a Pandora's box.
6:11
Speaker 1: So once it becomes obvious that you can use these
6:13
Speaker 1: instruments for security policy, then they will be. And that's
6:17
Speaker 1: that merely returns us to the past. In the nineteenth
6:21
Speaker 1: century and the eighteenth century, economic policy was a regular
6:25
Speaker 1: part of security policy. That debt collection m was was
6:31
Speaker 1: was grounds for war you talk about the reaction to
6:34
Speaker 1: the Russia's invasion of Ukraine, and and some people did
6:39
Speaker 1: wonder whether we were facing this Pandora's box issue with
6:44
Speaker 1: some of the things that have been done this year.
6:45
Speaker 1: I mean, you talk about foreign exchange reserves. Of course,
6:47
Speaker 1: once you've done it, once you've sent a message about
6:51
Speaker 1: what you might do in the future, for example, if
6:54
Speaker 1: China invaded Taiwan but also given people an incentive to
6:57
Speaker 1: find ways around it. So do you think balance it's
7:01
Speaker 1: been positive or negative for the kind of future that
7:05
Speaker 1: you're hoping to. So I think this is why the
7:07
Speaker 1: question of threshold is important, because it does exactly that.
7:10
Speaker 1: So you mustn't you mustn't do something like spending foreign
7:14
Speaker 1: exchange reserves except where you think it's really necessary to
7:17
Speaker 1: prosecute your your case. And I think what's interesting about
7:21
Speaker 1: the Ukraine War in many respects is that it's kind
7:25
Speaker 1: of the first proxy war of the new superpower struggle.
7:27
Speaker 1: I don't think Putin would have been able to to
7:30
Speaker 1: prosecute it in quite the way has been able to
7:33
Speaker 1: if if Beijing hadn't at least acquiesced. Something else I'd
7:38
Speaker 1: say about that is that my prediction changed this in
7:42
Speaker 1: the book right towards the end, had been that Putin
7:46
Speaker 1: would move against eastern Europe if and when China moved
7:49
Speaker 1: against Taiwan so as to stretch an unprepared West on
7:55
Speaker 1: two fronts. And I think that put In a sense
7:59
Speaker 1: is even away that optionality. The West is now going
8:02
Speaker 1: to be prepared on both fronts. But in answer to
8:05
Speaker 1: your question, yes, this wealth, this will simply intensify the
8:13
Speaker 1: efforts in Russia and China a few other places to
8:17
Speaker 1: try to manage their part of the world economy without
8:22
Speaker 1: the dollar. I mean, the dollar is absolutely integral two
8:28
Speaker 1: to the Western security system. Somewhere in the book I
8:31
Speaker 1: can't remember exactly where I say if if if the
8:35
Speaker 1: American hegemon has an unknowing headquarters, it's the Federal Reserve building.
8:39
Speaker 1: People listening may start to think that this is another
8:44
Speaker 1: book about the coming war between the US and China.
8:46
Speaker 1: And I've got my sort of personal listeners. They all
8:48
Speaker 1: seem to talk there's an accidental conflict, and the avoidable conflict,
8:52
Speaker 1: and the coming conflict, and the conflict that's already upon us.
8:55
Speaker 1: I think we're even going to get another author of
8:56
Speaker 1: another book along those lines. In the new year. And
9:00
Speaker 1: obviously your book is somewhat about that. You said yourself,
9:03
Speaker 1: kind of intensified rivalry with a rising superpower. But you're
9:09
Speaker 1: coming at it from a particular perspective, which is the
9:12
Speaker 1: sort of interplay between that kind of raw power, that
9:16
Speaker 1: rivalry of of two superpowers, and the systems we have
9:20
Speaker 1: for organizing global affairs. Because, as you point out, you
9:23
Speaker 1: can have great powers emerge. We've had the EU become
9:27
Speaker 1: a much a very equivalent force in many ways to
9:31
Speaker 1: the US, at least in terms of people and economically
9:34
Speaker 1: over the last eight years, without upsetting the global system
9:39
Speaker 1: at all. So it's not necessarily about having a new power.
9:42
Speaker 1: It's about the kind of power they are now. That's
9:45
Speaker 1: exactly right. That's exactly right. So history is littered with
9:49
Speaker 1: the story of rising powers, and the big question for
9:51
Speaker 1: any of them is how do they feel about the
9:54
Speaker 1: prevailing order? And they wouldn't want to change it a
9:56
Speaker 1: bit because they want to be more important however they are,
10:00
Speaker 1: But are they basically buy into the structure of the
10:03
Speaker 1: order and the way that gets reflected in international cooperation.
