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What Does Bidenomics Look Like? · Trumponomics

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Speaker 1: Today, I have the pleasure. I have the pleasure of
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Speaker 1: announcing key nominations and appointments for the critical economic positions
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Speaker 1: and administration. A first rate team that's going to get
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Speaker 1: us through this ongoing economic crisis and help us build
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Speaker 1: the economy back. Not just build it back, but build
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Speaker 1: it back better than it was before. A team that's
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Speaker 1: tested and experienced. It includes groundbreaking Americans who come from
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Speaker 1: different backgrounds, but to share my core vision for economic
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Speaker 1: relief here in the United States of America. Hello, and
0:41
Speaker 1: welcome to Stephano Mix, the podcast that brings the global
0:43
Speaker 1: economy to you. And the sound that you heard was
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Speaker 1: the sound of gods changing. Joe Biden will be US
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Speaker 1: President in less than seven weeks time, and though the
0:54
Speaker 1: transition was in suspended animation for a few weeks, it
0:58
Speaker 1: is now fully up and running. We're starting to get
1:01
Speaker 1: a much clearer sense of who's going to be sitting
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Speaker 1: in the key post. What are these first appointments tell
1:06
Speaker 1: us about the new administration's economic priorities, and how on
1:10
Speaker 1: earth is he expecting to get round the fact that
1:12
Speaker 1: the Senate is likely to stay in the hands of
1:14
Speaker 1: Republicans so far loyal to President Trump. I can't think
1:18
Speaker 1: of a better person to ask about all of this
1:20
Speaker 1: than Jason Furman. He's a professor at Harvest Kennedy School now,
1:24
Speaker 1: but he was head of President Obama's Council of Economic Advisors,
1:27
Speaker 1: and he's good mate with most of the new economic team.
1:30
Speaker 1: He's also just published a paper with Larry Summers calling
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Speaker 1: for a revolution in fiscal policy, just as the incoming
1:37
Speaker 1: president considers his first budget nut We're also going to
1:41
Speaker 1: check in briefly on the new era coming for Britain
1:44
Speaker 1: on January one, as it fully leads the European Union
1:48
Speaker 1: less than five weeks out. We still don't know what
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Speaker 1: our brave new world's going to look like, but we
1:53
Speaker 1: can already say it's not going to be great news
1:56
Speaker 1: for the city of London. I'll be asking Bloomberg Financial
1:59
Speaker 1: Report to Veran Vagela how much financial business has already
2:03
Speaker 1: left the UK in all the uncertainties over breakit, and
2:07
Speaker 1: what's at stake if the trickle of jobs and money
2:10
Speaker 1: out of London becomes a flood. But first, we are
2:14
Speaker 1: lucky to have this introduction to the incoming President's economic
2:17
Speaker 1: agenda from the Star economic reporter and columnist for Bloomberg
2:21
Speaker 1: Business Week Peter coy in Washington. Personnel as policy, the
2:36
Speaker 1: people of President elect Joe Biden has picked run economic
2:39
Speaker 1: policy are for the most part, centrist veterans of Washington.
2:43
Speaker 1: Is picked for the most important job Secretary of the
2:45
Speaker 1: Treasury Janet Yell and the former FED chair who's an
2:48
Speaker 1: advocate of extraordinary fiscal support the count of the pandemic.
2:52
Speaker 1: Listeners to Stephanomics, may recall her pointed comments on that
2:56
Speaker 1: at the Bloomberg New Economy for him last month. The
2:59
Speaker 1: notion if the FED can do all that is required
3:03
Speaker 1: at this point to support the economy, UM is just
3:07
Speaker 1: wrong and the Fed is really pleading for fiscal relief.
3:13
Speaker 1: I believe it's essential for Director of the National Economic Council.
3:18
Speaker 1: Biden is going with an Obama administration veteran, Brian Diese,
3:21
Speaker 1: according to people familiar with the matter, des is an
3:24
Speaker 1: executive at black Rock, the multi trillion dollar fund manager.
3:28
Speaker 1: X Obama official Cecilia Rouse of Princeton, said to be
3:30
Speaker 1: the first African American to lead the Council of Economic
3:33
Speaker 1: Advisors the Office of Management and Budget. Biden wants near
3:37
Speaker 1: A Tandon, who worked for both Clinton and Obama, although
3:40
Speaker 1: Republicans are threatening to block her over partisan comments on Twitter.
