WEBVTT - Martin Wolf on Trump's Shakeup of the Global Order 0:00:02.480 --> 0:00:14.080 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.040 --> 0:00:20.920 Hello and welcome to another episode of the Odd Lots podcast. 0:00:21.000 --> 0:00:22.360 I'm Tracy Allaway. 0:00:22.079 --> 0:00:23.560 And I'm Joe. Wasn't thal Joe. 0:00:23.600 --> 0:00:25.880 We're here in London, Dyll in London, Still in London. 0:00:25.920 --> 0:00:29.240 It's been interesting. I think I've mentioned so. I obviously 0:00:29.320 --> 0:00:31.920 I went to university here, got my first job here, 0:00:32.040 --> 0:00:34.519 first at Bloomberg. I left very quickly and joined the 0:00:34.640 --> 0:00:37.879 Ft and I was here for like ten years and 0:00:38.000 --> 0:00:40.200 met my husband here. So I've just been walking around 0:00:40.240 --> 0:00:44.040 the city this week, just feeling very nostalgic about everything. 0:00:44.440 --> 0:00:47.479 This is a very weird time to be in London. 0:00:47.840 --> 0:00:50.480 For one thing, I have to say, like the whole 0:00:50.479 --> 0:00:52.800 time zone thing really messes me up. But like I'm like, 0:00:52.840 --> 0:00:56.000 you know, v the concept of time zone still blows 0:00:56.040 --> 0:00:57.120 my mind a little bit. 0:00:57.080 --> 0:00:59.720 As an American, and I'm not surprised to hear you obvious. 0:01:00.120 --> 0:01:03.240 It's like I can't believe the market's still open. But also, 0:01:03.440 --> 0:01:07.880 you know, we're at a time where changing perceptions towards 0:01:07.920 --> 0:01:11.959 the US are a big story. And normally, if I'm 0:01:12.000 --> 0:01:14.199 being honest, if I could be a sort of rude 0:01:14.319 --> 0:01:15.639 American for a moment. 0:01:16.360 --> 0:01:18.039 Always to global. 0:01:17.680 --> 0:01:20.840 Perceptions of the US are not typically a very big 0:01:20.880 --> 0:01:22.839 deal to me. They're not something that I think about 0:01:23.200 --> 0:01:26.039 very often, except in so far as we're in a 0:01:26.040 --> 0:01:29.640 period where our president claims to want to be doing 0:01:29.680 --> 0:01:32.000 trade deals with the rest of the world, at which 0:01:32.040 --> 0:01:35.919 point these elected leaders around the world have domestic constituencies 0:01:35.959 --> 0:01:38.800 that they have to be accountable to, and as such, 0:01:39.400 --> 0:01:42.080 perhaps we're in a period where perceptions of the US 0:01:42.200 --> 0:01:43.800 actually substantively matter. 0:01:44.040 --> 0:01:46.000 Well, here's the other thing I was thinking about. I 0:01:46.080 --> 0:01:49.280 was walking past my old university, and I was thinking, 0:01:49.400 --> 0:01:52.280 both you and I did international relations, yeah, And I 0:01:52.320 --> 0:01:57.040 was thinking how amazingly irrelevant that degree has become. And 0:01:57.080 --> 0:01:58.840 I was thinking back to the reading list we had 0:01:58.880 --> 0:02:03.360 in the early two thousands about like implementing globalization and 0:02:03.440 --> 0:02:07.920 globalization colin the Way Forward and things like that. So 0:02:08.120 --> 0:02:11.200 much of that just feels completely off the table at 0:02:11.200 --> 0:02:11.640 this moment. 0:02:12.360 --> 0:02:15.480 We all these like these hopes for like various multilateral 0:02:15.480 --> 0:02:18.280 agreements and we're going to sign and now the plan 0:02:18.400 --> 0:02:22.000 is to sign you know, bilateral agreements with seventy different 0:02:22.080 --> 0:02:23.600 nations in ninety. 0:02:23.280 --> 0:02:25.639 Dews while insulting them on a daily basis. 0:02:25.280 --> 0:02:26.400 While insulting them. 0:02:26.440 --> 0:02:29.320 I mean, come on, okay, So I'm trying to unify 0:02:29.400 --> 0:02:34.040 all these different themes. My former employer, the future of globalization, 0:02:34.680 --> 0:02:36.480 the fact that we're here in London at a time 0:02:36.520 --> 0:02:40.040 when Europe US relationships really seem to be in the 0:02:40.080 --> 0:02:43.079 gutter in many ways. So we have the perfect guest. 