Latest / Stephanomics / World Bank's Reinhart Says Win Covid War First, Pay for It Later

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World Bank's Reinhart Says Win Covid War First, Pay for It Later · Stephanomics

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  Speaker 1: America, Claus and lead is not right, but ing, not
• 0:05
  Speaker 1: large sums but normal, Not revolution but restoration, not agitating,
• 0:11
  Speaker 1: but a judgment. That's Burgery's ramatic. Hello, and welcome to Stephanomics,
• 0:29
  Speaker 1: the podcast that brings the global economy to you. When
• 0:32
  Speaker 1: Warren Harding became US President in March of ninety one,
• 0:37
  Speaker 1: the world was also reeling from a global pandemic. Economies
• 0:41
  Speaker 1: were depressed, and the mood was somber. Harding's predecessor wasn't
• 0:46
  Speaker 1: even there yet. What happened next was an extraordinary explosion
• 0:50
  Speaker 1: of activity and innovation. The Roaring twenties. When they say
• 0:54
  Speaker 1: history doesn't repeat itself, but sometimes it rhymes, and quite
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  Speaker 1: a lot of economists have been wondering and that we
• 1:00
  Speaker 1: might be in for some Roaring twenties of our own
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  Speaker 1: once the COVID nineteen pandemic is behind US. Business Week
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  Speaker 1: senior economic writer Peter Ki took a closer look at
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  Speaker 1: the nineteen twenties and a fascinating article this week and
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  Speaker 1: came away with some interesting lessons for today. I'm going
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  Speaker 1: to talk to him about that in a minute. We
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  Speaker 1: also have a timely chat with Dr Carmen Reinhardt who's
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  Speaker 1: been Chief economist of the World Bank since last summer,
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  Speaker 1: and I'm going to check in briefly with our chief
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  Speaker 1: European economist, Jamie Rush who's been working out exactly how
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  Speaker 1: much the COVID crisis it's going to cost the world's governments.
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  Speaker 1: Think the answer will surprise you. But first let's go
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  Speaker 1: back to the nineteen twenties with Peter Coy. Peter, thanks
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  Speaker 1: for joining us again. Remind us about some of those
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  Speaker 1: parallels between our twenties and those twenties. You mentioned the
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  Speaker 1: introduction we had just come off of pandemic. Actually that
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  Speaker 1: one had ended by whereas this one was still very
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  Speaker 1: much in the middle of it. But there was the
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  Speaker 1: scarring caused by all those deaths and disabilities. We were
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  Speaker 1: in the middle of a very deep recession. Recession to
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  Speaker 1: hit in saw an enormous decline in prices. In particular,
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  Speaker 1: if it had not been overshadowed by the nineteen thirties,
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  Speaker 1: that would be remembered to this day as one of
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  Speaker 1: the most severe recessions of the most severe recession of
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  Speaker 1: the twentieth century. So that was the environment that Warren
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  Speaker 1: Harding came into the presidency during um his predecessor, of course,
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  Speaker 1: with Woodrow Wilson. Wilson was not present at the inauguration,
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  Speaker 1: not because he had gone to Mara Lago, but because
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  Speaker 1: he had had a severe stroke and was disabled. Um
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  Speaker 1: so it was a somber time and inauspicious time. And
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  Speaker 1: yet that summer July of the serious recession ended and
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  Speaker 1: the twenties as we think of them now began. We
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  Speaker 1: had the mass adoption of the automobile, radio motion pictures,
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  Speaker 1: assembly lines, labor saving electrical appliances, indoor plumbing, just an
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  Speaker 1: amazing profusion of the technologies that today we take for granted.
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  Speaker 1: But we're new then, and it was a time of
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  Speaker 1: great excitement and ferment worldwide. And it, as a one
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  Speaker 1: historian I talked to said at the time, it was
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  Speaker 1: in a way the first modern decade. And I mean,
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  Speaker 1: we uh, it's it's a bit unfair just to talk
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  Speaker 1: about the flappers, uh and the jazz, because as you say,
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  Speaker 1: there was some really fundamental technological changes that came right
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  Speaker 1: into the home. What sign of that kind of breakthrough
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  Speaker 1: in technology and we're seeing today. I mean, we obviously
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  Speaker 1: did have of historically rapid development of the vaccines against
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  Speaker 1: COVID and people have rightly rightly taken note of that.
