WEBVTT - A New Intergenerational Contract for the Pandemic Age 0:00:01.480 --> 0:00:03.600 You just just have to get up every morning six o'clock 0:00:03.600 --> 0:00:05.240 and clean the newspaper. I'm going to work down the 0:00:05.240 --> 0:00:07.720 mill fourteen now the day, week and week up for 0:00:07.760 --> 0:00:10.559 sixpence per week. And when we got home, Oh, Dad 0:00:10.600 --> 0:00:17.119 would slash us to sleep with his belt. Luxury. We 0:00:17.239 --> 0:00:18.480 used to have to get out of the lake at 0:00:18.480 --> 0:00:20.720 three o'clock in the morning, clean the lake. It's hand 0:00:20.760 --> 0:00:23.320 full of what gravel work twenty a day at millfortuping 0:00:23.360 --> 0:00:25.200 some muntiple. Mom and dad would beat us around the 0:00:25.239 --> 0:00:28.400 end and neck with a broken bottle if we were lucky. 0:00:30.160 --> 0:00:32.520 Are you Try and tell the young people of today 0:00:32.560 --> 0:00:42.120 that and they won't believe you. Hello, and welcome to Stephanomics, 0:00:42.159 --> 0:00:44.720 the podcast that brings the global economy and a bit 0:00:44.760 --> 0:00:48.559 of Monty Python. You don't know how lucky you are. 0:00:49.080 --> 0:00:52.400 People said that to their children and grandchildren all time 0:00:52.720 --> 0:00:57.000 when I was growing up. Not anymore. Whether it's climate change, 0:00:57.240 --> 0:00:59.600 the economic impact of COVID, or the aging of the 0:00:59.640 --> 0:01:03.640 popular nation, collectively, the world's running up some pretty big 0:01:03.680 --> 0:01:07.520 bills right now. Young people feel they're already paying more 0:01:07.560 --> 0:01:10.920 than their fair share. In a few minutes, the economist 0:01:11.040 --> 0:01:14.000 Charles Goodheart and managed prad and tell us what they 0:01:14.040 --> 0:01:15.840 think the future is going to look like as the 0:01:15.880 --> 0:01:20.800 population gets older. Spoiler alert, inflation makes a comeback and 0:01:20.920 --> 0:01:24.080 that's the easy part. We also have one more snippet 0:01:24.080 --> 0:01:27.040 from the Bloomberg New Economy Forum, former Bank of England 0:01:27.120 --> 0:01:30.319 Governor Mark Carney talking about how the world of finance 0:01:30.640 --> 0:01:32.880 is going to help all of us get to zero 0:01:33.040 --> 0:01:37.039 carbon But first, an up close and personal look at 0:01:37.080 --> 0:01:40.880 that generational divide we're seeing across the economy. From our 0:01:40.920 --> 0:02:04.200 twenty something reporter apprentice, Eileen Bank. That's the sound of 0:02:04.240 --> 0:02:07.320 young people in the center of the northern English city 0:02:07.320 --> 0:02:10.400 of Liverpool last month, as the bars of the COVID 0:02:10.520 --> 0:02:13.720 hit city closed for the final time before a new 0:02:13.800 --> 0:02:17.960 round of restrictions. Large groups of revelers crowded onto the streets, 0:02:18.320 --> 0:02:21.840 hugging and chanting in process as police tried to enforce 0:02:21.880 --> 0:02:27.600 social distancing. Such scenes when Liverpool's hospitals were overwhelmed by 0:02:27.639 --> 0:02:31.880 the virus drew condemnation from many, But as the pandemic 0:02:31.960 --> 0:02:35.919 drags on, there's a deeper frustration building among young people, 0:02:36.160 --> 0:02:39.440 which is harder to dismiss. The hard reality is that 0:02:40.040 --> 0:02:43.120 the people at Grace's risk of dying from the virus 0:02:43.160 --> 0:02:46.760 are those of retirement age. But the economic disaster of 0:02:46.800 --> 0:02:51.040 COVID is disproportionately affecting the young and may do for 0:02:51.160 --> 0:02:59.840 many years to come. COVID is absolutely the exacerbated these inequalities. 