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Should Central Banks Be Responsible for Saving the World? · Trumponomics

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  Speaker 1: I think this conference is an opportunity to foster the
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  Speaker 1: interaction between female scholars and to strengthen our network. Men
• 0:10
  Speaker 1: are pretty good at that. We are not, and we've
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  Speaker 1: better improve. Hello and welcome to Stephanomics, the podcast that
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  Speaker 1: brings the global economy to you. Now, I've recently done
• 0:24
  Speaker 1: something I've never done before, and I thought it was
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  Speaker 1: worth sharing. For this week's podcast, I sat down with
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  Speaker 1: three senior policymakers to talk about how central banking could
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  Speaker 1: make the world a better place. And the senior policymakers
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  Speaker 1: in question were all women. That panel was part of
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  Speaker 1: a special conference on macroeconomics and finance co sponsored by
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  Speaker 1: the European Central Bank and the European think tank, the
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  Speaker 1: Center for Economic Policy Research, and it wasn't so different
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  Speaker 1: from other academic conferences I've been to, interesting cutting edge
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  Speaker 1: papers on topics like the impact of monetary policy on
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  Speaker 1: racial inequality or whether low interest rates make the economy
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  Speaker 1: less efficient. While they were interesting to me anyway, the
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  Speaker 1: only thing that was different about this super brainy conference
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  Speaker 1: was that every single one of the contributing speakers was
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  Speaker 1: a woman. Now, you might not think this kind of statement.
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  Speaker 1: Women's conference was really necessary in this day and age.
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  Speaker 1: Don't you find senior women economists popping up all over
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  Speaker 1: the place, But you'd be wrong. As the President of
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  Speaker 1: the European Central Bank, Christine Legarde explained when she launched
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  Speaker 1: the event, the twenty twenty report published by the American
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  Speaker 1: Economic Association shows that women make up only twenty of
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  Speaker 1: the PhD granting economics faculties in the United States, and
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  Speaker 1: most of those women do not hold tenure tribal positions.
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  Speaker 1: And the share of female fool professors is only in Europe,
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  Speaker 1: and it is estimated that the figure is that we
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  Speaker 1: have at the moment actually decreased to twelve when considering
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  Speaker 1: top research institutions and more senior position. So it's not
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  Speaker 1: a very rosy picture, despite sometimes the impression that we
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  Speaker 1: have that a lot of progress that has been made. No,
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  Speaker 1: and this gender imbalances need to be addressed, broadening women's
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  Speaker 1: participation in the economics profession and removing the obstacles they
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  Speaker 1: are they face pursuing a career. It's not just a
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  Speaker 1: matter of fairness, which in and of itself would be sufficient,
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  Speaker 1: but it's also needed because preventing women from participating and
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  Speaker 1: achieving leadership roles. It's just detrimental to society as a whole.
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  Speaker 1: There have been multiple studies pointing to that. A recent
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  Speaker 1: one by the International Monetary Fund, of course, found that
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  Speaker 1: the presence of women on the boards of financial and
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  Speaker 1: supervisory institutions was associated did with greater resilience, less risk taking,
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  Speaker 1: an increased stability. No, maybe we don't want any of that.
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  Speaker 1: But I have my hunch that maybe we want stability,
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  Speaker 1: maybe we want a bit less risk taking, and maybe
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  Speaker 1: we design greater resilience. And that is the reason why
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  Speaker 1: it is so important to have events like today's conference,
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  Speaker 1: not just to advocate and identify obstacles, as I have
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  Speaker 1: just done, but to show that we mean business and
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  Speaker 1: the research that we conduct and the policies that we
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  Speaker 1: recommend and the analytical work that is behind it is
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  Speaker 1: of superb quality. When we'll demonstrate perfectly that of course
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  Speaker 1: we can do it, and of course women business. Now,
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  Speaker 1: as I said, most of the conference was a bit technical,
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  Speaker 1: but that planel I hosted at the end of the
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  Speaker 1: first day was on a subject everyone ought to care
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  Speaker 1: about the social responsibilities of central banks, and the lineup, well,
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  Speaker 1: it doesn't get much better. You can judge for yourself
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  Speaker 1: in this edited version of our conversation and enjoy. After
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  Speaker 1: this great day of academic and path breaking discussion, we
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  Speaker 1: have a big topic to discuss, how central banks can
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  Speaker 1: support a new social contract. Now I'm conscious that some
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  Speaker 1: would say, maybe many would say, that the best way
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  Speaker 1: for central banks to support a new social contract is
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  Speaker 1: to keep well clear and to focus just on their knitting,
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  Speaker 1: on controlling inflation and letting politicians worry about things like society,
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  Speaker 1: because that's what politicians are elected to do. And if
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  Speaker 1: our conception of a better social contract in this discussion
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  Speaker 1: is going to also include an effective response to climate change,
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  Speaker 1: which suspect it will, I think there are many people
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  Speaker 1: who have been who have said that central banks should
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  Speaker 1: keep well clear of that too. But if we've learned anything,
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  Speaker 1: especially in the response to the global financial crisis in
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  Speaker 1: the pandemic, it's the central bank policies can have very
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  Speaker 1: big social and political consequences, whether we like it or not.
