1 00:00:03,440 --> 00:00:06,680 Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the 2 00:00:06,680 --> 00:00:15,319 Speaker 1: global economy to you. Well, this time of year, the 3 00:00:15,320 --> 00:00:18,360 Speaker 1: global economy goes to Washington for the annual meetings of 4 00:00:18,360 --> 00:00:21,320 Speaker 1: the International Monetary Fund and the World Bank. A global 5 00:00:21,360 --> 00:00:23,920 Speaker 1: governance is one of the big themes that next month's 6 00:00:23,920 --> 00:00:27,240 Speaker 1: Bloomberg New Economy Forum in Beijing. So I had even 7 00:00:27,280 --> 00:00:29,680 Speaker 1: more reason than usual to spend a few days at 8 00:00:29,720 --> 00:00:33,479 Speaker 1: the meetings, testing the mood, talking to smart people, including 9 00:00:33,520 --> 00:00:36,879 Speaker 1: a member of the Federal Reserves Interest Rate Committee, Robert Kaplan, 10 00:00:37,360 --> 00:00:40,559 Speaker 1: and the former heads of the German and Indian Central Banks. 11 00:00:41,040 --> 00:00:43,640 Speaker 1: You'll hear some of that later, but first we have 12 00:00:43,680 --> 00:00:47,199 Speaker 1: a report from a country that's tested the Breton Woods institutions, 13 00:00:47,360 --> 00:00:49,239 Speaker 1: the I m F, and the World Bank more than 14 00:00:49,360 --> 00:00:53,600 Speaker 1: most Argentina. There are four kinds of country in the world, 15 00:00:53,800 --> 00:00:59,280 Speaker 1: the economist Simon Kuznets once said, developed, undeveloped, Japan, and Argentina. 16 00:01:00,000 --> 00:01:03,320 Speaker 1: Since nineteen fifty, the South American country has spent one 17 00:01:03,480 --> 00:01:06,640 Speaker 1: third of its time in recession, second only to the 18 00:01:06,680 --> 00:01:10,559 Speaker 1: Democratic Republic of Congo. Things were supposed to be different 19 00:01:10,880 --> 00:01:15,040 Speaker 1: under President Maurizio Macri, who swept to power in promising 20 00:01:15,080 --> 00:01:18,840 Speaker 1: structural reforms, but now the country's back in recession and 21 00:01:18,920 --> 00:01:22,920 Speaker 1: dependent again on a massive bailout from the IMF. Macary 22 00:01:23,040 --> 00:01:27,240 Speaker 1: lost badly in August primary elections to his left wing challenger, 23 00:01:27,480 --> 00:01:32,440 Speaker 1: Alberto Fernandez. That shock result triggered panic in the country's 24 00:01:32,480 --> 00:01:37,440 Speaker 1: financial markets and led to some familiar policy solutions capital controls, 25 00:01:37,760 --> 00:01:42,039 Speaker 1: price freezes, and wage hikes. Now the general election is 26 00:01:42,160 --> 00:01:46,280 Speaker 1: just around the corner. Bruce Douglas reports from Buenos Aires 27 00:01:46,280 --> 00:01:50,160 Speaker 1: on what Argentines and the IMF may have learned from 28 00:01:50,200 --> 00:02:13,720 Speaker 1: their latest entanglement. M In a busy neighborhood of downtown 29 00:02:13,760 --> 00:02:16,960 Speaker 1: Buenos Aires, a stone's throw from the city court houses, 30 00:02:17,320 --> 00:02:20,440 Speaker 1: the bar Los Galagos has catered to a mix of lawyers, 31 00:02:20,560 --> 00:02:25,280 Speaker 1: professionals and tourists, but almost one hundred years, waitresses bottle 32 00:02:25,320 --> 00:02:28,640 Speaker 1: behind the chrome counter as customers chatter with a thick 33 00:02:28,760 --> 00:02:39,120 Speaker 1: steak and egg sandwiches in an oak lined room above 34 00:02:39,160 --> 00:02:42,880 Speaker 1: the bar. I spoke to Julianas, the owner of Los Galagos, 35 00:02:43,040 --> 00:02:48,720 Speaker 1: the bar opening nineteen thirty and it's a category of traditionals. 36 00:02:48,840 --> 00:02:54,000 Speaker 1: Barrus goal balt No Dowlas was like a remarkable virus 37 00:02:54,080 --> 00:03:00,120 Speaker 1: because he's important in cultural ratoris so this bar restaurant 38 00:03:00,160 --> 00:03:04,120 Speaker 1: has been here since nine It survived a lot of 39 00:03:04,320 --> 00:03:08,120 Speaker 1: ups and downs in the Argentina economy. How did it 40 00:03:08,200 --> 00:03:12,800 Speaker 1: survive all these years? And in every crisis is a 41 00:03:12,800 --> 00:03:16,680 Speaker 1: lot of places close and a lot of places change 42 00:03:16,960 --> 00:03:21,280 Speaker 1: his policy or loose quality, or you can see in 43 00:03:21,480 --> 00:03:24,520 Speaker 1: a lot of places who close in the big crisis 44 00:03:24,520 --> 00:03:27,320 Speaker 1: of the end of the eighties or in the two 45 00:03:27,320 --> 00:03:30,360 Speaker 1: thousand and one. And in every crisis there is we 46 00:03:30,480 --> 00:03:36,480 Speaker 1: have a like like a scar like. But for us 47 00:03:37,000 --> 00:03:40,680 Speaker 1: is the the idea is always changed and work with 48 00:03:40,720 --> 00:03:45,760 Speaker 1: a lot of creativity. If if some ingredients are very expensive, 49 00:03:45,800 --> 00:03:49,760 Speaker 1: we change the ingredients. One of the biggest challenges for 50 00:03:49,800 --> 00:03:52,320 Speaker 1: any business in Argentina it is hard to cope with 51 00:03:52,360 --> 00:03:57,880 Speaker 1: the runaway rates inflation, with price rises currently running like yes, 52 00:03:58,040 --> 00:04:01,960 Speaker 1: it's impossible to under something to a foreign people. Coffee 53 00:04:02,120 --> 00:04:06,320 Speaker 1: one month ago was seventy two. Three weeks ago was 54 00:04:06,640 --> 00:04:10,640 Speaker 1: eighty two weeks ago. It's nettie and possibly the next 55 00:04:10,640 --> 00:04:14,240 Speaker 1: week is a hundred business because the coffee is um 56 00:04:14,280 --> 00:04:16,440 Speaker 1: it's an important actually thinking that doesn't product coffee and 57 00:04:16,440 --> 00:04:20,400 Speaker 1: the coffee it's in dollars in the world in Argentina. 58 00:04:20,560 --> 00:04:24,520 Speaker 1: But for us, the impact of the inflation, of the 59 00:04:24,560 --> 00:04:27,840 Speaker 1: evolution of the fs in that kind of bro who 60 00:04:27,880 --> 00:04:35,279 Speaker 1: are very popular here. Julian Diaz believes that the current 61 00:04:35,320 --> 00:04:38,800 Speaker 1: crisis shows that the kind of open market economy Macrie 62 00:04:38,880 --> 00:04:42,400 Speaker 1: hoped to foster just doesn't work in a country like Argentina. 