1
00:00:00,450 --> 00:00:03,210
Speaker 1: Hey, Odd Lots listeners, the Odd Lots tour continues and

2
00:00:03,270 --> 00:00:04,630
Speaker 1: our next stop is in Chicago.

3
00:00:04,870 --> 00:00:06,690
Speaker 2: That's right. Joe and I will be at the City

4
00:00:06,830 --> 00:00:10,889
Speaker 2: Winery Chicago on October 15th for a live Odd Lots recording.

5
00:00:11,050 --> 00:00:15,000
Speaker 2: Tickets are on sale now at Bloomberg.com forward slash Odd Lots.

6
00:00:15,320 --> 00:00:17,760
Speaker 1: And of course, a special thank you to Barclays for

7
00:00:17,820 --> 00:00:19,340
Speaker 1: supporting Odd Lots Live.

8
00:00:19,579 --> 00:00:23,300
Speaker 2: So that's October 15th at City Winery in Chicago. Get

9
00:00:23,360 --> 00:00:24,220
Speaker 2: your tickets now.

10
00:00:29,430 --> 00:00:44,620
Speaker 1: Podcasts, radio, news. Hello and welcome to another episode of

11
00:00:44,659 --> 00:00:47,040
Speaker 1: the Odd Lots podcast. I'm Joe Wiesenthal.

12
00:00:47,180 --> 00:00:48,060
Speaker 3: And I'm Tracy Alloway.

13
00:00:48,450 --> 00:00:51,260
Speaker 1: Tracy, I think a comment that you've made a few

14
00:00:51,340 --> 00:00:54,800
Speaker 1: times over the episodes is like, no, no, no, it's not.

15
00:00:54,840 --> 00:00:58,460
Speaker 1: It's like we have these conversations and then usually or frequently,

16
00:00:58,540 --> 00:01:01,660
Speaker 1: whether we're talking about trade or AI or anything, there's usually, oh,

17
00:01:01,720 --> 00:01:03,340
Speaker 1: and it seems like Europe is getting the short end

18
00:01:03,380 --> 00:01:05,259
Speaker 1: of the stick here. Or it seems like it's all

19
00:01:05,280 --> 00:01:08,780
Speaker 1: going to end up being kind of bad for Europe. Well, yeah. Yes,

20
00:01:09,140 --> 00:01:10,679
Speaker 1: I would say that. You have said this.

21
00:01:11,100 --> 00:01:13,380
Speaker 2: I'm sure I have in the past. However, what I

22
00:01:13,420 --> 00:01:16,419
Speaker 2: would say is if you are bullish on AI and

23
00:01:16,459 --> 00:01:19,910
Speaker 2: its ability to boost productivity across the board, in my mind,

24
00:01:19,950 --> 00:01:22,230
Speaker 2: you have to be bullish on Europe because there is

25
00:01:22,310 --> 00:01:27,449
Speaker 2: no region out there perhaps more motivated than Europe to

26
00:01:27,490 --> 00:01:31,240
Speaker 2: try to eke out every extra ounce of of output

27
00:01:31,340 --> 00:01:34,440
Speaker 2: per work hour. Like if you want a long lunch

28
00:01:34,480 --> 00:01:36,220
Speaker 2: in France, if you want to, you know, take a

29
00:01:36,459 --> 00:01:39,870
Speaker 2: long vacation in August, you should be very, very interested

30
00:01:39,910 --> 00:01:41,589
Speaker 2: in AI. And if you think those gains are going

31
00:01:41,610 --> 00:01:44,350
Speaker 2: to be like widely spread through businesses in other countries,

32
00:01:44,490 --> 00:01:44,730
Speaker 2: you know.

33
00:01:45,270 --> 00:01:48,110
Speaker 1: Think about Europe. Did you purposely just say this? Did

34
00:01:48,130 --> 00:01:49,810
Speaker 1: you see the red headline that just hit as you

35
00:01:49,830 --> 00:01:50,330
Speaker 1: were talking?

36
00:01:50,490 --> 00:01:50,720
Speaker 2: No.

37
00:01:50,880 --> 00:01:53,720
Speaker 1: It's so surreal. So we just got a red headline

38
00:01:53,760 --> 00:01:58,500
Speaker 1: the moment you were saying that. BMW targets shedding a

39
00:01:58,600 --> 00:02:01,720
Speaker 1: fifth of manager roles with the help of AI. I

40
00:02:01,780 --> 00:02:05,950
Speaker 1: don't think that could be more perfect because, A, it's

41
00:02:05,970 --> 00:02:07,050
Speaker 1: the two sides of the coin.

42
00:02:07,070 --> 00:02:07,400
Speaker 2: Yeah, it is.

43
00:02:07,430 --> 00:02:10,230
Speaker 1: So you have a lot of big industrial behemoths in

44
00:02:10,270 --> 00:02:13,500
Speaker 1: Europe that, in theory— Like you're like, I remember we've

45
00:02:13,540 --> 00:02:16,000
Speaker 1: talked about this for years, actually. You know, if AI

46
00:02:16,040 --> 00:02:18,760
Speaker 1: is going to diffuse across the economy, suddenly maybe these

47
00:02:18,820 --> 00:02:22,150
Speaker 1: companies can be more lean, et cetera. But then this

48
00:02:22,210 --> 00:02:23,990
Speaker 1: also gets to two things. OK, what does that mean

49
00:02:24,010 --> 00:02:27,510
Speaker 1: about jobs themselves? And then also it's like, OK, maybe

50
00:02:27,590 --> 00:02:31,410
Speaker 1: they can modestly trim some of their management layers with

51
00:02:31,430 --> 00:02:34,190
Speaker 1: the help of AI. But can that actually make these

52
00:02:34,270 --> 00:02:38,540
Speaker 1: European car companies competitive with the Chinese companies? That still

53
00:02:38,620 --> 00:02:41,429
Speaker 1: seems like a tall order of the trajectory there. But

54
00:02:41,530 --> 00:02:43,810
Speaker 1: it's very funny that you said that the second that

55
00:02:43,850 --> 00:02:45,640
Speaker 1: that headline crossed the terminal.

56
00:02:45,720 --> 00:02:48,400
Speaker 2: Plugged into the zeitgeist, I guess. One other thing I

57
00:02:48,500 --> 00:02:51,250
Speaker 2: would say, speaking about the zeitgeist, and since you mentioned China,

58
00:02:51,280 --> 00:02:54,470
Speaker 2: we are recording this on September 30th, and Europe seems

59
00:02:54,510 --> 00:02:57,510
Speaker 2: to be gearing up for to take some sort of

60
00:02:57,710 --> 00:03:01,980
Speaker 2: action against China in order to boost their competitiveness against it.

61
00:03:02,030 --> 00:03:04,400
Speaker 2: We're not entirely sure just yet what that's going to

62
00:03:04,410 --> 00:03:06,850
Speaker 2: look like, but people are definitely talking about it.

63
00:03:07,040 --> 00:03:10,419
Speaker 1: I mean, there's like this very deep concern about all

64
00:03:10,440 --> 00:03:14,280
Speaker 1: of the industrial behemoths, a lot of the German chemical companies,

65
00:03:14,340 --> 00:03:17,980
Speaker 1: the German automakers, et cetera. And like, you know, five,

66
00:03:17,980 --> 00:03:20,279
Speaker 1: 10 years ago, they were like riding high. And then

67
00:03:20,400 --> 00:03:23,240
Speaker 1: suddenly in a few years, people are talking about Potentially

68
00:03:23,360 --> 00:03:26,620
Speaker 1: existential risk to them and so forth. And it's sort

69
00:03:26,650 --> 00:03:31,630
Speaker 1: of wild to me, you know, thinking back to how

70
00:03:31,690 --> 00:03:33,810
Speaker 1: much the mood has changed from, say, the first Trump

71
00:03:33,830 --> 00:03:38,590
Speaker 1: administration and even the Biden administration. When, you know, the

72
00:03:38,670 --> 00:03:41,530
Speaker 1: idea of like, you know, there was the European anger

73
00:03:41,570 --> 00:03:45,480
Speaker 1: at the Inflation Reduction Act and so forth. And, you know,

74
00:03:45,540 --> 00:03:48,180
Speaker 1: just this this concern that the trade issue that was

75
00:03:48,200 --> 00:03:50,920
Speaker 1: sort of really catalyzed by the U.S. and Trump a

76
00:03:50,980 --> 00:03:54,430
Speaker 1: decade ago is now just sort of it's becoming just

77
00:03:54,450 --> 00:03:55,190
Speaker 1: very mainstream.

78
00:03:55,390 --> 00:03:58,130
Speaker 2: Well, you use the word diffuse the benefits of AI.

79
00:03:58,190 --> 00:04:00,650
Speaker 2: And I think, you know, the idea of having to

80
00:04:00,710 --> 00:04:03,680
Speaker 2: compete seriously against China and take actual steps to do

81
00:04:03,750 --> 00:04:06,440
Speaker 2: so has diffused across many places in the world.

82
00:04:06,660 --> 00:04:07,540
Speaker 1: Very well put.

83
00:04:07,600 --> 00:04:07,840
Speaker 4: All right.

84
00:04:07,880 --> 00:04:09,760
Speaker 1: Well, I'm very excited to say we do have the

85
00:04:09,800 --> 00:04:13,200
Speaker 1: perfect guest, someone who's writing I've admired for a long

86
00:04:13,260 --> 00:04:16,489
Speaker 1: time and who has interesting takes about all these things,

87
00:04:16,550 --> 00:04:21,940
Speaker 1: including debates about European economic productivity, whether they're falling behind, etc.,

88
00:04:22,690 --> 00:04:25,750
Speaker 1: nuanced positions on various trade questions. We're going to be

89
00:04:25,770 --> 00:04:30,520
Speaker 1: speaking with Dominic Leuster, economist, policy analyst, former researcher at

90
00:04:30,720 --> 00:04:35,300
Speaker 1: LSE and author of the Leuster of Last Resort Substack. So, Dominic,

91
00:04:35,339 --> 00:04:37,239
Speaker 1: thank you so much for coming on OddLots.

92
00:04:37,460 --> 00:04:38,169
Speaker 4: Thanks for having me.

93
00:04:38,380 --> 00:04:40,190
Speaker 1: So AI is going to be great for Europe, right?

94
00:04:40,250 --> 00:04:43,409
Speaker 1: Because then during the working hours, as Tracy said, the

95
00:04:43,450 --> 00:04:45,830
Speaker 1: workers can get more output, then they can expand their

96
00:04:45,850 --> 00:04:47,770
Speaker 1: lunch breaks and their vacations in August.

97
00:04:48,089 --> 00:04:50,770
Speaker 3: I mean, you know, if you look at some how

98
00:04:50,850 --> 00:04:54,770
Speaker 3: Europe has done in the last few decades of the

99
00:04:55,190 --> 00:05:00,960
Speaker 3: booming tech sector elsewhere, despite never having been the major

100
00:05:01,000 --> 00:05:05,160
Speaker 3: innovator itself, maybe very early before the 90s, Europe may

101
00:05:05,200 --> 00:05:08,620
Speaker 3: have contributed some of the foundational research that, of course,

102
00:05:08,660 --> 00:05:12,800
Speaker 3: American companies are very good at extending and commercializing. It

103
00:05:12,839 --> 00:05:16,870
Speaker 3: seems that consumers have pocketed the welfare nonetheless with lower

104
00:05:16,890 --> 00:05:20,450
Speaker 3: prices for tech goods and services. And that's despite the

105
00:05:20,490 --> 00:05:26,390
Speaker 3: fact that US tech companies have pretty decently entrenched modes

106
00:05:26,570 --> 00:05:29,540
Speaker 3: in Europe, legally entrenched ones. And I think with AI,

107
00:05:29,630 --> 00:05:32,219
Speaker 3: it's going to be much the same. That's my impression,

108
00:05:32,279 --> 00:05:37,180
Speaker 3: at least. I think it's probably true that Europe will

109
00:05:37,240 --> 00:05:39,880
Speaker 3: not be able to create a frontier model anytime soon.

