Latest / Stephanomics / A New Intergenerational Contract for the Pandemic Age

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A New Intergenerational Contract for the Pandemic Age · Stephanomics

• 0:01
  Speaker 1: You just just have to get up every morning six o'clock
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  Speaker 1: and clean the newspaper. I'm going to work down the
• 0:05
  Speaker 1: mill fourteen now the day, week and week up for
• 0:07
  Speaker 1: sixpence per week. And when we got home, Oh, Dad
• 0:10
  Speaker 1: would slash us to sleep with his belt. Luxury. We
• 0:17
  Speaker 1: used to have to get out of the lake at
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  Speaker 1: three o'clock in the morning, clean the lake. It's hand
• 0:20
  Speaker 1: full of what gravel work twenty a day at millfortuping
• 0:23
  Speaker 1: some muntiple. Mom and dad would beat us around the
• 0:25
  Speaker 1: end and neck with a broken bottle if we were lucky.
• 0:30
  Speaker 1: Are you Try and tell the young people of today
• 0:32
  Speaker 1: that and they won't believe you. Hello, and welcome to Stephanomics,
• 0:42
  Speaker 1: the podcast that brings the global economy and a bit
• 0:44
  Speaker 1: of Monty Python. You don't know how lucky you are.
• 0:49
  Speaker 1: People said that to their children and grandchildren all time
• 0:52
  Speaker 1: when I was growing up. Not anymore. Whether it's climate change,
• 0:57
  Speaker 1: the economic impact of COVID, or the aging of the
• 0:59
  Speaker 1: popular nation, collectively, the world's running up some pretty big
• 1:03
  Speaker 1: bills right now. Young people feel they're already paying more
• 1:07
  Speaker 1: than their fair share. In a few minutes, the economist
• 1:11
  Speaker 1: Charles Goodheart and managed prad and tell us what they
• 1:14
  Speaker 1: think the future is going to look like as the
• 1:15
  Speaker 1: population gets older. Spoiler alert, inflation makes a comeback and
• 1:20
  Speaker 1: that's the easy part. We also have one more snippet
• 1:24
  Speaker 1: from the Bloomberg New Economy Forum, former Bank of England
• 1:27
  Speaker 1: Governor Mark Carney talking about how the world of finance
• 1:30
  Speaker 1: is going to help all of us get to zero
• 1:33
  Speaker 1: carbon But first, an up close and personal look at
• 1:37
  Speaker 1: that generational divide we're seeing across the economy. From our
• 1:40
  Speaker 1: twenty something reporter apprentice, Eileen Bank. That's the sound of
• 2:04
  Speaker 1: young people in the center of the northern English city
• 2:07
  Speaker 1: of Liverpool last month, as the bars of the COVID
• 2:10
  Speaker 1: hit city closed for the final time before a new
• 2:13
  Speaker 1: round of restrictions. Large groups of revelers crowded onto the streets,
• 2:18
  Speaker 1: hugging and chanting in process as police tried to enforce
• 2:21
  Speaker 1: social distancing. Such scenes when Liverpool's hospitals were overwhelmed by
• 2:27
  Speaker 1: the virus drew condemnation from many, But as the pandemic
• 2:31
  Speaker 1: drags on, there's a deeper frustration building among young people,
• 2:36
  Speaker 1: which is harder to dismiss. The hard reality is that
• 2:40
  Speaker 1: the people at Grace's risk of dying from the virus
• 2:43
  Speaker 1: are those of retirement age. But the economic disaster of
• 2:46
  Speaker 1: COVID is disproportionately affecting the young and may do for
• 2:51
  Speaker 1: many years to come. COVID is absolutely the exacerbated these inequalities.
• 3:00
  Speaker 1: That's still Filipovitch, the millennial author of Okay, Boomer, Let's Talk.
• 3:05
  Speaker 1: Job losses in the US have been overwhelmingly concentrated among
• 3:09
  Speaker 1: young people, and among millennials in particular. It's a similar
• 3:13
  Speaker 1: story across the globe. At the height of the pandemic,
• 3:16
  Speaker 1: unemployment for Americans aged twenty to twenty four was more
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  Speaker 1: than ten percentage points higher than for any other age group,
• 3:24
  Speaker 1: and young people are star seeing to get resent, full
• 3:27
  Speaker 1: of restrictions, designs to protect others as they see their
• 3:31
  Speaker 1: opportunities dwindling. Think about which industry has got hurt hardest
• 3:35
  Speaker 1: because of COVID, and you know the attendant shutdowns, you know,
• 3:40
  Speaker 1: and it's things like restaurants, bars, travel. All of those
• 3:44
  Speaker 1: industries are dominated by young people. Young people, millennials and
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  Speaker 1: Gen zeers who are bartenders and waiters and restaurants staff.
