Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: global economy to you. This time last year, Stephanomics celebrated
Speaker 1: the new year by asking some of Bloomberg's best and
Speaker 1: brightest what we could expect the next twelve months to bring,
Speaker 1: and we all completely failed to see what was coming.
Speaker 1: I'm not going to let that put me off another attempt,
Speaker 1: but I have taken the precaution of broadening the net
Speaker 1: a bit. Hopefully this lot will be even better and
Speaker 1: even brighter. We really do have a lot of firepower
Speaker 1: gathered on this zoom call today here in London, Bloomberg
Speaker 1: TVs pre eminent interviewer and correspondent at large, Francine Lacroix.
Speaker 1: We also have Business Week's senior economic correspondent and columnist
Speaker 1: Peter Ky, sitting in New York and dining in from Washington,
Speaker 1: tom Orlick, well known to this podcast as Bloomberg's chief economist. Finally,
Speaker 1: we have Sharon Chen. She's now in London, having just
Speaker 1: joined Bloomberg Green, but until recently she was sitting in
Speaker 1: the hot seat in China as Bloomberg's Beijing bureau chief.
Speaker 1: Welcome to everyone, and thank you so much. For being here,
Speaker 1: And I've already said we spent most of talking about
Speaker 1: something that was barely on anyone's radar at the end
Speaker 1: of the coronavirus. This is about looking ahead, not looking back.
Speaker 1: But very briefly, I wanted to start by asking each
Speaker 1: of you what the most memorable moment of was. I
Speaker 1: guess in a year that professional and personal got far
Speaker 1: too close together at times, it's hard to tell the difference,
Speaker 1: but I was I guess I'm talking professionally here, Peter
Speaker 1: Coy your most memorable moment, Well, Stephanie, you already said
Speaker 1: that the coronavirus was the shark that took us all
Speaker 1: by surprise. But my my biggest shark really was what
Speaker 1: came after that, which was in the United States when
Speaker 1: mask wearing, which scientists and doctors agree can help prevent
Speaker 1: the spread of the coronavirus, became a political statement, and
Speaker 1: not wearing a mask became a political statement where people
Speaker 1: who sided with Donald Trump felt that wearing a mask
Speaker 1: would somehow a slap in the President's face, and this
Speaker 1: had incalculable consequences for the health of the American people
Speaker 1: as well as the health of the US economy. So
Speaker 1: many lives could have been saved, and so many dollars
Speaker 1: of GDP could have been saved if only people had
Speaker 1: socially distanced and worn masks religiously, I should say. On
Speaker 1: on the positive, I think probably my surprise was just
Speaker 1: how quickly governments stepped in with fiscal support for economies,
Speaker 1: at least around the industrial countries, and the extent to
Speaker 1: which it did cushion the blow for so many households.
Speaker 1: We had a much smaller for hit on incomes by
Speaker 1: and large, with some important exceptions, than the hit the
Speaker 1: straightforward hit to the economy. So I guess that's the
Speaker 1: slightly more positive side of the government response, which we
Speaker 1: did actually see in the U S too, So that's
Speaker 1: a glass half fall. Sharon said, the credit virus was
Speaker 1: the obvious, It was made a lot of twenty memorable.
Speaker 1: But what was the most distinctive moment for you? Yeah,
Speaker 1: I mean for me, the moment that really stands out
Speaker 1: was the day they locked down Wuhan. I mean it
Speaker 1: was just incredible, like we had never experienced anything like that.
Speaker 1: We couldn't really understand what was happening, that they would
Speaker 1: just lockdown an entire city of millions of people, and
Speaker 1: then they they extended that to the whole of Hubei,
Speaker 1: which was more than fifty million people, and it was
Speaker 1: just so difficult to comprehend what was happening. And that
Speaker 1: was the moment it really hit home that you know,
Speaker 1: this was serious and it was going to be the
Speaker 1: major news story UM for the entire year. But other
Speaker 1: than that, I mean, I think the most surprising thing
Speaker 1: that happened was just recently in September, China coming out
Speaker 1: and saying that, you know, they want to achieve net
Speaker 1: zero carbon emissions by six it's the world's biggest carbon emitter.
Speaker 1: And leading up to President Jijumping's announcement at the u
Speaker 1: N you know, we had been getting a lot of
Speaker 1: signals that China was prioritizing economic growth over its climate
Speaker 1: commitments UM and since then we've seen UM eight out
Speaker 1: of the ten major economies, biggest economies in the world
Speaker 1: say they want to go to net zero as well.
Speaker 1: You're right, that was a big, a big positive shot
Speaker 1: we had in in in the autumn. Francine Loquax, I
Speaker 1: think the you know it surprised me is actually after
Speaker 1: ups and downs, is the fact that we believe Europe
Speaker 1: is now forced for good. You know, if you think
Speaker 1: back to late there was really possible political populism in Europe,
Speaker 1: and if you take it to the which is really
Speaker 1: hard hit by the COVID, you know, crisis, and you know,
Speaker 1: you could also say really botch the pandemic response. It
Speaker 1: now has more destined coronavirus of coronavirus in the UK.
