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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.

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Speaker 2: I'm in show Wisenthal.

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Speaker 3: And I'm Tracy Alloway.

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Speaker 2: Tracy, we're still here at Jackson Hall. It's funny saying

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Speaker 2: things like we're still here because we're recorded all these

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Speaker 2: episodes at the same time and we don't really know

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Speaker 2: exactly when you're listening. But this is yet another Jackson Hall.

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Speaker 3: Up, another special missive from Jackson Hall.

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Speaker 2: So I think there's like an element, if I'm being honest,

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Speaker 2: a certain surreality of Jackson Hole this year, because it

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Speaker 2: is an academic conference historically, and now they're setting aside

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Speaker 2: the chairman speech, which we'll talk about more. Setting aside

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Speaker 2: that speech. You know, it's a place for like talking

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Speaker 2: about important issues, and yeah, academic economics and that's great

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Speaker 2: and I love that stuff and it's super interesting and

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Speaker 2: all that, and yet the big story is really the

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Speaker 2: attack on the whole premise on the independent Central Banks.

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Speaker 2: And yet it sort of like feels like everything but

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Speaker 2: that gets talked about.

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Speaker 3: I think that's right, And you said setting aside pal speech,

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Speaker 3: but it was very, very noticeable that in his speech

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Speaker 3: he could have taken it as an opportunity to talk

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Speaker 3: about things like central bank independence or things like data

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Speaker 3: integrity given what's been happening at the Bureau of Labor Statistics,

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Speaker 3: but he chose not to.

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Speaker 2: Yeah, great point, you're right, Like he could have because

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Speaker 2: we were wondering, like, you know, this is going to

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Speaker 2: be his last speech, last time speaking as the Federal

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Speaker 2: Reserve chairman, so he could have said something really big

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Speaker 2: about reflecting on a career of being a central banker

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Speaker 2: and the importance of all these things, and he gave

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Speaker 2: a you know, macroeconomic policy speech.

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Speaker 3: There's also this other layer, which is a lot of

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Speaker 3: what he's trying to do now, which seems to be

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Speaker 3: to focus on labor market deterioration and maybe look through

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Speaker 3: some of the upside risks to inflation right now that

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Speaker 3: only happens if you have a credible central bank that

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Speaker 3: can pin longer term expectations for inflation down. Like, yes,

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Speaker 3: the only reason he's able to do some of this

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Speaker 3: is because of the credibility of the social capital that

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Speaker 3: the FED has built up over decades.

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Speaker 2: Exactly right. And the reason why we're talking about this,

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Speaker 2: just to be very clear, it's because of the attacks

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Speaker 2: from the Trump administration on Jerome Powell, also other FED

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Speaker 2: governors also, you know, the whole thing. And this is

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Speaker 2: just part and parcel of one attempt to sort of,

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Speaker 2: you know, restructure how the US does both domestic and

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Speaker 2: international policy. Because there's the tariffs obviously, and those intersected

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Speaker 2: with monetary policy. But then there's just also this sort

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Speaker 2: of changing relationship with other countries that gets into things

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Speaker 2: like you know, like let's get payment for security or

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Speaker 2: something like that. Like big look so many like big

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Speaker 2: hinges and pivots at one point, it's.

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Speaker 3: I mean, I don't think it's hyperbole to say it's

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Speaker 3: an attempt at a restructuring of the global order, both

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Speaker 3: in terms of the economy via the international financial system

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Speaker 3: and also in terms of security. I think the con

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Speaker 3: using part for me is it is a fact that

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Speaker 3: America has the world's biggest economy. America came through the

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Speaker 3: pandemic a lot better than a lot of other countries.

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Speaker 3: We ended up having lower inflation than a lot of

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Speaker 3: other parts in the world. And yet the Trump administration

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Speaker 3: seems very very convinced that the US is somehow losing

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Speaker 3: out from the current international order, or maybe they feel

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Speaker 3: that there's just more that they could get from restructuring it.

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Speaker 3: So I think we should talk about maybe the motivations

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Speaker 3: behind some of this, and then what the new world

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Speaker 3: could possibly look like.

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Speaker 2: Well, we literally have the perfect guests, someone we've had

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Speaker 2: on the pot, someone who we always catch up with

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Speaker 2: injecta hulk.

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Speaker 3: It's becoming a tradition.

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Speaker 2: It's a tradition. And he's literally the perfect guest because

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Speaker 2: he used to be on the Monetary Policy Committee at

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Speaker 2: the Bank of England, so as all the monetary policy bonafides.

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Speaker 2: He is currently the president of the Peterson Institute for

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Speaker 2: International Economics, and he is the author of a recent

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Speaker 2: article the New Geography Who Profits in the Post American

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Speaker 2: World that was in foreign affairs. And he's not one

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Speaker 2: to like sort of dance around big issues. He doesn't mean, yeah,

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Speaker 2: so this is what I said, goes to talk about

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Speaker 2: this someone. I was like, Okay, if we talked to Ediposen,

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Speaker 2: we can actually really like talk about all these things

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Speaker 2: that maybe many people are anxious to talk about. So, Adam,

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Speaker 2: thank you so much for coming back on Odelaw's great

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Speaker 2: to see you again here at Jackson Hall.

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Speaker 4: Thank you for having me back and congratulations Tracy and

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Speaker 4: Joe on the upwards profile of odd lots ever higher.

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Speaker 4: So it's very cool.

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Speaker 2: Very kind of you to say, are we right that

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Speaker 2: there is a certain surreality to the vibes here right now?

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Speaker 4: Yeah? It is. As you said, there was a lot

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Speaker 4: of deliberate focusing down of chair pal speech, and there's

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Speaker 4: been a lot of self discipline of members of the

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Speaker 4: FOMC and everybody to be quite restrained at a time

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Speaker 4: when the attacks on the FED and the weaponization of

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Speaker 4: government files to attack individual FED members and so on

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Speaker 4: is going on. I think Tracy's absolutely right, and we

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Speaker 4: didn't script this in advance, but it is all part

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Speaker 4: of this broader context of do you keep inflation expectations anchored?

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Speaker 4: Do you have faith in the dollar? Do you have

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Speaker 4: faith in the credit of the US, do you have

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Speaker 4: faith in the US foreign policy? And those are all

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Speaker 4: things which FED officials are not supposed to talk about,

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Speaker 4: with the exception of the inflation expectations, and now the

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Speaker 4: inflation expectations even they are, they're reluctant to talk about

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Speaker 4: it because it can become self fulfilling if they talk

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Speaker 4: about worrying about it, then it's ours unravel, but also

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Speaker 4: to be fair, because the seeming message of the rapid

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Speaker 4: come down in inflation that we talked about our last

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Speaker 4: few times we were together in Jackson Hall over twenty

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Speaker 4: twenty two was due to having anchored long term inflation expectations.

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Speaker 4: At least that's one argument. But it is surreal, Joe.

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Speaker 4: I mean, I've gotten to talk to several of the

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Speaker 4: members of the committee and they are trying to get

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Speaker 4: on with their lives and it's hard. But I also

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Speaker 4: just want to emphasize it's not that different than their

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Speaker 4: colleagues in Washington at the Treasury, or at EPA or

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Speaker 4: at the Bureau of Labor Statistics that they also are

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Speaker 4: under attack.

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Speaker 3: So we've done an episode on this before, but I

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Speaker 3: would love to get your take what exactly happens to

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Speaker 3: central banks when their credibility starts to come under attack,

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Speaker 3: or even when maybe on the fiscal side, you see

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Speaker 3: politicians interfere a little bit more with monetary policy, even

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Speaker 3: if that interference is just a truth social post or

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Speaker 3: something like that.

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Speaker 4: Yeah, I think Tracy, the emphasis should be on the

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Speaker 4: latter part of what you said. When elected officials who

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Speaker 4: are superior to central banks in any power struggle. When

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Speaker 4: fiscal policy, which if it gets really out of whack,

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Speaker 4: has what's called dominance, fiscal dominance can overpower whatever monetary

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Speaker 4: policy is. When the context for central banking changes, then

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Speaker 4: it's not so much as say the credibility the central

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Speaker 4: bank per se. It's the credibility the central bank will

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Speaker 4: be allowed to deliver what it's supposed to deliver. And

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Speaker 4: I'm not saying that to make excuses for the central bank.

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Speaker 4: There are instances like Arthur Burns in the seventies where

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Speaker 4: the central bank itself is compromised and fails to deliver.

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Speaker 4: But I think that's the way to see it. And

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Speaker 4: where you see it is where we're already seeing it

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Speaker 4: in the US, which is you see it in a

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Speaker 4: slightly higher risk premium on long term government bonds. You

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Speaker 4: see it in weakening of the currency. And some of

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Speaker 4: this I think can be tied to the broader Again,

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Speaker 4: I sorry to keep coming back to that, but to

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Speaker 4: the broader Trump economic agendas. Both of you said it

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Speaker 4: is a real regime change, but we're seeing it already.

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Speaker 4: And so there's a chart in this Foreign Affairs article

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Speaker 4: the New Economic Geography I put out thank you again,

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Speaker 4: that does a simple version of something a lot of

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Speaker 4: economists academics have unemore sophisticated versions, which is basically the

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Speaker 4: correlations on the dollar have reversed that with a couple

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Speaker 4: interruptions in two thousand and eight, in the late seventies

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Speaker 4: early eighties, the dollar has the quality that when it

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Speaker 4: gets into trouble, more money flows into it, and even

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Speaker 4: if the US is causing a problem in the world,

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Speaker 4: people believe they're safer in the US than there was

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Speaker 4: the ultimate exact two thousand seldom example, dollar just down,

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Speaker 4: but basically treasury bond rates and dollar move and lockstep,

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Speaker 4: which is another way of saying they don't have to

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Speaker 4: put up the rates to defend the dollar. And it

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Speaker 4: also means that most of the movement in the dollar

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Speaker 4: day to day is just macro news, just day to

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Speaker 4: day news, and so putting in simple mindedly, there's a

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Speaker 4: correlation very strongly positive in intra day, intraweek data between

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Speaker 4: the dollar in the tenure treasure rate. Until April one,

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Speaker 4: April one of this year, that correlation shifts from plus

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Speaker 4: zero point eight to minus zero point four reversus sign

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Speaker 4: And what happens is when something screwy happens in the US,

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Speaker 4: like we decide unilaterally to bomb Iran, Like when we

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Speaker 4: do crazy stuff on one big, beautiful bill, it's fiscally irresponsible,

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Speaker 4: like when Powell is attacked in vicious terms by the president. Gee,

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Speaker 4: interest rates go up, dollar goes down, and that looks

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Speaker 4: like an emerging market. Anyway, This is not just a

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Speaker 4: data mining. You can do it in very fancy econometric ways.

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Speaker 4: You get the same result. The correlation of safety on

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Speaker 4: the dollar has reversed, and that would be a sign

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Speaker 4: of what you're talking about, Tracy.

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Speaker 2: Our friend Karlick Center and who's been on the podcast,

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Speaker 2: always talks about's sort of the definition of an emerging

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Speaker 2: market is if your rates at the long and go

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Speaker 2: up in the recessions, right, Because you know, in times

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Speaker 2: of crisis in the US too historically you're like, oh,

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Speaker 2: there's a really bad in the US, I'm going to

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Speaker 2: pile into dollars at treasuries. This is what you're talking about,

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Speaker 2: which is that reflex has not kicked in exactly.

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Speaker 4: We've got four and a half months of very clear data.

