Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the
Speaker 1: COVID global economy to you, and we're taking the very
Speaker 1: long view of the COVID nineteen crisis this week, the
Speaker 1: seventy year View. The influential economist and adviser to governments
Speaker 1: around the world, Jeffrey Sachs has written a new book
Speaker 1: that takes in seventy thousand years of world history to
Speaker 1: draw stark conclusions about the challenges humanity faces right now.
Speaker 1: It's given him a particular perspective on the way we've
Speaker 1: responded to this pandemic and where it may all lead.
Speaker 1: You'll hear my extended conversation with him in a few minutes,
Speaker 1: But first I did want to talk to Bloomberg Economics
Speaker 1: columnist Ferdinando Giuliano about some big news from Europe this week,
Speaker 1: which we might still be talking about many years from now. Ferdinando,
Speaker 1: I mean, I've been reading you for for for many years,
Speaker 1: and you're often disappointed did by Europe, and like most
Speaker 1: of us who wait for the European politicians to do
Speaker 1: exciting things, we often have left waiting for a long time.
Speaker 1: But I was struck that your assessment of this new
Speaker 1: proposal for a European recovery fund was that it could
Speaker 1: be one for the history books. Why do you think
Speaker 1: it's so significant. Let me start with the could, just
Speaker 1: because this proposal has not been approved yet. So this
Speaker 1: is a commission plan which now the governments need to
Speaker 1: agree on, and as we know, there are some governments,
Speaker 1: especially Austrian the Netherlands, who are skeptical of this plan,
Speaker 1: and so we shall see. But if the plan indeed
Speaker 1: goes on, or anything close to this plan actually happened,
Speaker 1: I think it's truly historic for three reasons. Really. One
Speaker 1: is because this is the European Commission borrowing on the
Speaker 1: market seven hundred and fifty billion funds euros, which is
Speaker 1: a substantial amount of money, and so this is something
Speaker 1: resembling some form of European fiscal policy, which we've been
Speaker 1: calling for years and years and years now. The eur
Speaker 1: Zone does have a bailout fund, the European Stability Mechanism,
Speaker 1: but it only gives out loans. And that's the second
Speaker 1: reason why I think this is historic is because two
Speaker 1: thirds of the amount of money which the Commission will
Speaker 1: distribute will be grants, money which states won't have to
Speaker 1: give back and that's historic because this money is going
Speaker 1: to the countries that most needed. So we have some
Speaker 1: form of transfers from rich areas of the EU too
Speaker 1: poor area of the use, or bets from areas of
Speaker 1: the EU which have not been so severely affected by
Speaker 1: the pandemic to others that have. And that's the closest
Speaker 1: we have to a transfer system just like the one
Speaker 1: which happens in any well functioning monitory union. Now the
Speaker 1: EU is not a monitory union, but the Eurozone is,
Speaker 1: and that's why it's significant. And the last point, it's
Speaker 1: because the Commission is starting to talk about some taxes
Speaker 1: which could be left at EU level, looking at areas
Speaker 1: like taxes on multinational corporations or environmental taxes, which are
Speaker 1: really you know, natural areas for the U to intervene,
Speaker 1: because that's that's where member states have problems in tackling
Speaker 1: issues individually. Multinational corporations are by definition, you know, sparring
Speaker 1: go across borders, so it's naturally if you have, if
Speaker 1: you can, if you can have a U tax base,
Speaker 1: that would be a great thing. And so these three
Speaker 1: things really make me think this is a big deal.
