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What You Know About Recessions Could Be All Wrong · Trumponomics

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 2: The risk is duration.
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  Speaker 1: If indeed this is a short conflict and normal traffic
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  Speaker 1: resumes through the Strait of Hormuz, then I think this
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  Speaker 1: will be a temporary setback, but not a recessionary shock.
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  Speaker 1: Whereas if this strait of hormones shut down does persist
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  Speaker 1: for a period of weeks or months, then it would
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  Speaker 1: be a supply shock greater than that observed in nineteen
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  Speaker 1: seventy three or nineteen seventy nine.
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  Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
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  Speaker 3: and this is Trumpnomics, the podcast that looks at the
• 0:51
  Speaker 3: economic world of Donald Trump, how he's already shaped the
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  Speaker 3: global economy, and what on earth is going to happen next.
• 1:00
  Speaker 3: We've spent much of the past couple of weeks thinking
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  Speaker 3: about the potential impacts of the crisis in Iran on
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  Speaker 3: the global economy, for oil prices, on trade, for inflation.
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  Speaker 3: We talked through a lot of those and even some
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  Speaker 3: new ones, like the threat to water and even food
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  Speaker 3: supplies in the Gulf, in detail in last week's episode
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  Speaker 3: with two of my senior colleagues. But lurking beneath the
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  Speaker 3: surface of all of these conversations is often the fear
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  Speaker 3: that this shot will be enough to tip the whole
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  Speaker 3: economy into recession. But one reassuring lesson of a new
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  Speaker 3: study of recessions in the US and the UK over
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  Speaker 3: the past two hundred and fifty years is it takes
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  Speaker 3: a lot to do that. Doctor Tyler Goodspeed was acting
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  Speaker 3: Chairman of the Council Economic Advisors at the tail end
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  Speaker 3: of President Trump's first term, and since twenty twenty three
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  Speaker 3: has been the chief economist at Exon Mobil. But somehow,
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  Speaker 3: despite doing that job, he has managed to write a
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  Speaker 3: book called Recession, The Real Reasons Economy Shrink and What
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  Speaker 3: to Do about It. He finds in that book, as
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  Speaker 3: Adam Smith once said, there is a lot of ruin
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  Speaker 3: in a nation. It takes a lot of overlapping shocks
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  Speaker 3: to tip an economic expansion into reverse. But pretty much
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  Speaker 3: everything else we thought we knew about recessions he thinks
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  Speaker 3: was wrong. Expansions don't die of old age, they don't
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  Speaker 3: get more likely the longer an expansion continues. They're not
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  Speaker 3: the inevitable punishment for an excessive boom, and they don't
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  Speaker 3: cleanse the economy either of the bad decisions taken in
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  Speaker 3: those booms, or make it easier for businesses to undergo
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  Speaker 3: necessary restructuring. Perhaps most important, we haven't really got any
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  Speaker 3: better at avoiding or shortening recessions in the past seventy
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  Speaker 3: five years or so. But and this seems like an
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  Speaker 3: important but the book does find that unexpected shocks can
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  Speaker 3: play a big role in stopping an economy, especially those
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  Speaker 3: involving food and energy. So all things considered, it seemed
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  Speaker 3: like a good time to talk to doctor Goodspeed about
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  Speaker 3: his book. Tyler, thank you very much for joining me.
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  Speaker 3: You're in London, I'm in New York. I'm sorry about that,
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  Speaker 3: but we appreciate you coming in.
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  Speaker 2: It's great to be with you.
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  Speaker 3: There's a lot of economic history in this book, and
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  Speaker 3: conveniently for a sort of transatlantic podcast, it's drawing on
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  Speaker 3: the history of both the UK and the US economy.
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  Speaker 2: I can't help.
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  Speaker 3: Wondering how you even found time to do this while
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  Speaker 3: you were chief economist of a major global energy firm.
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  Speaker 1: Fortunately, before joining Exxon, I was back in academia after
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  Speaker 1: a few years in government, and so that was when
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  Speaker 1: I did most of the grunt work for the project.
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  Speaker 1: But that said, I'm very much looking forward to having
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  Speaker 1: my evenings and weekends back.
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  Speaker 3: Yeah, I'm sure I sort of summarized some of the
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  Speaker 3: hard truths for economists who thought they understood the economy
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  Speaker 3: that are in your book. Just tell us briefly what
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  Speaker 3: you set out to do, and for you the more
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  Speaker 3: surprising conclusions, and then we can unpack some of them.
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  Speaker 1: So what I set out to do was to better
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  Speaker 1: understand econo contractions, having just lived through one of the
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  Speaker 1: sharpest economic contractions in US and UK history with the
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  Speaker 1: twenty twenty pandemic recession.
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  Speaker 2: And when I.
