1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,880 --> 00:00:10,080 Speaker 2: If you just look at the basic data and don't 3 00:00:10,080 --> 00:00:12,559 Speaker 2: look at the forecast, you would say that we would 4 00:00:12,560 --> 00:00:15,560 Speaker 2: have continued cutting. The difference, of course, is at this 5 00:00:15,720 --> 00:00:20,880 Speaker 2: time all forecasters are expecting pretty soon that some significant 6 00:00:20,880 --> 00:00:23,560 Speaker 2: inflation will show up from tariffs, and you know, we 7 00:00:23,560 --> 00:00:24,560 Speaker 2: can't just ignore that. 8 00:00:33,479 --> 00:00:36,200 Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 9 00:00:36,320 --> 00:00:39,080 Speaker 3: and welcome to Trumpanomics, the podcast that looks at the 10 00:00:39,080 --> 00:00:42,199 Speaker 3: economic world of Donald Trump, how he's already shaped the 11 00:00:42,200 --> 00:00:45,080 Speaker 3: global economy and what on earth is going to happen next. 12 00:00:45,520 --> 00:00:48,440 Speaker 3: And this week we're digging into whether the Federal Reserve 13 00:00:48,760 --> 00:00:52,159 Speaker 3: has been wrong in its assumptions about the economic impact 14 00:00:52,240 --> 00:00:56,040 Speaker 3: of Donald Trump's tariffs. The entire White House wants Federal 15 00:00:56,080 --> 00:00:59,600 Speaker 3: Reserve Chair Jpowe to lower interest rates. Commerce Secretary Howard 16 00:00:59,640 --> 00:01:03,000 Speaker 3: Luttner slammed him, saying he's afraid of his own shadow 17 00:01:03,080 --> 00:01:06,600 Speaker 3: for keeping interest rates so high. Treasury Sectory Scott Besant 18 00:01:06,640 --> 00:01:09,840 Speaker 3: has also repeatedly pointed to the markets here, arguing that 19 00:01:10,120 --> 00:01:12,960 Speaker 3: they've sent a clear signal that a cut is overdue. 20 00:01:13,520 --> 00:01:17,000 Speaker 3: And of course we've heard the President himself nickname the 21 00:01:17,000 --> 00:01:20,120 Speaker 3: FED Chair many times too late, Powell calling it a 22 00:01:20,160 --> 00:01:23,680 Speaker 3: fool not a smart person for his refusal to cut rates. 23 00:01:24,240 --> 00:01:27,760 Speaker 3: So we're asking a simple question. Do they all have 24 00:01:27,840 --> 00:01:30,759 Speaker 3: a point? I mean, maybe not about the J. Powell 25 00:01:30,760 --> 00:01:34,000 Speaker 3: being smart part, but have Chairman Powell and the Fed's 26 00:01:34,000 --> 00:01:37,399 Speaker 3: Interest Rates Setting Committee, the FMC been too slow to 27 00:01:37,480 --> 00:01:40,440 Speaker 3: cut rates? And the answer to that, it turns out, 28 00:01:40,520 --> 00:01:44,280 Speaker 3: depends on whether they're correctly judging the likely impact of 29 00:01:44,319 --> 00:01:48,600 Speaker 3: the President's tariffs on inflation. Because, by his own admission 30 00:01:49,080 --> 00:01:52,080 Speaker 3: earlier in the year, Chair Powell was expecting to have 31 00:01:52,160 --> 00:01:55,080 Speaker 3: lowered interest rates by now, and the main reason that 32 00:01:55,240 --> 00:01:58,600 Speaker 3: changed was the so called Liberation Day when President Trump 33 00:01:58,720 --> 00:02:01,920 Speaker 3: unveiled his sweeping new time tariff policy. At that point, 34 00:02:02,520 --> 00:02:05,320 Speaker 3: Powell and nearly all of his FED colleagues decided to 35 00:02:05,360 --> 00:02:08,799 Speaker 3: air on the side of caution, waiting to see if 36 00:02:08,840 --> 00:02:12,600 Speaker 3: the trade conflicts and tariffs increased inflation in the US. 37 00:02:13,320 --> 00:02:17,400 Speaker 3: But were they wrong then and are they wrong today? Well, 38 00:02:17,440 --> 00:02:20,480 Speaker 3: we have two excellent guests to discuss that. First, we've 39 00:02:20,520 --> 00:02:23,239 Speaker 3: invited back Orn Cass to Trump Andomics. He's the founder 40 00:02:23,240 --> 00:02:26,560 Speaker 3: and chief economist of American Compass, author of the once 41 00:02:26,639 --> 00:02:29,400 Speaker 3: and Future Worker, a vision for the renewal of work 42 00:02:29,440 --> 00:02:32,640 Speaker 3: in America. He's also served as a domestic policy director 43 00:02:32,639 --> 00:02:36,400 Speaker 3: for Governor Mitt Romney's twenty twelve presidential campaign, and has 44 00:02:36,440 --> 00:02:39,680 Speaker 3: been a senior fellow at the Manhattan Institute for many years. Auran, 45 00:02:39,680 --> 00:02:41,880 Speaker 3: I'm really glad to have you back on Trump andomics. 46 00:02:42,400 --> 00:02:44,760 Speaker 1: Oh, thank you that this is such a fascinating topic. 47 00:02:44,800 --> 00:02:46,320 Speaker 1: I'm excited to dig in. 48 00:02:46,400 --> 00:02:49,120 Speaker 3: That's a very good start. And back again we have 49 00:02:49,240 --> 00:02:52,600 Speaker 3: Anna Wong, chief US economist for Bloomberg Economics, and before 50 00:02:52,639 --> 00:02:55,160 Speaker 3: that she worked at the FED, US Treasury and White 51 00:02:55,200 --> 00:02:58,640 Speaker 3: House Council of Economic Advisors during Donald Trump's first term. 52 00:02:58,720 --> 00:02:59,400 Speaker 3: Ann A, great to. 53 00:02:59,360 --> 00:02:59,799 Speaker 4: Have you back. 54 00:03:00,120 --> 00:03:06,919 Speaker 3: Happy to be eat back, so lurin. There's so many 55 00:03:06,919 --> 00:03:09,680 Speaker 3: things I could talk to you about. You're relatively distinctive 56 00:03:09,880 --> 00:03:12,720 Speaker 3: in the currency of commentary on the administration, in being 57 00:03:12,760 --> 00:03:16,000 Speaker 3: both supportive of the president's basic agenda but very rigorous 58 00:03:16,040 --> 00:03:19,520 Speaker 3: in thinking about the best way to make it a reality. 59 00:03:19,840 --> 00:03:22,880 Speaker 3: And you certainly don't follow the president slavishly. But one 60 00:03:22,919 --> 00:03:24,440 Speaker 3: column you wrote I did want to talk to you 61 00:03:24,520 --> 00:03:27,800 Speaker 3: about you were really agreeing with Donald Trump in suggesting 62 00:03:27,840 --> 00:03:30,720 Speaker 3: that the FED had just got the impact of tariff's 63 00:03:30,720 --> 00:03:34,360 Speaker 3: on inflation completely wrong. So talk us through the reason 64 00:03:34,440 --> 00:03:37,960 Speaker 3: you think the FED has been wrong to talk about 65 00:03:38,000 --> 00:03:41,160 Speaker 3: and indeed lots of economists to talk about tariffs being inflationary. 