10:08
Speaker 1: We live in a world where all the international organizations
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Speaker 1: bear the thumb print of the United States and somewhat
10:16
Speaker 1: Europe as the second most important region of the world
10:20
Speaker 1: are over the past seventy odd years, and China is
10:25
Speaker 1: different in that respect. And it's when people are talking
10:29
Speaker 1: about the security element of this, the war element of this.
10:32
Speaker 1: Lots of people compare this with the second German Reich
10:38
Speaker 1: Britain at the end of the turn of the twentieth century.
10:41
Speaker 1: I don't think that's the most um instructive comparison, even
10:46
Speaker 1: though it was a dreadful, dreadful epoch changing struggle. I
10:51
Speaker 1: think much more instructive is this is that between France
10:57
Speaker 1: and Britain over the long eighteenth century, from round six
11:01
Speaker 1: around eighteen fifteen. And that was because it wasn't just
11:04
Speaker 1: about where do you stand in the pecking order, It
11:07
Speaker 1: was about different conceptions of power. Our country. We're sitting
11:11
Speaker 1: in Britain talking about this our country. We're resisting an
11:14
Speaker 1: authoritarian universal monarchy at the beginning of the eighteenth century
11:20
Speaker 1: and universal revolutionary movement at the end of the eighteenth century.
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Speaker 1: And Burke said somewhere the problem isn't France's powers, that
11:29
Speaker 1: it's the wrong kind of power exactly, And that's I
11:32
Speaker 1: think captures the challenge for the West with Chinese power,
11:36
Speaker 1: and that will China will therefore understandably want in some
11:41
Speaker 1: degree to have all of the great international organizations reshaped
11:47
Speaker 1: somewhat in its own image. And we're not going to
11:51
Speaker 1: want to do that very much. So reshaping it in
11:54
Speaker 1: its own image. Just going back to that, that means
11:58
Speaker 1: rejecting quite a lot of what you might call the
12:00
Speaker 1: principles of the liberal international system. Yeah, I mean, it
12:06
Speaker 1: certainly involves rejecting representative democracy, but it involves rejecting a
12:10
Speaker 1: free press. It involves rejecting what they call universal values,
12:14
Speaker 1: which they say in Document nine values that supposedly apply
12:19
Speaker 1: in all places and at all times. They just don't
12:22
Speaker 1: recognize that. Now, in some senses, I think it's important
12:25
Speaker 1: to put oneself in their shoes, which is I mean,
12:29
Speaker 1: I'm not a great fan of the universalist m claims
12:34
Speaker 1: of Western values. I think countries and different people have
12:37
Speaker 1: to find their own way to to liberty. So I'm
12:40
Speaker 1: a kind of pluralist liberal in that in that sense.
12:44
Speaker 1: But they're beyond that. I mean, they're just saying no, no, no, no,
12:47
Speaker 1: we have we have a a party lead country. And
12:53
Speaker 1: that's that infects inflects how we want international organizations to
12:59
Speaker 1: be struct by the way. I think this is a
13:01
Speaker 1: really important thing to say, so I want to say
13:03
Speaker 1: it now if I may, that none of this is
13:08
Speaker 1: to criticize the Chinese people or Chinese history in any
13:11
Speaker 1: way at all. I mean, this is kind of remarkable civilization.
13:20
Speaker 1: And what's more, I think I came to think while
13:23
Speaker 1: writing the book that countries like South Korea and Japan
13:27
Speaker 1: are incredibly important because they show that you can be
13:31
Speaker 1: a Confucian heritage state and still live by that part
13:34
Speaker 1: of your traditions and be a constitutional democracy. Well, that
13:38
Speaker 1: is just simply not true of the People's Republic. People's Republic.
13:42
Speaker 1: It's not so much that it's Confucianist, it's that it
13:46
Speaker 1: is kind of authoritarian and always entirely about preserving the
13:50
Speaker 1: power of the party. Yes, entirely about that. I think
13:53
Speaker 1: that captures it perfectly. The comparison with the UK and
13:57
Speaker 1: France is fascinating. But people do tend to talk about
14:00
Speaker 1: how this is a new Cold War, and in many
14:01
Speaker 1: ways it feels like we're a new Cold War precisely
14:03
Speaker 1: for some of the reasons that you say that, it
14:05
Speaker 1: feels we are the rivalry. The tension is with a
14:10
Speaker 1: system that is rejecting a lot of our basic principles
14:15
Speaker 1: and wanting to run along very different kinds of tracks.
14:19
Speaker 1: So I guess it's worthwhile just pausing to say, how
14:22
Speaker 1: what are the differences with the Cold War? What makes
14:25
Speaker 1: this situation in many ways harder than the Cold War?
