WEBVTT - Thaler's Nobel Win is Great, Hubbard Says 0:00:09.720 --> 0:00:12.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 0:00:13.600 --> 0:00:16.520 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.239 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:34.560 on the Bloomberg Here's what we're not gonna do. I'm 0:00:34.560 --> 0:00:37.680 not gonna ask Glenn Hubbard dumb questions about being on 0:00:37.720 --> 0:00:40.280 the short list of the FED. He's known me for 0:00:40.360 --> 0:00:42.280 too long to know. I'm not going to ask snide 0:00:42.280 --> 0:00:46.080 little questions. But we will address the periphery of monetary 0:00:46.120 --> 0:00:49.080 policy as we can with the extinguished dean of the 0:00:49.120 --> 0:00:52.680 Columbia Business School, where he was Carson Professor of Finance, 0:00:52.960 --> 0:00:56.960 Glenn Hubbard. What I know is Eric Johnson's course at 0:00:57.000 --> 0:01:00.720 Colombia Business School Bight six one nine dash zero zero 0:01:00.760 --> 0:01:05.120 one Behavioral Economics and decision Making will be a different 0:01:05.160 --> 0:01:07.480 course as you move forward, and you know you've got 0:01:07.560 --> 0:01:11.680 them now in two thousand seventeen as well, where does 0:01:11.800 --> 0:01:17.600 Richard Taylor fit into Hubbard economics? Well, Taylor is a 0:01:17.680 --> 0:01:20.839 fabulous choice for a Nobel as a bridge between psychology 0:01:20.840 --> 0:01:24.240 and economics. In fact, my Freshman textbook is long featured 0:01:24.240 --> 0:01:27.320 behavioral economics. I think it's central, even at the basics. 0:01:28.040 --> 0:01:30.200 I have colleagues like Eric Johnson or you mentioned, but 0:01:30.280 --> 0:01:33.800 also Steve's Elvis who worked to bring behavioral economics into 0:01:33.880 --> 0:01:36.960 the practice of business with the NBA students. I think 0:01:36.959 --> 0:01:39.360 this is a great nobel for the profession. You know 0:01:39.920 --> 0:01:43.000 that the certitude of the media in the FED parlor 0:01:43.080 --> 0:01:47.400 game is just that an amateur certitude magna decide Ls 0:01:47.800 --> 0:01:54.360 writes about Hubrius about a disequilibrium state. How do any chairs, 0:01:54.400 --> 0:01:58.040 whether chair Yell and Chairman Bernankey, how do they fold 0:01:58.160 --> 0:02:04.760 behavioral economics into the crystal ball gazing that is so juvenile? Well, 0:02:04.800 --> 0:02:07.800 I think it's a really important question. Tom. You know 0:02:07.800 --> 0:02:11.480 it's going back to the financial crisis. I think ignoring 0:02:11.560 --> 0:02:16.440 behavioral factors lead the FED astray and many economists astray. 0:02:16.480 --> 0:02:19.120 I think the key right now for the FED is 0:02:19.160 --> 0:02:23.360 to ask the question, what's normal? What does that mean? 0:02:23.600 --> 0:02:27.720 How to basic economic factors and behavioral factors shape that 0:02:28.280 --> 0:02:30.160 You've written about the need to find somebody to run 0:02:30.160 --> 0:02:33.200 the FED who can quote, maintain, and explain. You've said 0:02:33.200 --> 0:02:36.440 that the personnel is policy. I wonder how much a 0:02:36.720 --> 0:02:39.680 person individual can shape or reshape the FED, and how 0:02:39.760 --> 0:02:43.680 much time that takes to do well. No one person, 0:02:43.720 --> 0:02:45.800 of course, is going to completely remake the FED, but 0:02:45.880 --> 0:02:48.680 the chair is a very important role. He or she 0:02:49.400 --> 0:02:52.320 will set a tone I think the idea maintain and 0:02:52.400 --> 0:02:55.360 explain as you ought to be able to articulate a 0:02:55.400 --> 0:02:58.120 framework for monetary policy and the lender of last resort, 0:02:58.120 --> 0:03:01.320 and explain when you deviate. The chair sets that tone. 0:03:01.720 --> 0:03:04.480 I think the board will too. The goal I think 0:03:04.480 --> 0:03:07.160 for President Trump is to appoint an entire Federal Reserve 0:03:07.240 --> 0:03:10.600 Board essentially that could carry something like that out. Do 0:03:10.880 --> 0:03:12.640 you feel satisfied that he's well on the way to 0:03:12.680 --> 0:03:14.600 doing that. Our