66 00:03:41,600 --> 00:03:44,480 Speaker 1: Well, I think the interesting thing that I've discovered, as 67 00:03:44,520 --> 00:03:47,960 Speaker 1: I can get more involved in this fight, is that economists, actually, 68 00:03:47,960 --> 00:03:50,839 Speaker 1: for the most part, if pressed on this question, will 69 00:03:50,880 --> 00:03:55,720 Speaker 1: admit that tariffs are not inflationary. The definition of inflation, 70 00:03:55,920 --> 00:03:59,200 Speaker 1: certainly as it is relevant to a central bank setting 71 00:03:59,280 --> 00:04:05,000 Speaker 1: monetary party, concerns an ongoing increase in the overall price level. 72 00:04:05,560 --> 00:04:09,640 Speaker 1: If you choose a specific policy that by design makes 73 00:04:09,680 --> 00:04:13,680 Speaker 1: a one time change in the price of certain things, 74 00:04:14,240 --> 00:04:17,279 Speaker 1: that is not inflation in a sense that you would 75 00:04:17,360 --> 00:04:19,719 Speaker 1: want a central bank to worry about, or that you 76 00:04:19,720 --> 00:04:23,279 Speaker 1: would ever try to address by raising interest rate or 77 00:04:23,360 --> 00:04:26,599 Speaker 1: keeping interest rates higher. As far as I can tell, 78 00:04:26,760 --> 00:04:29,640 Speaker 1: you know, when economists are pushed beyond their talking points 79 00:04:29,640 --> 00:04:32,760 Speaker 1: of just hating tariffs and wanting to attack them anyway 80 00:04:33,160 --> 00:04:36,080 Speaker 1: they can, they will admit this is not what inflation 81 00:04:36,279 --> 00:04:38,920 Speaker 1: means in the way that economists are talking about it 82 00:04:38,960 --> 00:04:42,320 Speaker 1: for purposes of monetary policy. And so look, if the 83 00:04:42,360 --> 00:04:46,159 Speaker 1: FED wants to say, given current economic conditions. Broadly, we 84 00:04:46,240 --> 00:04:49,160 Speaker 1: think rates are at the current level. They could say 85 00:04:49,200 --> 00:04:52,040 Speaker 1: that the problem is that you have J. Powell out 86 00:04:52,080 --> 00:04:55,520 Speaker 1: there explicitly saying, I would say we should be cutting 87 00:04:56,080 --> 00:04:59,400 Speaker 1: except for the fact that we expect for inflation from tariffs. 88 00:04:59,720 --> 00:05:03,240 Speaker 1: That simply an indefensible position to be adopting. 89 00:05:03,720 --> 00:05:05,919 Speaker 3: Why do you think economists have been so quick to 90 00:05:06,000 --> 00:05:08,320 Speaker 3: talk about tariffs as inflationary. 91 00:05:08,279 --> 00:05:11,960 Speaker 1: Well, because I think economists, and again not hashtag not 92 00:05:12,000 --> 00:05:17,080 Speaker 1: all economists, but most economists have shown over the last 93 00:05:17,120 --> 00:05:21,360 Speaker 1: couple of years to have a very deep ideological opposition 94 00:05:21,440 --> 00:05:26,839 Speaker 1: to tariffs that has quite toxically interfered with their ability 95 00:05:26,880 --> 00:05:30,320 Speaker 1: to engage in public debates on the issue. I think 96 00:05:30,360 --> 00:05:33,840 Speaker 1: there are all sorts of perfectly valid criticisms to make 97 00:05:33,880 --> 00:05:37,920 Speaker 1: of tariffs, but economists are determined it seems to win 98 00:05:38,640 --> 00:05:42,960 Speaker 1: the political fight over them. And over the last few years, obviously, 99 00:05:43,040 --> 00:05:48,400 Speaker 1: inflation has become a very salient political concern, and so 100 00:05:49,000 --> 00:05:52,279 Speaker 1: you could see, you know, as Trump was gaining steam 101 00:05:52,360 --> 00:05:55,520 Speaker 1: last year, you just saw them start to jump up 102 00:05:55,560 --> 00:05:59,479 Speaker 1: and lob this talking point in even though you could 103 00:05:59,480 --> 00:06:01,440 Speaker 1: even go back to Trump's first term and look at 104 00:06:01,560 --> 00:06:03,719 Speaker 1: not to the same scale as what's going on right now, 105 00:06:03,839 --> 00:06:08,200 Speaker 1: but Trump imposed very significant tariffs, particularly on China. It's 106 00:06:08,320 --> 00:06:10,880 Speaker 1: very hard to find back then. A lot of people 107 00:06:11,440 --> 00:06:15,760 Speaker 1: focusing on inflation related critiques. It's also very hard to 108 00:06:15,800 --> 00:06:19,120 Speaker 1: find any inflation in the data from that period. But 109 00:06:19,720 --> 00:06:23,640 Speaker 1: this became a political point to score, and I think 110 00:06:23,720 --> 00:06:27,280 Speaker 1: unfortunately a lot of economists have decided that the ends 111 00:06:27,400 --> 00:06:28,240 Speaker 1: justify the needs. 112 00:06:28,880 --> 00:06:31,800 Speaker 3: So just to be clear, you think that prices will 113 00:06:31,839 --> 00:06:34,120 Speaker 3: go up or the price level will go up in 114 00:06:34,160 --> 00:06:37,760 Speaker 3: response to the tariffs, but nothing else will happen after that, 115 00:06:37,839 --> 00:06:40,680 Speaker 3: and there won't be any kind of increase in wages 116 00:06:40,760 --> 00:06:42,720 Speaker 3: as people try and sort of catch up with the 117 00:06:42,800 --> 00:06:46,240 Speaker 3: high cost of living represented by that high price level, 118 00:06:46,760 --> 00:06:48,640 Speaker 3: or anything else that could be inflationary. 119 00:06:49,520 --> 00:06:51,880 Speaker 1: Well, I would love to see an increase of wages 120 00:06:52,279 --> 00:06:55,720 Speaker 1: because we see investments in that lead to rising productivity. 121 00:06:56,000 --> 00:06:59,800 Speaker 1: But with respect to other macroeconomic effects like you just mentioned, 122 00:07:00,360 --> 00:07:02,400 Speaker 1: you know, I really do think the right way to 123 00:07:03,160 --> 00:07:06,400 Speaker 1: analyze tariffs is the way that we analyze other taxes. 124 00:07:06,800 --> 00:07:10,880 Speaker 1: If somebody proposed the addition of a VAT, economists would 125 00:07:10,920 --> 00:07:13,360 Speaker 1: not warn that it is inflationary. If anything, they would 126 00:07:13,360 --> 00:07:17,239 Speaker 1: say it's probably deflationary because we would potentially be raising 127 00:07:17,240 --> 00:07:21,240 Speaker 1: additional revenue and that could go towards addressing the deficeit. 128 00:07:21,480 --> 00:07:25,120 Speaker 1: I think another very good example is carbon taxes. Without 129 00:07:25,160 --> 00:07:27,720 Speaker 1: saying any but the merits of carbon taxes, it's safe 130 00:07:27,760 --> 00:07:31,960 Speaker 1: to say that the many economists that aggressively support carbon 131 00:07:32,000 --> 00:07:36,320 Speaker 1: taxes as efficient and the ultimate in wise neoliberal policy 132 00:07:36,800 --> 00:07:39,560 Speaker 1: do not spend a lot of time worrying that that 133 00:07:39,720 --> 00:07:43,400 Speaker 1: is going to set off some sort of inflationary spiral. 