Latest / Stephanomics / Inflation Poses a Growing Credibility Risk for Central Banks

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Inflation Poses a Growing Credibility Risk for Central Banks · Stephanomics

• 0:08
  Speaker 1: Hello, Welcome to Stephanomics, the podcast that brings the global
• 0:11
  Speaker 1: economy to you. This week, the global economy has just
• 0:14
  Speaker 1: had another bucket load of uncertainty thrown onto it, courtesy
• 0:17
  Speaker 1: of the new COVID variant O Macron. The economist Stephen
• 0:21
  Speaker 1: King has his own take on what COVID nineteen has
• 0:25
  Speaker 1: done to the global economy and on what happens next.
• 0:29
  Speaker 1: My conversation with him is coming in a few minutes.
• 0:32
  Speaker 1: We also have a report from Bryce Batchuck in Switzerland
• 0:36
  Speaker 1: explaining why it's potentially bad news for the unvaccinated in
• 0:39
  Speaker 1: the developing world that trade ministers didn't meet in Switzerland
• 0:43
  Speaker 1: this week. But first at Bloomberg, we spent quite a
• 0:47
  Speaker 1: lot of time digging out interesting numbers, plowing through public statistics,
• 0:52
  Speaker 1: finding the stories that are hiding in plain sight, and
• 0:55
  Speaker 1: sometimes it's being Bloomberg. Those stories move financial markets, but
• 0:59
  Speaker 1: we often have one that makes it almost immediately to
• 1:03
  Speaker 1: the Senate floor is Ohio Senator Cheryl Brown earlier this
• 1:07
  Speaker 1: week at a hearing on the US economy. One final
• 1:10
  Speaker 1: point on inflation. Just this morning, Bloomberg released a story
• 1:14
  Speaker 1: with the headline pretty much says it all. Fattest profits
• 1:18
  Speaker 1: since nineteen fifty de Bonk wage inflation story of CEOs.
• 1:23
  Speaker 1: The f d i C also just released its quarterly
• 1:26
  Speaker 1: report shocking No One bank profits are up. The idea
• 1:30
  Speaker 1: that these corporations can't afford to pay workers higher wages,
• 1:34
  Speaker 1: wages that actually reflect the value of the work they
• 1:37
  Speaker 1: do to make these companies profitable, is ridiculous. One of
• 1:41
  Speaker 1: the authors of the story quoted there was US economy
• 1:44
  Speaker 1: reporter Matthew Bosler. Matt, thanks for coming on Stephanomics again.
• 1:48
  Speaker 1: So just tell us what was so interesting in your
• 1:52
  Speaker 1: piece that it got picked up in this way. Well,
• 1:55
  Speaker 1: the two signal numbers from the piece were corporate profits
• 2:00
  Speaker 1: up thirty seven percent over the last year, employee compensation
• 2:04
  Speaker 1: up twelve percent. And so you take those two numbers
• 2:07
  Speaker 1: and you put them together, what do you get The
• 2:09
  Speaker 1: highest profit margin for corporate America since nineteen fifty, So
• 2:14
  Speaker 1: absolute boom times for American business. You know, we're hearing
• 2:17
  Speaker 1: a lot about labor shortages and how fast wages are
• 2:20
  Speaker 1: going up. Profits are going up about three times is fast.
• 2:24
  Speaker 1: So you can see why democrats will be interested in
• 2:26
  Speaker 1: this story because you've had so much discussion of rising
• 2:31
  Speaker 1: wages and shortage of labor, and chief executives have been
• 2:36
  Speaker 1: complaining about that, saying that was all the reason for inflation,
• 2:39
  Speaker 1: that wages were going up. I mean, in the sense
• 2:41
  Speaker 1: your story was suggesting that that line is just not true, right,
• 2:47
  Speaker 1: because you know, look at the profit margins, right, they're
• 2:50
  Speaker 1: going up, which means you know, wages are going up,
• 2:53
  Speaker 1: costs are going up, yes, but the prices that consumers
• 2:57
  Speaker 1: are paying, that businesses are charging are going up much faster.
• 3:01
  Speaker 1: And so that's kind of the flip side of the
• 3:03
  Speaker 1: whole inflation story, right, when you're paying higher prices as
• 3:06
  Speaker 1: a consumer, someone else is charging higher prices. Uh. And
• 3:10
  Speaker 1: in this case, the people charging higher prices are certainly
• 3:14
  Speaker 1: coming out well ahead, as evidenced by that profit data. Well,
• 3:19
  Speaker 1: I guess one thing the Republicans have said is that
• 3:21
  Speaker 1: the inflation has been driven by the big spending of
• 3:25
  Speaker 1: the government, the enormous stimulus packages that continued under President Biden.