3:45
Speaker 1: Joe Biden ran for president as a healer and a
3:47
Speaker 1: bridge builder, and Bidonomics reflects that Biden hasn't fully embraced
3:52
Speaker 1: progressive causes such as the Green New Deal in Medicare
3:55
Speaker 1: for All, which could set him up for a battle
3:57
Speaker 1: with liberals like Congresswoman Alexander Occacio Cortez, who says the
4:01
Speaker 1: Democrats would have done better in the election if they
4:04
Speaker 1: had tilted further left. I think that it only has
4:10
Speaker 1: ever been radicals that have changed this country. Abraham Lincoln
4:13
Speaker 1: made the radical decision to sign the Emancipation Proclamation. Franklin
4:18
Speaker 1: Delano Roosevelt made the radical decision to embark on establishing
4:22
Speaker 1: programs like social Security. That is radical. But Biden does
4:31
Speaker 1: plan to rejoin the pre Paris Climate Accord and says
4:33
Speaker 1: he'll slash carbon ambissions through jobs. Heavy investment must have
4:37
Speaker 1: beef up. Obamacare raised taxes on people earning over four
4:40
Speaker 1: hundred thousand dollars a year and raised the corporate tax
4:42
Speaker 1: rate to one. Unless Dems win two Senate seats in
4:47
Speaker 1: Georgia next month, he'll struggle to pass as a domestic agenda,
4:51
Speaker 1: he'll have more leeway internationally acting to cool off the
4:54
Speaker 1: trade wars and create a united front of nations to
4:56
Speaker 1: take on unfair Chinese trade practices. There's nothing dramatic and biodynamics,
5:02
Speaker 1: but right now drama is the last thing most people want. Well,
5:08
Speaker 1: I'm really delighted we can talk about Bidenomics now with
5:12
Speaker 1: Jason Furman. Jason, a bit of scene setting first. How
5:16
Speaker 1: does the economy that presidents led Biden's inheriting now compare
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Speaker 1: with what faced President Obama in two thousand and eight.
5:25
Speaker 1: You had a massive recession then, and unemployment was a
5:29
Speaker 1: similar rate, but it has a very different feel at
5:32
Speaker 1: times now. Yeah, well, it's definitely thanks so much for
5:36
Speaker 1: having me on. When President Biden takes the oath of
5:41
Speaker 1: office in January, the unemployment rate will be similar to
5:44
Speaker 1: what it was when President Obama took the oath of
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Speaker 1: office in January two tho nine. There'll be a huge
5:51
Speaker 1: difference though, which is that in two thousand nine, the
5:54
Speaker 1: unemployment rate was rising and the worst days of the
5:58
Speaker 1: economy were ahead of us. This time, the unemployment rate
6:02
Speaker 1: is very very likely to be falling over the course
6:06
Speaker 1: of one maybe not completely healing the economy. But certainly
6:12
Speaker 1: the better days will be ahead, it seems obvious. But
6:16
Speaker 1: what are the what are the big economic priorities that
6:18
Speaker 1: he faces. The biggest economic priority is getting the virus
6:22
Speaker 1: under control, much of which involves the distribution of vaccines.
6:26
Speaker 1: But we can't wait for the vaccines to be distributed,
6:30
Speaker 1: so testing encouraging social distancing, which is implemented at the
6:35
Speaker 1: state level um in the United States. But second that
6:40
Speaker 1: getting the virus under control won't be enough. You know,
6:43
Speaker 1: if you get the virus under control, a restaurant can open,
6:46
Speaker 1: you still need people to be able to afford to
6:48
Speaker 1: eat in the restaurant, and so supporting demand, supporting job
6:53
Speaker 1: creation through fiscal measures is critical. And then finally, even
6:59
Speaker 1: if people can afford to eat in restaurants, and I'm
7:01
Speaker 1: obviously using this as a metaphor um, there's still a
7:04
Speaker 1: lot of reallocation of labor people that lost their jobs,
7:08
Speaker 1: people that need jobs for new employers, new industries, um.
7:11
Speaker 1: And that reallocation process can sometimes take years to play out.
7:17
Speaker 1: We heard a little bit earlier from Peter Koy about
7:19
Speaker 1: some of the individuals who have come in. Obviously some
7:21
Speaker 1: of them, many of them very well known, to you
7:25
Speaker 1: and in indeed too to Stephanomics, the likes of Janet Yellen.
