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What Top Economists Take From the Covid-19 Crisis · Stephanomics

• 0:08
  Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
• 0:11
  Speaker 1: COVID global economy to you. And I'm sorry to say
• 0:14
  Speaker 1: this is the last episode in this series of Stephanomics,
• 0:16
  Speaker 1: but I do hope to be back in a few months.
• 0:19
  Speaker 1: When this run began back at the start of April,
• 0:22
  Speaker 1: we were just getting our heads around this virus what
• 0:25
  Speaker 1: it could mean for people and economies around the world.
• 0:29
  Speaker 1: I think we've done our best to pull together the
• 0:31
  Speaker 1: pieces of that story in the past few months, with
• 0:34
  Speaker 1: reports from Wuhan to Atlanta and Stockholm to Johannesburg. I've
• 0:39
  Speaker 1: also got into what it means for policy now and
• 0:41
  Speaker 1: in the future with top economists such as Joseph Stiglitz
• 0:45
  Speaker 1: and Stephanie Kelton. This week, I wanted to try to
• 0:49
  Speaker 1: piece together some of what we've learned with two of
• 0:51
  Speaker 1: my favorite economists well known to Stephonomics, Adam Posen, former
• 0:55
  Speaker 1: interest rates center at the Bank of England, now president
• 0:57
  Speaker 1: of the Peterson Institute for International Economic and Stephen King,
• 1:01
  Speaker 1: former chief economist now senior advisor for HSBC, the author
• 1:05
  Speaker 1: of multiple books on the future of the world. Adam,
• 1:17
  Speaker 1: I might start with you because we spoke right at
• 1:20
  Speaker 1: the start of the series about economist understanding of this crisis,
• 1:25
  Speaker 1: and we were surprised then at how difficult it had
• 1:28
  Speaker 1: been in the early days for everyone to grasp the
• 1:31
  Speaker 1: magnitude and the pace of COVID's impact on the global economy.
• 1:36
  Speaker 1: Do you think that as a profession we economists have
• 1:40
  Speaker 1: can have done better since then? Have we managed to
• 1:42
  Speaker 1: sort of stay on top of what was happening? I
• 1:46
  Speaker 1: think yes, Stephanie. I think the economists, in terms of
• 1:49
  Speaker 1: their immediate policy advice, in terms of the relative unanimity
• 1:54
  Speaker 1: and being borne out by events, have done surprisingly well.
• 1:57
  Speaker 1: And it's reflected by the odd irony that central bankers
• 2:01
  Speaker 1: like j Palell and Christine Legard are basically getting away
• 2:05
  Speaker 1: with huge public support, while doctors and epidemiologists are the
• 2:09
  Speaker 1: ones being attacked. And if you had told me three
• 2:12
  Speaker 1: months ago central bankers would be more trusted than doctors,
• 2:15
  Speaker 1: I would have been pretty surprised. But I think when
• 2:18
  Speaker 1: we look to the longer term, meaning just in today's world,
• 2:22
  Speaker 1: just a few months down the road, I think we
• 2:24
  Speaker 1: may be reaching the limit of the economist success for
• 2:27
  Speaker 1: three reasons. First, we're getting to the really hard question,
• 2:31
  Speaker 1: which is when we get back to say, of recovery,
• 2:36
  Speaker 1: what do you do with all the people in hospitality, tourism,
• 2:40
  Speaker 1: local services, how do you restructure the economy? And then
• 2:43
  Speaker 1: the old ideological and genuine uncertainty divides among economists come back. Second,
• 2:50
  Speaker 1: I think we're in a world where politics is much
• 2:52
  Speaker 1: more powerful than it used to be, even though sort
• 2:56
  Speaker 1: of banks are getting away with stuff. As you and
• 2:57
  Speaker 1: I have discussed and you've discussed on this podcast, there's
• 3:00
  Speaker 1: an awful lot of politics, as we just saw with
• 3:02
  Speaker 1: the European deal, in in making any kind of judgment,
• 3:06
  Speaker 1: let alone the public health in the US. And the
• 3:09
  Speaker 1: economists can't predict that. And and so the question is
• 3:11