0:02:43.200 --> 0:02:45.480 We do have, truly the perfect guest we're going to 0:02:45.520 --> 0:02:47.800 be speaking with. Martin Wolfe is, of course, the chief 0:02:47.880 --> 0:02:51.720 economics commentator over at the FT, sometimes described as the 0:02:51.760 --> 0:02:55.080 most important economics commentator in Britain, which, given that the 0:02:55.160 --> 0:02:58.680 UK exports a lot of commentators, is really saying something. 0:02:59.000 --> 0:03:01.919 Also the author of book on globalization, of course, although 0:03:01.960 --> 0:03:05.960 as I understand it, your feelings have evolved over the years. 0:03:05.960 --> 0:03:08.160 So Martin, welcome to the show. Thanks so much for 0:03:08.200 --> 0:03:08.520 coming on. 0:03:08.880 --> 0:03:11.679 It's a pleasure to be here in beautiful London, which 0:03:11.720 --> 0:03:13.840 feels very pleasingly away from the US. 0:03:14.040 --> 0:03:16.520 Yes, yes, we're setting the tone for the contry. 0:03:16.600 --> 0:03:18.600 Yeah, there we go. Is it amazing to be an 0:03:18.639 --> 0:03:22.239 economics commentator in the current environment or is it incredibly 0:03:22.240 --> 0:03:24.960 depressing in the sense that you know, we're seeing a 0:03:25.000 --> 0:03:28.560 lot of new and interesting ideas. I'm doing air quotes. 0:03:28.600 --> 0:03:31.160 Although I'm on a podcast new and interesting ideas coming 0:03:31.160 --> 0:03:34.320 out of certain administrations about how economics works and how 0:03:34.400 --> 0:03:38.080 it could theoretically work, and at the same time you're 0:03:38.080 --> 0:03:41.800 seeing the tearing down of a lot of established norms 0:03:41.880 --> 0:03:45.880 and principles from traditional economics. There's a lot to write about. 0:03:46.080 --> 0:03:48.200 Yes, this is a question that a lot of people 0:03:48.240 --> 0:03:50.640 ask me during the financial crisis when it was really 0:03:50.680 --> 0:03:53.360 at its worst and look very very frightening, which is 0:03:53.400 --> 0:03:56.440 in a very different way that closest to what in 0:03:56.440 --> 0:03:59.240 my professional crea to what we're experiencing now. My answer 0:03:59.320 --> 0:04:02.400 used to be, I divide myself into two people as 0:04:02.440 --> 0:04:06.360 an economist and commentator. It was the best spirit of 0:04:06.360 --> 0:04:10.600 my life as a father and a grandparent. Grandfather terrified 0:04:10.600 --> 0:04:12.760 the wits out of me, and I would say the 0:04:12.840 --> 0:04:14.720 same now, but probably even more so. 0:04:15.520 --> 0:04:18.000 By the way, this is kind of like me and Tracy, 0:04:18.080 --> 0:04:19.880 except Tracy is the side of. 0:04:19.880 --> 0:04:23.480 You I totally embody the anxiousness, and Joe is basically 0:04:23.520 --> 0:04:25.400 the exhilaration that things are happening. 0:04:25.400 --> 0:04:27.120 But I said this in a recent review, You're like, Oh, 0:04:27.160 --> 0:04:29.200 I just get so excited. I just love seeing the 0:04:29.240 --> 0:04:31.400 lung and I feel like I wanted to wish. I'm 0:04:31.440 --> 0:04:33.600 taking a moment to hedge that I actually do have 0:04:33.640 --> 0:04:36.440 a person side. I have not just someone who stares 0:04:36.480 --> 0:04:39.560 at a screen all day, and I do genuinely care 0:04:39.600 --> 0:04:42.080 about the actual sort of health of the world. 0:04:42.560 --> 0:04:46.640 You feel you have to announce that publicly. Slightly worrying, Joe, 0:04:46.720 --> 0:04:48.279 but good. It's good to know, you know. 0:04:49.200 --> 0:04:51.600 There's a part of me that thinks this is a 0:04:51.640 --> 0:04:54.640 bigger story in many respects than the Great Financial Crisis, 0:04:54.640 --> 0:04:57.560 because in retrospect, although the Great Financial Crisis or the 0:04:57.600 --> 0:05:00.880 global I forget what we call it, global fundinancial crisis 0:05:01.320 --> 0:05:04.440 was enormous and maybe once in a century it was 0:05:04.480 --> 0:05:07.240 a very big bank run. In bank runs happened from 0:05:07.279 --> 0:05:10.080 time to time. They're not that unusual, and there's a playbook, 0:05:10.120 --> 0:05:12.000 and you backed up the banks and you do some 0:05:12.320 --> 0:05:16.600 Kinsian fiscal policies. This feels like to me right now 0:05:16.640 --> 0:05:21.720 is something that could metastasize into a truly bigger story 0:05:21.800 --> 0:05:24.480 in terms of the lasting imprint it has on the world. 