• 3:30
  Speaker 1: I mean, there's is there any truth to that? Yeah,
• 3:33
  Speaker 1: there's certainly truth to that, right. I Mean, we've talked
• 3:35
  Speaker 1: a lot about the inflation story in the United States
• 3:39
  Speaker 1: and around the world. M Obviously there have been big
• 3:42
  Speaker 1: changes to both supply and demand that have been brought
• 3:45
  Speaker 1: about by the pandemic um, a lot of fiscal stimulus
• 3:49
  Speaker 1: in the United States that's kind of pumped a lot
• 3:52
  Speaker 1: of demand into somewhat narrow supply chain infrastructure that has
• 3:57
  Speaker 1: not been able to keep up. And so they're absolutely
• 4:00
  Speaker 1: is some truth to that, and that's also why profits
• 4:03
  Speaker 1: are up so much, right. I mean, you have a
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  Speaker 1: situation where, um, the government bolstered household incomes, actually boosted
• 4:12
  Speaker 1: household incomes in the middle of a slump, which is
• 4:14
  Speaker 1: totally unprecedented, and that meant that households had more money
• 4:19
  Speaker 1: to spend, and they spent it. That's a point we
• 4:21
  Speaker 1: tried to make in the story is that when businesses
• 4:24
  Speaker 1: pay higher wages in aggregate, a lot of that money
• 4:27
  Speaker 1: comes back to them. US households and aggregate don't save
• 4:31
  Speaker 1: that much money. Um. The savings rate is on the
• 4:34
  Speaker 1: order of say five to eight percent. And then of
• 4:36
  Speaker 1: course they're also paying some of that money that they
• 4:39
  Speaker 1: receive in their paychecks back to the government in taxes,
• 4:43
  Speaker 1: but most of it goes right back to American businesses
• 4:47
  Speaker 1: and aggregate in the forms of revenue. Well, that was
• 4:50
  Speaker 1: the the original insight of Henry Ford when he started
• 4:53
  Speaker 1: paying his workers more was that they were all then
• 4:55
  Speaker 1: going to go buy cough a long time ago. UM.
• 4:59
  Speaker 1: I guess it's quite a you things in this story
• 5:01
  Speaker 1: that you could imagine politicians being interested in. But is
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  Speaker 1: there really a sense that Democrats are trying to to
• 5:09
  Speaker 1: stop profit margins going up? Well, that's certainly become a
• 5:14
  Speaker 1: bigger part of their rhetoric in recent weeks, as this
• 5:19
  Speaker 1: inflation conversation has reached a bit of a fever pitch
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  Speaker 1: and Republicans have UH taken a stronger attack in trying
• 5:27
  Speaker 1: to use it as a political cudgel against Democrats. Democrats
• 5:33
  Speaker 1: are turning the argument around and saying this is not
• 5:36
  Speaker 1: so much about UM over stimulating the economy. This is
• 5:40
  Speaker 1: really about big companies UM raising prices more than they
• 5:44
  Speaker 1: need to UM and that is what is sending inflation higher.
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  Speaker 1: And so UH President Biden specifically called out the gasoline industry. Obviously,
• 5:55
  Speaker 1: gas prices, what you pay at the pump, is a
• 5:58
  Speaker 1: major point of contact for American consumers. Wholesale gasoline prices
• 6:04
  Speaker 1: have gone down in the last couple of weeks with
• 6:06
  Speaker 1: this rolling over, but we haven't seen that pass on
• 6:10
  Speaker 1: to the pump yet in the form of lower retail prices,
• 6:13
  Speaker 1: and so he's kind of trying to point the finger
• 6:15
  Speaker 1: at them and place the blame there. Now, that's a
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  Speaker 1: pretty common dynamic that we've seen historically. The thing is,
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  Speaker 1: it's not obvious that there's much that Democrats can actually
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  Speaker 1: do about this in terms of actually bringing anything to
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  Speaker 1: bear other than using the bully pulpit, and so it
• 6:34
  Speaker 1: remains to be seen where exactly they are going to
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  Speaker 1: take this. And we should say the bully pulpit included
• 6:42
  Speaker 1: the Speak of the House, Nazi Pelosi's office, which put
• 6:45
  Speaker 1: out a statement also based on your piece, so you know,
• 6:49
  Speaker 1: famous famous for a day. Um, there is a big
• 6:53
  Speaker 1: question coming out of lots of conversations around the Federal Reserve,
• 6:57
  Speaker 1: which you mentioned at the end of your piece, and
• 7:01
  Speaker 1: that's the when you talk about whether inflation is transient
• 7:04
  Speaker 1: or not, the measure of that is often are you
• 7:07
  Speaker 1: seeing wages going up as well? And the Fed is
• 7:10
  Speaker 1: kind of not so worried if it doesn't see wage growth,
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  Speaker 1: but if it does see wage growth rising as fast
• 7:16
  Speaker 1: as inflation, or even faster than inflation, that's a signal
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  Speaker 1: that it should clamp on the Brakes and the traditional
• 7:22
  Speaker 1: view of monetary policy. One of the questions raised in
• 7:25
  Speaker 1: your pieces, well does that is that a long term
• 7:29
  Speaker 1: recipe for labor, the labor share of total income remaining
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  Speaker 1: static when it could potentially be rising relative to the
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  Speaker 1: share for profits. Yeah. I think that's one of the
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  Speaker 1: most interesting parts of this conversation that tends to go
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  Speaker 1: a little bit under the radar because we're not used
• 7:47
  Speaker 1: to talking about monetary policy in these terms, but it's
• 7:50
  Speaker 1: something that has kind of crept into the minetary policy
• 7:53
  Speaker 1: conversation over really the last couple of years, even going
• 7:56
  Speaker 1: back to just before the pandemic and the you know,
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  Speaker 1: the bottom line there is there's an arithmetic here. Uh,
• 8:03
  Speaker 1: there's wage growth, there's inflation, and if wage growth is
• 8:08
  Speaker 1: rising in excess of productivity growth, then you might get inflation.