  Speaker 1: how do you get past that, not past that, overriding it,
• 3:15
  Speaker 1: past that makes sensible sense of it. The third difference,
• 3:19
  Speaker 1: which I think is really interesting intellectually and terrifying personally,
• 3:23
  Speaker 1: is the extent of essentially irrationality in large parts of
• 3:27
  Speaker 1: the American public and some other publics with respect the
• 3:30
  Speaker 1: mass and social distancing. The economist view borne out recently
• 3:34
  Speaker 1: in Western Europe and East Asia is it's not really
• 3:37
  Speaker 1: the lockdowns that shut down the economy, it's people's fear
• 3:40
  Speaker 1: of getting the disease, which is why there's a lot
• 3:42
  Speaker 1: of evidence Bloomberg's reported on about like it didn't really
• 3:46
  Speaker 1: matter that much whether you were Sweden or Denmark in
• 3:48
  Speaker 1: terms of the economy, even though it mattered a lot
• 3:50
  Speaker 1: in terms of the disease. But in the US, the
• 3:53
  Speaker 1: assumption I've made, and most economis made is even if
• 3:56
  Speaker 1: Trump messes everything up eventually, most Americans would really is,
• 4:00
  Speaker 1: oh my god, I'm going to die or someone I
• 4:02
  Speaker 1: know is going to die if I don't pull back
• 4:04
  Speaker 1: and we're not seeing that happening yet, and if that continues,
• 4:07
  Speaker 1: that is just both horrifying from a part counter sective,
• 4:11
  Speaker 1: but impossible to model. To put it very well, Stephen,
• 4:16
  Speaker 1: I mean, I guess I put a similar question to you,
• 4:18
  Speaker 1: but also whether you whether you agree with those some
• 4:21
  Speaker 1: of those three points that Adams made. I mean, where
• 4:25
  Speaker 1: where do we stand in terms of our understanding of
• 4:29
  Speaker 1: the impact on the economy and what are the key
• 4:32
  Speaker 1: unanswered questions that we may find ourselves unable to find
• 4:36
  Speaker 1: a solution to. So one thing that I do think
• 4:40
  Speaker 1: has come through as a topic that I find puzzling
• 4:44
  Speaker 1: in many ways is the idea of the v shape
• 4:47
  Speaker 1: recovery the idea that people have confidence that everything is
• 4:50
  Speaker 1: coming back, largely in the back of I guess Google
• 4:54
  Speaker 1: activity data over the last two months. It's trask me
• 4:57
  Speaker 1: being very odd to argue that you can predict what's
• 4:59
  Speaker 1: going to happened in the future on the basis of
• 5:01
  Speaker 1: activity over the last two months, when lockdowns in some
• 5:03
  Speaker 1: cases have come to an end, and inevitably things have
• 5:06
  Speaker 1: improved a certain degree. The second thing where I think
• 5:10
  Speaker 1: I absolutely agree with Adam is still the sense of
• 5:14
  Speaker 1: this idea of scarring, this idea that we don't know
• 5:16
  Speaker 1: quite what's going to happen over the next few quarters.
• 5:21
  Speaker 1: As national lockdowns come to an end, you can be
• 5:24
  Speaker 1: more optimistic, but we also know it's gonna an awful
• 5:26
  Speaker 1: lot of what I described as external lockdowns, that countries
• 5:29
  Speaker 1: cannot relate to each other because they're in different stages
• 5:32
  Speaker 1: of dealing with the virus outbreak. And I also think
• 5:36
  Speaker 1: that there's a potential difficulty with regard to not so
• 5:40
  Speaker 1: much public debt, but corporate and personal debt in a
• 5:44
  Speaker 1: situation where incomes are so much more depressed than people
• 5:48
  Speaker 1: had expected six months or a year ago, and I
• 5:51
  Speaker 1: wonder whether that has an impact in terms of the
• 5:53
  Speaker 1: functioning of the financial system later this year until next year,
• 5:57
  Speaker 1: which itself could be a major drag on the of me.
• 6:00
  Speaker 1: So I think we all as economist had a pretty
• 6:03
  Speaker 1: good record over the last few months and understanding what
• 6:05
  Speaker 1: lockdowns and changes in social behavior would due to the economy.
