WEBVTT - Lots More With Isabella Weber on Draghi's EU Competitiveness Report 0:00:03.160 --> 0:00:13.079 Bloomberg Audio Studios, podcasts, radio news. Hello, how are you? 0:00:11.800 --> 0:00:14.239 It's nice? 0:00:15.160 --> 0:00:17.000 Yeah, of course, it's nice to be able to do 0:00:17.040 --> 0:00:20.960 this in person as well. So I saw I think 0:00:21.000 --> 0:00:23.480 you tweeted it, but you're here for an event right 0:00:23.560 --> 0:00:27.680 with Adam too? Yes, we just had him on. His 0:00:27.760 --> 0:00:31.480 episode came out today, So this is like a nice 0:00:32.000 --> 0:00:34.720 a nice segue. You're going to be sat right here. 0:00:35.440 --> 0:00:36.839 I'm not going to read from the notes. I just 0:00:36.880 --> 0:00:39.520 took some notes on the report because there's so much 0:00:39.560 --> 0:00:39.880 in there. 0:00:39.920 --> 0:00:42.560 I don't know that's good because it's four hundred pages 0:00:42.560 --> 0:00:43.400 and I didn't read. 0:00:43.280 --> 0:00:45.000 All of it exactly. 0:00:45.600 --> 0:00:50.320 Joe, is there anything more European than Mario Joggi writing 0:00:50.320 --> 0:00:52.839 a four hundred page report on how to boost European 0:00:52.840 --> 0:01:03.840 product perfect? I did a deadlift one, Jimmy, many up barges. 0:01:03.960 --> 0:01:06.039 This isn't after school special, except. 0:01:05.720 --> 0:01:08.280 I've decided I'm going to base my entire personality going 0:01:08.280 --> 0:01:11.520 forward on campaigning for a strategic pork reserve in the US. 0:01:11.640 --> 0:01:13.360 Where's the best with imposta? 0:01:13.520 --> 0:01:14.960 These are the important question? 0:01:15.080 --> 0:01:16.480 Is that robots taking over the world. 0:01:16.560 --> 0:01:19.440 No, I think that like in a couple of years, 0:01:19.600 --> 0:01:21.880 the AI will do a really good job of making 0:01:21.880 --> 0:01:25.200 the Odd lotch podcast, and people say, I don't really 0:01:25.280 --> 0:01:27.120 need to listen to Joe and Tracy anymore. 0:01:27.319 --> 0:01:27.920 We do have. 0:01:29.640 --> 0:01:33.839 The perfect You're listening to lots more where we catch 0:01:33.880 --> 0:01:36.880 up with friends about what's going on right now, because. 0:01:36.640 --> 0:01:39.720 Even when the Odd Lots is over, there's always lots more. 0:01:39.920 --> 0:01:45.480 And we really do have the perfect guest. So that 0:01:45.520 --> 0:01:48.240 report came out this week and it was sort of 0:01:48.600 --> 0:01:50.880 long awaited. I think it was delayed in the end, 0:01:50.920 --> 0:01:53.640 which also seems very European, but it took a year 0:01:53.680 --> 0:01:56.880 to write, and it's all about how to make Europe 0:01:57.080 --> 0:01:58.680 more competitive, right. 0:01:58.720 --> 0:02:00.560 We talked about this a little bit on a recent 0:02:00.600 --> 0:02:03.120 episode with Adam twos some of the issues in German. 0:02:03.320 --> 0:02:05.320 There does seem to be a lot of anxiety about 0:02:05.320 --> 0:02:09.840 the state of the European economy in general, getting really 0:02:09.880 --> 0:02:13.440 squeezed on the manufacturing side, the energy side. Growth has 0:02:13.480 --> 0:02:16.280 been quite mediocre theres particularly if you compare it to 0:02:16.320 --> 0:02:18.520 the United States. I think there was a good chart 0:02:18.680 --> 0:02:21.799 in the Droggi Report itself to about at one point 0:02:21.919 --> 0:02:25.120 European was like fifteen percent is big, and the gap 0:02:25.200 --> 0:02:26.920 is widened versus the United States. 0:02:27.000 --> 0:02:28.679 It's not good. It doesn't seem good. 0:02:28.760 --> 0:02:30.640 Oh yeah, Isabella, didn't you tweet that chart? 0:02:31.280 --> 0:02:32.000 I did so. 0:02:32.680 --> 0:02:34.840 Looking at that chart, I think we can basically see 0:02:34.840 --> 0:02:37.200 that with every crisis there's a bit of a divergence 0:02:37.240 --> 0:02:39.560 between the US and Europe, and it seems that the 0:02:39.639 --> 0:02:42.800 US is pretty good at bouncing back, Europe not so much, 0:02:42.880 --> 0:02:44.560 which has to do with the Fiskaver words. 