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  Speaker 1: We'll be talking about all of this and much more
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  Speaker 1: in this session, so let's let me get on with
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  Speaker 1: introducing them and we can get started. Um. Dr Isabel
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  Speaker 1: Schnabel has been a member of the European Central Banks
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  Speaker 1: Executive Board for since the start of She's also been
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  Speaker 1: a member of the German Council of Economic Experts, and
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  Speaker 1: I think it is still a professor of financial economics
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  Speaker 1: at the University of Bonn Baroness minus. Chefik is now
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  Speaker 1: director of the London School of Economics, having more or
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  Speaker 1: less run out of senior policy jobs to do. Before that,
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  Speaker 1: she's served as a Deputy Governor of the Bank of England,
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  Speaker 1: as senior civil servants at the International Department of International
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  Speaker 1: Development in the UK, and as senior official at both
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  Speaker 1: the i m F and the World Bank. She also
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  Speaker 1: just happens to have written a book What We Owe
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  Speaker 1: each Other a new social Contract recently, which I suspect
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  Speaker 1: will will come up in this discussion. And finally we
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  Speaker 1: have Dr Carmen Reinhardt, very well known to everybody here,
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  Speaker 1: I know, Chief Economists of the World Bank since last
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  Speaker 1: year and currently on leave from her position as Professor
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  Speaker 1: of the International Financial System at Harvard's Kennedy School of Government. Ladies, welcome,
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  Speaker 1: so glad to be here, Minutia Fik, thank you so much, Stephanie.
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  Speaker 1: The core Mandate of Central Banks and the best thing
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  Speaker 1: we can do for the social contract is to deliver
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  Speaker 1: both price and financial stability, because we all know that
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  Speaker 1: episodes of high inflation hurt the poor the most, and
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  Speaker 1: we've seen that in many many countries, and so and
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  Speaker 1: similarly with episodes of financial and stability because they have
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  Speaker 1: the least fewest tools to ensure themselves and protect themselves
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  Speaker 1: from those shocks. But I also think that central banks
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  Speaker 1: need to be aware of the social consequences of their
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  Speaker 1: policies and also be aware of how social policies affect
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  Speaker 1: central banking. And let me just give two examples on
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  Speaker 1: the first point, how their policies affect social and political consequences.
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  Speaker 1: There's been a huge debate, as we all know, around
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  Speaker 1: how recent fairly aggressive monetary policies and quantitative easing have
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  Speaker 1: affective income distribution, and there's been quite a lot written
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  Speaker 1: in central banking circles around that. Now we know that
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  Speaker 1: the effect of monetary policy on income distribution is complex
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  Speaker 1: and operates through multiple channels. Lower income households are more
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  Speaker 1: likely to lose their jobs during recessions, and so looser
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  Speaker 1: monetary policy is likely to increase employment and be good
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  Speaker 1: for them. On the other hand, richer households tend to
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  Speaker 1: have more assets and are likely to benefit from loose
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  Speaker 1: monetary policies through the asset price channel, and so the
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  Speaker 1: net effect is an empirical question, and it can vary
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  Speaker 1: across countries and across times. Now, I don't think central
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  Speaker 1: banks should be setting monetary policy with a view to
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  Speaker 1: altering income distribution, which is a deeply political thing and
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  Speaker 1: should be left in the hands of elected politicians. As
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  Speaker 1: Stephanie implied them from introduction, the central banks should be
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  Speaker 1: aware of the consequences of monetary policy for income and
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  Speaker 1: wealth and collect data on these impacts and provide analysis
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  Speaker 1: to the fiscal authorities so that they are well informed
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  Speaker 1: and if necessary, can act on that information. They should
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  Speaker 1: be paying attention to whether their policies have different impacts
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  Speaker 1: on different groups like women or different parts of a country,
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  Speaker 1: and again not to alter their policies, but to inform
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  Speaker 1: those whose mandated is to worry about those issues about
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  Speaker 1: the potential consequences. Let me give an example of the
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  Speaker 1: opposite point, which is how do so show and political
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  Speaker 1: policies affect central banking. One of the most important debates
