Latest / Stephanomics / Higher Inflation, Rates Will Stick Around as Economies Go Green

Transcript

Higher Inflation, Rates Will Stick Around as Economies Go Green · Stephanomics

• 0:00
  Speaker 1: I think a lot of people just don't know, or
• 0:03
  Speaker 1: they don't think that far into the future, or you know,
• 0:06
  Speaker 1: some people don't believe it's happening. You know. Hello, and
• 0:16
  Speaker 1: welcome to Stephanomics, the podcast that brings the global economy
• 0:19
  Speaker 1: to you. If you don't believe in climate change, I
• 0:22
  Speaker 1: have a great beachfront condo to sell you on the
• 0:24
  Speaker 1: Miami Coast, but you'll need to act fast. Prices for
• 0:28
  Speaker 1: so called open water properties in southern Florida have more
• 0:31
  Speaker 1: than doubled in the past year. There's little sign of
• 0:34
  Speaker 1: the market slowing down despite the prospect of not just
• 0:36
  Speaker 1: rising interest rates, but let's face it, rising sea levels
• 0:40
  Speaker 1: that could put these properties underwater by twenty fifty. Bloomberg
• 0:44
  Speaker 1: opinion column list and longtime Miami resident Jonathan Levin went
• 0:49
  Speaker 1: looking for any sign that Florida house buyers were paying
• 0:53
  Speaker 1: any attention to the rising flood risks for these super
• 0:56
  Speaker 1: desirable seaside properties. Stick around for is surprising on the
• 1:01
  Speaker 1: Beach Report. But before that, we have an exclusive interview
• 1:05
  Speaker 1: with Isabel Schnabel, who was a member of the executive
• 1:08
  Speaker 1: board of the European Central Bank has been more focused
• 1:10
  Speaker 1: than most on the practical effects of climate change and
• 1:14
  Speaker 1: how central banks and government should respond. Thank you Isabel
• 1:24
  Speaker 1: for doing this now. I know you don't want to
• 1:26
  Speaker 1: talk about what's going to happen to interest rates next
• 1:28
  Speaker 1: week or next month, and some of our listeners will
• 1:31
  Speaker 1: be disappointed to hear that, but I suspect many will
• 1:33
  Speaker 1: be delighted that we're we're lifting our heads up from
• 1:36
  Speaker 1: that to to longer term issues, and there's no bigger
• 1:39
  Speaker 1: one than climate change. So before we get into the
• 1:42
  Speaker 1: economics of this, I just wanted to start by asking
• 1:45
  Speaker 1: you why you, as a senior figure on the e
• 1:47
  Speaker 1: c B, seemed to have been the one who's invested
• 1:51
  Speaker 1: most time in thinking through and giving speeches about the
• 1:55
  Speaker 1: economic implications of climate change. So, first of all, thank
• 1:59
  Speaker 1: you some much, Stephanie for for having me here today.
• 2:03
  Speaker 1: It's it's such a pleasure to to be part of
• 2:06
  Speaker 1: your very nice podcast, Serious and I'm also delighted to
• 2:11
  Speaker 1: talk about the topic of climate change. And as you said,
• 2:15
  Speaker 1: I've spent quite some time thinking about this topic and
• 2:21
  Speaker 1: thinking about what it implies for central banks and monetary policy.
• 2:26
  Speaker 1: Maybe it's not fair to say that that I'm the
• 2:28
  Speaker 1: main person driving it. I think that it would be
• 2:31
  Speaker 1: fair to say that it was actually President Laguard who
• 2:35
  Speaker 1: who started to put a lot of emphasis on climate
• 2:39
  Speaker 1: change here at the ECB. And I must say that
• 2:42
  Speaker 1: I actually went through a learning curve. So when I
• 2:46
  Speaker 1: joined the e c B, I think I was a
• 2:49
  Speaker 1: bit more skeptical regarding the role of central banks with
• 2:53
  Speaker 1: regard to the climate change, and my my thinking has
• 2:57
  Speaker 1: developed quite quite profoundly over time by understanding a better
• 3:04
  Speaker 1: I mean trus of all, of course the massive impact
• 3:07
  Speaker 1: that climate change is going to have on the economy,
• 3:10
  Speaker 1: but also the important role that central banks may actually play.
• 3:15
  Speaker 1: So you gave us a speech um that I thought
• 3:18
  Speaker 1: was particularly interesting in March of this year, where you
• 3:22
  Speaker 1: were thinking about the impact on inflation of climate change
• 3:28
  Speaker 1: and the sort of there's there's three different price shocks
• 3:31
  Speaker 1: that you felt we were sort of looking at down
• 3:34
  Speaker 1: the track and indeed already experiencing to some extent. Do
• 3:36
  Speaker 1: you want to just quickly run through those those dynamics.
• 3:41
  Speaker 1: Let me, maybe a first um, make one very important point,
• 3:46
  Speaker 1: which is that I I think it's very likely that
• 3:52
  Speaker 1: after the green transition has been accomplished, energy prices are
• 3:59
  Speaker 1: actually likely to be lower than they are today. So
• 4:04
  Speaker 1: what we are talking about when we're talking about these
• 4:07
  Speaker 1: inflationary effects is really what's going to happen during the transition.
