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Is the Pandemic the Answer to the Productivity Puzzle? · Stephanomics

0:08
Speaker 1: Hello, and welcome to a special holiday episode of Stephanomics.
0:12
Speaker 1: Whether you like it or not, you're probably not going
0:14
Speaker 1: to forget this Christmas. I hope wherever you are you're
0:17
Speaker 1: safe and hopeful for the year to come. I was
0:20
Speaker 1: going to say it can't be worse than but that
0:23
Speaker 1: feels like a mistake. Instead, let me just welcome to Stephanomics.
0:26
Speaker 1: One of the more interesting minds in British policymaking of
0:29
Speaker 1: the last few years, the Chief Economist of the Bank
0:32
Speaker 1: of England, Andy Holding. I hope we can get into
0:39
Speaker 1: an interesting conversation not just about this incredible year twenty
0:43
Speaker 1: but what lies ahead for the world and also maybe
0:46
Speaker 1: for economists and policymakers. And we have actually next week
0:51
Speaker 1: on the show, I'm going to be talking to Bloomberg
0:54
Speaker 1: correspondence about twenty and thinking about the year ahead. And
0:58
Speaker 1: I'm going to start by asking them what their most
1:01
Speaker 1: memorable moment of was, what, what was? What's going to
1:06
Speaker 1: stand out for you? Do you think? Thanks? Thanks that
1:10
Speaker 1: kind of reduction. A Merry Christmas to to you and
1:12
Speaker 1: everyone else well with support for choice art. With this year,
1:16
Speaker 1: memorable events, as often happens at Christis time, have come
1:21
Speaker 1: thick and fast, but from a polentially very long list,
1:24
Speaker 1: I would say the one of the signature moments of
1:27
Speaker 1: the year would be back in March, when everything was
1:31
Speaker 1: really kind of kicking off, not least in financial markets,
1:35
Speaker 1: and we saw within financial markets people moving away even
1:42
Speaker 1: from the on the face of its safest sets of
1:46
Speaker 1: assets on the planet, you know, government securities in the
1:49
Speaker 1: major advanced economies, and into cash, the so called dash
1:54
Speaker 1: for cash. And that was a pretty sobering moment, a
1:59
Speaker 1: pretty surprising moment, a pretty scary moment all the ess is,
2:03
Speaker 1: and of course elicited in response a big policy reaction
2:07
Speaker 1: from central banks globally to try and staunch that that
2:10
Speaker 1: dash for cash, I'd say, in what has been a
2:14
Speaker 1: memorable for all the wrong reasons. Yeah, that event, above
2:18
Speaker 1: all others, will probably stick with me for quite some time.
2:21
Speaker 1: As you said, there was a remarkable response to that
2:24
Speaker 1: from central banks, and then ultimately a big fiscal response
2:27
Speaker 1: from governments to the crisis. I'm not going to I
2:29
Speaker 1: don't want to dwell too much on what's happened in
2:30
Speaker 1: the past, but as one of the many people who
2:35
Speaker 1: had wondered about the possible policy space room for policymakers
2:40
Speaker 1: to respond to the next crisis. You know, over the
2:43
Speaker 1: last few years, given how much we've had to do
2:45
Speaker 1: after the global financial crisis, and how hard it had
2:47
Speaker 1: been to unwind that support, especially coming from from central banks,
2:52
Speaker 1: were you sort of pleasantly surprised that there was still
2:54
Speaker 1: quite a lot of ammunition that central banks and others
2:57
Speaker 1: could bring to bear. I think I was pleasantly prize that, Um,
3:02
Speaker 1: we've learned some of the lessons from the earlier crisis.
3:05
Speaker 1: I think central banks and governments too had um you
3:11
Speaker 1: know that their twitch muscle have been developed, their policy
3:13
Speaker 1: twitch muscle have been developed during the last crisis, and
3:17
Speaker 1: that meant I think were much better prepared this time
3:21
Speaker 1: to act at real pace and to act at real scale.
3:26
Speaker 1: And it's been both. I mean, let's at the Bank
3:28
Speaker 1: of England by home institution, we've announced more quee this
3:34
Speaker 1: year in the ten months since the crisis started as
3:37
Speaker 1: we carried out in the preceding ten years. So that
3:42
Speaker 1: is so bring backdrop as well. But I think crucially
3:47
Speaker 1: and crucially different than ten years ago, we've had fiscal
3:52
Speaker 1: and military acting in partnership at scale and at speed,
3:57
Speaker 1: and that doubling of the dose I think has made
4:00
Speaker 1: a crucial difference, and a necessary difference given the pace
4:04
Speaker 1: and scalle the crisis we've had. Were you talking about doses?
4:07
Speaker 1: Of course, We're now watching vaccinations go forth across the UK,
4:14
Speaker 1: the US, surely other countries to follow. We've already had
4:18
Speaker 1: a lot of people vaccinated in China. How much of
4:21
Speaker 1: a bounce back do you think we'll see from that?