134 00:07:43,600 --> 00:07:46,760 Speaker 1: What you are getting is a change in relative prices. 135 00:07:47,440 --> 00:07:50,200 Speaker 1: Of course, you also have the problem that economists are 136 00:07:50,280 --> 00:07:52,120 Speaker 1: talking out of both sides of their mouth, because what 137 00:07:52,440 --> 00:07:55,480 Speaker 1: they really say is that they think tariffs are going 138 00:07:55,520 --> 00:07:59,320 Speaker 1: to slow the economy down. If they actually took seriously 139 00:07:59,360 --> 00:08:02,080 Speaker 1: their own view of the effects that tariffs would have, 140 00:08:02,560 --> 00:08:06,760 Speaker 1: should probably lean toward looser monetary policy. If anything, this 141 00:08:06,920 --> 00:08:09,600 Speaker 1: is not an argument about the independence of the FED. 142 00:08:10,120 --> 00:08:12,800 Speaker 1: This is not an argument that prices are not going 143 00:08:12,800 --> 00:08:15,240 Speaker 1: to rise in some cases that consumers are going to 144 00:08:15,240 --> 00:08:18,640 Speaker 1: feel the effects. That all is true, and in fact, 145 00:08:18,680 --> 00:08:21,920 Speaker 1: that is the point of tariffs. But if what you're 146 00:08:21,920 --> 00:08:25,080 Speaker 1: asking is how a central bank and how monetary policy 147 00:08:25,600 --> 00:08:29,680 Speaker 1: should address them, it seems to have gotten very unproductively 148 00:08:29,840 --> 00:08:33,240 Speaker 1: entangled in a lot of this political rhetoric as opposed 149 00:08:33,240 --> 00:08:36,320 Speaker 1: to what it is that economists themselves are otherwise arguing 150 00:08:36,679 --> 00:08:37,880 Speaker 1: in almost every case. 151 00:08:38,600 --> 00:08:40,760 Speaker 3: Now, Anna, I know there's lots of different pieces of this, 152 00:08:40,840 --> 00:08:43,640 Speaker 3: so we'll try and sort of unpack different elements. But 153 00:08:43,920 --> 00:08:47,040 Speaker 3: as our chief you, as economists, you're obviously trying, as 154 00:08:47,080 --> 00:08:49,439 Speaker 3: far as any of us is humanly able, to strip 155 00:08:49,640 --> 00:08:53,280 Speaker 3: ideological concerns and politics out of your analysis. You're mainly 156 00:08:53,320 --> 00:08:56,320 Speaker 3: looking day to day at what you're actually seeing in 157 00:08:56,320 --> 00:08:59,200 Speaker 3: the economy and then thinking how that feeds through into 158 00:08:59,240 --> 00:09:02,200 Speaker 3: your full cast and your analysis. But if you're stepping 159 00:09:02,240 --> 00:09:04,760 Speaker 3: back from all of that, a few months ago, would 160 00:09:04,760 --> 00:09:07,240 Speaker 3: you have said these tarerts are going to be inflationary? 161 00:09:07,960 --> 00:09:10,920 Speaker 4: Yeah, a few months ago I had penciled in a 162 00:09:11,120 --> 00:09:15,760 Speaker 4: point three percentage point increase in the core PC from 163 00:09:15,840 --> 00:09:19,320 Speaker 4: all the tariffs, and I still maintained that forecast, And 164 00:09:19,360 --> 00:09:23,040 Speaker 4: I also had written a lot about how I think 165 00:09:23,120 --> 00:09:25,600 Speaker 4: there's a big chunk of the tariffs that would be 166 00:09:25,679 --> 00:09:30,880 Speaker 4: absorbed through profit margin and that services this inflation can 167 00:09:30,920 --> 00:09:33,280 Speaker 4: offset some of them. Given that US at the end 168 00:09:33,320 --> 00:09:36,920 Speaker 4: of the day is a service oriented economy. 169 00:09:37,520 --> 00:09:40,839 Speaker 3: And so what is your response to to Ooren's argument, 170 00:09:40,880 --> 00:09:43,480 Speaker 3: do you think the FED has overdone the risk of 171 00:09:43,520 --> 00:09:47,440 Speaker 3: inflation from these tariffs, because of course we would expect 172 00:09:47,679 --> 00:09:51,480 Speaker 3: a short term increase in prices without necessarily thinking that 173 00:09:51,559 --> 00:09:55,040 Speaker 3: this is an inflation problem that the central bank needs 174 00:09:55,080 --> 00:09:55,800 Speaker 3: to respond to. 175 00:09:56,840 --> 00:09:59,959 Speaker 4: Right. The reason why I had that view a couple 176 00:10:00,160 --> 00:10:04,360 Speaker 4: months ago that there's a possibility that the tariffs would 177 00:10:04,360 --> 00:10:09,600 Speaker 4: not be as inflationary is because of fed's own internal 178 00:10:09,679 --> 00:10:13,520 Speaker 4: models back in twenty eighteen. So, back in twenty eighteen, 179 00:10:13,600 --> 00:10:17,400 Speaker 4: in one of the FOMC meeting, FED staff were studying 180 00:10:17,679 --> 00:10:21,800 Speaker 4: why aren't tariffs as inflationary as they had forecasted. 181 00:10:21,320 --> 00:10:23,319 Speaker 3: The first round of Trump tariffs? 182 00:10:23,520 --> 00:10:26,920 Speaker 4: Yes, and they ran two models. This is a very 183 00:10:27,240 --> 00:10:31,080 Speaker 4: well established internal general equal over model, and one of 184 00:10:31,080 --> 00:10:36,160 Speaker 4: them shows that if tariffs were imposed in primarily intermediate goods, 185 00:10:36,200 --> 00:10:39,680 Speaker 4: which it was back in twenty eighteen twenty nineteen, then 186 00:10:40,360 --> 00:10:44,479 Speaker 4: the inflation would be very short lived and even deflationary 187 00:10:44,600 --> 00:10:48,800 Speaker 4: after the first couple of quarters. And then another version 188 00:10:48,840 --> 00:10:51,040 Speaker 4: of the models, as supposed that all the tariffs were 189 00:10:51,080 --> 00:10:55,040 Speaker 4: on consumption, what happens? It also shows that the tariffs 190 00:10:55,520 --> 00:10:58,080 Speaker 4: would be a one off price level shock. In fact, 191 00:10:58,320 --> 00:11:03,360 Speaker 4: the FED even ransom versions of the optimal monetary policy 192 00:11:03,480 --> 00:11:07,240 Speaker 4: of whether to look through this tariff shock versus not 193 00:11:07,280 --> 00:11:11,600 Speaker 4: looking through, and the model would find that raising rates 194 00:11:11,640 --> 00:11:15,080 Speaker 4: in respond to the price increase would not actually reduce 195 00:11:15,480 --> 00:11:20,000 Speaker 4: inflation any further from the tariff. So the conclusion is 196 00:11:20,040 --> 00:11:24,679 Speaker 4: that if inflation