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Washington Talks, the World Listens · Stephanomics

0:03
Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
0:06
Speaker 1: global economy to you. Well, this time of year, the
0:15
Speaker 1: global economy goes to Washington for the annual meetings of
0:18
Speaker 1: the International Monetary Fund and the World Bank. A global
0:21
Speaker 1: governance is one of the big themes that next month's
0:23
Speaker 1: Bloomberg New Economy Forum in Beijing. So I had even
0:27
Speaker 1: more reason than usual to spend a few days at
0:29
Speaker 1: the meetings, testing the mood, talking to smart people, including
0:33
Speaker 1: a member of the Federal Reserves Interest Rate Committee, Robert Kaplan,
0:37
Speaker 1: and the former heads of the German and Indian Central Banks.
0:41
Speaker 1: You'll hear some of that later, but first we have
0:43
Speaker 1: a report from a country that's tested the Breton Woods institutions,
0:47
Speaker 1: the I m F, and the World Bank more than
0:49
Speaker 1: most Argentina. There are four kinds of country in the world,
0:53
Speaker 1: the economist Simon Kuznets once said, developed, undeveloped, Japan, and Argentina.
1:00
Speaker 1: Since nineteen fifty, the South American country has spent one
1:03
Speaker 1: third of its time in recession, second only to the
1:06
Speaker 1: Democratic Republic of Congo. Things were supposed to be different
1:10
Speaker 1: under President Maurizio Macri, who swept to power in promising
1:15
Speaker 1: structural reforms, but now the country's back in recession and
1:18
Speaker 1: dependent again on a massive bailout from the IMF. Macary
1:23
Speaker 1: lost badly in August primary elections to his left wing challenger,
1:27
Speaker 1: Alberto Fernandez. That shock result triggered panic in the country's
1:32
Speaker 1: financial markets and led to some familiar policy solutions capital controls,
1:37
Speaker 1: price freezes, and wage hikes. Now the general election is
1:42
Speaker 1: just around the corner. Bruce Douglas reports from Buenos Aires
1:46
Speaker 1: on what Argentines and the IMF may have learned from
1:50
Speaker 1: their latest entanglement. M In a busy neighborhood of downtown
2:13
Speaker 1: Buenos Aires, a stone's throw from the city court houses,
2:17
Speaker 1: the bar Los Galagos has catered to a mix of lawyers,
2:20
Speaker 1: professionals and tourists, but almost one hundred years, waitresses bottle
2:25
Speaker 1: behind the chrome counter as customers chatter with a thick
2:28
Speaker 1: steak and egg sandwiches in an oak lined room above
2:39
Speaker 1: the bar. I spoke to Julianas, the owner of Los Galagos,
2:43
Speaker 1: the bar opening nineteen thirty and it's a category of traditionals.
2:48
Speaker 1: Barrus goal balt No Dowlas was like a remarkable virus
2:54
Speaker 1: because he's important in cultural ratoris so this bar restaurant
3:00
Speaker 1: has been here since nine It survived a lot of
3:04
Speaker 1: ups and downs in the Argentina economy. How did it
3:08
Speaker 1: survive all these years? And in every crisis is a
3:12
Speaker 1: lot of places close and a lot of places change
3:16
Speaker 1: his policy or loose quality, or you can see in
3:21
Speaker 1: a lot of places who close in the big crisis
3:24
Speaker 1: of the end of the eighties or in the two
3:27
Speaker 1: thousand and one. And in every crisis there is we
3:30
Speaker 1: have a like like a scar like. But for us
3:37
Speaker 1: is the the idea is always changed and work with
3:40
Speaker 1: a lot of creativity. If if some ingredients are very expensive,
3:45
Speaker 1: we change the ingredients. One of the biggest challenges for
3:49
Speaker 1: any business in Argentina it is hard to cope with
3:52
Speaker 1: the runaway rates inflation, with price rises currently running like yes,
3:58
Speaker 1: it's impossible to under something to a foreign people. Coffee
4:02
Speaker 1: one month ago was seventy two. Three weeks ago was
4:06
Speaker 1: eighty two weeks ago. It's nettie and possibly the next
4:10
Speaker 1: week is a hundred business because the coffee is um
4:14
Speaker 1: it's an important actually thinking that doesn't product coffee and
4:16
Speaker 1: the coffee it's in dollars in the world in Argentina.
4:20
Speaker 1: But for us, the impact of the inflation, of the
4:24
Speaker 1: evolution of the fs in that kind of bro who
4:27
Speaker 1: are very popular here. Julian Diaz believes that the current
4:35
Speaker 1: crisis shows that the kind of open market economy Macrie
4:38
Speaker 1: hoped to foster just doesn't work in a country like Argentina.