4:23
Speaker 1: Do you think will be surprised by how quickly economies
4:27
Speaker 1: bounced back? Well? I think near term, very near term,
4:30
Speaker 1: the next quarter or two, as the vaccine rolls out,
4:35
Speaker 1: it's going to remain a bumpy ride. Not as bumpy
4:38
Speaker 1: as earlier this year, but bumping on the less because
4:40
Speaker 1: we see virus cases on the rise, we see restrictions
4:44
Speaker 1: on the rise, and some of that stop go cycling
4:48
Speaker 1: we've seen this year. I think we'll persist very near
4:50
Speaker 1: term as we move into let's say the second quarter,
4:53
Speaker 1: certainly the second half of next year. UM I could
4:59
Speaker 1: well imagine, uh, not so much a relief rally, we've
5:02
Speaker 1: seen that in financial markets, but a kind of relief
5:05
Speaker 1: recovery as the virus risk dissipate. Now the key question
5:10
Speaker 1: for me is at what pace. Um, will we see
5:16
Speaker 1: behavior you know, only gradually drift back, as after the
5:22
Speaker 1: global financial crisis, or as after the Great depressions? Say?
5:27
Speaker 1: Or will we see more of a snapback in behaviors,
5:32
Speaker 1: in sentiment, in socializing, in spending lots of s's in
5:37
Speaker 1: the sentences today? UM? I don't know. I think the
5:41
Speaker 1: jury is out on that. UM. I think this has
5:44
Speaker 1: been a different sort of crisis, with a different sort
5:47
Speaker 1: of source, And therefore I think there at least the
5:50
Speaker 1: potential the prospect of us being in World two and
5:55
Speaker 1: of a not quite as sharp as the fall, but
5:59
Speaker 1: nonetheless a much sharper than we'd no ordinarily expect. When
6:04
Speaker 1: you speak to people, you can almost taste that pent
6:07
Speaker 1: up demand, that desire to get back to something closer
6:10
Speaker 1: to normality, And that would certainly be my hope and
6:14
Speaker 1: perhaps even my expectation, For we spent the whole year
6:18
Speaker 1: of central banks always do saying how uncertain things are.
6:21
Speaker 1: But things really are uncertain, and especially very near term.
6:25
Speaker 1: Funnily enough, the further you appear into the future right now,
6:28
Speaker 1: in a way, the clearer things are becoming. Now in
6:31
Speaker 1: the light of the vaccine new so I feel much
6:33
Speaker 1: more confident about H two than I do about Q one,
6:40
Speaker 1: which is unusual but should be encouraging because you know,
6:46
Speaker 1: the plans do now look sunny. I tried to mention
6:57
Speaker 1: the word Brexit and things. I'm sure we'll continue to
7:00
Speaker 1: be uncertain for some time around that, but looking at
7:05
Speaker 1: brexit short term impact as an economist, you know, we've
7:09
Speaker 1: obviously the Bank of England, everyone has had their own
7:11
Speaker 1: estimates about the short and longer term impact of certain
7:15
Speaker 1: whatever range of arrangements with the European Union, and there's
7:19
Speaker 1: been plenty of discussion around that. Of course, when it
7:22
Speaker 1: actually happens, we should be able to see to get
7:25
Speaker 1: an answer to what the impact by me start to
7:28
Speaker 1: isolate some of these consequences. Is COVID going to make
7:31
Speaker 1: that completely impossible that we will be no clearer in
7:34
Speaker 1: six months time what the short term impact of Brexit
7:37
Speaker 1: was than we were right now. Well, I think COVID
7:42
Speaker 1: makes it tricky getting a reader anything at the moment
7:44
Speaker 1: economically beyond COVID itself. But I do think, you know,
7:48
Speaker 1: and we'll see what comes to passing that in the
7:50
Speaker 1: dos and weeks ahead. On that front, I don't think
7:53
Speaker 1: there will be any have any problems identifying um what
7:57
Speaker 1: frictional effects leaving the Customs Union, which of course will
8:01
Speaker 1: happen come what may at the end of this year,
8:04
Speaker 1: will have upon trade, on the movement of goods and
8:09
Speaker 1: services and of people. Think that would be very visible,
8:13
Speaker 1: but COVID is already caused these enormous shortages and backlogs
8:18
Speaker 1: at DOT at ports all over the world, so in
8:20
Speaker 1: the sense even that is harder to see. It's true
8:23
Speaker 1: that in lots of ports, including some UK ones at
8:26
Speaker 1: Southampton and Felix Stowe, there have been um frictions there
8:30
Speaker 1: frictions that actually are complete unrelated to BRECKX are largely
8:33
Speaker 1: unrelated to Brexit in the sense that they're to do
8:36
Speaker 1: with the asynchronous pattern of recovery, with China recovering far
8:40
Speaker 1: more rapidly than say that the UK, and that means,
8:46
Speaker 1: as you know, lots of empty containers stacked up at
8:51
Speaker 1: ports in the UK not yet ready for a return journey.