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  Speaker 1: Started the project, I thought that was such a unique event,
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  Speaker 1: such a unique shock. But as I got further into
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  Speaker 1: the research, I realized that actually most recessions are about
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  Speaker 1: adverse shocks that we could neither fully anticipate nor effectively
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  Speaker 1: hedge against. One thing we often tell ourselves about recessions
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  Speaker 1: is that they're inherently cyclical phenomena, that there's a boom
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  Speaker 1: and then a bus, That there's some excess or malinvestment
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  Speaker 1: or error in an economic expansion to which recession is
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  Speaker 1: the inevitable and even necessary remedy. And there's a certain
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  Speaker 1: moralizing to that story. But it's just not true. Economic recessions.
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  Speaker 1: As Ben Bernanke put it, they're murdered. And over the
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  Speaker 1: past few centuries, one of the shocks that we're potentially
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  Speaker 1: living through right now, namely energy supply shocks, has been
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  Speaker 1: a serial killer or serial accomplice to the murder of
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  Speaker 1: otherwise healthy and innocent economic expansions.
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  Speaker 3: That point of the inevitable consequence of booms. We do
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  Speaker 3: tend to look back. I think, you know the nineteen
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  Speaker 3: twenties or some of the financial manias that you read
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  Speaker 3: about from earlier centuries, or even in the two thousand
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  Speaker 3: and eight crisis, we tend to think that was a
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  Speaker 3: banking crisis caused by a lot of excess in lending
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  Speaker 3: in the financial sector. What piece of that is is wrong,
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  Speaker 3: or at least it is not being properly described.
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  Speaker 1: When you look at the height or speed of an
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  Speaker 1: economic expansion, as measured, for example, by the volume of
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  Speaker 1: bank lending or the increase in the volume of bank lending,
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  Speaker 1: then under the boom bus hypothesis, the height or speed
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  Speaker 1: of the increase in bank lending during an economic expansion
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  Speaker 1: should predict the depth or speed or duration of the
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  Speaker 1: subsequent recession and it simply doesn't. And the nineteen twenties
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  Speaker 1: are actually a very interesting one because, first of all,
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  Speaker 1: that was actually a very short expansion that preceded the
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  Speaker 1: recession that began in the second half of nineteen twenty nine.
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  Speaker 1: When you look at a lot of measures of economic activity,
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  Speaker 1: including building activity, including investment, there were some large increases,
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  Speaker 1: but it's in the context of a severe negative deviation
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  Speaker 1: from trend during World War One, the subsequent recession, the
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  Speaker 1: subsequent pandemic nineteen eighteen nineteen nineteen, nineteen twenty were very
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  Speaker 1: difficult postwar years, characterized by shortages in the continued shortages
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  Speaker 1: in the United Kingdom, by widespread strike activity in the
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  Speaker 1: United States. So what you saw in the nineteen twenties
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  Speaker 1: was to a large extent catchup for the growth and
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  Speaker 1: increase in economic activity that didn't happen during that six
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  Speaker 1: year period from nineteen fourteen to nineteen twenty.
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  Speaker 3: The other thing that was interesting to me was the
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  Speaker 3: thirties is the classic sort of caution tell especially if
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  Speaker 3: you're an economist and you read the Knes General theory
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  Speaker 3: and all that is all about something which you don't dispute,
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  Speaker 3: which is that policy makers can definitely make recessions worse.
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  Speaker 3: They can mismanage sort of the path into a recession.
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  Speaker 3: But the conceit was that policy makers post World War
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  Speaker 3: Two had got better at managing these things. Recessions were
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  Speaker 3: less deep, was shorter. I guess we've already been questioning
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  Speaker 3: that a little bit over over recent years, but you
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  Speaker 3: find that's not even in the sort of post World
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  Speaker 3: War two data for the UK or the US.
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  Speaker 1: That's right, and just one moment on the nineteen thirties,
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  Speaker 1: I think it's really important to remember just the volume
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  Speaker 1: of severe shocks that hit the US economy, not so
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  Speaker 1: much the UK economy between nineteen twenty nine and nineteen
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  Speaker 1: thirty three, a massive increase in business taxation. You had
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  Speaker 1: four distinct banking crises, three of which were actually highly
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  Speaker 1: regional in nature, one of which, at least one of
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  Speaker 1: which had to do with a once in a generation
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  Speaker 1: drought throughout much of the US that was succeeded by
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  Speaker 1: a plague of locusts of providential proportions that contributed to
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  Speaker 1: a wave of bank failures. You had a tiff shock.
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  Speaker 1: There was just a lot going on in the US
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  Speaker 1: economy during that period. So yes, you were spot on
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  Speaker 1: to highlight the conceit of a lot of postwar policy makers.
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  Speaker 1: We saw this in the nineteen sixties again in the
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  Speaker 1: nineteen nineties that they thought that because of the rollout
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  Speaker 1: of automatic stabilizers a greater role for the state in
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  Speaker 1: the economy, that recessions would become more rare and shallower.
