Latest / Trumponomics / Why "Living Local" and High Inflation May Not Outlast the Global Pandemic

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Why "Living Local" and High Inflation May Not Outlast the Global Pandemic · Trumponomics

0:04
Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
0:07
Speaker 1: global economy to you, and we really are doing that
0:09
Speaker 1: this week because we have a special tour of the world,
0:12
Speaker 1: a discussion on the outlook for the global economy, which
0:15
Speaker 1: I took part in a few days ago, hosted by
0:18
Speaker 1: the Council on Foreign Relations. My fellow speakers were the
0:21
Speaker 1: eminent economist and former head of the New York Federal Reserve,
0:24
Speaker 1: Bill Dudley, and the equally eminent President of the Peterson
0:28
Speaker 1: Institute for International Economics, Adam Posen. And for once I
0:32
Speaker 1: didn't have to ask all the questions because the Council
0:34
Speaker 1: on Foreign Relations Senior Fellow for International Economics, Sebastian Mallaby
0:38
Speaker 1: was in the chair. He started by asking Bill Dudley
0:41
Speaker 1: about the state of the US economy and especially the
0:44
Speaker 1: surprisingly weak employment growth that we saw in April. You
0:48
Speaker 1: might remember, instead of adding a million more jobs that month,
0:52
Speaker 1: which everybody was expecting, the number was fewer than two
0:56
Speaker 1: hundred and seventy thousand, meaning there are still eight million
1:00
Speaker 1: fewer people in work in the US than they were
1:02
Speaker 1: before COVID. You were one of the first sound a
1:13
Speaker 1: warning about inflation resurgeons. You write a piece in Bloomberg
1:18
Speaker 1: back in December, Um, how worried about inflation are you? Now? Well,
1:24
Speaker 1: I think the you know, the bubble of inflation that
1:28
Speaker 1: we thought was going to happen has arrived. And it's
1:30
Speaker 1: basically arriving for a couple of reasons. One, base effects
1:33
Speaker 1: were throwing out the very low rings from a year ago. Now,
1:35
Speaker 1: so the year of your numbers are spiking up because
1:38
Speaker 1: of that. But the most important reason why we're seeing
1:40
Speaker 1: more inflation is there's a lot of friction uh in
1:42
Speaker 1: the economy as you try to reallocate resources back to
1:47
Speaker 1: rapidly increasing demand. Look at the big increase we saw
1:51
Speaker 1: in use card prices, for example, do we really think
1:53
Speaker 1: that's sustainable over time? I think eventually auto production will
1:56
Speaker 1: will pick up as some of these chip shortage disease,
1:59
Speaker 1: and so inflation will will come back down again. That said,
2:03
Speaker 1: it's certainly more than what we were expecting. I mean,
2:06
Speaker 1: I don't think anybody was expecting to think that the
2:08
Speaker 1: core inflation would already be at three percent. And and
2:11
Speaker 1: it may be we may become more difficult for the
2:14
Speaker 1: Fed to keep talking about this being transitory, as it
2:17
Speaker 1: maybe might last, you know, six or twelve months before
2:19
Speaker 1: we start to see the other side of this. Yeah,
2:22
Speaker 1: and you you haven't mentioned m the sort of dry
2:26
Speaker 1: powder argument that households, in addition to the fiscal sim
2:30
Speaker 1: houseleves are sitting on a lot of money because the
2:33
Speaker 1: savings rate high. It demands me very strong. I think,
2:36
Speaker 1: you know, there's eight million people that are still unemployed
2:38
Speaker 1: because of the pandemic, and those people have suffered greatly.
2:41
Speaker 1: But for the rest of people in the US, they're
2:43
Speaker 1: coming out of this out of this recession in great
2:46
Speaker 1: financial shape. I mean, the household savings rates, you know,
2:49
Speaker 1: been running over. A lot of people have used the
2:52
Speaker 1: steamulus money to pay down debt, and monetary fiscal policy
2:56
Speaker 1: are very expansive. So it's really hard not to see
2:59
Speaker 1: a very wrong economic recovery in your ahead, unless something
3:03
Speaker 1: happens with the virus and effectiveness of the vaccines to
3:06
Speaker 1: throw that all out the window. So I think that
3:09
Speaker 1: you know what's gonna happen is we're gonna we're gonna
3:11
Speaker 1: get back to full employment, I think faster than what
3:14
Speaker 1: people anticipate. And the FEN is going to try to
3:17
Speaker 1: be patient, but their their patients may ultimately be overrun
3:20
Speaker 1: by an economy that does better than what they're currently anticipating.