63 00:04:43,720 --> 00:04:45,640 Speaker 1: He doesn't have long to wait to make this point 64 00:04:45,680 --> 00:04:48,960 Speaker 1: at the ballot box elections to DWO on Sunday, But 65 00:04:49,120 --> 00:04:52,440 Speaker 1: with Macri losing by sixteen points Throughoutberto Fernandez and the 66 00:04:52,520 --> 00:04:56,240 Speaker 1: primary vote in August, most analysts believe the result is 67 00:04:56,279 --> 00:05:01,200 Speaker 1: a foregone conclusion. Fernandez and his running mate, former President 68 00:05:01,320 --> 00:05:04,599 Speaker 1: Christina Kirchner, hail from the so called paranist wing of 69 00:05:04,720 --> 00:05:09,680 Speaker 1: Argentine politics. Juan Domingo Perun army officer, three time president 70 00:05:09,880 --> 00:05:12,760 Speaker 1: and husband of Vita, cast a long shadow over the 71 00:05:12,800 --> 00:05:16,520 Speaker 1: country almost fifty years after his death. In her two 72 00:05:16,640 --> 00:05:19,839 Speaker 1: terms of office, Kirchner implemented the kind of populist and 73 00:05:19,880 --> 00:05:24,760 Speaker 1: protectionist measures peronists love, such as capital controls, trade barriers, 74 00:05:24,760 --> 00:05:29,080 Speaker 1: and subsidies. It's not clear how much power Kirchner would 75 00:05:29,080 --> 00:05:32,240 Speaker 1: wield in a Fernanda's administration, but the man who would 76 00:05:32,240 --> 00:05:35,320 Speaker 1: be president, has hardly been transparent about his plans for 77 00:05:35,360 --> 00:05:40,560 Speaker 1: economic policy either. Amid the uncertainty, many fear a repeat 78 00:05:40,720 --> 00:06:02,960 Speaker 1: of the past. Okay, Marina Apo am an economists. I 79 00:06:02,960 --> 00:06:08,599 Speaker 1: am consultant for enterprises and banks and other companies. We 80 00:06:08,680 --> 00:06:11,919 Speaker 1: are here in the University of Buenos Aires. This is 81 00:06:11,960 --> 00:06:15,840 Speaker 1: the faculty of economy. We are round here in the 82 00:06:16,320 --> 00:06:20,360 Speaker 1: Museum of External Debt in Argentina, and so not many 83 00:06:20,400 --> 00:06:24,120 Speaker 1: countries perhaps have a museum dedicated to external debt. Why 84 00:06:24,120 --> 00:06:27,880 Speaker 1: does Argentina because of the long story with the debts 85 00:06:27,920 --> 00:06:31,360 Speaker 1: and default. Let's go and I see the museum is open, 86 00:06:31,400 --> 00:06:40,560 Speaker 1: So let's this is the first debt of Argentina and 87 00:06:40,640 --> 00:06:47,160 Speaker 1: Brettito barring in eighteen four, that was the first. Argentina 88 00:06:47,240 --> 00:06:50,160 Speaker 1: has defaulted no fewer than eight times on its foreign debt. 89 00:06:50,720 --> 00:06:53,760 Speaker 1: While external events play their part in Argentina's history of 90 00:06:53,800 --> 00:06:56,760 Speaker 1: woe fiscal and discipline, it is always part of the 91 00:06:56,760 --> 00:07:01,640 Speaker 1: story for Marina the cat. The administration played a major 92 00:07:01,720 --> 00:07:05,240 Speaker 1: role in today's mess, burning to a cash winfall from 93 00:07:05,240 --> 00:07:09,880 Speaker 1: a commodities boom by subsidizing energy costs, expanding the state payroll, 94 00:07:10,160 --> 00:07:14,920 Speaker 1: and even broadcasting soccer matches for free less government. They 95 00:07:14,960 --> 00:07:20,640 Speaker 1: received surpluses and they create surplusses in deficit both physical 96 00:07:20,640 --> 00:07:26,920 Speaker 1: and external. They destroyed the relative prices in trying to 97 00:07:27,120 --> 00:07:33,520 Speaker 1: stabilize inflation while they push in guns and the public expenditures. 98 00:07:33,520 --> 00:07:37,040 Speaker 1: But the economist does not exempt the Macri administration from blame. 99 00:07:37,800 --> 00:07:41,920 Speaker 1: During the Macri administration, he used the debt in order 100 00:07:41,960 --> 00:07:46,360 Speaker 1: to try to make a gradual policies to try to 101 00:07:46,360 --> 00:07:50,320 Speaker 1: to to fix the problems that the curtinary is more. 102 00:07:51,720 --> 00:07:55,240 Speaker 1: They made a lot of mistakes because the cenda was 103 00:07:55,480 --> 00:08:00,559 Speaker 1: very difficult, but they tried to fix its problem without 104 00:08:00,640 --> 00:08:03,480 Speaker 1: taking an account that they are connected. So if you 105 00:08:03,520 --> 00:08:07,800 Speaker 1: increase energy prices, you will push up inflations. If you 106 00:08:07,880 --> 00:08:11,040 Speaker 1: have it an expansive fiscal policy and a very restrict 107 00:08:11,160 --> 00:08:15,720 Speaker 1: military policy, you will have a problem. To avoid big 108 00:08:15,760 --> 00:08:21,280 Speaker 1: cuts in public spending, Macri tolerated big deficits. Creditors, hungry 109 00:08:21,280 --> 00:08:25,560 Speaker 1: for juicy returns, gobbled up Argentina's dollar denominated debt like 110 00:08:25,680 --> 00:08:29,560 Speaker 1: there was no tomorrow, or indeed no longer history of default. 111 00:08:30,920 --> 00:08:33,240 Speaker 1: But when a loss of market confidence trigger a run 112 00:08:33,240 --> 00:08:35,680 Speaker 1: on the pestle, the president was forced to turn to 113 00:08:35,720 --> 00:08:39,120 Speaker 1: the I M. F, as so many Argentine presidents have before. 114 00:08:40,040 --> 00:08:44,040 Speaker 1: All told, the fund pledged fifty six billion dollars, it's 115 00:08:44,160 --> 00:08:48,200 Speaker 1: largest loan ever. Since Macu's defeat at the ballot box 116 00:08:48,200 --> 00:08:50,840 Speaker 1: in August, the i m F has commented little about 117 00:08:50,880 --> 00:08:54,360 Speaker 1: its plans for Argentina. In the fund's annual meeting in 118 00:08:54,400 --> 00:08:58,040 Speaker 1: Washington this October, It's new managing director so that talks 119 00:08:58,040 --> 00:09:02,040 Speaker 1: over Argentina's credit can continue once the funds knows the 120 00:09:02,080 --> 00:09:07,400 Speaker 1: next government's policy framework. For one former Argentine I MF official, 121 00:09:07,840 --> 00:09:12,720 Speaker 1: the organization's big mistake was being overly optimistic. Cloud your 122 00:09:12,800 --> 00:09:16,480 Speaker 1: lossa former director of the i m F Western Hemisphere Department, 123 00:09:16,960 --> 00:09:19,839 Speaker 1: told me that historically, the Latin American government had to 124 00:09:19,880 --> 00:09:23,880 Speaker 1: be dragged kicking and screaming through I m F adjustment programs. 125 00:09:24,520 --> 00:09:28,120 Speaker 1: When the Fund found an Argentine administration that shared its aims, 126 00:09:28,160 --> 00:09:33,480 Speaker 1: it became overconfident, he said. For Monica Jibali, senior fellow 127 00:09:33,520 --> 00:09:37,040 Speaker 1: at the Peterson Institute for International Economics, the fund's big 128 00:09:37,080 --> 00:09:39,400 Speaker 1: mistake was to hand over too much of the money 129 00:09:39,600 --> 00:09:45,480 Speaker 1: up front. The main lesson for the Fund in Argentina's 130 00:09:45,520 --> 00:09:48,480 Speaker 1: case is really is it's a bit the size of 131 00:09:48,520 --> 00:09:51,880 Speaker 1: the program, which was obviously too big and binds the 132 00:09:51,960 --> 00:09:56,120 Speaker 1: fund to Argentine into resolving its situation. But also, in 133 00:09:56,200 --> 00:09:59,200 Speaker 1: most importantly, the fact that a lot of the funds, 134 00:09:59,200 --> 00:10:01,319 Speaker 1: a lot of the dis reishments were given up front, 135 00:10:01,760 --> 00:10:05,640 Speaker 1: taking away the incentive for authorities to actually implement the 136 00:10:05,679 --> 00:10:08,280 Speaker 1: measures that they had promised to implement under the program. 