Speaker 1: It just feels a lot closer to Europe. But then
Speaker 1: it did a your go back in twenty nineteen. I
Speaker 1: don't know if you remember, but you know we had
Speaker 1: then Mr Selvini saying that he felt closer to Moscow
Speaker 1: than Brussels. And the majority of Italians now believe that
Speaker 1: Europe will saved them because of the funds from the
Speaker 1: recovery fund. Of course they still have to allocate the
Speaker 1: money and to see whether it uses them wisely. But overall,
Speaker 1: it was this European union unity in the face of Brexit,
Speaker 1: in the face of COVID that I think I'll remember
Speaker 1: for and despite these ups and downs, it showed that
Speaker 1: actually Europe really does come together usually in times of crisis.
Speaker 1: Just recently I had a headline jump out of me
Speaker 1: a column by Ferdinando Giuliano and of Bloomberg that Italians
Speaker 1: are starting to like the Germans UM, and that's probably
Speaker 1: not also not a headline we would have expected to
Speaker 1: see twelve months ago. Tom Wallick, so I wanted to
Speaker 1: pick up on Peter's pessimism. UM, the failure of mask
Speaker 1: wearing in the United States was really striking. I think
Speaker 1: the failure of global coordination around the response to the
Speaker 1: coronavirus crisis was also really striking. If there was ever
Speaker 1: a moment for the global community to come together around
Speaker 1: a medical response and an economic response, surely this was it, UM,
Speaker 1: and that coordination has just really been notable by its absence. UM. Indeed,
Speaker 1: if we think about the world's most important relationship, the
Speaker 1: relationship between China and the United States, actually, over the
Speaker 1: course of the COVID crisis, it's got markedly worse. One
Speaker 1: thing that stuck out to me there was a moment
Speaker 1: over the summer where there was a coordinated series of
Speaker 1: speeches by senior US officials. We had Pompeo, the Secretary
Speaker 1: of State, um Bar, the Attorney General, O'Brien, the National
Speaker 1: Security Advisor, all coming out and in a coordinated way
Speaker 1: taking a really aggressive swing at China and framing the
Speaker 1: U S. China relations and ship not just as a
Speaker 1: relationship of economic competition, but almost as a kind of
Speaker 1: an existential struggle between democracy and a single party state,
Speaker 1: between capitalism and a state dominated economy. Um And. I
Speaker 1: find that really striking because until now, UM, those two
Speaker 1: things have been kind of compartmentalized. Right. There's been a
Speaker 1: view that even though there are some very important differences
Speaker 1: between the US and the West and the and China
Speaker 1: in terms of how society is organized, we can still
Speaker 1: cooperate in terms of trade. Perhaps we can cooperate on
Speaker 1: things like climate change. Um. And over the course of
Speaker 1: the COVID year that seemed to change. And I think
Speaker 1: it's going to be really interesting to see with the
Speaker 1: Biden administration coming in how they manage tensions across that
Speaker 1: broader range of subjects. Sharon turn you you mentioned that
Speaker 1: the lockdown and Whan. I remember we've spoken to a
Speaker 1: couple of times when you were engaging this year, once
Speaker 1: when you had just returned from Wuhan and you were
Speaker 1: going through quarantine having started at the center of this pandemic.
Speaker 1: We look at China now, the rest of the world
Speaker 1: looks at it and sees it coming out of this
Speaker 1: pandemic apparently almost unscathed. It's the only large economy that
Speaker 1: will grow this year, and the government, if anything, seems strengthened.
Speaker 1: When you were in China, is that what it felt
Speaker 1: like on the inside too, or has the system perhaps
Speaker 1: been shaken in ways that we can't see. Yeah, I
Speaker 1: mean I think that's generally right. When I left in October,
Speaker 1: I mean, everything was back to normal, like hot pot
Speaker 1: restaurants will packed, people eating, you know, sharing communal food, travel,
Speaker 1: domestic travel was back in full swing. You know, it
Speaker 1: really felt like life had returned to normal. And it
Speaker 1: was even more stark when I landed in London and
Speaker 1: it was like going back in time to the worst
Speaker 1: of the pandemic in China. So I think in that sense,
Speaker 1: you know, the economy really had has kind of gotten
Speaker 1: back to where it was just in the day to
Speaker 1: day kind of experience. And also, I think you're right
Speaker 1: that the way the government handled the pandemic and then
Speaker 1: how other governments outside China handled the pandemic really validated
Speaker 1: the Chinese model for a lot of people inside China.
Speaker 1: But I think that there are a lot of things
Speaker 1: below the surface that have shaken the system. You know,
Speaker 1: just like in every other country, the pandemic exacerbated in equality.