• 4:14
  Speaker 1: And during the transition, it's it's quite clear that prices
• 4:20
  Speaker 1: of carbon intensive energy sources are going to rise, and
• 4:24
  Speaker 1: this is of course also necessary in order to accelerate
• 4:29
  Speaker 1: the green transition. And as you rightly said, I I
• 4:35
  Speaker 1: tried to to better understand the different types of inflation
• 4:41
  Speaker 1: that we may experience due to the green transition in
• 4:44
  Speaker 1: the time to come. And the first type I mentioned
• 4:48
  Speaker 1: was what I called climate inflation. So this would be
• 4:52
  Speaker 1: the type of inflation caused by climate change itself. So
• 4:57
  Speaker 1: due to climate change, there is likely to be a
• 5:01
  Speaker 1: much higher frequency of natural disasters, so of flooding, wildfires, droughts,
• 5:09
  Speaker 1: and this for example, will have quite some impact on
• 5:13
  Speaker 1: food prices. And I think it's this is no longer
• 5:16
  Speaker 1: like a distant prospect, but we are already seeing that.
• 5:21
  Speaker 1: And so this climate inflation is what is coming from
• 5:24
  Speaker 1: climate change itself, and our economists looking at this have
• 5:27
  Speaker 1: also the other part of that is it becomes more volatile.
• 5:31
  Speaker 1: You could have just an increase in the volatility of
• 5:33
  Speaker 1: inflation as well, from these kind of shots, that's certainly
• 5:36
  Speaker 1: true as well. The second type, and I would say
• 5:41
  Speaker 1: this is quantitatively the most important one, is what I
• 5:47
  Speaker 1: called fossil inflation. This is also what we are basically
• 5:51
  Speaker 1: seeing at the moment, further reinforced by by the war
• 5:57
  Speaker 1: um and fossil inflation in the end is a reflection
• 6:03
  Speaker 1: of our excessive reliance on fossil energy sources in the past.
• 6:11
  Speaker 1: And then finally, the third type of inflation I mentioned
• 6:16
  Speaker 1: was what I called green inflation. And green inflation is
• 6:19
  Speaker 1: related to the expansion of renewable energy sources, and it's
• 6:25
  Speaker 1: important to acknowledge that this expansion we lead to a
• 6:31
  Speaker 1: very high demand for certain metals and and certain minerals.
• 6:38
  Speaker 1: So good examples are lithium, copper, nickel, cobalt, which which
• 6:47
  Speaker 1: are also in short supply. So especially if if everybody
• 6:54
  Speaker 1: or or or many are trying to accelerate the green transition,
• 7:00
  Speaker 1: this recreate a huge demand for those metals and minerals
• 7:05
  Speaker 1: and imply increases in in their prices, and this then
• 7:10
  Speaker 1: leads to re inflation. And if you, if you're ready
• 7:12
  Speaker 1: now look at some of those prices, this is quite striking.
• 7:17
  Speaker 1: So I think if I remember correctly, the price of
• 7:21
  Speaker 1: lithium has increased by a factor of ten since the
• 7:26
  Speaker 1: beginning of twenty twenty one. So uh and and this
• 7:30
  Speaker 1: is I mean, at the moment, I would say most
• 7:33
  Speaker 1: of what we're seeing is still fossil inflation. By going forward,
• 7:38
  Speaker 1: the share of re inflation is likely to become more important.
• 7:42
  Speaker 1: Thank you for for being so so so clear about
• 7:45
  Speaker 1: those things. How concerned are you that people will begin,
• 7:49
  Speaker 1: with some justice to associate the move to a zero
• 7:55
  Speaker 1: carbon economy with the serious inflation problem. Well, there's a
• 8:00
  Speaker 1: there is certainly a political issue there, so that that
• 8:04
  Speaker 1: won't make the transition easier. But we should be aware
• 8:10
  Speaker 1: of the fact that all the research that I know
• 8:14
  Speaker 1: shows that the that the green transition is the easier
• 8:22
  Speaker 1: the earlier it really starts. So if we if we
• 8:27
  Speaker 1: move too late, it can become very disruptive and too
• 8:33
  Speaker 1: late already I mean, of course, I guess it's fair
• 8:38
  Speaker 1: to say that that we are already moving too late.
• 8:42
  Speaker 1: I mean, if we if we look at the Paris goals, um,
• 8:47
  Speaker 1: I think it's it's actually quite striking that even in
• 8:52
  Speaker 1: the year twenty twenty so at the height of the
• 8:55
  Speaker 1: COVID pandemic, where the global economy was partly shut down
• 9:00
  Speaker 1: on the reduction in carbon emissions was was not enough,
• 9:06
  Speaker 1: I mean relative to what is needed in order to
• 9:09
  Speaker 1: achieve our goals. So basically you would need to achieve
• 9:14
  Speaker 1: more every single year than what happened in twenty twenty.