0:03:00.120 --> 0:03:05.080 That's still Filipovitch, the millennial author of Okay, Boomer, Let's Talk. 0:03:05.400 --> 0:03:09.320 Job losses in the US have been overwhelmingly concentrated among 0:03:09.480 --> 0:03:13.240 young people, and among millennials in particular. It's a similar 0:03:13.280 --> 0:03:16.320 story across the globe. At the height of the pandemic, 0:03:16.720 --> 0:03:20.680 unemployment for Americans aged twenty to twenty four was more 0:03:20.720 --> 0:03:24.200 than ten percentage points higher than for any other age group, 0:03:24.840 --> 0:03:27.440 and young people are star seeing to get resent, full 0:03:27.440 --> 0:03:31.359 of restrictions, designs to protect others as they see their 0:03:31.360 --> 0:03:35.600 opportunities dwindling. Think about which industry has got hurt hardest 0:03:35.840 --> 0:03:40.080 because of COVID, and you know the attendant shutdowns, you know, 0:03:40.080 --> 0:03:44.320 and it's things like restaurants, bars, travel. All of those 0:03:44.360 --> 0:03:49.000 industries are dominated by young people. Young people, millennials and 0:03:49.240 --> 0:03:52.560 Gen zeers who are bartenders and waiters and restaurants staff. 0:04:01.080 --> 0:04:04.200 Those joining the labor market for the first time may 0:04:04.240 --> 0:04:07.840 see their careers derailed for years because they have to 0:04:07.880 --> 0:04:10.800 settle for a job outside their chosen field or get 0:04:10.880 --> 0:04:15.520 stuck in unemployment. In Germany and Switzerland, lots of people 0:04:15.640 --> 0:04:18.640 are concerned that the billions of dollars the government su 0:04:18.640 --> 0:04:21.640 spending today will have to be paid back down the road, 0:04:22.200 --> 0:04:28.080 forcing economic opportunity in the process. Tilman Kuban leaves the 0:04:28.160 --> 0:04:31.800 youth arm of the German Chancellor Angela Merkel's party. He 0:04:31.920 --> 0:04:35.360 says young people are the triple losers of the crisis 0:04:35.920 --> 0:04:40.239 because it's costing them in terms of education, social opportunities 0:04:40.520 --> 0:04:45.280 and future government benefits. Let's go, let's see that's um. 0:04:46.560 --> 0:04:49.200 Those who are done with their training or their studies 0:04:49.560 --> 0:04:52.720 now face a jobs market and the worst recession ever 0:04:52.839 --> 0:04:57.480 in the history of the German Federal Republicans. On the 0:04:57.480 --> 0:05:01.320 other side, there are the three hundred billion euros worth 0:05:01.360 --> 0:05:04.719 of new debt that is being issued this year and next, 0:05:05.640 --> 0:05:10.880 a new issuance of debt bigger than Germany has ever experienced. 0:05:11.320 --> 0:05:14.320 The pile of debt is getting so big that our 0:05:14.400 --> 0:05:21.400 generation can hardly stomach condom Manuel, as a twenty one 0:05:21.480 --> 0:05:23.880 year old living in London, I can tell you that 0:05:23.920 --> 0:05:27.440 the talk of war between generations didn't start with COVID nineteen. 0:05:27.960 --> 0:05:30.320 My friends and I have had to enter the job 0:05:30.400 --> 0:05:34.640 market burdened with student loans, struggling to get a foothold 0:05:34.720 --> 0:05:38.520 in a property market where start homes cost nine times 0:05:38.560 --> 0:05:43.640 average wages. Thanks to teenage activists Grassi Sumburg. We've also 0:05:43.680 --> 0:05:48.080 seen mass strikes by school children and students over climate change, 0:05:48.600 --> 0:05:52.599 all aimed at goding middle aged politicians to do something 0:05:53.000 --> 0:05:57.520 about the global catastrophe that will overwhelmingly hit their children 0:05:57.720 --> 0:06:02.240 and their children's children. Economists at Deutsche Bank have warned 0:06:02.279 --> 0:06:05.520 that the pandemic is likely to only fuel this resentment 0:06:05.560 --> 0:06:09.279 among generations. To see which age group is doing best, 0:06:09.720 --> 0:06:16.520 let's look at wages. Ultimately, financial well being boils down 0:06:16.520 --> 0:06:18.919 to the amount of money people have in their pockets. 0:06:19.720 --> 0:06:23.599 Wage increases have been slowing across advanced economies, and the 0:06:23.720 --> 0:06:27.240 upshot is that today's young people can no longer count 0:06:27.400 --> 0:06:30.360 on outs earning their parents. So if you look at 0:06:30.360 --> 0:06:34.520 cohorts that were born in the nineteen forties, more of them, 0:06:34.560 --> 0:06:37.200 on average earn more than their parents did at at 0:06:37.200 --> 0:06:40.880 the same name. That's Robert Manduka, a professor at the 0:06:40.960 --> 0:06:45.640 University of Michigan, who has studied the decline and intergenerational mobility, 0:06:45.880 --> 0:06:49.640 So they almost universally had this experience of upward mobility 0:06:49.640 --> 0:06:52.760 where living standards were rising for everyone. Um, but that's 0:06:52.800 --> 0:06:55.640 really changed over the past forty or fifty years. So 0:06:55.640 --> 0:06:57.800 if you look instead of cohorts that were born in 0:06:57.839 --> 0:07:00.320 the nineteen eighties, what we show is that on about 0:07:00.360 --> 0:07:02.680 half of them of Americans born in the nineteen eighties 0:07:02.920 --> 0:07:05.000 grew up to out earn their parents at age thirty. 