Speaker 1: Millions of microworkers lost their jobs, those in the service
Speaker 1: sector were hit extremely badly. I mean, that's the main
Speaker 1: problem the government faces now is supporting those groups of people,
Speaker 1: and in China that's on a massive scale. Um And
Speaker 1: we also see how it's become more internationally isolated because
Speaker 1: of the fallout from the pandemic, and all of that
Speaker 1: is also going to affect the economy and people who
Speaker 1: are dependent on exports and outside markets. Tom We've we've
Speaker 1: got a lot of China expertise on this program. Rightly,
Speaker 1: so because you lived many years in Beijing. Two looking ahead,
Speaker 1: do you think one is the year when China could
Speaker 1: solidate the games it's made in the last twelve months
Speaker 1: from handling the virus so effectively. So so, China is
Speaker 1: the only big economy which is going to grow this year.
Speaker 1: We think they'll expand around two percent. Next year, we
Speaker 1: think they'll grow around eight percent. So it's a kind
Speaker 1: of it's an irony of the COVID crisis that a
Speaker 1: problem which started in China in Wuhan as as Sharon
Speaker 1: mentions is actually going to end with China closing the
Speaker 1: gap in terms of g d P, in terms of
Speaker 1: economic capacity with the United States. I was actually just
Speaker 1: reading a big book about Putin and Putin's rule in Russia,
Speaker 1: and one of the points the author makes was that
Speaker 1: Putin was emboldened by the what he saw is the
Speaker 1: failure of the United States in response to Hurricane Katrie
Speaker 1: and how they didn't get ahead of that problem, and
Speaker 1: that this really shook Putin's view of America. He thought,
Speaker 1: God goodness, these guys, they're not any better than we
Speaker 1: are dealing with problems. And so maybe I can play
Speaker 1: a bit of a bigger role on the global stage.
Speaker 1: And I wonder if we're going to see some of
Speaker 1: that following the COVID crisis as well. China is going
Speaker 1: to come out of this economically stronger, but they're also
Speaker 1: going to come out of it emboldened with a sort
Speaker 1: of stronger belief in the relative strength of their own model.
Speaker 1: And how do you think China is viewing the Biden administration?
Speaker 1: I mean, is this is it? Is it the end
Speaker 1: of trade wars? I don't think so. Um, if we
Speaker 1: go back to two thousand and one. That moment when
Speaker 1: China joined the World Trade Organization. Part of the reason
Speaker 1: why there was scope for kind of win win cooperation.
Speaker 1: We give you a little bit, you give us a
Speaker 1: little bit, and everyone's better off is big because China
Speaker 1: was just so far behind in terms of the size
Speaker 1: of its economy and the capacity of its economy. And
Speaker 1: what we've seen in the last twenty years is that,
Speaker 1: partly as a result of that w t O entry,
Speaker 1: China has just accelerated up the global GDP rankings and
Speaker 1: they're now you know, the US can feel their sort
Speaker 1: of hot breath on their back. The kind of the
Speaker 1: competition is real, it's visceral, and we've seen US public
Speaker 1: opinion and global public opinion move very decisively against China.
Speaker 1: And I think what that means is that the room
Speaker 1: for maneuver for the Biden administration as they think about
Speaker 1: ways to reset the relationship with China is just pretty limited.
Speaker 1: Piece of coal. It's it's terrifying how long you've been
Speaker 1: reporting on the global economy in the U s. Economy
Speaker 1: for Business Week, more than thirty years. But if you
Speaker 1: think of all the administrations you've seen come and go
Speaker 1: looking at who's been announced for the Biden cabinet. Another
Speaker 1: key positions we know he's inherited and incredibly difficult terrain.
Speaker 1: How do you think the incoming president elect Biden is
Speaker 1: hoping to spend his first hundred days and what do
Speaker 1: you think could upset those plans? Of course, the tradition
Speaker 1: of the first one hundred days is that at a
Speaker 1: time when a new administration wants to hit the ground
Speaker 1: running notch some early winds, establish its ability to get
Speaker 1: things done, impressed people, and then maybe build on that.
Speaker 1: And that's exactly what Biden has in mind. So he's
Speaker 1: gonna first tackle the course the pandemic job number one.
Speaker 1: He wants to encourage people to wear masks for the
Speaker 1: first one days. He wants to have one hundred million
Speaker 1: vaccines distributed in the first one hundred days. He wants
Speaker 1: to rejoin the World Health Organization, which he can do unilaterally.
Speaker 1: Beyond that, he's looking to rejoin the Paris Climate Accord,
Speaker 1: which again he can do without anybody's permission. Re send
Speaker 1: some of the rules blocking traveler immigration from Muslim majority nations,
Speaker 1: again something within his power. Deal with some of the
Speaker 1: asylum rules on the Mexican border. Uh. These are all
Speaker 1: things that he can and will do early on and
Speaker 1: maybe establish a new tone for the administration. Other things
Speaker 1: are going to be much harder for him to do.
