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Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the

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Speaker 1: COVID global economy to you, and we're taking the very

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Speaker 1: long view of the COVID nineteen crisis this week, the

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Speaker 1: seventy year View. The influential economist and adviser to governments

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Speaker 1: around the world, Jeffrey Sachs has written a new book

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Speaker 1: that takes in seventy thousand years of world history to

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Speaker 1: draw stark conclusions about the challenges humanity faces right now.

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Speaker 1: It's given him a particular perspective on the way we've

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Speaker 1: responded to this pandemic and where it may all lead.

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Speaker 1: You'll hear my extended conversation with him in a few minutes,

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Speaker 1: But first I did want to talk to Bloomberg Economics

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Speaker 1: columnist Ferdinando Giuliano about some big news from Europe this week,

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Speaker 1: which we might still be talking about many years from now. Ferdinando,

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Speaker 1: I mean, I've been reading you for for for many years,

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Speaker 1: and you're often disappointed did by Europe, and like most

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Speaker 1: of us who wait for the European politicians to do

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Speaker 1: exciting things, we often have left waiting for a long time.

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Speaker 1: But I was struck that your assessment of this new

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Speaker 1: proposal for a European recovery fund was that it could

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Speaker 1: be one for the history books. Why do you think

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Speaker 1: it's so significant. Let me start with the could, just

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Speaker 1: because this proposal has not been approved yet. So this

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Speaker 1: is a commission plan which now the governments need to

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Speaker 1: agree on, and as we know, there are some governments,

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Speaker 1: especially Austrian the Netherlands, who are skeptical of this plan,

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Speaker 1: and so we shall see. But if the plan indeed

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Speaker 1: goes on, or anything close to this plan actually happened,

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Speaker 1: I think it's truly historic for three reasons. Really. One

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Speaker 1: is because this is the European Commission borrowing on the

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Speaker 1: market seven hundred and fifty billion funds euros, which is

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Speaker 1: a substantial amount of money, and so this is something

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Speaker 1: resembling some form of European fiscal policy, which we've been

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Speaker 1: calling for years and years and years now. The eur

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Speaker 1: Zone does have a bailout fund, the European Stability Mechanism,

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Speaker 1: but it only gives out loans. And that's the second

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Speaker 1: reason why I think this is historic is because two

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Speaker 1: thirds of the amount of money which the Commission will

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Speaker 1: distribute will be grants, money which states won't have to

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Speaker 1: give back and that's historic because this money is going

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Speaker 1: to the countries that most needed. So we have some

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Speaker 1: form of transfers from rich areas of the EU too

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Speaker 1: poor area of the use, or bets from areas of

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Speaker 1: the EU which have not been so severely affected by

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Speaker 1: the pandemic to others that have. And that's the closest

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Speaker 1: we have to a transfer system just like the one

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Speaker 1: which happens in any well functioning monitory union. Now the

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Speaker 1: EU is not a monitory union, but the Eurozone is,

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Speaker 1: and that's why it's significant. And the last point, it's

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Speaker 1: because the Commission is starting to talk about some taxes

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Speaker 1: which could be left at EU level, looking at areas

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Speaker 1: like taxes on multinational corporations or environmental taxes, which are

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Speaker 1: really you know, natural areas for the U to intervene,

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Speaker 1: because that's that's where member states have problems in tackling

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Speaker 1: issues individually. Multinational corporations are by definition, you know, sparring

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Speaker 1: go across borders, so it's naturally if you have, if

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Speaker 1: you can, if you can have a U tax base,

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Speaker 1: that would be a great thing. And so these three

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Speaker 1: things really make me think this is a big deal.