0:02:44.600 --> 0:02:44.960 I think. 0:02:45.200 --> 0:02:47.880 So we are here with Isabella Weber. She is, of 0:02:47.919 --> 0:02:52.280 course an economics professor at University of Massachusetts Amherst, and 0:02:52.320 --> 0:02:55.800 she's been on the podcast a number of times. But 0:02:56.200 --> 0:02:59.880 it's interesting to see this report come out and act 0:03:00.400 --> 0:03:04.399 touch on a number of topics that you have addressed 0:03:04.600 --> 0:03:07.760 through your work on pricing and shock flation. 0:03:08.680 --> 0:03:08.880 Yeah. 0:03:08.919 --> 0:03:10.600 Thanks so much for having me on. It's a great 0:03:10.600 --> 0:03:14.400 opportunity to talk shockflation in the report. Maybe looking at 0:03:14.400 --> 0:03:19.040 this divergence convergence thing twenty eight, twenty twenty, I think 0:03:19.040 --> 0:03:21.840 that the energy crisis actually looms very large here, and 0:03:21.960 --> 0:03:25.200 the notion that was very prevalent in twenty twenty two 0:03:25.200 --> 0:03:27.680 in Germany that basically this is just like a little 0:03:28.000 --> 0:03:30.600 little shock that we can easily absorb that was very 0:03:30.600 --> 0:03:34.280 dominant in certain economics circuits, I think is now playing 0:03:34.320 --> 0:03:36.960 out to possibly not be true. So we kind of 0:03:37.000 --> 0:03:39.880 start to see the medium term consequences of the energy 0:03:39.880 --> 0:03:42.720 shock and just how hard it hit Germany and Europe. 0:03:43.160 --> 0:03:46.360 The idea of every crisis being a moment where the 0:03:46.480 --> 0:03:51.320 US and European economies further diverge. And I think, you know, 0:03:51.400 --> 0:03:55.320 one of the parts of the story is European fiscal constraints. 0:03:55.720 --> 0:03:57.800 You know, we know about you know, the session with 0:03:57.840 --> 0:04:00.520 government debt and particularly in Germany, but elsewhere in the 0:04:00.560 --> 0:04:02.480 fact that none of the countries have their own currency, 0:04:02.600 --> 0:04:05.920 their own central bank. So I guess basically, with every shock, 0:04:06.440 --> 0:04:11.000 productive capacity diminishes, people you know, lose their jobs, factories 0:04:11.000 --> 0:04:13.760 closed down. That happens in any economy. And then what 0:04:13.920 --> 0:04:17.159 happens is basically in Europe they sort of accept that 0:04:17.240 --> 0:04:19.640 their potential is just lower than it was before. Is 0:04:19.680 --> 0:04:21.640 that basically the story, and then they don't really do 0:04:21.680 --> 0:04:22.280 anything about it. 0:04:22.800 --> 0:04:25.920 I mean, in a nutshell, I mean, I would say 0:04:25.960 --> 0:04:27.839 that in the US has also been a steep learning 0:04:27.920 --> 0:04:31.200 curve from two thousand and eight to the COVID crisis, right, 0:04:31.240 --> 0:04:33.560 I mean, the kind of fiscal ambition that we have 0:04:33.600 --> 0:04:36.039 seen in the response to the COVID crisis, I think 0:04:36.120 --> 0:04:38.400 is a whole notch abuff of what we have seen 0:04:38.440 --> 0:04:41.760 in Obama in response to the global financial crisis. I mean, 0:04:41.800 --> 0:04:44.080 when it comes to the immediate rescue packages. 0:04:44.360 --> 0:04:45.560 In twenty twenty, there. 0:04:45.520 --> 0:04:48.520 Was also quite a bit across Europe, right, but then 0:04:48.720 --> 0:04:51.680 very quickly Europe returned to the idea that they had 0:04:51.720 --> 0:04:55.000 to go back to regular fiscal rules, and that really 0:04:55.120 --> 0:04:58.120 is thanks to the German government in large parts. I'm 0:04:58.160 --> 0:05:01.320 speaking with a German accent here, So when we look 0:05:01.360 --> 0:05:03.919 at the stands of the German Finance Minister on the 0:05:03.920 --> 0:05:06.000 reform of fiscal rules, and he has been a critical 0:05:06.040 --> 0:05:08.880 player in preventing that reform. If we look at what 0:05:08.960 --> 0:05:11.640 the German government has been doing, then in