Speaker 1: For example, we're barely struggling now to accomplish a new
Speaker 1: coronavirus relief program. It's unlikely that a new Congress is
Speaker 1: going to want to immediately give him another one. And
Speaker 1: then we get into some of the real, uh, difficult issues,
Speaker 1: like well, he wants to raise taxes on the rich,
Speaker 1: he wants to raise the corporate income tax, he wants
Speaker 1: a gigantic green investment program two trillion dollars. So he's
Speaker 1: got his work cut out for him. So when we
Speaker 1: think about foreign policy, you know, we've tended to say
Speaker 1: it's a return to normalcy when it comes to the
Speaker 1: US and the rest of the world. And Tony Lincoln,
Speaker 1: the incoming Secretary of State, is very well known to
Speaker 1: people and the rest of the world. But what surprises
Speaker 1: do you think the rest of the world should look
Speaker 1: out for. I mean, is this really going to be
Speaker 1: back to the Obama Clinton type foreign policy or something different.
Speaker 1: I think some of the personnel does go back to
Speaker 1: Clinton in Obama, but the world has changed, and the
Speaker 1: biggest changes the U S relationship with China, which other
Speaker 1: people here on this call no more than I do.
Speaker 1: But what I can say is that anybody who thinks
Speaker 1: that relations with China going to clear right up now
Speaker 1: that there's a new president are in for a big disappointment.
Speaker 1: I mean, Tony Blincoln, the Secretary of State, Jake Sullivan
Speaker 1: as National Security Advisor, have been fairly hawkish on China,
Speaker 1: for up on the South China Sea, freedom of navigation operations,
Speaker 1: of anything, the US will be prosecuting more of those
Speaker 1: human rights as another example where Trump has pretty much
Speaker 1: given the Chinese a pass on human rights, and yet
Speaker 1: the US will under Blincoln, Sullivan and Biden of course,
Speaker 1: will be pushing on Hong Kong as well as the
Speaker 1: weakers in Western China. I think that there's there's going
Speaker 1: to be a lot of stress in that relationship. We
Speaker 1: spend a lot of time on China. We should, we
Speaker 1: should get back to Europe. With Francine Loquix. Overall, you
Speaker 1: spend a big chunk of most of your days talking
Speaker 1: to senior business leaders and policymakers. What do you think
Speaker 1: that the European elite if we can say that is
Speaker 1: focused on For one, I mean there's a lot of
Speaker 1: obviously a lot of countries that are still in renewed lockdown.
Speaker 1: Do you think they are managing to lift their eyes
Speaker 1: up from that or they just too caught up with
Speaker 1: the COVID crisis still well stuff, And I feel like
Speaker 1: they try and look up, and then every time they
Speaker 1: try and look up, there's either you know, another lockdown
Speaker 1: or some kind of stuff and start scenario. So they're
Speaker 1: very focused on the recovery. There are probably two main
Speaker 1: risks to Europe, you know, and to the outlaw forced
Speaker 1: there's this path in the second wave of the pandemic
Speaker 1: unclear to be honest for me where it goes, because
Speaker 1: if you look at the effect of the rollout of
Speaker 1: the vaccine, you know, I wouldn't underestimate the challenges of
Speaker 1: delivering this to large waves of the population. And I
Speaker 1: also would point to the fact that we still don't
Speaker 1: know whether you can still pass it on. Even if
Speaker 1: you get the vaccine on, then the recovery fund, I
Speaker 1: think there's a real questions amongst newsmakers and chief executive
Speaker 1: about where the money goes. So we have big words,
Speaker 1: big ideas in Europe, the Deal and climate change. Marcal
Speaker 1: also lately calling for this health union. But actually leaders
Speaker 1: know that they need to be more aggressive in cutting
Speaker 1: greenhouse gas emissions over the next decade. That's sure been stamped,
Speaker 1: but for chief executives, they want to know where where
Speaker 1: are these projects, where the money goes, and so what
Speaker 1: they're worried about is that you have project but actually
Speaker 1: the money gets squandered like it has in the past.
Speaker 1: So I think the next six months is really make
Speaker 1: or break. And the other thing very quickly solvency. And
Speaker 1: Mario Druggi was talking about that is that if if
Speaker 1: you know government programs run out one who do you
Speaker 1: say for companies? And are you saving the wrong companies
Speaker 1: that actually shouldn't be saved because of this huge transformation
Speaker 1: of the economy. Well, and something that Mario Drugging when
Speaker 1: he was ahead of the European Central Bank you ushould
Speaker 1: talk about a lot was needing to have fiscal support
Speaker 1: along with the monetary fiscal action. We did, as you
Speaker 1: said at the start, we did see that this year
Speaker 1: maybe with this Biggieu Recovery fund, we start to see
Speaker 1: deeper collaboration risk sharing on the fiscal front among European economies.