0:05:24.720 --> 0:05:28.720 I think that's very plausible now. During the Financial crisis, 0:05:28.760 --> 0:05:30.960 I didn't view it quite this way, partly because I 0:05:31.000 --> 0:05:34.479 know a lot of economic history and not least because 0:05:34.520 --> 0:05:37.880 my parents were from continental Europe and escape from the 0:05:37.920 --> 0:05:41.320 most obvious consequence of the Great financial crash, which was 0:05:41.360 --> 0:05:45.799 the Great Depression and Hitler. In history, we have mostly 0:05:45.839 --> 0:05:50.800 survived huge financial crises, but sometimes people don't deal with 0:05:50.839 --> 0:05:53.440 the bank rum. And the most famous case obviously in 0:05:53.600 --> 0:05:57.200 history was what happened in the thirties, and it led 0:05:57.600 --> 0:06:00.800 the Federal Reserve completely failed to deal with it in 0:06:00.839 --> 0:06:04.039 any sensible way, and it led to the Great Depression, 0:06:04.040 --> 0:06:07.800 which was the biggest economic downturn in sort of modern 0:06:07.880 --> 0:06:11.080 history of the last two centuries. And that led absolutely clearly, 0:06:11.200 --> 0:06:13.000 it's a theme of one of my books, or part 0:06:13.000 --> 0:06:14.960 of the theme with one of my books, to the 0:06:15.000 --> 0:06:17.840 election of Adolf Hitler, and that led to certain other 0:06:17.920 --> 0:06:20.640 events like World War two and the death of sixty 0:06:20.680 --> 0:06:23.760 million people and so forth. So during the financial crisis, 0:06:23.760 --> 0:06:26.960 I was really frightened now that they did do the 0:06:27.080 --> 0:06:29.760 sensible things, all the things I wrote at the time 0:06:29.760 --> 0:06:31.960 they should do. So I feel very happy about that. 0:06:32.200 --> 0:06:34.760 They went back to Walter Badghocks, who knew how to 0:06:34.760 --> 0:06:38.520 deal with these things, and that's in fine now. Right now, 0:06:38.560 --> 0:06:41.640 I would agree with you, certainly, this is a bigger event, 0:06:42.200 --> 0:06:47.240 because it's a fundamental undoing of the world economic order 0:06:47.320 --> 0:06:49.880 as created after the Second World War. It is I 0:06:49.920 --> 0:06:53.960 think also in the backdrop, a fundamental remaking of the 0:06:53.960 --> 0:06:58.359 American Republic. And right now, of course it involves a 0:06:58.760 --> 0:07:02.159 because it's both of these, and because of the extraordinary 0:07:02.200 --> 0:07:04.919 role the US has played in the world since the 0:07:04.960 --> 0:07:08.480 Second World War, since forty one. Really, with Paul Harbor, 0:07:08.839 --> 0:07:11.680 it really means a remaking of the entire world order. 0:07:12.040 --> 0:07:14.920 So we right now, I think the most important thing 0:07:15.040 --> 0:07:17.040 that I say when anybody asks me what's going to 0:07:17.040 --> 0:07:20.320 happen next, is I really don't know, because nobody can. 0:07:21.560 --> 0:07:24.560 Since you brought up the economic policy of the nineteen thirties, 0:07:24.600 --> 0:07:29.200 and since Joe is currently reading Adam Twos's Wages of Destruction, 0:07:29.640 --> 0:07:32.920 and everyone who has interacted with Joe over the past 0:07:32.920 --> 0:07:35.880 two weeks that you are reading about it. 0:07:35.960 --> 0:07:38.840 So what I do I tell everyone reading Adam Owes. 0:07:38.640 --> 0:07:41.480 You a commission at this point, because you are literally like, Hi, 0:07:41.520 --> 0:07:44.080 I'm Joseph Eisenthaal. Have you read the Good Book of 0:07:44.120 --> 0:07:46.960 Wages of Destruction? Like this is Joe right now? Talk 0:07:47.000 --> 0:07:49.080 to us a little bit more about any parallels you're 0:07:49.120 --> 0:07:52.040 seeing between the current economic environment, or I guess the 0:07:52.120 --> 0:07:57.200 grievances felt by American policy makers versus what we saw 0:07:57.320 --> 0:07:58.400 in the nineteen thirties. 0:07:58.800 --> 0:08:02.480 I think that what is striking to me is the differences. 