137 00:10:08,360 --> 00:10:11,559 Speaker 1: So front loading was a big mistake. The i m 138 00:10:11,640 --> 00:10:15,520 Speaker 1: f s optimistic assumptions about Argentina's growth prospects also had 139 00:10:15,600 --> 00:10:19,600 Speaker 1: little basis in experience. After all, the fund has bailed 140 00:10:19,600 --> 00:10:22,199 Speaker 1: out the South American country so often that this even 141 00:10:22,280 --> 00:10:27,440 Speaker 1: inspired a local board game, Eternal Debt. The concept is 142 00:10:27,440 --> 00:10:30,240 Speaker 1: not that different from monopoly, except the goal isn't to 143 00:10:30,280 --> 00:10:33,080 Speaker 1: become a property mogul, but to defeat the i m F. 144 00:10:34,800 --> 00:10:38,400 Speaker 1: The FUNT, however, is hardly the cause of the Argentine crisis, 145 00:10:38,440 --> 00:10:41,280 Speaker 1: that lies in its government's tendencies to spend way more 146 00:10:41,320 --> 00:10:44,280 Speaker 1: than it receives. Well. Brazil and some of the other 147 00:10:44,280 --> 00:10:46,720 Speaker 1: countries in the region used the commodities boom of the 148 00:10:46,720 --> 00:10:50,559 Speaker 1: two thousands to pay down debt and strengthen reserves. Argentina 149 00:10:50,679 --> 00:10:55,040 Speaker 1: went on a spending spree. Claudio Lasser suggested that Argentines 150 00:10:55,120 --> 00:10:57,160 Speaker 1: tend to believe they can live at a level that 151 00:10:57,280 --> 00:11:00,559 Speaker 1: is much higher than they can actually afford. Back in 152 00:11:00,600 --> 00:11:04,160 Speaker 1: the museum, Marina del Projecto said that this habit explains 153 00:11:04,160 --> 00:11:10,679 Speaker 1: the country's perennial crisis. People only think on the short term. 154 00:11:10,800 --> 00:11:16,480 Speaker 1: The big opportunity was during them, when other countries use 155 00:11:16,840 --> 00:11:20,360 Speaker 1: the opportunity in order to try to stabilize and the 156 00:11:21,280 --> 00:11:24,680 Speaker 1: macroeconomics and to create a currency. In the cause of Argentina, 157 00:11:24,760 --> 00:11:27,960 Speaker 1: we decided to to maximize the short term in order 158 00:11:28,080 --> 00:11:32,200 Speaker 1: to grow it. I don't know if it is the 159 00:11:32,920 --> 00:11:36,200 Speaker 1: something that Argentina pot in the in the head or 160 00:11:37,000 --> 00:11:40,080 Speaker 1: it is because of the history, now because of the history, 161 00:11:40,760 --> 00:11:46,760 Speaker 1: but it is every every crisis is has a big cost, 162 00:11:46,960 --> 00:11:50,640 Speaker 1: not only in terms of of the default, in terms 163 00:11:50,640 --> 00:11:57,520 Speaker 1: of the society destruction. Whoever, when Sunday's elections faces a 164 00:11:57,559 --> 00:12:01,520 Speaker 1: long road ahead, this is British lass for bloom Bakeneers. 165 00:12:17,760 --> 00:12:20,560 Speaker 1: That's how the world looks from Buenos Aires. At the 166 00:12:20,559 --> 00:12:23,160 Speaker 1: annual World Bank and i m F meetings in Washington, 167 00:12:23,360 --> 00:12:26,800 Speaker 1: the focus was global and the mood, it's fair to say, 168 00:12:27,320 --> 00:12:30,480 Speaker 1: was downbeat. When the i MS new Managing director Chris 169 00:12:30,559 --> 00:12:35,599 Speaker 1: Dlina Gorgueva told the meetings that the global outlook was precarious. 170 00:12:35,920 --> 00:12:37,800 Speaker 1: That was supposed to be a comment on the fragile 171 00:12:37,880 --> 00:12:41,120 Speaker 1: state of the economic recovery, but you couldn't help thinking 172 00:12:41,400 --> 00:12:45,559 Speaker 1: she was also talking about the fragile state of global institutions. 173 00:12:46,280 --> 00:12:50,120 Speaker 1: The Trump administration's refusal to play by the usual rules 174 00:12:50,280 --> 00:12:54,439 Speaker 1: in international affairs has a lot of people rattled. Some 175 00:12:54,520 --> 00:12:58,520 Speaker 1: wonder whether the multilateral system can even survive. We got 176 00:12:58,559 --> 00:13:01,320 Speaker 1: into some of that on a so called big think 177 00:13:01,360 --> 00:13:04,559 Speaker 1: panel I took part in for the global banking organization, 178 00:13:04,600 --> 00:13:08,640 Speaker 1: the Institute for International Finance. My fellow panelists were an 179 00:13:08,640 --> 00:13:12,240 Speaker 1: illustrious bunch, the former chair of the President's Council of 180 00:13:12,240 --> 00:13:16,359 Speaker 1: Economic Advisors under George W. Bush, Glenn Hubbard, the distinguished 181 00:13:16,360 --> 00:13:20,520 Speaker 1: economist and former head of the Indian Central Bank Raam Rajan, 182 00:13:21,120 --> 00:13:25,600 Speaker 1: and the former Bundesbank president Axel Weber, now president of UBS. 183 00:13:26,280 --> 00:13:29,320 Speaker 1: And the moderator you'll hear asking the questions was the 184 00:13:29,400 --> 00:13:38,720 Speaker 1: head of the i F, Tim Adams. Multilateralism. The commitment 185 00:13:38,760 --> 00:13:42,640 Speaker 1: to multilateralism seems to be on the wayne, So Stephanie, 186 00:13:43,080 --> 00:13:46,000 Speaker 1: are we worried should be worried. Are you worried about 187 00:13:46,280 --> 00:13:49,640 Speaker 1: where we're going? Could we recreate those institutions again? Could 188 00:13:49,640 --> 00:13:52,360 Speaker 1: we get John Maynard Keynes and Harry Dexter White and 189 00:13:52,360 --> 00:13:55,240 Speaker 1: the other forties city in New Hampshire to come up 190 00:13:55,240 --> 00:13:58,880 Speaker 1: with something similar? Would would it just crumble? And because 191 00:13:58,920 --> 00:14:01,400 Speaker 1: we couldn't agree to even the size of the table, 192 00:14:01,720 --> 00:14:03,800 Speaker 1: how do you see institutions? I wonder if there's anyone 193 00:14:03,840 --> 00:14:06,000 Speaker 1: in this room who isn't worried about the direction we're 194 00:14:06,040 --> 00:14:09,800 Speaker 1: going in, but certainly on the question of the institutions. 195 00:14:09,800 --> 00:14:13,960 Speaker 1: I mean the question has been asked in different ways 196 00:14:14,000 --> 00:14:17,640 Speaker 1: over the last couple of years, particularly in response to 197 00:14:17,679 --> 00:14:20,040 Speaker 1: the trade wars, but actually in response to the general 198 00:14:20,080 --> 00:14:23,160 Speaker 1: attitude of the US. So we say the US administration 199 00:14:23,200 --> 00:14:25,120 Speaker 1: to the rest of the world, and the question is, 200 00:14:25,560 --> 00:14:31,680 Speaker 1: can these institutions survive, let alone thrive without the US 201 00:14:31,720 --> 00:14:36,680 Speaker 1: as a willing and active participant who can see the 202 00:14:36,720 --> 00:14:39,240 Speaker 1: big picture and not just the national interest. And I 203 00:14:39,280 --> 00:14:41,840 Speaker 1: think that's that is clearly a question that gets asked 204 00:14:42,280 --> 00:14:45,600 Speaker 1: senior officials in the G twenty who are often sort 205 00:14:45,600 --> 00:14:49,320 Speaker 1: of going into huddles at summits trying to have the 206 00:14:49,360 --> 00:14:52,400 Speaker 1: kind of G twenty minus one meetings, and those meetings 207 00:14:52,440 --> 00:14:54,640 Speaker 1: do happen, and