Speaker 1: What's going to determine whether that really happens over the
Speaker 1: next year or so, that whether that grows or whether
Speaker 1: it ends up being just a one off. So I
Speaker 1: think the first six months of the Europe would probably
Speaker 1: be a reckoning for Europe. A lot will the and
Speaker 1: on how economy is fare next year, whether the solvency
Speaker 1: crisis takes hold and then gives way to populous leaders
Speaker 1: in Europe. If you look at the political dimension in Europe,
Speaker 1: it should never be underestimated, especially when you're talking about Europe,
Speaker 1: you know, coming more together. It's unclear where we land
Speaker 1: post pandemic, so we have to really, you know, think
Speaker 1: about that and not be too optimistic. Will probably have
Speaker 1: an adjustment, We may have some unwinding of some of
Speaker 1: the policies. But if you're you're optimist and you look
Speaker 1: at the past and actually Europe does not really have
Speaker 1: any undoing progress on the integration front apart from Brexit,
Speaker 1: so you could be optimistic that you know, they're not
Speaker 1: going to undo what they've done so far. Tom if
Speaker 1: we step back from this and think about where the
Speaker 1: where the world has headed economically in one I know
Speaker 1: that your team has been pulling together. It's it's forecasts.
Speaker 1: Briefly tell us what you're expecting, and I guess also
Speaker 1: highlight what you think could go go right or wrong.
Speaker 1: We're expecting growth for the global economy around five percent
Speaker 1: next year, so pretty impressive rebound. It's not quite a
Speaker 1: v UM, but it's substantial. It's a substantial portion of
Speaker 1: the upswing of the v Within that, of course, drilling
Speaker 1: into the country detail, people talk about comorbidity is making
Speaker 1: the COVID virus more serious for individuals. There are also
Speaker 1: some co morbidity ease that make the economic impact more
Speaker 1: serious for different countries. UM Peter sort of already suggested it.
Speaker 1: But there's the trust deficit in the United States, which
Speaker 1: stymied the public health response and is going to deepen
Speaker 1: the crisis and slow the recovery. UM In the UK
Speaker 1: Brexit now approaching its end game. That combination of the
Speaker 1: Brexit hit and the virus hit is going to be
Speaker 1: a problem for the United Kingdom, and then in countries
Speaker 1: like Italy with very high debt levels. Again some additional
Speaker 1: burdens which are going to mean the recovery from the
Speaker 1: COVID hit is lower than it otherwise would be. But
Speaker 1: I wonder whether will be surprised by the speed of
Speaker 1: the bounce back. In many economies, there is such a
Speaker 1: maybe I'm just speaking personally, but this is such a
Speaker 1: great desire to go back to normal and maybe even
Speaker 1: double up on holidays and other things that one has
Speaker 1: not been able to do. Um. There is a view
Speaker 1: that says that that kind of bounce back could produce inflation.
Speaker 1: What do you think? So, we see wide output gaps
Speaker 1: as far as the I can see. And when you've
Speaker 1: got a wide output gap, you've got resources which are
Speaker 1: not being used, You've got people who wants lots of
Speaker 1: spare capacity and um, and so you don't have inflation. UM.
Speaker 1: So inflation is not in our view, It's not in
Speaker 1: our two view, but that doesn't mean it isn't a risk.
Speaker 1: We've got some powerful forces at work. We've got deglobalization,
Speaker 1: which means that those cheap Chinese or Vietnamese imports which
Speaker 1: have been dragging on prices and denting workers capacity to
Speaker 1: negotiate for more money in the West. Um, that sort
Speaker 1: of drag on inflation is going to be reduced. UM.
Speaker 1: We've got more progressive politicians running for office and being
Speaker 1: elected to office, potentially with policies like pushing up the
Speaker 1: minimum wage, and perhaps, as you suggest, Stephanie, the economy
Speaker 1: could just come roaring back more quickly than anyone imagines. Um,
Speaker 1: So inflation is not in our forecast for two as
Speaker 1: a substantial risk, Um, we might be wrong. If it
Speaker 1: does come back, that's going to put central banks in
Speaker 1: a very very difficult position there in this extraordinary spot
Speaker 1: where they're essentially printing money to finance fiscal stimulus, and
Speaker 1: they can do that because inflation is entirely subdued. As
Speaker 1: soon as inflation starts to come back, they're going to
Speaker 1: be in a very difficult position trying to balance and
Speaker 1: find an impossible balance between their inflation fighting mandate and
Speaker 1: their financial stability mandate. Well, Francine, I can exclusively revealed
Speaker 1: that the head of the European Central Bank has a
Speaker 1: serious soft spot for you. When Christine Legarde was head
Speaker 1: of the IMF, still I was I saw her for
Speaker 1: something else and I mentioned I was going to Bloomberg,
Speaker 1: and she pulled. She sort of paused with this this
Speaker 1: sort of look in her eye of joy, saying ah,
Speaker 1: we're Francine loquise um. So you there's probably around the
Speaker 1: globe before I think the best part of you know,
Speaker 1: like two decades. It's definitely definitely gets a certain look
Speaker 1: in her eyes when she thinks of you. But it
Speaker 1: also results thankfully for Bloomberg and lots of great interviews,
Speaker 1: and you had several with her this year. She's got
Speaker 1: a big review of monetary policy coming, which got delayed
Speaker 1: from it's going to be in the summer of twenty one.
