1 00:00:10,800 --> 00:00:14,840 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,920 --> 00:00:19,040 Speaker 1: I'm Joe Wisn't Thal and I'm Tracy all Away. So 3 00:00:19,120 --> 00:00:22,560 Speaker 1: I don't know about you, Tracy, but I would definitely 4 00:00:22,600 --> 00:00:26,159 Speaker 1: say that when the crisis hit earlier this year and 5 00:00:26,239 --> 00:00:31,480 Speaker 1: the stock market crashed and layoff surge, I definitely got 6 00:00:31,560 --> 00:00:36,000 Speaker 1: pretty intense flashbacks to uh, the Great Recession, the financial 7 00:00:36,040 --> 00:00:39,159 Speaker 1: crisis ten years ago. Yeah, I mean I think a 8 00:00:39,159 --> 00:00:42,640 Speaker 1: lot of people did. I think there were The big 9 00:00:42,680 --> 00:00:45,480 Speaker 1: debate that was going on at the time was whether 10 00:00:45,600 --> 00:00:49,000 Speaker 1: or not two thousand eight or two thousand twenty was 11 00:00:49,040 --> 00:00:53,200 Speaker 1: going to be like the defining financial crisis for a 12 00:00:53,240 --> 00:00:56,640 Speaker 1: particular group of people. And um, I think that debate 13 00:00:56,680 --> 00:01:00,840 Speaker 1: is still going on. But for sure, we've never seen 14 00:01:00,880 --> 00:01:05,120 Speaker 1: anything quite like this. And in March we had of 15 00:01:05,200 --> 00:01:10,360 Speaker 1: financial crisis alongside a real economy crisis with lots of 16 00:01:10,400 --> 00:01:13,080 Speaker 1: businesses going into lockdown and things like that, and I 17 00:01:13,120 --> 00:01:15,720 Speaker 1: think that was probably the major difference with what we 18 00:01:15,760 --> 00:01:20,920 Speaker 1: saw in two right, And I think now in December 19 00:01:22,760 --> 00:01:25,920 Speaker 1: and looking at the aftermath, we could say safely that 20 00:01:26,720 --> 00:01:29,520 Speaker 1: so far, anyway, the aftermath of what we experienced in 21 00:01:29,560 --> 00:01:33,600 Speaker 1: March and April has really been nothing like the financial crisis. 22 00:01:33,680 --> 00:01:36,800 Speaker 1: Of course, we have stocks not just at all time highs, 23 00:01:36,840 --> 00:01:41,880 Speaker 1: but um well above the pre crisis highs. Already, home prices, 24 00:01:42,520 --> 00:01:44,840 Speaker 1: there's a housing boom happening, which probably not a lot 25 00:01:44,840 --> 00:01:47,400 Speaker 1: of people would have guessed. You know, the unemployment rate, 26 00:01:47,480 --> 00:01:50,760 Speaker 1: it's still quite elevated, but it's come down a lot 27 00:01:50,880 --> 00:01:54,400 Speaker 1: faster than a lot of people anticipated. So that another 28 00:01:54,560 --> 00:01:58,240 Speaker 1: sort of difference from two thousand, two thousand nine, where 29 00:01:58,520 --> 00:02:03,040 Speaker 1: the recovery and unemployment was extremely slow. Yeah. I think 30 00:02:03,080 --> 00:02:05,040 Speaker 1: that's right. And certainly if you talk to a lot 31 00:02:05,080 --> 00:02:07,520 Speaker 1: of people in March, no one would have expected to 32 00:02:07,560 --> 00:02:10,160 Speaker 1: see their maybound in risk assets that we've seen, and 33 00:02:10,280 --> 00:02:12,960 Speaker 1: no one would have expected that everyone would be buying, 34 00:02:13,120 --> 00:02:15,440 Speaker 1: you know, houses, or those people that can afford them 35 00:02:15,480 --> 00:02:19,800 Speaker 1: would be buying the houses. Um. I do think the 36 00:02:19,880 --> 00:02:23,400 Speaker 1: big difference this time around has probably been how quickly 37 00:02:24,000 --> 00:02:28,320 Speaker 1: uh the Federal Reserve reacted, and also how quickly Washington 38 00:02:28,680 --> 00:02:31,560 Speaker 1: rolled out that stimulus package, which kind of begs the 39 00:02:31,639 --> 00:02:35,520 Speaker 1: question about what comes next, because as we're recording this, 40 00:02:36,400 --> 00:02:42,560 Speaker 1: the next round of stimulus is stuck in political gridlock. Right. 41 00:02:42,639 --> 00:02:47,359 Speaker 1: We are recording this h December Wednesday, December sixt or 42 00:02:47,440 --> 00:02:50,720 Speaker 1: some headlines this morning that they might be UM close 43 00:02:50,800 --> 00:02:53,080 Speaker 1: to a deal, so by the time people are listening, 44 00:02:53,080 --> 00:02:55,799 Speaker 1: we'll probably know. Also there is an fo of C 45 00:02:56,080 --> 00:03:00,239 Speaker 1: decision today, So again we're having this conversation prior air 46 00:03:00,800 --> 00:03:03,480 Speaker 1: to that, you know, in the context of the sort 47 00:03:03,480 --> 00:03:07,359 Speaker 1: of surprising recovery and how it's not like the GFC aftermath. 48 00:03:07,840 --> 00:03:11,320 Speaker 1: I think one of the first clues or one of 49 00:03:11,360 --> 00:03:15,920 Speaker 1: the first people who helped me really understand the difference 50 00:03:16,520 --> 00:03:19,440 Speaker 1: was our guest. Today. We're gonna be speaking with h 51 00:03:19,639 --> 00:03:23,760 Speaker 1: Jan Hats Here's the chief economist at Goldman Sachs or 52 00:03:23,880 --> 00:03:27,320 Speaker 1: role he's occupied since and it was a note of 53 00:03:27,440 --> 00:03:31,400 Speaker 1: his I think sometime in April making what at the 54 00:03:31,520 --> 00:03:36,360 Speaker 1: time was I thought a pretty extraordinary call, which is 55 00:03:36,440 --> 00:03:39,560 Speaker 1: that he thought, um, thanks to the Cares Act and 56 00:03:39,880 --> 00:03:44,360 Speaker 1: fiscal stimulus, that household income would actually be up in 57 00:03:45,360 --> 00:03:46,840 Speaker 1: which is not what you expect to see when the 58 00:03:46,920 --> 00:03:49,720 Speaker 1: unemployment rate is spiking. And to me that was like 59 00:03:49,800 --> 00:03:52,320 Speaker 1: one of the first times I saw someone like really 60 00:03:52,360 --> 00:03:55,280 Speaker 1: crystallized this idea that this is going to be a 61 00:03:55,280 --> 00:03:57,640 Speaker 1: different year that the two thousand and eight two thousand 62 00:03:57,680 --> 00:04:04,960 Speaker 1: nine playbook cannot really apply to this kind of a crisis. Yeah, 63 00:04:05,000 --> 00:04:07,960 Speaker 1: I agree, and a lot of people follow hatsis work, 64 00:04:08,000 --> 00:04:10,320 Speaker 1: and I do think some of what he's written about 65 00:04:10,360 --> 00:04:14,120 Speaker 1: recently kind of gets to the heart of the big 66 00:04:14,200 --> 00:04:18,280 Speaker 1: question going into which is how is the consumer going 67 00:04:18,360 --> 00:04:22,160 Speaker 1: to react? What's consumer confidence going to look like? Are 68 00:04:22,200 --> 00:04:25,640 Speaker 1: we going to get this pent up demands scenario where 69 00:04:26,080 --> 00:04:28,640 Speaker 1: once we get a vaccine and the lockdown gets rolled back, 70 00:04:28,680 --> 00:04:33,000 Speaker 1: everyone goes out and spends and makes up for lost 71 00:04:33,040 --> 00:04:35,279 Speaker 1: time by going to bars and restaurants and things like that. 72 00:04:35,680 --> 00:04:38,880 Speaker 1: Or are we going to see sub sort of permanent 73 00:04:39,000 --> 00:04:44,480 Speaker 1: damage to consumer confidence after the events of Absolutely well, 74 00:04:44,520 --> 00:04:47,520 Speaker 1: I'm I can't think of a better guest to talk 75 00:04:47,560 --> 00:04:50,839 Speaker 1: about to finish up this extraordinary year in the economy 76 00:04:50,839 --> 00:04:54,479 Speaker 1: and look ahead to next year. Then, So, Jan, thank 77 00:04:54,480 --> 00:04:57,080 Speaker 1: you very much for joining us. Thank you for having me. 78 00:04:57,240 --> 00:05:01,880 Speaker 1: You guys are being too kind, So so tell us 79 00:05:01,880 --> 00:05:06,200 Speaker 1: about the crash the crisis from your perspective. Hey, did 80 00:05:06,240 --> 00:05:10,200 Speaker 1: you also get some of those two thousand eight, two 81 00:05:10,200 --> 00:05:16,640 Speaker 1: thousand nine flashbacks and how quickly did you realize that 82 00:05:16,640 --> 00:05:20,839 Speaker 1: that playbook would not apply to Well, we certainly got 83 00:05:20,880 --> 00:05:26,120 Speaker 1: some flashbacks in in March. Given the sort of lack 84 00:05:26,240 --> 00:05:31,400 Speaker 1: of normal functioning and a number of of financial markets, 85 00:05:31,520 --> 00:05:34,760 Speaker 1: especially the bond markets. I mean, there was a there 86 00:05:34,760 --> 00:05:36,880 Speaker 1: were a lot of comparisons, and there were a lot 87 00:05:36,880 --> 00:05:41,120 Speaker 1: of people that thought, actually, if anything, this looks worse 88 00:05:41,240 --> 00:05:43,640 Speaker 1: than than than two thousand and eight, and all that 89 00:05:43,760 --> 00:05:45,800 Speaker 1: may have been in the in the heat of the moment. 90 00:05:45,800 --> 00:05:48,480 Speaker 1: While you're going through it, of course, it always looks worse. 91 00:05:48,560 --> 00:05:53,640 Speaker 1: But there were definitely some very very unsettled weeks when 92 00:05:53,640 --> 00:05:57,400 Speaker 1: there was a lot of concern about about market functioning. 93 00:05:57,440 --> 00:06:00,080 Speaker 1: I don't think there was ever the same kind of 94 00:06:00,160 --> 00:06:03,080 Speaker 1: concern about the financial system, So I think that was 95 00:06:03,680 --> 00:06:06,479 Speaker 1: a difference. Even even going through I think there was 96 00:06:06,520 --> 00:06:12,760 Speaker 1: a generally greater degree of confidence that financial institutions were, 97 00:06:12,839 --> 00:06:16,520 Speaker 1: you know, in much better shape, partly because of the 98 00:06:16,560 --> 00:06:20,480 Speaker 1: regulatory response that we saw after the two thousand and 99 00:06:20,520 --> 00:06:23,880 Speaker 1: eight crisis. But but in terms of market functioning, I 100 00:06:23,960 --> 00:06:26,520 Speaker 1: think there were there were clearly some some flashbacks. I 101 00:06:26,560 --> 00:06:30,640 Speaker 1: think it was also clear, you know, taking a somewhat 102 00:06:30,640 --> 00:06:33,159 Speaker 1: broader view and not just looking at what happened in 103 00:06:33,160 --> 00:06:37,000 Speaker 1: the bond markets, that the economic backdrop was quite different 104 00:06:37,240 --> 00:06:40,560 Speaker 1: the down turn. It became clear, you know, very quickly 105 00:06:40,960 --> 00:06:45,360 Speaker 1: in in early March was probably going to be significantly 106 00:06:45,400 --> 00:06:48,320 Speaker 1: bigger than what you had in two thousand and eight, 107 00:06:48,760 --> 00:06:52,719 Speaker 1: just in terms of the decline in GDP in the 108 00:06:52,839 --> 00:06:59,000 Speaker 1: second quarter and the you know, the drop was driven 109 00:06:59,000 --> 