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  Speaker 1: The reality is that recession depth has been remarkably constant
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  Speaker 1: over time, going all the way back to the seventeen hundreds.
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  Speaker 1: Recession duration has been remarkably constant over time, going all
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  Speaker 1: the way back to seventeen hundred. Most recessions are over
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  Speaker 1: in about a year, and the vast majority within two years.
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  Speaker 1: So what has changed is that expansions have had actually
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  Speaker 1: gotten longer over time and recessions have actually become less frequent. However,
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  Speaker 1: that is a very long run trend that goes back
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  Speaker 1: to seventeen hundred and probably before, and you can statistically
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  Speaker 1: test was there a particular point in time when economic
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  Speaker 1: expansions transition to greater length, greater duration, and statistically there's
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  Speaker 1: no clear breakpoint. So this is a long run, smooth
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  Speaker 1: trend that goes back to the eighteenth century.
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  Speaker 3: I promise we will get to some sort of positive
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  Speaker 3: conclusion the lesser part of this conversation. But if you're
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  Speaker 3: sort of thinking, oh, that you can learn about economics
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  Speaker 3: and get better at doing things, it's not entirely encouraging.
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  Speaker 3: Reading your book. One thing that you do highlight, and
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  Speaker 3: you've already mentioned, actually some of the differences between the
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  Speaker 3: UK and the US. I was sort of surprised to
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  Speaker 3: see such a big difference between the two economies in
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  Speaker 3: terms of the number of recessions. Having grown up in
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  Speaker 3: the UK, we tend to think of it as rather
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  Speaker 3: crisis prone and rather unsuccessful, and as you point out,
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  Speaker 3: it has been quite unsuccessful. But it has been successful
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  Speaker 3: at one thing, which is relative to America avoiding recessions.
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  Speaker 3: What is the difference in terms of the likelihood of
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  Speaker 3: having a recession between the UK and US.
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  Speaker 2: You're right.
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  Speaker 1: One of the fascinating findings in the book is just
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  Speaker 1: how much more recession prone the United States has been
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  Speaker 1: over the past two hundred and fifty years than the
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  Speaker 1: United Kingdom, or how much less recession prone the United
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  Speaker 1: Kingdom has been. And there are fundamentally two reasons for that.
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  Speaker 1: One is that from eighteen twenty six onward, the United
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  Speaker 1: Kingdom had a nationwide system of branch banking, so you
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  Speaker 1: could operate multiple branches across the national economy.
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  Speaker 2: And if you think.
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  Speaker 1: About a large diversified economy, it's kind of like a
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  Speaker 1: well diversified portfolio, so shocks in one area, one sector,
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  Speaker 1: or one region can be offset by resilience in another.
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  Speaker 1: In contrast, in the United States, for most of US history,
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  Speaker 1: for domestic political economy reasons, not only could a bank
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  Speaker 1: not operate across state lines, they could only operate one
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  Speaker 1: location within a state. And what that meant was you
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  Speaker 1: had tens of literally tens of thousands of small, undercapitalized
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  Speaker 1: financial institutions that were insufficiently diversified, not only on the
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  Speaker 1: asset side, so they're very exposed to local shocks, but
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  Speaker 1: also their capital base was underdiversified because all the shareholders,
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  Speaker 1: all the partners in the bank were also exposed to
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  Speaker 1: the local economy. And that really only started to change
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  Speaker 1: in the nineteen seventies of the nineteen eighties. Now, the
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  Speaker 1: second reason for greater UK resilience in the face of
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  Speaker 1: adverse recessionary shocks is that from nineteen twenty six to
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  Speaker 1: nineteen seventy two, the UK economy went without a single
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  Speaker 1: official coal strike, and during that period the United States
• 11:54
  Speaker 1: experienced multiple recessions that were oil induced nineteen forty eight,
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  Speaker 1: nineteen fifty three, nineteen fifty, nineteen seventy and during that
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  Speaker 1: time instead, the UK economy was just much more reliant
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  Speaker 1: on coal. The UK economy had an abundant supply of
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  Speaker 1: coal and it was their primary source of energy.
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  Speaker 3: So it's partly that, and I guess we can't really
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  Speaker 3: congratulate ourselves on having been more efficient at avoiding recessions.
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  Speaker 3: One thing that was striking to me was despite having
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  Speaker 3: this might be self evident to some people, despite having
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  Speaker 3: much more successfully avoiding recessions than the US, it has
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  Speaker 3: not been a more successful economy over this period. Quite
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  Speaker 3: a large gap in living standards opened up in the
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  Speaker 3: first part of the twentieth century and has got quite
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  Speaker 3: a lot larger in the last few years. So, you know,
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  Speaker 3: the other great thing that policy makers tend to say
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  Speaker 3: is well that one of the most important things you
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  Speaker 3: can do is avoid You should try and keep the
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  Speaker 3: economy running stably, even if it's growing a bit more slowly,
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  Speaker 3: because it's avoiding recessions that really helps you maintain living standards.