Speaker 1: And if you're sitting in the US, of course you think, okay,
Speaker 1: so the Europe is taking a few steps closer to
Speaker 1: being more like the kind of federal system you have
Speaker 1: in the US, which is something that people have said
Speaker 1: for many years. Why would you why would you decide
Speaker 1: to have the same currency when you still when you
Speaker 1: don't have that kind of federal system in place. So clear,
Speaker 1: if if it means what you're hoping it might mean,
Speaker 1: that is significant. But we have been taught, Fernando, and
Speaker 1: you've seen this many times, and we saw it in
Speaker 1: the Eurozone crisis recently, that this the Germans will never
Speaker 1: wear this. We're always told you can't have this degree
Speaker 1: of burden sharing of you know, the richer countries implicitly
Speaker 1: giving money to the likes of Italy without major change
Speaker 1: in Italy because they feel that Italy is on the
Speaker 1: wrong path and needs a lot of reform. And yet
Speaker 1: here we have a proposal that was initiated by the
Speaker 1: French and the German chancellor, French president and the German
Speaker 1: Chancellor Angela Merkel, which as you say, talks about giving
Speaker 1: money apparently with not very many strings attached to Italy.
Speaker 1: So what's changed? So, first of all, what's changed I
Speaker 1: think is that the coronavirus is a different shock from
Speaker 1: the ones we are used to. Here is very hard
Speaker 1: to accuse any country of mismanagement. Now we know there
Speaker 1: have been different experiences, and I think the Germans have
Speaker 1: shown themselves to be particularly competent to handling this pandemic,
Speaker 1: I think globally, not just at European level. But this
Speaker 1: is a shock which is you know, will be very
Speaker 1: hard to attribute to any country. So you don't have
Speaker 1: the kind of moral hazard argument which you've seen in
Speaker 1: the past, for example, with regard to Greece blaming politicians
Speaker 1: for the mess they've left the country in. So I
Speaker 1: think that's one issue. But the second one, I think
Speaker 1: has to do with the rise of populism and the
Speaker 1: fact that I think Germany has seen the damages which
Speaker 1: euroskepticism can produce. And now we're having in Italy a
Speaker 1: government which is back to a more pro use stands.
Speaker 1: But for the last year we had a pretty you know,
Speaker 1: tough euroskeptic government. I think, you know, Germany is realized
Speaker 1: that's not the kind of government you want next door.
Speaker 1: And I think finally there is just a realization that
Speaker 1: you know, the geopoulolitics here, there is a geopolitical project
Speaker 1: at stake. The pandemic has exposed the limits of the
Speaker 1: US to play an active role in as it were,
Speaker 1: you know, being Europe's best friend. China and Russia are
Speaker 1: you know there, and China in particularly is looking more
Speaker 1: and more aggressive. And we saw in the early phases
Speaker 1: of the pandemic China Russia really trying to push their
Speaker 1: soft power into Italy and into the southern tier of Europe.
Speaker 1: So I think this is a way for Germany to
Speaker 1: reassert as it where it's political message of coesion across Europe,
Speaker 1: and personally, I think that's a very good thing. Well,
Speaker 1: and it's interesting that, of course Italy has become the
Speaker 1: sort of home of of euroskepticism to some extent, you know,
Speaker 1: the country that had been very much in favor of
Speaker 1: being part of the EU had seen those numbers creeping up,
Speaker 1: the antipathy towards the EU. And I'm sure some people
Speaker 1: in Germany are watching that. Okay, before we we run away,
Speaker 1: Fernando with this crazy I you that Europe is actually
Speaker 1: going to solve its own problems. What could get in
Speaker 1: the way of this of this great future I mean
Speaker 1: you've mentioned there's countries that opposed that will be opposed
Speaker 1: to this idea. Um in your gut as a long
Speaker 1: time europe watcher, how likely do you think that something
Speaker 1: like this will end up actually happening? And I guess
Speaker 1: the second part of that, will it happen you know
Speaker 1: on a time scale, that the money can actually get
Speaker 1: to countries in time to solve this crisis as opposed
Speaker 1: to the next crisis. I think this time is different
Speaker 1: because Germany is on board, and you know the opposition
Speaker 1: is coming from the Netherlands, Austria, perhaps Sweden, Denmark, which
Speaker 1: obviously are you know, big and important countries. But you know,
Speaker 1: when you have you don't have your traditional powerful allied
Speaker 1: Germany on board, is going to be very I think
Speaker 1: this is more of a negotiating position, you know, trying
Speaker 1: to contain as you wear this project as opposed to
Speaker 1: I tried to opport it, what could get in the way.