3:24
Speaker 1: So at searching to fiscal I guess, um, the question
3:28
Speaker 1: I'm curious about it is you've got this. You know,
3:32
Speaker 1: these these two bills proposed which expensive but at the
3:40
Speaker 1: same time will generate revenues in the sense that lifelong
3:45
Speaker 1: learning and income tax credits, infrastructure, child care provision, all
3:49
Speaker 1: of these things incy increase the productivity of the workforce. UM.
3:56
Speaker 1: How far do you think in the long term these
3:57
Speaker 1: things can be viewed as, you know, not just increasing
4:01
Speaker 1: the share of government and GDP, but the time I
4:07
Speaker 1: think a lot of it can be segastition. I think
4:09
Speaker 1: the problem is we've heard so many claims through the
4:13
Speaker 1: years about tax cuts paying for themselves that we which
4:16
Speaker 1: they never do are almost never do unless you're marginal.
4:20
Speaker 1: Tax rates are extremely high, that people are skeptical about
4:24
Speaker 1: claims things will pay for themselves. I think many of
4:27
Speaker 1: these aspects you mentioned, particularly things that improve the quality
4:31
Speaker 1: and the quantity of the workforce. So the pre K education,
4:36
Speaker 1: the community college, the child care helped through taxes and
4:40
Speaker 1: provision to enable women to better balance home and work. Um.
4:45
Speaker 1: More portability on things of insurance and pensions. All of
4:50
Speaker 1: these things are improvements in not just productivity, but even
4:54
Speaker 1: more so their improvements in labor supply. But the thing is,
4:59
Speaker 1: they pay for themselves elves over five, ten, twenty years.
5:01
Speaker 1: They don't pay for themselves over two years, and they
5:05
Speaker 1: have to be sustained. I don't get caught up in
5:08
Speaker 1: this infrastructure lexicon debate of what you label infrastructure or not.
5:13
Speaker 1: And there are going to be wasteful things. But on balance,
5:17
Speaker 1: if this can be sustained, and if there can be
5:19
Speaker 1: an agreement that this, you know, a few percent of
5:23
Speaker 1: GDP spread over a few years, that will be helpful
5:27
Speaker 1: to this country, in addition to whatever you do to
5:29
Speaker 1: repair bit bridges, trains, power grid which also obviously is necessary,
5:35
Speaker 1: and switching tech a bit to um UH the exchange
5:40
Speaker 1: for an exchange markets. So there is a view that says, um,
5:44
Speaker 1: you know, we may have an inflation problem coming, but
5:47
Speaker 1: we also have a data problem in the sense that
5:50
Speaker 1: foreign save as being asked to finance this US fiscal
5:54
Speaker 1: expansion at a time when interest rates a negative. Um
5:58
Speaker 1: do you see uh that as being a problem in
6:02
Speaker 1: terms of daughter inflowers and therefore darter weakness and don't
6:08
Speaker 1: in the short term at all. Um, I think and sevesting.
6:11
Speaker 1: You and Stephanie Bill have all been around the block
6:14
Speaker 1: on this with me as well. What would drive down
6:18
Speaker 1: demand for the dollar is also what would mess up
6:20
Speaker 1: the fiscal policy, which is if we have political division
6:24
Speaker 1: in the society and in the particularly in the governance,
6:27
Speaker 1: such that we cannot raise taxes if we need to,
6:30
Speaker 1: such that we cannot sustain useful investments, they get reversed
6:33
Speaker 1: and changed every election. Then people start saying, as they
6:38
Speaker 1: used to do for Italy or Argentina or Greece, Okay,
6:42
Speaker 1: there's there's a lack of fiscal credibility there, and that's
6:45
Speaker 1: when the dollar starts to fade. And so for me,
6:49
Speaker 1: it's at least ugly contest, and so the US is
6:53
Speaker 1: increasing its ugliness on this fundamental basis, not because of
6:56
Speaker 1: the debt level, but because of the governance, and so
6:59
Speaker 1: that makes things like frankly, the euro look relatively more
7:02
Speaker 1: attractive in my opinion. So it's definitely. Um, a few
7:06
Speaker 1: years ago we might have stopped the presses for that
7:09
Speaker 1: sort of positive comment about Europe. Do you agree broadly
7:14
Speaker 1: that the U Zone and the EU are emerging from
7:17
Speaker 1: the pandemic looking credible despite the slow vaccine roll. Yeah,
7:22
Speaker 1: I'm not I'm not even sure that Adam was saying
7:25
Speaker 1: that much, but he was certainly being more positive than
7:27
Speaker 1: we might have been even even a few months ago.