I think there is a kind of 208 00:14:54,720 --> 00:14:58,600 Speaker 1: underground operation to keep the wheels turning and to have 209 00:14:58,680 --> 00:15:01,440 Speaker 1: when you can't do deals on a global basis, can 210 00:15:01,480 --> 00:15:04,040 Speaker 1: you do a deal with with willing partners that maintain 211 00:15:04,200 --> 00:15:07,080 Speaker 1: some of this sort of commitment to multilateralism. But you'll 212 00:15:07,080 --> 00:15:10,600 Speaker 1: mention of Harry Dexter White and Kine's reminds us. You know, 213 00:15:10,960 --> 00:15:13,920 Speaker 1: one of the reasons these institutions worked was that they 214 00:15:13,920 --> 00:15:16,840 Speaker 1: weren't entirely fair and multilateral when it came to the 215 00:15:16,920 --> 00:15:19,800 Speaker 1: US UM. Certainly from my experience in the U S. 216 00:15:19,840 --> 00:15:21,840 Speaker 1: Treasury and everyone else has seen the same thing. You know, 217 00:15:22,000 --> 00:15:26,440 Speaker 1: it started with a bare knuckle fight between the US 218 00:15:26,600 --> 00:15:29,600 Speaker 1: and the UK, the US one, and that was the 219 00:15:29,640 --> 00:15:33,120 Speaker 1: basis on which policy was done within those institutions. And 220 00:15:33,200 --> 00:15:35,840 Speaker 1: you had to you know, if you're the US executive 221 00:15:35,880 --> 00:15:37,640 Speaker 1: director of the I m F, everyone wants to know 222 00:15:37,720 --> 00:15:40,560 Speaker 1: what your position is before you start the conversation. So 223 00:15:40,600 --> 00:15:43,360 Speaker 1: we shouldn't sort of idealize the sort of come by 224 00:15:43,400 --> 00:15:47,480 Speaker 1: our aspect of these institutions. But clearly they did produce 225 00:15:47,640 --> 00:15:50,520 Speaker 1: there's a there's a public good aspect which has been 226 00:15:50,560 --> 00:15:55,400 Speaker 1: incredibly important, and of course any of us worried, especially 227 00:15:55,400 --> 00:15:59,920 Speaker 1: in the response to another global downturn, let alone find 228 00:16:00,000 --> 00:16:03,720 Speaker 1: actual crisis, whether the wheels would still turn, whether you 229 00:16:03,800 --> 00:16:07,080 Speaker 1: still have enough of that stock of shared trust and 230 00:16:07,240 --> 00:16:11,400 Speaker 1: norms to respond. We've certainly seen and this is going 231 00:16:11,440 --> 00:16:14,400 Speaker 1: back to the economics, you know, where it comes to trade. 232 00:16:15,040 --> 00:16:17,360 Speaker 1: We could all people who can do their numbers about 233 00:16:17,440 --> 00:16:19,920 Speaker 1: what the impact of a particular tariff is, and usually 234 00:16:19,960 --> 00:16:22,240 Speaker 1: the numbers are quite small, just like the numbers are 235 00:16:22,240 --> 00:16:23,960 Speaker 1: always quite small when you try to look at the 236 00:16:23,960 --> 00:16:26,800 Speaker 1: direct effects of a trade deal, because we all knew 237 00:16:26,840 --> 00:16:29,160 Speaker 1: that it was the kind of dynamic consequences that would 238 00:16:29,160 --> 00:16:32,560 Speaker 1: be important. I think what we have underestimated and has 239 00:16:32,600 --> 00:16:35,240 Speaker 1: been brought home by the last couple of years is 240 00:16:35,280 --> 00:16:41,200 Speaker 1: how uncertainty about the whole system can really produce investment, 241 00:16:41,600 --> 00:16:44,960 Speaker 1: have confidence and investment just grinding to a halt. And 242 00:16:45,040 --> 00:16:47,560 Speaker 1: that's what worries me in generally, if you can have 243 00:16:47,680 --> 00:16:51,840 Speaker 1: that kind of effect, uncertainty around the trading rules can 244 00:16:52,040 --> 00:16:54,920 Speaker 1: really do short term damage to the supply side that 245 00:16:54,960 --> 00:16:59,400 Speaker 1: we might have expected would take years to happen. What's 246 00:16:59,480 --> 00:17:02,640 Speaker 1: the sort of wells the other side of that when 247 00:17:02,640 --> 00:17:05,600 Speaker 1: you're talking about just the general way that countries deal 248 00:17:05,640 --> 00:17:07,920 Speaker 1: with each other. So yeah, I'm pretty wide you raised 249 00:17:07,960 --> 00:17:11,280 Speaker 1: a p and I assume we're all multilateralist, globalist internationalists 250 00:17:11,320 --> 00:17:14,520 Speaker 1: aplete guilty to all those things. But Glenn, do we 251 00:17:14,600 --> 00:17:18,840 Speaker 1: over and nostalgize what these institutions were before? I remember 252 00:17:18,880 --> 00:17:20,800 Speaker 1: presidents we work for. What crazy about going to G 253 00:17:20,960 --> 00:17:23,720 Speaker 1: twenty three seven meetings. I don't think Clinton or Obama 254 00:17:23,840 --> 00:17:26,440 Speaker 1: was either. I think that's probably right. I mean, I'm 255 00:17:26,440 --> 00:17:29,320 Speaker 1: gonna start off first by picking up on something Stephanie said. 256 00:17:29,320 --> 00:17:32,800 Speaker 1: The risk premium now and business investment as a result 257 00:17:32,840 --> 00:17:35,199 Speaker 1: of the policy uncertainty is probably large enough in the 258 00:17:35,320 --> 00:17:38,880 Speaker 1: US to overwhelm the corporate tax change. So this has 259 00:17:38,920 --> 00:17:41,640 Speaker 1: a very large effect. It's not the small direct effect 260 00:17:41,640 --> 00:17:44,560 Speaker 1: of trade, but there's no audience of business people that 261 00:17:44,640 --> 00:17:47,560 Speaker 1: doesn't focus on this, and the effect on investment and 262 00:17:47,640 --> 00:17:51,600 Speaker 1: supply chains is real and pernicious. I mean, to your question, Tim, 263 00:17:51,640 --> 00:17:55,280 Speaker 1: the Breton Woods institutions are probably not what we would 264 00:17:55,280 --> 00:17:59,359 Speaker 1: design today if we were to have a discussion, assuming 265 00:17:59,359 --> 00:18:03,560 Speaker 1: people would even meet to have that discussion. But multilateralism 266 00:18:03,560 --> 00:18:06,440 Speaker 1: and what it represents remains absolutely critical and I would 267 00:18:06,440 --> 00:18:09,000 Speaker 1: add to that not just the Breton Woods institutions, but 268 00:18:09,080 --> 00:18:12,720 Speaker 1: the World Trade Organization. You know, we c d other 269 00:18:12,920 --> 00:18:15,840 Speaker 1: venues for policy makers to come together. I think are 270 00:18:15,880 --> 00:18:21,080 Speaker 1: still are still vital without American leadership. I'm incredibly skeptical 271 00:18:21,160 --> 00:18:24,400 Speaker 1: that any of this has a future. I think it's 272 00:18:24,480 --> 00:18:27,159 Speaker 1: naive to say that others will step into the breach 273 00:18:27,560 --> 00:18:31,080 Speaker 1: and fulfill the promise of multilateralism without the United States. 