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A Newly Minted Nobel Laureate on Making Economics More of a Science · Trumponomics

• 0:03
  Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
• 0:06
  Speaker 1: global economy to you. Now, if you've spent much time
• 0:15
  Speaker 1: hanging out with economists, you'll know they come in two
• 0:17
  Speaker 1: main flavors, macro and micro. Macro economists get most of
• 0:21
  Speaker 1: the attention talking about their forecast for growth or inflation,
• 0:25
  Speaker 1: which usually wrong. You'll also find them sitting inside central
• 0:28
  Speaker 1: banks deciding whether to change interest rates. I had a
• 0:31
  Speaker 1: conversation about the future of monetary policy with four distinguished
• 0:35
  Speaker 1: macro economists this week. I'll play it to you a
• 0:37
  Speaker 1: bit later, but you could argue it's the micro economists,
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  Speaker 1: working away quietly on small bits of the economy who
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  Speaker 1: have done most to change the world. Three who can
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  Speaker 1: definitely make that claim are the development economists Abudget Banergy
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  Speaker 1: and esther Do Flow at the Massachusetts Institute of Technology,
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  Speaker 1: m I T and Michael Kramer at Harvard, who this
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  Speaker 1: week all shared the twin nineteen Nobel Prize for Economics.
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  Speaker 1: The day after that news broke, I spotted Michael Kramer
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  Speaker 1: at the Bloomberg offices here in London and lured him
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  Speaker 1: into the green room for a quick interview. I started
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  Speaker 1: by asking him to explain exactly what the award was
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  Speaker 1: for Michael, you were awarded the prize or the three
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  Speaker 1: of you were awarded the prize for your development of
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  Speaker 1: new ways to study and help the world's port and
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  Speaker 1: reduce poverty. You know, just for those who aren't familiar
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  Speaker 1: with your work or that, I expect a lot more
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  Speaker 1: are now this week. And what was the contribution that
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  Speaker 1: the three of you and this whole development in the
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  Speaker 1: discipline have made. What was different about what your approach?
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  Speaker 1: So I think I think that's really is an award
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  Speaker 1: for the field as a whole, and it's wonderful to
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  Speaker 1: be sharing it with our abitude and esther. But the
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  Speaker 1: area of economics, which focuses on developing countries, has really
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  Speaker 1: made tremendous progress and in recent decades, and one element
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  Speaker 1: of that has been trying to approach questions with some
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  Speaker 1: of the same empirical methods that are used in medicine.
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  Speaker 1: So that's some randomized controlled trials is one element of
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  Speaker 1: this um and that allows rigor and isolating the impact
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  Speaker 1: of a particular program from other factors, which is often
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  Speaker 1: very difficult in social sciences. That's I think that's really
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  Speaker 1: only one element of what's being recognized here. There's it's
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  Speaker 1: it's partly that intellectual rigor, but it's not intellectual rigger
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  Speaker 1: by itself. It's trying to combine this with addressing practical problems.
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  Speaker 1: I've done a lot of work on education, health, but
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  Speaker 1: people in this field are working on a wide range
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  Speaker 1: of areas that everything from finance to ways to try
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  Speaker 1: to reduce corruption, and and they're engaged in a very
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  Speaker 1: practical way with people on the ground, whether that's the
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  Speaker 1: farmers or the school children, or the teachers, or nonprofit
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  Speaker 1: organizations that are working in this area, or developing country governments,
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  Speaker 1: which are really a key player in this area. And
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  Speaker 1: that on the ground engagement means that we have to
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  Speaker 1: sometimes think beyond the standard models of economics. And a
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  Speaker 1: big fan of the standard models of economics. I think
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  Speaker 1: they're wonderful, but they don't explain everything. And you know,
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  Speaker 1: occasionally we need to bring in ideas from psychology or
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  Speaker 1: or other places, and being pacetious, we have a lot
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  Speaker 1: to learn from other other areas, and engaging with problems
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  Speaker 1: on the ground and talking to people and seeing the
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  Speaker 1: data very clearly reminds us of that and forces us
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  Speaker 1: I think in a very good way to to think
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  Speaker 1: more broadly and and think outside the box of of
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  Speaker 1: just our own The models that were used to give
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  Speaker 1: me an example of a sort of a classic application
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  Speaker 1: of this technique. I'll give it an example on this
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  Speaker 1: from my own own research. I was. I spent a
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  Speaker 1: year teaching secondary boll in Kenya after I finished my
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  Speaker 1: undergraduate degree, and then when I got involved in this
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  Speaker 1: area of work UM, one of the projects that I
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  Speaker 1: was looking at was a project that was providing textbooks.