• 9:20
  Speaker 1: And I think this this shows us that we are
• 9:22
  Speaker 1: already very late. And I think I mean waiting makes
• 9:28
  Speaker 1: everything much worse, much more costly in economic terms, and
• 9:34
  Speaker 1: of course that is one of the major challenges um
• 9:38
  Speaker 1: for governments to explain to the population that the economic
• 9:44
  Speaker 1: costs are going to be much higher if we wait
• 9:48
  Speaker 1: even longer. There's a burden that goes on central banks,
• 9:52
  Speaker 1: and we might talk a bit about that, how should
• 9:54
  Speaker 1: a central bank like the European Central Bank approach these
• 10:00
  Speaker 1: various kinds of inflation that we now see coming down
• 10:03
  Speaker 1: the track? But is there a more sort of interventionist
• 10:07
  Speaker 1: or certainly a more expensive role for for governments in
• 10:11
  Speaker 1: responding to this these transitional issues. So let me be
• 10:15
  Speaker 1: very clear on this that it's clearly governments who are
• 10:19
  Speaker 1: in the driver's seat, so there can be no doubt
• 10:23
  Speaker 1: about that, and their major task is to accelerate the
• 10:29
  Speaker 1: green transition, and most economists would agree that the ideal
• 10:36
  Speaker 1: instrument would be a carbon price, and ideally even at
• 10:42
  Speaker 1: a global level. In in addition, there will be the
• 10:47
  Speaker 1: need for massive investment, public investment, but then of course
• 10:52
  Speaker 1: also a private investment. So I think the governments have
• 10:56
  Speaker 1: a very important role to play here. We should also
• 11:00
  Speaker 1: not forget that certain parts of the population are likely
• 11:04
  Speaker 1: to suffer more from the energy price increases that that
• 11:10
  Speaker 1: we discussed than others, and so the so governments also
• 11:15
  Speaker 1: have the role to protect the most vulnerable parts of
• 11:21
  Speaker 1: our society who spend a much larger share of their
• 11:26
  Speaker 1: income of for energy. And at the same time, all
• 11:32
  Speaker 1: the measures have to be designed in a way that
• 11:37
  Speaker 1: they don't destroy the incentives, because, as I said, the
• 11:41
  Speaker 1: higher energy prices of course also needed in order to
• 11:45
  Speaker 1: make sure that energy demand is going to decrease, that
• 11:50
  Speaker 1: there is an incentive to innovate um to become more
• 11:55
  Speaker 1: energy efficient in all of that, and so if governments,
• 12:01
  Speaker 1: for example, simply subsidize energy prices, this would certainly go
• 12:07
  Speaker 1: in the wrong direction because this would destroy those very
• 12:12
  Speaker 1: important price signals which are needed in order to accelerate
• 12:16
  Speaker 1: the transition. If we are looking at potentially a need
• 12:19
  Speaker 1: for much for more government spending on this and certainly
• 12:22
  Speaker 1: more government investment and overall in the private and the
• 12:25
  Speaker 1: public sector, a lot more investment and on a quite
• 12:30
  Speaker 1: reasonably speedy time scale um to support this transition. Is
• 12:35
  Speaker 1: that I mean that sounds to me like an environment
• 12:38
  Speaker 1: for higher long term interest rates compared to where we've
• 12:41
  Speaker 1: been in the last few years. Do you think do
• 12:43
  Speaker 1: you think that's right? Are we sort of structurally moving
• 12:45
  Speaker 1: or at least going to have a period period m
• 12:49
  Speaker 1: as this transition is achieved where interest rates could be
• 12:52
  Speaker 1: significantly higher long term interest rates, not necessarily the ones
• 12:54
  Speaker 1: you control. Yes, So I actually share that view that
• 13:00
  Speaker 1: we may now enter a very different macroeconomic environment from
• 13:06
  Speaker 1: where we were. I mean, we had this, uh, this
• 13:09
  Speaker 1: long term trend of declining interest rates, which was also
• 13:14
  Speaker 1: related to the fact that there was an abundance of
• 13:18
  Speaker 1: savings on the one hand and relatively sluggish investment demand.
• 13:25
  Speaker 1: And if we if we look at the at the
• 13:28
  Speaker 1: massive investment that is needed, as I said, both on
• 13:31
  Speaker 1: the public and on the private side, and this is
• 13:34
  Speaker 1: not just the green transition, but that's that's also I
• 13:38
  Speaker 1: mean as we know now it's for example, defense and
• 13:42
  Speaker 1: other issues. Then I would agree that this will tend
• 13:50
  Speaker 1: to lead to higher interest rates going forward. It seems
• 14:01
  Speaker 1: like if you're for a big chunk of the population,
• 14:04
  Speaker 1: you might say, Okay, my mortgage rates going up partly
• 14:06
  Speaker 1: because of the transition to zero carbon. My cost of
• 14:12
  Speaker 1: my petrol and my energy has gone up. The world
• 14:15
  Speaker 1: has just got a lot more expensive, and it's all
• 14:17
  Speaker 1: down to these greens. Yes, So that's that's another interesting question.