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  Speaker 1: we're having these days is you know why the debate
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  Speaker 1: about secular stagnation. Now we know interest rates or have
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  Speaker 1: been at historic lose because global savings is high relative
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  Speaker 1: to global investment. And why are global savings high Because
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  Speaker 1: people face insecurity and populations are aging, which is why
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  Speaker 1: of course interest rates are lowest in the parts of
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  Speaker 1: the world that are aging the most, like Japan and Europe,
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  Speaker 1: and this results in a tendency to hoard savings, which
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  Speaker 1: reduces demand for goods and services and slows rates of
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  Speaker 1: economic growth. And if we had better social insurance, we
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  Speaker 1: could reduce this risk of secular stagnation. So, for example,
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  Speaker 1: Chinese households save about thirty of their incomes, in part
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  Speaker 1: because until recently they didn't have unemployment insurance or health
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  Speaker 1: insurance or reliable pensions. And so as social insurance is
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  Speaker 1: increasingly introduced in China, those really high savings rates could
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  Speaker 1: come down. And on the other side of the equation,
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  Speaker 1: investment is very low because governments haven't created an environment
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  Speaker 1: where firms see good opportunities to grow. But many elements
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  Speaker 1: of the social contract, such as more investment in education
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  Speaker 1: or infrastructure to reduce carbon emissions, could actually increase demand,
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  Speaker 1: especially in developing countries where profitable opportunities exist if risks
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  Speaker 1: can be reduced. And so the problem of secular stagnation
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  Speaker 1: is not one that central bankers and monetary policy can solve,
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  Speaker 1: but a better social contract could. And so central bankers
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  Speaker 1: should be happy to see policies like social insurance or
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  Speaker 1: support to families and education, or green investment incentives because
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  Speaker 1: they helped reduce the need for precaution re savings, they
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  Speaker 1: increase the level of global investment, and they help us
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  Speaker 1: avoid the risks of secular stagnation. So I would I
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  Speaker 1: would close that coming right hot. Thank you Stephanie, and
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  Speaker 1: thank you for for the organizers to to invite me
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  Speaker 1: to this wonderful event. I also have to say that
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  Speaker 1: we are well passed the view where you know central
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  Speaker 1: bankers are uh these suit clad men uh that we
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  Speaker 1: have typically associated with central banking. Very much thanks to
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  Speaker 1: Janet Yellen and and and Madame Legarda and of course
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  Speaker 1: many others around the world. I do want to echo
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  Speaker 1: very much what we knew should pointed out on on
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  Speaker 1: the importance of not short changing the mandate of price stability.
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  Speaker 1: One thing that hasn't been mentioned in the panel is
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  Speaker 1: that headline inflation does grab. That's why it's called headline
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  Speaker 1: UH the attention of the public. But at the very
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  Speaker 1: near nitty gritty level food price inflation, which usually UH
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  Speaker 1: exceeds headline inflation. In effect, relative food prices tend to
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  Speaker 1: increase disproportionately, So we can't lose sight that that inflation
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  Speaker 1: as a whole is extremely regressive. It is regressive for
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  Speaker 1: many of of the reasons that the panel is have
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  Speaker 1: pointed out, but I would add that the food dimension
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  Speaker 1: is critical. I would stress that an important part of
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  Speaker 1: that social contract is ensuring that the price stability that
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  Speaker 1: has been achieved UH in central banks, that we should
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  Speaker 1: not at any moment loose sight of that mandate. UM.
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  Speaker 1: I would also add that, unfortunately for all of us
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  Speaker 1: who were economists, economists don't have a great track record
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  Speaker 1: in predicting turning points, and I think we are at
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  Speaker 1: a very tough spot here. On one hand, you have
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  Speaker 1: the concerns that premature tightening would undermine a recovery from
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  Speaker 1: the worst hit that the global economy to my knowledge,
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  Speaker 1: has seen. We're coming out of a very exceptional period,
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  Speaker 1: so there's the concerns of undermining the recovery. But at
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  Speaker 1: the same time. US inflation rates are at a thirty
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  Speaker 1: year high. If you look at consumer prices, and if
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  Speaker 1: you look at producer prices there are forty year high.