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Speaker 4: It's going the other way. A lot of the things

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Speaker 4: that Trump administration is doing are going to reinforce that

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Speaker 4: because they've talked about taxing foreign investors differently in the

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Speaker 4: US than domestic investors. They've talked about punishing people who

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Speaker 4: tried to switch out of the dollar. Stephen Moran, who's

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Speaker 4: been nominated to be a Federal Reserve Board governor, you know,

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Speaker 4: has talked about amar a Lago accord and re putting

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Speaker 4: the dollar down. There's real reason for it to behave

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Speaker 4: this way.

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Speaker 2: Now, talk to us about like your foreign affairs piece,

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Speaker 2: like the sort of you know, this idea of like

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Speaker 2: the restructuring of the global and who profits from it,

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Speaker 2: because you also talk about this idea of like the

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Speaker 2: US is like sort of the global insurer of last resort.

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Speaker 2: But talk to us a little bit about what this

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Speaker 2: whole piece was about.

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Speaker 4: Thank you, Joe. And this goes to what Tracy was

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Speaker 4: saying at the start about how what you think you're

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Speaker 4: achieving with this world change. So what I'm trying to

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Speaker 4: argue is that the Trump administration decided that the world

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Speaker 4: economy is playing the US for a soccer, and that

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Speaker 4: very harsh direct bilateral measures starting with terroriffts, but also

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Speaker 4: with other threats, Demands for investment, demands for military assaults

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Speaker 4: on social media, all these things, threats to withhold military

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Speaker 4: assistance in the case of Ukraine and others, that this

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Speaker 4: will be a rebalancing, that this will get more money

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Speaker 4: from these countries into the US and thereby make our

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Speaker 4: fiscal situation better, be fairer, and somehow do great things

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Speaker 4: for the US economy. This is wrong on every level,

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Speaker 4: But the fundamental point going to the insurer is I

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Speaker 4: build a mental model, not a mathematical model, but a

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Speaker 4: mental model that I think most people have found quite

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Speaker 4: apt that for the last eighty years since World War Two,

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Speaker 4: the US's main role in the world economy has been

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Speaker 4: to be the insurance provider. We made sure that you

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Speaker 4: could ship things through with through different oceans and get

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Speaker 4: there safely. That there was basically respect for property rights,

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Speaker 4: respect for intellectual property rights. There were some standards, particularly

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Speaker 4: technical standards, some brands. There was a dollar that you

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Speaker 4: could get in and out of and park money, and

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Speaker 4: it was deep enough markets and treasuries that you could

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Speaker 4: get in and out that nobody cared and it didn't

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Speaker 4: affect prices. There was stability to the US currency and

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Speaker 4: the treasuries that let you do that. Just a whole

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Speaker 4: host of things, plus military and alliance as well, obviously

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Speaker 4: for NATO allies, for Japan, for Korea and others, and

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Speaker 4: we charged premiums for that. We did get premiums. We

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Speaker 4: had much lower interest rates. People would put a lot

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Speaker 4: of money into US government debt and that made the

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Speaker 4: whole economy go off better. We had basically obedience from

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Speaker 4: all these countries and military alliances that they would do sanctions.

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Speaker 4: For the most part, if we want to do sanctions,

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Speaker 4: they would in Okinawa, in Rhinemind Air Base. They would

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Speaker 4: take our troops and support them and have them garrisoned

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Speaker 4: in their country, have our troops forward and doing it.

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Speaker 4: Whole host of things. And on the economic front, it

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Speaker 4: gave us disproportionate shares not just of the stable investment

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Speaker 4: and treasuries, but things like our standards for technology, our

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Speaker 4: standards for legal matters are our financial system were the default. Anyway,

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Speaker 4: this had lots of benefits, lots of benefits for them,

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Speaker 4: lots of benefits for us. It was a good business. Essentially.

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Speaker 4: What's happened is you have a beach house in Malibu

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Speaker 4: which you had insured, and you weren't going to build

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Speaker 4: the beach house unless it was insured. Fine, you're paying insurance,

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Speaker 4: you're getting something for it. Now there's global warming, hurricanes

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Speaker 4: are more likely, there's erosion in the beach. You're prepared

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Speaker 4: to pay a bit more for your insurance, but instead

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Speaker 4: you find your insurer has decided, no, we're going to

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Speaker 4: deny your claims. So you have to slip us something

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Speaker 4: under the table to get your claim adjusted. Nope, we're

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Speaker 4: tripling your premium and if you don't like it, we're

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Speaker 4: going to leave the state and you're not going to

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Speaker 4: have insurance anymore. That's what the Trump administration is doing.

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Speaker 3: I mean, the role of insurance also acts as a

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Speaker 3: sort of like umbrella for economic development, right, because if

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Speaker 3: you have insurance on the beach in Malibu, other people

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Speaker 3: can build houses and you can have shops and things. Exactly,

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Speaker 3: maybe your house price starts to rise and you benefit

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Speaker 3: from that. So this is a slightly unfair question because

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Speaker 3: I'm going to ask you to channel someone else's thinking.

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Speaker 3: But what exactly is the argument from the Trump administration

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Speaker 3: here as to why they are losing out from the

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Speaker 3: current international economic or financial order, which very much seems

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Speaker 3: to have been built by the US. And as you

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Speaker 3: pointed out has a lot of tangible and intangible benefits

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Speaker 3: for America.

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Speaker 4: Well, this is something I and colleagues of the Peterson

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Speaker 4: Institute have been struggling against for several years now. On

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Speaker 4: not just Trump. There are people on the Democratic side

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Speaker 4: who've had this view as well. So in the same

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Speaker 4: issue of foreign affairs, Wally Adamayo, who you know who

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Speaker 4: was Deputy Treasury Secretary in the Biden administration, has an article, Yes,

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Speaker 4: the trade system was broken during the Biden residency. The

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Speaker 4: US Trade Representative gave a speech in which she said

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Speaker 4: she basically agreed with everything her predecessor, Robert Leitheiser, had

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Speaker 4: said during the Trump inversation. So this has been out

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Speaker 4: there a long time. I know you want me to

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Speaker 4: answer a question, but I'm not going to try to

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Speaker 4: rationalize it. I think there are three or four things

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Speaker 4: going on. One is there is an excessive sense that

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Speaker 4: China has been unfair, but even more so that China

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Speaker 4: got away with being unfair and is dangerous because of

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Speaker 4: things we did on the economic side. And I don't

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Speaker 4: think this is justified. Not that I have any love

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Speaker 4: for the Chinese Communist Party, I'm on record calling she

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Speaker 4: an Autocrat, but just the Tom Brady and Bill Belichick

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Speaker 4: didn't win Super Bowls because they cheated in the little ways.

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Speaker 4: China did not become China because it cheated a little

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Speaker 4: bit here and there. The second thing is there was

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Speaker 4: a legitimate concern which the Biden people cared about and

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Speaker 4: the Trump people say they care about, but don't seem

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Speaker 4: to care about that. If we're too dependent on concentrated,

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Speaker 4: single sources for things like the semiconductors in Taiwan, that

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Speaker 4: puts US at a national security risk, that puts US

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Speaker 4: at an economic risk. The reason I say that Trump

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Speaker 4: people don't seem to genuinely care about that is because

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Speaker 4: being totally concentrated in the US in one spot isn't

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Speaker 4: any good either, because then your subject still to natural disasters,

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Speaker 4: to terrorism, to political problems, to corruption. You can care

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Speaker 4: about this and say we got to make sure it's diversified.

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Speaker 4: The third thing that's going on is there's a perception,

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Speaker 4: fed by the so called China Shop literature, that US

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Speaker 4: manufacturing was devastated, and this led to particular small cities

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Speaker 4: and towns in the US being devastated. There's a lot

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Speaker 4: of exaggerations and problems with this literature, and it doesn't

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Speaker 4: square well with the reality, including the reality of most

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Speaker 4: of the places that are cited as having had problems

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Speaker 4: had problems in the seventies, and that there's plenty of

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Speaker 4: places like Pittsburgh and Rallington, North Carolina that got back.

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Speaker 4: But anyway, there's that sense. And I think you've had

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Speaker 4: on my colleague Robert Lawrence with Peterson and Harvard, who

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Speaker 4: talks about the limits of a manufacturing strategy. And then finally,

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Speaker 4: and this is my own interpretation, people get mad at

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Speaker 4: me when I say this. I think there's a lot

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Speaker 4: of displaced anger. I think there are people who were

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Speaker 4: relatively privileged. They weren't necessarily rich, but relatively privileged in

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Speaker 4: older society, in the way the US society used to

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Speaker 4: be that I have been disrupted and offended by change

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Speaker 4: and by forces towards equality. I also think there's a

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Speaker 4: bunch of people who are understandably very angry and disappointed

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Speaker 4: with elites after the two thousand and eight financial crisis,

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Speaker 4: after COVID been perceptions of mishandling after the Iraq Afghanistan

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Speaker 4: invasions and occupations for twenty years that didn't produce anything,

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Speaker 4: so there's a lot of anger that's discredited that they

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Speaker 4: have discredited elites who are associated with being globalists, right,

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Speaker 4: But I don't think that anger is well placed. And

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Speaker 4: I'm not trying to be patronizing. I mean, we've seen

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Speaker 4: this in the US history and other history. You know,

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Speaker 4: people will stir up anger against immigrants, or stir up

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Speaker 4: anger against Native Americans or people of color or refugees

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Speaker 4: or com mythical communists in the government in the fifties

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Speaker 4: because they're angry about something else or they're scared of

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Speaker 4: something else. But it gets blamed on that. So that's

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Speaker 4: where I think it comes from. But I just want

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Speaker 4: to emphasize what you've said at the start, and that's

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Speaker 4: part of the point my article's trying to make. Is

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Speaker 4: there's a very clear list of benefits the US had

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Speaker 4: by running the system, and by had a good business model.

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Speaker 4: It was a profitable business model providing insurance. And like

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Speaker 4: you said, if you're providing insurance for some people, that

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Speaker 4: lets commerce expand and lets other people free ride, and

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Speaker 4: that's a good thing that they free ride, and because

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Speaker 4: then you get more commerce and more taxes and more

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Speaker 4: livelihood and better off people and Additionally, one thing where

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Speaker 4: the analogy breaks down, it's even more favorable for the US,

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Speaker 4: because you know, if you're chiulb Order, Liberty mutual or

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Speaker 4: state farm insurance, you don't really have a big effect

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Speaker 4: on the extent of risks out there by how much

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Speaker 4: insurance you give. But if you're the US and you

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Speaker 4: say I'm going to guarantee your security, you actually do

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Speaker 4: reduce the risks that are out there, and that means

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Speaker 4: you're collecting the same premiums and paying out.

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Speaker 3: Less at the risk of carrying the insurance analogy too far.

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Speaker 3: I mean, it is true that we have insurers pulling

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Speaker 3: out of areas like Florida because they say it's no

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Speaker 3: longer economic to ensure these areas. It's just too risky.

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Speaker 3: It's going to cost too much to rebuild. Is there

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Speaker 3: a case to be made at all here that maybe

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Speaker 3: the Trump administration is looking around the world and saying, well,

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Speaker 3: it's riskier now than it was before, and we don't

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Speaker 3: want to be on the hook to put out a

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Speaker 3: billion fires.

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Speaker 4: I think there is a case to be made in

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Speaker 4: the national security sphere more narrowly defined, that the US

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Speaker 4: may have overextended or needs to prioritize, and there is

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Speaker 4: a set of foreign policy thinkers out there talking about

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Speaker 4: this issue. You, I still don't think that's quite right,

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Speaker 4: because actually deterrence and protection kind of like you said before,

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Speaker 4: there's an umbrella effect. But let's say that the national

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Speaker 4: security part you can set aside and say there is

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Speaker 4: an argument to be had. The rest of it doesn't

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Speaker 4: make any sense because you're giving up strength of the

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Speaker 4: dollar and lower interest rates. You're giving up disproportionate compared

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Speaker 4: to your size in the world. Foreign direct investment, you're

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Speaker 4: giving up disproportion compared to your size in the world.