• 4:01
  Speaker 1: Those joining the labor market for the first time may
• 4:04
  Speaker 1: see their careers derailed for years because they have to
• 4:07
  Speaker 1: settle for a job outside their chosen field or get
• 4:10
  Speaker 1: stuck in unemployment. In Germany and Switzerland, lots of people
• 4:15
  Speaker 1: are concerned that the billions of dollars the government su
• 4:18
  Speaker 1: spending today will have to be paid back down the road,
• 4:22
  Speaker 1: forcing economic opportunity in the process. Tilman Kuban leaves the
• 4:28
  Speaker 1: youth arm of the German Chancellor Angela Merkel's party. He
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  Speaker 1: says young people are the triple losers of the crisis
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  Speaker 1: because it's costing them in terms of education, social opportunities
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  Speaker 1: and future government benefits. Let's go, let's see that's um.
• 4:46
  Speaker 1: Those who are done with their training or their studies
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  Speaker 1: now face a jobs market and the worst recession ever
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  Speaker 1: in the history of the German Federal Republicans. On the
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  Speaker 1: other side, there are the three hundred billion euros worth
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  Speaker 1: of new debt that is being issued this year and next,
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  Speaker 1: a new issuance of debt bigger than Germany has ever experienced.
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  Speaker 1: The pile of debt is getting so big that our
• 5:14
  Speaker 1: generation can hardly stomach condom Manuel, as a twenty one
• 5:21
  Speaker 1: year old living in London, I can tell you that
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  Speaker 1: the talk of war between generations didn't start with COVID nineteen.
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  Speaker 1: My friends and I have had to enter the job
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  Speaker 1: market burdened with student loans, struggling to get a foothold
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  Speaker 1: in a property market where start homes cost nine times
• 5:38
  Speaker 1: average wages. Thanks to teenage activists Grassi Sumburg. We've also
• 5:43
  Speaker 1: seen mass strikes by school children and students over climate change,
• 5:48
  Speaker 1: all aimed at goding middle aged politicians to do something
• 5:53
  Speaker 1: about the global catastrophe that will overwhelmingly hit their children
• 5:57
  Speaker 1: and their children's children. Economists at Deutsche Bank have warned
• 6:02
  Speaker 1: that the pandemic is likely to only fuel this resentment
• 6:05
  Speaker 1: among generations. To see which age group is doing best,
• 6:09
  Speaker 1: let's look at wages. Ultimately, financial well being boils down
• 6:16
  Speaker 1: to the amount of money people have in their pockets.
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  Speaker 1: Wage increases have been slowing across advanced economies, and the
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  Speaker 1: upshot is that today's young people can no longer count
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  Speaker 1: on outs earning their parents. So if you look at
• 6:30
  Speaker 1: cohorts that were born in the nineteen forties, more of them,
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  Speaker 1: on average earn more than their parents did at at
• 6:37
  Speaker 1: the same name. That's Robert Manduka, a professor at the
• 6:40
  Speaker 1: University of Michigan, who has studied the decline and intergenerational mobility,
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  Speaker 1: So they almost universally had this experience of upward mobility
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  Speaker 1: where living standards were rising for everyone. Um, but that's
• 6:52
  Speaker 1: really changed over the past forty or fifty years. So
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  Speaker 1: if you look instead of cohorts that were born in
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  Speaker 1: the nineteen eighties, what we show is that on about
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  Speaker 1: half of them of Americans born in the nineteen eighties
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  Speaker 1: grew up to out earn their parents at age thirty.
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  Speaker 1: He says, the phenomenon is strongest in the US, but
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  Speaker 1: it's also evidence in other countries like the Netherlands and
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  Speaker 1: the UK. Slowing economic growth is a factor, but rising
• 7:16
  Speaker 1: inequality is arguably an even bigger driver. So what we
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  Speaker 1: show is that you know, the US and Norwegian GDP
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  Speaker 1: in aggregate grew about the same rate over the past
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  Speaker 1: thirty years, but incomes for thirty year olds kept up
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  Speaker 1: with GDP to the large extent in Norway, but did
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  Speaker 1: not in the United States. And so if if if
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  Speaker 1: there had been sort of I guess you could say,
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  Speaker 1: like intergenerational equity, if the if the games were being
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  Speaker 1: shared across all age groups in the society, the US
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  Speaker 1: upward mobility rate would have been um substantially higher, about
• 7:48
  Speaker 1: fifteen percentage points higher. Probably parts of the trouble boils
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  Speaker 1: down to demographics. In many advanced economies, the working age
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  Speaker 1: population is shrinking. That means that there were more older
• 8:01
  Speaker 1: roses relative to young ones, and spending on things like
• 8:04
  Speaker 1: state pensions can sum proportionately more government resources. Think about
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  Speaker 1: the US, both Donald Trump and Joe Biden are over
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  Speaker 1: the age of seventy. Author Jill Philipovitch thinks that this
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  Speaker 1: is part of the problem. You have this disproportionate share
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  Speaker 1: of power concentrated in the hands of older people, and
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  Speaker 1: that means that the policies that younger people need for themselves,
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  Speaker 1: for their families, for their children, um frankly, for the
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  Speaker 1: future of planet Earth are not being They're not being implemented.
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  Speaker 1: For Stanford University professor David Gersky, radical change is needed.
• 8:44
  Speaker 1: He urges a recent branch overhaul of social systems like
• 8:48
  Speaker 1: schools or the judiciary to ensure society becomes more acquisible.