colleague gena smile like writing a great 0:03:14.600 --> 0:03:17.120 piece last week for Bloomberg Markets magazine, and when she 0:03:17.160 --> 0:03:19.799 looked at this imbalance as it stands right now, you've 0:03:19.840 --> 0:03:22.440 got a board that has a lot of regional presidents 0:03:22.480 --> 0:03:26.240 and fewer FED governors. How problematic is it to your 0:03:26.240 --> 0:03:28.079 mind that we have that imbalanced at this point? And 0:03:28.440 --> 0:03:31.000 are you satisfied we're going to see that put into 0:03:31.080 --> 0:03:33.840 some equilibrium here in these next few months? Well confident 0:03:33.919 --> 0:03:37.000 we'll see the equilibrium. We've already seen very good choices, 0:03:37.120 --> 0:03:39.560 like Randy Quarrels to be the vice chair of the 0:03:39.640 --> 0:03:43.360 FED for Financial Supervision. Obviously President Trump will make a 0:03:43.480 --> 0:03:46.480 decision about chair. There's also a vice chair other governors. 0:03:46.720 --> 0:03:48.720 I think the team is very focused on that and 0:03:48.760 --> 0:03:51.760 it should be. I thought this weekend, which I'm sure 0:03:51.760 --> 0:03:53.880 we'll be discussed, to call me a business school Dean 0:03:53.960 --> 0:03:58.080 Hummard is the idea that if you cut corporate taxes 0:03:59.080 --> 0:04:04.480 there's almost direct extrapolation over to economic growth. Do you 0:04:04.520 --> 0:04:08.520 buy it? I do. I think the bigger story to 0:04:08.600 --> 0:04:12.840 tell economically and perhaps politically is the link to wages. 0:04:13.320 --> 0:04:15.520 You know, when I was a student many years ago, 0:04:15.800 --> 0:04:18.080 the view was the burden of the corporate tax was 0:04:18.160 --> 0:04:22.239 born by owners of capital. Economists today, myself included, believe 0:04:22.279 --> 0:04:24.719 that a lot of that's actually born by labor. And 0:04:24.760 --> 0:04:28.240 the reason is that the corporate tax depresses investment and productivity. 0:04:28.320 --> 0:04:30.880 So yes, there are growth effects and wage effects. And 0:04:31.040 --> 0:04:34.200 that's where the debate and the debate across Democrat and 0:04:34.240 --> 0:04:39.960 Republican politics is about the diffusion of technology across the 0:04:40.040 --> 0:04:43.000 models we learned or with our humility, the models that 0:04:43.040 --> 0:04:45.680 we're living in the right now. How do you adjust 0:04:45.839 --> 0:04:50.400 Hubbard economics Given this huge new impulse of technology, we're 0:04:50.440 --> 0:04:54.080 living well. I think corporate tax reform will help with 0:04:54.160 --> 0:04:57.040 that too. It will make sure that more of those 0:04:57.080 --> 0:05:01.360 gains get shared in productivity and wages with workers. I 0:05:01.440 --> 0:05:04.760 think the questions you're asking about growth about technology, that's 0:05:04.760 --> 0:05:07.560 how we ought to be talking about tax reform. And 0:05:07.640 --> 0:05:10.440 for me, the corporate piece of tax reform is almost 0:05:10.480 --> 0:05:12.600 a no brainer. I turned to a paper that you 0:05:12.680 --> 0:05:15.799 published this summer July tenth with the John Taylor, Kevin Warson, 0:05:15.839 --> 0:05:19.839 and John Cogan here on that you all can work 0:05:19.880 --> 0:05:25.240 together outside come back on again, but the prospects for 0:05:25.320 --> 0:05:27.720 higher economic growth. And on that paper you for stressed 0:05:27.760 --> 0:05:30.479 that it's important to emphasize the tax reform and spending 0:05:30.520 --> 0:05:33.160 reductions go hand in hand. From what you've seen from 0:05:33.200 --> 0:05:35.640 the Big six this nine page document, do you think 0:05:35.680 --> 0:05:38.320 they've tackled spending reductions enough? And are you confident you're 0:05:38.320 --> 0:05:40.240 going forward? We're going to see lawmakers do that as 0:05:40.279 --> 0:05:42.280 they put some meat on the bones here of this 0:05:42.400 --> 0:05:46.120 nine page outline. I think it's highly likely that they 0:05:46.120 --> 0:05:48.559 will be tackling that, probably not on the spending side, 0:05:48.560 --> 0:05:52.560 but more on revenue neutrality. The budget