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  Speaker 3: That doesn't seem to be borne out either by your
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  Speaker 3: comparison between the two countries.
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  Speaker 2: Not at all.
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  Speaker 1: In terms of the policy maker endeavor to prevent recessions,
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  Speaker 1: it's inevitably going to be a vain attempt because recessions
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  Speaker 1: will continue to happen because history continues to happen. There
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  Speaker 1: has never been an immortal economic expansion. And as you note,
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  Speaker 1: the UK is about thirty percent poor per person.
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  Speaker 3: I think that's actually it's quite a lot bigger now.
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  Speaker 3: I think I was looking at the day to other
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  Speaker 3: I think it's forty or fifty percent poor because of
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  Speaker 3: the last twenty years.
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  Speaker 2: Yeah, and has.
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  Speaker 1: Long been substantially poorer than the United States. So I
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  Speaker 1: think that's an important lesson that the majority of years
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  Speaker 1: in which an economy expands matter much more than the
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  Speaker 1: minority of years in which it contracts. And so what
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  Speaker 1: policy makers should be focusing on if they want to
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  Speaker 1: increase human prosperity and flourishing is focusing on increasing the
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  Speaker 1: pace of growth during the periods of expansion.
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  Speaker 3: So let's sort of think more about the current moment.
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  Speaker 3: You obviously had a peer where you were sitting in
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  Speaker 3: the White House and the Council of Economic could just
• 14:00
  Speaker 3: looking at the time that you were running the Council
• 14:04
  Speaker 3: was as COVID hit the economy. So I guess, as
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  Speaker 3: you say, that was kind of a searing experience that
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  Speaker 3: made you want to think more about the causes of recessions.
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  Speaker 3: But if you were there now, how would you be
• 14:13
  Speaker 3: thinking about the risks from this crisis in the Middle
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  Speaker 3: East and indeed the other potential risks on the horizon.
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  Speaker 2: So I think the risk is duration.
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  Speaker 1: If indeed this is a short conflict and it is
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  Speaker 1: contained and normal traffic resumes through the strait of hormones,
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  Speaker 1: then I think this will be a temporary setback, but
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  Speaker 1: not a recessionary shock. But if this does persist for
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  Speaker 1: several weeks, then it does have a nineteen seventy three
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  Speaker 1: nineteen seventy nine feel to it, where actual physical barrels
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  Speaker 1: are removed from global supply. A lot of traders on
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  Speaker 1: trading floors today probably don't have a memory of episodes
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  Speaker 1: of energy supply shocks where there was actually a apply shock,
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  Speaker 1: physical barrels, physical cubic feet of gas that were removed
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  Speaker 1: from global markets. Twenty twenty two, there was a fear
• 15:08
  Speaker 1: of that, but what ended up happening was a remarkable
• 15:10
  Speaker 1: reconfiguration of global liquid flows and global gas flows. There
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  Speaker 1: were some transition costs, but there wasn't much disruption to
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  Speaker 1: the actual supply, Whereas if this strait of Hormuz shut
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  Speaker 1: down does persist for a period of weeks or months,
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  Speaker 1: then it would be a supply shock greater than that
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  Speaker 1: observed in nineteen seventy three or nineteen seventy nine.
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  Speaker 3: You're sitting in an oil company, but you know there
• 15:47
  Speaker 3: has been a big shift in the administration's approach to
• 15:52
  Speaker 3: energy transition, alternative sources of energy, and that could potentially
• 15:57
  Speaker 3: set the US, in terms of its kind of energy
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  Speaker 3: model for its economy, on quite a different path from
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  Speaker 3: the rest of the world. How do you think about
• 16:05
  Speaker 3: that in terms of obviously, the US has a lot
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  Speaker 3: of its own supply now that it didn't have in
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  Speaker 3: the nineteen seventies, and we've talked in the last week,
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  Speaker 3: we were talking about how that makes the US less
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  Speaker 3: vulnerable in many ways. But do you think the sort
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  Speaker 3: of impact of this kind of crisis in ten or
• 16:22
  Speaker 3: twenty years time is going to be quite different just
• 16:24
  Speaker 3: because of the approach to their energy supplies that different
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  Speaker 3: economies are taking. Some countries may just be entirely reliant
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  Speaker 3: on renewables and not so susceptible to these kind of
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  Speaker 3: shocks in ten or twenty years time, whereas the US
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  Speaker 3: will have its own supplies but will be reliant on
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  Speaker 3: kind of fixed supplies or fossil fuels at least if
• 16:46
  Speaker 3: we continue on this path.