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  Speaker 1: Too many kids at that time in Kenya didn't have textbooks.
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  Speaker 1: And there's a debate in economics of education. Some people
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  Speaker 1: say well we need more resources, other people say well
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  Speaker 1: we need better incentives for teachers, and these are this
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  Speaker 1: is sort of the debate that economists have focused on.
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  Speaker 1: So this was a case of providing more resources providing textbooks,
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  Speaker 1: and I was really shocked when I saw the results
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  Speaker 1: which suggested that the textbooks were not improving test scores
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  Speaker 1: for kids. And I thought about it. Because I taught
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  Speaker 1: in this area, I had some context and because I
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  Speaker 1: was dealing with teachers and students and the nonprofit organization
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  Speaker 1: realized that many kids have fallen behind where they correct
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  Speaker 1: of us because they missed a lot of school from illness.
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  Speaker 1: Their teachers have been missing school um the text school
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  Speaker 1: and Kenya has taught in English. After you get past
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  Speaker 1: the first few grades, kids were learning in the third
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  Speaker 1: language typically, So in that type of situation, it's very
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  Speaker 1: easy to fall behind. If you fall behind, then it's
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  Speaker 1: very hard to to benefit from the from textbooks which
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  Speaker 1: are assuming that you're on track. So this is not
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  Speaker 1: something that's against economics. It's just something from outside of economics.
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  Speaker 1: It's something that every teacher would know about and think about,
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  Speaker 1: but the economists don't often think about. And by learning
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  Speaker 1: from this case, then other people were able to go
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  Speaker 1: on and try a whole range of different approaches, and
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  Speaker 1: it was found that, for example, providing remedial education to
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  Speaker 1: kids who are behind can help them catch up with
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  Speaker 1: the creekum to the point where they can then follow
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  Speaker 1: along with the other kids and learn much more. And
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  Speaker 1: so they've been tremendous gains in our understanding from that
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  Speaker 1: and those are starting to if policy as well. When
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  Speaker 1: you talk about applying the same sort of randomized control
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  Speaker 1: testing and empirical approach to development economics and anti poverty programs,
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  Speaker 1: that has been applied have been applied previously in medical science.
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  Speaker 1: I mean a lot of people listening would say, well,
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  Speaker 1: why was that such a new idea? I mean, it
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  Speaker 1: does seem what I mean, I was Harvard in the
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  Speaker 1: in the mid nineties and it was I guess we're
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  Speaker 1: just sort of starting to see some of this approach.
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  Speaker 1: But development economics, certainly from the outside, was still quite
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  Speaker 1: an old fashioned discipline. Why did it take so long
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  Speaker 1: for what seems like quite an obvious idea to take hold?
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  Speaker 1: That's a great question. UM. I think there are a
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  Speaker 1: lot of boundaries between disciplines and UM and you know,
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  Speaker 1: it's just saying in another context, how their benefits to
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  Speaker 1: breaking those down? And you know this, I guess the
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  Speaker 1: use of randomized trialsers another area where I think economics
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  Speaker 1: has benefited alike from ideas that were pioneered in other disciplines. UM.
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  Speaker 1: I think a key step was also working with nonprofit
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  Speaker 1: organizations that were interested in evaluating their programs. So there
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  Speaker 1: there are some very large scale government programs that have
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  Speaker 1: been designed this way. So Mexico introduced conditional cash transfers.
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  Speaker 1: So this is a program that provides assistance to families
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  Speaker 1: if they have their kids in school and if they
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  Speaker 1: are getting basic medical care, and they evaluated that very rigorously.