7:29
Speaker 1: I think if you, I mean, if you step back
7:31
Speaker 1: a bit, we could probably say that Europe did a
7:34
Speaker 1: slightly better job of predicting, protecting citizens and even cushioning
7:38
Speaker 1: the effect on the economy and the sort of Act
7:40
Speaker 1: one of the pandemic last year. But if you think
7:44
Speaker 1: a bit seriously botched up at two this sort of
7:46
Speaker 1: crucial period of obtaining and then rolling out the vaccines
7:52
Speaker 1: and that's led to this palpable delay in the recovery
7:56
Speaker 1: is certainly relative to the UK. It's catching up. We're
7:58
Speaker 1: getting nice. It's a confidence, I would say, and spending
8:02
Speaker 1: is actually probably getting ahead of where countries are in
8:04
Speaker 1: terms of vaccinations, infections um even and quite strict restrictions
8:10
Speaker 1: in many cases still, so you're looking at maybe two
8:14
Speaker 1: thirds of the population being vaccinated by August or September.
8:19
Speaker 1: But I mean, I say that because that's a pretty
8:22
Speaker 1: the difference between that and what you're you're seeing in
8:24
Speaker 1: the UK and the U S which is the beginning
8:26
Speaker 1: of the summer. Being at that stage, it's pretty crucial
8:29
Speaker 1: if you're particularly one of the southern European countries utterly
8:32
Speaker 1: dependent on tourism. So this this few months delay, if
8:36
Speaker 1: it's if it means losing a summer or or losing
8:39
Speaker 1: a big chunk of your summer trade, that is quite significant,
8:43
Speaker 1: and I think further sort of worsens the credibility of
8:46
Speaker 1: the of the whole EU effort this year. Even though
8:49
Speaker 1: as you say, people are optimistic, you've listening to the
8:51
Speaker 1: ECB Crest conferences, Christine Legard's upbeat, Um, it could have
8:57
Speaker 1: been a lot better. And if you're in Spain or
8:59
Speaker 1: Portugal or you are really going to be affected by that.
9:02
Speaker 1: And of course it also worse than some of these
9:05
Speaker 1: North South divides that we know have been exacerbated by
9:09
Speaker 1: the crisis. The key thing, which I'm sure you'll get onto,
9:12
Speaker 1: is whether there's been an institutional shift that's been sort
9:15
Speaker 1: of kick started by COVID last year, and I think
9:17
Speaker 1: there there is some there's optimism in that you now
9:20
Speaker 1: have this next generation to you funding going out. It
9:24
Speaker 1: could help the sort of seal the deal on the recovery.
9:28
Speaker 1: But I worry a bit that though it has this
9:31
Speaker 1: sort of potential and it clearly was enormously significant to
9:34
Speaker 1: have now some sort of serious collective financing for fiscal
9:39
Speaker 1: policy of some degree in Europe. Um. You know, we're
9:43
Speaker 1: kind of in the opposite situation we were in the Eurozone.
9:45
Speaker 1: I mean, we've all talked. You know, during the Eurozone crisis,
9:48
Speaker 1: we would a key moments you had leadership, whether it
9:50
Speaker 1: was from Mario drug or Chancellor Merkel jumping in and
9:54
Speaker 1: sort of papering over the cracks where there were no
9:56
Speaker 1: institutions to hold the to help the Eurozone response. We
10:00
Speaker 1: now have potentially this institution that could really help it
10:03
Speaker 1: move forward, and the leadership isn't there. You know, you
10:06
Speaker 1: have the European Commission undermined by the way the rollout
10:10
Speaker 1: was handled. You have Chancellor Merkel on the way out,
10:12
Speaker 1: and and President Macrow, who has probably been the greatest
10:16
Speaker 1: sort of talking most about what Europe could do if
10:20
Speaker 1: it was more unified, what a European identity could be.