0:07:05.800 --> 0:07:08.919 He says, the phenomenon is strongest in the US, but 0:07:09.000 --> 0:07:12.520 it's also evidence in other countries like the Netherlands and 0:07:12.560 --> 0:07:16.880 the UK. Slowing economic growth is a factor, but rising 0:07:16.880 --> 0:07:21.680 inequality is arguably an even bigger driver. So what we 0:07:21.720 --> 0:07:24.720 show is that you know, the US and Norwegian GDP 0:07:24.960 --> 0:07:27.080 in aggregate grew about the same rate over the past 0:07:27.120 --> 0:07:29.960 thirty years, but incomes for thirty year olds kept up 0:07:29.960 --> 0:07:32.160 with GDP to the large extent in Norway, but did 0:07:32.200 --> 0:07:35.120 not in the United States. And so if if if 0:07:35.160 --> 0:07:37.040 there had been sort of I guess you could say, 0:07:37.120 --> 0:07:39.840 like intergenerational equity, if the if the games were being 0:07:40.160 --> 0:07:43.520 shared across all age groups in the society, the US 0:07:44.000 --> 0:07:47.960 upward mobility rate would have been um substantially higher, about 0:07:48.000 --> 0:07:53.080 fifteen percentage points higher. Probably parts of the trouble boils 0:07:53.120 --> 0:07:57.640 down to demographics. In many advanced economies, the working age 0:07:57.640 --> 0:08:01.200 population is shrinking. That means that there were more older 0:08:01.320 --> 0:08:04.640 roses relative to young ones, and spending on things like 0:08:04.720 --> 0:08:10.320 state pensions can sum proportionately more government resources. Think about 0:08:10.320 --> 0:08:14.120 the US, both Donald Trump and Joe Biden are over 0:08:14.200 --> 0:08:18.760 the age of seventy. Author Jill Philipovitch thinks that this 0:08:18.840 --> 0:08:22.000 is part of the problem. You have this disproportionate share 0:08:22.040 --> 0:08:25.840 of power concentrated in the hands of older people, and 0:08:25.880 --> 0:08:29.560 that means that the policies that younger people need for themselves, 0:08:29.560 --> 0:08:33.000 for their families, for their children, um frankly, for the 0:08:33.080 --> 0:08:37.800 future of planet Earth are not being They're not being implemented. 0:08:39.240 --> 0:08:44.400 For Stanford University professor David Gersky, radical change is needed. 0:08:44.760 --> 0:08:48.560 He urges a recent branch overhaul of social systems like 0:08:48.640 --> 0:08:53.280 schools or the judiciary to ensure society becomes more acquisible. 0:08:53.800 --> 0:08:56.280 That's will help the economy to who he says, I 0:08:56.320 --> 0:08:58.400 would say that at least in the United States, but 0:08:58.400 --> 0:09:01.040 I thinking all well off countries. We have a deep 0:09:01.200 --> 0:09:05.720 commitment to providing opportunity to everyone, and a deep commitment 0:09:05.760 --> 0:09:10.640 to the idea that it shouldn't be that opportunity is 0:09:10.679 --> 0:09:13.320 only available to those who have the money to buy it, 0:09:14.320 --> 0:09:17.840 buying into into into nice neighborhoods that have great schools, 0:09:18.520 --> 0:09:21.800 providing that private education, that that, in the US case, 0:09:21.840 --> 0:09:23.959 a ticket to success. That that that you know that 0:09:24.080 --> 0:09:27.079 being able to buy opportunity is not part of the dream. 