expectations are anchored, there is no point 197 00:11:24,880 --> 00:11:29,199 Speaker 4: in responding to the tariffs. So what's changed in this 198 00:11:29,400 --> 00:11:32,360 Speaker 4: round in trade war? Number two in the FED thinking 199 00:11:32,840 --> 00:11:37,199 Speaker 4: and respond to tariffs, from my observation is number one, 200 00:11:37,360 --> 00:11:40,640 Speaker 4: they seem to be not so sure whether that inflation 201 00:11:41,160 --> 00:11:45,960 Speaker 4: expectations are anchored, so that is the precondition of monetary 202 00:11:46,000 --> 00:11:51,080 Speaker 4: policy not looking through these tariff shocks. And second, they 203 00:11:51,120 --> 00:11:55,839 Speaker 4: seem to be really embracing a new trade literature that 204 00:11:56,040 --> 00:11:59,920 Speaker 4: use a new type of trade models, and those trade 205 00:12:00,120 --> 00:12:04,200 Speaker 4: models would come to different conclusions than the models that 206 00:12:04,240 --> 00:12:06,640 Speaker 4: the FED used in twenty eighteen. And the new conclusion 207 00:12:06,720 --> 00:12:10,240 Speaker 4: is that in fact, tariffs on intermediate goods would be 208 00:12:10,360 --> 00:12:16,480 Speaker 4: persistently inflationary due to the impact on productivity. So from 209 00:12:16,520 --> 00:12:19,440 Speaker 4: where I see it, those two are the key differences 210 00:12:19,480 --> 00:12:24,040 Speaker 4: intellectual key differences for why the FED is responding differently 211 00:12:24,160 --> 00:12:26,719 Speaker 4: than from the lesson they learned in twenty eighteen and 212 00:12:26,800 --> 00:12:27,559 Speaker 4: twenty nineteen. 213 00:12:27,840 --> 00:12:32,000 Speaker 3: That's an interesting comparison. The importance for the judgment called 214 00:12:32,000 --> 00:12:35,240 Speaker 3: by the central bank of whether or not they view 215 00:12:35,960 --> 00:12:39,559 Speaker 3: inflation expectations to be well anchored. Is there a risk, 216 00:12:40,000 --> 00:12:44,280 Speaker 3: because people are already worried about inflation, that this so 217 00:12:44,400 --> 00:12:47,960 Speaker 3: called one off increase in prices will actually cause people 218 00:12:48,000 --> 00:12:51,120 Speaker 3: to demand catch up wages and then sort of spiral 219 00:12:51,200 --> 00:12:54,319 Speaker 3: after that and it will become inflationary. Or are they 220 00:12:54,320 --> 00:12:57,280 Speaker 3: pretty confident going into it that this is just a 221 00:12:57,280 --> 00:12:59,840 Speaker 3: one off that inflation's going to stay low, in which 222 00:12:59,840 --> 00:13:02,440 Speaker 3: case you probably don't want to do anything. And you 223 00:13:02,480 --> 00:13:06,040 Speaker 3: had an example, I think in Japan when they increased VAT, 224 00:13:06,559 --> 00:13:09,160 Speaker 3: the central bank didn't do anything, allowed the inflation to 225 00:13:09,640 --> 00:13:13,720 Speaker 3: effect to come in, and then inflation fell back down 226 00:13:13,880 --> 00:13:16,040 Speaker 3: and there was no issue with how the central bank 227 00:13:16,120 --> 00:13:20,240 Speaker 3: had left it because expectations were well anchored, Whereas in Turkey, 228 00:13:20,360 --> 00:13:23,120 Speaker 3: where there was a lot more question mark around the 229 00:13:23,120 --> 00:13:26,480 Speaker 3: independence of the central bank and the likelihood of further inflation, 230 00:13:26,800 --> 00:13:30,880 Speaker 3: they had increased taxes VAT through the two thousands, and 231 00:13:30,920 --> 00:13:35,040 Speaker 3: that had actually helped to further un anchor inflation expectations. 232 00:13:35,200 --> 00:13:37,959 Speaker 3: The sort of pre existing situation in terms of what 233 00:13:37,960 --> 00:13:41,160 Speaker 3: people are expecting about inflation matters, And I guess coming 234 00:13:41,200 --> 00:13:43,520 Speaker 3: back to you are and I mean, is it your 235 00:13:43,640 --> 00:13:47,000 Speaker 3: view that there was no risk of that kind because 236 00:13:47,080 --> 00:13:50,840 Speaker 3: inflation expectations coming in this period were basically well anchored. 237 00:13:51,600 --> 00:13:56,600 Speaker 1: If you are wondering how consumers feel about inflation, then 238 00:13:56,679 --> 00:14:01,360 Speaker 1: of course what the Central pain does and says is 239 00:14:01,600 --> 00:14:05,199 Speaker 1: quite endogenous to that question. So what you can't have, 240 00:14:05,400 --> 00:14:08,120 Speaker 1: and apparently we do now have, is a set of 241 00:14:08,160 --> 00:14:11,400 Speaker 1: models that say tariffs are not inflationary, a set of 242 00:14:11,480 --> 00:14:14,600 Speaker 1: economists to say, oh, but we really don't like tariffs, 243 00:14:15,040 --> 00:14:17,440 Speaker 1: and therefore we are going to spend years running around 244 00:14:17,520 --> 00:14:21,200 Speaker 1: shouting that tariffs are inflationary, even though we know that 245 00:14:21,280 --> 00:14:24,160 Speaker 1: our own models say that they are not, until we 246 00:14:24,240 --> 00:14:28,120 Speaker 1: persuade consumers that they will be inflationary, at which point 247 00:14:28,160 --> 00:14:30,800 Speaker 1: we can say, you see now, they will be inflationary 248 00:14:30,880 --> 00:14:33,600 Speaker 1: and use that as an excuse to impose a monetary 249 00:14:33,640 --> 00:14:37,960 Speaker 1: policy directly counter to the political choices that people have 250 00:14:38,080 --> 00:14:43,520 Speaker 1: made supporting an agenda that focuses heavily on accepting a 251 00:14:43,640 --> 00:14:46,040 Speaker 1: change in the price level to induce higher levels of 252 00:14:46,080 --> 00:14:49,280 Speaker 1: domestic investment. And so this is where I just get 253 00:14:49,320 --> 00:14:51,680 Speaker 1: so frustrated that the sorts of things that I'm talking 254 00:14:51,760 --> 00:14:53,840 Speaker 1: about are pointed at. It's like, oh, he doesn't respect 255 00:14:53,920 --> 00:14:58,040 Speaker 1: central bank independence. I would like nothing more than a competent, honest, 256 00:14:58,120 --> 00:15:03,240 Speaker 1: independent roach to setting monetary policy, and that is not 257 00:15:03,280 --> 00:15:05,440 Speaker 1: what we are getting right now. If the FED had 258 00:15:05,480 --> 00:15:08,960 Speaker 1: spent the last couple of years accurately communicating, if the 259 00:15:08,960 --> 00:15:11,960 Speaker 1: economists had spent the last couple of years accurately communicating 260 00:15:12,280 --> 00:15:15,520 Speaker 1: what their own view of terror effects on price levels 261 00:15:15,600 --> 00:15:19,480 Speaker 1: would likely be, we could have this conversation. I think 262 00:15:19,520 --> 00:15:22,120 Speaker 1: it is. It is very hard to stummach situation where 263 00:15:22,240 --> 00:15:26,200 Speaker 1: they have created this consumer mentality that they now say 264 00:15:26,240 --> 00:15:29,160 Speaker 1: that they need to counter with policies that their own 265 00:15:29,200 --> 00:15:31,280 Speaker 1: models said they should not need to be using. 