7:28
Speaker 1: But overall you probably know many of them better than
7:31
Speaker 1: we do. What what should we take from this from
7:35
Speaker 1: these people coming in? Yeah, so I'm friends and have
7:39
Speaker 1: worked with all seven of the people that have come
7:42
Speaker 1: out as key members of President Biden's economic team. I'm
7:47
Speaker 1: really thrilled about all of them. They're diverse in terms
7:53
Speaker 1: of you know, gender, ethnicity, race and the like. UM,
7:57
Speaker 1: they're all very focused, especially though on labor issues. UM.
8:01
Speaker 1: Janet Yellen is a macro and monetary economist, but a
8:04
Speaker 1: lot of her focus, and she's going to be the
8:06
Speaker 1: Treasury Secretary, is on labor markets and how they function.
8:11
Speaker 1: The Council of Economic Advisors, which is what I used
8:14
Speaker 1: to run. All three of the economists there are focused
8:17
Speaker 1: on labor, the first time that we've ever seen that. UM.
8:23
Speaker 1: You'll have Brian Diese as the Director of the National
8:26
Speaker 1: Economic Council. He'll coordinate the economic policy making. In his case,
8:31
Speaker 1: his biggest focus is climate change, and you're going to
8:34
Speaker 1: see I think climate change not just as an environmental issue,
8:38
Speaker 1: but very much integrated into the thinking on economic policy
8:43
Speaker 1: as well well. I guess at the that's a critic
8:46
Speaker 1: would would say that this is a lot of retreads
8:49
Speaker 1: from the Obama and Clinton administrations. And I would have
8:54
Speaker 1: phrased to there's people with a lot of experience, but
8:57
Speaker 1: even you know, we have her, we've heard the likes
8:59
Speaker 1: of alex Andre Okay, of course, there's say you know,
9:02
Speaker 1: there's a need for more radicalism. In fact that you know,
9:05
Speaker 1: the Democrats should have been more radical in their approach
9:08
Speaker 1: to the election, and they might have done better if
9:10
Speaker 1: times have really changed. Is it right to have a
9:13
Speaker 1: team of people who were in past administrations. Absolutely, you
9:17
Speaker 1: want people who are experience, You want people who can
9:20
Speaker 1: get things done. The Biden administration is never going to say, oh,
9:25
Speaker 1: we don't want to do blank on climate change. It's
9:28
Speaker 1: going to be Congress that stops them. They're not going
9:31
Speaker 1: to say we don't want to go, you know, too
9:35
Speaker 1: far on labor markets and wages. Congress is going to
9:39
Speaker 1: be the break there. So I don't think any of
9:41
Speaker 1: these advisors will be a constraint on the ambition of
9:44
Speaker 1: the Biden agenda. And you want experience people to understand
9:48
Speaker 1: what you can get done without Congress. You are incredible
9:51
Speaker 1: people like Janet Yellen, they can help persuade Congress to
9:55
Speaker 1: take the steps that need to be taken. I want
9:57
Speaker 1: to talk a bit about Congress because that's obviously a
10:00
Speaker 1: potential roadblock for all of us. But I want to
10:01
Speaker 1: get onto your paper with Larry Summers because it goes
10:04
Speaker 1: directly to not just the Biden agenda, but that of
10:08
Speaker 1: every other industrial economy. Right now, there's been a lot
10:12
Speaker 1: of debate that we've talked about, actually on cephonomics, quite
10:14
Speaker 1: a lot about the changing balance between monetary and fiscal
10:17
Speaker 1: policies since the global financial crisis. And I guess the
10:19
Speaker 1: justifications for that is, you have interest rates at record lows.
10:24
Speaker 1: We've seen central banks go as low as they can
10:26
Speaker 1: go repeatedly, and people had said already fiscal policy is
10:32
Speaker 1: going to have to play more of a role, and
10:34
Speaker 1: then this year you saw that happened with a vengeance.