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  Speaker 1: They found big impacts, and that program is scaled across
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  Speaker 1: much of the developing world. So there are some examples
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  Speaker 1: where large government programs having done this, but nonprofit organizations
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  Speaker 1: they can't serve the entire population. There are many different
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  Speaker 1: nonprofit organizations trying very many different things, so working with
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  Speaker 1: them has been a great opportunity to learn about the
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  Speaker 1: whole host of the effectiveness of a whole host of problems,
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  Speaker 1: and increasingly not just to learn whether things are working,
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  Speaker 1: but to better measure how they're how they're working, and
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  Speaker 1: why they're working. And that helps us develop a more
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  Speaker 1: general understanding from which we can we can begin to
• 8:08
  Speaker 1: have a better have a better chance of understanding whether
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  Speaker 1: something would work. In another context, people are always interested
• 8:14
  Speaker 1: in how you hear about these things. We had You
• 8:17
  Speaker 1: were in London, How did you get the cool to
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  Speaker 1: find out you'd won the Nobel Project. I was in London.
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  Speaker 1: I wasn't in the US, so they had trouble contacting.
• 8:25
  Speaker 1: I got a actually I was riding my bike and
• 8:30
  Speaker 1: got off my bike and got a scape message and
• 8:33
  Speaker 1: I said called me orally nothing else. And I had
• 8:35
  Speaker 1: been getting Skype or messages saying called me urgently, which
• 8:39
  Speaker 1: were scams, so I some people knew it was Nobel.
• 8:42
  Speaker 1: We just in general it's a it's a new modern
• 8:46
  Speaker 1: fishing technique because you you create a email like somebody
• 8:51
  Speaker 1: you know, you look up an organizational chart and uh,
• 8:54
  Speaker 1: purportedly from my department had the same called me urgently,
• 8:57
  Speaker 1: and then I'm stuck and I need twenty dollars or something.
• 9:00
  Speaker 1: And so I was preparing an email to this due
• 9:04
  Speaker 1: to say, if they assume this is efficient scam, but
• 9:07
  Speaker 1: if it's real, let me know. And then I got
• 9:09
  Speaker 1: a knock at my door and I found out it
• 9:12
  Speaker 1: was it was actually real Andy. And so then did
• 9:14
  Speaker 1: you have a conversation with the Nobel Committee or eventually
• 9:18
  Speaker 1: I passed on my contact information in London and twenty
• 9:22
  Speaker 1: minutes later I got a car from them. So exciting.
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  Speaker 1: I mean, I think one thing is quite nice is
• 9:29
  Speaker 1: we often are talking and I'm often as economics talking
• 9:32
  Speaker 1: about macro economics and the way that standard macro economic
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  Speaker 1: advice is being ignored, whether it's by Donald Trump or
• 9:41
  Speaker 1: by anybody that's economists don't feel very they're having much
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  Speaker 1: of an impact on the world at the moment at
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  Speaker 1: that kind of macro level. I guess what was nice
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  Speaker 1: about this award is it reminds us that the micro economics,
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  Speaker 1: the ideas, um you know, people are going out in
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  Speaker 1: the field trying to make things better, you know, still
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  Speaker 1: alive and well, and there's really made a big difference.
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  Speaker 1: I think it's it really is. I think there's you know,
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  Speaker 1: there's a lot of a lot of organizations, whether it's
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  Speaker 1: governments or nonprofits or businesses, have practical problems and they're
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  Speaker 1: trying to come up with solutions. And I think at
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  Speaker 1: the microeconomic level, economists are increasingly working with those organizations
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  Speaker 1: and and trying to provide assistance in finding those solutions,
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  Speaker 1: and we're we are seeing the impact in them in
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  Speaker 1: the in the world. Um. You know. Another example of
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  Speaker 1: this would be trying to get out basic preventive healthcare,
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  Speaker 1: whether it's in developing world, whether that's mosquito nuts or
• 10:34
  Speaker 1: water treatment solution or or uh pells to treat worms.