• 14:23
  Speaker 1: So maybe before we talk about the distributional effects. I
• 14:26
  Speaker 1: think one of the implications of what we discussed is
• 14:32
  Speaker 1: that we need to put many more resources into investment,
• 14:38
  Speaker 1: which applies that that that there is in the end
• 14:42
  Speaker 1: less consumption and already that even before looking before looking
• 14:48
  Speaker 1: at the distributional effect, already that could create a polity.
• 14:53
  Speaker 1: So you've added another one to the list. The high
• 14:56
  Speaker 1: need for investment implies that that comes asumption growth is
• 15:01
  Speaker 1: being to be a slower But I would say that,
• 15:05
  Speaker 1: of course, climate change itself is something which creates a
• 15:10
  Speaker 1: lot of inequality. I mean, we know that different parts
• 15:15
  Speaker 1: of the world are affected very differently by by climate change,
• 15:20
  Speaker 1: and unfortunately it seems that the poorest parts of the
• 15:24
  Speaker 1: world are affected more more strongly, and I mean even
• 15:29
  Speaker 1: within Europe, one can see that that different parts are
• 15:34
  Speaker 1: affected very differently. And so it's not just climate policies
• 15:40
  Speaker 1: which kind of may have a distributional effects, but it's
• 15:44
  Speaker 1: also climate change itself. But on the on the climate policies,
• 15:48
  Speaker 1: I think in order to to get uh, I mean,
• 15:54
  Speaker 1: the agreement from the population to all these policy measures,
• 15:58
  Speaker 1: it's absolutely crucial that that there is a certain degree
• 16:05
  Speaker 1: of compensation. I mean there is UH. There is a
• 16:09
  Speaker 1: debate going on for exact way it comes to carbon taxes,
• 16:14
  Speaker 1: how how to use the proceeds from that. And given
• 16:19
  Speaker 1: that the carbon taxes at tend to be regressive, so
• 16:24
  Speaker 1: they affect the poorer part of the population more than
• 16:30
  Speaker 1: uh than then the better, the better off. It's clear
• 16:35
  Speaker 1: that at least part is not all of those revenues
• 16:39
  Speaker 1: should be used for compensatory measures. Again as a stress
• 16:44
  Speaker 1: before this has to be done in a way that
• 16:48
  Speaker 1: the incentives are not destroyed. So that is so some
• 16:54
  Speaker 1: people say it could simply be a pre captor distribution,
• 17:00
  Speaker 1: which then would actually benefit the poorer people more than
• 17:05
  Speaker 1: the than the wricher ones. So this is it's easy
• 17:09
  Speaker 1: for a central banker to say when all of these
• 17:11
  Speaker 1: policies would actually have to be by governments, and in
• 17:14
  Speaker 1: the European level, you don't even have necessarily joint fiscal
• 17:18
  Speaker 1: policy to do those things. As a central bank, and
• 17:22
  Speaker 1: thinking about your basic remit, which is inflation and or
• 17:28
  Speaker 1: controlling inflation, and you're looking at these various elements that
• 17:33
  Speaker 1: could make the world more expensive over time um and
• 17:38
  Speaker 1: potentially also have produced more volatility and inflation. Does that
• 17:43
  Speaker 1: I mean, how much does that change the way? Should
• 17:47
  Speaker 1: it change the framework for policy over the next few years?
• 17:51
  Speaker 1: Will you should you be more tolerant of of higher
• 17:55
  Speaker 1: inflation because it's part of this transitional green challenge. Yes,
• 17:59
  Speaker 1: So this is uh really the most important question that
• 18:04
  Speaker 1: we will have to answer over the coming years. So
• 18:08
  Speaker 1: the first thing that we will have to acknowledge is
• 18:12
  Speaker 1: that it's very likely that the nature of energy price
• 18:16
  Speaker 1: shocks have changed. So in previous times, I mean, the
• 18:21
  Speaker 1: standard prescription would would have been that we would look
• 18:27
  Speaker 1: through energy price shocks because they were considered to be
• 18:34
  Speaker 1: a temporary and in short lived. So the idea being
• 18:39
  Speaker 1: that if we reacted to such a shock, that would
• 18:44
  Speaker 1: kind of normalize after a short period of time. Anyway,
• 18:48
  Speaker 1: then we would uh possibly then weaken the economy at
• 18:54
  Speaker 1: a time when this this this price shock has already disappeared.