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  Speaker 1: And the concern of acting too late, too little, and
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  Speaker 1: too late is a very real one. Is a very
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  Speaker 1: real one. In the aftermath of two thow th nine,
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  Speaker 1: we were, especially in the advanced economies, not so in
• 14:00
  Speaker 1: the emerging markets, we were confronted with massive aggregate demand
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  Speaker 1: declines UH. In the current context, fast forward to COVID,
• 14:12
  Speaker 1: we have both. We are both dealing with exceptional UH
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  Speaker 1: declines in aggregate demands but also all manner of aggregate
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  Speaker 1: supply shops. So, and a lesson from the nineties seventies
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  Speaker 1: that was that central banks ability to stabilize economic activity
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  Speaker 1: in the face of supply shops is much much much
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  Speaker 1: to be questioned. UH, it's much more limited. So so
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  Speaker 1: we also have the danger I said, we have the
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  Speaker 1: danger of reacting prematurely and the danger of acting too
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  Speaker 1: little and too late. So it's and and if that
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  Speaker 1: trade off is not an enviable one in the advanced economies,
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  Speaker 1: it's even steeper UH in the developed world. In developing world,
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  Speaker 1: where we've already seen a number of central banks do
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  Speaker 1: a very aggressive rate heights, and not coincidentally, it very
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  Speaker 1: much relates to the social unrest that countries like Brazil
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  Speaker 1: are saying over what are spiraling food and energy crisis.
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  Speaker 1: I do have the concern that if we continue to
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  Speaker 1: view this as a very transient feature, that response may
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  Speaker 1: indeed mimic some of the errors we saw in the
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  Speaker 1: nineteen seventies. Let me stop there, Thank you comment, doctor Isabel.
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  Speaker 1: I think this will be the debate that we are
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  Speaker 1: going to have going forward. I mean, in them over
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  Speaker 1: is past decade where inflation was always below the target,
• 16:05
  Speaker 1: we we basically I mean we were facing shocks both
• 16:10
  Speaker 1: on the supply and on the remand side that we're
• 16:13
  Speaker 1: more deflationary. But it may actually be that we are
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  Speaker 1: that this is now changing. And one reason why why
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  Speaker 1: it is changing is actually the green transition. And I mean,
• 16:26
  Speaker 1: if you if you think about something like carbon prices,
• 16:30
  Speaker 1: you can of course think of it as like supply
• 16:34
  Speaker 1: side shocks. And we will have many of those going
• 16:39
  Speaker 1: forward again and again and again and again, and then
• 16:43
  Speaker 1: the question comes up, what are we going to do
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  Speaker 1: about it? Can we say that we are just going
• 16:50
  Speaker 1: to look through all of that, even though of course
• 16:54
  Speaker 1: it does we use the purchasing power of people. And
• 16:58
  Speaker 1: this is a very difficult topic. I think we need
• 17:02
  Speaker 1: much more research on there. It's an open question, but
• 17:06
  Speaker 1: these are very difficult questions, and I think there's not
• 17:10
  Speaker 1: yet a good answer to that. Our economists have just
• 17:14
  Speaker 1: done some research into into this which talks about the
• 17:18
  Speaker 1: likelihood of more and more shocks to inflation, but also
• 17:21
  Speaker 1: the inflationary impact of just moving to a higher carbon price.
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  Speaker 1: You know, there's a there's a straightforward impact of that,
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  Speaker 1: and then there's, as you say, the potential for lots
• 17:29
  Speaker 1: of more a lot more variability of inflation and supply
• 17:32
  Speaker 1: side shocks on either on either side. Um militia. When
• 17:37
  Speaker 1: you were talking earlier and you were talking about the
• 17:41
  Speaker 1: importance of the central bank flagging up the potentially unequal
• 17:47
  Speaker 1: impact of its policies in this in various ways, I
• 17:51
  Speaker 1: guess I was wondering, Okay, but what do you do
• 17:53
  Speaker 1: if you haven't got a well behaved government, if you
• 17:55
  Speaker 1: haven't got a government that actually responds to any of
• 17:58
  Speaker 1: your um careful explanations of what they might want to
• 18:02
  Speaker 1: do to correct the impact of your policies, And if
• 18:06
  Speaker 1: you have a government that isn't putting in place and
• 18:09
  Speaker 1: a good environment for for investment and isn't discouraging people
• 18:13
  Speaker 1: from doing lots of precautionary savings by having good social
• 18:17
  Speaker 1: safety nets. So what a central banks supposed to just
• 18:20
  Speaker 1: wash their hands at that point? Well, I think it
• 18:22
  Speaker 1: goes in two steps. I mean, I think you know
• 18:25
  Speaker 1: the first step is you, uh, you share the analysis
• 18:29
  Speaker 1: with the government. And I think most of us have
• 18:31
  Speaker 1: been in central banks now that central banks tend to
• 18:33
  Speaker 1: be slightly better resource than ministries of finance and they
• 18:37
  Speaker 1: have don't tell anyone they have deeper analytical capacity than
• 18:42
  Speaker 1: ministries of finance UM. And I think those initial that
• 18:48
  Speaker 1: first step can be done behind closed doors and saying
• 18:52
  Speaker 1: here's what our analysis shows is happening to income distribution,
• 18:55
  Speaker 1: this is what our analysis shows is happening to food
• 18:59
  Speaker 1: price is and what that means for certain types of
• 19:01
  Speaker 1: household for certain parts of the country, um and and
• 19:07
  Speaker 1: giving elected political leaders at least the information so that
• 19:13
  Speaker 1: they can't say we didn't know that this was happening.