resolution almost guarantees that, 0:05:52.760 --> 0:05:55.800 and many Conservatives in the House won't vote for a 0:05:55.839 --> 0:06:00.280 budget buster. The bigger point that the John's and Heaven 0:06:00.320 --> 0:06:03.320 and I were making is that in the long run, 0:06:03.360 --> 0:06:05.720 if we want a better tax system, we have to 0:06:05.720 --> 0:06:09.200 get the entitlement state in line, and sadly I don't 0:06:09.279 --> 0:06:13.479 see any effort there. The joke is Glenn, However, without 0:06:13.480 --> 0:06:18.560 getting you in trouble with the Fed, is the idea 0:06:18.680 --> 0:06:22.200 of low rate Janet, And we can certainly say in 0:06:22.240 --> 0:06:25.720 the sense of the President low rate Donald is the 0:06:25.880 --> 0:06:30.200 rules based architecture all of the distinguished gentleman from Stanford. 0:06:30.960 --> 0:06:34.400 Is that a solution for the political pressure of a 0:06:34.440 --> 0:06:38.600 low rate model? I don't think so. First of all, 0:06:38.640 --> 0:06:41.520 it wouldn't give you the answer of low rates probably 0:06:41.520 --> 0:06:44.320 at the moment. The bigger reason is that we don't 0:06:44.360 --> 0:06:47.200 really know what the equilibrium interest rate is. You know, 0:06:47.240 --> 0:06:49.719 I eat the intercept in the rule that you mentioned. 0:06:50.000 --> 0:06:52.159 I think what's more important is for the FED to 0:06:52.320 --> 0:06:55.640 articulate the way it thinks about monetary policy, what are 0:06:55.680 --> 0:06:59.040 the goals and to explain the deviations. And that's where 0:06:59.040 --> 0:07:01.719 I fault the FED. It's it's in its ad HOCNAS 0:07:01.760 --> 0:07:04.520 we go to Cartesian Monday with Glenn Hubbard. Okay, the 0:07:04.640 --> 0:07:08.159 intercept is clipping at the y axis and out on 0:07:08.200 --> 0:07:11.160 the right side of the equation? Is the unknown? Is 0:07:11.200 --> 0:07:16.120 that epsilon which is of such challenge? Taylor would probably say. 0:07:16.200 --> 0:07:19.800 Richard Taylor would probably say, we have certitude and where 0:07:19.840 --> 0:07:23.600 we describe the intercept or the slope? How do you 0:07:23.720 --> 0:07:30.360 balance that in today's really interesting UH economy with completely 0:07:30.480 --> 0:07:35.720 fiction interest rates. Well, I mean, let me get more specific. 0:07:35.760 --> 0:07:40.080 The fed's models, the Federal Reserve Board US model framework 0:07:40.160 --> 0:07:43.720 that it uses, I don't think capture economic reality, let 0:07:43.720 --> 0:07:48.600 alone the psychological factors that UH Professor Taylor mentions. So 0:07:48.640 --> 0:07:51.640 I think there's need for more diversity and economic thinking 0:07:52.040 --> 0:07:55.120 inside the FED. UH in a real wake up call, 0:07:55.240 --> 0:07:58.040 the models and the financial crisis alone should have suggested that. 0:07:58.120 --> 0:08:01.080 I think David was that question we just to Chairman Hubbard. 0:08:02.440 --> 0:08:05.160 I think it's worth get one more question, very hard. 0:08:05.440 --> 0:08:08.040 Four hangs up on us never again. On the subject 0:08:08.120 --> 0:08:09.920 of research, What did you hear from Janet Yelling a 0:08:09.920 --> 0:08:11.720 couple of weeks back in Cleveland when she spoke at 0:08:11.720 --> 0:08:14.720 the name but conference. You talked about inflation modeling and forecasting. 0:08:15.440 --> 0:08:17.480 Did it stand out to you as a maya culpa, 0:08:17.560 --> 0:08:20.480 a recognition that there are flaws with the modeling. What 0:08:20.520 --> 0:08:23.120 did you hear from the chair a couple of weeks back. Well, 0:08:23.160 --> 0:08:26.440 I think the bottom line is the chair feels that 0:08:26.520 --> 0:08:30.360 we have a series of transitory factors one offset you will, 0:08:30.440 --> 0:08:33.679 that have held inflation down. And I actually agree with that. 0:08:33.679 --> 0:08:36.160 That's different though from the view of whether we're modeling 0:08:36.160 --> 0:08:38.960 inflation well, and I don't think we are. It is 0:08:39.000 --> 0:08:41.480 certainly a very big bet. If you think that they're 0:08:41.520 --> 0:08:44.719 structural