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Speaker 1: And if you're sitting in the US, of course you think, okay,

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Speaker 1: so the Europe is taking a few steps closer to

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Speaker 1: being more like the kind of federal system you have

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Speaker 1: in the US, which is something that people have said

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Speaker 1: for many years. Why would you why would you decide

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Speaker 1: to have the same currency when you still when you

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Speaker 1: don't have that kind of federal system in place. So clear,

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Speaker 1: if if it means what you're hoping it might mean,

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Speaker 1: that is significant. But we have been taught, Fernando, and

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Speaker 1: you've seen this many times, and we saw it in

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Speaker 1: the Eurozone crisis recently, that this the Germans will never

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Speaker 1: wear this. We're always told you can't have this degree

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Speaker 1: of burden sharing of you know, the richer countries implicitly

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Speaker 1: giving money to the likes of Italy without major change

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Speaker 1: in Italy because they feel that Italy is on the

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Speaker 1: wrong path and needs a lot of reform. And yet

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Speaker 1: here we have a proposal that was initiated by the

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Speaker 1: French and the German chancellor, French president and the German

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Speaker 1: Chancellor Angela Merkel, which as you say, talks about giving

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Speaker 1: money apparently with not very many strings attached to Italy.

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Speaker 1: So what's changed? So, first of all, what's changed I

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Speaker 1: think is that the coronavirus is a different shock from

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Speaker 1: the ones we are used to. Here is very hard

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Speaker 1: to accuse any country of mismanagement. Now we know there

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Speaker 1: have been different experiences, and I think the Germans have

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Speaker 1: shown themselves to be particularly competent to handling this pandemic,

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Speaker 1: I think globally, not just at European level. But this

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Speaker 1: is a shock which is you know, will be very

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Speaker 1: hard to attribute to any country. So you don't have

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Speaker 1: the kind of moral hazard argument which you've seen in

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Speaker 1: the past, for example, with regard to Greece blaming politicians

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Speaker 1: for the mess they've left the country in. So I

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Speaker 1: think that's one issue. But the second one, I think

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Speaker 1: has to do with the rise of populism and the

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Speaker 1: fact that I think Germany has seen the damages which

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Speaker 1: euroskepticism can produce. And now we're having in Italy a

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Speaker 1: government which is back to a more pro use stands.

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Speaker 1: But for the last year we had a pretty you know,

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Speaker 1: tough euroskeptic government. I think, you know, Germany is realized

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Speaker 1: that's not the kind of government you want next door.

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Speaker 1: And I think finally there is just a realization that

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Speaker 1: you know, the geopoulolitics here, there is a geopolitical project

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Speaker 1: at stake. The pandemic has exposed the limits of the

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Speaker 1: US to play an active role in as it were,

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Speaker 1: you know, being Europe's best friend. China and Russia are

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Speaker 1: you know there, and China in particularly is looking more

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Speaker 1: and more aggressive. And we saw in the early phases

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Speaker 1: of the pandemic China Russia really trying to push their

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Speaker 1: soft power into Italy and into the southern tier of Europe.

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Speaker 1: So I think this is a way for Germany to

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Speaker 1: reassert as it where it's political message of coesion across Europe,

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Speaker 1: and personally, I think that's a very good thing. Well,

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Speaker 1: and it's interesting that, of course Italy has become the

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Speaker 1: sort of home of of euroskepticism to some extent, you know,

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Speaker 1: the country that had been very much in favor of

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Speaker 1: being part of the EU had seen those numbers creeping up,

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Speaker 1: the antipathy towards the EU. And I'm sure some people

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Speaker 1: in Germany are watching that. Okay, before we we run away,

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Speaker 1: Fernando with this crazy I you that Europe is actually

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Speaker 1: going to solve its own problems. What could get in

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Speaker 1: the way of this of this great future I mean

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Speaker 1: you've mentioned there's countries that opposed that will be opposed

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Speaker 1: to this idea. Um in your gut as a long

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Speaker 1: time europe watcher, how likely do you think that something

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Speaker 1: like this will end up actually happening? And I guess

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Speaker 1: the second part of that, will it happen you know

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Speaker 1: on a time scale, that the money can actually get

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Speaker 1: to countries in time to solve this crisis as opposed

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Speaker 1: to the next crisis. I think this time is different

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Speaker 1: because Germany is on board, and you know the opposition

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Speaker 1: is coming from the Netherlands, Austria, perhaps Sweden, Denmark, which

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Speaker 1: obviously are you know, big and important countries. But you know,

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Speaker 1: when you have you don't have your traditional powerful allied

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Speaker 1: Germany on board, is going to be very I think

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Speaker 1: this is more of a negotiating position, you know, trying

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Speaker 1: to contain as you wear this project as opposed to

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Speaker 1: I tried to opport it, what could get in the way.

