WEBVTT - Inflation Poses a Growing Credibility Risk for Central Banks 0:00:08.280 --> 0:00:11.400 Hello, Welcome to Stephanomics, the podcast that brings the global 0:00:11.400 --> 0:00:14.440 economy to you. This week, the global economy has just 0:00:14.480 --> 0:00:17.880 had another bucket load of uncertainty thrown onto it, courtesy 0:00:17.920 --> 0:00:21.800 of the new COVID variant O Macron. The economist Stephen 0:00:21.880 --> 0:00:25.360 King has his own take on what COVID nineteen has 0:00:25.360 --> 0:00:28.480 done to the global economy and on what happens next. 0:00:29.120 --> 0:00:31.720 My conversation with him is coming in a few minutes. 0:00:32.400 --> 0:00:35.960 We also have a report from Bryce Batchuck in Switzerland 0:00:36.400 --> 0:00:39.440 explaining why it's potentially bad news for the unvaccinated in 0:00:39.479 --> 0:00:43.440 the developing world that trade ministers didn't meet in Switzerland 0:00:43.520 --> 0:00:47.080 this week. But first at Bloomberg, we spent quite a 0:00:47.080 --> 0:00:51.720 lot of time digging out interesting numbers, plowing through public statistics, 0:00:52.040 --> 0:00:54.960 finding the stories that are hiding in plain sight, and 0:00:55.080 --> 0:00:59.680 sometimes it's being Bloomberg. Those stories move financial markets, but 0:00:59.720 --> 0:01:03.120 we often have one that makes it almost immediately to 0:01:03.200 --> 0:01:07.440 the Senate floor is Ohio Senator Cheryl Brown earlier this 0:01:07.480 --> 0:01:10.720 week at a hearing on the US economy. One final 0:01:10.760 --> 0:01:14.560 point on inflation. Just this morning, Bloomberg released a story 0:01:14.600 --> 0:01:18.080 with the headline pretty much says it all. Fattest profits 0:01:18.080 --> 0:01:23.560 since nineteen fifty de Bonk wage inflation story of CEOs. 0:01:23.720 --> 0:01:26.880 The f d i C also just released its quarterly 0:01:26.920 --> 0:01:30.600 report shocking No One bank profits are up. The idea 0:01:30.680 --> 0:01:34.200 that these corporations can't afford to pay workers higher wages, 0:01:34.440 --> 0:01:37.399 wages that actually reflect the value of the work they 0:01:37.440 --> 0:01:41.319 do to make these companies profitable, is ridiculous. One of 0:01:41.319 --> 0:01:44.600 the authors of the story quoted there was US economy 0:01:44.640 --> 0:01:48.840 reporter Matthew Bosler. Matt, thanks for coming on Stephanomics again. 0:01:48.960 --> 0:01:52.480 So just tell us what was so interesting in your 0:01:52.520 --> 0:01:55.760 piece that it got picked up in this way. Well, 0:01:55.840 --> 0:01:59.880 the two signal numbers from the piece were corporate profits 0:02:00.120 --> 0:02:03.880 up thirty seven percent over the last year, employee compensation 0:02:04.440 --> 0:02:07.480 up twelve percent. And so you take those two numbers 0:02:07.480 --> 0:02:09.560 and you put them together, what do you get The 0:02:09.639 --> 0:02:14.560 highest profit margin for corporate America since nineteen fifty, So 0:02:14.639 --> 0:02:17.200 absolute boom times for American business. You know, we're hearing 0:02:17.200 --> 0:02:20.280 a lot about labor shortages and how fast wages are 0:02:20.280 --> 0:02:23.280 going up. Profits are going up about three times is fast. 0:02:24.520 --> 0:02:26.640 So you can see why democrats will be interested in 0:02:26.680 --> 0:02:31.160 this story because you've had so much discussion of rising 0:02:31.200 --> 0:02:36.440 wages and shortage of labor, and chief executives have been 0:02:36.480 --> 0:02:39.280 complaining about that, saying that was all the reason for inflation, 0:02:39.320 --> 0:02:41.560 that wages were going up. I mean, in the sense 0:02:41.639 --> 0:02:47.720 your story was suggesting that that line is just not true, right, 0:02:47.760 --> 0:02:50.399 because you know, look at the profit margins, right, they're 0:02:50.440 --> 0:02:53.480 going up, which means you know, wages are going up, 0:02:53.600 --> 0:02:57.520 costs are going up, yes, but the prices that consumers 0:02:57.520 --> 0:03:01.320 are paying, that businesses are charging are going up much faster. 