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Speaker 4: Influence over technical standards, love for your brands, spread of

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Speaker 4: your services. You're giving up disproportionate amounts of influence on

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Speaker 4: other populations. Again, it's just like looking at foreign students

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Speaker 4: coming here, which I know you've talked about in some

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Speaker 4: of your episodes, that unless you come up with some

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Speaker 4: absolutely mythical number of how many of them are not

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Speaker 4: only spies for the Chinese but successfully pull it off,

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Speaker 4: are undertail and take the Chinese information that they couldn't

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Speaker 4: possibly have gotten through cyber attacks and other means. Unless

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Speaker 4: you call it with an absolutely absurd number like that

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Speaker 4: all the benefits come to us from having foreign students here,

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Speaker 4: and that's what can be said about all these things

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Speaker 4: on the economic side.

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Speaker 2: By the way, when you were talking about the you know,

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Speaker 2: well we had going. You know, it's like that breaking

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Speaker 2: bad speech that I've seen a good thing going.

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Speaker 3: Yeah.

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Speaker 4: Yeah.

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Speaker 2: You know. One of the reasons I like talking to you.

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Speaker 2: I do feel like it's refreshing, frankly, this sort of

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Speaker 2: unreformed liberal because everyone is like post you know, everyone

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Speaker 2: sort of post liberal now and everyone. So I appreciate that.

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Speaker 2: Also two years ago when we first d you on

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Speaker 2: the podcast and you recommended as a Vogels biography of

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Speaker 2: doing Chopin to me, and then I read it the

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Speaker 2: next month and I read so I appreciate the book recommended.

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Speaker 2: That led me down.

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Speaker 3: I think that's I was going to say, that's the

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Speaker 3: thing that.

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Speaker 2: The whole we've read like fifty books about twentieth century China,

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Speaker 2: all things to you, but I want to talk about

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Speaker 2: China a little bit more because I take all your

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Speaker 2: points about about everything, however, and you know, you've been

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Speaker 2: sort of like refreshingly skeptical a lot of these ideas.

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Speaker 2: That is particularly important to have more manufacturing in the

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Speaker 2: United States, et cetera. But there is this very real

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Speaker 2: concern that without robust manufacturing you actually can't have a

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Speaker 2: world class military. And if you're just thinking about like, okay,

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Speaker 2: we provide this insurance role in some ways very literally, say,

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Speaker 2: with our navy through various straits around the world. And

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Speaker 2: Setiga said, whether China cheated or not, should we be

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Speaker 2: anxious if pure like manufacturing capacity and the technological frontier

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Speaker 2: in building things including weapons is in China.

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Speaker 4: Anxious is not the right word, Okay. And I appreciate

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Speaker 4: you're saying about the liberal and that's the part I

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Speaker 4: didn't say. I mean, I think a lot of people

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Speaker 4: are making the case that I'm not pushing back against

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Speaker 4: the tracing you asked about, because it's seems to be

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Speaker 4: politically advanceable to say that old fashioned liberal values are

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Speaker 4: bad in the case of China. Again, there's a difference

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Speaker 4: between arguing in a frankly not just liberal but neoliberal,

436
00:24:09,000 --> 00:24:11,520
Speaker 4: if I can use that word way, that there is

437
00:24:11,560 --> 00:24:16,480
Speaker 4: a specific market failure to make sure we have adequate

438
00:24:16,640 --> 00:24:24,480
Speaker 4: minimum sourcing and diversified sourcing of key national security inputs. Right, Yeah,

439
00:24:24,520 --> 00:24:27,600
Speaker 4: so you know that's fine. You can say that, and

440
00:24:27,680 --> 00:24:30,880
Speaker 4: it's like, yeah, wouldn't it be good if the Defense

441
00:24:30,920 --> 00:24:34,720
Speaker 4: Department and the Commerce Department and the intelligence community actually

442
00:24:34,760 --> 00:24:39,520
Speaker 4: had a process by which they identified this and actually

443
00:24:39,600 --> 00:24:43,040
Speaker 4: had an ongoing commission and had a list and had

444
00:24:43,080 --> 00:24:47,440
Speaker 4: expert advice and decided, excuse me, in a non partisan way,

445
00:24:48,400 --> 00:24:51,800
Speaker 4: how to do that, and then actually marshaled specific money

446
00:24:51,800 --> 00:24:55,480
Speaker 4: and measures to do that. And if you could do that,

447
00:24:56,119 --> 00:25:00,240
Speaker 4: you should. That would affect, you know, some time, any

448
00:25:00,280 --> 00:25:03,119
Speaker 4: percentage of the US economy. It might be incredibly important

449
00:25:03,160 --> 00:25:07,480
Speaker 4: for having drones or aircraft carriers or whatever the right

450
00:25:07,480 --> 00:25:09,359
Speaker 4: technology is. And I'm not going to pretend I know

451
00:25:09,400 --> 00:25:12,400
Speaker 4: what it is okay to keep the Straits of Malacca

452
00:25:12,520 --> 00:25:16,159
Speaker 4: open or to keep the Taiwan straight open. But you

453
00:25:16,200 --> 00:25:18,399
Speaker 4: could do that. And when I was fighting against the

454
00:25:18,400 --> 00:25:21,399
Speaker 4: Biden administration on some of their national security excuses for

455
00:25:21,520 --> 00:25:25,520
Speaker 4: economics interventions in their industrial policy a few years ago,

456
00:25:26,040 --> 00:25:27,919
Speaker 4: I actually had a meeting with a senior person in

457
00:25:27,920 --> 00:25:30,480
Speaker 4: the White House, not somebody that senior, but senior enough,

458
00:25:30,640 --> 00:25:32,240
Speaker 4: and I said, you know, you guys have to have

459
00:25:32,280 --> 00:25:33,800
Speaker 4: a list, you have to do this. And this person

460
00:25:33,920 --> 00:25:36,800
Speaker 4: laughed and said, you got to be kidding, maybe because

461
00:25:36,800 --> 00:25:39,080
Speaker 4: no one wants to write down a list, because once

462
00:25:39,119 --> 00:25:42,240
Speaker 4: you write down a list, then you're annoying certain people

463
00:25:42,280 --> 00:25:45,320
Speaker 4: and excluding others. And if you're the Defense Department, you

464
00:25:45,359 --> 00:25:48,439
Speaker 4: want to include as many things as possible, and you

465
00:25:48,480 --> 00:25:52,080
Speaker 4: know the general dynamic of how these things go. So

466
00:25:52,560 --> 00:25:55,040
Speaker 4: I don't think the right response is anxiety. I think

467
00:25:55,080 --> 00:25:59,040
Speaker 4: the right response is, yeah, let's take this seriously. Let's

468
00:25:59,080 --> 00:26:02,920
Speaker 4: act like grown ups and actually set up a policy

469
00:26:03,000 --> 00:26:06,920
Speaker 4: process that deals with this, and let's do the spending.

470
00:26:06,960 --> 00:26:09,800
Speaker 4: And even to go back to the international side, go

471
00:26:09,880 --> 00:26:13,560
Speaker 4: to our specific allies and say again, it's like raising

472
00:26:13,600 --> 00:26:16,919
Speaker 4: taxes on a specific thing where you're tying it to

473
00:26:16,960 --> 00:26:20,240
Speaker 4: a user fee or on in the insurance I'm raising

474
00:26:20,280 --> 00:26:24,040
Speaker 4: your premiums, not threefolds and threatening to leave. I'm raising

475
00:26:24,080 --> 00:26:27,679
Speaker 4: your premiums for twenty five percent. And if you put

476
00:26:27,880 --> 00:26:30,640
Speaker 4: a fire detector in your house, I will only raise

477
00:26:30,640 --> 00:26:33,520
Speaker 4: it twenty percent. Go to Germany, go to Japan, go

478
00:26:33,520 --> 00:26:36,439
Speaker 4: to Korea, go to the Netherlands, and say, in the

479
00:26:36,520 --> 00:26:38,919
Speaker 4: fact i'm raising your premium I want to spend this

480
00:26:39,000 --> 00:26:42,640
Speaker 4: much more in defense. But if you chip in specifically

481
00:26:42,720 --> 00:26:47,320
Speaker 4: on this list of military sensitive equipment, I won't ask

482
00:26:47,359 --> 00:26:47,920
Speaker 4: for as much.

483
00:26:48,040 --> 00:26:50,120
Speaker 3: Yeah, the carrots are kind of missing. There's a lot

484
00:26:50,119 --> 00:26:52,800
Speaker 3: of sticks and not that many carrots. Well, so you

485
00:26:52,880 --> 00:26:56,159
Speaker 3: touched on this just now, But I'm basically going to

486
00:26:56,240 --> 00:26:58,560
Speaker 3: ask Joe's question in a slightly different way. But are

487
00:26:58,720 --> 00:27:02,280
Speaker 3: tariffs the right way to bring manufacturing back to the US?

488
00:27:02,760 --> 00:27:08,159
Speaker 4: No? Sorry, you want more? I mean look again, because

489
00:27:08,200 --> 00:27:12,280
Speaker 4: of the nature of terras, which are a tax, which

490
00:27:12,280 --> 00:27:15,560
Speaker 4: are a distortionary tax on a narrow part of the

491
00:27:15,600 --> 00:27:19,880
Speaker 4: tax base that has bad distributional effects. They're regressive, They

492
00:27:20,040 --> 00:27:23,240
Speaker 4: primarily either hurt small business on the corporate side, or

493
00:27:23,280 --> 00:27:27,440
Speaker 4: they hurt lower income people on the household side. And

494
00:27:28,000 --> 00:27:32,040
Speaker 4: they tend to lead to corruption, even if not literal bribes,

495
00:27:32,080 --> 00:27:35,480
Speaker 4: but distortions of Hey, Apple showed up in the President's

496
00:27:35,520 --> 00:27:37,199
Speaker 4: office with the gold phone and what do you know,

497
00:27:37,240 --> 00:27:40,680
Speaker 4: they got an exception to the terror. You know, tend

498
00:27:40,680 --> 00:27:42,080
Speaker 4: to lead the stuff like that in the way the

499
00:27:42,119 --> 00:27:45,359
Speaker 4: most things do. Terraffs are good for two things. Right,

500
00:27:46,080 --> 00:27:52,119
Speaker 4: if there is a very specific industry and a very

501
00:27:52,160 --> 00:27:58,040
Speaker 4: specific bargaining situation, not against the whole world in general,

502
00:27:58,119 --> 00:28:01,960
Speaker 4: all at the same time, one specific country with whom

503
00:28:01,960 --> 00:28:04,040
Speaker 4: you can bargain, and you can get other people to

504
00:28:04,119 --> 00:28:06,640
Speaker 4: join you in the tariffs, so it's effectively a form

505
00:28:06,640 --> 00:28:11,080
Speaker 4: of economic sanction that can work. The other thing is

506
00:28:11,320 --> 00:28:15,639
Speaker 4: if you are an underdeveloped country with no state capacity,

507
00:28:15,720 --> 00:28:19,480
Speaker 4: like the US in eighteen twenty or a number of

508
00:28:20,400 --> 00:28:24,639
Speaker 4: South Asian and subs Aheran, African and Central American countries today,

509
00:28:25,000 --> 00:28:27,880
Speaker 4: even they are not that many, Tariffs are a way

510
00:28:27,920 --> 00:28:31,560
Speaker 4: to collect necessary revenues because you can literally set up

511
00:28:31,560 --> 00:28:33,919
Speaker 4: guards at the border and make sure somebody gets the money,

512
00:28:34,320 --> 00:28:38,960
Speaker 4: whereas other more less intrusive, less regressive, more efficient forms

513
00:28:38,960 --> 00:28:41,160
Speaker 4: of taxation are harder to collect if you don't have

514
00:28:41,200 --> 00:28:43,480
Speaker 4: a good stack capacity. Those are the only two things

515
00:28:43,560 --> 00:28:44,000
Speaker 4: tariffs are.