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Speaker 1: You've had this enormous amount of spending and borrowing by
10:40
Speaker 1: industrial countries, maybe around up to twent of GDP borrowing
10:45
Speaker 1: extraordinary numbers. The reaction of many people to that, including
10:50
Speaker 1: the UK Chancellor very recently in his Spending Review, has
10:54
Speaker 1: been that we're kind of lucky to get away with
10:56
Speaker 1: this borrowing. We shouldn't expect to repeat it, and we
10:59
Speaker 1: should actually be looking to cut borrowing as soon as
11:01
Speaker 1: we can, once we have we have a vaccine, once
11:03
Speaker 1: we have a recovery after this crisis. You say, in
11:07
Speaker 1: a sense the opposite, you're saying, it just calls for
11:10
Speaker 1: a revolution in the way we think about borrowing. So
11:13
Speaker 1: just take us through that a little bit, your augument
11:15
Speaker 1: with Larry Savis. Yeah, so I think we don't want
11:18
Speaker 1: to focus on the debt. That's the wrong measure to
11:22
Speaker 1: look at. You want to look essentially a debt service,
11:25
Speaker 1: what you're paying each year on the debt, and compare
11:29
Speaker 1: that to where your economy is. Interest rates are incredibly
11:34
Speaker 1: low right now. There are a lot lower than the
11:38
Speaker 1: growth rate, something that Olivier Blanchard, who was president of
11:41
Speaker 1: the American Economics Association his presidential address, noted necessitated a
11:47
Speaker 1: profound rethinking of fiscal policy. Now. You might think interest
11:51
Speaker 1: rates are lowes temporarily, but they were incredibly low in
11:55
Speaker 1: December before COVID struck our economy. And if you look
12:01
Speaker 1: at financial market forecasts in the United States, for example,
12:04
Speaker 1: the FED thinks it's going to raise rates eventually to
12:07
Speaker 1: two point five percentage points, that itself would be quite low.
12:11
Speaker 1: The market doesn't believe them. They think the Fed is
12:13
Speaker 1: only going to get rates up to something like one
12:15
Speaker 1: point four percentage points. And so you do see policymakers
12:20
Speaker 1: around the world sometimes talking about, you know, this won't last.
12:24
Speaker 1: Their forecasts have been wrong for the last couple of decades.
12:27
Speaker 1: On interest rates. Markets are sending a very clear signal
12:32
Speaker 1: and there's um I think some very fundamental economic reasons
12:36
Speaker 1: why global saving has increased, the demand for investment has declined,
12:42
Speaker 1: and so equilibrium interest rates are lower. We need to
12:45
Speaker 1: think about fiscal policy very very differently in that world.
12:49
Speaker 1: How would it affect the way we decide whether a
12:52
Speaker 1: government's public finances are in decent shape. So these days,
12:55
Speaker 1: you know, we economists at Bloomberg or others, we look
12:58
Speaker 1: at the debt rates, you debt relative to GDP. You're
13:04
Speaker 1: suggesting we should just look we should look at the
13:06
Speaker 1: cost of that debt. Presumably we should also look at
13:09
Speaker 1: where spending or where borrowing is going to because you
13:12
Speaker 1: want it to actually be supporting economic growth. So how
13:15
Speaker 1: do we judge whether we're spending money on the right things?
13:17
Speaker 1: In this environment, right, So if an economy has excess
13:22
Speaker 1: unemployment and an interest rate around zero, you can spend
13:27
Speaker 1: money on anything and it would be good for the economy.
13:29
Speaker 1: So if you just do the famous canes digging holes
13:33
Speaker 1: filling in the holes, that will help. It's way better
13:36
Speaker 1: to instead of digging a hole and refilling it to
13:40
Speaker 1: build a highway, to do something for telecommunications, UM, for
13:44
Speaker 1: clean energy M or the like. Then, as we look
13:48
Speaker 1: over the medium term M, what Larry Summers and I
13:51
Speaker 1: recommend is that you look at real debt service as
13:55
Speaker 1: a share of GDP UM. It's real debt service you're
13:58
Speaker 1: ajuting for inflation him because inflation is eating away part
14:02
Speaker 1: of your debt. You want to count that against interest UM.
14:07
Speaker 1: In the United States and most other UM of the
14:10
Speaker 1: major economies right now, real debt services currently around zero
14:15
Speaker 1: because inflation is offsetting interest and it's projected to rise,
14:20
Speaker 1: but to rise very modestly, and even a decade from
14:24
Speaker 1: now still be quite low by historical standards. So that
14:28
Speaker 1: would be the measure I would look at to decide
14:31
Speaker 1: if we were worried. And then finally, in terms of spending,
14:34
Speaker 1: it's going to vary from country to country, but at
14:37
Speaker 1: low interest rates, there are a lot more public investments
14:41
Speaker 1: that actually repay themselves. Um. They cost money upfront, you
14:45
Speaker 1: get higher wages, a stronger economy later on, and so
14:49
Speaker 1: it doesn't actually cost you anything, and you don't want
14:52
Speaker 1: to think of it as costing you anything. Um. In
14:55
Speaker 1: the United States, investments and children meet that criteria, education,
15:01
Speaker 1: some infrastructure, research and development. I don't think you want
15:06
Speaker 1: to think about paying for something when the bigger danger
15:09
Speaker 1: we have is that we won't do enough of it.