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  Speaker 1: But you also might just get a compression and profit
• 8:17
  Speaker 1: margins because businesses could theoretically choose to instead of raising prices,
• 8:24
  Speaker 1: allow profit margins to contract and allow the labor share
• 8:28
  Speaker 1: of income to rise. Now we're having this conversation in
• 8:31
  Speaker 1: a moment where the labor share of income has fallen
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  Speaker 1: to really historically low levels. Uh, certainly in the wake
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  Speaker 1: of the two thousand and eight crisis, and since then
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  Speaker 1: it's started to creep back up a little bit, but
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  Speaker 1: it's still really um, you know, at historically low levels.
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  Speaker 1: Even so, and so the question that some people at
• 8:50
  Speaker 1: the FED are raising is just if we are going
• 8:54
  Speaker 1: to clamp on the breaks with monetary policy every time
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  Speaker 1: we start see wages rise, we we really are lacking
• 9:03
  Speaker 1: in the labor share at these low levels. And so
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  Speaker 1: that's something that at least some people at the FAD
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  Speaker 1: want to be mindful of going forward as they contemplate
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  Speaker 1: how to read these inflation numbers and how to respond
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  Speaker 1: with monetary policy. Yeah, just where the FED doesn't want
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  Speaker 1: to be there, right in the middle of a very
• 9:24
  Speaker 1: hot political topic. Well, Matthew Bosler, I know that you're
• 9:27
  Speaker 1: actually supposed to be listening to what the Chairman of
• 9:30
  Speaker 1: the Federal Reserve is saying right now. So I'll let
• 9:32
  Speaker 1: you go, but thanks very much for joining us. Thank you.
• 9:42
  Speaker 1: So now we have a treat for me and I
• 9:44
  Speaker 1: hope all dedicated Stephonomics listeners. Conversation about the state of
• 9:48
  Speaker 1: the world with the economist, author and former chief Global
• 9:51
  Speaker 1: economist for HSBC, Stephen King. It's Stephen. What I always
• 10:01
  Speaker 1: enjoy about your work is you take the long view.
• 10:03
  Speaker 1: In your case, the long views often very long, indeed
• 10:06
  Speaker 1: sometimes a few centuries. But this has been one of
• 10:09
  Speaker 1: those weeks when the longer term outlook seems to be
• 10:12
  Speaker 1: changing every day, with news of this new COVID strain,
• 10:16
  Speaker 1: putting governments back on the defensive and market sea soaring
• 10:19
  Speaker 1: wildly on the back of different assumptions about the recovery.
• 10:23
  Speaker 1: So I guess we should start with a macron how
• 10:27
  Speaker 1: much has that caused you to rethink the shape of
• 10:30
  Speaker 1: the recovery West? Definitely. I think it's an issue of
• 10:34
  Speaker 1: uncertainty more than anything else that you know. The reality
• 10:37
  Speaker 1: is that when you've got a bit a new virus,
• 10:39
  Speaker 1: you haven't got years and years of data to to
• 10:42
  Speaker 1: look at to pretend you know what's going on, which
• 10:44
  Speaker 1: is what economists do. You've got something which has just
• 10:47
  Speaker 1: come along very recently, which of course has a nasty
• 10:49
  Speaker 1: habit of mutating, and the result is that all the
• 10:53
  Speaker 1: sort of beliefs that people had are going from a
• 10:57
  Speaker 1: kind of pre pandemic world to post pandemic world has
• 11:00
  Speaker 1: all become frankly a lot more blurred, a whole bunch
• 11:03
  Speaker 1: of other things have begun to change, notably the fact
• 11:06
  Speaker 1: that over recent months we've had we've had an awful
• 11:09
  Speaker 1: lot of inflation coming along with that rather limited growth.