Speaker 1: We did have in the autumn of the Federal Reserves
Speaker 1: review of monetary policy, which did make a difference, did
Speaker 1: say that policy was going to be different over the
Speaker 1: next few years in an effort to get inflation higher.
Speaker 1: Do you think the European Central banks new framework could
Speaker 1: make that kind of difference. I think I think it
Speaker 1: could actually, And we've heard that from her, although it's
Speaker 1: too seems to say, and we've heard it also from
Speaker 1: Ali Rend. I love what Ali Ren said. He gave
Speaker 1: a speech I think two or three weeks ago which
Speaker 1: was very simple and powerful. He said why is the
Speaker 1: strategy review so important? And he basically answered it by saying, well,
Speaker 1: the simple answer is changed, especially the change in the
Speaker 1: operating environment of monetary policy, and we sometimes forget when
Speaker 1: we do this day and day out thinking about inflation,
Speaker 1: how the world has changed right in the current environment
Speaker 1: of low rates, negative demand sharks. The problem is, you know,
Speaker 1: it could be but it could be quite rare that
Speaker 1: it's too high inflation. It's at least more remote, and
Speaker 1: so the problem is low inflation that's more relevant. And
Speaker 1: so how do you ensure that inflation expectations will not
Speaker 1: forever stay anchored at you know, too lower level. So
Speaker 1: if you ask it through that prism, which is quite
Speaker 1: quite simple but powerful, you can see something change at
Speaker 1: the ECB next year. We should say, those are the
Speaker 1: America listening who don't necessarily know who Ali Went is.
Speaker 1: He's the governor of the Bank of Finland but was
Speaker 1: also a senior official European Commission for a while. And
Speaker 1: we journalss like him because he gives very engaging interviews
Speaker 1: and a great football player, and he's of course he's
Speaker 1: a great football paper where why wouldn't you be, um,
Speaker 1: Sharon Chen, you your new job is working with this
Speaker 1: new group Green and new publication within Bloomberg. How do
Speaker 1: you think all the talk that we've had about climate
Speaker 1: change and people some now really truly realizing the seriousness
Speaker 1: of this challenge. How do you think that will play
Speaker 1: out in one Yeah, I mean this year really, you know,
Speaker 1: we have seen a lot of global momentum um to
Speaker 1: where it's setting net zero targets and carbon neutrality goals.
Speaker 1: But like you say, I mean it's very hard to
Speaker 1: tell because these are such long term targets, these kind
Speaker 1: of lofty ambitions. The UN just held the Climate Ambition
Speaker 1: Summit last weekend and the idea was that everyone had
Speaker 1: to come and make new pledgures, and it was really
Speaker 1: quite disappointing and kind of underscored. How you know, these big, ambitious,
Speaker 1: nine sounding targets need to be backed up by a
Speaker 1: shorter term, actionable goals. Um. But you know, I think
Speaker 1: the entire global economy is shifting, is going through this
Speaker 1: energy transition. And if you look at China for example,
Speaker 1: I mean it's not just seeking to be net zero
Speaker 1: for purely altruistic reasons. I mean it knows that if
Speaker 1: it can dominate these new renewable energy industries, that will
Speaker 1: really put the economy ahead of others. And I think
Speaker 1: um other leaders also see that, and I think we
Speaker 1: will continue moving in that direction. The big question is
Speaker 1: whether we can do it fast enough. We're already at
Speaker 1: one point to degree celsius warming from pre industrial levels,
Speaker 1: and the Paris Agreement the ideal would be to keep
Speaker 1: it to one point five um, you know, and we're
Speaker 1: just not really untracted to that right now. We've all
Speaker 1: obviously been on a very steep learning curve when it
Speaker 1: comes to pandemics and coronavirus is this year. I suspect
Speaker 1: we're going to be now on a very steep learning
Speaker 1: curve when it comes to green technologies and the challenges
Speaker 1: of moving to net zero. Now that you're sitting in
Speaker 1: green what what are we going to be talking about
Speaker 1: in a year or two is time? But we've never
Speaker 1: heard of today. Are there any left field technologies out
Speaker 1: there that you think are actually going to end up
Speaker 1: being a big part of the conversation? Yeah, I mean,
Speaker 1: I think hydrogen is the mean next thing that and
Speaker 1: related to hydrogen ammonia which can be used to store
Speaker 1: and transport the hydrogen. But I mean it's not a
Speaker 1: new technology. It's been around for a very long time.
