1 00:00:00,400 --> 00:00:03,440 Speaker 1: I think a lot of people just don't know, or 2 00:00:03,480 --> 00:00:06,160 Speaker 1: they don't think that far into the future, or you know, 3 00:00:06,320 --> 00:00:16,639 Speaker 1: some people don't believe it's happening. You know. Hello, and 4 00:00:16,720 --> 00:00:19,720 Speaker 1: welcome to Stephanomics, the podcast that brings the global economy 5 00:00:19,720 --> 00:00:22,279 Speaker 1: to you. If you don't believe in climate change, I 6 00:00:22,280 --> 00:00:24,840 Speaker 1: have a great beachfront condo to sell you on the 7 00:00:24,880 --> 00:00:28,120 Speaker 1: Miami Coast, but you'll need to act fast. Prices for 8 00:00:28,160 --> 00:00:31,520 Speaker 1: so called open water properties in southern Florida have more 9 00:00:31,520 --> 00:00:34,120 Speaker 1: than doubled in the past year. There's little sign of 10 00:00:34,120 --> 00:00:36,680 Speaker 1: the market slowing down despite the prospect of not just 11 00:00:36,920 --> 00:00:40,640 Speaker 1: rising interest rates, but let's face it, rising sea levels 12 00:00:40,720 --> 00:00:44,879 Speaker 1: that could put these properties underwater by twenty fifty. Bloomberg 13 00:00:44,960 --> 00:00:49,320 Speaker 1: opinion column list and longtime Miami resident Jonathan Levin went 14 00:00:49,400 --> 00:00:53,040 Speaker 1: looking for any sign that Florida house buyers were paying 15 00:00:53,280 --> 00:00:56,880 Speaker 1: any attention to the rising flood risks for these super 16 00:00:56,880 --> 00:01:01,400 Speaker 1: desirable seaside properties. Stick around for is surprising on the 17 00:01:01,480 --> 00:01:05,360 Speaker 1: Beach Report. But before that, we have an exclusive interview 18 00:01:05,360 --> 00:01:08,120 Speaker 1: with Isabel Schnabel, who was a member of the executive 19 00:01:08,120 --> 00:01:10,680 Speaker 1: board of the European Central Bank has been more focused 20 00:01:10,680 --> 00:01:14,360 Speaker 1: than most on the practical effects of climate change and 21 00:01:14,400 --> 00:01:23,840 Speaker 1: how central banks and government should respond. Thank you Isabel 22 00:01:24,280 --> 00:01:26,280 Speaker 1: for doing this now. I know you don't want to 23 00:01:26,280 --> 00:01:28,400 Speaker 1: talk about what's going to happen to interest rates next 24 00:01:28,440 --> 00:01:31,240 Speaker 1: week or next month, and some of our listeners will 25 00:01:31,240 --> 00:01:33,440 Speaker 1: be disappointed to hear that, but I suspect many will 26 00:01:33,440 --> 00:01:36,600 Speaker 1: be delighted that we're we're lifting our heads up from 27 00:01:36,600 --> 00:01:39,560 Speaker 1: that to to longer term issues, and there's no bigger 28 00:01:39,560 --> 00:01:42,760 Speaker 1: one than climate change. So before we get into the 29 00:01:42,760 --> 00:01:44,960 Speaker 1: economics of this, I just wanted to start by asking 30 00:01:45,000 --> 00:01:47,800 Speaker 1: you why you, as a senior figure on the e 31 00:01:47,880 --> 00:01:51,080 Speaker 1: c B, seemed to have been the one who's invested 32 00:01:51,800 --> 00:01:55,120 Speaker 1: most time in thinking through and giving speeches about the 33 00:01:55,160 --> 00:01:59,400 Speaker 1: economic implications of climate change. So, first of all, thank 34 00:01:59,480 --> 00:02:02,960 Speaker 1: you some much, Stephanie for for having me here today. 35 00:02:03,040 --> 00:02:06,160 Speaker 1: It's it's such a pleasure to to be part of 36 00:02:06,240 --> 00:02:11,800 Speaker 1: your very nice podcast, Serious and I'm also delighted to 37 00:02:11,840 --> 00:02:15,000 Speaker 1: talk about the topic of climate change. And as you said, 38 00:02:15,240 --> 00:02:21,079 Speaker 1: I've spent quite some time thinking about this topic and 39 00:02:21,320 --> 00:02:25,640 Speaker 1: thinking about what it implies for central banks and monetary policy. 40 00:02:26,160 --> 00:02:28,840 Speaker 1: Maybe it's not fair to say that that I'm the 41 00:02:28,880 --> 00:02:31,240 Speaker 1: main person driving it. I think that it would be 42 00:02:31,240 --> 00:02:35,120 Speaker 1: fair to say that it was actually President Laguard who 43 00:02:35,200 --> 00:02:39,600 Speaker 1: who started to put a lot of emphasis on climate 44 00:02:39,680 --> 00:02:42,560 Speaker 1: change here at the ECB. And I must say that 45 00:02:42,720 --> 00:02:46,120 Speaker 1: I actually went through a learning curve. So when I 46 00:02:46,200 --> 00:02:49,040 Speaker 1: joined the e c B, I think I was a 47 00:02:49,080 --> 00:02:53,680 Speaker 1: bit more skeptical regarding the role of central banks with 48 00:02:53,680 --> 00:02:56,959 Speaker 1: regard to the climate change, and my my thinking has 49 00:02:57,040 --> 00:03:04,400 Speaker 1: developed quite quite profoundly over time by understanding a better 50 00:03:04,639 --> 00:03:07,240 Speaker 1: I mean trus of all, of course the massive impact 51 00:03:07,240 --> 00:03:10,480 Speaker 1: that climate change is going to have on the economy, 52 00:03:10,760 --> 00:03:15,520 Speaker 1: but also the important role that central banks may actually play. 53 00:03:15,680 --> 00:03:18,760 Speaker 1: So you gave us a speech um that I thought 54 00:03:18,800 --> 00:03:22,760 Speaker 1: was particularly interesting in March of this year, where you 55 00:03:22,880 --> 00:03:28,040 Speaker 1: were thinking about the impact on inflation of climate change 56 00:03:28,520 --> 00:03:31,280 Speaker 1: and the sort of there's there's three different price shocks 57 00:03:31,320 --> 00:03:34,000 Speaker 1: that you felt we were sort of looking at down 58 00:03:34,000 --> 00:03:36,600 Speaker 1: the track and indeed already experiencing to some extent. Do 59 00:03:36,600 --> 00:03:40,960 Speaker 1: you want to just quickly run through those those dynamics. 60 00:03:41,920 --> 00:03:46,640 Speaker 1: Let me, maybe a first um, make one very important point, 61 00:03:46,720 --> 00:03:51,920 Speaker 1: which is that I I think it's very likely that 62 00:03:52,760 --> 00:03:59,440 Speaker 1: after the green transition has been accomplished, energy prices are 63 00:03:59,480 --> 00:04:03,720 Speaker 1: actually likely to be lower than they are today. So 64 00:04:04,000 --> 00:04:07,080 Speaker 1: what we are talking about when we're talking about these 65 00:04:07,160 --> 00:04:13,480 Speaker 1: inflationary effects is really what's going to happen during the transition. 