• 19:00
  Speaker 1: And therefore the standard prescrictive prescription was to look through
• 19:04
  Speaker 1: such energy price shocks. But now I would argue that
• 19:08
  Speaker 1: the that the nature of these sharks has changed, that
• 19:13
  Speaker 1: that there is a more persistent or more structural component
• 19:19
  Speaker 1: to these energy price shocks, so that we have uh
• 19:25
  Speaker 1: a prolonged increase in energy prices over a longer period
• 19:30
  Speaker 1: of time. As I said, I mean over the period
• 19:33
  Speaker 1: of the transition, which actually can be quite long, so
• 19:36
  Speaker 1: we are not talking about five years, but we are
• 19:38
  Speaker 1: talking about possibly much longer period. And in such a situation,
• 19:45
  Speaker 1: it's no longer clear that we can afford to just
• 19:48
  Speaker 1: look through these inflationary effects, because there is the risk
• 19:56
  Speaker 1: that inflation expectations u getting the anchor, which which threatens
• 20:05
  Speaker 1: the credibility of the of the central bank. And when
• 20:11
  Speaker 1: it comes to energy, this is particularly high risk because
• 20:17
  Speaker 1: people go to the gas station, let's say, quite often
• 20:21
  Speaker 1: they really see what's happening there, and therefore it has
• 20:25
  Speaker 1: quite a strong impact on their inflation expectations. And of
• 20:31
  Speaker 1: course if there is the anchoring of inflation expectations, I mean,
• 20:34
  Speaker 1: this can give rise to a wage price spiral. This
• 20:39
  Speaker 1: becomes all the more likely the longer the high inflation
• 20:46
  Speaker 1: period persists, and that then for us becomes very dangerous.
• 20:50
  Speaker 1: And this is why I think that we actually cannot
• 20:54
  Speaker 1: look through this persistent price increase that may happen in
• 20:58
  Speaker 1: the course of the green transition. There has always been
• 21:00
  Speaker 1: an argument that said, over time they look through strategy
• 21:04
  Speaker 1: was actually rather bad for for workers. People have to
• 21:11
  Speaker 1: face that sort of immediate hit to their real incomes
• 21:14
  Speaker 1: from this spike in prices and not have any kind
• 21:17
  Speaker 1: of compensation in the form of slower, lower inflation down
• 21:20
  Speaker 1: the track. You just end up with lower wages in
• 21:23
  Speaker 1: real terms, and the central bank has not been battling
• 21:26
  Speaker 1: on your behalf to to preserve your real purchasing power.
• 21:29
  Speaker 1: I mean that's a valid point because I mean, as
• 21:31
  Speaker 1: I said, I mean, if energy prices, you know, go
• 21:33
  Speaker 1: up and down, I mean they kind of averages out.
• 21:37
  Speaker 1: But if you have this persistent increase, then what happens
• 21:41
  Speaker 1: is precisely what you're saying, and I think it's not
• 21:43
  Speaker 1: realistic to think that then wages were not at some
• 21:47
  Speaker 1: point react. I mean, of course it will react. And
• 21:51
  Speaker 1: just you you talk about having a different approach now
• 21:54
  Speaker 1: to to particularly the energy driven inflation, because it's likely
• 21:58
  Speaker 1: to be more long last thing, And clearly when you
• 22:02
  Speaker 1: look at the US, they have had inflation which was
• 22:06
  Speaker 1: not just driven by energy and but was kind of
• 22:10
  Speaker 1: fundamentally kind of misdiagnosed, and they are now, by their
• 22:14
  Speaker 1: own admission, more or less having to sort of play
• 22:17
  Speaker 1: catch up in responding to that inflation. When you think
• 22:20
  Speaker 1: about how are we going to respond to this environment
• 22:22
  Speaker 1: which might have structurally higher inflation, um, do you feel
• 22:27
  Speaker 1: you will have to be more responsive, um and have
• 22:30
  Speaker 1: a less gradual approach to to raising interest rates over
• 22:35
  Speaker 1: time then you might have done in the past on
• 22:38
  Speaker 1: the basis of seeing the US experience, well, of course,
• 22:42
  Speaker 1: the US experience is in several respects different. I think
• 22:48
  Speaker 1: the major difference is that the US had this very
• 22:54
  Speaker 1: strong fiscal impulse which was much larger then what we
• 23:01
  Speaker 1: have seen in the UR area. And um, I mean,
• 23:06
  Speaker 1: in particular, you also see that that wage developments look
• 23:12
  Speaker 1: already very different from what we are seeing in the
• 23:16
  Speaker 1: UR area, where wages wage growth is still quite sluggish,
• 23:22
  Speaker 1: and you may say surprisingly so, um, I I don't
• 23:27
  Speaker 1: think that it's going to stay like that, So this
• 23:29
  Speaker 1: is certainly going to to pick up. And I think,
• 23:31
  Speaker 1: I mean, what we can certainly learn from the US
• 23:36
  Speaker 1: is that it's very important to react early enough, so
• 23:43
  Speaker 1: that is that is very important. There's a lot of
• 23:46
  Speaker 1: factors that have kept inflation and interest rates low over
• 23:49
  Speaker 1: the last twenty years. You said you talked about this,
• 23:52
  Speaker 1: but there was an enormous amount of savings relative to
• 23:55
  Speaker 1: the demand for investment globally. There was potentially the demographic
• 24:01
  Speaker 1: factors that we're pushing down long term interest rates, which
• 24:06
  Speaker 1: I think we know now globally certainly are going to
• 24:09
  Speaker 1: go into reverse because we're starting to have a declining
• 24:12
  Speaker 1: working age population. When you think of all that, do
• 24:15
  Speaker 1: you share the view that those are now going into reverse,
• 24:19
  Speaker 1: that we're looking at a higher interest rate environment. It's
• 24:23
  Speaker 1: quite difficult to predict such things, but I think they're
• 24:28
  Speaker 1: very good arguments for what you describe. I mean, we've
• 24:34
  Speaker 1: had this long period of disinflationary sharks, and of course
• 24:41
  Speaker 1: one of the main factors driving that was the growing
• 24:48
  Speaker 1: role of China in the global economy, which certainly had
• 24:55
  Speaker 1: a disinflationary effect globally, and UM I agree that it's
• 25:02
  Speaker 1: quite likely that some of that is going to reverse.