4:43
Speaker 1: He doesn't have long to wait to make this point
4:45
Speaker 1: at the ballot box elections to DWO on Sunday, But
4:49
Speaker 1: with Macri losing by sixteen points Throughoutberto Fernandez and the
4:52
Speaker 1: primary vote in August, most analysts believe the result is
4:56
Speaker 1: a foregone conclusion. Fernandez and his running mate, former President
5:01
Speaker 1: Christina Kirchner, hail from the so called paranist wing of
5:04
Speaker 1: Argentine politics. Juan Domingo Perun army officer, three time president
5:09
Speaker 1: and husband of Vita, cast a long shadow over the
5:12
Speaker 1: country almost fifty years after his death. In her two
5:16
Speaker 1: terms of office, Kirchner implemented the kind of populist and
5:19
Speaker 1: protectionist measures peronists love, such as capital controls, trade barriers,
5:24
Speaker 1: and subsidies. It's not clear how much power Kirchner would
5:29
Speaker 1: wield in a Fernanda's administration, but the man who would
5:32
Speaker 1: be president, has hardly been transparent about his plans for
5:35
Speaker 1: economic policy either. Amid the uncertainty, many fear a repeat
5:40
Speaker 1: of the past. Okay, Marina Apo am an economists. I
6:02
Speaker 1: am consultant for enterprises and banks and other companies. We
6:08
Speaker 1: are here in the University of Buenos Aires. This is
6:11
Speaker 1: the faculty of economy. We are round here in the
6:16
Speaker 1: Museum of External Debt in Argentina, and so not many
6:20
Speaker 1: countries perhaps have a museum dedicated to external debt. Why
6:24
Speaker 1: does Argentina because of the long story with the debts
6:27
Speaker 1: and default. Let's go and I see the museum is open,
6:31
Speaker 1: So let's this is the first debt of Argentina and
6:40
Speaker 1: Brettito barring in eighteen four, that was the first. Argentina
6:47
Speaker 1: has defaulted no fewer than eight times on its foreign debt.
6:50
Speaker 1: While external events play their part in Argentina's history of
6:53
Speaker 1: woe fiscal and discipline, it is always part of the
6:56
Speaker 1: story for Marina the cat. The administration played a major
7:01
Speaker 1: role in today's mess, burning to a cash winfall from
7:05
Speaker 1: a commodities boom by subsidizing energy costs, expanding the state payroll,
7:10
Speaker 1: and even broadcasting soccer matches for free less government. They
7:14
Speaker 1: received surpluses and they create surplusses in deficit both physical
7:20
Speaker 1: and external. They destroyed the relative prices in trying to
7:27
Speaker 1: stabilize inflation while they push in guns and the public expenditures.
7:33
Speaker 1: But the economist does not exempt the Macri administration from blame.
7:37
Speaker 1: During the Macri administration, he used the debt in order
7:41
Speaker 1: to try to make a gradual policies to try to
7:46
Speaker 1: to to fix the problems that the curtinary is more.
7:51
Speaker 1: They made a lot of mistakes because the cenda was
7:55
Speaker 1: very difficult, but they tried to fix its problem without
8:00
Speaker 1: taking an account that they are connected. So if you
8:03
Speaker 1: increase energy prices, you will push up inflations. If you
8:07
Speaker 1: have it an expansive fiscal policy and a very restrict
8:11
Speaker 1: military policy, you will have a problem. To avoid big
8:15
Speaker 1: cuts in public spending, Macri tolerated big deficits. Creditors, hungry
8:21
Speaker 1: for juicy returns, gobbled up Argentina's dollar denominated debt like
8:25
Speaker 1: there was no tomorrow, or indeed no longer history of default.
8:30
Speaker 1: But when a loss of market confidence trigger a run
8:33
Speaker 1: on the pestle, the president was forced to turn to
8:35
Speaker 1: the I M. F, as so many Argentine presidents have before.
8:40
Speaker 1: All told, the fund pledged fifty six billion dollars, it's
8:44
Speaker 1: largest loan ever. Since Macu's defeat at the ballot box
8:48
Speaker 1: in August, the i m F has commented little about
8:50
Speaker 1: its plans for Argentina. In the fund's annual meeting in
8:54
Speaker 1: Washington this October, It's new managing director so that talks
8:58
Speaker 1: over Argentina's credit can continue once the funds knows the
9:02
Speaker 1: next government's policy framework. For one former Argentine I MF official,
9:07
Speaker 1: the organization's big mistake was being overly optimistic. Cloud your
9:12
Speaker 1: lossa former director of the i m F Western Hemisphere Department,
9:16
Speaker 1: told me that historically, the Latin American government had to
9:19
Speaker 1: be dragged kicking and screaming through I m F adjustment programs.
9:24
Speaker 1: When the Fund found an Argentine administration that shared its aims,
9:28
Speaker 1: it became overconfident, he said. For Monica Jibali, senior fellow
9:33
Speaker 1: at the Peterson Institute for International Economics, the fund's big
9:37
Speaker 1: mistake was to hand over too much of the money
9:39
Speaker 1: up front. The main lesson for the Fund in Argentina's
9:45
Speaker 1: case is really is it's a bit the size of
9:48
Speaker 1: the program, which was obviously too big and binds the
9:51
Speaker 1: fund to Argentine into resolving its situation. But also, in
9:56
Speaker 1: most importantly, the fact that a lot of the funds,
9:59
Speaker 1: a lot of the dis reishments were given up front,
10:01
Speaker 1: taking away the incentive for authorities to actually implement the
10:05
Speaker 1: measures that they had promised to implement under the program.