15:19
Speaker 1: You know, some people listening to this will say, hang on,
15:22
Speaker 1: I've heard arguments about this before, and they used to
15:25
Speaker 1: get trashed by some economists. And because it sounds a
15:28
Speaker 1: bit like a sort of liberal or progressive version of
15:32
Speaker 1: voodoo economics. You know, we used to be told by
15:35
Speaker 1: some on the Republican side that you could gain tax
15:40
Speaker 1: revenues by cutting tax rates. Um. In effect, it sounds
15:44
Speaker 1: like you're saying we can save money by spending more
15:47
Speaker 1: of it. Is that really the world we're in with
15:49
Speaker 1: interest rates at this low? Yes, it is. And the
15:52
Speaker 1: difference is that the what I'm talking about comes out
15:58
Speaker 1: of over hundred peer reviewed economic research papers, many of
16:05
Speaker 1: them written in the last decade. They were summarized in
16:09
Speaker 1: an important and synthesizing important paper by two of my
16:12
Speaker 1: colleagues at Harvard, Nathan Hendron and Ben Spronkeiser, went through
16:17
Speaker 1: rigorous peer review process and ended up in one of
16:19
Speaker 1: the top economic journals, the Quarterly Journal of Economics, and
16:23
Speaker 1: UM they found this part of this is because of
16:26
Speaker 1: a revolution in economic research where you can use large
16:31
Speaker 1: scale administrative data to follow large numbers of people over
16:35
Speaker 1: long periods of time. And so we can now look
16:38
Speaker 1: at people that received preschool education, that received nutritional assistance,
16:45
Speaker 1: that received healthcare as a child, look at them thirty
16:49
Speaker 1: years later, and we see they're more likely to be working,
16:52
Speaker 1: to have higher wages, to be healthier, not to be
16:56
Speaker 1: in prison, um and the like. And that evidence is
16:59
Speaker 1: is just increasingly powerful. Just because I know some people
17:03
Speaker 1: listening to this podcast will have a bit of whiplash
17:06
Speaker 1: from hearing your argument, because we only last week had
17:08
Speaker 1: Charles Goodheart and Managed Product talking about why inflation was
17:11
Speaker 1: going to go up and rates interest rates were potentially
17:15
Speaker 1: going to go up not immediately but over sort of
17:18
Speaker 1: five year ten year time frame because of the reversal
17:22
Speaker 1: of demographic changes that we saw or at least a continuation,
17:27
Speaker 1: so we now have if we have a rising dependency
17:29
Speaker 1: ratio everywhere. Their argument was that you would start to
17:33
Speaker 1: have inflationary pressure and wages go up, and that this
17:37
Speaker 1: could change all of those expectations and forecasts that you
17:42
Speaker 1: just talked about in the financial markets, and that rates
17:45
Speaker 1: would end up being much higher and inflation would end
17:47
Speaker 1: up being much higher. What do you what do you
17:48
Speaker 1: say to that, you know, we could just we could
17:50
Speaker 1: completely change our way of looking at fiscal policy just
17:53
Speaker 1: in time for for the world to go back to
17:55
Speaker 1: more like it was, say in the nineties seventies. So
17:58
Speaker 1: my view on fiscal parts see is that there is
18:01
Speaker 1: not a timeless truth here. You can't look into some
18:05
Speaker 1: theory like modern monetary theory and say deficits are never
18:08
Speaker 1: a problem, nor should you have some theory that deficits
18:12
Speaker 1: in debt or always a problem. Um. You need to
18:14
Speaker 1: base it on empirical evidence about the economy, about interest rates,
18:22
Speaker 1: about the overall macroeconomic situation. You can have all sorts
18:28
Speaker 1: of theories about interest rates rising. That's not what financial
18:31
Speaker 1: markets think. That's not been the trend um for several decades.