• 25:06
  Speaker 1: And the war, which we haven't discussed much so far,
• 25:12
  Speaker 1: I think it's another factor which may actually speed up
• 25:18
  Speaker 1: this change. I mean, what what we are seeing is
• 25:23
  Speaker 1: that very close reliance on a particular countries UH is
• 25:33
  Speaker 1: very dangerous. I mean energy that the energy reliance on
• 25:37
  Speaker 1: Russia in Europe is I think a very good example,
• 25:42
  Speaker 1: and so it's very clear that this will have profound
• 25:46
  Speaker 1: effects on the future design on supply chains. UM we
• 25:52
  Speaker 1: already discussed the green transition, which will have a major impact,
• 25:59
  Speaker 1: and UM in soul I think they are good arguments
• 26:03
  Speaker 1: to see a fundamental change in the macro economic environment
• 26:09
  Speaker 1: going forward, and one that becomes very much more challenging
• 26:12
  Speaker 1: for for central banks. Um or certainly raises raises new challenges. Finally,
• 26:17
  Speaker 1: I guess I should ask you your you are doing
• 26:20
  Speaker 1: UM an educational job with these speeches and this interview,
• 26:25
  Speaker 1: thinking about the the dynamics of these shocks, and as
• 26:29
  Speaker 1: we've as anyone paying any attention to this interview will
• 26:32
  Speaker 1: here most of the news is not very good. It's
• 26:34
  Speaker 1: some difficult inconvenient truths which get more and more inconvenient
• 26:39
  Speaker 1: by by the month. How would you rate the pol
• 26:44
  Speaker 1: politicians and the governments of Europe in helping voters understand
• 26:51
  Speaker 1: these difficult inconvenient truths. Do you think we've we've we're
• 26:56
  Speaker 1: getting any better at explaining the challenges the trade els
• 27:00
  Speaker 1: involved from at a political level. So I think that
• 27:06
  Speaker 1: in general there is far to less focus on on
• 27:13
  Speaker 1: on climate change in particular. Still, I mean, if we
• 27:16
  Speaker 1: look at how much attention was given first to the
• 27:21
  Speaker 1: pandemic and then to to the war, which of course
• 27:25
  Speaker 1: is entirely appropriate, one could be surprised that, not, to compare,
• 27:31
  Speaker 1: a comparable degree of attention is given to the issue
• 27:36
  Speaker 1: of of climate change. So I think, um, a politician
• 27:40
  Speaker 1: so far have not been very good at conveying the
• 27:46
  Speaker 1: proper chense of urgency that we're actually facing. So it
• 27:52
  Speaker 1: really seems that bad things have to happen in order
• 27:56
  Speaker 1: to convince the politicians to become more proactive also in
• 28:03
  Speaker 1: their communication. As we discussed, I mean, there will be
• 28:07
  Speaker 1: some opposition to everything that is going to be needed,
• 28:11
  Speaker 1: so it won't be easy. So communication will play a
• 28:15
  Speaker 1: fundamental role in order to make the green transition a success,
• 28:21
  Speaker 1: and I think much more will have to be done.
• 28:24
  Speaker 1: And people like Larry Summers, who we hear from a
• 28:26
  Speaker 1: lot on this podcast and indeed the Economist magazine, who
• 28:29
  Speaker 1: say that central bankers should get back to their knitting
• 28:33
  Speaker 1: the English expression that should stop going on about these
• 28:36
  Speaker 1: things that are not part of their remit. What do
• 28:38
  Speaker 1: you say, Yeah, I find that misguided honestly, because I mean,
• 28:45
  Speaker 1: we discuss how climate change effects inflation, so how could
• 28:52
  Speaker 1: central banks ignore that. I think it's simply not appropriate.