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Speaker 1: My biggest fear is over how this and it will

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Speaker 1: be spent. And this responsibility I think is primarily SIT's

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Speaker 1: primarily with the countries that will receive them Italy, Spain

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Speaker 1: and others. This is a one off project it's linked

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Speaker 1: to the pandemic, but it's not supposed to be renewed. Now.

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Speaker 1: If it doesn't go well, I if this money is

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Speaker 1: misspent there is you know, it doesn't is not accompanied

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Speaker 1: by reforms which are really needed in this country, then

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Speaker 1: you know, countries from the north will say, look, you know,

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Speaker 1: we've tried. You've told us what you needed was more money.

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Speaker 1: We've given you this money and yet nothing has changed,

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Speaker 1: so why should we do more of this? However, you

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Speaker 1: know Italy in Spain managed to do make good use

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Speaker 1: of this money. I think this will reinforce that their

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Speaker 1: argument that what's needed is a proper physical union which

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Speaker 1: is not just linked to the pandemic, that goes beyond that,

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Speaker 1: and obviously that I would welcome that very much. But again,

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Speaker 1: the responsibility is not just with the stingy and naughty Nordics,

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Speaker 1: is with the Sutherners, who need to really show that

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Speaker 1: what they claim are just prejudices from the north are

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Speaker 1: indeed such Fernando Diano, I think we will all be

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Speaker 1: following the money and waiting to see where this goes.

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Speaker 1: Thank you very much. Thank you. When I was a

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Speaker 1: graduate student at Harvard in the mid nines, everyone wanted

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Speaker 1: to take a course taught by Jeffrey Sex because, unlike

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Speaker 1: most of his colleagues at that time, he actually talked

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Speaker 1: about the real world in his classes, stuff that you

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Speaker 1: actually needed to know to understand the world now. Since then,

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Speaker 1: he spent a large part of his academic and public

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Speaker 1: intellectual life over the years thinking about the challenges of

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Speaker 1: developing an emerging market economies, most recently serving as Special

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Speaker 1: Advisor to the u N Secretary General on the Sustainable

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Speaker 1: Development OWLS. And he's written a new book, The Seven

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Speaker 1: Ages of Globalization, which the economic historian Jared diamond says

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Speaker 1: summarizes everything you really need to know about the history

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Speaker 1: of the last seventy thousand years. So, Jeffrey Sachs, welcome

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Speaker 1: to Stephanomics. We should also say that you have been

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Speaker 1: for many years a professor at Columbia University. The tagline

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Speaker 1: of the book, or one of the taglines, is that

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Speaker 1: you're using history to offer solutions to the most urgent

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Speaker 1: problems of our time. I mean, COVID nineteen is obviously

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Speaker 1: the problem that we are all focused on at the moment.

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Speaker 1: What are the key lessons of your book for governments

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Speaker 1: wanting to chart a better way out of this crisis,

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Speaker 1: and I just potentially build something better out of it.

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Speaker 1: Great to be with you, Stephanie, and thanks thanks for

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Speaker 1: the opportunity. You know, I think the main lesson of

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Speaker 1: history is that moments that are as momentous as the

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Speaker 1: one we're living through right now can have dramatic consequences

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Speaker 1: for the quality of our lives, even peace on the planet.

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Speaker 1: And fortunately, and unfortunately, this dire crisis right now could

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Speaker 1: have very positive outcomes if we handle it properly, and

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Speaker 1: it could have utterly disastrous outcomes, far beyond the already

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Speaker 1: huge loss of life and burden of disease. So I'm

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Speaker 1: a I'm a worried person because knowing the past of

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Speaker 1: historical conflicts and crises, I know that they can go

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Speaker 1: in either direction. I know this one is not off

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Speaker 1: to a great start in a sense in mobilizing the

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Speaker 1: kind of global cooperation we need and the global foresight

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Speaker 1: that we need. And so not only is this a

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Speaker 1: drama in health and economics, that is quickly becoming a