00:07:02,159 Speaker 1: by very different fact It wasn't driven by financial factors, 110 00:07:02,839 --> 00:07:07,719 Speaker 1: you know, ability to pay or or or asset values, 111 00:07:07,800 --> 00:07:10,960 Speaker 1: but it was really driven by a physical constraint on 112 00:07:11,840 --> 00:07:15,640 Speaker 1: on economic activity. So, I mean, there there were some similarities, 113 00:07:15,840 --> 00:07:20,080 Speaker 1: but I also think that it became pretty clear that 114 00:07:20,320 --> 00:07:24,280 Speaker 1: the economic environment was you know, it was just a 115 00:07:24,400 --> 00:07:28,120 Speaker 1: very very different shock, and I had to be really 116 00:07:28,160 --> 00:07:32,800 Speaker 1: analyzed I think, in its in its own right, and 117 00:07:32,840 --> 00:07:36,880 Speaker 1: not not really through the lens not too much through 118 00:07:36,920 --> 00:07:40,760 Speaker 1: the lens of two thousand and eight. MM. So Joe 119 00:07:40,800 --> 00:07:45,000 Speaker 1: mentioned your April note where you sort of identified some 120 00:07:45,040 --> 00:07:48,160 Speaker 1: of the differences between the crisis versus the two thousand 121 00:07:48,200 --> 00:07:52,840 Speaker 1: eight crisis. Uh More recently, I believe you have a 122 00:07:52,880 --> 00:07:58,559 Speaker 1: pretty out of consensus call on economic growth for versus 123 00:07:58,600 --> 00:08:01,560 Speaker 1: the rest of the street. What are you seeing that 124 00:08:01,960 --> 00:08:05,400 Speaker 1: other people aren't seeing at the moment? And also back 125 00:08:05,440 --> 00:08:11,200 Speaker 1: in April, I think it goes back to the previous question. 126 00:08:12,080 --> 00:08:15,720 Speaker 1: I do think that it's A, it's a very different cycle. 127 00:08:15,920 --> 00:08:18,560 Speaker 1: So that's that's really the main answer. I think it's 128 00:08:18,600 --> 00:08:22,520 Speaker 1: a it's a very different cycle. It was really driven 129 00:08:22,600 --> 00:08:26,680 Speaker 1: by a health emergency that forced us to shut down 130 00:08:26,760 --> 00:08:31,560 Speaker 1: parts of the economy. Uh And it wasn't driven by 131 00:08:31,760 --> 00:08:35,119 Speaker 1: you know, a bursting asset bubble and a credit crisis 132 00:08:35,440 --> 00:08:39,400 Speaker 1: that that you know, might have taken and did take 133 00:08:39,640 --> 00:08:43,080 Speaker 1: years to unwind after the two thousand eight prices and 134 00:08:43,720 --> 00:08:46,319 Speaker 1: through a degree to a much milder degree, even after 135 00:08:46,360 --> 00:08:51,440 Speaker 1: the two thousand and one recession and after recession, those 136 00:08:51,480 --> 00:08:58,520 Speaker 1: were all driven by really financial factors and financial imbalances 137 00:08:58,559 --> 00:09:01,680 Speaker 1: that that to a long time to unwind. This was 138 00:09:01,760 --> 00:09:06,560 Speaker 1: driven by uh A, you know, just very very different factors. 139 00:09:06,800 --> 00:09:09,120 Speaker 1: You know. I think policy plays a very important role 140 00:09:09,160 --> 00:09:14,840 Speaker 1: as well. As we discussed the policy response by both 141 00:09:15,000 --> 00:09:18,160 Speaker 1: monetary and fiscal policy was so much more aggressive this time. 142 00:09:18,520 --> 00:09:22,520 Speaker 1: And my favorite statistic in in terms of how that 143 00:09:22,600 --> 00:09:24,679 Speaker 1: sort of looks in the economic data is the fact 144 00:09:24,720 --> 00:09:28,280 Speaker 1: that the second quarter of two thousand twenty saw the 145 00:09:28,320 --> 00:09:33,360 Speaker 1: biggest decline ever in GDP and the biggest increase ever 146 00:09:33,559 --> 00:09:37,400 Speaker 1: in real disposible income. And most of these things are correlated. 147 00:09:37,440 --> 00:09:39,240 Speaker 1: When one is down the other style as well, and 148 00:09:39,360 --> 00:09:41,640 Speaker 1: vice versa. In this case they were they not only 149 00:09:41,720 --> 00:09:45,000 Speaker 1: went in opposite directions, but but in both cases to 150 00:09:45,040 --> 00:09:47,600 Speaker 1: a to a record degree. And I think that really 151 00:09:48,080 --> 00:09:52,960 Speaker 1: speaks to the enormously aggressive h policy response that we 152 00:09:53,000 --> 00:09:54,880 Speaker 1: saw in the US and in a number of other 153 00:09:54,920 --> 00:09:59,199 Speaker 1: countries as well. So, as mentioned in the intro, when 154 00:09:59,200 --> 00:10:02,360 Speaker 1: we're recording this, we don't actually know, um, what's going 155 00:10:02,400 --> 00:10:05,200 Speaker 1: to happen with whether there be an additional round of 156 00:10:05,720 --> 00:10:09,520 Speaker 1: fiscal stimulus or not. But you know, one thing that 157 00:10:09,600 --> 00:10:11,800 Speaker 1: we do know is that at least on the aggregate 158 00:10:11,920 --> 00:10:17,240 Speaker 1: basis right now, household balance sheets, um, they look very healthy. 159 00:10:17,360 --> 00:10:18,880 Speaker 1: People have a lot of cash, they have a lot 160 00:10:18,880 --> 00:10:22,960 Speaker 1: of savings, um, and so forth. So look ahead, you know, 161 00:10:23,040 --> 00:10:27,199 Speaker 1: let's say like we're having this conversation again in December, 162 00:10:29,600 --> 00:10:33,320 Speaker 1: and presumably by then we've had a successful rollout of 163 00:10:33,360 --> 00:10:38,200 Speaker 1: the vaccine and the economy is fully reopened. Knock on wood, 164 00:10:38,920 --> 00:10:44,720 Speaker 1: How significant is the prospect of fiscal stimulus or how 165 00:10:44,800 --> 00:10:49,160 Speaker 1: different does the economy look in December, whether we get 166 00:10:49,160 --> 00:10:52,920 Speaker 1: this extra jolt of fiscal stimulus in the meantime to 167 00:10:53,040 --> 00:10:58,520 Speaker 1: get us through from now until reopening. I think From 168 00:10:58,600 --> 00:11:03,079 Speaker 1: that perspective, it's not clear how how big the difference 169 00:11:03,200 --> 00:11:06,680 Speaker 1: is going to be between a situation where we get 170 00:11:06,760 --> 00:11:11,800 Speaker 1: near term stimulus and a situation where we don't. I 171 00:11:11,840 --> 00:11:14,559 Speaker 1: do think that in the shorter term, as far as 172 00:11:15,200 --> 00:11:18,640 Speaker 1: you know, the remainder of two thousand and twenty and 173 00:11:18,840 --> 00:11:21,800 Speaker 1: first quarter and maybe second quarter of two thousand and 174 00:11:22,080 --> 00:11:24,760 Speaker 1: twenty one is concerned, it's going to make a significant difference. 175 00:11:24,840 --> 00:11:27,840 Speaker 1: There is a still a strong case, I think, for 176 00:11:28,000 --> 00:11:30,680 Speaker 1: providing additional support to the economy because in the in 177 00:11:30,720 --> 00:11:33,840 Speaker 1: the short term, despite the fact that the vaccine is 178 00:11:33,920 --> 00:11:38,120 Speaker 1: likely to help a lot and bring the economy back 179 00:11:38,160 --> 00:11:41,040 Speaker 1: to normal um to a large extent in two thousand 180 00:11:41,040 --> 00:11:44,400 Speaker 1: twenty one, in the short term, virus cases continue to 181 00:11:44,440 --> 00:11:48,680 Speaker 1: be extremely high, and the economy is still, you know, 182 00:11:48,800 --> 00:11:53,480 Speaker 1: far away from from full employment despite the progress that 183 00:11:53,480 --> 00:11:58,080 Speaker 1: that we've made. So I think there is temporary weakness 184 00:11:58,080 --> 00:12:03,679 Speaker 1: that I think it's very amenable to to to policy support, 185 00:12:03,880 --> 00:12:06,600 Speaker 1: and there's a there's a strong case, especially if it's 186 00:12:06,960 --> 00:12:11,120 Speaker 1: you know, temporary amount of weakness, is a strong case 187 00:12:11,240 --> 00:12:17,720 Speaker 1: for using both monetary and especially fiscal policy to relieve 188 00:12:18,200 --> 00:12:22,480 Speaker 1: the hardship that is being h that's being caused by 189 00:12:22,520 --> 00:12:25,760 Speaker 1: by this, by this neotrom neotrom Don John. Of course, 190 00:12:25,800 --> 00:12:29,360 Speaker 1: monitory and fiscal policy aren't aren't the right tools to 191 00:12:29,360 --> 00:12:33,360 Speaker 1: address the health emergency itself, but they can maically reduce 192 00:12:33,840 --> 00:12:37,480 Speaker 1: the fallout in terms of jobs and incomes and knock 193 00:12:37,520 --> 00:12:41,840 Speaker 1: on effects to other sectors of the economy. M so. 194 00:12:42,360 --> 00:12:44,920 Speaker 1: On that note, I have a related question, but how 195 00:12:45,000 --> 00:12:49,200 Speaker 1: much I mean, we've seen financial conditions loosen quite significantly 196 00:12:49,360 --> 00:12:52,760 Speaker 1: in the aftermath of everything that's happened in March. How 197 00:12:52,840 --> 00:12:59,000 Speaker 1: much to easier financial conditions offset the damage to the 198 00:12:59,000 --> 00:13:05,000 Speaker 1: real economy. Well, easier financial conditions certainly help in supporting 199 00:13:05,040 --> 00:13:09,000 Speaker 1: accurate demand. I mean the point of our financial Conditions Index, 200 00:13:09,080 --> 00:13:13,560 Speaker 1: which is currently at its easiest level on record, and 201 00:13:13,640 --> 00:13:17,559 Speaker 1: we have this back to the early nineties. The point 202 00:13:17,600 --> 00:13:21,080 Speaker 1: of the financial conditions index is to measure how the 203 00:13:21,160 --> 00:13:26,560 Speaker 1: channels of monetary transmission, you know, on the yields, equity prices, 204 00:13:26,800 --> 00:13:30,720 Speaker 1: credit spreads, currency, how they are affecting the real economy. 205 00:13:30,720 --> 00:13:32,559 Speaker 1: And if you're at a very easy level and you've 206 00:13:32,600 --> 00:13:36,760 Speaker 1: seen a sizeable easing in terms of rates of change, 207 00:13:37,160 --> 00:13:42,400 Speaker 1: then you're you're getting a positive impulse to uh to 208 00:13:42,960 --> 00:13:46,280 Speaker 1: do the economy from that um and so that's certainly helping. 209 00:13:46,480 --> 00:13:49,839 Speaker 1: But at the same time we are well below for 210 00:13:49,960 --> 00:13:55,040 Speaker 1: employment and inflation is well below the FEDS target, so 211 00:13:55,880 --> 00:14:00,880 Speaker 1: you know, more supportive the economy is. Still that's still helpful. 212 00:14:00,920 --> 00:14:04,480 Speaker 1: And I would say also that on the fiscal side, 213 00:14:04,800 --> 00:14:09,559 Speaker 1: of course, if you provide income support to those people 214 00:14:09,600 --> 00:14:13,920 Speaker 1: in the economy are most aren't hit by the weakness. 