66 00:04:14,360 --> 00:04:20,440 Speaker 1: And during the transition, it's it's quite clear that prices 67 00:04:20,600 --> 00:04:24,760 Speaker 1: of carbon intensive energy sources are going to rise, and 68 00:04:24,800 --> 00:04:28,680 Speaker 1: this is of course also necessary in order to accelerate 69 00:04:29,360 --> 00:04:35,080 Speaker 1: the green transition. And as you rightly said, I I 70 00:04:35,240 --> 00:04:40,680 Speaker 1: tried to to better understand the different types of inflation 71 00:04:41,240 --> 00:04:44,839 Speaker 1: that we may experience due to the green transition in 72 00:04:44,880 --> 00:04:48,200 Speaker 1: the time to come. And the first type I mentioned 73 00:04:48,480 --> 00:04:52,440 Speaker 1: was what I called climate inflation. So this would be 74 00:04:52,880 --> 00:04:57,159 Speaker 1: the type of inflation caused by climate change itself. So 75 00:04:57,600 --> 00:05:01,760 Speaker 1: due to climate change, there is likely to be a 76 00:05:01,839 --> 00:05:09,160 Speaker 1: much higher frequency of natural disasters, so of flooding, wildfires, droughts, 77 00:05:09,640 --> 00:05:13,480 Speaker 1: and this for example, will have quite some impact on 78 00:05:13,839 --> 00:05:16,839 Speaker 1: food prices. And I think it's this is no longer 79 00:05:16,880 --> 00:05:20,599 Speaker 1: like a distant prospect, but we are already seeing that. 80 00:05:21,160 --> 00:05:23,800 Speaker 1: And so this climate inflation is what is coming from 81 00:05:24,000 --> 00:05:27,080 Speaker 1: climate change itself, and our economists looking at this have 82 00:05:27,160 --> 00:05:30,599 Speaker 1: also the other part of that is it becomes more volatile. 83 00:05:31,000 --> 00:05:33,279 Speaker 1: You could have just an increase in the volatility of 84 00:05:33,320 --> 00:05:36,880 Speaker 1: inflation as well, from these kind of shots, that's certainly 85 00:05:36,920 --> 00:05:41,239 Speaker 1: true as well. The second type, and I would say 86 00:05:41,520 --> 00:05:47,320 Speaker 1: this is quantitatively the most important one, is what I 87 00:05:47,400 --> 00:05:51,760 Speaker 1: called fossil inflation. This is also what we are basically 88 00:05:51,760 --> 00:05:56,640 Speaker 1: seeing at the moment, further reinforced by by the war 89 00:05:57,480 --> 00:06:03,360 Speaker 1: um and fossil inflation in the end is a reflection 90 00:06:03,920 --> 00:06:11,039 Speaker 1: of our excessive reliance on fossil energy sources in the past. 91 00:06:11,600 --> 00:06:15,480 Speaker 1: And then finally, the third type of inflation I mentioned 92 00:06:16,080 --> 00:06:19,479 Speaker 1: was what I called green inflation. And green inflation is 93 00:06:19,520 --> 00:06:25,240 Speaker 1: related to the expansion of renewable energy sources, and it's 94 00:06:25,279 --> 00:06:31,520 Speaker 1: important to acknowledge that this expansion we lead to a 95 00:06:31,640 --> 00:06:38,360 Speaker 1: very high demand for certain metals and and certain minerals. 96 00:06:38,520 --> 00:06:47,800 Speaker 1: So good examples are lithium, copper, nickel, cobalt, which which 97 00:06:47,800 --> 00:06:54,600 Speaker 1: are also in short supply. So especially if if everybody 98 00:06:54,760 --> 00:06:59,600 Speaker 1: or or or many are trying to accelerate the green transition, 99 00:07:00,000 --> 00:07:05,480 Speaker 1: this recreate a huge demand for those metals and minerals 100 00:07:05,560 --> 00:07:10,280 Speaker 1: and imply increases in in their prices, and this then 101 00:07:10,360 --> 00:07:12,640 Speaker 1: leads to re inflation. And if you, if you're ready 102 00:07:12,680 --> 00:07:17,680 Speaker 1: now look at some of those prices, this is quite striking. 103 00:07:17,760 --> 00:07:21,080 Speaker 1: So I think if I remember correctly, the price of 104 00:07:21,720 --> 00:07:26,720 Speaker 1: lithium has increased by a factor of ten since the 105 00:07:26,800 --> 00:07:30,800 Speaker 1: beginning of twenty twenty one. So uh and and this 106 00:07:30,880 --> 00:07:33,120 Speaker 1: is I mean, at the moment, I would say most 107 00:07:33,160 --> 00:07:37,360 Speaker 1: of what we're seeing is still fossil inflation. By going forward, 108 00:07:38,000 --> 00:07:41,480 Speaker 1: the share of re inflation is likely to become more important. 109 00:07:42,320 --> 00:07:45,480 Speaker 1: Thank you for for being so so so clear about 110 00:07:45,520 --> 00:07:49,400 Speaker 1: those things. How concerned are you that people will begin, 111 00:07:49,960 --> 00:07:55,120 Speaker 1: with some justice to associate the move to a zero 112 00:07:55,200 --> 00:07:59,880 Speaker 1: carbon economy with the serious inflation problem. Well, there's a 113 00:08:00,040 --> 00:08:03,960 Speaker 1: there is certainly a political issue there, so that that 114 00:08:04,120 --> 00:08:10,280 Speaker 1: won't make the transition easier. But we should be aware 115 00:08:10,320 --> 00:08:13,720 Speaker 1: of the fact that all the research that I know 116 00:08:14,200 --> 00:08:22,080 Speaker 1: shows that the that the green transition is the easier 117 00:08:22,640 --> 00:08:27,200 Speaker 1: the earlier it really starts. So if we if we 118 00:08:27,400 --> 00:08:33,679 Speaker 1: move too late, it can become very disruptive and too 119 00:08:33,760 --> 00:08:37,920 Speaker 1: late already I mean, of course, I guess it's fair 120 00:08:38,000 --> 00:08:41,680 Speaker 1: to say that that we are already moving too late. 121 00:08:42,040 --> 00:08:47,160 Speaker 1: I mean, if we if we look at the Paris goals, um, 122 00:08:47,400 --> 00:08:52,280 Speaker 1: I think it's it's actually quite striking that even in 123 00:08:52,559 --> 00:08:55,240 Speaker 1: the year twenty twenty so at the height of the 124 00:08:55,400 --> 00:08:59,960 Speaker 1: COVID pandemic, where the global economy was partly shut down 125 00:09:00,000 --> 00:09:06,160 Speaker 1: on the reduction in carbon emissions was was not enough, 126 00:09:06,559 --> 00:09:09,480 Speaker 1: I mean relative to what is needed in order to 127 00:09:09,559 --> 00:09:14,120 Speaker 1: achieve our goals. So basically you would need to achieve 128 00:09:14,240 --> 00:09:19,840 Speaker 1: more every single year than what happened in twenty twenty. 