• 19:16
  Speaker 1: I think that's that one. I think it's that too, if,
• 19:19
  Speaker 1: as you say, Stephanie, there's a government that's actually unwilling
• 19:21
  Speaker 1: to act. I don't think that should change central banks
• 19:25
  Speaker 1: adherence to their mandates, and they should subviously say, ah ha,
• 19:27
  Speaker 1: we will be the white knight who will resolve the
• 19:30
  Speaker 1: income distributional or climate change consequences. But I do think,
• 19:35
  Speaker 1: you know, there have been many brave central bankers in
• 19:37
  Speaker 1: recent years who have gone public with some of this
• 19:41
  Speaker 1: kind of analysis, uh, and simply just by putting it
• 19:44
  Speaker 1: in the public domain but not necessarily acting on it,
• 19:47
  Speaker 1: I think can be quite powerful. Uh. And so that's
• 19:50
  Speaker 1: what I would argue should be done in cases where
• 19:53
  Speaker 1: governments are unwilling to deal with some of these wider consequences.
• 19:57
  Speaker 1: I actually had this this comment already when I I
• 20:00
  Speaker 1: heard um news very nice remarks. I actually think we
• 20:06
  Speaker 1: have to go as central banks, we have to go
• 20:08
  Speaker 1: a bit beyond what she said. So I think it's
• 20:11
  Speaker 1: it's not enough to simply tell governments so you see
• 20:14
  Speaker 1: here there's a distributional problem, please do something about it. Um. So.
• 20:19
  Speaker 1: I don't think that's enough, because of course we do
• 20:22
  Speaker 1: have some leeway what we do precisely, so we have
• 20:26
  Speaker 1: lee way which tools to use. And if we know
• 20:30
  Speaker 1: that that certain tools have UM stronger distributional consequences than others.
• 20:37
  Speaker 1: That may be an argument for using one tool and
• 20:41
  Speaker 1: not the other. Similarly, it may actually affect the calibration
• 20:45
  Speaker 1: of our tools. So for example, I mean in our
• 20:48
  Speaker 1: strategy we have this concept of the medium term um
• 20:53
  Speaker 1: which which gives us a bit of flexibility regarding the question.
• 20:57
  Speaker 1: At one other point I would like to to us
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  Speaker 1: is that, of course one one cannot take the position
• 21:04
  Speaker 1: that central banks should not care at all about distributional
• 21:08
  Speaker 1: effect because I mean, these distributional effects out of course
• 21:13
  Speaker 1: there and the way we act does have these effects.
• 21:16
  Speaker 1: Or we are not. We are never neutral. We are
• 21:18
  Speaker 1: never neutral, and I think we cannot we cannot ignore that,
• 21:22
  Speaker 1: but we we have to, and we have to raise
• 21:25
  Speaker 1: awareness of that and have to be honest about that.