266 00:15:31,960 --> 00:15:35,400 Speaker 3: I like the way you describe it. But one could 267 00:15:35,400 --> 00:15:40,440 Speaker 3: also say that the FED itself had played a role 268 00:15:40,560 --> 00:15:43,840 Speaker 3: in unanchoring inflation expectations. You know, we highlighted some of 269 00:15:43,880 --> 00:15:46,960 Speaker 3: the comments from the Lutnik, and the President himself at 270 00:15:46,960 --> 00:15:50,480 Speaker 3: the beginning would say that the FED had got policy 271 00:15:50,560 --> 00:15:53,200 Speaker 3: wrong in a very damaging way and had let inflation 272 00:15:53,280 --> 00:15:56,320 Speaker 3: get out of control. They would say for political reasons. 273 00:15:56,640 --> 00:16:00,320 Speaker 3: Presidence says it was because he was Ja Power's trying 274 00:16:00,320 --> 00:16:04,680 Speaker 3: to get the Democrats re elected. But putting that to 275 00:16:04,720 --> 00:16:06,800 Speaker 3: one side, that a lot of people would say there 276 00:16:06,840 --> 00:16:10,480 Speaker 3: had been a policy mistake which had then left a 277 00:16:10,520 --> 00:16:14,760 Speaker 3: situation where there was a potential unanchoring of expectations that 278 00:16:14,800 --> 00:16:17,200 Speaker 3: people had begun to expect inflation. So I guess the 279 00:16:17,200 --> 00:16:19,600 Speaker 3: critics can't have it both ways. They can't say they 280 00:16:19,640 --> 00:16:23,240 Speaker 3: caused a lot of damage by allowing inflation to stay 281 00:16:23,240 --> 00:16:25,040 Speaker 3: as high as it was for as long as it was, 282 00:16:25,880 --> 00:16:28,640 Speaker 3: but now they shouldn't be taking that into account and 283 00:16:28,680 --> 00:16:31,920 Speaker 3: thinking through the long, longer term impact of tariffs. 284 00:16:32,800 --> 00:16:35,000 Speaker 1: Well, I guess I would look at that a little 285 00:16:35,000 --> 00:16:38,040 Speaker 1: bit differently, which is that, Yes, I think it is 286 00:16:38,280 --> 00:16:41,120 Speaker 1: very fair to say that the FED damaged its credibility 287 00:16:41,720 --> 00:16:45,960 Speaker 1: by getting this wrong last time. I do not think 288 00:16:46,000 --> 00:16:50,320 Speaker 1: it helps the Fed's credibility that when one party's administration 289 00:16:50,560 --> 00:16:54,480 Speaker 1: pursued one set of policies that, frankly, I think most 290 00:16:54,480 --> 00:17:01,600 Speaker 1: economists would say are very inflationary, like dumping trillions of 291 00:17:01,600 --> 00:17:07,080 Speaker 1: of additional spending into an arguably overheated economy in ways, 292 00:17:07,240 --> 00:17:11,320 Speaker 1: you know, long after the economic effects of COVID past, 293 00:17:11,760 --> 00:17:13,960 Speaker 1: when you look at that and say, well, you know, hey, 294 00:17:14,080 --> 00:17:16,720 Speaker 1: maybe they let's let's hold off, and you get it 295 00:17:16,720 --> 00:17:19,919 Speaker 1: completely wrong. And then the other party comes in with 296 00:17:20,000 --> 00:17:23,240 Speaker 1: a set of policies that, in fact your own models 297 00:17:23,240 --> 00:17:26,439 Speaker 1: say are not inflationary, but there are policies you don't like. 298 00:17:27,160 --> 00:17:32,359 Speaker 1: You then take exactly the opposite stance again. If we 299 00:17:32,480 --> 00:17:35,480 Speaker 1: want to characterize the Federal as primarily to be the 300 00:17:35,560 --> 00:17:39,600 Speaker 1: nation's psychologist and stick its finger in the wind, I 301 00:17:39,600 --> 00:17:42,719 Speaker 1: guess it can justify anything it wants to do, but 302 00:17:42,920 --> 00:17:47,320 Speaker 1: I think it is it is badly and frankly more 303 00:17:47,400 --> 00:17:51,520 Speaker 1: so than Donald Trump, endangering its credibility as an independent 304 00:17:51,560 --> 00:17:56,720 Speaker 1: institution if it takes what are clearly such nakedly political 305 00:17:56,840 --> 00:18:01,720 Speaker 1: judgments in lieu of actually doing what I economic theory 306 00:18:01,760 --> 00:18:07,120 Speaker 1: and common sense say would be good governance of monetary policy. 307 00:18:08,080 --> 00:18:11,880 Speaker 3: And you spent a formative part of your career as 308 00:18:11,920 --> 00:18:16,159 Speaker 3: a FED economist, I suspect that you will be conflicted 309 00:18:16,200 --> 00:18:18,199 Speaker 3: in answering this question. But do you think that the 310 00:18:18,240 --> 00:18:22,120 Speaker 3: FED has been coherent in its approach over the last 311 00:18:22,119 --> 00:18:24,439 Speaker 3: couple of years, and particularly the arguments it's had with 312 00:18:24,560 --> 00:18:27,960 Speaker 3: itself and made to the public over the last six months. 313 00:18:28,000 --> 00:18:32,520 Speaker 4: Over taris, Yes, definitely, I am conflicted because I think 314 00:18:32,840 --> 00:18:37,680 Speaker 4: the truth is I think there's a difference between FED 315 00:18:37,760 --> 00:18:45,240 Speaker 4: independence and FED accountability. I wholeheartedly support FED independence, but 316 00:18:45,359 --> 00:18:51,200 Speaker 4: on the accountability part, if a public institution demonstrates in 317 00:18:51,240 --> 00:18:54,520 Speaker 4: the past five years that it had made so many 318 00:18:54,640 --> 00:18:59,920 Speaker 4: policy mistakes and misjudged forecast, then it probably is not 319 00:19:00,440 --> 00:19:05,119 Speaker 4: enough to say that, well, most of the economist professions 320 00:19:05,240 --> 00:19:09,280 Speaker 4: says this, so we are not alone in making this mistake, 321 00:19:09,880 --> 00:19:15,000 Speaker 4: and accountability begins with looking deep into the institution to 322 00:19:15,119 --> 00:19:18,280 Speaker 4: figure out why is it that the FED, with all 323 00:19:18,320 --> 00:19:21,440 Speaker 4: this very smart economists, and I have to say FED 324 