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  Speaker 1: So there are two big questions. The verst is how
• 11:16
  Speaker 1: much of that, to use the dreaded word, is transitory
• 11:20
  Speaker 1: and how much of it reflects a kind of lasting
• 11:23
  Speaker 1: change really, and how economies are are behaving well. I
• 11:27
  Speaker 1: do want to get into that, but I'd like to
• 11:29
  Speaker 1: talk a bit more about the challenge that central banks
• 11:31
  Speaker 1: are facing, and an interesting move by the US Federal
• 11:35
  Speaker 1: Reserve this week, with the chairman J. Powe suggesting that
• 11:39
  Speaker 1: the US Central Bank might accelerate the end of quantitas
• 11:43
  Speaker 1: of easing, so stop pumping money into the economy sooner
• 11:46
  Speaker 1: than people were expecting. And that was despite the worrying
• 11:49
  Speaker 1: news about the new variant. It's very different from what
• 11:53
  Speaker 1: happened in the UK, where the feeling is that the
• 11:56
  Speaker 1: news about a micron is going to make the Bank
• 11:57
  Speaker 1: of England postpone the interest rate rise is that we
• 12:00
  Speaker 1: might otherwise have expected this week. So if you think
• 12:03
  Speaker 1: about the different responses of those two central banks, is
• 12:06
  Speaker 1: the UK just being more cautious or what's going on. Yeah,
• 12:11
  Speaker 1: they might be, And like I guess, it's coming back
• 12:12
  Speaker 1: to the uncertainty that if you've got a fundamental uncertainty,
• 12:14
  Speaker 1: you can come up with all sorts of different depensions
• 12:16
  Speaker 1: as to what you do about it. One of the
• 12:19
  Speaker 1: problems though, that central banks have is that they're they're
• 12:22
  Speaker 1: looking at this and saying, oh my gosh, growth could
• 12:24
  Speaker 1: be weaker, there could be greater uncertainty. You know, things
• 12:27
  Speaker 1: that we thought would be happening are not gonna happen. Therefore,
• 12:29
  Speaker 1: GDP is going to come in lower than expected. You know,
• 12:32
  Speaker 1: there's more spair capacity. Therefore everything's going to be more disinflation.
• 12:36
  Speaker 1: But again, what's happened over the last few months is
• 12:38
  Speaker 1: that activity has been probably in anything, a little softer
• 12:42
  Speaker 1: than expected. But we know now I think that a
• 12:45
  Speaker 1: lot of that software activity is because of not so
• 12:47
  Speaker 1: much demand side constraints, but supply side constraints. And you
• 12:51
  Speaker 1: look at the UK over a million vacancies currently, which
• 12:54
  Speaker 1: is you know, the highest since this current series began
• 12:57
  Speaker 1: back in two thousand and one, UM. And you look
• 13:00
  Speaker 1: at the the US and that you know, last week's
• 13:03
  Speaker 1: jobless claims with a with the lowest since nineteen six nine.
• 13:08
  Speaker 1: So you know, whereas I think originally central banks could
• 13:12
  Speaker 1: sort of console themselves with the idea that there are
• 13:14
  Speaker 1: a few little shots coming through the second hand car
• 13:16
  Speaker 1: prices or semi conductor sales, you've now got this much
• 13:20
  Speaker 1: more complex picture of shortages appearing not just in product
• 13:24
  Speaker 1: markets but labor markets too. And I think to a degree,
• 13:28
  Speaker 1: what's happening with the fair is is a sort of
• 13:31
  Speaker 1: grudging recognition that even if activity is not that strong,
• 13:36
  Speaker 1: there are other indicators of passia in the economy, which
• 13:40
  Speaker 1: is mostly driven by the supply side. The UK kind
• 13:44
  Speaker 1: of there, but not perhaps quite as confident about that.
• 13:48
  Speaker 1: So let's let's go to the long term. We have
• 13:50
  Speaker 1: got used to a long period when inflation was always low,
• 13:53
  Speaker 1: and actually all the shocks that central banks had to
• 13:55
  Speaker 1: deal with we shocks that we're going to reduce inflation
• 13:58
  Speaker 1: on balance with disinflation. So what we're having to get
• 14:02
  Speaker 1: our heads around, and I guess why people mentioned the
• 14:05
  Speaker 1: seventies is it feels like we've got shocks coming now
• 14:08
  Speaker 1: that are inflationary or even potentially stagflationary, so increasing inflation
• 14:13
  Speaker 1: and also reducing growth. And it's it's hard for central
• 14:17
  Speaker 1: banks to do very much about that. It is, although,
• 14:19
  Speaker 1: of course, eventually in the seventies and eighties, you know,
• 14:21
  Speaker 1: Paul Vocal was appointed, he did something pretty savage relaciously
• 14:25
  Speaker 1: apply a sledge how much of inflation and into each
• 14:28
  Speaker 1: of the US and in need the global economy at
• 14:30
  Speaker 1: the same time. So things have actually may have to happen,
• 14:33
  Speaker 1: but it maybe a sort of reluction process. So why
• 14:36
  Speaker 1: have we got lots of inflation? And I think one
• 14:39
  Speaker 1: reason is that at the micro level there are fundamental
• 14:44
  Speaker 1: information failures, and there are failures of stations with locking
• 14:48
  Speaker 1: down markets for months and months on end. If you
• 14:51
  Speaker 1: think about what markets do, they transmit information. They transmit
• 14:55
  Speaker 1: information between buyers and sellers, touch uses and consumers, whatever.