14:27
Speaker 1: That we touch each other everywhere, in everything, and whereas
14:33
Speaker 1: the there's a passage about the Cold War towards the
14:36
Speaker 1: beginning of the book, and essentially these were two kind
14:39
Speaker 1: of self contained blocks with a tube between them, and
14:42
Speaker 1: the tube had two little bits oil went in one
14:44
Speaker 1: direction and dollars in another. The Soviet block had eventually
14:50
Speaker 1: had banks in London, Vienna, Paris. I think lots of spies,
14:55
Speaker 1: lots of spies. It's quite simple in a sense, whereas
15:01
Speaker 1: I think this really is more like eighteenth century France
15:04
Speaker 1: and in Britain. They struggled in famously, in the United States,
15:09
Speaker 1: on the coast of India, on the coast of Africa,
15:10
Speaker 1: on the Southeast Asia, I mean, in other words, everywhere,
15:15
Speaker 1: And that's what this is going to be like. China
15:18
Speaker 1: is an absolutely integral part of the world economy, biggest
15:22
Speaker 1: trading country in the in the world huge manufacturing power.
15:29
Speaker 1: Our economy and their's are intimately connected. Um and therefore
15:37
Speaker 1: this goes back to you the weaponization point. Weaponization can
15:41
Speaker 1: be both both geographically pervasive and field pervasive. Now this
15:48
Speaker 1: creates the possibility, it's only one possible scenario that that
15:53
Speaker 1: we will disengage to the point that we retreat into
15:57
Speaker 1: a kind of new cold water order. But but but
16:04
Speaker 1: that would take some doing. I mean, there would be
16:05
Speaker 1: a lot of unraveling to be done to get to
16:08
Speaker 1: that point. And actually, as as the economist Richard Bolden
16:11
Speaker 1: pointed out WI booked him earlier this year, it's not
16:15
Speaker 1: just the sort of sexy high tech ways in which
16:19
Speaker 1: there involved in our economy. They also produce all of
16:22
Speaker 1: our socks. So if so, unscrambling that omelet would require,
16:28
Speaker 1: I don't know that we have to get a lot
16:30
Speaker 1: better at knitting, among other things. You mentioned the scenarios,
16:33
Speaker 1: I mean, you do sketch out for scenarios that you
16:36
Speaker 1: come back to several times during the book ways that
16:39
Speaker 1: this could play out. Because I guess your time at
16:41
Speaker 1: the Bank of England has taught you not to make forecasts.
16:44
Speaker 1: What what are those for? The first is lingering status quo,
16:49
Speaker 1: the second is superpower struggle, the third is new Cold War.
16:54
Speaker 1: The fourth is reshaped world order. I think just dispatching fourth,
17:01
Speaker 1: I think that won't happen for some decades until other
17:06
Speaker 1: rising states reached to the top table, most obviously India,
17:11
Speaker 1: conceivably Indonesia. And I think for foreign policymakers they need
17:15
Speaker 1: to be thinking about who are going to be the
17:18
Speaker 1: other big powers in a few decades time, and that
17:22
Speaker 1: would be almost like a new Breton Woods any very
17:24
Speaker 1: different from there would be a whole reshaped system. It
17:27
Speaker 1: would be like a kind of nineteenth century concert concept
17:30
Speaker 1: of Europe. But for the world and the international organizations
17:35
Speaker 1: would find they had to be completely reconfigured because the
17:38
Speaker 1: great powers weren't a few European states in the United
17:41
Speaker 1: States and Japan, but the United States, EU, India, China,
17:51
Speaker 1: maybe some others, and they were and if order was
17:54
Speaker 1: maintained in that world, it would be maintained through some
17:56
Speaker 1: kind of balance about among them. In the mean time,
18:00
Speaker 1: which is going to be quite a long meantime. In
18:02
Speaker 1: my view, I think I ended up thinking that we're
18:06
Speaker 1: going to live through a kind of lingering status quo
18:09
Speaker 1: in monetary affairs and financial affairs. The dollar will remain
18:13
Speaker 1: the world's premier reserve currency for a while. That helps
18:16
Speaker 1: American banks be the most powerful banks in the world,
18:18
Speaker 1: and so on and so forth. So I think monetary
18:21
Speaker 1: of the monetary of finance field will be a lingering
18:24
Speaker 1: status quo for a while. But everything else, I think trade,
18:27
Speaker 1: most obviously cross border investment will live between superpower struggle
18:33
Speaker 1: and and Cold War. Just how much to decouple, how
18:39
Speaker 1: much to disengage and with I mean, I wrote the
18:41
Speaker 1: book before all this started happening, but we're already seeing
18:45
Speaker 1: it in powerful states in both directions don't want to
18:51
Speaker 1: be overdependent in critical things, whether it be medical stuff
18:56
Speaker 1: or energy or chips or whatever um And I think,
19:03
Speaker 1: I think it's impossible to predict how far that will go,
19:06
Speaker 1: but I think that would go on for a long while.