00:19:21,480 --> 00:19:25,440 Speaker 4: economists are the smartest people I've met, why do they 325 00:19:25,800 --> 00:19:31,480 Speaker 4: persistently take the sides on these economic issues that turned 326 00:19:31,520 --> 00:19:36,119 Speaker 4: out to be wrong? And so to Ourn's point, I 327 00:19:36,160 --> 00:19:39,440 Speaker 4: would look at this not as you know, the FED 328 00:19:39,480 --> 00:19:44,679 Speaker 4: policy mistakes driven by FED economists actively being political to 329 00:19:45,119 --> 00:19:50,800 Speaker 4: thwart President Trump's agenda, but more like it is a 330 00:19:50,840 --> 00:19:56,160 Speaker 4: bigger issue of group think in the economic profession, for example, 331 00:19:56,240 --> 00:19:59,320 Speaker 4: thinking why in twenty twenty one that their focus is 332 00:19:59,359 --> 00:20:04,119 Speaker 4: on labor scarring when you know, the thirty people CEA 333 00:20:05,040 --> 00:20:10,399 Speaker 4: in the administration already had calculated that the extended unemployment 334 00:20:10,440 --> 00:20:14,600 Speaker 4: insurance will more than cover income for half of the population, 335 00:20:14,720 --> 00:20:17,200 Speaker 4: and therefore people would be not motivated to work. 336 00:20:17,480 --> 00:20:20,600 Speaker 3: So there were sort of intellectual biases rather than political bias. 337 00:20:20,800 --> 00:20:23,240 Speaker 3: You would yes, you're going on that assumption. 338 00:20:26,640 --> 00:20:29,320 Speaker 1: Just to jump in briefly, the idea that intellectual biases 339 00:20:29,359 --> 00:20:34,080 Speaker 1: and political biases are separate, I think fair enough. 340 00:20:34,440 --> 00:20:35,320 Speaker 3: Fair enough, I will. 341 00:20:35,160 --> 00:20:38,959 Speaker 1: Take Anna's acknowledgment of intellectual bias as in fact an 342 00:20:38,960 --> 00:20:40,960 Speaker 1: acknowledgment of political. 343 00:20:40,720 --> 00:20:43,200 Speaker 3: Okay, But the example there was what you might call 344 00:20:43,400 --> 00:20:46,879 Speaker 3: in retrospect and excessive focus and excessive concern for labor 345 00:20:46,920 --> 00:20:49,720 Speaker 3: market scarring. But I think economists on all sides would 346 00:20:49,720 --> 00:20:52,720 Speaker 3: be concerned about labor market scarring, you know, long term 347 00:20:52,760 --> 00:20:55,600 Speaker 3: impacts of COVID for the labor market. 348 00:20:56,600 --> 00:21:00,119 Speaker 1: No, I completely agree that that labor market scarring is 349 00:21:00,119 --> 00:21:02,840 Speaker 1: is an important issue. I would just say also that 350 00:21:02,920 --> 00:21:06,680 Speaker 1: reindustrialization is an important issue. And so in the moment 351 00:21:06,720 --> 00:21:10,520 Speaker 1: where you have an administration with a I would say 352 00:21:10,840 --> 00:21:18,280 Speaker 1: quite robustly politically ratified strategy of intentionally raising prices on 353 00:21:18,359 --> 00:21:21,959 Speaker 1: imports making a price level change on imports in an 354 00:21:21,960 --> 00:21:26,560 Speaker 1: effort to induce high levels of domestic investment, which, by 355 00:21:26,560 --> 00:21:30,560 Speaker 1: the way, would would directly indicate and benefit from lower 356 00:21:30,560 --> 00:21:35,760 Speaker 1: interest rates. To take that sort of set of priorities 357 00:21:35,760 --> 00:21:38,399 Speaker 1: and curR concerns and say no, no, that, you know, 358 00:21:38,520 --> 00:21:43,600 Speaker 1: we must stay laser focused on on well, frankly, it's 359 00:21:43,640 --> 00:21:46,360 Speaker 1: not clear to me what the focused on at this point. 360 00:21:46,560 --> 00:21:49,080 Speaker 1: Whereas when we have a democratic administration saying, oh, we 361 00:21:49,119 --> 00:21:51,399 Speaker 1: need to we need to dump trillions of dollars of 362 00:21:51,480 --> 00:21:55,320 Speaker 1: stimulus into the economy as a way of addressing a 363 00:21:55,359 --> 00:21:57,080 Speaker 1: set of concerns, and weould say, oh, well, let's we 364 00:21:57,160 --> 00:21:58,960 Speaker 1: better give them the benefit of the doubt and let 365 00:21:59,040 --> 00:22:02,960 Speaker 1: them run with that. That is hard to square. 366 00:22:03,520 --> 00:22:05,920 Speaker 3: Okay, so we've done a lot. We've sort of done 367 00:22:05,960 --> 00:22:08,840 Speaker 3: a little bit of climbing in the brain of the 368 00:22:08,880 --> 00:22:11,440 Speaker 3: bed as far as we can and thinking about whether 369 00:22:11,520 --> 00:22:13,280 Speaker 3: or not it made sense to have the judgments that 370 00:22:13,280 --> 00:22:15,399 Speaker 3: they've had. But I mean, some people listening would say, 371 00:22:15,400 --> 00:22:18,280 Speaker 3: hang on a minute, can't we just ask anna what's 372 00:22:18,280 --> 00:22:20,959 Speaker 3: actually happening in the economy. I know it's early days, 373 00:22:21,000 --> 00:22:24,520 Speaker 3: but are we getting a sense of who's right and 374 00:22:24,560 --> 00:22:25,159 Speaker 3: who's wrong. 375 00:22:25,680 --> 00:22:29,359 Speaker 4: Our team come at this from both a theoretical and 376 00:22:29,560 --> 00:22:34,439 Speaker 4: empirical and data science perspective. So in terms of just 377 00:22:34,560 --> 00:22:37,880 Speaker 4: looking at the type of prices that we have been 378 00:22:38,280 --> 00:22:42,280 Speaker 4: seeing increase in the past three months since Liberation Day, 379 00:22:42,760 --> 00:22:47,280 Speaker 4: so we have seen that of each one percentage point 380 00:22:47,400 --> 00:22:53,080 Speaker 4: shock to tariffs, we have estimated approximately zero point three 381 00:22:53,400 --> 00:22:58,000 Speaker 4: percentage passed through to consumer prices, and most of this 382 00:22:58,240 --> 00:23:03,560 Speaker 4: is concentrated in these discretionary consumer goods like household appliances, 383 00:23:04,880 --> 00:23:08,520 Speaker 4: audio equipments and such, and they make up about less 384 00:23:08,520 --> 00:23:11,480 Speaker 4: than ten percent of the CPI. On the other hand, 385 00:23:11,720 --> 00:23:16,280 Speaker 4: the consumer sentiments shock from Liberation Day, what it did 386 00:23:16,400 --> 00:23:21,840 Speaker 4: is immediately dampen services spending and also discretionary stuff such 387 00:23:21,840 --> 00:23:26,360 Speaker 4: as travel and hotels. So we have seen both air 388 00:23:26,440 --> 00:23:30,680 Speaker 4: fears and hotels more than offset the tariff passed