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  Speaker 1: And there had been a feeling that it was important
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  Speaker 1: to charge for these and the people would in value
• 10:46
  Speaker 1: the goods unless you charge for them. And what's shown
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  Speaker 1: up time after time in empirical analysis. Is you just
• 10:53
  Speaker 1: get a huge boost and participation when you make this
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  Speaker 1: available for free. And there's been a huge shift in
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  Speaker 1: policy in that direction. And I don't want to claim
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  Speaker 1: that the evidence is it's entirely responsible for that, but
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  Speaker 1: I think it played a row, and I think has
• 11:08
  Speaker 1: had a tremendous impact done on many people's health around
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  Speaker 1: the world. After that, it seems like a step down
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  Speaker 1: to think about central banks. But the best way to
• 11:24
  Speaker 1: raise the amount of economic hardship and misery in the
• 11:26
  Speaker 1: world would be to have another global financial crisis. At
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  Speaker 1: this point, it's central banks were largely relying on to
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  Speaker 1: prevent that from happening. How you stop a recession from
• 11:37
  Speaker 1: turning into another crisis and what exactly we should be
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  Speaker 1: asking our central banks to do will both be on
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  Speaker 1: the agenda at the Bloomberg New Economy Forum in Beijing
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  Speaker 1: in November. We also got into it this week at
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  Speaker 1: the annual conference the UK Society of Professional Economists in London,
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  Speaker 1: co host near by Bloomberg Economics, for a panel on
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  Speaker 1: the future of central banking. I had with me Claudio Borrio,
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  Speaker 1: head of the Monetary and Economic Department at the Central
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  Speaker 1: Bankers Central Bank, the Bank for International Settlements in Basel.
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  Speaker 1: We also had Sir Charlie been Foreman, Chief Economist and
• 12:12
  Speaker 1: Deputy Governor for the Bank of England. Dame Kate Barker
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  Speaker 1: used to sit on the Bank of England's Interest Rate Committee,
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  Speaker 1: and Graham Turner, founder of the Economic Research Group GFC.
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  Speaker 1: He's also an important advisor to the UK Labor Party.
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  Speaker 1: We started by all talking about whether central banks had
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  Speaker 1: the tools to respond to the next recession. Graham Turner,
• 12:41
  Speaker 1: you've talked about we should be more optimistic on the
• 12:44
  Speaker 1: sort of structural changes underway. I know that you've taken
• 12:47
  Speaker 1: a good look at you know, how we might be
• 12:49
  Speaker 1: continuing to under price or overstate the inflation rate on
• 12:53
  Speaker 1: software and all these things, and I think there'd be
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  Speaker 1: some sympathy for that here. But you've also stated that
• 13:00
  Speaker 1: him it could pose this seismic threat to that, to
• 13:02
  Speaker 1: the to the rates of investment. So how can you
• 13:05
  Speaker 1: be optimistic if you think everything is going to be
• 13:07
  Speaker 1: turned upside down quite soon? Well, look, I don't know
• 13:10
  Speaker 1: when climate change is going to really start to hit.
• 13:12
  Speaker 1: I mean, it's only thing I have an impact in
• 13:13
  Speaker 1: the next year or years. We might have with Elizabeth Warren,
• 13:17
  Speaker 1: we could happen in a year. But then you know,
• 13:19
  Speaker 1: center banks are going to have to I mean, independence
• 13:22
  Speaker 1: is going to become irrelevant. I mean we've got to
• 13:24
  Speaker 1: get away from this idea that you know, independence it's
• 13:28
  Speaker 1: worth anything, because ultimately, you know, it's about doing the
• 13:31
  Speaker 1: right decisions, working with politicians, and you know, we are
• 13:34
  Speaker 1: going to have to be thinking about direct measures in
• 13:38
  Speaker 1: the financial system to price I mean, you know Mark Knee,
• 13:41
  Speaker 1: he said, well the markets will start pricing risk companies
• 13:45
  Speaker 1: that embrace carbon targets. Well, maybe they won't. I mean
• 13:49
  Speaker 1: the market didn't price mortgages correctly in two thousand and eight,
• 13:52
  Speaker 1: so maybe they won't price carbon emission correctly. So maybe
• 13:57
  Speaker 1: what the Bank of England needs to be doing. And
• 13:58
  Speaker 1: you know there's some people doing something to be good.
• 14:00
  Speaker 1: Well I was wanted to see somebody of either and
• 14:02
  Speaker 1: when some of the work they're doing is fantastic, but
• 14:04
  Speaker 1: massive resources need to be put towards modeling the climate changers,
• 14:08
  Speaker 1: talking and working with the scientists, and said, what happens
• 14:10
  Speaker 1: if the stock market goes down a long way because
• 14:14
  Speaker 1: of climate changs? What does that do to pension funds. Therefore,
• 14:17
  Speaker 1: should we be saying to the politicians that we should
• 14:20
  Speaker 1: be prepared to really ramp up the investment. And you know,
• 14:24
  Speaker 1: some people talk about green krewey. I don't even know
• 14:26
  Speaker 1: we need to do green kwy because ultumably I think
• 14:28
  Speaker 1: the market will fund a lot of this investment if
• 14:31
  Speaker 1: they can see that it makes economic sense. Anyway, well,
• 14:36
  Speaker 1: I think you've opened up lots of things for discussion.
