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What Does Bidenomics Look Like? · Stephanomics

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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
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  Speaker 1: welcome to Stephano Mix, the podcast that brings the global
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  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
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  Speaker 1: transition was in suspended animation for a few weeks, it
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  Speaker 1: is now fully up and running. We're starting to get
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  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
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  Speaker 1: us about the new administration's economic priorities, and how on
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  Speaker 1: earth is he expecting to get round the fact that
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  Speaker 1: the Senate is likely to stay in the hands of
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  Speaker 1: Republicans so far loyal to President Trump. I can't think
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  Speaker 1: of a better person to ask about all of this
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  Speaker 1: than Jason Furman. He's a professor at Harvest Kennedy School now,
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  Speaker 1: but he was head of President Obama's Council of Economic Advisors,
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  Speaker 1: and he's good mate with most of the new economic team.
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  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
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  Speaker 1: president considers his first budget nut We're also going to
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  Speaker 1: check in briefly on the new era coming for Britain
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  Speaker 1: on January one, as it fully leads the European Union
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  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
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  Speaker 1: can already say it's not going to be great news
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  Speaker 1: for the city of London. I'll be asking Bloomberg Financial
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  Speaker 1: Report to Veran Vagela how much financial business has already
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  Speaker 1: left the UK in all the uncertainties over breakit, and
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  Speaker 1: what's at stake if the trickle of jobs and money
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  Speaker 1: out of London becomes a flood. But first, we are
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  Speaker 1: lucky to have this introduction to the incoming President's economic
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  Speaker 1: agenda from the Star economic reporter and columnist for Bloomberg
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  Speaker 1: Business Week Peter coy in Washington. Personnel as policy, the
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  Speaker 1: people of President elect Joe Biden has picked run economic
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  Speaker 1: policy are for the most part, centrist veterans of Washington.
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  Speaker 1: Is picked for the most important job Secretary of the
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  Speaker 1: Treasury Janet Yell and the former FED chair who's an
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  Speaker 1: advocate of extraordinary fiscal support the count of the pandemic.
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  Speaker 1: Listeners to Stephanomics, may recall her pointed comments on that
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  Speaker 1: at the Bloomberg New Economy for him last month. The
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  Speaker 1: notion if the FED can do all that is required
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  Speaker 1: at this point to support the economy, UM is just
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  Speaker 1: wrong and the Fed is really pleading for fiscal relief.
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  Speaker 1: I believe it's essential for Director of the National Economic Council.
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  Speaker 1: Biden is going with an Obama administration veteran, Brian Diese,
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  Speaker 1: according to people familiar with the matter, des is an
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  Speaker 1: executive at black Rock, the multi trillion dollar fund manager.
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  Speaker 1: X Obama official Cecilia Rouse of Princeton, said to be
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  Speaker 1: the first African American to lead the Council of Economic
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  Speaker 1: Advisors the Office of Management and Budget. Biden wants near
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  Speaker 1: A Tandon, who worked for both Clinton and Obama, although
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  Speaker 1: Republicans are threatening to block her over partisan comments on Twitter.
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  Speaker 1: Joe Biden ran for president as a healer and a
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  Speaker 1: bridge builder, and Bidonomics reflects that Biden hasn't fully embraced
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  Speaker 1: progressive causes such as the Green New Deal in Medicare
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  Speaker 1: for All, which could set him up for a battle
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  Speaker 1: with liberals like Congresswoman Alexander Occacio Cortez, who says the
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  Speaker 1: Democrats would have done better in the election if they
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  Speaker 1: had tilted further left. I think that it only has
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  Speaker 1: ever been radicals that have changed this country. Abraham Lincoln
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  Speaker 1: made the radical decision to sign the Emancipation Proclamation. Franklin
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  Speaker 1: Delano Roosevelt made the radical decision to embark on establishing
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  Speaker 1: programs like social Security. That is radical. But Biden does
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  Speaker 1: plan to rejoin the pre Paris Climate Accord and says
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  Speaker 1: he'll slash carbon ambissions through jobs. Heavy investment must have
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  Speaker 1: beef up. Obamacare raised taxes on people earning over four
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  Speaker 1: hundred thousand dollars a year and raised the corporate tax
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  Speaker 1: rate to one. Unless Dems win two Senate seats in
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  Speaker 1: Georgia next month, he'll struggle to pass as a domestic agenda,
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  Speaker 1: he'll have more leeway internationally acting to cool off the
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  Speaker 1: trade wars and create a united front of nations to
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  Speaker 1: take on unfair Chinese trade practices. There's nothing dramatic and biodynamics,
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  Speaker 1: but right now drama is the last thing most people want. Well,
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  Speaker 1: I'm really delighted we can talk about Bidenomics now with
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  Speaker 1: Jason Furman. Jason, a bit of scene setting first. How
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  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.