• 6:10
  Speaker 1: I think there are huge puzzles for the next few
• 6:14
  Speaker 1: months and quarters. We have had a very sharp bounce
• 6:18
  Speaker 1: back in many places, certainly on continental Europe and also
• 6:24
  Speaker 1: in parts of parts of the US. In Europe, particularly
• 6:28
  Speaker 1: where we seem to have broken the link between economic
• 6:31
  Speaker 1: activity and the virus coming back maybe in a more
• 6:35
  Speaker 1: effective way than we have in the US. Is it
• 6:38
  Speaker 1: is it plausible that we could continue to have a
• 6:40
  Speaker 1: v shaped recovery or do you think just inevitably we've
• 6:42
  Speaker 1: had the best of it in the last couple of
• 6:45
  Speaker 1: months as lockdowns were removed. Well, the removal of lockdowns
• 6:48
  Speaker 1: has clearly been enormously helpful in getting a rebound and
• 6:51
  Speaker 1: activity coming through. I think it's also fair to say
• 6:54
  Speaker 1: that track and trade systems are much better than they
• 6:56
  Speaker 1: would have been just a handful of weeks ago, let
• 6:59
  Speaker 1: alone months, So that's also good news. But I think
• 7:02
  Speaker 1: there are also difficulties that exist which would really be
• 7:06
  Speaker 1: on Europe's control. I mean, obviously we're talking about the
• 7:08
  Speaker 1: world whereby even though Europe is looking better, many other
• 7:13
  Speaker 1: parts of the world looking a whole lot worse. And
• 7:15
  Speaker 1: when it comes to trade flows of capital business flowing
• 7:19
  Speaker 1: in different directions around the world, I think a lot
• 7:21
  Speaker 1: of that will still be heavily constrained in the months ahead.
• 7:25
  Speaker 1: And alongside that, even with the rebound that we've seen,
• 7:28
  Speaker 1: there could be lots of areas of activity that are
• 7:31
  Speaker 1: likely to be permanently depressed. Whether it's retail, restaurants, air
• 7:36
  Speaker 1: travel and all these things are likely to be more
• 7:38
  Speaker 1: depressed they have been for really quite some time. So
• 7:41
  Speaker 1: it can be pockets of economy that we permanently weaker
• 7:44
  Speaker 1: and permanently scarring the economy as a whole in the
• 7:47
  Speaker 1: months and quarters ahead. I mean, Adam, you mentioned that
• 7:50
  Speaker 1: as one of the key challenges. I mean, we clearly
• 7:52
  Speaker 1: are at a different stage in terms of policy making
• 7:55
  Speaker 1: in places where the governments are gone from trying to
• 8:00
  Speaker 1: put a floor under the economy to actually try to
• 8:02
  Speaker 1: help it grow, but grow in a world that still
• 8:06
  Speaker 1: has to deal with covid um. I wrote something the
• 8:08
  Speaker 1: other day which talked about this trade off or the
• 8:11
  Speaker 1: decision that governments have to make about how much can
• 8:14
  Speaker 1: be protected and how much needs to be reinvented. Does
• 8:19
  Speaker 1: anyone have a good handle on how to approach that uncertainty? Right?
• 8:23
  Speaker 1: I'm gonna be slightly more optimistic than Stephen, I think,
• 8:27
  Speaker 1: but against a very grim baseline. I think the top
• 8:32
  Speaker 1: end of companies and people employed in those companies, top end,
• 8:35
  Speaker 1: not in quality and size and revenue, in market share,
• 8:39
  Speaker 1: they're going to be fine. And we've seen that with
• 8:41
  Speaker 1: the Fang companies and other companies, and we've seen that
• 8:44
  Speaker 1: even in airlines that as grim as it is for airlines,
• 8:47
  Speaker 1: they're successfully extracting bailouts from from the government's I think
• 8:52
  Speaker 1: the very micro businesses, people running very small restaurants they're
• 8:57
  Speaker 1: suffering is very real. But I also think that to
• 9:00
  Speaker 1: sound sort of dickenzie In or Milton Friedman, those are
• 9:04
  Speaker 1: people who are in those businesses because they had to adapt.
• 9:06
  Speaker 1: They were trying to make a living for their for
• 9:08
  Speaker 1: their for their families, their entrepreneurial they're used to having
• 9:13
  Speaker 1: business failures, frankly, and they're used to having to change jobs.
• 9:16
  Speaker 1: And I think their resilience. It's very sad, but I
• 9:19
  Speaker 1: think the resilience is going to surprise people. What I
• 9:22
  Speaker 1: think gets caught are the sort of mid the employment
• 9:25
  Speaker 1: in the middle tier, the employment in in those that
• 9:28
  Speaker 1: are not political or big enough to get the support
• 9:31
  Speaker 1: and that are too big to be just sort of
• 9:34
  Speaker 1: no capital, no reputation, just move on to the next thing.