Speaker 1: But it seems, you know, a lot of major economies
Speaker 1: are going to rely a lot on it to meet
Speaker 1: the unnet zero targets. And we have air Bus trying
Speaker 1: to develop the first hydrogen plane UM, which could really
Speaker 1: be a game changer in terms of removing those emissions,
Speaker 1: which are probably going to be one of the hardest
Speaker 1: to remove as long as people keep traveling. But you know,
Speaker 1: turning the hydrogen will require reinventing a lot of industries,
Speaker 1: the airline industry, shipping UM over the way a lot
Speaker 1: of economies function now. But I think that that would
Speaker 1: be a major focus. How Peter, you started by talking
Speaker 1: about how you were surprised that wearing a mask became
Speaker 1: a partisan issue. UM in the US. Actually, the environment
Speaker 1: was not so partisan five or ten years ago. Now
Speaker 1: it does seem to be deeply divided along party lines.
Speaker 1: Do you think that the new president can do anything
Speaker 1: to change that or just have all the wildfire's done
Speaker 1: something to change that? First of all, I really agree
Speaker 1: with you that environment was not always such a partisan issue.
Speaker 1: Teddy Roosevelt, who started the National Parks was a Republican.
Speaker 1: Dwight Eisenhower. UM. Richard Nixon actually started the Environmental Protection
Speaker 1: Agency and signed the Clean Air and Clean Water Acts.
Speaker 1: So there's a long tradition of the green in the
Speaker 1: Republican Party, but under Trump in particular, that's faded away.
Speaker 1: Trump portrayed as a contest of environment versus labor. So
Speaker 1: now Biden is trying to turn that around by saying
Speaker 1: we can do both. In fact, he says, when he
Speaker 1: thinks about the green and climate change, he thinks about
Speaker 1: creating jobs. Now that's a challenge too, because it's not
Speaker 1: always as simple as he might say. Um, there are
Speaker 1: people who would argue economists that trying to hit two
Speaker 1: birds with one stone, that is, create jobs and reduce
Speaker 1: greenhouse gas emissions could end up, you know, missing both birds. Uh.
Speaker 1: You know that you want to focus on pick one
Speaker 1: gold and choose the target that choose the tool that
Speaker 1: is best suited to that target. Uh. And he has
Speaker 1: splits already within his coalition. For example, Biden is not
Speaker 1: opposed to all hydraulic fracturing fracking. He's also not opposed
Speaker 1: to all coal mining, and many, of course the environmentalists
Speaker 1: and his UH coalition are. And I just don't know
Speaker 1: if the American public are ready for a strong, meaningful
Speaker 1: attack on climate change. The Washington Post Kaiser Family Foundation
Speaker 1: did a survey last year they found. Yeah, sure, three
Speaker 1: quarters of Americans considered climate change a crisis, but fewer
Speaker 1: than half. We're willing to pay a two dollar monthly
Speaker 1: tax on their electricity bills in the name of climate progress,
Speaker 1: and only a third we're in favor of raising the
Speaker 1: federal gasolene tax by ten cents a goalon. These are
Speaker 1: fairly minor measures in the context of global greenhouse gas emissions,
Speaker 1: and yet Biden has a big job ahead of him
Speaker 1: trying to pull the American public along to think about
Speaker 1: it that way. Okay, we've talked too long about too
Speaker 1: many things. I did start with some of the things
Speaker 1: that had caught us by surprise this year. Um, what
Speaker 1: do you think would be what do you think would
Speaker 1: be the wild cards or the potential big surprises for one?
Speaker 1: Tom Mullock. So, as you say, Stephanie, we were caught
Speaker 1: by surprise by the Hollywood movie scenario of a tiny
Speaker 1: virus laying the world economy waste. Um. So I've done
Speaker 1: some extensive research on the outlook for one, based on
Speaker 1: disaster movies from the late nineties, nineties and early two thousands.
Speaker 1: So the team is going to be modeling the macro
Speaker 1: impact of freak weather events causing a second ice age,
Speaker 1: a huge meteor heading towards Earth, and potentially a giant
Speaker 1: lizard heading from Japan towards the US coast. We're going
Speaker 1: to try and put a GDP number on each of those.
Speaker 1: Don't forget shar Tonado. That's not that's not calculable. I'm afraid,
Speaker 1: Peter um so UM. But more seriously, I mean, and
Speaker 1: this I think is actually more central scenario than a risk. UM.
Speaker 1: I just worry that the Biden administration is going to underwhelm.
Speaker 1: If we look at the composition of the Biden administration, UM,
Speaker 1: it's a lot of people who have a lot of
Speaker 1: experience from time in the Obama administration. UM. But perhaps
Speaker 1: because of that experience, more of a kind of tendency
Speaker 1: to look for the center, to look for a place
Speaker 1: of kind of moderation and compromise. UM. So my concern,
Speaker 1: for one, and looking further forwards, is that the Biden
Speaker 1: administration underwhelms and by doing so kind of inadvertently confirms
Speaker 1: the big argument in which the Trump administration and other
Speaker 1: sort of populists around the world have been making, which
Speaker 1: is that government doesn't work. In government console the big problems,
Speaker 1: piece of coy. You know, you asked for a wild card.