215 00:14:14,080 --> 00:14:18,599 Speaker 1: I mean that they generally don't benefit from easy financial conditions, 216 00:14:18,640 --> 00:14:23,120 Speaker 1: that they might get an indirect benefit, but directly if 217 00:14:23,160 --> 00:14:26,520 Speaker 1: financial conditions are easy, that doesn't replace income directly, so 218 00:14:26,640 --> 00:14:30,720 Speaker 1: that's still a job for fiscal policy. Were you surprised 219 00:14:30,880 --> 00:14:34,560 Speaker 1: speaking of not replacing income directly? I mean, we're having 220 00:14:34,600 --> 00:14:37,240 Speaker 1: this debate now about stimulus, but we've had a long 221 00:14:37,320 --> 00:14:42,320 Speaker 1: gap and the expanded unemployment insurance that was established under 222 00:14:42,320 --> 00:14:46,040 Speaker 1: the Cares Act in late March that ran out I 223 00:14:46,080 --> 00:14:48,480 Speaker 1: think at the end of July, so we've had this 224 00:14:49,080 --> 00:14:52,040 Speaker 1: long gap of sort of a bit of a removal 225 00:14:52,080 --> 00:14:56,080 Speaker 1: of fiscal support. Have you been Were you surprised in 226 00:14:56,160 --> 00:14:59,120 Speaker 1: a sort of late summer the fall that there was 227 00:14:59,200 --> 00:15:02,960 Speaker 1: not a more pronounced ramification from the end of that 228 00:15:03,480 --> 00:15:07,680 Speaker 1: extra expanded aid to the unemployed. Yeah, we were a 229 00:15:07,680 --> 00:15:10,560 Speaker 1: little surprised by that. We would have thought that we'd 230 00:15:10,560 --> 00:15:17,720 Speaker 1: get a clearer signal or clearer signs of deterioration when 231 00:15:17,720 --> 00:15:20,600 Speaker 1: we look at some of the micro data on spending 232 00:15:20,760 --> 00:15:25,560 Speaker 1: by unemployed and employed people we did. We do find 233 00:15:25,760 --> 00:15:30,000 Speaker 1: some very clear effects of the expiration of the of 234 00:15:30,040 --> 00:15:32,840 Speaker 1: the six hundred dollar check checks, and then we see 235 00:15:33,120 --> 00:15:36,680 Speaker 1: a sort of temporary increase in spending by the by 236 00:15:36,720 --> 00:15:40,000 Speaker 1: the unemployed, again on the back of the executive orders 237 00:15:40,200 --> 00:15:44,520 Speaker 1: that that partially replaced this um the six hundred dollars, 238 00:15:44,520 --> 00:15:47,000 Speaker 1: but only for a temporary period, So that that shows 239 00:15:47,080 --> 00:15:50,320 Speaker 1: up pretty clearly in the in the data. But it 240 00:15:50,720 --> 00:15:54,720 Speaker 1: uh the levels are generally higher than you might have 241 00:15:55,200 --> 00:15:57,560 Speaker 1: then you might have expected the potals of spending by 242 00:15:57,680 --> 00:16:00,240 Speaker 1: by the unemployed. So I think it's it probably only 243 00:16:00,280 --> 00:16:04,760 Speaker 1: shows you that the initial amount of income support, both 244 00:16:04,840 --> 00:16:10,160 Speaker 1: from the unemployment benefits and from the tax rebates was 245 00:16:10,320 --> 00:16:13,720 Speaker 1: large enough to provide a bit of a cushion and 246 00:16:14,200 --> 00:16:16,760 Speaker 1: you know, boost spending. Who's the level of spending for 247 00:16:16,920 --> 00:16:20,080 Speaker 1: a period of time. So it's probably still being boosted 248 00:16:20,080 --> 00:16:23,960 Speaker 1: to some degree by the by the earlier stimulus. But 249 00:16:24,720 --> 00:16:27,840 Speaker 1: that's obviously not going to last forever, and there are 250 00:16:27,920 --> 00:16:32,160 Speaker 1: some signs, including in the in the November retail sales 251 00:16:32,200 --> 00:16:37,160 Speaker 1: report released this morning, that that was maybe maybe running 252 00:16:37,160 --> 00:16:41,080 Speaker 1: out at this point. Mm hmm. So this is something 253 00:16:41,080 --> 00:16:45,160 Speaker 1: that I'm really curious about. But how much did stimulus 254 00:16:45,160 --> 00:16:49,480 Speaker 1: sort of muddy the outlook the future outlook for for 255 00:16:49,520 --> 00:16:53,520 Speaker 1: consumers and consumer confidence? And also how are you thinking 256 00:16:53,560 --> 00:16:57,760 Speaker 1: about the consumer going into because as I mentioned, there 257 00:16:57,880 --> 00:17:01,760 Speaker 1: is this debate at the moment. Are the unusual events 258 00:17:01,800 --> 00:17:06,000 Speaker 1: of this year going to encourage people to, you know, 259 00:17:06,440 --> 00:17:11,240 Speaker 1: permanently cut back on spending and raise their savings because 260 00:17:11,760 --> 00:17:15,359 Speaker 1: they're more uncertain and they're worried that an unexpected event 261 00:17:15,440 --> 00:17:18,200 Speaker 1: like a global pandemic could come out of nowhere and 262 00:17:18,480 --> 00:17:21,159 Speaker 1: they might use their jobs and things like that. Or 263 00:17:21,440 --> 00:17:24,560 Speaker 1: are we going to see this big rebound in consumer 264 00:17:24,600 --> 00:17:28,480 Speaker 1: spending the pent up demand theory as the vaccine gets 265 00:17:28,560 --> 00:17:32,560 Speaker 1: ruled out and lockdown gets ruled back. I think you've 266 00:17:32,640 --> 00:17:35,480 Speaker 1: laid out well the two sort of extremes in that 267 00:17:35,800 --> 00:17:38,400 Speaker 1: in that discussion. I'm more on the on the side 268 00:17:38,440 --> 00:17:40,880 Speaker 1: of the second rather than the first. I don't think 269 00:17:40,880 --> 00:17:45,840 Speaker 1: that there's going to be a permanent impact I think, 270 00:17:46,840 --> 00:17:49,440 Speaker 1: you know, people are going to go My expectation would 271 00:17:49,480 --> 00:17:52,879 Speaker 1: be people are going to go back to spending money 272 00:17:53,400 --> 00:17:57,840 Speaker 1: on on on similar types of service activities and service 273 00:17:57,880 --> 00:18:02,399 Speaker 1: experiences that they will spending money on before. You obviously 274 00:18:02,480 --> 00:18:05,840 Speaker 1: always subject to their own economic situation and a bunch 275 00:18:05,840 --> 00:18:07,760 Speaker 1: of other factors. But I don't think that there's going 276 00:18:07,800 --> 00:18:11,560 Speaker 1: to be a large amount of behavior or scarring h 277 00:18:12,000 --> 00:18:15,639 Speaker 1: if you get into an environment where the risk of 278 00:18:15,680 --> 00:18:18,680 Speaker 1: getting infected is much lower or the consequences of being 279 00:18:18,680 --> 00:18:21,480 Speaker 1: in fact that are much lower, and I think there 280 00:18:21,520 --> 00:18:25,440 Speaker 1: could be some degree of pent up demand for services. 281 00:18:25,480 --> 00:18:28,960 Speaker 1: I think that's more uncertain whether whether you are going 282 00:18:29,000 --> 00:18:34,120 Speaker 1: to see say demand for travel and and and entertainment 283 00:18:34,560 --> 00:18:38,680 Speaker 1: actually move above the previous day in the pre pandemic 284 00:18:38,680 --> 00:18:41,520 Speaker 1: baseline for a while. I think it's harder to know. 285 00:18:42,080 --> 00:18:44,480 Speaker 1: It wouldn't be, you know, behaviorally, it wouldn't be true 286 00:18:44,480 --> 00:18:46,960 Speaker 1: surprising that if you haven't been able to do any 287 00:18:47,000 --> 00:18:49,920 Speaker 1: of these things, you might do, uh, you know, you 288 00:18:50,000 --> 00:18:52,320 Speaker 1: might go to an extra concert or do a do 289 00:18:52,400 --> 00:18:55,160 Speaker 1: an extra trip. But for me, the main thing would 290 00:18:55,160 --> 00:18:59,199 Speaker 1: be that these are still sectors of the economy that 291 00:18:59,760 --> 00:19:03,320 Speaker 1: that operating far below normal and I think when we 292 00:19:03,400 --> 00:19:06,919 Speaker 1: have a vaccine, and when the vaccine has led to 293 00:19:07,440 --> 00:19:10,560 Speaker 1: you know, effectively heard immunity, you know, whenever that is 294 00:19:10,640 --> 00:19:13,240 Speaker 1: sometimes in two thousand and twenty one, I think we'll 295 00:19:13,320 --> 00:19:17,280 Speaker 1: we'll see a return to normal levels for these parts 296 00:19:17,320 --> 00:19:19,200 Speaker 1: of the economy, and that that is going to give 297 00:19:19,240 --> 00:19:22,000 Speaker 1: you a boost to the level of GDP by you know, 298 00:19:22,080 --> 00:19:24,440 Speaker 1: maybe two percent or so if you take it an aggregate. 299 00:19:24,480 --> 00:19:45,600 Speaker 1: Obviously much bigger increases in all specific sectors. So I 300 00:19:45,680 --> 00:19:49,520 Speaker 1: wanna shift the conversation a little bit because besides the 301 00:19:49,560 --> 00:19:52,679 Speaker 1: sort of immediate what we're seeing in the economy, you know, 302 00:19:52,840 --> 00:19:56,040 Speaker 1: Tracy and I always like to talk about economic ideas 303 00:19:56,119 --> 00:19:59,840 Speaker 1: and how those evolved. You have been a long time. 304 00:20:00,520 --> 00:20:02,800 Speaker 1: I don't know. You just sort of take you look 305 00:20:02,800 --> 00:20:07,600 Speaker 1: at the economy through what's known as a sectoral balances framework, 306 00:20:07,640 --> 00:20:11,720 Speaker 1: which is associated with the economist Wind Godly, who has 307 00:20:11,760 --> 00:20:15,240 Speaker 1: been an influence on your work. Um, I'm curious if 308 00:20:15,280 --> 00:20:17,560 Speaker 1: you can sort of give us our listeners, like a 309 00:20:17,600 --> 00:20:20,080 Speaker 1: brief description of what this is and how that helps 310 00:20:20,119 --> 00:20:22,960 Speaker 1: you look at the economy, and then like how that's 311 00:20:22,960 --> 00:20:28,320 Speaker 1: helped you understand the economy in and looking ahead. What 312 00:20:28,440 --> 00:20:31,760 Speaker 1: the framework talks about because I do think it's sort 313 00:20:31,760 --> 00:20:33,919 Speaker 1: of a it's a different way of thinking about the 314 00:20:33,960 --> 00:20:39,000 Speaker 1: economy than certainly I would say most Wall Street economists. Yeah, 315 00:20:39,080 --> 00:20:44,240 Speaker 1: it's it's basically a focus on especially the private sector 316 00:20:44,440 --> 00:20:48,639 Speaker 1: financial balance, which is just the difference between the total 317 00:20:48,720 --> 00:20:53,760 Speaker 1: income and total spending of all households and businesses. And 318 00:20:54,119 --> 00:20:58,040 Speaker 1: you could disaggregate households and businesses, but I often find 319 00:20:58,080 --> 00:21:01,200 Speaker 1: it more useful to look at together because in some 320 00:21:01,240 --> 00:21:05,480 Speaker 1: cases there it's difficult to distinguish between where the household 321 00:21:05,480 --> 00:21:09,440 Speaker 1: sector ends and where the business sector begins. If you think, 322 00:21:09,480 --> 00:21:14,399 Speaker 1: for example, of