• 28:57
  Speaker 1: Climate change has fundamental implication for our primary mandate, and
• 29:02
  Speaker 1: so I think it's absolutely clear that that central banks
• 29:07
  Speaker 1: have have to look at this what it implies for
• 29:11
  Speaker 1: inflation and what it implies also for the design of
• 29:17
  Speaker 1: our operations. You could say that by the treaties we
• 29:23
  Speaker 1: are actually obliged to do that because we are supposed
• 29:28
  Speaker 1: to support the general economic policies of the EU, and
• 29:33
  Speaker 1: this certainly means if we have to make sure that
• 29:36
  Speaker 1: whatever we do is Paris Aliant talked to us about
• 29:40
  Speaker 1: novel member of the executive Board of the ETV. Thank
• 29:42
  Speaker 1: you very much, Thank you, Stephanie m Now it's no
• 29:54
  Speaker 1: surprise maybe the politicians don't always want to face up
• 29:57
  Speaker 1: to the inconvenient implications of timate change. But you'd think
• 30:01
  Speaker 1: anyone spending a few million dollars on a beach front
• 30:04
  Speaker 1: property in Florida would want to think about those implications
• 30:08
  Speaker 1: very carefully, especially the risk of the chunk of that
• 30:10
  Speaker 1: property could end up part of the ocean. But it
• 30:14
  Speaker 1: seems there's not a great appetite for inconvenient truths in
• 30:17
  Speaker 1: Miami either. He's Bloomberg opinion columnist and former Miami Bureau
• 30:22
  Speaker 1: chief Jonathan Levin. I hand the campions like a Miami
• 30:30
  Speaker 1: and there are people who think that Miami over time
• 30:36
  Speaker 1: will be covered with water, and a lot of people
• 30:39
  Speaker 1: worry about that. I don't know. Living here, obviously, I
• 30:46
  Speaker 1: think that, yes, obviously that's a possibility, or technology could
• 30:52
  Speaker 1: help prevent that from happening, because there are so many
• 30:56
  Speaker 1: economics interested in this city. That's Realator Maria Luisa Singh
• 31:04
  Speaker 1: of Keys Company, whose office sits on brick Okey, a
• 31:07
  Speaker 1: man made island lined with palm trees with views of
• 31:10
  Speaker 1: the Glassy towers in Miami's Financial district. Like many others
• 31:13
  Speaker 1: in South Florida, sing is optimistic the climate change won't
• 31:17
  Speaker 1: wreak havoc on this global tourist mecca, and believes that
• 31:20
  Speaker 1: money and human ingenuity could be enough to prevent a
• 31:23
  Speaker 1: worst case scenario. So it's something that's on people's mind
• 31:31
  Speaker 1: that is possible and that you have to stay on
• 31:35
  Speaker 1: top of it. For that reason, not everyone is willing
• 31:39
  Speaker 1: to invest in Miami because of that concern, but those
• 31:44
  Speaker 1: of us that are here assume the risk. Here in Miami,
• 31:51
  Speaker 1: a supercharged real estate market is fueling soaring property values,
• 31:55
  Speaker 1: empricing many people out of the market, and there's little
• 31:58
  Speaker 1: evidence that the masses are eating the potentially disastrous effects
• 32:01
  Speaker 1: of climate change, which is expected to increase major flooding fivefold.
• 32:08
  Speaker 1: In fact, a recent study led by researchers at the
• 32:11
  Speaker 1: US home finance giant Freddie Mac found that homes directly
• 32:15
  Speaker 1: exposed to sea level rise in coastal Florida command no
• 32:18
  Speaker 1: discount at all over those that aren't. For now, many
• 32:22
  Speaker 1: consumers here are left to wonder on their own about
• 32:25
  Speaker 1: how wise it is to buy a home in a
• 32:27
  Speaker 1: coastal community like this, knowing that climate change is on
• 32:30
  Speaker 1: the horizon, and what is a reasonable price to pay.
• 32:34
  Speaker 1: Among them is Kala Zobel, a year old who recently
• 32:38
  Speaker 1: moved to South Florida to work with the county government.
• 32:41
  Speaker 1: Is sort of a hazard to live in places near
• 32:45
  Speaker 1: water and stuff, and prices in Miami are already high,
• 32:50
  Speaker 1: so sea levels will continue to keep rising. One key
• 32:57
  Speaker 1: reason rising seas aren't priced into Miami's real estate is
• 33:01
  Speaker 1: that people simply aren't aware of the risks. Technically known
• 33:04
  Speaker 1: as information asymmetry, Florida and many of the US's most
• 33:09
  Speaker 1: vulnerable states have few or no laws on the books
• 33:12
  Speaker 1: requiring sellers to share information about flood risk. The Natural
• 33:16
  Speaker 1: Resources Defense Council puts Florida among twenty one jurisdictions with
• 33:21
  Speaker 1: a failing grade and a recent assessment of flood risk
• 33:24
  Speaker 1: disclosure rules here's Joel's Scotta, a water and climate attorney
• 33:29
  Speaker 1: with the n r d C. I think a big
• 33:31
  Speaker 1: problem with UM understanding floodisks in the United States is
• 33:35
  Speaker 1: that there is not good transparency both at the federal
• 33:39
  Speaker 1: informational level as well as the information that a seller
• 33:42
  Speaker 1: might have when it comes to disclosing potential flooderisks to
• 33:45
  Speaker 1: HomeBuyer UM and that needs to change. Both the federal
• 33:49
  Speaker 1: government through FEMA as well as states by changing the
• 33:54
  Speaker 1: disclosure laws, UM should require more information to be shared
• 33:56
  Speaker 1: about flood risks so buyers are informed and can make
• 33:59
  Speaker 1: good decisions about where to live and out a live.