• 15:00
  Speaker 1: And if you shut them down, then you lose their
• 15:02
  Speaker 1: information and the last sort of historic price record, it
• 15:05
  Speaker 1: might be months earlier, it is no longer particularly relevant
• 15:08
  Speaker 1: for what happens when things reopen. I'm talking very simple
• 15:11
  Speaker 1: terms here, of course, but but broadly speaking, that's what
• 15:13
  Speaker 1: I think has happened. So you have this lot of information,
• 15:16
  Speaker 1: but it's not just lots of information in say the
• 15:18
  Speaker 1: said being conductive market or in secondhand cars. It's a
• 15:21
  Speaker 1: loss of information across multiple markets. So it's a lot
• 15:25
  Speaker 1: of information about the number of waiters you're require in
• 15:28
  Speaker 1: London restaurants. It's a lots of information about the number
• 15:31
  Speaker 1: of truck drivers you require to keep your logistics back
• 15:33
  Speaker 1: to normal. All these things and losses of information. Now,
• 15:37
  Speaker 1: of course, if you apply this at the macro level,
• 15:40
  Speaker 1: the way you probably interpret this and say, well, if
• 15:42
  Speaker 1: you've lost all this information and resources can't be allocated
• 15:44
  Speaker 1: particularly efficiently, you're going to end up with a sort
• 15:49
  Speaker 1: of shift downwards in productive potential. You're worse off than
• 15:53
  Speaker 1: you were. You've got less productive potential than you had expected,
• 15:55
  Speaker 1: so your supply performance is worse than it was, but
• 15:58
  Speaker 1: at the same time because you've got rising demand, because
• 16:01
  Speaker 1: that's what the sort of political demands are to get
• 16:05
  Speaker 1: back to where you were before the pandemic. So in
• 16:07
  Speaker 1: one sense, this is a sort of I mean, it
• 16:09
  Speaker 1: is a bit stagflationary in the sense that you've got
• 16:11
  Speaker 1: a lot of potential, a bit like we saw in
• 16:14
  Speaker 1: the nineteen seventies. There are to be fair some big differences.
• 16:17
  Speaker 1: One big difference is that you haven't got the pressure
• 16:19
  Speaker 1: in terms of unionization that you have in the nineteen seventies,
• 16:21
  Speaker 1: and the pressure in terms of pushing wages up on
• 16:23
  Speaker 1: an annual basis, that's missing. You haven't necessarily got the
• 16:28
  Speaker 1: pressure coming through in lots of lots of other ways,
• 16:31
  Speaker 1: big differences. But at the same time, I think this,
• 16:34
  Speaker 1: this loss of information is a fundamental feature of what's
• 16:38
  Speaker 1: happened in recent months. And the idea that you could
• 16:41
  Speaker 1: simply sort of turn the economy off and then switch
• 16:44
  Speaker 1: it back on again with no problems whatsoever, which is
• 16:47
  Speaker 1: effectually what all the forecasts kind of assume that I
• 16:50
  Speaker 1: think has found been found found to be not quite right.
• 16:54
  Speaker 1: Once you recognize that, not so surprising that you end
• 16:57
  Speaker 1: up with more inflation as well. Well. That's a very
• 16:59
  Speaker 1: sweeping and fascinating explanation of what's happening, and I think
• 17:04
  Speaker 1: it is an interesting way of looking at it. But
• 17:06
  Speaker 1: what you've described seems to me inherently temporary. I mean,
• 17:09
  Speaker 1: it's not a permanent loss of information or supply side failure,
• 17:14
  Speaker 1: and you can't help thinking, I mean, one of the
• 17:15
  Speaker 1: big differences between now and the seventies is we're in
• 17:18
  Speaker 1: this highly digitized world with just in time supply chains
• 17:21
  Speaker 1: and more and more ways of getting information about demand
• 17:25
  Speaker 1: and supply in different parts of the economy. So so
• 17:28
  Speaker 1: why should the Federal Reserve or anyone else expect this
• 17:31
  Speaker 1: inflation to last? So I think one of the issues
• 17:35
  Speaker 1: for central banks is, Okay, it might be a temporary phenomenon,
• 17:40
  Speaker 1: but the longer it goes on for the less confidence
• 17:43
  Speaker 1: the public will have in what the central banks are
• 17:46
  Speaker 1: saying they gained to achieve at some point in the future.