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  Speaker 1: That's will help the economy to who he says, I
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  Speaker 1: would say that at least in the United States, but
• 8:58
  Speaker 1: I thinking all well off countries. We have a deep
• 9:01
  Speaker 1: commitment to providing opportunity to everyone, and a deep commitment
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  Speaker 1: to the idea that it shouldn't be that opportunity is
• 9:10
  Speaker 1: only available to those who have the money to buy it,
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  Speaker 1: buying into into into nice neighborhoods that have great schools,
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  Speaker 1: providing that private education, that that, in the US case,
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  Speaker 1: a ticket to success. That that that you know that
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  Speaker 1: being able to buy opportunity is not part of the dream.
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  Speaker 1: If we don't have equal opportunity, we're not living up
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  Speaker 1: to one of the most profound commitments that that we
• 9:32
  Speaker 1: that we all think should be part in. First, what
• 9:34
  Speaker 1: what what? What? What a modern economy is about? COVID
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  Speaker 1: is shaking up economies and societies. My generation has been
• 9:44
  Speaker 1: asked to stay home to protect older generations, and mostly
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  Speaker 1: we have. Now maybe it's signs to think about how
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  Speaker 1: to pay young people back. So that gave us a
• 9:59
  Speaker 1: sense of what the generational divide feels like today. But
• 10:03
  Speaker 1: what about the future. Well, two very distinguished economists have
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  Speaker 1: a book out which claims demographic change is almost single
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  Speaker 1: handedly going to turn everything we thought we knew about
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  Speaker 1: the twenty one century economy on its head. Charles Goodheart
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  Speaker 1: is former chief economist of the Bank of England, Emeritus
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  Speaker 1: Professor of Economics at the London School of Economics, and
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  Speaker 1: his co author Manage Pradan is the founder of Talking
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  Speaker 1: Heads Macro and a former chief Global economist for Morgan Stanley.
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  Speaker 1: That they're both on Stephanomics now, Charles, great to have
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  Speaker 1: you here. Your book is called The Great Demographic Reversal.
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  Speaker 1: What exactly do you see going into reverse in future
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  Speaker 1: as a result of the world population getting older? Well,
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  Speaker 1: two major trains are going to change. The first one
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  Speaker 1: is a demographic change. Until very recently, what has happened
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  Speaker 1: is that enormous all countries there has been an increase
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  Speaker 1: in the size of the working population relative to the
• 11:02
  Speaker 1: those who are not working dependence as they are called,
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  Speaker 1: the young up to the age of about twenty and
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  Speaker 1: the retirees over the age of about sixty five. Now
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  Speaker 1: the old and the unconsumed that they don't produce and
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  Speaker 1: therefore they're inflationary almost by definition. And that means that
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  Speaker 1: as the demographics change and the proportion of dependence ceases
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  Speaker 1: to fall and now begins to rise very sharply as
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  Speaker 1: an increasing proportion of the population get to the age
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  Speaker 1: of over sixty five, what is going to happen is
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  Speaker 1: that these trends is going to lead to greater inflation.
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  Speaker 1: Now that is combined with the second trend, which is
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  Speaker 1: that prior to about a few years ago, the world
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  Speaker 1: was becoming more globalized in that production could move to
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  Speaker 1: areas where previously were not included in the world's working system,
• 12:02
  Speaker 1: particularly China, which incorporates a quarter of the world's population
• 12:07
  Speaker 1: and a great deal of particularly manufacturing production when to
• 12:12
  Speaker 1: these low wage areas, and the union proportional workers and
• 12:17
  Speaker 1: unions has been going down steadily. This is effectively meant
• 12:21
  Speaker 1: that the bargaining power of labor has weakened more or
• 12:24
  Speaker 1: less continuously. Now, globalization is in retreat for obvious political
• 12:31
  Speaker 1: and other reasons, and that retreat has actually been re
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  Speaker 1: emphasized by the effect of the COVID crisis. So globalization
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  Speaker 1: is on the retreat, the dependency ratios are worsening, and
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  Speaker 1: both of those are likely to bring about higher underlying
• 12:51
  Speaker 1: inflationary trends over future decades. You know, a lot of
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  Speaker 1: people will say, as we got older, we've also been
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  Speaker 1: told that we have to work longer, and doesn't that
• 13:03
  Speaker 1: offset this inflationary effect? Because if people are working until
• 13:08
  Speaker 1: they're seventy or seventy five. Then you might not see
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  Speaker 1: a big change as big a change in the ratio
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  Speaker 1: of of workers to non workers. Why why wouldn't that
• 13:18
  Speaker 1: help solve the problem. Well, until very recently, the trends
• 13:22
  Speaker 1: have been exactly the reverse, in that life expectancy has
• 13:26
  Speaker 1: been increasing much faster than any increase in the age
• 13:31
  Speaker 1: of retirement. That's now changing a bit. But I even so,
• 13:39
  Speaker 1: the increase in the number of the old is going
• 13:43
  Speaker 1: to be very rapid, and increasing the age of retirement
• 13:48
  Speaker 1: is politically extremely unpopular, and it is only introduced very
• 13:55
  Speaker 1: gradually and very gingerly and virtually every country, and even
• 14:00
  Speaker 1: in Putin's Russia, and Putin probably has a greater control
• 14:06
  Speaker 1: over his population than almost any other autocratic leader. His
• 14:12
  Speaker 1: attempt to raise the retirement age ran into such political
• 14:17
  Speaker 1: opposition that he was about the only thing that he
• 14:21
  Speaker 1: was forced to modify into an extent back track on. Um,
• 14:26
  Speaker 1: it's just politically extremely difficult. One quick thing I wanted
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  Speaker 1: to add is that I think I think we also
• 14:35
  Speaker 1: have to take a look a slightly deeper look into
• 14:38
  Speaker 1: them demographic trends as well. For example, what is changing
• 14:41
  Speaker 1: now is that the number of people who are what
• 14:44
  Speaker 1: we would call the oldest all is increasing sharply, and
• 14:48
  Speaker 1: as that age group starts increasing, along with it comes
• 14:52
  Speaker 1: at the attendant increase in diseases like dementia that make
• 14:58
  Speaker 1: people unable to after themselves, and that means that an
• 15:02
  Speaker 1: increasing number of the labor force is going to start
• 15:05
  Speaker 1: looking after these people. Now, that's what Childs and I
• 15:08
  Speaker 1: would call socially productive activities, But in the true economic sense,
• 15:12
  Speaker 1: they are producing a product which is consumed by the old,
• 15:15
  Speaker 1: who then do not go on to produce anything else.