19:08
Speaker 1: And I wouldn't be surprised to see the West reinvent
19:12
Speaker 1: the equivalent of the Cold War what was it called
19:15
Speaker 1: cocombe where the kind of controls that the US and
19:22
Speaker 1: all the big European states had on importing and exporting
19:26
Speaker 1: from the Soviet block they needed to be coordinated. No
19:30
Speaker 1: good for for America to put a block on something
19:33
Speaker 1: if it was flowing into France and Britain and vice versa.
19:37
Speaker 1: And so at the moment, I think we're at the
19:39
Speaker 1: stage where the main Western capitals are thinking about how
19:43
Speaker 1: they want to protect themselves. I think eventually this will
19:46
Speaker 1: lead to coordination amongst the capitals. So I just wondered,
19:51
Speaker 1: what does what does the US need to do to
19:56
Speaker 1: lengthen the period where it can continue to have sort
20:01
Speaker 1: of be dominant or at least be top doc and
20:03
Speaker 1: and how is President Biden doing on that front? So,
20:06
Speaker 1: first of all, in terms of how important this is,
20:09
Speaker 1: it's not just important for them, but it's important for us. Again,
20:13
Speaker 1: we're sitting in London. We live in a part of
20:15
Speaker 1: the world the Big picture outsourced its defense to the
20:19
Speaker 1: United States. The capacity of the United States to provide
20:22
Speaker 1: a security umbrella for our part of the world and
20:25
Speaker 1: parts of East Asia depends to some significant degree on
20:30
Speaker 1: the dollar, because the dollar enables them to borrow more
20:33
Speaker 1: cheaply than otherwise. It provides them with a cushion in
20:38
Speaker 1: bad states of the world. A remarkable thing about the
20:40
Speaker 1: financial crisis is American finances so weak and so incompetently
20:45
Speaker 1: regulated that it collapses and blows up the whole world economy.
20:50
Speaker 1: Any other country you would expect to run away from
20:53
Speaker 1: their government bonds and their currency. Instead, there is a
20:56
Speaker 1: run into treasury bills and all term treasury bonds. So
21:01
Speaker 1: one way of thinking about this, an important way, I think,
21:04
Speaker 1: is that Beijing a bound to want to for the
21:07
Speaker 1: renmimb to be a significant reserve currency. When you see
21:11
Speaker 1: that even the US at its weakest ben is supported
21:15
Speaker 1: fortified by runs into the dollar, it's fantastic. But you
21:19
Speaker 1: touched on the debt ceiling debate. I think this is
21:22
Speaker 1: a really useful way in to what the United States
21:26
Speaker 1: should should do and avoid doing. It cannot afford to
21:30
Speaker 1: make big mistakes and um and because the breakdown of silos,
21:39
Speaker 1: people may not understand this. This is a belt when
21:41
Speaker 1: within the Beltway game about Republican democratic politics. What came
21:45
Speaker 1: the Republicans extract in order to to raise the debt ceiling?
21:50
Speaker 1: But there's some tangible probability that the debt ceiling won't
21:53
Speaker 1: get raised. This is a gift to Beijing, a gift. Um.
22:00
Speaker 1: I didn't talk about that in the book, but something similar.
22:03
Speaker 1: There's a debate about how the fragilities in banking have
22:08
Speaker 1: moved into the number of the financial system, the shadow
22:11
Speaker 1: banking sector, and I I mean actually shadow banking is
22:15
Speaker 1: a national security issue. That sounds a quite an exaggerated
22:20
Speaker 1: thing to say. Maybe put in another way, the West
22:23
Speaker 1: cannot afford another big financial crisis, so the stakes get changed.
22:29
Speaker 1: It's in a in a world where you think, while
22:31
Speaker 1: actually the global order depends on the American hegemon and
22:34
Speaker 1: its European friends, we can't afford another crisis. I think
22:39
Speaker 1: the Biden administration has done well in reviving, reinforcing signaling
22:49
Speaker 1: that it cares about allies and friends, that the United
22:53
Speaker 1: States isn't isolationist. The to be blunt, the silliest thing
23:00
Speaker 1: I've heard occasionally in Harvard and Washington, well, you know
23:03
Speaker 1: this China thing, and we'll be able to see the
23:06
Speaker 1: see that off on our own. We don't. We don't.