0:08:02.760 --> 0:08:04.920 I do argue in the book I wrote, the Crisis 0:08:04.920 --> 0:08:07.280 of Democratic Capitalism, which you certainly should read. 0:08:07.760 --> 0:08:09.080 Well it's on the list, is. 0:08:10.080 --> 0:08:14.240 This idea that the global financial crisis was a very 0:08:14.240 --> 0:08:19.120 big shock. It had quite long lasting effects, notably so 0:08:19.320 --> 0:08:21.960 in the US, and I argue in that book that 0:08:22.120 --> 0:08:25.240 one of the reasons, probably the main reasons that the 0:08:25.360 --> 0:08:29.840 Republicans Party, when they start realizing what had happened, shifted 0:08:29.840 --> 0:08:32.680 from Mitt Romney to Donald Trump as the candidate, which 0:08:32.760 --> 0:08:37.920 was an enormous revolutionary change, is that shock had, as 0:08:37.920 --> 0:08:43.400 it percolated through, helped a very large number of relatively conservative, 0:08:43.520 --> 0:08:48.000 middle class Americans feel that this Reaganite stuff about free 0:08:48.040 --> 0:08:50.680 markets and so forth was, to put it bluntly, crap, 0:08:50.960 --> 0:08:53.720 because these people are led them down the path and 0:08:53.760 --> 0:08:57.880 they wanted somebody to embody their ideology. Their attitudes very 0:08:57.920 --> 0:09:01.680 reactioning ones, in my view, but not with that economic baggage, 0:09:01.760 --> 0:09:04.840 and Trump was the perfect person. So in that sense, 0:09:04.960 --> 0:09:07.920 I do think the global financial crisis, it's a theme 0:09:07.920 --> 0:09:10.640 of my book. It's not the only reason. The industrialization 0:09:10.760 --> 0:09:13.920 and other themes which Trump plays with are also important, 0:09:14.200 --> 0:09:16.200 and I have a long discussion that going back to 0:09:16.320 --> 0:09:20.400 the seventies. But that big shock I think played a 0:09:20.520 --> 0:09:23.840 very big part in shifting the Republican Party in the 0:09:23.880 --> 0:09:27.520 populist nationalist direction, and that's of course why we are 0:09:27.640 --> 0:09:29.960 where we are now. So in that sense, I think 0:09:30.000 --> 0:09:32.400 there is a link. But of course, and this is 0:09:32.400 --> 0:09:36.360 the contrast for the reasons we've discussed in the end, 0:09:36.400 --> 0:09:41.960 the policy makers involved basically under the Obama administration, many 0:09:42.000 --> 0:09:43.960 of whom might of course know, some of them are 0:09:44.000 --> 0:09:46.679 quite good friends. They did manage it in the way 0:09:46.720 --> 0:09:49.880 it wasn't managed in the thirties, So there was a 0:09:49.920 --> 0:09:52.920 fairly quick recovery. The financial sector was put back on 0:09:52.960 --> 0:09:56.080 its feet, though within the immense amount of federal support, 0:09:56.679 --> 0:10:00.280 and the economy is recovered. And what is striking about 0:10:00.559 --> 0:10:05.040 this revolutionary moment in economic policy we're seeing It is 0:10:05.640 --> 0:10:09.280 I think sort of unique, and I don't fully understand it. 0:10:09.280 --> 0:10:11.679 It depresses me because but I have to admit it, 0:10:11.920 --> 0:10:15.240 the American economy has done better than any other developed 0:10:15.240 --> 0:10:18.400 country since the pandemic. The pandemic was a shot, but 0:10:18.440 --> 0:10:23.720 it's motoring. Real incomes have been rising rapidly. The job's 0:10:23.760 --> 0:10:27.840 performance was exceptional. Now that's about as far as Germany 0:10:27.840 --> 0:10:29.200 in the thirty three Is you going to imagine when 0:10:29.400 --> 0:10:32.960 unemployed was twenty five percent and it was not much 0:10:32.960 --> 0:10:36.680 of a welfare state. So the economic explanation in the 0:10:36.800 --> 0:10:38.800 classic sense doesn't really work. 0:10:39.120 --> 0:10:42.640 I've been thinking about exactly this because I have been 0:10:42.679 --> 0:10:46.160 reading out of Jesus wag of Wages of Destruction, which 0:10:46.200 --> 0:10:46.360 is the. 0:10:46.440 --> 0:10:48.960 Martin sent him a copy of your book already he 0:10:49.000 --> 0:10:49.720 will do the same. 0:10:49.880 --> 0:10:52.400 Yeah, yeah, I'll plug it for two or three straight weeks. 