0:09:27.160 --> 0:09:29.920 If we don't have equal opportunity, we're not living up 0:09:29.920 --> 0:09:32.719 to one of the most profound commitments that that we 0:09:32.840 --> 0:09:34.439 that we all think should be part in. First, what 0:09:34.559 --> 0:09:40.080 what what? What? What a modern economy is about? COVID 0:09:40.200 --> 0:09:44.280 is shaking up economies and societies. My generation has been 0:09:44.320 --> 0:09:48.600 asked to stay home to protect older generations, and mostly 0:09:48.800 --> 0:09:52.400 we have. Now maybe it's signs to think about how 0:09:52.440 --> 0:09:59.640 to pay young people back. So that gave us a 0:09:59.679 --> 0:10:03.400 sense of what the generational divide feels like today. But 0:10:03.600 --> 0:10:07.560 what about the future. Well, two very distinguished economists have 0:10:07.600 --> 0:10:10.360 a book out which claims demographic change is almost single 0:10:10.400 --> 0:10:13.160 handedly going to turn everything we thought we knew about 0:10:13.160 --> 0:10:16.400 the twenty one century economy on its head. Charles Goodheart 0:10:16.840 --> 0:10:19.240 is former chief economist of the Bank of England, Emeritus 0:10:19.280 --> 0:10:22.000 Professor of Economics at the London School of Economics, and 0:10:22.080 --> 0:10:25.240 his co author Manage Pradan is the founder of Talking 0:10:25.280 --> 0:10:29.080 Heads Macro and a former chief Global economist for Morgan Stanley. 0:10:29.120 --> 0:10:33.360 That they're both on Stephanomics now, Charles, great to have 0:10:33.440 --> 0:10:37.079 you here. Your book is called The Great Demographic Reversal. 0:10:37.840 --> 0:10:41.360 What exactly do you see going into reverse in future 0:10:41.400 --> 0:10:45.360 as a result of the world population getting older? Well, 0:10:45.800 --> 0:10:49.800 two major trains are going to change. The first one 0:10:49.920 --> 0:10:54.319 is a demographic change. Until very recently, what has happened 0:10:54.920 --> 0:10:58.560 is that enormous all countries there has been an increase 0:10:58.640 --> 0:11:02.360 in the size of the working population relative to the 0:11:02.760 --> 0:11:06.400 those who are not working dependence as they are called, 0:11:07.000 --> 0:11:10.000 the young up to the age of about twenty and 0:11:10.040 --> 0:11:14.200 the retirees over the age of about sixty five. Now 0:11:14.280 --> 0:11:17.440 the old and the unconsumed that they don't produce and 0:11:17.480 --> 0:11:22.640 therefore they're inflationary almost by definition. And that means that 0:11:22.840 --> 0:11:28.840 as the demographics change and the proportion of dependence ceases 0:11:28.880 --> 0:11:32.680 to fall and now begins to rise very sharply as 0:11:32.720 --> 0:11:36.079 an increasing proportion of the population get to the age 0:11:36.080 --> 0:11:39.680 of over sixty five, what is going to happen is 0:11:39.720 --> 0:11:42.920 that these trends is going to lead to greater inflation. 0:11:43.400 --> 0:11:47.080 Now that is combined with the second trend, which is 0:11:47.120 --> 0:11:51.760 that prior to about a few years ago, the world 0:11:51.840 --> 0:11:56.360 was becoming more globalized in that production could move to 0:11:56.559 --> 0:12:02.000 areas where previously were not included in the world's working system, 0:12:02.240 --> 0:12:06.559 particularly China, which incorporates a quarter of the world's population 0:12:07.160 --> 0:12:12.520 and a great deal of particularly manufacturing production when to 0:12:12.679 --> 0:12:17.120 these low wage areas, and the union proportional workers and 0:12:17.280 --> 0:12:21.480 unions has been going down steadily. This is effectively meant 0:12:21.520 --> 0:12:24.719 that the bargaining power of labor has weakened more or 0:12:24.800 --> 0:12:30.959 less continuously. Now, globalization is in retreat for obvious political 0:12:31.040 --> 0:12:34.960 and other reasons, and that retreat has actually been re 0:12:35.160 --> 0:12:40.880 emphasized by the effect of the COVID crisis. So globalization 0:12:41.000 --> 0:12:45.160 is on the retreat, the dependency ratios are worsening, and 0:12:45.280 --> 0:12:50.959 both of those are likely to bring about higher underlying 0:12:51.920 --> 0:12:56.840 inflationary trends over future decades. You know, a lot of 0:12:56.840 --> 0:12:59.679 people will say, as we got older, we've also been 0:12:59.720 --> 0:13:03.000 told that we have to work longer, and doesn't that 0:13:03.320 --> 0:13:08.800 offset this inflationary effect? Because if people are working until 0:13:08.880 --> 0:13:12.840 they're seventy or seventy five. Then you might not see 0:13:12.840 --> 0:13:15.240 a big change as big a change in the ratio 0:13:15.480 --> 0:13:18.640 of of workers to non workers. Why why wouldn't that 0:13:18.720 --> 0:13:22.480 help solve the problem. Well, until very recently, the