10:08
Speaker 1: So front loading was a big mistake. The i m
10:11
Speaker 1: f s optimistic assumptions about Argentina's growth prospects also had
10:15
Speaker 1: little basis in experience. After all, the fund has bailed
10:19
Speaker 1: out the South American country so often that this even
10:22
Speaker 1: inspired a local board game, Eternal Debt. The concept is
10:27
Speaker 1: not that different from monopoly, except the goal isn't to
10:30
Speaker 1: become a property mogul, but to defeat the i m F.
10:34
Speaker 1: The FUNT, however, is hardly the cause of the Argentine crisis,
10:38
Speaker 1: that lies in its government's tendencies to spend way more
10:41
Speaker 1: than it receives. Well. Brazil and some of the other
10:44
Speaker 1: countries in the region used the commodities boom of the
10:46
Speaker 1: two thousands to pay down debt and strengthen reserves. Argentina
10:50
Speaker 1: went on a spending spree. Claudio Lasser suggested that Argentines
10:55
Speaker 1: tend to believe they can live at a level that
10:57
Speaker 1: is much higher than they can actually afford. Back in
11:00
Speaker 1: the museum, Marina del Projecto said that this habit explains
11:04
Speaker 1: the country's perennial crisis. People only think on the short term.
11:10
Speaker 1: The big opportunity was during them, when other countries use
11:16
Speaker 1: the opportunity in order to try to stabilize and the
11:21
Speaker 1: macroeconomics and to create a currency. In the cause of Argentina,
11:24
Speaker 1: we decided to to maximize the short term in order
11:28
Speaker 1: to grow it. I don't know if it is the
11:32
Speaker 1: something that Argentina pot in the in the head or
11:37
Speaker 1: it is because of the history, now because of the history,
11:40
Speaker 1: but it is every every crisis is has a big cost,
11:46
Speaker 1: not only in terms of of the default, in terms
11:50
Speaker 1: of the society destruction. Whoever, when Sunday's elections faces a
11:57
Speaker 1: long road ahead, this is British lass for bloom Bakeneers.
12:17
Speaker 1: That's how the world looks from Buenos Aires. At the
12:20
Speaker 1: annual World Bank and i m F meetings in Washington,
12:23
Speaker 1: the focus was global and the mood, it's fair to say,
12:27
Speaker 1: was downbeat. When the i MS new Managing director Chris
12:30
Speaker 1: Dlina Gorgueva told the meetings that the global outlook was precarious.
12:35
Speaker 1: That was supposed to be a comment on the fragile
12:37
Speaker 1: state of the economic recovery, but you couldn't help thinking
12:41
Speaker 1: she was also talking about the fragile state of global institutions.
12:46
Speaker 1: The Trump administration's refusal to play by the usual rules
12:50
Speaker 1: in international affairs has a lot of people rattled. Some
12:54
Speaker 1: wonder whether the multilateral system can even survive. We got
12:58
Speaker 1: into some of that on a so called big think
13:01
Speaker 1: panel I took part in for the global banking organization,
13:04
Speaker 1: the Institute for International Finance. My fellow panelists were an
13:08
Speaker 1: illustrious bunch, the former chair of the President's Council of
13:12
Speaker 1: Economic Advisors under George W. Bush, Glenn Hubbard, the distinguished
13:16
Speaker 1: economist and former head of the Indian Central Bank Raam Rajan,
13:21
Speaker 1: and the former Bundesbank president Axel Weber, now president of UBS.
13:26
Speaker 1: And the moderator you'll hear asking the questions was the
13:29
Speaker 1: head of the i F, Tim Adams. Multilateralism. The commitment
13:38
Speaker 1: to multilateralism seems to be on the wayne, So Stephanie,
13:43
Speaker 1: are we worried should be worried. Are you worried about
13:46
Speaker 1: where we're going? Could we recreate those institutions again? Could
13:49
Speaker 1: we get John Maynard Keynes and Harry Dexter White and
13:52
Speaker 1: the other forties city in New Hampshire to come up
13:55
Speaker 1: with something similar? Would would it just crumble? And because
13:58
Speaker 1: we couldn't agree to even the size of the table,
14:01
Speaker 1: how do you see institutions? I wonder if there's anyone
14:03
Speaker 1: in this room who isn't worried about the direction we're
14:06
Speaker 1: going in, but certainly on the question of the institutions.