Speaker 1: My biggest fear is over how this and it will
Speaker 1: be spent. And this responsibility I think is primarily SIT's
Speaker 1: primarily with the countries that will receive them Italy, Spain
Speaker 1: and others. This is a one off project it's linked
Speaker 1: to the pandemic, but it's not supposed to be renewed. Now.
Speaker 1: If it doesn't go well, I if this money is
Speaker 1: misspent there is you know, it doesn't is not accompanied
Speaker 1: by reforms which are really needed in this country, then
Speaker 1: you know, countries from the north will say, look, you know,
Speaker 1: we've tried. You've told us what you needed was more money.
Speaker 1: We've given you this money and yet nothing has changed,
Speaker 1: so why should we do more of this? However, you
Speaker 1: know Italy in Spain managed to do make good use
Speaker 1: of this money. I think this will reinforce that their
Speaker 1: argument that what's needed is a proper physical union which
Speaker 1: is not just linked to the pandemic, that goes beyond that,
Speaker 1: and obviously that I would welcome that very much. But again,
Speaker 1: the responsibility is not just with the stingy and naughty Nordics,
Speaker 1: is with the Sutherners, who need to really show that
Speaker 1: what they claim are just prejudices from the north are
Speaker 1: indeed such Fernando Diano, I think we will all be
Speaker 1: following the money and waiting to see where this goes.
Speaker 1: Thank you very much. Thank you. When I was a
Speaker 1: graduate student at Harvard in the mid nines, everyone wanted
Speaker 1: to take a course taught by Jeffrey Sex because, unlike
Speaker 1: most of his colleagues at that time, he actually talked
Speaker 1: about the real world in his classes, stuff that you
Speaker 1: actually needed to know to understand the world now. Since then,
Speaker 1: he spent a large part of his academic and public
Speaker 1: intellectual life over the years thinking about the challenges of
Speaker 1: developing an emerging market economies, most recently serving as Special
Speaker 1: Advisor to the u N Secretary General on the Sustainable
Speaker 1: Development OWLS. And he's written a new book, The Seven
Speaker 1: Ages of Globalization, which the economic historian Jared diamond says
Speaker 1: summarizes everything you really need to know about the history
Speaker 1: of the last seventy thousand years. So, Jeffrey Sachs, welcome
Speaker 1: to Stephanomics. We should also say that you have been
Speaker 1: for many years a professor at Columbia University. The tagline
Speaker 1: of the book, or one of the taglines, is that
Speaker 1: you're using history to offer solutions to the most urgent
Speaker 1: problems of our time. I mean, COVID nineteen is obviously
Speaker 1: the problem that we are all focused on at the moment.
Speaker 1: What are the key lessons of your book for governments
Speaker 1: wanting to chart a better way out of this crisis,
Speaker 1: and I just potentially build something better out of it.
Speaker 1: Great to be with you, Stephanie, and thanks thanks for
Speaker 1: the opportunity. You know, I think the main lesson of
Speaker 1: history is that moments that are as momentous as the
Speaker 1: one we're living through right now can have dramatic consequences
Speaker 1: for the quality of our lives, even peace on the planet.