0:03:01.800 --> 0:03:03.320 And so that's kind of the flip side of the 0:03:03.320 --> 0:03:06.720 whole inflation story, right, when you're paying higher prices as 0:03:06.720 --> 0:03:10.640 a consumer, someone else is charging higher prices. Uh. And 0:03:10.720 --> 0:03:14.160 in this case, the people charging higher prices are certainly 0:03:14.160 --> 0:03:19.400 coming out well ahead, as evidenced by that profit data. Well, 0:03:19.440 --> 0:03:21.720 I guess one thing the Republicans have said is that 0:03:21.800 --> 0:03:25.480 the inflation has been driven by the big spending of 0:03:25.520 --> 0:03:30.480 the government, the enormous stimulus packages that continued under President Biden. 0:03:30.520 --> 0:03:33.160 I mean, there's is there any truth to that? Yeah, 0:03:33.160 --> 0:03:35.960 there's certainly truth to that, right. I Mean, we've talked 0:03:35.960 --> 0:03:39.000 a lot about the inflation story in the United States 0:03:39.080 --> 0:03:42.080 and around the world. M Obviously there have been big 0:03:42.160 --> 0:03:45.800 changes to both supply and demand that have been brought 0:03:45.840 --> 0:03:49.360 about by the pandemic um, a lot of fiscal stimulus 0:03:49.360 --> 0:03:52.200 in the United States that's kind of pumped a lot 0:03:52.240 --> 0:03:57.320 of demand into somewhat narrow supply chain infrastructure that has 0:03:57.360 --> 0:04:00.000 not been able to keep up. And so they're absolutely 0:04:00.120 --> 0:04:03.280 is some truth to that, and that's also why profits 0:04:03.280 --> 0:04:05.240 are up so much, right. I mean, you have a 0:04:05.320 --> 0:04:12.480 situation where, um, the government bolstered household incomes, actually boosted 0:04:12.520 --> 0:04:14.720 household incomes in the middle of a slump, which is 0:04:14.760 --> 0:04:19.039 totally unprecedented, and that meant that households had more money 0:04:19.040 --> 0:04:21.760 to spend, and they spent it. That's a point we 0:04:21.839 --> 0:04:24.120 tried to make in the story is that when businesses 0:04:24.120 --> 0:04:27.440 pay higher wages in aggregate, a lot of that money 0:04:27.480 --> 0:04:31.039 comes back to them. US households and aggregate don't save 0:04:31.120 --> 0:04:34.000 that much money. Um. The savings rate is on the 0:04:34.080 --> 0:04:36.640 order of say five to eight percent. And then of 0:04:36.680 --> 0:04:39.040 course they're also paying some of that money that they 0:04:39.080 --> 0:04:43.000 receive in their paychecks back to the government in taxes, 0:04:43.640 --> 0:04:46.960 but most of it goes right back to American businesses 0:04:47.000 --> 0:04:50.080 and aggregate in the forms of revenue. Well, that was 0:04:50.120 --> 0:04:53.200 the the original insight of Henry Ford when he started 0:04:53.240 --> 0:04:55.360 paying his workers more was that they were all then 0:04:55.360 --> 0:04:58.960 going to go buy cough a long time ago. UM. 0:04:59.000 --> 0:05:01.320 I guess it's quite a you things in this story 0:05:01.760 --> 0:05:05.400 that you could imagine politicians being interested in. But is 0:05:05.440 --> 0:05:09.320 there really a sense that Democrats are trying to to 0:05:09.400 --> 0:05:14.400 stop profit margins going up? Well, that's certainly become a 0:05:14.400 --> 0:05:18.960 bigger part of their rhetoric in recent weeks, as this 0:05:19.080 --> 0:05:22.400 inflation conversation has reached a bit of a fever pitch 0:05:22.440 --> 0:05:27.600 and Republicans have UH taken a stronger attack in trying 0:05:27.600 --> 0:05:33.159 to use it as a political cudgel against Democrats. Democrats 0:05:33.320 --> 0:05:36.280 are turning the argument around and saying this is not 0:05:36.320 --> 0:05:40.400 so much about UM over stimulating the economy. This is 0:05:40.440 --> 0:05:44.760 really about big companies UM raising prices more than they 0:05:44.800 --> 0:05:49.719 need to UM and that is what is sending inflation higher. 