274 00:18:31,080 --> 00:18:34,480 Speaker 1: So I don't really think there is a G nineteen 275 00:18:34,800 --> 00:18:38,080 Speaker 1: type solution. America is still the big kid on the 276 00:18:38,080 --> 00:18:40,840 Speaker 1: block UH, and we need to we need to get 277 00:18:40,880 --> 00:18:44,600 Speaker 1: at this. And we see this everything from the problems 278 00:18:44,640 --> 00:18:47,840 Speaker 1: in China trade where a multilateral solution would have been 279 00:18:47,880 --> 00:18:51,160 Speaker 1: more effective. We see this in the failure to get 280 00:18:51,200 --> 00:18:55,080 Speaker 1: together on a variety of policy topics. And were we 281 00:18:55,160 --> 00:18:58,639 Speaker 1: to have a significant global recession, I wonder where the 282 00:18:58,680 --> 00:19:01,920 Speaker 1: coordinating mechanisms would be. So I would count myself as 283 00:19:02,240 --> 00:19:10,119 Speaker 1: as very worried by the failure of American leadership. The 284 00:19:10,240 --> 00:19:13,160 Speaker 1: g's all came out of crisises with the G five 285 00:19:13,200 --> 00:19:15,800 Speaker 1: and G seven is a product of the UH, the 286 00:19:15,800 --> 00:19:18,480 Speaker 1: long gas lines, the oil crisis the seventies. That G 287 00:19:18,640 --> 00:19:22,760 Speaker 1: twenty was created Battalaritia and and and others. Response to 288 00:19:22,760 --> 00:19:25,560 Speaker 1: Asia financial crisis was elevated to the heads of state 289 00:19:25,680 --> 00:19:28,080 Speaker 1: in response to Great Financial Crisis? Do we need a 290 00:19:28,119 --> 00:19:31,000 Speaker 1: crisis to rally around or create the new g or 291 00:19:31,240 --> 00:19:34,640 Speaker 1: are just give he to the current Geese? I think 292 00:19:34,680 --> 00:19:36,879 Speaker 1: we may need one, and it's for this reason. I 293 00:19:37,359 --> 00:19:41,000 Speaker 1: think I'm gonna be a little naive and say, yes, 294 00:19:41,119 --> 00:19:44,840 Speaker 1: we needed the United States. But if the United States 295 00:19:44,880 --> 00:19:46,800 Speaker 1: doesn't come to the table, the world has to find 296 00:19:46,840 --> 00:19:50,240 Speaker 1: an alternative solution. I mean, this is the house that 297 00:19:50,359 --> 00:19:53,760 Speaker 1: the US built post World War Two, and it has 298 00:19:53,800 --> 00:19:56,000 Speaker 1: a pole position for the United States. And that was 299 00:19:56,040 --> 00:19:58,640 Speaker 1: a good thing because the United States often wasn't part 300 00:19:58,680 --> 00:20:02,160 Speaker 1: of the comeback to but it was the one who 301 00:20:02,320 --> 00:20:05,800 Speaker 1: ensured that there was generally peace. Now it's not only 302 00:20:05,840 --> 00:20:08,440 Speaker 1: one of the combatants, but it's sort of breaking down 303 00:20:08,440 --> 00:20:12,520 Speaker 1: the rules. And you know what's the alternative If the 304 00:20:12,600 --> 00:20:15,239 Speaker 1: US doesn't come back and most people think, oh, this 305 00:20:15,320 --> 00:20:18,960 Speaker 1: is just this administration, it's going to pass. Well, there's 306 00:20:18,960 --> 00:20:22,760 Speaker 1: a deeper seated issue with China, the rise of China 307 00:20:22,840 --> 00:20:26,240 Speaker 1: and who's going to be dominant, and my senses, the 308 00:20:26,240 --> 00:20:28,919 Speaker 1: world has to move on from the old structure to 309 00:20:29,040 --> 00:20:31,600 Speaker 1: one where we don't have twenty people at the table 310 00:20:31,640 --> 00:20:35,040 Speaker 1: determining anything, but we have three or four people, three 311 00:20:35,119 --> 00:20:39,000 Speaker 1: or four entities. So probably China, the US, the EU, 312 00:20:39,160 --> 00:20:43,560 Speaker 1: maybe Japan who sit together and sort of uh, it's 313 00:20:43,560 --> 00:20:46,760 Speaker 1: more adapted to a multipolar world. It may still be 314 00:20:46,840 --> 00:20:50,199 Speaker 1: the case the US is dominant, but it can't be 315 00:20:50,280 --> 00:20:52,560 Speaker 1: that it is privileged by the rules because that will 316 00:20:52,680 --> 00:20:55,760 Speaker 1: ensure China doesn't participate. We need something that brings China 317 00:20:55,840 --> 00:20:58,520 Speaker 1: in also. So my guess is we need change. But 318 00:20:58,720 --> 00:21:00,960 Speaker 1: I think you're absolute right. It's not going to happen 319 00:21:01,880 --> 00:21:04,200 Speaker 1: for two reasons. One, Washington is not going to give 320 00:21:04,280 --> 00:21:07,960 Speaker 1: up the pole position, even if it doesn't really do 321 00:21:08,040 --> 00:21:11,639 Speaker 1: what what it takes until, in a sense, there's a 322 00:21:11,720 --> 00:21:15,119 Speaker 1: change in attitude in Washington, and that may take a 323 00:21:15,200 --> 00:21:17,640 Speaker 1: long time. It may take China to be much bigger 324 00:21:17,920 --> 00:21:20,480 Speaker 1: before Washington says we do need to bring them in. 325 00:21:20,960 --> 00:21:22,960 Speaker 1: And the other is, you know, it may be that 326 00:21:23,080 --> 00:21:26,160 Speaker 1: we need a full fledged crisis in order to say 327 00:21:26,160 --> 00:21:28,359 Speaker 1: the system is broken, we need to build it up again. 328 00:21:28,840 --> 00:21:31,719 Speaker 1: I hope we don't go there, but we do need change. Actually, 329 00:21:31,840 --> 00:21:34,480 Speaker 1: too pessimistic if you'd we're in this town. Fifteen or 330 00:21:34,520 --> 00:21:37,199 Speaker 1: twenty years ago during this week, the streets would have 331 00:21:37,200 --> 00:21:39,720 Speaker 1: been full of riders. There were tear gas. Remember you 332 00:21:39,920 --> 00:21:43,720 Speaker 1: couldn't you can get across down there's massive protests going on. 333 00:21:44,240 --> 00:21:46,280 Speaker 1: We don't see that anymore. That Christine Lagard do have 334 00:21:46,440 --> 00:21:50,159 Speaker 1: fantastic job in reshaping the profile the I m f 335 00:21:50,720 --> 00:21:53,320 Speaker 1: why there there is no more? If the institution is 336 00:21:53,359 --> 00:21:55,920 Speaker 1: now work and we're worried about globalization, you're worried about 337 00:21:55,920 --> 00:21:58,359 Speaker 1: all these issues, why is there no protest going on? 338 00:21:58,480 --> 00:22:02,880 Speaker 1: Why so? I think, like like rag who I firmly 339 00:22:02,920 --> 00:22:07,119 Speaker 1: believed that the emergence of China and the integration of 340 00:22:07,200 --> 00:22:11,480 Speaker 1: China into the international Breton Woods institutions was an absolutely 341 00:22:11,560 --> 00:22:14,600 Speaker 1: needed thing to do, and we were slow. We were 342 00:22:14,640 --> 00:22:17,200 Speaker 1: behind the curve, and even today I don't think where 343 00:22:17,200 --> 00:22:20,000 Speaker 1: we should be. If you were to redesign the Breton 344 00:22:20,000 --> 00:22:22,840 Speaker 1: Woods organization now with more than half of the world's 345 00:22:22,880 --> 00:22:26,120 Speaker 1: population living in Asia, it would not be US centric, 346 00:22:26,240 --> 00:22:29,479 Speaker 1: It would not be US centric. City reflected the outcome 347 00:22:29,520 --> 00:22:32,680 Speaker 1: of the Second World War and how these organizations were created. 348 00:22:32,760 --> 00:22:35,800 Speaker 1: Now they need to be more inclusive. And what you're 349 00:22:35,800 --> 00:22:38,000 Speaker 1: seeing is when when I came to the official sector. 