• 14:39
  Speaker 1: I don't know who wants who wants to respond, I
• 14:41
  Speaker 1: mean claudy that I guess there's two things there. I
• 14:43
  Speaker 1: mean threats to Bank of England, to Central Bank independence
• 14:46
  Speaker 1: are clearly coming from lots of directions, and this is
• 14:48
  Speaker 1: one potential one. But there was this also the claim
• 14:53
  Speaker 1: that many people would share, which is that things, the
• 14:56
  Speaker 1: sort of underlying structure of the economy and the tech
• 15:00
  Speaker 1: knowledgy that's coming through is a source for optimism, not
• 15:02
  Speaker 1: only pessimism. If there is something I'm optimistic about this technology,
• 15:07
  Speaker 1: I think that I was never on the pessimistic side
• 15:11
  Speaker 1: when people like Gordon was saying or nothing worth inventing
• 15:15
  Speaker 1: has been invented over the last ten fifteen years. You
• 15:18
  Speaker 1: just look around and it's extraordinary the pace, the pace
• 15:21
  Speaker 1: of technology. Now, one implication of that, though, is that, um,
• 15:26
  Speaker 1: if technology, together with globalization and the like, our factors
• 15:31
  Speaker 1: that are driving down prices, then there is a big
• 15:36
  Speaker 1: issue about the targets that we now have two percent
• 15:41
  Speaker 1: targets and the fact that, well, we need to hit
• 15:44
  Speaker 1: them because otherwise our credibility is at stake. Um Volker
• 15:50
  Speaker 1: himself was asking questions about this because the concern one
• 15:56
  Speaker 1: concern is that if these forces are those that are
• 16:00
  Speaker 1: having inflation down, these are good forces. They're not bad forces.
• 16:03
  Speaker 1: They basically in the support growth. They support economic expansion,
• 16:08
  Speaker 1: which is why unemployment in parties are slow as it is. UM.
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  Speaker 1: But then if people are so concerned with inflation being
• 16:17
  Speaker 1: below target and they try very very hard to hit
• 16:21
  Speaker 1: the target, even if these forces are at work, then
• 16:26
  Speaker 1: you have the risk of running out for maneuver. So
• 16:31
  Speaker 1: I think that that's an important aspect that was raised,
• 16:35
  Speaker 1: and I think that bears some reflection. Okay, you were
• 16:39
  Speaker 1: frowning through some of what Graham said. Well, I suppose
• 16:44
  Speaker 1: I'm always wondering what's the responsible of central banks and
• 16:46
  Speaker 1: what's the responsibility of other people. So I completely agree
• 16:49
  Speaker 1: that climate change is an enormous risk. Whether the central
• 16:52
  Speaker 1: bank is the best place to deal with it and
• 16:55
  Speaker 1: work out pricing and markets or not time I'm not sure.
• 16:57
  Speaker 1: I'm also sort of slightly worried, as they chair of
• 17:01
  Speaker 1: a pension fund that after Charlie Snatuy, I'm got any
• 17:04
  Speaker 1: lefter anything left. I mean, you have to buy because
• 17:06
  Speaker 1: he's bought it all. And also we may we may
• 17:09
  Speaker 1: be kind of investing in the investing in the wrong things.
• 17:12
  Speaker 1: But I mean the market is very busy at the
• 17:14
  Speaker 1: moment repricing different repricing different assets according to the risks
• 17:18
  Speaker 1: of climate chains. We're all falling over ourselves in the
• 17:21
  Speaker 1: investment world. Define green, define green investments and put our
• 17:25
  Speaker 1: put our money into them. But I want to go
• 17:27
  Speaker 1: back to a point at the beginning which I agree with,
• 17:29
  Speaker 1: which is that you asked us, you know how we
• 17:31
  Speaker 1: deal if we need to restimulate the economy. But I
• 17:35
  Speaker 1: agree that today in the UK, I don't feel we
• 17:37
  Speaker 1: do have a great need to restimulate the economy, given
• 17:40
  Speaker 1: how low, given how low unemployment is, I don't feel
• 17:42
  Speaker 1: that we're an economy which has got a lot of
• 17:44
  Speaker 1: spare resources. The issue is of course a supply side issue.