0:05:49.760 --> 0:05:55.320 And so UH President Biden specifically called out the gasoline industry. Obviously, 0:05:55.480 --> 0:05:58.800 gas prices, what you pay at the pump, is a 0:05:58.920 --> 0:06:04.040 major point of contact for American consumers. Wholesale gasoline prices 0:06:04.080 --> 0:06:06.760 have gone down in the last couple of weeks with 0:06:06.839 --> 0:06:10.160 this rolling over, but we haven't seen that pass on 0:06:10.200 --> 0:06:12.960 to the pump yet in the form of lower retail prices, 0:06:13.320 --> 0:06:15.159 and so he's kind of trying to point the finger 0:06:15.240 --> 0:06:18.560 at them and place the blame there. Now, that's a 0:06:18.600 --> 0:06:23.360 pretty common dynamic that we've seen historically. The thing is, 0:06:23.720 --> 0:06:27.040 it's not obvious that there's much that Democrats can actually 0:06:27.640 --> 0:06:31.960 do about this in terms of actually bringing anything to 0:06:32.080 --> 0:06:34.760 bear other than using the bully pulpit, and so it 0:06:34.800 --> 0:06:38.599 remains to be seen where exactly they are going to 0:06:38.640 --> 0:06:41.680 take this. And we should say the bully pulpit included 0:06:42.040 --> 0:06:45.560 the Speak of the House, Nazi Pelosi's office, which put 0:06:45.600 --> 0:06:49.279 out a statement also based on your piece, so you know, 0:06:49.360 --> 0:06:53.120 famous famous for a day. Um, there is a big 0:06:53.240 --> 0:06:57.479 question coming out of lots of conversations around the Federal Reserve, 0:06:57.839 --> 0:07:01.320 which you mentioned at the end of your piece, and 0:07:01.360 --> 0:07:04.560 that's the when you talk about whether inflation is transient 0:07:04.680 --> 0:07:07.400 or not, the measure of that is often are you 0:07:07.440 --> 0:07:10.240 seeing wages going up as well? And the Fed is 0:07:10.320 --> 0:07:12.840 kind of not so worried if it doesn't see wage growth, 0:07:13.120 --> 0:07:16.760 but if it does see wage growth rising as fast 0:07:16.760 --> 0:07:19.960 as inflation, or even faster than inflation, that's a signal 0:07:20.040 --> 0:07:22.720 that it should clamp on the Brakes and the traditional 0:07:22.760 --> 0:07:25.880 view of monetary policy. One of the questions raised in 0:07:25.880 --> 0:07:29.160 your pieces, well does that is that a long term 0:07:29.240 --> 0:07:34.400 recipe for labor, the labor share of total income remaining 0:07:34.440 --> 0:07:38.360 static when it could potentially be rising relative to the 0:07:38.400 --> 0:07:42.200 share for profits. Yeah. I think that's one of the 0:07:42.200 --> 0:07:45.120 most interesting parts of this conversation that tends to go 0:07:45.200 --> 0:07:47.440 a little bit under the radar because we're not used 0:07:47.480 --> 0:07:50.760 to talking about monetary policy in these terms, but it's 0:07:50.800 --> 0:07:53.480 something that has kind of crept into the minetary policy 0:07:53.520 --> 0:07:56.320 conversation over really the last couple of years, even going 0:07:56.360 --> 0:07:58.960 back to just before the pandemic and the you know, 0:07:59.240 --> 0:08:03.040 the bottom line there is there's an arithmetic here. Uh, 0:08:03.080 --> 0:08:07.880 there's wage growth, there's inflation, and if wage growth is 0:08:08.160 --> 0:08:13.360 rising in excess of productivity growth, then you might get inflation. 0:08:13.840 --> 0:08:17.920 But you also might just get a compression and profit 0:08:17.960 --> 0:08:24.160 margins because businesses could theoretically choose to instead of raising prices, 0:08:24.920 --> 0:08:28.000 allow profit margins to contract and allow the labor share 0:08:28.040 --> 0:08:31.320 of income to rise. Now we're having this conversation in 0:08:31.360 --> 0:08:34.880 a moment where the labor share of income has fallen 0:08:34.960 --> 0:08:38.040 to really historically low levels. Uh, certainly in the wake 0:08:38.080 --> 0:08:41.120 of the two thousand and eight crisis, and since then 0:08:41.160 --> 0:08:43.200 it's started to creep back up a little bit, but 0:08:43.280 --> 0:08:46.800 it's still really um, you know, at historically low levels. 