twenty twenty three, 0:05:11.720 --> 0:05:14.680 they kind of declared victory too early on my mind, 0:05:14.680 --> 0:05:17.719 over the energy crisis, which then also meant that they 0:05:17.920 --> 0:05:21.640 went back to implementing the debt break, which basically tied 0:05:21.720 --> 0:05:24.080 up their hands. And then we got this constitutional ruling 0:05:24.200 --> 0:05:26.960 saying that they have to stick with that break, that 0:05:27.040 --> 0:05:30.240 all these accounting ways out that they had found were 0:05:30.240 --> 0:05:33.679 basically not constitutional. Then in twenty twenty four they decided 0:05:33.720 --> 0:05:37.440 again to stick with the dead rule while Germany is 0:05:37.480 --> 0:05:40.360 at this point already like the worst performing major economy 0:05:40.360 --> 0:05:44.080 in the world. And really any macro economists would agree, 0:05:44.080 --> 0:05:46.120 I think in their right mind that this is a 0:05:46.160 --> 0:05:49.120 moment to spend. I wasn't a pan of with Jason Furman. 0:05:49.279 --> 0:05:52.040 Jason and I are not necessarily known to agree on 0:05:52.279 --> 0:05:55.400 big questions, but we both strongly agreed that this is 0:05:55.440 --> 0:05:59.080 a moment to increase fiscal spending. Right, So this is 0:05:59.160 --> 0:06:04.200 really a German exception to have this extremely conservative fiscal 0:06:04.279 --> 0:06:06.520 stance in the middle of this crisis. 0:06:06.680 --> 0:06:10.039 Wait, can I ask a somewhat personal question, but I 0:06:10.080 --> 0:06:14.719 think given you're a German economist and we have German 0:06:14.760 --> 0:06:17.080 economists on the show, but certainly not every day and 0:06:17.080 --> 0:06:20.360 not in the week when there is this big competitiveness report, 0:06:20.400 --> 0:06:24.320 But why is fiscal austerity such a big thing in Germany? 0:06:25.480 --> 0:06:26.480 Yeah? Great question. 0:06:26.680 --> 0:06:29.880 There was actually an exhibition at the German Historican Museum 0:06:29.920 --> 0:06:32.240 a little while ago where they were trying to understand 0:06:32.279 --> 0:06:36.320 why this idea of saving is so deeply rooted in 0:06:36.360 --> 0:06:36.960 our culture. 0:06:37.080 --> 0:06:39.400 Yeah, because it's not like there isn't a social safety 0:06:39.440 --> 0:06:41.120 net in Germany either, So. 0:06:42.040 --> 0:06:45.359 Yeah, why And I mean savings rates are very high, right, 0:06:45.480 --> 0:06:47.839 So I mean their narrative was. 0:06:47.839 --> 0:06:49.800 Basically going back to some ideas. 0:06:49.480 --> 0:06:53.640 Of Prussian virtue, and then Nazi propaganda that very heavily 0:06:53.680 --> 0:06:56.640 relied on like kind of making it a German virtue 0:06:56.680 --> 0:06:59.599 to save because it was necessary for the war economy, 0:07:00.040 --> 0:07:02.839 and then after the war that like kind of someone 0:07:02.839 --> 0:07:06.719 who saves is a good person idea was perpetuated, And 0:07:06.760 --> 0:07:10.600 then I think there's this kind of equation between personal 0:07:10.720 --> 0:07:14.120 spending and fiscal spending by the state, and this narrative 0:07:14.160 --> 0:07:18.480 of the Swabian housewife, which is very prominently rooted in 0:07:18.520 --> 0:07:21.280 people's mind. So if you do polls on whether the 0:07:21.320 --> 0:07:23.320 death break is a good thing, most people actually think 0:07:23.320 --> 0:07:25.320 it is a good thing because it's been preached to 0:07:25.360 --> 0:07:27.360 them for so long. Where by the way, I think 0:07:27.360 --> 0:07:30.560 this idea of this Swabian housewife is the way how 0:07:30.600 --> 0:07:33.160 to run a national budget also has a good portion 0:07:33.240 --> 0:07:35.680 of sexism because of it of course refers to the 0:07:35.720 --> 0:07:39.120 idea that the housewife doesn't really have authority over the budget, 0:07:39.520 --> 0:07:41.880 but that it kind of has to ask permission. 