350 00:22:38,080 --> 00:22:41,359 Speaker 1: It was in the early two thousands. We had discussions 351 00:22:41,359 --> 00:22:43,560 Speaker 1: around the table. I remember we had the G twenty 352 00:22:43,560 --> 00:22:46,800 Speaker 1: presidency in two thousand four. It was about creating local 353 00:22:46,960 --> 00:22:50,680 Speaker 1: currency bond markets. We haven't progressed at all on that, 354 00:22:51,080 --> 00:22:54,800 Speaker 1: and so many of the agenda items got delayed or 355 00:22:54,840 --> 00:22:57,720 Speaker 1: washed out by the financial crisis. I think the Breton 356 00:22:57,720 --> 00:23:00,399 Speaker 1: Woods organizations, to your question about CHRISTI in did a 357 00:23:00,400 --> 00:23:04,440 Speaker 1: great job in helping overcome the financial crisis. I think 358 00:23:04,440 --> 00:23:07,159 Speaker 1: we were very coordinated during the crisis because it was 359 00:23:07,240 --> 00:23:10,480 Speaker 1: the interest of both the United States, Europe and most 360 00:23:10,520 --> 00:23:13,080 Speaker 1: parts of Asia to get on top of this crisis. 361 00:23:13,160 --> 00:23:16,160 Speaker 1: The central banks have been very coordinated. The IMF played 362 00:23:16,160 --> 00:23:19,240 Speaker 1: a very strong facilitating role. And I remember a meeting 363 00:23:19,240 --> 00:23:22,679 Speaker 1: in a basement in Korea where Tim Adams, Tim Guidner 364 00:23:22,760 --> 00:23:25,760 Speaker 1: was still the Treasury Secretary, where the US was very 365 00:23:25,800 --> 00:23:28,320 Speaker 1: clearly saying we will give up part of the seats 366 00:23:28,320 --> 00:23:31,720 Speaker 1: at the IMF table uh in order to facilitate China 367 00:23:31,800 --> 00:23:34,680 Speaker 1: coming in, and many of the Europeans put their constituencies 368 00:23:34,680 --> 00:23:37,239 Speaker 1: together and gave up quota to bring them in. That 369 00:23:37,320 --> 00:23:39,960 Speaker 1: hasn't really progressed to a new level where it should 370 00:23:39,960 --> 00:23:43,159 Speaker 1: be now. So we started in the deep crisis, we 371 00:23:43,240 --> 00:23:45,879 Speaker 1: made some programs, but we didn't go the full way. 372 00:23:46,040 --> 00:23:49,920 Speaker 1: Going forward, these organizations need to reinvent themselves in order 373 00:23:49,920 --> 00:23:53,639 Speaker 1: to be relevant because if, if really it takes another crisis, 374 00:23:54,720 --> 00:23:56,600 Speaker 1: I don't think the crisis will come from the area 375 00:23:56,640 --> 00:24:00,520 Speaker 1: where we're now prepared for and those organizations to play 376 00:24:00,600 --> 00:24:04,400 Speaker 1: a new role in any next financial crisis. And if anything, 377 00:24:04,960 --> 00:24:07,840 Speaker 1: the official sector, because of the bad experience on how 378 00:24:07,880 --> 00:24:11,359 Speaker 1: we dealt with the last crisis, has less crisis fighting 379 00:24:11,400 --> 00:24:13,920 Speaker 1: tools now available than they did before the last crisis. 380 00:24:14,040 --> 00:24:16,960 Speaker 1: The FED has much less tools at their disposal that 381 00:24:17,000 --> 00:24:20,199 Speaker 1: they can use fast without going to Capitol Hill. The 382 00:24:20,240 --> 00:24:22,439 Speaker 1: same is pretty much true in Europe to a lesser extent, 383 00:24:22,480 --> 00:24:26,400 Speaker 1: but it's true everywhere. And so I feel that we're 384 00:24:26,440 --> 00:24:29,880 Speaker 1: not well prepared for the next crisis, and it's these 385 00:24:29,920 --> 00:24:33,439 Speaker 1: international organizations that can help us get everyone aligned, and 386 00:24:33,680 --> 00:24:36,320 Speaker 1: they don't. They they're not in the position to do 387 00:24:36,400 --> 00:24:38,800 Speaker 1: that now because they lect some legitimacy. Can I give 388 00:24:38,840 --> 00:24:42,080 Speaker 1: you a twist on that that all these institutions were 389 00:24:42,280 --> 00:24:45,959 Speaker 1: designed to facilitate and we're built around the idea of globalization. 390 00:24:45,960 --> 00:24:50,480 Speaker 1: Globalization it was good as globalization stopped. Are we deglobalizing 391 00:24:50,560 --> 00:24:53,080 Speaker 1: and does that mean it's more difficult to solve some 392 00:24:53,200 --> 00:24:57,760 Speaker 1: of these challenging transnational problems. Well, I do think that's 393 00:24:57,760 --> 00:25:01,520 Speaker 1: the There is a deeper challenge inge to these institutions 394 00:25:01,560 --> 00:25:04,120 Speaker 1: and the mindset that they represent. And it's not just 395 00:25:05,320 --> 00:25:08,160 Speaker 1: it's not so much globalization, although we can certainly debate 396 00:25:08,200 --> 00:25:10,720 Speaker 1: whether this might end up being kind of peak globalization, 397 00:25:11,560 --> 00:25:14,560 Speaker 1: because there's there's clearly things moving in different directions there. 398 00:25:14,840 --> 00:25:20,000 Speaker 1: But the currency of these institutions, the currency for international collaboration, 399 00:25:20,119 --> 00:25:22,800 Speaker 1: is what's going to make your economy grow, and by 400 00:25:22,840 --> 00:25:24,400 Speaker 1: and large that was in the latter of the last 401 00:25:24,400 --> 00:25:27,040 Speaker 1: twenty thirty years. There was a recipe for growth. That 402 00:25:27,119 --> 00:25:29,520 Speaker 1: was how you got people to do things. I think 403 00:25:29,600 --> 00:25:32,600 Speaker 1: what's what scrambled the system in so many different ways 404 00:25:32,880 --> 00:25:36,040 Speaker 1: in the last few years. And you see with populism, 405 00:25:36,080 --> 00:25:39,440 Speaker 1: but it's not just populism, is a willingness to put 406 00:25:39,440 --> 00:25:42,400 Speaker 1: the economy second, to do things that you know will 407 00:25:42,480 --> 00:25:46,200 Speaker 1: damage the economy. We've clearly we saw that in Brexit. 408 00:25:46,600 --> 00:25:49,080 Speaker 1: Whatever happens from Brexit, you know, one of the things 409 00:25:49,119 --> 00:25:52,720 Speaker 1: that was always clear was you didn't vote for Brexit 410 00:25:52,800 --> 00:25:55,239 Speaker 1: if you were putting the economy first. But it's not 411 00:25:55,280 --> 00:25:58,879 Speaker 1: just Brexit. We've clearly got that when you think about 412 00:25:58,920 --> 00:26:01,200 Speaker 1: the immigration to here are many of the things that's 413 00:26:01,200 --> 00:26:03,439 Speaker 1: animated Donald Trump. We have, by the way, on the 414 00:26:03,440 --> 00:26:06,200 Speaker 1: other side, got that now in spades in the response 415 00:26:06,240 --> 00:26:10,560 Speaker 1: to the climate change and how does one have an 416 00:26:10,560 --> 00:26:14,679 Speaker 1: effective decarbonization strategy. We want to achieve economic growth as 417 00:26:14,720 --> 00:26:17,879 Speaker 1: part of that, but it certainly is putting itself up 418 00:26:17,920 --> 00:26:21,359 Speaker 1: there as something which is as more important than economic growth. 