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  Speaker 2: That's a great question.
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  Speaker 1: The thing about the energy industry is that it is
• 16:53
  Speaker 1: an industry with a very long investment horizon. So the
• 16:56
  Speaker 1: company I work for, we every year produce a long
• 17:00
  Speaker 1: run global economic outlook that we actually make it publicly available,
• 17:04
  Speaker 1: and it is our best projection of what we think
• 17:08
  Speaker 1: the world looks like in twenty fifty, what the world's
• 17:12
  Speaker 1: energy demand is, and how that composition changes by twenty
• 17:16
  Speaker 1: fifty from twenty twenty five. In response to this shock,
• 17:21
  Speaker 1: following on the twenty twenty two shock, following on the
• 17:24
  Speaker 1: pandemic shock, I suspect it will prompt both companies and
• 17:29
  Speaker 1: countries to think more a bit more in terms of insurance.
• 17:34
  Speaker 1: What is the probability that supply is unavailable, What is
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  Speaker 1: the cost to me in the event of that supply unavailability, and.
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  Speaker 2: How does the dot products of those two.
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  Speaker 1: Numbers compare to the premium I would have to pay
• 17:48
  Speaker 1: to effectively ensure against that loss. So for some countries,
• 17:53
  Speaker 1: for some companies, that might mean investing in energy sources
• 17:58
  Speaker 1: that would not become unavailable in the event of a
• 18:00
  Speaker 1: geopolitical shock.
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  Speaker 3: One of the big lessons that comes out of your
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  Speaker 3: book is that, as you point out and show very
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  Speaker 3: clearly and the numbers, expansions don't die of old age.
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  Speaker 3: So we shouldn't just inevitably expect them just because an
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  Speaker 3: expansion is of a certain age, and specifically they stop
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  Speaker 3: because of an unanticipated stopping of key supports for the expansion.
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  Speaker 3: We've talked about energy as one source of that. We've
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  Speaker 3: also had quite a lot of shocks to global trade
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  Speaker 3: over the last year from the president's announcement of tariffs,
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  Speaker 3: and then some of them have gone in place, some
• 18:38
  Speaker 3: of them have not been in place. Now the Supreme
• 18:39
  Speaker 3: Court has ruled a whole chunk of them to be unconstitutional,
• 18:43
  Speaker 3: but they're going to be recreated in different ways. If
• 18:48
  Speaker 3: you're looking at the sort of broad range of shocks
• 18:50
  Speaker 3: facing the economy, we're also looking at a very hard
• 18:53
  Speaker 3: to predict potential revolution in business practices thanks to AI.
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  Speaker 3: Thinking about this work of your book, how concerned are you,
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  Speaker 3: What are the key things that you'll focus on, and
• 19:07
  Speaker 3: what do you think the administration should be doing to
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  Speaker 3: help sustain the expansion or avoid that kind of unexpected shot.
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  Speaker 1: So, in terms of the conventional subjects suspects that you
• 19:18
  Speaker 1: hear a lot of in the financial press, an AI
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  Speaker 1: boom gone bus, I think that on the basis of
• 19:24
  Speaker 1: history that an AI expansion is more likely to be
• 19:28
  Speaker 1: a casualty of a recessionary shock than a cause thereof
• 19:32
  Speaker 1: everyone calls the two thousand and one recession the dot
• 19:34
  Speaker 1: com recession. The decline in Nasdaq stocks was just one
• 19:38
  Speaker 1: of at least four shocks impacting the US economy in
• 19:41
  Speaker 1: two thousand and one, and I argue is the least important.
• 19:44
  Speaker 1: The most important were the terrorist attacks of September eleventh,
• 19:48
  Speaker 1: and in fact, all of the output decline during that
• 19:51
  Speaker 1: two thousand and one recession was in the quarter that
• 19:53
  Speaker 1: included those devastating attacks. When there was widespread fear, we
• 19:57
  Speaker 1: grounded the entire US air fleet, we close US airspace.
• 20:01
  Speaker 1: There was a sharp fall in consumer suspending because everyone
• 20:04
  Speaker 1: was afraid rightfully. So without the nine to eleven attacks,
• 20:09
  Speaker 1: the US economy probably would have continued to almost certainly
• 20:12
  Speaker 1: would have continued to expand during that roughly eight month
• 20:15
  Speaker 1: two quarter recession, and in fact, over the whole of
• 20:18
  Speaker 1: that recession, the US economy did expand by about point
• 20:21
  Speaker 1: six point seven percentage points. In terms of today's environment,
• 20:26
  Speaker 1: one of the things that you learn studying historic recessions
• 20:30
  Speaker 1: is that oftentimes a shock to a specific sector is
• 20:34
  Speaker 1: more important than big macro shocks because some sectors have
• 20:39
  Speaker 1: very high linkages to the rest of the economy and
• 20:41
  Speaker 1: it's very difficult for producers and households to find substitutes
• 20:45
  Speaker 1: for that product. So energy is of course the one
• 20:47
  Speaker 1: we've talked a lot about, but another one today would
• 20:51
  Speaker 1: probably be rare earth elements, those seventeen elements on your
• 20:54
  Speaker 1: periodic table. China last year threatened to impose strict export
• 21:00
  Speaker 1: restrictions on their exports of rare earth elements.