8:56
Speaker 1: But I do think when it comes to the Brexit
8:58
Speaker 1: effects that will show up in a what different and
9:01
Speaker 1: a somewhat different way, identifying that effect will be very clear.
9:05
Speaker 1: We've been doing intensive surveys of businesses, as have many
9:10
Speaker 1: others to try and gauge the degree of preparedness. A
9:14
Speaker 1: lot has been done, but there's still some residual uncertainty
9:16
Speaker 1: that more needs to be done and that could make
9:19
Speaker 1: for some frictional costs come the new year. As I say,
9:23
Speaker 1: irrespective what deal ends up being done, I mean, funny enough.
9:27
Speaker 1: One of the one of the benefits that very small
9:30
Speaker 1: silver linings from this crisis has been that we know
9:34
Speaker 1: that to become much more inquisitive about new sources of data,
9:38
Speaker 1: including sources of data for example, about what is happening
9:41
Speaker 1: around ports, how long are the lorry queues, how fast
9:46
Speaker 1: is transport moving. We've used that for COVID purposes, and
9:50
Speaker 1: this will serve useful double duty when it comes to
9:53
Speaker 1: understanding the Brexit effects in a few weeks time. Well,
9:57
Speaker 1: you give me a great opportunity to plug the Bloomberg
10:00
Speaker 1: Economics is own daily activity indicators that we've we've produced
10:04
Speaker 1: precisely to capture some of this very short term data
10:07
Speaker 1: like the Google mobility data and restaurant bookings and indeed
10:11
Speaker 1: port movements. We have got some satellite footage of sports
10:15
Speaker 1: and things that we're bringing onto the Bloomberg terminal and
10:17
Speaker 1: it is. You're quite right that it's come into its
10:19
Speaker 1: own all those data sources. I don't want to go
10:24
Speaker 1: into the all the sort of arguments that have happened
10:28
Speaker 1: over Brexit or where we're going and everything else, but
10:30
Speaker 1: I wonder, I mean, people from the outside. Certainly many
10:32
Speaker 1: economists have always it's fair to say they've tended to
10:35
Speaker 1: see this as a very odd move for a country
10:38
Speaker 1: like the UK to make, just from a straight sort
10:41
Speaker 1: of economic standpoint. But I noticed at least one Tyler
10:45
Speaker 1: co And, who writes for Bloomberg, did a column the
10:48
Speaker 1: other day suggesting that actually COVID had slightly changed his
10:51
Speaker 1: mind about the pros and cons because of the great
10:57
Speaker 1: emphasis that put on countries being able to be nimble.
11:00
Speaker 1: I wonder whether the last few years had made you
11:03
Speaker 1: think in a more in a just in a sort
11:04
Speaker 1: of pure economic sense, taken a different view of the
11:08
Speaker 1: costs and benefits of leaving a big trading block like
11:11
Speaker 1: the EU. So I think even a pre COVID, even
11:15
Speaker 1: pre Brexit, actually steph within the economics community, we were
11:20
Speaker 1: slightly changing our tune when it came to thinking through
11:24
Speaker 1: fully the costs and benefits of increasing globalization. I think
11:28
Speaker 1: net overall, we'd sort of majored on the benefits, the
11:33
Speaker 1: fruits of which tend to be spread quite widely and
11:35
Speaker 1: quite thinly. That probably under emphasized the costs that were
11:41
Speaker 1: felt by often a minority, but a very important minority,
11:43
Speaker 1: because the costs were very large. So I think even
11:45
Speaker 1: pre pre any recent events, there's been a bit of
11:50
Speaker 1: an imbalance in the debate about the benefits of trade,
11:54
Speaker 1: the distribution of of winners and losers, and that had
11:58
Speaker 1: started to shape debate about trading a somewhat different way.
12:04
Speaker 1: On top of that, we now get the COVID crisis,
12:07
Speaker 1: and one of the big learnings from that was just
12:11
Speaker 1: how quickly global supply chains fractured and broke, and just
12:17
Speaker 1: how quickly nation states went to ground when facing situations
12:24
Speaker 1: of acute stress. In some ways, this has very many
12:28
Speaker 1: similarities the situation ten twelve years ago at the time
12:30
Speaker 1: a global financial crisis, whether fractures were not in global
12:34
Speaker 1: supply chains for goods and services but instead in global
12:38
Speaker 1: credit chains for flows of flows of moneys, and the
12:43
Speaker 1: lesson we took away from that, the key lesson we
12:45
Speaker 1: took away from that was one of greater resilience within
12:48
Speaker 1: the financial sector, and I hope one of the lessons
12:51
Speaker 1: we take away from this COVID crisis is the need
12:54
Speaker 1: for greater resilience, in this case in the non financial
12:57
Speaker 1: parts of our economy. Me now to be clear by that,
13:03
Speaker 1: I don't mean we should try and make everything at home.