Speaker 1: And fortunately, and unfortunately, this dire crisis right now could
Speaker 1: have very positive outcomes if we handle it properly, and
Speaker 1: it could have utterly disastrous outcomes, far beyond the already
Speaker 1: huge loss of life and burden of disease. So I'm
Speaker 1: a I'm a worried person because knowing the past of
Speaker 1: historical conflicts and crises, I know that they can go
Speaker 1: in either direction. I know this one is not off
Speaker 1: to a great start in a sense in mobilizing the
Speaker 1: kind of global cooperation we need and the global foresight
Speaker 1: that we need. And so not only is this a
Speaker 1: drama in health and economics, that is quickly becoming a
Speaker 1: drama of geopolitics as well. Yeah, I think, I mean
Speaker 1: one of the of the many conclusions that people have
Speaker 1: started to draw about this is that there could be
Speaker 1: a real long term impact on US leadership. I mean,
Speaker 1: of course, particularly with the Trump administration, people have been
Speaker 1: saying that for a while, but it was it's almost
Speaker 1: like we might reach a tipping point. The US has
Speaker 1: been able to be able to make a lot of
Speaker 1: mistakes and behave in an unproductive way for a very
Speaker 1: long time while still retaining this status that it has,
Speaker 1: whether as a safe haven in financial markets, but also
Speaker 1: as still as a as a leader that we we
Speaker 1: look to on these kind of crisis. Do you think
Speaker 1: that will be gone for good as a result of
Speaker 1: this or is that the risk? Right now, we're seeing
Speaker 1: a deliberate attempt by the US government to stoke a
Speaker 1: new Cold War with China that was underway already before COVID.
Speaker 1: The epidemic is being used actually to ratchet up deliberately
Speaker 1: the tensions with China. Somebody is calculating in Washington that
Speaker 1: this epidemic weakens China and now is the time to
Speaker 1: double down. I think it's very dangerous, and I think
Speaker 1: it's also quite naive when you take the seventy year perspective.
Speaker 1: Does this ever end well? I mean, clearly, these kind
Speaker 1: of geopolitical clashes. We can remember in more recent history
Speaker 1: times that it's gone very badly. But was there things
Speaker 1: that you learned about in writing this book that actually
Speaker 1: gave you some some hope. Well, I'm in general a
Speaker 1: believer in human progress, and I just can't shake that
Speaker 1: somehow over decades of work. So I believe that increases
Speaker 1: of know how, technology and institutions are the fundamental ways
Speaker 1: of making progress. I can't help as a development economist
Speaker 1: to emphasize how much progress has been made over the
Speaker 1: millennia and over the recent centuries. So the book is
Speaker 1: in that sense fundamentally optimistic. But history is just littered
Speaker 1: with utter disaster and human stupidities. And I always refer
Speaker 1: to one of my gurus, EO. Wilson, the great evolutionary
Speaker 1: biologist at Harvard University, who has said that we have
Speaker 1: stumbled into the twenty one century with our Stone Age
Speaker 1: emotions are medieval institutions and are near godlike technologies. When
Speaker 1: you have massive shocks world War one, world War two,
Speaker 1: and I think CO of nineteen might become such a shock,
Speaker 1: you learn things change in a big way. After World
Speaker 1: War One, the collapse of multiple empires after World War two,
Speaker 1: the formation of the United Nations. You ask, well, what
Speaker 1: does that big change mean for COVID nineteen. It's an epidemic.
Speaker 1: If we said we've got a pathogen that is traveling
Speaker 1: the world, we need to cooperate intensively, exchange best practices,
Speaker 1: use each other's applications, work together to develop a new vaccine,
Speaker 1: helped impoverished regions that are suffering and are at risk
Speaker 1: of grave hunger and infection from this. That would be
Speaker 1: that would be quite a response, and we'd actually get
Speaker 1: this epidemic under quick control. Instead, we don't have that,
Speaker 1: and we are not yet wedded to the disastrous path
Speaker 1: but we sure have taken a couple of steps in
Speaker 1: the wrong direction. And now I would put it this way,
Speaker 1: if we don't have the good luck of a vaccine
Speaker 1: in the next half year, which would be kind of
Speaker 1: the miracle wish and way out of this, I think
Speaker 1: we're more likely than not to fall into a deep
Speaker 1: depression covering a large part of the world and a
Speaker 1: very very tough geopolitical situation. You've described the clash between
Speaker 1: the US and China. We know there has certainly been
Speaker 1: an absence of leadership in the international institutions. You know,
Speaker 1: the gap where the US used to be in places
Speaker 1: like the International Monetary Fund. You've had extensive experience in
Speaker 1: the u N. But you know, we've spoken to the
Speaker 1: chief economists of the I, m f G, Got Enough
Speaker 1: and others about the resources that are there to support
Speaker 1: developing economies from a financial standpoint getting through this and
Speaker 1: potentially debt restructuring is all the things that one talks
Speaker 1: about when developing countries are in crisis. It's not doesn't
Speaker 1: it's not necessarily going to resolve the disease catastrophe. But
Speaker 1: those institutions are still there. I mean, they can still
Speaker 1: there is a prospect of them giving some of the
Speaker 1: support that these countries need. You know, history looms so
Speaker 1: large in this and when you're aware of the history,
Speaker 1: it really absolutely is both captivating, promising and worrisome. So
Speaker 1: when I was a student a long long time ago
Speaker 1: in economics, the book we read was The World and
Speaker 1: Depression by the great economic historian Charles Kindleberger. Fantastic book,
Speaker 1: but his basic theme was the Great Depression was so
Speaker 1: eep because there was no global leadership at the time.