of small businesses and an entrepreneurs. So 323 00:21:14,440 --> 00:21:18,359 Speaker 1: if you if you aggregate up the the entire private sector, 324 00:21:19,080 --> 00:21:24,679 Speaker 1: and private sector runs a financial deficit that happens, you know, 325 00:21:24,760 --> 00:21:28,399 Speaker 1: often on the back of large asset price increases or 326 00:21:28,400 --> 00:21:32,160 Speaker 1: asset price bubbles, for example in the late stock market 327 00:21:32,200 --> 00:21:38,080 Speaker 1: bubble or the two thousand's housing market bubble. That means 328 00:21:38,560 --> 00:21:42,639 Speaker 1: that the private sector is quite vulnerable too. You know 329 00:21:42,840 --> 00:21:47,480 Speaker 1: that that developments in asset markets or other shocks, because 330 00:21:47,720 --> 00:21:51,600 Speaker 1: they are already spending beyond the current level of income 331 00:21:52,320 --> 00:21:58,760 Speaker 1: and having to finance the difference with net debt accumulation 332 00:21:59,160 --> 00:22:04,960 Speaker 1: and can continue as long as asset markets are are 333 00:22:05,280 --> 00:22:08,920 Speaker 1: performing well. But if asset markets start to turn down, 334 00:22:09,359 --> 00:22:12,080 Speaker 1: households and farms need to cut their spending relative to 335 00:22:12,080 --> 00:22:17,080 Speaker 1: the income. That generates a negative impulse to aggreate demand 336 00:22:17,200 --> 00:22:19,879 Speaker 1: and often results in a in a recession. And we 337 00:22:19,920 --> 00:22:24,320 Speaker 1: saw this pretty clearly in the US in not only 338 00:22:24,359 --> 00:22:26,479 Speaker 1: the two thousand eight prices but also in the two 339 00:22:26,560 --> 00:22:29,760 Speaker 1: thousand and one recession, and frankly, we've seen it time 340 00:22:29,760 --> 00:22:34,639 Speaker 1: and time again in in in other advanced economies in 341 00:22:35,040 --> 00:22:39,160 Speaker 1: the last two or three decades, in you know, Europe, 342 00:22:39,600 --> 00:22:41,639 Speaker 1: in the in the run up to the to the 343 00:22:41,680 --> 00:22:45,040 Speaker 1: two thousand eight crisis, Spain as an extreme example. We've 344 00:22:45,080 --> 00:22:48,840 Speaker 1: seen similar things in in the UK in the early 345 00:22:48,920 --> 00:22:52,639 Speaker 1: ninety nineties and a bunch of other economies. So this 346 00:22:52,800 --> 00:22:55,520 Speaker 1: is something that I'm quite focused on as a warning 347 00:22:55,560 --> 00:22:59,000 Speaker 1: sign of financial imbalances and vulnerability of the of the 348 00:22:59,040 --> 00:23:04,280 Speaker 1: real economy. And basically, households and firms living beyond their means, 349 00:23:04,400 --> 00:23:07,879 Speaker 1: or at least beyond the short term means is is 350 00:23:07,880 --> 00:23:10,680 Speaker 1: a dangerous sign and one of the things in two 351 00:23:10,680 --> 00:23:15,800 Speaker 1: thousand and twenty and especially in the two thousand in 352 00:23:15,840 --> 00:23:19,640 Speaker 1: the in the spring lockdowns in the second quarter that 353 00:23:19,760 --> 00:23:23,760 Speaker 1: was very, very different from those past episodes was that 354 00:23:24,359 --> 00:23:27,800 Speaker 1: the private sector was actually running a huge financial surplus, 355 00:23:27,880 --> 00:23:31,040 Speaker 1: and much of a surplus than you'd ever seen before 356 00:23:31,720 --> 00:23:35,040 Speaker 1: in in post war history. And you know, well, that's 357 00:23:35,080 --> 00:23:37,119 Speaker 1: not the only thing that matters for the for the 358 00:23:37,119 --> 00:23:41,640 Speaker 1: economic artwork was certainly one thing that gave us confidence 359 00:23:41,680 --> 00:23:46,120 Speaker 1: in calling for a pretty rapid recovery from the sort 360 00:23:46,119 --> 00:23:49,320 Speaker 1: of margin April lows. So I do think it had 361 00:23:49,320 --> 00:23:52,160 Speaker 1: a big impact on our on our thinking in two 362 00:23:52,160 --> 00:23:56,360 Speaker 1: thousand and twenty, And of course it was very related 363 00:23:56,640 --> 00:24:01,960 Speaker 1: to the policy decisions that we just talked about, the 364 00:24:02,000 --> 00:24:06,720 Speaker 1: decision to provide substantial amounts of transfers to the alsalts 365 00:24:06,760 --> 00:24:11,120 Speaker 1: that should up in the private financial as well. Right, So, 366 00:24:11,600 --> 00:24:13,680 Speaker 1: I mean, on a related note, since we're talking about 367 00:24:13,720 --> 00:24:18,960 Speaker 1: financial imbalances. On the one hand, the policy response did 368 00:24:19,040 --> 00:24:25,040 Speaker 1: help enormously in stabilizing markets and in providing a cushion 369 00:24:25,200 --> 00:24:30,360 Speaker 1: for consumers, as we've been discussing. But now with stocks 370 00:24:30,400 --> 00:24:34,240 Speaker 1: sort of all time highs and with you know, the 371 00:24:34,280 --> 00:24:38,080 Speaker 1: corporate bond market booming, and lots of other weird things 372 00:24:38,119 --> 00:24:41,760 Speaker 1: happening in capital markets like SPACs and and big I 373 00:24:41,880 --> 00:24:44,920 Speaker 1: p O booms and things like that. Do you see 374 00:24:45,520 --> 00:24:50,680 Speaker 1: an issue of financial instability looming or do you worry 375 00:24:50,720 --> 00:24:55,640 Speaker 1: about moral hazard at all? I don't see I would 376 00:24:55,640 --> 00:25:01,119 Speaker 1: say imminent signs of financial imbalances that are that that 377 00:25:01,160 --> 00:25:04,760 Speaker 1: are relevant for for monitor that they need to be addressed, 378 00:25:04,800 --> 00:25:07,200 Speaker 1: let's say, by by monetary policy. I don't. I don't 379 00:25:07,200 --> 00:25:09,640 Speaker 1: see that. UM. I mean, of course you should never 380 00:25:09,640 --> 00:25:12,959 Speaker 1: say never. It's always something that that I think central 381 00:25:12,960 --> 00:25:18,000 Speaker 1: banks and policymakers have monitor. But again, if I go 382 00:25:18,160 --> 00:25:22,960 Speaker 1: back to the private sector of financial balanced as you know, 383 00:25:23,040 --> 00:25:27,160 Speaker 1: one metric of financial imbalances, the private sector is still 384 00:25:27,240 --> 00:25:30,840 Speaker 1: running a very large surplus. Past kind of asset price 385 00:25:30,920 --> 00:25:35,800 Speaker 1: bus that that that have had really negative effects on 386 00:25:36,520 --> 00:25:39,280 Speaker 1: the on the real economy have typically been preceded by 387 00:25:39,520 --> 00:25:44,439 Speaker 1: large private sector UH deficits where you know, households and 388 00:25:44,480 --> 00:25:49,040 Speaker 1: farms were effectively spending too much relative to the income 389 00:25:49,080 --> 00:25:52,879 Speaker 1: flaw on the back of very rapid debt accumulation, and 390 00:25:53,200 --> 00:25:57,440 Speaker 1: so these increases and asset prices had much more tangible 391 00:25:57,440 --> 00:26:01,399 Speaker 1: effects on you know, people's borrowing spending behavior. I'm not 392 00:26:01,440 --> 00:26:04,119 Speaker 1: seeing that. UM. You know, that doesn't mean of course 393 00:26:04,680 --> 00:26:08,640 Speaker 1: that there there couldn't be any any imbalances, and there 394 00:26:08,840 --> 00:26:11,920 Speaker 1: certainly doesn't mean that they couldn't be price the clients 395 00:26:12,200 --> 00:26:15,639 Speaker 1: in in different markets. But I do think that it 396 00:26:15,680 --> 00:26:19,000 Speaker 1: tells you probably that the vulnerability of the real economy 397 00:26:19,440 --> 00:26:22,960 Speaker 1: to these kinds of adjustments is probably lower than it 398 00:26:23,240 --> 00:26:26,240 Speaker 1: would have been in many of these other episodes. That's 399 00:26:26,280 --> 00:26:29,320 Speaker 1: that's where that would be my starting point, and it's 400 00:26:29,440 --> 00:26:33,800 Speaker 1: I think similar in spirit at least two the reviews 401 00:26:33,960 --> 00:26:38,520 Speaker 1: that the Federal Reserve undertakes kind of regularly where they 402 00:26:38,560 --> 00:26:44,280 Speaker 1: look at valuations, and you know, valuations of different types 403 00:26:44,320 --> 00:26:47,440 Speaker 1: of assets. That's one important input. And then they also 404 00:26:47,520 --> 00:26:52,680 Speaker 1: look at economic behavior and spending and borrowing behavior uh 405 00:26:52,720 --> 00:26:56,080 Speaker 1: and and leverage in the in the economy and in 406 00:26:56,119 --> 00:26:59,720 Speaker 1: the financial system, and both of those are important for 407 00:27:00,160 --> 00:27:03,760 Speaker 1: whether they I think the risks are elevated right now. 408 00:27:04,000 --> 00:27:06,679 Speaker 1: You could probably make an argument in a number of 409 00:27:06,720 --> 00:27:12,040 Speaker 1: areas that valuations are becoming more ambitious or maybe you 410 00:27:11,800 --> 00:27:15,200 Speaker 1: you ratchet up your level of concern and somewhat there. 411 00:27:15,320 --> 00:27:17,359 Speaker 1: But if you if you look at the behavior of 412 00:27:17,440 --> 00:27:21,760 Speaker 1: the borrowing, leverage in the in the system, and you're 413 00:27:21,760 --> 00:27:24,119 Speaker 1: talking about the private sector here, I don't think there 414 00:27:24,119 --> 00:27:27,960 Speaker 1: are really any signs of that would make you really worried. 415 00:27:29,080 --> 00:27:32,200 Speaker 1: So Tracy always used to make fun of me, but 416 00:27:32,359 --> 00:27:34,119 Speaker 1: she hasn't lately, and now I feel kind of bad. 417 00:27:34,160 --> 00:27:36,080 Speaker 1: But she always used to make fun of me for 418 00:27:36,200 --> 00:27:40,240 Speaker 1: always asking a modern monetary theory question on our interviews. 419 00:27:40,240 --> 00:27:41,520 Speaker 1: But I'm not going to do that yet. But I 420 00:27:41,600 --> 00:27:44,679 Speaker 1: might get to that in a second. But but I 421 00:27:44,680 --> 00:27:46,480 Speaker 1: have kind of got a hint at that, which is 422 00:27:46,800 --> 00:27:50,320 Speaker 1: what's interesting to me listening to you describe this framework, 423 00:27:50,400 --> 00:27:55,200 Speaker 1: is that the vulnerabilities are really on the private sector 424 00:27:55,320 --> 00:27:58,720 Speaker 1: balance sheets. And so you look back at two thousand, 425 00:27:59,400 --> 00:28:02,280 Speaker 1: everybody he thought, oh, there's this amazing boom, the economy 426 00:28:02,359 --> 00:28:05,440 Speaker 1: is great, the federal government is even running a surplus. 427 00:28:05,440 --> 00:28:09,240 Speaker 1: But your framework identified warning signs because the private sector 428 00:28:09,359 --> 00:28:13,520 Speaker 1: was actually um running into deficit at the time, and 429 00:28:13,560 --> 00:28:17,640 Speaker 1: then we did indeed have a crash not long thereafter. 