14:09
Speaker 1: I mean the question has been asked in different ways
14:14
Speaker 1: over the last couple of years, particularly in response to
14:17
Speaker 1: the trade wars, but actually in response to the general
14:20
Speaker 1: attitude of the US. So we say the US administration
14:23
Speaker 1: to the rest of the world, and the question is,
14:25
Speaker 1: can these institutions survive, let alone thrive without the US
14:31
Speaker 1: as a willing and active participant who can see the
14:36
Speaker 1: big picture and not just the national interest. And I
14:39
Speaker 1: think that's that is clearly a question that gets asked
14:42
Speaker 1: senior officials in the G twenty who are often sort
14:45
Speaker 1: of going into huddles at summits trying to have the
14:49
Speaker 1: kind of G twenty minus one meetings, and those meetings
14:52
Speaker 1: do happen, and I think there is a kind of
14:54
Speaker 1: underground operation to keep the wheels turning and to have
14:58
Speaker 1: when you can't do deals on a global basis, can
15:01
Speaker 1: you do a deal with with willing partners that maintain
15:04
Speaker 1: some of this sort of commitment to multilateralism. But you'll
15:07
Speaker 1: mention of Harry Dexter White and Kine's reminds us. You know,
15:10
Speaker 1: one of the reasons these institutions worked was that they
15:13
Speaker 1: weren't entirely fair and multilateral when it came to the
15:16
Speaker 1: US UM. Certainly from my experience in the U S.
15:19
Speaker 1: Treasury and everyone else has seen the same thing. You know,
15:22
Speaker 1: it started with a bare knuckle fight between the US
15:26
Speaker 1: and the UK, the US one, and that was the
15:29
Speaker 1: basis on which policy was done within those institutions. And
15:33
Speaker 1: you had to you know, if you're the US executive
15:35
Speaker 1: director of the I m F, everyone wants to know
15:37
Speaker 1: what your position is before you start the conversation. So
15:40
Speaker 1: we shouldn't sort of idealize the sort of come by
15:43
Speaker 1: our aspect of these institutions. But clearly they did produce
15:47
Speaker 1: there's a there's a public good aspect which has been
15:50
Speaker 1: incredibly important, and of course any of us worried, especially
15:55
Speaker 1: in the response to another global downturn, let alone find
16:00
Speaker 1: actual crisis, whether the wheels would still turn, whether you
16:03
Speaker 1: still have enough of that stock of shared trust and
16:07
Speaker 1: norms to respond. We've certainly seen and this is going
16:11
Speaker 1: back to the economics, you know, where it comes to trade.
16:15
Speaker 1: We could all people who can do their numbers about
16:17
Speaker 1: what the impact of a particular tariff is, and usually
16:19
Speaker 1: the numbers are quite small, just like the numbers are
16:22
Speaker 1: always quite small when you try to look at the
16:23
Speaker 1: direct effects of a trade deal, because we all knew
16:26
Speaker 1: that it was the kind of dynamic consequences that would
16:29
Speaker 1: be important. I think what we have underestimated and has
16:32
Speaker 1: been brought home by the last couple of years is
16:35
Speaker 1: how uncertainty about the whole system can really produce investment,
16:41
Speaker 1: have confidence and investment just grinding to a halt. And
16:45
Speaker 1: that's what worries me in generally, if you can have
16:47
Speaker 1: that kind of effect, uncertainty around the trading rules can
16:52
Speaker 1: really do short term damage to the supply side that
16:54
Speaker 1: we might have expected would take years to happen. What's
16:59
Speaker 1: the sort of wells the other side of that when
17:02
Speaker 1: you're talking about just the general way that countries deal
17:05
Speaker 1: with each other. So yeah, I'm pretty wide you raised
17:07
Speaker 1: a p and I assume we're all multilateralist, globalist internationalists
17:11
Speaker 1: aplete guilty to all those things. But Glenn, do we
17:14
Speaker 1: over and nostalgize what these institutions were before? I remember
17:18
Speaker 1: presidents we work for. What crazy about going to G
17:20
Speaker 1: twenty three seven meetings. I don't think Clinton or Obama
17:23
Speaker 1: was either. I think that's probably right. I mean, I'm
17:26
Speaker 1: gonna start off first by picking up on something Stephanie said.
17:29
Speaker 1: The risk premium now and business investment as a result
17:32
Speaker 1: of the policy uncertainty is probably large enough in the
17:35
Speaker 1: US to overwhelm the corporate tax change. So this has
17:38
Speaker 1: a very large effect. It's not the small direct effect
17:41
Speaker 1: of trade, but there's no audience of business people that
17:44
Speaker 1: doesn't focus on this, and the effect on investment and
17:47
Speaker 1: supply chains is real and pernicious. I mean, to your question, Tim,
17:51
Speaker 1: the Breton Woods institutions are probably not what we would
17:55
Speaker 1: design today if we were to have a discussion, assuming
17:59
Speaker 1: people would even meet to have that discussion. But multilateralism
18:03
Speaker 1: and what it represents remains absolutely critical and I would
18:06
Speaker 1: add to that not just the Breton Woods institutions, but
18:09
Speaker 1: the World Trade Organization. You know, we c d other
18:12
Speaker 1: venues for policy makers to come together. I think are
18:15
Speaker 1: still are still vital without American leadership. I'm incredibly skeptical
18:21
Speaker 1: that any of this has a future. I think it's
18:24
Speaker 1: naive to say that others will step into the breach
18:27
Speaker 1: and fulfill the promise of multilateralism without the United States.