• 17:48
  Speaker 1: We're not getting the right growth out of those resources,
• 17:50
  Speaker 1: and that's a very difficult thing for central bank to tackle.
• 17:53
  Speaker 1: It seems to me much more the territory of micro policy. Charlie, Yeah,
• 17:58
  Speaker 1: I think there's a real danger here of expecting central
• 18:01
  Speaker 1: banks to do things beyond their their natural territory. Um.
• 18:09
  Speaker 1: The other thing to be said is that I don't
• 18:12
  Speaker 1: think it's right to think about central banks as being independent.
• 18:17
  Speaker 1: That's been I think one of the errors of the
• 18:19
  Speaker 1: academic literature that it's focused on institutional independence. But all
• 18:25
  Speaker 1: central banks and creatures of the state, and they have
• 18:28
  Speaker 1: certain powers that are delegated to them along different dimensions
• 18:33
  Speaker 1: of which they may have different degrees of independence. And
• 18:36
  Speaker 1: it seems to me that these sort of climate change
• 18:38
  Speaker 1: type issues, which I agree incredibly important, but there are
• 18:41
  Speaker 1: actually ones who really government taught to be in the lead,
• 18:44
  Speaker 1: with central banks assisting h and having obviously a particular
• 18:50
  Speaker 1: role in areas that impinge on financial markets, which is
• 18:53
  Speaker 1: exactly where Mark Karney has been leading the Bank of
• 18:56
  Speaker 1: England's efforts, and because they clearly are implications if you
• 19:00
  Speaker 1: have stranded assets and stuff like that. But this is
• 19:03
  Speaker 1: something that's much bigger than that, and it really seems
• 19:05
  Speaker 1: to me that something it has to be dritten by
• 19:08
  Speaker 1: the political actors and it's something obviously that has to
• 19:11
  Speaker 1: be tackled at international So so I see the central
• 19:16
  Speaker 1: banks as a subsidiary player here rather than the leader.
• 19:20
  Speaker 1: I think the center bank hashed to take her a
• 19:22
  Speaker 1: much more leading role because if the Bank of England
• 19:24
  Speaker 1: in the two thousand and seven the time around eaven
• 19:27
  Speaker 1: two thousand and four on time round to the Labor
• 19:30
  Speaker 1: Party and said, you know what, this light touch regulation
• 19:33
  Speaker 1: of the city you're promoting, just letting all this more
• 19:37
  Speaker 1: lending happened in a way that it was what were seeing.
• 19:42
  Speaker 1: You know, they might have actually put pressure on the politicians.
• 19:44
  Speaker 1: And I think that, you know, because that's in the
• 19:48
  Speaker 1: Bank of England's territory. So stuff that's doing financial markets
• 19:52
  Speaker 1: and regulation is entirely appropriate for the bank to be
• 19:57
  Speaker 1: and to send messages to the jury or whoever when
• 20:01
  Speaker 1: they have concerts, and indeed the FPC has been set
• 20:04
  Speaker 1: up to do precisely that. But the climate change agenda
• 20:09
  Speaker 1: is a much much bigger one. That's that of course
• 20:12
  Speaker 1: is broad. I mean, of course it's going to involve
• 20:14
  Speaker 1: the government. Of course it's going to involve the politician,
• 20:16
  Speaker 1: but when we're just talking about reward is the role
• 20:18
  Speaker 1: of monetary policy. And my point really was, I think
• 20:21
  Speaker 1: there's an obsession we're focusing on the next GDP number,
• 20:25
  Speaker 1: the pre my surveys. I'm not about you guys, but
• 20:28
  Speaker 1: I get tired of looking at pure my surveys to
• 20:30
  Speaker 1: go up and down, and one about where we should
• 20:32
  Speaker 1: do a little bit more que eat and keeping economy
• 20:34
  Speaker 1: where the unemployment rate is already you know for to
• 20:37
  Speaker 1: year low is utterly pointless and involevant. For me, the
• 20:40
  Speaker 1: most exciting part of what I do in my job
• 20:42
  Speaker 1: as a market forecast is looking at what companies are
• 20:45
  Speaker 1: going to deliver big step changes in productivity. And I
• 20:48
  Speaker 1: think that's my point about the report what I did
• 20:50
  Speaker 1: for the Labor Party, which is that you know, to