10:23
Speaker 1: You know, he's very much distracted with that election coming
10:26
Speaker 1: up in a year. I see the story that on
10:39
Speaker 1: the one hand, you've got this institutional shift in that
10:42
Speaker 1: there is now this joint joint liability the euro the
10:46
Speaker 1: Eurozone as this union's own Donald the European Union is
10:48
Speaker 1: this uniers own barnd. The question is you're saying a
10:51
Speaker 1: leadership deficit on that the prospect that the Greens might
10:55
Speaker 1: do well in the next general election might portend a
11:00
Speaker 1: greater willingness to do fiscal burden sharing and make the
11:04
Speaker 1: most of that opening created by the joint bond. Those
11:08
Speaker 1: of us sitting outside Germany always think everything is an
11:10
Speaker 1: opportunity to have a different German fiscal stance. Then it
11:13
Speaker 1: suffers when you actually contact with German politicians involved, and
11:17
Speaker 1: you tend to always find that they're not really very
11:19
Speaker 1: different from the ones before. And I'm probably not the
11:21
Speaker 1: person to talk about all the permutations of potential coalitions
11:25
Speaker 1: coming out of the next German election, but I think
11:27
Speaker 1: as long as if if the the chances are that
11:31
Speaker 1: the Christian Democrats will be there in some form, and
11:33
Speaker 1: then then it won't actually make necessarily a huge difference
11:37
Speaker 1: if the Greens have the chancellor itself. Um. But I
11:42
Speaker 1: think you're right to say that green issues and the
11:46
Speaker 1: Green transition economic transition is an area where Europe has
11:51
Speaker 1: clearly got, has made some strides and could show real
11:54
Speaker 1: leadership in the world. Um. I think it's also shown
11:58
Speaker 1: itself um better responding to the competitive and other challenges
12:03
Speaker 1: of big tech and taxing big beginning to do that.
12:08
Speaker 1: So I think that, I mean, there is a potential there,
12:10
Speaker 1: but we're always saying that, but then the actual innovations
12:13
Speaker 1: are lacking. The innovations are all coming from the US.
12:17
Speaker 1: I am larger with Stephanie. I think the fiscal changes
12:21
Speaker 1: that have been made our precedent setting and exercise the
12:26
Speaker 1: institutions and legitimize future mutual efforts on the fiscal front,
12:31
Speaker 1: but the actual use of the Common Fiscal Policy is
12:35
Speaker 1: going to be very limited. And the German deficits still
12:39
Speaker 1: ended up being much smaller than they had originally. They're
12:42
Speaker 1: the only country in the world that announces they're going
12:44
Speaker 1: to have much bigger, bigger deficits than actually turns out,
12:48
Speaker 1: which takes a lot of work. Okay, So we we
12:52
Speaker 1: have we have person you know, guardedly more positive on
12:56
Speaker 1: the prospects of the Euro but we also have the Tish,
13:01
Speaker 1: the British voices still the skeptical of Germany as ever,
13:04
Speaker 1: maybe so I'm sorry, I just want to say, I mean,
13:08
Speaker 1: my point is not that the euro and Europe are
13:11
Speaker 1: doing great. My point is that they have slightly improved
13:15
Speaker 1: in a world where the US is worsening and property
13:17
Speaker 1: rights are no good in China. So in the relative
13:20
Speaker 1: ugliness contest, Europe comes out, I mean, no longer hitting
13:24
Speaker 1: themselves in the head with a giant hammer is definitely
13:26
Speaker 1: a big, big step forward. Okay, so let's bring another
13:31
Speaker 1: region into this debate, which is the emerging Well, I
13:34
Speaker 1: guess the analogy I have at the back of my
13:37
Speaker 1: mind is that India had a first wave of COVID
13:40
Speaker 1: and people say, wow, that was remarkably mild because well,
13:44
Speaker 1: maybe the Indian population is young, whatever, whatever reason, we
13:47
Speaker 1: don't understand, but the country was hit less badly than
13:50
Speaker 1: we feared. And then second wave comes and it's truly appalling,
13:55
Speaker 1: and in the same way slightly on economic policy tools.