0:07:42.080 --> 0:07:45.200 Ah, right, so passively, except this is the amount of 0:07:45.240 --> 0:07:47.840 income that you get you but you don't actually control 0:07:47.920 --> 0:07:50.000 the amount of income and then you just but now 0:07:50.040 --> 0:07:53.119 figure out how to spend it exactly. It's implication behind 0:07:53.120 --> 0:07:55.320 that term, which I hadn't I guess I don't really 0:07:55.360 --> 0:07:57.080 I'm not sure if I had heard that term before. 0:07:57.680 --> 0:07:59.920 It's very I mean, this idea of the Swabian housewife 0:08:00.120 --> 0:08:02.080 all over the German discourse. I think it's a very 0:08:02.120 --> 0:08:04.160 German thing, and I think no one really thinks about 0:08:04.200 --> 0:08:07.680 the sexis implication of non sovereignty over your budget. But 0:08:07.800 --> 0:08:10.120 it's kind of there, and I mean Mackett really like 0:08:10.160 --> 0:08:12.200 to invoke it, which doesn't make it any less sexies, 0:08:12.440 --> 0:08:15.680 I think. So there's that, but then there's of course 0:08:15.680 --> 0:08:17.760 also the fact that this has been established as a 0:08:17.800 --> 0:08:18.800 constitutional rule. 0:08:18.880 --> 0:08:20.880 Right So now, I mean, beyond all. 0:08:20.720 --> 0:08:24.040 These cultural issues, there's a real issue of politics where 0:08:24.040 --> 0:08:27.280 basically the ruling government has a coalition of three parties 0:08:27.280 --> 0:08:30.120 and one party, the FDP, thinks that the best thing 0:08:30.160 --> 0:08:31.680 to do is to stick with the fetish of the 0:08:31.720 --> 0:08:34.640 black zero and the other two parties disagree, but they 0:08:34.679 --> 0:08:37.240 are not in a position to find the majority in parliament, 0:08:37.280 --> 0:08:40.240 so they're kind of locked into that straight jacket. 0:08:40.600 --> 0:08:44.400 So you touched on the energy markets earlier. But it's 0:08:44.440 --> 0:08:47.680 really interesting reading Joggi's report. I mean, energy is a 0:08:47.720 --> 0:08:50.800 big component of this, and he talks about things like 0:08:50.840 --> 0:08:55.800 decoupling energy prices and gas derivative markets and things like that. 0:08:56.000 --> 0:08:57.760 Can you talk a little bit more about how that 0:08:57.800 --> 0:09:00.959 fits into your research, because I know you've a lot 0:09:01.000 --> 0:09:05.600 of work on things like carbon pricing and obviously shockflation, 0:09:05.880 --> 0:09:09.400 a lot of which comes through higher energy prices. 0:09:10.559 --> 0:09:15.440 Yes, So for the whole question of European gas prices, 0:09:15.520 --> 0:09:18.120 I'm totally aligned with Druggy, and I think that in 0:09:18.160 --> 0:09:20.800 many ways. Actually, his section on prices reads a bit 0:09:20.880 --> 0:09:25.559 like an implicit commentary on what happened during the gas crisis. So, 0:09:25.760 --> 0:09:28.800 I mean he's saying that a number of causes for 0:09:28.840 --> 0:09:31.880 the high gas prices in Europe and the kind of 0:09:32.400 --> 0:09:34.640 I mean, gas prices have come down, but there's still 0:09:34.640 --> 0:09:37.920 a persistent gap, persistent gap between China and the US. Right, 0:09:38.280 --> 0:09:40.800 So of course there's a lack of resources, which is obvious, 0:09:40.840 --> 0:09:44.440 but there's also low great development, low infrastructure investments, which 0:09:44.480 --> 0:09:46.760 is kind of these like more long run structural factors. 0:09:47.200 --> 0:09:50.240 I talked about permitting reform as well, which is kind 0:09:50.240 --> 0:09:51.679 of interesting coming from Europe. 