419 00:26:21,520 --> 00:26:24,520 Speaker 1: And right who has written about it about many of 420 00:26:24,560 --> 00:26:27,119 Speaker 1: these non economic issues and the need to rebalance in 421 00:26:27,240 --> 00:26:29,800 Speaker 1: his in his book. So I think that now that's 422 00:26:29,800 --> 00:26:32,399 Speaker 1: maybe a more fundamental thing when when Axel talks about 423 00:26:32,400 --> 00:26:35,760 Speaker 1: how what kind of institutions, these institutions need to reinvent themselves. 424 00:26:36,000 --> 00:26:38,840 Speaker 1: Can they reinvent themselves in a way that's going to 425 00:26:38,880 --> 00:26:41,720 Speaker 1: be able to grapple with this much broader dilemmas that 426 00:26:41,800 --> 00:26:44,480 Speaker 1: actually don't put the economy at the heart of things. 427 00:26:44,960 --> 00:26:48,120 Speaker 1: I completely agree that one of the most penetrating questions 428 00:26:48,160 --> 00:26:50,320 Speaker 1: of the financial crisis was asked by the Queen of 429 00:26:50,359 --> 00:26:53,240 Speaker 1: England when she said, why did nobody see us coming 430 00:26:53,280 --> 00:26:58,480 Speaker 1: and I think asking the present Bretton Woods institutions to 431 00:26:58,760 --> 00:27:02,480 Speaker 1: lead on this with our knowledge of the underlying national 432 00:27:02,600 --> 00:27:06,000 Speaker 1: currents that are upsetting the mix, is part of the problem. 433 00:27:06,040 --> 00:27:09,320 Speaker 1: I don't think we have to choose between globalization and 434 00:27:09,359 --> 00:27:12,760 Speaker 1: tipping the table over, but we do have to remember 435 00:27:12,840 --> 00:27:16,920 Speaker 1: that in most industrial economies they are large segments politically 436 00:27:16,960 --> 00:27:20,800 Speaker 1: potent segments that have not benefited nearly as handsomely from 437 00:27:20,880 --> 00:27:25,120 Speaker 1: either globalization or technological change as people in this room 438 00:27:25,160 --> 00:27:28,120 Speaker 1: and there are. Until we deal with policies that affect 439 00:27:28,160 --> 00:27:31,320 Speaker 1: those people's lives, we're not going to see the support 440 00:27:31,320 --> 00:27:33,560 Speaker 1: for globalization come back. So it's not a matter of 441 00:27:33,600 --> 00:27:38,080 Speaker 1: needing more conferences or slightly different institution. We have to 442 00:27:38,119 --> 00:27:41,240 Speaker 1: have those local concerns at heart, and I'm not sure 443 00:27:41,280 --> 00:27:50,960 Speaker 1: that our elites do well. That was the economist Glenn 444 00:27:51,000 --> 00:27:53,760 Speaker 1: Hubbard speaking with me and others at the Big Thing 445 00:27:53,840 --> 00:27:58,240 Speaker 1: panel organized by the Institute for International Finance in Washington. Now, 446 00:27:58,240 --> 00:28:00,840 Speaker 1: of course, trade is only one of the forces that's 447 00:28:00,880 --> 00:28:04,560 Speaker 1: helped globalize our world. The other is technology, and we 448 00:28:04,600 --> 00:28:07,720 Speaker 1: know new technologies are changing the way the economy works 449 00:28:07,800 --> 00:28:11,720 Speaker 1: in lots of different ways, including businesses ability to set 450 00:28:11,720 --> 00:28:14,520 Speaker 1: their own prices. So while I was in d C, 451 00:28:14,840 --> 00:28:18,480 Speaker 1: I spoke about the US economy to Robert Kaplan, president 452 00:28:18,480 --> 00:28:20,840 Speaker 1: of the Federal Reserve Bank of Dallas and a member 453 00:28:20,880 --> 00:28:24,560 Speaker 1: of the fed's Open Market Committee. I found myself wondering 454 00:28:24,960 --> 00:28:29,399 Speaker 1: whether the FED could even control inflation anymore. Before we go, 455 00:28:29,720 --> 00:28:32,080 Speaker 1: I thought i'd play you a little bit of that exchange. 456 00:28:34,320 --> 00:28:37,320 Speaker 1: You talked about all the structural forces that are affecting 457 00:28:38,120 --> 00:28:42,760 Speaker 1: the economy, productivity, certainly affecting potential growth, and you did 458 00:28:42,800 --> 00:28:46,640 Speaker 1: mention pricing power, the impact on globalization and technology on 459 00:28:46,680 --> 00:28:50,840 Speaker 1: pricing power. Do you think on the basis of the 460 00:28:50,920 --> 00:28:55,840 Speaker 1: last few years that central banks can still reliably raise 461 00:28:55,920 --> 00:29:00,120 Speaker 1: inflation given the structural changes underway in the economy. Me, 462 00:29:00,400 --> 00:29:04,400 Speaker 1: So this would be an example where we've been. I'm 463 00:29:04,520 --> 00:29:07,600 Speaker 1: we're having a we're having a very significant debate on this, 464 00:29:07,880 --> 00:29:09,640 Speaker 1: and I may be a little bit of an outlier. 465 00:29:10,120 --> 00:29:12,719 Speaker 1: And for those who know, we've had two Technology Enabled 466 00:29:12,720 --> 00:29:17,200 Speaker 1: Disruption conferences that we've hosted in Dallas for the whole system, 467 00:29:17,240 --> 00:29:19,720 Speaker 1: for outsiders, and if you would like to come, we're 468 00:29:19,720 --> 00:29:23,680 Speaker 1: gonna have our next one June. And yeah, my own 469 00:29:23,760 --> 00:29:27,080 Speaker 1: view is that the structure the economy has changed dramatically, 470 00:29:27,760 --> 00:29:29,320 Speaker 1: and a lot of it is a business person. I've 471 00:29:29,360 --> 00:29:33,680 Speaker 1: lived through it, where the things that are driving pricing power, 472 00:29:34,120 --> 00:29:38,560 Speaker 1: a number of them are away from monetary policy. It's 473 00:29:38,600 --> 00:29:41,959 Speaker 1: not that monetary policy doesn't have a role to play, 474 00:29:42,000 --> 00:29:45,200 Speaker 1: but but I can assure you that when I talk 475 00:29:45,280 --> 00:29:48,880 Speaker 1: to business leaders, and I'm careful not to mention industries 476 00:29:49,040 --> 00:29:51,880 Speaker 1: or companies, but I have a number in my mind 477 00:29:51,920 --> 00:29:54,560 Speaker 1: as i'm talking here. Give me an industry. I'll tell 478 00:29:54,600 --> 00:29:59,560 Speaker 1: you a story of lack of pricing power, disruption um 479 00:29:59,600 --> 00:30:01,560 Speaker 1: and maybe the one I like to use because it's 480 00:30:01,600 --> 00:30:03,400 Speaker 1: the most familiar to people, but I go to go 481 00:30:03,440 --> 00:30:06,479 Speaker 1: through every single industry. But you know everybody here has 482 00:30:06,480 --> 00:30:08,400 Speaker 1: bought a car, so I'd like to use that one. 483 00:30:08,840 --> 00:30:10,640 Speaker 1: So fifteen years ago, if you went and buy a 484 00:30:10,680 --> 00:30:13,600 Speaker 1: car at a car dealer, you went in, you dealt 485 00:30:13,640 --> 00:30:16,200 Speaker 1: with a salesperson. That person was the highest paid person 486 00:30:16,240 --> 00:30:19,080 Speaker 1: in the car dealership. There were lots of them. You 487 00:30:19,120 --> 00:30:21,240 Speaker 1: happen to get one and you went in and negotiated. 