• 17:49
  Speaker 1: Um And if the public work with sort of simple
• 17:52
  Speaker 1: rules of thumb I think most of us do, most
• 17:53
  Speaker 1: of the tiny shortcuts in the shortcut up moment is
• 17:57
  Speaker 1: exatically two percent in two years time, So that's what
• 17:59
  Speaker 1: centered back to tell is going to be. But if
• 18:01
  Speaker 1: after a year or two years inflation is still got
• 18:03
  Speaker 1: above that, it's not so difficult to see the public
• 18:06
  Speaker 1: beginning to lose confidence in what the center of banks
• 18:09
  Speaker 1: are going to achieve, at which point you haven't just
• 18:12
  Speaker 1: got a supply side shot, you've got an expectations problem
• 18:15
  Speaker 1: beginning to build in as well. Now there is a
• 18:17
  Speaker 1: way around that, And in one sense, this is what
• 18:19
  Speaker 1: I think j Pal is getting at, which is saying, Okay,
• 18:22
  Speaker 1: we recognize that this trade off might get worse to
• 18:24
  Speaker 1: be recognized. It might lose the confidence of the people.
• 18:28
  Speaker 1: So one way to to reinstill confidence it's a typing
• 18:31
  Speaker 1: country policy, is to show that we really mean to
• 18:35
  Speaker 1: get control of inflation. So that's interesting. So what you're
• 18:40
  Speaker 1: saying is it's not necessarily a permanent rise in inflation,
• 18:45
  Speaker 1: even though it lasts for a while, But you have
• 18:47
  Speaker 1: this risk that if it lasts long enough, people will
• 18:50
  Speaker 1: start expecting inflation to stay higher, and then that becomes
• 18:53
  Speaker 1: self fulfilling. So that the most important way to prevent
• 18:57
  Speaker 1: us going from stage one to stage two is for
• 18:59
  Speaker 1: the central bank to at it right. The most important
• 19:01
  Speaker 1: central bank that needs to get it right as the
• 19:03
  Speaker 1: Federal Reserve. So maybe if we are going back full circle,
• 19:07
  Speaker 1: it's quite important that the Fed did send that signal
• 19:10
  Speaker 1: earlier this week. Well, we're talking about the World Trade
• 19:17
  Speaker 1: Organization on the program this week. We don't have much time.
• 19:20
  Speaker 1: I know you have lots of lots of views about it,
• 19:23
  Speaker 1: but I mean obviously that the real life side effect
• 19:26
  Speaker 1: of the information failures you were talking about earlier is
• 19:28
  Speaker 1: all those container ships queuing up outside Long Beach and
• 19:31
  Speaker 1: all the issues we've talked about to do with global
• 19:34
  Speaker 1: supply chains and trade, and it's also a lot of
• 19:39
  Speaker 1: question marks about the future of globalization. So so very briefly,
• 19:43
  Speaker 1: you know, how long do you think you will see
• 19:46
  Speaker 1: this supply chain problem and will that be a permanent
• 19:50
  Speaker 1: shift in the nature of globalization. I think there's a
• 19:53
  Speaker 1: shift that's having actually before the pandemic, and one reason
• 19:56
  Speaker 1: for that yet was obviously deteriorating lations between the U
• 20:01
  Speaker 1: S and China. So the world is I think more
• 20:03
  Speaker 1: divided than it was, which itself is not so good
• 20:06
  Speaker 1: from a kind of a multilateral trade deal perspective. Of course,
• 20:09
  Speaker 1: you can still have bilateral and regional deals, which I
• 20:11
  Speaker 1: think will still come through to a certain degree. But
• 20:14
  Speaker 1: if you really believe in multilateralism, and that I think
• 20:16
  Speaker 1: was always already in difficulty. But i'd also an act
• 20:19
  Speaker 1: to that. And I think that the pandemic has created
• 20:22
  Speaker 1: this sort of sense of vulnerability to global supply chains,
• 20:27
  Speaker 1: and those that can work out how to do it
• 20:30
  Speaker 1: might be thinking about how to reduce their dependency on
• 20:34
  Speaker 1: those fragile chains. And if you think about globalization, I
• 20:37
  Speaker 1: suppose in the last few decades of the twentieth century,
• 20:41
  Speaker 1: a big chunk of it was mobile capital going in
• 20:44
  Speaker 1: search of cheap labor in other parts of the world.