• 20:53
  Speaker 1: get central banks thinking about productivity is really important. And
• 20:56
  Speaker 1: of course they about I've got with our no productive
• 20:58
  Speaker 1: is not to do a sanra about why not? You know,
• 21:01
  Speaker 1: why can't they be thinking about what sectors do we
• 21:04
  Speaker 1: need to be supported to drive faster productivity? You know,
• 21:08
  Speaker 1: why can't we be talking to the financial system and
• 21:10
  Speaker 1: saying to a particular about why is it your focus
• 21:14
  Speaker 1: is on more and consumer credit and not on supporting
• 21:16
  Speaker 1: companies that are desperate for capital or help us to
• 21:19
  Speaker 1: become more productive. So you know, these are crucial decisions
• 21:23
  Speaker 1: which can't just be left for the politicians. And there
• 21:25
  Speaker 1: is something there is something in that which I think
• 21:28
  Speaker 1: is broad. You know, with something which is all of
• 21:30
  Speaker 1: you would probably be be concerned about, which is the
• 21:34
  Speaker 1: political The perception of monetary policy is going to be
• 21:39
  Speaker 1: increasingly important. I mean, has been very important in the
• 21:41
  Speaker 1: last few years and could be very important in the
• 21:44
  Speaker 1: monetary policy response to the next crisis, could be very important.
• 21:48
  Speaker 1: If that there could the argument could be, well, you
• 21:51
  Speaker 1: don't mind having massive redistributive and politically consequential implications of
• 21:56
  Speaker 1: what you do if it's only about giving money to
• 21:59
  Speaker 1: rich people who owned stocks having their asset prices pushed
• 22:04
  Speaker 1: up by QUI. But when it's about giving money to
• 22:07
  Speaker 1: poor people, suddenly you get cold feet. I mean, isn't
• 22:10
  Speaker 1: there a bit of a don't you have to actually
• 22:12
  Speaker 1: start thinking about the other side of some of the
• 22:14
  Speaker 1: your your hands are already dirty, would be the argument,
• 22:17
  Speaker 1: So why why now be so concerned about the politics
• 22:21
  Speaker 1: I think that the distributional and consequence of I think
• 22:25
  Speaker 1: people are absolutely right to be concerned about it was
• 22:29
  Speaker 1: appropriate in the emergence. But you've talked about how you
• 22:32
  Speaker 1: would do you could you would do more. On the contrary,
• 22:36
  Speaker 1: I was saying, the technical limits are a long way off,
• 22:40
  Speaker 1: but long before you get to that, you have the
• 22:43
  Speaker 1: political economy considerations and also the distributional concerns, and there
• 22:48
  Speaker 1: isn't the democratic support for that sort of action. And
• 22:52
  Speaker 1: I think monetary policy always has distributional effects, even in
• 22:57
  Speaker 1: normal times, but normally sort of short lived. It swings
• 23:00
  Speaker 1: and roundabout. What's been unusual about the last decade is
• 23:04
  Speaker 1: that the period of low interest rates has just gone
• 23:07
  Speaker 1: on so long and people have been conscious of those
• 23:10
  Speaker 1: distributional consequences. The other things you said is QUI works
• 23:14
  Speaker 1: by driving our passet prices, so it's very conspicuously benefits
• 23:19
  Speaker 1: those who are asset rich at the benefits of those
• 23:22
  Speaker 1: who don't have assets and want to acquire them, like
• 23:25
  Speaker 1: the young. And I think that's something which shouldn't really
• 23:27
  Speaker 1: be left in the hand of central banks. It's something
• 23:30
  Speaker 1: that finance ministers, treasuries and politicians need to own, not
• 23:35
  Speaker 1: the MPC. But the central banks will then end up
• 23:38
  Speaker 1: will still have to be implicated in some of that,
• 23:40
  Speaker 1: potentially finding the assurance that but they would be that
• 23:45
  Speaker 1: they would be doing it as agents if if governments
• 23:47
  Speaker 1: say yes, we're willing to accept those distributional consequences and
• 23:51
  Speaker 1: they can use their fiscal tools to offset them if
• 23:55
  Speaker 1: they don't like them. If that's possible, but you have
• 23:58