0:08:46.800 --> 0:08:50.679 Even so, and so the question that some people at 0:08:50.679 --> 0:08:54.760 the FED are raising is just if we are going 0:08:54.840 --> 0:08:59.480 to clamp on the breaks with monetary policy every time 0:08:59.520 --> 0:09:03.120 we start see wages rise, we we really are lacking 0:09:03.240 --> 0:09:07.480 in the labor share at these low levels. And so 0:09:07.559 --> 0:09:09.960 that's something that at least some people at the FAD 0:09:10.120 --> 0:09:14.120 want to be mindful of going forward as they contemplate 0:09:15.080 --> 0:09:17.440 how to read these inflation numbers and how to respond 0:09:17.480 --> 0:09:21.280 with monetary policy. Yeah, just where the FED doesn't want 0:09:21.280 --> 0:09:23.800 to be there, right in the middle of a very 0:09:24.240 --> 0:09:27.880 hot political topic. Well, Matthew Bosler, I know that you're 0:09:27.880 --> 0:09:30.680 actually supposed to be listening to what the Chairman of 0:09:30.679 --> 0:09:32.600 the Federal Reserve is saying right now. So I'll let 0:09:32.640 --> 0:09:34.760 you go, but thanks very much for joining us. Thank you. 0:09:42.480 --> 0:09:44.240 So now we have a treat for me and I 0:09:44.280 --> 0:09:48.160 hope all dedicated Stephonomics listeners. Conversation about the state of 0:09:48.200 --> 0:09:51.720 the world with the economist, author and former chief Global 0:09:51.760 --> 0:10:01.240 economist for HSBC, Stephen King. It's Stephen. What I always 0:10:01.280 --> 0:10:03.280 enjoy about your work is you take the long view. 0:10:03.640 --> 0:10:06.760 In your case, the long views often very long, indeed 0:10:06.840 --> 0:10:09.679 sometimes a few centuries. But this has been one of 0:10:09.720 --> 0:10:12.280 those weeks when the longer term outlook seems to be 0:10:12.360 --> 0:10:15.960 changing every day, with news of this new COVID strain, 0:10:16.240 --> 0:10:19.559 putting governments back on the defensive and market sea soaring 0:10:19.679 --> 0:10:23.560 wildly on the back of different assumptions about the recovery. 0:10:23.640 --> 0:10:27.079 So I guess we should start with a macron how 0:10:27.160 --> 0:10:30.160 much has that caused you to rethink the shape of 0:10:30.160 --> 0:10:34.160 the recovery West? Definitely. I think it's an issue of 0:10:34.240 --> 0:10:37.280 uncertainty more than anything else that you know. The reality 0:10:37.320 --> 0:10:39.240 is that when you've got a bit a new virus, 0:10:39.280 --> 0:10:42.280 you haven't got years and years of data to to 0:10:42.440 --> 0:10:44.360 look at to pretend you know what's going on, which 0:10:44.360 --> 0:10:47.040 is what economists do. You've got something which has just 0:10:47.200 --> 0:10:49.600 come along very recently, which of course has a nasty 0:10:49.640 --> 0:10:53.920 habit of mutating, and the result is that all the 0:10:53.960 --> 0:10:56.920 sort of beliefs that people had are going from a 0:10:57.000 --> 0:11:00.120 kind of pre pandemic world to post pandemic world has 0:11:00.120 --> 0:11:03.480 all become frankly a lot more blurred, a whole bunch 0:11:03.520 --> 0:11:06.720 of other things have begun to change, notably the fact 0:11:06.760 --> 0:11:09.320 that over recent months we've had we've had an awful 0:11:09.360 --> 0:11:13.440 lot of inflation coming along with that rather limited growth. 0:11:13.520 --> 0:11:16.560 So there are two big questions. The verst is how 0:11:16.640 --> 0:11:19.760 much of that, to use the dreaded word, is transitory 0:11:20.160 --> 0:11:23.360 and how much of it reflects a kind of lasting 0:11:23.480 --> 0:11:27.199 change really, and how economies are are behaving well. I 0:11:27.240 --> 0:11:29.200 do want to get into that, but I'd like to 0:11:29.240 --> 0:11:31.720 talk a bit more about the challenge that central banks 0:11:31.720 --> 0:11:35.160 are facing, and an interesting move by the US Federal 0:11:35.200 --> 0:11:39.080 Reserve this week, with the chairman J. Powe suggesting that 0:11:39.120 --> 0:11:43.040 the US Central Bank might accelerate the end of quantitas 0:11:43.040 --> 0:11:46.120 of easing, so stop pumping money into the economy sooner 0:11:46.160 --> 0:11:49.400 than people were expecting. And that was despite the worrying 0:11:49.440 --> 0:11:53.520 news about the new variant. It's very different from what 0:11:53.559 --> 0:11:56.000 happened in the UK, where the feeling is that the 0:11:56.040 --> 0:11:57.920 news about a micron is going to make the Bank 0:11:57.920 --> 0:12:00.400 of England postpone the interest rate rise is that we 0:12:00.480 --> 0:12:03.600 might otherwise have expected this week. So if you think 0:12:03.640 --> 0:12:06.560 about the different responses of those two central banks, is 0:12:06.600 --> 0:12:11.160 the UK just being more cautious or what's going on. Yeah, 0:12:11.240 --> 0:12:12.720 they might be, And like I guess, it's coming back 0:12:12.720 --> 0:12:14.880 to the uncertainty that if you've got a fundamental uncertainty, 0:12:14.920 --> 0:12:16.880 you can come up with all sorts of different depensions 0:12:16.880 --> 0:12:18.960 as to what you do about it. One of the 0:12:19.000 --> 0:12:22.360 problems though, that central banks have is that they're they're 0:12:22.360 --> 0:12:24.960 looking at this and saying, oh my gosh, growth could 0:12:24.960 --> 0:12:27.400 be weaker, there could be greater uncertainty. You know, things 0:12:27.440 --> 0:12:29.679 that we thought would be happening are not gonna happen. Therefore, 0:12:29.760 --> 0:12:32.520 GDP is going to come in lower than expected. You know, 0:12:32.520 --> 0:12:35.679 there's more spair capacity. Therefore everything's going to be more disinflation. 0:12:36.080 --> 0:12:38.480 But again, what's happened over the last few months is 0:12:38.520 --> 0:12:42.040 that activity has been probably in anything, a little softer 0:12:42.120 --> 0:12:45.560 than expected. But we know now I think that a 0:12:45.559 --> 0:12:47.880 lot of that software activity is because of not so 0:12:47.960 --> 0:12:50.959 much demand side constraints, but supply side constraints. And you 0:12:51.000 --> 0:12:54.840 look at the UK over a million vacancies currently, which 0:12:54.920 --> 0:12:57.560 is you know, the highest since this current series began 0:12:57.640 --> 0:13:00.520 back in two thousand and one, UM. And you look 0:13:00.559 --> 0:13:03.320 at the the US and that you know, last week's 0:13:03.480 --> 0:13:08.160 jobless claims with a with the lowest since nineteen six nine. 0:13:08.760 --> 0:13:12.079 So you know, whereas I think originally central banks could 0:13:12.120 --> 0:13:14.200 sort of console themselves with the idea that there are 0:13:14.200 --> 0:13:16.280 a few little shots coming through the second hand car 0:13:16.360 --> 0:13:20.440 prices or semi conductor sales, you've now got this much 0:13:20.480 --> 0:13:24.199 more complex picture of shortages appearing not just in product 0:13:24.200 --> 0:13:27.800 markets but labor markets too. And I think to a degree, 0:13:28.880 --> 0:13:30.640 what's happening with the fair is is a sort of 0:13:31.040 --> 0:13:36.040 grudging recognition that even if activity is not that strong, 0:13:36.440 --> 0:13:40.520 there are other indicators of passia in the economy, which 0:13:40.559 --> 0:13:44.600 is mostly driven by the supply side. The UK kind 0:13:44.640 --> 0:13:47.280 of there, but not perhaps quite as confident about that. 0:13:48.080 --> 0:13:50.440 So let's let's go to the long term. We have 0:13:50.559 --> 0:13:53.080 got used to a long period when inflation was always low, 0:13:53.320 --> 0:13:55.480 and actually all the shocks that central banks had to 0:13:55.480 --> 0:13:58.119 deal with we shocks that we're going to reduce inflation 0:13:58.280 --> 0:14:02.920 on balance with disinflation. So what we're having to get 0:14:02.920 --> 0:14:05.760 our heads around, and I guess why people mentioned the 0:14:05.840 --> 0:14:08.319 seventies is it feels like we've got shocks coming now 0:14:08.360 --> 0:14:13.280 that are inflationary or even potentially stagflationary, so increasing inflation 0:14:13.360 --> 0:14:17.120 and also reducing growth. And it's it's hard for central 0:14:17.120 --> 0:14:19.440 banks to do very much about that. It is, although, 0:14:19.440 --> 0:14:21.880 of course, eventually in the seventies and eighties, you know, 0:14:21.920 --> 0:14:25.360 Paul Vocal was appointed, he did something pretty savage relaciously 0:14:25.840 --> 0:14:28.400 apply a sledge how much of inflation and into each 0:14:28.400 --> 0:14:30.600 of the US and in need the global economy at 0:14:30.640 --> 0:14:32.920 the same time. So things have actually may have to happen, 0:14:33.000 --> 0:14:36.640 but it maybe a sort of reluction process. So why 0:14:36.720 --> 0:14:39.520 have we got lots of inflation? And I think one 0:14:39.520 --> 0:14:43.960 reason is that at the micro level there are fundamental 0:14:44.400 --> 0:14:48.880 information failures, and there are failures of stations with locking 0:14:48.920 --> 0:14:51.800 down markets for months and months on end. If you 0:14:51.800 --> 0:14:55.480 think about what markets do, they transmit information. They transmit 0:14:55.520 --> 0:14:59.880 information between buyers and sellers, touch uses and consumers, whatever. 