129 00:09:20,160 --> 00:09:22,800 Speaker 1: And I think this this shows us that we are 130 00:09:22,880 --> 00:09:28,480 Speaker 1: already very late. And I think I mean waiting makes 131 00:09:28,679 --> 00:09:34,160 Speaker 1: everything much worse, much more costly in economic terms, and 132 00:09:34,200 --> 00:09:38,320 Speaker 1: of course that is one of the major challenges um 133 00:09:38,640 --> 00:09:44,160 Speaker 1: for governments to explain to the population that the economic 134 00:09:44,240 --> 00:09:47,320 Speaker 1: costs are going to be much higher if we wait 135 00:09:48,200 --> 00:09:52,000 Speaker 1: even longer. There's a burden that goes on central banks, 136 00:09:52,040 --> 00:09:54,319 Speaker 1: and we might talk a bit about that, how should 137 00:09:54,360 --> 00:09:59,880 Speaker 1: a central bank like the European Central Bank approach these 138 00:10:00,360 --> 00:10:03,200 Speaker 1: various kinds of inflation that we now see coming down 139 00:10:03,200 --> 00:10:06,880 Speaker 1: the track? But is there a more sort of interventionist 140 00:10:07,000 --> 00:10:10,920 Speaker 1: or certainly a more expensive role for for governments in 141 00:10:11,320 --> 00:10:15,640 Speaker 1: responding to this these transitional issues. So let me be 142 00:10:15,880 --> 00:10:19,840 Speaker 1: very clear on this that it's clearly governments who are 143 00:10:19,880 --> 00:10:23,640 Speaker 1: in the driver's seat, so there can be no doubt 144 00:10:23,679 --> 00:10:29,600 Speaker 1: about that, and their major task is to accelerate the 145 00:10:29,679 --> 00:10:35,520 Speaker 1: green transition, and most economists would agree that the ideal 146 00:10:36,480 --> 00:10:42,160 Speaker 1: instrument would be a carbon price, and ideally even at 147 00:10:42,160 --> 00:10:47,080 Speaker 1: a global level. In in addition, there will be the 148 00:10:47,240 --> 00:10:51,840 Speaker 1: need for massive investment, public investment, but then of course 149 00:10:52,400 --> 00:10:56,320 Speaker 1: also a private investment. So I think the governments have 150 00:10:56,400 --> 00:10:59,440 Speaker 1: a very important role to play here. We should also 151 00:11:00,040 --> 00:11:04,360 Speaker 1: not forget that certain parts of the population are likely 152 00:11:04,840 --> 00:11:10,680 Speaker 1: to suffer more from the energy price increases that that 153 00:11:10,760 --> 00:11:15,720 Speaker 1: we discussed than others, and so the so governments also 154 00:11:15,800 --> 00:11:21,880 Speaker 1: have the role to protect the most vulnerable parts of 155 00:11:21,920 --> 00:11:26,439 Speaker 1: our society who spend a much larger share of their 156 00:11:26,520 --> 00:11:32,600 Speaker 1: income of for energy. And at the same time, all 157 00:11:32,640 --> 00:11:35,920 Speaker 1: the measures have to be designed in a way that 158 00:11:37,120 --> 00:11:41,240 Speaker 1: they don't destroy the incentives, because, as I said, the 159 00:11:41,480 --> 00:11:45,680 Speaker 1: higher energy prices of course also needed in order to 160 00:11:45,840 --> 00:11:50,840 Speaker 1: make sure that energy demand is going to decrease, that 161 00:11:50,920 --> 00:11:55,520 Speaker 1: there is an incentive to innovate um to become more 162 00:11:55,640 --> 00:12:01,120 Speaker 1: energy efficient in all of that, and so if governments, 163 00:12:01,120 --> 00:12:07,240 Speaker 1: for example, simply subsidize energy prices, this would certainly go 164 00:12:07,320 --> 00:12:12,240 Speaker 1: in the wrong direction because this would destroy those very 165 00:12:12,280 --> 00:12:16,040 Speaker 1: important price signals which are needed in order to accelerate 166 00:12:16,080 --> 00:12:19,560 Speaker 1: the transition. If we are looking at potentially a need 167 00:12:19,600 --> 00:12:22,160 Speaker 1: for much for more government spending on this and certainly 168 00:12:22,160 --> 00:12:25,040 Speaker 1: more government investment and overall in the private and the 169 00:12:25,040 --> 00:12:29,559 Speaker 1: public sector, a lot more investment and on a quite 170 00:12:30,240 --> 00:12:35,640 Speaker 1: reasonably speedy time scale um to support this transition. Is 171 00:12:35,679 --> 00:12:38,040 Speaker 1: that I mean that sounds to me like an environment 172 00:12:38,160 --> 00:12:41,440 Speaker 1: for higher long term interest rates compared to where we've 173 00:12:41,440 --> 00:12:43,440 Speaker 1: been in the last few years. Do you think do 174 00:12:43,440 --> 00:12:45,600 Speaker 1: you think that's right? Are we sort of structurally moving 175 00:12:45,720 --> 00:12:48,880 Speaker 1: or at least going to have a period period m 176 00:12:49,559 --> 00:12:52,160 Speaker 1: as this transition is achieved where interest rates could be 177 00:12:52,240 --> 00:12:54,880 Speaker 1: significantly higher long term interest rates, not necessarily the ones 178 00:12:54,920 --> 00:12:59,680 Speaker 1: you control. Yes, So I actually share that view that 179 00:13:00,559 --> 00:13:06,160 Speaker 1: we may now enter a very different macroeconomic environment from 180 00:13:06,280 --> 00:13:09,160 Speaker 1: where we were. I mean, we had this, uh, this 181 00:13:09,480 --> 00:13:14,600 Speaker 1: long term trend of declining interest rates, which was also 182 00:13:14,679 --> 00:13:18,520 Speaker 1: related to the fact that there was an abundance of 183 00:13:18,880 --> 00:13:25,040 Speaker 1: savings on the one hand and relatively sluggish investment demand. 184 00:13:25,440 --> 00:13:28,200 Speaker 1: And if we if we look at the at the 185 00:13:28,360 --> 00:13:31,520 Speaker 1: massive investment that is needed, as I said, both on 186 00:13:31,559 --> 00:13:34,840 Speaker 1: the public and on the private side, and this is 187 00:13:34,880 --> 00:13:38,839 Speaker 1: not just the green transition, but that's that's also I 188 00:13:38,920 --> 00:13:42,520 Speaker 1: mean as we know now it's for example, defense and 189 00:13:42,760 --> 00:13:49,680 Speaker 1: other issues. Then I would agree that this will tend 190 00:13:50,160 --> 00:14:00,960 Speaker 1: to lead to higher interest rates going forward. It seems 191 00:14:01,000 --> 00:14:04,240 Speaker 1: like if you're for a big chunk of the population, 192 00:14:04,360 --> 00:14:06,920 Speaker 1: you might say, Okay, my mortgage rates going up partly 193 00:14:06,960 --> 00:14:12,240 Speaker 1: because of the transition to zero carbon. My cost of 194 00:14:12,280 --> 00:14:15,720 Speaker 1: my petrol and my energy has gone up. The world 195 00:14:15,720 --> 00:14:17,559 Speaker 1: has just got a lot more expensive, and it's all 196 00:14:17,600 --> 00:14:23,800 Speaker 1: down to these greens. Yes, So that's that's another interesting question. 