110
00:05:40,760 --> 00:05:42,380
Speaker 3: I think it's a good case that it shouldn't try

111
00:05:42,420 --> 00:05:45,280
Speaker 3: to do so, and that it should instead.

112
00:05:46,480 --> 00:05:47,440
Speaker 4: Focus on.

113
00:05:49,040 --> 00:05:51,550
Speaker 3: This issue of sovereignty, of not being dependent on either

114
00:05:51,560 --> 00:05:56,710
Speaker 3: the US or China for its tech stack, which it

115
00:05:56,730 --> 00:06:01,890
Speaker 3: currently is very much, and on focusing on whatever actually

116
00:06:01,930 --> 00:06:04,630
Speaker 3: suits the business needs of most European corporates. My impression

117
00:06:04,670 --> 00:06:08,650
Speaker 3: talking with people who are in this field, also who

118
00:06:08,710 --> 00:06:15,450
Speaker 3: regulate AI at the European level, In their opinion, near

119
00:06:15,510 --> 00:06:19,690
Speaker 3: frontier models like Mistral are totally fine for the vast

120
00:06:19,750 --> 00:06:23,010
Speaker 3: majority of business needs of most European firms. And the

121
00:06:23,029 --> 00:06:26,359
Speaker 3: interesting fact, of course, that the fact that Mistral is

122
00:06:26,420 --> 00:06:31,040
Speaker 3: launching models with a Chinese chassis, so with basically with

123
00:06:31,160 --> 00:06:33,380
Speaker 3: the weights of a Chinese model, because Europe doesn't have

124
00:06:33,420 --> 00:06:37,719
Speaker 3: the compute to actually train their own weights. It raises

125
00:06:37,779 --> 00:06:40,690
Speaker 3: all sorts of other dependencies, I suppose. But so far,

126
00:06:40,730 --> 00:06:43,409
Speaker 3: I'm pretty sanguine on Europe when it comes to.

127
00:06:43,330 --> 00:06:45,970
Speaker 4: The AI race.

128
00:06:46,570 --> 00:06:50,050
Speaker 2: So if Europe has gained from a lot of technological

129
00:06:50,150 --> 00:06:56,920
Speaker 2: developments in recent years, why all the hand-wringing over competitiveness?

130
00:06:57,080 --> 00:07:00,779
Speaker 2: And when you see something like Draghi's competitiveness report, which

131
00:07:00,820 --> 00:07:02,460
Speaker 2: I think came out, what, two?

132
00:07:02,460 --> 00:07:07,270
Speaker 1: 2022, 2023. 24, late 24.

133
00:07:07,250 --> 00:07:09,970
Speaker 2: It shows you how much has happened since then. But

134
00:07:10,010 --> 00:07:14,070
Speaker 2: when something like that comes out, what is the basis

135
00:07:14,190 --> 00:07:16,650
Speaker 2: for the existential angst, I guess?

136
00:07:16,910 --> 00:07:19,470
Speaker 4: Yeah, I mean, in a way, that was the last

137
00:07:19,550 --> 00:07:19,890
Speaker 4: sort of.

138
00:07:20,810 --> 00:07:23,750
Speaker 3: It was one strand of a set of arguments that

139
00:07:23,810 --> 00:07:29,800
Speaker 3: were quite similar. They're all about, in relative terms, Europe

140
00:07:29,820 --> 00:07:33,179
Speaker 3: is falling behind and it's losing a competitiveness race versus

141
00:07:33,220 --> 00:07:37,930
Speaker 3: the U.S., And Jamie Dimon has been making these remarks frequently.

142
00:07:37,950 --> 00:07:42,710
Speaker 3: He's saying he came to Europe last year and a

143
00:07:42,730 --> 00:07:44,090
Speaker 3: couple of events this year as well and said, you're

144
00:07:44,130 --> 00:07:49,280
Speaker 3: losing because European GDP was 90% of the US 10,

145
00:07:49,280 --> 00:07:52,840
Speaker 3: 15 years ago. Now it's 70% and this is not good. Now,

146
00:07:52,860 --> 00:07:54,600
Speaker 3: there are a couple of reasons to assume that it

147
00:07:54,640 --> 00:07:57,540
Speaker 3: doesn't really matter if that were true, because as I said,

148
00:07:57,560 --> 00:08:06,130
Speaker 3: it's a very producer-centric view of competitiveness and also of welfare,

149
00:08:06,170 --> 00:08:09,410
Speaker 3: because the debate is kind of relating competitiveness to future welfare,

150
00:08:09,870 --> 00:08:12,610
Speaker 3: saying if you're going to fall behind on competitiveness, and

151
00:08:12,650 --> 00:08:16,390
Speaker 3: we define competitiveness by output or output per hour, in

152
00:08:16,410 --> 00:08:19,210
Speaker 3: other words, labor productivity, your living standards are going to

153
00:08:19,230 --> 00:08:22,590
Speaker 3: go down in material terms relative to the US, and

154
00:08:22,610 --> 00:08:25,370
Speaker 3: you're not going to be able to maintain your social model. That's,

155
00:08:25,450 --> 00:08:30,309
Speaker 3: I think, the main part of the Draghi report. My

156
00:08:30,350 --> 00:08:34,630
Speaker 3: understanding that this is I think there's a different case

157
00:08:34,670 --> 00:08:37,270
Speaker 3: for why Europe may not be doing well economically in

158
00:08:37,660 --> 00:08:40,800
Speaker 3: its own terms. But even if you accept that this

159
00:08:40,820 --> 00:08:44,179
Speaker 3: sort of relative decline is relevant, I think there's a

160
00:08:44,220 --> 00:08:48,059
Speaker 3: problem with the data. So the Draghi report was published

161
00:08:48,120 --> 00:08:52,630
Speaker 3: in November 2024, I believe, was commissioned by the European Commission.

162
00:08:53,610 --> 00:08:56,130
Speaker 3: It's obviously authored by the hero of the euro crisis,

163
00:08:56,170 --> 00:09:00,170
Speaker 3: former ECB president Draghi, who's also a distinguished economist in

164
00:09:00,210 --> 00:09:03,500
Speaker 3: its own right. It argues a lot of things that

165
00:09:03,520 --> 00:09:05,500
Speaker 3: I think I agree with and that many other people

166
00:09:05,540 --> 00:09:10,850
Speaker 3: would agree with, that Europe has to remove internal barriers

167
00:09:10,929 --> 00:09:16,910
Speaker 3: to trade and the movement of capital and credits. It

168
00:09:16,929 --> 00:09:20,469
Speaker 3: has to try to get capital investment up. It's very,

169
00:09:20,490 --> 00:09:22,880
Speaker 3: very low compared to the US in particular. And it's

170
00:09:22,900 --> 00:09:26,620
Speaker 3: falling behind in the tech sector in particular. So Draghi,

171
00:09:26,660 --> 00:09:29,240
Speaker 3: this is obviously written well into the AI boom. Draghi

172
00:09:29,270 --> 00:09:32,040
Speaker 3: is emphasizing the tech sector as the main driver of

173
00:09:32,100 --> 00:09:37,060
Speaker 3: the American productivity advantage. It's just the question of how

174
00:09:37,460 --> 00:09:41,480
Speaker 3: big that advantage really is. And I think that the

175
00:09:41,559 --> 00:09:45,699
Speaker 3: centerpiece of the report is this notion that the productivity ratio,

176
00:09:45,780 --> 00:09:51,310
Speaker 3: so GDP per hour in PPP terms, has gone from

177
00:09:51,309 --> 00:09:56,290
Speaker 3: 90 something percent to 70 or 85 percent, depending how

178
00:09:56,309 --> 00:09:58,880
Speaker 3: you measure it. since 1995, when the tech boom in

179
00:09:58,900 --> 00:10:02,839
Speaker 3: the US begins. And that implies a downward trend, a

180
00:10:02,860 --> 00:10:06,360
Speaker 3: very sharply downward trend, and that it will continue if

181
00:10:06,500 --> 00:10:08,579
Speaker 3: Europe doesn't do X, Y, and Z. I think that's

182
00:10:08,600 --> 00:10:11,660
Speaker 3: where the problem lies, because I don't think there's really

183
00:10:11,740 --> 00:10:15,380
Speaker 3: enough evidence to actually suggest that's true, really, even if

184
00:10:15,420 --> 00:10:17,939
Speaker 3: you accept that Europe might not have grown as much

185
00:10:18,000 --> 00:10:19,100
Speaker 3: as the US in recent years.

186
00:10:35,260 --> 00:10:37,420
Speaker 1: Well, why don't you explain what you see as the

187
00:10:37,540 --> 00:10:41,920
Speaker 1: issue with the data then, the core disagreement? So, OK,

188
00:10:41,940 --> 00:10:46,940
Speaker 1: total GDP and dollar terms was at 90 percent. Now

189
00:10:46,980 --> 00:10:50,360
Speaker 1: it's at 75 or 80 percent. That sounds like decline.

190
00:10:50,420 --> 00:10:54,559
Speaker 1: It sounds like, quote, falling behind, unquote. That sounds alarming.

191
00:10:54,640 --> 00:10:58,949
Speaker 1: I can understand why Draghi wouldn't like to see that trend. Why?

192
00:10:59,750 --> 00:11:02,290
Speaker 1: What's the other spin on the same numbers? Or why

193
00:11:02,309 --> 00:11:03,870
Speaker 1: do you think that's not the complete story?

194
00:11:04,410 --> 00:11:07,930
Speaker 3: So I think you can definitely make, I mean, there's

195
00:11:07,950 --> 00:11:13,860
Speaker 3: a fundamental difficulty with comparing economies. If you think that's

196
00:11:13,880 --> 00:11:18,320
Speaker 3: important to organize your policy efforts around, you might want

197
00:11:18,340 --> 00:11:21,500
Speaker 3: to compare yourself to your peer economies. And you can

198
00:11:21,520 --> 00:11:23,780
Speaker 3: do that statically. So every given year, you can compare

199
00:11:23,800 --> 00:11:26,570
Speaker 3: yourself as a ratio. So what is the US's share

200
00:11:26,610 --> 00:11:29,290
Speaker 3: of global GDP? What is Europe's share of global GDP?

201
00:11:30,650 --> 00:11:34,270
Speaker 3: But the specific case, statements that people make, including Jamie Dimon,

202
00:11:34,770 --> 00:11:38,430
Speaker 3: everyone else, Draghi, you're also quite online, so you know

203
00:11:38,450 --> 00:11:42,170
Speaker 3: that this is a constant theme online as well, is

204
00:11:42,530 --> 00:11:46,469
Speaker 3: there's a trend, there's a level trend over time. And

205
00:11:46,850 --> 00:11:49,710
Speaker 3: the problem is that because economies are very different, because

206
00:11:49,750 --> 00:11:52,910
Speaker 3: they measure economic activity quite differently, we can't actually say

207
00:11:53,000 --> 00:11:58,380
Speaker 3: anything about levels over time. So just to get to

208
00:11:58,420 --> 00:12:01,700
Speaker 3: the actual source of the beef, which is the PVP

209
00:12:01,940 --> 00:12:06,870
Speaker 3: adjustment of the GDP figures. You can't obviously just look

210
00:12:06,950 --> 00:12:11,990
Speaker 3: at nominal GDP at market exchange rates like Diamond does,

211
00:12:12,010 --> 00:12:14,150
Speaker 3: for instance, because all you're measuring is how the dollar

212
00:12:14,190 --> 00:12:17,170
Speaker 3: has fluctuated over time. It doesn't do with real output

213
00:12:17,230 --> 00:12:20,850
Speaker 3: or anything. So you need to control for these exchange

214
00:12:20,870 --> 00:12:24,589
Speaker 3: rate fluctuations. You need control for things like the differences

215
00:12:24,650 --> 00:12:28,890
Speaker 3: in working hours between the US and Europe, which are institutional.