488 00:30:21,440 --> 00:30:24,240 Speaker 1: It was normally an unpleasant experience and you weren't sure 489 00:30:24,240 --> 00:30:26,560 Speaker 1: whether you were you know, whether you're getting a good deal. 490 00:30:26,720 --> 00:30:30,320 Speaker 1: And God only knows, and that's how you bought a car. 491 00:30:30,600 --> 00:30:35,040 Speaker 1: Roll forward to today. Today, that salesperson you dealt with, 492 00:30:35,400 --> 00:30:37,680 Speaker 1: if if he or she works there, they're making half 493 00:30:37,680 --> 00:30:40,160 Speaker 1: of what they used to make. There's fewer of them. 494 00:30:40,160 --> 00:30:43,520 Speaker 1: They're called products specialists. They're not negotiating at all. You're 495 00:30:43,520 --> 00:30:47,240 Speaker 1: going online, you're picking five dealers, you're picking the car. 496 00:30:47,600 --> 00:30:49,360 Speaker 1: You know the price, you know the modeling, you know 497 00:30:49,440 --> 00:30:53,160 Speaker 1: everything when you walk in. There's no negotiating. And oh, 498 00:30:53,200 --> 00:30:55,360 Speaker 1: by the way, if you look at new car prices 499 00:30:55,440 --> 00:30:57,680 Speaker 1: over the last X number of years, you'll notice there 500 00:30:58,040 --> 00:31:00,080 Speaker 1: the use car business is a little more track that. 501 00:31:00,440 --> 00:31:02,680 Speaker 1: They don't have any pricing power. You see, there's been 502 00:31:02,720 --> 00:31:05,920 Speaker 1: erosion because there's just so much transparency and the leverage 503 00:31:06,320 --> 00:31:10,680 Speaker 1: has gone from the seller to the buyer. Technology has 504 00:31:10,720 --> 00:31:13,240 Speaker 1: done that consumer has in the palm of his hair 505 00:31:13,320 --> 00:31:17,040 Speaker 1: hand more computing power today the most companies did fifteen 506 00:31:17,120 --> 00:31:19,480 Speaker 1: years ago. And we take it like, oh yeah, it's 507 00:31:19,520 --> 00:31:22,800 Speaker 1: a big deal. So now you go into a car 508 00:31:22,880 --> 00:31:27,400 Speaker 1: dealer there rapidly merging is why there's so much merger activity. 509 00:31:27,440 --> 00:31:30,520 Speaker 1: There's margin erosion, and the highest paid person the card 510 00:31:30,560 --> 00:31:33,040 Speaker 1: dealer is a person you didn't deal with that much. 511 00:31:33,200 --> 00:31:36,200 Speaker 1: It's the automotive technician. That person is making a fifty 512 00:31:36,240 --> 00:31:38,920 Speaker 1: grand a year. They can't find enough of them. We 513 00:31:39,000 --> 00:31:40,840 Speaker 1: need to ramp up, and we are ramping up in 514 00:31:40,880 --> 00:31:44,680 Speaker 1: different cities skills training to provide more automotive technicians. But 515 00:31:44,760 --> 00:31:49,120 Speaker 1: there's rapid consolidation. And so there's one of those symptoms 516 00:31:49,160 --> 00:31:51,800 Speaker 1: of this lack of pricing power is record level of 517 00:31:51,840 --> 00:31:55,480 Speaker 1: merger activity. Because if you don't have pricing power and 518 00:31:55,520 --> 00:31:58,760 Speaker 1: you have margin erosion, what do you do? Scale? Scale scale, 519 00:31:59,120 --> 00:32:01,600 Speaker 1: You need more scale el But doesn't that mean central 520 00:32:01,640 --> 00:32:04,840 Speaker 1: banks really can't necessarily meet the inflation target anymore? None 521 00:32:04,840 --> 00:32:06,760 Speaker 1: of the major central banks have been able to meet 522 00:32:06,800 --> 00:32:08,840 Speaker 1: the inflation target for the last ten years. And it 523 00:32:08,920 --> 00:32:13,320 Speaker 1: means as a central banker, you have to realize this reality. 524 00:32:13,600 --> 00:32:17,480 Speaker 1: And yeah, it causes you, I'll put this euphemous. It 525 00:32:17,520 --> 00:32:21,040 Speaker 1: should cause us to reframe to some degree how we 526 00:32:21,080 --> 00:32:24,720 Speaker 1: think about monetary policy in this context. By the way, 527 00:32:24,960 --> 00:32:26,920 Speaker 1: having said all this, you should know what the Dallas Fed. 528 00:32:26,960 --> 00:32:29,760 Speaker 1: We look at a core inflation measure of called the trimming. 529 00:32:29,800 --> 00:32:32,880 Speaker 1: We're running at two. But I'm I'm a little more 530 00:32:33,000 --> 00:32:38,160 Speaker 1: leery of believing that UH drops in the Fed funds 531 00:32:38,200 --> 00:32:41,600 Speaker 1: rate will have the same effect on inflation. To your 532 00:32:41,640 --> 00:32:45,320 Speaker 1: point that they might have thought to have had ten years. 533 00:32:45,560 --> 00:32:48,840 Speaker 1: Doesn't that put the credibility of central banks at risk 534 00:32:48,960 --> 00:32:51,800 Speaker 1: if they keep trying to hit something and suggesting they 535 00:32:51,800 --> 00:32:53,840 Speaker 1: can hit something which they know in their hearts they can't. 536 00:32:53,920 --> 00:32:56,400 Speaker 1: I think it's very much This is my view. It's 537 00:32:56,480 --> 00:32:58,880 Speaker 1: very much incomming on me as a central banker to 538 00:32:59,000 --> 00:33:03,000 Speaker 1: call out the struct world trends and explain some of 539 00:33:03,040 --> 00:33:05,760 Speaker 1: them might be able to be affected by monetary policy, 540 00:33:05,800 --> 00:33:08,360 Speaker 1: that many of them are structural, and so I think 541 00:33:08,360 --> 00:33:11,560 Speaker 1: it's very important that we call that out and adapt 542 00:33:11,640 --> 00:33:15,080 Speaker 1: our thinking and our frameworks to take a little account. Yes, 543 00:33:21,520 --> 00:33:23,880 Speaker 1: thanks for listening to Stephanomics. We'll be back next week 544 00:33:23,920 --> 00:33:26,720 Speaker 1: with more on the ground insights into the global economy. 545 00:33:27,120 --> 00:33:30,640 Speaker 1: In the meantime, you can find us on the Bloomberg Terminal, website, 546 00:33:30,800 --> 00:33:33,480 Speaker 1: app or wherever you get your podcasts. We'd love it 547 00:33:33,520 --> 00:33:35,360 Speaker 1: if you took the time to rate and review our 548 00:33:35,400 --> 00:33:38,200 Speaker 1: show so it can reach more listeners. For more news 549 00:33:38,240 --> 00:33:42,520 Speaker 1: and analysis from Bloomberg Economics, follow at Economics on Twitter. 550 00:33:42,960 --> 00:33:46,719 Speaker 1: You can also find me on at my Stephanomics. This 551 00:33:46,760 --> 00:33:50,360 Speaker 1: week's report from Argentina was written and edited by Bruce 552 00:33:50,400 --> 00:33:54,880 Speaker 1: Douglas with assistance from Joelina de Rosario and Patrick Gillespie. 553 00:33:55,600 --> 00:33:59,880 Speaker 1: Special thanks to the Institute for International Finance, the Reinventing 554 00:34:00,040 --> 00:34:05,000 Speaker 1: Breton Woods Committee for that Caplan interview, Axel Weber, Glenn Hubbard, 555 00:34:05,200 --> 00:34:09,440 Speaker 1: ragorham Rajan and Robert Kaplan. The episode was produced by 556 00:34:09,480 --> 00:34:13,200 Speaker 1: Magnus Hendrickson and edited by Scott Lamber, who is the 557 00:34:13,280 --> 00:34:17,480 Speaker 1: executive producer of Stephanomics. Francesco Levy is the head of 558 00:34:17,480 --> 00:34:30,120 Speaker 1: Bloomberg Podcast. M h