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  Speaker 1: But elsewhere do you think we are looking potentially at
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  Speaker 1: an explosion of innovation like we saw? Then you know,
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  Speaker 1: I think that possibility has to be taken seriously. And
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  Speaker 1: you put your finger on one of the most important developments,
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  Speaker 1: which was the vaccine. Not just these particular vaccines, but
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  Speaker 1: the underlying technologies that enabled them. Biotechnology genetic engineering has
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  Speaker 1: taken up leaps forward and that will enable other life
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  Speaker 1: saving and life improving technologies in this decade and beyond.
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  Speaker 1: So this could be argued is the same sort of
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  Speaker 1: general purpose technology that pays dividends for years to come.
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  Speaker 1: Just as in the ninet twenties, what we had were
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  Speaker 1: to important general purpose technologies, one the internal combustion engine,
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  Speaker 1: which enabled automobiles and trucks to be wide widely adopted,
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  Speaker 1: and electrification which brought some of these appliance as we
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  Speaker 1: talked to into the home as well as electrified factories
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  Speaker 1: made them far more efficient. There was a boom in
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  Speaker 1: manufacturing the nineties. So today the equivalence would be the medicine,
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  Speaker 1: the biotechnology, and then digitization. Um, we've had computers for
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  Speaker 1: decades now, but the question is, are the latest advances
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  Speaker 1: in artificial intelligence, cloud computing, mobile computing, and so on.
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  Speaker 1: Do they collectively add up to a general purpose technology
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  Speaker 1: whose fruits we will continue to enjoy through the ties
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  Speaker 1: and beyond. And we have a lot of pent up
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  Speaker 1: to mond. I guess that's one thing. I mean, people,
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  Speaker 1: it was it was a year of years of big
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  Speaker 1: spending in the twenties, coming out of the World War One,
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  Speaker 1: coming out of the pandemic. I guess we, Peter, we
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  Speaker 1: might see some of that and at least in the
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  Speaker 1: next year or two. Yes, I think there will be
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  Speaker 1: a period where people will want to bust out and
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  Speaker 1: enjoy life again, once they can get out of their
• 6:18
  Speaker 1: pods and their bubbles. UM. Carnival Cruise Lines is launching
• 6:22
  Speaker 1: its biggest ship ever this spring, and they're hopeful that
• 6:26
  Speaker 1: they'll get plenty of passengers. You know, you can anecdotally
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  Speaker 1: talk to people who say, I can't wait to get
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  Speaker 1: back on a cruise ship. UM, even though to others
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  Speaker 1: of us it seems a little frightening. But that's going
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  Speaker 1: to carry you only so far. It can't be strictly
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  Speaker 1: just a splurge. To be sustainable. UM. Economic growth has
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  Speaker 1: to be based on something more than that, which gets
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  Speaker 1: to this question of whether we are stuck in a
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  Speaker 1: period of secular stagnation. And the conditions in twenties are
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  Speaker 1: quite different from those of the nineteen twenties. We have
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  Speaker 1: slower labor force growth, we have slower improvement in educational attainment.
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  Speaker 1: Both of those are crucial for economic growth. We also have,
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  Speaker 1: as Larry Summers likes to point out, a situation where
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  Speaker 1: we have desired savings and excessive desired investment, which is
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  Speaker 1: equated only with extremely low, even negative real interest rates.
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  Speaker 1: So it's it's hard to imagine that you can look
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  Speaker 1: at data like that and say, oh, yes, this is
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  Speaker 1: gonna be a boom decade. It's it's it's not the
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  Speaker 1: way it's feeling. But there's one place you can see
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  Speaker 1: quite a lot of optimism and quite a lot of exuberance,
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  Speaker 1: and that's in the stock market that does also feel
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  Speaker 1: like a funny kind of parallel with the nineteen twenties.