0:10:52.520 --> 0:10:55.400 But the only time that I you know, I have 0:10:55.520 --> 0:10:58.280 very mixed feelings about all of this, because look, I'm 0:10:58.320 --> 0:11:00.920 in these wonderful Bloomberg offices and I'm staying in a 0:11:01.000 --> 0:11:02.920 nice hotel, and i have a job where I get 0:11:02.920 --> 0:11:06.440 to type for a living. But like, America is an 0:11:06.520 --> 0:11:09.320 incredibly rich country, and I was like, you know, the 0:11:09.360 --> 0:11:13.439 distribution of financial assets in the United States is, as 0:11:13.480 --> 0:11:16.079 everyone knows, extremely skewed to say, like the top one 0:11:16.120 --> 0:11:19.599 percent or whatever. But the actual distribution of real resources 0:11:19.600 --> 0:11:21.760 when you look at the size of American houses, when 0:11:21.800 --> 0:11:23.559 you look at the number of people of cars, when 0:11:23.600 --> 0:11:26.160 you look at the size of American refrigerators with ice 0:11:26.240 --> 0:11:32.080 machines that typically work. America is an extraordinarily wealthy country 0:11:32.600 --> 0:11:35.679 for a wide swath of the population. And so when 0:11:35.720 --> 0:11:38.959 I read history in that respect, it doesn't read at 0:11:39.000 --> 0:11:44.080 all to me like the actual real economic conditions that 0:11:44.160 --> 0:11:46.240 I would say associated with the nineteen thirties. 0:11:46.679 --> 0:11:48.800 I think that's absolutely right. Of course, it isn't, and 0:11:48.880 --> 0:11:53.520 that's created a puzzle. Nonetheless, it seemed pretty clear, and 0:11:53.679 --> 0:11:55.520 I referred to quite a bit of literature on that 0:11:55.600 --> 0:12:00.120 in my book, that it's not surprising. People are very, very, 0:12:00.240 --> 0:12:03.920 very concerned about their relative positions. People are very very 0:12:04.000 --> 0:12:08.120 concerned about their security, that's their sense of security in 0:12:08.200 --> 0:12:13.560 their positions. And those anxieties often related not just with 0:12:13.600 --> 0:12:17.640 their economic positions, but also more broadly with their cultural positions. 0:12:18.080 --> 0:12:23.520 And Americas are countries that's gone through some big revolutionary changes. 0:12:23.600 --> 0:12:27.760 The industrialization PUTAVL is real. That's a transformation of many 0:12:27.840 --> 0:12:33.240 many communities. The push for gender and racial equality is real, 0:12:33.520 --> 0:12:38.520 and it clearly runs up against anxieties and hostility that 0:12:38.679 --> 0:12:43.520 was also very very real the new economy. Well, you're 0:12:43.520 --> 0:12:46.360 absolutely right, clearly right. But it's still true when I 0:12:46.400 --> 0:12:49.760 go through America, and on many occasions I've Pardikhar and 0:12:50.160 --> 0:12:54.520 gone across the country to place it like Erie, northern California, 0:12:54.600 --> 0:12:58.319 way far north. There are lots of poor people in America, 0:12:58.360 --> 0:13:00.920 and most Americans that I know and see them because 0:13:00.920 --> 0:13:03.719 they fly over them, but I've actually driven across It's 0:13:03.720 --> 0:13:06.160 there are lots of poor people, and people are frightened 0:13:06.160 --> 0:13:09.720 of ending up there. In my view, they have a sense. 0:13:10.080 --> 0:13:14.920 You know, I'm one real hospital medical problem away from bankruptcy. 0:13:15.000 --> 0:13:18.679 So I think there is in an insecurity and anxiety 0:13:18.720 --> 0:13:22.559 which comes up with these cultural and economic things mixed 0:13:22.640 --> 0:13:27.880 up to which Trump addresses his appeal perfectly. He's the 0:13:27.920 --> 0:13:33.160 perfect populist for America. And one of the things I've learned, 0:13:33.280 --> 0:13:35.560 which is new because I've never lived through it with 0:13:35.640 --> 0:13:40.920 a political demogogue like this, how incredibly good a brilliant 0:13:40.960 --> 0:13:46.040 demogogue is at exploiting those resentments and offering himself up 0:13:46.240 --> 0:13:49.000 as the solution to all this. And that's the way 0:13:49.080 --> 0:13:50.080 I would now see