13:08
Speaker 1: We should honor shore everything that moves and moved to
13:13
Speaker 1: quasi autargue when it comes to trade. That is not
13:15
Speaker 1: the right message, as it was not the right lesson
13:18
Speaker 1: to have learned from the global financial crisis. We have
13:21
Speaker 1: preserved open and free and liberalized international financial system, and
13:27
Speaker 1: that of course delivers great benefits. But we have an addition,
13:31
Speaker 1: put much greater focus on the resilience through the domestic
13:35
Speaker 1: resilience of our financial institutions. And that's a self same
13:38
Speaker 1: debate we need to have about the non financial sector. Now,
13:43
Speaker 1: this is not either or open or closed. This is
13:48
Speaker 1: a situation where we're resilience calls for having both international
13:53
Speaker 1: and domestic supply chains serving as insurance policy. This is
13:57
Speaker 1: slightly different flavor of pobalization than the one we had
14:01
Speaker 1: pre COVID. You talk about not about open and clothes.
14:05
Speaker 1: Of course, the intriguing thing about the campaign campaign for
14:09
Speaker 1: Brexit was that both arguments we used. It was used
14:11
Speaker 1: as a reason for having more openness and also to
14:14
Speaker 1: be more closed, and we've been working through some of
14:17
Speaker 1: those contradictions over the last few years. You're you're getting
14:21
Speaker 1: into the territory of broader lessons from the COVID experience
14:27
Speaker 1: for the global policy maker. What are the what are
14:32
Speaker 1: some of the or the one or two sort of
14:33
Speaker 1: key takeaways for you in terms of how it could
14:35
Speaker 1: affect policy in practice. So I think looking to next year,
14:41
Speaker 1: there's going to be too at least two very crucial
14:44
Speaker 1: pivots policy pivots going to be needed staff Um both
14:50
Speaker 1: are You're going to need some fancy footwork to be
14:52
Speaker 1: pulled off elegantly, but I hope they both can be.
14:55
Speaker 1: I mean, the first is that will handoff between, if
14:59
Speaker 1: you're like um, public sector demand and private sector demand.
15:04
Speaker 1: So of necessity has been a year when the when
15:08
Speaker 1: governments have had to have stood tall and of supported
15:12
Speaker 1: demand near term consumption jobs incomes to keep economies afloat.
15:19
Speaker 1: As as I hope happens, the recovery comes on stream
15:22
Speaker 1: next year, there will then need to be a handover
15:26
Speaker 1: as private sector demand picks up, and public sector demand
15:31
Speaker 1: can then switch down, leave the accurate demand hopefully intact
15:37
Speaker 1: and indeed rising. Getting the timing of that right is
15:40
Speaker 1: going to be absolutely crucial for those of his in
15:42
Speaker 1: the policy community. But actually there's a second pivot. Let's
15:46
Speaker 1: let's discussed, but in some ways every bit as important.
15:50
Speaker 1: But that's about the composition of demand as between consumption
15:54
Speaker 1: versus investment on the part of both the private sector
15:58
Speaker 1: and the public sector. This year has been a year
16:01
Speaker 1: about keeping near term spending current spending up and investment
16:07
Speaker 1: spending as understandably being the casualty of that given the
16:10
Speaker 1: uncertainty about futured amount. But if we are indeed to
16:15
Speaker 1: sustain the near term recovery, to sustain growth in productivity
16:20
Speaker 1: and living standards, that investment will need to come back
16:23
Speaker 1: on stream at pace supported by both the private sector
16:29
Speaker 1: and by the public sector. And that switch from consumption
16:33
Speaker 1: to investment, from spending for today to spending for tomorrow
16:38
Speaker 1: is for me as important a policy pivot to bring
16:42
Speaker 1: about with our fancy footwork during the course of next
16:46
Speaker 1: year about building out the supply side of our economy,
16:50
Speaker 1: about using the crisis opportunity to tackle some of those
16:55
Speaker 1: long standard, deep seated fault lines in what might be
16:58
Speaker 1: colloquially called the apply side of our economy, fault lines
17:03
Speaker 1: that were yawning pre COVID and which have become of
17:07
Speaker 1: anything larger still as a result of COVID. But I
17:12
Speaker 1: mentioned at the start, you have tended to stray outside
17:15
Speaker 1: some of the sort of traditional macroeconomic policy. You know,
17:18
Speaker 1: you don't just when you give your speeches, you don't
17:20
Speaker 1: always just talk about inflation and monetary policy. You've talked
17:25
Speaker 1: about local economics and issues around fairness and equity. Do
17:31
Speaker 1: you think there's a risk if if central banks are
17:35
Speaker 1: inevitably going into this territory, because if you like, that's
17:38
Speaker 1: kind of where the action is, and it's an important
17:41
Speaker 1: part of how monetary policy works that it interacts with
17:45
Speaker 1: these aspects of economies and societies. On the other hand,
17:49
Speaker 1: it does take you out of your comfort zone and
17:50
Speaker 1: potentially take you beyond what many people would say was
17:54
Speaker 1: your mandate um do you how do you think about
17:57
Speaker 1: that tension? You know that central banks are sort of
18:00
Speaker 1: thinking about talking about more stuff, but actually still have
18:03
Speaker 1: quite a strict, narrow mandate. Hen maybe two points on
18:07
Speaker 1: that stuff and it's a perfectly it's a good challenge, UM.