factors holding inflation down, then the whole framework is 0:08:44.760 --> 0:08:47.480 in question. But on the bottom line, I would agree 0:08:47.480 --> 0:08:51.120 with the chair. Glenn terrific sport to come on with this. 0:08:51.280 --> 0:08:55.880 Many others we greatly appreciated. Dina Hubbard is the Carson 0:08:55.960 --> 0:09:00.000 Professor of Finance and Economics, Columbia Business School, and just uh, 0:09:00.160 --> 0:09:02.360 just for a now wonderful for a how just wonderful 0:09:02.400 --> 0:09:05.120 to happen, I tell you eighty four other people is no, 0:09:05.360 --> 0:09:08.240 we can't do that. Glenn Hubbard joining us on our 0:09:08.280 --> 0:09:22.040 phone lines, eager to have with us here in a 0:09:22.040 --> 0:09:24.120 political levengry of studios to day Andreas tone Bread, he's 0:09:24.120 --> 0:09:25.520 a member of the executive board off the Deutch to 0:09:25.520 --> 0:09:27.000 put his bunk yet here with us, as I said 0:09:27.160 --> 0:09:28.880 in New York before heading down to Washington for the 0:09:28.960 --> 0:09:30.520 I m F World Bank meetings, Great to have you 0:09:30.840 --> 0:09:33.079 here with us. Let's start just with a thirty thousand 0:09:33.120 --> 0:09:35.880 foot view of the regulatory landscape in Europe at this 0:09:35.960 --> 0:09:40.400 point the Bossel taxa continue. What's the status of those negotiations. Yep, 0:09:40.520 --> 0:09:43.360 you know, we just met last week and um that 0:09:43.440 --> 0:09:48.520 was on Wednesday and Thursday, regular meeting and uh meeting 0:09:48.559 --> 0:09:52.040 went well, and we're getting closer and closer together, I 0:09:52.120 --> 0:09:56.120 must say, But Basil will only be concluded once the 0:09:56.160 --> 0:09:58.719 governors and heads of supervision degree and when the G 0:09:58.840 --> 0:10:03.640 twenty endors So let's see what happens. But um, you 0:10:03.640 --> 0:10:07.160 know it, when you come together in a meeting like 0:10:07.200 --> 0:10:09.360 the one last week, you come together to agree and 0:10:09.400 --> 0:10:11.600 not to disagree. So you you know, you don't fly 0:10:11.720 --> 0:10:16.640 across the world for no reason and to argue. We're 0:10:16.679 --> 0:10:19.480 focused on timetables here with regard to your Certainly the 0:10:19.480 --> 0:10:21.600 timetable for Brexit is one of them. But how about 0:10:21.600 --> 0:10:24.400 the timetable for this this iteration of basil is it 0:10:24.440 --> 0:10:26.280 is it proceeding to the pace you'd like to see 0:10:26.280 --> 0:10:29.360 it proceeded. If we look back, we wanted to have 0:10:29.440 --> 0:10:32.720 BATTLED finished by the end of two thousand fifteen. Now 0:10:32.720 --> 0:10:36.080 we're we're in two thousand seventeen. I must say we're 0:10:36.080 --> 0:10:39.359 still working on year end of two thousand and fifteen 0:10:39.960 --> 0:10:42.559 data and numbers by the banks. So if we really 0:10:42.559 --> 0:10:45.960 go into two thousand and eighteen, I would be worried 0:10:46.240 --> 0:10:49.000 that we would be working on a two old a 0:10:49.160 --> 0:10:52.319 set of data. It's a little bit like uh, going 0:10:52.400 --> 0:10:55.680 with the with the GPS and you know, sailing and 0:10:55.720 --> 0:10:58.360 with an old GPS. So we need, you know, if 0:10:58.400 --> 0:11:02.080 we want to conclude on this basis, I would believe 0:11:02.160 --> 0:11:04.880 that we would need to conclude this year. Um it 0:11:04.920 --> 0:11:07.959 would be nice to have, um, you know, a conclusion 0:11:08.000 --> 0:11:10.960 during the German G twenty presidency, which ends, if end 0:11:10.960 --> 0:11:12.760 the end of November of this year. But this is 0:11:12.760 --> 0:11:15.000 not a must. We have to have a good result 0:11:15.200 --> 0:11:17.559 the drum G twenty presidency. I think the last time 0:11:17.600 --> 0:11:20.000 we spoke, I was incredibly rude because you were within 0:11:20.120 --> 0:11:23.000 hours or days of an ECB announcement. I could basically 0:11:23.080 --> 0:11:25.680 say nothing. We got a little more wiggle room. Now. 0:11:26.200 --> 0:11:29.760 I think our listeners across this nation and worldwide, our 