this. 0:13:50.679 --> 0:13:53.280 Speaking of resentments, I mean, it does seem if we 0:13:53.360 --> 0:13:56.080 zoom out on an international scale, so away from the 0:13:56.080 --> 0:13:59.479 domestic US economy. It does seem like the Trump administration's 0:13:59.600 --> 0:14:03.120 major grievance is this idea that the US hasn't been 0:14:03.120 --> 0:14:06.800 compensated enough for its role in the international financial system 0:14:07.000 --> 0:14:09.520 and the fact that the dollar is a reserve currency 0:14:09.600 --> 0:14:12.760 and all of that. And it's very difficult for me 0:14:12.960 --> 0:14:16.040 to wrap my head around that particular position. Like, I 0:14:16.160 --> 0:14:20.520 understand there are downsides and upsides to that special status, 0:14:20.520 --> 0:14:24.200 but the Trump administration seems really committed to the idea 0:14:24.240 --> 0:14:27.760 that this is a giant burden being carried by the 0:14:27.880 --> 0:14:31.800 United States. What are your thoughts on that particular argument, 0:14:31.920 --> 0:14:34.240 Like how true is that or like what are the 0:14:34.280 --> 0:14:36.720 actual downsides? And then secondly, what do you think of 0:14:36.760 --> 0:14:39.840 some of their policy proposals where they're trying to attend 0:14:39.880 --> 0:14:43.640 to this issue and I guess alleviate some of their complaints. 0:14:44.400 --> 0:14:48.840 Well, what's particularly puzzling about the position they've adopted is 0:14:48.880 --> 0:14:52.240 that while they do think it's a terrible burden, they 0:14:52.280 --> 0:14:54.760 want to cling on to it with all possible might. 0:14:54.960 --> 0:14:59.160 I mean, the people who made the most sophisticated analysis 0:14:59.360 --> 0:15:03.040 of this, and that's obviously not Donald Trump Stephen Mirran, 0:15:03.240 --> 0:15:06.520 he's a chairman of the Council of Economic Advisors, sort 0:15:06.520 --> 0:15:09.240 of make it clear we want to get rid of 0:15:09.320 --> 0:15:11.280 all the costs or come to that in a moment, 0:15:11.760 --> 0:15:14.040 but we definitely want to make the keep the dollar 0:15:14.080 --> 0:15:18.000 as the world's dominant currency. They really want to have 0:15:18.080 --> 0:15:21.560 their cake and eat it. Well, this is really quite 0:15:21.560 --> 0:15:23.720 complicated with the right answer is half an hour, which 0:15:23.760 --> 0:15:27.000 we don't have. So the summary of it, the argument 0:15:27.040 --> 0:15:30.239 about whether the dollar is a burden or a privilege 0:15:30.560 --> 0:15:33.920 has really been going on since the sixties, and it's 0:15:33.960 --> 0:15:37.760 when I started studying economics, so I'm very familiar with it, 0:15:38.240 --> 0:15:41.440 and it led to the first attempt to readjust the 0:15:41.480 --> 0:15:44.400 cost of this, which is the closest parallels to what 0:15:44.440 --> 0:15:47.120 we are seeing now, which is Nixon under Nixon, the 0:15:47.200 --> 0:15:51.320 Nixon Shock of seventy one when he basically tried to 0:15:51.320 --> 0:15:53.960 get the dollar devalued to sounds familiar, right, I Mean, 0:15:53.960 --> 0:15:56.080 that's what one of the things they're trying to do 0:15:56.160 --> 0:15:59.760 is to get everybody to appreciate their currencies against the dollar. 0:16:00.160 --> 0:16:03.520 And the reason they needed to get the dollar devalued 0:16:03.800 --> 0:16:06.760 is then is they had a fixture change rate system. 0:16:06.800 --> 0:16:10.280 Obviously not the situation. Now the dollar was tied to gold. 0:16:11.760 --> 0:16:16.600 The monetary policy of view as in no way represented 0:16:16.640 --> 0:16:18.560 what you should do if you're on the gold standard. 0:16:19.120 --> 0:16:22.880 One of my constant points is that lots of people 0:16:22.920 --> 0:16:25.160 say going off gold in seventy one was the worst 0:16:25.160 --> 0:16:28.360 thing that ever happened. But my argument is that US 0:16:28.520 --> 0:16:31.480 was never really on gold. We can discuss that if 0:16:31.520 --> 0:16:34.280 you want, rather remote from this, but the key point 0:16:34.560 --> 0:16:38.560 is he imposed imputs charges. Sounds familiar, and he told 0:16:38.640 --> 0:16:43.840 them those will remain until you revalue your currencies, and 0:16:44.560 --> 0:16:48.760 indeed they did get them revalued. John Connolly, the Treasury 0:16:48.840 --> 0:16:52.880 sectually famously said the dollar is our currency and your problem. 