18:31
Speaker 1: So I don't really think there is a G nineteen
18:34
Speaker 1: type solution. America is still the big kid on the
18:38
Speaker 1: block UH, and we need to we need to get
18:40
Speaker 1: at this. And we see this everything from the problems
18:44
Speaker 1: in China trade where a multilateral solution would have been
18:47
Speaker 1: more effective. We see this in the failure to get
18:51
Speaker 1: together on a variety of policy topics. And were we
18:55
Speaker 1: to have a significant global recession, I wonder where the
18:58
Speaker 1: coordinating mechanisms would be. So I would count myself as
19:02
Speaker 1: as very worried by the failure of American leadership. The
19:10
Speaker 1: g's all came out of crisises with the G five
19:13
Speaker 1: and G seven is a product of the UH, the
19:15
Speaker 1: long gas lines, the oil crisis the seventies. That G
19:18
Speaker 1: twenty was created Battalaritia and and and others. Response to
19:22
Speaker 1: Asia financial crisis was elevated to the heads of state
19:25
Speaker 1: in response to Great Financial Crisis? Do we need a
19:28
Speaker 1: crisis to rally around or create the new g or
19:31
Speaker 1: are just give he to the current Geese? I think
19:34
Speaker 1: we may need one, and it's for this reason. I
19:37
Speaker 1: think I'm gonna be a little naive and say, yes,
19:41
Speaker 1: we needed the United States. But if the United States
19:44
Speaker 1: doesn't come to the table, the world has to find
19:46
Speaker 1: an alternative solution. I mean, this is the house that
19:50
Speaker 1: the US built post World War Two, and it has
19:53
Speaker 1: a pole position for the United States. And that was
19:56
Speaker 1: a good thing because the United States often wasn't part
19:58
Speaker 1: of the comeback to but it was the one who
20:02
Speaker 1: ensured that there was generally peace. Now it's not only
20:05
Speaker 1: one of the combatants, but it's sort of breaking down
20:08
Speaker 1: the rules. And you know what's the alternative If the
20:12
Speaker 1: US doesn't come back and most people think, oh, this
20:15
Speaker 1: is just this administration, it's going to pass. Well, there's
20:18
Speaker 1: a deeper seated issue with China, the rise of China
20:22
Speaker 1: and who's going to be dominant, and my senses, the
20:26
Speaker 1: world has to move on from the old structure to
20:29
Speaker 1: one where we don't have twenty people at the table
20:31
Speaker 1: determining anything, but we have three or four people, three
20:35
Speaker 1: or four entities. So probably China, the US, the EU,
20:39
Speaker 1: maybe Japan who sit together and sort of uh, it's
20:43
Speaker 1: more adapted to a multipolar world. It may still be
20:46
Speaker 1: the case the US is dominant, but it can't be
20:50
Speaker 1: that it is privileged by the rules because that will
20:52
Speaker 1: ensure China doesn't participate. We need something that brings China
20:55
Speaker 1: in also. So my guess is we need change. But
20:58
Speaker 1: I think you're absolute right. It's not going to happen
21:01
Speaker 1: for two reasons. One, Washington is not going to give
21:04
Speaker 1: up the pole position, even if it doesn't really do
21:08
Speaker 1: what what it takes until, in a sense, there's a
21:11
Speaker 1: change in attitude in Washington, and that may take a
21:15
Speaker 1: long time. It may take China to be much bigger
21:17
Speaker 1: before Washington says we do need to bring them in.
21:20
Speaker 1: And the other is, you know, it may be that
21:23
Speaker 1: we need a full fledged crisis in order to say
21:26
Speaker 1: the system is broken, we need to build it up again.
21:28
Speaker 1: I hope we don't go there, but we do need change. Actually,
21:31
Speaker 1: too pessimistic if you'd we're in this town. Fifteen or
21:34
Speaker 1: twenty years ago during this week, the streets would have
21:37
Speaker 1: been full of riders. There were tear gas. Remember you
21:39
Speaker 1: couldn't you can get across down there's massive protests going on.
21:44
Speaker 1: We don't see that anymore. That Christine Lagard do have
21:46
Speaker 1: fantastic job in reshaping the profile the I m f
21:50
Speaker 1: why there there is no more? If the institution is
21:53
Speaker 1: now work and we're worried about globalization, you're worried about
21:55
Speaker 1: all these issues, why is there no protest going on?
21:58
Speaker 1: Why so? I think, like like rag who I firmly
22:02
Speaker 1: believed that the emergence of China and the integration of
22:07
Speaker 1: China into the international Breton Woods institutions was an absolutely
22:11
Speaker 1: needed thing to do, and we were slow. We were
22:14
Speaker 1: behind the curve, and even today I don't think where
22:17
Speaker 1: we should be. If you were to redesign the Breton
22:20
Speaker 1: Woods organization now with more than half of the world's
22:22
Speaker 1: population living in Asia, it would not be US centric,
22:26
Speaker 1: It would not be US centric. City reflected the outcome
22:29
Speaker 1: of the Second World War and how these organizations were created.