0:11:29.840 --> 0:11:33.280 our world audience has somewhat of an idea of the 0:11:33.320 --> 0:11:35.839 Bank of England. They've got an idea of the FED, 0:11:35.920 --> 0:11:39.280 They've got an idea of this that the other and 0:11:39.320 --> 0:11:43.160 the Bundesbank is an enigma. It is is something we 0:11:43.200 --> 0:11:47.400 don't understand. Explain the day to day structure of the 0:11:47.559 --> 0:11:51.680 leadership of the German Central Bank. We are six in 0:11:51.720 --> 0:11:55.200 the leadership. Our president sits on the board of the ECB. 0:11:55.800 --> 0:11:59.240 So whilst in the past um the board of the 0:11:59.280 --> 0:12:03.079 Buddhist Bank crafting monetary policy for Germany, whilst whilst we 0:12:03.120 --> 0:12:06.080 still have the Dutch MK, now we are participating through 0:12:06.080 --> 0:12:10.360 our president in the decision making of the European Central Bank. 0:12:10.840 --> 0:12:13.400 So we are now have a smaller room than we 0:12:13.440 --> 0:12:17.120 had before, but for a much bigger game, if you want. 0:12:17.200 --> 0:12:20.160 How has it changed? I remember visiting with atmar Issing 0:12:20.240 --> 0:12:23.320 in brand new Frankfort, a brand new ECB. The tower 0:12:23.480 --> 0:12:26.920 wasn't actually Professor Hassening showed me the blueprints for the 0:12:26.960 --> 0:12:29.640 tower when I was in the office a million years ago. 0:12:30.200 --> 0:12:34.640 How is the Bundesbank relationship with Frankfort change from the 0:12:34.720 --> 0:12:37.800 beginning to where we are now. Now let's don't forget 0:12:37.840 --> 0:12:42.199 that the ECB was set up with the Bundesbank as 0:12:42.200 --> 0:12:45.720 a model. Yes, so the independence of the Buddisbank was 0:12:46.160 --> 0:12:48.960 you know, taken to the e c B, etcetera, etcetera. 0:12:49.120 --> 0:12:52.199 When you give up your monetary policy, your direct influence 0:12:52.200 --> 0:12:55.320 on monetary policy, of course there you have somewhat of 0:12:55.320 --> 0:12:57.240 a shock, but you do this for the greater good 0:12:57.240 --> 0:12:59.680 of things. So I would think that in nine out 0:12:59.679 --> 0:13:05.000 of or nineteen out of twenty instances, the Bundesbank and 0:13:05.040 --> 0:13:08.679 the ECB agree on the issues. In maybe in twenty 0:13:08.679 --> 0:13:12.320 out of twenty instances we have the feeling that we 0:13:12.400 --> 0:13:16.080 have the same judgment. But it really depends on how 0:13:16.160 --> 0:13:18.840 you react, how you implement, what do you do, and 0:13:18.880 --> 0:13:21.280 then you know, the glass can be held full or 0:13:21.320 --> 0:13:24.280 half empty. But it's not that we constantly disagree with 0:13:24.280 --> 0:13:27.000 the CB. I sit on what it's called the Supervisory 0:13:27.000 --> 0:13:28.920 Board of the CB. So there's the governing Council of 0:13:28.960 --> 0:13:31.120 the monetary policy is crafted and then there's the bood 0:13:31.120 --> 0:13:33.600 of Board of Supervisors. There's a Chinese ball in between, 0:13:33.880 --> 0:13:36.120 and I sit for Germany on that one, and we 0:13:36.240 --> 0:13:41.040 also UM very much agree, but we also argue we 0:13:41.080 --> 0:13:44.680 are not living in a Soviet system where where everybody 0:13:44.720 --> 0:13:46.680 has to agree all the time and everybody has to 0:13:46.720 --> 0:13:50.720 collect their heels. But it's only normal that you do that, 0:13:50.840 --> 0:13:55.000 you do discuss issues. But should there be ever, will 0:13:55.040 --> 0:13:58.000 be a decision um in the e c B, the 0:13:58.040 --> 0:14:01.360 Buddhas Bank will properly execute with that decision. As we 0:14:01.400 --> 0:14:05.360 watch this Brexit process unfold, companies have made announcements they 0:14:05.360 --> 0:14:07.480 intend to move more workers to Germany in other places 0:14:07.760 --> 0:14:10.719 within Europe. How does that change your regulatory responsibilities? In 0:14:10.720 --> 0:14:12.880 other words, if you have an influx of more commerce 0:14:13.040 --> 0:14:15.760 or more personnel, has that change the role that your 0:14:15.760 --> 0:14:18.319 bank is going to plan. First of all, let