516
00:28:44,120 --> 00:28:45,720
Speaker 2: This is a good point because you know, you see

517
00:28:45,760 --> 00:28:47,920
Speaker 2: people like, oh, back in the old days, the golden age,

518
00:28:48,240 --> 00:28:50,040
Speaker 2: tariffs was like we you know, we didn't have like

519
00:28:50,360 --> 00:28:53,800
Speaker 2: W two forms and stuff like that. So yeah, of

520
00:28:53,800 --> 00:28:55,360
Speaker 2: course you just have to do it at the porest.

521
00:28:55,680 --> 00:28:58,320
Speaker 2: Let's go back to, like, okay, setting aside the sort

522
00:28:58,320 --> 00:29:03,720
Speaker 2: of structural issue with tariffs and the bad distribution effects,

523
00:29:03,680 --> 00:29:06,960
Speaker 2: et cetera. Like just right now in August twenty twenty five,

524
00:29:07,040 --> 00:29:08,840
Speaker 2: and we look at the state of US economy and

525
00:29:08,840 --> 00:29:11,560
Speaker 2: people like, how do you perceive the interaction of tariffs

526
00:29:11,560 --> 00:29:13,120
Speaker 2: with everything else that are going on right now?

527
00:29:13,720 --> 00:29:16,000
Speaker 4: It's a fair question. We've done a lot of work

528
00:29:16,000 --> 00:29:18,520
Speaker 4: at the Peterson Stut colleagues of mine that we've published,

529
00:29:18,560 --> 00:29:21,160
Speaker 4: and others have done slightly different work, and we all

530
00:29:21,200 --> 00:29:24,240
Speaker 4: come out roughly the same place. This is the way

531
00:29:24,280 --> 00:29:27,320
Speaker 4: the Trump administration is doing it. In terms of the

532
00:29:27,360 --> 00:29:32,960
Speaker 4: short term economic outlook is it's a tax hike. It's stagflationary,

533
00:29:33,080 --> 00:29:35,960
Speaker 4: meaning it's raising inflation at the same time as slow

534
00:29:35,960 --> 00:29:42,000
Speaker 4: in growth. It's collecting a sizable chunk of revenue on

535
00:29:42,080 --> 00:29:44,840
Speaker 4: the order of two and two hundred and fifty billion

536
00:29:44,880 --> 00:29:48,000
Speaker 4: a year at an annual rate at this very high

537
00:29:48,120 --> 00:29:52,280
Speaker 4: level of taxes. That will probably diminish over time because

538
00:29:52,440 --> 00:29:55,280
Speaker 4: people get around that kind of tax and people choose

539
00:29:55,320 --> 00:29:59,440
Speaker 4: to produce things elsewhere and people evade it. But for

540
00:29:59,520 --> 00:30:05,080
Speaker 4: the moment, it's a significant tax increase that would have

541
00:30:05,120 --> 00:30:10,560
Speaker 4: been better done through more efficient means. It also is

542
00:30:11,000 --> 00:30:14,520
Speaker 4: going to do nothing for manufacturing because what it does

543
00:30:14,560 --> 00:30:17,600
Speaker 4: on net is well, there are certain industries that are

544
00:30:17,600 --> 00:30:20,040
Speaker 4: being helped. As I know you've covered in your supply

545
00:30:20,200 --> 00:30:23,000
Speaker 4: chain stories. You know, there are a lot of small

546
00:30:23,040 --> 00:30:27,640
Speaker 4: businesses or even big businesses that have imported inputs, whether

547
00:30:27,840 --> 00:30:31,800
Speaker 4: from China or elsewhere, and it costs them, and it's

548
00:30:31,840 --> 00:30:35,280
Speaker 4: going to be very hard to replace that, and it's

549
00:30:35,360 --> 00:30:38,720
Speaker 4: very expensive. And then you've got the issue again, which

550
00:30:38,760 --> 00:30:41,200
Speaker 4: I know you've covered, but has to be said that

551
00:30:41,600 --> 00:30:46,400
Speaker 4: there aren't American workers for good reason. There aren't American

552
00:30:46,440 --> 00:30:49,200
Speaker 4: workers who want to be sitting there screwing screws into

553
00:30:49,240 --> 00:30:51,400
Speaker 4: the back of iPhones. I don't mean to keep picking

554
00:30:51,440 --> 00:30:54,600
Speaker 4: on Apple, but it's just it's a clear example. So

555
00:30:54,640 --> 00:30:57,400
Speaker 4: you either have to pay them an incredible amount for that,

556
00:30:57,600 --> 00:31:00,280
Speaker 4: or you have to let somebody else do it. So

557
00:31:00,600 --> 00:31:03,200
Speaker 4: in the short term, getting back to the monetary policyly,

558
00:31:03,200 --> 00:31:06,280
Speaker 4: since we're in Jackson holl I think it's not a

559
00:31:06,360 --> 00:31:08,920
Speaker 4: surprise that we haven't had huge inflation yet from the

560
00:31:09,040 --> 00:31:13,040
Speaker 4: terraffs because there are a number of things that mainstream

561
00:31:13,120 --> 00:31:16,120
Speaker 4: people like us expected. People were going to be in

562
00:31:16,200 --> 00:31:19,280
Speaker 4: denial about whether the tariffs would stay and how big

563
00:31:19,320 --> 00:31:22,600
Speaker 4: they would be. People were going to have to take

564
00:31:22,680 --> 00:31:27,240
Speaker 4: time to figure out, if you're a business, whether you

565
00:31:27,320 --> 00:31:30,400
Speaker 4: can find a substitute source, whether that subst source is

566
00:31:30,440 --> 00:31:33,040
Speaker 4: domestic if you move it to Vietnam, does that really

567
00:31:33,040 --> 00:31:35,200
Speaker 4: get you out of the tariffs? Do you have a

568
00:31:35,240 --> 00:31:38,160
Speaker 4: good relationship? I mean it takes. As you've discussed in detail,

569
00:31:38,280 --> 00:31:41,560
Speaker 4: these supply chains emerge organically and they're not top down.

570
00:31:41,600 --> 00:31:45,560
Speaker 4: Somebody makes one decision, so it takes time to reformulate

571
00:31:45,560 --> 00:31:49,400
Speaker 4: the suply chains. If you were sunnya tariffs. Third, you've

572
00:31:49,440 --> 00:31:52,120
Speaker 4: got a bunch of companies that were called out by

573
00:31:52,240 --> 00:31:55,160
Speaker 4: name by President Trump, like GM or Walmart, that were

574
00:31:55,200 --> 00:31:58,080
Speaker 4: told don't raise prices because of the tariffs, and so

575
00:31:58,160 --> 00:31:59,800
Speaker 4: of course they're going to hold off as long as

576
00:31:59,800 --> 00:32:03,280
Speaker 4: they can. And then eventually, when everybody's raising prices, it

577
00:32:03,640 --> 00:32:07,480
Speaker 4: profit at the same time, they'll raise prices. And then finally,

578
00:32:07,720 --> 00:32:09,240
Speaker 4: a lot of these companies, and a lot of the

579
00:32:09,280 --> 00:32:13,000
Speaker 4: consumer goods companies had inventories, and they built up inventories

580
00:32:13,040 --> 00:32:16,120
Speaker 4: in the first quarter of importing goods, and they weren't

581
00:32:16,120 --> 00:32:19,680
Speaker 4: going to raise the prices until pass through the tariff costs,

582
00:32:19,720 --> 00:32:22,200
Speaker 4: until they got burnt through the inventories. So she had

583
00:32:22,200 --> 00:32:24,800
Speaker 4: four very solid reasons why it would take at least

584
00:32:24,800 --> 00:32:26,960
Speaker 4: a few months for the tariffs to really start showing

585
00:32:27,040 --> 00:32:29,360
Speaker 4: up in prices. So if I'm sitting at the Fed

586
00:32:29,480 --> 00:32:34,320
Speaker 4: right now, in my view, the tariff inflation just goes

587
00:32:34,400 --> 00:32:39,000
Speaker 4: up from here. First round effects probably will peak in

588
00:32:39,120 --> 00:32:43,680
Speaker 4: second quarter of twenty six. And then the debate is

589
00:32:43,920 --> 00:32:46,920
Speaker 4: and my estimate is higher than most people's. A lot

590
00:32:46,920 --> 00:32:49,360
Speaker 4: of people think it'll peak around four on CPI. I

591
00:32:49,400 --> 00:32:51,920
Speaker 4: think it's gonna peak closer a fiver a little more.

592
00:32:53,040 --> 00:32:56,400
Speaker 4: And then the discussion which Governor Waller is put out there,

593
00:32:56,480 --> 00:32:59,920
Speaker 4: which the chair talked about today, talked about in the speech,

594
00:33:00,480 --> 00:33:03,920
Speaker 4: is how much do you think this translates into second

595
00:33:04,040 --> 00:33:08,760
Speaker 4: round inflation effects? How persistent is this inflation? And that's

596
00:33:08,840 --> 00:33:12,080
Speaker 4: the interesting debate, And that's a good faith debate you

597
00:33:12,120 --> 00:33:17,080
Speaker 4: can have. But the tariff inflation is coming, it's on

598
00:33:17,200 --> 00:33:21,680
Speaker 4: its way. It's not surprisingly low, it's not surprisingly slow.

599
00:33:21,720 --> 00:33:24,240
Speaker 4: It's a tiny bit slower than I expected, but not really.

600
00:33:25,400 --> 00:33:43,400
Speaker 3: And we're here, Well, I'm going to take you up

601
00:33:43,480 --> 00:33:45,760
Speaker 3: on the debate, tease, but where do you fall on

602
00:33:45,840 --> 00:33:49,120
Speaker 3: the side of the second order effects debate? Because you

603
00:33:49,160 --> 00:33:52,760
Speaker 3: can make it feels a convincing argument for either side.

604
00:33:52,800 --> 00:33:55,760
Speaker 3: You could say that while tariffs are attacks and so

605
00:33:55,840 --> 00:33:59,040
Speaker 3: they destroy demand and maybe lead to deflation, or you

606
00:33:59,040 --> 00:34:02,760
Speaker 3: could argue that tariffs perhaps give companies an excuse to

607
00:34:02,920 --> 00:34:06,200
Speaker 3: all start raising their prices together, and so you don't

608
00:34:06,200 --> 00:34:10,359
Speaker 3: get that competitive activity that would normally keep prices in check.