• 20:47
  Speaker 1: But I think it is plausible to argue in a
• 20:49
  Speaker 1: lot of different areas that technology would allow supply chains
• 20:54
  Speaker 1: to be shortened for robots at home to do what
• 20:58
  Speaker 1: cheap cheaper workers who abroad, and that might lead to
• 21:03
  Speaker 1: a rather different world to the one that we've been
• 21:05
  Speaker 1: used to in recent times, whereby um, there's more home production,
• 21:11
  Speaker 1: there's a greater division between the hands and have not
• 21:13
  Speaker 1: in terms of countries around the world. And then finally
• 21:17
  Speaker 1: they have not. The countries which are no longer going
• 21:19
  Speaker 1: to receive this capital are likely to find their labor
• 21:23
  Speaker 1: itself becomes increasingly mobile but trying it tries to go
• 21:26
  Speaker 1: to countries where there are better opportunities. Um So, if
• 21:30
  Speaker 1: we talk about this with a migrant crisis at the momentum,
• 21:34
  Speaker 1: given demographic trends over the next few decades, and given
• 21:38
  Speaker 1: this idea of robotics and AI, I think that migrant
• 21:40
  Speaker 1: crisis might become much bigger. Well, that's definitely fuel for
• 21:45
  Speaker 1: future books by you and future conversations, I hope. But meantime,
• 21:50
  Speaker 1: Stephen King, thank you very much. Thank you. I mentioned
• 22:00
  Speaker 1: the World Trade Organization and trade ministers from around the
• 22:03
  Speaker 1: world were supposed to be getting together in Geneva this week,
• 22:06
  Speaker 1: but thanks to that new COVID variant, the whole thing
• 22:09
  Speaker 1: got postponed. Now you might not care a whole lot
• 22:12
  Speaker 1: about that, but it turns out you should. Here's our
• 22:15
  Speaker 1: trade reporter Bryce batchuck in Geneva. Goodriz and hello from Switzerland,
• 22:30
  Speaker 1: famous for its Alporns chocolate fondue and The World Trade Organization.
• 22:35
  Speaker 1: The WTO is the world's top international trade body and
• 22:38
  Speaker 1: provides a forum for governments to hash out their trade
• 22:40
  Speaker 1: disputes and negotiate new trade deals. This week, the w
• 22:44
  Speaker 1: t O is supposed to hold a critical meeting in Geneva,
• 22:46
  Speaker 1: where some four thousand officials from around the world would
• 22:49
  Speaker 1: gather to talk about the future of the global trading system.
• 22:52
  Speaker 1: But the spread of a new virus variant forced the
• 22:54
  Speaker 1: debteur to postponent's meeting and delay efforts to rehabilitate an
• 22:58
  Speaker 1: alliance that's been battered by years of neglect, trade wars,
• 23:01
  Speaker 1: and the COVID nineteen pandemic. The twenty six year old
• 23:05
  Speaker 1: trade body hasn't produced a multilateral outcome for the better
• 23:09
  Speaker 1: part of the last decade, and it's still reeling from
• 23:11
  Speaker 1: former President Donald Trump's attacks over the past four years.
• 23:15
  Speaker 1: I would say the w t O was the single
• 23:18
  Speaker 1: worst trade deal ever made, and if they don't shape up,
• 23:21
  Speaker 1: I would withdraw from the w t O. In the
• 23:24
  Speaker 1: coming months, the w t O has a big opportunity
• 23:27
  Speaker 1: to show that it's still relevant to the lives of
• 23:29
  Speaker 1: regular people by helping to speed the global vaccination effort.
• 23:33
  Speaker 1: Advocates from across the globe are demanding that the w
• 23:36
  Speaker 1: t O members agree to waive intellectual property rights for
• 23:39
  Speaker 1: COVID nineteen vaccines. It's an emotionally charged issue and for
• 23:44
  Speaker 1: some the debate is nothing less than a life or
• 23:47
  Speaker 1: death battle to save people in the world's poorest nations.
• 23:51
  Speaker 1: W TO Director General Goziala described the situation like this.
• 23:57
  Speaker 1: Proponents of the wave as strongly ben this is necessarily
• 24:01
  Speaker 1: and important to avoid being in this kind of situation
• 24:05
  Speaker 1: in the future. Now, now and in the future now.
• 24:09
  Speaker 1: Those who are non proponents believe that this we wouldn't
• 24:12
  Speaker 1: have gotten vaccines in the first place. If you had
• 24:15
  Speaker 1: had a waiver in place, it would not have been incentivized.
• 24:20
  Speaker 1: This speak of research and innovation. So these are two
• 24:25
  Speaker 1: opposing sides, but we are and of course doptwo is
• 24:29
  Speaker 1: a negotiative for so we need to bring the two
• 24:32
  Speaker 1: sides together. But because views are so strongly held, we're
• 24:36
  Speaker 1: talking about people's lives, it's not been as easy um
• 24:41
  Speaker 1: to bring those two points of view together. This debate
• 24:50
  Speaker 1: has been raging since October, when Indian South Africa introduced
• 24:54
  Speaker 1: a proposal to waive enforcement of the Debt Agreement on
• 24:57
  Speaker 1: trade related aspects of intellectual property rights or trips for short.