22:32
Speaker 1: Now they need to be more inclusive. And what you're
22:35
Speaker 1: seeing is when when I came to the official sector.
22:38
Speaker 1: It was in the early two thousands. We had discussions
22:41
Speaker 1: around the table. I remember we had the G twenty
22:43
Speaker 1: presidency in two thousand four. It was about creating local
22:46
Speaker 1: currency bond markets. We haven't progressed at all on that,
22:51
Speaker 1: and so many of the agenda items got delayed or
22:54
Speaker 1: washed out by the financial crisis. I think the Breton
22:57
Speaker 1: Woods organizations, to your question about CHRISTI in did a
23:00
Speaker 1: great job in helping overcome the financial crisis. I think
23:04
Speaker 1: we were very coordinated during the crisis because it was
23:07
Speaker 1: the interest of both the United States, Europe and most
23:10
Speaker 1: parts of Asia to get on top of this crisis.
23:13
Speaker 1: The central banks have been very coordinated. The IMF played
23:16
Speaker 1: a very strong facilitating role. And I remember a meeting
23:19
Speaker 1: in a basement in Korea where Tim Adams, Tim Guidner
23:22
Speaker 1: was still the Treasury Secretary, where the US was very
23:25
Speaker 1: clearly saying we will give up part of the seats
23:28
Speaker 1: at the IMF table uh in order to facilitate China
23:31
Speaker 1: coming in, and many of the Europeans put their constituencies
23:34
Speaker 1: together and gave up quota to bring them in. That
23:37
Speaker 1: hasn't really progressed to a new level where it should
23:39
Speaker 1: be now. So we started in the deep crisis, we
23:43
Speaker 1: made some programs, but we didn't go the full way.
23:46
Speaker 1: Going forward, these organizations need to reinvent themselves in order
23:49
Speaker 1: to be relevant because if, if really it takes another crisis,
23:54
Speaker 1: I don't think the crisis will come from the area
23:56
Speaker 1: where we're now prepared for and those organizations to play
24:00
Speaker 1: a new role in any next financial crisis. And if anything,
24:04
Speaker 1: the official sector, because of the bad experience on how
24:07
Speaker 1: we dealt with the last crisis, has less crisis fighting
24:11
Speaker 1: tools now available than they did before the last crisis.
24:14
Speaker 1: The FED has much less tools at their disposal that
24:17
Speaker 1: they can use fast without going to Capitol Hill. The
24:20
Speaker 1: same is pretty much true in Europe to a lesser extent,
24:22
Speaker 1: but it's true everywhere. And so I feel that we're
24:26
Speaker 1: not well prepared for the next crisis, and it's these
24:29
Speaker 1: international organizations that can help us get everyone aligned, and
24:33
Speaker 1: they don't. They they're not in the position to do
24:36
Speaker 1: that now because they lect some legitimacy. Can I give
24:38
Speaker 1: you a twist on that that all these institutions were
24:42
Speaker 1: designed to facilitate and we're built around the idea of globalization.
24:45
Speaker 1: Globalization it was good as globalization stopped. Are we deglobalizing
24:50
Speaker 1: and does that mean it's more difficult to solve some
24:53
Speaker 1: of these challenging transnational problems. Well, I do think that's
24:57
Speaker 1: the There is a deeper challenge inge to these institutions
25:01
Speaker 1: and the mindset that they represent. And it's not just
25:05
Speaker 1: it's not so much globalization, although we can certainly debate
25:08
Speaker 1: whether this might end up being kind of peak globalization,
25:11
Speaker 1: because there's there's clearly things moving in different directions there.
25:14
Speaker 1: But the currency of these institutions, the currency for international collaboration,
25:20
Speaker 1: is what's going to make your economy grow, and by
25:22
Speaker 1: and large that was in the latter of the last
25:24
Speaker 1: twenty thirty years. There was a recipe for growth. That
25:27
Speaker 1: was how you got people to do things. I think
25:29
Speaker 1: what's what scrambled the system in so many different ways
25:32
Speaker 1: in the last few years. And you see with populism,
25:36
Speaker 1: but it's not just populism, is a willingness to put
25:39
Speaker 1: the economy second, to do things that you know will
25:42
Speaker 1: damage the economy. We've clearly we saw that in Brexit.
25:46
Speaker 1: Whatever happens from Brexit, you know, one of the things
25:49
Speaker 1: that was always clear was you didn't vote for Brexit
25:52
Speaker 1: if you were putting the economy first. But it's not
25:55
Speaker 1: just Brexit. We've clearly got that when you think about
25:58
Speaker 1: the immigration to here are many of the things that's
26:01
Speaker 1: animated Donald Trump. We have, by the way, on the
26:03
Speaker 1: other side, got that now in spades in the response
26:06
Speaker 1: to the climate change and how does one have an
26:10
Speaker 1: effective decarbonization strategy. We want to achieve economic growth as
26:14
Speaker 1: part of that, but it certainly is putting itself up
26:17
Speaker 1: there as something which is as more important than economic growth.