18:37
Speaker 1: That certainly might happen. And so you know, Larry, and
18:41
Speaker 1: I suggest you should be worried if real debt surface
18:44
Speaker 1: rises above two percent of GDP. But I wouldn't jump
18:49
Speaker 1: right up to two percent of GDP and say we're fine.
18:52
Speaker 1: In fact, if you look at the program we recommend UM,
18:55
Speaker 1: it would still keep interest payments about one percent of GDP,
18:58
Speaker 1: about half of the margin that I think we should
19:03
Speaker 1: be at. So yes, leave some room for error, be
19:06
Speaker 1: somewhat prudent, But right now, the bigger risk is that
19:10
Speaker 1: we don't do enough, not that we do too much
19:14
Speaker 1: deficit reduction. Okay, so back to the real world. None
19:19
Speaker 1: of this is going to happen. Surely if the Republicans
19:23
Speaker 1: remain in control of the Senate for the first years
19:27
Speaker 1: of the Biden administration. Could you think anyone on that
19:29
Speaker 1: side has has read your paper? Are you expecting them
19:32
Speaker 1: to come on board? You know, I certainly hope that
19:36
Speaker 1: this is a set of ideas that Democrats and Republicans
19:41
Speaker 1: in Congress takes seriously. I'm going to make an effort
19:44
Speaker 1: to try to get them out there and discuss them
19:48
Speaker 1: with people UM at a more practical level. I was
19:52
Speaker 1: in the room many times as Vice President Biden was
19:57
Speaker 1: negotiating with Senator Connell, who is currently the majority Republican
20:03
Speaker 1: majority leader of the Senate Um. The two of them
20:06
Speaker 1: have a good wrapport with each other, pretty transactional negotiating style.
20:13
Speaker 1: That may not be enough to get anything done, but
20:16
Speaker 1: I do think it's the best shot at getting something
20:20
Speaker 1: done in divided government, and there's certainly some areas like infrastructure,
20:25
Speaker 1: which do generate interest from both political parties. Well, that's
20:30
Speaker 1: a voice of optimism that is also a voice of experience,
20:32
Speaker 1: a rare treat Jason Ferman, thank you very much, thanks
20:36
Speaker 1: for having me m. I might have hoped to be
20:46
Speaker 1: telling you finally this week about a deal between the
20:50
Speaker 1: UK and the European Union to cover the period when
20:53
Speaker 1: transitional arrangements stop and the UK in January is fully,
20:56
Speaker 1: entirely actually out of the European Union. And as this
21:00
Speaker 1: podcast was being put to ben on the third of December,
21:03
Speaker 1: there was still no deal to be seen. So much
21:07
Speaker 1: so predictable, you might say, we've learned that I'm picking
21:10
Speaker 1: a nearly fifty year old marriage between two very complicated
21:14
Speaker 1: modern economies was always going to be tough. But if
21:18
Speaker 1: you step back, what's odd when you think about it,
21:21
Speaker 1: is not that the negotiations have been going down to
21:24
Speaker 1: the wire, but what exactly is causing the trouble. The
21:27
Speaker 1: three big sticking points, as the EU negotiator Michel Barnier
21:31
Speaker 1: confirmed this week, are still the leving playing field for business,
21:37
Speaker 1: access to British fishing waters, and how the overall agreement
21:41
Speaker 1: is going to be enforced. What has not been front
21:44
Speaker 1: and center in any of these negotiations, it seems it's
21:47
Speaker 1: been relations between the City of London, the financial services
21:52
Speaker 1: industry that's so important to the UK economy, and the
21:55
Speaker 1: European Union itself. Critics say the city in fact got
22:00
Speaker 1: thrown to the lions a long time ago in these
22:03
Speaker 1: Brexit negotiations, and meanwhile, a lot of money and jobs
22:06
Speaker 1: have been exiting London as a result. Varen vaguela Bloomberg
22:11
Speaker 1: Finance reporter, has been totting up the impact so far
22:14
Speaker 1: and read a piece about it this week. I mean,
22:17
Speaker 1: how much business has gone from the city now as
22:21
Speaker 1: a direct result of Brexit? Is it? Is? It a
22:23
Speaker 1: lot more than we might initially have expected. So e
22:27
Speaker 1: y and the report last moment said that seven of
22:30
Speaker 1: seven thousand, five hundred Roles and one point two trillion
22:34
Speaker 1: pounds in assets have already moved, and it says that
22:37
Speaker 1: this is just the beginning. Obviously, if the transition period
22:40
Speaker 1: ends in a matter of for four weeks and then
22:45
Speaker 1: we could see the toll really really rise. We know
22:50
Speaker 1: a few other things such as equity trading. About thirty
22:55
Speaker 1: of that business in European stocks is done in London
22:59
Speaker 1: through London and based trading venues, and that's also at
23:02
Speaker 1: risk of moving on jan four. Is it more than
23:07
Speaker 1: we might have thought when the referendum happened. I was
23:09
Speaker 1: sitting in JP Morgan and a little bit closer to
23:12
Speaker 1: this and at the time there was a feeling that
23:16
Speaker 1: actually banks were going to still find London very attractive. Overall,
23:22
Speaker 1: the impact so far has been far less than some
23:25
Speaker 1: anticipated around that time. Post six the referendum, the CEO
23:32
Speaker 1: of London Stock Exchange over times every year Role said that,
23:36
Speaker 1: you know, hundreds of thousands of jobs would leave the
23:39
Speaker 1: city and clearly that hasn't come to pass just yet.