• 15:18
  Speaker 1: So I'm not sure we can call it economically productive.
• 15:21
  Speaker 1: So dire as the Huan population statistic projections are for demography,
• 15:26
  Speaker 1: they do not include that a larger part of the population,
• 15:30
  Speaker 1: and in fact an increasing one, will go towards these
• 15:32
  Speaker 1: socially but not economically productive activity. So the story is
• 15:36
  Speaker 1: actually a little bit more difficult than the statistics show.
• 15:39
  Speaker 1: I think it's interesting because a lot of people will say,
• 15:41
  Speaker 1: and certainly businesses who think about how does the economy
• 15:44
  Speaker 1: change when there's a lot more old people. Um, it's
• 15:47
  Speaker 1: wonderful to be able to sell lots of cruises and
• 15:50
  Speaker 1: other things to the newly retired or the fit retired.
• 15:54
  Speaker 1: But in general people feel like there is less consumption
• 15:57
  Speaker 1: from old people and that that could be a problem
• 16:00
  Speaker 1: of the economy. I guess your point is there's less
• 16:02
  Speaker 1: consumption in terms of things like going to restaurants and
• 16:04
  Speaker 1: other things. But at that crucial those last few years
• 16:07
  Speaker 1: if you're very old, can be enormously expensive and draining
• 16:11
  Speaker 1: of social resources. Yes, absolutely, if we accept the demographics.
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  Speaker 1: There's another assumption that you make that we can't offset
• 16:21
  Speaker 1: this with faster productivity growth. You're assuming that the economies
• 16:26
  Speaker 1: which are older overall, the global economy that is older
• 16:30
  Speaker 1: is going to grow more slowly and have relatively relatively
• 16:34
  Speaker 1: low productivity. With that, I guess a lot of people
• 16:37
  Speaker 1: would say, well, hang on, we have all this innovation,
• 16:39
  Speaker 1: why why wouldn't we become more productive to compensate. Well,
• 16:44
  Speaker 1: to take one point, and some people think that robotics
• 16:48
  Speaker 1: can deal with the ILD, I can tell you that
• 16:52
  Speaker 1: that will not happen. And anyone who's been in a
• 16:56
  Speaker 1: demential ward, and unfortunately have been with my older brother,
• 17:02
  Speaker 1: knows perfectly well that what the old people really need
• 17:07
  Speaker 1: is emotional support and the emotional quotient of a robot
• 17:12
  Speaker 1: is exactly zero. Robots can help with certain repetitive physical tasks,
• 17:19
  Speaker 1: maybe like lifting people in and out of bath or
• 17:22
  Speaker 1: in and out of bed, but in terms of looking
• 17:25
  Speaker 1: after people with Parkinson's or dementia, the idea that robots
• 17:31
  Speaker 1: can do this and is just just it's just not true.
• 17:35
  Speaker 1: What we're going to need, unfortunately, in some ways in
• 17:38
  Speaker 1: future is much more of of the qualities that we
• 17:44
  Speaker 1: will need will be empathy and emotional support rather than
• 17:50
  Speaker 1: muscular strength. If I may once, it's going to add
• 17:54
  Speaker 1: is just related to the argument I was making earlier,
• 17:58
  Speaker 1: which is that we will need an increasing number of
• 18:01
  Speaker 1: firm people to look after the elderly. What Charles and
• 18:04
  Speaker 1: I are hoping for is that we do see job
• 18:07
  Speaker 1: destruction and other parts of the economy. In fact, we
• 18:11
  Speaker 1: depend on robotics and automation to get rid of repetitive
• 18:15
  Speaker 1: tasks in the manufacturing sector in parts of the services sector.