609
00:34:11,040 --> 00:34:13,799
Speaker 4: I think you can make a plausible, serious debate on

610
00:34:13,840 --> 00:34:17,720
Speaker 4: both sides, but I think the arguments are very clearly

611
00:34:17,800 --> 00:34:20,040
Speaker 4: on the side that the second round effects are going

612
00:34:20,120 --> 00:34:23,719
Speaker 4: to be large and persistent. There's several reasons, which is

613
00:34:23,719 --> 00:34:26,719
Speaker 4: why I think it's pretty clear. The first one is

614
00:34:26,880 --> 00:34:29,720
Speaker 4: we know from what happened with the tariffs under Trump,

615
00:34:29,719 --> 00:34:34,400
Speaker 4: ian under Biden, from other countries in recent times that

616
00:34:34,600 --> 00:34:38,319
Speaker 4: the pass through what generally you end up being if

617
00:34:38,320 --> 00:34:41,880
Speaker 4: you're the company that ultimately buys the imported input or

618
00:34:41,920 --> 00:34:44,560
Speaker 4: the household that buys it, the pass through the final

619
00:34:44,600 --> 00:34:48,640
Speaker 4: purchaser is usually eighty five to ninety percent of the tariff.

620
00:34:49,400 --> 00:34:51,600
Speaker 4: It's already very clear from the data that the foreign

621
00:34:51,640 --> 00:34:53,640
Speaker 4: companies are not paying for any of this, So the

622
00:34:53,719 --> 00:34:56,120
Speaker 4: question is how much are the importers eating it versus

623
00:34:56,160 --> 00:34:58,880
Speaker 4: passing it on? And it takes a little time for

624
00:34:58,960 --> 00:35:01,319
Speaker 4: you to get to that, but generally it's a very

625
00:35:01,400 --> 00:35:04,160
Speaker 4: robust result. So even if you get less than that,

626
00:35:04,200 --> 00:35:06,879
Speaker 4: you get sixty five seventy percent on average, that's still

627
00:35:06,880 --> 00:35:10,400
Speaker 4: a lot. The second is implicit what you said, and

628
00:35:10,440 --> 00:35:12,960
Speaker 4: then sometimes in things some of the people on the

629
00:35:13,000 --> 00:35:16,680
Speaker 4: other side of this argument say is essentially the demand

630
00:35:16,680 --> 00:35:20,480
Speaker 4: destruction is either symmetric to the price increase or is

631
00:35:20,600 --> 00:35:24,239
Speaker 4: larger than the price increase, and there's no particularly good

632
00:35:24,360 --> 00:35:26,759
Speaker 4: reason to assume that. So you have to look at

633
00:35:26,840 --> 00:35:30,640
Speaker 4: what actually is going on. We have a pretty robust economy,

634
00:35:30,680 --> 00:35:33,480
Speaker 4: pretty close to full employment. We are about to get

635
00:35:34,480 --> 00:35:36,160
Speaker 4: though it hasn't shown up yet. This to me is

636
00:35:36,200 --> 00:35:39,120
Speaker 4: the big surprise. But we're about to get more damage

637
00:35:39,160 --> 00:35:44,760
Speaker 4: in a stagflationary way from migration restrictions, deportations, sudden stop

638
00:35:44,800 --> 00:35:47,839
Speaker 4: of growth in the labor force. That's going to give

639
00:35:47,920 --> 00:35:51,600
Speaker 4: American workers more bargaining power in the short term, that's

640
00:35:51,640 --> 00:35:54,800
Speaker 4: going to create labor shortages, which put upward pressure on wages.

641
00:35:55,440 --> 00:36:01,280
Speaker 4: That's going to decrease productivity and capacity. So on balance,

642
00:36:01,560 --> 00:36:04,799
Speaker 4: you may get some recessionary forces out of both that

643
00:36:05,040 --> 00:36:08,440
Speaker 4: and the tariff increase, but I strongly doubt they will

644
00:36:08,440 --> 00:36:11,600
Speaker 4: outweigh the inflationary impulses that there will be room for

645
00:36:11,680 --> 00:36:15,920
Speaker 4: price setting, price or increases excuse me, and wage increases. Third,

646
00:36:16,719 --> 00:36:18,399
Speaker 4: going back to where one of the things you said

647
00:36:18,400 --> 00:36:23,279
Speaker 4: at the start, anchoring inflation expectations is the game that

648
00:36:23,440 --> 00:36:27,520
Speaker 4: ultimately is what allows US Central Bank to say, as Bernanki, Laubach,

649
00:36:27,560 --> 00:36:30,600
Speaker 4: Michigan and I argued twenty five years ago in the

650
00:36:30,600 --> 00:36:33,959
Speaker 4: Inflation Targeting Book, you're allowed to look through the first

651
00:36:34,040 --> 00:36:36,640
Speaker 4: round effect of supply shocks if it's clear what the

652
00:36:36,640 --> 00:36:40,919
Speaker 4: supply shok is and you have anchored expectation. I think

653
00:36:40,960 --> 00:36:43,680
Speaker 4: the FED, whether they admit it or to themselves or not,

654
00:36:44,680 --> 00:36:49,120
Speaker 4: is publicly underestimating how much the twenty to twenty to

655
00:36:49,160 --> 00:36:53,600
Speaker 4: twenty twenty two experience de anchored inflation expectations that didn't

656
00:36:53,640 --> 00:36:56,440
Speaker 4: take us to Argentina in nineteen eighty. But anybody who

657
00:36:56,480 --> 00:36:59,720
Speaker 4: says that they're the same as they were before twenty twenty,

658
00:36:59,760 --> 00:37:04,359
Speaker 4: I think is deluding themselves. And Then, additionally, going back

659
00:37:04,400 --> 00:37:06,520
Speaker 4: to what Joe was saying about the surreal aspect of

660
00:37:06,560 --> 00:37:13,120
Speaker 4: this time, if the Trump administration has been as they have,

661
00:37:14,680 --> 00:37:19,160
Speaker 4: hugely attacking the independence of the FED in multiple ways,

662
00:37:20,320 --> 00:37:23,200
Speaker 4: and this is showing up in a less strong dollar,

663
00:37:24,840 --> 00:37:28,080
Speaker 4: then that's another reason to think that the expectations aren't

664
00:37:28,080 --> 00:37:29,719
Speaker 4: going to be anchored, and you're not going to get

665
00:37:29,760 --> 00:37:33,759
Speaker 4: an offset from the currency to the tariff inflation, so

666
00:37:34,000 --> 00:37:38,680
Speaker 4: bing bing being that's four reasons why I think the

667
00:37:38,840 --> 00:37:42,840
Speaker 4: argument is clear that we're going to get more inflation,

668
00:37:43,160 --> 00:37:47,279
Speaker 4: more persistence of inflation, more second round effects than some

669
00:37:47,400 --> 00:37:48,160
Speaker 4: people are saying.

670
00:37:48,560 --> 00:37:50,040
Speaker 2: I have a question. I've been asking this to a

671
00:37:50,040 --> 00:37:52,279
Speaker 2: bunch of people. I'm not totally satisfied with any of

672
00:37:52,320 --> 00:37:57,320
Speaker 2: the answers I've gotten, So try again. Even before the terriffs,

673
00:37:57,320 --> 00:38:01,560
Speaker 2: even before Trump, it appeared that from the perspective of

674
00:38:01,600 --> 00:38:04,880
Speaker 2: the market that long term rates were going to be

675
00:38:05,000 --> 00:38:08,720
Speaker 2: durably higher than they had been in the decade prior

676
00:38:08,760 --> 00:38:10,920
Speaker 2: to COVID. How come what changed?

677
00:38:12,280 --> 00:38:17,200
Speaker 4: So isn't there place where I'm there's a legitimate, real discussion,

678
00:38:17,400 --> 00:38:20,320
Speaker 4: and I'm very strongly on one side of it. Okay,

679
00:38:20,360 --> 00:38:23,960
Speaker 4: So I think the useful discussion. All credit goes to

680
00:38:24,040 --> 00:38:28,120
Speaker 4: Larry Summers roughly was at twenty nineteen, twenty eighteen, he

681
00:38:28,160 --> 00:38:32,600
Speaker 4: gave the speech about secular stagnation, reviving the concept from

682
00:38:32,640 --> 00:38:36,200
Speaker 4: Alvin Hansen, and oh sorry, that was much earlier. He

683
00:38:36,200 --> 00:38:38,200
Speaker 4: gave that speech. Then he gave the speech in twenty

684
00:38:38,239 --> 00:38:41,640
Speaker 4: nineteen which he said secutor stagnation may be end And

685
00:38:41,800 --> 00:38:43,880
Speaker 4: he made a number of points, but the biggest one

686
00:38:43,960 --> 00:38:46,800
Speaker 4: was if you're in an environment where you're going to

687
00:38:46,880 --> 00:38:52,640
Speaker 4: have sustained expansionary fiscal policy pushing up demand and meeting

688
00:38:52,680 --> 00:38:55,920
Speaker 4: shortfalls of demand, then the r star and the neutral

689
00:38:55,920 --> 00:39:00,040
Speaker 4: interest rate is higher. And that's pretty clear economics. And

690
00:39:00,120 --> 00:39:02,319
Speaker 4: then the reasons which he said and others of us

691
00:39:02,320 --> 00:39:06,080
Speaker 4: have developed I think are right that going back to

692
00:39:06,160 --> 00:39:09,680
Speaker 4: the insurance beffoth, the risks are higher now there's climate change.

693
00:39:10,040 --> 00:39:12,640
Speaker 4: China is would no matter whose fault it is or

694
00:39:12,680 --> 00:39:14,400
Speaker 4: whether it was a nevil or not. China is more

695
00:39:14,440 --> 00:39:16,480
Speaker 4: of a security threat than it was. Russia is more

696
00:39:16,480 --> 00:39:18,960
Speaker 4: belligerent than it was. People have to spend more on that.

697
00:39:19,640 --> 00:39:23,680
Speaker 4: Our societies are aging. Att are almost all the large societies,

698
00:39:23,680 --> 00:39:25,759
Speaker 4: with the exception of India are aging. I mean you

699
00:39:25,760 --> 00:39:29,520
Speaker 4: have to spend more on healthcare and more on social security.

700
00:39:29,600 --> 00:39:32,760
Speaker 4: All of these things are going to lead to sustained

701
00:39:32,840 --> 00:39:36,600
Speaker 4: increases in government spending, irrespective of whatever else you do,

702
00:39:37,000 --> 00:39:39,360
Speaker 4: and they are unlikely, as we've already seen, to be

703
00:39:39,400 --> 00:39:45,239
Speaker 4: fully tax financed. So that is a fundamental. The second fundamental,

704
00:39:45,440 --> 00:39:48,880
Speaker 4: I would argue that's pushing up our star is that

705
00:39:49,480 --> 00:39:52,040
Speaker 4: we don't know when AI is going to kick in.

706
00:39:52,400 --> 00:39:54,279
Speaker 4: We don't know how big an effect, we don't know

707
00:39:54,320 --> 00:39:56,480
Speaker 4: how many jobs. You guys again have had many good

708
00:39:56,480 --> 00:39:59,399
Speaker 4: guests talking about this, but I think we can all

709
00:39:59,440 --> 00:40:02,640
Speaker 4: agree that sometime between two and ten years from now,

710
00:40:03,480 --> 00:40:06,640
Speaker 4: there will be a meaningfully increase in the productivity growth trend.

711
00:40:07,120 --> 00:40:08,920
Speaker 4: There are a few smart people like I, Sam oak

712
00:40:08,920 --> 00:40:11,440
Speaker 4: Glue and Johnson who say no, but most of us

713
00:40:11,480 --> 00:40:14,960
Speaker 4: think interesting that there will be an increase of some sort. Now,

714
00:40:14,960 --> 00:40:16,360
Speaker 4: I don't have to go all the way to McKinsey

715
00:40:16,400 --> 00:40:19,000
Speaker 4: Global Institute and believe you know it's some enormous number,

716
00:40:19,719 --> 00:40:24,120
Speaker 4: but whatever it is, that number an improvement in productivity

717
00:40:24,200 --> 00:40:29,200
Speaker 4: growth trend is generally one for one should be thought

718
00:40:29,239 --> 00:40:33,440
Speaker 4: of as raising the equilibrium interest rate, because you're raising

719
00:40:33,480 --> 00:40:35,640
Speaker 4: the average return on capital. Essentially.