18:11
Speaker 1: I mean on the core mandates, um, they have never
18:14
Speaker 1: been more important than now. So without financial stability, this
18:19
Speaker 1: awful crisis would have been much worse. And when it
18:22
Speaker 1: comes to the montrely side of our mandate, absolutely crucial
18:27
Speaker 1: if we enter that there's sunny uplands next year, the
18:31
Speaker 1: recovery next year, that there is an absolute laser focus
18:35
Speaker 1: on our core inflation mandates because absolutely last thing the
18:39
Speaker 1: world needs right now it's a nasty inflation surprise. So
18:45
Speaker 1: core mandates never been more important than now, um, particularly
18:49
Speaker 1: as we enter the recovery phase. Equally, there are indisputably
18:56
Speaker 1: these mega trends, these meta forces, aping the path of
19:01
Speaker 1: our economies, of our jobs, markets, of our businesses. Right now.
19:06
Speaker 1: You mentioned a few of them. Issues around the spatial
19:11
Speaker 1: distribution of activity, issues around um inequality imbalances be they
19:19
Speaker 1: income or wealth, or generational issues around the potential fruits
19:24
Speaker 1: of technological innovation. Those are shaping our economies in ways
19:30
Speaker 1: that central banks simply cannot afford to overlook or ignore,
19:35
Speaker 1: by and large, by and large, climate with another one.
19:37
Speaker 1: Of course, by and large, these aren't things that we
19:40
Speaker 1: are central bankers with our meager set of tools, can
19:42
Speaker 1: actually influence their structural things. But are these things crucial
19:48
Speaker 1: in doing the day job of keeping the economy strong unstable,
19:52
Speaker 1: of reshaping the financial system in the way that keep
19:54
Speaker 1: it keep it strong unstable, in setting the appropriate level
19:57
Speaker 1: of interest rates to keep the economy growing. Absolutely they are.
20:03
Speaker 1: If you look at the factors, for example, have driven
20:05
Speaker 1: down levels of global real interest rates over time, the
20:11
Speaker 1: list there is exactly the list that we've just recounted,
20:15
Speaker 1: issues of demography, or inequality or technology. So for me,
20:20
Speaker 1: these are very much in mandate because without a deep
20:24
Speaker 1: and rich understanding of those things as central bankers, we
20:27
Speaker 1: will set policy wrong and the economy will suffers a consequence.
20:30
Speaker 1: You talked about the avoid the importance of avoiding an
20:32
Speaker 1: inflation surprise in the short term. You know, the Bank
20:35
Speaker 1: of England has has looked through jumps up an inflation
20:40
Speaker 1: that have come from specific causes over the last few years,
20:43
Speaker 1: whether it's increases in tax rates or changes in the
20:46
Speaker 1: value of the pound. Do you think that if there's
20:50
Speaker 1: a if there's a bounce up an inflation that seems
20:54
Speaker 1: very associated with the immediate bounce back from COVID. Is
20:58
Speaker 1: that something you would look through in the same way,
21:00
Speaker 1: do you think? I think this has to be very
21:03
Speaker 1: much a case by case uh A lot hinges on
21:07
Speaker 1: how how short to miss short, and how temporary is temporary. Um.
21:12
Speaker 1: There are certain you know, for forces and factors which
21:15
Speaker 1: you expect to have a very temporary effect, For example,
21:19
Speaker 1: shifts in indirect taxes the like of which we've seen
21:22
Speaker 1: a number of countries, including the UK, shifts in oil prices,
21:27
Speaker 1: even shifts in the exchange rate. UM. There are other
21:30
Speaker 1: shifts on the supply side of the economy whose effects
21:35
Speaker 1: can be slightly longer lived in their impact on inflation.