13:58
Speaker 1: I remember discussing with people at the beginning of the
14:01
Speaker 1: pandemic the sort of inequity that the strong economies that
14:06
Speaker 1: developed economies had policy space, but emerging economies might not. Now,
14:12
Speaker 1: the FED and the other leading central banks loosing so
14:15
Speaker 1: much that there was really policy space for everybody. But
14:18
Speaker 1: maybe a second wave could be different. So Bill, perhaps,
14:23
Speaker 1: like I could put this to you, do you think
14:26
Speaker 1: that this world in which the US recovers a good
14:29
Speaker 1: deal faster than a lot of emerging markets, it's going
14:33
Speaker 1: to create complications through the exchange rate channel. I mean
14:37
Speaker 1: it could, but you know, it will be all set
14:39
Speaker 1: by the fact that a strong US recovery that's accompanied
14:42
Speaker 1: by a strong recovery other advanced It probably means commodity
14:45
Speaker 1: prices go go up quite a bit and that so
14:47
Speaker 1: the terms of trade will be you know, will be
14:50
Speaker 1: beneficial to the emerging markets. And the second thing I
14:52
Speaker 1: think it's really important is the FED is going to
14:54
Speaker 1: be slow regard relative to whatever economic recovery that we get,
14:58
Speaker 1: because they basically told us that they're not gonna tighten
15:00
Speaker 1: Monterrey policy until they're at full employment, they're at two
15:04
Speaker 1: percent inflation, and they're confident inflation is going to go
15:06
Speaker 1: above two percent for some time to come. That's a
15:08
Speaker 1: big change in the Monterrey policy framework. So the FED
15:11
Speaker 1: is basically communicated that we're going to be late. So
15:15
Speaker 1: that gives time for the emerging markets to sort of
15:18
Speaker 1: catch up in terms of vaccination, in terms of the
15:21
Speaker 1: COVID based recovery. I think, um so, I think that
15:24
Speaker 1: you know, the risk from from the FED is really
15:26
Speaker 1: more that it's not like immediate. I think it's really
15:29
Speaker 1: like two or three years down the road, when all
15:31
Speaker 1: of a sudden the FED has to go from very
15:32
Speaker 1: easy too tight, and that has to happen in you know,
15:36
Speaker 1: twelve months now. That would be a shock for markets.
15:39
Speaker 1: But I don't think that risk is going to materialize
15:40
Speaker 1: in the near term, Adam. Historians sometimes talk about, you know,
15:45
Speaker 1: how pandemics have changed political economy in various ways. Either
15:50
Speaker 1: the omnipresence of risk can boost entrepreneurial risk appetite, and
15:54
Speaker 1: you do see more new business formation in the urest
15:58
Speaker 1: and I think also the UK in the last year
16:01
Speaker 1: than the normally or businesses response to health has this
16:04
Speaker 1: by mechanizing production because the labor force has to be
16:08
Speaker 1: distanced or that's sick or whatever, so you get an
16:11
Speaker 1: acceleration of mechanization. UM you've written a great essay and
16:17
Speaker 1: foreign affairs, perhaps you could talk about how you see,
16:20
Speaker 1: like what is the big political economy effect UM coming
16:25
Speaker 1: out of COVID well Sebastian has many people have been
16:30
Speaker 1: noticing industrial policy of various forms is now back into
16:36
Speaker 1: chic UM. And this has an anti globalization taint to it,
16:42
Speaker 1: including in the Biden administration and some other places. UM.
16:46
Speaker 1: And it sometimes gets tied to the national security side,
16:49
Speaker 1: to China's doing it, and we can't let China have
16:52
Speaker 1: the technology. And so if we move to an environment
16:55
Speaker 1: where people are more concerned about trust because of health reasons,
17:02
Speaker 1: because of local governance reasons, and because of perhaps overdone
17:07
Speaker 1: national security fears, then I think there's a cascade of effects. UM.
17:13
Speaker 1: I think we're going to see too much emphasis on
17:16
Speaker 1: manufacturing and too much emphasis on autarchy, which isn't going
17:21
Speaker 1: to go very well either politically or economically. I think
17:25
Speaker 1: we're going to see too much emphasis on local loyalties. UM.
17:31
Speaker 1: I mean we see this in the leveling up debate
17:33
Speaker 1: in Britain, we see this in the discussion of the
17:36
Speaker 1: places falling behind in the US. UM. We see this
17:42
Speaker 1: throughout the world. But we also see that there are
17:44
Speaker 1: very few policies that level up regions rather than people. UM.
17:48
Speaker 1: So you look at even China, which has the world's
17:50
Speaker 1: largest set of subsidies in the world's best ability to
17:53
Speaker 1: order people to move someplace or to put businesses someplace.