• 21:28
  Speaker 1: Ellen has had a great question, which I think because
• 21:31
  Speaker 1: we're not we're not going to end up with that
• 21:33
  Speaker 1: much time. But I'm interested in what any of you
• 21:35
  Speaker 1: think about it. So she was she suggests um that
• 21:40
  Speaker 1: central banks seem like it's a policy success. You know
• 21:44
  Speaker 1: that we've had these institutions that we made independent and
• 21:47
  Speaker 1: that made policy better, and they were able to look
• 21:49
  Speaker 1: through the political cycle and cooperate with one another to
• 21:53
  Speaker 1: achieve global objectives. Um. Should we be looking to reproduce
• 21:59
  Speaker 1: that model for other crucial public goods like not least
• 22:04
  Speaker 1: getting an effective carbon price? Um? And she suggests maybe
• 22:09
  Speaker 1: having independent carbon councils for setting carbon prices. But just wonder,
• 22:13
  Speaker 1: I mean, even if we don't think there could necessarily
• 22:16
  Speaker 1: be a global Carbon Council tomorrow unless unless COPED twenty
• 22:19
  Speaker 1: six does something very interesting. Um, But is that? Do
• 22:24
  Speaker 1: we think there's there's other areas of public policy that
• 22:26
  Speaker 1: we should be following the central bank model minusia maybe?
• 22:31
  Speaker 1: Or well, I mean it's interesting there are some domains
• 22:35
  Speaker 1: in which it's been possible to d politicized aspects of
• 22:39
  Speaker 1: decision making, and central banks are a really good example.
• 22:42
  Speaker 1: Many countries have independent fiscal councils now which independent of
• 22:47
  Speaker 1: the finance ministry, assess the budget and report on fiscal
• 22:52
  Speaker 1: policy in a neutral way. There's about forty or fifty
• 22:56
  Speaker 1: of them now spread around the world. In the US
• 22:59
  Speaker 1: they have the base Closure Permission, Yes, base Closure Commission,
• 23:02
  Speaker 1: that's right, that would take a neutral view. In some countries, uh,
• 23:07
  Speaker 1: the definition of voting districts is done by an independent
• 23:10
  Speaker 1: entity that does it on a scientific basis to de
• 23:14
  Speaker 1: politicize it. I mean, you know, as a lifelong technocrat,
• 23:19
  Speaker 1: I have a lot of sympathy with these kind of
• 23:21
  Speaker 1: approaches because it it makes decisions on a rational basis,
• 23:25
  Speaker 1: It does all the things that Ellen says in her
• 23:27
  Speaker 1: and her question, which is it's you know, rational, accountable, independent, etcetera.
• 23:35
  Speaker 1: So I would love I would love to see more
• 23:38
  Speaker 1: aspects of government policy being subjected to that kind of rare.
• 23:42
  Speaker 1: But the truth is we're in a moment of kind
• 23:45
  Speaker 1: of nationalism and populism and and increasing you know, wearing
• 23:49
  Speaker 1: a mosque has become political um and so it feels
• 23:55
  Speaker 1: like we're not at a at a moment when taking
• 23:59
  Speaker 1: things out of the political realm seems very likely. But
• 24:03
  Speaker 1: I do think we need to keep thinking about where
• 24:05
  Speaker 1: those opportunities are. And maybe you're right, maybe carbon is
• 24:08
  Speaker 1: the one is the next place where thinking about just
• 24:12
  Speaker 1: as an example, uh, you know, one of the biggest
• 24:15
  Speaker 1: issues with carbon markets is that, uh there is uh
• 24:19
  Speaker 1: there is complete inconsistency in the way that carbon credits
• 24:24
  Speaker 1: offsets emissions trading. It's the wild West. I mean I
• 24:29
  Speaker 1: know this personally because the LC just announced that we're
• 24:31
  Speaker 1: the first carbon neutral university in the UK. But when
• 24:36
  Speaker 1: we went to try and buy carbon credits it was
• 24:38
  Speaker 1: the wild West. I mean it was it was completely
• 24:41
  Speaker 1: unregulated and we had to work really hard. And that
• 24:45
  Speaker 1: might be an area where, for example, independent entities could
• 24:51
  Speaker 1: be created to do verification. At the moment, there's a
• 24:54
  Speaker 1: proliferation of lots of little NGOs that do this. But
• 24:57
  Speaker 1: if we're going to have a serious carbon market and
• 24:59
  Speaker 1: financial inst tuitions are going to have to verify this stuff,
• 25:03
  Speaker 1: maybe we need an independent entity that isn't the Central
• 25:06
  Speaker 1: Bank but looks like an independent institution that would enable
• 25:10
  Speaker 1: that market to function. And maybe there's enough political support
• 25:14
  Speaker 1: that we might actually get it in that domain, even
• 25:17
  Speaker 1: though we can't get it happens. So the environmental equivalent
• 25:20
  Speaker 1: of the of the generally accepted accounting principles, which many
• 25:23
  Speaker 1: people would say had made played a very big role
• 25:26
  Speaker 1: in exactly global capitalism globalization. Carmen or or Isabel, what
• 25:31
  Speaker 1: do you think about this suggestion? Well, let me say
• 25:36
  Speaker 1: that a concern that I have at the moment is
• 25:39
  Speaker 1: that the pendulum actually is swinging in the other direction.