21:40
Speaker 1: So while I think you know it's likely that very
21:43
Speaker 1: any very temporary spike in inflation would be looked through
21:47
Speaker 1: in a situation where there's still a significant output gap
21:50
Speaker 1: in many economies, we'd be super vigilant, you know, with
21:55
Speaker 1: so much monetary stimulus and fiscal stimulus having been put
21:58
Speaker 1: in the system that doesn't show up in any more
22:02
Speaker 1: medium term measures of inflation expectations, because what can even
22:09
Speaker 1: appear on the face of it to be a temporary
22:12
Speaker 1: effect if it affects expectations, could easily get locked in
22:16
Speaker 1: and we're not there at the moment. I hope we
22:18
Speaker 1: don't get there, but it's definitely a risk we need
22:21
Speaker 1: to pay account of. Just going back to climate change,
22:24
Speaker 1: because you mentioned how that might affect lots of things
22:28
Speaker 1: that the central banks are interested in. There has obviously
22:31
Speaker 1: been quite a lively debate about how much central banks
22:33
Speaker 1: should have climate the climate change of gender in their
22:37
Speaker 1: mandate and have it actually affect, for example, the bombs
22:42
Speaker 1: that they purchase when they're trying to push money into
22:44
Speaker 1: the economy through quantity divis ng um Lord Nick Stern
22:48
Speaker 1: said on this show he thought it was absolutely part
22:51
Speaker 1: of their purview because one of the jobs of a
22:54
Speaker 1: central bank is to pursue the sort of broader economic
22:57
Speaker 1: objectives of a country. But we've also had Harry some
23:00
Speaker 1: Is saying that they should clear stay out of it,
23:03
Speaker 1: stay out of these kind of claiming that they can
23:05
Speaker 1: affect these things, and the German Central Bank governor doesn't
23:09
Speaker 1: like it either. What do you think, well, I mean,
23:12
Speaker 1: you absolutely right. It take the Bank of England's mandate
23:14
Speaker 1: that within that we have a responsibility both when we're
23:17
Speaker 1: setting monetary policy and financial stability policy to support the
23:21
Speaker 1: government the UK government's policy economic policies, one of which
23:24
Speaker 1: is a net zero target by UM. Now we don't
23:28
Speaker 1: have is an explicit climate mandate. And indeed that what
23:34
Speaker 1: we can do our central banks to address climate risks,
23:39
Speaker 1: at least with our own portfolios is relatively limitedless in
23:44
Speaker 1: the Bank of England we have about twenty billion pounds
23:47
Speaker 1: sterling of corporate bonds. That's a pretty modest portfolio. Shifting
23:52
Speaker 1: that around is very much marginalia. When it terms comes
23:56
Speaker 1: to risk pricing of dirty or clean ass it's can
24:01
Speaker 1: we should? We have a somewhat broader role when it
24:05
Speaker 1: comes to thinking about risks being run across the global
24:10
Speaker 1: financial system or the domestic financials. Yes, yes we yes
24:13
Speaker 1: we can, and yes we should and yes we are
24:16
Speaker 1: when it comes to better understanding those risks, shining a
24:20
Speaker 1: searchlight on those risks and asking financial firms to manage
24:25
Speaker 1: those climate risks in a more upfront and forth right
24:30
Speaker 1: way than having the past. And that's a role we've
24:32
Speaker 1: been playing for the last several years now. Indeed, I
24:34
Speaker 1: think the banking and probably played a pretty prominent role
24:37
Speaker 1: under Mark Kearney and putting that on global central banks agenda.
24:41
Speaker 1: For me, it's absolutely right and proper that it's on
24:44
Speaker 1: our agenda, and we play our part, our classic um
24:49
Speaker 1: catalytic role with the private sector in getting them to
24:54
Speaker 1: pay proper attention to these risks and to manage them
24:58
Speaker 1: in a way that supports the broader climate agenda than
25:01
Speaker 1: Next and others have been promoting for for so many years,
25:04
Speaker 1: and very successfully. You have touched on inclusive inclusivity inequality.
25:20
Speaker 1: We know that this crisis has had a very unequal
25:23
Speaker 1: impact on the population, and you've even got a big
25:27
Speaker 1: chunk of the population potentially benefiting from not just the
25:30
Speaker 1: money that's gone into the economy from the government, but
25:32
Speaker 1: also the fact that financial markets have bounced back um
25:36
Speaker 1: so quickly. You know it has, because it's been increasingly
25:41
Speaker 1: clear and I think a concern to some people in
25:44
Speaker 1: central banks how central bank policy has become associated with
25:50
Speaker 1: rising wealth inequality, rightly or wrongly, because such a big
25:55
Speaker 1: lever of policy has been increasing asset prices, and of
25:58
Speaker 1: course we have generally rich people who have the most assets.
26:03
Speaker 1: Do you feel a little bit better about the money
26:07
Speaker 1: that the Bank of England and others have pumped into
26:09
Speaker 1: the economy this time around, in that so much of
26:12
Speaker 1: it was also along going alongside a big fiscal expansion.
26:16
Speaker 1: Does that feel like I feel like it's going to
26:19
Speaker 1: have a better impact in terms of the gap between
26:22
Speaker 1: rich and poor to you? Or is it much more complicated? No?
26:26
Speaker 1: I think absolutely that we've had a you know this,
26:29
Speaker 1: this physical monetary partnership has certainly and surely has helped.
26:35
Speaker 1: I mean, the truth be told, central bank tools haven't
26:39
Speaker 1: got surgical precision when it comes to tackling differences across
26:44
Speaker 1: different cohorts of the economy, whereas physical tools do, and
26:48
Speaker 1: indeed have been used during the course of this year
26:51
Speaker 1: to support those their incomes, their jobs that were most
26:56
Speaker 1: in need. And that is any that's a very sensible
26:58
Speaker 1: assignment of tools, with monthly policy to an extent, playing
27:03
Speaker 1: second fil and supporting ACRID demand alongside fiscal policy in
27:07
Speaker 1: the front line supporting ACRID demand, and within that supporting
27:11
Speaker 1: the parts of ACRID demand that have been hardest hit.