• 9:39
  Speaker 1: And I think at some point very soon government support
• 9:42
  Speaker 1: for those people, if they got any and those businesses
• 9:45
  Speaker 1: is going to run at um. But the place where
• 9:48
  Speaker 1: I get to be more optimistic is that I think
• 9:52
  Speaker 1: the governments that did a better job, like in Western
• 9:56
  Speaker 1: Europe and East Asia in dealing with the pandemic, will
• 10:00
  Speaker 1: also be more resilient going forward because they'll have more
• 10:03
  Speaker 1: faith from people and investors that that the situation can
• 10:07
  Speaker 1: be stabilized and vice versa. The US, Brazil, possibly India,
• 10:13
  Speaker 1: places that have really messed it up the UK to
• 10:16
  Speaker 1: orser degree but still real may suffer an ongoing penalty
• 10:21
  Speaker 1: that people are just less trusting the government can put
• 10:24
  Speaker 1: a flora under things. Is that going to affect how
• 10:28
  Speaker 1: investors look at the world. I mean, we've had we've
• 10:31
  Speaker 1: had this disconnect for some months now with you know,
• 10:33
  Speaker 1: there's a stock market acting as if basically the last
• 10:36
  Speaker 1: seven months has not happened, having gone way down, but
• 10:40
  Speaker 1: also now where up, but also betting on the US
• 10:43
  Speaker 1: relative to Europe. I think on the grounds that the
• 10:47
  Speaker 1: US is just in your words, Adam has just been
• 10:50
  Speaker 1: more resilient in the past, has been more able to
• 10:53
  Speaker 1: make these kind of adjustments. Um, if you're right, then
• 10:57
  Speaker 1: that might be wrong and we should actually be expecting
• 11:00
  Speaker 1: Europe to come out falster than this. I I thank
• 11:04
  Speaker 1: you for picking up on that, Stephanie, and I think
• 11:06
  Speaker 1: that is a direct implication of what I'm saying. Um
• 11:09
  Speaker 1: I I I am able to rationalize the stock market
• 11:14
  Speaker 1: generally for all the reasons that you've talked about with
• 11:16
  Speaker 1: others on this program and are well rehearsed. I think
• 11:19
  Speaker 1: the most important thing is to recognize in the U
• 11:22
  Speaker 1: S stock markets, in the in the UK stock markets,
• 11:25
  Speaker 1: and a lot of advanced economy stock markets, this is
• 11:28
  Speaker 1: a very particular section of the economy. This is mostly
• 11:31
  Speaker 1: multinational companies are large companies. It's the ones that happened
• 11:34
  Speaker 1: not to have been taken private. It's not represented the
• 11:37
  Speaker 1: economy as a whole. So in some ways they are,
• 11:41
  Speaker 1: knowing that they've survived, that they have political access, that
• 11:44
  Speaker 1: they're going to have more market power, frankly because some
• 11:47
  Speaker 1: of the competition is being driven out, that there's going
• 11:50
  Speaker 1: to be less wage pressure because so many people are
• 11:52
  Speaker 1: going to be unemployed. You can rationalize, frankly why the
• 11:56
  Speaker 1: stock market is up. But the rotation as it were,
• 11:59
  Speaker 1: between US versus Europe, I think, and frankly China and
• 12:03
  Speaker 1: East Asia is the right thing to consider. And and
• 12:06
  Speaker 1: one of the things I've most reconsidered over the last
• 12:09
  Speaker 1: three months is my general assumption that the US always
• 12:12
  Speaker 1: wins the least ugly contest. Um. I'm beginning to think
• 12:17
  Speaker 1: for obvious reasons, but I don't think the markets and
• 12:19
  Speaker 1: the currency markets in particular put this together yet that
• 12:23
  Speaker 1: the US is actually getting ugly or faster and Europe
• 12:26
  Speaker 1: has managed to get a little good plastic surgery in.