17:57
Speaker 1: And we still see these huge in their latest senses,
17:59
Speaker 1: these huge changes in population of the southeast versus the
18:03
Speaker 1: North and west and little income convergence between them. We
18:07
Speaker 1: see in West Virginia two senators again ex storting the
18:11
Speaker 1: whole government because this Bobby Bird used to do to
18:15
Speaker 1: bring goodies to West Virginia, and yet West Virginia remains
18:18
Speaker 1: in zero income convergence versus the rest of that country.
18:22
Speaker 1: So there's a lot of frustration and anger where we're
18:25
Speaker 1: already giving the people, the the prototypical angry white male,
18:29
Speaker 1: the rural white voter, or their equivalent in other countries
18:34
Speaker 1: what they want, which is a retreat from globalization, subsidies,
18:38
Speaker 1: local local boosts, and it doesn't work politically or economically.
18:43
Speaker 1: So this is why the center left and others are
18:45
Speaker 1: flailing about now trying to find something else to do.
18:48
Speaker 1: And it's hard to convince people if if you have
18:53
Speaker 1: presidents and populists on both sides saying you can have
18:57
Speaker 1: a pony, that convinced them that no, you can't have
19:01
Speaker 1: a pony. You have to get on again on the
19:04
Speaker 1: train and go someplace else. Um. So the final point,
19:08
Speaker 1: sorry I'm rambling. The key point is A I think
19:12
Speaker 1: the political divisions in the democracy's continued to rise for
19:16
Speaker 1: the time being. And B that the world does turn
19:21
Speaker 1: more into blocks. I mean, again, we've all heard people
19:25
Speaker 1: writing bestsellers every few years about the world turning into
19:27
Speaker 1: economic blocks. I think finally that time is hitting, now
19:31
Speaker 1: that it's going to start happening. It's definitely the same
19:35
Speaker 1: debate plays out a bit in the UK about regional equity. Um,
19:42
Speaker 1: listening to Adam, what's your reaction? Well, I was just
19:45
Speaker 1: smiling because I thought how much that Adam would hate
19:48
Speaker 1: Boris Johnson's new slogan, which is lived, local and prosper,
19:54
Speaker 1: which you might consider a contradiction in terms. I mean,
19:57
Speaker 1: I think it is a debate that we're seeing in
20:00
Speaker 1: the UK, and it's there is a sort of fundamental
20:04
Speaker 1: um philosophical shift. I don't know if it's going to
20:07
Speaker 1: be matched with a financial shift or let alone an
20:10
Speaker 1: economic shift, but you've certainly you've now got the the
20:13
Speaker 1: government in that sort of lived local and prosper mantra
20:16
Speaker 1: actually saying to small towns you don't you can aspire
20:20
Speaker 1: to more than being the dormitory for some big city
20:23
Speaker 1: that we put lots of money into. And that of
20:25
Speaker 1: course has been the model of even regional regional development
20:29
Speaker 1: across America and certainly across Britain for for decades. Is
20:33
Speaker 1: you get you maybe don't want it all in London,
20:36
Speaker 1: but you try and get more London's. You try and
20:38
Speaker 1: have cities that can then have the agglomeration effects, and
20:42
Speaker 1: there are towns around that are supporting the economic activity
20:46
Speaker 1: in the city that the city is the central bit
20:48
Speaker 1: that's delivering the jobs. The Boris Johnson is now saying
20:51
Speaker 1: in terms to people, no, you know, we were not
20:54
Speaker 1: going to force you to go, We're going to take
20:56
Speaker 1: the jobs to you. You don't have to go in
20:58
Speaker 1: the city. You don't even have to get on a
20:59
Speaker 1: train to get them. And I share some of Adam's
21:02
Speaker 1: skepticism about that. I don't think there is any sort
21:05
Speaker 1: of real economic thinking behind that particular thing, but I
21:09
Speaker 1: would push back a bit. I think even before this,
21:12
Speaker 1: many of us were thinking that there had to be
21:15
Speaker 1: more emphasis on people and places and livability in the
21:19
Speaker 1: vision of globalization that we have, and I think there
21:24
Speaker 1: is I'm not sure I see a fundamental threat to
21:27
Speaker 1: globalization coming out of this. You know, well, at the
21:31
Speaker 1: beginning of the crisis, we sort of thought all supply
21:33
Speaker 1: chains were going to regionalize, everyone was going to pull
21:35
Speaker 1: out of China. It's not what we see on the ground.