me 0:14:18.360 --> 0:14:23.080 say UM that I personally regret that this Brexit referendum 0:14:23.160 --> 0:14:25.320 led to what it led, and that I could have 0:14:25.400 --> 0:14:29.280 lived perfectly with the system as it was as it was, 0:14:29.400 --> 0:14:30.960 and that but that is you know, we have to 0:14:31.000 --> 0:14:35.800 face we have to face um reality, which means that 0:14:36.200 --> 0:14:40.200 a heart Brexit is the scenario the banks are preparing for. 0:14:40.400 --> 0:14:42.240 It may not be a heart Brexit at the end, 0:14:42.440 --> 0:14:45.640 but as a scenario that's the most probable and most 0:14:45.680 --> 0:14:49.440 likely scenario. So if you prepare for that, which would 0:14:49.520 --> 0:14:53.960 mean that you would have no free trade agreement really 0:14:54.520 --> 0:14:57.200 at the end of this two year period. If that 0:14:57.320 --> 0:14:59.840 is happening, you know many many banks will have to 0:15:00.040 --> 0:15:03.280 shift part of their business into Europe, which means that 0:15:03.320 --> 0:15:06.040 they will come to certain cities on the continent. Just 0:15:06.280 --> 0:15:11.160 Brexit threatened Conrad an Hour's Europe, No, not at all. 0:15:11.640 --> 0:15:15.000 It is it is a Brexit is a UM. It 0:15:15.160 --> 0:15:19.440 is a UM step which was taken. But it does 0:15:19.480 --> 0:15:24.600 not mean that for example, UM Britain leaves the NATO, 0:15:24.880 --> 0:15:27.720 Britain leaves the G seven, that Great Britain leaves the 0:15:27.720 --> 0:15:31.840 G twenty. It means they're leaving a common European Union, 0:15:31.880 --> 0:15:34.960 which in itself is a pretty problematic issue, but it 0:15:35.040 --> 0:15:38.400 still means that we can work very closely together. Not 0:15:38.480 --> 0:15:41.880 to answer your question, we will have inflows of a 0:15:41.960 --> 0:15:46.600 broker dealers into Europe also into Frankfort I must say, 0:15:46.680 --> 0:15:49.560 and we have never really supervised large broker dealers, so 0:15:49.600 --> 0:15:51.920 there's going to be a challenge to the roles of 0:15:51.960 --> 0:15:54.720 the supervisors and how do we deal with broker dealers. 0:15:54.720 --> 0:15:57.120 But we are confident that we can do that. This 0:15:57.200 --> 0:15:59.760 is not really a financial stability risk. This is coming 0:16:00.120 --> 0:16:02.640 with a two year time horizon, so the market can 0:16:02.720 --> 0:16:06.680 really understand and anticipate what's happening. What it gets your 0:16:06.720 --> 0:16:09.560 perspective on this moment in central banking or monetary policy. 0:16:09.600 --> 0:16:11.720 I go back to centrip Portugal, where you had are 0:16:11.720 --> 0:16:14.480 the leaders of many central banks. They're talking for more 0:16:14.480 --> 0:16:19.080 communication cooperation pick the word uh, and you know we 0:16:19.120 --> 0:16:21.440 see here the US trying to unwind QI normalize the 0:16:21.440 --> 0:16:23.480 balance sheet. Where do things stand as you observe it 0:16:23.480 --> 0:16:26.840 from from where you sit in Frankfurt? Why is it? UM? 0:16:26.960 --> 0:16:30.960 I think that the debate is um. How can we 0:16:32.120 --> 0:16:36.800 best interpret the pretty strong economic numbers we're having across Europe, 0:16:37.360 --> 0:16:41.760 the much better situation a UM consumer price inflation, which 0:16:41.800 --> 0:16:45.760 is UMU at one point five pc, going towards our 0:16:45.840 --> 0:16:49.880 definition of price stability, a core inflation rate strengthening, with 0:16:50.000 --> 0:16:54.480 the highest consumer confidence we've had for a long time. UM, 0:16:54.560 --> 0:16:57.360 Why why are we why are we doing better? Why 0:16:57.440 --> 0:17:01.160 is eurosclerosis differently away? Yeah? Because first of all, there's 0:17:01.200 --> 0:17:04.240 no deflation scenario, if they ever was one. I can 0:17:04.280 --> 0:17:09.320 actually see UM and we're seeing growth now UM in 0:17:09.400 --> 0:17:13.320 almost all member states of the U area. We have 0:17:13.400 --> 0:17:17.120 really bottomed out, and the economic environment is much better, 0:17:17.160 --> 0:17:20.120 and the political risk we've been debating half a year 0:17:20.400 --> 0:17:23.320 a year ago no longer is really there. Is it 0:17:23.400 --> 0:17:26.280 because of business practices which you studied a JP Morgan 0:17:26.320 --> 0:17:30.199 at Rath Childhood Bank of America are becoming more Anglo American. No, 0:17:30.400 --> 0:17:34.400 because the situation is so much better. From an economic 0:17:34.400 --> 0:17:37.359 point of view, we still have a credit based economy 0:17:37.359 --> 0:17:41.920 and not yet an Anglo saxon Um capital markets based economy. 