216
00:12:28,980 --> 00:12:33,420
Speaker 3: They're political choices about how you want to utilize labor inputs,

217
00:12:34,300 --> 00:12:36,500
Speaker 3: how you want to trade productivity gains for leisure time.

218
00:12:36,520 --> 00:12:40,099
Speaker 3: The US doesn't have any statutory limitations.

219
00:12:39,700 --> 00:12:40,400
Speaker 4: On working hours.

220
00:12:41,020 --> 00:12:45,590
Speaker 3: And Europe has consistently decided to work less, but has

221
00:12:45,630 --> 00:12:48,650
Speaker 3: remained employed at the same rates, basically. So this is

222
00:12:48,770 --> 00:12:52,250
Speaker 3: totally a choice to try to work less.

223
00:12:52,510 --> 00:12:53,190
Speaker 4: And if you.

224
00:12:53,850 --> 00:12:57,360
Speaker 3: Adjust for working hours and if you adjust for the

225
00:12:57,429 --> 00:13:01,260
Speaker 3: relative price levels, which is what purchasing power parity should do.

226
00:13:01,980 --> 00:13:08,940
Speaker 3: So in other words, what does a French Euro, how

227
00:13:08,980 --> 00:13:12,400
Speaker 3: many French Euros do you need to buy a dollar

228
00:13:12,470 --> 00:13:22,489
Speaker 3: worth of consumption basically? These are constructed by the World

229
00:13:22,530 --> 00:13:24,569
Speaker 3: Bank and you have sort of a, now you have

230
00:13:24,970 --> 00:13:28,410
Speaker 3: a comparison that allows you to compare price levels.

231
00:13:28,179 --> 00:13:31,469
Speaker 4: Across time, in theory, at least.

232
00:13:31,809 --> 00:13:34,650
Speaker 3: The problem is with the Draghi measure, which is a

233
00:13:35,809 --> 00:13:38,870
Speaker 3: frighteningly common measure, but I think it's well documented to

234
00:13:38,929 --> 00:13:42,429
Speaker 3: be the wrong measure, that it does so by fixing

235
00:13:42,530 --> 00:13:45,170
Speaker 3: prices at a given year. So basically it's measured in

236
00:13:46,230 --> 00:13:50,850
Speaker 3: the Draghi report in 2010 dollars. So PPPs are expressed

237
00:13:51,050 --> 00:13:54,530
Speaker 3: as in international dollars, which is a synthetic currency that

238
00:13:54,610 --> 00:13:58,080
Speaker 3: has the same purchasing power as the US dollar. And

239
00:13:58,120 --> 00:14:01,560
Speaker 3: it's benchmark to a PPP year in which people have

240
00:14:01,600 --> 00:14:05,300
Speaker 3: gone around and collected prices in different countries and created

241
00:14:05,320 --> 00:14:07,480
Speaker 3: these ratios that are consistent with each other.

242
00:14:09,320 --> 00:14:10,200
Speaker 4: But if you fix.

243
00:14:10,340 --> 00:14:14,469
Speaker 3: Prices to a certain year, you have to use something

244
00:14:14,500 --> 00:14:17,350
Speaker 3: to extrapolate between these different benchmarks. And the Draghi measure

245
00:14:17,410 --> 00:14:20,770
Speaker 3: uses the real growth measures that the national accounts produce

246
00:14:21,030 --> 00:14:25,310
Speaker 3: in the US and the European countries. What happens as

247
00:14:25,350 --> 00:14:29,250
Speaker 3: a result is is that you get this upward trend

248
00:14:30,700 --> 00:14:34,680
Speaker 3: that shows as a decline over time that you don't

249
00:14:34,800 --> 00:14:38,640
Speaker 3: see in PPP measures that don't use the national accounts

250
00:14:38,680 --> 00:14:41,600
Speaker 3: real growth rate, but they use relative inflation ratios. So

251
00:14:42,140 --> 00:14:45,440
Speaker 3: how is the inflation ratio and inflation rates, how are

252
00:14:45,460 --> 00:14:49,830
Speaker 3: they compared to the US inflation rates and Europe? And

253
00:14:49,870 --> 00:14:52,530
Speaker 3: the problem is that we calculate those real rates differently.

254
00:14:53,130 --> 00:14:58,640
Speaker 3: So in the US, what the... the BEA does more

255
00:14:58,720 --> 00:15:04,160
Speaker 3: aggressively than the European offices for economic analysis is that

256
00:15:04,200 --> 00:15:08,729
Speaker 3: they adjust prices, particularly in the tech sector, this is

257
00:15:08,750 --> 00:15:12,130
Speaker 3: why this is very relevant for Draghi's particular argument, much

258
00:15:12,210 --> 00:15:17,690
Speaker 3: more aggressively for improvements in quality. If the computer that

259
00:15:17,710 --> 00:15:21,680
Speaker 3: I'm currently on, a MacBook, for instance, sells at the

260
00:15:21,720 --> 00:15:24,400
Speaker 3: same or a similar nominal price, even though the specs

261
00:15:24,440 --> 00:15:31,850
Speaker 3: are much better, that's measured as a decline in the

262
00:15:32,270 --> 00:15:35,990
Speaker 3: quality adjusted price. The same amount of nominal spending on

263
00:15:36,070 --> 00:15:39,890
Speaker 3: tech services or goods shows up as more real growth

264
00:15:39,950 --> 00:15:44,970
Speaker 3: in the US than in the EU, because applying that

265
00:15:45,030 --> 00:15:49,340
Speaker 3: deflator more aggressively means that the inflation in that sector

266
00:15:49,380 --> 00:15:52,500
Speaker 3: is lower, so real growth is higher. That might amount,

267
00:15:52,520 --> 00:15:53,980
Speaker 3: we don't know exactly how much it is, it might

268
00:15:54,020 --> 00:15:58,390
Speaker 3: amount to 0.2 or 0.3% annually, according to some studies.

269
00:15:58,430 --> 00:16:03,480
Speaker 3: But over time, it compounds every year, and that creates

270
00:16:03,500 --> 00:16:07,480
Speaker 3: this wedge between the EU and the US. And that is,

271
00:16:07,760 --> 00:16:10,180
Speaker 3: at least in theory, to a large part due to

272
00:16:10,240 --> 00:16:16,150
Speaker 3: simply these method differences rather than actual economic underlying productivity growth.

273
00:16:16,950 --> 00:16:19,330
Speaker 3: And that's, I think, the main issue. And then from

274
00:16:19,370 --> 00:16:24,090
Speaker 3: there on, I think the other issue is Well, should

275
00:16:24,110 --> 00:16:27,229
Speaker 3: we then look at the economy in purchasing power terms

276
00:16:27,290 --> 00:16:28,950
Speaker 3: at all, or should we look at it purely in

277
00:16:29,010 --> 00:16:34,330
Speaker 3: real growth terms? That's a whole different discussion altogether. That's,

278
00:16:34,370 --> 00:16:37,570
Speaker 3: I think, where the discussion has been going between Paul

279
00:16:37,610 --> 00:16:41,700
Speaker 3: Krugman and some European economists who are trying to argue

280
00:16:41,900 --> 00:16:44,540
Speaker 3: between each other over whether we should reform and become

281
00:16:44,580 --> 00:16:47,260
Speaker 3: a bit more like the US, which would result in

282
00:16:48,600 --> 00:16:53,720
Speaker 3: loosening labor regulations, cutting welfare spending, and of course, making

283
00:16:53,760 --> 00:16:58,820
Speaker 3: it easier for tech startups and so on to spend

284
00:16:58,860 --> 00:16:59,700
Speaker 3: and invest in everything.

285
00:17:00,040 --> 00:17:02,120
Speaker 2: Wait, can you say a little bit more about political

286
00:17:02,180 --> 00:17:04,460
Speaker 2: choices here? Because it does strike me when we make

287
00:17:04,740 --> 00:17:08,790
Speaker 2: these comparisons that it often feels very apples to oranges.

288
00:17:09,050 --> 00:17:13,230
Speaker 2: And if, as you say, the US is choosing basically

289
00:17:13,410 --> 00:17:16,210
Speaker 2: to work more and European countries are choosing.

290
00:17:17,650 --> 00:17:21,340
Speaker 2: Use productivity gains so that they can go enjoy an

291
00:17:21,430 --> 00:17:25,260
Speaker 2: extra glass of wine to redeploy that cliche or whatever

292
00:17:25,300 --> 00:17:30,000
Speaker 2: at lunchtime, then it might make sense to focus on

293
00:17:30,260 --> 00:17:33,320
Speaker 2: real growth and output for the US and something else

294
00:17:33,820 --> 00:17:37,540
Speaker 2: for Europe. So how do you, I guess, incorporate political

295
00:17:37,980 --> 00:17:42,719
Speaker 2: economy differences when it comes to these different stats?

296
00:17:43,380 --> 00:17:46,280
Speaker 3: What the GDP discussion ends up as, I think, is

297
00:17:47,170 --> 00:17:51,300
Speaker 3: Do you think PPPs are more reliable than real growth

298
00:17:51,380 --> 00:17:56,940
Speaker 3: measures for measuring the relative performance over time? And it

299
00:17:57,260 --> 00:18:00,540
Speaker 3: really depends on whether you think these differences in deflators

300
00:18:00,580 --> 00:18:04,359
Speaker 3: between countries are actually that severe and why they actually occur.

301
00:18:05,580 --> 00:18:07,719
Speaker 4: But you can, of course, and.

302
00:18:09,050 --> 00:18:10,929
Speaker 3: We end up, by the way, with the notion that

303
00:18:11,090 --> 00:18:13,330
Speaker 3: we don't have a good measure to compare trends over time.

304
00:18:13,350 --> 00:18:21,320
Speaker 3: So whatever your judgment call is, the The thing that's

305
00:18:21,560 --> 00:18:24,740
Speaker 3: presented as a robust stylized fact in the Drago report,

306
00:18:24,760 --> 00:18:27,659
Speaker 3: but also by Diamond and other people is simply no

307
00:18:27,700 --> 00:18:30,520
Speaker 3: such thing. It's not established by any sort of solid

308
00:18:30,580 --> 00:18:33,240
Speaker 3: economic data. What we can do is we can use

309
00:18:33,280 --> 00:18:39,350
Speaker 3: PPPs in current prices to compare level snapshots. So we

310
00:18:39,410 --> 00:18:42,170
Speaker 3: can say in the year 2024, what is GDP per hour?

311
00:18:46,690 --> 00:18:50,500
Speaker 3: purchasing power adjusted in the EU and in.

312
00:18:51,780 --> 00:18:52,280
Speaker 4: The US.

313
00:18:52,320 --> 00:18:55,340
Speaker 3: That comparison, I think, puts the US slightly above the

314
00:18:55,960 --> 00:19:00,180
Speaker 3: Western European aggregates. I also show that if you actually

315
00:19:00,540 --> 00:19:04,660
Speaker 3: then exclude the top 10% of the income distribution, that

316
00:19:04,820 --> 00:19:08,180
Speaker 3: advantage goes away entirely. So the US is slightly richer

317
00:19:08,200 --> 00:19:11,980
Speaker 3: in aggregates, at least on this measure, but not quite

318
00:19:12,020 --> 00:19:15,290
Speaker 3: as at the level of Germany and some of the

319
00:19:15,369 --> 00:19:18,850
Speaker 3: sort of low countries, Nordic countries, but it's very top heavy.