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  Speaker 1: You had a massive recession then, and unemployment was a
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  Speaker 1: similar rate, but it has a very different feel at
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  Speaker 1: times now. Yeah, well, it's definitely thanks so much for
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  Speaker 1: having me on. When President Biden takes the oath of
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  Speaker 1: office in January, the unemployment rate will be similar to
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  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
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  Speaker 1: difference though, which is that in two thousand nine, the
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  Speaker 1: unemployment rate was rising and the worst days of the
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  Speaker 1: economy were ahead of us. This time, the unemployment rate
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  Speaker 1: is very very likely to be falling over the course
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  Speaker 1: of one maybe not completely healing the economy. But certainly
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  Speaker 1: the better days will be ahead, it seems obvious. But
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  Speaker 1: what are the what are the big economic priorities that
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  Speaker 1: he faces. The biggest economic priority is getting the virus
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  Speaker 1: under control, much of which involves the distribution of vaccines.
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  Speaker 1: But we can't wait for the vaccines to be distributed,
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  Speaker 1: so testing encouraging social distancing, which is implemented at the
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  Speaker 1: state level um in the United States. But second that
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  Speaker 1: getting the virus under control won't be enough. You know,
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  Speaker 1: if you get the virus under control, a restaurant can open,
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  Speaker 1: you still need people to be able to afford to
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  Speaker 1: eat in the restaurant, and so supporting demand, supporting job
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  Speaker 1: creation through fiscal measures is critical. And then finally, even
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  Speaker 1: if people can afford to eat in restaurants, and I'm
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  Speaker 1: obviously using this as a metaphor um, there's still a
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  Speaker 1: lot of reallocation of labor people that lost their jobs,
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  Speaker 1: people that need jobs for new employers, new industries, um.
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  Speaker 1: And that reallocation process can sometimes take years to play out.
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  Speaker 1: We heard a little bit earlier from Peter Koy about
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  Speaker 1: some of the individuals who have come in. Obviously some
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  Speaker 1: of them, many of them very well known, to you
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  Speaker 1: and in indeed too to Stephanomics, the likes of Janet Yellen.
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  Speaker 1: But overall you probably know many of them better than
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  Speaker 1: we do. What what should we take from this from
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  Speaker 1: these people coming in? Yeah, so I'm friends and have
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  Speaker 1: worked with all seven of the people that have come
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  Speaker 1: out as key members of President Biden's economic team. I'm
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  Speaker 1: really thrilled about all of them. They're diverse in terms
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  Speaker 1: of you know, gender, ethnicity, race and the like. UM,
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  Speaker 1: they're all very focused, especially though on labor issues. UM.
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  Speaker 1: Janet Yellen is a macro and monetary economist, but a
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  Speaker 1: lot of her focus, and she's going to be the
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  Speaker 1: Treasury Secretary, is on labor markets and how they function.
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  Speaker 1: The Council of Economic Advisors, which is what I used
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  Speaker 1: to run. All three of the economists there are focused
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  Speaker 1: on labor, the first time that we've ever seen that. UM.
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  Speaker 1: You'll have Brian Diese as the Director of the National
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  Speaker 1: Economic Council. He'll coordinate the economic policy making. In his case,
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  Speaker 1: his biggest focus is climate change, and you're going to
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  Speaker 1: see I think climate change not just as an environmental issue,
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  Speaker 1: but very much integrated into the thinking on economic policy
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  Speaker 1: as well well. I guess at the that's a critic
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  Speaker 1: would would say that this is a lot of retreads
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  Speaker 1: from the Obama and Clinton administrations. And I would have
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  Speaker 1: phrased to there's people with a lot of experience, but
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  Speaker 1: even you know, we have her, we've heard the likes
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  Speaker 1: of alex Andre Okay, of course, there's say you know,
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  Speaker 1: there's a need for more radicalism. In fact that you know,
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  Speaker 1: the Democrats should have been more radical in their approach
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  Speaker 1: to the election, and they might have done better if
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  Speaker 1: times have really changed. Is it right to have a
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  Speaker 1: team of people who were in past administrations. Absolutely, you
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  Speaker 1: want people who are experience, You want people who can
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  Speaker 1: get things done. The Biden administration is never going to say, oh,
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  Speaker 1: we don't want to do blank on climate change. It's
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  Speaker 1: going to be Congress that stops them. They're not going
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  Speaker 1: to say we don't want to go, you know, too
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  Speaker 1: far on labor markets and wages. Congress is going to
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  Speaker 1: be the break there. So I don't think any of
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  Speaker 1: these advisors will be a constraint on the ambition of
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  Speaker 1: the Biden agenda. And you want experience people to understand
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  Speaker 1: what you can get done without Congress. You are incredible
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  Speaker 1: people like Janet Yellen, they can help persuade Congress to
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  Speaker 1: take the steps that need to be taken. I want
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  Speaker 1: to talk a bit about Congress because that's obviously a
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  Speaker 1: potential roadblock for all of us. But I want to
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  Speaker 1: get onto your paper with Larry Summers because it goes
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  Speaker 1: directly to not just the Biden agenda, but that of
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  Speaker 1: every other industrial economy. Right now, there's been a lot
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  Speaker 1: of debate that we've talked about, actually on cephonomics, quite
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  Speaker 1: a lot about the changing balance between monetary and fiscal
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  Speaker 1: policies since the global financial crisis. And I guess the
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  Speaker 1: justifications for that is, you have interest rates at record lows.