0:17:42.080 --> 0:17:46.720 In that so diplomatically, David, it's just amazing bat that 0:17:46.880 --> 0:17:49.159 right back over than that. So we're not there yet, 0:17:49.200 --> 0:17:51.560 And we're not there, you know, and and and and 0:17:51.640 --> 0:17:54.359 we're doing we're still doing much better. So now that 0:17:54.480 --> 0:17:56.800 from a monetary policy perspective, you really have to think, so, 0:17:57.440 --> 0:18:00.320 what do you make out of this um stronger enemy, 0:18:00.920 --> 0:18:05.800 better numbers uh more going towards uh the definition of 0:18:05.840 --> 0:18:09.159 price Deputy, So my question would be what now the 0:18:09.200 --> 0:18:11.359 Governing Council, and I'm not a member of the Governing Council, 0:18:11.359 --> 0:18:14.560 would have to debate how to react. Well, I think 0:18:14.560 --> 0:18:16.840 the goal will be to get Swiss tenure yields under 0:18:17.440 --> 0:18:20.320 above positive again, that would be a good sir, this 0:18:20.400 --> 0:18:22.600 is manager. Can you do this every week and our 0:18:22.680 --> 0:18:25.520 studios on a weekly basis? That would be a good 0:18:25.560 --> 0:18:29.280 thing from time to time. Addressed, Thank you very much again, 0:18:29.280 --> 0:18:32.160 Executive member the Executive Board of the Dutch Bundesbank. Joining 0:18:32.240 --> 0:18:35.560 us here in a plibical eleven three studios in New York. Yes, great, Evan, 0:18:35.560 --> 0:18:37.080 you're heading to Washington as well. Like this week, I 0:18:37.080 --> 0:18:39.600 should mention Tom, it's a rumor I will be there. 0:18:40.119 --> 0:18:41.879 It's a it's a rumor right now, be there. No, 0:18:41.960 --> 0:18:44.480 we've got some wonderful interviews lined up at the I 0:18:44.640 --> 0:18:59.399 m F meetings. And now joining us the Laureate Robert 0:18:59.440 --> 0:19:03.679 Schuller Yale University is he celebrates UH the announcement of 0:19:03.760 --> 0:19:08.520 Richard Taylor to a Nobel Prize Taylor's course of Chicago, 0:19:09.119 --> 0:19:11.920 out of Case Western and out of the University of Rochester. 0:19:12.680 --> 0:19:18.800 Bob Schiller inform our audience as to the distinction of 0:19:18.920 --> 0:19:25.119 Taylor economics versus Schiller economics or Becker economics or the others. 0:19:25.200 --> 0:19:31.639 What is distinctive about Richard Taylor. But he UH has 0:19:31.680 --> 0:19:38.960 helped promote a revolution that in economics, namely behavioral economics, 0:19:39.000 --> 0:19:43.800 that makes economics more a real world and also that 0:19:43.920 --> 0:19:49.560 leads to public policies that can be tested and found 0:19:49.920 --> 0:19:54.520 to work. Uh there has been a tendency to rely 0:19:55.000 --> 0:20:00.679 too much on abstract models of economic behavior. Uh as 0:20:00.720 --> 0:20:04.720 if everyone we're paying attention and everyone we're optimizing, but 0:20:04.840 --> 0:20:08.320 they're not. So we're coming back to the reality. I 0:20:08.359 --> 0:20:10.800 know David Gurw wants to jump in here, but very quickly. 