• 12:35
  Speaker 1: Now we should lift our sites a little bit to
• 12:37
  Speaker 1: the longer term picture. And we've had quite a few
• 12:41
  Speaker 1: debates on the economics over the last few months about
• 12:44
  Speaker 1: whether things that had happened as a result of COVID,
• 12:48
  Speaker 1: possibly the acceleration of some trends we've had in the
• 12:51
  Speaker 1: past could end up forcing positive change in the world
• 12:55
  Speaker 1: or instead sort of set us on further on faster
• 12:57
  Speaker 1: on the path to doom as we had newer Rabini
• 13:00
  Speaker 1: he definitely believed. But Stephen, you've spent quite a lot
• 13:03
  Speaker 1: of time over the years thinking about the long term
• 13:06
  Speaker 1: prognosis for the world and some of these deep structural changes.
• 13:12
  Speaker 1: What are you currently thinking about how COVID interacts with those. Well,
• 13:18
  Speaker 1: I had a dream the other night which is all
• 13:20
  Speaker 1: about the World Health Organization being treated as a new
• 13:24
  Speaker 1: important international institution that would be respected by all comers
• 13:30
  Speaker 1: and would set new health protocols for every country around
• 13:33
  Speaker 1: the world, and we could suddenly trust each other in
• 13:35
  Speaker 1: ways that weren't plausible brieviously, and I woke up and
• 13:39
  Speaker 1: actually spotted the reality, which of course is fundamentally different,
• 13:42
  Speaker 1: with the U S having removed its funding of the
• 13:45
  Speaker 1: World Health Organization and the w h O effect of
• 13:47
  Speaker 1: being caught in a kind of US Sino spat. Actually
• 13:52
  Speaker 1: it's more than the spack now, of course, but that
• 13:54
  Speaker 1: basically is what has happened. And I fear that the pandemic,
• 14:00
  Speaker 1: although it's led to you know, huge amounts of scientific
• 14:04
  Speaker 1: cooperation around the world which is a glorious site to behold. Really.
• 14:08
  Speaker 1: There's also lead, I think to new language begining to
• 14:11
  Speaker 1: emerge in terms of national champions, strategic industries, the kind
• 14:15
  Speaker 1: of language we have seen back of the nineteen fifties
• 14:17
  Speaker 1: and nineteen sixties, perhaps, but it's kind of re emerging.
• 14:20
  Speaker 1: There are new questions about how fragile global supply chains are,
• 14:24
  Speaker 1: and that a lot of things I think are in
• 14:27
  Speaker 1: one sense being used as an opportunity to grab more
• 14:30
  Speaker 1: in the way of a nationalist agenda and isolationist or
• 14:33
  Speaker 1: protectionist agenda that was already there. But I fear at
• 14:37
  Speaker 1: the moment it is likely to become worse rather than
• 14:39
  Speaker 1: better in the years ahead. Adam, how are you thinking
• 14:44
  Speaker 1: about the future? And I guess one aspect there's one aspect,
• 14:47
  Speaker 1: which is about is this going to reverse globalization or
• 14:52
  Speaker 1: merely accelerate some of the things that we're already seeing
• 14:56
  Speaker 1: in the way of automation m for example. But I
• 15:00
  Speaker 1: think another side of that is doesn't change our attitude
• 15:03
  Speaker 1: to government in a lasting way. No, I think that's right, Stephanie.
• 15:07
  Speaker 1: The you know, so, I think about trends that were
• 15:11
  Speaker 1: accelerated or reinforced by the pandemic and the response. And
• 15:16
  Speaker 1: I think I think in terms of as I think
• 15:18
  Speaker 1: we've discussed the corrosion of globalization, rather than it rolling
• 15:23
  Speaker 1: back or forward, that that it becomes more brittle, more uneven, uh,
• 15:28
  Speaker 1: certain kinds of connections free, but it advances in other way.