through 389 00:23:30,720 --> 00:23:34,560 Speaker 4: so far. So on net, the CPI has still been 390 00:23:34,840 --> 00:23:37,679 Speaker 4: very subdued in the past four months. For that reason, 391 00:23:38,200 --> 00:23:41,520 Speaker 4: and looking forward to the next couple of months and 392 00:23:41,880 --> 00:23:44,520 Speaker 4: next week in the FMC meeting, the FED is most 393 00:23:44,640 --> 00:23:50,639 Speaker 4: likely to hold raised constant even with two possible descent 394 00:23:50,840 --> 00:23:56,120 Speaker 4: from FED governors Bob Waller and Bowen, and the reasoning 395 00:23:56,160 --> 00:23:59,320 Speaker 4: for holding raids constant is that they expect that with 396 00:23:59,520 --> 00:24:04,520 Speaker 4: infant horries to sales, the stockpiled inventories running out in 397 00:24:04,720 --> 00:24:08,879 Speaker 4: July and August, firms will have to restock at higher prices, 398 00:24:08,920 --> 00:24:13,560 Speaker 4: and therefore that the long forecasted inflation search will come 399 00:24:13,880 --> 00:24:17,840 Speaker 4: after July. So I think to settle the argument of 400 00:24:18,160 --> 00:24:21,720 Speaker 4: whether tariffs are inflationary or not, really, the key data 401 00:24:21,760 --> 00:24:24,320 Speaker 4: points will happen over the next two months. 402 00:24:24,800 --> 00:24:26,879 Speaker 3: As you say, at the very least, it seems like 403 00:24:27,000 --> 00:24:29,359 Speaker 3: they are airing on the side of caution, and they've 404 00:24:29,359 --> 00:24:32,640 Speaker 3: almost made a virtue of that in the comment. I mean, 405 00:24:32,640 --> 00:24:36,000 Speaker 3: do you think Anna that they should just cut rates 406 00:24:36,320 --> 00:24:39,360 Speaker 3: next week and not be so cautious because they could 407 00:24:39,400 --> 00:24:43,040 Speaker 3: always obviously increase interest rates if they got it wrong. 408 00:24:43,640 --> 00:24:47,800 Speaker 4: So I'm arriving at a similar conclusion as Orrent, but 409 00:24:48,119 --> 00:24:50,760 Speaker 4: not for the exact reason, which is that I think 410 00:24:50,880 --> 00:24:55,760 Speaker 4: that the FED is, you know, being somewhat internally inconsistent 411 00:24:55,880 --> 00:24:59,800 Speaker 4: for saying that inflation expectations are very well anchored. 412 00:25:00,320 --> 00:25:02,920 Speaker 3: If they really were, then they wouldn't be so worried 413 00:25:02,920 --> 00:25:05,440 Speaker 3: about the long term effects. Yeah, exactly. 414 00:25:05,640 --> 00:25:10,000 Speaker 4: So one thing has to be wrong, which is inflation 415 00:25:10,160 --> 00:25:14,760 Speaker 4: expectation really not anchored that well. Or is it that 416 00:25:15,480 --> 00:25:20,200 Speaker 4: inflation are anchored well, but then they are expecting something 417 00:25:20,240 --> 00:25:23,200 Speaker 4: that is outside of what their models would tell them. 418 00:25:23,480 --> 00:25:26,960 Speaker 4: And I would take the side that I think, in fact, 419 00:25:27,119 --> 00:25:32,399 Speaker 4: inflation expectations are not very well anchored. So the part 420 00:25:32,440 --> 00:25:36,760 Speaker 4: where I'm agreeing with Oren is that maybe the FED 421 00:25:36,880 --> 00:25:40,760 Speaker 4: had made several policy mistakes the last four years, perhaps 422 00:25:40,800 --> 00:25:45,119 Speaker 4: by caring too much about soft landing and therefore not 423 00:25:45,359 --> 00:25:51,240 Speaker 4: returning inflation expeditiously to two percent and leaving a situation 424 00:25:51,359 --> 00:25:55,560 Speaker 4: today where you have a terror shock that should be 425 00:25:56,359 --> 00:25:59,560 Speaker 4: just a price level impact, should just induce a price 426 00:25:59,640 --> 00:26:03,160 Speaker 4: level impact. But because of those not very well anchored 427 00:26:03,240 --> 00:26:05,320 Speaker 4: inflation expectations, they couldn't cut. 428 00:26:05,920 --> 00:26:09,359 Speaker 3: Okay, we get to the end. Orn You've reminded us 429 00:26:09,400 --> 00:26:11,240 Speaker 3: a couple of times in this conversation that there is 430 00:26:11,280 --> 00:26:15,760 Speaker 3: actually a point behind higher tariffs, and certainly from your 431 00:26:15,760 --> 00:26:19,240 Speaker 3: perspective and the perspective of all those who who see 432 00:26:19,280 --> 00:26:23,520 Speaker 3: this as part of a reindustrialization of America agenda. So 433 00:26:23,800 --> 00:26:25,720 Speaker 3: I feel like we should at least end by asking 434 00:26:25,760 --> 00:26:27,360 Speaker 3: you how you think that's going. You know, the way 435 00:26:27,400 --> 00:26:30,440 Speaker 3: that the tariff's deals are working out. You know, we've 436 00:26:30,440 --> 00:26:32,760 Speaker 3: now had a few from quite a lot of the 437 00:26:32,880 --> 00:26:37,040 Speaker 3: sort of East Asian high exporting economies have now appeared 438 00:26:37,080 --> 00:26:39,880 Speaker 3: to have struct deals with the administration. Do you think 439 00:26:39,920 --> 00:26:42,560 Speaker 3: that the kind of level of tariffs that are coming 440 00:26:42,600 --> 00:26:46,400 Speaker 3: out of those deals, maybe fifteen twenty percent for most goods, 441 00:26:46,720 --> 00:26:50,400 Speaker 3: you know, is consistent with a decent chunk of production 442 00:26:50,520 --> 00:26:51,480 Speaker 3: coming back to the US. 443 00:26:52,920 --> 00:26:55,000 Speaker 1: Yeah, I think it certainly is. I think we are 444 00:26:55,240 --> 00:26:59,560 Speaker 1: very early days, obviously in a process where the first 445 00:26:59,600 --> 00:27:03,879 Speaker 1: step is inducing investment, and so you know, the the 446 00:27:04,600 --> 00:27:06,960 Speaker 1: gains that we should expect to see are things that 447 00:27:07,200 --> 00:27:11,560 Speaker 1: are going to come out over the next few years. 