21:37
Speaker 1: We don't see people pulling out of China, and we
21:39
Speaker 1: don't we only see limited regionalization. We have seen massive digitization,
21:44
Speaker 1: and I think that automation has obviously gone done in
21:47
Speaker 1: a few weeks, certainly months, what we might have expected
21:50
Speaker 1: to have happened over five years. And that holds. You know,
21:54
Speaker 1: there's opportunities there in terms of bringing not necessarily bringing
21:58
Speaker 1: jobs right to where people are are, but changing the
22:01
Speaker 1: pattern of jobs. Um, if we if we help prepare
22:05
Speaker 1: people for it. And again as the big hole, the
22:07
Speaker 1: big the special boris Johnson sized hole, and this is
22:10
Speaker 1: that they're not going to spend any money on any
22:12
Speaker 1: of this, compared to you know, Adams worried that Biden's
22:16
Speaker 1: actually putting some financial weight behind this policy. You don't
22:19
Speaker 1: have to worry about that in the UK because all
22:22
Speaker 1: the sort of extra spending that's gone into the economy
22:24
Speaker 1: is all is all going to dry up next year?
22:28
Speaker 1: Can I just quickly sinned as usual? Stephanie and I
22:31
Speaker 1: agree about but disagree violently on about or um. The
22:37
Speaker 1: first point is my my concern is not so much
22:40
Speaker 1: the band is going to spend money on this. My
22:42
Speaker 1: concern is more that if we focus on the rural local,
22:48
Speaker 1: and we focus on manufacturing, and we basically ignore of
22:53
Speaker 1: the non college educated people who work in frontline services
22:56
Speaker 1: and who mostly live in cities, and so it's it's
23:00
Speaker 1: partly adjust this argument as well as an efficiency argument.
23:03
Speaker 1: It's not about the waste of money, it's about the
23:04
Speaker 1: diversion of attention. But secondly, and the thing I wanted
23:07
Speaker 1: to pick up on is Stephanie's absolutely right about supply chains,
23:10
Speaker 1: and her and or Bloomberg colleagues have done a great
23:12
Speaker 1: job of reporting and tracking on this, But I think
23:16
Speaker 1: trade is a very actually small part of the story. Um. Look,
23:19
Speaker 1: it's the corrosion of globalization that we're seeing is much
23:22
Speaker 1: more about flows of people, flows of technology, flows of ideas,
23:26
Speaker 1: and even in the digital realm. While I agree there
23:29
Speaker 1: is this potential for allowing small businesses individual workers to
23:34
Speaker 1: sort of get more flexible from where there there happen
23:37
Speaker 1: to be located. I think there's also divisions going up
23:41
Speaker 1: in the world around the Internet, around platforms, around standards.
23:45
Speaker 1: There are fewer students going back and forth across borders.
23:48
Speaker 1: There are fewer people. The immigration is being cut back
23:51
Speaker 1: in a lot of places now. The US is doing
23:54
Speaker 1: more of this cutback than most places. And that's one
23:58
Speaker 1: of the things I tried to put out my article,
24:00
Speaker 1: and we have charts at pia dot com about this,
24:03
Speaker 1: that he got much worse under Trump. But it really
24:06
Speaker 1: all started twenty years ago, and it wasn't just trade.
24:08
Speaker 1: It was investment, it was immigration, it was making trade
24:12
Speaker 1: deals or not making trade deals while others make them.
24:15
Speaker 1: So I just want to say that I'm not sanguine
24:18
Speaker 1: about globalization in general, and particularly from the US, even
24:22
Speaker 1: though I agree with Stephanie's characterization of trade and supplych
24:31
Speaker 1: We were trading messages before we went knife here. And
24:36
Speaker 1: I think Bill, you said to me that your choice
24:40
Speaker 1: for the political economy shift coming out of the pandemic
24:45
Speaker 1: would have to do with inequality. I think that the
24:50
Speaker 1: thing that strikes me about the pandemic is how unfair
24:53
Speaker 1: it has been through a small section of the population
24:56
Speaker 1: you know, the people who worked in leisure and hospitality,
24:59
Speaker 1: the people that had the list incomes, so that burden
25:02
Speaker 1: had fallen very disproportionately on a small segment of the population,
25:06
Speaker 1: you know, the eight point two million people that are
25:08
Speaker 1: still without jobs. And I think that really colors ethnoic
25:12
Speaker 1: policy going forward is like because it really underscores to
25:15
Speaker 1: the Adams point, how unfair and unequal A lot of
25:19
Speaker 1: aspects of the US regime are in terms of the
25:23
Speaker 1: taxation regime, the inheritance taxes, I mean, things that allow
25:26
Speaker 1: generations to pass on money to to the to their
25:29
Speaker 1: to their children, their grandchilda. And I think that's really
25:32
Speaker 1: going to be the lasting impact of COVID. I think
25:34
Speaker 1: in the United States it's really gonna it's the illustrated
25:37
Speaker 1: so clearly the inequities in the society, and I'm sort
25:40
Speaker 1: of hoping that that as a consequence of that will
25:43
Speaker 1: actually see lasting um set of policies to address them.