0:16:53.280 --> 0:16:55.520 And so he sorted this out as it were, and 0:16:55.560 --> 0:16:59.280 that ended up in the regime of generalized floating. So 0:17:00.120 --> 0:17:04.399 got its way, But after that no real effort was 0:17:04.400 --> 0:17:08.879 made to readjust it. What is true for reasons that 0:17:08.960 --> 0:17:13.160 are linked to the Asian financial crisis of the late nineties. 0:17:14.080 --> 0:17:16.399 After a lot, I won't go through the plaza to 0:17:16.440 --> 0:17:20.719 the louver simply because well it's part of the story. 0:17:20.760 --> 0:17:24.439 Of course, another period of similar problem arose. There to 0:17:24.560 --> 0:17:28.480 two other periods when this problem re arose. The excessive 0:17:29.000 --> 0:17:32.080 appreciation of the dollar from the American sense and the 0:17:32.119 --> 0:17:36.200 sense that was leading to uncompetitiveness and that affected important 0:17:36.240 --> 0:17:38.200 parts of the economy and something had to be done 0:17:38.240 --> 0:17:41.080 about it. And so that was Nixon was the first one. 0:17:41.119 --> 0:17:45.600 The second one was the Reagan era, and he introduced 0:17:45.920 --> 0:17:50.280 has some similarities with subsequent developments, more recent developments. He 0:17:50.400 --> 0:17:54.200 had Paul Volca running the FED, so hypertite monetary policy 0:17:54.480 --> 0:17:57.760 and a floating exchange rate and a big fiscal expansion, 0:17:58.280 --> 0:18:03.080 right tax cuts. The combination of very aggressive fiscal expansion 0:18:03.400 --> 0:18:08.439 tite monetary policy is a classic combination in economics to 0:18:08.520 --> 0:18:10.679 lead to an appreciation of the real exchange rate. And 0:18:10.720 --> 0:18:15.760 it did. The trade deficit exploded, Japanese cars wiped out 0:18:16.000 --> 0:18:20.240 American cars. There was hysteria about this. The Americans introduced 0:18:20.280 --> 0:18:24.639 voluntary export restraint on pose them. Bob Leittheiser, interestingly was 0:18:24.680 --> 0:18:27.399 a negotiator at that time and has echoes, doesn't it, 0:18:27.800 --> 0:18:32.719 and finally got so this created so much protectionist pressure 0:18:32.760 --> 0:18:37.040 in the United States that the Americans decided that they 0:18:37.600 --> 0:18:39.439 needed to get the dollar dey valued, and that was 0:18:39.480 --> 0:18:43.640 what the Plaza Cord was about. And then two three 0:18:43.680 --> 0:18:46.240 years later, I think two years later the Louver Agreement, 0:18:46.240 --> 0:18:49.760 they decided to stabilize it. So that was another example 0:18:49.800 --> 0:18:53.320 of this concern about people want the dollar too much. 0:18:54.359 --> 0:18:56.479 Want we want it to be the global currency, but 0:18:56.680 --> 0:18:59.760 we don't want too much demand for dollar. The third episode, 0:19:00.040 --> 0:19:02.679 the more recent one, is really very interesting. It's the 0:19:02.680 --> 0:19:04.920 theme of my previous book, The Chips and the Shops, 0:19:04.920 --> 0:19:08.399 which is about the financial crisis, is after the Asian 0:19:08.440 --> 0:19:12.960 financial crisis, two things which came together happened. First with 0:19:13.000 --> 0:19:17.119 the explosion of China onto the world markets and China's 0:19:17.480 --> 0:19:21.399 massive accumulation of reserves as a byproduct with termination to 0:19:21.480 --> 0:19:25.760 keep the remnant be fixed against the dollar, and that 0:19:25.880 --> 0:19:28.800 led to the explosion of the Chinese current account surplus. 0:19:28.840 --> 0:19:31.040 It reached a peak of ten percent of GDP in 0:19:31.080 --> 0:19:34.000 two thousand and eight. And the other thing that happened, 0:19:34.040 --> 0:19:38.080 which went parallels after the Asian financial crisis, every trading 0:19:38.119 --> 0:19:42.119 power in Asia decided we could never let that happen again. 