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Speaker 1: drama of geopolitics as well. Yeah, I think, I mean

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Speaker 1: one of the of the many conclusions that people have

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Speaker 1: started to draw about this is that there could be

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Speaker 1: a real long term impact on US leadership. I mean,

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Speaker 1: of course, particularly with the Trump administration, people have been

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Speaker 1: saying that for a while, but it was it's almost

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Speaker 1: like we might reach a tipping point. The US has

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Speaker 1: been able to be able to make a lot of

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Speaker 1: mistakes and behave in an unproductive way for a very

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Speaker 1: long time while still retaining this status that it has,

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Speaker 1: whether as a safe haven in financial markets, but also

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Speaker 1: as still as a as a leader that we we

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Speaker 1: look to on these kind of crisis. Do you think

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Speaker 1: that will be gone for good as a result of

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Speaker 1: this or is that the risk? Right now, we're seeing

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Speaker 1: a deliberate attempt by the US government to stoke a

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Speaker 1: new Cold War with China that was underway already before COVID.

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Speaker 1: The epidemic is being used actually to ratchet up deliberately

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Speaker 1: the tensions with China. Somebody is calculating in Washington that

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Speaker 1: this epidemic weakens China and now is the time to

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Speaker 1: double down. I think it's very dangerous, and I think

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Speaker 1: it's also quite naive when you take the seventy year perspective.

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Speaker 1: Does this ever end well? I mean, clearly, these kind

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Speaker 1: of geopolitical clashes. We can remember in more recent history

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Speaker 1: times that it's gone very badly. But was there things

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Speaker 1: that you learned about in writing this book that actually

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Speaker 1: gave you some some hope. Well, I'm in general a

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Speaker 1: believer in human progress, and I just can't shake that

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Speaker 1: somehow over decades of work. So I believe that increases

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Speaker 1: of know how, technology and institutions are the fundamental ways

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Speaker 1: millennia and over the recent centuries. So the book is

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Speaker 1: in that sense fundamentally optimistic. But history is just littered

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Speaker 1: with utter disaster and human stupidities. And I always refer

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Speaker 1: to one of my gurus, EO. Wilson, the great evolutionary

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Speaker 1: biologist at Harvard University, who has said that we have

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Speaker 1: stumbled into the twenty one century with our Stone Age

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Speaker 1: emotions are medieval institutions and are near godlike technologies. When

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Speaker 1: you have massive shocks world War one, world War two,

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Speaker 1: and I think CO of nineteen might become such a shock,

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Speaker 1: you learn things change in a big way. After World

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Speaker 1: War One, the collapse of multiple empires after World War two,

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Speaker 1: the formation of the United Nations. You ask, well, what

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Speaker 1: does that big change mean for COVID nineteen. It's an epidemic.

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Speaker 1: If we said we've got a pathogen that is traveling

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Speaker 1: the world, we need to cooperate intensively, exchange best practices,

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Speaker 1: use each other's applications, work together to develop a new vaccine,

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Speaker 1: helped impoverished regions that are suffering and are at risk

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Speaker 1: of grave hunger and infection from this. That would be

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Speaker 1: that would be quite a response, and we'd actually get

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Speaker 1: this epidemic under quick control. Instead, we don't have that,

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Speaker 1: and we are not yet wedded to the disastrous path

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Speaker 1: but we sure have taken a couple of steps in

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Speaker 1: the wrong direction. And now I would put it this way,

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Speaker 1: if we don't have the good luck of a vaccine

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Speaker 1: in the next half year, which would be kind of

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Speaker 1: the miracle wish and way out of this, I think

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Speaker 1: we're more likely than not to fall into a deep

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Speaker 1: depression covering a large part of the world and a

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Speaker 1: very very tough geopolitical situation. You've described the clash between

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Speaker 1: the US and China. We know there has certainly been

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Speaker 1: an absence of leadership in the international institutions. You know,

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Speaker 1: the gap where the US used to be in places

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Speaker 1: like the International Monetary Fund. You've had extensive experience in

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Speaker 1: the u N. But you know, we've spoken to the

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Speaker 1: chief economists of the I, m f G, Got Enough