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  Speaker 1: Of course, we associate the nineteen twenties with those shoeshine
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  Speaker 1: boys offering offering stock tips, and right now we have
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  Speaker 1: crazy things happening to some stocks because of words word
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  Speaker 1: being passed around on Reddit and other online forums. So
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  Speaker 1: what do you think do you think we are with
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  Speaker 1: least in the stock market, we might be seeing a
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  Speaker 1: kind of twenties style experience, you know, Stephanie, that's a
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  Speaker 1: great point. It's something I didn't really delve into in
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  Speaker 1: the article very much. It doesn't take much to remember
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  Speaker 1: that the nineteen twenties we're succeeded by the nineteen thirties. Uh.
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  Speaker 1: And the final act of the nineteen twenties was the
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  Speaker 1: great stock market crash of October, which ushered in the
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  Speaker 1: Great Depression. Looking at today's market, you don't see the
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  Speaker 1: same kind of exuberance overall. You see it here and there,
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  Speaker 1: You see it with bitcoin, you see it with a
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  Speaker 1: few tech stocks here and there. But we did have
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  Speaker 1: the Great Depression straight after theies. But doing the reading
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  Speaker 1: you did for this piece, and thinking about the comparison
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  Speaker 1: of the nineteen twenties, do you think there are any
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  Speaker 1: warnings from that period that we should take seriously? Well?
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  Speaker 1: There are. One is the danger of protectionism and inward looking.
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  Speaker 1: The legacy of World War One was that America turned inward.
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  Speaker 1: The Congress, led by farm state Republicans, refused to join
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  Speaker 1: the League of Nations, and through the twenties, the United
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  Speaker 1: States had high tariff barriers, which made it hard for
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  Speaker 1: countries to earn their way out of the wreckage of
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  Speaker 1: World War One by selling more to the United States.
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  Speaker 1: It demanded interest payments to the penny on war debts
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  Speaker 1: from the UK and France, which squeezed those countries. They
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  Speaker 1: in turn had nowhere to go for the money except
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  Speaker 1: to demand reparations from Germany, which hurt Germany and uh
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  Speaker 1: angered Germans and contributed to the rise of Adolf Hitler.
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  Speaker 1: So you see how one war, the aftermath of one
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  Speaker 1: more led directly into the next one. The United States
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  Speaker 1: learned lesson from that from the tragedy and trauma of
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  Speaker 1: the depression in World War two and had a much
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  Speaker 1: more enlightened policy after World War Two, adopted international institutions
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  Speaker 1: like the United Nations, the International Monetary Fund in the
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  Speaker 1: World Bank, and became a leader. Now what we see,
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  Speaker 1: what we saw in the Trump administration was a pulling
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  Speaker 1: back from that in America first mentality, and now we
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  Speaker 1: have a new president who is promising to re engage
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  Speaker 1: with the world. But I think there was something learned, unfortunately,
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  Speaker 1: and forgotten but learned from the experience of the nineteen
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  Speaker 1: twenties and the aftermath. Well, and of course you do
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  Speaker 1: draw that that final moral in your in your piece,
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  Speaker 1: that just understanding history, just remembering history can be helpful
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  Speaker 1: in itself, and I think that's certainly true. So Peter Cooid,
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  Speaker 1: thank you very much. Thank you. Now we have our chief,
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  Speaker 1: a mere economist, good friend to Stephanomys, Jamie Rush to
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  Speaker 1: tell us more about the cost of all this borrowing
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  Speaker 1: that governments have done in response to COVID nineteen. Jamie,
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  Speaker 1: just tell us briefly, what's the price tag been so