320
00:19:18,869 --> 00:19:23,669
Speaker 3: And indeed, the bottom half is actually significantly worse off

321
00:19:24,109 --> 00:19:26,890
Speaker 3: than any single European country, but for Portugal.

322
00:19:28,840 --> 00:19:32,600
Speaker 4: Now, we can say, well, this is the most defensible.

323
00:19:32,119 --> 00:19:35,400
Speaker 3: Output measure in my view, comparatively, but we can say, well,

324
00:19:35,440 --> 00:19:39,219
Speaker 3: maybe people care about income, money in the bank and

325
00:19:40,140 --> 00:19:42,700
Speaker 3: Maybe politically we're so different that people don't care about

326
00:19:42,720 --> 00:19:45,280
Speaker 3: leisure time that much and people are fine with living

327
00:19:45,320 --> 00:19:48,250
Speaker 3: in a more top-heavy society. How much money do the

328
00:19:49,420 --> 00:19:55,640
Speaker 3: US individuals and households actually have? Because, I mean, consumption

329
00:19:55,800 --> 00:19:57,760
Speaker 3: is a large part of what we could define as

330
00:19:57,820 --> 00:20:00,840
Speaker 3: material well-being, right? So I think it makes sense to

331
00:20:00,859 --> 00:20:06,679
Speaker 3: look at consumption, particularly what's called actual individual consumption, which is,

332
00:20:06,740 --> 00:20:11,320
Speaker 3: I think, a better measure than income because income is

333
00:20:11,359 --> 00:20:14,560
Speaker 3: hard to compare as well. It's measured differently, but also

334
00:20:15,640 --> 00:20:18,520
Speaker 3: actual individual consumption includes in-kind benefits.

335
00:20:18,560 --> 00:20:19,660
Speaker 4: It includes.

336
00:20:20,900 --> 00:20:24,679
Speaker 3: The benefits of publicly provided healthcare and so on and

337
00:20:24,700 --> 00:20:28,530
Speaker 3: so forth. So it should control for these political differences, Tracey,

338
00:20:28,550 --> 00:20:31,490
Speaker 3: that you were hinting at, the fact that in Europe

339
00:20:33,430 --> 00:20:38,950
Speaker 3: there are sizable welfare states and credit unions larger protections

340
00:20:39,090 --> 00:20:43,770
Speaker 3: and a greater amount of public good provision. If you

341
00:20:43,790 --> 00:20:47,439
Speaker 3: adjust that for working hours, the US is pretty.

342
00:20:49,260 --> 00:20:49,940
Speaker 4: Unremarkable.

343
00:20:50,119 --> 00:20:54,500
Speaker 3: And what you also have to do, because of these

344
00:20:54,600 --> 00:20:58,660
Speaker 3: political differences, you have to look at the way these

345
00:20:58,720 --> 00:21:01,629
Speaker 3: consumption figures are distorted by some of the things that

346
00:21:01,650 --> 00:21:04,390
Speaker 3: the US is completely unique in. I choose, I think,

347
00:21:04,450 --> 00:21:08,010
Speaker 3: healthcare as an example in writing about this because It

348
00:21:08,050 --> 00:21:10,330
Speaker 3: is quite unusual. It's the only advanced country that doesn't

349
00:21:10,369 --> 00:21:14,750
Speaker 3: have a publicly funded system, despite it being very well

350
00:21:14,790 --> 00:21:20,430
Speaker 3: established for many, many years by American economists that actuarial

351
00:21:20,450 --> 00:21:23,570
Speaker 3: insurance or private insurance doesn't work for healthcare for various reasons.

352
00:21:23,710 --> 00:21:26,750
Speaker 3: And you end up with very high costs and poor provisions.

353
00:21:27,850 --> 00:21:32,190
Speaker 3: And indeed, the US spends much more on healthcare, both

354
00:21:32,210 --> 00:21:35,090
Speaker 3: as a It spends, I think, much more, 5% more

355
00:21:35,850 --> 00:21:37,830
Speaker 3: at least, as a share of GDP than most other

356
00:21:37,890 --> 00:21:42,129
Speaker 3: European countries. It's a function of having this private system

357
00:21:43,690 --> 00:21:46,090
Speaker 3: that costs a great deal and still doesn't provide the

358
00:21:46,130 --> 00:21:52,220
Speaker 3: same kind of coverage or quality. It's, I think, quite

359
00:21:52,340 --> 00:21:59,040
Speaker 3: useful to look at empirically how healthcare spending actually compares

360
00:21:59,859 --> 00:22:04,600
Speaker 3: to other OECD countries over time. And one model that

361
00:22:04,619 --> 00:22:09,899
Speaker 3: I run myself on this is that the U.S. spends

362
00:22:10,770 --> 00:22:15,109
Speaker 3: around 50% more on health care per person than you

363
00:22:15,130 --> 00:22:21,010
Speaker 3: would expect relative to what advanced countries actually spend on

364
00:22:21,090 --> 00:22:25,200
Speaker 3: health care, what their consumption implies, in other words. So

365
00:22:26,619 --> 00:22:28,740
Speaker 3: the level of consumption that you have, so how rich

366
00:22:28,760 --> 00:22:31,000
Speaker 3: you are, in other words, predicts a certain amount of spending,

367
00:22:31,900 --> 00:22:35,609
Speaker 3: but the U.S., residual, say the difference is 50% higher.

368
00:22:35,630 --> 00:22:39,840
Speaker 3: And in total, that results in around between $ 1. 7 and

369
00:22:39,940 --> 00:22:44,000
Speaker 3: about $ 1. 9 trillion a year that are spent in excess

370
00:22:44,240 --> 00:22:47,320
Speaker 3: of what would happen, what you would expect of a

371
00:22:47,359 --> 00:22:51,889
Speaker 3: country at that income level. And the difference is, I

372
00:22:51,910 --> 00:22:54,150
Speaker 3: think this goes back to these political economy differences, the

373
00:22:54,170 --> 00:22:58,650
Speaker 3: reason is prices, really, and the fact which is well

374
00:22:58,690 --> 00:23:03,010
Speaker 3: established by people like the Uwe Reinhardt, a great Princeton

375
00:23:03,050 --> 00:23:07,630
Speaker 3: professor and health economist, that the US prices per unit

376
00:23:07,670 --> 00:23:10,109
Speaker 3: of care is much higher and.

377
00:23:11,390 --> 00:23:12,780
Speaker 4: Utilization is very, very poor.

378
00:23:12,800 --> 00:23:15,580
Speaker 3: And outcomes are generally worse if you look at average

379
00:23:15,619 --> 00:23:21,020
Speaker 3: life expectancy and mortality rate for certain procedures. So this

380
00:23:21,080 --> 00:23:23,600
Speaker 3: is part of this political economy, which is more dominated

381
00:23:23,680 --> 00:23:27,560
Speaker 3: by rent extraction and middlemen. So prices are high in

382
00:23:27,619 --> 00:23:35,020
Speaker 3: the healthcare sector because you have hospitals, insurers, these trade

383
00:23:35,040 --> 00:23:39,359
Speaker 3: associations that can take a cut, administrative costs, and all

384
00:23:39,400 --> 00:23:43,480
Speaker 3: these things which make a large part of the income distribution,

385
00:23:43,859 --> 00:23:46,800
Speaker 3: the top 10 or 20% very wealthy, but create these

386
00:23:46,820 --> 00:23:51,070
Speaker 3: enormous costs for much of the rest of the population,

387
00:23:51,109 --> 00:23:55,670
Speaker 3: especially those uninsured, which I think 27 million by some accounting.

388
00:23:56,690 --> 00:24:00,750
Speaker 3: And even those who are insured by their employers have

389
00:24:00,930 --> 00:24:06,930
Speaker 3: large out-of-pocket costs. And the headline is, well, some people

390
00:24:06,990 --> 00:24:10,370
Speaker 3: object to using purchasing power priorities to actually adjust for

391
00:24:10,530 --> 00:24:14,410
Speaker 3: output figures and indeed income figures, because they say, well,

392
00:24:14,930 --> 00:24:19,940
Speaker 3: it's kind of hiding something that is actually a sign

393
00:24:19,960 --> 00:24:23,300
Speaker 3: of strength. In other words, they assume that the reason

394
00:24:23,359 --> 00:24:26,500
Speaker 3: why costs in the non-tradable sector like healthcare are very

395
00:24:26,540 --> 00:24:30,500
Speaker 3: high is because Well, you have this very powerful productivity

396
00:24:30,540 --> 00:24:33,720
Speaker 3: growth in the tech sector and elsewhere and very high incomes.

397
00:24:33,800 --> 00:24:36,879
Speaker 3: And people are sort of wage arbitraging themselves into the

398
00:24:36,920 --> 00:24:41,010
Speaker 3: non-tradable sector. And it's their high incomes that are inflating

399
00:24:41,090 --> 00:24:47,450
Speaker 3: those prices in health care, legal services, education, whatever. That

400
00:24:47,490 --> 00:24:51,730
Speaker 3: assumes that these prices are not a function of rent seeking,

401
00:24:51,760 --> 00:24:54,220
Speaker 3: which unfortunately I think the preponderance of the evidence shows

402
00:24:54,480 --> 00:24:54,840
Speaker 3: they are.

403
00:24:55,119 --> 00:24:57,580
Speaker 2: Yeah, Joe, I keep thinking back to the episode we

404
00:24:57,600 --> 00:25:02,290
Speaker 2: did recently with the authors of Main Street Millionaires. And

405
00:25:02,530 --> 00:25:06,590
Speaker 2: if you looked at their list of top earning professions

406
00:25:06,770 --> 00:25:10,290
Speaker 2: in the U.S., How much of that was an industry

407
00:25:10,470 --> 00:25:13,510
Speaker 2: like health care or legal services that you could tie

408
00:25:13,650 --> 00:25:17,970
Speaker 2: either directly to rent extraction or some form of regulatory

409
00:25:18,030 --> 00:25:21,409
Speaker 2: capture where, for instance, you know, a dealer has the

410
00:25:21,470 --> 00:25:23,870
Speaker 2: rights to a particular locality or something like that?

411
00:25:24,350 --> 00:25:27,750
Speaker 1: On some level, when I think about how crazy our

412
00:25:27,790 --> 00:25:31,590
Speaker 1: health and health care system and health insurance system is,

413
00:25:31,950 --> 00:25:34,189
Speaker 1: I'm even more impressed that the U.S. is by the

414
00:25:34,230 --> 00:25:36,610
Speaker 1: rest of the U.S. economy that we have this sort

415
00:25:36,670 --> 00:25:40,930
Speaker 1: of that we have this, you know, big, what's the.

416
00:25:41,250 --> 00:25:43,170
Speaker 2: We've succeeded despite.

417
00:25:42,730 --> 00:25:46,520
Speaker 1: Of hobbling ourselves. Yeah, the albatross around our neck, healthcare,

418
00:25:46,560 --> 00:25:49,000
Speaker 1: and still we do okay. It actually kind of makes

419
00:25:49,060 --> 00:25:51,820
Speaker 1: me impressed. So, you know, let's go back to the

420
00:25:51,880 --> 00:25:54,830
Speaker 1: cliche about the long lunches with wine, because I actually

421
00:25:54,850 --> 00:25:56,989
Speaker 1: think this is, you know, it's a joke, but it's

422
00:25:57,030 --> 00:25:59,869
Speaker 1: also real. So the diamonds of the world, et cetera,

423
00:25:59,910 --> 00:26:01,470
Speaker 1: and they say, you got to stop with the long

424
00:26:01,510 --> 00:26:04,399
Speaker 1: lunches and work hours. And then, the dominics of the

425
00:26:04,420 --> 00:26:06,790
Speaker 1: world say, no, like we're just as productive or very

426
00:26:06,830 --> 00:26:09,450
Speaker 1: close to as productive as you. And we enjoy life

427
00:26:09,510 --> 00:26:12,790
Speaker 1: and we convert that leisure, that productivity into more leisure,

428
00:26:12,830 --> 00:26:16,130
Speaker 1: which is arguably what the whole point is, et cetera.