• 25:43
  Speaker 1: Central bank independence was a really big movement. It really
• 25:48
  Speaker 1: took of course route first in the advanced economy and
• 25:51
  Speaker 1: then spread to the emerging markets and developing countries. So
• 25:57
  Speaker 1: my concern in response to her lens question, is that
• 26:04
  Speaker 1: in this more politicized environment, more much more by modal views,
• 26:10
  Speaker 1: if you will, bipolar by modal views, if you will,
• 26:16
  Speaker 1: the pendulum is actually unfortunately moving in the opposite, in
• 26:21
  Speaker 1: the artosite direction. I wanted to sort of I'll go
• 26:32
  Speaker 1: back to this question of distributional consequences, but it relates
• 26:35
  Speaker 1: to some of the things that we were saying about
• 26:37
  Speaker 1: the changing political climate. People are blaming central bank policy
• 26:43
  Speaker 1: for uh penalizing savers and increasing wealth inequality, and many
• 26:50
  Speaker 1: populous leaders are making central bank scapegoats for you in
• 26:55
  Speaker 1: their arguments against the current system. So I guess I
• 26:59
  Speaker 1: want if we stick with this line that you can't
• 27:02
  Speaker 1: really intervene on the distributional front. You can only kind
• 27:05
  Speaker 1: of urge and explain. Is there a risk that you'll
• 27:09
  Speaker 1: be sort of damned either way, you know, because you'll
• 27:12
  Speaker 1: be considered to have had all of these negative political
• 27:15
  Speaker 1: implications and your your independence is compromised by that, maybe
• 27:21
  Speaker 1: even taken away because you didn't act on the distributional
• 27:25
  Speaker 1: consequences it's about. So let me say first that of
• 27:29
  Speaker 1: course it's I mean it starts with communication. So communication
• 27:34
  Speaker 1: is extremely important. We often see that people don't understand
• 27:40
  Speaker 1: what we are doing. And this is not just people
• 27:43
  Speaker 1: who are not very well educated in economic terms, but
• 27:48
  Speaker 1: it's even leading politicians who don't understand what what we
• 27:53
  Speaker 1: are doing. And I mean they're the first thing, of course,
• 27:57
  Speaker 1: we have to do is to explain as much as
• 28:00
  Speaker 1: we can in a language that people understand. I mean,
• 28:03
  Speaker 1: this is um something we have to deliver. We cannot
• 28:06
  Speaker 1: ask them to first get an economics PhD. But we
• 28:10
  Speaker 1: have to explain it so that people understand it. Then
• 28:13
  Speaker 1: I think we have to be honest about the side
• 28:15
  Speaker 1: effects of our of our policies, and we have to
• 28:19
  Speaker 1: be able to explain why we believe that the benefits
• 28:24
  Speaker 1: are larger than the costs. If we cannot say that,
• 28:27
  Speaker 1: then probably we shouldn't follow those policies. So and and
• 28:32
  Speaker 1: then of course meets we have to do this analysis.
• 28:34
  Speaker 1: I mean, that's of course also something that we that
• 28:36
  Speaker 1: we have to do. UM. But the problem is that
• 28:41
  Speaker 1: there are times when all of this is even more complicated,
• 28:45
  Speaker 1: and I think we are in such a time now.
• 28:48
  Speaker 1: So for it's quite some time we have been arguing, Okay,
• 28:51
  Speaker 1: our instruments have all these side effects, but see inflation
• 28:56
  Speaker 1: is so low, we have to do it. But now
• 28:59
  Speaker 1: what people are seeing is so they're still doing all
• 29:02
  Speaker 1: those things. The side effects are getting maybe even bigger.
• 29:07
  Speaker 1: But inflation is it five percent or it's approaching five
• 29:11
  Speaker 1: so um and that becomes extremely difficult. And I still
• 29:17
  Speaker 1: don't know how to solve that problem. But I mean,
• 29:19
  Speaker 1: this is kind of the situation that we're facing now,
• 29:23
  Speaker 1: and that indeed um then also poses a threat to
• 29:28
  Speaker 1: our independence because we do see that many politicians now
• 29:33
  Speaker 1: speak up and say are they still following the mandate
• 29:36
  Speaker 1: or not? And we have to keep that in mind.