430 00:28:18,600 --> 00:28:22,359 Speaker 1: Do you see more and more people appreciating this, I mean, 431 00:28:22,400 --> 00:28:24,560 Speaker 1: we're still in the media people always like to talk 432 00:28:24,600 --> 00:28:26,880 Speaker 1: about the size of the national debt and the deficit, 433 00:28:27,240 --> 00:28:30,080 Speaker 1: But do you see a greater appreciation of this sort 434 00:28:30,119 --> 00:28:33,800 Speaker 1: of inversion of that, or the concern is really on 435 00:28:33,960 --> 00:28:37,080 Speaker 1: the private sector's debt and deficit as opposed to the 436 00:28:37,080 --> 00:28:40,920 Speaker 1: public sector. One do. Yeah, I think there has been 437 00:28:41,800 --> 00:28:46,280 Speaker 1: has been a shift in emphasis, and certainly the experience 438 00:28:46,400 --> 00:28:48,800 Speaker 1: of the you know, both the two thousand and eight 439 00:28:48,920 --> 00:28:52,640 Speaker 1: crisis and the aftermath of that and this this year, 440 00:28:53,120 --> 00:28:56,080 Speaker 1: I think it's contributed to that. It's been it's become 441 00:28:56,120 --> 00:29:01,680 Speaker 1: a thing pretty clear that large government deficits, especially if 442 00:29:01,680 --> 00:29:08,680 Speaker 1: they occur in response to temporary, uh, you know, temporary downturns, 443 00:29:08,960 --> 00:29:13,560 Speaker 1: large contemporary downturns in in in aggregate demand, that those 444 00:29:13,640 --> 00:29:19,360 Speaker 1: are typically not not nearly as dangerous as I think 445 00:29:19,640 --> 00:29:21,680 Speaker 1: many people would have said before the two thousand and 446 00:29:21,680 --> 00:29:23,440 Speaker 1: eight crisis. And I think this year has made that 447 00:29:23,520 --> 00:29:27,920 Speaker 1: even clearer because the policy response was that much more 448 00:29:28,120 --> 00:29:30,320 Speaker 1: more aggressive. You know. I think on the on the 449 00:29:30,360 --> 00:29:37,600 Speaker 1: private sector side, I think you will find a reasonable 450 00:29:37,680 --> 00:29:41,400 Speaker 1: number of people who have been concerned about private sector 451 00:29:41,440 --> 00:29:44,200 Speaker 1: and balances for a long time and has surprise and 452 00:29:44,280 --> 00:29:47,680 Speaker 1: balances for for a long time. And yeah, we're trying 453 00:29:47,680 --> 00:29:51,680 Speaker 1: to persuade people that that the private sector financial balance 454 00:29:51,840 --> 00:29:55,080 Speaker 1: is a is a useful metric of that. You know, 455 00:29:55,160 --> 00:29:57,760 Speaker 1: I would say there hasn't been a break school on 456 00:29:57,840 --> 00:30:02,640 Speaker 1: that particular on that particular metric, But we'll certainly continue 457 00:30:02,680 --> 00:30:04,720 Speaker 1: to talk about it because I think it's a it's 458 00:30:04,720 --> 00:30:09,840 Speaker 1: a nice summary of, you know, imbalances that that people 459 00:30:09,920 --> 00:30:12,600 Speaker 1: might otherwise look at in a more kind of piece 460 00:30:12,600 --> 00:30:15,360 Speaker 1: of neal fashion. But I think that's the big continuous 461 00:30:17,080 --> 00:30:20,040 Speaker 1: So I'm going to leave the MMT question to Joe, 462 00:30:20,080 --> 00:30:22,480 Speaker 1: because I know he does want to ask them. But 463 00:30:22,600 --> 00:30:25,120 Speaker 1: I want to ask a different sort of big picture 464 00:30:25,280 --> 00:30:29,120 Speaker 1: economics question, which is you wrote quite a lot about 465 00:30:29,240 --> 00:30:35,080 Speaker 1: the productivity puzzle, where the productivity mystery over um the 466 00:30:35,120 --> 00:30:37,240 Speaker 1: past ten years or so, this is the idea that 467 00:30:37,240 --> 00:30:42,479 Speaker 1: productivity growth has been really surprisingly sluggish, and there are 468 00:30:42,520 --> 00:30:46,240 Speaker 1: lots of different theories about why that might be. I'm 469 00:30:46,280 --> 00:30:52,160 Speaker 1: curious whether the experience of and the experience of having 470 00:30:52,200 --> 00:30:57,120 Speaker 1: different parts of the economy effectively shut off has informed 471 00:30:57,160 --> 00:31:01,160 Speaker 1: your opinion on on what's driving that product activity puzzle 472 00:31:01,400 --> 00:31:04,280 Speaker 1: at all. Have you learned anything about productivity this year 473 00:31:04,760 --> 00:31:07,240 Speaker 1: we have I have a lot of questions about productivity. 474 00:31:07,760 --> 00:31:10,760 Speaker 1: I'm not sure that we've had full answers yet in 475 00:31:11,480 --> 00:31:13,600 Speaker 1: you know, in terms of what we've seen in two 476 00:31:13,640 --> 00:31:18,360 Speaker 1: thousand and twenty, what's certainly striking is that productivity has 477 00:31:18,400 --> 00:31:21,160 Speaker 1: done really well in two thousand and twenty. So if 478 00:31:21,200 --> 00:31:24,840 Speaker 1: you just look at the numbers, you know, we've seen 479 00:31:25,160 --> 00:31:31,840 Speaker 1: very strong productivity growth through the through the year. Now, 480 00:31:32,120 --> 00:31:36,240 Speaker 1: part of that is because the sectors of the economy 481 00:31:36,280 --> 00:31:41,719 Speaker 1: that are still very disrupted are generally low productivity sectors 482 00:31:41,760 --> 00:31:46,840 Speaker 1: like restaurants and UH and and you know personal services 483 00:31:46,840 --> 00:31:51,920 Speaker 1: that where productivity value added for work of our work 484 00:31:51,960 --> 00:31:55,360 Speaker 1: tends to be lower. So there's a composition effect in 485 00:31:55,400 --> 00:31:58,440 Speaker 1: the in these data. But it seems like even if 486 00:31:58,480 --> 00:32:02,000 Speaker 1: you just for that composition effect, or you look at 487 00:32:02,040 --> 00:32:06,120 Speaker 1: the numbers on a on on an industry by industry basis, 488 00:32:06,880 --> 00:32:11,360 Speaker 1: you you've still seen a pretty significant increase in productivity. 489 00:32:11,360 --> 00:32:14,520 Speaker 1: And the question I think is is that temporary or 490 00:32:14,520 --> 00:32:21,080 Speaker 1: permanent it might hint at a better period for measured 491 00:32:21,200 --> 00:32:24,880 Speaker 1: productivity growth than what we what we've had in the 492 00:32:24,960 --> 00:32:27,400 Speaker 1: kind of three two thousand and twenty, you know, ten 493 00:32:27,440 --> 00:32:31,120 Speaker 1: or fifteen years. So that's a that's a very intriguing question. 494 00:32:31,520 --> 00:32:36,280 Speaker 1: But you know whether perhaps in this in this terrible pandemic, 495 00:32:36,960 --> 00:32:41,440 Speaker 1: we we actually have found some ways of increasing productivity 496 00:32:42,280 --> 00:32:45,280 Speaker 1: UH that you know, will will prove to be a 497 00:32:45,280 --> 00:32:48,320 Speaker 1: permanent benefit. You know, for example, if you if you 498 00:32:48,360 --> 00:32:53,920 Speaker 1: think about the changes in in retail from breaking mortar 499 00:32:54,040 --> 00:32:59,040 Speaker 1: stores to online retail, that certainly be something that boosts 500 00:32:59,040 --> 00:33:03,400 Speaker 1: productivity over the longer term. Obviously there are disruptions associated 501 00:33:03,440 --> 00:33:06,840 Speaker 1: with that, but it is something that I am I 502 00:33:06,840 --> 00:33:11,120 Speaker 1: am very interested in. It doesn't the two thousand twenty 503 00:33:11,320 --> 00:33:15,440 Speaker 1: prices doesn't really tell you anything about the key thing 504 00:33:15,520 --> 00:33:19,800 Speaker 1: that I was focused on for the last several years, 505 00:33:19,880 --> 00:33:24,280 Speaker 1: which was how much of the weakness and measure productivity 506 00:33:24,360 --> 00:33:29,320 Speaker 1: growth reflects measurement era as opposed to a true slowt on. 507 00:33:29,600 --> 00:33:33,280 Speaker 1: I do think that there is a very good case 508 00:33:33,400 --> 00:33:38,920 Speaker 1: we made that we have gotten worse at measuring productivity growth. 509 00:33:38,920 --> 00:33:41,400 Speaker 1: There's a big debate about this, but but it does 510 00:33:41,440 --> 00:33:44,800 Speaker 1: seem to me that the economy is becoming harder and 511 00:33:44,880 --> 00:33:49,640 Speaker 1: harder to measure as we move away from producing homogeneous 512 00:33:49,680 --> 00:33:54,040 Speaker 1: goods like that that are easily countered in terms of 513 00:33:54,040 --> 00:33:57,960 Speaker 1: tons tons of steel and and bushels of wheat towards 514 00:33:58,880 --> 00:34:02,680 Speaker 1: you know, services and virtual goods that are that are 515 00:34:02,800 --> 00:34:05,640 Speaker 1: very difficult to measure and where it's very difficult to 516 00:34:05,840 --> 00:34:12,080 Speaker 1: estimate prices, and where it's therefore hard to follow the 517 00:34:12,960 --> 00:34:17,000 Speaker 1: sort of national income accounting playbook of counting up receipts 518 00:34:17,080 --> 00:34:19,960 Speaker 1: and then applying a price index in order to get 519 00:34:19,960 --> 00:34:22,800 Speaker 1: a real output measure, and then dividing that by hours 520 00:34:22,840 --> 00:34:25,480 Speaker 1: work to get a productivity measure. You know, there there 521 00:34:25,480 --> 00:34:29,040 Speaker 1: are a number of areas or steps in that calculation 522 00:34:29,120 --> 00:34:34,160 Speaker 1: where you end up having having great difficulty measuring. So 523 00:34:34,600 --> 00:34:38,040 Speaker 1: I don't think two thousand twenties has really shed any 524 00:34:38,040 --> 00:34:40,040 Speaker 1: additional light on that, but I still think it's an 525 00:34:40,040 --> 00:34:43,520 Speaker 1: important issue. Well, speaking of productivity, I mean, I know 526 00:34:43,719 --> 00:34:47,279 Speaker 1: one theory I've heard people put forward is that low 527 00:34:47,320 --> 00:34:52,200 Speaker 1: productivity is in part of function of low overall demand 528 00:34:52,520 --> 00:34:57,080 Speaker 1: under employment, companies not feeling a big urge to invest 529 00:34:57,239 --> 00:35:00,640 Speaker 1: when overall demand is strong, companies not feel in a 530 00:35:00,680 --> 00:35:05,719 Speaker 1: big urge to invest in new technology when labor is plentiful. 