429
00:26:16,600 --> 00:26:19,859
Speaker 1: But then the counter would be like, that's just cope. Um,

430
00:26:20,400 --> 00:26:23,040
Speaker 1: And I, yeah, like in the sense that like, yeah,

431
00:26:23,180 --> 00:26:26,320
Speaker 1: I know people who live a leisure life and stuff

432
00:26:26,359 --> 00:26:29,639
Speaker 1: in Europe and they take nice long August vacations, et cetera,

433
00:26:29,960 --> 00:26:32,780
Speaker 1: but I'm only getting access to an elite slice because

434
00:26:32,859 --> 00:26:35,440
Speaker 1: I work in media and journalism and finance, and I

435
00:26:35,480 --> 00:26:38,380
Speaker 1: don't really have a good look into like the broad

436
00:26:38,510 --> 00:26:42,610
Speaker 1: European middle and lower classes, et cetera. Is there like,

437
00:26:42,730 --> 00:26:46,389
Speaker 1: in your view, does it diffuse like this thing? I

438
00:26:46,430 --> 00:26:48,830
Speaker 1: know it from, you know, my elite contacts like you

439
00:26:48,910 --> 00:26:52,400
Speaker 1: and elsewhere. in Europe, but can we substantially say that

440
00:26:52,440 --> 00:26:57,929
Speaker 1: the broad European middle class does in fact have substantially

441
00:26:57,990 --> 00:27:01,330
Speaker 1: more leisure and time than their counterparts here?

442
00:27:01,910 --> 00:27:04,409
Speaker 3: Yeah, I mean, there are some asterisks here. So especially

443
00:27:04,430 --> 00:27:07,050
Speaker 3: in countries like Spain and Italy, there are a lot

444
00:27:07,109 --> 00:27:10,780
Speaker 3: of informal hours that are not captured by the headline figures.

445
00:27:11,460 --> 00:27:15,179
Speaker 3: There are adjusted series for that, but my own crunching

446
00:27:15,200 --> 00:27:17,260
Speaker 3: with numbers says it doesn't make that much of a difference.

447
00:27:17,990 --> 00:27:21,750
Speaker 3: For the bulk of the European economy, the richer parts

448
00:27:21,770 --> 00:27:25,330
Speaker 3: of the European economy, so the central Europe, the lowlands,

449
00:27:25,890 --> 00:27:28,670
Speaker 3: the low countries, the Nordic countries, they do work much,

450
00:27:28,750 --> 00:27:34,850
Speaker 3: much less. And if indeed it meant that Europeans were

451
00:27:34,910 --> 00:27:38,409
Speaker 3: employed at lower rates, it would be concerning. And it

452
00:27:38,430 --> 00:27:39,750
Speaker 3: would probably point to the fact, oh, this is a

453
00:27:39,790 --> 00:27:42,129
Speaker 3: labor market failure and people may not be able to

454
00:27:42,190 --> 00:27:44,760
Speaker 3: work or they're not working because they're getting diminishing returns.

455
00:27:46,080 --> 00:27:50,050
Speaker 3: But there's... Again, there's good empirical evidence, including by people

456
00:27:50,109 --> 00:27:54,490
Speaker 3: who co-authored the long-run productivity figures that go into the

457
00:27:54,530 --> 00:27:58,689
Speaker 3: Draghi reports that show, well, actually, it's sort of a

458
00:27:59,090 --> 00:28:02,410
Speaker 3: substitution effect where productivity is causing hours to go down

459
00:28:02,710 --> 00:28:07,239
Speaker 3: and hours going down is actually increasing productivity. So it's

460
00:28:07,280 --> 00:28:10,920
Speaker 3: not really, there's no evidence to think that, so first

461
00:28:10,940 --> 00:28:12,580
Speaker 3: of all, it is real. People do work less and

462
00:28:12,859 --> 00:28:14,600
Speaker 3: it's no reason to think that that's somehow a sign

463
00:28:14,619 --> 00:28:18,010
Speaker 3: of dysfunction underlying it. I think I would also just

464
00:28:18,050 --> 00:28:22,190
Speaker 3: say it's kind of Econ 101. So labor is a disutility,

465
00:28:22,750 --> 00:28:28,150
Speaker 3: and it's precisely that because the value of leisure time

466
00:28:28,190 --> 00:28:31,449
Speaker 3: is greater than nil. If you assume those, you're sort

467
00:28:31,490 --> 00:28:37,350
Speaker 3: of countervening to very basic macro principles. What I should

468
00:28:37,410 --> 00:28:41,470
Speaker 3: say is that there's good reason to suggest that Western

469
00:28:41,550 --> 00:28:47,490
Speaker 3: Europe is probably more wealthy than the US in the aggregates,

470
00:28:48,290 --> 00:28:51,410
Speaker 3: even if it has probably declined relatively over the last six,

471
00:28:51,430 --> 00:28:53,410
Speaker 3: seven years. And I do think there's robust evidence to

472
00:28:53,450 --> 00:28:57,550
Speaker 3: show that. But of course, internally, there are huge differences.

473
00:28:58,310 --> 00:29:02,120
Speaker 3: I think we should care that Europe, in its own terms,

474
00:29:02,140 --> 00:29:05,700
Speaker 3: has been doing incredibly poorly over the last 10, 15 years.

475
00:29:05,780 --> 00:29:09,800
Speaker 3: But that's due to policy choices, especially macro policy, which

476
00:29:09,820 --> 00:29:14,940
Speaker 3: the US does comparatively very well. And of course, there

477
00:29:14,980 --> 00:29:17,790
Speaker 3: are internal differences. We should care that the Italian South

478
00:29:17,850 --> 00:29:23,570
Speaker 3: is extraordinarily poor. It has been declining in absolute terms,

479
00:29:23,650 --> 00:29:26,610
Speaker 3: even when the entire economy has been stagnating for 20 years,

480
00:29:27,550 --> 00:29:31,590
Speaker 3: unique in the G7 economies. But we shouldn't care, for instance,

481
00:29:31,630 --> 00:29:35,390
Speaker 3: that Michigan... In the US, you wouldn't care that Michigan

482
00:29:35,410 --> 00:29:40,230
Speaker 3: has been outgrown by California for 20 years, even if

483
00:29:40,270 --> 00:29:42,790
Speaker 3: Michigan has been doing well and it's been diversifying its economy.

484
00:29:43,330 --> 00:29:47,450
Speaker 3: And I think that is the main takeaway between when comparing.

485
00:29:47,150 --> 00:29:50,120
Speaker 4: The EU as an aggregate to the US. We have

486
00:29:50,150 --> 00:29:50,880
Speaker 4: our own problems.

487
00:29:51,130 --> 00:29:55,380
Speaker 3: The relative picture shouldn't matter that much, I don't think.

488
00:29:56,280 --> 00:29:58,680
Speaker 3: There's a lot of work to be done, but it

489
00:29:58,800 --> 00:30:01,180
Speaker 3: needs to actually mean becoming more like the U.S., which

490
00:30:01,240 --> 00:30:04,140
Speaker 3: may not be politically amenable to most people here anyway.

491
00:30:21,110 --> 00:30:26,959
Speaker 2: Do political choices or issues concerns slash incentives start to

492
00:30:27,040 --> 00:30:30,460
Speaker 2: change in our current era, though, such that maybe it

493
00:30:30,500 --> 00:30:32,880
Speaker 2: was acceptable that Europe didn't have to be on the

494
00:30:32,920 --> 00:30:38,880
Speaker 2: front line of technological advancements, making its own frontier models

495
00:30:39,300 --> 00:30:43,570
Speaker 2: or making massive productivity gains in the same way as

496
00:30:43,620 --> 00:30:47,690
Speaker 2: China or the US. But now that there's renewed security

497
00:30:47,730 --> 00:30:51,030
Speaker 2: concerns in the region, now that we've had years and

498
00:30:51,050 --> 00:30:55,730
Speaker 2: years of worries about resource allocation and choke points in

499
00:30:55,750 --> 00:31:00,030
Speaker 2: the global economy that actually, if you really want to re-industrialize,

500
00:31:00,190 --> 00:31:02,690
Speaker 2: if you want to build some sort of resource security,

501
00:31:02,890 --> 00:31:04,970
Speaker 2: if you want to build up your defense industry, that

502
00:31:05,190 --> 00:31:10,390
Speaker 2: actually economic growth starts to matter and strategic tech development

503
00:31:10,430 --> 00:31:11,610
Speaker 2: starts to matter in the same way.

504
00:31:12,310 --> 00:31:14,430
Speaker 3: I mean, one thing out of, I mean, just to

505
00:31:14,470 --> 00:31:17,100
Speaker 3: make one other thing clear, economic growth matters. I mean,

506
00:31:17,240 --> 00:31:19,440
Speaker 3: even advanced countries in the long-term Yeah.

507
00:31:19,500 --> 00:31:21,080
Speaker 2: I realized as soon as I said that, I shouldn't

508
00:31:21,100 --> 00:31:23,140
Speaker 2: have said economic growth, but the idea of, I guess,

509
00:31:23,320 --> 00:31:25,720
Speaker 2: relative gains start to matter more.

510
00:31:27,510 --> 00:31:31,750
Speaker 3: I think they do matter, not necessarily on output, but

511
00:31:32,570 --> 00:31:38,150
Speaker 3: obviously there are relative shifts in Europe's competitive position that

512
00:31:38,170 --> 00:31:42,410
Speaker 3: have a consequence for employment and long-term productivity prospects.

513
00:31:44,070 --> 00:31:44,970
Speaker 4: And, you know, the U.S.

514
00:31:45,150 --> 00:31:49,480
Speaker 3: Is... Of course, it has a sectoral advantage in tech

515
00:31:49,540 --> 00:31:55,380
Speaker 3: and other places, pharma, for instance. But really, the EU is,

516
00:31:55,420 --> 00:32:01,040
Speaker 3: I think, quite stronger in manufacturing, merchandise trade. And unlike

517
00:32:01,220 --> 00:32:04,380
Speaker 3: the US, it's the biggest economic bloc that's still open

518
00:32:04,660 --> 00:32:07,940
Speaker 3: to the world economy because there haven't been real tariffs

519
00:32:08,270 --> 00:32:10,750
Speaker 3: instituted so far. And that, I think, opens up the

520
00:32:10,770 --> 00:32:15,470
Speaker 3: question of how is Europe doing competitively with regard to China?

521
00:32:17,200 --> 00:32:22,220
Speaker 3: And we talked about AI. People in the Europe-US discussion

522
00:32:22,280 --> 00:32:26,330
Speaker 3: have sort of shifted the goalposts a few times by saying, well,

523
00:32:26,350 --> 00:32:31,430
Speaker 3: I can forget about PPPs, forget about real growth, then whatever,

524
00:32:31,690 --> 00:32:34,270
Speaker 3: even if there hasn't been any decline, relatively speaking, so far,

525
00:32:34,770 --> 00:32:37,630
Speaker 3: Europe is sort of renting the future and will miss

526
00:32:37,790 --> 00:32:46,010
Speaker 3: out on the big, you know, capital expenditure generating technology

527
00:32:46,030 --> 00:32:53,180
Speaker 3: of the day, which is AI and these frontier models. Again,

528
00:32:53,240 --> 00:32:58,140
Speaker 3: I don't think that the sort of near frontier models

529
00:32:58,280 --> 00:33:00,980
Speaker 3: are really bad and that they can service most of

530
00:33:01,000 --> 00:33:03,520
Speaker 3: the needs of European corporates. But I don't think that

531
00:33:04,620 --> 00:33:08,750
Speaker 3: there is a competitive race specifically in the area of AI.