• 18:19
  Speaker 1: Without that, you would see a net decline in the
• 18:23
  Speaker 1: working age population at a much faster pace. So some
• 18:26
  Speaker 1: of the robotics and automation stories that are happening right
• 18:29
  Speaker 1: now are actually part and parcel of our thesis, without
• 18:33
  Speaker 1: which our thesis would be a lot scarier, if you will,
• 18:36
  Speaker 1: we need that job destruction. So that's fascinating. So when
• 18:40
  Speaker 1: people look at these jobs disappearing in all these interestries,
• 18:43
  Speaker 1: you're saying that can't happen fast enough because we don't
• 18:46
  Speaker 1: realize we've got this enormous need for jobs coming and
• 18:50
  Speaker 1: we need as much as many people as possible to
• 18:53
  Speaker 1: do those jobs. Exactly right. I mean, if you look
• 18:56
  Speaker 1: at how the National Healthcare Service has revealed itself to
• 19:00
  Speaker 1: be completely underfunded, the demands of the future looking after
• 19:03
  Speaker 1: the elderly are something that is simply not part of
• 19:06
  Speaker 1: the equation right now. We're only looking at one piece
• 19:08
  Speaker 1: of the puzzle, which is the automation part, but not
• 19:10
  Speaker 1: the other. But if you have a lot of people
• 19:14
  Speaker 1: moving in if what sound what your sounds like you're
• 19:16
  Speaker 1: talking about is a lot of people moving from the
• 19:18
  Speaker 1: private sector to the public sector, how does that get financed?
• 19:23
  Speaker 1: Even if you're moving the workers, how are you able
• 19:26
  Speaker 1: to pay for that shift into the public sector if
• 19:30
  Speaker 1: you've got a reduced private sector. That's a very good
• 19:33
  Speaker 1: question because if you look further forward, what you will
• 19:38
  Speaker 1: see is increasing costs of medicine, increasing costs of pensions,
• 19:45
  Speaker 1: incasing costs of public support for the old and that
• 19:50
  Speaker 1: is one of the factors which even before the COVID
• 19:54
  Speaker 1: pandemic hit, was driving expenditures, public sector expenditures up relative
• 20:01
  Speaker 1: to tax revenue, and that is going to be a problem.
• 20:07
  Speaker 1: One of the effects of all of this is going
• 20:11
  Speaker 1: to be that taxation is going to really have to
• 20:13
  Speaker 1: rise quite sharply. And here the difficulty is that, like
• 20:18
  Speaker 1: raising the retirement age, increasing taxation is very unpopular. If
• 20:23
  Speaker 1: we do not increase taxation relatively rapidly, the only real
• 20:28
  Speaker 1: way that we can then get out of this increase
• 20:32
  Speaker 1: in debts and deficit is actually through inflation. It's worth
• 20:36
  Speaker 1: spelling out. I mean, we spend some time on this
• 20:39
  Speaker 1: podcast talking about financial markets, although possibly less than than
• 20:43
  Speaker 1: other parts of Bloomberg, and we should probably make clear
• 20:47
  Speaker 1: that if you're right, an awful lot of people are
• 20:51
  Speaker 1: going to lose a lot of money based on the
• 20:53
  Speaker 1: current pricing of financial assets. It could just spell out, um,
• 20:58
  Speaker 1: how different your of the world is and the one
• 21:01
  Speaker 1: that's currently expressed in bond prices and the record low,
• 21:05
  Speaker 1: very long term interest rates, low record low interest rates
• 21:09
  Speaker 1: that are currently being charged to the governments all around
• 21:12
  Speaker 1: the world for borrowing, well, I think it couldn't be
• 21:16
  Speaker 1: more different. Just to give you a very quick preface
• 21:18
  Speaker 1: into the argument that comes in most people look at
• 21:21
  Speaker 1: tenure and twentie yields and they say, what's priced into
• 21:26
  Speaker 1: the markets is that inflation is never going to rise
• 21:29
  Speaker 1: and we are going to have law for longer. The
• 21:31
  Speaker 1: only question is whether real heels come up into slightly
• 21:35
  Speaker 1: positive territory or slightly negative territory because of the vagaries
• 21:39
  Speaker 1: of inflation. And so to be clear, that's also why
• 21:42
  Speaker 1: more long term mortgage rates are currently extremely low as well.