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Speaker 1: and others about the resources that are there to support

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Speaker 1: developing economies from a financial standpoint getting through this and

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Speaker 1: potentially debt restructuring is all the things that one talks

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Speaker 1: about when developing countries are in crisis. It's not doesn't

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Speaker 1: it's not necessarily going to resolve the disease catastrophe. But

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Speaker 1: those institutions are still there. I mean, they can still

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Speaker 1: there is a prospect of them giving some of the

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Speaker 1: support that these countries need. You know, history looms so

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Speaker 1: large in this and when you're aware of the history,

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Speaker 1: it really absolutely is both captivating, promising and worrisome. So

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Speaker 1: when I was a student a long long time ago

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Speaker 1: in economics, the book we read was The World and

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Speaker 1: Depression by the great economic historian Charles Kindleberger. Fantastic book,

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Speaker 1: but his basic theme was the Great Depression was so

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Speaker 1: eep because there was no global leadership at the time.

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Speaker 1: Britain had basically lost the leadership after World War One.

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Speaker 1: The United States had not yet accepted the leadership that

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Speaker 1: it would after World War Two, and so there was

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Speaker 1: this period of the nineteen thirties where there was no

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Speaker 1: and then to Hitler and then to World War two.

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Speaker 1: And it was a captivating read. But as a student,

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Speaker 1: I said, well, thank god, we're out of that mess.

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Speaker 1: We won't have that again. And here we are with

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Speaker 1: another mega crisis and clearly no leadership of that kind.

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Speaker 1: So here we are today. I believe that the i

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Speaker 1: m F is the most important institution on the scene

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Speaker 1: to stop the current public health crisis from turning into

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Speaker 1: a mega financial, humanitarian, and economic crisis for much of

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Speaker 1: the world. And I'm working with the i m F

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Speaker 1: every day, including workshops today actually on helping the i

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Speaker 1: m F to lead. But it's balance sheet is too small,

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Speaker 1: and its board includes the United States and of course

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Speaker 1: China and other major countries that have to agree if

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Speaker 1: the i m F as an organization is to play

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Speaker 1: the role that it should be. In effect, the i

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Speaker 1: m F should be a central bank for at least

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Speaker 1: the emerging economies and the low income countries. The United

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Speaker 1: States government has the FED to print money in effect,

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Speaker 1: and the FEDS printing a lot of it. It's issuing

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Speaker 1: credits of trillions and trillions of dollars overnight, not even

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Speaker 1: a vote of a Congress. So that's the privilege of

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Speaker 1: the US having the key international currency, at least for

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Speaker 1: the moment. UH. But the developing countries don't have anything

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Speaker 1: like that. They may have their own central banks, but

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Speaker 1: they can't print internationally accepted currencies. And if they do

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Speaker 1: print their own currency a lot, they get a balance

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Speaker 1: of payments crisis or spiraling inflation sooner rather than later.

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Speaker 1: And the i m F is the place to step

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Speaker 1: in and say, you know, you can address this crisis

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Speaker 1: because we're going to be providing in effect an international

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Speaker 1: currency or a basket like the SDR that will enable

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Speaker 1: you not to have a balance of payments crisis, giving

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Speaker 1: you some of those resources that are now under deployed

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Speaker 1: globally that should be for you, not just for the

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Speaker 1: rich countries. Long story short, Yes, the i m F

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Speaker 1: can make a huge difference. It was designed for this moment,

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Speaker 1: but it needs a greatly expanded balance sheet and it

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Speaker 1: needs more of the kin's vision, and unfortunately vision is

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Speaker 1: not exactly the word you would attach to the Trump administration.