0:09:52.000 --> 0:09:54.840 Yeah, but in terms of the like kind of short 0:09:54.920 --> 0:09:57.079 run dynamics, which I think is where the commentary in 0:09:57.120 --> 0:10:01.160 twenty twenty two comes in. He's talking about financial markets 0:10:01.200 --> 0:10:05.800 having driven volatility, having basically increased volatility in these markets, 0:10:05.800 --> 0:10:08.800 which I think implies that the prices that we have 0:10:08.840 --> 0:10:12.280 seen in twenty twenty two were not necessarily prices that 0:10:12.320 --> 0:10:15.880 were reflecting fundamentals, but that some of these price movements 0:10:15.920 --> 0:10:18.920 were the result of animal spirts on gas markets where 0:10:18.920 --> 0:10:21.520 no one really knew what Putin was going to do next, 0:10:21.600 --> 0:10:24.120 and you basically got a lot of hurt behavior in 0:10:24.160 --> 0:10:27.160 this situation of extreme uncertainty, which is something that Tom 0:10:27.240 --> 0:10:29.720 crapser Coat and mine have of mind, and I have 0:10:29.800 --> 0:10:33.400 actually argued in a recent study on the price control question, 0:10:33.440 --> 0:10:35.640 where we say, I mean, if you get these prices 0:10:35.720 --> 0:10:39.079 overshooting in relationship to the fundamentals in this extreme way, 0:10:39.480 --> 0:10:42.760 then this actually means that taking some of this overshooting 0:10:42.800 --> 0:10:46.000 out is optimal even from a general equilibrium like a 0:10:46.120 --> 0:10:51.520 very conservative standard economic modeling perspective, and that notion is 0:10:51.520 --> 0:10:54.560 definitely there in the drug important terms of the volatility. 0:10:54.600 --> 0:10:57.360 The second point that he makes is that Europe should 0:10:57.480 --> 0:11:00.520 use its monopsonal power and global market, so it should 0:11:00.559 --> 0:11:00.960 team up. 0:11:01.000 --> 0:11:03.520 Yeah, this is like the collective bargaining argument. 0:11:03.800 --> 0:11:07.440 Yes, so that basically European countries should team up in 0:11:07.520 --> 0:11:10.360 buying gas and that way be able to get lower 0:11:10.400 --> 0:11:12.640 prices on the global market, which again was a very 0:11:12.760 --> 0:11:16.120 very hot topic in twenty twenty two where basically the 0:11:16.160 --> 0:11:18.120 rest of Europe was really trying to do that and 0:11:18.160 --> 0:11:21.880 the German government was quite keen to keep procuring by 0:11:21.920 --> 0:11:24.360 themselves to make sure that Germany is supplied first. So 0:11:24.360 --> 0:11:26.440 again this is kind of a commentary on the last 0:11:26.440 --> 0:11:29.160 crisis looking ahead at the next crisis, that we need 0:11:29.240 --> 0:11:33.000 more coordinating procurement on the European Club. 0:11:46.720 --> 0:11:50.680 Many people seem to agree that the Eurozone is sort 0:11:50.679 --> 0:11:53.679 of a half baked project. There is the common currency, 0:11:53.760 --> 0:11:56.960 but then you know there's like fragmented capital markets and 0:11:57.040 --> 0:12:02.080 fragmented regulatory schemes, arrangements, et cetera. Setting aside, Okay, we 0:12:02.160 --> 0:12:06.000 talked about energy, which is very important for industry. We 0:12:06.160 --> 0:12:10.120 talked about the fiscal straight jacket and the constraints that 0:12:10.280 --> 0:12:13.720 Europe imposes on itself for investment and how that makes 0:12:13.760 --> 0:12:18.080 it harder. Do you, as an economist accept the premise 0:12:18.400 --> 0:12:21.720 that Europe has a competitiveness problem, and one of the 0:12:21.760 --> 0:12:25.320 other areas that Dragi talks about is like the regulatory environment, 0:12:25.520 --> 0:12:27.920 and you hear it from tech people it makes really 0:12:28.000 --> 0:12:30.679 hard to start a business or do a startup in 0:12:30.720 --> 0:12:34.520 Europe because of various rules. Do you accept that component 0:12:34.600 --> 0:12:37.120 of the premise that there is other aspects of the 0:12:37.160 --> 0:12:41.080 regulatory environment that make it harder for companies to be 0:12:41.120 --> 0:12:44.400 at the global cutting edge against competitors in the US, 0:12:44.480 --> 0:12:47.760 in China, and that Europe needs to rethink some things. 0:12:48.800 --> 0:12:50.600 I do agree with that basic premise. 0:12:50.640 --> 0:12:53.720 So basically there is a challenge how to rethink the 0:12:53.800 --> 0:12:57.719 European model to make it competitive moving ahead. And I 0:12:57.760 --> 0:13:00.160 think that Drug is also right in emphasizing that in 0:13:00.200 --> 0:13:03.840 good parts that should build on existing strengths. So Europe 0:13:03.920 --> 0:13:07.400 is still pretty competitive in the whole clean tech sector. 