0:19:42.320 --> 0:19:44.960 And what they thought had happened to them was running 0:19:44.960 --> 0:19:47.960 a current account deficit, a big trade deficit, and borrowing 0:19:48.000 --> 0:19:51.200 lots of dollars because they discovered well most of the 0:19:51.800 --> 0:19:55.120 dollars they borrowed was from Western banks and mostly American bankers. 0:19:55.359 --> 0:19:57.600 They ran and they didn't have a central bank. They 0:19:57.720 --> 0:20:01.000 got print dollars. So when it they had a run, 0:20:01.280 --> 0:20:04.920 their economies crashed. And so their conclusion us, we must 0:20:04.960 --> 0:20:07.920 accumulate dollars without limit more or less and run chrent 0:20:07.920 --> 0:20:11.680 account surpluses to accumulate these dollars. Those two things came 0:20:11.760 --> 0:20:15.200 together and that led to an enormous expansion of the 0:20:15.320 --> 0:20:19.400 US external deficit, and that in my view, directly led 0:20:19.400 --> 0:20:22.840 to the global financial crisis. So these are the three 0:20:23.000 --> 0:20:27.080 episodes all around this same problem of the dollar's role, 0:20:27.359 --> 0:20:30.840 and that's not wrong. Now, the question is how you 0:20:30.960 --> 0:20:35.360 manage it. It's not fundamentally a trade policy problem, pretty obviously, 0:20:35.400 --> 0:20:41.600 it's an exchange rate compativeness and macroeconomic policy problem. Interacted 0:20:41.640 --> 0:20:46.320 and reasonably sophisticated policy makers who handled the previous episodes. 0:20:46.640 --> 0:20:50.320 In the end, the presidents all of listened largely to 0:20:50.640 --> 0:20:56.960 relatively competent economists manage these episodes, including most notably the 0:20:57.000 --> 0:20:59.679 global financial crisis, which is the biggest of these episodes. 0:21:00.080 --> 0:21:05.520 The basic point here is yes management of a global 0:21:05.560 --> 0:21:09.159 system in which the money in the system, which is 0:21:09.200 --> 0:21:13.600 the dollar is produced by one country does lead to 0:21:14.320 --> 0:21:19.040 very significant instabilities, which is why intelligent people have thought 0:21:19.080 --> 0:21:22.640 about this, have quite logically said, we'd have a better 0:21:22.680 --> 0:21:25.560 economy if we had a world currency, but we don't 0:21:25.600 --> 0:21:28.840 know how to produce a world currency. The Europeans created 0:21:28.920 --> 0:21:32.200 the Europe for this reason. Within Europe. I won't go 0:21:32.400 --> 0:21:35.000 into the question of whether it worked, but the point 0:21:35.040 --> 0:21:37.960 is there is a problem here. Now. The problem is 0:21:38.080 --> 0:21:41.600 how you manage it without blowing up the system. A 0:21:41.680 --> 0:21:44.440 trade war with everybody at the same time won't solve 0:21:44.480 --> 0:21:49.840 the problem because underneath it, it's a currency and macroeconomic policy problem. 0:21:50.080 --> 0:21:54.440 And I think this mainly nowadays relates to the role 0:21:54.480 --> 0:21:57.199 of China in the system. They're not wrong about that. 0:21:57.240 --> 0:22:00.280 I've written quite a lot about this, but unfortunately, the 0:22:00.320 --> 0:22:02.560 way the US is going about it, I don't see 0:22:02.560 --> 0:22:05.399 how they're going to get to a resolution. But in 0:22:05.440 --> 0:22:07.879 the end, the US has to decide do we really 0:22:08.160 --> 0:22:10.200 like having the dollars the global currency pulse. 0:22:10.280 --> 0:22:10.560 They do. 0:22:10.760 --> 0:22:14.280 It gives an enormous power, It makes borrowing much cheaper. 0:22:14.560 --> 0:22:17.520 It allows the biggest economy in the world to run 0:22:17.680 --> 0:22:21.880 ridiculously large fiscal deficits six percent of GDP at full 0:22:21.960 --> 0:22:27.000 employment with an explosive debt because everybody is invested in 0:22:27.560 --> 0:22:32.720 holding dollars, and that gives the American policy makers spectacular 0:22:33.240 --> 0:22:36.439 room for maneuver. They can have guns and butter and 0:22:36.440 --> 0:22:39.280 they've done it many times, and periodically they get very 0:22:39.359 --> 0:22:42.440