Speaker 1: Britain had basically lost the leadership after World War One.
Speaker 1: The United States had not yet accepted the leadership that
Speaker 1: it would after World War Two, and so there was
Speaker 1: this period of the nineteen thirties where there was no
Speaker 1: cooperation and bad went to worse, and then to worse,
Speaker 1: and then to Hitler and then to World War two.
Speaker 1: And it was a captivating read. But as a student,
Speaker 1: I said, well, thank god, we're out of that mess.
Speaker 1: We won't have that again. And here we are with
Speaker 1: another mega crisis and clearly no leadership of that kind.
Speaker 1: So here we are today. I believe that the i
Speaker 1: m F is the most important institution on the scene
Speaker 1: to stop the current public health crisis from turning into
Speaker 1: a mega financial, humanitarian, and economic crisis for much of
Speaker 1: the world. And I'm working with the i m F
Speaker 1: every day, including workshops today actually on helping the i
Speaker 1: m F to lead. But it's balance sheet is too small,
Speaker 1: and its board includes the United States and of course
Speaker 1: China and other major countries that have to agree if
Speaker 1: the i m F as an organization is to play
Speaker 1: the role that it should be. In effect, the i
Speaker 1: m F should be a central bank for at least
Speaker 1: the emerging economies and the low income countries. The United
Speaker 1: States government has the FED to print money in effect,
Speaker 1: and the FEDS printing a lot of it. It's issuing
Speaker 1: credits of trillions and trillions of dollars overnight, not even
Speaker 1: a vote of a Congress. So that's the privilege of
Speaker 1: the US having the key international currency, at least for
Speaker 1: the moment. UH. But the developing countries don't have anything
Speaker 1: like that. They may have their own central banks, but
Speaker 1: they can't print internationally accepted currencies. And if they do
Speaker 1: print their own currency a lot, they get a balance
Speaker 1: of payments crisis or spiraling inflation sooner rather than later.
Speaker 1: And the i m F is the place to step
Speaker 1: in and say, you know, you can address this crisis
Speaker 1: because we're going to be providing in effect an international
Speaker 1: currency or a basket like the SDR that will enable
Speaker 1: you not to have a balance of payments crisis, giving
Speaker 1: you some of those resources that are now under deployed
Speaker 1: globally that should be for you, not just for the
Speaker 1: rich countries. Long story short, Yes, the i m F
Speaker 1: can make a huge difference. It was designed for this moment,
Speaker 1: but it needs a greatly expanded balance sheet and it
Speaker 1: needs more of the kin's vision, and unfortunately vision is
Speaker 1: not exactly the word you would attach to the Trump administration.