197 00:14:23,840 --> 00:14:26,560 Speaker 1: So maybe before we talk about the distributional effects. I 198 00:14:26,600 --> 00:14:31,720 Speaker 1: think one of the implications of what we discussed is 199 00:14:32,080 --> 00:14:37,520 Speaker 1: that we need to put many more resources into investment, 200 00:14:38,200 --> 00:14:42,520 Speaker 1: which applies that that that there is in the end 201 00:14:42,960 --> 00:14:48,000 Speaker 1: less consumption and already that even before looking before looking 202 00:14:48,080 --> 00:14:53,160 Speaker 1: at the distributional effect, already that could create a polity. 203 00:14:53,240 --> 00:14:55,960 Speaker 1: So you've added another one to the list. The high 204 00:14:56,440 --> 00:15:01,160 Speaker 1: need for investment implies that that comes asumption growth is 205 00:15:01,440 --> 00:15:05,200 Speaker 1: being to be a slower But I would say that, 206 00:15:05,320 --> 00:15:10,760 Speaker 1: of course, climate change itself is something which creates a 207 00:15:10,800 --> 00:15:15,160 Speaker 1: lot of inequality. I mean, we know that different parts 208 00:15:15,200 --> 00:15:20,800 Speaker 1: of the world are affected very differently by by climate change, 209 00:15:20,880 --> 00:15:24,720 Speaker 1: and unfortunately it seems that the poorest parts of the 210 00:15:24,760 --> 00:15:29,680 Speaker 1: world are affected more more strongly, and I mean even 211 00:15:29,760 --> 00:15:34,240 Speaker 1: within Europe, one can see that that different parts are 212 00:15:34,680 --> 00:15:40,880 Speaker 1: affected very differently. And so it's not just climate policies 213 00:15:40,920 --> 00:15:44,800 Speaker 1: which kind of may have a distributional effects, but it's 214 00:15:44,840 --> 00:15:48,479 Speaker 1: also climate change itself. But on the on the climate policies, 215 00:15:48,520 --> 00:15:54,320 Speaker 1: I think in order to to get uh, I mean, 216 00:15:54,360 --> 00:15:58,400 Speaker 1: the agreement from the population to all these policy measures, 217 00:15:58,800 --> 00:16:04,800 Speaker 1: it's absolutely crucial that that there is a certain degree 218 00:16:05,240 --> 00:16:09,080 Speaker 1: of compensation. I mean there is UH. There is a 219 00:16:09,640 --> 00:16:13,800 Speaker 1: debate going on for exact way it comes to carbon taxes, 220 00:16:14,240 --> 00:16:19,600 Speaker 1: how how to use the proceeds from that. And given 221 00:16:19,800 --> 00:16:24,680 Speaker 1: that the carbon taxes at tend to be regressive, so 222 00:16:24,760 --> 00:16:29,600 Speaker 1: they affect the poorer part of the population more than 223 00:16:30,360 --> 00:16:34,600 Speaker 1: uh than then the better, the better off. It's clear 224 00:16:35,000 --> 00:16:38,880 Speaker 1: that at least part is not all of those revenues 225 00:16:39,480 --> 00:16:44,400 Speaker 1: should be used for compensatory measures. Again as a stress 226 00:16:44,480 --> 00:16:48,320 Speaker 1: before this has to be done in a way that 227 00:16:48,640 --> 00:16:53,960 Speaker 1: the incentives are not destroyed. So that is so some 228 00:16:54,040 --> 00:16:59,720 Speaker 1: people say it could simply be a pre captor distribution, 229 00:17:00,680 --> 00:17:05,480 Speaker 1: which then would actually benefit the poorer people more than 230 00:17:05,600 --> 00:17:09,560 Speaker 1: the than the wricher ones. So this is it's easy 231 00:17:09,680 --> 00:17:11,760 Speaker 1: for a central banker to say when all of these 232 00:17:11,800 --> 00:17:14,200 Speaker 1: policies would actually have to be by governments, and in 233 00:17:14,240 --> 00:17:18,560 Speaker 1: the European level, you don't even have necessarily joint fiscal 234 00:17:18,640 --> 00:17:22,840 Speaker 1: policy to do those things. As a central bank, and 235 00:17:22,960 --> 00:17:28,240 Speaker 1: thinking about your basic remit, which is inflation and or 236 00:17:28,359 --> 00:17:33,879 Speaker 1: controlling inflation, and you're looking at these various elements that 237 00:17:33,920 --> 00:17:38,560 Speaker 1: could make the world more expensive over time um and 238 00:17:38,640 --> 00:17:43,320 Speaker 1: potentially also have produced more volatility and inflation. Does that 239 00:17:43,400 --> 00:17:46,960 Speaker 1: I mean, how much does that change the way? Should 240 00:17:47,000 --> 00:17:51,200 Speaker 1: it change the framework for policy over the next few years? 241 00:17:51,560 --> 00:17:55,359 Speaker 1: Will you should you be more tolerant of of higher 242 00:17:55,359 --> 00:17:59,640 Speaker 1: inflation because it's part of this transitional green challenge. Yes, 243 00:17:59,720 --> 00:18:04,400 Speaker 1: So this is uh really the most important question that 244 00:18:04,760 --> 00:18:08,440 Speaker 1: we will have to answer over the coming years. So 245 00:18:08,480 --> 00:18:11,680 Speaker 1: the first thing that we will have to acknowledge is 246 00:18:12,080 --> 00:18:16,280 Speaker 1: that it's very likely that the nature of energy price 247 00:18:16,600 --> 00:18:21,199 Speaker 1: shocks have changed. So in previous times, I mean, the 248 00:18:21,359 --> 00:18:26,920 Speaker 1: standard prescription would would have been that we would look 249 00:18:27,600 --> 00:18:34,080 Speaker 1: through energy price shocks because they were considered to be 250 00:18:34,280 --> 00:18:39,280 Speaker 1: a temporary and in short lived. So the idea being 251 00:18:39,400 --> 00:18:44,000 Speaker 1: that if we reacted to such a shock, that would 252 00:18:44,480 --> 00:18:47,920 Speaker 1: kind of normalize after a short period of time. Anyway, 253 00:18:48,440 --> 00:18:54,920 Speaker 1: then we would uh possibly then weaken the economy at 254 00:18:54,920 --> 00:19:00,000 Speaker 1: a time when this this this price shock has already disappeared. 