23:44
Speaker 1: It's a much smaller magnitude so far. And part of
23:48
Speaker 1: the theory at that time was the clearing business in
23:52
Speaker 1: derivatives clearing a multi trillion dollar market would potentially moved
23:58
Speaker 1: to Europe. Now hasn't happened. But what's at stake? I mean,
24:03
Speaker 1: if the city did gradually lose its status as one
24:08
Speaker 1: of the world's great financial hubs, what's at stake in
24:14
Speaker 1: terms of the economy. The problem with these BRESA negotiations
24:18
Speaker 1: is a lot of focus has been on the trade
24:20
Speaker 1: talks and industries like fishing. But in the UK, finance
24:26
Speaker 1: makes up about seven percent of the economy and more
24:28
Speaker 1: than a tenth of all tax revenue employees more than
24:33
Speaker 1: a million people. So the City of London is really
24:36
Speaker 1: critical too to the UK economy. So there is a
24:42
Speaker 1: lot at stake and it's surprising, surprise a lot of
24:45
Speaker 1: senior executives in the City of London, but it hasn't
24:48
Speaker 1: been more focused from the UK government on finance and
24:52
Speaker 1: forging away to make sure that critical industry is safeguarded.
25:00
Speaker 1: I mean, it's obviously it's one of the things that
25:01
Speaker 1: we've talked about again and again around Brexit, which is
25:04
Speaker 1: that you know, you have an advanced, modern economy. It's
25:09
Speaker 1: probably it's the first time in sort of that I
25:11
Speaker 1: can remember where that a decision has been made that
25:14
Speaker 1: really put other things ahead of business interests and economic interests.
25:18
Speaker 1: That decision to leave the EU. There was no question
25:21
Speaker 1: I think in anyone's minds that there would be a
25:23
Speaker 1: negative impact. You could have a debate about whether it
25:25
Speaker 1: be large or small, but there had always been a
25:29
Speaker 1: concern about the economic impact. And it's just interesting that
25:33
Speaker 1: the government has not tried to offset that or work
25:37
Speaker 1: against that in defending the city in these negotiations. They
25:41
Speaker 1: seem to be quite happy to have the city be
25:43
Speaker 1: an emblem of this putting of sovereignty and other issues
25:49
Speaker 1: of national control ahead of you know, what is our
25:52
Speaker 1: most important business. But just on that point you mentioned equivalence,
25:58
Speaker 1: we should probably just sayflee what that is and why
26:02
Speaker 1: it matters, you know, absolutely so with the big banks
26:05
Speaker 1: in London for for for decades, JP Morgan, Goldman, Sachs
26:11
Speaker 1: and other Wall Street lenders have established big, big operations
26:14
Speaker 1: in London to do trading business, markets, businesses, and they
26:18
Speaker 1: were able to serve EU clients like a French fund
26:21
Speaker 1: manager or a Dutch pension firm for their hedging and
26:24
Speaker 1: trading business from London. So London really grew to be
26:28
Speaker 1: this fantastic financial center global financial center. Now, of course,
26:33
Speaker 1: after the UK leaves EU or leaves the transition period
26:38
Speaker 1: in a few weeks time, it will lose all the
26:40
Speaker 1: passporting rights of those firms were enjoyed to service for
26:44
Speaker 1: the European firms. So the back, the fall back is equivalents,
26:49
Speaker 1: which is in essence, the European Commission determining that the
26:56
Speaker 1: UK's rules on finance as robust as its own. Now
27:02
Speaker 1: de facto, the UK's rules on finance are as robust.