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Speaker 1: It's finally many people will have seen very vividly and

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Speaker 1: been reminded of the importance of having an effective government

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Speaker 1: and can see that when it's really needed, you need

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Speaker 1: government to not just be involved, but spend a lot

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Speaker 1: of money, and somehow, when it's really needed, a lot

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Speaker 1: of money appears. Um. Those are things that certainly have

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Speaker 1: been Americans and Brits have been taught to not think

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Speaker 1: over the last few years. You couldn't there was no

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Speaker 1: more they could. The UK you talk about there's no

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Speaker 1: magic money tree. And in the US, obviously the government

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Speaker 1: institutions have been sort of consistently undermined. You know, it's

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Speaker 1: hard to sustain that sort of antique government rhetoric in

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Speaker 1: the face of this crisis. Surely Canes taught us to

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Speaker 1: think about the macro economy. That is, the idea that

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Speaker 1: you can think about an economy as a whole and

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Speaker 1: choose to move resources in a particular direction. We haven't

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Speaker 1: been making society wide choices. Now we're going to have

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Speaker 1: in the wake of COVID, not only a tremendous amount

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Speaker 1: of suffering, but back to Keynes and his understanding of

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Speaker 1: the nineteen twenties and nineteen thirties, a lot of dramatically

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Speaker 1: underutilized people and resources of other kinds, of factories and

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Speaker 1: buildings and so forth. How will we deploy those? One

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Speaker 1: approach will be saying, we don't deploy them, what what happens?

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Speaker 1: Happens again? If there's no miracle solution of a vaccine

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Speaker 1: in or a cure to this, those underutilized resources are

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Speaker 1: likely to stay heavily underutilized. I would say double digit

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Speaker 1: unemployment rates in a lot of the world, including the

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Speaker 1: United States, for years to come, not months, not quarters,

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Speaker 1: years and years to come. But if we do choose

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Speaker 1: to deploy the people, the skills, the technologies in the

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Speaker 1: right way, then, as Kane said, you get back to

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Speaker 1: using the potential of this society and solving social problems,

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Speaker 1: actually not just putting people back to work, but thereby

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Speaker 1: alleviating poverty, restoring dignity and well being, and even building

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Speaker 1: the clean economy so that we're not wrecking our lives

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Speaker 1: and our health by air pollution or destroying the planet

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Speaker 1: with climate change. So I think the right way to

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Speaker 1: think about this is we're going to have an opportunity

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Speaker 1: if we understand it to make choices at national, regional

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Speaker 1: and global level. Two build our societies in better ways.

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Speaker 1: And part of that is the technical issues of government's

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Speaker 1: running budget deficits or using the central banks to redeploy

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Speaker 1: those resources. But a lot of it is not just

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Speaker 1: to boost aggregate demand in the jargon of macroeconomics, just

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Speaker 1: more spending. But for what for a better world, for

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Speaker 1: a fairer world, for a socially inclusive and environmentally sustainable world.

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Speaker 1: We will have a constructive opportunity in front of us.

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Speaker 1: We will have a need for cooperation, and I think

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Speaker 1: the lessons of history show it can go either way,

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Speaker 1: so it's really worth the effort to make it go

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Speaker 1: the right way. I get to see is a chance.

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Speaker 1: We started looking into the ABYSS at the beginning of

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Speaker 1: the interview with the potential impact of this, of this catastrophe,

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Speaker 1: but we had good uplifting moments there of a proactive

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Speaker 1: and positive approach on the world. So we definitely that's

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Speaker 1: where we should leave it. But Professor Jeffrey Sacks, thank

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Speaker 1: you very much. How great to be with you as

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Speaker 1: are always. Thanks thanks for having me on your series.

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Speaker 1: It's so striking that one spends so much more time

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Speaker 1: talking to economists now about history and politics than about economics.

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Speaker 1: We're back to back to political economy and Adam Smith.

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Speaker 1: Thanks for listening to Stephanomics. We'll be back next week

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Speaker 1: with more on how COVID nineteen is turning the global

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Speaker 1: economy upside down. Remember you can always find us on

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Speaker 1: the Bloomberg terminal, website, Apple, wherever you get your podcasts.

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Speaker 1: For more news and analysis from Bloomberg Economics during the week,

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Speaker 1: follow our Economics on Twitter. This episode was produced by

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Speaker 1: Magnus Hendrickson, with special thanks to Professor Jeffrey Sachs, Fernando Giuliano,

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Speaker 1: and Andrea Bussell. Lucy Meakin is the acting executive producer

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Speaker 1: of Stephanomics, and the head of Bloomberg podcast is Francesco Levi.