• 25:02
  Speaker 1: They argue that without a waiver, poorer nations can't have
• 25:05
  Speaker 1: the legal certainty that they need to produce COVID nineteen
• 25:08
  Speaker 1: vaccines and medicines that are mostly manufactured in Europe and
• 25:11
  Speaker 1: North America. Today, only about seven percent of people in
• 25:16
  Speaker 1: Africa have been fully vaccinated against the coronavirus, compared to
• 25:20
  Speaker 1: some fort in the rest of the world. While the US, China,
• 25:24
  Speaker 1: and scores of other nations support the concept of an
• 25:27
  Speaker 1: IP waiver for vaccines, the European Union, United Kingdom, and
• 25:31
  Speaker 1: Switzerland have all lined up against the proposal. The idist
• 25:35
  Speaker 1: to waive intellectual property Russian particular patient Switzerland's ambassador to
• 25:39
  Speaker 1: the d d A Chambau. So it would mean, if
• 25:44
  Speaker 1: these proposal is accepted, that all inventions in connection with
• 25:48
  Speaker 1: COVID nineteen would not benefit from patent protection. It means
• 25:53
  Speaker 1: that the regulator will simply not consider any request to
• 25:58
  Speaker 1: get a patent portals product. And it means also that
• 26:03
  Speaker 1: the originators, the developers, the companies which have invented those
• 26:11
  Speaker 1: products will not any longer enjoy exclusive marketing rights and
• 26:17
  Speaker 1: they will not be able to recoup their investments through
• 26:21
  Speaker 1: the protection that is provided by the intellectual property protection.
• 26:26
  Speaker 1: Switzerland is of course not ready to do this, but
• 26:32
  Speaker 1: we remain convinced that the trips waivers you call it
• 26:37
  Speaker 1: will not lead to the production of one addition of
• 26:40
  Speaker 1: those vaccine and may geopodize existing partnerships that have allowed
• 26:47
  Speaker 1: to increase production. Advocates the waiver say the spread of
• 26:51
  Speaker 1: the O macron variant brings even greater urgency to the
• 26:54
  Speaker 1: need to waive intellectual property rights for vaccines. Here's you
• 26:58
  Speaker 1: on who a senior advice or at the International Humanitarian
• 27:01
  Speaker 1: Organization MEDS on San Flontia. The postponent of the Ministrul
• 27:07
  Speaker 1: conference is a quite ironic but at the same time
• 27:12
  Speaker 1: strong wake up call for come try to realize. Without
• 27:17
  Speaker 1: control this pandemic um the global trade and other social
• 27:23
  Speaker 1: economic issues will go into it, continue to suffer, and
• 27:26
  Speaker 1: then the postponent is actually remind us the trips weaiver
• 27:30
  Speaker 1: is needed now more than ever. The postponent at the
• 27:33
  Speaker 1: debts meeting this week will complicate the trade bodies efforts
• 27:36
  Speaker 1: to present a unified and rapid response to the pandemic.
• 27:40
  Speaker 1: But more fundamentally, this the labeled hamper efforts to reform
• 27:43
  Speaker 1: an organization that's failed to evolve with the massive shifts
• 27:46
  Speaker 1: that have incurred in the global economy. If members can't
• 27:51
  Speaker 1: agree to collectively move forward on issues aimed at helping
• 27:54
  Speaker 1: real people, it could result in less engagement and usher
• 27:57
  Speaker 1: in a more serious shift towards fragmentation of global trading system. Ultimately,
• 28:03
  Speaker 1: that means greater uncertainty for businesses and higher costs for consumers.
• 28:14
  Speaker 1: This is Bryce Bashick with Bloomberg News in Geneva, Switzerland.
• 28:29
  Speaker 1: Well that's it for this episode of Stephanomics. We'll be
• 28:31
  Speaker 1: back next week in the meantime. If you like the program,
• 28:35
  Speaker 1: please rate it and follow at Economics on Twitter for
• 28:38
  Speaker 1: more news and analysis from Bloomberg Economics. This episode was
• 28:42
  Speaker 1: produced by Magnus Hendrickson and Matthew Bosler's co authors on
• 28:46
  Speaker 1: that story about US profit margins were Katia Dmitrieva and
• 28:50
  Speaker 1: Joe Doe. Special thanks also to Stephen King and Bryce Batchel.
• 28:55
  Speaker 1: Mike Sasso is executive producers Stephonomics, and the head of
• 28:58
  Speaker 1: Bloomberg Podcast is Francese and leaving mm hmm.