27:15
Speaker 1: Truth be told, I was comfortable about our monthly policy
27:19
Speaker 1: actions even before this COVID crisis. Very seriously, I should
27:23
Speaker 1: say the question of has have our actions worsened inequalities
27:31
Speaker 1: of society, whether those are income or wealth, or generational
27:35
Speaker 1: or spatial and I've cut the data every which way,
27:40
Speaker 1: almost house held by a household actually to try and
27:43
Speaker 1: engage with that question. I mean, what I conclude from
27:46
Speaker 1: that research is the reason I can sleep at night
27:52
Speaker 1: is because I'm pretty confident that without the monthly response
27:56
Speaker 1: that we saw here in the UK would have seen
27:59
Speaker 1: you know, anyway, betwe in three quarters of a million
28:00
Speaker 1: and a million more jobs having been lost, and of
28:03
Speaker 1: course those jobs would have been lost disproportionately among the
28:07
Speaker 1: poorer people in society. And if you work through both
28:12
Speaker 1: the jobs channel and the asset price and income and
28:16
Speaker 1: wealth channel that you mentioned, the net effect of our
28:19
Speaker 1: montreactions has not, in fact been to worsen inequalities of
28:24
Speaker 1: income or wealth, or indeed even generationally either. And while
28:30
Speaker 1: our tools, I say, aren't best equipped to tackle those
28:32
Speaker 1: problems anyway, as best I can tell, both pre COVID
28:37
Speaker 1: and post COVID monetary policy central banks haven't made what
28:43
Speaker 1: is no, without question, a difficult in a quality situation
28:47
Speaker 1: any worse. That is not the same as saying, to
28:50
Speaker 1: be clear, I don't think those problems haven't been made
28:54
Speaker 1: worse by the crisis. They surely have. Certainly, income and
28:58
Speaker 1: wealth wise and must certainly generationally as well. And that's
29:03
Speaker 1: why those structural questions, as supply side questions are ones
29:07
Speaker 1: that the politic community collectively including central banks, need to
29:11
Speaker 1: really get onto with. As I said, renewed zeal And
29:15
Speaker 1: force come the second half of next year. I guess, however,
29:18
Speaker 1: you look at the data, though, we have had yet
29:21
Speaker 1: another year when Wall Street, broadly conceived, has done a
29:26
Speaker 1: lot better than Main Street. You know, the financial markets
29:29
Speaker 1: have had a much better year of it, and indeed
29:31
Speaker 1: a lot of financial institutions have had a much better
29:33
Speaker 1: year of it. Then you might have anticipated for the
29:36
Speaker 1: worst recession in living memory across industrial economies. So I
29:41
Speaker 1: just I mean, how sustainable do you think it is
29:44
Speaker 1: to year after year to continue to have that gulf
29:46
Speaker 1: between the two. Well, I'm hoping that one step is
29:50
Speaker 1: the year when the gulf begins to be closed. We've
29:52
Speaker 1: been saying that for years. Well, this time, this time,
29:57
Speaker 1: I'll be right, right. I mean, there are very good
30:01
Speaker 1: reasons to I think, to expect, with the fantastic vaccine
30:06
Speaker 1: news and with the support from policy in place in
30:09
Speaker 1: the tank already to think that that next year we'll
30:13
Speaker 1: see a reverse or a sharp reversal. I hope in
30:16
Speaker 1: our economic fortune, so particularly those who may have lost
30:20
Speaker 1: their job, that they're able to return to work at speed.
30:23
Speaker 1: That's a crucial thing for avoiding those long term scarring effects.
30:27
Speaker 1: That that's a near term prognosis. And for me, there
30:30
Speaker 1: there are plenty of positives there. But it's necessary, but
30:34
Speaker 1: by no means sufficient for growing living standards, for growing
30:38
Speaker 1: productivity over the medium term. It wasn't enough pre COVID,
30:43
Speaker 1: and it certainly has not will not be enough in
30:45
Speaker 1: the light of COVID. And that's why this other agenda
30:48
Speaker 1: really comes in tackling those structural fault lines. Ultimately, staff
30:54
Speaker 1: will be the thing that closes those gaps between the
30:57
Speaker 1: best off and the less and at least well off,
31:00
Speaker 1: or between if you like Wall Street and Main Street.
31:03
Speaker 1: The truth is, and this is a crucial point, those
31:07
Speaker 1: fault lines, those inequalities, um are not irreducible. That we
31:16
Speaker 1: know from past experience. They are amenable to purposive policy action,
31:22
Speaker 1: the right type of purposive policy action on innovation, on skills,
31:27
Speaker 1: on infrastructure, And my hope for twenty three one would
31:31
Speaker 1: be that those things got another fair hearing and a
31:34
Speaker 1: big push because ultimately that will that will close the
31:37
Speaker 1: gaps you've rightly identified. Okay, I'm going to put you
31:41
Speaker 1: on the spot and ask you the same question that
31:44
Speaker 1: I'm going to ask the brainy correspondence next week. What's
31:48
Speaker 1: your what's your wild card for the next year or
31:52
Speaker 1: two something? You know, this time a year ago, none
31:56
Speaker 1: of us, certainly the equivalent podcast, we did not see
32:00
Speaker 1: COVID coming. Um. What do you think we might be
32:03
Speaker 1: talking about over the next year or two a lot
32:06
Speaker 1: more than we are now? Well, I think, and I
32:09
Speaker 1: hope actually that that um, for all the right reasons
32:12
Speaker 1: that inflation is a more central part of our narrative
32:15
Speaker 1: as financial market participants are central banks. Um. Of the
32:19
Speaker 1: right reasons inflation returning to target, remaining at target. UM.