531 00:35:06,200 --> 00:35:08,440 Speaker 1: How much, in your view, could just sort of pure 532 00:35:09,040 --> 00:35:13,279 Speaker 1: demand side aspects of the economy play in productivity and 533 00:35:13,320 --> 00:35:16,040 Speaker 1: then beyond that, you know, one of the lessons learned 534 00:35:16,120 --> 00:35:21,280 Speaker 1: I think from is that simply giving checks two unemployed 535 00:35:21,320 --> 00:35:24,359 Speaker 1: people or lower income people as an incredibly powerful form 536 00:35:24,400 --> 00:35:27,080 Speaker 1: of stimulus. So I'm curious, like what your view is 537 00:35:27,200 --> 00:35:32,280 Speaker 1: on just sort of pure demand side policies overall as 538 00:35:32,680 --> 00:35:35,560 Speaker 1: both the key to the productivity puzzle, but also just 539 00:35:35,680 --> 00:35:40,359 Speaker 1: going forward in terms of a focus of how that 540 00:35:40,480 --> 00:35:43,719 Speaker 1: can sort of make the economy more robust and get 541 00:35:43,760 --> 00:35:47,480 Speaker 1: us out of downturns quicker. Yeah, I mean, I totally 542 00:35:47,560 --> 00:35:50,640 Speaker 1: agree on the on the last, the second part of 543 00:35:50,640 --> 00:35:55,600 Speaker 1: that question that if you're in a slump, finding direct 544 00:35:55,640 --> 00:36:00,759 Speaker 1: ways of boosting area of demand is is a very 545 00:36:00,760 --> 00:36:05,000 Speaker 1: sensible kind of policy endeavor, and I think we we 546 00:36:05,080 --> 00:36:08,480 Speaker 1: took a very direct and policymakers took a very direct 547 00:36:08,520 --> 00:36:13,200 Speaker 1: approach in in two thousand and in twenty and it 548 00:36:13,360 --> 00:36:16,160 Speaker 1: has worked very well. You know, obviously was still going 549 00:36:16,200 --> 00:36:19,040 Speaker 1: through it, but I would say the early returns are 550 00:36:19,120 --> 00:36:24,280 Speaker 1: quite positive. Now, this was a particularly particularly obvious policy 551 00:36:24,480 --> 00:36:27,560 Speaker 1: in this downturn, because he had this huge shock to 552 00:36:28,160 --> 00:36:32,320 Speaker 1: economic activity. But at the same time, it was pretty 553 00:36:32,400 --> 00:36:35,960 Speaker 1: clear that it was temporary. Obviously, back in March and 554 00:36:36,000 --> 00:36:39,560 Speaker 1: April you didn't know how quickly we would have a vaccine, 555 00:36:39,800 --> 00:36:43,360 Speaker 1: and it now looks even more clearly temporary than it 556 00:36:43,400 --> 00:36:45,600 Speaker 1: did back then. But even back then it was very 557 00:36:45,640 --> 00:36:48,000 Speaker 1: clear that it was temporary. So in that sort of environment, 558 00:36:49,000 --> 00:36:53,399 Speaker 1: the case for stabilization policies. You know, aggressive demand side 559 00:36:53,440 --> 00:36:57,680 Speaker 1: stabilization policies is very very strong, and I think, um, 560 00:36:58,200 --> 00:37:00,239 Speaker 1: you know, well, it is a good lesson to to 561 00:37:00,320 --> 00:37:03,719 Speaker 1: take away, even though not every downturn that will have 562 00:37:03,800 --> 00:37:05,560 Speaker 1: in the future it's going to be quite as clear 563 00:37:05,600 --> 00:37:09,480 Speaker 1: cut as as this one. On the on the impact 564 00:37:09,480 --> 00:37:12,480 Speaker 1: on productivity, I'm less sure. I mean, I think there 565 00:37:12,480 --> 00:37:18,120 Speaker 1: are certainly some cyclical effects on productivity through labor utilization 566 00:37:18,800 --> 00:37:23,200 Speaker 1: and you know, labor hoarding or or or shake out 567 00:37:23,640 --> 00:37:27,640 Speaker 1: of employment. So I do think you always want to 568 00:37:27,680 --> 00:37:33,480 Speaker 1: try to adjust your productivity measures for utilization, and there 569 00:37:33,520 --> 00:37:37,280 Speaker 1: are some estimates that that that do that. San Francisco 570 00:37:37,320 --> 00:37:41,320 Speaker 1: FED provides some some of that adjustment. For example, typically 571 00:37:41,400 --> 00:37:46,000 Speaker 1: the once you average over somewhat longer bread though that 572 00:37:46,160 --> 00:37:48,200 Speaker 1: you always have to do with productivity numbers you never 573 00:37:48,239 --> 00:37:51,440 Speaker 1: really want to look at quarterly. I think once you 574 00:37:51,480 --> 00:37:56,280 Speaker 1: do that, typically you find that the the cyclical effects 575 00:37:56,280 --> 00:37:59,120 Speaker 1: are not enormous, and they can go on both directions. 576 00:37:59,160 --> 00:38:04,400 Speaker 1: It's not always the case that a stronger economy also 577 00:38:04,520 --> 00:38:10,480 Speaker 1: means higher productivity of a faster productivity growth. In fact, 578 00:38:11,320 --> 00:38:14,440 Speaker 1: you know often you find that late in a business 579 00:38:14,440 --> 00:38:19,000 Speaker 1: cycle when you're already very close to full employment firms 580 00:38:19,000 --> 00:38:24,200 Speaker 1: basically after resort to hiring the molest productivity workers and 581 00:38:24,719 --> 00:38:27,360 Speaker 1: you know, which is good good in terms of employment outcomes, 582 00:38:27,400 --> 00:38:30,280 Speaker 1: but may not be so great for measure of pordativity growth. 583 00:38:30,680 --> 00:38:33,480 Speaker 1: Um So, so I think the case for you know, 584 00:38:33,640 --> 00:38:39,080 Speaker 1: demand side policies to stabilize the economy in the slump 585 00:38:39,840 --> 00:38:43,600 Speaker 1: is strong, but doesn't primarily rest on the productivities board. 586 00:38:45,360 --> 00:38:48,760 Speaker 1: So you mentioned the vaccine briefly then, and of course 587 00:38:49,160 --> 00:38:52,680 Speaker 1: the successful rollout of the vaccine factors into your v 588 00:38:52,840 --> 00:38:58,040 Speaker 1: shaped economic forecast for but I'm curious how that actually 589 00:38:58,080 --> 00:39:02,799 Speaker 1: impacts your outlook more inflation, and we haven't touched on 590 00:39:02,840 --> 00:39:06,560 Speaker 1: that specifically, But if we were to see economic growth 591 00:39:06,600 --> 00:39:08,920 Speaker 1: come rowing back, and if we were to see an 592 00:39:08,960 --> 00:39:13,680 Speaker 1: uptick in spending, would you expect that to translate into 593 00:39:13,960 --> 00:39:19,480 Speaker 1: price increases of one sort or another. Yeah, Over over time, 594 00:39:19,640 --> 00:39:23,560 Speaker 1: I think you will see higher inflation in a in 595 00:39:23,600 --> 00:39:28,279 Speaker 1: a stronger activity environment. So if you're you put more 596 00:39:28,320 --> 00:39:33,640 Speaker 1: pressure on on on the labor market, you feel what's 597 00:39:33,680 --> 00:39:37,440 Speaker 1: still quite a large gap in the labor utilization, I 598 00:39:37,440 --> 00:39:41,360 Speaker 1: think you're going to see upward pressure on wages and 599 00:39:41,920 --> 00:39:45,640 Speaker 1: you know, ultimately also upward pressure on price inflation. I 600 00:39:45,680 --> 00:39:49,880 Speaker 1: mean these effects, you know, Philip Phillips curve effects. You 601 00:39:49,880 --> 00:39:51,759 Speaker 1: you can stroll them in the in the data. You 602 00:39:51,800 --> 00:39:54,560 Speaker 1: see it for for wages, you see it for prices, 603 00:39:54,680 --> 00:39:58,000 Speaker 1: and statistically they're they're definitely there. They're just not very 604 00:39:58,000 --> 00:40:03,000 Speaker 1: strong and uh, the size of the impact is not 605 00:40:04,120 --> 00:40:07,640 Speaker 1: not very large. And so you need quite a lot 606 00:40:07,680 --> 00:40:11,640 Speaker 1: of strength in real activity and quite a lot of 607 00:40:11,640 --> 00:40:15,600 Speaker 1: pressure on labor markets to get these kinds of increases 608 00:40:15,840 --> 00:40:21,080 Speaker 1: in which which growth and price inflation. So by our estimates, 609 00:40:21,840 --> 00:40:24,840 Speaker 1: and you know, we have an optimistic view on growth 610 00:40:25,040 --> 00:40:29,720 Speaker 1: where at five point three percent for for US GDP 611 00:40:29,840 --> 00:40:33,239 Speaker 1: in two thousand and twenty one, But even with that, 612 00:40:33,440 --> 00:40:37,400 Speaker 1: we only get to two for pc inflation on the 613 00:40:37,440 --> 00:40:43,360 Speaker 1: sustained basis in two thousand and twenty four, and then 614 00:40:44,440 --> 00:40:47,640 Speaker 1: not also shortly thereafter we have to first hike in 615 00:40:47,640 --> 00:40:49,960 Speaker 1: the in the fund's rate. And so that's that's all 616 00:40:50,000 --> 00:41:13,360 Speaker 1: working working assumption. So obviously, I mean, over the last 617 00:41:13,520 --> 00:41:18,280 Speaker 1: forty years, we've just seen this incredible um you know, disinflation. 618 00:41:19,000 --> 00:41:22,400 Speaker 1: Even when we get an up cycle in prices, the 619 00:41:22,440 --> 00:41:25,720 Speaker 1: pace of inflation tends to be lower than the previous peak. 620 00:41:26,440 --> 00:41:29,440 Speaker 1: You don't see it picking up any time soon. Do 621 00:41:29,520 --> 00:41:34,200 Speaker 1: you have in your mind a cogent theory for why 622 00:41:34,280 --> 00:41:39,160 Speaker 1: we've seen this multi decade disinflation and what policy shifts 623 00:41:39,320 --> 00:41:42,279 Speaker 1: or what any kind of shifts might actually reverse that 624 00:41:42,480 --> 00:41:47,120 Speaker 1: on a sustained basis, I would I would disagree with 625 00:41:47,200 --> 00:41:50,920 Speaker 1: you slightly on the down trend, at least in the US. 626 00:41:51,160 --> 00:41:53,239 Speaker 1: I mean, I think what we've had is basically a 627 00:41:53,280 --> 00:41:58,879 Speaker 1: low inflation environment since the mid nineties, where you've had 628 00:41:59,640 --> 00:42:02,200 Speaker 1: a kind of one and a half to two percent 629 00:42:02,400 --> 00:42:04,319 Speaker 1: for the for the most part. If you take the 630 00:42:04,320 --> 00:42:09,239 Speaker 1: core PC index and the peak inflation rate at the 631 00:42:09,360 --> 00:42:14,360 Speaker 1: end of the cycle was you know, about two percent 632 00:42:14,560 --> 00:42:17,120 Speaker 1: little uh, you know, a little of then it was 633 00:42:17,160 --> 00:42:19,040 Speaker 1: a bit higher than that at the end of the 634 00:42:19,520 --> 00:42:23,160 Speaker 1: subsequent cycle. This time again we only got to do 635 00:42:23,200 --> 00:42:25,880 Speaker 1: about two percent. But it's it's basically been in that 636 00:42:26,000 --> 00:42:29,160 Speaker 1: in that sort of range. Now, why has it been 637 00:42:29,880 --> 00:42:33,440 Speaker 1: Why has it been so low relative to prior cycles? 638 00:42:33,560 --> 00:42:40,520 Speaker 1: I think basically because the Vulker and early Greenspan bed were, 639 00:42:41,560 --> 00:42:45,120 Speaker 1: you know, very adamant that they wanted to bring down inflation. 