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  Speaker 1: far in terms of the extra borrowing that governments have
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  Speaker 1: had to do. Well, so we think that that G
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  Speaker 1: seven governments have probably added around about seven trillion dollars
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  Speaker 1: of debt to their to their debt piles in and
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  Speaker 1: of course the spending is ongoing as the news strains
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  Speaker 1: sweeping across the world. More supports needed. So we haven't
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  Speaker 1: reached the final price tag yet. And how much is
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  Speaker 1: that actually costing them day to day? I mean, they
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  Speaker 1: obviously had to they had to go out and they
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  Speaker 1: had to borrow that from the market. But when you
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  Speaker 1: look at what the impact is on their their cost
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  Speaker 1: of their debt servicing. What is that price tag. It's
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  Speaker 1: actually it's actually not very much, as we know, because
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  Speaker 1: the central banks have obviously stepped in to finance it,
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  Speaker 1: and that's kept borrowing curves very very low. But just
• 12:25
  Speaker 1: as a sort of summary statistic, debts GDP is about
• 12:30
  Speaker 1: in two thousand and seven. It's since risen to a
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  Speaker 1: hundred and fort and g d P and the G
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  Speaker 1: seven economies on average, but it's not actually going to
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  Speaker 1: cost anymore to service that debt then then in two
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  Speaker 1: thousand and seven, and the reason is just that interest
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  Speaker 1: rates are so low. It's it's it's quite astonishing. And
• 12:49
  Speaker 1: when you say it's not costing the menything, I mean
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  Speaker 1: there is an interest rate on that borrowing, but we're
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  Speaker 1: saying it's not. It's it's less than inflation. So you're effectively,
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  Speaker 1: if you allow for inflation issue, you're getting free money
• 13:01
  Speaker 1: if you're a government these days. Yeah, that's right. So
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  Speaker 1: that the nominal interest rate on the COVID era debt
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  Speaker 1: is about half a percent, and I think the IMF
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  Speaker 1: is expecting inflation about one point three percent this year,
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  Speaker 1: so it's going to be outstripped by price gains. And
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  Speaker 1: actually that's true now, but we think it's probably also
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  Speaker 1: going to be true even in twenty thirty, ten years
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  Speaker 1: from now. We think that the cost of COVID era
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  Speaker 1: A debts will be about one point three percent, which
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  Speaker 1: would be probably still below inflation. And that's a key point.
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  Speaker 1: And obviously in the in the States and other places
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  Speaker 1: are having debates about whether we could possibly having had
• 13:36
  Speaker 1: that enormous stimulus program last year, could we possibly spend
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  Speaker 1: another trilling or more than that dollars supporting the economy.
• 13:44
  Speaker 1: And the short answer from your analysis is we could.
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  Speaker 1: You could certainly afford it. Yeah, exactly, you won't hit
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  Speaker 1: the budget so much. But I think you know, we're
• 13:52
  Speaker 1: we're obviously assuming the interest rates stay incredibly low, and
• 13:56
  Speaker 1: you know, certainly if you look at the U area,
• 13:58
  Speaker 1: there's basically no increasing interest rates priced in forever pretty much.
• 14:03
  Speaker 1: In the US it's a bit different, but clearly if
• 14:06
  Speaker 1: rates were to rise a bit faster than those, costs
• 14:08
  Speaker 1: do start to filter through after a few years, and
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  Speaker 1: it does become more costly. We talked at the beginning
• 14:13
  Speaker 1: of the program actually with Peter coy about unexpected things happening,
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  Speaker 1: and potentially, you know, we could have an explosion in
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  Speaker 1: innovation the way that we had in the in the
• 14:21
  Speaker 1: nineteen twenties, if that started to push up interest rates.
• 14:25
  Speaker 1: How much do you have to see in terms of
• 14:28
  Speaker 1: that bit of the world changing for governments to especially
• 14:32
  Speaker 1: the governments like Italy for example, to get into trouble. Well,
• 14:36
  Speaker 1: it's you've got a bit of space. You've got a
• 14:38
  Speaker 1: bit of space for policy to normalize. And obviously if
• 14:41
  Speaker 1: it's a if, it's because because the economy is growing
• 14:44
  Speaker 1: fast and everyone expected that gets you yet more space.