255 00:19:00,680 --> 00:19:04,520 Speaker 1: And therefore the standard prescrictive prescription was to look through 256 00:19:04,800 --> 00:19:08,440 Speaker 1: such energy price shocks. But now I would argue that 257 00:19:08,480 --> 00:19:13,240 Speaker 1: the that the nature of these sharks has changed, that 258 00:19:13,960 --> 00:19:18,640 Speaker 1: that there is a more persistent or more structural component 259 00:19:19,480 --> 00:19:25,280 Speaker 1: to these energy price shocks, so that we have uh 260 00:19:25,400 --> 00:19:30,199 Speaker 1: a prolonged increase in energy prices over a longer period 261 00:19:30,200 --> 00:19:33,359 Speaker 1: of time. As I said, I mean over the period 262 00:19:33,400 --> 00:19:36,320 Speaker 1: of the transition, which actually can be quite long, so 263 00:19:36,400 --> 00:19:38,679 Speaker 1: we are not talking about five years, but we are 264 00:19:38,720 --> 00:19:45,080 Speaker 1: talking about possibly much longer period. And in such a situation, 265 00:19:45,160 --> 00:19:48,360 Speaker 1: it's no longer clear that we can afford to just 266 00:19:48,760 --> 00:19:56,040 Speaker 1: look through these inflationary effects, because there is the risk 267 00:19:56,640 --> 00:20:05,119 Speaker 1: that inflation expectations u getting the anchor, which which threatens 268 00:20:05,520 --> 00:20:11,080 Speaker 1: the credibility of the of the central bank. And when 269 00:20:11,119 --> 00:20:16,840 Speaker 1: it comes to energy, this is particularly high risk because 270 00:20:17,240 --> 00:20:20,520 Speaker 1: people go to the gas station, let's say, quite often 271 00:20:21,040 --> 00:20:24,919 Speaker 1: they really see what's happening there, and therefore it has 272 00:20:25,080 --> 00:20:31,560 Speaker 1: quite a strong impact on their inflation expectations. And of 273 00:20:31,600 --> 00:20:34,560 Speaker 1: course if there is the anchoring of inflation expectations, I mean, 274 00:20:34,600 --> 00:20:39,320 Speaker 1: this can give rise to a wage price spiral. This 275 00:20:39,520 --> 00:20:45,639 Speaker 1: becomes all the more likely the longer the high inflation 276 00:20:46,040 --> 00:20:50,240 Speaker 1: period persists, and that then for us becomes very dangerous. 277 00:20:50,240 --> 00:20:53,480 Speaker 1: And this is why I think that we actually cannot 278 00:20:54,160 --> 00:20:58,720 Speaker 1: look through this persistent price increase that may happen in 279 00:20:58,760 --> 00:21:00,840 Speaker 1: the course of the green transition. There has always been 280 00:21:00,840 --> 00:21:04,800 Speaker 1: an argument that said, over time they look through strategy 281 00:21:04,920 --> 00:21:11,159 Speaker 1: was actually rather bad for for workers. People have to 282 00:21:11,200 --> 00:21:14,359 Speaker 1: face that sort of immediate hit to their real incomes 283 00:21:14,400 --> 00:21:17,720 Speaker 1: from this spike in prices and not have any kind 284 00:21:17,720 --> 00:21:20,920 Speaker 1: of compensation in the form of slower, lower inflation down 285 00:21:20,920 --> 00:21:23,439 Speaker 1: the track. You just end up with lower wages in 286 00:21:23,520 --> 00:21:26,400 Speaker 1: real terms, and the central bank has not been battling 287 00:21:26,440 --> 00:21:29,080 Speaker 1: on your behalf to to preserve your real purchasing power. 288 00:21:29,480 --> 00:21:31,320 Speaker 1: I mean that's a valid point because I mean, as 289 00:21:31,359 --> 00:21:33,639 Speaker 1: I said, I mean, if energy prices, you know, go 290 00:21:33,800 --> 00:21:36,520 Speaker 1: up and down, I mean they kind of averages out. 291 00:21:37,160 --> 00:21:41,000 Speaker 1: But if you have this persistent increase, then what happens 292 00:21:41,080 --> 00:21:43,760 Speaker 1: is precisely what you're saying, and I think it's not 293 00:21:43,840 --> 00:21:47,639 Speaker 1: realistic to think that then wages were not at some 294 00:21:47,760 --> 00:21:50,720 Speaker 1: point react. I mean, of course it will react. And 295 00:21:51,000 --> 00:21:54,720 Speaker 1: just you you talk about having a different approach now 296 00:21:54,760 --> 00:21:58,720 Speaker 1: to to particularly the energy driven inflation, because it's likely 297 00:21:58,800 --> 00:22:02,760 Speaker 1: to be more long last thing, And clearly when you 298 00:22:02,760 --> 00:22:06,159 Speaker 1: look at the US, they have had inflation which was 299 00:22:06,200 --> 00:22:10,040 Speaker 1: not just driven by energy and but was kind of 300 00:22:10,080 --> 00:22:14,720 Speaker 1: fundamentally kind of misdiagnosed, and they are now, by their 301 00:22:14,720 --> 00:22:17,000 Speaker 1: own admission, more or less having to sort of play 302 00:22:17,080 --> 00:22:20,200 Speaker 1: catch up in responding to that inflation. When you think 303 00:22:20,240 --> 00:22:22,600 Speaker 1: about how are we going to respond to this environment 304 00:22:22,640 --> 00:22:27,040 Speaker 1: which might have structurally higher inflation, um, do you feel 305 00:22:27,040 --> 00:22:30,800 Speaker 1: you will have to be more responsive, um and have 306 00:22:30,960 --> 00:22:35,560 Speaker 1: a less gradual approach to to raising interest rates over 307 00:22:35,680 --> 00:22:38,679 Speaker 1: time then you might have done in the past on 308 00:22:38,720 --> 00:22:42,080 Speaker 1: the basis of seeing the US experience, well, of course, 309 00:22:42,119 --> 00:22:48,120 Speaker 1: the US experience is in several respects different. I think 310 00:22:48,160 --> 00:22:54,919 Speaker 1: the major difference is that the US had this very 311 00:22:54,960 --> 00:23:01,240 Speaker 1: strong fiscal impulse which was much larger then what we 312 00:23:01,320 --> 00:23:06,080 Speaker 1: have seen in the UR area. And um, I mean, 313 00:23:06,400 --> 00:23:12,000 Speaker 1: in particular, you also see that that wage developments look 314 00:23:12,080 --> 00:23:16,000 Speaker 1: already very different from what we are seeing in the 315 00:23:16,160 --> 00:23:22,760 Speaker 1: UR area, where wages wage growth is still quite sluggish, 316 00:23:22,880 --> 00:23:27,120 Speaker 1: and you may say surprisingly so, um, I I don't 317 00:23:27,200 --> 00:23:29,399 Speaker 1: think that it's going to stay like that, So this 318 00:23:29,560 --> 00:23:31,840 Speaker 1: is certainly going to to pick up. And I think, 319 00:23:31,880 --> 00:23:36,600 Speaker 1: I mean, what we can certainly learn from the US 320 00:23:36,880 --> 00:23:43,199 Speaker 1: is that it's very important to react early enough, so 321 00:23:43,320 --> 00:23:46,399 Speaker 1: that is that is very important. There's a lot of 322 00:23:46,480 --> 00:23:49,600 Speaker 1: factors that have kept inflation and interest rates low over 323 00:23:49,640 --> 00:23:52,440 Speaker 1: the last twenty years. You said you talked about this, 324 00:23:52,600 --> 00:23:55,119 Speaker 1: but there was an enormous amount of savings relative to 325 00:23:55,160 --> 00:24:01,480 Speaker 1: the demand for investment globally. There was potentially the demographic 326 00:24:01,560 --> 00:24:06,320 Speaker 1: factors that we're pushing down long term interest rates, which 327 00:24:06,359 --> 00:24:08,920 Speaker 1: I think we know now globally certainly are going