640 00:42:45,160 --> 00:42:48,640 Speaker 1: From the nineteen seventies and early nineteen eighties levels, and 641 00:42:49,320 --> 00:42:53,759 Speaker 1: they they wanted to stabilize inflation expectations at a at 642 00:42:53,800 --> 00:42:58,279 Speaker 1: a low level of you know, maybe two percent, but 643 00:42:59,200 --> 00:43:01,879 Speaker 1: they want particular really concerned if it ended up being 644 00:43:01,920 --> 00:43:04,640 Speaker 1: somewhat lower than two percent. You know, they used to 645 00:43:04,719 --> 00:43:09,000 Speaker 1: be the so called comfort zone that beneficials talked about, 646 00:43:09,120 --> 00:43:13,240 Speaker 1: which was one to two percent for the PC and next, 647 00:43:13,760 --> 00:43:16,839 Speaker 1: so you know, effectively, I think they got what they 648 00:43:17,040 --> 00:43:20,920 Speaker 1: what they wanted, and then over time in recent years, 649 00:43:21,000 --> 00:43:26,680 Speaker 1: I think the FED and any macroeconomists have thought, well, 650 00:43:26,719 --> 00:43:29,600 Speaker 1: what we wanted at the time is probably a little 651 00:43:29,600 --> 00:43:35,960 Speaker 1: bit low because the neutral interest rate is the real 652 00:43:36,040 --> 00:43:39,720 Speaker 1: interest rate is significantly lower than it was before. And 653 00:43:40,040 --> 00:43:42,520 Speaker 1: if we only have average inflation of one to two percent, 654 00:43:43,239 --> 00:43:47,360 Speaker 1: but we we may have two little room to respond 655 00:43:47,400 --> 00:43:51,320 Speaker 1: to cut rates and ease policy in response to the slump. 656 00:43:51,360 --> 00:43:53,719 Speaker 1: So we want to make sure that you know, we 657 00:43:53,800 --> 00:43:58,000 Speaker 1: at least average two percent rather than average one and 658 00:43:58,040 --> 00:44:00,480 Speaker 1: a half percent, to give ourselves a little bit more room. 659 00:44:00,480 --> 00:44:04,480 Speaker 1: And I think that's that's the thinking behind the framework 660 00:44:04,520 --> 00:44:07,440 Speaker 1: review that we got from the FED. This uh, this 661 00:44:07,520 --> 00:44:13,319 Speaker 1: summer was full of surprises, and I don't think a 662 00:44:13,360 --> 00:44:17,239 Speaker 1: lot of people had a global pandemic necessarily on on 663 00:44:17,320 --> 00:44:22,480 Speaker 1: their their list of major risks to their economic outlooks 664 00:44:22,520 --> 00:44:25,880 Speaker 1: going into the year. But I'm curious for you what 665 00:44:25,960 --> 00:44:29,400 Speaker 1: was the biggest surprise of the year other than the 666 00:44:29,400 --> 00:44:34,080 Speaker 1: pandemic itself. Yes, like in terms of in terms of 667 00:44:34,120 --> 00:44:36,719 Speaker 1: the economy, the way it reacted to the pandemic, or 668 00:44:36,760 --> 00:44:39,719 Speaker 1: in terms of lessons learned. Well, we we saw a 669 00:44:39,760 --> 00:44:43,839 Speaker 1: pandemic that initially maybe didn't look so different from some 670 00:44:43,880 --> 00:44:47,759 Speaker 1: of the other scares about pandemics and and other pandemics 671 00:44:47,760 --> 00:44:50,560 Speaker 1: that we've seen in previous years, you know, h one 672 00:44:50,840 --> 00:44:54,160 Speaker 1: h one n one um. And I think the fact 673 00:44:54,280 --> 00:44:58,759 Speaker 1: that we had seen a number of scares like this 674 00:44:59,719 --> 00:45:03,400 Speaker 1: with out really large economic effects, at least in the 675 00:45:03,520 --> 00:45:07,680 Speaker 1: in the US, that that added to the surprise of 676 00:45:08,200 --> 00:45:11,680 Speaker 1: just how devastating this pandemic was in terms of the 677 00:45:11,719 --> 00:45:15,400 Speaker 1: impact on the on the economy. Back in January, some 678 00:45:15,520 --> 00:45:18,839 Speaker 1: of the early reports certainly looked scary, and I think 679 00:45:18,880 --> 00:45:23,440 Speaker 1: they looked looked concerning to a lot of a lot 680 00:45:23,480 --> 00:45:28,360 Speaker 1: of economists. But we also all remember that we've we've 681 00:45:28,440 --> 00:45:30,719 Speaker 1: heard some of these warnings before, and in the end, 682 00:45:30,760 --> 00:45:34,040 Speaker 1: at least the economic impact it didn't turn out to 683 00:45:34,040 --> 00:45:37,080 Speaker 1: be that large. So, you know, I do think that's 684 00:45:37,120 --> 00:45:41,479 Speaker 1: a that is a large surprise. I think the other 685 00:45:41,560 --> 00:45:45,839 Speaker 1: thing that that's been remarkable. We've talked a lot about 686 00:45:45,880 --> 00:45:48,360 Speaker 1: the demand side of the economy, but I think on 687 00:45:48,400 --> 00:45:51,160 Speaker 1: the supply side of the economy is you know, how 688 00:45:51,200 --> 00:45:56,359 Speaker 1: adaptable the many structures in the economy really are. If 689 00:45:56,400 --> 00:45:59,480 Speaker 1: you look at, for example, the shift from you know, 690 00:45:59,520 --> 00:46:02,319 Speaker 1: brick and more the retail to online retail. You look 691 00:46:02,360 --> 00:46:06,480 Speaker 1: at the level of US retail sales that we very 692 00:46:06,560 --> 00:46:09,440 Speaker 1: quickly got back to the pre crisis level, even though 693 00:46:09,640 --> 00:46:13,759 Speaker 1: the mode of delivering the goods have have changed dramatically. 694 00:46:14,000 --> 00:46:17,160 Speaker 1: I think the fact that working from home, you know, 695 00:46:17,280 --> 00:46:21,279 Speaker 1: for all its problems and all its disruption in terms 696 00:46:21,280 --> 00:46:25,759 Speaker 1: of individual lives, ultimately you know, worked quite well in 697 00:46:25,840 --> 00:46:28,960 Speaker 1: terms of maintaining output and maintaining productivity and a lot 698 00:46:29,000 --> 00:46:31,560 Speaker 1: of a lot of sectors. I think that's been impressive. 699 00:46:32,280 --> 00:46:34,440 Speaker 1: So so yeah, I mean, I think there there are 700 00:46:34,520 --> 00:46:37,920 Speaker 1: quite a number of surprises, but the but the biggest 701 00:46:37,920 --> 00:46:41,440 Speaker 1: one I think continues to be the pandemic itself. Just 702 00:46:41,600 --> 00:46:44,919 Speaker 1: going back a second, I wanted to clarify one thing 703 00:46:45,920 --> 00:46:50,520 Speaker 1: on inflation. Do you see the FEDS new framework, the 704 00:46:50,560 --> 00:46:56,320 Speaker 1: average Inflation Targeting framework, as being a meaningful change going forward. 705 00:46:56,480 --> 00:46:59,560 Speaker 1: Is this is this regime change or is it a 706 00:46:59,640 --> 00:47:03,480 Speaker 1: slight technical tweak that ultimately won't matter much? And do 707 00:47:03,600 --> 00:47:06,440 Speaker 1: you think what are these sort of knock on effects 708 00:47:06,640 --> 00:47:11,400 Speaker 1: if they adear by this approach of essentially not snuffing 709 00:47:11,400 --> 00:47:14,000 Speaker 1: out inflation too soon and actually trying to get into 710 00:47:14,040 --> 00:47:17,399 Speaker 1: average around two percent rather than a two ceiling. It's 711 00:47:17,400 --> 00:47:20,600 Speaker 1: a good question. I mean, I think you could say 712 00:47:20,880 --> 00:47:27,440 Speaker 1: it's a very significant change because you apply the same 713 00:47:27,440 --> 00:47:32,400 Speaker 1: framework to the prior cycle and you probably would have 714 00:47:32,480 --> 00:47:38,520 Speaker 1: gotten quite a bit less interest rate UH increases. Then 715 00:47:38,880 --> 00:47:42,360 Speaker 1: then then you ended up getting probably UH wouldn't have 716 00:47:42,400 --> 00:47:46,040 Speaker 1: gotten a hike in in two thousand and fifteen, and 717 00:47:47,520 --> 00:47:51,960 Speaker 1: only a much smaller number of hikes than just nine hikes. 718 00:47:52,000 --> 00:47:59,000 Speaker 1: But subsequently, so I do think that there was a UH, 719 00:47:59,239 --> 00:48:02,880 Speaker 1: there's been a signific can change from that perspective. On 720 00:48:02,920 --> 00:48:06,840 Speaker 1: the other hand, I don't think that they're going to 721 00:48:06,840 --> 00:48:10,080 Speaker 1: be willing to tolerate much higher inflation than than they 722 00:48:10,120 --> 00:48:13,080 Speaker 1: did in the previous regime. I mean, I do think 723 00:48:13,080 --> 00:48:15,640 Speaker 1: it's a it's sort of a fifty basis point kind 724 00:48:15,640 --> 00:48:18,040 Speaker 1: of shift, and you you had one and a half 725 00:48:18,080 --> 00:48:21,280 Speaker 1: percent on average from one point six percent on average 726 00:48:21,280 --> 00:48:24,200 Speaker 1: in the twenty years before the regime shift. I think 727 00:48:24,239 --> 00:48:28,759 Speaker 1: we'll be at two percent or so. I don't think 728 00:48:28,800 --> 00:48:31,799 Speaker 1: the average is going to drift higher to two and 729 00:48:31,800 --> 00:48:36,360 Speaker 1: a half percent or or two or three percent UM. 730 00:48:36,440 --> 00:48:41,160 Speaker 1: So from that perspective, I don't think the implications are 731 00:48:41,239 --> 00:48:44,280 Speaker 1: so at allmos So. I guess the short run impact 732 00:48:44,440 --> 00:48:49,440 Speaker 1: on any individual cycle, especially any backcast of an individual cycle, 733 00:48:50,239 --> 00:48:54,560 Speaker 1: for for monetary policy, those changes could look pretty significant. 