26:21
Speaker 1: And right who has written about it about many of
26:24
Speaker 1: these non economic issues and the need to rebalance in
26:27
Speaker 1: his in his book. So I think that now that's
26:29
Speaker 1: maybe a more fundamental thing when when Axel talks about
26:32
Speaker 1: how what kind of institutions, these institutions need to reinvent themselves.
26:36
Speaker 1: Can they reinvent themselves in a way that's going to
26:38
Speaker 1: be able to grapple with this much broader dilemmas that
26:41
Speaker 1: actually don't put the economy at the heart of things.
26:44
Speaker 1: I completely agree that one of the most penetrating questions
26:48
Speaker 1: of the financial crisis was asked by the Queen of
26:50
Speaker 1: England when she said, why did nobody see us coming
26:53
Speaker 1: and I think asking the present Bretton Woods institutions to
26:58
Speaker 1: lead on this with our knowledge of the underlying national
27:02
Speaker 1: currents that are upsetting the mix, is part of the problem.
27:06
Speaker 1: I don't think we have to choose between globalization and
27:09
Speaker 1: tipping the table over, but we do have to remember
27:12
Speaker 1: that in most industrial economies they are large segments politically
27:16
Speaker 1: potent segments that have not benefited nearly as handsomely from
27:20
Speaker 1: either globalization or technological change as people in this room
27:25
Speaker 1: and there are. Until we deal with policies that affect
27:28
Speaker 1: those people's lives, we're not going to see the support
27:31
Speaker 1: for globalization come back. So it's not a matter of
27:33
Speaker 1: needing more conferences or slightly different institution. We have to
27:38
Speaker 1: have those local concerns at heart, and I'm not sure
27:41
Speaker 1: that our elites do well. That was the economist Glenn
27:51
Speaker 1: Hubbard speaking with me and others at the Big Thing
27:53
Speaker 1: panel organized by the Institute for International Finance in Washington. Now,
27:58
Speaker 1: of course, trade is only one of the forces that's
28:00
Speaker 1: helped globalize our world. The other is technology, and we
28:04
Speaker 1: know new technologies are changing the way the economy works
28:07
Speaker 1: in lots of different ways, including businesses ability to set
28:11
Speaker 1: their own prices. So while I was in d C,
28:14
Speaker 1: I spoke about the US economy to Robert Kaplan, president
28:18
Speaker 1: of the Federal Reserve Bank of Dallas and a member
28:20
Speaker 1: of the fed's Open Market Committee. I found myself wondering
28:24
Speaker 1: whether the FED could even control inflation anymore. Before we go,
28:29
Speaker 1: I thought i'd play you a little bit of that exchange.
28:34
Speaker 1: You talked about all the structural forces that are affecting
28:38
Speaker 1: the economy, productivity, certainly affecting potential growth, and you did
28:42
Speaker 1: mention pricing power, the impact on globalization and technology on
28:46
Speaker 1: pricing power. Do you think on the basis of the
28:50
Speaker 1: last few years that central banks can still reliably raise
28:55
Speaker 1: inflation given the structural changes underway in the economy. Me,
29:00
Speaker 1: So this would be an example where we've been. I'm
29:04
Speaker 1: we're having a we're having a very significant debate on this,
29:07
Speaker 1: and I may be a little bit of an outlier.
29:10
Speaker 1: And for those who know, we've had two Technology Enabled
29:12
Speaker 1: Disruption conferences that we've hosted in Dallas for the whole system,
29:17
Speaker 1: for outsiders, and if you would like to come, we're
29:19
Speaker 1: gonna have our next one June. And yeah, my own
29:23
Speaker 1: view is that the structure the economy has changed dramatically,
29:27
Speaker 1: and a lot of it is a business person. I've
29:29
Speaker 1: lived through it, where the things that are driving pricing power,
29:34
Speaker 1: a number of them are away from monetary policy. It's
29:38
Speaker 1: not that monetary policy doesn't have a role to play,
29:42
Speaker 1: but but I can assure you that when I talk
29:45
Speaker 1: to business leaders, and I'm careful not to mention industries
29:49
Speaker 1: or companies, but I have a number in my mind
29:51
Speaker 1: as i'm talking here. Give me an industry. I'll tell
29:54
Speaker 1: you a story of lack of pricing power, disruption um
29:59
Speaker 1: and maybe the one I like to use because it's
30:01
Speaker 1: the most familiar to people, but I go to go
30:03
Speaker 1: through every single industry. But you know everybody here has
30:06
Speaker 1: bought a car, so I'd like to use that one.
30:08
Speaker 1: So fifteen years ago, if you went and buy a
30:10
Speaker 1: car at a car dealer, you went in, you dealt
30:13
Speaker 1: with a salesperson. That person was the highest paid person
30:16
Speaker 1: in the car dealership. There were lots of them. You
30:19
Speaker 1: happen to get one and you went in and negotiated.
30:21
Speaker 1: It was normally an unpleasant experience and you weren't sure
30:24
Speaker 1: whether you were you know, whether you're getting a good deal.