• 21:03
  Speaker 2: That is currently suspended until November.
• 21:06
  Speaker 1: I think if something like that were to be imposed
• 21:10
  Speaker 1: and really enforced, that would potentially be a recessionary shock.
• 21:15
  Speaker 1: Another one is there's currently a bill in Congress. I
• 21:19
  Speaker 1: think it has a very low probability of passage, but
• 21:22
  Speaker 1: it would impose an interest rate cap on credit cards.
• 21:25
  Speaker 1: What would probably happen in that event would be that
• 21:29
  Speaker 1: credit card companies would cancel accounts and massively curtail the
• 21:32
  Speaker 1: extension of credit to consumers. We observed just such a
• 21:36
  Speaker 1: shock in nineteen forty eight, almost observed the shock. It
• 21:39
  Speaker 1: was the threat of the imposition in nineteen seventy and
• 21:42
  Speaker 1: then in nineteen eighty President Carter did indeed invoke his
• 21:45
  Speaker 1: authority to impose credit controls, and those were accomplices to
• 21:50
  Speaker 1: the murder of the expansions that were then underway in
• 21:53
  Speaker 1: all three instances.
• 21:54
  Speaker 3: So it's interesting because that bill obviously is inspired by
• 21:57
  Speaker 3: the President focusing on that as an aspect of the
• 22:00
  Speaker 3: affordability crisis. So you would have been sitting in the
• 22:03
  Speaker 3: White House saying this is really not and you would
• 22:05
  Speaker 3: be you would have I think ninety five percent of
• 22:07
  Speaker 3: economists on your side in saying this is not a
• 22:11
  Speaker 3: good idea. The things that you've listed you say we
• 22:14
  Speaker 3: should be worried about. I think you're quite right, and
• 22:17
  Speaker 3: we are now all much more focused on our reliance
• 22:20
  Speaker 3: on these quite obscure rare earths and how that could
• 22:24
  Speaker 3: feed into any number of bits of the global supply chain.
• 22:28
  Speaker 3: You've also highlighted how a terrorist attack is obviously by definition,
• 22:33
  Speaker 3: can be an unexpected and widespread shock to the economy.
• 22:37
  Speaker 3: The other one that comes through very strongly in your
• 22:39
  Speaker 3: book the frequent references to locusts, is climate shocks and
• 22:43
  Speaker 3: particularly food shocks, which we've obviously seen a lot of
• 22:47
  Speaker 3: in the last few years. And actually you do remind me,
• 22:49
  Speaker 3: I mean that in the lower Angles Wilder books the
• 22:52
  Speaker 3: book is that it features the locusts just descending onto
• 22:57
  Speaker 3: their crop. It's heartbreaking, but I recommend that to anyone
• 23:00
  Speaker 3: because it just feels very real. Those kind of climate shocks,
• 23:04
  Speaker 3: a climate related shocks are becoming more frequent. If you
• 23:08
  Speaker 3: looked at the world today, it does seem like all
• 23:12
  Speaker 3: three of those things. Shocks to unexpected commodities, potential for
• 23:16
  Speaker 3: terrorist attacks even on US soil, and a rising number
• 23:20
  Speaker 3: of extreme weather climate shocks. Do you think the administration
• 23:25
  Speaker 3: is do you think this second Trump administration is doing
• 23:29
  Speaker 3: their best to reduce the risk of those things or
• 23:33
  Speaker 3: prepare for them for that matter.
• 23:34
  Speaker 1: Something that really surprised me in the course of the research,
• 23:37
  Speaker 1: which is the number of occasions on which the Eighth
• 23:40
  Speaker 1: Plague of Egypt really disrupted the American economy, So eighteen
• 23:45
  Speaker 1: fifty seven, eighteen seventy three, and nineteen thirty one during
• 23:48
  Speaker 1: the Great Depression, locus plagues of providential proportions.
• 23:52
  Speaker 2: And everyone talked.
• 23:53
  Speaker 1: In eighteen seventy three about a railroad boom gone bus,
• 23:56
  Speaker 1: but really that was a devastating plague of Locus. One
• 24:00
  Speaker 1: swarm in eighteen seventy five was the was greater in
• 24:04
  Speaker 1: size than the state of California.
• 24:06
  Speaker 2: If you look.