0:15:00.400 --> 0:15:02.320 And if you shut them down, then you lose their 0:15:02.360 --> 0:15:05.280 information and the last sort of historic price record, it 0:15:05.480 --> 0:15:08.480 might be months earlier, it is no longer particularly relevant 0:15:08.480 --> 0:15:11.560 for what happens when things reopen. I'm talking very simple 0:15:11.640 --> 0:15:13.880 terms here, of course, but but broadly speaking, that's what 0:15:13.960 --> 0:15:16.320 I think has happened. So you have this lot of information, 0:15:16.320 --> 0:15:18.280 but it's not just lots of information in say the 0:15:18.320 --> 0:15:21.880 said being conductive market or in secondhand cars. It's a 0:15:21.920 --> 0:15:25.680 loss of information across multiple markets. So it's a lot 0:15:25.760 --> 0:15:28.680 of information about the number of waiters you're require in 0:15:28.720 --> 0:15:31.280 London restaurants. It's a lots of information about the number 0:15:31.280 --> 0:15:33.760 of truck drivers you require to keep your logistics back 0:15:33.800 --> 0:15:37.560 to normal. All these things and losses of information. Now, 0:15:37.600 --> 0:15:40.280 of course, if you apply this at the macro level, 0:15:40.440 --> 0:15:42.160 the way you probably interpret this and say, well, if 0:15:42.160 --> 0:15:44.640 you've lost all this information and resources can't be allocated 0:15:44.680 --> 0:15:49.720 particularly efficiently, you're going to end up with a sort 0:15:49.720 --> 0:15:53.080 of shift downwards in productive potential. You're worse off than 0:15:53.080 --> 0:15:55.680 you were. You've got less productive potential than you had expected, 0:15:55.840 --> 0:15:58.080 so your supply performance is worse than it was, but 0:15:58.200 --> 0:16:01.520 at the same time because you've got rising demand, because 0:16:01.520 --> 0:16:05.080 that's what the sort of political demands are to get 0:16:05.080 --> 0:16:07.480 back to where you were before the pandemic. So in 0:16:07.520 --> 0:16:09.040 one sense, this is a sort of I mean, it 0:16:09.080 --> 0:16:11.040 is a bit stagflationary in the sense that you've got 0:16:11.040 --> 0:16:14.160 a lot of potential, a bit like we saw in 0:16:14.200 --> 0:16:17.000 the nineteen seventies. There are to be fair some big differences. 0:16:17.040 --> 0:16:19.200 One big difference is that you haven't got the pressure 0:16:19.240 --> 0:16:21.760 in terms of unionization that you have in the nineteen seventies, 0:16:21.800 --> 0:16:23.720 and the pressure in terms of pushing wages up on 0:16:23.720 --> 0:16:28.040 an annual basis, that's missing. You haven't necessarily got the 0:16:28.080 --> 0:16:31.760 pressure coming through in lots of lots of other ways, 0:16:31.880 --> 0:16:34.920 big differences. But at the same time, I think this, 0:16:34.920 --> 0:16:38.320 this loss of information is a fundamental feature of what's 0:16:38.360 --> 0:16:41.240 happened in recent months. And the idea that you could 0:16:41.280 --> 0:16:44.480 simply sort of turn the economy off and then switch 0:16:44.520 --> 0:16:47.480 it back on again with no problems whatsoever, which is 0:16:47.520 --> 0:16:50.320 effectually what all the forecasts kind of assume that I 0:16:50.360 --> 0:16:53.400 think has found been found found to be not quite right. 