30:26
Speaker 1: And God only knows, and that's how you bought a car.
30:30
Speaker 1: Roll forward to today. Today, that salesperson you dealt with,
30:35
Speaker 1: if if he or she works there, they're making half
30:37
Speaker 1: of what they used to make. There's fewer of them.
30:40
Speaker 1: They're called products specialists. They're not negotiating at all. You're
30:43
Speaker 1: going online, you're picking five dealers, you're picking the car.
30:47
Speaker 1: You know the price, you know the modeling, you know
30:49
Speaker 1: everything when you walk in. There's no negotiating. And oh,
30:53
Speaker 1: by the way, if you look at new car prices
30:55
Speaker 1: over the last X number of years, you'll notice there
30:58
Speaker 1: the use car business is a little more track that.
31:00
Speaker 1: They don't have any pricing power. You see, there's been
31:02
Speaker 1: erosion because there's just so much transparency and the leverage
31:06
Speaker 1: has gone from the seller to the buyer. Technology has
31:10
Speaker 1: done that consumer has in the palm of his hair
31:13
Speaker 1: hand more computing power today the most companies did fifteen
31:17
Speaker 1: years ago. And we take it like, oh yeah, it's
31:19
Speaker 1: a big deal. So now you go into a car
31:22
Speaker 1: dealer there rapidly merging is why there's so much merger activity.
31:27
Speaker 1: There's margin erosion, and the highest paid person the card
31:30
Speaker 1: dealer is a person you didn't deal with that much.
31:33
Speaker 1: It's the automotive technician. That person is making a fifty
31:36
Speaker 1: grand a year. They can't find enough of them. We
31:39
Speaker 1: need to ramp up, and we are ramping up in
31:40
Speaker 1: different cities skills training to provide more automotive technicians. But
31:44
Speaker 1: there's rapid consolidation. And so there's one of those symptoms
31:49
Speaker 1: of this lack of pricing power is record level of
31:51
Speaker 1: merger activity. Because if you don't have pricing power and
31:55
Speaker 1: you have margin erosion, what do you do? Scale? Scale scale,
31:59
Speaker 1: You need more scale el But doesn't that mean central
32:01
Speaker 1: banks really can't necessarily meet the inflation target anymore? None
32:04
Speaker 1: of the major central banks have been able to meet
32:06
Speaker 1: the inflation target for the last ten years. And it
32:08
Speaker 1: means as a central banker, you have to realize this reality.
32:13
Speaker 1: And yeah, it causes you, I'll put this euphemous. It
32:17
Speaker 1: should cause us to reframe to some degree how we
32:21
Speaker 1: think about monetary policy in this context. By the way,
32:24
Speaker 1: having said all this, you should know what the Dallas Fed.
32:26
Speaker 1: We look at a core inflation measure of called the trimming.
32:29
Speaker 1: We're running at two. But I'm I'm a little more
32:33
Speaker 1: leery of believing that UH drops in the Fed funds
32:38
Speaker 1: rate will have the same effect on inflation. To your
32:41
Speaker 1: point that they might have thought to have had ten years.
32:45
Speaker 1: Doesn't that put the credibility of central banks at risk
32:48
Speaker 1: if they keep trying to hit something and suggesting they
32:51
Speaker 1: can hit something which they know in their hearts they can't.
32:53
Speaker 1: I think it's very much This is my view. It's
32:56
Speaker 1: very much incomming on me as a central banker to
32:59
Speaker 1: call out the struct world trends and explain some of
33:03
Speaker 1: them might be able to be affected by monetary policy,
33:05
Speaker 1: that many of them are structural, and so I think
33:08
Speaker 1: it's very important that we call that out and adapt
33:11
Speaker 1: our thinking and our frameworks to take a little account. Yes,
33:21
Speaker 1: thanks for listening to Stephanomics. We'll be back next week
33:23
Speaker 1: with more on the ground insights into the global economy.
33:27
Speaker 1: In the meantime, you can find us on the Bloomberg Terminal, website,
33:30
Speaker 1: app or wherever you get your podcasts. We'd love it
33:33
Speaker 1: if you took the time to rate and review our
33:35
Speaker 1: show so it can reach more listeners. For more news
33:38
Speaker 1: and analysis from Bloomberg Economics, follow at Economics on Twitter.
33:42
Speaker 1: You can also find me on at my Stephanomics. This
33:46
Speaker 1: week's report from Argentina was written and edited by Bruce
33:50
Speaker 1: Douglas with assistance from Joelina de Rosario and Patrick Gillespie.
33:55
Speaker 1: Special thanks to the Institute for International Finance, the Reinventing
34:00
Speaker 1: Breton Woods Committee for that Caplan interview, Axel Weber, Glenn Hubbard,
34:05
Speaker 1: ragorham Rajan and Robert Kaplan. The episode was produced by
34:09
Speaker 1: Magnus Hendrickson and edited by Scott Lamber, who is the
34:13
Speaker 1: executive producer of Stephanomics. Francesco Levy is the head of
34:17
Speaker 1: Bloomberg Podcast. M h