25:49
Speaker 1: Do you want to comment on this stuff? And it well,
25:51
Speaker 1: I think it's when it clearly is something that we've
25:53
Speaker 1: has been most evident in the in what's happened in
25:57
Speaker 1: the response to the to the crisis. But I think
26:00
Speaker 1: of it as being I think Robert McFarland talks about
26:03
Speaker 1: unburial in a book he's written, the British author and
26:06
Speaker 1: that he's talking about things that get unburied close to
26:09
Speaker 1: the Arctic Circle, things that were buried undreds were expected
26:13
Speaker 1: to stay under the surface, but because of global warming,
26:15
Speaker 1: a sort of just coming out of the earth. And
26:18
Speaker 1: it feels a bit like that inequalities that we knew
26:21
Speaker 1: were there have just become much more evident and have
26:23
Speaker 1: been been unburied. I guess I'm just a little bit
26:27
Speaker 1: skeptics of I mean, there has been quite a deep
26:30
Speaker 1: understanding of inequality for some time, and a lack of
26:34
Speaker 1: in most countries, a lack of practical political will, particularly
26:38
Speaker 1: when it comes to capital taxation. You know, people way
26:42
Speaker 1: down the income scale want to pass on wealth even
26:45
Speaker 1: when they don't have any. They really care about the
26:47
Speaker 1: ability to pass on wealth. It's just been a been
26:50
Speaker 1: a persistent issue trying to even begin to address that,
26:55
Speaker 1: and you end up with these very inefficient property taxes.
26:58
Speaker 1: As a result of taxes, particular in the UK, you
27:00
Speaker 1: tax the transaction, you don't really tax anything to do
27:03
Speaker 1: with the value of the house itself. On an annual basis.
27:06
Speaker 1: So I would like to think of all the things
27:08
Speaker 1: that Bill is talking about, but actually this long overdue
27:11
Speaker 1: shift to thinking more in terms of capital taxation and
27:14
Speaker 1: not only in terms of income tax when you're thinking
27:17
Speaker 1: about any kind of redistribution um will start to happen
27:21
Speaker 1: in the US and other places as a result of
27:24
Speaker 1: the crisis. But I'm just given how much the crisis
27:26
Speaker 1: has itself exacerbated inequality, I guess I sort of feel
27:29
Speaker 1: like you have to have quite a lot of political
27:31
Speaker 1: will just to offset what's happened in the last two years,
27:33
Speaker 1: let alone start to turn some tide. The one thing
27:37
Speaker 1: I wanted to add, which is no place where I
27:39
Speaker 1: want to give credit to the by administration, is they're
27:43
Speaker 1: very clear openness stated by Secretary Allen that they're going
27:47
Speaker 1: to engage in the international discussions over a minimum corporate
27:50
Speaker 1: tax globally and against profit shifting by large companies and
27:54
Speaker 1: particularly dig job companies. And that's not going to solve
27:58
Speaker 1: every problem. But unless you make sure that countries are
28:01
Speaker 1: getting revenue and that that revenue is seen as fairly gotten.
28:11
Speaker 1: That's it for this special episode of Stephonomics. I'll be
28:13
Speaker 1: back next week. With a lot more from around the world,
28:16
Speaker 1: but if you need to, you can always get more
28:18
Speaker 1: news and analysis from Bloomberg Economics by following at Economics
28:22
Speaker 1: on Twitter. This episode was produced by Magnus Hendrickson, with
28:25
Speaker 1: special thanks to Sebastian Mallaby, Bill Dudley, Adam Pose and
28:29
Speaker 1: all at the Council on Foreign Relations in New York.
28:32
Speaker 1: The new executive producer of Stephonomics is Mike Sasso, and
28:36
Speaker 1: the head of Bloomberg Podcast is Francesca Levy.