23:08
Speaker 1: You know, Europe's very irritating or whatever, and that basically
23:12
Speaker 1: that maybe that's true if China makes loads of mistakes,
23:15
Speaker 1: but policies should be based on an assumption that China
23:19
Speaker 1: won't be make mistakes. I think China's policy, by the way,
23:22
Speaker 1: it should be based on the possibility that they will
23:25
Speaker 1: make mistakes, but Western policy should be based on them
23:30
Speaker 1: not making mistakes and continuing to grow rapidly. And I
23:35
Speaker 1: think the Biden administration has done a pretty good job
23:38
Speaker 1: at signaling that it cares about the international order, that
23:43
Speaker 1: its predecessors created many Republicans as Democrats, that it knows
23:48
Speaker 1: it needs friends and allies, It knows that involves awkward,
23:53
Speaker 1: sometimes distasteful choices, But I am not sure so that
24:01
Speaker 1: has filtered through into domestic policy making to the extent
24:06
Speaker 1: that it could. And I think the debt ceiling, that
24:09
Speaker 1: if the debt ceiling goes wrong, umthing else just looks
24:15
Speaker 1: makes the US look like it's sort of endangering the
24:19
Speaker 1: stability of the international financial system because of its own
24:22
Speaker 1: domestic political squabbles. So, just to be clear, it would
24:25
Speaker 1: be arguments in Congress preventing the US government from continuing
24:31
Speaker 1: to issue debt. And so in those circumstances, you'd make
24:34
Speaker 1: a decision either to reduce the proportion of your foreign
24:37
Speaker 1: exchange reserves that were in dollars or if you didn't
24:39
Speaker 1: do that, probably you're another country. If you're another country,
24:42
Speaker 1: to shorten the maturity of your dollar holdings rather than
24:48
Speaker 1: And it wouldn't be that you'd go to meeting and
24:50
Speaker 1: say what the US has had it, That would be
24:51
Speaker 1: a crazy thought. It would be what they do seem
24:54
Speaker 1: to be capable of self inflicted harm, and that may
24:58
Speaker 1: get worse, and therefore we should be just a little
25:01
Speaker 1: bit less reliant on the United States being m the
25:10
Speaker 1: the great power in the world for the next thirty years.
25:13
Speaker 1: And I think they can avoid mistakes, but only if
25:15
Speaker 1: they're domestic politics takes seriously that the world is changing.
25:20
Speaker 1: I think, in a sense the state of US domestic
25:22
Speaker 1: politics as a product of two things. One is a
25:25
Speaker 1: whole series of really big problems about living standards and
25:29
Speaker 1: frustrations and respect and so on. But the other is
25:32
Speaker 1: the luxury of thinking that their position in the world
25:36
Speaker 1: is secure and therefore they can play these games, and
25:40
Speaker 1: to which I would say, you can't afford to play
25:42
Speaker 1: the games anymore. It's it's this is for grown ups only. Now.
25:47
Speaker 1: As you said earlier, there's plenty about this which is
25:50
Speaker 1: quite reasonable objectives that any rising power would have. And
25:54
Speaker 1: there's every reason in the world why the China, for example,
25:56
Speaker 1: might want to have the rem and be me a
25:58
Speaker 1: major reserve currency, I might want to develop advanced technology,
26:04
Speaker 1: and I guess I just wonder, how do you how
26:06
Speaker 1: do you think the US or the West should strike
26:11
Speaker 1: that balance between just investing in your own strength and
26:15
Speaker 1: the strength of your example, avoiding the debt ceiling and
26:19
Speaker 1: making it a good thing to be part of the
26:20
Speaker 1: U S system, and on the one hand, or trying
26:25
Speaker 1: actively to retard the progress of the other. Because I
26:28
Speaker 1: was sort of struck by something the Commerce sectary said
26:32
Speaker 1: a year and a half ago, Gina Romando. She said,
26:34
Speaker 1: we have to work with our European allies to deny
26:37
Speaker 1: China the most advanced technology so they can't catch up
26:41
Speaker 1: in critical areas like semiconductors. I mean, even a few
26:44
Speaker 1: years ago, that would have seemed incredibly antagonistic and kind
26:49
Speaker 1: of unfair to be trying to slow down China's progress,
26:54
Speaker 1: But we're now seems we're going quite firmly down that route.
26:58
Speaker 1: Do you think it's dangerous to be signaling quite directly,
27:01
Speaker 1: we just don't want you to develop. I think there
27:03
Speaker 1: will be phases like that, and there will be phases
27:06
Speaker 1: when it's relaxed, and I think that will go on
27:11
Speaker 1: for a long time. I think the big thing is
27:14
Speaker 1: China is too powerful for us to to be capable
27:18
Speaker 1: of telling them how to reorder their society and how
27:22
Speaker 1: to live. But we can think, and I think it's
27:25
Speaker 1: reasonable for us to think, and I have in mind Xinjiang,
27:29
Speaker 1: Hong Kong, elsewhere. But if they treat their own people
27:32
Speaker 1: like that, how would they treat us if they could.