Speaker 1: So this is not necessarily a mainstream prediction. But going
Speaker 1: back to what Tom and Bloomberg Economics is saying, we're
Speaker 1: not expecting outbreak of inflation in the US, but let's
Speaker 1: just say there is. Let's say there's a few months
Speaker 1: where the CPI year of a year does go above two.
Speaker 1: Now that's actually what's supposed to happen. The Fed wants
Speaker 1: that to happen on paper anyway. They said that they
Speaker 1: need to make up for periods of undershooting on the
Speaker 1: target by overshooting for some period of time. But my prediction,
Speaker 1: or I should say my wild card, is if that happens,
Speaker 1: there's going to be an outbreak of cold sweat and
Speaker 1: the foreheads of the members of the Federal Open Market
Speaker 1: Committee people are going to panic that inflation is getting
Speaker 1: out of control, and despite their best of intentions, despite
Speaker 1: all their promises about it letting inflation go of two
Speaker 1: above two, they're gonna start throttling back on monetary stimulus
Speaker 1: and trying to make sure that the inflation doesn't get
Speaker 1: out of control again. Francie loquix, your wild card. I'm
Speaker 1: so happy I don't have Tom's job and actually forecasting
Speaker 1: what will happen in I would probably just look at
Speaker 1: the markets, because the markets are on a terror for
Speaker 1: the moment, and something could happen. You can have a
Speaker 1: bubble bursting. And then this morning I was actually reading
Speaker 1: a note in Standard Chargers looking at the potential market
Speaker 1: surprises for now. They say that they're unlikely, but potential surprises.
Speaker 1: And I think they had like five, maybe eight. But
Speaker 1: they had Democrats winning control of the Senate. They had
Speaker 1: a US China dictance driving Juan rally to six verses
Speaker 1: of dollar. They had oil crashing at twenty dollars comparel,
Speaker 1: which I thought was quite interesting because of opaque rupture.
Speaker 1: And then they also had Biden resigning in favor of
Speaker 1: Vice President Kamala Harrick. That's great. So we've got we've
Speaker 1: got about four or five things to worry about for
Speaker 1: the price of one from you. That's that's typically efficient.
Speaker 1: You see on the brooding television, you just pack so
Speaker 1: much into into thirty seconds. You can't stick with just one.
Speaker 1: Um sarentur um. I think the biggest wild card for
Speaker 1: me is what happens with the US China. I mean
Speaker 1: you know, I think for the Chinese government, the one
Speaker 1: outside of having a Biden administration is that it's back
Speaker 1: to kind of more predictable politics, you know, more predictable
Speaker 1: counterpart or or um, yeah, sparring partner because things which
Speaker 1: just so erratic under Trump. But you know the downside
Speaker 1: of that for them is that obviously, you know, a
Speaker 1: Biden administration can be along most strategic um and also
Speaker 1: con strengthened alliances with other Western countries and find ways
Speaker 1: to you know, inflict pain. And you know, the biggest
Speaker 1: wild card, of course, is that something actually happens military early,
Speaker 1: either in the South China See or with Taiwan, which
Speaker 1: will likely be I think the place where things could
Speaker 1: escalate um the most. And you know, I think before
Speaker 1: this year I also thought it was a very remote possibility.
Speaker 1: But we've seen that a lot of things can escalate
Speaker 1: very quickly, and I seem to remember thinking about the
Speaker 1: first China SEE at this time a year ago. One
Speaker 1: of these years, it's surely going to produce something frightening.
Speaker 1: I'm thrilled at fact that we've not talked about Brexit
Speaker 1: in all this time, so I guess I'd have to
Speaker 1: also throw in a wild card for the end of
Speaker 1: the United Kingdom. I think that the politics of of
Speaker 1: Brexit as this now plays out, after whatever arrangement we
Speaker 1: get with Europe or non arrangement, I think that the
Speaker 1: debate could shift remarkably quickly to Scotland's desire to leave,
Speaker 1: and potentially even Northern Ireland leaving the United Kingdom as well.
Speaker 1: Maybe something we'll be talking about in a year's time.
Speaker 1: Thank you so much to all of you. This has
Speaker 1: been wonderful, Just a treat to have all of you together.
Speaker 1: Regardless of whether we turn out to be right, no
Speaker 1: one remember, they will only remember the great conversation. Francine Lui,
Speaker 1: Peter Coy, Sharon Chen and Tom Orlick. Thank you very much.
Speaker 1: Thank you. That was the year ahead with Stephanomics. We'll
Speaker 1: be back with more very soon. In the meantime, remember
Speaker 1: you can always find us on the Bloomberg Terminal, website,
Speaker 1: app or wherever you get your podcast. This episode was
Speaker 1: produced as usual by Magnus Hendrickson, with special thanks to
Speaker 1: all of our expert correspondence and to the executive producer
Speaker 1: of Stephanomics, Lucy Meekin the head of Bloomberg podcast is
Speaker 1: Francesca Levy Happy new three,