532
00:33:11,260 --> 00:33:15,990
Speaker 3: But I think that in legacy manufacturing sectors and other

533
00:33:16,010 --> 00:33:18,210
Speaker 3: high-tech manufacturing sectors, there is, of course, and it is

534
00:33:18,250 --> 00:33:23,590
Speaker 3: still a large part of value added in Europe, particularly

535
00:33:23,670 --> 00:33:25,490
Speaker 3: in countries like Germany, of course, which is the largest

536
00:33:25,530 --> 00:33:29,060
Speaker 3: chunk of European GDP and which is currently experiencing, I

537
00:33:29,100 --> 00:33:33,340
Speaker 3: think it's fair to say, what looks like a disorderly

538
00:33:33,380 --> 00:33:37,719
Speaker 3: decline in industrial employment. So the first China shock, so

539
00:33:37,760 --> 00:33:40,750
Speaker 3: to say, was positive for Germany, but it It was

540
00:33:40,810 --> 00:33:45,020
Speaker 3: the provider of high-tech manufacturing goods for China, and it

541
00:33:45,200 --> 00:33:47,180
Speaker 3: benefited from Chinese demand.

542
00:33:48,760 --> 00:33:53,080
Speaker 4: More than any other European country. This is flipped entirely.

543
00:33:53,380 --> 00:33:56,180
Speaker 3: China has moved up in value chain while remaining in

544
00:33:56,220 --> 00:34:00,030
Speaker 3: other parts of the manufacturing value chain. I should also

545
00:34:00,070 --> 00:34:06,590
Speaker 3: mention that IP transfer, legal or otherwise, to China is

546
00:34:06,750 --> 00:34:11,299
Speaker 3: by far the greatest from Germany. The fact that the

547
00:34:11,340 --> 00:34:14,700
Speaker 3: industrial heartland of Central Europe still is declining at this

548
00:34:15,100 --> 00:34:17,540
Speaker 3: rate because it's still exposed to China.

549
00:34:18,980 --> 00:34:20,279
Speaker 4: China, I should also mention, is.

550
00:34:21,960 --> 00:34:27,140
Speaker 3: Undergoing domestic inflation, particularly export price deflation after the housing

551
00:34:27,180 --> 00:34:34,660
Speaker 3: bubble burst. It has intensified this network of subsidies for

552
00:34:34,680 --> 00:34:43,520
Speaker 3: the manufacturing sector. experiencing its own dislocations domestically, like half

553
00:34:43,560 --> 00:34:46,160
Speaker 3: of the economy, a third of the labor force works

554
00:34:46,200 --> 00:34:50,080
Speaker 3: in the gig economy. So it's weakening domestically. Demand for

555
00:34:50,140 --> 00:34:53,160
Speaker 3: cars and other manufacturing products is going down or trending down.

556
00:34:54,100 --> 00:34:58,100
Speaker 3: And it's become quite reliant on net exports for annual

557
00:34:58,140 --> 00:35:00,239
Speaker 3: GDP growth. A friend of mine and a friend of

558
00:35:00,260 --> 00:35:03,100
Speaker 3: the show, I think, Brad Setzer, has done great work

559
00:35:03,160 --> 00:35:04,980
Speaker 3: on sketching out the empirical.

560
00:35:06,469 --> 00:35:08,469
Speaker 3: Position here, both in terms of what's going on in

561
00:35:08,510 --> 00:35:12,850
Speaker 3: China domestically, so that more than half of GDP growth

562
00:35:12,910 --> 00:35:16,230
Speaker 3: might depend on net exports, and what the effects in

563
00:35:16,330 --> 00:35:20,890
Speaker 3: Europe are. And it does seem that, according to my

564
00:35:20,989 --> 00:35:24,450
Speaker 3: own work, Germany alone has had over a million jobs

565
00:35:25,200 --> 00:35:28,839
Speaker 3: in the manufacturing sector since 2021. So since we see

566
00:35:28,880 --> 00:35:33,239
Speaker 3: that big shift in Chinese industrial policy, of course, it

567
00:35:33,280 --> 00:35:36,580
Speaker 3: coincides with the the energy crisis, and that hits Germany

568
00:35:36,620 --> 00:35:40,420
Speaker 3: very hard too, because this is a different discussion, but

569
00:35:40,800 --> 00:35:43,180
Speaker 3: European energy policy is appalling for many reasons and that

570
00:35:43,200 --> 00:35:50,300
Speaker 3: has damaged its own prospects quite a bit. But I

571
00:35:50,320 --> 00:35:54,680
Speaker 3: should say that these employment figures are also actually understating

572
00:35:54,719 --> 00:35:57,120
Speaker 3: the extent of the shock, because if you look at

573
00:35:57,140 --> 00:36:00,620
Speaker 3: the chemical industry, you mentioned earlier, Joe, which is one

574
00:36:00,640 --> 00:36:06,250
Speaker 3: of the crown jewels of the German industrial sector. Among

575
00:36:06,270 --> 00:36:09,950
Speaker 3: the biggest big five sectors, employment has fallen the least there,

576
00:36:10,050 --> 00:36:10,569
Speaker 3: even though it's.

577
00:36:10,810 --> 00:36:16,990
Speaker 4: Most exposed to both the energy crisis and Chinese trade.

578
00:36:18,370 --> 00:36:21,490
Speaker 3: I looked into it myself. We don't have a Chinese

579
00:36:21,570 --> 00:36:26,489
Speaker 3: trade number for volume. They don't publish the appropriate price indices,

580
00:36:26,550 --> 00:36:30,589
Speaker 3: but it seems that trade values for chemical exports have

581
00:36:30,630 --> 00:36:35,860
Speaker 3: been sharply down in both Germany and China. while trade

582
00:36:35,920 --> 00:36:39,590
Speaker 3: volumes for chemical products have been sharply up from China and,

583
00:36:39,610 --> 00:36:43,710
Speaker 3: of course, down from Germany. And it corresponds also to

584
00:36:43,750 --> 00:36:48,489
Speaker 3: the main export destinations of Germany. So China is exporting

585
00:36:48,790 --> 00:36:52,989
Speaker 3: more to those destinations. Germany is exporting less to them,

586
00:36:53,450 --> 00:36:58,250
Speaker 3: whereas Chinese imports from Germany and Europe are sharply down

587
00:36:58,270 --> 00:37:01,379
Speaker 3: and exports to it are sharply up in many other

588
00:37:01,390 --> 00:37:04,730
Speaker 3: sectors as well. And in that sector, employment has been studied,

589
00:37:04,750 --> 00:37:06,989
Speaker 3: but only because the labor market is so dysfunctional. So

590
00:37:07,010 --> 00:37:12,110
Speaker 3: because they're labor hoarding, because they can't find qualified employees.

591
00:37:12,650 --> 00:37:14,410
Speaker 3: So in really, it's sort of masking the extent of

592
00:37:14,469 --> 00:37:17,549
Speaker 3: all of this. And this has led to some really

593
00:37:17,630 --> 00:37:21,190
Speaker 3: sharp divisions within Europe about how to respond to China

594
00:37:21,210 --> 00:37:24,209
Speaker 3: and what will happen, especially after the US, I think,

595
00:37:25,110 --> 00:37:27,690
Speaker 3: actually sought this confrontation with China over trade. And I

596
00:37:27,750 --> 00:37:31,060
Speaker 3: think quite thoroughly... had to concede defeat last year.

597
00:37:31,340 --> 00:37:33,620
Speaker 1: Let's talk about like, okay, I don't know if you

598
00:37:33,640 --> 00:37:39,900
Speaker 1: just talk to random trade ministers in Europe today about

599
00:37:40,300 --> 00:37:44,060
Speaker 1: the global trade picture, maybe the degree, the optimal degree

600
00:37:44,080 --> 00:37:48,320
Speaker 1: of openness, et cetera. What are they saying in September 26th?

601
00:37:48,450 --> 00:37:51,210
Speaker 1: If that they, you know, versus what they would have

602
00:37:51,230 --> 00:37:56,669
Speaker 1: been saying and say, September 2016, or maybe we should

603
00:37:56,690 --> 00:38:01,850
Speaker 1: say September 27th or September 2017, since by that point,

604
00:38:01,910 --> 00:38:04,370
Speaker 1: Trump had already been the president and sharply sort of

605
00:38:04,469 --> 00:38:09,160
Speaker 1: changed the global conversation appalling to Europe in many ways.

606
00:38:09,739 --> 00:38:13,770
Speaker 1: But how have they all become either a little bit

607
00:38:13,790 --> 00:38:16,129
Speaker 1: more Trumpist? Or who is the guy that wrote Death

608
00:38:16,170 --> 00:38:19,650
Speaker 1: by China? The economist, Peter Navarro. This is the thing

609
00:38:19,690 --> 00:38:22,850
Speaker 1: that's crazy. So Peter Navarro years ago writes Death by China.

610
00:38:22,969 --> 00:38:25,690
Speaker 1: And in 2016, everyone's like, oh, he's a crank. He

611
00:38:25,730 --> 00:38:28,319
Speaker 1: can't be anywhere near the White House. And now I

612
00:38:28,360 --> 00:38:31,560
Speaker 1: feel like everyone is a Navarroist on some level. It

613
00:38:31,620 --> 00:38:34,779
Speaker 1: feels to me like complete Peter Navarro victory in that

614
00:38:34,940 --> 00:38:39,259
Speaker 1: there's so much consensus is basically, yes, the sort of

615
00:38:39,640 --> 00:38:42,040
Speaker 1: his Death by China narrative. Maybe they put a little

616
00:38:42,060 --> 00:38:48,870
Speaker 1: bit more spin on it. to make it sound more professional.

617
00:38:49,290 --> 00:38:51,590
Speaker 1: But it feels like in both Europe and the US,

618
00:38:51,650 --> 00:38:53,109
Speaker 1: everyone has become a Navarroist.

619
00:38:53,570 --> 00:38:53,810
Speaker 4: Yeah.

620
00:38:53,850 --> 00:38:55,969
Speaker 3: I mean, I think you could actually even say that

621
00:38:56,190 --> 00:38:59,810
Speaker 3: the fact that this door was opened by Trump and

622
00:39:00,070 --> 00:39:03,930
Speaker 3: his advisors first, it became politically a bit unpalatable for

623
00:39:03,950 --> 00:39:08,110
Speaker 3: other people. So the actual evidence of the effects of

624
00:39:08,190 --> 00:39:13,370
Speaker 3: China's The worsening of China's mercantilist turn in the late

625
00:39:13,650 --> 00:39:17,310
Speaker 3: 2010s and 2020s was ignored for a while because it

626
00:39:17,370 --> 00:39:21,390
Speaker 3: was associated with a different political camp.

627
00:39:23,070 --> 00:39:24,750
Speaker 1: It's one way to put it, yeah.

628
00:39:25,010 --> 00:39:27,870
Speaker 3: I should add to that the Europeans are also very

629
00:39:27,930 --> 00:39:29,629
Speaker 3: much stuck in the past when it comes to thinking

630
00:39:29,670 --> 00:39:35,509
Speaker 3: about trade. So the U.S. policy sector is much more

631
00:39:35,650 --> 00:39:40,730
Speaker 3: open to changes and ideas. But in Europe, another friend,

632
00:39:40,770 --> 00:39:43,640
Speaker 3: and I think also a recent former guest on your

633
00:39:43,680 --> 00:39:44,580
Speaker 3: show is Adam Tooze.