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  Speaker 1: We've seen central banks go as low as they can
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  Speaker 1: go repeatedly, and people had said already fiscal policy is
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  Speaker 1: going to have to play more of a role, and
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  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
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  Speaker 1: industrial countries, maybe around up to twent of GDP borrowing
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  Speaker 1: extraordinary numbers. The reaction of many people to that, including
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  Speaker 1: the UK Chancellor very recently in his Spending Review, has
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  Speaker 1: been that we're kind of lucky to get away with
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  Speaker 1: this borrowing. We shouldn't expect to repeat it, and we
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  Speaker 1: should actually be looking to cut borrowing as soon as
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  Speaker 1: we can, once we have we have a vaccine, once
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  Speaker 1: we have a recovery after this crisis. You say, in
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  Speaker 1: a sense the opposite, you're saying, it just calls for
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  Speaker 1: a revolution in the way we think about borrowing. So
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  Speaker 1: just take us through that a little bit, your augument
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  Speaker 1: with Larry Savis. Yeah, so I think we don't want
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  Speaker 1: to focus on the debt. That's the wrong measure to
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  Speaker 1: look at. You want to look essentially a debt service,
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  Speaker 1: what you're paying each year on the debt, and compare
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  Speaker 1: that to where your economy is. Interest rates are incredibly
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  Speaker 1: low right now. There are a lot lower than the
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  Speaker 1: growth rate, something that Olivier Blanchard, who was president of
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  Speaker 1: the American Economics Association his presidential address, noted necessitated a
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  Speaker 1: profound rethinking of fiscal policy. Now. You might think interest
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  Speaker 1: rates are lowes temporarily, but they were incredibly low in
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  Speaker 1: December before COVID struck our economy. And if you look
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  Speaker 1: at financial market forecasts in the United States, for example,
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  Speaker 1: the FED thinks it's going to raise rates eventually to
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  Speaker 1: two point five percentage points, that itself would be quite low.
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  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
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  Speaker 1: point four percentage points. And so you do see policymakers
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  Speaker 1: around the world sometimes talking about, you know, this won't last.
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  Speaker 1: Their forecasts have been wrong for the last couple of decades.
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  Speaker 1: On interest rates. Markets are sending a very clear signal
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  Speaker 1: and there's um I think some very fundamental economic reasons
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  Speaker 1: why global saving has increased, the demand for investment has declined,
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  Speaker 1: and so equilibrium interest rates are lower. We need to
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  Speaker 1: think about fiscal policy very very differently in that world.
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  Speaker 1: How would it affect the way we decide whether a
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  Speaker 1: government's public finances are in decent shape. So these days,
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  Speaker 1: you know, we economists at Bloomberg or others, we look
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  Speaker 1: at the debt rates, you debt relative to GDP. You're
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  Speaker 1: suggesting we should just look we should look at the
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  Speaker 1: cost of that debt. Presumably we should also look at
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  Speaker 1: where spending or where borrowing is going to because you
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  Speaker 1: want it to actually be supporting economic growth. So how
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  Speaker 1: do we judge whether we're spending money on the right things?
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  Speaker 1: In this environment, right, So if an economy has excess
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  Speaker 1: unemployment and an interest rate around zero, you can spend
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  Speaker 1: money on anything and it would be good for the economy.
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  Speaker 1: So if you just do the famous canes digging holes
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  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
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  Speaker 1: over the medium term M, what Larry Summers and I
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  Speaker 1: recommend is that you look at real debt service as
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  Speaker 1: a share of GDP UM. It's real debt service you're
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  Speaker 1: ajuting for inflation him because inflation is eating away part
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  Speaker 1: of your debt. You want to count that against interest UM.
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  Speaker 1: In the United States and most other UM of the
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  Speaker 1: major economies right now, real debt services currently around zero
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  Speaker 1: because inflation is offsetting interest and it's projected to rise,
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  Speaker 1: but to rise very modestly, and even a decade from
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  Speaker 1: now still be quite low by historical standards. So that
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  Speaker 1: would be the measure I would look at to decide
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  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
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  Speaker 1: low interest rates, there are a lot more public investments
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  Speaker 1: that actually repay themselves. Um. They cost money upfront, you
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  Speaker 1: get higher wages, a stronger economy later on, and so
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  Speaker 1: it doesn't actually cost you anything, and you don't want
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  Speaker 1: to think of it as costing you anything. Um. In
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  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
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  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
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  Speaker 1: of it. Is that really the world we're in with
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  Speaker 1: interest rates at this low? Yes, it is. And the
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  Speaker 1: difference is that the what I'm talking about comes out
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  Speaker 1: of over hundred peer reviewed economic research papers, many of
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  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
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  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
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  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
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  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,
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  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
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  Speaker 1: somewhat prudent, But right now, the bigger risk is that
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  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
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  Speaker 1: of this is going to happen. Surely if the Republicans
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  Speaker 1: remain in control of the Senate for the first years
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  Speaker 1: of the Biden administration. Could you think anyone on that
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  Speaker 1: side has has read your paper? Are you expecting them
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  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
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  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