to 328 00:24:09,000 --> 00:24:12,320 Speaker 1: go into reverse because we're starting to have a declining 329 00:24:12,359 --> 00:24:15,720 Speaker 1: working age population. When you think of all that, do 330 00:24:15,800 --> 00:24:19,160 Speaker 1: you share the view that those are now going into reverse, 331 00:24:19,440 --> 00:24:23,760 Speaker 1: that we're looking at a higher interest rate environment. It's 332 00:24:23,880 --> 00:24:28,440 Speaker 1: quite difficult to predict such things, but I think they're 333 00:24:28,640 --> 00:24:33,960 Speaker 1: very good arguments for what you describe. I mean, we've 334 00:24:34,040 --> 00:24:41,399 Speaker 1: had this long period of disinflationary sharks, and of course 335 00:24:41,480 --> 00:24:48,320 Speaker 1: one of the main factors driving that was the growing 336 00:24:48,440 --> 00:24:55,480 Speaker 1: role of China in the global economy, which certainly had 337 00:24:55,520 --> 00:25:02,560 Speaker 1: a disinflationary effect globally, and UM I agree that it's 338 00:25:02,640 --> 00:25:06,439 Speaker 1: quite likely that some of that is going to reverse. 339 00:25:06,800 --> 00:25:11,840 Speaker 1: And the war, which we haven't discussed much so far, 340 00:25:12,640 --> 00:25:18,320 Speaker 1: I think it's another factor which may actually speed up 341 00:25:18,720 --> 00:25:23,640 Speaker 1: this change. I mean, what what we are seeing is 342 00:25:23,880 --> 00:25:33,440 Speaker 1: that very close reliance on a particular countries UH is 343 00:25:33,800 --> 00:25:37,760 Speaker 1: very dangerous. I mean energy that the energy reliance on 344 00:25:37,920 --> 00:25:41,520 Speaker 1: Russia in Europe is I think a very good example, 345 00:25:42,119 --> 00:25:45,680 Speaker 1: and so it's very clear that this will have profound 346 00:25:46,200 --> 00:25:52,760 Speaker 1: effects on the future design on supply chains. UM we 347 00:25:52,800 --> 00:25:59,240 Speaker 1: already discussed the green transition, which will have a major impact, 348 00:25:59,840 --> 00:26:03,600 Speaker 1: and UM in soul I think they are good arguments 349 00:26:03,880 --> 00:26:09,040 Speaker 1: to see a fundamental change in the macro economic environment 350 00:26:09,080 --> 00:26:12,160 Speaker 1: going forward, and one that becomes very much more challenging 351 00:26:12,200 --> 00:26:17,320 Speaker 1: for for central banks. Um or certainly raises raises new challenges. Finally, 352 00:26:17,359 --> 00:26:20,119 Speaker 1: I guess I should ask you your you are doing 353 00:26:20,600 --> 00:26:25,120 Speaker 1: UM an educational job with these speeches and this interview, 354 00:26:25,200 --> 00:26:29,560 Speaker 1: thinking about the the dynamics of these shocks, and as 355 00:26:29,600 --> 00:26:32,160 Speaker 1: we've as anyone paying any attention to this interview will 356 00:26:32,200 --> 00:26:34,400 Speaker 1: here most of the news is not very good. It's 357 00:26:34,400 --> 00:26:38,440 Speaker 1: some difficult inconvenient truths which get more and more inconvenient 358 00:26:39,320 --> 00:26:44,280 Speaker 1: by by the month. How would you rate the pol 359 00:26:44,480 --> 00:26:51,119 Speaker 1: politicians and the governments of Europe in helping voters understand 360 00:26:51,200 --> 00:26:56,000 Speaker 1: these difficult inconvenient truths. Do you think we've we've we're 361 00:26:56,000 --> 00:27:00,240 Speaker 1: getting any better at explaining the challenges the trade els 362 00:27:00,320 --> 00:27:06,080 Speaker 1: involved from at a political level. So I think that 363 00:27:06,600 --> 00:27:13,320 Speaker 1: in general there is far to less focus on on 364 00:27:13,320 --> 00:27:16,359 Speaker 1: on climate change in particular. Still, I mean, if we 365 00:27:16,560 --> 00:27:21,160 Speaker 1: look at how much attention was given first to the 366 00:27:21,160 --> 00:27:25,400 Speaker 1: pandemic and then to to the war, which of course 367 00:27:25,520 --> 00:27:30,800 Speaker 1: is entirely appropriate, one could be surprised that, not, to compare, 368 00:27:31,560 --> 00:27:35,320 Speaker 1: a comparable degree of attention is given to the issue 369 00:27:36,080 --> 00:27:40,080 Speaker 1: of of climate change. So I think, um, a politician 370 00:27:40,240 --> 00:27:46,280 Speaker 1: so far have not been very good at conveying the 371 00:27:46,760 --> 00:27:52,280 Speaker 1: proper chense of urgency that we're actually facing. So it 372 00:27:52,440 --> 00:27:56,720 Speaker 1: really seems that bad things have to happen in order 373 00:27:56,800 --> 00:28:03,800 Speaker 1: to convince the politicians to become more proactive also in 374 00:28:03,880 --> 00:28:07,400 Speaker 1: their communication. As we discussed, I mean, there will be 375 00:28:07,760 --> 00:28:11,320 Speaker 1: some opposition to everything that is going to be needed, 376 00:28:11,359 --> 00:28:15,760 Speaker 1: so it won't be easy. So communication will play a 377 00:28:15,800 --> 00:28:21,400 Speaker 1: fundamental role in order to make the green transition a success, 378 00:28:21,440 --> 00:28:23,840 Speaker 1: and I think much more will have to be done. 379 00:28:24,160 --> 00:28:26,639 Speaker 1: And people like Larry Summers, who we hear from a 380 00:28:26,640 --> 00:28:29,520 Speaker 1: lot on this podcast and indeed the Economist magazine, who 381 00:28:29,600 --> 00:28:32,480 Speaker 1: say that central bankers should get back to their knitting 382 00:28:33,119 --> 00:28:36,480 Speaker 1: the English expression that should stop going on about these 383 00:28:36,520 --> 00:28:38,560 Speaker 1: things that are not part of their remit. What do 384 00:28:38,640 --> 00:28:44,959 Speaker 1: you say, Yeah, I find that misguided honestly, because I mean, 385 00:28:45,000 --> 00:28:52,040 Speaker 1: we discuss how climate change effects inflation, so how could 386 00:28:52,120 --> 00:28:56,760 Speaker 1: central banks ignore that. I think it's simply not appropriate. 