trends 0:13:22.480 --> 0:13:26.679 have been exactly the reverse, in that life expectancy has 0:13:26.720 --> 0:13:31.480 been increasing much faster than any increase in the age 0:13:31.679 --> 0:13:38.360 of retirement. That's now changing a bit. But I even so, 0:13:39.160 --> 0:13:42.960 the increase in the number of the old is going 0:13:43.040 --> 0:13:48.080 to be very rapid, and increasing the age of retirement 0:13:48.200 --> 0:13:55.280 is politically extremely unpopular, and it is only introduced very 0:13:55.320 --> 0:14:00.880 gradually and very gingerly and virtually every country, and even 0:14:00.960 --> 0:14:06.200 in Putin's Russia, and Putin probably has a greater control 0:14:06.880 --> 0:14:12.520 over his population than almost any other autocratic leader. His 0:14:12.600 --> 0:14:17.240 attempt to raise the retirement age ran into such political 0:14:17.280 --> 0:14:21.040 opposition that he was about the only thing that he 0:14:21.120 --> 0:14:26.840 was forced to modify into an extent back track on. Um, 0:14:26.920 --> 0:14:32.160 it's just politically extremely difficult. One quick thing I wanted 0:14:32.200 --> 0:14:35.760 to add is that I think I think we also 0:14:35.800 --> 0:14:38.240 have to take a look a slightly deeper look into 0:14:38.280 --> 0:14:41.200 them demographic trends as well. For example, what is changing 0:14:41.280 --> 0:14:44.680 now is that the number of people who are what 0:14:44.720 --> 0:14:48.840 we would call the oldest all is increasing sharply, and 0:14:48.960 --> 0:14:52.760 as that age group starts increasing, along with it comes 0:14:52.880 --> 0:14:58.280 at the attendant increase in diseases like dementia that make 0:14:58.520 --> 0:15:02.720 people unable to after themselves, and that means that an 0:15:02.800 --> 0:15:05.640 increasing number of the labor force is going to start 0:15:05.680 --> 0:15:08.560 looking after these people. Now, that's what Childs and I 0:15:08.600 --> 0:15:12.560 would call socially productive activities, But in the true economic sense, 0:15:12.640 --> 0:15:15.560 they are producing a product which is consumed by the old, 0:15:15.880 --> 0:15:18.440 who then do not go on to produce anything else. 0:15:18.600 --> 0:15:20.960 So I'm not sure we can call it economically productive. 0:15:21.240 --> 0:15:25.920 So dire as the Huan population statistic projections are for demography, 0:15:26.240 --> 0:15:30.280 they do not include that a larger part of the population, 0:15:30.360 --> 0:15:32.720 and in fact an increasing one, will go towards these 0:15:32.760 --> 0:15:36.800 socially but not economically productive activity. So the story is 0:15:36.840 --> 0:15:39.360 actually a little bit more difficult than the statistics show. 0:15:39.680 --> 0:15:41.720 I think it's interesting because a lot of people will say, 0:15:41.800 --> 0:15:44.480 and certainly businesses who think about how does the economy 0:15:44.560 --> 0:15:47.720 change when there's a lot more old people. Um, it's 0:15:47.800 --> 0:15:50.120 wonderful to be able to sell lots of cruises and 0:15:50.200 --> 0:15:54.040 other things to the newly retired or the fit retired. 0:15:54.560 --> 0:15:57.880 But in general people feel like there is less consumption 0:15:57.960 --> 0:15:59.920 from old people and that that could be a problem 0:16:00.000 --> 0:16:02.440 of the economy. I guess your point is there's less 0:16:02.480 --> 0:16:04.880 consumption in terms of things like going to restaurants and 0:16:04.880 --> 0:16:07.560 other things. But at that crucial those last few years 0:16:07.600 --> 0:16:11.320 if you're very old, can be enormously expensive and draining 0:16:11.360 --> 0:16:15.240 of social resources. Yes, absolutely, if we accept the demographics. 