27:34
Speaker 1: I think that's a and that requires a judgment. Actually,
27:38
Speaker 1: it's not that that leads to an inexorable conclusion. We
27:41
Speaker 1: could say, you and I are old enough to know
27:44
Speaker 1: that for many decades, people in Europe were uncomfortable with
27:48
Speaker 1: with parts of the US society's treatment of black Americans,
27:53
Speaker 1: but we didn't feel threatened by them. I think that
27:57
Speaker 1: the combination of the way China read some of its
28:01
Speaker 1: own people and its attitude towards not only Taiwan, but
28:06
Speaker 1: other states in in the South China see the northern
28:11
Speaker 1: parts of East Asia as well, means that we do
28:14
Speaker 1: have to be careful not to be overly dependent and
28:20
Speaker 1: build our security. But it also means we should find
28:22
Speaker 1: common cause where we can. It's it's summer, I say
28:26
Speaker 1: in the book, No, it's no good treating someone is
28:29
Speaker 1: beyond the pale unless you can keep them there. We
28:33
Speaker 1: you know, it's it's we can't to work with them
28:38
Speaker 1: on climate chan. We need to work with them on
28:40
Speaker 1: climate change. We need to work with them on anything
28:43
Speaker 1: that's an existential threat to the planet. And we need
28:47
Speaker 1: to strive and strive to do that, both because it's
28:52
Speaker 1: necessary in itself and because it's a way of sibling
28:55
Speaker 1: to them. Yeah, we completely accept that your power in
28:58
Speaker 1: the world, and we need to do some things with you.
29:01
Speaker 1: Yet there needs to be attempts. I think something that's
29:04
Speaker 1: tremendously important for them to do Washington and Beijing, this
29:09
Speaker 1: is just for them, is to somehow agreed de escalation
29:12
Speaker 1: protocols of the kind that existed maybe after the Cuban
29:16
Speaker 1: missile crisis, I'm not sure, but certainly existed between understanding
29:21
Speaker 1: and that you don't you know if your planes get
29:23
Speaker 1: too close to or ships get too close or something
29:26
Speaker 1: that you and it's an accident, rather than deliberate that
29:29
Speaker 1: you have a way of signaling actually that was an accident.
29:32
Speaker 1: I thought when there was this business about possibly a
29:35
Speaker 1: Russian missile landing in Poland that Putin's response to that
29:40
Speaker 1: was so moderate. His words in public are all of
29:44
Speaker 1: that may be kicking in in the background that does
29:46
Speaker 1: not exist um with with Beijing at the moment. So
29:52
Speaker 1: these are things where there need to be summits. I
29:55
Speaker 1: thought that G twenty showed its usefulness earned Biden and
30:00
Speaker 1: She having a bilateral. Imagine that G twenty didn't exist.
30:05
Speaker 1: So they've then got to agree to have a special
30:09
Speaker 1: meeting and go to it. That's much harder than we're
30:13
Speaker 1: all going to be at at the G twenty. It's
30:16
Speaker 1: pretty awkward to not go without sending a hostile signal
30:20
Speaker 1: to everybody. Since we're there, it will be very It's
30:25
Speaker 1: a big thing. If we don't meet, we are going
30:28
Speaker 1: to meet, And I think what places like the U
30:30
Speaker 1: N and the G twenty can do. It's just kind
30:35
Speaker 1: of things that appear small but which actually are a
30:38
Speaker 1: big deal. And if we just take it a little
30:41
Speaker 1: bit more up to current day and some of the
30:43
Speaker 1: things that we talk a bit more often about on
30:45
Speaker 1: on Stephanomics, it is often observed that on China, at
30:50
Speaker 1: least the Trump and the Biden administrations don't look so different,
30:54
Speaker 1: or at least many of the Trump here tariffs have
30:56
Speaker 1: been maintained under President Biden, and we've seen you could imagine, um,
31:01
Speaker 1: something along the lines of the action on semiconductor chips
31:04
Speaker 1: might have been done at least by a Trump era official.
31:09
Speaker 1: Do the odds on a particular scenario change significantly if
31:13
Speaker 1: President Trump were re elected. I think so. I think
31:18
Speaker 1: the the if you like, the the direct bilateral relationship
31:24
Speaker 1: between Washington and Beijing not hugely different between Trump and
31:29
Speaker 1: and Biden, exactly as you say. But something else is
31:33
Speaker 1: very very different, could hardly be more different, which is
31:36
Speaker 1: the attitude to allies. A policy if you like, towards
31:40
Speaker 1: China is a policy towards the world. You need friends,
31:44
Speaker 1: especially in today's world with the extraordinary destructiveness of weapons. Um,
31:51
Speaker 1: it's it's it's having lots of friends that will make
31:54
Speaker 1: conflict less likely and will make some kind of peaceful
31:58
Speaker 1: reconfiguration of the international order more likely and so ave
32:05
Speaker 1: A huge own goal by the Trump administration was pulling
32:10
Speaker 1: out of the Transpacific Trade Partnership, which both addressed a
32:14
Speaker 1: particular problem in trade policy between China and the West,
32:19
Speaker 1: when I talk about at some length and one of
32:22
Speaker 1: the chapters in the book, which is absolutely amazing, to
32:25
Speaker 1: back out of it and now now I think it
32:27
Speaker 1: will be. I suspect it would be quite difficult and
32:31
Speaker 1: ought to be quite difficult for both the US and
32:34
Speaker 1: China to join, because if if, if the members of
32:37
Speaker 1: the Transpacific Partnership allow one, and how can they not
32:41
Speaker 1: allow the other in? And then they've just rep you know,
32:43
Speaker 1: they'll just recreate all the problems of the w t O. So,
32:47
Speaker 1: just in practical terms, if you are more of a
32:49
Speaker 1: sort of President Biden time administration, and you're you're responding
32:52
Speaker 1: to some of the things you said at the beginning
32:54
Speaker 1: about building up sort of security of supply chain means
33:00
Speaker 1: and not being as reliant tom Chinese and other other goods.