• 15:31
  Speaker 1: So you know, you can have the EU of all
• 15:34
  Speaker 1: places putting on restrictions on exports and medical equipment at
• 15:38
  Speaker 1: the same time that the CPTPP nations are creating a
• 15:41
  Speaker 1: safe zone. So it's less even across the world, but
• 15:45
  Speaker 1: deeper in some places. I think the types of political
• 15:48
  Speaker 1: backlash we're talking about are likely but still to play
• 15:52
  Speaker 1: for Frankly, Um, when you see the economic nationalists like Bolson,
• 15:57
  Speaker 1: Arrow and Trump and Johnson and their Air Dowan and
• 16:01
  Speaker 1: do air Day not having a good run of it
• 16:03
  Speaker 1: dealing with the disease, that may in the end make
• 16:06
  Speaker 1: a difference, and that goes to the more positive side. Again,
• 16:09
  Speaker 1: I'm in the odd position of sounding more optimistic than many, um,
• 16:14
  Speaker 1: which just goes back to something you and I talked
• 16:16
  Speaker 1: about in the first episode, which is the there may
• 16:20
  Speaker 1: be greater demand for a European style economy, UM, particularly
• 16:27
  Speaker 1: in the Commonwealth countries and in East Asia than had
• 16:31
  Speaker 1: been seen previously. It's partly that the cost benefit of
• 16:36
  Speaker 1: being a free market totally lays a fair which exaggerates obviously,
• 16:41
  Speaker 1: but anyway, the more American Anglo American style hasn't prevented
• 16:46
  Speaker 1: either the crisis of two thousand eight or the bad
• 16:49
  Speaker 1: response of two thousand twenty. But it's also partly that
• 16:52
  Speaker 1: we're seeing in fact with the French and the Germans
• 16:56
  Speaker 1: and the Danes and the even the Italians and the
• 16:58
  Speaker 1: Greeks are doing is having pretty good results in terms
• 17:01
  Speaker 1: of keeping people back in employment and keeping firms open.
• 17:07
  Speaker 1: And then there's the issue, of course, that is my
• 17:09
  Speaker 1: colleague at Peterson Olivable and Chart has led the charge
• 17:12
  Speaker 1: on not exaggerating the the constraints on fiscal room, not
• 17:17
  Speaker 1: exaggerating the debt risks. Again, that's not a MMT carte blanche,
• 17:23
  Speaker 1: but it is it goes with this, and so I
• 17:26
  Speaker 1: do think there is a possibility that we we see,
• 17:30
  Speaker 1: if you're about performs, we see some shift to greater
• 17:34
  Speaker 1: acceptance of a demand for the European style state. I'm interested, Stephen,
• 17:39
  Speaker 1: do you think that's plausible. I think it's plausible in
• 17:44
  Speaker 1: the sense that What does emerge from this crisis is
• 17:48
  Speaker 1: the idea that countries regions that have a sense of
• 17:53
  Speaker 1: social responsibility supposed to individual freedom have tended to do
• 17:56
  Speaker 1: to date rather better than those that have oft the
• 18:00
  Speaker 1: focus on individual freedom. Certainly from a a sort of
• 18:04
  Speaker 1: British perspective, observing the debate in the US about wearing masks,
• 18:08
  Speaker 1: it strikes me as being a pretty odd debate, but
• 18:11
  Speaker 1: it's something that seems to be uniquely American perhaps rather
• 18:15
  Speaker 1: than European um. And when you've got those kinds of
• 18:19
  Speaker 1: differences in behavior, then perhaps it's not so surprising was
• 18:21
  Speaker 1: seeing differences in terms of outcomes with regard to the
• 18:24
  Speaker 1: virus UM. The difficulty, of course, is that it may
• 18:28
  Speaker 1: well be that Europe has a good crisis, but it
• 18:30
  Speaker 1: is also the case that Europe over a much longer
• 18:33
  Speaker 1: period of time has not really delivered an awful lot
• 18:36
  Speaker 1: of economic growth, and there are plenty of countries around
• 18:38
  Speaker 1: the world who would like to see more growth than
• 18:40
  Speaker 1: Europe itself has delivered. UM. So I think a big
• 18:44
  Speaker 1: question here is whether coming out of this crisis, Europe,
• 18:47
  Speaker 1: through these new fiscal packages and so on, can deliver
• 18:50
  Speaker 1: something which actually makes a monetary union at the fiscal
• 18:53
  Speaker 1: union work together in a politically sustainable fashion, and that
• 18:57
  Speaker 1: I think is still a very very big challenge for
• 18:59
  Speaker 1: the for the years ahead. I guess one final thing
• 19:02
  Speaker 1: is just about when we think about long term impacts,
• 19:05
  Speaker 1: often one is surprised by how behavior changes in response
• 19:09
  Speaker 1: to this kind of experience. And we all know, you know,
• 19:11
  Speaker 1: the evidence that suggests the big financial crisis can really
• 19:14
  Speaker 1: change people's attitude to too savings or to the kind
• 19:18
  Speaker 1: of financial assets they might might want. Is there a
• 19:22
  Speaker 1: possibility that this crisis does pave the way for inflation
• 19:27
  Speaker 1: down the road, not because of the sort of short
• 19:30
  Speaker 1: term impact of the money being pumped into the economy,
• 19:34
  Speaker 1: but because of a change in attitude towards borrowing and spending.