0:16:15.800 --> 0:16:21.000 There's another assumption that you make that we can't offset 0:16:21.120 --> 0:16:26.840 this with faster productivity growth. You're assuming that the economies 0:16:26.880 --> 0:16:30.200 which are older overall, the global economy that is older 0:16:30.720 --> 0:16:34.480 is going to grow more slowly and have relatively relatively 0:16:34.480 --> 0:16:37.200 low productivity. With that, I guess a lot of people 0:16:37.240 --> 0:16:39.000 would say, well, hang on, we have all this innovation, 0:16:39.600 --> 0:16:44.600 why why wouldn't we become more productive to compensate. Well, 0:16:44.760 --> 0:16:48.080 to take one point, and some people think that robotics 0:16:48.800 --> 0:16:52.120 can deal with the ILD, I can tell you that 0:16:52.200 --> 0:16:56.320 that will not happen. And anyone who's been in a 0:16:56.400 --> 0:17:01.760 demential ward, and unfortunately have been with my older brother, 0:17:02.360 --> 0:17:05.760 knows perfectly well that what the old people really need 0:17:07.119 --> 0:17:12.440 is emotional support and the emotional quotient of a robot 0:17:12.640 --> 0:17:19.480 is exactly zero. Robots can help with certain repetitive physical tasks, 0:17:19.920 --> 0:17:22.440 maybe like lifting people in and out of bath or 0:17:22.480 --> 0:17:25.600 in and out of bed, but in terms of looking 0:17:25.640 --> 0:17:31.480 after people with Parkinson's or dementia, the idea that robots 0:17:31.520 --> 0:17:34.720 can do this and is just just it's just not true. 0:17:35.440 --> 0:17:38.800 What we're going to need, unfortunately, in some ways in 0:17:38.920 --> 0:17:44.919 future is much more of of the qualities that we 0:17:44.960 --> 0:17:49.640 will need will be empathy and emotional support rather than 0:17:50.119 --> 0:17:54.040 muscular strength. If I may once, it's going to add 0:17:54.119 --> 0:17:58.520 is just related to the argument I was making earlier, 0:17:58.520 --> 0:18:00.600 which is that we will need an increasing number of 0:18:01.000 --> 0:18:04.840 firm people to look after the elderly. What Charles and 0:18:04.880 --> 0:18:07.760 I are hoping for is that we do see job 0:18:07.840 --> 0:18:10.960 destruction and other parts of the economy. In fact, we 0:18:11.119 --> 0:18:15.119 depend on robotics and automation to get rid of repetitive 0:18:15.160 --> 0:18:18.320 tasks in the manufacturing sector in parts of the services sector. 0:18:19.240 --> 0:18:23.359 Without that, you would see a net decline in the 0:18:23.359 --> 0:18:26.560 working age population at a much faster pace. So some 0:18:26.600 --> 0:18:29.840 of the robotics and automation stories that are happening right 0:18:29.880 --> 0:18:33.359 now are actually part and parcel of our thesis, without 0:18:33.359 --> 0:18:36.520 which our thesis would be a lot scarier, if you will, 0:18:36.640 --> 0:18:40.119 we need that job destruction. So that's fascinating. So when 0:18:40.200 --> 0:18:43.760 people look at these jobs disappearing in all these interestries, 0:18:43.840 --> 0:18:46.920 you're saying that can't happen fast enough because we don't 0:18:46.960 --> 0:18:50.479 realize we've got this enormous need for jobs coming and 0:18:50.520 --> 0:18:53.240 we need as much as many people as possible to 0:18:53.280 --> 0:18:56.280 do those jobs. Exactly right. I mean, if you look 0:18:56.280 --> 0:19:00.080 at how the National Healthcare Service has revealed itself to 0:19:00.119 --> 0:19:03.920 be completely underfunded, the demands of the future looking after 0:19:03.920 --> 0:19:06.000 the elderly are something that is simply not part of 0:19:06.000 --> 0:19:08.240 the equation right now. We're only looking at one piece 0:19:08.240 --> 0:19:10.719 of the puzzle, which is the automation part, but not 0:19:10.800 --> 0:19:13.960 the other. But if you have a lot of people 0:19:14.040 --> 0:19:16.680 moving in if what sound what your sounds like you're 0:19:16.680 --> 0:19:18.159 talking about is a lot of people moving from the 0:19:18.160 --> 0:19:23.320 private sector to the public sector, how does that get financed? 0:19:23.520 --> 0:19:26.879 Even if you're moving the workers, how are you able 0:19:26.960 --> 0:19:30.440 to pay for that shift into the public sector if 0:19:30.440 --> 0:19:33.040 you've got a reduced private sector. That's a very good 0:19:33.160 --> 0:19:38.000 question because if you look further forward, what you will 0:19:38.119 --> 0:19:44.480 see is increasing costs of medicine, increasing costs of pensions, 0:19:45.520 --> 0:19:50.520 incasing costs of public support for the old and that 0:19:50.760 --> 0:19:54.679 is one of the factors which even before the COVID 0:19:54.760 --> 0:20:01.520 pandemic hit, was driving expenditures, public sector expenditures up relative 0:20:01.640 --> 0:20:06.080 to tax revenue, and that is going to be a problem. 