• 29:40
  Speaker 1: Niche risks to central banks. Do you think they're in
• 29:45
  Speaker 1: this perilous position that actually in different ways Carmen and
• 29:48
  Speaker 1: Isabel have described slightly different ways. I think the dangers
• 29:53
  Speaker 1: are greatest in some of the emerging markets that Carmon
• 29:57
  Speaker 1: identify in terms of risk to central bank depends. In
• 30:02
  Speaker 1: the wake of COVID, many emerging market central banks did
• 30:06
  Speaker 1: things like QUEI that they had never done before and
• 30:11
  Speaker 1: adopted policies that were being used from the advanced economies,
• 30:15
  Speaker 1: and in some of those cases, the arguments that this
• 30:19
  Speaker 1: was fiscal dominance I think is kind of compelling. Actually
• 30:23
  Speaker 1: it did look an awful lot like fiscal dominance in
• 30:25
  Speaker 1: some countries, and that's worried and that's sort of a
• 30:29
  Speaker 1: step in the direction of eroding independence. Um. You know,
• 30:33
  Speaker 1: I think in the advanced economies, I mean, I agree
• 30:36
  Speaker 1: with Isabelle, it depends how persistent this supply driven inflation is.
• 30:42
  Speaker 1: If it passes uh, then I and it is transitory,
• 30:47
  Speaker 1: as most advanced economy central banks seem to think, then
• 30:52
  Speaker 1: I think the independence is not so threatened. Um. But
• 30:57
  Speaker 1: if it, if it is more persistent, then I think
• 31:01
  Speaker 1: the kind of trilemma that she described of you're doing
• 31:06
  Speaker 1: these rather you know, these very loose monthly policies, You're
• 31:09
  Speaker 1: having all these spillover effects and you're you're still not
• 31:13
  Speaker 1: delivering your inflation target. It becomes a bit of a problem.
• 31:17
  Speaker 1: And I think center brates were able to hold onto
• 31:19
  Speaker 1: their independence because they were so successful for so many
• 31:24
  Speaker 1: decades at delivering the inflation target. I mean, it has
• 31:27
  Speaker 1: been one of the main the biggest policy successes that
• 31:30
  Speaker 1: we have seen in the last thirty years. Um. And
• 31:34
  Speaker 1: so I do think that's the key to to this dilemma.
• 31:39
  Speaker 1: It's sobering we've ended this way, But I guess I
• 31:41
  Speaker 1: should also recall that we started off thinking about whether
• 31:44
  Speaker 1: the job should be bigger than originally intended, and we've
• 31:47
  Speaker 1: ended up worrying most about whether Central Works can continue
• 31:50
  Speaker 1: to do their core job. And I guess we should
• 31:53
  Speaker 1: also recall that this has not been a problem that
• 31:55
  Speaker 1: we have talked about very much in these kind of
• 31:57
  Speaker 1: conversations for quite a long time, and maybe that's sign
• 32:00
  Speaker 1: of some kind of program. Um. It's been fantastic, and
• 32:04
  Speaker 1: we could carry on for many more hours. Um. But
• 32:07
  Speaker 1: thank you so much to Ellen for helping to bring together,
• 32:11
  Speaker 1: Ellen Ray for bringing together people in this this conference
• 32:14
  Speaker 1: all day, and especially to Isabel Schabel and Carmen Reinhart
• 32:18
  Speaker 1: kind of Minish Baroness Shafiq for this great conversation. That's
• 32:30
  Speaker 1: it for this special women omics edition of Stephanomics. We'll
• 32:34
  Speaker 1: be back to normal next week with the curious Case
• 32:37
  Speaker 1: of the Missing US worker, among other things. Join us then,
• 32:41
  Speaker 1: and in the meantime, if you like the program, please
• 32:43
  Speaker 1: do rate it and follow at Economics on Twitter for
• 32:47
  Speaker 1: more news and analysis. From Bloomberg Economics. This episode was
• 32:51
  Speaker 1: produced by Mangnus Henryson. With special thanks to the Center
• 32:54
  Speaker 1: for Economic Policy Research and especially Professor Ellen Ray for
• 32:59
  Speaker 1: inviting me to a joint conference with the European Central Bank.
• 33:03
  Speaker 1: Also to Baroness Minus Shafiq, Dr Carmen Reinhardt and Dr
• 33:08
  Speaker 1: Isabel Schnabel. Mike Sasso is executive producer of Stephanomics and
• 33:13
  Speaker 1: the head of Bloomberg Podcast is Francesco Legi.