0:13:07.440 --> 0:13:10.400 I mean, of course, China has become a very major player, 0:13:10.400 --> 0:13:12.560 they're the most important player. But still there are many 0:13:12.600 --> 0:13:15.240 technologies where Europe actually is in a good position and 0:13:15.360 --> 0:13:20.000 where basically the pipeline from innovation to employment and then 0:13:20.080 --> 0:13:23.600 actually like turning this into successful businesses is where the 0:13:23.640 --> 0:13:26.599 project fails. And I think trying to tackle this is 0:13:27.120 --> 0:13:29.400 bought on is exactly right. I will also say that 0:13:29.440 --> 0:13:33.200 the whole discussion around energy prices is of course related 0:13:33.200 --> 0:13:35.680 to competitiveness, and this is where I would actually add 0:13:35.679 --> 0:13:38.080 the CO two price question, which is something that he 0:13:38.280 --> 0:13:41.720 kind of touches on but doesn't really go into where 0:13:41.880 --> 0:13:43.360 I think in the US. I don't know how you 0:13:43.520 --> 0:13:46.280 see it, but my impression is that the idea of 0:13:46.400 --> 0:13:49.120 carbon pricing in the US is basically off the table. 0:13:49.200 --> 0:13:50.680 I mean, the Democrats are not going to do it 0:13:50.679 --> 0:13:53.880 and Trump is definitely not going to do it. In China, 0:13:53.920 --> 0:13:57.360 there's some scope for carbon pricing, but it's really secondary 0:13:57.400 --> 0:14:01.439 to the kind of investment led big green stage transition strategy. 0:14:01.760 --> 0:14:03.600 So this leaves Europe alone. 0:14:03.400 --> 0:14:06.360 As a country that is trying to rely on making 0:14:06.440 --> 0:14:10.040 emission incentive stuff more expensive, and that I think is 0:14:10.080 --> 0:14:14.800 actually a huge competitive disadvantage in the approach to the 0:14:14.960 --> 0:14:17.680 green transition. And as we have been arguing in a 0:14:17.840 --> 0:14:21.320 recent study where we have simulated the inflation impact from 0:14:21.360 --> 0:14:26.000 carbon pricing, could also actually trigger inflation, which then, given 0:14:26.240 --> 0:14:30.520 European inflation governance, which basically relies on interest rate hikes, 0:14:30.560 --> 0:14:34.760 could create another competitiveness constraint because if you get what 0:14:34.800 --> 0:14:38.920 we call carbon inflation, inflation triggered by carbon price increases, 0:14:39.400 --> 0:14:42.520 and you then respond by hiking interest rates, then of 0:14:42.560 --> 0:14:44.920 course you make the cost of capital even higher, which 0:14:44.960 --> 0:14:46.680 is one of the points that Drug, he points out, 0:14:47.880 --> 0:14:50.480 is a disadvantage for Europe. But the model that is 0:14:50.480 --> 0:14:54.200 being pursued in the Green Transition also really matters for competitiveness. 0:14:54.200 --> 0:14:56.040 And basically what Drug is saying is that we need 0:14:56.120 --> 0:14:58.560 more of what the US is doing right but he 0:14:58.640 --> 0:15:01.400 doesn't quite say need to maybe rethink some of the 0:15:01.440 --> 0:15:02.920 stuff that we are doing right now. 0:15:03.280 --> 0:15:06.840 Yeah, I think the cost of capital point is so important, 0:15:06.920 --> 0:15:10.000 and like the Green Transition, the way Europe is pursuing, 0:15:10.040 --> 0:15:13.240 it only really works if other countries are kind of 0:15:13.240 --> 0:15:16.160 doing something similar. And I remember there was this mind 0:15:16.240 --> 0:15:19.440 blowing stat I think it's like five years old now, 0:15:19.480 --> 0:15:22.200 so it's probably not true, but I think it's very 0:15:22.200 --> 0:15:24.880 indicative of the tension that we're talking about. 0:15:25.040 --> 0:15:26.480 It's not true, but it sounds good. 0:15:27.000 --> 0:15:29.360 Well, it was true. It was true in twenty nineteen. 