0:20:07.240 --> 0:20:11.360 One of the effects of all of this is going 0:20:11.400 --> 0:20:13.800 to be that taxation is going to really have to 0:20:13.920 --> 0:20:17.879 rise quite sharply. And here the difficulty is that, like 0:20:18.119 --> 0:20:23.800 raising the retirement age, increasing taxation is very unpopular. If 0:20:23.800 --> 0:20:28.600 we do not increase taxation relatively rapidly, the only real 0:20:28.800 --> 0:20:32.200 way that we can then get out of this increase 0:20:32.320 --> 0:20:36.600 in debts and deficit is actually through inflation. It's worth 0:20:36.640 --> 0:20:39.000 spelling out. I mean, we spend some time on this 0:20:39.080 --> 0:20:43.080 podcast talking about financial markets, although possibly less than than 0:20:43.280 --> 0:20:47.480 other parts of Bloomberg, and we should probably make clear 0:20:47.520 --> 0:20:51.240 that if you're right, an awful lot of people are 0:20:51.240 --> 0:20:53.399 going to lose a lot of money based on the 0:20:53.440 --> 0:20:57.480 current pricing of financial assets. It could just spell out, um, 0:20:58.480 --> 0:21:01.040 how different your of the world is and the one 0:21:01.119 --> 0:21:05.280 that's currently expressed in bond prices and the record low, 0:21:05.760 --> 0:21:09.280 very long term interest rates, low record low interest rates 0:21:09.320 --> 0:21:12.520 that are currently being charged to the governments all around 0:21:12.560 --> 0:21:15.919 the world for borrowing, well, I think it couldn't be 0:21:16.000 --> 0:21:18.480 more different. Just to give you a very quick preface 0:21:18.480 --> 0:21:21.720 into the argument that comes in most people look at 0:21:21.840 --> 0:21:26.080 tenure and twentie yields and they say, what's priced into 0:21:26.080 --> 0:21:29.040 the markets is that inflation is never going to rise 0:21:29.280 --> 0:21:31.639 and we are going to have law for longer. The 0:21:31.720 --> 0:21:35.320 only question is whether real heels come up into slightly 0:21:35.359 --> 0:21:39.000 positive territory or slightly negative territory because of the vagaries 0:21:39.040 --> 0:21:42.160 of inflation. And so to be clear, that's also why 0:21:42.400 --> 0:21:45.159 more long term mortgage rates are currently extremely low as well. 0:21:45.200 --> 0:21:47.320 Everyone can borrow for a very long time at a 0:21:47.320 --> 0:21:50.680 fixed rate which is extremely low. Correct. And it goes 0:21:50.720 --> 0:21:52.800 beyond that also, I think, because it goes on to 0:21:52.840 --> 0:21:55.960 a more nuanced argument that says, if inflation is not 0:21:56.040 --> 0:21:58.200 part of the problem, then the central bank really does 0:21:58.240 --> 0:22:00.880 not have a growth inflation trade off, which means every 0:22:00.880 --> 0:22:03.440 time growth is in trouble, central banks can ease policy 0:22:03.760 --> 0:22:05.840 and they don't really have to tighten, which means the 0:22:05.920 --> 0:22:09.680 equity market can depend very solidly on a central bank 0:22:09.800 --> 0:22:12.120 put in a way that just would not be possible 0:22:12.160 --> 0:22:16.360 in an inflationary environment. And how has COVID change this Well, 0:22:16.359 --> 0:22:20.600 it's actually fascinating because the COVID has led to two 0:22:20.800 --> 0:22:25.640 very very different scenarios. Scenario one, which is the mainstream, 0:22:25.720 --> 0:22:32.040 one is the resulting unemployment, the need for industrial adjustment, 0:22:32.080 --> 0:22:36.080 and all that will keep inflation even lower for as 0:22:36.119 --> 0:22:40.240 long as all that continues. The argument against that has 0:22:40.280 --> 0:22:46.119 been that the massive policy expansion, both fiscal and monetary, 0:22:46.640 --> 0:22:49.719 is going to mean that the inflationary pressures will occur 0:22:49.920 --> 0:22:54.240 stronger and quicker than we had actually initially thought. We 0:22:54.320 --> 0:22:58.359 are expanding the money supply, and we're expanding public sector 0:22:58.440 --> 0:23:04.520 debt like crazy, and we won't stop until inflation actually 0:23:04.760 --> 0:23:10.800 does hit sufficiently strongly to make everyone have to change 0:23:10.840 --> 0:23:14.159 their tune. And the