• 19:37
  Speaker 1: I mean, it could be that people from now on
• 19:40
  Speaker 1: just will not listen to politicians who tell them that
• 19:43
  Speaker 1: there are constraints on spending and borrowing, because they've seen,
• 19:48
  Speaker 1: when push comes to shove, that they can spend any
• 19:51
  Speaker 1: amount of money to get themselves out of a hole.
• 19:54
  Speaker 1: I don't know who, what, Stephen, do you think this
• 19:56
  Speaker 1: is when historians look back? Is this paving the way
• 19:59
  Speaker 1: for inflation? I'm let me go first, because I think
• 20:04
  Speaker 1: Stephen will very different. I'm inflating myself, um, I think
• 20:13
  Speaker 1: I think there's two opposing forces, Stephanie. On the one hand,
• 20:18
  Speaker 1: as you say, sort of the the the wolf has
• 20:21
  Speaker 1: been called out, and it doesn't mean that there's no
• 20:23
  Speaker 1: fiscal limit, but it means it matters a lot on
• 20:27
  Speaker 1: context what the fiscal limit is, and it matters a
• 20:30
  Speaker 1: lot on what you spend it um and both of
• 20:34
  Speaker 1: which have been largely absent from the discussion of fiscal
• 20:37
  Speaker 1: hawks and fiscal hawk politicians. And so I do think
• 20:42
  Speaker 1: there will be this sense of liberation, as it were.
• 20:46
  Speaker 1: But as we've seen with Japan and as we've seen
• 20:48
  Speaker 1: with Italy, you can have very long term accumulation of
• 20:52
  Speaker 1: a lot of debt and it doesn't necessarily lead to inflation.
• 20:55
  Speaker 1: And I think the countervailing force is large economic. Going
• 21:00
  Speaker 1: back to behavioral changes, is people save more, are more
• 21:04
  Speaker 1: risk averse in this kind of situation. I mean, think
• 21:07
  Speaker 1: about your children are too young, but maybe Stephen's children.
• 21:10
  Speaker 1: You know that they've seen their contemporaries and their peers
• 21:14
  Speaker 1: go through two rounds of large unemployment and two rounds
• 21:18
  Speaker 1: of setback, and they're going to like our grandparents in
• 21:21
  Speaker 1: the thirties, they're going to be more cautious and there's
• 21:24
  Speaker 1: fewer things to invest in. The risk adjusted investment propositions
• 21:29
  Speaker 1: are so and the one in private savings are going up.
• 21:31
  Speaker 1: At the second time public savings may be loosened, so
• 21:35
  Speaker 1: that battle I'm not sure how it works out. I
• 21:36
  Speaker 1: see both forces. But the political angle, and this is
• 21:39
  Speaker 1: why I made reference to Carter and the seventies is
• 21:43
  Speaker 1: you know, I have a a very retrograde vision of
• 21:46
  Speaker 1: inflation in the sense that it it's associated with political breakdounds.
• 21:50
  Speaker 1: It's associated with UK in the seventies and only the seventies,
• 21:54
  Speaker 1: Argentine in the eighties, when people lose faith that there
• 21:57
  Speaker 1: can be agreement that the government can raise taxes if necessary,
• 22:03
  Speaker 1: and even if they don't, you need that sort of
• 22:05
  Speaker 1: threat that they can raise taxes to establish credibility. And
• 22:08
  Speaker 1: if you have social political breakdown, you can't do that.