• 21:45
  Speaker 1: Everyone can borrow for a very long time at a
• 21:47
  Speaker 1: fixed rate which is extremely low. Correct. And it goes
• 21:50
  Speaker 1: beyond that also, I think, because it goes on to
• 21:52
  Speaker 1: a more nuanced argument that says, if inflation is not
• 21:56
  Speaker 1: part of the problem, then the central bank really does
• 21:58
  Speaker 1: not have a growth inflation trade off, which means every
• 22:00
  Speaker 1: time growth is in trouble, central banks can ease policy
• 22:03
  Speaker 1: and they don't really have to tighten, which means the
• 22:05
  Speaker 1: equity market can depend very solidly on a central bank
• 22:09
  Speaker 1: put in a way that just would not be possible
• 22:12
  Speaker 1: in an inflationary environment. And how has COVID change this Well,
• 22:16
  Speaker 1: it's actually fascinating because the COVID has led to two
• 22:20
  Speaker 1: very very different scenarios. Scenario one, which is the mainstream,
• 22:25
  Speaker 1: one is the resulting unemployment, the need for industrial adjustment,
• 22:32
  Speaker 1: and all that will keep inflation even lower for as
• 22:36
  Speaker 1: long as all that continues. The argument against that has
• 22:40
  Speaker 1: been that the massive policy expansion, both fiscal and monetary,
• 22:46
  Speaker 1: is going to mean that the inflationary pressures will occur
• 22:49
  Speaker 1: stronger and quicker than we had actually initially thought. We
• 22:54
  Speaker 1: are expanding the money supply, and we're expanding public sector
• 22:58
  Speaker 1: debt like crazy, and we won't stop until inflation actually
• 23:04
  Speaker 1: does hit sufficiently strongly to make everyone have to change
• 23:10
  Speaker 1: their tune. And the question, great question is when is
• 23:14
  Speaker 1: that going to be? What is going to be the
• 23:17
  Speaker 1: stronger force determining inflation in the next few years, unemployment
• 23:23
  Speaker 1: or monetary growth and expansionary policy, And we don't know.
• 23:28
  Speaker 1: We've never really been in a situation where the two
• 23:32
  Speaker 1: main determinants of inflation have been so strongly moving in
• 23:37
  Speaker 1: quite opposite directions. Just a final question, and without embarrassing Charles,
• 23:44
  Speaker 1: I would say, I'm glad that the whole podcast about
• 23:48
  Speaker 1: generational challenges. We have all generations represented on this program,
• 23:52
  Speaker 1: having started with someone in their twenties. But Eileen, who
• 23:59
  Speaker 1: spoke to us at the beginning of the program, feels
• 24:01
  Speaker 1: like many twenty somethings that quite already quite put upon
• 24:06
  Speaker 1: as a generation facing much tougher challenges financially than her
• 24:11
  Speaker 1: previous generations. What's the sort of single best way that
• 24:17
  Speaker 1: older generations could try and do right by people of
• 24:23
  Speaker 1: her age group. What's the thing that if we were
• 24:26
  Speaker 1: being selfless, or the exes and the baby boomers and
• 24:29
  Speaker 1: older people, what's the best thing that they could do
• 24:32
  Speaker 1: to make this scenario less painful. Well, in the very
• 24:36
  Speaker 1: short run, I get the vaccine through so that we
• 24:41
  Speaker 1: can all go back to some normality. The young can
• 24:44
  Speaker 1: enjoy university again, and my grandchildren now in university, and
• 24:51
  Speaker 1: it's not what it should be, nor of course is
• 24:54
  Speaker 1: the drug market where you should be. So that the
• 24:57
  Speaker 1: first short run need is to get the vaccine distributed
• 25:02
  Speaker 1: and get back to normality and allow the young and
• 25:07
  Speaker 1: reasonable life again. They have been worse hit by the
• 25:10
  Speaker 1: pandemic probably than any other group except perhaps the over eighties,
• 25:15
  Speaker 1: who are so vulnerable in the longer term. I have
• 25:21
  Speaker 1: to say that I really rather wish that the future
• 25:26
  Speaker 1: that we paint does not come about for one reason
• 25:30
  Speaker 1: or another, because it is actually going to be really
• 25:34
  Speaker 1: quite difficult to maneuver our way through. I fear that
• 25:39
  Speaker 1: we're going back to something rather akin to the stag
• 25:42
  Speaker 1: clation of the nine seventies for quite a long time,
• 25:46
  Speaker 1: and in a much worse condition than we were then,
• 25:49
  Speaker 1: because the underlying debt ratios have become so much worse. Uh.
• 25:56
  Speaker 1: I think that I would in some ways respond to
• 25:59
  Speaker 1: you along what the Irishman is always space to have said.
• 26:03
  Speaker 1: I wouldn't. I would rather not have started from here. Charles,
• 26:09
  Speaker 1: good up, Thank you very much. I didn't promise you.
• 26:16
  Speaker 1: One more slice of the Bloomberg New Economy Forum. Here's
• 26:19
  Speaker 1: Mark Connie, former Bank of England governor, now you n
• 26:22
  Speaker 1: Special Envoy for Climate Action, talking to my colleague, the
• 26:25
  Speaker 1: Bloomberg television host Alex Steele. But how to make all
• 26:29
  Speaker 1: finance sustainable? Finance? Mark, there's been data that says that
• 26:39
  Speaker 1: total required investment in the energy sector is going to
• 26:42
  Speaker 1: be three and a half trillion dollars a year, and
• 26:44
  Speaker 1: a lot of that going to say carbon capture to
• 26:46
  Speaker 1: decarbonize the world. Tell me how we get there? Well, uh,
• 26:52
  Speaker 1: and that data is right, and that's just energy really,
• 26:54
  Speaker 1: it's energy infrastructure, and then there's a decarbonization above and
• 26:58
  Speaker 1: beyond that in other sectors of the econ to me,
• 27:00
  Speaker 1: So we need a whole economy transition. We need to
• 27:03
  Speaker 1: mainstream sustainable finance. We need to ultimately get to a
• 27:06
  Speaker 1: point where every financial decision is taking climate change into
• 27:09
  Speaker 1: account the impact on the transition. And we actually dropped
• 27:12
  Speaker 1: the adjectives sustainable because it's just what finance professionals do.