0:16:54.440 --> 0:16:57.040 Once you recognize that, not so surprising that you end 0:16:57.080 --> 0:16:59.640 up with more inflation as well. Well. That's a very 0:16:59.680 --> 0:17:04.119 sweeping and fascinating explanation of what's happening, and I think 0:17:04.280 --> 0:17:06.359 it is an interesting way of looking at it. But 0:17:06.840 --> 0:17:09.879 what you've described seems to me inherently temporary. I mean, 0:17:09.920 --> 0:17:13.440 it's not a permanent loss of information or supply side failure, 0:17:14.040 --> 0:17:15.919 and you can't help thinking, I mean, one of the 0:17:15.920 --> 0:17:18.240 big differences between now and the seventies is we're in 0:17:18.280 --> 0:17:21.760 this highly digitized world with just in time supply chains 0:17:21.840 --> 0:17:25.520 and more and more ways of getting information about demand 0:17:25.600 --> 0:17:28.560 and supply in different parts of the economy. So so 0:17:28.600 --> 0:17:31.439 why should the Federal Reserve or anyone else expect this 0:17:31.520 --> 0:17:35.919 inflation to last? So I think one of the issues 0:17:35.920 --> 0:17:40.040 for central banks is, Okay, it might be a temporary phenomenon, 0:17:40.080 --> 0:17:43.800 but the longer it goes on for the less confidence 0:17:43.840 --> 0:17:46.800 the public will have in what the central banks are 0:17:46.800 --> 0:17:48.919 saying they gained to achieve at some point in the future. 0:17:49.640 --> 0:17:52.119 Um And if the public work with sort of simple 0:17:52.200 --> 0:17:53.840 rules of thumb I think most of us do, most 0:17:53.840 --> 0:17:56.520 of the tiny shortcuts in the shortcut up moment is 0:17:57.359 --> 0:17:59.240 exatically two percent in two years time, So that's what 0:17:59.359 --> 0:18:01.680 centered back to tell is going to be. But if 0:18:01.720 --> 0:18:03.800 after a year or two years inflation is still got 0:18:03.880 --> 0:18:06.639 above that, it's not so difficult to see the public 0:18:06.720 --> 0:18:09.440 beginning to lose confidence in what the center of banks 0:18:09.480 --> 0:18:11.919 are going to achieve, at which point you haven't just 0:18:12.000 --> 0:18:15.520 got a supply side shot, you've got an expectations problem 0:18:15.520 --> 0:18:17.760 beginning to build in as well. Now there is a 0:18:17.800 --> 0:18:19.760 way around that, And in one sense, this is what 0:18:19.920 --> 0:18:22.440 I think j Pal is getting at, which is saying, Okay, 0:18:22.560 --> 0:18:24.600 we recognize that this trade off might get worse to 0:18:24.640 --> 0:18:27.760 be recognized. It might lose the confidence of the people. 0:18:28.200 --> 0:18:31.879 So one way to to reinstill confidence it's a typing 0:18:31.920 --> 0:18:35.520 country policy, is to show that we really mean to 0:18:35.640 --> 0:18:40.360 get control of inflation. So that's interesting. So what you're 0:18:40.359 --> 0:18:45.119 saying is it's not necessarily a permanent rise in inflation, 0:18:45.160 --> 0:18:47.240 even though it lasts for a while, But you have 0:18:47.359 --> 0:18:50.240 this risk that if it lasts long enough, people will 0:18:50.280 --> 0:18:53.679 start expecting inflation to stay higher, and then that becomes 0:18:53.720 --> 0:18:57.159 self fulfilling. So that the most important way to prevent 0:18:57.240 --> 0:18:59.080 us going from stage one to stage two is for 0:18:59.119 --> 0:19:01.920 the central bank to at it right. The most important 0:19:01.920 --> 0:19:03.520 central bank that needs to get it right as the 0:19:03.520 --> 0:19:07.359 Federal Reserve. So maybe if we are going back full circle, 0:19:07.600 --> 0:19:10.320 it's quite important that the Fed did send that signal 0:19:10.560 --> 0:19:17.560 earlier this week. Well, we're talking about the World Trade 0:19:17.640 --> 0:19:20.480 Organization on the program this week. We don't have much time. 0:19:20.520 --> 0:19:22.840 I know you have lots of lots of views about it, 0:19:23.119 --> 0:19:26.280 but I mean obviously that the real life side effect 0:19:26.320 --> 0:19:28.840 of the information failures you were talking about earlier is 0:19:28.880 --> 0:19:31.719 all those container ships queuing up outside Long Beach and 0:19:31.760 --> 0:19:34.360 all the issues we've talked about to do with global 0:19:34.400 --> 0:19:38.920 supply chains and trade, and it's also a lot of 0:19:39.000 --> 0:19:42.800 question marks about the future of globalization. So so very briefly, 0:19:43.440 --> 0:19:46.600 you know, how long do you think you will see 0:19:46.680 --> 0:19:50.000 this supply chain problem and will that be a permanent 0:19:50.040 --> 0:19:53.000 shift in the nature of globalization. I