• 22:12
  Speaker 1: And that's when people start from the outside and inside
• 22:14
  Speaker 1: looking abroad. And so to me, that's really going to
• 22:18
  Speaker 1: be the determined of inflation. How much political division and
• 22:21
  Speaker 1: inoperability of government of legislatures we get, and then you
• 22:25
  Speaker 1: might get back to the us once again, it's not
• 22:28
  Speaker 1: really being attractive to people in a kind of fundamental way. Stephen,
• 22:32
  Speaker 1: And when I say Stephen, I mean Stephen, Thanks Stephanie,
• 22:37
  Speaker 1: Thanks Adam. Um So, I think one thing that has
• 22:40
  Speaker 1: emerged from this whole crisis is a sense of a
• 22:44
  Speaker 1: generational divide. And this is very unfortunate and probably quite
• 22:47
  Speaker 1: a sensitive topic to talk about, but the reality is
• 22:50
  Speaker 1: that the majority people who are particularly vulnerable to COVID
• 22:53
  Speaker 1: nineteen are relatively mature. The majority of people who are
• 22:57
  Speaker 1: particularly vulnerable to the economic consequences of lockdown and so
• 23:00
  Speaker 1: on are relatively young. And I'd also observed that although
• 23:05
  Speaker 1: Adam is absolutely right about the ability to have government
• 23:09
  Speaker 1: debt rising a lot further than we've seen so far,
• 23:12
  Speaker 1: we also know from wartime going back over two hundred
• 23:15
  Speaker 1: years or so, that when debt levels get to these
• 23:17
  Speaker 1: very high amounts, they eventually do find a way of
• 23:21
  Speaker 1: coming back down again. And they come down either because
• 23:25
  Speaker 1: you're very lucky to have very strong income growth that
• 23:27
  Speaker 1: denominators rising very quickly, as was the case from the
• 23:30
  Speaker 1: nineteen late forties nine fifties onwards, or it's because of
• 23:35
  Speaker 1: inflation has happened to particularly buy my Republic and Austria
• 23:39
  Speaker 1: and so on after World War One. Or it's higher
• 23:43
  Speaker 1: taxes of one kind or another, which is what William
• 23:46
  Speaker 1: Pitt the younger introduced in in order to fund the
• 23:50
  Speaker 1: Napoleon it was, And I just wonder whether we should
• 23:54
  Speaker 1: think about the inflation debate, not so much in terms
• 23:56
  Speaker 1: of whether inflation comes along almost by a mistake, but
• 23:59
  Speaker 1: rather it is one option to redistribute income from those
• 24:04
  Speaker 1: who have got wealth to those who are in debt.
• 24:08
  Speaker 1: You can do us through a wealth tax, but wealth
• 24:09
  Speaker 1: taxes themselves are a tricker to implement, often deeply unpopular,
• 24:14
  Speaker 1: and so on. So inflation actually is a mechanism by
• 24:16
  Speaker 1: which you could redistribute income and wealth from the older
• 24:20
  Speaker 1: generation to the younger generation. Of course, the problem with
• 24:23
  Speaker 1: us is that with boomers and the seventies and above,
• 24:26
  Speaker 1: the older generation is not going to really vote for this.
• 24:28
  Speaker 1: But there may come a time, and may come a
• 24:30
  Speaker 1: point what actually this does begin to come through. An
• 24:33
  Speaker 1: inflation could be, at least in the short run, an
• 24:36
  Speaker 1: easier option to take than trying to impose nasty taxes
• 24:39
  Speaker 1: and people who really want to resist them. Well, Stephen,
• 24:43
  Speaker 1: as well as giving us our insights. You have given
• 24:44
  Speaker 1: me an idea for a cracking new podcast series about
• 24:49
  Speaker 1: economists and their dreams, which I will invite you on.
• 24:53
  Speaker 1: Economists talk about the interesting dreams that they have had.
• 24:57
  Speaker 1: Now that was all. That was all excellent, and I
• 25:00
  Speaker 1: appreciate you helping me reach the end of our Stephonomics series.
• 25:05
  Speaker 1: Adam Posen, Stephen King, thanks for listening to this last
• 25:11
  Speaker 1: in the current series of Stephanomics. We'll be back in October,
• 25:14
  Speaker 1: I think, and do keep an eye on this feed
• 25:16
  Speaker 1: because if I talked to anyone really interesting before that,
• 25:19
  Speaker 1: we'll put it out as a special episode. Who knows
• 25:22
  Speaker 1: what the world will look like in a few months time.
• 25:24
  Speaker 1: But you can always find us on the Bloomberg terminal, website,
• 25:27
  Speaker 1: app or wherever you get your podcasts. And for more
• 25:30
  Speaker 1: news and analysis during the week from Bloomberg Economics, just
• 25:33
  Speaker 1: follow at Economics on Twitter. This entire series was masterfully
• 25:39
  Speaker 1: and patiently produced my Magnus Hendrickson, with help from executive
• 25:43
  Speaker 1: producers Scott Lammon and Lucy Meekin special thanks this week
• 25:46
  Speaker 1: too to Stephen King and Adam Posen. The head of
• 25:50
  Speaker 1: Bloomberg Podcast is Francesca Leaving