• 14:46
  Speaker 1: So it's that would be a good thing. Um. I
• 14:49
  Speaker 1: think the dangers if the rates go up and growth
• 14:51
  Speaker 1: doesn't follow it, and in which case you're looking at
• 14:54
  Speaker 1: probably around about a hundred basis points of higher interest
• 14:58
  Speaker 1: rate costs would eventually take you back sort of mid
• 15:00
  Speaker 1: nine nineties interest rates for the US for example, when
• 15:04
  Speaker 1: things were a bit more when that was more of
• 15:06
  Speaker 1: a concern. Two hundred basis points and things start to
• 15:09
  Speaker 1: look pretty hairy for for most for most economies. I
• 15:13
  Speaker 1: guess there was a good final point we should remember
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  Speaker 1: buried in what you were just saying that you know,
• 15:18
  Speaker 1: if interest rates go up because the world is sort
• 15:20
  Speaker 1: of growing, then governments might be pleased with that, even
• 15:24
  Speaker 1: if it was causing them to spend more on their
• 15:26
  Speaker 1: on their borrowing. I mean, that is a fundamental point,
• 15:29
  Speaker 1: isn't it. This isn't sort of um, it's not great
• 15:32
  Speaker 1: news for governments that they're finding it so cheap to borrow,
• 15:34
  Speaker 1: because it tells you that the world is in a
• 15:36
  Speaker 1: rather flat, stagnant place. Yeah. I think that's right. And
• 15:41
  Speaker 1: you know, we're all hoping that the economy gets going,
• 15:43
  Speaker 1: productivity and that's the crucial one, of course, picks up
• 15:46
  Speaker 1: so that it's actually sustainable. And really interest rates being
• 15:49
  Speaker 1: higher can be sustainable. That's what we're looking for. Whether
• 15:52
  Speaker 1: we'll get it or not, that's a that's another question.
• 15:55
  Speaker 1: So when we have to go and remortgage and probably
• 15:57
  Speaker 1: the first time in the generation, we might find we've
• 16:00
  Speaker 1: actually got a higher interest rate than before, we should
• 16:03
  Speaker 1: we should not worry too much. We do think that's
• 16:04
  Speaker 1: a good thing. Yeah, exactly, Thanks very much, Jamie. Now
• 16:16
  Speaker 1: to one of the most influential economists working in the
• 16:18
  Speaker 1: world today, Dr Carmen Reinhardt. She's famous as the co
• 16:23
  Speaker 1: author of a seminal analysis of the long term impact
• 16:25
  Speaker 1: of financial crisis. But regular listeners might remember she talked
• 16:29
  Speaker 1: to us just before she was appointed to the World
• 16:31
  Speaker 1: Bank last June about the differences between the COVID crisis
• 16:35
  Speaker 1: and other economic emergencies we've had through history. I was
• 16:38
  Speaker 1: lucky enough to have a conversation with Dr Reinhardt this
• 16:41
  Speaker 1: week as part of the Bloomberg The Year Ahead conference,
• 16:45
  Speaker 1: and here is that interview. Now, Dr Reinhart Carmen very
• 16:52
  Speaker 1: good view to join us at Bloomberg The Year Ahead,
• 16:56
  Speaker 1: and let me get straight to the point of this
• 16:59
  Speaker 1: year's recovery and what we're looking at. Um. You know,
• 17:02
  Speaker 1: we maybe a few weeks ago even the world was
• 17:05
  Speaker 1: quite optimistic about the kind of pace of growth we
• 17:08
  Speaker 1: might see this year. A lot of demand pent up
• 17:11
  Speaker 1: from from last year. Now around the world, concern around
• 17:17
  Speaker 1: new variants, new question marks over the rollout of vaccines,
• 17:20
  Speaker 1: great concerns about that process in the developing world. Are
• 17:25
  Speaker 1: you looking fundamentally at a more somber picture when you
• 17:29
  Speaker 1: look at one, or do you think we could still
• 17:32
  Speaker 1: see a decent recovery. Well I began to have my
• 17:37
  Speaker 1: doubts about what was the prevalent view earlier in twenty
• 17:43
  Speaker 1: that this was going to be a V shape again,
• 17:47
  Speaker 1: you know, very different technology, very different world. But you
• 17:51
  Speaker 1: go back to the Spanish influenza and that kicked off
• 17:55
  Speaker 1: in April of night in in circle globe several times
• 18:02
  Speaker 1: until in nineteen twenties. So my expectations of recovery were
• 18:06
  Speaker 1: always on the whole thing side. I'm not looking for
• 18:11
  Speaker 1: a quick recovery. And I think what my my overarching
• 18:15
  Speaker 1: message this is with work that I did with Vincent
• 18:18
  Speaker 1: Reinhardt last summer for for foreign affairs, don't confuse rebound
• 18:23
  Speaker 1: with recovery. True recovery will take longer. You know, there's
• 18:28
  Speaker 1: a conversation around the case shaped recovery that has taken
• 18:31
  Speaker 1: the place of that V shaped recovery. We talk about
• 18:34
  Speaker 1: it in terms of inside economies, one group doing much
• 18:38
  Speaker 1: better than the other. But do you fear that there's
• 18:40
  Speaker 1: also going to be a global K shaped recovery when
• 18:43
  Speaker 1: you look at the prospects for developing countries versus advanced well, Indeed,
• 18:49
  Speaker 1: one of the many concerning facts of of of this
• 18:54
  Speaker 1: crisis is how unequal. You know, it's a very regressive shock.