0:15:29.440 --> 0:15:31.760 It's probably not true now, but I remember, I think 0:15:31.760 --> 0:15:35.040 it was City Group they put out this report saying 0:15:35.120 --> 0:15:38.720 that because of the different ways US and European investors 0:15:38.720 --> 0:15:43.040 were treating and approaching energy companies. It meant that European 0:15:43.160 --> 0:15:46.680 energy companies had borrowing costs that were two hundred basis 0:15:46.720 --> 0:15:52.880 points more expensive than their American counterparts. And what that 0:15:52.920 --> 0:15:55.360 meant is like, maybe it would make sense for like 0:15:55.440 --> 0:15:58.040 Exxon to buy Shell or something. I think they said 0:15:58.040 --> 0:16:01.840 that somewhat facetiously, but that's the issue here. If Europeans 0:16:01.880 --> 0:16:05.360 care more about the environment and carbon pricing and that 0:16:05.440 --> 0:16:09.760 results in a comparative disadvantage, as Isabella pointed out, then 0:16:09.960 --> 0:16:13.560 that's not helpful to the green transition or the European economy. 0:16:14.160 --> 0:16:14.360 Yeah. 0:16:14.400 --> 0:16:18.560 And I think there's kind of a more general gap 0:16:18.680 --> 0:16:21.720 or unrealized potential in the drug report here, because a 0:16:21.720 --> 0:16:23.960 lot of the things that he is talking about could 0:16:24.000 --> 0:16:27.000 actually also be used for price stability, right. I mean, 0:16:27.000 --> 0:16:29.360 he is talking, for example, about buffer stocks. He is 0:16:29.400 --> 0:16:32.720 actually talking about strategic reserves for He's pretty wake on 0:16:32.800 --> 0:16:35.360 what exactly he wants them for, but he's putting this 0:16:35.480 --> 0:16:38.600 on the table as one possibility. He is talking about 0:16:38.640 --> 0:16:42.800 lower energy prices, he is talking about a more coordinated 0:16:42.880 --> 0:16:47.000 industrial approach, And what we have been arguing is that 0:16:47.240 --> 0:16:50.240 basically in terms of the inflation governance as a huge 0:16:50.360 --> 0:16:53.600 gap in Europe, because if you get shoflation, if you 0:16:53.640 --> 0:16:57.160 get inflation that is actually triggered by major supply shocks 0:16:57.240 --> 0:17:01.200 or systemically significant sectors, and then respond the only way 0:17:01.240 --> 0:17:03.480 to respond is by hiking indust rates, you kind of 0:17:03.560 --> 0:17:05.680 have a gap. You could have a much more sophisticated 0:17:05.720 --> 0:17:08.720 toolbox to deal with these shocks. And I mean a 0:17:08.760 --> 0:17:11.040 lot of the things that Drugy is talking about in 0:17:11.119 --> 0:17:15.040 terms of investments, in terms of strategic reorientation of sectors, 0:17:15.040 --> 0:17:17.840 in terms of resilience, and could also be used to 0:17:17.920 --> 0:17:21.760 make these sectors more resilient to price shocks, right, And 0:17:21.840 --> 0:17:23.639 I think this is kind of a bit of a 0:17:23.680 --> 0:17:24.760 missing piece in the past. 0:17:25.359 --> 0:17:27.680 This reminds me, Joe, do you remember the first time 0:17:27.720 --> 0:17:30.280 we ever had Isabella on the podcast? 0:17:30.440 --> 0:17:31.680 Oh, I think we're talked about China. 0:17:31.760 --> 0:17:34.880 Yeah, we were talking about China. And since then, you've 0:17:34.920 --> 0:17:39.000 done so much work on things like pricing and shock flation, 0:17:39.600 --> 0:17:44.080 and it feels like there's been a lot more acceptance, 0:17:44.359 --> 0:17:48.840 certainly in Europe of things like even price controls. The 0:17:48.880 --> 0:17:53.160 transition has been like very remarkable to watch and it's 0:17:53.200 --> 0:17:54.240 only been a few years. 0:17:55.480 --> 0:17:58.560 Absolutely, and I think it's actually quite remarkable how there 0:17:58.640 --> 0:18:02.000 is some sort of a pretext both in the US 0:18:02.080 --> 0:18:05.399 and in Europe that basically they now need industry policy 0:18:05.440 --> 0:18:07.760 because China is doing it, so we can no longer 0:18:07.880 --> 0:18:11.280 not do it. What is missing, from my point of 0:18:11.359 --> 0:18:14.880 view is that actually China has not just been doing 0:18:14.960 --> 0:18:19.280 industry policy as I kind of sector level one of policies, 0:18:19.320 --> 0:18:24.560 but has actually been thinking about re industrialization from the perspective. 