27:06
Speaker 1: The UK wrote many of the rules when it was
27:09
Speaker 1: in Europe. Its influenced that the way those rules evolved.
27:15
Speaker 1: But the problem is that equivalent is a political decision,
27:19
Speaker 1: a series of political decisions. It's a byzantine patchwork whereby
27:25
Speaker 1: the European Commission determines in different areas such as the
27:29
Speaker 1: investment services, clearing and about forty other areas that the
27:34
Speaker 1: UK's rules are as robust. It's a gift of the
27:39
Speaker 1: European Commission and it's being used as a political tool
27:43
Speaker 1: in the negotiations to make sure that Europe gets what
27:46
Speaker 1: it wants. Just thinking about sort of the global implications
27:52
Speaker 1: of this for those who are not sitting in the UK,
27:55
Speaker 1: if is there another big European city that's going to
27:59
Speaker 1: come through this as a as a competitor, not just
28:02
Speaker 1: to London, but to New York or is it is it?
28:05
Speaker 1: Is it New York that's likely to benefit because there's
28:08
Speaker 1: no single place that combines all of the things that
28:11
Speaker 1: London has. Now, it's an interesting question because I think
28:16
Speaker 1: nobody's saying in all of this that London's days and numbered.
28:20
Speaker 1: It has obviously a lot of advantage still like it's
28:24
Speaker 1: the lat English language, it's legal system, and I say
28:28
Speaker 1: it's it's built up the rules in many areas of finance.
28:34
Speaker 1: It attracts a big talent pool. So a European city
28:37
Speaker 1: like Paris or Frankfurt, which are vying with London for
28:41
Speaker 1: more business, isn't likely to overtake London anytime soon or
28:46
Speaker 1: perhaps perhaps ever. Um some of the trading venues in
28:50
Speaker 1: London has has split their European presence now between Amsterdam
28:55
Speaker 1: and Paris. Um some of the banks have big operations
29:01
Speaker 1: now in Frankfurt. So always seeing is a sort of
29:04
Speaker 1: fragmented future for finance in Europe. But many people still
29:09
Speaker 1: think that London will dominate. It's always reinvented itself. We
29:14
Speaker 1: talked about how the Big Bang in the nineteen eighties
29:21
Speaker 1: from Margaret Fatch's time, was a big impetus for the
29:25
Speaker 1: city of London and made it a huge share trading hub.
29:29
Speaker 1: London is always that was the deregulation where they got
29:31
Speaker 1: rid of a lot of rules that actually made a
29:33
Speaker 1: lot of us banks want to prefer London for some
29:35
Speaker 1: things because of the reduction of rules exactly. And this
29:40
Speaker 1: is maybe a good analogy with what we may may
29:43
Speaker 1: see in a post Brexit era. It's always looking at
29:46
Speaker 1: increasing competition, making rules better for the end user, and
29:52
Speaker 1: that ultimately makes London very attractive or has done well.
29:58
Speaker 1: We will wait and see. You. You referenced that era
30:02
Speaker 1: of thatcher Right deregulation in the opening to your piece
30:07
Speaker 1: that the golden age of the City of London began
30:10
Speaker 1: with a big bang. It's ending with a whimper. Well
30:13
Speaker 1: maybe not, we'll find out over the next few years.
30:16
Speaker 1: Veron Vaguela, thank you very much, Thank you, thanks for
30:24
Speaker 1: listening to Stephonomics. We'll be back next week with more
30:27
Speaker 1: on all things economic, and remember you can always find
30:30
Speaker 1: us on the Bloomberg Terminal website, app or wherever you
30:33
Speaker 1: get your podcasts. You can also get a lot more
30:36
Speaker 1: news and analysis from Bloomberg Economics by following at Economics
30:40
Speaker 1: on Twitter. This episode was produced by Magnus Henderson, with
30:43
Speaker 1: special thanks to Peter Koy, Jason Furman, and Vien Vaguela.
30:48
Speaker 1: Lucy Meekin is the executive producer of Stephonomics and the
30:51
Speaker 1: head of Bloomberg Podcast is Fancesca Lego. Five