• 34:02
  Speaker 1: Even in the states that require flood risk disclosure, the
• 34:05
  Speaker 1: assessment of risks is often based on backward looking metrics,
• 34:09
  Speaker 1: such as whether home has been flooded in the past,
• 34:12
  Speaker 1: and the warnings can be thrust upon home virus at
• 34:14
  Speaker 1: the eleventh hour as they're signing dozens of other documents
• 34:17
  Speaker 1: at a real estate closing. That means many people are
• 34:21
  Speaker 1: pouring their savings into properties without necessarily understanding the risks
• 34:25
  Speaker 1: to their investment. As Abigail Fleming, an environmental justice lawyer
• 34:29
  Speaker 1: and University of Miami School of Law professor, told me,
• 34:33
  Speaker 1: it's often low income communities of color that are most susceptible.
• 34:37
  Speaker 1: You know, knowledge is power, so knowledge of these risks
• 34:40
  Speaker 1: is really necessary for better decision making UM. But I
• 34:44
  Speaker 1: think these that information needs to be coupled with actions
• 34:48
  Speaker 1: obviously to disclose and communicate flood risks, but also those
• 34:51
  Speaker 1: must be supplemented with resources and options for adaptation measures. Fortunately,
• 34:56
  Speaker 1: some advocates are stepping up to make people more aware
• 34:59
  Speaker 1: of their risks they're taking on when buying property along
• 35:01
  Speaker 1: Florida's coasts. The real estate marketplaces Realtor, dot Com and
• 35:06
  Speaker 1: red fin have teamed up with nonprofit First Street Foundation
• 35:09
  Speaker 1: to provide flood risk ratings for properties on their websites,
• 35:13
  Speaker 1: and First Streets founder Matthew Abby said he would like
• 35:16
  Speaker 1: to extend the resource to more government entities. Meanwhile, Hawaii
• 35:20
  Speaker 1: just became the first state to require sea rise disclosures
• 35:23
  Speaker 1: and housing transactions. Effect of all may one. Still, the
• 35:28
  Speaker 1: US has a long way to go before consumers aren't
• 35:31
  Speaker 1: left in the dark. The Freddy Max study did find
• 35:34
  Speaker 1: that homes that are already in designated flood plans command
• 35:37
  Speaker 1: some discount, but that doesn't mean the price against sea
• 35:40
  Speaker 1: level rise. Here's study author and Freddy Max and your
• 35:43
  Speaker 1: economists a gitatrea to explain. We find that homes directly
• 35:49
  Speaker 1: exposed to projected sea level command no discount over those
• 35:53
  Speaker 1: that aren't exposed. There were discounts for homes in female
• 35:57
  Speaker 1: designated flood plans, but that's probably to upset the cost
• 36:00
  Speaker 1: of flood insurance buyers must carry if the mortgage is
• 36:03
  Speaker 1: financed with a government back lender rather than future sea
• 36:07
  Speaker 1: liberal rzed risk considerations, and these findings hold true for
• 36:11
  Speaker 1: primary residences as well as for non honor occupied properties
• 36:14
  Speaker 1: that are mostly investment properties. Federal flood maps are still
• 36:20
  Speaker 1: based on backward looking metrics and failed to reflect the
• 36:23
  Speaker 1: threat of future sea level rise. Also, many other properties
• 36:27
  Speaker 1: that aren't officially in floodplanes are nevertheless vulnerable to the
• 36:30
  Speaker 1: ships expected to take place in the coming decades. Not surprisingly,
• 36:35
  Speaker 1: politicians and their constituents often fight floodplane designations out of
• 36:39
  Speaker 1: concern they will depress the value of properties in their area,
• 36:43
  Speaker 1: But experts say vulnerable states and municipalities should instead take
• 36:47
  Speaker 1: the long view, give people accurate information about their flood
• 36:50
  Speaker 1: risk so communities can take decisive action. Here's Obel, the
• 36:54
  Speaker 1: new South Florida resident. I think a lot of people
• 36:58
  Speaker 1: just don't know, or they don't think that far into
• 37:01
  Speaker 1: the future, or you know, some people I don't believe
• 37:04
  Speaker 1: it's happening. You know. Well, that's it for this episode
• 37:18
  Speaker 1: of Stephanomics. We'll be back next week. In the meantime,
• 37:21
  Speaker 1: if you like the show, please rate it and check
• 37:23
  Speaker 1: out the Bloomberg News website for more economic news and
• 37:26
  Speaker 1: views on the global economy. You can also follow at
• 37:29
  Speaker 1: Economics on Twitter. This episode was produced by Mendis Hendrickson
• 37:33
  Speaker 1: with support from Summer Sadi, Special thanks to dr Isabel
• 37:37
  Speaker 1: Schnabel and Jonathan Levin. Mike Sasso is executive producer of
• 37:41
  Speaker 1: Stephonomics and the head of Bloomberg podcast is Francesco Levi.