• 24:07
  Speaker 1: Historically, adverse winter weather events, particularly winter weather events but
• 24:12
  Speaker 1: also drought, were major contributors to recessions on both sides
• 24:16
  Speaker 1: of the Atlantic, particularly in the eighteenth century, but extending
• 24:20
  Speaker 1: into the well into the nineteenth century and even the
• 24:24
  Speaker 1: UK recession. One of their longest, actually their longest in
• 24:28
  Speaker 1: history was a very protracted recession from nineteen forty three
• 24:32
  Speaker 1: to nineteen forty seven. It probably would have been a
• 24:34
  Speaker 1: year shorter were it not for an extreme winter weather
• 24:38
  Speaker 1: event in nineteen forty six forty seven. Coal was frozen
• 24:42
  Speaker 1: at the pits, the trains couldn't move, and then comes
• 24:45
  Speaker 1: spring the ground was still frozen. So then when there
• 24:48
  Speaker 1: were torrential rains, you had widespread catastrophic flooding. The administration
• 24:55
  Speaker 1: currently it is something that they are having to deal
• 24:59
  Speaker 1: with because we just had severe winter weather events, multiple
• 25:03
  Speaker 1: severe winter weather events in the United States. I don't
• 25:06
  Speaker 1: think that those will be of recessionary magnitude. But as
• 25:10
  Speaker 1: you pointed out, the one thing that the book demonstrates
• 25:13
  Speaker 1: is that sometimes economic expansions can die execution by a
• 25:16
  Speaker 1: thousand cuts. So there will probably be will have been
• 25:19
  Speaker 1: a material impact on employment and output in January and
• 25:23
  Speaker 1: February with those with winter weather events. I can't forecast
• 25:26
  Speaker 1: the future frequency or severity of adverse winter weather events,
• 25:31
  Speaker 1: but I can say historically they were contributors.
• 25:34
  Speaker 3: This is not about climate change, and I'm not particularly
• 25:37
  Speaker 3: focused on it in this podcast, but it's it's a
• 25:39
  Speaker 3: very striking lesson of your book. We forget often the
• 25:43
  Speaker 3: role of climate and those kind of basic conditions for
• 25:47
  Speaker 3: life in different economies, how that can feat sudden changes
• 25:50
  Speaker 3: in that due to climate or weather can put economies
• 25:54
  Speaker 3: on very bad trajectories, and it just sort of seems odd.
• 25:58
  Speaker 3: Everything that you said is quite consistent with what the
• 26:00
  Speaker 3: administration is doing, except for that piece of actually giving
• 26:04
  Speaker 3: up on any effort really to slow the pace of
• 26:07
  Speaker 3: climate change, and if anything accelerating, you know, by sort
• 26:10
  Speaker 3: of doubling down on fossil fuels. I like, except that
• 26:13
  Speaker 3: you are in your chief eclovist of EXOM, do you
• 26:15
  Speaker 3: feel at all uncomfortable about that, having done your having
• 26:19
  Speaker 3: done your study, that we're just deciding it's all going
• 26:22
  Speaker 3: to be an act of God rather than something that
• 26:24
  Speaker 3: we could potentially at least slow the pace of energy.
• 26:27
  Speaker 1: Companies, as I said, are making investments for the long run,
• 26:31
  Speaker 1: and so in our latest global outlook, we still have
• 26:35
  Speaker 1: wind and solar growing the fastest in US power jen
• 26:38
  Speaker 1: empower gen globally and also in US Powergen. So if
• 26:42
  Speaker 1: you look at the global energy stack, twenty twenty five
• 26:46
  Speaker 1: was a nice round number year for us to look
• 26:48
  Speaker 1: back on how we did forecasting back in twenty fifteen,
• 26:51
  Speaker 1: and when you think about everything that happened to global
• 26:55
  Speaker 1: energy markets since twenty fifteen. We had the Climate Accords
• 26:58
  Speaker 1: and then subsequent regional climate initiatives. We had major technological
• 27:02
  Speaker 1: improvements as certain technologies came down their cost curves. We
• 27:05
  Speaker 1: had a pandemic, We had the Russian invasion of Ukraine,
• 27:09
  Speaker 1: and yet if you look at that global energy stack,
• 27:12
  Speaker 1: it shows remarkable fidelity to trend. People often don't understand
• 27:17
  Speaker 1: just how massive the energy system is. It moves slowly
• 27:22
  Speaker 1: and it adheres to long run trend pretty faithfully.
• 27:25
  Speaker 3: So whatever the trend that we saw of greater diversification,
• 27:29
  Speaker 3: you think in general you'd expect that to continue and
• 27:33
  Speaker 3: not be subject to short term changes in individual countries' policies.
• 27:38
  Speaker 3: So I'm just trying to understand what you were saying.