32:24
Speaker 1: But for me, the real wild card would be productivity perspectively,
32:28
Speaker 1: So we had this crisis, you know, globally with productivity
32:32
Speaker 1: laid low. A bunch of reasons for that, which I
32:37
Speaker 1: won't rehearse because many of the listeners will know about
32:40
Speaker 1: them already. I think there's a chance, steph that some
32:44
Speaker 1: of the structural shifts brought about, behavioral shifts brought about
32:48
Speaker 1: by COVID might be a factor, perhaps even a key
32:51
Speaker 1: factor that reverses the fortunes of global productivity in the
32:58
Speaker 1: years ahead. The truth is often a cessity. This year
33:01
Speaker 1: many businesses have had to get themselves digitally match fit.
33:05
Speaker 1: There shouldn't been matched fit previously, but now of necessity
33:08
Speaker 1: they have been. They've had to, and so two of
33:11
Speaker 1: their workers. And I think that might lead to a
33:16
Speaker 1: quite striking change in business models. That the if you like,
33:21
Speaker 1: the optimal capital to labor ratio within many firms might
33:25
Speaker 1: be altered decisively in ways that are positive productivity. I
33:31
Speaker 1: think where it comes to the way we work, how
33:34
Speaker 1: we work, you know, the truth is pre COVID we
33:37
Speaker 1: were stuck in this rather odd equilibrium where many of
33:41
Speaker 1: us spent too many of our working hours doing the
33:45
Speaker 1: most unproductive and the worst paid work ever invented, namely commuting.
33:51
Speaker 1: Because of course that's what commuting is. It's unpaid, unproductive work.
33:55
Speaker 1: If many of us will do less of that unpaid,
33:57
Speaker 1: unproductive work, that too, ought to be a boon for
34:02
Speaker 1: activity and for productivity. So I think there are within
34:08
Speaker 1: you know, there's lots of reasons to be cautious, lots
34:12
Speaker 1: of reasons that's something that could go wrong. But when
34:16
Speaker 1: it comes to those behavioral shifts and their consequences for
34:21
Speaker 1: how we work, how we run businesses, I think many
34:25
Speaker 1: of those could could if we're if we're canny, be
34:30
Speaker 1: a productivity positive and could leaders to tackle decisively what
34:35
Speaker 1: has been a longstanding productivity puzzle. There's laid behind many
34:42
Speaker 1: of those rising equalities that you mentioned earlier on I'm
34:45
Speaker 1: very glad you say that I had the same debate
34:48
Speaker 1: with our economists because I had to force them to
34:50
Speaker 1: put a positive productivity shock in their scenarios as one
34:54
Speaker 1: of their scenarios. Coming out of this, we've had so
34:56
Speaker 1: much discussion of our poor productivity globally making not making
35:00
Speaker 1: more stuff with the same number of people, um that
35:03
Speaker 1: it's almost hard for them to compute that we might
35:06
Speaker 1: have good news. But I think you might be right.
35:07
Speaker 1: The other thing I liked about what you said it
35:09
Speaker 1: shows what the true central banker you are. That what
35:11
Speaker 1: you want for Christmas is inflation on target? What more
35:13
Speaker 1: can you are andy holding. I don't know who'll be
35:18
Speaker 1: listening to this, but if you are out there having
35:22
Speaker 1: felt that you've already had far too much of your
35:24
Speaker 1: closest and nearest family over the Christmas period and you've
35:26
Speaker 1: taken refuge in this conversation. I hope it did the
35:30
Speaker 1: job and thank you very much. To the chief Economists
35:32
Speaker 1: of the Bank of England, Andy holding Thanks thanks for
35:43
Speaker 1: listening to Stephanomics. We'll be back with another special edition
35:47
Speaker 1: next week, looking ahead to one the meantime, remember you
35:52
Speaker 1: can always find us on the Bloomberg Terminal, website, app
35:55
Speaker 1: or wherever you get your podcast, and for more news
35:57
Speaker 1: and analysis from Bloomberg Economics, you can follow at Economics
36:01
Speaker 1: on Twitter. This episode was produced, as ever by Magnus Hendrickson,
36:05
Speaker 1: with special thanks to Andy Holdane and everyone at the
36:07
Speaker 1: Bank of England Press Office. Lucy Meekin is the executive
36:10
Speaker 1: producer of Stephanomics and the head of Bloomberg Podcast is
36:14
Speaker 1: Francesca leaving h