0:20:10.840 --> 0:20:13.359 If you go back to the Carnegie Rochester sessions of 0:20:14.040 --> 0:20:17.119 eighty two where you were there with Lars Peter Hansen, 0:20:17.240 --> 0:20:20.199 Jacob Frankel and others. If you go back to the 0:20:20.240 --> 0:20:24.320 Battle of seventy nine Common Diversity, the Battle of Sailor 0:20:24.880 --> 0:20:28.880 eighty writing originally the battle that you fought at two, 0:20:29.200 --> 0:20:34.399 describe to our listeners how the Rational Expectations Crew they 0:20:34.440 --> 0:20:39.560 hated you people. What was it like that? Because that's 0:20:39.600 --> 0:20:43.240 strong where some of them probably did. Although I have 0:20:43.320 --> 0:20:50.280 to say academia does come across as open minded. There 0:20:50.320 --> 0:20:56.040 they may have hostile emotions. I once spoke to Eugene Fama, 0:20:56.119 --> 0:20:58.480 who is you might call him my enemy, how that 0:20:58.520 --> 0:21:03.040 we won the Nobel But he's not my enemy. He's 0:21:03.040 --> 0:21:06.240 a thorn in my side. And it's probably good. But 0:21:06.359 --> 0:21:09.200 he once told me that he has refereed and accepted 0:21:09.760 --> 0:21:15.119 many important behavioral economics articles. Uh. I think people in 0:21:15.200 --> 0:21:19.359 academia are not all that bad, but they do get emotional. 0:21:19.640 --> 0:21:22.439 That's just human nature. Bob Sla, let me ask you 0:21:22.440 --> 0:21:25.840 about Richard Taylor, the public intellectual. We've we've seen him 0:21:25.880 --> 0:21:28.399 in the Big Short playing poker or blackjack or whatever 0:21:28.440 --> 0:21:31.200 it was, alongside Selina Gomez. We've we've we've heard him 0:21:31.760 --> 0:21:34.199 lecture to popular audiences, has written books that have been 0:21:34.200 --> 0:21:36.760 popularly consumed as well. How much has he made a 0:21:36.760 --> 0:21:42.320 difference here in popularizing behavioral economics, Well, he has been 0:21:42.600 --> 0:21:48.040 enormously important. I think, uh As I say it's a revolution. 0:21:48.080 --> 0:21:51.960 If if you were to summarize what important has happened 0:21:52.480 --> 0:21:57.119 in economics in the last twenty years or so, I 0:21:57.160 --> 0:22:01.040 think behavioral economics would come now one. And to me, 0:22:01.240 --> 0:22:06.600 it's really inspirational to get back to reality because we 0:22:06.680 --> 0:22:11.200 have just disrespected in economics. Other social sciences have been 0:22:11.320 --> 0:22:15.520 quietly working away and coming up with new information about 0:22:15.560 --> 0:22:19.120 how people really behaved. How could we have ignored that 0:22:19.200 --> 0:22:22.840 for so wrong? So to me it's refreshing. Someone had 0:22:22.840 --> 0:22:28.400 to had to call out the fallacy of relying exclusively 0:22:28.520 --> 0:22:33.159 on rational optimizing models. Finally it's been done. And you know, 0:22:33.440 --> 0:22:37.320 Dick Taylor was the president of the American Economic Association. 0:22:37.920 --> 0:22:42.919 He's the profession has come around to appreciate what can 0:22:43.640 --> 0:22:49.480 what can what can President Trump learn from Richard Taylor? Okay, Well, 0:22:49.520 --> 0:22:53.280 you know President Trump himself is a bit of student 0:22:53.359 --> 0:22:57.160 of psychology, but not such academic psychology. If you read 0:22:57.200 --> 0:23:00.440 his books, and I think they were not just totally 0:23:01.359 --> 0:23:05.520 totally goest writain, he had some input into them. He 0:23:05.760 --> 0:23:10.760 is very aware of human psychology. Uh and uh, well 0:23:11.040 --> 0:23:13.000 he has Art of the Deal is based on it. 0:23:14.040 --> 0:23:17.200 But I think Donald Trump has a lot more he 0:23:17.240 --> 0:23:21.680 could learn from Dick Sailor. Professor Schulder, thank you so much. 0:23:21.720 --> 0:23:23.960 Honored to have you with us again. Robert Schiller of 0:23:24.520 --> 0:23:29.440 Yale University of course, uh not two thousand thirteen Nobel 0:23:29.520 --> 0:23:32.600 Laureate on his colleague, particularly with great work at NB 0:23:32.960 --> 0:23:36.800 er with Richard Sailor as well. Um, David, we've had 0:23:36.800 --> 0:23:39.400 a Sailor's siding. We got a wonderful note from an 0:23:39.440 --> 0:23:45.000 extremely beliaguered Richard the conference. Yeah, and we will have 0:23:45.080 --> 0:23:47.760 him later this week, which I think is probably better 0:23:47.800 --> 0:23:50.159 for our Listen. We've talked about saltwater and freshwater and 0:23:50.160 --> 0:23:52.760 brackish water. Is this a high water mark for behavior economics, 0:23:52.760 --> 0:23:58.800 Tomm you mentioned, Yeah, it was widely presumed that Robert 0:23:58.840 --> 0:24:02.640