think there's a 0:19:53.040 --> 0:19:56.560 shift that's having actually before the pandemic, and one reason 0:19:56.640 --> 0:20:01.439 for that yet was obviously deteriorating lations between the U 0:20:01.520 --> 0:20:03.960 S and China. So the world is I think more 0:20:03.960 --> 0:20:06.000 divided than it was, which itself is not so good 0:20:06.000 --> 0:20:09.680 from a kind of a multilateral trade deal perspective. Of course, 0:20:09.680 --> 0:20:11.840 you can still have bilateral and regional deals, which I 0:20:11.840 --> 0:20:13.879 think will still come through to a certain degree. But 0:20:14.280 --> 0:20:16.560 if you really believe in multilateralism, and that I think 0:20:16.640 --> 0:20:19.680 was always already in difficulty. But i'd also an act 0:20:19.720 --> 0:20:22.520 to that. And I think that the pandemic has created 0:20:22.560 --> 0:20:26.520 this sort of sense of vulnerability to global supply chains, 0:20:27.440 --> 0:20:29.640 and those that can work out how to do it 0:20:30.480 --> 0:20:34.479 might be thinking about how to reduce their dependency on 0:20:34.520 --> 0:20:37.920 those fragile chains. And if you think about globalization, I 0:20:37.920 --> 0:20:40.640 suppose in the last few decades of the twentieth century, 0:20:41.160 --> 0:20:44.199 a big chunk of it was mobile capital going in 0:20:44.240 --> 0:20:47.439 search of cheap labor in other parts of the world. 0:20:47.480 --> 0:20:49.679 But I think it is plausible to argue in a 0:20:49.680 --> 0:20:54.480 lot of different areas that technology would allow supply chains 0:20:54.480 --> 0:20:58.720 to be shortened for robots at home to do what 0:20:58.960 --> 0:21:02.560 cheap cheaper workers who abroad, and that might lead to 0:21:03.520 --> 0:21:05.359 a rather different world to the one that we've been 0:21:05.440 --> 0:21:10.800 used to in recent times, whereby um, there's more home production, 0:21:11.400 --> 0:21:13.600 there's a greater division between the hands and have not 0:21:13.760 --> 0:21:16.840 in terms of countries around the world. And then finally 0:21:17.240 --> 0:21:19.639 they have not. The countries which are no longer going 0:21:19.680 --> 0:21:22.879 to receive this capital are likely to find their labor 0:21:23.080 --> 0:21:26.199 itself becomes increasingly mobile but trying it tries to go 0:21:26.320 --> 0:21:30.199 to countries where there are better opportunities. Um So, if 0:21:30.240 --> 0:21:33.760 we talk about this with a migrant crisis at the momentum, 0:21:34.440 --> 0:21:38.480 given demographic trends over the next few decades, and given 0:21:38.480 --> 0:21:40.520 this idea of robotics and AI, I think that migrant 0:21:40.560 --> 0:21:44.919 crisis might become much bigger. Well, that's definitely fuel for 0:21:45.440 --> 0:21:49.960 future books by you and future conversations, I hope. But meantime, 0:21:50.080 --> 0:22:00.000 Stephen King, thank you very much. Thank you. I mentioned 0:22:00.040 --> 0:22:03.359 the World Trade Organization and trade ministers from around the 0:22:03.400 --> 0:22:06.280 world were supposed to be getting together in Geneva this week, 0:22:06.600 --> 0:22:09.440 but thanks to that new COVID variant, the whole thing 0:22:09.440 --> 0:22:12.719 got postponed. Now you might not care a whole lot 0:22:12.760 --> 0:22:15.880 about that, but it turns out you should. Here's our 0:22:15.920 --> 0:22:30.440 trade reporter Bryce batchuck in Geneva. Goodriz and hello from Switzerland, 0:22:30.800 --> 0:22:35.000 famous for its Alporns chocolate fondue and The World Trade Organization. 0:22:35.600 --> 0:22:38.240 The WTO is the world's top international trade body and 0:22:38.280 --> 0:22:40.640 provides a forum for governments to hash out their trade 0:22:40.640 --> 0:22:44.240 disputes and negotiate new trade deals. This week, the w 0:22:44.280 --> 0:22:46.400 t O is supposed to hold a critical meeting in Geneva, 0:22:46.680 --> 0:22:49.440 where some four thousand officials from around the world would 0:22:49.480 --> 0:22:52.400 gather to talk about the future of the global trading system. 0:22:52.440 --> 0:22:54.399 But the spread of a new virus variant forced the 0:22:54.440 --> 0:22:58.159