• 19:00
  Speaker 1: It's regressive both within countries, you know, both within countries
• 19:04
  Speaker 1: in the sense that lower income households and UH smaller
• 19:08
  Speaker 1: firms have taken on a disproportionate hit. It's also very
• 19:14
  Speaker 1: unequal across countries UH, where you know, the poorest and
• 19:20
  Speaker 1: even considerably into the middle income haven't had the ammunition
• 19:25
  Speaker 1: the capacity to do the kind of countercyclical fiscal stimulus UH.
• 19:32
  Speaker 1: You know, the transfers for social safety nets, that spending
• 19:35
  Speaker 1: on on help that the advanced economies UH have done.
• 19:41
  Speaker 1: And again, by contrast to the two thousand eight two
• 19:44
  Speaker 1: thousand nine, after two two thousand nine, what we saw
• 19:47
  Speaker 1: if you look, for example, at credit ratings, you saw
• 19:51
  Speaker 1: the credit ratings of emerging markets go up while the
• 19:55
  Speaker 1: advanced credit ratings of the advanced economies went down. Now
• 20:00
  Speaker 1: the wedge between the two UH is getting bigger, and
• 20:04
  Speaker 1: it isn't because the advanced economies are being marked up UM.
• 20:08
  Speaker 1: So it's it's very unequal UH impact globally as well.
• 20:17
  Speaker 1: We have our forecasts out there's eggs growth is about
• 20:20
  Speaker 1: four percent, but look, you know, if there is the
• 20:23
  Speaker 1: dispersion around them is significant, you could see significantly higher
• 20:29
  Speaker 1: growth if if everything goes very smoothly in terms of
• 20:32
  Speaker 1: global distribution of vaccine, so you could see less than
• 20:36
  Speaker 1: half of that if if the processes is bogged down
• 20:40
  Speaker 1: and and doesn't quite have the speedy outreach that is hopeful.
• 20:46
  Speaker 1: Well that's uh, that's certainly chastening for people to take home.
• 20:49
  Speaker 1: Hold that you think that the growth rate for this
• 20:51
  Speaker 1: year could could that forecast could have given if we
• 20:55
  Speaker 1: see a continuation of the kind of problems that we've
• 20:57
  Speaker 1: had all that common debt framework. I mean, clearly, the
• 21:01
  Speaker 1: key thing about that JEEF twenty agreement at the end
• 21:04
  Speaker 1: of last year was the inclusion of China and others
• 21:08
  Speaker 1: in the same framework you've had chat now be the
• 21:11
  Speaker 1: first country to apply for restructuring under that framework. Are
• 21:16
  Speaker 1: you expecting many more countries to join? And would that
• 21:20
  Speaker 1: would that be a success to have, you know, ironically
• 21:23
  Speaker 1: a success to see as many countries as possible use
• 21:26
  Speaker 1: that framework rather than fight restructuring, So uh, look, successes. Uh.
• 21:34
  Speaker 1: You know, when you're dealt with a bad hand, a
• 21:39
  Speaker 1: quick response and quick correction is is the preferred outcome
• 21:45
  Speaker 1: is not the outcome you would have chosen. You would
• 21:47
  Speaker 1: have preferred not to be dealt a bad hand in
• 21:49
  Speaker 1: the first place. But given that, as I said, you know,
• 21:53
  Speaker 1: number of countries already started pre COVID with very vulnerable
• 21:59
  Speaker 1: external positions. Uh So, getting to your the core of
• 22:04
  Speaker 1: the question is chat you know, a sign of things
• 22:08
  Speaker 1: to come. Uh Look, I am not looking for the
• 22:13
  Speaker 1: kind of title wave that we saw in the early
• 22:17
  Speaker 1: nineteen eighties. Okay, and I'll explain briefly why. But we
• 22:22
  Speaker 1: are looking for numerous especially among some of the low
• 22:29
  Speaker 1: income you know, highly indebted. Besides Chad, you know, we
• 22:35
  Speaker 1: have the case of Zambia, there's a question of you know, Ethiopia.