• 27:40
  Speaker 1: The global energy mix will look more diversified in twenty
• 27:43
  Speaker 1: fifty than in twenty twenty five. It will have a
• 27:46
  Speaker 1: greater role for a variable renewable energy. What's interesting in
• 27:51
  Speaker 1: terms of the long sweep of history is I would
• 27:54
  Speaker 1: actually a symbol some of these shocks in a broader
• 27:58
  Speaker 1: environmental bucket. So you mentioned the providential plague of locusts
• 28:02
  Speaker 1: several of them, but there are also shocks like one
• 28:04
  Speaker 1: we just went through, which is a pandemic, which was
• 28:07
  Speaker 1: a contributor to recessions on both sides of the Atlantic
• 28:09
  Speaker 1: in nineteen eighteen. And I would add one more shock
• 28:14
  Speaker 1: that was a contributor to recessions on both sides of
• 28:17
  Speaker 1: the Atlantic in eighteen fifteen sixteen, and then again in
• 28:20
  Speaker 1: the eighteen eighties, namely the eruption of Mount Tambora and
• 28:25
  Speaker 1: the eruption of Mount Krakta. Both of those resulted in
• 28:30
  Speaker 1: pretty devastating weather effects across the globe. Eighteen sixteen was
• 28:35
  Speaker 1: known as the year without a Summer because it's so
• 28:37
  Speaker 1: devastated crop yields and in terms of tail risk events.
• 28:43
  Speaker 1: One thing that was on my mind after writing this
• 28:45
  Speaker 1: book was, it's been a while since we've had one
• 28:48
  Speaker 1: of those eruptions.
• 28:50
  Speaker 3: But hang on, does that say you're going to have
• 28:51
  Speaker 3: to do another book about whether or not there are
• 28:54
  Speaker 3: inevitable cycles in those kind of events. Having established that
• 28:58
  Speaker 3: there aren't inevitable cycles in recessions, do you think maybe
• 29:02
  Speaker 3: we should be looking for patterns on the in earthquakes
• 29:05
  Speaker 3: and volcanoes.
• 29:06
  Speaker 1: You'd have to consult a geologist whether they occur with
• 29:09
  Speaker 1: a periodicity. But it just was something that struck me,
• 29:12
  Speaker 1: is that those were major global recessionary events. We've had Pinatubo,
• 29:17
  Speaker 1: we've had the Icelandic volcano, but nothing on the scale
• 29:20
  Speaker 1: of an eighteen fifteen Mountain Bora or eighteen eighties Krakatoa.
• 29:24
  Speaker 3: Okay, so I'm not sure if we should be reassured
• 29:27
  Speaker 3: by this conversation or not. As long as this particular
• 29:32
  Speaker 3: energy crisis doesn't last too long, we shouldn't be too
• 29:37
  Speaker 3: worried about whether that's going to cause by itself recession,
• 29:40
  Speaker 3: And we shouldn't worry, according to you, about the AI
• 29:45
  Speaker 3: boom inevitably sowing the seeds of its destruction. But there's
• 29:50
  Speaker 3: still wide range of pandemics, volcanoes, earthquakes, and other shocking
• 29:55
  Speaker 3: events that we could think about and could happen at
• 29:58
  Speaker 3: any time.
• 29:58
  Speaker 1: I would conclude on an after nat note that as
• 30:00
  Speaker 1: I observed, we have gradually steadily over time gotten better
• 30:06
  Speaker 1: at absorbing the kinds of shocks that historically would have
• 30:09
  Speaker 1: resulted in recession. Harvest failures were perennial contributors to economic
• 30:14
  Speaker 1: recession in the eighteenth century of the nineteenth century. Now
• 30:17
  Speaker 1: we have my more diversified global supplies, so we've been
• 30:21
  Speaker 1: learning how to better deal with recessionary shocks, and expansions
• 30:25
  Speaker 1: have been getting longer. So I would end on an
• 30:27
  Speaker 1: optimistic note and also again remind folks that what ultimately
• 30:32
  Speaker 1: matters more for long term prosperity is raising that pace
• 30:36
  Speaker 1: of growth during economic expansions.
• 30:39
  Speaker 3: Doctor Tyler Goodspeed, that's a great note on which to end.
• 30:41
  Speaker 3: Thank you very much, Thank you, thanks for listening to
• 30:49
  Speaker 3: Trumpnomics from Bloomberg. It was hosted by me Stephanie Flanders,
• 30:52
  Speaker 3: and I was joined by the economist and author Dr
• 30:55
  Speaker 3: Tyler Goodspeed. Trump Pnomics was produced by Samasadi Moses and
• 31:01
  Speaker 3: with help this week from Amy Keane and kle Brooks.
• 31:04
  Speaker 3: Sound design was by Blake Maples. To help others find
• 31:07
  Speaker 3: the show, please rate and review us highly wherever you
• 31:10
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• 31:13
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• 31:15
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