634
00:39:44,760 --> 00:39:45,359
Speaker 4: Yeah, of course.

635
00:39:45,870 --> 00:39:50,810
Speaker 3: The Europeans are the Taliban of neoliberalism, at least with

636
00:39:50,850 --> 00:39:53,410
Speaker 3: regard to their attitudes towards trade, and that has certainly

637
00:39:53,450 --> 00:39:56,009
Speaker 3: inflected their position on China. And it's one of the

638
00:39:56,070 --> 00:39:59,660
Speaker 3: reasons why they took so long in actually doing something

639
00:39:59,719 --> 00:40:04,359
Speaker 3: about this. A couple of my friends, Brad Setzer, whom

640
00:40:04,380 --> 00:40:08,560
Speaker 3: you know, of course, and Sander Todorov, have, I think,

641
00:40:08,860 --> 00:40:12,440
Speaker 3: almost single-handedly responsible for pushing that consensus over the last

642
00:40:12,440 --> 00:40:15,790
Speaker 3: 18 months, at least in Germany and elsewhere, towards Getting

643
00:40:15,810 --> 00:40:18,469
Speaker 3: people to recognize that this is a problem, by the way. No,

644
00:40:18,810 --> 00:40:21,730
Speaker 3: you can't hang on. It's too late to hang on

645
00:40:21,750 --> 00:40:26,839
Speaker 3: to visions of level playing fields in international trade. You

646
00:40:26,900 --> 00:40:29,460
Speaker 3: have to do something before this gets out of control.

647
00:40:29,580 --> 00:40:36,759
Speaker 3: And it's now showing to have real political consequences in

648
00:40:36,860 --> 00:40:41,410
Speaker 3: Germany electorally with regard to these regional elections in which

649
00:40:41,510 --> 00:40:43,690
Speaker 3: the far right is doing very, very well in these elections.

650
00:40:44,430 --> 00:40:48,009
Speaker 3: And the incumbents are polling very poorly because the far

651
00:40:48,030 --> 00:40:52,590
Speaker 3: right has managed to frame the issue of industrial decline,

652
00:40:53,530 --> 00:40:57,210
Speaker 3: not really around China, but around a failure of the

653
00:40:57,250 --> 00:41:00,550
Speaker 3: incumbents and the failure of green policies and energy policy,

654
00:41:01,010 --> 00:41:03,590
Speaker 3: which play a role, certainly. But there's evidence to believe

655
00:41:03,630 --> 00:41:07,750
Speaker 3: that this is mostly driven by the external trade shock

656
00:41:07,790 --> 00:41:11,190
Speaker 3: at the moment. So people are doing something now. You

657
00:41:11,210 --> 00:41:13,390
Speaker 3: may not be surprised to know that nothing really has happened, though.

658
00:41:14,070 --> 00:41:19,860
Speaker 3: despite there being a lot of noise. So the core

659
00:41:19,960 --> 00:41:23,239
Speaker 3: of the European efforts to counter Chinese trade is the

660
00:41:23,300 --> 00:41:28,630
Speaker 3: so-called Industrial Accelerator Act, which is proposed earlier this year.

661
00:41:28,730 --> 00:41:33,370
Speaker 3: It's currently in review and it might be implemented earlier

662
00:41:33,890 --> 00:41:34,290
Speaker 3: next year.

663
00:41:34,310 --> 00:41:34,989
Speaker 4: That shows you how.

664
00:41:34,930 --> 00:41:38,700
Speaker 3: Long the timelines are in Europe as well. It's suffering

665
00:41:38,719 --> 00:41:41,720
Speaker 3: from internal divisions. So there was the more protectionist camp

666
00:41:42,000 --> 00:41:45,589
Speaker 3: around France And the initially more skeptical around Germany, because

667
00:41:45,610 --> 00:41:52,720
Speaker 3: Germany obviously is also, there's a lot of exporter interests

668
00:41:52,780 --> 00:41:55,020
Speaker 3: in Germany that are opposed to any sort of trade restrictions,

669
00:41:55,060 --> 00:41:58,100
Speaker 3: but they're quite conservative around these issues. There are also

670
00:41:58,180 --> 00:42:00,560
Speaker 3: internal divisions like the labor unions in Germany also don't

671
00:42:00,600 --> 00:42:02,799
Speaker 3: disagree on these things. And of course, the problem with

672
00:42:02,890 --> 00:42:06,870
Speaker 3: European politics, as opposed to the US and particularly China,

673
00:42:07,830 --> 00:42:10,030
Speaker 3: is that it has this terrible sort of joint decision

674
00:42:10,110 --> 00:42:14,759
Speaker 3: trap where domestically there are these aggregation problems where you

675
00:42:14,800 --> 00:42:18,640
Speaker 3: have internal coalitions and of course at the european intergovernmental

676
00:42:18,660 --> 00:42:21,799
Speaker 3: level you have 27 countries that all sort of hate

677
00:42:21,840 --> 00:42:26,490
Speaker 3: each other but all have different um uh different veto

678
00:42:26,530 --> 00:42:29,049
Speaker 3: powers and you operate in the situation where you have

679
00:42:29,090 --> 00:42:33,290
Speaker 3: to have um sometimes you have to have unanimous voting

680
00:42:33,390 --> 00:42:36,170
Speaker 3: or qualified majority voting and eventually you have a lot

681
00:42:36,190 --> 00:42:39,469
Speaker 3: of consensus bargaining and you end up with very suboptimal

682
00:42:39,510 --> 00:42:43,080
Speaker 3: policy outcomes that are often too little, too late. The

683
00:42:43,100 --> 00:42:47,200
Speaker 3: policy responses are slow, dysfunctional, and even if they produce something,

684
00:42:47,360 --> 00:42:48,219
Speaker 3: it regresses to the.

685
00:42:48,200 --> 00:42:49,319
Speaker 4: Lowest common denominator.

686
00:42:50,780 --> 00:42:55,680
Speaker 3: That Industrial Accelerator Act could have teeth in that it

687
00:42:55,719 --> 00:43:01,259
Speaker 3: has these by Europe provisions. It has certain provisions that

688
00:43:01,300 --> 00:43:04,660
Speaker 3: essentially has formulated only, not in name, but they only

689
00:43:04,700 --> 00:43:08,430
Speaker 3: really Only China clears those hurdles in terms of what

690
00:43:08,790 --> 00:43:12,410
Speaker 3: imports are actually allowed. That's the attempt to actually protect

691
00:43:12,630 --> 00:43:15,509
Speaker 3: the German and the European auto market in particular.

692
00:43:16,170 --> 00:43:18,130
Speaker 4: Some people say it doesn't have enough scope.

693
00:43:19,190 --> 00:43:22,590
Speaker 3: But China, of course, has immediately gone on the offensive

694
00:43:22,630 --> 00:43:26,430
Speaker 3: on this matter, immediately filed a complaint with the European Commission,

695
00:43:26,969 --> 00:43:31,110
Speaker 3: very interestingly actually outlining their own position, saying, our capacity

696
00:43:31,150 --> 00:43:35,150
Speaker 3: utilization rate domestically is normal for economies that are still

697
00:43:35,210 --> 00:43:38,759
Speaker 3: growing and that are not yet adjusting to, you know,

698
00:43:39,900 --> 00:43:41,600
Speaker 3: being driven by internal demand. So there's sort of a

699
00:43:41,620 --> 00:43:46,239
Speaker 3: concession that these imbalances domestically in China are real and

700
00:43:46,300 --> 00:43:48,500
Speaker 3: are seen as a real problem by Chinese authorities. And

701
00:43:48,520 --> 00:43:50,040
Speaker 3: I do agree with that. And I also think that

702
00:43:50,080 --> 00:43:53,819
Speaker 3: it's a political economy obstacle for Chinese policymakers to do

703
00:43:53,860 --> 00:43:59,450
Speaker 3: something about this. To sort of, Lower the temperature a bit,

704
00:43:59,469 --> 00:44:03,029
Speaker 3: there's a separate mechanism in Europe called the Trade and

705
00:44:03,050 --> 00:44:09,700
Speaker 3: Investment Consultation Mechanism. It's between the European Trade Chief and

706
00:44:11,380 --> 00:44:19,180
Speaker 3: the corresponding minister in China. It was supposed to deliver

707
00:44:19,230 --> 00:44:23,250
Speaker 3: something now-ish. I think in early October, there's going to

708
00:44:23,270 --> 00:44:27,040
Speaker 3: be a meeting in Beijing. Nothing concrete has come of

709
00:44:27,100 --> 00:44:30,279
Speaker 3: it really, apart from some assurances around rare earths, which

710
00:44:30,440 --> 00:44:33,240
Speaker 3: are quite vague and Europeans have been a bit unhappy

711
00:44:33,280 --> 00:44:33,660
Speaker 3: about it.

712
00:44:34,660 --> 00:44:35,319
Speaker 4: There's some sort of.

713
00:44:35,420 --> 00:44:39,330
Speaker 3: Franco-German thing about monitoring these imbalances.

714
00:44:40,570 --> 00:44:45,820
Speaker 4: Nothing much has happened. My worry is that either the.

715
00:44:47,190 --> 00:44:51,339
Speaker 3: Because there's a separate part about the foreign exchange mechanism.

716
00:44:52,370 --> 00:44:56,729
Speaker 3: happened that Brad Setter again and Shaheen Ville have written

717
00:44:56,770 --> 00:45:00,390
Speaker 3: about is really a separate issue is that China in

718
00:45:00,430 --> 00:45:04,890
Speaker 3: addition to industrial policy is also really resisting any appreciation

719
00:45:04,910 --> 00:45:10,760
Speaker 3: of the UN and that is further contributing to the imbalances.

720
00:45:10,820 --> 00:45:17,299
Speaker 3: The Europeans are also slowly thinking about countering China on revaluation.

721
00:45:18,500 --> 00:45:26,310
Speaker 3: My fear is that they're strategically they're their willingness to

722
00:45:26,390 --> 00:45:30,610
Speaker 3: escalate might outrun their ability to actually be resilient to

723
00:45:30,650 --> 00:45:36,180
Speaker 3: Chinese responses, retaliations to whatever they end up doing. And

724
00:45:36,480 --> 00:45:42,640
Speaker 3: the Chinese have shown that they're, unlike the very dysfunctional

725
00:45:42,700 --> 00:45:49,710
Speaker 3: European process that I just outlined, their retaliation has been institutionalized, rapid,

726
00:45:52,940 --> 00:46:00,390
Speaker 3: really extensive and increasingly comprehensive. For instance, I think in

727
00:46:00,710 --> 00:46:06,870
Speaker 3: late July, the Commission, the Europeans, placed a few more

728
00:46:07,010 --> 00:46:10,280
Speaker 3: Chinese entities on the sanctions list because they were deemed

729
00:46:10,300 --> 00:46:13,859
Speaker 3: to be supporting the Russian war effort. The day after,

730
00:46:13,900 --> 00:46:17,239
Speaker 3: the Chinese responded by immediately putting a whole bunch of

731
00:46:17,600 --> 00:46:21,290
Speaker 3: major European industrial firms on the same equivalent entity list

732
00:46:21,310 --> 00:46:26,029
Speaker 3: that they have. We don't have that kind of ability

733
00:46:26,090 --> 00:46:32,549
Speaker 3: to respond. I think a likely scenario is that the

734
00:46:32,690 --> 00:46:37,049
Speaker 3: EU does something eventually next year, that because of these

735
00:46:37,090 --> 00:46:39,410
Speaker 3: problems in finding decisions, it will be too little to

736
00:46:42,290 --> 00:46:45,610
Speaker 3: actually do something about the situation, and that the Chinese

737
00:46:45,630 --> 00:46:52,529
Speaker 3: will respond with some sort of concession. Because I think

738
00:46:52,550 --> 00:46:55,530
Speaker 3: it's clear that because indeed they are dependent on export

739
00:46:55,550 --> 00:46:59,610
Speaker 3: growth and the EU is a very big market, the

740
00:46:59,650 --> 00:47:03,030
Speaker 3: only big market open at the moment. But this concession

741
00:47:03,050 --> 00:47:05,950
Speaker 3: will not be, it will not really change the momentum

742
00:47:05,989 --> 00:47:09,710
Speaker 3: behind the shift in industrial activity. But the EU will

743
00:47:09,750 --> 00:47:12,549
Speaker 3: accept it because it can't actually find a consensus at

744
00:47:12,610 --> 00:47:16,069
Speaker 3: home for anything else than they propose. And that probably...