• 22:41
  Speaker 1: There there are many others that would benefit from a
• 22:47
  Speaker 1: faster debt resolution through the common Framework. Um. But the
• 22:51
  Speaker 1: reason I said, I just want to go back to
• 22:53
  Speaker 1: that that I don't expect the title wave that we
• 22:57
  Speaker 1: got in the early eighties is in the early eighties
• 23:00
  Speaker 1: we had a spike in US interest rate, you know
• 23:04
  Speaker 1: where indebted countries share their debt service skyrocket literally overnight.
• 23:12
  Speaker 1: Here we have given the law for long. We have
• 23:16
  Speaker 1: an environment in which debt vulnerabilities start playing out at
• 23:21
  Speaker 1: a at a slower pace, but they're still playing out well.
• 23:25
  Speaker 1: We have some questions in one of them goes to
• 23:27
  Speaker 1: something which has obviously been a big part of your
• 23:29
  Speaker 1: academic work that should governments maintain the same mindset towards
• 23:34
  Speaker 1: spending and borrowing after the pandemic now we've had I
• 23:39
  Speaker 1: would say an officially, officially a very relaxed position around
• 23:44
  Speaker 1: government borrowing overall in response to the pandemic. And indeed,
• 23:48
  Speaker 1: Chrystalina got you Eva whenever I've spoken to for for
• 23:52
  Speaker 1: someone who's the head of the International Monetary Fund, who
• 23:54
  Speaker 1: has been very relaxed, very concerned about the risk of
• 23:58
  Speaker 1: spending too little, knots ending too much. Do you see
• 24:01
  Speaker 1: a change in that mindset over the next few years
• 24:05
  Speaker 1: or do you think that that that really is a
• 24:07
  Speaker 1: very low grade concept of fiscal borrowing at the levels
• 24:10
  Speaker 1: of debt. I don't want to put worse in Crystalina's mouth,
• 24:13
  Speaker 1: but certainly also the way I view it is this
• 24:16
  Speaker 1: is this is a war that the human cost, the
• 24:23
  Speaker 1: cost to to the economy, the cost to every development
• 24:26
  Speaker 1: indicator almost that one can think about. Um it has been,
• 24:32
  Speaker 1: you know, off the charts in terms of relative to
• 24:34
  Speaker 1: any kind of business cycle or financial crisis you want
• 24:38
  Speaker 1: to compare it to. So how do you react in
• 24:40
  Speaker 1: a war while you worry about winning the war? And
• 24:44
  Speaker 1: then you worry how you're gonna pay for the war. UH.
• 24:47
  Speaker 1: And one of the concerns that I laid out last
• 24:51
  Speaker 1: summer in this piece that I mentioned with with this
• 24:53
  Speaker 1: in Reinhardt, UH, is there risk the risk that people
• 24:59
  Speaker 1: come you know, policymakers confuse rebound with recovery, which means
• 25:04
  Speaker 1: you're really back to your pre crisis per capita income
• 25:08
  Speaker 1: UH and tightened too quickly UH and declare victory prematurely.
• 25:16
  Speaker 1: That scenario is a real source of concerns. So you know,
• 25:21
  Speaker 1: it's not that I embraced, you know how high levels
• 25:24
  Speaker 1: of debt. I am not. I don't take a benign
• 25:27
  Speaker 1: view of having high levels of indebtedness, but I think
• 25:32
  Speaker 1: the priorities UH, as you first win the war and
• 25:36
  Speaker 1: we're still in the thick of it, it's been such
• 25:39
  Speaker 1: a somber, an appropriately somber interview. I wanted to try
• 25:43
  Speaker 1: and tease out maybe a little circles of light if
• 25:47
  Speaker 1: you look at the financial markets. Obviously, there's quite a
• 25:49
  Speaker 1: lot of exuberance around the productivity improvements that could come
• 25:54
  Speaker 1: from UH COVID forcing companies to do things differently, forcing
• 25:59
  Speaker 1: INTOVID juels to do things differently, changing supply chains, all
• 26:03
  Speaker 1: of these things. Is there a part of that story
• 26:06
  Speaker 1: that could also apply to developing countries? Is there any
• 26:09
  Speaker 1: silver linings that you see or opportunities it could see?