0:18:24.000 --> 0:18:25.000 Of system reform. 0:18:25.080 --> 0:18:27.440 So it's always been like kind from this perspective, how 0:18:27.480 --> 0:18:29.800 do you change the system as a whole where the 0:18:29.840 --> 0:18:34.040 price question, inflation question, macro stability questions are integrated with 0:18:34.200 --> 0:18:37.960 the question of changing specific industries. And that is actually, 0:18:37.960 --> 0:18:40.600 I think something that hasn't quite taken on yet in 0:18:41.000 --> 0:18:44.720 Europe and the US. Rainavaruja at the Ft was recently 0:18:44.720 --> 0:18:46.879 had this ope ad where she was saying that basically 0:18:46.960 --> 0:18:50.280 we need much more systems thinking in all these initiatives 0:18:50.280 --> 0:18:53.040 that currently run under the label industry policy, which makes 0:18:53.040 --> 0:18:55.680 it sound as if it's about specific industries, it's about 0:18:55.680 --> 0:18:58.280 innovation policy, where really what we need is more of 0:18:58.280 --> 0:18:59.400 a systemic approach. 0:18:59.480 --> 0:18:59.680 Right. 0:19:00.000 --> 0:19:02.560 I think the same I would say about the drug 0:19:02.600 --> 0:19:06.000 Ye report where we have several elements of systems thinking, 0:19:06.040 --> 0:19:08.280 Like when he talks about more coordination and so on, 0:19:08.520 --> 0:19:10.840 he's kind of walking in that direction, but then he's 0:19:10.840 --> 0:19:13.560 talking about prices without talking about interest rates and inflation. 0:19:13.760 --> 0:19:16.679 So kind of this like major link with the macroeconomy 0:19:16.880 --> 0:19:19.000 is missing, which I think comes from a lack of 0:19:19.280 --> 0:19:22.840 this kind of like system thinking. And that is quite 0:19:22.840 --> 0:19:25.040 interesting to me. And it seems like, I mean, if 0:19:25.280 --> 0:19:27.040 I look back at the last couple of years and 0:19:27.080 --> 0:19:30.080 how quickly the discourse has changed, my sense is that 0:19:30.160 --> 0:19:32.280 this is the next like kind of cutting edge in 0:19:32.359 --> 0:19:35.720 terms of how the economic policy debate might actually shift 0:19:35.720 --> 0:19:36.520 in the vest. 0:19:36.880 --> 0:19:41.360 It's interesting thinking about this sort of the US, Europe, 0:19:41.440 --> 0:19:46.119 and China all have similarities with respect to sort of 0:19:46.240 --> 0:19:50.440 the challenges or the opportunities of the sort of internal cohesion, 0:19:50.520 --> 0:19:52.840 right because even you know, China, for all these sort 0:19:52.880 --> 0:19:55.960 of talk about centrally planned and plan out of Beijing, 0:19:56.160 --> 0:19:59.840 there's quite a bit of competition, is my understanding, between 0:19:59.880 --> 0:20:03.720 the provinces and their desire to compete against each. 0:20:03.520 --> 0:20:07.480 Other for I mean investment and jobs and things like that. 0:20:07.760 --> 0:20:11.480 I mean, competition in China is absolutely cut throat in 0:20:11.520 --> 0:20:14.520 many areas, right, I mean, if you take the EV sector, 0:20:14.680 --> 0:20:17.520 like many people are talking now mainly about subsidies, which, 0:20:17.680 --> 0:20:20.919 of course, in the early phase when basically the Chinese 0:20:20.920 --> 0:20:25.119 state decided to create an EV industry, there was a 0:20:25.119 --> 0:20:27.800 lot of subsidies flowing. But right now we are in 0:20:27.840 --> 0:20:30.120 a situation where we have a larger number of car 0:20:30.160 --> 0:20:32.280 companies than we have had, like since the nineteen tens 0:20:32.359 --> 0:20:36.440 or something, because there are so many new EV companies 0:20:36.480 --> 0:20:39.040 that came on the market in China, and they are 0:20:39.480 --> 0:20:42.679 engaged in the most brutal kind of competition that you 0:20:42.720 --> 0:20:45.480