33:09
Speaker 1: If you're outside the US, how do you tell the
33:12
Speaker 1: difference between the US defending the global world order by
33:17
Speaker 1: having an alternative to China and just straightforward US protectionism
33:21
Speaker 1: Because you've got something like the Inflation Reduction Act, which
33:24
Speaker 1: is causing no end of grief in the Europe people
33:26
Speaker 1: are very cross at what they consider to be the
33:29
Speaker 1: quite protectionist measures in that which involved, you know, only
33:32
Speaker 1: using US producers to create different forms of renewable energy
33:37
Speaker 1: and other things, it's quite tricky to walk that line.
33:41
Speaker 1: And for everyone to think that you're acting on behalf
33:43
Speaker 1: of the world order and not just the US. Yeah. Actually,
33:47
Speaker 1: I don't think that example's tricky. I think that's just
33:49
Speaker 1: a mistake. It's it's it's quite ali an eate um
33:55
Speaker 1: um europe over that. I think the way to avoid
33:58
Speaker 1: the trap that you write identify is precisely to avoid
34:03
Speaker 1: kind of on shoring everything except where you really really
34:08
Speaker 1: need to. And there are only very few things for that.
34:11
Speaker 1: So the words friend shoring, um, it's quite it is
34:15
Speaker 1: quite good. Actually, because friendship is weaker than alliance. Alliance
34:19
Speaker 1: is a strong thing, we will come to your defense.
34:23
Speaker 1: Friendship is much weaker than that. I'm sure your friends
34:26
Speaker 1: would love to hear that. I'm not a state. Fortunately,
34:33
Speaker 1: friendship is the best I can do. All right, So
34:37
Speaker 1: you have had this alternative life, you've said at the start,
34:41
Speaker 1: almost it was taken up this politics and political philosophy,
34:46
Speaker 1: almost as some people take up watercolors when they step
34:49
Speaker 1: back from the step back from the front line of policymaking.
34:54
Speaker 1: We're not we're sitting in blueberg offices. Now that if
34:57
Speaker 1: you're reasonably good at throwing stones, you can throw a
34:59
Speaker 1: stone at your old employer the Bank of England. Um,
35:03
Speaker 1: with all of this analysis under your belt, do you
35:05
Speaker 1: feel lucky not to be in your old job. I
35:08
Speaker 1: feel really, really lucky to have had the opportunity to
35:11
Speaker 1: do something else. I mean, the greatest limitation. I felt
35:15
Speaker 1: this at a number of times during my career as
35:17
Speaker 1: a public servant for thirty three years. And it's a marvelous,
35:21
Speaker 1: marvelous thing to do. I feel immensely lucky to have
35:24
Speaker 1: done it. And that one downside is that if you
35:28
Speaker 1: do it right to the end, then that abslut the
35:30
Speaker 1: only thing you get to do, and it's the new
35:33
Speaker 1: working for the state. You do it in your own country.
35:37
Speaker 1: I had been seconded, thankfully to Hong Kong in the
35:42
Speaker 1: late eighties. That was a marvelous experience. But I hadn't
35:44
Speaker 1: lived out quite apart from Harvard and political philosophy and
35:47
Speaker 1: politics makes economics, I hadn't lived outside this country except
35:50
Speaker 1: for nine months. So just going to live there was
35:54
Speaker 1: an adventure for for us and you know, just made
36:00
Speaker 1: by life really good. Actually we make everyone very jealous
36:04
Speaker 1: at the end of the year. And Okay, your book,
36:07
Speaker 1: which is all of I don't know what is it?