  Speaker 1: to have a world I think the politicians and fifthal
• 24:03
  Speaker 1: authorities say yeah, I'm willing to accept those distribution consequences
• 24:08
  Speaker 1: as the cost of using this particular monetary instrument to
• 24:13
  Speaker 1: fight a significant DOWNTA. Absolutely agree with what Graham says
• 24:17
  Speaker 1: about you know, we shouldn't be worrying about little twiddles
• 24:20
  Speaker 1: in activity and stabilizing that. Those people here who have
• 24:24
  Speaker 1: to be very concerned, well, well, well they do. But
• 24:28
  Speaker 1: but the exam question you setters was a significant doubt,
• 24:34
  Speaker 1: but possibly one that wasn't the replay of the financial crisis,
• 24:38
  Speaker 1: whether it's a Brexit, no deal, whatever, but something that
• 24:42
  Speaker 1: requires a policy response is the ammunition there. My concern
• 24:51
  Speaker 1: is that there is already a large expectations gap which
• 24:56
  Speaker 1: is undermining central banks legitimacy between what they are expected
• 25:01
  Speaker 1: to deliver and what they can deliver, They're expected to
• 25:05
  Speaker 1: make sure that inflation is a two percent. They're expected
• 25:07
  Speaker 1: to make sure that the economies that fun employment, they're
• 25:09
  Speaker 1: expected to make sure of that financial stabilities there. Now
• 25:13
  Speaker 1: they have a clear limit. It's already a very ambitious limit.
• 25:18
  Speaker 1: I think that adding further stuff onto that is not
• 25:21
  Speaker 1: the right way to go. I think there is an
• 25:24
  Speaker 1: issue about clarifying what the various responsibilities are of the
• 25:29
  Speaker 1: government and the Central Bank, and unless we do that,
• 25:32
  Speaker 1: I think in a few years time we'll find ourselves
• 25:35
  Speaker 1: in a place where we would not like to be,
• 25:37
  Speaker 1: just as we have with a number of the measures
• 25:40
  Speaker 1: that have been taken in the past. I mean, I
• 25:42
  Speaker 1: very much agree with what Charlie said about about distribution.
• 25:45
  Speaker 1: We had because we didn't really think at the beginning
• 25:47
  Speaker 1: this was going to be so prolonged, so we didn't
• 25:50
  Speaker 1: really think about the distributional consequences, and nor I think
• 25:53
  Speaker 1: that the government think about how to how to upset them.
• 25:55
  Speaker 1: But I think at the point I would make no
• 25:58
  Speaker 1: a familiar point to Charlie that although the distributional consequence
• 26:01
  Speaker 1: asset price is kind of in your face, the distributional
• 26:04
  Speaker 1: consequence of rescuing people with unemployment are also pretty important,
• 26:07
  Speaker 1: but they're more hidden. People find that harder to link
• 26:10
  Speaker 1: in and and somehow central banks haven't tackled that properly
• 26:15
  Speaker 1: talked about why why it is that it looks so
• 26:17
  Speaker 1: looks so in lates but some when people try to
• 26:20
  Speaker 1: deny their distributional consequences of QUI, that's not right either.
• 26:23
  Speaker 1: Even some people at the Bank of England have done that.
• 26:26
  Speaker 1: Even some people at the Bank of England have done that.
• 26:35
  Speaker 1: Thanks for listening to Stephanomics. We'll be back next week
• 26:37
  Speaker 1: with more on the ground insights into the global economy.
• 26:41
  Speaker 1: In the meantime, you can find us on the Bloomberg
• 26:43
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• 26:46
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• 26:48
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• 26:51
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• 26:54
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• 26:58
  Speaker 1: me on at my Stephan mix. This episode was produced
• 27:02
  Speaker 1: by Magnus Hendrickson, with special thanks to Michael Kramer, Dame
• 27:06
  Speaker 1: Kate Barker, Claudio Borrio, Sir Charles Bean and Graham Turner,
• 27:12
  Speaker 1: David Beatty and the Society for Professional Economists. Our executive
• 27:16
  Speaker 1: producer is Scott Laman and Francesco Levy is the head
• 27:20
  Speaker 1: of Bloomberg Podcast.