720
00:40:35,719 --> 00:40:37,680
Speaker 2: There's totally counterintuitive to me. I would have thought that

721
00:40:37,719 --> 00:40:41,560
Speaker 2: a big productivity increase would be alt equal disinflationary and

722
00:40:41,920 --> 00:40:43,160
Speaker 2: rates lower.

723
00:40:42,840 --> 00:40:47,960
Speaker 4: And well, no, it's disinflationary. But remember inflation we should

724
00:40:47,960 --> 00:40:51,480
Speaker 4: think about as a short term phenomenon, a cyclical phenomenon,

725
00:40:51,520 --> 00:40:55,200
Speaker 4: not as a structural phenomenon. So it's disinflationary in the

726
00:40:55,239 --> 00:40:57,759
Speaker 4: sense that at any gift for while the productivity gain

727
00:40:57,800 --> 00:41:01,520
Speaker 4: is ongoing, you're getting more stuff from less. But as

728
00:41:01,520 --> 00:41:04,520
Speaker 4: a structural matter, you are raising the average returns on

729
00:41:04,560 --> 00:41:08,520
Speaker 4: capital in the society, and so all capital that's competing

730
00:41:09,120 --> 00:41:12,400
Speaker 4: has to compete with a higher return, and so therefore

731
00:41:12,480 --> 00:41:13,279
Speaker 4: our star is hup.

732
00:41:13,640 --> 00:41:14,040
Speaker 1: Interesting.

733
00:41:14,480 --> 00:41:17,560
Speaker 3: So, now that we are deep in our star territory,

734
00:41:17,760 --> 00:41:19,879
Speaker 3: I'm going to ask a central banking question with your

735
00:41:19,920 --> 00:41:24,560
Speaker 3: central bank hat on. So you mentioned stagflation.

736
00:41:25,440 --> 00:41:29,040
Speaker 2: He actually has his central bankout is a Boston rest

737
00:41:29,120 --> 00:41:30,919
Speaker 2: for those who because those aren't in the room.

738
00:41:31,400 --> 00:41:36,920
Speaker 3: That's right. So you mentioned stagflation earlier. What exactly are

739
00:41:37,040 --> 00:41:39,600
Speaker 3: central banks supposed to do when they're faced with the

740
00:41:39,600 --> 00:41:43,080
Speaker 3: stagflationary scenario. Because we just listened to pal talk about

741
00:41:43,440 --> 00:41:47,319
Speaker 3: downside risks to employment and upside risks to inflation. He

742
00:41:47,480 --> 00:41:51,919
Speaker 3: clearly seemed to choose the labor market over the inflationary

743
00:41:52,000 --> 00:41:54,360
Speaker 3: risk at this moment in time. But there's clearly a

744
00:41:54,400 --> 00:41:56,240
Speaker 3: trade off. You have to make a choice here.

745
00:41:56,560 --> 00:41:59,719
Speaker 4: Yes, And this is why you try to avoid bad

746
00:41:59,719 --> 00:42:02,799
Speaker 4: pop pellasies such as the ones the Trump administration are doing.

747
00:42:02,800 --> 00:42:07,279
Speaker 4: Which gets you into a stagflationary situation if you can. Essentially,

748
00:42:07,880 --> 00:42:10,600
Speaker 4: it's a contingent choice, and this is why the FED

749
00:42:10,719 --> 00:42:13,360
Speaker 4: is right to be putting so much emphasis on debating

750
00:42:13,400 --> 00:42:18,400
Speaker 4: over second round effects of inflationary shocks and things like

751
00:42:18,440 --> 00:42:21,640
Speaker 4: you were saying, how much pricing power there is? How

752
00:42:21,719 --> 00:42:24,440
Speaker 4: much recessionary effect do you get from these stack fleastion

753
00:42:24,560 --> 00:42:28,160
Speaker 4: It's essentially a balance issue if you're forced to choose

754
00:42:28,200 --> 00:42:31,280
Speaker 4: between the two goals, the two alves of the Fed's mandate,

755
00:42:31,320 --> 00:42:35,440
Speaker 4: but the two goals for any central bank, essentially you

756
00:42:35,480 --> 00:42:37,880
Speaker 4: have to go after the one that's more likely to

757
00:42:38,160 --> 00:42:39,520
Speaker 4: spiral out of control.

758
00:42:39,800 --> 00:42:43,279
Speaker 3: Ah. So this is their argument that labor market deterioration

759
00:42:43,480 --> 00:42:47,239
Speaker 3: can be very not linear, right, it can kind of explode.

760
00:42:47,520 --> 00:42:50,160
Speaker 4: Yeah, nonlinear is the way they think of it. I

761
00:42:50,200 --> 00:42:52,520
Speaker 4: think again, it's no reason I would take the other

762
00:42:52,640 --> 00:42:58,160
Speaker 4: side because the evidence is yes. And there's the discussion

763
00:42:58,200 --> 00:43:00,360
Speaker 4: about the so called som rule. Did you can have

764
00:43:00,440 --> 00:43:05,720
Speaker 4: these very rapid increases in unemployment. But what we've seen

765
00:43:06,239 --> 00:43:09,759
Speaker 4: is much to people's surprise but has to be taken seriously,

766
00:43:10,640 --> 00:43:14,840
Speaker 4: is both after two thousand and eight and after twenty twenty,

767
00:43:14,880 --> 00:43:18,680
Speaker 4: So after the financial crisis. After COVID, unemployment actually came

768
00:43:18,719 --> 00:43:23,120
Speaker 4: down pretty fast, and there wasn't evidence of what economists

769
00:43:23,160 --> 00:43:27,040
Speaker 4: call hysteresis, which is the idea that once you put

770
00:43:27,080 --> 00:43:28,759
Speaker 4: a lot of people out of work, it's harder for

771
00:43:28,800 --> 00:43:31,200
Speaker 4: them to get back into work. And so it's taken

772
00:43:31,280 --> 00:43:34,640
Speaker 4: from engineering. It's a concept that was very true of

773
00:43:34,640 --> 00:43:38,040
Speaker 4: Europe in the seventies and eighties that every time you

774
00:43:38,080 --> 00:43:41,440
Speaker 4: got an unemployment rate hike because of recession, it wouldn't

775
00:43:41,440 --> 00:43:42,880
Speaker 4: come all the way back down to where it was

776
00:43:42,920 --> 00:43:44,680
Speaker 4: before the recession, because there'd be a certain number of

777
00:43:44,719 --> 00:43:48,359
Speaker 4: people who couldn't get back into work. And ahead of

778
00:43:48,400 --> 00:43:51,759
Speaker 4: the two thousand and eight crisis, during it, including my

779
00:43:51,880 --> 00:43:55,359
Speaker 4: time at the Bank of England speeches and then Jare

780
00:43:55,400 --> 00:43:59,120
Speaker 4: Powell and others in twenty twenty during COVID, worried a

781
00:43:59,160 --> 00:44:04,680
Speaker 4: lot about this potential for permanently having rises in the

782
00:44:04,760 --> 00:44:09,120
Speaker 4: unemployment rate. But the thing is, all the evidence from

783
00:44:09,120 --> 00:44:11,480
Speaker 4: two thousand and eight and all the evidence from twenty

784
00:44:11,560 --> 00:44:14,440
Speaker 4: twenty is that didn't happen. And again it was a surprise,

785
00:44:14,480 --> 00:44:17,200
Speaker 4: but it's a really important and a really robust result.

786
00:44:17,360 --> 00:44:20,280
Speaker 2: You really are an unreformed neoliberal because so many people

787
00:44:20,280 --> 00:44:24,320
Speaker 2: have accepted the opposite. Everyone almost everyone thinks there's some histories.

788
00:44:24,680 --> 00:44:27,759
Speaker 4: And again, like I said, well I'm not in this.

789
00:44:27,800 --> 00:44:29,640
Speaker 4: It's not so much I appreciate that joke. And this

790
00:44:29,719 --> 00:44:32,920
Speaker 4: is not so much being a neoliberal as being an empiricist.

791
00:44:33,239 --> 00:44:36,080
Speaker 4: So I mean, on my staff, a colleague of mine

792
00:44:36,160 --> 00:44:40,239
Speaker 4: is Olivi Blacharden. He coined the Hystorici's concept may years ago,

793
00:44:40,680 --> 00:44:43,200
Speaker 4: and he and Larry Summers and the co author's name,

794
00:44:43,239 --> 00:44:47,320
Speaker 4: of course I forget, I apologize, did a paper in

795
00:44:47,680 --> 00:44:50,160
Speaker 4: twenty thirteen. It was like the first paper they did

796
00:44:50,160 --> 00:44:52,680
Speaker 4: for us after I took over at Peterson looking for

797
00:44:52,800 --> 00:44:55,200
Speaker 4: Hystoresi's effects in the two thousand and eight to ten

798
00:44:55,280 --> 00:44:59,440
Speaker 4: data and they couldn't find it. And then Powell, again

799
00:44:59,640 --> 00:45:02,120
Speaker 4: I think, with a great deal of sympathy from me

800
00:45:02,200 --> 00:45:04,719
Speaker 4: and others, talked a lot about history sis for why

801
00:45:04,760 --> 00:45:07,520
Speaker 4: they were so aggressive and cutting in response to COVID.

802
00:45:08,280 --> 00:45:10,759
Speaker 4: But then again, we know the unemployment came right down,

803
00:45:11,000 --> 00:45:13,799
Speaker 4: So people care about this. They're coming from a good

804
00:45:13,840 --> 00:45:16,440
Speaker 4: place to care about this. But it's not the illiberal

805
00:45:16,440 --> 00:45:18,520
Speaker 4: it's the evidence. The evidence isn't there, and so the

806
00:45:18,560 --> 00:45:22,560
Speaker 4: implication is not that you shouldn't care about unemployment. You

807
00:45:22,560 --> 00:45:26,680
Speaker 4: should have temporary measures of fiscal policy like we did

808
00:45:26,760 --> 00:45:30,400
Speaker 4: during COVID to extend unemployment insurance, to extend health insurance,

809
00:45:30,440 --> 00:45:33,640
Speaker 4: to make it less miserable for people who are unemployed.

810
00:45:34,280 --> 00:45:37,719
Speaker 4: But the inflation is probably the thing that's more likely

811
00:45:37,760 --> 00:45:38,680
Speaker 4: to get out of control.

812
00:45:38,760 --> 00:45:41,360
Speaker 2: In my people, Tracy asked you a question put on

813
00:45:41,400 --> 00:45:43,640
Speaker 2: your Monetary policy had but I'm going to ask you

814
00:45:44,160 --> 00:45:48,360
Speaker 2: a question specifically with your Monetary Policy committee hat having

815
00:45:48,480 --> 00:45:53,840
Speaker 2: served at the I'm having served at the Bank of England.