question, great question is when is 0:23:14.200 --> 0:23:17.240 that going to be? What is going to be the 0:23:17.359 --> 0:23:23.000 stronger force determining inflation in the next few years, unemployment 0:23:23.800 --> 0:23:28.399 or monetary growth and expansionary policy, And we don't know. 0:23:28.560 --> 0:23:32.240 We've never really been in a situation where the two 0:23:32.440 --> 0:23:37.399 main determinants of inflation have been so strongly moving in 0:23:37.520 --> 0:23:44.879 quite opposite directions. Just a final question, and without embarrassing Charles, 0:23:44.920 --> 0:23:47.760 I would say, I'm glad that the whole podcast about 0:23:48.200 --> 0:23:52.680 generational challenges. We have all generations represented on this program, 0:23:52.720 --> 0:23:58.879 having started with someone in their twenties. But Eileen, who 0:23:59.080 --> 0:24:01.680 spoke to us at the beginning of the program, feels 0:24:01.840 --> 0:24:05.960 like many twenty somethings that quite already quite put upon 0:24:06.200 --> 0:24:10.920 as a generation facing much tougher challenges financially than her 0:24:11.000 --> 0:24:17.240 previous generations. What's the sort of single best way that 0:24:17.440 --> 0:24:23.040 older generations could try and do right by people of 0:24:23.080 --> 0:24:26.360 her age group. What's the thing that if we were 0:24:26.359 --> 0:24:29.240 being selfless, or the exes and the baby boomers and 0:24:29.680 --> 0:24:31.840 older people, what's the best thing that they could do 0:24:32.040 --> 0:24:36.400 to make this scenario less painful. Well, in the very 0:24:36.440 --> 0:24:40.960 short run, I get the vaccine through so that we 0:24:41.000 --> 0:24:44.600 can all go back to some normality. The young can 0:24:44.760 --> 0:24:51.000 enjoy university again, and my grandchildren now in university, and 0:24:51.080 --> 0:24:54.040 it's not what it should be, nor of course is 0:24:54.080 --> 0:24:57.320 the drug market where you should be. So that the 0:24:57.359 --> 0:25:02.480 first short run need is to get the vaccine distributed 0:25:02.960 --> 0:25:07.119 and get back to normality and allow the young and 0:25:07.240 --> 0:25:10.280 reasonable life again. They have been worse hit by the 0:25:10.320 --> 0:25:14.960 pandemic probably than any other group except perhaps the over eighties, 0:25:15.640 --> 0:25:21.320 who are so vulnerable in the longer term. I have 0:25:21.480 --> 0:25:26.280 to say that I really rather wish that the future 0:25:26.359 --> 0:25:30.800 that we paint does not come about for one reason 0:25:30.920 --> 0:25:34.399 or another, because it is actually going to be really 0:25:34.480 --> 0:25:39.080 quite difficult to maneuver our way through. I fear that 0:25:39.200 --> 0:25:42.800 we're going back to something rather akin to the stag 0:25:42.840 --> 0:25:46.400 clation of the nine seventies for quite a long time, 0:25:46.640 --> 0:25:49.440 and in a much worse condition than we were then, 0:25:49.920 --> 0:25:54.439 because the underlying debt ratios have become so much worse. Uh. 0:25:56.119 --> 0:25:59.000 I think that I would in some ways respond to 0:25:59.080 --> 0:26:02.879 you along what the Irishman is always space to have said. 0:26:03.320 --> 0:26:09.879 I wouldn't. I would rather not have started from here. Charles, 0:26:09.880 --> 0:26:16.399 good up, Thank you very much. I didn't promise you. 0:26:16.440 --> 0:26:19.600 One more slice of the Bloomberg New Economy Forum. Here's 0:26:19.680 --> 0:26:22.560 Mark Connie, former Bank of England governor, now you n 0:26:22.640 --> 0:26:25.879 Special Envoy for Climate Action, talking to my colleague, the 0:26:25.880 --> 0:26:29.480 Bloomberg television host Alex Steele. But how to make all 0:26:29.600 --> 0:26:39.520 finance sustainable? Finance? Mark, there's been data that says that 0:26:39.600 --> 0:26:42.119 total required investment in the energy sector is going to 0:26:42.160 --> 0:26:44.439 be three and a half trillion dollars a year, and 0:26:44.480 --> 0:26:46.440 a lot of that going to say carbon capture to 0:26:46.560 --> 0:26:52.040 decarbonize the world. Tell me how we get there? Well, uh, 0:26:52.119 --> 0:26:54.600 and that data is right, and that's just energy really, 0:26:54.600 --> 0:26:58.480