387 00:28:57,280 --> 00:29:02,680 Speaker 1: Climate change has fundamental implication for our primary mandate, and 388 00:29:02,760 --> 00:29:07,720 Speaker 1: so I think it's absolutely clear that that central banks 389 00:29:07,800 --> 00:29:11,360 Speaker 1: have have to look at this what it implies for 390 00:29:11,640 --> 00:29:16,960 Speaker 1: inflation and what it implies also for the design of 391 00:29:17,160 --> 00:29:23,000 Speaker 1: our operations. You could say that by the treaties we 392 00:29:23,080 --> 00:29:27,240 Speaker 1: are actually obliged to do that because we are supposed 393 00:29:28,240 --> 00:29:32,960 Speaker 1: to support the general economic policies of the EU, and 394 00:29:33,440 --> 00:29:36,280 Speaker 1: this certainly means if we have to make sure that 395 00:29:36,520 --> 00:29:40,160 Speaker 1: whatever we do is Paris Aliant talked to us about 396 00:29:40,320 --> 00:29:42,560 Speaker 1: novel member of the executive Board of the ETV. Thank 397 00:29:42,600 --> 00:29:54,880 Speaker 1: you very much, Thank you, Stephanie m Now it's no 398 00:29:54,960 --> 00:29:57,920 Speaker 1: surprise maybe the politicians don't always want to face up 399 00:29:57,920 --> 00:30:01,680 Speaker 1: to the inconvenient implications of timate change. But you'd think 400 00:30:01,800 --> 00:30:04,600 Speaker 1: anyone spending a few million dollars on a beach front 401 00:30:04,680 --> 00:30:08,320 Speaker 1: property in Florida would want to think about those implications 402 00:30:08,440 --> 00:30:10,840 Speaker 1: very carefully, especially the risk of the chunk of that 403 00:30:10,880 --> 00:30:14,080 Speaker 1: property could end up part of the ocean. But it 404 00:30:14,120 --> 00:30:17,600 Speaker 1: seems there's not a great appetite for inconvenient truths in 405 00:30:17,680 --> 00:30:21,960 Speaker 1: Miami either. He's Bloomberg opinion columnist and former Miami Bureau 406 00:30:22,040 --> 00:30:30,240 Speaker 1: chief Jonathan Levin. I hand the campions like a Miami 407 00:30:30,240 --> 00:30:35,560 Speaker 1: and there are people who think that Miami over time 408 00:30:36,040 --> 00:30:39,560 Speaker 1: will be covered with water, and a lot of people 409 00:30:39,600 --> 00:30:46,120 Speaker 1: worry about that. I don't know. Living here, obviously, I 410 00:30:46,160 --> 00:30:52,920 Speaker 1: think that, yes, obviously that's a possibility, or technology could 411 00:30:52,920 --> 00:30:56,880 Speaker 1: help prevent that from happening, because there are so many 412 00:30:56,920 --> 00:31:04,480 Speaker 1: economics interested in this city. That's Realator Maria Luisa Singh 413 00:31:04,560 --> 00:31:07,600 Speaker 1: of Keys Company, whose office sits on brick Okey, a 414 00:31:07,680 --> 00:31:10,200 Speaker 1: man made island lined with palm trees with views of 415 00:31:10,200 --> 00:31:13,960 Speaker 1: the Glassy towers in Miami's Financial district. Like many others 416 00:31:13,960 --> 00:31:17,400 Speaker 1: in South Florida, sing is optimistic the climate change won't 417 00:31:17,400 --> 00:31:20,440 Speaker 1: wreak havoc on this global tourist mecca, and believes that 418 00:31:20,480 --> 00:31:23,360 Speaker 1: money and human ingenuity could be enough to prevent a 419 00:31:23,400 --> 00:31:31,120 Speaker 1: worst case scenario. So it's something that's on people's mind 420 00:31:31,720 --> 00:31:35,360 Speaker 1: that is possible and that you have to stay on 421 00:31:35,440 --> 00:31:39,520 Speaker 1: top of it. For that reason, not everyone is willing 422 00:31:39,560 --> 00:31:44,760 Speaker 1: to invest in Miami because of that concern, but those 423 00:31:44,800 --> 00:31:51,200 Speaker 1: of us that are here assume the risk. Here in Miami, 424 00:31:51,400 --> 00:31:54,959 Speaker 1: a supercharged real estate market is fueling soaring property values, 425 00:31:55,160 --> 00:31:58,640 Speaker 1: empricing many people out of the market, and there's little 426 00:31:58,640 --> 00:32:01,920 Speaker 1: evidence that the masses are eating the potentially disastrous effects 427 00:32:01,960 --> 00:32:06,480 Speaker 1: of climate change, which is expected to increase major flooding fivefold. 428 00:32:08,040 --> 00:32:11,440 Speaker 1: In fact, a recent study led by researchers at the 429 00:32:11,560 --> 00:32:15,480 Speaker 1: US home finance giant Freddie Mac found that homes directly 430 00:32:15,520 --> 00:32:18,720 Speaker 1: exposed to sea level rise in coastal Florida command no 431 00:32:18,800 --> 00:32:22,560 Speaker 1: discount at all over those that aren't. For now, many 432 00:32:22,600 --> 00:32:25,280 Speaker 1: consumers here are left to wonder on their own about 433 00:32:25,320 --> 00:32:27,240 Speaker 1: how wise it is to buy a home in a 434 00:32:27,280 --> 00:32:30,520 Speaker 1: coastal community like this, knowing that climate change is on 435 00:32:30,560 --> 00:32:34,520 Speaker 1: the horizon, and what is a reasonable price to pay. 436 00:32:34,840 --> 00:32:38,040 Speaker 1: Among them is Kala Zobel, a year old who recently 437 00:32:38,080 --> 00:32:40,760 Speaker 1: moved to South Florida to work with the county government. 438 00:32:41,560 --> 00:32:45,680 Speaker 1: Is sort of a hazard to live in places near 439 00:32:45,760 --> 00:32:50,160 Speaker 1: water and stuff, and prices in Miami are already high, 440 00:32:50,280 --> 00:32:57,280 Speaker 1: so sea levels will continue to keep rising. One key 441 00:32:57,320 --> 00:33:01,200 Speaker 1: reason rising seas aren't priced into Miami's real estate is 442 00:33:01,240 --> 00:33:04,800 Speaker 1: that people simply aren't aware of the risks. Technically known 443 00:33:04,880 --> 00:33:09,520 Speaker 1: as information asymmetry, Florida and many of the US's most 444 00:33:09,600 --> 00:33:12,719 Speaker 1: vulnerable states have few or no laws on the books 445 00:33:12,720 --> 00:33:16,480 Speaker 1: requiring sellers to share information about flood risk. The Natural 446 00:33:16,480 --> 00:33:21,200 Speaker 1: Resources Defense Council puts Florida among twenty one jurisdictions with 447 00:33:21,280 --> 00:33:24,160 Speaker 1: a failing grade and a recent assessment of flood risk 448 00:33:24,280 --> 00:33:29,600 Speaker 1: disclosure rules here's Joel's Scotta, a water and climate attorney 449 00:33:29,680 --> 00:33:31,600 Speaker 1: with the n r d C. I think a big 450 00:33:31,600 --> 00:33:35,040 Speaker 1: problem with UM understanding floodisks in the United States is 451 00:33:35,080 --> 00:33:39,200 Speaker 1: that there is not good transparency both at the federal 452 00:33:39,280 --> 00:33:42,120 Speaker 1: informational level as well as the information that a seller 453 00:33:42,200 --> 00:33:45,760 Speaker 1: might have when it comes to disclosing potential flooderisks to 454 00:33:45,920 --> 00:33:49,840 Speaker 1: HomeBuyer UM and that needs to change. Both the federal 455 00:33:49,880 --> 00:33:53,960 Speaker 1: government through FEMA as well as states by changing the 456 00:33:54,040 --> 00:33:56,760 Speaker 1: disclosure laws, UM should require more information to be shared 457 00:33:56,760 --> 00:33:59,440 Speaker 1: about flood risks so buyers are informed and can make 458 00:33:59,440 --> 00:34:01,320 Speaker 1: good decisions about where to live and out a live. 459 00:34:02,120 --> 00:34:05,560 Speaker 1: Even in the states that require flood risk disclosure, the 460 00:34:05,600 --> 00:34:09,560 Speaker 1: assessment of risks is often based on backward looking metrics, 461 00:34:09,600 --> 00:34:11,760 Speaker 1: such as whether home has been flooded in the past, 462 00:34:12,680 --> 00:34:14,840 Speaker 1: and the warnings can be thrust upon home virus at 463 00:34:14,880 --> 00:34:17,880 Speaker 1: the eleventh hour as they're signing dozens of other documents 464 00:34:17,880 --> 00:34:21,040 Speaker 1: at a real estate closing. That means many people are 465 00:34:21,080 --> 00:34:25,480 Speaker 1: pouring their savings into properties without necessarily understanding the risks 466 00:34:25,520 --> 00:34:29,880 Speaker 1: to their investment. As Abigail Fleming, an environmental justice lawyer 467 00:34:29,920 --> 00:34:32,680 Speaker 1: and University of Miami School of Law professor, told me, 468 00:34:33,200 --> 00:34:36,839 Speaker 1: it's often low income communities of color that are most susceptible. 469 00:34:37,560 --> 00:34:40,200 Speaker 1: You know, knowledge is power, so knowledge of these risks 470 00:34:40,239 --> 00:34:44,160 Speaker 1: is really necessary for better decision making UM. But I 471 00:34:44,200 --> 00:34:48,400 Speaker 1: think these that information needs to be coupled with actions 472 00:34:48,440 --> 00:34:51,440 Speaker 1: obviously to disclose and communicate flood risks, but also those 473 00:34:51,520 --> 00:34:56,120 Speaker 1: must be supplemented with resources and options for adaptation measures. Fortunately, 474 00:34:56,360 --> 00:34:59,000 Speaker 1: some advocates are stepping up to make people more aware 475 00:34:59,000 --> 00:35:01,440 Speaker 1: of their risks they're taking on when buying property along 476 00:35:01,440 --> 00:35:06,000 Speaker 1: Florida's coasts. The real estate marketplaces Realtor, dot Com and 477 00:35:06,040 --> 00:35:09,719 Speaker 1: red fin have teamed up with nonprofit First Street Foundation 478 00:35:09,960 --> 00:35:12,920 Speaker 1: to provide flood risk ratings for properties on their websites, 479 00:35:13,440 --> 00:35:16,120 Speaker 1: and First Streets founder Matthew Abby said he would like 480 00:35:16,160 --> 00:35:20,600 Speaker 1: to extend the resource to more government entities. Meanwhile, Hawaii 481 00:35:20,719 --> 00:35:23,839 Speaker 1: just became the first state to require sea rise disclosures 482 00:35:23,840 --> 00:35:28,400 Speaker 1: and housing transactions. Effect of all may one. Still, the 483 00:35:28,480 --> 00:35:31,080 Speaker 1: US has a long way to go before consumers aren't 484 00:35:31,160 --> 00:35:34,319 Speaker 1: left in the dark. The Freddy Max study did find 485 00:35:34,360 --> 00:35:37,480 Speaker 1: that homes that are already in designated flood plans command 486 00:35:37,560 --> 00:35:40,359 Speaker 1: some discount, but that doesn't mean the price against sea 487 00:35:40,440 --> 00:35:43,480 Speaker 1: level rise. Here's study author and Freddy Max and your 488 00:35:43,520 --> 00:35:49,040 Speaker 1: economists a gitatrea to explain. We find that homes directly 489 00:35:49,120 --> 00:35:53,239 Speaker 1: exposed to projected sea level command no discount over those 490 00:35:53,360 --> 00:35:57,040 Speaker 1: that aren't exposed. There were discounts for homes in female 491 00:35:57,080 --> 00:36:00,359 Speaker 1: designated flood plans, but that's probably to upset the cost 492 00:36:00,440 --> 00:36:03,759 Speaker 1: of flood insurance buyers must carry if the mortgage is 493 00:36:03,840 --> 00:36:07,439 Speaker 1: financed with a government back lender rather than future sea 494 00:36:07,480 --> 00:36:10,840 Speaker 1: liberal rzed risk considerations, and these findings hold true for 495 00:36:11,000 --> 00:36:14,800 Speaker 1: primary residences as well as for non honor occupied properties 496 00:36:14,880 --> 00:36:20,359 Speaker 1: that are mostly investment properties. Federal flood maps are still 497 00:36:20,400 --> 00:36:23,320 Speaker 1: based on backward looking metrics and failed to reflect the 498 00:36:23,440 --> 00:36:27,480 Speaker 1: threat of future sea level rise. Also, many other properties 499 00:36:27,560 --> 00:36:30,759 Speaker 1: that aren't officially in floodplanes are nevertheless vulnerable to the 500 00:36:30,800 --> 00:36:35,040 Speaker 1: ships expected to take place in the coming decades. Not surprisingly, 501 00:36:35,400 --> 00:36:39,520 Speaker 1: politicians and their constituents often fight floodplane designations out of 502 00:36:39,560 --> 00:36:42,360 Speaker 1: concern they will depress the value of properties in their area, 503 00:36:43,120 --> 00:36:46,960 Speaker 1: But experts say vulnerable states and municipalities should instead take 504 00:36:47,000 --> 00:36:50,560 Speaker 1: the long view, give people accurate information about their flood 505 00:36:50,640 --> 00:36:54,360 Speaker 1: risk so communities can take decisive action. Here's Obel, the 506 00:36:54,440 --> 00:36:57,959 Speaker 1: new South Florida resident. I think a lot of people 507 00:36:58,080 --> 00:37:01,279 Speaker 1: just don't know, or they don't think that far into 508 00:37:01,320 --> 00:37:04,680 Speaker 1: the future, or you know, some people I don't believe 509 00:37:04,719 --> 00:37:18,720 Speaker 1: it's happening. You know. Well, that's it for this episode 510 00:37:18,719 --> 00:37:21,280 Speaker 1: of Stephanomics. We'll be back next week. In the meantime, 511 00:37:21,440 --> 00:37:23,719 Speaker 1: if you like the show, please rate it and check 512 00:37:23,719 --> 00:37:26,600 Speaker 1: out the Bloomberg News website for more economic news and 513 00:37:26,760 --> 00:37:29,520 Speaker 1: views on the global economy. You can also follow at 514 00:37:29,640 --> 00:37:33,280 Speaker 1: Economics on Twitter. This episode was produced by Mendis Hendrickson 515 00:37:33,360 --> 00:37:37,320 Speaker 1: with support from Summer Sadi, Special thanks to dr Isabel 516 00:37:37,400 --> 00:37:41,640 Speaker 1: Schnabel and Jonathan Levin. Mike Sasso is executive producer of 517 00:37:41,680 --> 00:37:44,879 Speaker 1: Stephonomics and the head of Bloomberg podcast is Francesco Levi.