448 00:27:12,520 --> 00:27:14,679 Speaker 1: You Know, what I think is most encouraging is that 449 00:27:15,520 --> 00:27:18,600 Speaker 1: raising a sort of baseline across the board tariff, having 450 00:27:18,800 --> 00:27:21,840 Speaker 1: much higher tariffs on China. Both of those things I 451 00:27:21,840 --> 00:27:24,879 Speaker 1: think are increasingly kind of priced in, so to speak, 452 00:27:24,920 --> 00:27:30,119 Speaker 1: as the new status quo. And contrary to virtually every 453 00:27:30,200 --> 00:27:33,480 Speaker 1: economists predictions, those those things appear to be things that 454 00:27:33,560 --> 00:27:37,399 Speaker 1: you can in fact put into place without the world 455 00:27:37,480 --> 00:27:39,919 Speaker 1: coming to an end. And so I think that's a 456 00:27:40,000 --> 00:27:44,000 Speaker 1: very good start. I think with these country by country negotiations, 457 00:27:44,080 --> 00:27:46,840 Speaker 1: you know, we're starting to see these deals emerge. I 458 00:27:46,880 --> 00:27:51,120 Speaker 1: think even those have proved not especially stable thus far, 459 00:27:51,200 --> 00:27:53,200 Speaker 1: and so it's going to take some time to see 460 00:27:53,200 --> 00:27:56,960 Speaker 1: what has actually been agreed to and what's going into effect. 461 00:27:57,600 --> 00:27:59,520 Speaker 1: As you mentioned it at the outset, I have no 462 00:27:59,600 --> 00:28:03,560 Speaker 1: shortage of complaints at the tactical level with how things 463 00:28:03,600 --> 00:28:06,320 Speaker 1: are going. I think, you know, stability and certainty is 464 00:28:07,160 --> 00:28:11,320 Speaker 1: vital to this sort of project working, and we need 465 00:28:11,320 --> 00:28:14,359 Speaker 1: a lot more of that. But I think the extent 466 00:28:14,400 --> 00:28:16,520 Speaker 1: to which everything that we were told was going to 467 00:28:16,560 --> 00:28:20,200 Speaker 1: go horribly wrong has not, and things we were told 468 00:28:20,400 --> 00:28:24,919 Speaker 1: could not possibly happen in fact are starting to happen. 469 00:28:25,640 --> 00:28:31,119 Speaker 1: I think that is all cause for cause, cause for optimism. 470 00:28:31,240 --> 00:28:33,200 Speaker 3: This is not going to end though, right because I mean, 471 00:28:33,840 --> 00:28:36,440 Speaker 3: another thing that's happened that was supposed to be much 472 00:28:36,560 --> 00:28:38,600 Speaker 3: harder than it appears to have been, which is the 473 00:28:38,640 --> 00:28:42,920 Speaker 3: closing of the border means potentially of quite a dramatic 474 00:28:43,040 --> 00:28:47,920 Speaker 3: reduction in labor force growth this year for the US, 475 00:28:48,320 --> 00:28:51,800 Speaker 3: and that also is something that could push up wages 476 00:28:52,000 --> 00:28:55,840 Speaker 3: along with this sort of increase in import prices. You know, 477 00:28:55,880 --> 00:28:58,000 Speaker 3: you've said, you know that you'd like to see that 478 00:28:58,040 --> 00:29:00,760 Speaker 3: as a step towards the sort of re endotualization. It's 479 00:29:00,760 --> 00:29:05,400 Speaker 3: a natural part of that reindustrialization process in the US. 480 00:29:05,760 --> 00:29:09,120 Speaker 3: But it'll trigger all the same kind of debates about inflation, right, 481 00:29:10,400 --> 00:29:11,040 Speaker 3: it will. 482 00:29:11,080 --> 00:29:15,320 Speaker 1: And it will trigger all the same humiliating hypocrisy from 483 00:29:15,320 --> 00:29:19,040 Speaker 1: a profession that's spent the era of open borders telling 484 00:29:19,120 --> 00:29:21,800 Speaker 1: us that this does not affect wages because of course 485 00:29:21,880 --> 00:29:26,640 Speaker 1: the immigrants are consumers as well as producers, until the 486 00:29:26,680 --> 00:29:30,280 Speaker 1: moment when inflation became a concern, and then they started 487 00:29:30,360 --> 00:29:33,360 Speaker 1: arguing no, no, no, no, you need these high levels of 488 00:29:33,360 --> 00:29:38,200 Speaker 1: immigration to expand labor supply, as if those people are 489 00:29:38,200 --> 00:29:43,200 Speaker 1: not equally consumers and producers. Look, I do think that 490 00:29:43,320 --> 00:29:48,040 Speaker 1: restrict immigration would have a positive long run effect on wages. 491 00:29:48,200 --> 00:29:51,240 Speaker 1: I think that's a trade off, even if it comes 492 00:29:51,280 --> 00:29:55,320 Speaker 1: with again changes in price levels that we should absolutely embrace. 493 00:29:55,960 --> 00:29:58,960 Speaker 1: But I have even less patients on this front than 494 00:29:59,000 --> 00:30:04,080 Speaker 1: on the trade runt for the spine shattering whiplash of 495 00:30:04,200 --> 00:30:09,320 Speaker 1: a switch from telling us that, of course, immigrants have 496 00:30:09,400 --> 00:30:12,160 Speaker 1: balanced effect on both sides of the labor markets as 497 00:30:12,200 --> 00:30:15,479 Speaker 1: consumers and producers, to telling us that if we pursue 498 00:30:15,480 --> 00:30:20,080 Speaker 1: a policy that economists don't like, for ideological reasons it's 499 00:30:20,120 --> 00:30:25,000 Speaker 1: going to have wildly imbalanced effects and so we can't 500 00:30:25,000 --> 00:30:26,400 Speaker 1: do it well. 501 00:30:26,440 --> 00:30:29,360 Speaker 3: And if anyone wants to hear your views in greater 502 00:30:29,520 --> 00:30:31,760 Speaker 3: depth on that subject, it was actually what we discussed 503 00:30:31,800 --> 00:30:33,520 Speaker 3: when you came on the show at the beginning of 504 00:30:33,520 --> 00:30:35,520 Speaker 3: the year. But or in Cass, thank you so much 505 00:30:35,560 --> 00:30:39,120 Speaker 3: for joining us. I suspect if all the scary forecasts 506 00:30:39,840 --> 00:30:44,520 Speaker 3: from the implications of Donald Trump's policies continue to not 507 00:30:44,640 --> 00:30:46,720 Speaker 3: quite be born out, I suspect we will have you 508 00:30:46,760 --> 00:30:48,320 Speaker 3: back again. Thanks very much. 509 00:30:48,680 --> 00:30:50,600 Speaker 1: And if they are all born out, I'm happy. 510 00:30:50,360 --> 00:30:53,840 Speaker 3: To thank you very much, and thank you to Anna. 511 00:30:54,400 --> 00:31:00,920 Speaker 3: Thank you. It's good to be here again, and thank 512 00:31:00,960 --> 00:31:03,440 Speaker 3: you for listening to Trumponomics from Bloomberg. It was hosted 513 00:31:03,480 --> 00:31:05,840 Speaker 3: by me Stephanie Flanders, and I was joined by the 514 00:31:05,880 --> 00:31:09,880 Speaker 3: economist Orn Cass and Bloomberg's chief US economist, Anna Wong. 515 00:31:10,400 --> 00:31:13,760 Speaker 3: Trumponomics is produced by Samasadi and Moses and Dam with 516 00:31:13,840 --> 00:31:17,160 Speaker 3: help from Amy Keen. Sound design is by Blake Maples 517 00:31:17,200 --> 00:31:20,440 Speaker 3: and Sage Bowman is head of podcast for Bloomberg and 518 00:31:20,560 --> 00:31:23,240 Speaker 3: please help everyone else find it and enjoy it, rate 519 00:31:23,320 --> 00:31:26,080 Speaker 3: it and review it highly. Wherever you found it