816
00:45:54,160 --> 00:45:56,319
Speaker 2: Long term rates in the UK are higher than the

817
00:45:56,360 --> 00:45:58,360
Speaker 2: so called Liz Trust's moment and I asked you a

818
00:45:58,400 --> 00:46:00,759
Speaker 2: question about this last year and it was very vague

819
00:46:00,800 --> 00:46:01,960
Speaker 2: at the time. I was like, what's going on with

820
00:46:02,000 --> 00:46:04,160
Speaker 2: the UK? And because it always thineks like there's some

821
00:46:04,160 --> 00:46:06,600
Speaker 2: sort of mess, But now I actually have something specific

822
00:46:06,680 --> 00:46:08,759
Speaker 2: to ask, which is what's going on with the UK

823
00:46:09,400 --> 00:46:13,319
Speaker 2: in the sense that it seems bad, sir, it seems bad.

824
00:46:13,440 --> 00:46:16,120
Speaker 2: The rates are very high. What's going on there?

825
00:46:16,520 --> 00:46:18,560
Speaker 4: I think I said to you when you asked about

826
00:46:18,560 --> 00:46:22,400
Speaker 4: this last year, Joe, that the single biggest call I

827
00:46:22,440 --> 00:46:25,200
Speaker 4: got wrong in terms of analysis and forecasting in my

828
00:46:25,320 --> 00:46:30,200
Speaker 4: career was twenty twelve at Bank of England. I and

829
00:46:30,239 --> 00:46:32,080
Speaker 4: some others on the committee at the time but I'm

830
00:46:32,120 --> 00:46:37,000
Speaker 4: responsible for me said, yeah, productivity has been lower in

831
00:46:37,000 --> 00:46:38,960
Speaker 4: the last few years to twenty twelve because of the

832
00:46:38,960 --> 00:46:42,600
Speaker 4: financial crisis, but it's gonna come back up because it's

833
00:46:42,600 --> 00:46:46,120
Speaker 4: been the same long term trend since eighteen fifty and

834
00:46:46,840 --> 00:46:49,200
Speaker 4: there was nothing to destroy a.

835
00:46:49,200 --> 00:46:49,759
Speaker 2: Trend from it.

836
00:46:50,200 --> 00:46:53,000
Speaker 4: Yeah, I don't cameer if it's eighteen fifty or eighteen sixty.

837
00:46:53,040 --> 00:46:55,680
Speaker 4: But there's some incredibly long data series we have for

838
00:46:55,840 --> 00:46:58,879
Speaker 4: UK productivity growth and even if you watch it, it's

839
00:46:58,920 --> 00:47:02,040
Speaker 4: just a straight upward line. And even the Great Depression

840
00:47:02,080 --> 00:47:03,719
Speaker 4: sort of makes a little blip, and World War Two

841
00:47:03,760 --> 00:47:06,880
Speaker 4: makes a little bit, and then suddenly in two thousand

842
00:47:06,880 --> 00:47:10,960
Speaker 4: and eight it goes flat. And I and a bunch

843
00:47:11,000 --> 00:47:13,919
Speaker 4: of other people said, well, it's not like the Blitz, right,

844
00:47:14,360 --> 00:47:16,759
Speaker 4: and so productivity growth is going to come back up

845
00:47:16,800 --> 00:47:20,720
Speaker 4: to trent. It never did. The UK is the one

846
00:47:20,880 --> 00:47:25,719
Speaker 4: rich economy, high income economy where productivity growth not just

847
00:47:25,800 --> 00:47:28,920
Speaker 4: went down for a while, but kept going down. And

848
00:47:28,960 --> 00:47:32,640
Speaker 4: so now we've had a dozen years of very low

849
00:47:32,719 --> 00:47:36,600
Speaker 4: productivity growth in the UK and at some point that

850
00:47:36,640 --> 00:47:39,719
Speaker 4: catches up with you, and I think that's the way

851
00:47:39,719 --> 00:47:42,759
Speaker 4: to look at it is you throw bregs in it

852
00:47:42,920 --> 00:47:44,560
Speaker 4: on top of that, which may be one of the

853
00:47:44,600 --> 00:47:48,040
Speaker 4: reasons why productivity growth hasn't come back, and there's debate

854
00:47:48,080 --> 00:47:52,719
Speaker 4: about that, but they have been running making less with

855
00:47:52,920 --> 00:47:56,040
Speaker 4: more rather than more with less for a very long time,

856
00:47:56,560 --> 00:48:03,160
Speaker 4: and wages and prices and the path all haven't dropped accordingly.

857
00:48:03,239 --> 00:48:06,239
Speaker 4: So it's not like unfortunately grease suffered through say or

858
00:48:06,280 --> 00:48:10,520
Speaker 4: Portugal during the financial crisis, and so something's out of whack.

859
00:48:11,000 --> 00:48:14,000
Speaker 4: And this shows up eventually in the fiscal policy, which

860
00:48:14,040 --> 00:48:16,680
Speaker 4: is what you're talking about, that they have a bunch

861
00:48:16,680 --> 00:48:20,239
Speaker 4: of really hard choices to make. If the government, the

862
00:48:20,280 --> 00:48:24,520
Speaker 4: current labor government, doesn't make lots of cuts, the interest

863
00:48:24,600 --> 00:48:27,760
Speaker 4: rates keep going up. If they do make lots of cuts,

864
00:48:27,800 --> 00:48:31,600
Speaker 4: then probably productivity growth doesn't improve. So they're just in

865
00:48:31,640 --> 00:48:33,440
Speaker 4: a really, really tough situation.

866
00:48:34,239 --> 00:48:37,560
Speaker 3: So Joe asked you a question with your boe hat on,

867
00:48:37,719 --> 00:48:40,799
Speaker 3: and I'm going to ask something similar. Which is one

868
00:48:40,840 --> 00:48:43,239
Speaker 3: of the things that makes Jackson Hole such a big

869
00:48:43,239 --> 00:48:45,120
Speaker 3: deal is that we don't just have the FED here.

870
00:48:45,239 --> 00:48:50,120
Speaker 3: We also have other central bankers like the ECB, the

871
00:48:50,120 --> 00:48:53,400
Speaker 3: BOJ and you see them do the classic walk with

872
00:48:53,680 --> 00:48:57,680
Speaker 3: the FED chair every year when it comes to central

873
00:48:57,680 --> 00:49:01,040
Speaker 3: bank credibility and the independence issue. What do you think

874
00:49:01,080 --> 00:49:05,120
Speaker 3: those other central bankers are thinking here and do they

875
00:49:05,160 --> 00:49:08,239
Speaker 3: possibly use some of Jackson Hall We're still waiting to

876
00:49:08,280 --> 00:49:11,239
Speaker 3: hear from them. That usually happens on Saturday morning. We're

877
00:49:11,280 --> 00:49:14,040
Speaker 3: recording this on Friday afternoon. Do you think they maybe

878
00:49:14,160 --> 00:49:16,399
Speaker 3: use this as a platform to try to push back

879
00:49:16,440 --> 00:49:17,160
Speaker 3: against some of it.

880
00:49:17,440 --> 00:49:22,719
Speaker 4: So, the central bankers, both publicly and in conversations I've

881
00:49:22,719 --> 00:49:25,719
Speaker 4: had with them from around the world, are shocked and

882
00:49:25,800 --> 00:49:31,839
Speaker 4: horrified that the Trump administration is doing this to the FED.

883
00:49:32,640 --> 00:49:36,279
Speaker 4: Beyond just the obvious. They're sympathetic to their colleagues from

884
00:49:36,320 --> 00:49:39,839
Speaker 4: the FED, and it's pretty yucky. Is just the fact

885
00:49:39,880 --> 00:49:43,120
Speaker 4: that they have taken it for granted, the entire economics

886
00:49:43,120 --> 00:49:47,040
Speaker 4: professions taking it for granted for more than forty years,

887
00:49:47,239 --> 00:49:49,480
Speaker 4: going back to a classic paper by Ken Rogoff in

888
00:49:49,560 --> 00:49:52,480
Speaker 4: nineteen eighty six, and then some subsequent when work others

889
00:49:52,480 --> 00:49:56,920
Speaker 4: did that in central bank independence is good. It reduces

890
00:49:56,960 --> 00:50:01,360
Speaker 4: inflation and reduces the volatility of inflation on average for

891
00:50:01,400 --> 00:50:04,760
Speaker 4: a country in a large way without reducing the average

892
00:50:04,840 --> 00:50:10,080
Speaker 4: growthroat full stop. And this is lived experience. This is

893
00:50:11,320 --> 00:50:14,480
Speaker 4: what the European Central Bank was based on. This is

894
00:50:14,560 --> 00:50:17,160
Speaker 4: why the Bundesbank and the Germans were willing to give

895
00:50:17,239 --> 00:50:20,520
Speaker 4: up sovereignty to the European Central Bank. This is the

896
00:50:20,719 --> 00:50:24,399
Speaker 4: standard practice that dozens of countries have adopted. The Bank

897
00:50:24,440 --> 00:50:28,719
Speaker 4: of Japan got independence over the last thirty years. So

898
00:50:29,320 --> 00:50:32,120
Speaker 4: it's kind of like with tread economists in the past,

899
00:50:32,120 --> 00:50:34,319
Speaker 4: but even more in questions it's like, you know, this

900
00:50:34,440 --> 00:50:37,560
Speaker 4: is like questioning vaccines, which of course nowadays people do,

901
00:50:37,760 --> 00:50:39,680
Speaker 4: but at one point would have been thought of as

902
00:50:39,800 --> 00:50:42,920
Speaker 4: what kind of anti scientific illiterate are you that you

903
00:50:42,960 --> 00:50:46,279
Speaker 4: would question central bank independence? So, I mean, there's no

904
00:50:46,320 --> 00:50:50,400
Speaker 4: way to exaggerate. That's the response at various international versions

905
00:50:50,440 --> 00:50:53,279
Speaker 4: of central bank summer camp, you know, which is what

906
00:50:53,400 --> 00:50:56,319
Speaker 4: Jackson Hole is. So the ECB has their version, which

907
00:50:56,400 --> 00:50:59,360
Speaker 4: is called the Central Conference, and this year at CenTra

908
00:50:59,680 --> 00:51:03,279
Speaker 4: every he was rallying around Jay the share Powell, and

909
00:51:03,360 --> 00:51:06,200
Speaker 4: there were public statements about central bank independence and support

910
00:51:06,280 --> 00:51:10,239
Speaker 4: for him at the BIS annual meeting, which is a

911
00:51:10,280 --> 00:51:12,759
Speaker 4: sort of similar thing, which this year I got invited to.

912
00:51:12,960 --> 00:51:14,719
Speaker 4: I don't usually get invite to that. I do get

913
00:51:14,760 --> 00:51:17,440
Speaker 4: the center anyway. Again, there were public statements that are

914
00:51:17,480 --> 00:51:21,440
Speaker 4: private statements that everyone's ralling around. But as we discussed,

915
00:51:21,640 --> 00:51:26,879
Speaker 4: the FED leadership seems to have decided that jaer Pale

916
00:51:26,960 --> 00:51:30,200
Speaker 4: should not mention a word about central bank independence in

917
00:51:30,239 --> 00:51:34,719
Speaker 4: his speech this year, and so this is pure extrapolation.

918
00:51:34,920 --> 00:51:37,279
Speaker 4: By the time this recording comes out, we'll find out,

919
00:51:37,760 --> 00:51:40,400
Speaker 4: but my expectation is they will have passed a memo

920
00:51:41,360 --> 00:51:45,439
Speaker 4: to ECB President Leguard, Bank of England Governor Bailey, Bank

921
00:51:45,480 --> 00:51:48,800
Speaker 4: of Japan Governor Awaita, who are the three big central

922
00:51:48,840 --> 00:51:52,879
Speaker 4: bank governors speaking on Saturday, Please don't talk about it.