36:08
Speaker 1: Fifty four not that I counted, but something like that
36:11
Speaker 1: five pages. What's the key takeaway from that? And I
36:16
Speaker 1: guess all the thinking you've done all this time at
36:19
Speaker 1: Harvard and reflection that you've had time to do, what
36:23
Speaker 1: do you think is the big takeaway for economic policy
36:26
Speaker 1: makers at the bank or at the federal US Federal Reserve,
36:30
Speaker 1: finance ministries on both sides of the Atlantic. What are
36:33
Speaker 1: they missing your former colleagues, and how does their worldview
36:36
Speaker 1: need to change. I'm going to say something that will
36:39
Speaker 1: almost sound contradictory that on the one hand, they need
36:43
Speaker 1: to be aware that precisely because the weaponization stuff that
36:46
Speaker 1: you rightly raised, that they aren't siloed away from higher
36:51
Speaker 1: level issues. I tell a story at the beginning of
36:54
Speaker 1: the book about someone walking into my office when I
36:56
Speaker 1: was deputy Government saying, the Federal Reserve has refused Indie
37:00
Speaker 1: or a swap line does no matter what a swap
37:02
Speaker 1: line is, it's a line of credit. And my response was,
37:04
Speaker 1: don't they realize India is going to be a power?
37:07
Speaker 1: And you know, I was saying, that's above the pay
37:09
Speaker 1: grade of the central bankers. And yet I also want
37:13
Speaker 1: to say something that will sound completely different. They have
37:16
Speaker 1: just got to stick to the basics, which is delivering
37:19
Speaker 1: price stability and delivering banking systems stability, and the broadest sense.
37:25
Speaker 1: I don't They've got involved, not just here in the UK,
37:28
Speaker 1: but very much and continentally Europe, very much in the
37:32
Speaker 1: United States. They've got involved in climate change, They've got
37:34
Speaker 1: involved in social justice, inclusive growth. Those things may be
37:41
Speaker 1: more important for society as a whole. But they must
37:47
Speaker 1: do the thing that only they can do for those
37:52
Speaker 1: people listening in America and in Britain. Sorry, Eddie George
37:55
Speaker 1: was a very great governor of the Bank Havingngland. They
37:57
Speaker 1: used to say to us stability, stability, stability. Every time
38:02
Speaker 1: they I mean, I wrote my own speeches, as most
38:05
Speaker 1: of them do. It's a tremendously time consuming, difficult thing.
38:09
Speaker 1: Every time they speak about something else, they are not
38:12
Speaker 1: thinking about the thing that only they can do. My
38:15
Speaker 1: main targets are in the United States and and in
38:19
Speaker 1: continental Europe. But so they somehow need to be aware
38:24
Speaker 1: that they're part of a bigger thing security policy, and
38:28
Speaker 1: yet narrow themselves down to this narrow but vital um mandate.
38:37
Speaker 1: And you know, lucky people like me can roam more
38:42
Speaker 1: widely so they should read lots of important books, but
38:45
Speaker 1: not get any big ideas you sound like. You mentioned
38:49
Speaker 1: that you're teaching with my old friend and boss, Larry Summers,
38:53
Speaker 1: and he, of course is exactly the same thing about
38:55
Speaker 1: Central banks who stray too far from lane. Yeah. Yeah,
38:59
Speaker 1: We've talked about that a lot, and it is really
39:01
Speaker 1: what we each genuinely think. And actually, as an striking
39:05
Speaker 1: thing is that I would say, to the extent that
39:08
Speaker 1: I can kind of informally come as opinion in my head,
39:11
Speaker 1: I would say most former top Central banquets think that,
39:15
Speaker 1: which actually means that we have obviously been spared, as
39:19
Speaker 1: we were up, obviously spared a set of pressures that
39:22
Speaker 1: the current generation is subject to. And as you say,
39:27
Speaker 1: there is this tension. Because there is, you have to
39:29
Speaker 1: be more conscious of being silent. Well, Sir Paul Tucker,
39:34
Speaker 1: thank you so much for joining us on our Happy
39:36
Speaker 1: Christmas episode. You have indeed given us a lot of
39:39
Speaker 1: food for thought. Thanks for having me, Stephanie, it's been
39:41
Speaker 1: a real pleasure. Well, thanks for listening to Stephanomics. We'll
39:48
Speaker 1: be back with the last episode of the year, our
39:51
Speaker 1: famous look Ahead with Bloomberg Correspondence and Invited guests. In
39:56
Speaker 1: the meantime, You can find us on the Bloomberg Terminal, website, apple,
39:59
Speaker 1: wherever you get your podcasts. For more news and analysis
40:03
Speaker 1: from Bloomberg Economics, you can also follow as Economics on Twitter,
40:06
Speaker 1: and you can find me on at my Steponomics. This
40:10
Speaker 1: episode was produced by the man As Hendrickson, Summer Sadi,
40:13
Speaker 1: and Yang Yang, with special thanks to Sup Paul Tucker.
40:17
Speaker 1: Mike Sasso is our executive producer. M