734 00:48:54,920 --> 00:48:56,840 Speaker 1: But in the long term, I don't think the massive 735 00:48:56,840 --> 00:49:01,040 Speaker 1: reteam You know, you are a sort of adherent of 736 00:49:01,080 --> 00:49:05,000 Speaker 1: the work of Win Godly, whose sectoral balances framework which 737 00:49:05,000 --> 00:49:07,560 Speaker 1: we talked about, is sort of one of the pillars 738 00:49:07,600 --> 00:49:10,279 Speaker 1: I guess you could say, of the MMT view of 739 00:49:10,320 --> 00:49:13,120 Speaker 1: the economy. And sometimes there are articles about m m 740 00:49:13,200 --> 00:49:16,279 Speaker 1: T and you're often cited as a sympathist, one of 741 00:49:16,280 --> 00:49:20,040 Speaker 1: the sympathists on Wall Street. So I'm curious like your 742 00:49:20,160 --> 00:49:22,879 Speaker 1: take on this sort of framework and whether you think 743 00:49:22,920 --> 00:49:25,759 Speaker 1: it sort of pushes us in the right direction in 744 00:49:25,840 --> 00:49:30,960 Speaker 1: terms of understanding the economy and um policy responses, Like 745 00:49:30,960 --> 00:49:33,520 Speaker 1: what your view on it is Yeah. I try to 746 00:49:33,560 --> 00:49:36,759 Speaker 1: be sort of eclectic in terms of what, you know, 747 00:49:36,800 --> 00:49:40,319 Speaker 1: what we find useful. And I do think that when 748 00:49:40,320 --> 00:49:45,680 Speaker 1: you're in a slump, you know, often aggressive stimulus too, 749 00:49:47,000 --> 00:49:49,359 Speaker 1: you know, in order to combat that slump, both from 750 00:49:49,400 --> 00:49:53,160 Speaker 1: the monetary and the and the fiscal side, and less 751 00:49:53,200 --> 00:49:57,040 Speaker 1: worry about government deficits in the in the short term. 752 00:49:57,120 --> 00:50:00,080 Speaker 1: I think that's that's often the right policy response. And 753 00:50:00,200 --> 00:50:03,440 Speaker 1: I think that is uh, you know, from that perspective, 754 00:50:03,480 --> 00:50:07,279 Speaker 1: maybe maybe related to the m m T prescriptions. I 755 00:50:07,400 --> 00:50:11,160 Speaker 1: also think though that when you're you know, when you're 756 00:50:11,239 --> 00:50:16,840 Speaker 1: in a strong economy, back to full employment and in 757 00:50:16,920 --> 00:50:21,040 Speaker 1: the center banks inflation target, that the policy prescription has 758 00:50:21,120 --> 00:50:26,040 Speaker 1: changed pretty pretty significantly. While I certainly agree that a 759 00:50:26,160 --> 00:50:29,840 Speaker 1: government can't you know, technically go go bankrupt, you know, 760 00:50:30,000 --> 00:50:32,560 Speaker 1: the central bank buys buys the debt, I think the 761 00:50:32,640 --> 00:50:36,759 Speaker 1: right policy prescriptions in in the full employment economy are 762 00:50:36,760 --> 00:50:40,080 Speaker 1: going to look quite different from the MMT prescription. So 763 00:50:40,520 --> 00:50:42,840 Speaker 1: in my view, it really depends on the on the 764 00:50:42,920 --> 00:50:46,320 Speaker 1: situation you're in, and then I would say on the 765 00:50:46,800 --> 00:50:50,840 Speaker 1: private sector financial balance and the sector of balance as approach, 766 00:50:51,080 --> 00:50:55,040 Speaker 1: I do find that quite useful in a number of respects, 767 00:50:55,120 --> 00:51:00,360 Speaker 1: but I wouldn't necessarily put any particular label on all go. 768 00:51:00,440 --> 00:51:04,279 Speaker 1: I'm always very happy to give wind godly credit for 769 00:51:05,200 --> 00:51:08,560 Speaker 1: pushing the strength so much and directing our attention to 770 00:51:08,680 --> 00:51:13,719 Speaker 1: it in the in the past. All right, well, yeah, 771 00:51:14,560 --> 00:51:17,680 Speaker 1: thank you so much for joining us. A real treat 772 00:51:17,760 --> 00:51:20,239 Speaker 1: and pleasure to get so much of your time and 773 00:51:21,239 --> 00:51:24,239 Speaker 1: looking forward to uh reading further your work and see 774 00:51:24,239 --> 00:51:28,400 Speaker 1: what store. Thank you so much, Joan, Thank you, Tracy. 775 00:51:29,760 --> 00:52:02,000 Speaker 1: That was great. Yeah, and thank you so much, Tracy. 776 00:52:02,080 --> 00:52:05,320 Speaker 1: I always like talking to Jan. I was like reading 777 00:52:05,400 --> 00:52:10,120 Speaker 1: Jan and like I said, it really was him more 778 00:52:10,160 --> 00:52:14,120 Speaker 1: than anyone else who're back in the spring. His identification 779 00:52:14,200 --> 00:52:17,800 Speaker 1: of the power of sort of filth replacing lost income 780 00:52:17,840 --> 00:52:19,719 Speaker 1: and how big of a deal that would be. That 781 00:52:19,880 --> 00:52:21,960 Speaker 1: sort of helped me see that's like this is not 782 00:52:22,040 --> 00:52:26,839 Speaker 1: exactly going to be like two thousand and eight. Two yeah. Um, 783 00:52:26,840 --> 00:52:28,600 Speaker 1: And let me just add I'm so glad that we 784 00:52:28,600 --> 00:52:32,359 Speaker 1: can round out the year with talking about sectoral balances 785 00:52:32,400 --> 00:52:36,359 Speaker 1: and the wind Gollic framework. Excellent to do that. That's 786 00:52:36,800 --> 00:52:41,960 Speaker 1: that's that's facetious. Now. I'm very happy for you, Joe 787 00:52:42,040 --> 00:52:46,399 Speaker 1: that you made that happen. Um, But just going back 788 00:52:46,400 --> 00:52:50,759 Speaker 1: to the hatsies his framework of the crisis. Like, I 789 00:52:50,800 --> 00:52:55,000 Speaker 1: do think he's absolutely right that this crisis is incredibly 790 00:52:55,360 --> 00:52:58,359 Speaker 1: unusual and we haven't really seen anything like it in 791 00:52:58,680 --> 00:53:03,319 Speaker 1: Uh well, I guess all of sort of financial market history. Um. 792 00:53:03,400 --> 00:53:07,640 Speaker 1: But in many ways it's this government induced crisis because 793 00:53:07,760 --> 00:53:12,000 Speaker 1: the lockdowns are being mandated by public health authorities, and 794 00:53:12,040 --> 00:53:17,200 Speaker 1: in many ways it's also a government solved crisis, possibly 795 00:53:17,239 --> 00:53:20,680 Speaker 1: precisely because of that. So we've seen the FED come 796 00:53:20,760 --> 00:53:24,759 Speaker 1: in and politicians in d C come in and offer 797 00:53:24,840 --> 00:53:28,640 Speaker 1: either monetary easing or some sort of fiscal stimulus, and 798 00:53:29,080 --> 00:53:32,680 Speaker 1: so far it has had a fairly enormous effect. And 799 00:53:32,719 --> 00:53:38,280 Speaker 1: that's had I guess that's had the consequence of compressing 800 00:53:38,560 --> 00:53:42,960 Speaker 1: the entire recession into a much shorter cycle than it 801 00:53:43,000 --> 00:53:45,520 Speaker 1: would be otherwise, and certainly a much shorter cycle than 802 00:53:45,560 --> 00:53:48,919 Speaker 1: what we saw in two thousand eight. It's very controversiary. 803 00:53:48,920 --> 00:53:51,120 Speaker 1: You said this was a government induced crisis. I mean, 804 00:53:51,160 --> 00:53:54,239 Speaker 1: I'm sure the lockdowns have had a significant effect, but 805 00:53:54,320 --> 00:53:58,080 Speaker 1: also the sort of inclination to just avoid getting the 806 00:53:58,160 --> 00:54:03,000 Speaker 1: virus uh also pretty big. Yeah. I mean I think 807 00:54:03,040 --> 00:54:05,719 Speaker 1: you could debate that there, but I would look, I'm 808 00:54:05,760 --> 00:54:07,960 Speaker 1: in Hong Kong, and I'm close to the mainland, and 809 00:54:08,000 --> 00:54:10,560 Speaker 1: I'm close to China, and so maybe that colors some 810 00:54:10,640 --> 00:54:14,520 Speaker 1: of my perspective, But I would say like authorities kind 811 00:54:14,520 --> 00:54:18,040 Speaker 1: of chose to shut down vast suites of the economy, 812 00:54:18,120 --> 00:54:21,560 Speaker 1: certainly in the US. And anyway, let's not get into that. 813 00:54:21,640 --> 00:54:24,440 Speaker 1: Let's talk about the economy and m m T. You 814 00:54:24,480 --> 00:54:26,839 Speaker 1: know what, No, I know. I I do think like 815 00:54:27,560 --> 00:54:32,239 Speaker 1: this sort of question of when are we particularly vulnerable 816 00:54:32,480 --> 00:54:35,040 Speaker 1: is like a huge thing to think about now and 817 00:54:35,080 --> 00:54:39,040 Speaker 1: also the future of being. It is probably the peak 818 00:54:39,960 --> 00:54:43,960 Speaker 1: optimism about just the economy and prosperity and everything seemed 819 00:54:44,040 --> 00:54:46,480 Speaker 1: really good in a way that I don't think we've 820 00:54:46,520 --> 00:54:51,160 Speaker 1: felt um in since then. But that was when the 821 00:54:51,200 --> 00:54:56,600 Speaker 1: private sector started running this deficit and people spending more 822 00:54:56,640 --> 00:54:59,720 Speaker 1: than they earned, in part due to the wealth effect. 823 00:54:59,760 --> 00:55:03,120 Speaker 1: Per ups of the dot com bubble also saw that 824 00:55:03,280 --> 00:55:05,879 Speaker 1: again in two thousand five, two six, I think two 825 00:55:05,880 --> 00:55:09,880 Speaker 1: thousand seven, um at the peak of the housing crash. 826 00:55:10,000 --> 00:55:12,799 Speaker 1: And then you look now and you see, okay, how 827 00:55:13,000 --> 00:55:16,040 Speaker 1: household balance sheets and aggregate were in good shape going 828 00:55:16,120 --> 00:55:20,360 Speaker 1: into the crisis. In aggregate, they actually look better today 829 00:55:20,520 --> 00:55:23,799 Speaker 1: than they did at the start of the year due 830 00:55:23,840 --> 00:55:26,759 Speaker 1: to all the savings and so you know, there is 831 00:55:26,760 --> 00:55:29,600 Speaker 1: a good reason to think that, um, we do have 832 00:55:29,719 --> 00:55:34,080 Speaker 1: this potential cushion of stability that could prove to be 833 00:55:34,080 --> 00:55:37,399 Speaker 1: a real benefit in the coming years. Yeah. And also 834 00:55:37,560 --> 00:55:41,239 Speaker 1: just the idea that household balance sheets look better now 835 00:55:41,280 --> 00:55:44,040 Speaker 1: than they did at the start of I don't think 836 00:55:44,080 --> 00:55:47,799 Speaker 1: anyone would have expected that in March of this year. Um. 837 00:55:48,080 --> 00:55:51,280 Speaker 1: And it just goes to show you how unexpected certain 838 00:55:51,320 --> 00:55:56,560 Speaker 1: economic developments have actually been. Yeah. Absolutely, I mean I 839 00:55:56,560 --> 00:55:59,960 Speaker 1: don't think for all the sort of modeling you can 840 00:56:00,080 --> 00:56:03,239 Speaker 1: do about Okay, if you spend this much money, then 841 00:56:03,280 --> 00:56:06,160 Speaker 1: that replaces this last income and so forth. I don't 842 00:56:06,160 --> 00:56:11,520 Speaker 1: think anyone could really, um, really have it predicted that 843 00:56:11,560 --> 00:56:15,320 Speaker 1: we this is where we'd be in mid December. No, 844 00:56:15,520 --> 00:56:18,759 Speaker 1: and we should definitely have you on back on at 845 00:56:18,760 --> 00:56:21,160 Speaker 1: the end of next year and see how everything panned out. 846 00:56:21,200 --> 00:56:24,560 Speaker 1: I think that would be an interesting conversation. But for now, 847 00:56:24,840 --> 00:56:27,640 Speaker 1: shall we leave it there. Yeah, I like that idea. 848 00:56:27,719 --> 00:56:32,080 Speaker 1: That's an annual December end of year Christmas conversation at 849 00:56:32,160 --> 00:56:35,480 Speaker 1: Christmas time conversation with sounds good. But yeah, let's leave 850 00:56:35,480 --> 00:56:38,600 Speaker 1: it there. Okay, this has been another episode of the 851 00:56:38,640 --> 00:56:41,440 Speaker 1: All Thoughts podcast. I'm Tracy Alloway. You can follow me 852 00:56:41,600 --> 00:56:45,319 Speaker 1: on Twitter at Tracy Alloway and I'm Joe wi Isn't though. 853 00:56:45,360 --> 00:56:48,600 Speaker 1: You could follow me on Twitter at the Stalwart. Follow 854 00:56:48,640 --> 00:56:53,040 Speaker 1: our producer Laura Carlson. She's at Laura and Carlson. Followed 855 00:56:53,040 --> 00:56:56,760 Speaker 1: the Bloomberg head of podcast, Francesca Levi at Francesca Today, 856 00:56:56,960 --> 00:57:00,320 Speaker 1: and check out all of our podcasts under the handle 857 00:57:00,640 --> 00:57:02,480 Speaker 1: at podcasts. Thanks for listening.