923
00:51:53,360 --> 00:51:58,880
Speaker 4: And I think what they've probably decided is having foreign

924
00:51:58,960 --> 00:52:02,640
Speaker 4: central bankers talk about this would not play well in

925
00:52:02,680 --> 00:52:07,239
Speaker 4: maga Land and might just induce more problems with the

926
00:52:07,280 --> 00:52:11,520
Speaker 4: Trump people. So I think the instinct of the foreign

927
00:52:11,600 --> 00:52:15,759
Speaker 4: central bankers here would be to talk very loudly about this,

928
00:52:15,920 --> 00:52:19,719
Speaker 4: but I think they explicitly or implicitly have been told

929
00:52:19,760 --> 00:52:20,000
Speaker 4: not to.

930
00:52:20,400 --> 00:52:22,560
Speaker 2: Woll This is exciting because by the time this comes out,

931
00:52:22,680 --> 00:52:27,320
Speaker 2: this will either have You'll either be very wrong or

932
00:52:27,400 --> 00:52:31,600
Speaker 2: very right. Edison always great catching up with you and uh,

933
00:52:31,760 --> 00:52:32,759
Speaker 2: we'll do it again next year.

934
00:52:32,920 --> 00:52:35,279
Speaker 4: Thank you for having me. Congrats to both you. It's

935
00:52:35,280 --> 00:52:36,760
Speaker 4: a great substantive discussion.

936
00:52:36,880 --> 00:52:37,680
Speaker 3: Thank you so much you.

937
00:52:50,600 --> 00:52:53,040
Speaker 2: Tracy. I love our annual catch up with Adam. It

938
00:52:53,120 --> 00:52:56,520
Speaker 2: really he was like the perfect guest because he'd just

939
00:52:56,560 --> 00:52:58,359
Speaker 2: say whatever you say, what's on his mind.

940
00:52:58,640 --> 00:53:00,600
Speaker 3: Well, at a time when a lot of people don't

941
00:53:00,600 --> 00:53:02,200
Speaker 3: want to talk about this stuff, right.

942
00:53:02,040 --> 00:53:04,439
Speaker 2: Yeah, people are like anxious when people feel like there's

943
00:53:04,480 --> 00:53:07,360
Speaker 2: like recriminations where people people want to people want to

944
00:53:07,440 --> 00:53:10,080
Speaker 2: keep low. Yeah, people want to keep their low at

945
00:53:10,080 --> 00:53:12,200
Speaker 2: a time when they don't know if there's going to

946
00:53:12,239 --> 00:53:15,200
Speaker 2: be some attack on them from the White House or

947
00:53:15,440 --> 00:53:17,959
Speaker 2: you know, on Twitter, or people want to keep low.

948
00:53:18,000 --> 00:53:19,920
Speaker 2: And Adam I appreciate.

949
00:53:19,480 --> 00:53:22,640
Speaker 3: His candor can I just say I'm always really impressed

950
00:53:22,640 --> 00:53:24,880
Speaker 3: by people who are able to organize their thoughts in

951
00:53:24,920 --> 00:53:27,520
Speaker 3: real time to be like, well, there are three reasons

952
00:53:27,520 --> 00:53:31,640
Speaker 3: actually Number one, that's right, that's right, show, But that

953
00:53:31,760 --> 00:53:35,920
Speaker 3: was a fantastic conversation. One thing, well, I guess the

954
00:53:36,000 --> 00:53:38,040
Speaker 3: thing that I still don't get and I think it

955
00:53:38,120 --> 00:53:41,080
Speaker 3: is really hard to make an argument that the US

956
00:53:41,120 --> 00:53:44,960
Speaker 3: has lost out from an economic and financial and in

957
00:53:44,960 --> 00:53:48,359
Speaker 3: some respects political system around the world that it has

958
00:53:48,920 --> 00:53:53,439
Speaker 3: helped to create. Right, Like, there are tangible instances where

959
00:53:53,480 --> 00:53:57,279
Speaker 3: you can say, like the US benefits in sometimes incredibly

960
00:53:57,320 --> 00:54:00,000
Speaker 3: weird ways. Like if you look at the deck crisis

961
00:54:00,080 --> 00:54:03,399
Speaker 3: this in like twenty thirteen or twenty eleven, you know,

962
00:54:03,600 --> 00:54:06,120
Speaker 3: this is a crisis emanating from the US, from the

963
00:54:06,200 --> 00:54:09,279
Speaker 3: United States, from US politics, and what you saw was

964
00:54:09,320 --> 00:54:13,080
Speaker 3: investors flocked to the security of US treasuries and you know,

965
00:54:13,160 --> 00:54:16,279
Speaker 3: yields actually go down, which helps with US debt. So

966
00:54:16,440 --> 00:54:20,560
Speaker 3: there are these like sometimes perverse benefits that the Trump

967
00:54:20,600 --> 00:54:22,800
Speaker 3: administration seems to want to throw away.

968
00:54:23,080 --> 00:54:25,200
Speaker 2: You know, one thing I will say that I was

969
00:54:25,200 --> 00:54:28,680
Speaker 2: thinking about in your intro is and I go think

970
00:54:28,719 --> 00:54:32,600
Speaker 2: back to that book trade Wars or class Wars, which

971
00:54:32,640 --> 00:54:36,320
Speaker 2: I think is actually I suspect Adam almost very disagrees

972
00:54:36,400 --> 00:54:39,239
Speaker 2: with the premise of that book, et cetera. But regardless

973
00:54:39,280 --> 00:54:42,279
Speaker 2: of where you stand on some of these questions, there

974
00:54:42,440 --> 00:54:47,680
Speaker 2: is the relationship between you can't disrupt the domestic without

975
00:54:47,960 --> 00:54:52,360
Speaker 2: disrupting the international or vice versa. These are like inextricably linked.

976
00:54:52,440 --> 00:54:55,520
Speaker 2: If you perceive to be there some sort of inequality

977
00:54:55,640 --> 00:54:59,000
Speaker 2: in the United States or whatever, it is these things

978
00:54:59,000 --> 00:55:01,719
Speaker 2: like the trading relation ship, all of these things, they

979
00:55:01,760 --> 00:55:03,880
Speaker 2: are interlinks. So it's like one thing to say, like

980
00:55:04,239 --> 00:55:06,319
Speaker 2: you know, there's the views like oh knocking over all

981
00:55:06,360 --> 00:55:09,560
Speaker 2: of these different institutions. I think there there are linked

982
00:55:09,560 --> 00:55:12,160
Speaker 2: in fundamental ways, and there it sort of makes sense

983
00:55:12,200 --> 00:55:14,120
Speaker 2: that if you you know, you go after the FED

984
00:55:14,200 --> 00:55:17,160
Speaker 2: because you perceive whatever that that's part and parcel of

985
00:55:17,200 --> 00:55:17,719
Speaker 2: the whole thing.

986
00:55:18,120 --> 00:55:20,080
Speaker 3: You can to argue their links. But I would say,

987
00:55:20,080 --> 00:55:25,160
Speaker 3: if you're trying to solve domestic inequality through international means,

988
00:55:25,239 --> 00:55:28,360
Speaker 3: that doesn't seem that it seems like the emphasis and

989
00:55:28,400 --> 00:55:29,279
Speaker 3: the focus is wrong.

990
00:55:29,600 --> 00:55:32,440
Speaker 2: I guess what I'm saying is I'm not surprised that

991
00:55:32,480 --> 00:55:34,560
Speaker 2: it all goes to because like that was my toy

992
00:55:34,680 --> 00:55:38,600
Speaker 2: for like like that that the sort of Klein Peedies theory,

993
00:55:38,600 --> 00:55:41,520
Speaker 2: et cetera, that you know, there's this inequality in the

994
00:55:41,640 --> 00:55:45,440
Speaker 2: United States because of these winners and losers from the

995
00:55:45,440 --> 00:55:47,680
Speaker 2: international trading system, right, right, and so we fight these

996
00:55:47,719 --> 00:55:51,200
Speaker 2: trade wars, et cetera, because we're it's about something internal

997
00:55:51,320 --> 00:55:54,640
Speaker 2: that rectifying some sort of internal imbound right. And so

998
00:55:54,680 --> 00:55:56,759
Speaker 2: I do think, like I get so there's just gets

999
00:55:56,760 --> 00:55:59,400
Speaker 2: some all I'm saying is I'm not surprised at all.

1000
00:55:59,280 --> 00:56:01,680
Speaker 3: Goes together because I see I get yeah.

1001
00:56:01,960 --> 00:56:04,120
Speaker 2: As part of like a policy agenda.

1002
00:56:04,200 --> 00:56:07,360
Speaker 3: But it's possible that we should be looking at domestic

1003
00:56:07,400 --> 00:56:11,040
Speaker 3: policy more rather than fighting with trading partners. That also,

1004
00:56:11,520 --> 00:56:13,319
Speaker 3: you're not going to say that you're lying low now,

1005
00:56:13,600 --> 00:56:14,239
Speaker 3: all right, I'm just.

1006
00:56:14,200 --> 00:56:16,080
Speaker 2: Saying I don't have an opinion the right way to

1007
00:56:16,120 --> 00:56:18,160
Speaker 2: do it. I'm just saying I'm not surprised that this

1008
00:56:18,280 --> 00:56:18,719
Speaker 2: is one way.

1009
00:56:19,200 --> 00:56:20,120
Speaker 3: Okay, shall we leave it there.

1010
00:56:20,200 --> 00:56:20,839
Speaker 4: Let's leave it there.

1011
00:56:20,920 --> 00:56:23,480
Speaker 3: This has been another episode of the Authoughts podcast. I'm

1012
00:56:23,520 --> 00:56:26,560
Speaker 3: Tracy Alloway. You can follow me at Tracy Alloway.

1013
00:56:26,320 --> 00:56:29,080
Speaker 2: And I'm Jill Wisenthal. You can follow me at the Stalwart.

1014
00:56:29,200 --> 00:56:32,160
Speaker 2: Follow our guest Adam Posen at Adam Posen. Follow our

1015
00:56:32,200 --> 00:56:35,160
Speaker 2: producers Carmen Rodriguez at Carman armand Dash E Bennett at

1016
00:56:35,200 --> 00:56:38,600
Speaker 2: Dashbod and Keil Brooks at Keilbrooks. For more Oddlots content,

1017
00:56:38,640 --> 00:56:40,719
Speaker 2: go to Bloomberg dot com slash odd Lots. We have

1018
00:56:40,719 --> 00:56:43,279
Speaker 2: a daily newsletter and all of our episodes, and you

1019
00:56:43,280 --> 00:56:45,160
Speaker 2: can chat about all of these topics twenty four to

1020
00:56:45,160 --> 00:56:48,480
Speaker 2: seven in our discord Discord dot gg slash.

1021
00:56:48,280 --> 00:56:51,040
Speaker 3: Out lots and if you enjoy all thoughts. If you

1022
00:56:51,200 --> 00:56:53,880
Speaker 3: like our annual tradition of catching up with Adam Posen

1023
00:56:54,000 --> 00:56:56,760
Speaker 3: at Jackson Hole, then please leave us a positive review

1024
00:56:56,840 --> 00:56:59,799
Speaker 3: on your favorite podcast platform. And remember, if you are

1025
00:56:59,840 --> 00:57:02,319
Speaker 3: a Bloomberg subscriber, you can listen to all of our

1026
00:57:02,360 --> 00:57:05,279
Speaker 3: episodes absolutely ad free. All you need to do is

1027
00:57:05,320 --> 00:57:08,080
Speaker 3: find the Bloomberg channel on Apple Podcasts and follow the

1028
00:57:08,080 --> 00:57:10,040
Speaker 3: instructions there. Thanks for listening