• 27:16
  Speaker 1: So we're gonna get to sort of the policy part
• 27:19
  Speaker 1: of it in a second. But financial flows are really important,
• 27:21
  Speaker 1: and the private sector money is going to be key.
• 27:24
  Speaker 1: How do we get more money from the private sector? Well,
• 27:27
  Speaker 1: I think we What we're working to do is with
• 27:30
  Speaker 1: the private sector to put in place the information, um,
• 27:33
  Speaker 1: the tools, and the markets that are needed in order
• 27:35
  Speaker 1: to do this. The information. It starts with reporting, and
• 27:37
  Speaker 1: it's the TCFD reporting making it mandatory, so all companies
• 27:41
  Speaker 1: reporting their climate risk. That's something actually Mike Bloomberg spearheaded
• 27:45
  Speaker 1: five years ago. It's moving into mainstream. We wanted everywhere
• 27:48
  Speaker 1: by COP twenty. Secondly, on the risk side, we need
• 27:51
  Speaker 1: the banks to look at the risks around the climate transition,
• 27:53
  Speaker 1: which then flipped to opportunities. On the opportunity side, it's
• 27:57
  Speaker 1: really about looking for a transition plans from all companies
• 28:02
  Speaker 1: and backing those who are part of the solution and
• 28:04
  Speaker 1: taking capital away from those who are part of the problem.
• 28:07
  Speaker 1: That's how you mainstream. One last point, and I know
• 28:10
  Speaker 1: we'll get to this, is it's very important to also
• 28:13
  Speaker 1: help build those nature based solution and carbon offset markets
• 28:16
  Speaker 1: as well. That's a missing market and it should be
• 28:19
  Speaker 1: measured in the ten civilians a here. How long do
• 28:22
  Speaker 1: we have and how long is that going to take?
• 28:24
  Speaker 1: How long? Well, we don't have a lot of time
• 28:25
  Speaker 1: at the moment with the carbon budget on where we're
• 28:28
  Speaker 1: headed somewhere between ten and twenty years, depending on how
• 28:31
  Speaker 1: you measure it. So we need to act now and
• 28:33
  Speaker 1: we need to buy some time. That's part of what
• 28:36
  Speaker 1: offsets will do for us UM. But also we need
• 28:41
  Speaker 1: to invest now. I mean we're we're touch what we're
• 28:44
  Speaker 1: going to be coming out of the health and economic crisis. Uh,
• 28:47
  Speaker 1: the question is what direction are we pointing our economies?
• 28:49
  Speaker 1: We're going to point towards sustainable growth, huge investment. You
• 28:54
  Speaker 1: rightly started with that alex huge numbers for investment. That's
• 28:57
  Speaker 1: capital intensive, it's job heavy. UM. Having that information now
• 29:01
  Speaker 1: so companies and investors can put money to work is critical.
• 29:06
  Speaker 1: So what role then does policy play in that? UM?
• 29:09
  Speaker 1: We just had election obviously here in the US. UM,
• 29:13
  Speaker 1: what's the role of public policy? Yeah, so I think
• 29:15
  Speaker 1: there's a couple of roles. One and I wouldn't under
• 29:18
  Speaker 1: understate this. First bit is set the direction. So one
• 29:21
  Speaker 1: of the one of the planks of President elect Biden
• 29:25
  Speaker 1: platform was the US is going to move to clean
• 29:28
  Speaker 1: energy and net zero by So you set the direction. Secondly,
• 29:32
  Speaker 1: you put in place the frameworks that are necessary that
• 29:34
  Speaker 1: that information for investors to make the decision, and you
• 29:38
  Speaker 1: also have credible regulatory policy. So you're you're showing the
• 29:43
  Speaker 1: direction of the economy more hydrogen, you know, zero mission vehicles,
• 29:49
  Speaker 1: moving towards electrifying more of the economy and moving economy
• 29:52
  Speaker 1: or sorry the elector electricity sector in generation towards renewables.
• 29:57
  Speaker 1: All of those things send signals to investors, provide the
• 30:00
  Speaker 1: information as well, and gets money moving. So that's what
• 30:03
  Speaker 1: government has to start with the objective, fill in with
• 30:06
  Speaker 1: the framing, and then candidly get out of the way
• 30:09
  Speaker 1: so the private sector figures out where to go. Has
• 30:13
  Speaker 1: COVID helped or hurt that? I think you know, if
• 30:16
  Speaker 1: you'd asked me that question ten months ago or nine
• 30:18
  Speaker 1: months ago and it started, I've i've I would have hatched.
• 30:20
  Speaker 1: Like a good central banker, I would have told you
• 30:22
  Speaker 1: both sides of uh is in Absolutely it is. It
• 30:26
  Speaker 1: has helped because it's forced a couple of things. One
• 30:29
  Speaker 1: is a social reset. You know, we've all sort of
• 30:33
  Speaker 1: stepped back and thought, well, what are some of our priorities.