• 26:13
  Speaker 1: Look crisis because they disrupt the very core of the
• 26:20
  Speaker 1: economy and the way we work, the way we think
• 26:25
  Speaker 1: can lead. And I mentioned wars by the way wars
• 26:29
  Speaker 1: have been, you know, not exactly the way one would
• 26:33
  Speaker 1: like to go about it, but wars have been period
• 26:36
  Speaker 1: of a very intense technological innovation. And in this case,
• 26:41
  Speaker 1: I think one of the fallouts that I'm on the
• 26:45
  Speaker 1: positive side is also when you look at globally the
• 26:48
  Speaker 1: amount of medical research that has been you know, brought
• 26:52
  Speaker 1: to bear during the COVID pandemic, and one thinks of
• 26:57
  Speaker 1: positive externalities that that constant traded effort in medicine that
• 27:02
  Speaker 1: we have seen in in in this in this UH crisis,
• 27:07
  Speaker 1: I think we can't really measure what some of the
• 27:11
  Speaker 1: benefits UH that may may come from that. But you know, look,
• 27:16
  Speaker 1: I think you know, one can say very little at
• 27:22
  Speaker 1: this stage. I think there's still a margin of uncertainty.
• 27:26
  Speaker 1: And you know, what the new normal UH in terms
• 27:30
  Speaker 1: of productivity, in terms of potential output is gonna look like.
• 27:34
  Speaker 1: And you know, I don't want to be a wet rag,
• 27:37
  Speaker 1: but I think before we get to that silver lining,
• 27:41
  Speaker 1: I think the emerging markets are going to have a
• 27:45
  Speaker 1: very rough road. You talk about fiscal stimulus, but one
• 27:49
  Speaker 1: big source of stimulus and liquidity during this crisis has
• 27:52
  Speaker 1: also been that banks and financial institutions have adopted forbearance
• 27:58
  Speaker 1: and in grace peer it or households and firms to
• 28:01
  Speaker 1: repay their loans. Um we don't know what awaits us
• 28:06
  Speaker 1: when many of those grace periods come to an end.
• 28:09
  Speaker 1: Who will be insolvent and who will be a liquid
• 28:12
  Speaker 1: That's a risk still, so you know we still have
• 28:15
  Speaker 1: a rough road in the interroom. Well, Dr Ryan Hart,
• 28:20
  Speaker 1: you have given us plenty to think about, not all
• 28:22
  Speaker 1: of it upbeat, but certainly serious and important. And you've
• 28:26
  Speaker 1: also reminded us what a privilege is for the world
• 28:28
  Speaker 1: back to have someone with your historical frame sitting in
• 28:32
  Speaker 1: that job as chief economists. Thank you so much, Thank
• 28:35
  Speaker 1: you a pleasure, Thanks for listening to Stephanomics. We have
• 28:44
  Speaker 1: our winter break now. When we come back in April,
• 28:47
  Speaker 1: I hope the world will look a bit brighter than
• 28:49
  Speaker 1: it does today. If I speak to anyone really fascinating.
• 28:53
  Speaker 1: In the meantime, I will be putting it on this speed,
• 28:55
  Speaker 1: so keep an eye out for that, and remember you
• 28:57
  Speaker 1: can always find us on the Bloomberg Terminal, website, app
• 29:01
  Speaker 1: or wherever you get your podcasts, and you can get
• 29:03
  Speaker 1: more economic news and analysis from Bloomberg Economics by following
• 29:08
  Speaker 1: as Economics on Twitter. This episode was produced by Magnus Hendrickson,
• 29:13
  Speaker 1: with special thanks to Peter Coy, Jamie Rush, Dr Carmen
• 29:16
  Speaker 1: Reinhardt and all at Bloomberg The Year Ahead. Lucy Meekin
• 29:20
  Speaker 1: is the executive producer of Stephanomics, and the head of
• 29:23
  Speaker 1: Bloomberg Podcast is Francesca Levy.