745
00:47:16,739 --> 00:47:18,660
Speaker 3: will not really change anything about this. And then that's,

746
00:47:18,719 --> 00:47:20,500
Speaker 3: I think, the best scenario. The worst scenario is a

747
00:47:20,520 --> 00:47:21,259
Speaker 3: full-blown trade war.

748
00:47:21,660 --> 00:47:24,430
Speaker 1: Dominic, we could go on for a very long time.

749
00:47:24,450 --> 00:47:28,930
Speaker 1: We could talk a lot more about the 27 governments

750
00:47:28,989 --> 00:47:31,530
Speaker 1: that all hate each other. We could talk about how

751
00:47:31,650 --> 00:47:35,610
Speaker 1: Eastern Europe and they have probably different perspectives than Central

752
00:47:35,670 --> 00:47:38,260
Speaker 1: Europe and so forth. But that was a fantastic overview.

753
00:47:38,560 --> 00:47:40,739
Speaker 1: Really appreciate you coming on Odd Lots, and let's do

754
00:47:40,760 --> 00:47:41,340
Speaker 1: it again sometime.

755
00:47:41,680 --> 00:47:43,300
Speaker 4: Thanks so much for having me, guys. It was a pleasure.

756
00:47:55,900 --> 00:47:58,020
Speaker 1: Tracy, I thought that was really interesting conversation. You don't

757
00:47:58,040 --> 00:48:01,950
Speaker 1: really get I thought that, you know, cliche nuance, you know,

758
00:48:02,430 --> 00:48:06,010
Speaker 1: actual nuance that like there is a lot of aspects

759
00:48:06,050 --> 00:48:09,149
Speaker 1: of the conversation that are either misunderstood or something like that.

760
00:48:09,170 --> 00:48:11,570
Speaker 1: I feel like I actually learned something in that conversation.

761
00:48:11,930 --> 00:48:14,730
Speaker 2: I like the line, the value of my leisure is

762
00:48:14,770 --> 00:48:17,899
Speaker 2: above zero, because mine certainly is. But once you start

763
00:48:17,960 --> 00:48:21,420
Speaker 2: framing it that way, then the set of economic choices

764
00:48:21,460 --> 00:48:24,800
Speaker 2: that are being made start to look exceedingly different, right?

765
00:48:25,320 --> 00:48:31,250
Speaker 1: No, I totally think that. And if you actually take

766
00:48:31,290 --> 00:48:36,259
Speaker 1: that idea seriously, then... Yes, that's really good. That's sort

767
00:48:36,280 --> 00:48:38,960
Speaker 1: of the goal. We want to like have high productivity

768
00:48:39,040 --> 00:48:41,910
Speaker 1: or we want to have wealth so that we can

769
00:48:42,050 --> 00:48:45,310
Speaker 1: enjoy life. It's kind of crazy how that's like. Otherwise,

770
00:48:45,330 --> 00:48:47,170
Speaker 1: what are we doing? What are we doing here? What's

771
00:48:47,210 --> 00:48:47,810
Speaker 1: the point of all this?

772
00:48:47,910 --> 00:48:50,390
Speaker 2: This brings me to a question I've been asking everyone

773
00:48:50,489 --> 00:48:53,890
Speaker 2: when we were out in L.A. and I'm sure actually

774
00:48:53,910 --> 00:48:58,020
Speaker 2: you're going to San Francisco soon. Yeah. What exactly– like

775
00:48:58,040 --> 00:49:01,930
Speaker 2: there's going to be this huge wave of money hitting

776
00:49:02,010 --> 00:49:04,609
Speaker 2: San Francisco thanks to all these IPOs that are being

777
00:49:04,630 --> 00:49:08,170
Speaker 2: filed and just like general stock market buoyancy. What is

778
00:49:08,230 --> 00:49:10,469
Speaker 2: everyone doing with that money? Like I get that they

779
00:49:10,489 --> 00:49:12,669
Speaker 2: buy nice houses and maybe a nice car. But other

780
00:49:12,710 --> 00:49:15,610
Speaker 2: than that, like what is– what's the consumption?

781
00:49:15,890 --> 00:49:18,290
Speaker 1: No, it's just like people who are in that are

782
00:49:18,310 --> 00:49:20,160
Speaker 1: just going to– they're not going to do anything. with

783
00:49:20,180 --> 00:49:22,739
Speaker 1: their money. They're just going to keep, like, staying up

784
00:49:22,820 --> 00:49:25,360
Speaker 1: on ChachiBT, vibe coding, if they can still 3 a.m.

785
00:49:25,420 --> 00:49:25,680
Speaker 2: Or work.

786
00:49:25,700 --> 00:49:27,660
Speaker 1: Yeah, I know, I know. Everyone in this space, they

787
00:49:27,680 --> 00:49:31,310
Speaker 1: just talk about, oh, I'm working more than ever. There's

788
00:49:31,350 --> 00:49:33,930
Speaker 1: some sort of, we need to coin a new paradox

789
00:49:34,010 --> 00:49:34,950
Speaker 1: or something like that.

790
00:49:35,210 --> 00:49:37,730
Speaker 2: But I do think, one thing I will say is,

791
00:49:38,430 --> 00:49:43,810
Speaker 2: a lot of this depends on your worldview, your very deep,

792
00:49:44,130 --> 00:49:48,839
Speaker 2: basic worldview. You can argue that, okay, Europe has come

793
00:49:48,940 --> 00:49:53,140
Speaker 2: up with this social welfare system where leisure is valued

794
00:49:53,180 --> 00:49:57,820
Speaker 2: above zero, all of that, in an era of absolute

795
00:49:57,860 --> 00:50:01,800
Speaker 2: trade gains and in an era of neoliberalism and I

796
00:50:01,840 --> 00:50:04,410
Speaker 2: must say only Adam Tooze could get away with it.

797
00:50:04,520 --> 00:50:06,960
Speaker 1: Yeah, the Taliban of neoliberalism. Yeah.

798
00:50:07,140 --> 00:50:11,160
Speaker 2: But now maybe things are changing and maybe priorities start

799
00:50:11,200 --> 00:50:14,009
Speaker 2: to change too. And that I think is like an

800
00:50:14,190 --> 00:50:17,549
Speaker 2: actual real vulnerability for some of the arguments being made here.

801
00:50:17,930 --> 00:50:21,230
Speaker 1: Totally. And I think it's sort of like it'll be

802
00:50:21,250 --> 00:50:25,750
Speaker 1: an interesting sort of chapter for the history books.

803
00:50:25,830 --> 00:50:26,489
Speaker 2: Yeah.

804
00:50:26,810 --> 00:50:30,040
Speaker 1: If like, OK, there are these industrial giants in Europe

805
00:50:30,060 --> 00:50:33,299
Speaker 1: that are core to wealth and the ability to have

806
00:50:33,340 --> 00:50:36,910
Speaker 1: a welfare state, et cetera. And it turns out that

807
00:50:36,930 --> 00:50:41,670
Speaker 1: they like sort of got obliterated by sort of open trade.

808
00:50:42,150 --> 00:50:45,750
Speaker 1: And the reason they got obliterated is because everyone refused

809
00:50:45,790 --> 00:50:48,710
Speaker 1: to recognize the competitive pressure because Donald Trump was the

810
00:50:48,730 --> 00:50:51,069
Speaker 1: first person to really talk about it. And it was

811
00:50:51,130 --> 00:50:54,009
Speaker 1: too much to stomach that to be on the same

812
00:50:54,130 --> 00:50:58,410
Speaker 1: side of a sort of perspective as Donald Trump. And therefore...

813
00:50:58,380 --> 00:51:01,080
Speaker 1: Like that would be a, you know, that's that's a

814
00:51:01,100 --> 00:51:03,080
Speaker 1: good that's a whole book. It's not just a chapter.

815
00:51:03,120 --> 00:51:03,640
Speaker 1: It's a whole book.

816
00:51:03,800 --> 00:51:06,739
Speaker 2: Trump was not the first person to talk about it.

817
00:51:06,780 --> 00:51:09,100
Speaker 1: But I think he really mainstreamed it in a very

818
00:51:09,160 --> 00:51:09,819
Speaker 1: serious way.

819
00:51:09,880 --> 00:51:11,240
Speaker 2: He meme-ified it for sure.

820
00:51:11,260 --> 00:51:11,640
Speaker 1: For sure.

821
00:51:11,700 --> 00:51:11,899
Speaker 4: Yeah.

822
00:51:12,200 --> 00:51:13,620
Speaker 2: All right. Shall we leave it there?

823
00:51:13,660 --> 00:51:14,200
Speaker 1: Let's leave it there.

824
00:51:14,570 --> 00:51:17,380
Speaker 2: This has been another episode of the All Thoughts Podcast.

825
00:51:17,540 --> 00:51:18,360
Speaker 1: I'm Traci Allaway.

826
00:51:18,380 --> 00:51:19,980
Speaker 2: You can follow me at Traci Allaway.

827
00:51:20,180 --> 00:51:23,000
Speaker 1: And I'm Joe Weisenthal. You can follow me at The Stalwart.

828
00:51:23,219 --> 00:51:26,740
Speaker 1: Follow our guest, Dominic Loyster, at New Lefty Views. Follow

829
00:51:26,860 --> 00:51:30,920
Speaker 1: our producers, Carmen Rodriguez at Carmen Armin, Dashiell Bennett at Dashbot,

830
00:51:31,280 --> 00:51:33,890
Speaker 1: Cale Brooks at Cale Brooks, and Kevin Lozano at Kevin

831
00:51:33,910 --> 00:51:37,070
Speaker 1: Lloyd Lozano. And for more OddLots content, check out our newsletter.

832
00:51:37,090 --> 00:51:40,130
Speaker 1: You can find that at Bloomberg.com slash OddLots. And you

833
00:51:40,150 --> 00:51:45,149
Speaker 1: can chat about all these topics 24-7 in our Discord group. discord.gg.

834
00:51:45,770 --> 00:51:48,009
Speaker 2: And if you enjoyed this conversation, if you like it

835
00:51:48,050 --> 00:51:51,390
Speaker 2: when we talk about the nuances of Europe's economic decline,

836
00:51:51,430 --> 00:51:53,920
Speaker 2: then please leave us a positive review on your favorite

837
00:51:53,940 --> 00:51:57,520
Speaker 2: podcast platform. And remember, if you are a Bloomberg subscriber,

838
00:51:57,560 --> 00:52:00,500
Speaker 2: you can listen to all of our episodes absolutely ad-free.

839
00:52:00,840 --> 00:52:02,720
Speaker 2: All you need to do is find the Bloomberg channel

840
00:52:02,840 --> 00:52:06,340
Speaker 2: on Apple Podcasts and follow the instructions there. Thanks for listening.

841
00:52:18,710 --> 00:52:19,160
Speaker 2: Thank you.