• 30:35
  Speaker 1: Resilience for our economy, sustainability, solidarity, all these aspects, but
• 30:40
  Speaker 1: also strategic resets for companies because look, there are a
• 30:44
  Speaker 1: few companies and they've benefited through valuations that were well
• 30:47
  Speaker 1: positioned for the shifts that covids brought on. But most
• 30:51
  Speaker 1: companies are having to change their strategies, re optimized given
• 30:54
  Speaker 1: what's happened. As they reoptimize, if they're in one of
• 30:58
  Speaker 1: a hundred and twenty six trees now not including the
• 31:01
  Speaker 1: US yet, but countries that have a net zero strategy,
• 31:05
  Speaker 1: if you want to be around for the long term,
• 31:07
  Speaker 1: you're gonna have a net zero strategy. That helps because
• 31:10
  Speaker 1: it it brings forward the investment that we need to
• 31:13
  Speaker 1: get to where we need to go. So we have
• 31:15
  Speaker 1: public policy, we have private money, and I just want
• 31:18
  Speaker 1: to get your take on what central banks can do
• 31:20
  Speaker 1: to help this or not. The FED recently joined the
• 31:23
  Speaker 1: Network for Greening the Financial System. They will late to
• 31:26
  Speaker 1: the party, but is there a role for central banks here?
• 31:29
  Speaker 1: There's absolutely a role, which is why the FED is joining,
• 31:31
  Speaker 1: and I'm very much a salute by share of quarrels
• 31:34
  Speaker 1: for that announcement. Um. Look, there's a few things central
• 31:37
  Speaker 1: banks can do, and as you know, Alex, central banks
• 31:40
  Speaker 1: vary by jurisdiction. Some have more powers than others. But
• 31:43
  Speaker 1: if you oversee the banking system, what a central bank
• 31:46
  Speaker 1: can do is ask the banks, have you thought about
• 31:49
  Speaker 1: where your exposures are and where your opportunities are as
• 31:52
  Speaker 1: we transition towards net zero. That's something the Bank of
• 31:54
  Speaker 1: England's doing. You can take it all the way to
• 31:56
  Speaker 1: conducting climate stress tests, which eighteen of the world's major
• 31:59
  Speaker 1: central banks are doing. You can also start to think
• 32:01
  Speaker 1: about your collateral policy over time because ultimately, um, you know,
• 32:05
  Speaker 1: again speaking like a central banker, badgets uh. Victim is
• 32:09
  Speaker 1: you lend against good collateral. Well, in a world where
• 32:12
  Speaker 1: you're transitioning towards net zero, good collateral is consistent with
• 32:17
  Speaker 1: that transition, and that's something the CPS looking at, other
• 32:20
  Speaker 1: central banks are looking at. So there's a range of
• 32:22
  Speaker 1: things we can do in the end, though we're not
• 32:25
  Speaker 1: going to set carbon policy or climate policy. Governments are
• 32:28
  Speaker 1: going to do that and the private sector is going
• 32:30
  Speaker 1: to provide us. One last question on this um can
• 32:34
  Speaker 1: we do it without China? How key is China going
• 32:37
  Speaker 1: to be in all this? China's key to virtually everything
• 32:39
  Speaker 1: in the in the world, just as United States is
• 32:42
  Speaker 1: and European Union is UM and was very significant a
• 32:46
  Speaker 1: few weeks ago when President g announced China zero objective.
• 32:50
  Speaker 1: China is one of the biggest producers of electric vehicles,
• 32:53
  Speaker 1: of wind and solar um. They have to do a
• 32:56
  Speaker 1: lot more. They know they have to do a lot more,
• 32:58
  Speaker 1: but they will be essential as all major economies will be.
• 33:02
  Speaker 1: And that's part of what the UK has to do
• 33:04
  Speaker 1: in partnership within lye is for cop over the course
• 33:07
  Speaker 1: of the next twelve months. Thanks for listening to Stephanomics.
• 33:17
  Speaker 1: We'll be back next week with more on the ground
• 33:19
  Speaker 1: reporting and analysis, and remember you can always find us
• 33:22
  Speaker 1: on the Bloomberg Terminal, website, app, or wherever you get
• 33:25
  Speaker 1: your podcast. This episode was produced by Magnus Hendrickson, with
• 33:30
  Speaker 1: special thanks to Monty Python, Eileen Bagbo, Catherine Bosley, Nimrod, Allen,
• 33:36
  Speaker 1: Charles goodheart Man, Alex Steele, and Mark Kearney. I should
• 33:41
  Speaker 1: add that ju Lynn and prim Turi helped out with
• 33:45
  Speaker 1: end the current piece of Asia last week and didn't
• 33:47
  Speaker 1: get a mention. Sorry about that and thank you to
• 33:49
  Speaker 1: them too. Lucy Meekin is the executive producer of Stephanomics
• 33:53
  Speaker 1: and the head of Bloomberg Podcast is Francesca leaving the