Speaker 1: It's finally many people will have seen very vividly and
Speaker 1: been reminded of the importance of having an effective government
Speaker 1: and can see that when it's really needed, you need
Speaker 1: government to not just be involved, but spend a lot
Speaker 1: of money, and somehow, when it's really needed, a lot
Speaker 1: of money appears. Um. Those are things that certainly have
Speaker 1: been Americans and Brits have been taught to not think
Speaker 1: over the last few years. You couldn't there was no
Speaker 1: more they could. The UK you talk about there's no
Speaker 1: magic money tree. And in the US, obviously the government
Speaker 1: institutions have been sort of consistently undermined. You know, it's
Speaker 1: hard to sustain that sort of antique government rhetoric in
Speaker 1: the face of this crisis. Surely Canes taught us to
Speaker 1: think about the macro economy. That is, the idea that
Speaker 1: you can think about an economy as a whole and
Speaker 1: choose to move resources in a particular direction. We haven't
Speaker 1: been making society wide choices. Now we're going to have
Speaker 1: in the wake of COVID, not only a tremendous amount
Speaker 1: of suffering, but back to Keynes and his understanding of
Speaker 1: the nineteen twenties and nineteen thirties, a lot of dramatically
Speaker 1: underutilized people and resources of other kinds, of factories and
Speaker 1: buildings and so forth. How will we deploy those? One
Speaker 1: approach will be saying, we don't deploy them, what what happens?
Speaker 1: Happens again? If there's no miracle solution of a vaccine
Speaker 1: in or a cure to this, those underutilized resources are
Speaker 1: likely to stay heavily underutilized. I would say double digit
Speaker 1: unemployment rates in a lot of the world, including the
Speaker 1: United States, for years to come, not months, not quarters,
Speaker 1: years and years to come. But if we do choose
Speaker 1: to deploy the people, the skills, the technologies in the
Speaker 1: right way, then, as Kane said, you get back to
Speaker 1: using the potential of this society and solving social problems,
Speaker 1: actually not just putting people back to work, but thereby
Speaker 1: alleviating poverty, restoring dignity and well being, and even building
Speaker 1: the clean economy so that we're not wrecking our lives
Speaker 1: and our health by air pollution or destroying the planet
Speaker 1: with climate change. So I think the right way to
Speaker 1: think about this is we're going to have an opportunity
Speaker 1: if we understand it to make choices at national, regional
Speaker 1: and global level. Two build our societies in better ways.
Speaker 1: And part of that is the technical issues of government's
Speaker 1: running budget deficits or using the central banks to redeploy
Speaker 1: those resources. But a lot of it is not just
Speaker 1: to boost aggregate demand in the jargon of macroeconomics, just
Speaker 1: more spending. But for what for a better world, for
Speaker 1: a fairer world, for a socially inclusive and environmentally sustainable world.
Speaker 1: We will have a constructive opportunity in front of us.
Speaker 1: We will have a need for cooperation, and I think
Speaker 1: the lessons of history show it can go either way,
Speaker 1: so it's really worth the effort to make it go
Speaker 1: the right way. I get to see is a chance.
Speaker 1: We started looking into the ABYSS at the beginning of
Speaker 1: the interview with the potential impact of this, of this catastrophe,
Speaker 1: but we had good uplifting moments there of a proactive
Speaker 1: and positive approach on the world. So we definitely that's
Speaker 1: where we should leave it. But Professor Jeffrey Sacks, thank
Speaker 1: you very much. How great to be with you as
Speaker 1: are always. Thanks thanks for having me on your series.
Speaker 1: It's so striking that one spends so much more time
Speaker 1: talking to economists now about history and politics than about economics.
Speaker 1: We're back to back to political economy and Adam Smith.
Speaker 1: Thanks for listening to Stephanomics. We'll be back next week
Speaker 1: with more on how COVID nineteen is turning the global
Speaker 1: economy upside down. Remember you can always find us on
Speaker 1: the Bloomberg terminal, website, Apple, wherever you get your podcasts.
Speaker 1: For more news and analysis from Bloomberg Economics during the week,
Speaker 1: follow our Economics on Twitter. This episode was produced by
Speaker 1: Magnus Hendrickson, with special thanks to Professor Jeffrey Sachs, Fernando Giuliano,
Speaker 1: and Andrea Bussell. Lucy Meakin is the acting executive producer
Speaker 1: of Stephanomics, and the head of Bloomberg podcast is Francesco Levi.